<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1998
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
GANTOS, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 33-1414122
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1266 EAST MAIN STREET, 5TH FLOOR
STAMFORD, CONNECTICUT 06902
(203) 358-0294
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ARLENE STERN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GANTOS, INC.
1266 EAST MAIN STREET, 5TH FLOOR
STAMFORD, CONNECTICUT 06902
(203) 358-0294
(Name, address, including zip code, and telephone number, include area code,
of agent for service)
____________________
COPIES TO:
CHARLES I. WEISSMAN, ESQ.
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
919 THIRD AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
(212) 891-9268
TELECOPIER NO.: (212) 758-9526
______________________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective supplement filed pursuant to Rule 462(c)
under the Securities Act. check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
Title of each Proposed maximum Proposed maximum
class of securities Amount to offering aggregate Amount of
to be registered be registered price per share(1) offering price registration fee
------------------- ------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Common Shares,
par value
$.01 per share 375,000 shares $0.671875 $251,953.13 $70.04
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act of 1933, as
amended. Based on the average of the high and low sale prices of the
Common Shares as reported by the Nasdaq National Market on December 3,
1998.
- -------------------------------------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
2
<PAGE>
PROSPECTUS
375,000 COMMON SHARES
GANTOS, INC.
We are furnishing this document to you to allow the selling shareholders
named in this document to sell up to 375,000 Common Shares, par value $.01 per
share, of Gantos, Inc., a Michigan corporation, in private or market
transactions. Gantos will not receive any proceeds from the sale of these
Common Shares, although it will receive proceeds from the exercise of warrants
by the selling shareholders to acquire the common shares they are selling. See
"The Offering" on page 2 and "Selling Shareholders" on page 9.
The Common Shares are quoted on the Nasdaq National Market under the symbol
"GTOS". On December 3, 1998, the closing bid price was $0.625 per Common Share.
All costs, expenses and fees in connection with the registration of the
Common Shares will be paid by Gantos, except that each selling shareholder will
pay its own selling commissions and fees. See "Plan of Distribution" on page
10.
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION, BEGINNING ON PAGE
4, WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH THESE SECURITIES, TOGETHER
WITH THIS DOCUMENT, BEFORE YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this document is ______________ , 199_
<PAGE>
GANTOS, INC.
Gantos sells a full range of quality, fashionable women's apparel and
accessories at moderate to upper moderate prices. As of October 31, 1998,
Gantos operated 115 stores averaging 7,800 square feet, in 23 states, located
primarily in suburban malls in the West, Midwest and Northeast. Gantos products
include private label and name brand sportswear, career dresses and suits,
social occasion dresses, accessories, outerwear, swimwear and, in some stores,
shoes.
Gantos is a Michigan corporation incorporated on November 10, 1952 as a
successor to a business founded in 1932. The principal executive offices of
Gantos are located at 1266 East Main Street, 5th Floor, Stamford, Connecticut
06902, and the telephone number is (203) 358-0294.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by Gantos . . . . . . . . . . . . . None
Securities Offered by the Selling Shareholders. . . . . 375,000 Common Shares
Common Shares Outstanding as of October 31, 1998 . . . 7,670,027 Common Shares (1)
Nasdaq Symbol for Common Shares . . . . . . . . . . . . GTOS
Use of Proceeds . . . . . . . . . . . . . . . . . . . . Gantos will not receive any proceeds
from the sale of Common Shares by
the selling shareholders. All of
the proceeds from the sale of Common
Shares offered by this document will
be received by the selling
shareholders.
</TABLE>
(1) Does not include Common Shares issuable upon exercise of options or
warrants.
2
<PAGE>
RECENT DEVELOPMENTS
On November 20, 1998, Gantos issued a press release reporting its third
quarter results. Gantos' net loss for the thirteen weeks ended October 31,
1998 (excluding certain nonrecurring costs, discussed below) decreased to
$2.7 million, or $(0.36) per share, compared to a net loss of $3.4 million,
or $(0.45) per share, for the same period in fiscal 1997. Gantos' operating
loss (excluding interest) for the thirteen weeks ended October 31, 1998
decreased to $1.4 million, compared to operating income of $2.8 million for
the same period in fiscal 1997. Net sales for the thirteen weeks ended
October 31, 1998 were $35.4 million compared to $35.5 million for the same
period in fiscal 1997.
Gantos' net loss for the thirty-nine weeks ended October 31, 1998
(excluding certain nonrecurring costs, discussed below) increased to $8.4
million, or $(1.11) per share, compared to a net loss of $6.6 million, or
$(0.88) per share, for the same period in fiscal 1997. Net sales for the
thirty-nine weeks ended October 31, 1998 were $106.3 million, a decrease of
9% from $116.9 million in the same period in fiscal 1997.
For the thirteen weeks ended October 31, 1998, Gantos incurred
nonrecurring charges of $0.5 million related to extensions of Fleet Bank
financing arrangements and $0.8 million for merger-related expenses with
respect to the now-terminated Hit or Miss merger. Including these charges,
Gantos' net loss for the thirteen week period ended October 31, 1998 was $4.0
million, or $(0.52) per share, and its net loss for the thirty-nine week
period ended October 31, 1998 was $9.7 million, or $(1.27) per share.
Gantos also announced in the November 20, 1998 press release that it had
consummated the refinancing of its working capital facilities into a three
year $40 million facility with Foothill Capital Corporation and Paragon
Capital LLC. The Foothill/Paragon facility replaced Gantos' $40 million
facility with Fleet Bank.
Gantos further announced that it had restructured approximately $1.1
million of principal payments under Gantos' indenture with noteholders
constituting approximately 96% of the aggregate outstanding principal amount
of the notes. These noteholders constitute the selling shareholders. The
noteholders have agreed to postpone the payment of approximately $740,000 in
principal regularly scheduled for July 1, 1998 and previously postponed to
November 15, 1998 until May 1, 1999 and to postpone the payment of
approximately $370,000 in principal due on January 1, 1999 until February 15,
1999. In consideration for the postponements, Gantos repriced the exercise
price of five-year warrants to purchase 150,000 common shares issued to such
noteholders from $1.625 to $0.75 per share and issued five-year warrants to
purchase 225,000 common shares to such noteholders with an exercise price of
$.01 per share. Gantos also agreed to register the resale of the underlying
Common Shares.
3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER
INFORMATION IN THIS DOCUMENT BEFORE YOU MAKE YOUR DECISION WHETHER TO BECOME
A GANTOS SHAREHOLDER.
HISTORY OF OPERATING LOSSES;
DECLINING SALES; GOING CONCERN ISSUES.. Our net operating income was $4.3
million in fiscal 1996, our net
operating loss was $9.2 million in
fiscal 1997 and our net operating loss
was $4.0 million in the first two
quarters of fiscal 1998. Our net sales
declined from $192.8 million in fiscal
1995 to $184.4 million in fiscal 1996 to
$162.0 million in fiscal 1997. We
emerged from Chapter 11 bankruptcy
proceedings in March 1995. We will not
be profitable in fiscal 1998. The
report of our independent auditors with
respect to our financial statements for
fiscal 1997 explained that we may not be
able to continue as a going concern.
CURRENT INDEBTEDNESS................... We have a borrowing agreement with
Foothill Capital Corporation expiring
November 18, 2001 (the "Foothill
Facility"). The Foothill Facility
provides us with revolving credit loans
and letters of credit up to $40.0
million, subject to a borrowing base
formula and lender reserves. The
Foothill Facility contains covenants
with respect to:
- additional indebtedness
- liens
- restrictions on significant changes
- investments
- capital expenditures
- minimum retail performance standards
- minimum earnings before interest,
taxes, depreciation and amortization
- prohibitions on paying cash dividends
We have also issued notes bearing
interest at 12-3/4% pursuant to an
Indenture. The notes are payable in 16
quarterly installments of approximately
$775,000 beginning July 1, 1997, subject
to prepayment under certain
circumstances which are not likely to
occur in the future. In December 1997
and effective June 30, 1998, we amended
the Indenture to cure potential defaults
under the Indenture. We also deleted
covenants concerning capital
expenditures, earnings before interest,
taxes, depreciation and amortization,
and interest coverage ratios from the
Indenture. The remaining net worth
covenant requires us to maintain a
minimum net worth of $4.5 million at the
end of each quarter through the third
quarter of fiscal 2000 and
4
<PAGE>
$6.0 million at the end of each quarter
beginning with the fourth quarter of
fiscal 2000. As of August 1, 1998,
Gantos' net worth was approximately
$16.0 million. The Indenture, as
amended, contains covenants with
respect to:
- additional indebtedness
- minimum net worth
- prohibitions on paying dividends
As of October 31, 1998, approximately
$6.2 million in principal amount of
notes were outstanding under the
Indenture. Holders of approximately 96%
of the notes underlying the Indenture
(constituting the selling shareholders)
have agreed to postpone payment of their
regularly scheduled July 1, 1998 payment
of principal, totaling approximately
$740,000, until May 1, 1999 and have
agreed to postpone payment of 50% of
their regularly scheduled January 1,
1999 payment of principal, totaling
approximately $370,000, until February
15, 1999. We issued such holders
five-year warrants to purchase 150,000
Common Shares at an exercise price of
$1.625 per share (since amended to
$0.75 per share) and five-year warrants
to purchase 225,000 Common Shares at an
exercise price of $0.01 per share for
their postponements. If our
"availability" under the Foothill
Facility, trade credit or sales are
lower than expected, or if our borrowing
requirements or liquidity needs are
higher than expected, we could have
insufficient access to cash to continue
our current operations, our business
could suffer greatly and we could be
required to substantially reduce or
discontinue our operations.
RISKS OF HIGH LEVERAGE................. As of August 1, 1998, we had a long-term
debt-to-equity ratio of 2.0 to 1. This
high level of debt could limit our
ability to obtain additional capital
investments or to take advantage of
business opportunities and could leave
us vulnerable to economic and industry
downturns. If we are unable to generate
sufficient cash to service our debt
payment obligations, our business could
suffer greatly and we could be required
to file for bankruptcy and/or
substantially reduce or discontinue our
operations.
SENSITIVITY OF GANTOS TO APPAREL
RETAILING CYCLES, ECONOMIC CONDITIONS
AND CONSUMER SPENDING.................. Our business is cyclical and depends on
the overall level of consumer spending.
If customers have low or declining
disposable income, our business could
suffer. We are also affected by
unfavorable local, regional or national
economic conditions. We are
5
<PAGE>
especially affected by economic
conditions in the Midwest, where
approximately 48% of our stores are
located.
EFFECTS OF FAILURE TO ANTICIPATE
CHANGES IN FASHION TRENDS............. Our success depends on being able to
anticipate and respond to changing
fashion trends and consumer preferences.
Our failure to anticipate, identify and
respond to changing fashion trends could
cause our business to suffer. In
addition, fashion misjudgements could
cause our image with our customers to
suffer, and could cause our business to
suffer.
FLUCTUATIONS IN OUR BUSINESS.......... Our business may fluctuate from period
to period due to:
- changes in merchandising strategy
- timing of promotions
- adverse weather conditions
- shifts in timing of certain holidays
- prevailing economic conditions
- changes in merchandise trends
- ability to obtain merchandise
- timing and concentration of store
openings
Our business can be measured on the
basis of comparable store sales between
periods. Declining or fluctuating same
store sales could cause our business to
suffer.
SEASONALITY............................ Our business is highly seasonal. We
generate our highest level of sales
during the Christmas and spring seasons.
Our working capital and cash demands are
seasonal, rising in the fall when
inventories are being increased for the
Christmas and spring seasons. Our
profitability depends on the sales
generated during the Christmas and
spring seasons. Any shortfall in sales
or operating results during these
seasons would cause our business to
suffer disproportionately to the other
seasons.
COMPETITION........................... The women's retail apparel industry is
highly competitive and includes national
and regional women's apparel speciality
stores, national and regional department
and chain stores, off-price apparel
stores, catalog operations and factory
outlet stores. Many of our competitors
are considerably larger, with similar
lines of merchandise and comparable
locations, and have greater financial
and other resources.
6
<PAGE>
DIFFICULTY OF OBTAINING MERCHANDISE;
RELATIONSHIP WITH SUPPLIERS............ We purchase all of our products directly
from manufacturers. No manufacturer
accounted for more than 10% of our
purchases during any of the last
three fiscal years. We do not
maintain any long-term or exclusive
commitments or arrangements to
purchase from any manufacturer. We
have had difficulty recently
obtaining merchandise without
pre-paying for it. If we continue to
be unable to obtain adequate supplies
of merchandise, our business will
suffer.
MAINTENANCE OF STORE LOCATIONS........ An important part of our business is
finding and keeping profitable store
locations. Our stores are primarily
located in enclosed regional shopping
malls. Our sales are derived, in part,
from the volume of traffic in such
malls. Our business may suffer based on
economic downturns in a particular area,
competition from non-mall retailers and
other malls, the closing of anchor
department stores, and declines in the
desirability of the shopping environment
in a particular mall or strip shopping
center. In addition, our failure to
maintain existing store locations or to
find acceptable alternative locations
could cause our business to suffer.
RETENTION OF KEY EMPLOYEES............. The retention of our key employees is
critical to ensure continued sales,
support and merchandising efforts.
There can be no assurance that we will
be able to retain our key sales, support
or merchandising personnel in the
future.
VOLATILITY OF STOCK PRICE.............. The market value of Common Shares in the
future may be higher or lower than the
price of the Common Shares on the date
of this document.
POSSIBLE DELISTING OF THE COMMON
SHARES FROM THE NASDAQ NATIONAL MARKET. We have received notice from the Nasdaq
Stock Market that the Common Shares may
be delisted from the Nasdaq Stock
Market, based on its current sub-$1.00
stock price. If delisted, the Common
Shares would likely be quoted on the OTC
Bulletin Board. Any delisting could
cause the market price of the Common
Shares to decline and could make it much
more difficult to buy or sell Common
Shares on the open market.
If our Common Shares are delisted from
the Nasdaq Stock Market and they trade
for less than $5.00 per share,
broker/dealers who recommend our shares
would be subject to additional
disclosure and sales practice
requirements which could severely limit
the
7
<PAGE>
liquidity of our Common Shares. In
addition, sales of our Common Shares in
this offering would become subject to
state securities or "blue sky" laws
requiring Gantos to register such
sales or to obtain an exemption
before such sales may be made.
DIVIDENDS UNLIKELY.................... We do not currently pay cash dividends,
and we do not expect to pay any
dividends in the near future. We are
prohibited from paying dividends under
the Foothill Facility.
ANTI-TAKEOVER PROVISIONS.............. Our charter documents and Michigan
corporation law contain anti-takeover
provisions. These provisions could
delay or prevent a change in control of
Gantos. One of these provisions allows
us to issue preferred shares with rights
and preferences determined by the Gantos
Board of Directors or additional Common
Shares. No preferred shares are
outstanding as of the date of this
document. Other anti-takeover
provisions include the following:
- prohibitions on written consents by
a majority of shareholders without
the prior approval of the matter by
the Gantos Board of Directors
- requirements for three classes of
directors serving staggered three-
year terms
- prohibitions on removing directors
without cause
- requirements for shareholder
nominations for directors of Gantos
to comply with specified timing and
information requirements.
Michigan law contains provisions
regulating attempts to acquire control
of Gantos.
YEAR 2000 COMPLIANCE.................. Many currently installed computer
systems and software products are coded
to accept only two digit entries in the
date code field. To distinguish 21st
century dates from 20th century dates,
these date code fields must be able to
accept four digit entries. We have
evaluated our management information
systems for Year 2000 compliance. We do
not anticipate that the cost to modify
our management information systems to
become Year 2000 compliant will be a
substantial amount. We do not expect
any disruption in our operations as a
result of any failure to be in
compliance. Any unanticipated or
undiscovered Year 2000 compliance
problems could cause our business to
suffer.
8
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
selling shareholders as of the dates set forth below. Gantos will not receive
any proceeds from the sale of any Common Shares by the selling shareholders.
<TABLE>
<CAPTION>
Beneficial Ownership of
Beneficial Common Shares After
Name of Ownership of Common Shares of Giving Effect to
Selling Shareholder Common Shares Offered for Sale (5) Proposed Sale (6)
------------------- ------------- -------------------- -----------------
<S> <C> <C> <C>
Elliott Associates, L.P. (1) 309,475 227,475 82,000
NBD Bank (2) 434,727 94,157 340,570
Gordian Group, L.P. (3) 10,582 10,582 0
Cardinal Recovery Partners (4) 266,700 41,212 225,488
Argyle, L.T.D. (4) 8,839 1,574 7,265
----------------- --------------------- -------------------
Total 1,030,323 375,000 655,323
----------------- --------------------- -------------------
----------------- --------------------- -------------------
</TABLE>
__________
(1) Information is as of December 4, 1998. The Common Shares to be owned by
Elliott Associates, L.P., after giving effect to the proposed sale, will
represent 1.0% of the outstanding Common Shares, based on the number of
Common Shares outstanding as of October 31, 1998.
(2) Information is as of December 3, 1998. The Common Shares to be owned by
NBD Bank, after giving effect to the proposed sale, will represent 4.2% of
the outstanding Common Shares, based on the number of Common Shares
outstanding as of October 31, 1998.
(3) Information is as of December 3, 1998.
(4) Information is as of November 18, 1998. Hannah H. Strasser, a director of
Gantos, is co-head of the high yield group, responsible for portfolio
management and research, and a 45% general partner of Cardinal Capital
Management LLC. Cardinal Capital Management LLC is the general partner of
Cardinal Recovery Partners and is the investment adviser for Argyle, L.T.D.
The Common Shares to be owned by Cardinal Recovery Partners, after giving
effect to the proposed sale, will represent 2.8% of the outstanding Common
Shares, based on the number of Common Shares outstanding as of October 31,
1998.
(5) Of these common shares, 40% represent Common Shares issuable upon exercise
of warrants with an exercise prices of $0.75 and 60% represent Common
Shares issuable upon exercise of warrants with an exercise price of $0.01.
(6) Assumes all registered Common Shares are sold.
9
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders may sell their Common Shares from time to time.
The 375,000 Common Shares being sold hereby may be offered to purchasers
by any means permitted by the Securities Act directly by any of the selling
shareholders or through underwriters, brokers, dealers or agents from time to
time in one or more of the following types of transactions: (a) block trades
in which the broker or dealer will attempt to sell the securities as agent
but may position and resell a portion of the block as principal to facilitate
the transaction, (b) purchases by a broker or dealer as principal for resale
by such broker or dealer for its account, (c) ordinary brokerage transactions
and transaction in which the broker solicits purchasers, (d) privately
negotiated transactions and (e) short sales. Such transactions may occur (i)
in the over-the-counter market, (ii) other than in the over-the-counter
market, (iii) through the writing of options (whether such options are listed
on an options exchange or otherwise). Any such transactions may be at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at
negotiated or fixed prices, in each case as determined by the selling
shareholders and such underwriters, brokers, dealers or agents or purchasers.
If the selling shareholders effect such transactions by selling shares to or
through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers, or agents may receive compensation in the form of discounts,
concessions or commissions from the selling shareholders and/or the
purchasers of securities for whom they may act as agent (which discounts,
concessions or commission as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling shareholders and any dealers or agents that
participate in the distribution of securities offered hereby may be deemed to
be underwriters, and any profit on the sale of such securities by them and
any discounts, commissions, or concessions received by any such dealers or
agents might be deemed to underwriting discounts and commissions under the
Securities Act.
The securities offered hereby may be sold pursuant to this document or
pursuant to an available exemption from the registration requirements of the
Securities Act, such as the provisions of Rule 144 promulgated under the
Securities Act, to the extent applicable. Under the securities law of
certain states, the securities offered hereby may be sold in such states only
through registered or licensed brokers or dealers. In addition, if the
Common Shares are delisted from the Nasdaq National Market, in certain states
it is possible that the securities may not be sold unless the securities have
been registered or qualified for sale in such state or an exemption from
registration of qualification is available and is complied with.
Gantos has agreed to maintain the effectiveness of the registration of
the securities offered hereby until the earlier of the date upon which all of
the securities offered hereby have been sold without restriction on resale,
or the date on which the securities offered hereby, in the opinion of counsel
to Gantos, may be immediately sold by the selling shareholders without
registration or restriction on resale. There can be no assurance that the
selling shareholders will sell any or all of the securities offered hereby.
Gantos will pay substantially all of the expenses incident to this
offering, other than commissions and certain fees of others employed by a
selling shareholder. Gantos will not receive any of the proceeds from the
sale of any of the Common Shares by the selling shareholders.
Each selling shareholder will be subject to applicable provisions, if
any, of the Exchange Act and rules and regulations thereunder, including
those provisions which limit the timing of purchases and sales of any of the
securities by the selling shareholders. All of the foregoing may affect the
marketability of the securities.
10
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Gantos (File No. 000-14577) is subject to the informational reporting
requirements of the Exchange Act and, in accordance therewith, files reports
(including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K), proxy statements and other information with the
SEC. You may read and copy any materials filed by Gantos with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the SEC. The address of the SEC's Web site is http://www.sec.gov.
This document does not contain all the information set forth in the
Registration Statement on Form S-3 and the exhibits thereto, including any
amendments thereto, of which this document is a part, and which Gantos has
filed with the SEC under the Securities Act. Reference is made to such
Registration Statement for further information with respect to Gantos and the
Common Shares offered hereby.
Statements contained herein or incorporated herein by reference
concerning the provisions of documents are summaries of such documents and
each statement is qualified in its entirety by reference to the copy of the
applicable document if filed with the SEC.
No person is authorized to give any information or to make any
representation with respect to the matters described in this document other
than those contained herein or in the documents incorporated by reference
herein and, if given or made, such information or representation must not be
relied upon as having been authorized by Gantos. This document does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered hereby, in any jurisdiction in which, or to any person to
whom, it is unlawful to make such offer or solicitation of an offer. Neither
the delivery of this document nor any sale made hereby shall, under any
circumstances, create any implication that there has been no change in the
affairs of Gantos since the date hereof, or that the information herein is
correct as of any time subsequent to its date.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
document are "Forward-Looking Statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are thus prospective, including,
but not limited to, statements preceded by, followed by or that include such
words as "believes," "expects," "anticipates" or similar expressions. Such
statements reflect the current expectations of management of Gantos and are
subject to a number of risks and uncertainties, certain of which are beyond
the control of Gantos. Actual results could vary materially from expected
results due to a variety of factors, including Gantos' ability to stem
recurring losses from operations and declining sales; the ability of Gantos
to comply with its working capital facility requirements and its outstanding
notes payable; the general performance of the economy, specifically as it
affects the retail apparel industry; trends in retail clothing apparel
purchasing; the comparable store sale changes of Gantos; the ability of
Gantos to generate sales during peak seasonal periods; Gantos' ability to
compete successfully with its competitors; the relationships of Gantos with
its suppliers; the ability of Gantos to obtain merchandise; the level of
support of the trade creditors and factors of Gantos; Gantos' ability to
maintain its existing store locations or to locate alternative sites on
acceptable terms as leases expire; Gantos' ability to generate sufficient
cash flow from operations to service its debt; the potential delisting of
Common Shares from the Nasdaq National Market; the unlikelihood of Gantos
paying dividends in the foreseeable future; the effect of anti-takeover
provisions in Gantos' charter documents and under Michigan law and of certain
"anti-takeover" devices available to Gantos; Gantos' ability to become Year
2000 compliant; and the other factors applicable to Gantos and its business
referred to in the SEC filings incorporated by reference into this document.
Certain of such factors are discussed under the heading "RISK FACTORS"
beginning on page 4 of this document. None of these events can be predicted
with certainty.
11
<PAGE>
Potential investors are cautioned to carefully consider such factors. There
is no assurance that the assumptions used are necessarily the most likely to
occur. Gantos does not assume any obligation to update any forward-looking
statement to reflect actual results, changes in assumptions or changes in
other factors affecting such statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
WE HAVE INCORPORATED CERTAIN IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT GANTOS THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT, INCLUDING ANY EXHIBITS THAT ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO SUCH INFORMATION. WE WILL PROVIDE TO EACH PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS DOCUMENT IS DELIVERED, A COPY OF ANY OR
ALL OF THE INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS
DOCUMENT, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO GANTOS, INC., 1266
EAST MAIN STREET, 5TH FLOOR, STAMFORD, CONNECTICUT 06902, TELEPHONE (203)
358-0294, ATTENTION: SECRETARY.
The following documents filed by Gantos with the SEC are hereby
incorporated by reference into this document and made a part hereof: (a)
Gantos' Annual Report on Form 10-K for the fiscal year ended January 31,
1998, as amended to date; (b) Gantos' Current Reports on Form 8-K filed with
the SEC on May 15, 1998 and November 4, 1998; (c) Gantos' Quarterly Reports
on Form 10-Q for the fiscal quarters ended May 2, 1998 and August 1, 1998, as
amended to date; and (d) Amendment No. 1 to Gantos' Registration Statement on
Form 8-A filed with the SEC on May 29, 1986.
All documents and reports filed by Gantos pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this document and
before the termination of the offering shall be deemed to be incorporated by
reference in this document and to be a part hereof from the dates of filing
of such documents or reports. Any statement contained herein or in a
document incorporated herein by reference will be deemed to be modified or
superseded for the purpose of this document to the extent that a statement
contained herein or in any subsequently filed document which also is
incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this document.
LEGAL MATTERS
The validity of the issuance of the Common Shares offered pursuant to
this document will be passed upon for Gantos by Swidler Berlin Shereff
Friedman, LLP, New York, New York, special counsel to Gantos.
EXPERTS
The financial statements incorporated in this document by reference to
Gantos' Annual Report on Form 10-K for the year ended January 31, 1998 (as
amended to date) have been so incorporated in reliance on the report (which
contains an explanatory paragraph relating to Gantos' ability to continue as a
going concern as described in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP (formerly Price Waterhouse LLP), independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the offering are:
<TABLE>
<S> <C>
Accounting fees and expenses* $ 1,000.00
Legal fees and expenses* 5,000.00
Miscellaneous* 3,929.96
SEC registration fees 70.04
-----------
Total $10,000.00
-----------
-----------
</TABLE>
__________________
* Estimated.
All of these expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 561 to 571 of the Business Corporation Act of the State of
Michigan (the "MBCA") provide, in summary, that Michigan corporations have
the power, under certain circumstances, to indemnify directors, officers,
employees and agents against expenses (including attorneys' fees), judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by them as a result of being a party or being threatened to be made
a party to a threatened, pending or completed action, proceeding, or suit
brought against them in their capacity as a director, officer, employee or
agent if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation or its
shareholders, and, with respect to any criminal action or proceeding, if they
had no reasonable cause to believe their conduct was unlawful, provided that
no indemnification may be made in respect of any claim, issue or matter as to
which they shall have been found liable to the corporation, except to the
extent that a court of competent jurisdiction shall determine upon
application that, in view of all the relevant circumstances, they are fairly
and reasonably entitled to indemnity. If he or she was adjudged liable, his
or her indemnification is limited to reasonable expenses incurred. With
certain exceptions, any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination that
indemnification is proper because the indemnitee has met the applicable
standard of conduct and upon an evaluation of the reasonableness of expenses
and amounts paid in settlement. Article 7 of the Company's Bylaws entitles
persons who are or were directors or officers of the Company or are or were
serving at the request of the Company as directors, officers, employees or
agents of another corporation, partnership, joint venture, trust or other
enterprise to indemnification to the fullest extent authorized or permitted
by the MBCA. In addition, the Company's Articles of Incorporation limit
certain personal liabilities of directors of the Company.
The Company maintains a primary directors and officers liability and
company reimbursement insurance policy in the amount of $10.0 million.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
2.1 Second Amended Joint Plan of Reorganization of Gantos, Inc. and
Gantos Stores Inc., incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K, dated March 7, 1995 and
filed with the Securities and Exchange Commission on March 22,
1995. A list of the omitted exhibits is contained on page vii
of the Plan. Gantos, Inc. will supplementally furnish a copy of
any omitted exhibit to the Securities and Exchange Commission
upon request.
2.2 Modifications to the Debtors' Second Amended Joint Plan of
Reorganization, incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K, dated March 7, 1995 and
filed with the Securities and Exchange Commission on March 22,
1995.
2.3 Agreement of Merger, dated as of March 15, 1995, between Gantos
Stores, Inc. and Gantos, Inc., incorporated by reference to
Exhibit 2.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995.
4.1 Restated Articles of Incorporation, incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K, dated
March 7, 1995 and filed with the SEC on March 22, 1995.
4.2 Bylaws, as amended, incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1993.
4.3 Form of Indenture between Gantos, Inc. and Shawmut Bank
Connecticut, National Association, as Trustee, including forms of
notes attached as exhibits, a reasonable itemized table of
contents and a cross-reference sheet showing the location in the
Indenture of the provision inserted pursuant to Section 310
through 318(a) inclusive of the Trust Indenture Act of 1939,
incorporated by reference to Exhibit T3C to the Company's
Application for Qualification of Indenture under the Trust
Indenture Act of 1939 on Form T-3.
4.4 Supplemental Indenture No. 1, dated as of December 15, 1997, to
Indenture dated as of April 1, 1995, between Gantos, Inc. and
State Street Bank and Trust Company (successor to Fleet Bank
N.A., which was the successor to Shawmut Bank Connecticut,
National Association), as Trustee, and Agreement, dated as of
December 15, 1997, between Elliott Associates, L.P. and Gantos,
Inc., incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on form 10-K for the fiscal year ended January 31,
1998.
4.5* Restated Supplemental Indenture No. 2, dated as of June 30, 1998,
to Indenture dated as of April 1, 1995 between Gantos, Inc. and
State Street Bank and Trust Company (successor to Fleet Bank,
N.A., which was the successor to Shawmut Bank Connecticut,
National Association), as Trustee, and agreements dated as of
June 30, 1998 by and among Gantos, Inc., State Street Bank and
Trust Company, as Trustee, and certain noteholders.
4.6* Agreements, dated as of September 24-25, 1998, by and among
Gantos, Inc., State Street Bank and Trust Company, as Trustee,
and certain noteholders.
4.7* Agreements, dated as of November 13, 1998, by and among Gantos,
Inc., State Street Bank and Trust Company, as Trustee, and
certain noteholders.
II-2
<PAGE>
4.8* Form of Amended and Restated Common Share Purchase Warrant, dated
as of November 1998, by and between Gantos, Inc. and certain
noteholders.
4.9* Form of Common Share Purchase Warrant, dated as of November 13,
1998, by and between Gantos, Inc. and certain noteholders.
4.10* Loan and Security Agreement, dated as of November 18, 1998, among
Gantos, Inc., the financial institutions named therein, and
Foothill Capital Corporation, as Agent.
5.1* Opinion of Swidler Berlin Shereff Friedman, LLP.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Swidler Berlin Shereff Friedman, LLP (included as part
of Exhibit 5.1).
24.1 Power of Attorney (contained on Page II-5 hereto).
*Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (1)(i) and (ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Company pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions set forth in
response to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
the 30th day of November, 1998.
GANTOS, INC.
By: /s/ Arlene H. Stern
-------------------------------------
Arlene H. Stern
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints Arlene H. Stern, the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for the undersigned and on his or her behalf,
and in his or her name, place and stead, in any and all capacities to execute
and sign any and all amendments or post-effective amendments to this
Registration Statement and any registration statement or amendment to such
registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the SEC, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof and the
registrant hereby confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<S> <C> <C>
/s/ Arlene H. Stern
- --------------------------- President and Chief
Arlene H. Stern Executive Officer and a November 30, 1998
Director (Principal
Executive Officer and
Principal Financial
Officer)
/s/ L. Douglas Gantos
- ---------------------------- Director November 29, 1998
L. Douglas Gantos
/s/ Elizabeth M. Eveillard
- ---------------------------- Director November 24, 1998
Elizabeth M. Eveillard
/s/ Fred K. Schomer
- ---------------------------- Director November 25, 1998
Fred K. Schomer
/s/ Hannah H. Strasser
- ---------------------------- Director November 30, 1998
Hannah H. Strasser
/s/ Mary Elizabeth Burton
- ---------------------------- Director November 30, 1998
Mary Elizabeth Burton
/s/ Erwin A. Marks
- ---------------------------- Director November 25, 1998
Erwin A. Marks
/s/ S. Amanda Putnam
- ---------------------------- Director November 30, 1998
S. Amanda Putnam
</TABLE>
II-5
<PAGE>
EXHIBIT 4.5
RESTATED SUPPLEMENTAL INDENTURE NO. 2
Restated Supplemental Indenture No. 2 (the "Restated Supplemental
Indenture"), dated as of June 30, 1998 (the "Effective Date"), between Gantos,
Inc., a Michigan corporation (the "Company"), and State Street Bank and Trust
Company, a Massachusetts trust company and successor to Fleet Bank N.A.
(successor to Shawmut Bank Connecticut, National Association, a national banking
association) (the "Trustee").
RECITALS
The Company and the Trustee are the parties to the Indenture, dated as of
April 1, 1995 between Company and Trustee, as successor trustee, as amended by
Supplemental Indenture No. 1, dated as of December 15, 1997 ("Supplemental
Indenture No. 1" and, together with the initial Indenture, the "Indenture").
NOW, THEREFORE, THIS RESTATED SUPPLEMENTAL INDENTURE WITNESSETH, for and in
consideration of the premises, it is mutually agreed and consented, for the
equal and proportionate benefit of the respective Holders from time to time of
the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used in this Restated
Supplemental Indenture No. 2 and not defined in this Restated Supplemental
Indenture No. 2 have the meanings given them in the Indenture.
2. ELIMINATION OF COVENANTS. Effective on the Effective Date, Sections
6.12(a), (c), (d) and (f) and Section 6.16 of the Indenture are eliminated from,
and shall not apply to, the Indenture or the Notes.
3. ELIMINATION OF DEFINITIONS. Effective on the Effective Date, the
definitions of the following terms are eliminated from Section 1.01 of the
Indenture and shall not apply to the Indenture or the Notes:
"Adjusted Interest Expense";
"Alternative Payment";
"Availability";
"Capital Expenditures";
"Capitalized Lease Obligation";
"Cases";
"Disclosure Statement";
"EBITDA";
"Fiscal Period";
"Interest Coverage Ratio";
"Interest Expense"; and
<PAGE>
"Trigger Date".
4. AMENDMENT TO DEFINITION OF FREE CASH FLOW. Effective on the Effective
Date, the definition of "Free Cash Flow" in Section 1.01 of the Indenture is
amended and restated to read as follows:
"The term "Free Cash Flow" means, for any year (i) Net Income,
PLUS (ii) the sum of amortization expense and depreciation expense,
MINUS (iii) actual principal payments (including sinking fund
payments) and voluntary principal payments, but not Excess Cash Flow
payments, made with respect to indebtedness for borrowed money (which
does not include the Revolving Credit Agreement or Replacement Credit
Agreement), PLUS OR MINUS (iv) extraordinary cash items (provided that
such items are not taken into account in determining Net Income)."
5. INTENTIONALLY DELETED
6. ELIMINATION OF ELECTION TO APPLY REVISIONS TO REVOLVING CREDIT
AGREEMENT COVENANTS. Effective on the Effective Date, Section 5 of Supplemental
Indenture No. 1 is eliminated from, and shall not apply to, the Indenture or the
Notes.
7. AMENDMENT TO REDEMPTION PROVISIONS. Effective on the Effective Date,
Section 3.01(c) of the Indenture is amended and restated to read as follows:
"(c) The Notes shall be subject to special mandatory redemption
at the Redemption Price on the next succeeding Interest Payment Date
after which notice can be given following payment of an Excess Cash
Flow payment (made pursuant to Section 6.12(e) hereof) in an amount
for each Series of Notes equal to its Pro-Rata share of the Excess
Cash Flow payment. The amount of any redemptions made pursuant to
this subsection 3.01(c) shall decrease the aggregate amount of sinking
fund redemptions in the reverse order of the dates upon which such
sinking fund payments are to be made."
8. ELIMINATION OF SPECIAL MANDATORY REDEMPTION RIGHTS FOR SALES OF EQUITY
SECURITIES. Effective on the Effective Date, Section 3.01(f) of the Indenture
is deleted from the Indenture and shall no longer apply to the Indenture or the
Notes.
9. AMENDMENT TO MAINTENANCE OF PROPERTIES; COMPLIANCE WITH LAWS
PROVISIONS. Effective on the Effective Date, Section 6.05, line 6 of the
Indenture is amended by the insertion of the parenthetical, "(I.E., the sale of
women's clothing)", following the phrase "maintain and operate the same general
businesses which it is presently conducting" and before the semi-colon.
10. WAIVER OF NET WORTH COVENANT. Effective for the second fiscal quarter
of fiscal 1998, Section 6.12(b) of the Indenture is amended to read as follows:
2
<PAGE>
"(b) MINIMUM NET WORTH. Not permit the Net Worth of the Company and
its Subsidiaries, on a Consolidated basis, at the end of any fiscal quarter
of the Company specified below to be less than the respective amounts set
forth below:
<TABLE>
<CAPTION>
Period Minimum
<S> <C>
Second Fiscal Quarter - 1998
Through Third Fiscal Quarter - 2000 $4,500,000
Fourth Fiscal Quarter - 2000 and
Thereafter $6,000,000."
</TABLE>
11. AMENDMENT TO COVENANTS REGARDING THE POLICY SECTION. Effective on the
Effective Date, the first two lines of Section 6.13 of the Indenture beginning
"The Company will," and ending "of the Company," are amended to read as follows:
"The Company will, for so long as L. Douglas Gantos ("Mr.
Gantos") remains an officer, director or consultant of the Company,"
12. WAIVER OF RESTRICTION REGARDING FUTURE DEBT OBLIGATIONS. Effective on
the Effective Date, Sections 6.14(b) and (c) are deleted from the Indenture and
shall no longer apply to the Indenture or the Notes. Moreover, effective on the
Effective Date, Section 6.14(a) of the Indenture is amended to read as follows:
"(a) Notwithstanding anything herein to the contrary, the Company
and its Subsidiaries may issue Senior Debt Obligations only if the
Company has fulfilled the obligations of Section 3.06 regarding
purchases of the Notes. Notwithstanding the preceding sentence or
anything herein to the contrary, and without compliance with Section
3.06, the Company and its Subsidiaries may (i) issue debt that is
secured by any assets of the Company, provided that the Company's and
its Subsidiaries' aggregate secured debt, including pursuant to the
Revolving Credit Agreement, any Replacement Credit Agreement and any
other secured debt, shall not exceed $40,000,000 in principal amount or
(ii) issue Senior Debt Obligations, provided that the aggregate amount
of the Company's and its Subsidiaries' secured debt and Senior Debt
Obligations may not exceed $40,000,000 in principal amount.
Notwithstanding the foregoing, in the event that the Company's debt
under the Foothill Facility (as hereinafter defined) exceeds $40,000,000
but is less than $42,000,000, the Company shall not be deemed to be in
breach of this Section 6.14(a) and such debt shall not constitute Senior
Debt Obligations."
13. AMENDMENT TO ADDITIONAL COVENANTS.
(a) Effective on the Effective Date, Section 6.15(c), line 7 of the
Indenture is amended by the insertion of the phrase "or any substantially
similar provision of a Replacement Credit Agreement" following the phrase
"Section 7.06 of the Revolving
3
<PAGE>
Credit Agreement" and before the semi-colon. Further, effective on the
Effective Date, Sections 6.15(d) and 6.15(e)(i) of the Indenture are
deleted in their entireties.
(b) Effective as of the Effective Date, Section 6.15(e)(ii), line 1
of the Indenture, is amended by the insertion of the phrase "or acquire"
following the phrase "The Company may form."
(c) Effective on the Effective Date, Section 6.15(g) of the Indenture
is amended and restated to read as follows:
"The Company shall not alter the nature of its business (I.E.,
the sale of women's clothing) as operated on the date of this
Indenture in any material respect."
(d) Effective on the Effective Date, Section 6.15(h) of the Indenture
is amended by the insertion of the phrase "Subject to Article XI," at the
beginning of the section and the insertion of the phrase "or any
substantially similar provision of a Replacement Credit Agreement" at the
end of the section prior to the period.
14. INTENTIONALLY OMITTED
15. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants (which representations and warranties shall survive the execution and
delivery of this Restated Supplemental Indenture) as of the date hereof that:
(a) All representations and warranties contained in the Indenture are
true and correct in all material respects as of the date of this Restated
Supplemental Indenture with the same force and effect as if made on such
date (except to the extent that any such representation or warranty relates
expressly to an earlier date).
(b) The Company has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Restated
Supplemental Indenture and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Restated
Supplemental Indenture.
(c) This Restated Supplemental Indenture has been duly executed and
delivered and constitutes the legal, valid and binding obligation of the
Company, and is enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, reorganization,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and by general equity principles.
4
<PAGE>
(d) No registration or filing with, consent or approval of, or other
action by, any Federal, State or other governmental agency, authority or
regulatory body is or will be required on behalf of the Company in
connection with the execution, delivery, performance, validity or
enforcement of this Restated Supplemental Indenture, other than any such
registration or filing which has been made or any such consent, approval
or other action which has been obtained and remains in full force and
effect and other than the filing of Form 10-Q or a Form 10-K with the
Securities and Exchange Commission.
(e) The execution, delivery and performance of this Restated
Supplemental Indenture by the Company will not violate any provision of the
certificate or articles of incorporation or bylaws of the Company (before
or immediately after the Effective Date) or any of its subsidiaries or any
law, statute, rule or regulation, or any order or decree of any court or
governmental instrumentality applicable to the Company or any of its
subsidiaries, or, after the Effective Date, violate, result in the breach
of or constitute a default under any indenture, agreement or other
instrument to which the Company or any of its subsidiaries or any of their
respective properties or assets are or may be bound.
(f) After giving effect to this Restated Supplemental Indenture after
the Effective Date, the Company is in compliance with all of the various
covenants and agreements applicable to it set forth in the Indenture.
(g) After giving effect to this Restated Supplemental Indenture after
the Effective Date, no event has occurred and is continuing which
constitutes or would constitute, with the giving of notice or the lapse of
time or both, an Event of Default under the Indenture.
(h) The Company has no defense to or setoff, counterclaim or claim
against payment of the Notes or enforcement of the Indenture or the Notes
based upon a fact or circumstance existing or occurring on or prior to the
date of this Restated Supplemental Indenture.
16. CONDITIONS PRECEDENT. Notwithstanding any term or provision of this
Restated Supplemental Indenture to the contrary, no amendment set forth in this
Restated Supplemental Indenture shall become effective until the Trustee shall
have determined that each of the following conditions precedent shall have been
satisfied, such determination to be conclusively evidenced by the Trustee's
execution and delivery of this Restated Supplemental Indenture:
(a) The Company shall have delivered to the Trustee a copy of the
resolution of the Company, certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such
certification, that this Restated Supplemental Indenture has been
authorized by the Company. The Company shall have also delivered to the
Trustee a certification of an officer of the Company that all of the
conditions precedent to the effectiveness of this
5
<PAGE>
Indenture Supplement shall have been met as of the date of such
certificate and that the representations and warranties set forth in
Section 15 of this Restated Supplemental Indenture are true as of the
Effective Date.
(b) The Trustee shall have received an Opinion of Counsel stating
that the execution of this Restated Supplemental Indenture is authorized or
permitted by the Indenture.
(c) Counterparts of the separate letter agreements, dated the date of
this Restated Supplemental Indenture, between the Company and holders
representing a majority of the Outstanding Notes, pursuant to which each
such holder has consented to the amendments contained in this Restated
Supplemental Indenture, shall have been duly executed and delivered on
behalf of the Company and each such holder, and such agreements shall be in
full force and effect.
(d) Counterparts of this Restated Supplemental Indenture shall have
been duly executed and delivered on behalf of the Company and the Trustee.
(e) The Company shall have obtained the consent of Fleet Bank, N.A.
under the Revolving Credit Agreement to this Restated Supplemental
Indenture.
17. CONDITION SUBSEQUENT. In the event that the refinancing of the
Company's current working capital facility with Fleet Bank, N.A. into a $40
million facility with Foothill Capital Corporation (the "Foothill Facility") is
not consummated on or before November 30, 1998, no amendment set forth in this
Restated Supplemental Indenture shall be effective and the terms of the
Indenture shall be enforced without giving effect to the terms of this Restated
Supplemental Indenture. Unless the Trustee is required to execute a
subordination agreement which is not in form and substance acceptable to the
Trustee as a condition to the consummation of the Foothill Facility, the Trustee
hereby consents to the Company consummating the transactions contemplated by the
Foothill Facility. Subject to the immediately preceding sentence, the Foothill
Facility, once consummated, shall be deemed to be a Replacement Credit Facility
for purposes of the Indenture.
18. ADDITIONAL EVENT OF DEFAULT. It shall constitute an Event of Default
under the Indenture if any of the representations and warranties of the Company
under this Restated Supplemental Indenture shall prove to have been incorrect in
any material respect when made.
19. NO OTHER CHANGE. Except as modified by this Restated Supplemental
Indenture, the Indenture shall continue in full force according to its terms and
is hereby ratified. The Restated Supplemental Indenture supersedes in all
respects the Supplemental Indenture No. 2, dated as of June 30, 1998, between
the Company and the Trustee and the letter agreement, dated September 25, 1998,
between the Company and the Trustee relating to such Supplemental Indenture No.
2.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the day and year first above written.
GANTOS, INC.
By: /s/ Arlene H. Stern
-------------------------------------
Its: President & CEO
-------------------------------
Attest:
/s/ M.A. Clark
- ----------------------------
Name: M.A. Clark
----------------------
Title: Admin. Assistant
---------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Robert C. Butzier
-------------------------------------
Its: Vice President
-------------------------------
7
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
Before me, a Notary Public, in and for said State and County, duly
commissioned and qualified, personally appeared ___________________________,
with whom I am personally acquainted and who, upon oath, acknowledged
him/herself to be the ______________________________ of Gantos, Inc., and
that as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by him/herself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand on this ________
day of ________________, 199__.
----------------------------------------
Notary Public
My Commission Expires:
STATE OF MASSACHUSETTS )
) ss.: BOSTON
COUNTY OF SUFFOLK )
Before me, a Notary Public, in and for said State and County, duly
commissioned and qualified, personally appeared ROBERT C. BUTZIER, with whom I
am personally acquainted and who, upon oath, acknowledged him/herself to be the
VICE PRESIDENT of State Street Bank and Trust Co., and that such officer, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by him/herself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand on this 13th day of
November, 1998.
/s/ Laura L. Morse
-----------------------------------------
Notary Public
My Commission Expires: Laura L. Morse
[SEAL] Notary Public
My Commission Expires Jule 12, 2002
8
<PAGE>
ELLIOTT ASSOCIATES, L.P.
712 FIFTH AVENUE
NEW YORK, NEW YORK 10019
As of June 30, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in accordance
with Section 10.02 of the Indenture, dated as of April 1, 1995 between Company
and Trustee, as successor trustee, as amended by Supplemental Indenture No. 1,
dated as of December 15, 1997 ("Supplemental Indenture No. 1" and, together with
the Indenture, the "Indenture"), to the terms of Restated Supplemental Indenture
No. 2, dated as of the date hereof ("Restated Supplemental Indenture No. 2").
The Company hereby reprices the warrants previously issued to the
undersigned to reflect an exercise price of $0.75 per Gantos Common Share, and,
prior to November 6, 1998, shall deliver to the undersigned amended warrants
reflecting such change. All other terms of the warrants shall remain the same.
The Company shall register the Gantos Common Shares underlying the warrants
previously issued to the undersigned on or prior to January 15, 1999. The
Company shall use its best efforts to keep the registration statement
registering such Gantos Common Shares (the "Registration Statement")
continuously effective until the earlier of (x) the date when all shares covered
by the Registration Statement have been sold or (y) the date the warrants cease
to be exercisable. The Company shall use its best efforts to list the Gantos
Common Shares underlying the warrants on any national securities exchange or
Nasdaq market, if any, on which the Gantos Common Shares are then listed or
quoted. The Company shall use its best efforts to register or qualify, no later
than the effective date of the Registration Statement under the Securities Act
of 1933, all shares covered by the Registration Statement under the blue sky
laws of such jurisdictions as any holder of the warrants shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable such holder to consummate the disposition of the shares
owned by such holder in such jurisdictions, provided that the Company will not
be required to register or qualify any shares in any jurisdiction where such
registration or qualification would (i) require it to qualify generally to do
business in such jurisdiction, (ii) subject it to taxation in such jurisdiction,
(iii) require it to consent to service of
1
<PAGE>
process in any such jurisdiction, provided it has not already so consented,
or (iv) require it to amend the terms of the warrants or of any other class
of the Company's securities. In the event that there is an event which causes
the undersigned not to have the full benefit of its registration rights
(including, without limitation, if the Company does not timely file the
Registration Statement or respond to comments from the Securities and
Exchange Commission, unless such failure is the result of the undersigned's
actions or inactions), the Company shall pay the undersigned the sum of
$15,000 in cash for each 30 day period during which the undersigned does not
have the full benefit of its registration rights. The Company shall in good
faith negotiate the terms of a Registration Rights Agreement incorporating
the foregoing terms with the undersigned.
In addition, as additional consideration for postponing the July 1, 1998
payment of principal under the Notes, the Company shall pay the legal fees and
expenses of Kleinberg, Kaplan, Wolff & Cohen, P.C. on behalf of the undersigned
incurred in connection with (i) the negotiation of Restated Supplemental
Indenture No. 2 and this letter, (ii) any waivers or agreements with the Company
related thereto, (iii) any related due diligence, (iv) the preparation and
negotiation of the terms of the Registration Rights Agreement referenced above
and (v) the negotiation of the terms of the subordination agreement referenced
in Restated Supplemental Indenture No. 2.
The undersigned shall, at its request, be provided with true and accurate
copies (or then-current drafts) of the documents evidencing the Foothill
Facility and such other documents relating to the Foothill Facility or the
Company as the undersigned may reasonably request from the Company.
This letter shall supersede the letter dated as of June 30, 1998 by and
among the parties hereto with respect to Supplemental Indenture No. 2, dated as
of the date hereof, between the Company and Trustee.
2
<PAGE>
If this letter is acceptable, please so indicate by countersigning this
letter in the places indicated.
ELLIOTT ASSOCIATES, L.P.
By: Braxton Associates, L.P., as general partner
By: Braxton Associates, Inc., as general
partner
By: /s/ Paul Singer
-----------------------------------
An Authorized Signator
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
-------------------------------
Its: President & CEO
-------------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Robert C. Butzier
-------------------------------
Its: Vice President
-------------------------
3
<PAGE>
EXHIBIT 4.6
ELLIOTT ASSOCIATES, L.P.
712 FIFTH AVENUE
NEW YORK, NEW YORK 10019
September 24, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in accordance
with Section 10.02 of the Indenture, dated as of April 1, 1995 between Company
and Trustee, as successor trustee, as amended by Supplemental Indenture No. 1,
dated as of December 15, 1997 ("Supplemental Indenture No. 1" and Supplemental
Indenture No. 2, dated as of June 30, 1998 ("Supplemental Indenture No. 2" and,
together with Supplemental Indenture No. 1 and the initial Indenture, the
"Indenture"), to the terms of the letter agreement between Company and Trustee,
dated as of the date hereof, extending the date for consummation of the Merger
to November 15, 1998.
In addition, in consideration of value previously received, this letter
hereby confirms the consent of the undersigned that, payment of the Pro-Rata
share of the principal amount of the Notes (as defined in the Indenture)
originally due to be paid on the July 1, 1998 sinking fund redemption date
($774,725.87), as set forth in Section 3.01(b) of the Indenture, and
subsequently postponed by letter (the "Consent Letter") from the undersigned to
the Trustee and the Company dated as of June 30, 1998 to a date not later than
September 25, 1998, shall be further postponed until such time as the Merger (as
defined in Supplemental Indenture No. 2) has been consummated; PROVIDED,
HOWEVER, that in no event shall the payment of such amount be postponed beyond
November 15, 1998. Interest shall accrue on the principal amount of the Notes
postponed hereby at the rate of 12.75% per annum until payment is made.
The Company hereby agrees that it shall not voluntarily prepay all or part
of the principal amount due under the TJX Note prior to the payment in full of
the Notes.
The undersigned shall be provided true and accurate copies of the Merger
Agreement and such other documents relating to the Merger, the Company or
Holding as the undersigned may reasonably request from the Company.
<PAGE>
Other than as expressly set forth in this letter, the provisions of the
Consent Letter shall remain unchanged and in full force and effect.
During the week of September 28, 1998, the Company and the undersigned
noteholder, Elliott Associates, L.P., shall enter into a registration rights
agreement with respect to the registration of the Gantos, Inc. Common Shares
underlying the Warrants issued to Elliott Associates, L.P. in connection with
the Consent Letter, in form and substance reasonably satisfactory to Elliott
Associates, L.P.
If this letter is acceptable, please so indicate by countersigning this
letter in the places indicated.
ELLIOTT ASSOCIATES, L.P.
By: Braxton Associates, L.P., as general partner
By: Braxton Associates, Inc., as general
partner
By: /s/ Vincent J. Intrieri
---------------------------------
An Authorized Signator
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
----------------------------
Its: President & CEO
----------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Susan T. Keller
----------------------------
Its: Vice President
----------------------
2
<PAGE>
FIRST NBD Bank
CHICAGO 701 First National Building
NBD Detroit, Michigan 48226
Telephone: (313) 225-4334
Fax: (313) 225-4355
FRANCELLE E. FULTON Internet: Francelle-Fulton@
First Vice President em.FCNBD.com
September 24, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in accordance with
Section 10.02 of the Indenture, dated as of April 1, 1995 between Company and
Trustee, as successor trustee, as amended by Supplemental Indenture No. 1, dated
as of December 15, 1997 ("Supplemental Indenture No. 1" and Supplemental
Indenture No. 2, dated as of June 30, 1998 ("Supplemental Indenture No. 2" and,
together with Supplemental Indenture No. 1 and the initial Indenture, the
"Indenture"), to the terms of the letter agreement between Company and Trustee,
dated as of the date hereof, extending the date for consummation of the Merger
to November 15, 1998.
In addition, in consideration of value previously received, this letter hereby
confirms the consent of the undersigned that, payment of the Pro-Rata share of
the principal amount of the Notes (as defined in the Indenture) originally due
to be paid on the July 1, 1998 sinking fund redemption date ($774,725.87), as
set forth in Section 3.01(b) of the Indenture, and subsequently postponed by
letter (the "Consent Letter") from the undersigned to the Trustee and the
Company dated as of June 30, 1998 to a date not later than September 25, 1998,
shall be further postponed until such time as the Merger (as defined in
Supplemental Indenture No. 2) has been consummated; PROVIDED, HOWEVER, that in
no event shall the payment of such amount be postponed beyond November 15, 1998.
Interest shall accrue on the principal amount of the Notes postponed hereby at
the rate of 12.75% per annum until payment is made.
The Company hereby agrees that it shall not voluntarily prepay all or part of
the principal amount due under the TJX Note prior to the payment in full of the
Notes.
The undersigned shall be provided true and accurate copies of the Merger
Agreement and such other documents relating to the Merger, the Company or
Holding as the undersigned may reasonably request from the Company.
<PAGE>
FIRST
CHICAGO
NBD
Gantos, Inc.
September 24, 1998
Page 2
Other than as expressly set forth in this letter, the provisions of the Consent
Letter shall remain unchanged and in full force and effect.
If this letter is acceptable, please so indicate by countersigning this letter
in the places indicated.
NBD BANK
By: /s/ Francelle E. Fulton
--------------------------------
Francelle E. Fulton
Its: First Vice President
-------------------------------
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
----------------------------
Its: President & CEO
---------------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Susan T. Keller
----------------------------
Its: Vice President
----------------------------
2
<PAGE>
Cardinal Capital Management
- ----------------------------------------------
Cardinal Capital Management, L.L.C.
One Fawcett Place Greenwich, Connecticut 06830
September 25, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in accordance
with Section 10.02 of the Indenture, dated as of April 1, 1995 between Company
and Trustee, as successor trustee, as amended by Supplemental Indenture No. 1,
dated as of December 15, 1997 ("Supplemental Indenture No. 1" and Supplemental
Indenture No. 2, dated as of June 30, 1998 ("Supplemental Indenture No. 2" and,
together with Supplemental Indenture No. 1 and the initial Indenture, the
"Indenture"), to the terms of the letter agreement between Company and Trustee,
dated as of the date hereof, extending the date for consummation of the Merger
to November 15, 1998.
In addition, in consideration of value previously received, this letter
hereby confirms the consent of the undersigned that, payment of the Pro-Rata
share of the principal amount of the Notes (as defined in the Indenture)
originally due to be paid on the July 1, 1998 sinking fund redemption date
($774,725.87), as set forth in Section 3.01(b) of the Indenture, and
subsequently postponed by letter (the "Consent Letter") from the undersigned to
the Trustee and the Company dated as of June 30, 1998 to a date not later than
September 25, 1998, shall be further postponed until such time as the Merger (as
defined in Supplemental Indenture No. 2) has been consummated; PROVIDED,
HOWEVER, that in no event shall the payment of such amount be postponed beyond
November 15, 1998. Interest shall accrue on the principal amount of the Notes
postponed hereby at the rate of 12.75% per annum until payment is made.
The Company hereby agrees that it shall not voluntarily prepay all or part
of the principal amount due under the TJX Note prior to the payment in full of
the Notes.
The undersigned shall be provided true and accurate copies of the Merger
Agreement and such other documents relating to the Merger, the Company or
Holding as the undersigned may reasonably request from the Company.
Other than as expressly set forth in this letter, the provisions of the
Consent Letter shall remain unchanged and in full force and effect.
Tel (203) 863-8990 E-Mail [email protected] Fax (203) 861-4112
<PAGE>
If this letter is acceptable, please so indicate by countersigning this
letter in the places indicated.
Cardinal Recovery Partners
By: /s/ Hannah H. Strasser
--------------------------------
Its: General Partner
-------------------------------
Accepted:
Gantos, Inc.
By: /s/ Arlene H. Stern
-----------------------------
Its: President & CEO
-----------------------------
Accepted:
State Street Bank and Trust Company
By: /s/ Susan T. Keller
-----------------------------
Its: Vice President
-----------------------------
2
<PAGE>
Cardinal Capital Management
- ----------------------------------------------
Cardinal Capital Management, L.L.C.
One Fawcett Place Greenwich, Connecticut 06830
September 25, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in accordance
with Section 10.02 of the Indenture, dated as of April 1, 1995 between Company
and Trustee, as successor trustee, as amended by Supplemental Indenture No. 1,
dated as of December 15, 1997 ("Supplemental Indenture No. 1" and Supplemental
Indenture No. 2, dated as of June 30, 1998 ("Supplemental Indenture No. 2" and,
together with Supplemental Indenture No. 1 and the initial Indenture, the
"Indenture"), to the terms of the letter agreement between Company and Trustee,
dated as of the date hereof, extending the date for consummation of the Merger
to November 15, 1998.
In addition, in consideration of value previously received, this letter
hereby confirms the consent of the undersigned that, payment of the Pro-Rata
share of the principal amount of the Notes (as defined in the Indenture)
originally due to be paid on the July 1, 1998 sinking fund redemption date
($774,725.87), as set forth in Section 3.01(b) of the Indenture, and
subsequently postponed by letter (the "Consent Letter") from the undersigned to
the Trustee and the Company dated as of June 30, 1998 to a date not later than
September 25, 1998, shall be further postponed until such time as the Merger (as
defined in Supplemental Indenture No. 2) has been consummated; PROVIDED,
HOWEVER, that in no event shall the payment of such amount be postponed beyond
November 15, 1998. Interest shall accrue on the principal amount of the Notes
postponed hereby at the rate of 12.75% per annum until payment is made.
The Company hereby agrees that it shall not voluntarily prepay all or part
of the principal amount due under the TJX Note prior to the payment in full of
the Notes.
The undersigned shall be provided true and accurate copies of the Merger
Agreement and such other documents relating to the Merger, the Company or
Holding as the undersigned may reasonably request from the Company.
Other than as expressly set forth in this letter, the provisions of the
Consent Letter shall remain unchanged and in full force and effect.
Tel (203) 863-8990 E-Mail [email protected] Fax (203) 861-4112
3
<PAGE>
If this letter is acceptable, please so indicate by countersigning this
letter in the places indicated.
Argyll Limited
By: /s/ Hannah H. Strasser for Cardinal Capital Management
------------------------------------------------------
Its: Investment Manager
-----------------------------------------
Accepted:
Gantos, Inc.
By: /s/ Arlene H. Stern
-------------------------
Its: President & CEO
-------------------------
Accepted:
State Street Bank and Trust Company
By: /s/ Susan T. Keller
-------------------------
Its: Vice President
-------------------------
4
<PAGE>
499 Park Avenue New York Fax. 212 486-3616
5th Floor New York 10022
212 486-3600
Gordian Group, L.P.
September 24, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in accordance
with Section 10.02 of the Indenture, dated as of April 1, 1995 between Company
and Trustee, as successor trustee, as amended by Supplemental Indenture No. 1,
dated as of December 15, 1997 ("Supplemental Indenture No. 1" and Supplemental
Indenture No. 2, dated as of June 30, 1998 ("Supplemental Indenture No. 2" and,
together with Supplemental Indenture No. 1 and the initial Indenture, the
"Indenture"), to the terms of the letter agreement between Company and Trustee,
dated as of the date hereof, extending the date for consummation of the Merger
to November 15, 1998.
In addition, in consideration of value previously received, this letter
hereby confirms the consent of the undersigned that, payment of the Pro-Rata
share of the principal amount of the Notes (as defined in the Indenture)
originally due to be paid on the July 1, 1998 sinking fund redemption date
($774,725.87), as set forth in Section 3.01(b) of the Indenture, and
subsequently postponed by letter (the "Consent Letter") from the undersigned to
the Trustee and the Company dated as of June 30, 1998 to a date not later than
September 25, 1998, shall be further postponed until such time as the Merger (as
defined in Supplemental Indenture No. 2) has been consummated; PROVIDED,
HOWEVER, that in no event shall the payment of such amount be postponed beyond
November 15, 1998. Interest shall accrue on the principal amount of the Notes
postponed hereby at the rate of 12.75% per annum until payment is made.
The Company hereby agrees that it shall not voluntarily prepay all or part
of the principal amount due under the TJX Note prior to the payment in full of
the Notes.
The undersigned shall be provided true and accurate copies of the Merger
Agreement and such other documents relating to the Merger, the Company or
Holding as the undersigned may reasonably request from the Company.
<PAGE>
--------------------------
Gordian Group, L.P.
Other than as expressly set forth in this letter, the provisions of the
Consent Letter shall remain unchanged and in full force and effect.
If this letter is acceptable, please so indicate by countersigning this
letter in the places indicated.
GORDIAN GROUP, L.P.
By: /s/ Harry Owlsby
---------------------------------
Its: CEO of the General Partner
---------------------------------
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
------------------------------
Its: President & CEO
------------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Susan T. Keller
------------------------------
Its: Vice President
------------------------
2
<PAGE>
Exhibit 4.7
ELLIOTT ASSOCIATES, L.P.
712 FIFTH AVENUE
NEW YORK, NEW YORK 10019
November 13, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in
accordance with Section 10.02 of the Indenture, dated as of April 1, 1995
between Gantos, Inc. (the "Company") and State Street Bank and Trust Company, as
successor trustee, as amended by Supplemental Indenture No. 1, dated as of
December 15, 1997 ("Supplemental Indenture No. 1" and, together with the
Indenture, the "Indenture"), to the restructuring of the following principal
payments:
The undersigned hereby consents that payment of the Pro-Rata share of
the principal amount of the Notes due to be paid on the July 1, 1998
sinking fund redemption date ($774,725.87), as set forth in Section
3.01(b) of the Indenture, shall be postponed until May 1, 1999.
The undersigned understands that payment of 50% of the Pro-Rata share
of the principal amount of the Notes due to be paid on the January 1,
1999 sinking fund redemption date ($387,362.94) will be so paid, and
hereby consents that payment of 50% of the Pro-Rata share of the
principal amount of the Notes due to be paid on the January 1, 1999
sinking fund redemption date ($387,362.93), as set forth in Section
3.01(b) of the Indenture, shall be postponed until February 15, 1999;
PROVIDED, HOWEVER, that, in the event that the Company's availability
under the Loan and Security Agreement with Foothill Capital
Corporation, as agent, for December 31, 1998 exceeds its required
availability for its business operations in January 1998 by an amount
greater than or equal to $387,362.93, the Company shall not postpone
any part of the January 1, 1999 sinking fund payment to any holder of
the Notes but shall instead make the entire January 1, 1999 sinking
fund payment of $774,725.87 when due.
Interest shall accrue on the principal amount of the Notes postponed
hereby at the rate of 12.75% per annum until payment is made.
Within five (5) days after the date of this letter, the Company shall
issue to the undersigned additional warrants (substantially in the form annexed
hereto) exercisable until November
<PAGE>
12, 2003 to purchase the undersigned's pro rata portion of 225,000 Gantos Common
Shares at an exercise price of $0.01 per share as consideration for further
postponing the July 1, 1998 payment of principal and the January 1, 1999 payment
of principal under the Notes. The payment of such consideration shall not
change the amount of principal and interest due with respect to the outstanding
Notes. The Company shall use its reasonable good faith efforts to register the
Gantos Common Shares underlying the warrants on or prior to January 15, 1999 in
accordance with the terms of the Registration Rights Agreement that the Company
is currently negotiating with the undersigned.
In addition, as additional consideration for postponing the July 1,
1998 and January 1, 1999 payments of principal under the Notes, the Company
shall pay the legal fees and expenses of Kleinberg, Kaplan, Wolff & Cohen, P.C.
on behalf of the undersigned incurred in connection with the negotiation of this
letter, the warrants to be issued hereunder and the registration of such
warrants.
Other than as expressly set forth in this letter, the provisions of
the letters among the parties hereto dated as of June 30, 1998 and September 24,
1998 shall remain unchanged and in full force and effect.
If this letter is acceptable, please so indicate by countersigning
this letter in the places indicated.
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Singer
-------------------------------------
Paul E. Singer, General Partner
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
------------------------------
Its: President & CEO
-----------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
By: /s/ Robert C. Butzier
------------------------------
Its: Vice President
-----------------------
2
<PAGE>
November 13, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in
accordance with Section 10.02 of the Indenture, dated as of April 1, 1995
between Gantos, Inc. (the "Company") and State Street Bank and Trust Company, as
successor trustee, as amended by Supplemental Indenture No. 1, dated as of
December 15, 1997 ("Supplemental Indenture No. 1" and, together with the
Indenture, the "Indenture"), to the restructuring of the following principal
payments:
The undersigned hereby consents that payment of the Pro-Rata share of
the principal amount of the Notes due to be paid on the July 1, 1998
sinking fund redemption date ($774,725.87), as set forth in Section
3.01(b) of the Indenture, may be postponed until May 1, 1999.
The undersigned hereby consents that payment of 50% of the Pro-Rata
share of the principal amount of the Notes due to be paid on the
January 1, 1999 sinking fund redemption date ($387,362.93), as set
forth in Section 3.01(b) of the Indenture, may be postponed until
February 15, 1999.
Interest shall accrue on the principal amount of the Notes postponed
hereby at the rate of 12.75% per annum until payment is made.
Within five (5) days after the date of this letter, the Company shall
issue to the undersigned warrants (substantially in the form annexed hereto)
exercisable until November 12, 2003 to purchase the undersigned's pro rata
portion of 225,000 Gantos Common Shares at an exercise price of $0.01 per share
as consideration for further postponing the July 1, 1998 payment of principal
and the January 1, 1999 payment of principal under the Notes. In addition, the
warrants previously issued to the undersigned shall be repriced from $1.625 to
$0.75. The payment of such consideration shall not change the amount of
principal and interest due with respect to the outstanding Notes.
<PAGE>
If this letter is acceptable, please so indicate by countersigning
this letter in the places indicated.
GORDIAN GROUP, L.P.
By: /s/ Patricia J. Caldwell
-------------------------------------
Its: Partner
----------------------------
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
--------------------------------
Its: President & CEO
-----------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
By: /s/ Robert C. Butzier
--------------------------------
Its: Vice President
-----------------------
2
<PAGE>
November 13, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in
accordance with Section 10.02 of the Indenture, dated as of April 1, 1995
between Gantos, Inc. (the "Company") and State Street Bank and Trust Company, as
successor trustee, as amended by Supplemental Indenture No. 1, dated as of
December 15, 1997 ("Supplemental Indenture No. 1" and, together with the
Indenture, the "Indenture"), to the restructuring of the following principal
payments:
The undersigned hereby consents that payment of the Pro-Rata share of
the principal amount of the Notes due to be paid on the July 1, 1998
sinking fund redemption date ($774,725.87), as set forth in Section
3.01(b) of the Indenture, may be postponed until May 1, 1999.
The undersigned hereby consents that payment of 50% of the Pro-Rata
share of the principal amount of the Notes due to be paid on the
January 1, 1999 sinking fund redemption date ($387,362.93), as set
forth in Section 3.01(b) of the Indenture, may be postponed until
February 15, 1999.
Interest shall accrue on the principal amount of the Notes postponed
hereby at the rate of 12.75% per annum until payment is made.
Within five (5) days after the date of this letter, the Company shall
issue to the undersigned warrants (substantially in the form annexed hereto)
exercisable until November 12, 2003 to purchase the undersigned's pro rata
portion of 225,000 Gantos Common Shares at an exercise price of $0.01 per share
as consideration for further postponing the July 1, 1998 payment of principal
and the January 1, 1999 payment of principal under the Notes. In addition, the
warrants previously issued to the undersigned shall be repriced from $1.625 to
$0.75. The payment of such consideration shall not change the amount of
principal and interest due with respect to the outstanding Notes.
<PAGE>
If this letter is acceptable, please so indicate by countersigning
this letter in the places indicated.
CARDINAL CAPITAL MANAGEMENT, LLC
FOR CARDINAL RECOVERY PARTNERS AND
FOR ARGYLE, L.T.D.
By: /s/ Hannah H. Strasser
-------------------------------------
Its: Managing Director
----------------------------
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
--------------------------------
Its: President & CEO
-----------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
By: /s/ Robert C. Butzier
--------------------------------
Its: Vice President
-----------------------
2
<PAGE>
FIRST NBD Bank
CHICAGO 701 First National Building
NBD Detroit, Michigan 48226
Telephone: (313) 225-4334
Fax: (313) 225-4355
FRANCELLE E. FULTON Internet: Francelle-Fulton@
First Vice President em.FCNBD.com
November 13, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter hereby confirms the consent of the undersigned, in accordance with
Section 10.02 of the Indenture, dated as of April 1, 1995 between Gantos, Inc.
(the "Company") and State Street Bank and Trust Company, as successor trustee,
as amended by Supplemental Indenture No. 1, dated as of December 15, 1997
("Supplemental Indenture No. 1" and, together with the Indenture, the
"Indenture"), to the restructuring of the following principal payments:
The undersigned hereby consents that payment of the Pro-Rata share of the
principal amount of the Notes due to be paid on the July 1, 1998 sinking
fund redemption date ($774,725.87), as set forth in Section 3.01(b) of the
Indenture, may be postponed until May 1, 1999.
The undersigned hereby consents that payment of 50% of the Pro-Rata share
of the principal amount of the Notes due to be paid on the January 1, 1999
sinking fund redemption date ($387,362.93), as set forth in Section 3.01(b)
of the Indenture, may be postponed until February 15, 1999.
Interest shall accrue on the principal amount of the Notes postponed hereby
at the rate of 12.75% per annum until payment is made.
Within five (5) days after the date of this letter, the Company shall issue to
the undersigned warrants (substantially in the form annexed hereto) exercisable
until November 12, 2003 to purchase the undersigned's pro rata portion of
225,000 Gantos Common Shares at an exercise price of $0.01 per share as
consideration for further postponing the July 1, 1998 payment of principal and
the January 1, 1999 payment of principal under the Notes. In addition, the
warrants previously issued to the undersigned shall be repriced from $1.625 to
$0.75. The payment of such consideration shall not change the amount of
principal and interest due with respect to the outstanding Notes.
<PAGE>
FIRST
CHICAGO
NBD November 13, 1998
If this letter is acceptable, please so indicate by countersigning this letter
in the places indicated.
NBD BANK F/K/A NBD BANK, N.A.
By: /s/ Francelle E. Fulton
------------------------------------
Francelle E. Fulton
Its: First Vice President
Accepted:
GANTOS, INC.
By: /s/ Arlene H. Stern
--------------------------------
Its: President & CEO
-----------------------
Accepted:
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
By: /s/ Robert C. Butzier
--------------------------------
Its: Vice President
-----------------------
2
<PAGE>
EXHIBIT 4.8
AMENDED AND RESTATED WARRANT
WARRANT NO.__________ WARRANTS
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE
UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
GANTOS, INC.
This warrant certificate (the "WARRANT CERTIFICATE") certifies that, for
value received, _______________ or registered assigns under Section 8 hereof
(the "HOLDER") is the owner of __________________________________________
warrants specified above (the "WARRANTS") each of which entitles the Holder
thereof to purchase one (1) fully paid and nonassessable share of common
stock, $.01 par value (the "COMMON STOCK"), of Gantos, Inc., a corporation
organized under the laws of the State of Michigan (the "COMPANY"), or such
other number of shares as may be determined pursuant to an adjustment in
accordance with Section 4 hereof, at the price per share set forth in Section
4 hereof, subject to adjustment from time to time pursuant to Section 4
hereof (the "WARRANT PRICE") and subject to the provisions and upon the terms
and conditions set forth herein. This Warrant amends and restates in its
entirety Warrant No. ______ dated as of July 1, 1998. By its acceptance of
this Warrant Certificate, the Holder acknowledges and agrees that Warrant No.
_____ is null and void.
1. TERM OF WARRANT.
Each Warrant is exercisable in full for a period beginning on the date
hereof and ending on June 30, 2003.
<PAGE>
2. METHOD OF EXERCISE AND PAYMENT; ISSUANCE OF NEW WARRANT
CERTIFICATE; CONTINGENT EXERCISE.
(a) In connection with any exercise pursuant to Section 1 hereof,
this Warrant Certificate shall be surrendered (with the notice of exercise
form attached hereto as EXHIBIT 1 (the "NOTICE OF EXERCISE") duly executed)
at the principal office of the Company together with the payment to the
Company of cash or a certified check or a wire transfer in an amount equal to
the then applicable Warrant Price multiplied by the number of shares of
Common Stock then being purchased.
(b) NET ISSUE ELECTION. The holder hereof may elect to receive,
without the payment by such holder of any consideration (other than the
surrender referred to in this Section 2(b)), shares equal to the value of
this Warrant or any portion hereof (as determined below) by the surrender of
this Warrant or such portion to the Company, with the Notice of Exercise duly
executed by such holder, at the office of any duly appointed transfer agent
for the Common Stock or at the office of the Company. Thereupon, the Company
shall issue to such holder such number of fully paid and nonassessable shares
of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares of Common Stock to be issued to such holder
pursuant to this Section 2(b).
Y = the number of shares of Common Stock covered by this Warrant in
respect of which the net issue election is made pursuant to this Section
2(b).
A = the Fair Market Value (as defined below) of one share of Common
Stock.
B = the Warrant Price then in effect under this Warrant at the time
the net issue election is made pursuant to this Section 2(b).
As used herein, "FAIR MARKET VALUE" per share of Common Stock as of
any date shall mean the numerical average of the fair market value per share
of Common Stock over a period of 21 business days consisting of the business
day on which the Notice of Exercise is received by the Company and the 20
consecutive business days prior to such date. The fair market value per
share of Common Stock for any day shall mean the average of the closing
prices of the Company's Common Stock sold on all securities exchanges on
which the Common Stock may at the time be listed or as quoted on the Nasdaq
National Market, or, if there have been no sales on any such exchange or any
such quotation on any day, the average of the highest bid and lowest asked
prices on all such exchanges or such system at the end of such day, or, if
2
<PAGE>
any day the Common Stock is not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq system as of 4:00 p.m., Boston
time, or, if on any day that Common Stock is not quoted in the Nasdaq system,
the average of the highest bid and lowest asked price on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization. If at any time
the Common Stock is not listed on any securities exchange or quoted in the
Nasdaq system or the over-the-counter market, the current fair market value
of Common Stock shall be the highest price per share which the Company could
obtain from a willing buyer (not a current employee or director) for shares
of Common Stock sold by the Company, from authorized but unissued shares, as
determined in good faith by the Board of Directors of the Company.
(c) The Company agrees that the shares of Common Stock so
purchased shall be deemed to be issued to the Holder hereof as the record
owner of such shares as of the close of business on the date on which this
Warrant Certificate shall have been surrendered and payment made for such
shares as aforesaid. In the event of any exercise of the rights represented
by this Warrant Certificate, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder hereof within ten (10) days
thereafter and, unless all of the Warrants represented by this Warrant
Certificate have been fully exercised or have expired pursuant to Section 1
hereof, a new Warrant Certificate representing the shares of Common Stock, if
any, with respect to which the Warrants represented by this Warrant
Certificate shall not then have been exercised, shall also be issued to the
Holder hereof within such ten (10) day period.
3. COMMON STOCK FULLY PAID; RESERVATION OF SHARES.
All Common Stock which may be issued upon the exercise of the Warrants
will, upon issuance, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant Certificate may be
exercised, the Company will at all times have authorized, and reserved for
the purpose of the issuance upon exercise of the purchase rights evidenced by
this Warrant Certificate, a sufficient number of shares of its Common Stock
to provide for the exercise of the Warrants.
4. WARRANT PRICE; ADJUSTMENT OF WARRANT PRICE AND NUMBER
OF SHARES.
The Warrant Price shall be $0.75 per share of Common Stock, and the
Warrant Price and the number of shares of Common Stock purchasable upon
exercise of the Warrants shall be subject to adjustment from time to time, as
follows:
3
<PAGE>
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable
upon exercise of the Warrants, or in case of any consolidation or merger of
the Company with or into another corporation or entity, other than a
consolidation or merger with another corporation or entity in which the
Company is the continuing corporation and which does not result in any
reclassification, conversion or change of outstanding securities issuable
upon exercise of the Warrants, the Company, or such successor corporation, as
the case may be, shall execute a new warrant certificate (the "NEW WARRANT
CERTIFICATE"), providing that the Holder of this Warrant Certificate shall
have the right to exercise such new warrants and procure upon such exercise,
in lieu of each share of Common Stock theretofore issuable upon exercise of
the Warrants, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, conversion, change,
consolidation, or merger by a holder of one share of Common Stock. Such New
Warrant Certificate shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 4. The provisions of this Section 4(a) shall similarly apply to
successive reclassifications, changes, consolidations, mergers and transfers.
(b) SUBDIVISIONS, COMBINATIONS AND STOCK DIVIDENDS. If the
Company shall subdivide or combine its Common Stock, or shall pay a dividend
with respect to Common Stock payable in, or make any other distribution with
respect to its Common Stock consisting of, shares of Common Stock, then the
Warrant Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
(rounded to the nearest $.01) determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution. Such adjustment
shall be made successively whenever such a dividend or distribution occurs.
Upon each adjustment in the Warrant Price pursuant to this Section 4(b)
hereof, the number of shares of Common Stock purchasable hereunder shall be
adjusted to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction (i) the numerator of which shall be the Warrant Price immediately
prior to such adjustment and (ii) the denominator of which shall be the
Warrant Price immediately thereafter.
(c) MINIMUM ADJUSTMENT. No adjustment of the Warrant Price or the
number of shares of Common Stock purchasable hereunder shall be made if the
amount of any such Warrant Price adjustment would be an amount less than
$.01, but any such amount shall be carried forward and an adjustment in
respect thereof shall be made at the time of, and together with any
subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate an increase or decrease of
$.01 or more.
4
<PAGE>
5. NOTICE OF ADJUSTMENTS.
Whenever any adjustment shall be made pursuant to Section 4 hereof, the
Company shall prepare a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
the Warrant Price after giving effect to such adjustment and the number of
shares of Common Stock then purchasable upon exercise of the Warrants, and
shall cause copies of such certificate to be mailed to the Holder hereof at
the address specified in Section 9(d) hereof, or at such other address as may
be provided to the Company in writing by the Holder hereof.
6. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant Certificate, by acceptance hereof, agrees
that the Warrants and the shares of Common Stock to be issued upon exercise
thereof are being acquired for investment and that it will not offer, sell or
otherwise dispose of the Warrants or any shares of Common Stock to be issued
upon exercise thereof except under circumstances which will not result in a
violation of the Act or applicable state securities or blue sky laws. Upon
exercise of the Warrants, the Holder hereof shall, if requested by the
Company, confirm in writing that the shares of Common Stock so purchased are
being acquired for investment and not with a view toward distribution or
resale. This Warrant Certificate and all shares of Common Stock issued upon
exercise of the Warrants (unless registered under the Act) shall be stamped
or imprinted with a legend substantially in the following form:
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE
UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
7. TRANSFER.
5
<PAGE>
Subject to compliance with the terms of Section 6 above, the Warrants
and all rights under this Warrant Certificate are transferable, in whole or
in part, at the principal office of the Company by the Holder hereof, in
person or by its duly authorized attorney, upon surrender of this Warrant
Certificate properly endorsed (with the instrument of transfer form attached
hereto as EXHIBIT 2 duly executed), together with payment of all transfer
taxes, if any, payable in connection herewith. Each Holder of this Warrant
Certificate, by taking or holding the same, consents and agrees that this
Warrant Certificate, when endorsed in blank, shall be deemed negotiable;
provided, however, that the last Holder of this Warrant Certificate as
registered on the books of the Company may be treated by the Company and all
other persons dealing with this Warrant Certificate as the absolute owner of
the Warrants for any purposes and as the person entitled to exercise the
rights represented by this Warrant Certificate or to transfer the Warrants on
the books of the Company, any notice to the contrary notwithstanding, unless
and until such Holder seeks to transfer registered ownership of the Warrants
on the books of the Company and such transfer is effected.
8. MISCELLANEOUS.
(a) REPLACEMENT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
Certificate and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and deliver,
in lieu of this Warrant Certificate, a new warrant certificate of like tenor.
(b) NOTICE OF CAPITAL CHANGES. In case:
(i) the Company shall declare any dividend or distribution
payable to the holders of shares of Common Stock;
(ii) there shall be any capital reorganization or
reclassification of the capital of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company.
then, in any one or more of said cases, the Company shall give the Holder
hereof prior written notice of such event, in the manner set forth in Section
8(c) below, at least 30 days prior to the date on which a record shall be
taken for such dividend or distribution or for determining shareholders
entitled to vote upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding up or the date when any such
transaction shall take place, as the case may be.
6
<PAGE>
(c) NOTICE. Any notice to be given to either party under this
Warrant Certificate shall be in writing and shall be deemed to have been
given to the Company or the Holder hereof, as the case may be, when delivered
in hand or when sent by first class mail, postage prepaid, addressed, if to
the Company, at its principal office and, if to the Holder hereof, at its
address as set forth in the Company's books and records or at such other
address as the Holder hereof may have provided to the Company in writing.
(d) NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation, Bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of
all the provisions of this Warrant Certificate.
(e) WARRANT HOLDER NOT STOCKHOLDER. This Warrant Certificate
shall not confer upon the Holder hereof any right to vote or to consent to or
receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights as a stockholder, prior to the
exercise hereof.
(f) GOVERNING LAW; JURISDICTION. This Warrant Certificate shall
be deemed to be a contract made under, and shall be construed in accordance
with, the laws of the State of Delaware without giving effect to conflict of
laws principles except to the extent that the corporate laws of the State of
Michigan are mandatorily applicable thereof. The Company and the Holder of
the Warrant Certificate by acceptance hereof, each hereby agrees that the
state and federal court of New York shall have jurisdiction to hear and
determine any claims or disputes between the Holder and the Company
pertaining directly or indirectly to this Warrant Certificate and all
documents, instruments and agreements executed pursuant hereto, or to any
matter arising therefrom (unless otherwise expressly provided for therein).
To the extent permitted by law, the Company and the Holder of the Warrant
Certificate by acceptance hereof, each hereby expressly submits and consents
in advance to such jurisdiction in any action or proceeding commenced by the
Company or any Holder in any of such courts, and agrees that service of such
summons and complaint or other process or papers may be made by registered or
certified mail addressed to such party at the address to which notices are to
be sent to such party pursuant to this Agreement. To the extent permitted by
law, should the Company or the Holder of this Warrant Certificate, as the
case may be, after being so served, fail to appear or answer to any summons,
complaint, or process or papers so served within 30 days after the mailing
thereof, such party shall be deemed in default and an order and/or judgment
may be entered against such party as demanded or prayed for in such summons,
complaint, process or papers. The exclusive choice of forum set forth in
this Section 8(f) shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action to enforce the
same in any other appropriate jurisdiction.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK]
7
<PAGE>
The Company has caused this Warrant Certificate to be executed as of
this _____ day of November, 1998.
GANTOS, INC.
By:
-------------------------------------
Arlene H. Stern
President and Chief Executive Officer
Attest:
By:
-------------------------
M.A. Clark
Secretary
8
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: GANTOS, INC.
1. The undersigned hereby irrevocably elects to purchase
____________________ (_________) shares of the Common Stock, $.01 par value
per share, of Gantos, Inc. covered by Warrant No.___ according to the terms
thereof and herewith makes payment of the Warrant Price of such shares in
full.
2. Specify method of exercise by check mark:
__ a. Such payment is hereby made in the amount of $_______ by
(i) cash, (ii) wire transfer or (iii) certified or bank check payable
to Gantos, Inc.
__ b. The holder elects to receive the number of shares of Common
Stock for the value (as determined pursuant to Section 2(b) of the
Warrant Certificate) of the Warrant or the portion thereof specified
in 1. above.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------
(Name)
----------------------------
(Address)
--------------------------------
Signature
Dated:
---------------
<PAGE>
EXHIBIT 2
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto ____________ the rights represented by the within Warrant Certificate to
purchase [___________] shares of Common Stock of Gantos, Inc. to which the
within Warrant Certificate relates and appoints _______________________ to
transfer such rights on the books of Gantos, Inc. with full power of
substitution in the premises.
Dated:
----------------------- --------------------------------------
Signature
2
<PAGE>
EXHIBIT 4.9
WARRANT
WARRANT NO.__________ ___________WARRANTS
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE
UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
GANTOS, INC.
This warrant certificate (the "WARRANT CERTIFICATE") certifies that, for
value received, _________________ or registered assigns under Section 8
hereof (the "HOLDER") is the owner of _____________________________________
warrants specified above (the "WARRANTS") each of which entitles the Holder
thereof to purchase one (1) fully paid and nonassessable share of common
stock, $.01 par value (the "COMMON STOCK"), of Gantos, Inc., a corporation
organized under the laws of the State of Michigan (the "COMPANY"), or such
other number of shares as may be determined pursuant to an adjustment in
accordance with Section 4 hereof, at the price per share set forth in Section
4 hereof, subject to adjustment from time to time pursuant to Section 4
hereof (the "WARRANT PRICE") and subject to the provisions and upon the terms
and conditions set forth herein.
1. TERM OF WARRANT.
Each Warrant is exercisable in full for a period of five (5) years
beginning on the date hereof and ending on November 12, 2003.
<PAGE>
2. METHOD OF EXERCISE AND PAYMENT; ISSUANCE OF NEW WARRANT
CERTIFICATE; CONTINGENT EXERCISE.
(a) In connection with any exercise pursuant to Section 1 hereof,
this Warrant Certificate shall be surrendered (with the notice of exercise
form attached hereto as EXHIBIT 1 (the "NOTICE OF EXERCISE") duly executed)
at the principal office of the Company together with the payment to the
Company of cash or a certified check or a wire transfer in an amount equal to
the then applicable Warrant Price multiplied by the number of shares of
Common Stock then being purchased.
(b) NET ISSUE ELECTION. The holder hereof may elect to receive,
without the payment by such holder of any consideration (other than the
surrender referred to in this Section 2(b)), shares equal to the value of
this Warrant or any portion hereof (as determined below) by the surrender of
this Warrant or such portion to the Company, with the Notice of Exercise duly
executed by such holder, at the office of any duly appointed transfer agent
for the Common Stock or at the office of the Company. Thereupon, the Company
shall issue to such holder such number of fully paid and nonassessable shares
of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares of Common Stock to be issued to such holder
pursuant to this Section 2(b).
Y = the number of shares of Common Stock covered by this Warrant in
respect of which the net issue election is made pursuant to this Section
2(b).
A = the Fair Market Value (as defined below) of one share of Common
Stock.
B = the Warrant Price then in effect under this Warrant at the time
the net issue election is made pursuant to this Section 2(b).
As used herein, "FAIR MARKET VALUE" per share of Common Stock as of
any date shall mean the numerical average of the fair market value per share
of Common Stock over a period of 21 business days consisting of the business
day on which the Notice of Exercise is received by the Company and the 20
consecutive business days prior to such date. The fair market value per
share of Common Stock for any day shall mean the average of the closing
prices of the Company's Common Stock sold on all securities exchanges on
which the Common Stock may at the time be listed or as quoted on the Nasdaq
National Market, or, if there have been no sales on any such exchange or any
such quotation on any day, the average of the highest bid and lowest asked
prices on all such exchanges or such system at the end of such day, or, if
2
<PAGE>
any day the Common Stock is not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq system as of 4:00 p.m., Boston
time, or, if on any day that Common Stock is not quoted in the Nasdaq system,
the average of the highest bid and lowest asked price on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization. If at any time
the Common Stock is not listed on any securities exchange or quoted in the
Nasdaq system or the over-the-counter market, the current fair market value
of Common Stock shall be the highest price per share which the Company could
obtain from a willing buyer (not a current employee or director) for shares
of Common Stock sold by the Company, from authorized but unissued shares, as
determined in good faith by the Board of Directors of the Company.
(c) The Company agrees that the shares of Common Stock so
purchased shall be deemed to be issued to the Holder hereof as the record
owner of such shares as of the close of business on the date on which this
Warrant Certificate shall have been surrendered and payment made for such
shares as aforesaid. In the event of any exercise of the rights represented
by this Warrant Certificate, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder hereof within ten (10) days
thereafter and, unless all of the Warrants represented by this Warrant
Certificate have been fully exercised or have expired pursuant to Section 1
hereof, a new Warrant Certificate representing the shares of Common Stock, if
any, with respect to which the Warrants represented by this Warrant
Certificate shall not then have been exercised, shall also be issued to the
Holder hereof within such ten (10) day period.
3. COMMON STOCK FULLY PAID; RESERVATION OF SHARES.
All Common Stock which may be issued upon the exercise of the Warrants
will, upon issuance, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant Certificate may be
exercised, the Company will at all times have authorized, and reserved for
the purpose of the issuance upon exercise of the purchase rights evidenced by
this Warrant Certificate, a sufficient number of shares of its Common Stock
to provide for the exercise of the Warrants.
4. WARRANT PRICE; ADJUSTMENT OF WARRANT PRICE AND NUMBER
OF SHARES.
The Warrant Price shall be $0.01 per share of Common Stock, and the
Warrant Price and the number of shares of Common Stock purchasable upon
exercise of the Warrants shall be subject to adjustment from time to time, as
follows:
3
<PAGE>
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable
upon exercise of the Warrants, or in case of any consolidation or merger of
the Company with or into another corporation or entity, other than a
consolidation or merger with another corporation or entity in which the
Company is the continuing corporation and which does not result in any
reclassification, conversion or change of outstanding securities issuable
upon exercise of the Warrants, the Company, or such successor corporation, as
the case may be, shall execute a new warrant certificate (the "NEW WARRANT
CERTIFICATE"), providing that the Holder of this Warrant Certificate shall
have the right to exercise such new warrants and procure upon such exercise,
in lieu of each share of Common Stock theretofore issuable upon exercise of
the Warrants, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, conversion, change,
consolidation, or merger by a holder of one share of Common Stock. Such New
Warrant Certificate shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 4. The provisions of this Section 4(a) shall similarly apply to
successive reclassifications, changes, consolidations, mergers and transfers.
(b) SUBDIVISIONS, COMBINATIONS AND STOCK DIVIDENDS. If the
Company shall subdivide or combine its Common Stock, or shall pay a dividend
with respect to Common Stock payable in, or make any other distribution with
respect to its Common Stock consisting of, shares of Common Stock, then the
Warrant Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
(rounded to the nearest $.01) determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution. Such adjustment
shall be made successively whenever such a dividend or distribution occurs.
Upon each adjustment in the Warrant Price pursuant to this Section 4(b)
hereof, the number of shares of Common Stock purchasable hereunder shall be
adjusted to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction (i) the numerator of which shall be the Warrant Price immediately
prior to such adjustment and (ii) the denominator of which shall be the
Warrant Price immediately thereafter.
(c) MINIMUM ADJUSTMENT. No adjustment of the Warrant Price or the
number of shares of Common Stock purchasable hereunder shall be made if the
amount of any such Warrant Price adjustment would be an amount less than
$.01, but any such amount shall be carried forward and an adjustment in
respect thereof shall be made at the time of, and together with any
subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate an increase or decrease of
$.01 or more.
4
<PAGE>
5. NOTICE OF ADJUSTMENTS.
Whenever any adjustment shall be made pursuant to Section 4 hereof, the
Company shall prepare a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
the Warrant Price after giving effect to such adjustment and the number of
shares of Common Stock then purchasable upon exercise of the Warrants, and
shall cause copies of such certificate to be mailed to the Holder hereof at
the address specified in Section 9(d) hereof, or at such other address as may
be provided to the Company in writing by the Holder hereof.
6. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant Certificate, by acceptance hereof, agrees
that the Warrants and the shares of Common Stock to be issued upon exercise
thereof are being acquired for investment and that it will not offer, sell or
otherwise dispose of the Warrants or any shares of Common Stock to be issued
upon exercise thereof except under circumstances which will not result in a
violation of the Act or applicable state securities or blue sky laws. Upon
exercise of the Warrants, the Holder hereof shall, if requested by the
Company, confirm in writing that the shares of Common Stock so purchased are
being acquired for investment and not with a view toward distribution or
resale. This Warrant Certificate and all shares of Common Stock issued upon
exercise of the Warrants (unless registered under the Act) shall be stamped
or imprinted with a legend substantially in the following form:
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE
UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
7. TRANSFER.
5
<PAGE>
Subject to compliance with the terms of Section 6 above, the Warrants
and all rights under this Warrant Certificate are transferable, in whole or
in part, at the principal office of the Company by the Holder hereof, in
person or by its duly authorized attorney, upon surrender of this Warrant
Certificate properly endorsed (with the instrument of transfer form attached
hereto as EXHIBIT 2 duly executed), together with payment of all transfer
taxes, if any, payable in connection herewith. Each Holder of this Warrant
Certificate, by taking or holding the same, consents and agrees that this
Warrant Certificate, when endorsed in blank, shall be deemed negotiable;
provided, however, that the last Holder of this Warrant Certificate as
registered on the books of the Company may be treated by the Company and all
other persons dealing with this Warrant Certificate as the absolute owner of
the Warrants for any purposes and as the person entitled to exercise the
rights represented by this Warrant Certificate or to transfer the Warrants on
the books of the Company, any notice to the contrary notwithstanding, unless
and until such Holder seeks to transfer registered ownership of the Warrants
on the books of the Company and such transfer is effected.
8. MISCELLANEOUS.
(a) REPLACEMENT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
Certificate and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant Certificate, the Company, at its expense, will execute and deliver,
in lieu of this Warrant Certificate, a new warrant certificate of like tenor.
(b) NOTICE OF CAPITAL CHANGES. In case:
(i) the Company shall declare any dividend or distribution
payable to the holders of shares of Common Stock;
(ii) there shall be any capital reorganization or
reclassification of the capital of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company.
then, in any one or more of said cases, the Company shall give the Holder
hereof prior written notice of such event, in the manner set forth in Section
8(c) below, at least 30 days prior to the date on which a record shall be
taken for such dividend or distribution or for determining shareholders
entitled to vote upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding up or the date when any such
transaction shall take place, as the case may be.
6
<PAGE>
(c) NOTICE. Any notice to be given to either party under this
Warrant Certificate shall be in writing and shall be deemed to have been
given to the Company or the Holder hereof, as the case may be, when delivered
in hand or when sent by first class mail, postage prepaid, addressed, if to
the Company, at its principal office and, if to the Holder hereof, at its
address as set forth in the Company's books and records or at such other
address as the Holder hereof may have provided to the Company in writing.
(d) NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation, Bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of
all the provisions of this Warrant Certificate.
(e) WARRANT HOLDER NOT STOCKHOLDER. This Warrant Certificate
shall not confer upon the Holder hereof any right to vote or to consent to or
receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights as a stockholder, prior to the
exercise hereof.
(f) GOVERNING LAW; JURISDICTION. This Warrant Certificate shall
be deemed to be a contract made under, and shall be construed in accordance
with, the laws of the State of Delaware without giving effect to conflict of
laws principles except to the extent that the corporate laws of the State of
Michigan are mandatorily applicable thereof. The Company and the Holder of
the Warrant Certificate by acceptance hereof, each hereby agrees that the
state and federal court of New York shall have jurisdiction to hear and
determine any claims or disputes between the Holder and the Company
pertaining directly or indirectly to this Warrant Certificate and all
documents, instruments and agreements executed pursuant hereto, or to any
matter arising therefrom (unless otherwise expressly provided for therein).
To the extent permitted by law, the Company and the Holder of the Warrant
Certificate by acceptance hereof, each hereby expressly submits and consents
in advance to such jurisdiction in any action or proceeding commenced by the
Company or any Holder in any of such courts, and agrees that service of such
summons and complaint or other process or papers may be made by registered or
certified mail addressed to such party at the address to which notices are to
be sent to such party pursuant to this Agreement. To the extent permitted by
law, should the Company or the Holder of this Warrant Certificate, as the
case may be, after being so served, fail to appear or answer to any summons,
complaint, or process or papers so served within 30 days after the mailing
thereof, such party shall be deemed in default and an order and/or judgment
may be entered against such party as demanded or prayed for in such summons,
complaint, process or papers. The exclusive choice of forum set forth in
this Section 8(f) shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action to enforce the
same in any other appropriate jurisdiction.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK]
7
<PAGE>
The Company has caused this Warrant Certificate to be executed as of
this 13th day of November, 1998.
GANTOS, INC.
By:
-------------------------------------
Arlene H. Stern
President and Chief Executive Officer
Attest:
By:
-------------------------
M.A. Clark
Secretary
8
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: GANTOS, INC.
1. The undersigned hereby irrevocably elects to purchase
____________________ (_________) shares of the Common Stock, $.01 par value
per share, of Gantos, Inc. covered by Warrant No.___ according to the terms
thereof and herewith makes payment of the Warrant Price of such shares in
full.
2. Specify method of exercise by check mark:
__ a. Such payment is hereby made in the amount of $_______ by
(i) cash, (ii) wire transfer or (iii) certified or bank check payable
to Gantos, Inc.
__ b. The holder elects to receive the number of shares of Common
Stock for the value (as determined pursuant to Section 2(b) of the
Warrant Certificate) of the Warrant or the portion thereof specified
in 1. above.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------
(Name)
----------------------------
(Address)
--------------------------------
Signature
Dated:
---------------
<PAGE>
EXHIBIT 2
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto ______________ the rights represented by the within Warrant Certificate to
purchase [___________] shares of Common Stock of Gantos, Inc. to which the
within Warrant Certificate relates and appoints _______________________ to
transfer such rights on the books of Gantos, Inc. with full power of
substitution in the premises.
Dated:
---------------------- -------------------------------------
Signature
2
<PAGE>
EXHIBIT 4.10
LOAN AND SECURITY AGREEMENT
AMONG
GANTOS, INC.,
AS BORROWER,
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
AS LENDERS,
AND
FOOTHILL CAPITAL CORPORATION,
AS AGENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
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<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.5 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . .19
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .19
2.1 Revolving Advances; Special Sub-Line Advances. . . . . . . . . . . . . .19
2.2 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . .27
2.3 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
2.4 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
2.5 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
2.6 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
2.7 Interest and Letter of Credit Fees: Rates, Payments, and Calculations. .32
2.8 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . .33
2.9 Crediting Payments; Application of Collections . . . . . . . . . . . . .34
2.10 Designated Account . . . . . . . . . . . . . . . . . . . . . . . . . . .34
2.11 Maintenance of Loan Account; Statements of Obligations . . . . . . . . .35
2.12 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .36
3.1 Conditions Precedent to the Initial Advance, the Initial Letter of
Credit, the Term Loans, and the Initial Capital Expenditure Loan . . . .36
3.2 Conditions Precedent to all Advances and all Letters of Credit . . . . .38
3.3 Condition Subsequent . . . . . . . . . . . . . . . . . . . . . . . . . .38
3.4 Term; Automatic Renewal. . . . . . . . . . . . . . . . . . . . . . . . .39
3.5 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . .39
3.6 Early Termination by Borrower. . . . . . . . . . . . . . . . . . . . . .39
3.7 Termination Upon Event of Default. . . . . . . . . . . . . . . . . . . .39
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . .40
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . .40
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . . . . . . .40
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral .40
4.4 Delivery of Additional Documentation Required. . . . . . . . . . . . . .40
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . .40
4.6 Right to Inspect; Inventories, Appraisals, Audits. . . . . . . . . . . .41
<PAGE>
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . .42
5.1 No Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
5.2 Eligible Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
5.3 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .42
5.4 Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
5.5 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . .42
5.6 Inventory Records. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
5.7 Location of Chief Executive Office; FEIN . . . . . . . . . . . . . . . .43
5.8 Due Organization and Qualification; Subsidiaries . . . . . . . . . . . .43
5.9 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . .43
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
5.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . .44
5.12 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
5.13 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
5.14 Environmental Condition. . . . . . . . . . . . . . . . . . . . . . . . .45
5.15 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
5.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
5.17 DDAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
5.18 Credit Card Receipts . . . . . . . . . . . . . . . . . . . . . . . . . .46
5.19 No Defaults Under Indenture. . . . . . . . . . . . . . . . . . . . . . .46
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . . . . . . .46
6.2 Collateral and Financial Reporting . . . . . . . . . . . . . . . . . . .46
6.3 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
6.4 Guarantor Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . .50
6.5 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
6.6 Title to Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .51
6.7 Maintenance of Equipment . . . . . . . . . . . . . . . . . . . . . . . .51
6.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
6.9 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
6.10 No Setoffs or Counterclaims. . . . . . . . . . . . . . . . . . . . . . .53
6.11 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . .53
6.12 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . .53
6.13 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . .53
6.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
6.15 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . .54
6.16 Mailing Lists, Advertising . . . . . . . . . . . . . . . . . . . . . . .54
6.17 CFO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
6.18 President and Chief Executive Officer. . . . . . . . . . . . . . . . . .55
6.19 Location Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
<PAGE>
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
7.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
7.3 Restrictions on Fundamental Changes. . . . . . . . . . . . . . . . . . .56
7.4 Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .56
7.5 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
7.6 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
7.7 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . .56
7.8 Prepayments and Amendments . . . . . . . . . . . . . . . . . . . . . . .56
7.9 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . .56
7.10 Consignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
7.11 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
7.12 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . .57
7.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
7.14 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . .57
7.15 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
7.16 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
7.17 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees . . . . . . . . . . . . . . . . . . . . . . . . .57
7.19 No Prohibited Transactions Under ERISA . . . . . . . . . . . . . . . . .58
7.20 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . .58
7.21 Retail Performance Covenants . . . . . . . . . . . . . . . . . . . . . .59
7.22 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .59
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
9. THE LENDER GROUP'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . .61
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . .61
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . .63
10. TAXES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
11. WAIVERS; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .64
11.1 Demand; Protest; etc . . . . . . . . . . . . . . . . . . . . . . . . . .64
11.2 The Lender Group's Liability for Collateral. . . . . . . . . . . . . . .64
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . . .66
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . . . .67
<PAGE>
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. . . . . . . . . . . . . . . . . . .67
15.1 Assignments and Participations . . . . . . . . . . . . . . . . . . . . .67
15.2 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
16. AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
16.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . .70
16.2 No Waivers; Cumulative Remedies. . . . . . . . . . . . . . . . . . . . .71
17. AGENT; THE LENDER GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
17.1 Appointment and Authorization of Agent . . . . . . . . . . . . . . . . .71
17.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . .72
17.3 Liability of Agent-Related Persons . . . . . . . . . . . . . . . . . . .72
17.4 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . .73
17.5 Notice of Default or Event of Default. . . . . . . . . . . . . . . . . .73
17.6 Credit Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
17.7 Costs and Expenses; Indemnification. . . . . . . . . . . . . . . . . . .74
17.8 Agent in Individual Capacity . . . . . . . . . . . . . . . . . . . . . .75
17.9 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
17.10 Withholding Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
17.11 Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .77
17.12 Restrictions on Actions by Lenders; Sharing of Payments. . . . . . . . .78
17.13 Agency for Perfection. . . . . . . . . . . . . . . . . . . . . . . . . .78
17.14 Payments by Agent to the Lenders . . . . . . . . . . . . . . . . . . . .78
17.15 Concerning the Collateral and Related Loan Documents . . . . . . . . . .79
17.16 Field Audits and Examination Reports; Confidentiality; Disclaimers
by Lenders; Other Reports and Information. . . . . . . . . . . . . . . .79
17.17 Several Obligations; No Liability. . . . . . . . . . . . . . . . . . . .80
18. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
18.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
18.2 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
18.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
18.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . .81
18.5 Counterparts; Telefacsimile Execution. . . . . . . . . . . . . . . . . .81
18.6 Revival and Reinstatement of Obligations . . . . . . . . . . . . . . . .81
18.7 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
</TABLE>
<PAGE>
SCHEDULES AND EXHIBITS
- ----------------------
Schedule C-1 Commitments on Closing Date
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.16 Leases
Schedule 5.17 DDAs
Schedule 5.18 Credit Card Arrangements
Schedule 6.11 Location of Inventory and Equipment
Schedule 7.21 Retail Performance Covenants
Exhibit A-1 Form of Assignment and Acceptance
Exhibit B-1 Business Plan
Exhibit C-1 Form of Compliance Certificate
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into
as of November 18, 1998, among GANTOS, INC., a Michigan corporation
("Borrower"), with its chief executive office located at 1266 E. Main Street,
5th Floor, Stamford, Connecticut 06902, on the one hand, and the financial
institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as
the "Lenders"), and FOOTHILL CAPITAL CORPORATION, as Agent, on the other hand.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods or the rendition of
services by Borrower, irrespective of whether earned by performance, and any
and all credit insurance, guaranties, or security therefor.
"ADVANCES" has the meaning set forth in SECTION 2.1(a)(i).
"AFFILIATE" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, is under common
control with or is a director or officer of such Person. For purposes of
this definition, "control" means the possession, directly or indirectly, of
the power to vote 33% or more of the securities having ordinary voting power
for the election of directors or the direct or indirect power to direct the
management and policies of a Person.
"AGENT" means Foothill, solely in its capacity as agent for the
Lenders, and shall include any successor agent.
"AGENT ADVANCE" has the meaning set forth in SECTION 2.1(h).
"AGENT LOAN" has the meaning set forth in SECTION 2.1(g).
<PAGE>
"AGENT-RELATED PERSONS" means Agent, together with its
Affiliates, and the officers, directors, employees, counsel, agents
(including Oversight Agent), and attorneys-in-fact of Agent and such
Affiliates.
"AGENT'S ACCOUNT" has the meaning set forth in SECTION 2.8.
"AGENT'S FEE LETTER" has the meaning set forth in SECTION
2.12(e).
"AGREEMENT" has the meaning set forth in the preamble hereto.
"ASSIGNEE" has the meaning set forth in SECTION 15.1.
"ASSIGNMENT AND ACCEPTANCE" has the meaning set forth in
SECTION 15.1(a) and shall be in the form of EXHIBIT A-1.
"AUTHORIZED PERSON" means any officer or other employee of
Borrower.
"AVAILABILITY" means, as of the date of determination, the
result (so long as such result is a positive number) of (a) the lesser of the
Borrowing Base or the Maximum Revolving Amount, LESS (b) the Revolving
Facility Usage.
"AVAILABILITY RESERVES" means such reserves as Agent from time
to time determines in Agent's good faith discretion as being appropriate to
reflect the impediments to the Agent's ability to realize upon the
Collateral. Without limiting the generality of the foregoing, Availability
Reserves may include (but are not limited to) reserves based on the following:
(a)(i) any past-due rent owed by the Borrower; and (ii) the
aggregate sum equal to one (1) month's rent in respect of EACH leased
location of the Borrower in any Landlord Lien State or One Turn State for
which an acceptable Collateral Access Agreement has not been received by
Agent (irrespective of whether any such rent is currently due);
(b) in-store customer credits and gift certificates;
(c) taxes and other governmental charges, including ad
valorem, personal property, sales, and other taxes which may have priority
over the security interests of the Lender Group in the Collateral; and
(d) a "Leased Shoe Department Reserve" in an amount
initially equal to $85,000 and thereafter in an amount determined by Agent
from time to time.
"AVERAGE UNUSED PORTION OF MAXIMUM REVOLVING AMOUNT" means, as
of any date of determination, (a) the Maximum Revolving Amount, LESS (b) the
sum of (i) the average Daily Balance of Advances that were outstanding during
the immediately preceding month, PLUS (ii) the
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<PAGE>
average Daily Balance of the undrawn Letters of Credit that were outstanding
during the immediately preceding month.
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C. Section 101 ET SEQ.), as amended, and any successor statute.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or
any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of
ERISA) within the past six years.
"BLOCKED ACCOUNT" means any deposit account established by
Borrower, including the Concentration Account, at a Blocked Account Bank
pursuant to a Blocked Account Agreement.
"BLOCKED ACCOUNT AGREEMENTS" means those certain Blocked
Account Agreements, in form and substance satisfactory to Agent, each of
which is among Borrower, Agent, and one of the Blocked Account Banks.
"BLOCKED ACCOUNT BANK" means Fleet Bank, N.A.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets (including the Collateral) or liabilities;
all information relating to Borrower's business operations or financial
condition; and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
"BORROWING" means a borrowing hereunder consisting of Advances
made on the same day by the Lenders, or by Agent in the case of an Agent Loan
or an Agent Advance.
"BORROWING BASE" has the meaning set forth in SECTION 2.1(a).
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"BUSINESS PLAN" means Borrower's and its Subsidiaries' business
plans attached hereto as EXHIBIT B-1, together with any amendment,
modification, or revision to such business plan approved by Agent.
"CAPITAL LEASE" means any lease which is or should be
capitalized in accordance with GAAP (SFAS 13).
3
<PAGE>
"CHANGE OF CONTROL" shall be deemed to have occurred at such
time as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of more than 33% of the total voting power of all
classes of stock then outstanding of Borrower entitled to vote in the
election of directors.
"CLOSING DATE" means the date of the first to occur of the
making of the initial Advance, or the issuance of the initial Letter of
Credit.
"CODE" means the Massachusetts Uniform Commercial Code, as in
effect from time to time.
"COLLATERAL" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Investment Property,
(g) the Negotiable Collateral,
(h) the Real Property Collateral,
(i) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of the Lender Group,
and
(j) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Borrower's Books,
Equipment, General Intangibles, Inventory, Negotiable Collateral, Real
Property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgment agreement of any
warehouseman, processor, lessor, consignee,
4
<PAGE>
or other Person in possession of, having a Lien upon, or having rights or
interests in the Equipment or Inventory, in each case, in form and substance
satisfactory to Agent.
"COLLECTIONS" means all cash, checks, notes, instruments, and
other items of payment (including insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"COMMITMENT" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on SCHEDULE C-1 or on the signature page of the Assignment and
Acceptance pursuant to which such Lender became a Lender hereunder in
accordance with the provisions of SECTION 15.1, as such Commitment may be
adjusted from time to time in accordance with the provisions of SECTION 15.1
and "Commitments" means, collectively, the aggregate amount of the
commitments of all of the Lenders.
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of EXHIBIT C-1 and delivered to Agent by the chief executive officer
or the chief accounting officer of Borrower (or other officer acceptable to
the Agent).
"CONCENTRATION ACCOUNT" means account number 2182016123 of
Borrower, maintained at Fleet Bank, N.A., or such other deposit account of
Borrower (located in the United States) into which cash received in the other
Blocked Accounts is wire transferred as provided in SECTION 2.8(b).
"CONCENTRATION ACCOUNT AGREEMENT" means the Blocked Account
Agreement among Borrower, the Concentration Account Bank and Agent,
applicable to the Concentration Account.
"CONCENTRATION ACCOUNT BANK" means Fleet Bank, N.A.
"COST" means the calculated cost of Inventory, as determined
from invoices received by Borrower, Borrower's Purchase Journal or Stock
Ledger, based upon Borrower's accounting practices, known to Agent, which
practices are in effect on the date on which this Agreement was executed.
"Cost" does not include any inventory capitalization costs (other than
internal load calculated in accordance with Borrower's past practice, as
disclosed to Foothill) inclusive of advertising, but may include other
charges (and shall include internal load calculated in accordance with
Borrower's past practice, as disclosed to Foothill) used in Borrower's
determination of cost of goods sold and bringing goods to market, all within
Agent's sole discretion and in accordance with GAAP.
"COST FACTOR" means the result of one (1) minus the Borrower's
then cumulative markup percent derived from the Borrower's purchase journal
on a rolling twelve (12) month basis.
5
<PAGE>
"CREDIT CARD AGREEMENTS" means those certain agreements between
Agent and the credit card clearinghouses and processors of Borrower pursuant
to which such credit card clearinghouse or processors agree to transfer on a
daily basis all credit card receipts of Borrower, or other amounts payable by
such clearinghouse or processor, into the Lockboxes or the Concentration
Account or any other Blocked Account. All Credit Card Agreements shall be in
form and substance satisfactory to Agent.
"DAILY BALANCE" means, with respect to each day during the term
of this Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand daily depository
account maintained by Borrower.
"DEFAULT" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"DEFAULTING LENDER" has the meaning set forth in SECTION 2.1
(f)(ii).
"DEFAULTING LENDERS RATE" means the Reference Rate for the
first three days from and after the date the relevant payment is due and
thereafter at the interest rate then applicable to Advances.
"DESIGNATED ACCOUNT" means account number 2182-01-6136 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Agent.
"DESIGNATED ACCOUNT BANK" means Fleet Bank, N.A., whose office
is located New York, New York, and whose ABA number is 02120039.
"DILUTION" means, in each case based upon the experience of the
immediately prior twelve (12) months, the result of dividing the Dollar
amount of (a) bad debt write-downs, discounts, returns, promotions, credits,
or other dilution with respect to the Accounts, by (b) Borrower's Collections
(excluding extraordinary items) plus the Dollar amount of clause (a).
"DILUTION RESERVE" means, as of any date of determination, an
amount sufficient to reduce the Lenders' advance rate against Eligible
Accounts by one percentage point for each percentage point by which Dilution
is in excess of 5%.
"DISBURSEMENT LETTER" means an instructional letter executed
and delivered by Borrower to Agent regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be
satisfactory to Agent.
6
<PAGE>
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION PREMIUM" has the meaning set forth in
SECTION 3.6.
"EBITDA" means the consolidated net income of Borrower and its
Subsidiaries (excluding extraordinary items) for the prior 12 month period
(a) PLUS all interest expense, income tax expense, depreciation and
amortization (including amortization of any goodwill or other intangibles)
for the period, (b) PLUS OR MINUS losses or gains attributable to any fixed
asset sales in the period and (c) PLUS OR MINUS any other non-cash charges
which have been subtracted or added in calculating consolidated net income
for the period.
"ELIGIBLE ACCOUNTS" means those Accounts (including Eligible
Gantos Credit Card Accounts, but excluding all other credit card Accounts)
created by Borrower in the ordinary course of business, that arise out of
Borrower's sale of goods or rendition of services, that strictly comply with
each and all of the representations and warranties respecting Accounts made
by Borrower to the Lender Group in the Loan Documents, and that are and at
all times continue to be acceptable to Agent in all respects; PROVIDED,
HOWEVER, that standards of eligibility may be fixed and revised from time to
time by Agent in Agent's reasonable good faith credit judgment. In
determining the amount to be included, Accounts shall be valued net of unpaid
sales taxes. Eligible Accounts shall not include the following:
(a) Accounts (other than employee Accounts which are
governed by clause (c) below) that the Account Debtor has failed to pay (or,
in the case of Eligible Credit Card Accounts, has failed to make the required
minimum payment) within 60 days of the due date PROVIDED, that to the extent
Eligible Accounts which have aged between 31 and 60 days since the due date
constitute more than 15% of the aggregate amount of Eligible Accounts, all
such Eligible Accounts aged between 31 and 60 days since the due date in
excess of 15% of the aggregate amount of Eligible Accounts shall not
constitute Eligible Accounts. For purposes of this subsection (a), the term
"due date" shall mean one Business Day after the date an Account is due and
payable according to its terms;
(b) Accounts owed by an Account Debtor or its Affiliates
where 50% or more of the aggregate amount of all Accounts owed by that
Account Debtor (or its Affiliates) are deemed ineligible under clause (a)
above;
(c) Accounts with respect to which the Account Debtor is an
employee or Affiliate of Borrower to the extent (i) any such Account is not
paid (or, in the case of Eligible Credit Card Accounts, has failed to make
the required minimum payments) within 60 days of the due date or (ii) such
Accounts exceed $200,000 in the aggregate;
(d) Accounts that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive
office in the United States, or (ii) is not organized under the laws of the
United States or any State thereof, or (iii) is the government of
7
<PAGE>
any foreign country or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof, unless (y) the
Account is supported by an irrevocable letter of credit satisfactory to Agent
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Agent and is directly drawable by Agent, or (z) the Account is
covered by credit insurance in form and amount, and by an insurer,
satisfactory to Agent;
(e) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Agent, with the Assignment of
Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(f) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account, but only to the
extent of the outstanding amount owed by Borrower to such Account Debtor;
(g) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage;
(h) Accounts with respect to which the Account Debtor is
paying pursuant to a negotiated payment plan, is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts the collection of which Agent, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition; and
(j) Accounts with respect to which (i) the goods giving rise
to such Account have not been delivered to (or on behalf of) the Account
Debtor; (ii) the Account Debtor has not signed a receipt for such goods;
(iii) the services giving rise to such Account have not been performed and
accepted by the Account Debtor, or (iv) the Account otherwise does not
represent a final sale (except for Borrower's customary return policy
applicable to the return of inventory purchased by Borrower's retail
customers in the ordinary course of Borrower's business) or the payment by
the Account Debtor may be conditional.
"ELIGIBLE GANTOS CREDIT CARD ACCOUNTS" means only the
Borrower's private label credit card Accounts, net of customary reserves
created by Borrower in the ordinary course of business, that arise out of
Borrower's sale of goods or rendition of services, that strictly comply with
each and all of the representations and warranties respecting Accounts made
by Borrower to the Lender Group in the Loan Documents, and that are and at
all times continue to be acceptable
8
<PAGE>
to Agent in all respects; PROVIDED, HOWEVER, that standards of eligibility
may be fixed and revised from time to time by Agent in Agent's reasonable
good faith credit judgment. The term "Eligible Credit Card Accounts"
specifically excludes Visa, MasterCard, American Express, Discover and all
other credit card accounts other than the Borrower's private label credit
card Accounts.
"ELIGIBLE INVENTORY" means Inventory (valued at the lower of
Cost or market on a basis consistent with Borrower's current and historical
accounting practices) consisting of first quality finished goods held for
sale in the ordinary course of Borrower's business and raw materials for such
finished goods, that are located at or in-transit between Borrower's premises
identified on SCHEDULE E-1, that strictly comply with each and all of the
representations and warranties respecting Inventory made by Borrower to the
Lender Group in the Loan Documents, and that are and at all times continue to
be acceptable to the Lender Group in all respects; PROVIDED, HOWEVER, that in
each instance Eligible Inventory shall be calculated net of Inventory
Reserves, and PROVIDED, further that standards of eligibility may be fixed
and revised from time to time by the Agent in the Agent's reasonable good
faith credit judgment. An item of Inventory shall not be included in Eligible
Inventory if:
(a) it is not owned solely by Borrower or Borrower does not
have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on
SCHEDULE E-1;
(c) it is not subject to a valid and perfected first
priority security interest in favor of the Lender Group;
(d) it consists of goods returned or rejected by Borrower's
customers or goods in transit (other than goods in-transit between Borrower's
premises identified on SCHEDULE E-1); and
(e) it is obsolete or slow moving, a restrictive or custom
item, packaging and shipping materials, supplies used or consumed in
Borrower's business, Inventory subject to a Lien in favor of any third
Person, defective goods, "seconds," or Inventory acquired on consignment.
"ELIGIBLE THIRD PARTY CREDIT CARD ACCOUNTS" means the
Borrower's credit card Accounts other than Eligible Gantos Credit Card
Accounts (including Visa, MasterCard, American Express and Discover credit
card Accounts), net of customary reserves created by Borrower in the ordinary
course of business, that arise out of Borrower's sale of goods or rendition
of services, that strictly comply with each and all of the representations
and warranties respecting Accounts made by Borrower to the Lender Group in
the Loan Documents, and that are and at all times continue to be acceptable
to Agent in all respects; PROVIDED, HOWEVER, that standards of eligibility
may be fixed and revised from time to time by Agent in Agent's reasonable
good faith credit judgment.
9
<PAGE>
"ELIGIBLE TRANSFEREE" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having total
assets in excess of $5,000,000,000, or the asset based lending Affiliate of
such bank, (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country, and having total
assets in excess of $5,000,000,000, or the asset based lending Affiliate of
such bank; provided that such bank is acting through a branch or agency
located in the United States, (c) a finance company, insurance or other
financial institution, or fund that is engaged in making, purchasing, or
otherwise investing in commercial loans in the ordinary course of its
business and having total assets in excess of $500,000,000, (d) any Affiliate
(other than individuals) of an existing Lender, and (e) any other Person
approved by Agent and Borrower.
"EQUIPMENT" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts,
goods (other than consumer goods, farm products, or Inventory), wherever
located, including, any interest of Borrower in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. Sections 1000 ET SEQ., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" means any entity whose employees are treated
as employed by the same employer as the employees of Borrower under IRC
Section 414(b), (c), (m) or (o).
"ERISA EVENT" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of
its Subsidiaries or any ERISA Affiliate from a Benefit Plan during a plan
year in which it was a "substantial employer" (as defined in Section
4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a
Benefit Plan in a distress termination (as described in Section 4041(c) of
ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit
Plan or Multiemployer Plan, (e) any event or condition (i) that provides a
basis under Section 4042(a)(1), (2), (3) or (4) of ERISA for the termination
of, or the appointment of a trustee to administer, any Benefit Plan or
Multiemployer Plan, or (ii) that may result in termination of a Multiemployer
Plan pursuant to Section 4041A of ERISA, (f) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiemployer
Plan, or (g) providing any security to any Plan under Section 401(a)(29) of
the IRC by Borrower, any of its Subsidiaries or any ERISA Affiliate.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXISTING LENDER" means Fleet Bank, N.A.
10
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"FEIN" means Federal Employer Identification Number.
"FOOTHILL" means Foothill Capital Corporation, a California
corporation.
"FUNDING DATE" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or tapes,
literature, reports, catalogs, deposit accounts, insurance premium rebates,
tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.
"GOVERNING DOCUMENTS" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"HAZARDOUS MATERIALS" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define,
list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive
toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived
substances, natural gas, natural gas liquids, synthetic gas, drilling fluids,
produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical equipment that contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of 50 parts per million.
"INCREASE MONTHS" means, collectively, the months of January,
June, July and October of each year during the term of this Agreement.
"INDEBTEDNESS" means: (a) all obligations of Borrower for
borrowed money, (b) all obligations of Borrower evidenced by bonds,
debentures, notes, or other similar instruments
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and all reimbursement or other obligations of Borrower in respect of letters
of credit, bankers acceptances, interest rate swaps, or other financial
products, (c) all obligations of Borrower under capital leases, (d) all
obligations or liabilities of others secured by a Lien on any property or
asset of Borrower, irrespective of whether such obligation or liability is
assumed (up to the lesser of the amount of obligation or liability or the
amount of the property or asset), and (e) any obligation of Borrower
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"INDENTURE" means that certain Indenture dated as of April 1,
1995 between the Borrower and the trustee named therein, as amended by
Supplemental Indenture No. 1 dated as of December 15, 1997, Restated
Supplemental Indenture No. 2 dated as of June 30, 1998, and those certain
letter agreements dated on or about June 30, 1998, September 24, 1998 and
November 13, 1998 between the Borrower and certain holders of the notes
issued pursuant to such Indenture, and as further amended or supplemented
from time to time.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"INTANGIBLE ASSETS" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be
treated as intangibles under GAAP.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" means that certain
Intellectual Property Security and Pledge Agreement, of even date herewith,
between Borrower and Foothill.
"INTERCREDITOR AGREEMENT" means that certain Subordination
Agreement between Agent and the Indenture trustee.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and
future raw materials, work in process, finished goods, and packing and
shipping materials, wherever located.
"INVENTORY LETTER OF CREDIT " means a documentary Letter of
Credit issued to support the purchase by Borrower of Inventory prior to
transit to a location set forth on Schedule E-1, that provides that all draws
thereunder must require presentation of customary documentation (including,
if applicable, commercial invoices, packing list, certificate of origin, bill
of lading or airway bill, customs clearance documents, quota statement,
inspection certificate, beneficiaries statement and bill of exchange, bills
of lading, dock warrants, dock receipts, warehouse receipts, or other
documents of title) in form and substance reasonably
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satisfactory to Agent and reflecting the passage to Borrower of title to
first quality Inventory conforming to Borrower's contract with the seller
thereof. Any such Letter of Credit shall cease to be an "Inventory Letter of
Credit" at such time, if any, as the goods purchased thereunder become
Eligible Inventory.
"INVENTORY RESERVES" means such reserves as may be established
from time to time by Agent in Agent's reasonable good faith credit judgment
with respect to the determination of the saleability, at retail, of the
Eligible Inventory or which reflect such other factors as affect the current
retail or market value of the Eligible Inventory.
"INVESTMENT PROPERTY" means all of Borrower's presently
existing and hereafter acquired or arising investment property (as that term
is defined in Section 9-115 of the Code).
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"L/C" has the meaning set forth in SECTION 2.2(a).
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(a).
"LANDLORD LIEN STATE" means any state or jurisdiction under
whose statutory or common law the rights of a landlord in assets of that
landlord's tenant, for unpaid rent, may be senior to a perfected security
interest in such assets. As of the Closing Date, the Landlord Lien States
shall consist of Pennsylvania and Virginia.
"LEASE" means any lease or other agreement, no matter how
styled or structured, which the Borrower is entitled to the use or occupancy
of any space.
"LEASED SHOE DEPARTMENT RESERVE" has the meaning set forth in
the definition of Availability Reserves.
"LENDER" and "LENDERS" have the respective meanings set forth
in the preamble to this Agreement, and shall include any other Person made a
party to this Agreement in accordance with the provisions of SECTION 15.1.
"LENDER GROUP" means, individually and collectively, each of
the individual Lenders and Agent.
"LENDER GROUP EXPENSES" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrower
under any of the Loan Documents that are paid or incurred by the Lender
Group; out-of-pocket fees or charges paid or incurred by the Lender Group in
connection with the Lender Group's transactions with Borrower, including,
fees or charges for photocopying, notarization, couriers and messengers,
telecommunication, public
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record searches (including tax lien, litigation, and UCC searches and
including searches with the patent and trademark office, the copyright
office, or the department of motor vehicles), filing, recording, publication,
appraisal (including periodic Personal Property Collateral or Real Property
Collateral appraisals), real estate surveys, real estate title policies and
endorsements, and environmental audits; costs and expenses incurred by Agent
in the disbursement of funds to Borrower (by wire transfer or otherwise);
charges paid or incurred by Agent resulting from the dishonor of checks;
costs and expenses paid or incurred by Agent to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Personal Property Collateral or the Real
Property Collateral, or any portion thereof, irrespective of whether a sale
is consummated; reasonable costs and expenses paid or incurred by the Lender
Group in examining Borrower's Books; out-of-pocket costs and expenses of
third party claims or any other suit paid or incurred by the Lender Group in
enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or the Lender Group's
relationship with Borrower or any guarantor; and the Lender Group's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing,
defending, or concerning the Loan Documents (including reasonable attorneys
fees and expenses incurred in connection with a "workout," a "restructuring,"
or an Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations), irrespective of whether suit is brought.
"LETTER OF CREDIT" means an L/C or an L/C Guaranty, as the
context requires.
"LIEN" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property,
whether such interest shall be based on the common law, statute, or contract,
whether such interest shall be recorded or perfected, and whether such
interest shall be contingent upon the occurrence of some future event or
events or the existence of some future circumstance or circumstances,
including the lien or security interest arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
security agreement, adverse claim or charge, conditional sale or trust
receipt, or from a lease, consignment, or bailment for security purposes and
also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"LOAN ACCOUNT" has the meaning set forth in SECTION 2.11.
"LOAN DOCUMENTS" means this Agreement, the Disbursement Letter,
the Letters of Credit, the Lockbox Agreements, the Concentration Account
Agreement, the Blocked Account Agreements, the Oversight Agreement, the
Intellectual Property Security Agreement, the Mortgages, the Credit Card
Agreements, the Agent's Fee Letter, any note or notes executed by Borrower
and payable to the Lender Group, and any other agreement entered into, now or
in the future, in connection with this Agreement.
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"LOCKBOX ACCOUNT" shall mean a depositary account established
pursuant to one of the Lockbox Agreements.
"LOCKBOX AGREEMENTS" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Agent, each of which is among Borrower, Agent, and
one of the Lockbox Banks.
"LOCKBOX BANK" means Michigan National Bank.
"LOCKBOXES" has the meaning set forth in SECTION 2.8.
"MATERIAL ADVERSE CHANGE" means (a) a material adverse change in
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower, (b) the material impairment
of Borrower's ability to perform its obligations under the Loan Documents to
which it is a party or of the Lender Group to enforce the Obligations or realize
upon the Collateral, (c) a material adverse effect on the value of the
Collateral or the amount that the Lender Group would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of such Collateral, or (d) a material impairment of the priority of
the Lender Group's Liens with respect to the Collateral.
"MAXIMUM REVOLVING AMOUNT" means $40,000,000.00.
"MORTGAGES" means one or more mortgages, deeds of trust, or deeds
to secure debt, executed by Borrower in favor of Agent, the form and substance
of which shall be satisfactory to Agent, that encumber the Real Property
Collateral and the related improvements thereto.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any
ERISA Affiliate has contributed, or was obligated to contribute, within the past
six years.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, Investment Property, securities
(including the shares of stock of Subsidiaries of Borrower), documents, personal
property leases (wherein Borrower is the lessor), and chattel paper.
"NET RETAIL LIQUIDATION VALUE" means the appraised liquidation
value of Eligible Inventory less liquidation expenses as determined by Agent or
its agents from time to time.
"OBLIGATIONS" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account
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pursuant hereto), obligations, fees, charges, costs, or Lender Group Expenses
(including any fees or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties owing by Borrower to the Lender Group of any kind and description
(whether pursuant to or evidenced by the Loan Documents or pursuant to any
other agreement between the Lender Group and Borrower, and irrespective of
whether for the payment of money), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including any debt, liability, or obligation owing from Borrower to others
that the Lender Group may have obtained by assignment or otherwise, and
further including all interest not paid when due and all Lender Group
Expenses that Borrower is required to pay or reimburse by the Loan Documents,
by law, or otherwise.
"ONE TURN STATE" means any state or jurisdiction under whose
statutory or common law the relative rights of a landlord in assets of that
landlord's tenant, for unpaid rent, may be senior to a perfected security
interest in such assets. As of the Closing Date, the One Turn States shall
consist of Pennsylvania and Virginia.
"ORIGINATING LENDER" has the meaning set forth in SECTION 15.1(E).
"OVERADVANCE" has the meaning set forth in SECTION 2.6.
"OVERSIGHT AGENT" means Paragon Capital LLC, a Delaware limited
liability company, solely in its capacity as oversight agent for the Agent under
the Oversight Agreement, or such other "oversight agent" designated by Agent.
"OVERSIGHT AGREEMENT" means that certain Oversight Agent
Agreement, of even date herewith, among Agent, Lenders, Borrower and Oversight
Agent.
"PARTICIPANT" has the meaning set forth in SECTION 15.1(C).
"PAY-OFF LETTER" means a letter, in form and substance reasonably
satisfactory to Agent, from Existing Lender respecting the amount necessary to
repay in full all of the obligations of Borrower owing to Existing Lender and
obtain a termination or release of all of the Liens existing in favor of
Existing Lender in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined
in Title IV of ERISA, or any successor thereto.
"PERMITTED LIENS" means (a) Liens held by the Lender Group, (b)
Liens for unpaid taxes or other governmental charges that either (i) are not yet
due and payable or (ii) are the subject of Permitted Protests, (c) Liens set
forth on SCHEDULE P-1, (d) the interests of lessors under operating leases and
purchase money security interests and Liens of lessors under Capital Leases to
the extent that the acquisition or lease of the underlying asset is permitted
under SECTION 7.21 and so long as the Lien only attaches to the asset purchased
or acquired and only
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secures the purchase price of the asset, (e) Liens arising by operation of
law in favor of warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet due and payable or are not overdue for more
than 30 days, or (ii) are the subject of Permitted Protests, (f) Liens
arising from deposits made in connection with obtaining worker's compensation
or other unemployment insurance or social security, (g) Liens or deposits to
secure performance of bids, tenders, or leases or other contracts or
statutory obligations (to the extent permitted under this Agreement),
incurred in the ordinary course of business of Borrower and not in connection
with the borrowing of money, (h) Liens arising by reason of security for
surety, customs or appeal bonds in the ordinary course of business of
Borrower, (i) Liens of or resulting from any attachment, judgment or award
that would not cause a Material Adverse Change and as to which the time for
the appeal or petition for rehearing of which has not yet expired, or in
respect of which Borrower is in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured, (j) Liens with respect
to the Real Property Collateral that are exceptions to the commitments for
title insurance issued in connection with the Mortgages, as accepted by
Agent, (k) with respect to any Real Property that is not part of the Real
Property Collateral, easements, rights of way, zoning and other liens and
covenants and restrictions, and similar encumbrances that customarily exist
on properties of Persons engaged in similar activities and similarly situated
and that in any event do not materially interfere with or impair the use or
operation of the Collateral by Borrower or the value of the Lender Group's
Lien thereon or therein, or materially interfere with the ordinary conduct of
the business of Borrower, (l) the Lien of the Indenture trustee on the
key-person life insurance policy owned by the Borrower on the life of L.
Douglas Gantos, (m) Liens of the Borrower's landlords with respect to
Indebtedness permitted under Section 7.1(e), and (n) Liens with respect to
leased shoe department items.
"PERMITTED PROTEST" means the right of Borrower to protest any
Lien (other than any such Lien that secures the Obligations), tax (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
determined in accordance with GAAP, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (c) Agent is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Liens of the Lender Group in
and to the Collateral.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PERSONAL PROPERTY COLLATERAL" means all Collateral other than the
Real Property Collateral.
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"PRO-RATA SHARE" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the aggregate amount of the
Commitments.
"REAL PROPERTY" means any estates or interests in real property
now owned or hereafter acquired by Borrower.
"REAL PROPERTY COLLATERAL" means the parcel or parcels of real
property and the related improvements thereto identified on SCHEDULE R-1, and
any Real Property hereafter acquired by Borrower.
"REFERENCE RATE" means the variable rate of interest, per annum,
most recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"RENEWAL DATE" has the meaning set forth in SECTION 3.4.
"REPORTABLE EVENT" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder with respect to any Benefit Plan
other than a Reportable Event as to which the provision of 30 days notice to the
PBGC is waived under applicable regulations.
"REQUIRED LENDERS" means, at any time: (i) the Oversight Agent;
and (ii) Agent together with such other Lenders whose Pro Rata Shares together
with Agent aggregate 50.1% or more of the Commitments.
"RESERVES" means all (if any) Availability Reserves, Inventory
Reserves and any other reserves which may from time to time be established under
Section 2.1(b) of this Agreement.
"RETAIL" means the Cost of Inventory divided by the Cost Factor.
"RETIREE HEALTH PLAN" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"REVOLVING FACILITY USAGE" means, as of any date of determination,
the aggregate amount of Advances and undrawn or unreimbursed Letters of Credit
outstanding.
"SETTLEMENT" has the meaning set forth in SECTION 2.1(i)(i).
"SETTLEMENT DATE" has the meaning set forth in SECTION 2.1(i)(i).
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"SOLVENT" means, with respect to any Person on a particular date,
that on such date (a) at fair valuations, all of the properties and assets of
such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in light
of all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"SPECIAL SUB-LINE ADVANCES" has the meaning set forth in SECTION
2.1(a)(ii).
"SUBSIDIARY" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
"TANGIBLE NET WORTH" means, as of any date of determination, the
difference of (a) Borrower's total shareholder's equity, MINUS (b) the sum of:
(i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaid expenses,
and (iii) all amounts due to Borrower from Affiliates.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
"YEAR 2000 COMPLIANT" means, with regard to any Person, that all
software in goods produced or sold by, or utilized by and material to the
business operations or financial condition of, such entity are able to interpret
and manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in relation to dates in and
after the year 2000.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
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1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of
Default shall "continue" or be "continuing" until such Event of Default has been
waived in writing by the requisite members of the Lender Group. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, restatements, changes, extensions, modifications,
renewals, replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES; SPECIAL SUB-LINE ADVANCES.
(a)(i) REVOLVING ADVANCES. Subject to the terms and conditions of
this Agreement, each Lender agrees to make revolving advances (such revolving
advances, together with the Special Sub-Line Advances referred to in Section
2.1(a)(ii), are collectively referred to herein as "Advances") to Borrower in an
amount at any one time outstanding not to exceed such Lender's Pro Rata Share of
an amount equal to the lesser of (i) the Maximum Revolving Amount LESS the
outstanding balance of all undrawn or unreimbursed Letters of Credit (other than
Inventory Letters of Credit), or (ii) the Borrowing Base LESS (A) the aggregate
amount of all undrawn or unreimbursed Letters of Credit (other than Inventory
Letters of Credit), LESS (B) the aggregate amount of Availability Reserves LESS
(C) the sum of (aa) 35% of the aggregate amount of all undrawn or unreimbursed
Inventory Letters of Credit, and (bb) freight and duty charges applicable
thereto. For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean:
(x) the LESSER of (i) 90% of Eligible Accounts, LESS the
amount, if any, of the Dilution Reserve, and (ii) $20,000,000 PLUS
(y) THE LESSER of (i) 65% of the Cost value of Eligible
Inventory, and (ii) 80% of the most recently determined Net Retail
Liquidation Value of the Eligible Inventory, MINUS
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(z) the aggregate amount of reserves, if any, established
by Agent under SECTIONS 2.1(B), 6.14 AND 10.
The term "Borrowing Base" shall also include amounts available in respect of the
Special Sub-Line Advances in accordance with SECTION 2.1(A)(II) and, for the
period from the Closing Date through January 31, 1999 only, the Special Eligible
Third Party Credit Card Advances in accordance with SECTION 2.1(A)(III).
(a)(ii) SPECIAL SUB-LINE ADVANCES. Subject to the terms and
conditions of this Agreement, each Lender agrees to make special sub-line
advances ("Special Sub-Line Advances") to Borrower in each month other
than the Increase Months in an amount at any one time outstanding not to
exceed such Lender's Pro Rata Share of an amount equal to the LOWEST of:
(x) 10% of the Cost value of Eligible Inventory;
(y) 10% of the most recently determined Net Retail
Liquidation Value of Eligible Inventory; and
(z) $10,000,000;
PROVIDED, HOWEVER, that subject to the terms and conditions of this
Agreement, each Lender agrees to make Special Sub-Line Advances to
Borrower during the Increase Months in an amount at any one time
outstanding not to exceed such Lender's Pro Rata Share of an amount equal
to the LOWEST of:
(xx) 10% of the Cost value of Eligible Inventory;
(yy) 15% of the most recently determined Net Retail
Liquidation Value of Eligible Inventory; and
(zz) $10,000,000;
(a)(iii) SPECIAL ELIGIBLE THIRD PARTY CREDIT CARD ADVANCES.
Subject to the terms and conditions of this Agreement, each Lender agrees
to make from the Closing Date through January 31, 1999 only special
eligible third party credit card advances ("Special Eligible Third Party
Credit Card Advances") to Borrower in an amount at any one time
outstanding not to exceed such Lender's Pro Rata Share of an amount equal
to 90% of Eligible Third Party Credit Card Accounts, LESS the amount, if
any, of the Dilution Reserve, PROVIDED, HOWEVER, that in no event shall
the amount of Special Eligible Third Party Credit Card Advances PLUS the
amount of Advances made pursuant to Section 2.1(a)(i)(x) exceed
$20,000,000;
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PROVIDED, HOWEVER, that in no event will Advances (on a combined
basis under Sections 2.1(a)(i), 2.1(a)(ii) and 2.1(a)(iii)) exceed the lesser
of: (i) 33.5% of the Retail value of Eligible Inventory; and (ii) during the
Increase Months, 95% of the Net Retail Liquidation Value of Eligible Inventory,
and at any other time, 90% of the Net Retail Liquidation Value of Eligible
Inventory, and provided, further, that neither Special Sub-Line Advances nor
Special Eligible Third Party Credit Card Advances will be available to the
Borrower unless, as of the date of any request by the Borrower for a Special
Sub-Line Advance or a Special Eligible Third Party Credit Card Advance, as the
case may be, and after giving effect to any such Advance, the Borrower shall be
in compliance with the retail performance covenants set forth in Section 7.21.
(b) Anything to the contrary in SECTION 2.1(a) above
notwithstanding, Agent may create reserves against the Borrowing Base or reduce
its advance rates based upon Eligible Inventory without declaring an Event of
Default (i) for any amount subject to a Permitted Protest, (ii) for amounts
owing to landlords or similar Persons who assert a statutory lien in respect of
any of the Collateral, (iii) as determined in accordance with Section 7.21 based
on noncompliance with the covenants set forth in such Section, and (iv) as
determined by Agent in its reasonable good faith credit judgment.
(c) Amounts borrowed pursuant to this SECTION 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed at any
time during the term of this Agreement.
(d) PROCEDURE FOR BORROWING. Each Borrowing shall be made upon
Borrower's irrevocable request therefor delivered to Agent (which notice must be
received by Agent no later than 10:00 a.m. (California time) on the Funding Date
if such advance is for $5,000,000 or less or no later than 10:00 a.m.
(California time) on the Business Day immediately preceding the requested
Funding Date if such advance is for more than $5,000,000) specifying (i) the
amount of the Borrowing; and (ii) the requested Funding Date, which shall be a
Business Day.
(e) AGENT'S ELECTION. Promptly after receipt of a request for
a Borrowing pursuant to SECTION 2.1(d) in excess of $5,000,000, the Agent shall
elect, in its discretion, (i) to have the terms of SECTION 2.1(f) apply to such
requested Borrowing, or (ii) to make an Agent Loan pursuant to the terms of
SECTION 2.1(g) in the amount of the requested Borrowing. Any requested
Borrowing of $5,000,000 or less shall be made as an Agent Loan pursuant to the
terms of SECTION 2.1(g).
(f) MAKING OF ADVANCES.
(i) In the event that the Agent shall elect to have the
terms of this SECTION 2.1(f) apply to a requested Borrowing in excess of
$5,000,000 as described in SECTION 2.1(e), then promptly after receipt of
a request for a Borrowing pursuant to SECTION 2.1(d), the Agent shall
notify the Lenders, not later than 1:00 p.m. (California time) on the
Business Day immediately preceding the Funding Date applicable thereto,
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by telephone and promptly followed by telecopy, or other similar form of
transmission, of the requested Borrowing. Each Lender shall make the
amount of such Lender's Pro Rata Share of the requested Borrowing
available to the Agent in same day funds, to such account of the Agent as
the Agent may designate, not later than 12:00 noon (California time) on
the Funding Date applicable thereto. After the Agent's receipt of the
proceeds of such Advances, upon satisfaction of the applicable conditions
precedent set forth in SECTIONS 3.1 and 3.2, the Agent shall make the
proceeds of such Advances available to Borrower on the applicable Funding
Date by transferring same day funds equal to the proceeds of such
Advances received by the Agent to the Designated Deposit Account;
PROVIDED, HOWEVER, that, subject to the provisions of SECTION 2.1(L), the
Agent shall not request any Lender to make, and no Lender shall have the
obligation to make, any Advance if the Agent shall have received written
notice from any Lender, or otherwise has actual knowledge, that (A) one
or more of the applicable conditions precedent set forth in SECTIONS 3.1
or 3.2 will not be satisfied on the requested Funding Date for the
applicable Borrowing, or (B) the requested Borrowing would exceed the
Availability on such Funding Date.
(ii) Unless Agent receives notice from a Lender on or
prior to the Closing Date or, with respect to any Borrowing after the
Closing Date, at least one Business Day prior to the date of such
Borrowing, that such Lender will not make available as and when required
hereunder to Agent for the account of Borrower the amount of that
Lender's Pro Rata Share of the Borrowing, Agent may assume that each
Lender has made or will make such amount available to Agent in
immediately available funds on the Funding Date and Agent may (but shall
not be so required), in reliance upon such assumption, make available to
Borrower on such date a corresponding amount. If and to the extent any
Lender shall not have made its full amount available to Agent in
immediately available funds and Agent in such circumstances has made
available to Borrower such amount, that Lender shall on the Business Day
following such Funding Date make such amount available to Agent, together
with interest at the Defaulting Lenders Rate for each day during such
period. A notice from Agent submitted to any Lender with respect to
amounts owing under this subsection shall be conclusive, absent manifest
error. If such amount is paid to Agent such payment to Agent shall
constitute such Lender's Advance on the date of Borrowing for all
purposes of this Agreement. If such amount is not paid to Agent on the
Business Day following the Funding Date, Agent will notify Borrower of
such failure to fund and, upon demand by Agent, Borrower shall pay such
amount to Agent for Agent's account, together with interest thereon for
each day elapsed since the date of such Borrowing, at a rate per annum
equal to the interest rate applicable at the time to the Advances
composing such Borrowing. The failure of any Lender to make any Advance
on any Funding Date shall not relieve any other Lender of any obligation
hereunder to make an Advance on such Funding Date, but no Lender shall be
responsible for the failure of any other Lender to make the Advance to be
made by such other Lender on any Funding Date. Any Lender that fails to
make any Advance that it is required to make hereunder on any Funding
Date and that has not cured such failure
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by making such Advance within one Business Day after written demand
upon it by Agent to do so, shall constitute a "Defaulting Lender" for
purposes of this Agreement until such Advance is made.
(iii) Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by Borrower to Agent for the
Defaulting Lender's benefit; nor shall a Defaulting Lender be entitled to
the sharing of any payments hereunder. Amounts payable to a Defaulting
Lender shall instead be paid to or retained by Agent. Agent may hold
and, in its discretion, re-lend to Borrower the amount of all such
payments received or retained by it for the account of such Defaulting
Lender. Solely for the purposes of voting or consenting to matters with
respect to the Loan Documents and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a "Lender" and such
Defaulting Lender's Commitment shall be deemed to be zero. This section
shall remain effective with respect to such Defaulting Lender until (A)
the Obligations under this Agreement shall have been declared or shall
have become immediately due and payable or (B) the requisite
non-Defaulting Lenders, Agent, and Borrower shall have waived such
Defaulting Lender's default in writing. The operation of this section
shall not be construed to increase or otherwise affect the Commitment of
any non-Defaulting Lender, or relieve or excuse the performance by
Borrower of their duties and obligations hereunder.
(g) MAKING OF AGENT LOANS.
(i) In the event the Agent shall elect to have the terms
of this SECTION 2.1(g) apply to a requested Borrowing in excess of
$5,000,000 as described in SECTION 2.1(e) or in the event of any
requested Borrowing of $5,000,000 or less, Agent shall make an Advance in
the amount of such Borrowing (any such Advance made solely by Agent
pursuant to this SECTION 2.1(g) being referred to as an "Agent Loan" and
such Advances being referred to collectively as "Agent Loans") available
to Borrower on the Funding Date applicable thereto by transferring same
day funds to Borrower's Designated Deposit Account. Each Agent Loan is
an Advance hereunder and shall be subject to all the terms and conditions
applicable to other Advances, except that all payments thereon shall be
payable to Agent solely for its own account (and for the account of the
holder of any participation interest with respect to such Advance).
Subject to the provisions of SECTION 2.1(l), the Agent shall not make any
Agent Loan if the Agent shall have received written notice from any
Lender, or otherwise has actual knowledge, that (i) one or more of the
applicable conditions precedent set forth in SECTIONS 3.1 or 3.2 will not
be satisfied on the requested Funding Date for the applicable Borrowing,
or (ii) the requested Borrowing would exceed the Availability on such
Funding Date. Agent shall not otherwise be required to determine whether
the applicable conditions precedent set forth in SECTIONS 3.1 or 3.2 have
been satisfied on the Funding Date applicable thereto prior to making, in
its sole discretion, any Agent Loan.
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(ii) The Agent Loans shall be secured by the Collateral
and shall constitute Advances and Obligations hereunder, and shall bear
interest at the rate applicable from time to time to Obligations pursuant
to SECTION 2.7.
(h) AGENT ADVANCES.
(i) Agent hereby is authorized by Borrower and the
Lenders, from time to time in Agent's sole discretion, (1) after the
occurrence of a Default or an Event of Default (but without constituting
a waiver of such Default or Event of Default), or (2) at any time that
any of the other applicable conditions precedent set forth in SECTION 3.1
or 3.2 have not been satisfied, to make Advances to Borrower on behalf of
the Lenders which Agent, in its reasonable business judgment, deems
necessary or desirable (a) to preserve or protect the Collateral, or any
portion thereof, (b) to enhance the likelihood of, or maximize the amount
of, repayment of the Obligations, or (c) to pay any other amount
chargeable to Borrower pursuant to the terms of this Agreement, including
Lender Group Expenses and the costs, fees, and expenses described in
SECTION 10 (any of the Advances described in this SECTION 2.1(h) being
hereinafter referred to as "Agent Advances"); PROVIDED, that Agent shall
not make any Agent Advances to Borrower without the consent of the
Required Lenders if the amount thereof would exceed $5,000,000 in the
aggregate at any one time.
(ii) Agent Advances shall be repayable on demand and
secured by the Collateral, shall constitute Advances and Obligations
hereunder, and shall bear interest at the rate applicable from time to
time to the Obligations pursuant to SECTION 2.7.
(i) SETTLEMENT. It is agreed that each Lender's funded portion
of the Advances is intended by the Lenders to be equal at all times to such
Lender's Pro Rata Share of the outstanding Advances. Such agreement
notwithstanding, the Agent and the Lenders agree (which agreement shall not be
for the benefit of or enforceable by Borrower) that in order to facilitate the
administration of this Agreement and the other Loan Documents, settlement among
them as to the Advances, the Agent Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:
(i) The Agent shall request settlement ("Settlement") with the
Lenders on a weekly basis, or on a more frequent basis if so determined
by the Agent, (1) for itself, with respect to each Agent Loan and Agent
Advance, and (2) with respect to Collections received, as to each by
notifying the Lenders by telephone and promptly followed by telecopy, or
other similar form of transmission, of such requested Settlement, no
later than 1:00 p.m. (California time) on the Business Date immediately
preceding the date of such requested Settlement (the "Settlement Date").
Such notice of a Settlement Date shall include a summary statement of the
amount of outstanding Advances, Agent Loans, and Agent Advances for the
period since the prior Settlement Date, the amount of repayments received
in such period, and the amounts allocated to each Lender of the
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principal, interest, fees, and other charges for such period. Subject to
the terms and conditions contained herein (including SECTION 2.1(a)(i)
AND (ii)): (y) if a Lender's balance of the Advances, Agent Loans, and
Agent Advances exceeds such Lender's Pro Rata Share of the Advances,
Agent Loans, and Agent Advances as of a Settlement Date, then Agent shall
by no later than 1:00 p.m (California time) on the Settlement Date
transfer in same day funds to the account of such Lender as Lender may
designate, an amount such that each such Lender shall, upon receipt of
such amount, have as of the Settlement Date, its Pro Rata Share of the
Advances, Agent Loans, and Agent Advances; and (z) if a Lender's balance
of the Advances, Agent Loans, and Agent Advances is less than such
Lender's Pro Rata Share of the Advances, Agent Loans, and Agent Advances
as of a Settlement Date, such Lender shall no later than 1:00 p.m.
(California time) on the Settlement Date transfer in same day funds to
such account of the Agent as the Agent may designate, an amount such that
each such Lender shall, upon transfer of such amount, have as of the
Settlement Date, its Pro Rata Share of the Advances, Agent Loans, and
Agent Advances. Such amounts made available to the Agent under clause
(z) of the immediately preceding sentence shall be applied against the
amounts of the applicable Agent Loan or Agent Advance and, together with
the portion of such Agent Loan or Agent Advance representing Foothill's
Pro Rata Share thereof, shall constitute Advances of such Lenders. If
any such amount is not made available to the Agent by any Lender on the
Settlement Date applicable thereto to the extent required by the terms
hereof, the Agent shall be entitled to recover for its account such
amount on demand from such Lender together with interest thereon at the
Defaulting Lenders Rate.
(ii) In determining whether a Lender's balance of the
Advances, Agent Loans, and Agent Advances is less than, equal to, or
greater than such Lender's Pro Rata Share of the Advances, Agent Loans,
and Agent Advances as of a Settlement Date, Agent shall, as part of the
relevant Settlement, apply to such balance the portion of payments
actually received by Agent with respect to principal, interest, fees
payable by Borrower and allocable to the Lenders hereunder, and proceeds
of Collateral. To the extent that a net amount is owed to any such
Lender after such application, such net amount shall be distributed by
Agent to that Lender as part of such Settlement; PROVIDED, HOWEVER, that
the closing fee payable by Borrower under SECTION 2.12(a) shall be
distributed to the Lenders within three Business Days following the
Closing Date without regard to the netting of amounts owing to or owed by
any Lender as part of a Settlement.
(iii) Between Settlement Dates, the Agent, to the extent
no Agent Advances or Agent Loans are outstanding, may pay over to
Foothill any payments received by the Agent, which in accordance with the
terms of the Agreement would be applied to the reduction of the Advances,
for application to Foothill's Pro Rata Share of the Advances. If, as of
any Settlement Date, Collections received since the then immediately
preceding Settlement Date have been applied to Foothill's Pro Rata Share
of the Advances other than to Agent Loans or Agent Advances, as provided
for in the previous sentence, Foothill shall pay to the Agent for the
accounts of the Lenders, and
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Agent shall pay to the Lenders, to be applied to the outstanding
Advances of such Lenders, an amount such that each Lender shall, upon
receipt of such amount, have, as of such Settlement Date, its Pro Rata
Share of the Advances. During the period between Settlement Dates,
the Agent with respect to Agent Loans and Agent Advances, and each
Lender with respect to the Advances other than Agent Loans and Agent
Advances, shall be entitled to interest at the applicable rate or
rates payable under this Agreement on the daily amount of funds
employed by the Agent or the Lenders, as applicable.
(j) NOTATION. The Agent shall record on its books the
principal amount of the Advances owing to each Lender, including the Agent Loans
and Agent Advances owing to the Agent, and the interests therein of each Lender,
from time to time. In addition, each Lender is authorized, at such Lender's
option, to note the date and amount of each payment or prepayment of principal
of such Lender's Advances in its books and records, including computer records,
such books and records constituting rebuttably presumptive evidence, absent
manifest error, of the accuracy of the information contained therein.
(k) LENDERS' FAILURE TO PERFORM. All Advances (other than
Agent Loans and Agent Advances) shall be made by the Lenders simultaneously and
in accordance with their Pro Rata Shares. It is understood that (i) no Lender
shall be responsible for any failure by any other Lender to perform its
obligation to make any Advances hereunder, nor shall any Commitment of any
Lender be increased or decreased as a result of any failure by any other Lender
to perform its obligation to make any Advances hereunder, and (ii) no failure by
any Lender to perform its obligation to make any Advances hereunder shall excuse
any other Lender from its obligation to make any Advances hereunder.
(l) OVERADVANCES. Agent may make voluntary Overadvances
without the written consent of the Required Lenders for amounts charged to the
applicable Loan Account for interest, fees or Lender Group Expenses pursuant to
SECTION 2.1(h)(i)(2)(U). If the conditions for borrowing under SECTION 3.2(d)
cannot be fulfilled, the Agent may, but is not obligated to, knowingly and
intentionally continue to make Advances (including Agent Loans) to Borrower such
failure of condition notwithstanding, so long as, at any time, (i) either (a)
the outstanding Revolving Facility Usage would not exceed the Borrowing Base by
more than $5,000,000 or (b) (y) the outstanding Revolving Facility Usage would
not exceed the Borrowing Base by more than the amount proposed by Agent and
agreed to by the Required Lenders, and (z) such Advances are made pursuant to a
plan (proposed by Agent and agreed to by the Required Lenders) for the
elimination of the outstanding Revolving Facility Usage in excess of the
Borrowing Base, and (ii) the outstanding Revolving Facility Usage (except for
and excluding amounts charged to the applicable Loan Account for interest, fees,
or Lender Group Expenses) does not exceed the Maximum Revolving Amount. The
foregoing provisions are for the sole and exclusive benefit of the Agent and the
Lenders and are not intended to benefit Borrower in any way. The Advances and
Agent Loans, as applicable, that are made pursuant to this SECTION 2.1(l) shall
be subject to the same terms and conditions as any other Agent Advance or Agent
Loan, as applicable, except that the rate of interest applicable thereto shall
be the rates set forth in SECTION
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2.7(c)(i) without regard to the presence or absence of a Default or Event of
Default; PROVIDED, that the Required Lenders may, at any time, revoke Agent's
authorization contained in this SECTION 2.1(l) to make Overadvances (except
for and excluding amounts charged to the applicable Loan Account for
interest, fees, or Lender Group Expenses), any such revocation to be in
writing and to become effective upon Agent's receipt thereof; PROVIDED
FURTHER, HOWEVER, that the making of such Overadvances shall not constitute a
waiver of such Event of Default arising therefrom.
In the event Agent obtains actual knowledge that Revolving
Facility Usage exceeds the amount permitted by the preceding paragraph,
regardless of the amount of or reason for such excess, Agent shall notify
Lenders as soon as practicable (and prior to making any (or any further)
intentional Overadvances (except for and excluding amounts charged to the
applicable Loan Account for interest, fees, or Lender Group Expenses) unless
Agent determines that prior notice would result in imminent harm to the
Collateral or its value), and Lenders thereupon shall, together with Agent,
jointly determine the terms of arrangements that shall be implemented with
Borrower intended to reduce, within a reasonable time, the outstanding principal
amount of the Advances to Borrower to an amount permitted by the preceding
paragraph. In the event any Lender disagrees over the terms of reduction and/or
repayment of any Overadvance, the terms of reduction and/or repayment thereof
shall be implemented according to the determination of the Required Lenders.
Each Lender shall be obligated to settle with Agent as provided in
SECTION 2.1(i) for the amount of such Lender's Pro Rata Share of any
unintentional Overadvances by Agent reported to such Lender, any intentional
Overadvances made as permitted under this SECTION 2.1(l), and any Overadvances
resulting from the charging to the applicable Loan Account of interest, fees, or
Lender Group Expenses.
(m) EFFECT OF BANKRUPTCY. If a case is commenced by or
against any Borrower under the Bankruptcy Code, or other statute providing for
debtor relief, then, without the approval of Required Lenders the Lender Group
shall not make additional loans or provide additional financial accommodations
under the Loan Documents to such Borrower as debtor or debtor-in-possession, or
to any trustee for such Borrower, nor consent to the use of cash collateral
(PROVIDED that the applicable Loan Account shall continue to be charged, to the
fullest extent permitted by law, for accruing interest, fees, and Lender Group
Expenses).
2.2 LETTERS OF CREDIT.
(a) AGREEMENT TO CAUSE ISSUANCE; AMOUNTS; OUTSIDE EXPIRATION
DATE. Subject to the terms and conditions of this Agreement, Agent agrees to
cause an Affiliate to issue letters of credit for the account of Borrower (each,
an "L/C") or to issue guarantees of payment (each such guaranty, an "L/C
Guaranty") with respect to letters of credit issued by an issuing bank for the
account of Borrower. Agent shall have no obligation to issue a Letter of Credit
if any of the following would result:
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(i) the aggregate amount of all undrawn or unreimbursed
Letters of Credit would exceed the lower of: (x) the Maximum Revolving
Amount LESS the amount of outstanding Advances (including any Agent
Advances and Agent Loans); or (y) $5,000,000; or
(ii) the outstanding Obligations would exceed the Maximum
Revolving Amount.
Borrower expressly understands and agrees that Agent shall have no obligation
to arrange for the issuance by issuing banks of the letters of credit that
are to be the subject of L/C Guarantees. Borrower and the Lender Group
acknowledge and agree that certain of the letters of credit that are to be
the subject of L/C Guarantees may be outstanding on the Closing Date. Each
Letter of Credit shall have an expiry date no later than 30 days prior to the
date on which this Agreement is scheduled to terminate under SECTION 3.4
(without regard to any potential renewal term) and all such Letters of Credit
shall be in form and substance acceptable to Agent in its sole discretion.
If the Lender Group is obligated to advance funds under a Letter of Credit,
Borrower immediately shall reimburse such amount to Agent and, in the absence
of such reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an Advance hereunder and, thereafter, shall bear
interest at the rate then applicable to Advances under SECTION 2.7.
(b) INDEMNIFICATION. Borrower hereby agrees to indemnify,
save, defend, and hold the Lender Group harmless from any loss, cost, expense,
or liability, including payments made by the Lender Group, expenses, and
reasonable attorneys fees incurred by the Lender Group arising out of or in
connection with any Letter of Credit, except to the extent that any such loss,
cost, expense, or liability arises from fraud or willful misconduct on the part
of the Agent. Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied by the Lender Group and
opened to or for Borrower's account or by Agent's interpretations of any Letter
of Credit issued by Agent to or for Borrower's account, even though this
interpretation may be different from Borrower's own, and Borrower understands
and agrees that the Lender Group shall not be liable for any error, negligence,
or mistake, whether of omission or commission, in following Borrower's
instructions or those contained in the Letter of Credit or any modifications,
amendments, or supplements thereto. Borrower understands that the L/C
Guarantees may require the Lender Group to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold the
Lender Group harmless with respect to any loss, cost, expense (including
reasonable attorneys fees), or liability incurred by the Lender Group under any
L/C Guaranty as a result of the Lender Group's indemnification of any such
issuing bank, except to the extent that any such any loss, cost, expense, or
liability arises from fraud or willful misconduct on the part of the Agent.
(c) SUPPORTING MATERIALS. Borrower hereby authorizes and
directs any bank that issues a letter of credit guaranteed by an L/C Guaranty to
deliver to Agent all instruments, documents, and other writings and property
received by the issuing bank pursuant to such letter
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of credit, and to accept and rely upon Agent's instructions and agreements
with respect to all matters arising in connection with such letter of credit
and the related application. Borrower may or may not be the "applicant" or
"account party" with respect to such letter of credit.
(d) COSTS OF LETTERS OF CREDIT. Any and all charges,
commissions, fees, and costs incurred by Agent relating to the letters of credit
guaranteed by an L/C Guaranty shall be considered Lender Group Expenses for
purposes of this Agreement and immediately shall be reimbursable by Borrower to
Agent.
(e) INDEMNIFICATION. Immediately upon the termination of this
Agreement, Borrower agrees to either (i) provide cash collateral to be held by
Agent in an amount equal to 102% of the maximum amount of the Lender Group's
obligations under outstanding Letters of Credit, or (ii) cause to be delivered
to Agent releases of all of the Lender Group's obligations under outstanding
Letters of Credit or under Letter of Credit Guaranty. At Agent's discretion,
any proceeds of Collateral received by Agent after the occurrence and during the
continuation of an Event of Default may be held as the cash collateral required
by this SECTION 2.2(e).
(f) INCREASED COSTS. If by reason of (i) any change in any
applicable law, treaty, rule, or regulation or any change in the interpretation
or application by any governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or the Lender Group
with any direction, request, or requirement (irrespective of whether having the
force of law) of any governmental authority or monetary authority including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is or
shall be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(ii) there shall be imposed on the issuing bank or the
Lender Group any other condition regarding any letter of credit, or
Letter of Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or the Lender Group of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or the
Lender Group, then, and in any such case, Agent may, at any time within a
reasonable period after the additional cost is incurred or the amount received
is reduced, notify Borrower, and Borrower shall pay on demand such amounts as
the issuing bank or Agent may specify to be necessary (or reasonably necessary,
in the case of Agent) to compensate the issuing bank or Agent for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
SECTION 2.7(a) OR (c)(i), as applicable. The determination by the issuing bank
or Agent, as the case may be, of any amount due pursuant to this SECTION 2.2(f),
as set forth in a certificate setting forth the
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calculation thereof in reasonable detail, shall, in the absence of manifest
or demonstrable error, be final and conclusive and binding on all of the
parties hereto.
(g) PARTICIPATIONS.
(i) PURCHASE OF PARTICIPATIONS. Immediately upon
issuance of any Letter of Credit in accordance with this SECTION 2.2,
each Lender shall be deemed to have irrevocably and unconditionally
purchased and received without recourse or warranty, an undivided
interest and participation in the credit support or enhancement provided
through the Agent to such issuer in connection with the issuance of such
Letter of Credit, equal to such Lender's Pro Rata Share of the face
amount of such Letter of Credit (including, without limitation, all
obligations of Borrower with respect thereto, and any security therefor
or guaranty pertaining thereto).
(ii) DOCUMENTATION. Upon the request of any Lender, the
Agent shall furnish to such Lender copies of any Letter of Credit,
reimbursement agreements executed in connection therewith, application
for any Letter of Credit and credit support or enhancement provided
through the Agent in connection with the issuance of any Letter of
Credit, and such other documentation as may reasonably by requested by
such Lender.
(iii) OBLIGATIONS IRREVOCABLE. The obligations of each
Lender to make payments to the Agent with respect to any Letter of Credit
or with respect to any credit support or enhancement provided through the
Agent with respect to a Letter of Credit, and the obligations of Borrower
to make payments to the Agent, for the account of the Lenders, shall be
irrevocable, not subject to any qualification or exception whatsoever,
including, without limitation, any of the following circumstances:
(A) any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;
(B) the existence of any claim, setoff, defense, or
other right which any Borrower may have at any time
against a beneficiary named in a Letter of Credit or
any transferee of any Letter of Credit (or any
Person for whom any such transferee may be acting),
any Lender, the Agent, the issuer of such Letter of
Credit, or any other Person, whether in connection
with this Agreement, any Letter of Credit, the
transactions contemplated herein or any unrelated
transactions (including any underlying transactions
between such Borrower or any other Person and the
beneficiary named in any Letter of Credit);
(C) any draft, certificate, or any other document
presented under the Letter of Credit proving to be
forged, fraudulent, invalid, or
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insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(D) the surrender or impairment of any security for the
performance or observance of any of the terms of any
of the Loan Documents; or
(E) the occurrence of any Default or Event of Default.
2.3 RESERVED.
2.4 RESERVED.
2.5 PAYMENTS.
(a) PAYMENTS BY BORROWER.
(i) All payments to be made by Borrower shall be made
without set-off, recoupment, deduction, or counterclaim, except as
otherwise required by law. Except as otherwise expressly provided
herein, all payments by Borrower shall be made to Agent for the account
of the Lenders or Agent, as the case may be, at Agent's address set forth
in SECTION 12, and shall be made in immediately available funds, no later
than 11:00 a.m. (California time) on the date specified herein. Any
payment received by Agent later than 11:00 a.m. (California time), at the
option of Agent, shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue
until such following Business Day.
(ii) Whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day,
and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be.
(iii) Unless Agent receives notice from Borrower prior to
the date on which any payment is due to the Lenders that Borrower will
not make such payment in full as and when required, Agent may assume that
Borrower has made such payment in full to Agent on such date in
immediately available funds and Agent may (but shall not be so required),
in reliance upon such assumption, distribute to each Lender on such due
date an amount equal to the amount then due such Lender. If and to the
extent Borrower has not made such payment in full to Agent, each Lender
shall repay to Agent on demand such amount distributed to such Lender,
together with interest thereon at the Reference Rate for each day from
the date such amount is distributed to such Lender until the date repaid.
(b) APPORTIONMENT AND APPLICATION OF PAYMENTS. Except as
otherwise provided with respect to Defaulting Lenders, aggregate principal and
interest payments shall be
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apportioned ratably among the Lenders (according to the unpaid principal
balance of the Advances to which such payments relate held by each Lender)
and payments of the fees (other than fees designated for Agent's separate
account) shall, as applicable, be apportioned ratably among the Lenders. All
payments shall be remitted to Agent and all such payments not relating to
principal or interest on specific Advances, or not constituting payment of
specific fees and all proceeds of Collateral received by Agent, shall be
applied, FIRST, to pay any fees or expense reimbursements then due to Agent
from Borrower; SECOND, to pay any fees or expense reimbursements then due to
the Lenders from Borrower; THIRD, to pay interest due in respect of all
Advances, including Agent Loans and Agent Advances; FOURTH, to pay or prepay
principal of Agent Loans and Agent Advances; FIFTH, ratably to pay principal
of the Advances (other than Agent Loans and Agent Advances) and unreimbursed
obligations in respect of Letters of Credit; and SIXTH, ratably to pay any
other Obligations due to Agent or any Lender by Borrower. Agent shall
promptly distribute to each Lender, pursuant to the applicable wire transfer
instructions received from each Lender in writing, such funds as it may be
entitled to receive, subject to a Settlement delay as provided for in SECTION
2.1(i).
2.6 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to the Lender Group pursuant to SECTIONS 2.1, 2.2
AND 2.4 is greater than either the Dollar or percentage limitations set forth in
SECTIONS 2.1, 2.2 OR 2.4 (an "Overadvance"), Borrower immediately shall pay to
Agent, in cash, the amount of such excess to be used by Agent to reduce the
Obligations pursuant to the terms of SECTION 2.5(b).
2.7 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) INTEREST RATE. Except as provided in SECTION 2.7(c),
below, (i) all Obligations (except for undrawn Letters of Credit, and Special
Sub-Line Advances) shall bear interest on the Daily Balance at a per annum
rate of 1.50 percentage points above the Reference Rate, and (ii) the Special
Sub-Line Advances and the Special Eligible Third Party Credit Card Advances
shall bear interest at a per annum rate of 4.0 percentage points above the
Reference Rate.
(b) LETTER OF CREDIT FEE. Borrower shall pay Agent, for the
benefit of the Lender Group, a fee (in addition to the charges, commissions,
fees, and costs set forth in SECTION 2.2(d)) equal to 1.5% per annum times the
aggregate undrawn amount of all Letters of Credit outstanding as of the end of
the day.
(c) DEFAULT RATE. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit and Special Sub-Line Advances) shall bear interest on the
Daily Balance at a per annum rate equal to 4.5 percentage points above the
Reference Rate, (ii) the Special Sub-Line Advances shall bear interest at a per
annum rate equal to 7 percentage points above the Reference Rate, and (iii) the
Letter of Credit fee provided in SECTION 2.7(b) shall be increased to 4.5% per
annum times the aggregate undrawn amount of all outstanding Letters of Credit.
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(d) PAYMENTS. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Borrower hereby authorizes Agent, at its option,
without prior notice to Borrower, to charge such interest and Letter of Credit
fees, all Lender Group Expenses (as and when incurred), the charges,
commissions, fees, and costs provided for in SECTION 2.2(d) (as and when accrued
or incurred), the fees and charges provided for in SECTION 2.12 (as and when
accrued or incurred), and all installments or other payments due under the Loan
Documents to the applicable Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any interest not
paid when due shall be compounded and shall thereafter accrue interest at the
rate then applicable to Advances hereunder.
(e) COMPUTATION. The Reference Rate as of the date of this
Agreement is 7.75% per annum. In the event the Reference Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and the Lender Group, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; PROVIDED, HOWEVER, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, IPSO FACTO as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.8 COLLECTION OF ACCOUNTS. Borrower shall at all times maintain
lockboxes (the "Lockboxes") and, immediately after the Closing Date, shall
instruct all Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrower to remit ALL Collections in respect
thereof to such Lockboxes. Borrower, Agent, and the Lockbox Banks shall enter
into the Lockbox Agreements, which among other things shall provide for the
opening of a Lockbox Account for the deposit of Collections at a Lockbox Bank.
Borrower agrees that all Collections and other amounts received by Borrower from
any Account Debtor or any other source immediately upon receipt shall be
deposited into a Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrower without the prior written
consent of Agent. Upon the terms and subject to the conditions set forth in the
Lockbox Agreements, all amounts received in each Lockbox Account shall be wired
each Business Day into an account (the "Agent's Account") maintained by Agent at
a depositary selected by Agent.
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(a) Borrower shall cause all cash received by Borrower at any
retail store location (other than cash for use in the Borrower's cash registers
up to a maximum amount of $2,000 per store and $250,000 in the aggregate) to be
deposited on a daily basis into any Blocked Account or, at Agent's option, any
other bank account, THEREUPON to be deposited to or sent by electronic funds
transfer (including, but not limited to, ACH transfers) on each Business Day to
the Concentration Account. In addition, Borrower agrees that all other
Collections and other amounts received directly by Borrower from any Account
Debtor or any other source promptly upon receipt shall be deposited into any
Blocked Account. With respect to such bank accounts that are Blocked Accounts,
Borrower, Agent and the Blocked Account Banks shall enter into Blocked Account
Agreements, which, among other things, with respect to all Blocked Accounts
(other than the Concentration Account) will provide for all cash deposited into
a Blocked Account to be sent by electronic funds transfer (including, but not
limited to, ACH transfers) each Business Day to the Concentration Account. With
respect to each account (other than Blocked Accounts) into which Collections are
deposited, Borrower shall irrevocably authorize and direct in writing, in form
and substance satisfactory to Agent, each such bank to send via wire transfer
(including, but not limited to, ACH transfers) each Business Day all funds
deposited into each such account to the Concentration Account and each such bank
shall agree to do so. No Blocked Account Agreement or other arrangement
contemplated in this SECTION 2.8(a) shall be modified by Borrower without the
prior written consent of Agent. Upon the terms and subject to the conditions
set forth in the Blocked Account Agreement applicable to the Concentration
Account, all amounts received in the Concentration Account shall be wired each
Business Day into an account (the "Agent's Account") maintained by Agent at a
depositary selected by Agent.
(b) Borrower shall not, and shall not permit any of its
Subsidiaries to, open or maintain any deposit account or investment account with
any bank or other financial institution other than the Designated Account, the
Blocked Accounts and the other accounts listed on SCHEDULE 5.17, except as
otherwise agreed by the Agent. All deposit accounts and investment accounts of
Borrower and its Subsidiaries are listed on SCHEDULE 5.17.
2.9 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of
any Collections by Agent (whether from transfers to Agent by the Lockbox Banks
pursuant to the Lockbox Agreements, by the Concentration Account Bank pursuant
to the Concentration Account Agreement, or by any other Blocked Account Bank,
pursuant to any Blocked Account Agreements, or otherwise) immediately shall be
applied provisionally to reduce the Obligations outstanding under SECTION 2.1,
but shall not be considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is made to the
Agent's Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Agent shall be entitled
to charge Borrower for 2 Business Days of "clearance" or "float" at the rate set
forth in SECTION 2.7(a)(i) or SECTION 2.7(c)(i), as applicable, on all
Collections that are received by Agent (regardless of whether forwarded by the
Lockbox Banks to Agent, whether provisionally applied to reduce the Obligations
under SECTION 2.1, or otherwise). This across-the-board 2 Business Days
clearance
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or float charge on all Collections is acknowledged by the parties to
constitute an integral aspect of the pricing of the Lender Group's financing
of Borrower, and shall apply irrespective of the characterization of whether
receipts are owned by Borrower or Agent, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being the
equivalent of charging 2 Business Days of interest on such Collections.
Should any Collection item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Agent only
if it is received into the Agent's Account on a Business Day on or before
11:00 a.m. California time. If any Collection item is received into the
Agent's Account on a non-Business Day or after 11:00 a.m. California time on
a Business Day, it shall be deemed to have been received by Agent as of the
opening of business on the immediately following Business Day.
2.10 DESIGNATED ACCOUNT. Agent and the Lender Group is authorized to
make the Advances and the Letters of Credit, and issue under this Agreement
based upon telephonic or other instructions received from anyone purporting to
be an Authorized Person, or without instructions if pursuant to SECTION 2.7(e).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by the Lender Group hereunder. Unless
otherwise agreed by Agent and Borrower, any Advance requested by Borrower and
made by the Lender Group hereunder shall be made to the Designated Account.
2.11 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agent
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances made by the Lender
Group to Borrower or for Borrower's account, including, accrued interest, Lender
Group Expenses, and any other payment Obligations of Borrower. In accordance
with SECTION 2.9, the Loan Account will be credited with all payments received
by Agent from Borrower or for Borrower's account, including all amounts received
in the Agent's Account from any Lockbox Bank, Concentration Account Bank, or
Blocked Account Bank. Agent shall render statements regarding the Loan Account
to Borrower, including principal, interest, fees, and including an itemization
of all charges and expenses constituting the Lender Group Expenses owing, and
such statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and the Lender Group unless,
within 30 days after receipt thereof by Borrower, Borrower shall deliver to
Agent written objection thereto describing the error or errors contained in any
such statements.
2.12 FEES. Borrower shall pay to Agent for the ratable benefit of the
Lender Group (except where otherwise indicated) the following fees:
(a) CLOSING FEE. On the Closing Date, a closing fee of
$400,000 (the "Closing Fee"). Borrower acknowledges and agrees that the Closing
Fee shall be fully earned on the Closing Date and that the Closing Fee will not
be repaid to Borrower, in whole or in part, under any circumstances;
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(b) UNUSED LINE FEE. On the first day of each month after the
Closing Date during the term of this Agreement, an unused line fee in an amount
equal to 0.50% per annum times the Average Unused Portion of the Maximum
Revolving Amount;
(c) ANNUAL FACILITY FEE. On the first two (2) anniversaries of
the Closing Date, an annual facility fee in an amount equal to (i) 0.50% of the
Maximum Revolving Amount on the first anniversary of the Closing date and (ii)
0.25% of the Maximum Revolving Amount on the second anniversary of the Closing
Date;
(d) FINANCIAL EXAMINATION, DOCUMENTATION, AND APPRAISAL FEES.
For each of the respective sole accounts of Agent and, to the extent a Lender
accompanies Agent under SECTION 4.6, such Lender: (i) a fee of $650 per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel employed by Agent
and any such Lender; (ii) an appraisal fee of $1,500 per day per appraiser, plus
out-of-pocket expenses for each appraisal of the Collateral performed by
personnel employed by Agent and any such Lender; (iii) the actual charges paid
or incurred by Agent if it elects to employ the services of one or more third
Persons to perform such financial analyses and examinations (i.e., audits) of
Borrower or to appraise the Collateral; and (iv) the actual charges paid or
incurred by Agent if it elects to employ the services of one or more third
Persons to appraise the Collateral;
(e) SERVICING FEE. On the first day of each month during the
term of this Agreement, a servicing fee in the amount of $4,000 per month,
PROVIDED, that if the Borrower requested a Special Sub-Line Advance during the
immediately preceding month, then the servicing fee shall be automatically
increased to $9,000 for such month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND THE INITIAL LETTER
OF CREDIT. The obligation of the Lender Group to make the initial Advance or to
issue the initial Letter of Credit, is subject to the fulfillment, to the
satisfaction of Agent and its counsel, of each of the following conditions on or
before the Closing Date:
(a) the Closing Date shall occur on or before November 20,
1998;
(b) Agent shall have received searches reflecting the filing of
its financing statements and fixture filings;
(c) Agent shall have received each of the following documents,
duly executed, and each such document shall be in full force and effect:
a. the Lockbox Agreements, the Concentration Account
Agreement, and the Blocked Account Agreements;
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b. the Disbursement Letter;
c. the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the
termination by Existing Lender of its Liens in and to the
properties and assets of Borrower;
d. the Intellectual Property Security Agreement;
e. the Oversight Agreement; and
f. the Intercreditor Agreement;
(d) Agent shall have received a certificate from the Secretary
of Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute the same;
(e) Agent shall have received copies of Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of Borrower;
(f) Agent shall have received a certificate of status with
respect to Borrower, dated within 10 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(g) Agent shall have received certificates of status with
respect to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(h) Agent shall have received a certificate of insurance,
together with the endorsements thereto, as are required by SECTION 6.9, the form
and substance of which shall be satisfactory to Agent and its counsel;
(i) Agent shall have received duly executed certificates of
title with respect to that portion of the Collateral, if any, that is subject to
certificates of title;
(j) Agent shall have received such Collateral Access Agreements
from lessors, warehousemen, bailees, and other third persons as Agent may
require (including Collateral Access Agreements for the Borrower's chief
executive offices and distribution center, which shall be required prior to the
first Advance);
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(k) Agent shall have received an opinion (or opinions) of
Borrower's counsel in form and substance satisfactory to Agent in its sole
discretion;
(l) After giving effect to Advances to be made and Letters of
Credit to be issued as of the Closing Date, Borrower shall have minimum
availability under the Borrowing Base of $1,000,000;
(m) Agent shall have received evidence that Borrower is current
on its rent obligations under all Real Property leases as of the Closing Date;
(n) Agent shall have received satisfactory evidence that all
tax returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises (including
real property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest;
(o) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to Agent
and its counsel;
(p) Agent shall have completed its updated audit of Borrower;
and
(q) Agent shall have received proof of the mailing, to each
depository institution with which any DDA is maintained, of notification (in
form satisfactory to Agent) of the Lender Group's interest in such DDA.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND ALL LETTERS OF CREDIT.
The following shall be conditions precedent to all Advances and all Letters of
Credit hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof;
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority against
Borrower, the Lender Group or any of their Affiliates; and
(d) the amount of any requested Advance or Letter of Credit
shall not exceed Availability at such time.
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3.3 CONDITIONS SUBSEQUENT. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to Agent the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by SECTION 6.9, the form and substance of which shall
be satisfactory to Agent and its counsel;
(b) use its best efforts to obtain within 60 days of the
Closing Date Collateral Access Agreements, in form and substance acceptable to
Agent, for any store locations for which such Collateral Access Agreements were
not obtained as of the Closing Date; and
(c) within 30 days of the Closing Date, Agent shall have
received the Credit Card Agreements, duly executed.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective
upon the execution and delivery hereof by Borrower and the Lender Group and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three (3) years from the Closing Date and shall be
renewed, in the Agent's sole discretion, for successive one year periods
thereafter, unless sooner terminated pursuant to the terms hereof. Either
Borrower or Agent (on behalf of the Lender Group) may terminate this Agreement
effective on the Renewal Date or on any one year anniversary of the Renewal Date
by giving the other party at least 180 days prior written notice. The foregoing
notwithstanding, Agent (on behalf of the Lender Group) shall have the right to
terminate the Lender Group's obligations under this Agreement immediately and
without notice upon the occurrence and during the continuation of an Event of
Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and the Lender Group's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and the Lender Group's obligation to provide
additional credit hereunder is terminated. If Borrower has sent a notice of
termination pursuant to the provisions of SECTION 3.4, but fails to pay the
Obligations in full on the date set forth in said notice, then Agent (on behalf
of the Lender Group) may, but shall not be required to, renew this Agreement for
an additional term of one year.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.4 that
allow termination of this Agreement by Borrower only on the Renewal Date and
certain anniversaries thereof notwithstanding, Borrower has the option, at any
time upon 90 days prior written notice to Agent, to terminate this Agreement by
paying to Agent (for the ratable benefit of the Lender Group), in cash, the
Obligations (including an amount equal to 102% of the undrawn amount of
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the Letters of Credit), in full, together with a premium (the "Early
Termination Premium") equal to (x) 3% of the Maximum Revolving Amount during
the period from the Closing Date through the first anniversary of the Closing
Date, (y) 2% of the Maximum Revolving Amount during the period from the first
anniversary of the Closing Date through the second anniversary of the Closing
Date and (z) 1% during the period from the second anniversary of the Closing
Date through the third anniversary of the Closing Date, as applicable.
3.7 TERMINATION UPON EVENT OF DEFAULT. If the Lender Group terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of the Lender
Group's lost profits as a result thereof, Borrower shall pay to Agent (for the
ratable benefit of the Lender Group) upon the effective date of such
termination, a premium in an amount equal to the Early Termination Premium. The
Early Termination Premium shall be presumed to be the amount of damages
sustained by the Lender Group as the result of the early termination and
Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this SECTION 3.7 shall
be deemed included in the Obligations.
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4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Agent for
the benefit of the Lender Group a continuing security interest in all currently
existing and hereafter acquired or arising Personal Property Collateral in order
to secure prompt repayment of any and all Obligations and in order to secure
prompt performance by Borrower of each of its covenants and duties under the
Loan Documents. The security interests of Agent for the benefit of the Lender
Group in the Personal Property Collateral shall attach to all Personal Property
Collateral without further act on the part of the Lender Group or Borrower.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in the ordinary
course of business or as permitted under Section 7.4, Borrower has no authority,
express or implied, to dispose of any item or portion of the Personal Property
Collateral or the Real Property Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Agent, shall endorse and deliver
physical possession of such Negotiable Collateral to Agent.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time that an Event of Default has occurred and is
continuing, Agent or Agent's designee may (a) notify customers or Account
Debtors of Borrower that the Accounts, General Intangibles, or Negotiable
Collateral have been assigned to Agent for the benefit of the Lender Group or
that Agent for the benefit of the Lender Group has a security interest therein,
and (b) collect the Accounts, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to the Loan Account.
Borrower agrees that it will hold in trust for the Lender Group, as the Lender
Group's trustee, any Collections that it receives and immediately will deliver
said Collections to Agent in their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon
the request of Agent, Borrower shall execute and deliver to Agent all financing
statements, continuation financing statements, fixture filings, security
agreements, pledges, assignments, control agreements, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that Agent
reasonably may request, in form satisfactory to Agent, to perfect and continue
perfected the Liens of the Lender Group in the Collateral, and in order to fully
consummate all of the transactions contemplated hereby and under the other the
Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Agent (and any of Agent's officers, employees, or
agents designated by Agent) as Borrower's true and lawful attorney, with power
to (a) if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in SECTION 4.4, sign the name of Borrower on any of the
documents described in SECTION 4.4, (b) at any time that an Event of Default has
occurred and is continuing, sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts
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against Account Debtors, schedules and assignments of Accounts, verifications
of Accounts, and notices to Account Debtors, (c) send requests for
verification of Accounts, (d) endorse Borrower's name on any Collection item
that may come into the Lender Group's possession, (e) at any time that an
Event of Default has occurred and is continuing, notify the post office
authorities to change the address for delivery of Borrower's mail to an
address designated by Agent, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower, (f) at any time that an Event of Default has occurred
and is continuing, make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect
to such policies of insurance, and (g) at any time that an Event of Default
has occurred and is continuing, settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms that Agent determines to be reasonable, and Agent may cause to be
executed and delivered any documents and releases that Agent determines to be
necessary. The appointment of Agent as Borrower's attorney, and each and
every one of Agent's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid
and performed and the Lender Group's obligation to extend credit hereunder is
terminated.
4.6 RIGHT TO INSPECT; INVENTORIES, APPRAISALS, AUDITS. Agent (through
any of its officers, employees, or agents), and together with any Lender that so
elects shall have the right, from time to time hereafter to inspect Borrower's
Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral. Without limiting the generality
of the foregoing:
(a) Agent at the expense of Borrower, may participate in and/or
observe each physical count and/or inventory of so much of the Collateral as
consists of Inventory which is undertaken on behalf of Borrower.
(b) Agent may, from time to time, obtain or conduct (in all
events, at Borrower's expense) financial or SKU based physical counts and/or
inventories of the Collateral, conducted by such inventory takers as are
satisfactory to Agent and following such methodology as may be reasonably
required by Agent each of which physical counts and/or financial or SKU based
inventories shall be observed by Borrower's accountants. Without limiting the
foregoing Borrower will conduct semi-annual physical inventories, or initiate
such inventories by an inventory taker reasonably satisfactory to Agent, during
each year in which this Agreement is in effect, PROVIDED that: (i) Agent shall
have the right to review the Borrower's policies and procedures prior to the
initiation of any physical inventory and such policies and procedures shall be
reasonably satisfactory to Agent; and (ii) Agent, in its discretion, may
undertake additional counts or inventories during each year in which this
Agreement is in effect. The draft or unaudited results of all inventories or
counts shall be furnished to Agent within 10 Business Days of the taking of such
inventories or counts prior to completion and after all subject stores are
complete.
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(c) Agent may, from time to time, obtain or conduct (in all
events, at Borrower's expense) appraisals conducted by such appraisers as are
satisfactory to Agent.
(d) Agent contemplates conducting commercial finance audits (in
each event, at the Borrower's expense) of Borrower's books and records.
(e) Agent from time to time (in all events, at Borrower's
expense, but such expense shall not exceed $10,000 in the aggregate during any
fiscal year) may undertake "mystery shopping" (so-called) visits to all or any
of Borrower's business premises. Agent shall provide Borrower with a copy of
any non-company confidential results of such mystery shopping upon Borrower's
written request.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this Agreement,
Borrower makes the following representations and warranties which shall be true,
correct, and complete in all respects as of the date hereof, and shall be true,
correct, and complete in all respects as of the Closing Date, and at and as of
the date of the making of each Advance or Letter of Credit made thereafter, as
though made on and as of the date of such Advance or Letter of Credit (except to
the extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing
obligations created by the sale and delivery of Inventory or the rendition of
services to Account Debtors in the ordinary course of Borrower's business,
unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation other than customer returns
in the ordinary course of business as presently conducted. The property giving
rise to such Eligible Accounts has been delivered to the Account Debtor, or to
the Account Debtor's agent for immediate shipment to and unconditional
acceptance by the Account Debtor subject to customer returns in the ordinary
course of business as presently conducted. Borrower has not received notice of
actual or imminent bankruptcy, insolvency, or material impairment of the
financial condition of any Account Debtor regarding any Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good and
merchantable quality, free from defects.
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes, subject to ordinary wear and
tear.
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5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without Agent's
prior written consent), except as identified on SCHEDULE 6.11, and are located
only at the locations identified on SCHEDULE 6.11 or otherwise permitted by
SECTION 6.11.
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's Cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 38-1414122.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified reasonably could be expected to cause a
Material Adverse Change.
(b) Set forth on SCHEDULE 5.8, is a complete and accurate list
of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on SCHEDULE 5.8, no capital stock (or
any securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party do not and will not
(i) violate any provision of federal, state, or local law or regulation
(including Regulations T, U, and X of the Federal Reserve Board) applicable to
Borrower, the Governing Documents of Borrower, or any order,
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judgment, or decree of any court or other Governmental Authority binding on
Borrower, (ii) result in a breach of, or constitute (with due notice or lapse
of time or both) a default under any material contractual obligation or
material lease of Borrower, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets
of Borrower, other than Permitted Liens, or (iv) require any approval of
shareholders or any approval or consent of any Person under any material
contractual obligation of Borrower which has not been received.
(c) Other than the filing of appropriate financing statements,
fixture filings, and mortgages and filings under the federal securities laws,
the execution, delivery, and performance by Borrower of this Agreement and the
Loan Documents to which Borrower is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any federal, state, foreign, or other Governmental Authority or other
Person which has not been filed, received or given.
(d) This Agreement and the Loan Documents to which Borrower is
a party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Agent (for the benefit of
the Lender Group) in and to its properties and assets pursuant to this Agreement
and the other Loan Documents are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
SCHEDULE 5.10; and (c) matters arising after the date hereof that, if decided
adversely to Borrower, would not cause a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating to
Borrower or any guarantor of the Obligations that have been delivered by
Borrower to the Lender Group have been prepared in accordance with GAAP (except,
in the case of unaudited financial statements, for the lack of footnotes and
being subject to year-end audit adjustments) and fairly present Borrower's (or
such guarantor's, as applicable) financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been
a Material Adverse Change with respect to Borrower (or such guarantor, as
applicable) since the date of the latest financial statements submitted to the
Lender Group on or before the Closing Date.
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5.12 SOLVENCY. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on SCHEDULE 5.13. Borrower, each of its Subsidiaries
and each ERISA Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Change. None of Borrower or its Subsidiaries, any ERISA
Affiliate, or any fiduciary of any Plan is subject to any direct or indirect
liability with respect to any Benefit Plan under any applicable law, treaty,
rule, regulation, or agreement. None of Borrower or its Subsidiaries or any
ERISA Affiliate is required to provide security to any Benefit Plan under
Section 401(a)(29) of the IRC.
5.14 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials. None of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by Borrower. Borrower has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing or disposing of Hazardous Materials into the environment.
5.15 LICENSES. Each license, distributorship, franchise, and similar
agreement issued to, or to which Borrower is a party is in full force and
effect, except where the failure to maintain any such license, distributorship,
franchise, and similar agreement would not have a Material Adverse Change. No
party to any such license or agreement is in default or violation thereof.
Borrower has not received any notice or threat of cancellation of any such
license or agreement.
5.16 LEASES. SCHEDULE 5.16 is a schedule of all presently effective
Leases and Capital Leases. Each of such Leases and Capital Leases is in full
force and effect. No party to any such Lease or Capital Lease is in default or
violation of any such Lease or Capital Lease and Borrower has not received any
notice or threat of cancellation of any such Lease or Capital Lease. The
Borrower has made all payments due and payable under all Real Property Leases
listed on SCHEDULE 5.16. The Borrower hereby authorizes Agent, after the
occurrence and during the continuation of any Default or Event of Default, to
contact any of Borrower's landlords in order to confirm Borrower's continued
compliance with the terms and conditions of the Lease(s)
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between Borrower and that landlord and to discuss such issues, concerning
Borrower's occupancy under such Lease(s), as Agent may determine.
5.17 DDAS.
(a) SCHEDULE 5.17 sets forth all present DDAs, and includes,
with respect to each depository (i) the name and address of that depository;
(ii) the account number(s) of the account(s) maintained with such depository;
(iii) a contact person at such depository; and (iv) the telephone number of the
contact person.
(b) Borrower will not establish any DDA hereafter unless
Borrower, contemporaneous with such establishment, delivers to Agent an
agreement (in form satisfactory to Agent) executed on behalf of the depository
with which such DDA is being established.
5.18 CREDIT CARD RECEIPTS. SCHEDULE 5.18 sets forth all arrangements
to which Borrower is a party with respect to the payment to Borrower of the
proceeds of all credit card charges for sales by Borrower. Borrower shall not
attempt to change any direction or designation set forth in the Credit Card
Agreements regarding payment of charges without the prior written consent of
Agent.
5.19 NO DEFAULTS UNDER INDENTURE. The Borrower is in compliance with
all of the terms and conditions of the Indenture, and no Default or Event of
Default has occurred and is continuing under the Indenture as of the date
hereof.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may reasonably be requested by Agent. Borrower
also shall keep a modern inventory reporting system that shows accurate current
stock, cost and sales records of Inventory, that accurately and sufficiently
itemizes and describes the kinds, types and quantities of Inventory and the
cost and selling prices thereof, and that shows all additions, sales, claims,
returns, and allowances with respect to the Inventory, subject to estimates on
shrinkage.
6.2 COLLATERAL AND FINANCIAL REPORTING. Provide Agent, or such other
party as Agent shall designate (including, without limitation, the Oversight
Agent) with the following documents at the following times in form satisfactory
to Agent:
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(a) ACCOUNTS RECEIVABLE; BORROWING BASE CERTIFICATE. Borrower
shall provide to Agent, on each Business Day, a sales journal, collection
journal, and credit register since the last such schedule and a calculation of
the Borrowing Base as of such date, together with a Borrowing Base Certificate
(in the form of EXHIBIT 6.2, as such form may be revised from time to time by
Agent). Such Certificate may be sent to Agent by facsimile transmission,
provided that, upon request by Agent, the original thereof is forwarded to Agent
on the date of such transmission. No adjustments to the Borrowing Base
Certificate may be made without supporting documentation and such other
documentation as may be requested by Agent from time to time.
(b) WEEKLY REPORTS. Weekly, not later than Wednesday for the
immediately preceding fiscal week:
(i) sales audit report or cash reconciliation
(Borrower's format in use on the Closing Date is acceptable);
(ii) collateral activity summary (the so-called "roll
forward inventory report"); and
(iii) "flash sales" by geographical market (Borrower's
format in use on the Closing Date is acceptable).
(c) MONTHLY REPORTS.
(i) Monthly, Borrower shall provide to Agent original
counterparts of (each in such form as Agent from time to time may
specify):
(A) Within 15 days of the end of each fiscal
month for the immediately preceding fiscal
month:
(1) consigned inventory report by vendor,
if applicable;
(2) retail inventory report by department;
(3) inventory certificate;
(4) listing of accounts payable past due;
(5) rent, tax and insurance compliance
certificate;
(6) top vendor matrix and purchases;
(7) total credit card sales report; and
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(8) a management summary and aging of
accounts receivable, including the
total dollar value of finance charges
and late fees.
(B) Within 30 days of the end of each fiscal
month for the immediately preceding fiscal
month:
(1) statement of gross margin;
(2) inventory reconciliation to general
ledger;
(3) financial statements including balance
sheet, income statement (consolidated
and by store), cash flow report and
comparison of same store sales;
(4) gift certificates/merchandise credit
report at month-end; and
(5) statement of store activity.
(ii) For purposes of SECTION 6.2(c)(i)(A), above, the
first "preceding fiscal month" in respect of which the items required by
that Section shall be provided shall be November, 1998 and for purposes
of SECTION 6.2(c)(i)(B) above, the first "preceding fiscal month" in
respect of which the items required by that Section shall be provided
shall be October, 1998.
(d) QUARTERLY REPORTS. Quarterly, within 45 days following the
end of each of Borrower's fiscal quarters, Borrower shall provide to Agent an
original counterpart of a management prepared financial statement of Borrower
and its Subsidiaries, on a consolidated and consolidating basis, for the period
from the beginning of Borrower's and its Subsidiaries' then current fiscal year
through the end of the subject quarter, with comparative information for the
same period of the previous fiscal year, which statement shall include, at a
minimum, a balance sheet, income statement (on a store specific and on a
"consolidated" basis), statement of changes in shareholders' equity, and cash
flow report and comparisons for the corresponding period of the then immediately
previous year, as well as to the Business Plan.
(e) ANNUAL REPORTS.
(i) In addition to the monthly reports required under
this SECTION 6.2 annually, within 90 days following the end of Borrower's
and its Subsidiaries' fiscal year, Borrower shall deliver to Agent an
original signed counterpart of Borrower's and its Subsidiaries' annual
financial statement, on a consolidated and consolidating basis, which
statement shall have been audited by, and bear the opinion of Borrower's
independent
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certified public accountants reasonably acceptable to Agent (i.e. said
statement shall be "certified" by such accountants) certifying that
such statements have been prepared in accordance with GAAP, together
with (x) a certificate of such accountants addressed to Agent stating
that such accountants do not have knowledge of the existence of any
Default or Event of Default, and (y) a copy of such accountant's
letter to management. Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year)
a balance sheet, profit and loss statement, statement of changes in
shareholders' equity, and cash flows. The Agent acknowledges that any
"Big Five" public accounting firm shall be acceptable to it for
purposes of this paragraph. Borrower shall provide an interim draft of
such financial statements within 60 days after year-end, inclusive of
subsequent periods, until the year-end statements are finalized.
Together with the above, Borrower also shall deliver to Agent
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Borrower with
the Securities and Exchange Commission within three (3) Business Days
after they are filed, any press releases of Borrower, and any other
information that is provided by Borrower to its shareholders, and any
other report reasonably requested by Agent relating to the financial
condition of Borrower and its Subsidiaries. Prior to the Closing
Date, Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to
communicate with Agent and to release to Agent whatever financial
information concerning Borrower that Agent may reasonably request.
Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Agent, at Borrower's
expense, copies of Borrower's and its Subsidiaries' financial
statements, papers related thereto, and other accounting records of
any nature in their possession and to disclose to Agent any
information they may have regarding Borrower's and its Subsidiaries'
business affairs and financial condition.
(ii) Each annual statement shall be accompanied by such
accountant's certificate indicating that to the best knowledge of such
accountant, no event has occurred which is or which, solely with the
passage of time or the giving of notice (or both) would be, an Event of
Default, provided, however, that in issuing such certificate, the
accountant shall not be require to go beyond normal accounting procedures
conducted in connection with such annual statement.
(iii) Borrower hereby acknowledges that the Lender Group
relied upon Borrower's audited financial statements for the fiscal year
ended January 31, 1998 in extending credit to Borrower.
(f) OFFICERS' CERTIFICATES. Borrower shall cause Borrower's
chief accounting officer, chief executive officer or other officer acceptable to
Agent to provide a Compliance Certificate with those monthly, quarterly, and
annual statements to be furnished pursuant to this Agreement, which Compliance
Certificate shall:
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(i) indicate that the subject statement was prepared in
accordance with GAAP consistently applied (except to the extent that
interim statements do not contain footnotes), and presents fairly the
financial condition of Borrower and its Subsidiaries at the close of, and
the results of Borrower's and its Subsidiaries' operations and cash flows
for, the period(s) covered, subject, however (with the exception of the
certificate which accompanies such annual statement) to usual year end
adjustments;
(ii) indicate either that (i) no Default or Event of
Default has occurred or (ii) if such an event has occurred, its nature
(in reasonable detail) and the steps (if any) being taken or contemplated
by Borrower to be taken on account thereof;
(iii) include calculations concerning Borrower's
compliance (or failure to comply) at the date of the subject statement
with the covenants included in SECTIONS 7.20 through 7.22;
(iv) indicate that all rent and additional rent has been
paid or if not paid exceptions to be broken down by store locations; and
(v) indicate that premiums for insurance required under
SECTION 6.9 have or have not been paid.
(g) ADDITIONAL FINANCIAL INFORMATION.
(i) In addition to all other information required to be
provided pursuant to this SECTION 6.2, Borrower promptly shall provide to
Agent copies of all reports and information delivered by Borrower
pursuant to the Indenture, together with such other and additional
information concerning Borrower, any Subsidiary of Borrower, and any
guarantor of the Obligations, the Collateral (and other collateral
securing repayment of the Obligations), the operation of Borrower's and
its Subsidiaries' business, and Borrower's and its Subsidiaries'
financial condition, including original counterparts of financial reports
and statements, as Agent may from time to time reasonably request from
Borrower.
(ii) Borrower may provide Agent, from time to time
hereafter, with updated Business Plans. In all events, Borrower, not
later than 30 days prior to the end of each of Borrower's fiscal years,
shall deliver to Agent a draft Business Plan which shall go out at least
through the end of the then next fiscal year and the final Business Plan
within 60 days of the end of Borrower's fiscal year. In each event, such
updated and extended Business Plans shall be provided in the same form as
that provided to Borrower's Board of Directors and reasonably
satisfactory to Agent.
(h) ELECTRONIC REPORTING. At Agent's option, all information
and reports required to be submitted to Agent by Borrower shall be transmitted
electronically pursuant to an
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electronic transmitting reporting system and shall be in a record layout
format designated by Agent from time to time.
6.3 TAX RETURNS. Deliver to Agent, upon request, copies of each of
Borrower's future federal income tax returns, and any amendments thereto, within
30 days of the filing thereof with the Internal Revenue Service.
6.4 GUARANTOR REPORTS. Cause any guarantor of any of the Obligations
to deliver its annual financial statements at the time when Borrower provides
its audited financial statements to Agent and copies of all federal income tax
returns as soon as the same are available and in any event no later than 30 days
after the same are required to be filed by law.
6.5 RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement.
6.6 TITLE TO EQUIPMENT. Upon Agent's request, Borrower immediately
shall deliver to Agent, properly endorsed, any and all evidences of ownership
of, certificates of title, or applications for title to any items of Equipment.
6.7 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date and replacements thereto and except in
the ordinary course of business with respect to its retail stores, Borrower
shall not permit any item of Equipment to become a fixture to real estate or an
accession to other property, and such Equipment shall at all times remain
personal property.
6.8 TAXES. Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property to be paid in full, before delinquency or before
the expiration of any extension period, except to the extent that the validity
of such assessment or tax shall be the subject of a Permitted Protest.
Borrower shall make due and timely payment or deposit of all such federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Agent, on demand, appropriate certificates attesting
to the payment thereof or deposit with respect thereto. Borrower will make
timely payment or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Agent with proof satisfactory to Agent indicating that Borrower has made
such payments or deposits.
6.9 INSURANCE.
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(a) At its expense, keep the Personal Property Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Personal Property Collateral, as
well as insurance against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) combined single
limit bodily injury and property damages insurance against any loss, liability,
or damages on, about, or relating to each parcel of real property leased by the
Borrower, in an amount of not less than $400,000; (ii) business rental insurance
covering annual receipts for a 12 month period for each parcel of Real Property
Collateral; and (iii) insurance for such other risks as Agent may require.
(c) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to Agent.
All insurance required herein shall be written by companies which are authorized
to do insurance business in the State of California. All hazard insurance, and
such other insurance as Agent shall specify, shall contain an endorsement
satisfactory to Agent, showing Agent (for the ratable benefit of the Lenders) as
sole loss payee thereof, and shall contain a waiver of warranties. Every policy
of insurance referred to in this SECTION 6.9 shall contain an agreement by the
insurer that it will not cancel such policy except after 30 days prior written
notice to Agent (for the ratable benefit of the Lenders) and that any loss
payable thereunder shall be payable notwithstanding any act or negligence of
Borrower or the Lender Group which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment. Borrower shall deliver
to Agent certified copies of such policies of insurance and evidence of the
payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to
Agent evidencing such insurance shall be delivered to Agent at least 10 Business
Days prior to the expiration of the existing or preceding policies. Borrower
shall give Agent prompt notice of any loss covered by such insurance, and Agent
shall have the right to adjust any loss. After the occurrence and during the
continuation of any Default or Event of Default, Agent shall have the exclusive
right to adjust all losses payable under any such insurance policies without any
liability to Borrower whatsoever in respect of such adjustments. Any monies
received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Agent (for the ratable
benefit of Lenders) to be applied at the option of Agent either to the
prepayment of the Obligations without premium, in such order or manner as Agent
may elect, or shall be disbursed to Borrower under stage payment terms
satisfactory to Agent for application to the cost of repairs, replacements, or
restorations. Upon the occurrence and during the continuation of any Default or
Event of Default, Agent shall have the right to apply all prepaid premiums to
the payment of the Obligations in such order or form as Agent shall determine.
(e) Borrower shall not take out separate insurance concurrent
in form or contributing in the event of loss with that required to be maintained
under this SECTION 6.9, unless
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Agent is included thereon as named insured with the loss payable to Agent
(for the ratable benefit of Lenders) and such insurance shall contain an
endorsement satisfactory to Agent. Borrower immediately shall notify Agent
whenever such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same, and
originals of such policies immediately shall be provided to Agent.
6.10 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and under
the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.11 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on SCHEDULE 6.11; PROVIDED, HOWEVER,
that Borrower may amend SCHEDULE 6.11 so long as such amendment occurs by
written notice to Agent not less than 15 business days prior to the date on
which the Inventory or Equipment is moved to such new location, so long as such
new location is within the continental United States, and so long as, at the
time of such written notification, Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected (the Lien of Agent
for the benefit of the Lender Group), security interests in such assets and also
provides to Agent a Collateral Access Agreement.
6.12 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to cause a Material Adverse Change.
6.13 EMPLOYEE BENEFITS.
(a) Deliver to Agent: (i) promptly, and in any event within 10
Business Days after Borrower or any of its Subsidiaries knows or has reason to
know that an ERISA Event has occurred that reasonably could be expected to
result in a Material Adverse Change, a written statement of the chief financial
officer of Borrower describing such ERISA Event and any action that is being
taking with respect thereto by Borrower, any such Subsidiary or ERISA Affiliate,
and any action taken or threatened by the IRS, Department of Labor, or PBGC.
Borrower or such Subsidiary, as applicable, shall be deemed to know all facts
known by the administrator of any Benefit Plan of which it is the plan sponsor,
(ii) promptly, and in any event within 3 Business Days after the filing thereof
with the IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect
to such request, and (iii) promptly, and in any event within 3 Business Days
after receipt by Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of each
such notice.
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(b) Cause to be delivered to Agent, upon Agent's request, each
of the following: (i) a copy of each Benefit Plan (or, where any such plan is
not in writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.14 LEASES. Pay when due all rents and other amounts payable under
any Leases to which Borrower is a party or by which Borrower's properties and
assets are bound, unless such payments are the subject of a Permitted Protest.
To the extent that Borrower fails timely to make payment of such rents and other
amounts payable when due under its Leases, Agent shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.15 YEAR 2000 COMPLIANCE. Borrower will be Year 2000 Compliant: (i)
with respect to its finance and merchandising applications, by March 31, 1999
and at all times thereafter; and (ii) with respect to its payroll and other
miscellaneous applications, by August 1, 1999 and at all times thereafter.
Agent reserves the right to conduct independent systems analysis to determine if
Borrower is Year 2000 Compliant as required by this Section 6.15.
6.16 MAILING LISTS, ADVERTISING. Borrower shall add Agent as an
addressee on all mailing lists maintained by or for Borrower. At the request of
Agent, Borrower shall provide Agent with copies of all advertising (including
copies of all print advertising and duplicate tapes of all video and radio
advertising).
6.17 CFO. Borrower will hire a full-time chief financial officer
reasonably acceptable to Agent by February 28, 1999. Thomas Villano will remain
in the Borrower's employ in his current capacity until such full-time chief
financial officer is hired and begins working.
6.18 PRESIDENT AND CHIEF EXECUTIVE OFFICER. The Borrower shall at all
times employ a person acceptable to the Agent to perform the duties of president
and chief executive officer.
7. NEGATIVE COVENANTS.
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Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not do any of the following:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in the latest financial statements
of Borrower submitted to Agent on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this SECTION 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to the Lender Group as those
applicable to the refinanced Indebtedness;
(e) construction loans by the Borrower's landlords not to
exceed at any time $500,000 in the aggregate; and
(f) other unsecured Indebtedness not to exceed at any time
$50,000 in the aggregate.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
SECTION 7.1(d) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or
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otherwise dispose of, in one transaction or a series of transactions, all or
any substantial part of its property or assets.
7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or otherwise
dispose of any of Borrower's properties or assets other than sales of Inventory
to buyers in the ordinary course of Borrower's business as currently conducted
or assets more nor more than $300,000 in the aggregate (based on book value) in
any one year.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate structure
(within the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Agent.
7.7 NATURE OF BUSINESS. Make any change in the principal nature of
Borrower's business.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
SECTION 7.1(d), prepay, redeem, retire, defease, purchase, or otherwise acquire
any Indebtedness owing to any third Person, other than the Obligations in
accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under SECTIONS 7.1(b), (c), OR (d).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on bill
and hold, sale or return, sale on approval, or other conditional terms of sale
(except for Borrower's customary return policy applicable to the return of
inventory purchased by Borrower's retail customers in the ordinary course of
Borrower's business), or have possession of any property on consignment to
Borrower.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or purchase,
acquire, redeem, or retire any of Borrower's capital stock, of any class,
whether now or hereafter outstanding.
7.12 ACCOUNTING METHODS. Modify or change its method of accounting
(except in accordance with GAAP) or enter into, modify, or terminate any
agreement currently existing, or
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at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting
records without said accounting firm or service bureau agreeing to provide
Agent information regarding the Collateral or Borrower's financial condition.
Borrower waives the right to assert a confidential relationship, if any, it
may have with any accounting firm or service bureau in connection with any
information requested by Agent pursuant to or in accordance with this
Agreement, and agrees that Agent may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.13 INVESTMENTS. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b) loans, advances, capital contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person, except with respect to: (i) extensions of
trade credit in the ordinary course of business as presently conducted; and
(ii) commission, travel, relocation, salary, automobile expense, personal
expense, Benefit Plan costs and similar advances and allowances made to present,
former and potential employees of the Borrower on terms not materially different
from those offered by the Borrower before the Closing Date, PROVIDED that such
expenses, advances and allowances shall not exceed $500,000 in the aggregate at
any one time.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Agent, and that are
no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.16 USE OF PROCEEDS. Use (a) the proceeds of the Advances for any
purpose other than (i) on the Closing Date, (y) to repay in full the outstanding
principal, accrued interest, and accrued fees and expenses owing to Existing
Lender, and (z) to pay transactional costs and expenses incurred in connection
with this Agreement, and (ii) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted corporate purposes.
7.17 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Agent and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Lien of Agent (for the benefit of the Lender Group) and also
provides to Agent a Collateral Access Agreement with respect to such new
location. The Inventory and Equipment shall not at any time now or hereafter be
stored with a bailee, warehouseman, or similar party without Agent's prior
written consent.
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7.18 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make
any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw,
from any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 FINANCIAL COVENANT - EBITDA. Within thirty (30) days of the
Closing Date, Borrower and Agent shall agree on a minimum EBITDA covenant (or
similar financial covenant) acceptable to Agent in its reasonable good faith
credit judgment, such covenant to be measured on a fiscal quarter basis.
Borrower agrees that it will execute such documentation as Agent shall deem
reasonably necessary to evidence such financial covenant.
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7.21 RETAIL PERFORMANCE COVENANTS. Fail to observe or comply with each
of the covenants set forth on SCHEDULE 7.21.
7.22 CAPITAL EXPENDITURES. Make capital expenditures: (i) during the
fiscal year ending January 29, 2000, in excess of $3,000,000; (ii) in any
fiscal year ending after January 29, 2000, in excess of the maximum amount
established by Agent in its reasonable good faith credit judgment applicable to
any such fiscal year.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due
and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due the Lender Group,
reimbursement of Lender Group Expenses, or other amounts constituting
Obligations);
8.2 (a) If Borrower fails or neglects to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in SECTIONS 6.2
(Collateral and Financial Reporting), 6.3 (Tax Returns), 6.6 (Title to
Equipment), 6.11 (Location of Inventory and Equipment), 6.12 (Compliance with
Laws), 6.13 (Employee Benefits), or 6.14 (Leases) of this Agreement and such
failure continues for a period of 5 Business Days;
(b) If Borrower fails or neglects to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in SECTIONS 6.1
(Accounting System), 6.7 (Maintenance of Equipment) or 6.16 (Mailing Lists,
Advertising) of this Agreement and such failure continues for a period of 15
Business Days; or
(c) If Borrower fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant, or agreement contained in this
Agreement, or in any of the other Loan Documents (giving effect to any grace
periods, cure periods, or required notices, if any, expressly provided for in
such Loan Documents); in each case, other than any such term, provision,
condition, covenant, or agreement that is the subject of another provision of
this SECTION 8, in which event such other provision of this SECTION 8 shall
govern.
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
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8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and any
of the following events occur: (a) Borrower consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; PROVIDED, HOWEVER, that, during the pendency of such period,
the Lender Group shall be relieved of its obligation to extend credit hereunder;
(d) an interim trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief shall have been
issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower's properties or assets having
a value in excess of $100,000 and the same is not paid on the payment date
thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of Borrower's properties or assets;
8.10 If there is a default in any material agreement to which Borrower
is a party with one or more third Persons and such default (a) occurs at the
final maturity of the obligations thereunder, or (b) results in a right by such
third Person(s), irrespective of whether exercised, to accelerate the maturity
of Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that has
been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or material misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made to
the Lender Group by Borrower or any officer, employee, agent, or director of
Borrower, or if any such warranty or representation is withdrawn;
8.13 If the obligation of any guarantor under its guaranty or other
third Person under any Loan Document is limited or terminated by operation of
law or by the guarantor or other
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third Person thereunder, or any such guarantor or other third Person becomes
the subject of an Insolvency Proceeding; or
8.14 If there shall occur any Event of Default under the Indenture.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Agent may, pursuant to SECTIONS 17.4 AND
17.5, without notice of its election and without demand, do any one or more of
the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and the Lender Group;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Lender Group, but
without affecting the Lender Group's rights and security interests in the
Personal Property Collateral or the Real Property Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Agent considers advisable, and in such
cases, Agent will credit Borrower's Loan Account with only the net amounts
received by Agent in payment of such disputed Accounts after deducting all
Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
the Lender Group, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of the Lender Group;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Agent considers necessary or reasonable
to protect its security interests in the Collateral. Borrower agrees to
assemble the Personal Property Collateral if Agent so requires, and to make the
Personal Property Collateral available to Agent as Agent may designate.
Borrower authorizes Agent to enter the premises where the Personal Property
Collateral is located, to take and maintain possession of the Personal Property
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Agent's determination appears to conflict
with the Liens of Agent (for the benefit of the Lender Group) in the Collateral
and to pay all expenses incurred in connection therewith. With respect
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to any of Borrower's owned or leased premises, Borrower hereby grants Agent a
license to enter into possession of such premises and to occupy the same,
without charge, for up to 120 days in order to exercise any of the Lender
Group's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by the Lender Group (including any amounts received in the Lockbox Accounts, the
Concentration Account, or any other Blocked Account), or (ii) indebtedness at
any time owing to or for the credit or the account of Borrower held by the
Lender Group;
(h) Hold, as cash collateral, any and all balances and deposits
of Borrower held by the Lender Group, and any amounts received in the Lockbox
Accounts, the Concentration Account, or the other Blocked Accounts, to secure
the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral;
(j) Sell the Personal Property Collateral at either a public or
private sale (including going out of business sales), or both, by way of one or
more contracts or transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as Agent determines is commercially
reasonable. It is not necessary that the Personal Property Collateral be
present at any such sale. Agent may conduct one or more going out of business
sales, in Agent's own right or by one or more agents and contractors. Such
sale(s) may be conducted upon any premises owned, leased, or occupied by
Borrower. Agent and any such agent or contractor, in conjunction with any such
sale, may augment the Inventory with other goods (all of which other goods shall
remain the sole property of Agent or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of Agent or such agent or contractor and
neither Borrower nor any Person claiming under or in right of Borrower shall
have any interest therein.
(k) Agent shall give notice of the disposition of the Personal
Property Collateral as follows:
(A) Agent shall give Borrower and each holder of a
security interest in the Personal Property
Collateral who has filed with Agent a written
request for notice, a notice in writing of the time
and place of public sale, or, if the sale is a
private sale or some other disposition other than a
public sale is to be made of the Personal Property
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Collateral, then the time on or after which the
private sale or other disposition is to be made;
(B) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in SECTION
12, at least 10 Business Days before the date fixed
for the sale, or at least 10 Business Days before
the date on or after which the private sale or other
disposition is to be made; no notice needs to be
given prior to the disposition of any portion of the
Personal Property Collateral that is perishable or
threatens to decline speedily in value or that is of
a type customarily sold on a recognized market.
Notice to Persons other than Borrower claiming an
interest in the Personal Property Collateral shall
be sent to such addresses as they have furnished to
Agent;
(C) If the sale is to be a public sale, Agent also shall
give notice of the time and place by publishing a
notice one time at least 5 days before the date of
the sale in a newspaper of general circulation in
the county in which the sale is to be held;
(l) Agent may credit bid and purchase at any
public sale; and
(m) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and subject to the
rights of third Persons, by Agent to Borrower.
9.2 REMEDIES CUMULATIVE. The Lender Group's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.
10. TAXES AND EXPENSES.
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If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to
make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Agent
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Agent may do
any or all of the following: (a) make payment of the same or any part
thereof; (b) set up such reserves in Borrower's Loan Account as Agent deems
necessary to protect the Lender Group from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described
in SECTION 6.9, and take any action with respect to such policies as Agent
deems prudent. Any such amounts paid by Agent shall constitute Lender Group
Expenses. Any such payments made by Agent shall not constitute an agreement
by the Lender Group to make similar payments in the future or a waiver by the
Lender Group of any Event of Default under this Agreement. Agent need not
inquire as to, or contest the validity of, any such expense, tax, or Lien and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by the Lender Group on which Borrower may in any way be liable.
11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. So long as the
Lender Group complies with its obligations, if any, under Section 9207 of the
Code, the Lender Group shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other Person. All risk
of loss, damage, or destruction of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and
hold each Agent-Related Person, each Lender, each Participant, and each of
their respective officers, directors, employees, counsel, agents, and
attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest
extent permitted by law) from and against any and all claims, demands, suits,
actions, investigations, proceedings, and damages, and all reasonable
attorneys fees and disbursements and other costs and expenses actually
incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against,
imposed upon, or incurred by any of them in connection with or as a result of
or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any
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investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any
act, omission, event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). Borrower shall have
no obligation to any Indemnified Person under this SECTION 11.3 with respect
to any Indemnified Liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct
of such Indemnified Person. This provision shall survive the termination of
this Agreement and the repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, or telefacsimile to
Borrower or to Agent, as the case may be, at its address set forth below:
If to Borrower:
GANTOS, INC.
1266 E. Main Street, 5th Floor
Stamford, Connecticut 06902
Attn: President
Fax No. 203-358-0394
with copies to:
Charles I. Weissman, Esq.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
Fax No. 212-758-9526
If to Agent or the FOOTHILL CAPITAL CORPORATION
Lender Group in care 11111 Santa Monica Boulevard
of Agent: Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310-478-9788
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with copies to:
Peter M. Palladino, P.C.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Fax No. 617-248-4000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this SECTION 12, other
than notices by Agent in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3
Business Days after the deposit thereof in the mail. Borrower acknowledges and
agrees that notices sent by Agent in connection with Sections 9504 or 9505 of
the Code shall be deemed sent when deposited in the mail or personally
delivered, or, where permitted by law, transmitted by telefacsimile or other
similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN
THE FEDERAL OR STATE COURTS LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS.
BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE OR TO A COURT'S LACK OF PERSONAL
JURISDICTION TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 13. BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVES THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND EACH MEMBER OF THE LENDER
GROUP REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH
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KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
Agent may be destroyed or otherwise disposed of by Agent 4 months after they are
delivered to or received by Agent, unless Borrower requests, in writing, the
return of said documents, schedules, or other papers and makes arrangements, at
Borrower's expense, for their return.
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
15.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Any Lender may, with the written consent of Agent, assign
and delegate to one or more Eligible Transferees (each an "Assignee") all, or
any ratable part, of the Obligations, the Commitments, and the other rights and
obligations of such Lender hereunder and under the other Loan Documents, in a
minimum amount of $5,000,000; PROVIDED, HOWEVER, that Borrower and Agent may
continue to deal solely and directly with such Lender in connection with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses, and related information with
respect to the Assignee, shall have been given to Borrower and Agent by such
Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered
to Borrower and Agent a fully executed Assignment and Acceptance ("Assignment
and Acceptance") in the form of EXHIBIT A-1; and (iii) the assignor Lender or
Assignee has paid to Agent for Agent's sole and separate account a processing
fee in the amount of $2,500. Anything contained herein to the contrary
notwithstanding, the consent of Agent shall not be required (and payment of any
fees shall not be required) if such assignment is in connection with any merger,
consolidation, sale, transfer, or other disposition of all or any substantial
portion of the business or loan portfolio of such Lender.
(b) From and after the date that Agent notifies the assignor
Lender that it has received a fully executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement and the other Loan Documents, such Lender
shall cease to
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be a party hereto and thereto), and such assignment shall effect a novation
between Borrower and the Assignee.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties, or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency, or value of this Agreement or any other Loan Document furnished
pursuant hereto; (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or any guarantor or the performance or observance by Borrower or any
guarantor of any of its obligations under this Agreement or any other Loan
Document furnished pursuant hereto; (3) such Assignee confirms that it has
received a copy of this Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (4) such Assignee will,
independently and without reliance upon Agent, such assigning Lender, or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (5) such Assignee appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (6) such
Assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(d) Immediately upon each Assignee executing and delivering the
Assignment and Acceptance and making its processing fee payment under the
Assignment and Acceptance, this Agreement shall be deemed to be amended to the
extent, but only to the extent, necessary to reflect the addition of the
Assignee and the resulting adjustment of the Commitments of the Assignor and
Assignee arising therefrom. The Commitment allocated to each Assignee shall
reduce such Commitment of the assigning Lender PRO TANTO.
(e) Any Lender may at any time, with the written consent of
Agent, which consent shall not be unreasonably withheld, sell to one or more
Persons (a "Participant") participating interests in the Obligations, the
Commitment, and the other rights and interests of that Lender (the "Originating
Lender") hereunder and under the other Loan Documents; PROVIDED, HOWEVER, that
(i) the Originating Lender's obligations under this Agreement shall remain
unchanged, (ii) the Originating Lender shall remain solely responsible for the
performance of such obligations, (iii) Borrower and Agent shall continue to deal
solely and directly with the Originating Lender in connection with the
Originating Lender's rights and obligations under this Agreement and the other
Loan Documents, (iv) no Originating Lender shall transfer or grant any
participating interest under which the Participant has the sole and exclusive
right to approve any amendment to, or any consent or waiver with respect to,
this
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Agreement or any other Loan Document, except to the extent such amendment to,
or consent or waiver with respect to this Agreement or of any other Loan
Document would (A) extend the final maturity date of the Obligations
hereunder in which such participant is participating; (B) reduce the interest
rate applicable to the Obligations hereunder in which such Participant is
participating; (C) release all or a material portion of the Collateral
(except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating; (D) postpone the payment of, or reduce the amount of, the
interest or fees hereunder in which such Participant is participating; or (E)
change the amount or due dates of scheduled principal repayments or
prepayments or premiums in respect of the Obligations hereunder in which such
Participant is participating; and (v) all amounts payable by Borrower
hereunder shall be determined as if such Originating Lender had not sold such
participation; except that, if amounts outstanding under this Agreement are
due and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of set-off in respect of its participating interest
in amounts owing under this Agreement to the same extent as if the amount of
its participating interest were owing directly to it as a Lender under this
Agreement; PROVIDED, HOWEVER, that no Participant may exercise any such right
of setoff without the notice to and consent of Agent. The rights of any
Participant shall only be derivative through the Originating Lender with whom
such Participant participates and no Participant shall have any direct rights
as to the other Lenders, Agent, Borrower, the Collections, the Collateral, or
otherwise in respect of the Advances or the Letters of Credit. No Participant
shall have the right to participate directly in the making of decisions by
the Lenders among themselves. The provisions of this SECTION 15.1(e) are
solely for the benefit of the Lender Group, and Borrower shall have no rights
as a third party beneficiary of any of such provisions.
(f) In connection with any such assignment or participation or
proposed assignment or participation, a Lender may disclose to a third party all
documents and information which it now or hereafter may have relating to
Borrower or Borrower's business.
(g) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
15.2 SUCCESSORS. This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; PROVIDED, HOWEVER,
that Borrower may not assign this Agreement or any rights or duties hereunder
without the Lenders' prior written consent and any prohibited assignment shall
be absolutely void. No consent to assignment by the Lenders shall release
Borrower from its Obligations. A Lender may assign this Agreement and its
rights and duties hereunder pursuant to SECTION 15.1 and, except as expressly
required pursuant to SECTION 15.1, no consent or approval by Borrower is
required in connection with any such assignment.
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16. AMENDMENTS; WAIVERS.
16.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request
of the Required Lenders) and Borrower and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; PROVIDED, HOWEVER, that no such waiver, amendment, or consent
shall, unless in writing and signed by all the Lenders and Borrower and
acknowledged by Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees, or other
amounts due to the Lenders (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest specified
herein on, any Loan, or any fees or other amounts payable hereunder or under any
other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Advances which is required for the
Lenders or any of them to take any action hereunder;
(e) increase the advance rate with respect to Advances (except
for the restoration of an advance rate after the prior reduction thereof), or
change SECTION 2.1(b);
(f) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders;
(g) release Collateral, or subordinate the Lien of Agent in any
of the Collateral, other than as permitted by SECTION 17.11;
(h) change the definition of "Required Lenders";
(i) release Borrower from any Obligation for the payment of
money; or
(j) amend any of the provisions of ARTICLE 17.
and, PROVIDED FURTHER, that no amendment, waiver or consent shall, unless in
writing and signed by Agent, affect the rights or duties of Agent under this
Agreement or any other Loan Document; and, PROVIDED FURTHER, that the limitation
contained in clause (e) above shall not be deemed to
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limit the ability of Agent to make Advances or Agent Loans, as applicable, in
accordance with the provisions of SECTIONS 2.1(g), (h), OR (l). The
foregoing notwithstanding, any amendment, modification, waiver, consent,
termination, or release of or with respect to any provision of this Agreement
or any other Loan Document that relates only to the relationship of the
Lender Group among themselves, and that does not affect the rights or
obligations of Borrower, shall not require consent by or the agreement of
Borrower.
16.2 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or any
Lender to exercise any right, remedy, or option under this Agreement, any other
Loan Document, or any present or future supplement hereto or thereto, or in any
other agreement between or among Borrower and Agent and/or any Lender, or delay
by Agent or any Lender in exercising the same, will operate as a waiver thereof.
No waiver by Agent or any Lender will be effective unless it is in writing, and
then only to the extent specifically stated. No waiver by Agent or the Lenders
on any occasion shall affect or diminish Agent's and each Lender's rights
thereafter to require strict performance by Borrower of any provision of this
Agreement. Agent's and each Lender's rights under this Agreement and the other
Loan Documents will be cumulative and not exclusive of any other right or remedy
which Agent or any Lender may have.
17. AGENT; THE LENDER GROUP.
17.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender hereby
designates and appoints Foothill as its Agent under this Agreement and the
other Loan Documents and each Lender hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of this Agreement and
each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental
thereto. Agent shall exercise the same care in managing and securing the
Obligations and making collections in connection therewith as it would
ordinarily exercise with respect to any loan or credit transaction in which
it was the sole lender. Agent agrees to act as such on the express
conditions contained in this ARTICLE 17. The provisions of this ARTICLE 17
are solely for the benefit of Agent and the Lenders, and Borrower shall not
have any rights as a third party beneficiary of any of the provisions
contained herein; PROVIDED, HOWEVER, that the provisions of SECTIONS 17.10,
17.11, and 17.16(d) also shall be for the benefit of Borrower. Any provision
to the contrary contained elsewhere in this Agreement or in any other Loan
Document notwithstanding, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Agent
have or be deemed to have any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations, or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against Agent. Except as expressly otherwise provided in
this Agreement, Agent shall have and may use its sole discretion with respect
to exercising or refraining from exercising any discretionary rights or
taking or refraining from taking any actions which Agent is expressly
entitled to take or assert under or pursuant to this Agreement and the other
Loan Documents, including making the determinations contemplated by SECTION
2.1(b). Without limiting the generality of the foregoing, or of any other
provision of the Loan
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Documents that provides rights or powers to Agent, Lenders agree that Agent
shall have the right to exercise the following powers as long as this
Agreement remains in effect: (a) maintain, in accordance with its customary
business practices, ledgers and records reflecting the status of the
Advances, the Collateral, the Collections, and related matters; (b) execute
and/or file any and all financing or similar statements or notices,
amendments, renewals, supplements, documents, instruments, proofs of claim
for Lenders, notices and other written agreements with respect to the Loan
Documents; (c) make Advances for itself or on behalf of Lenders as provided
in the Loan Documents; (d) exclusively receive, apply, and distribute the
Collections as provided in the Loan Documents; (e) open and maintain such
bank accounts and lock boxes as Agent deems necessary and appropriate in
accordance with the Loan Documents for the foregoing purposes with respect to
the Collateral and the Collections; (f) perform, exercise, and enforce any
and all other rights and remedies of the Lender Group with respect to
Borrower, the Advances, the Collateral, the Collections, or otherwise related
to any of same as provided in the Loan Documents; and (g) incur and pay such
Lender Group Expenses as Agent may deem necessary or appropriate for the
performance and fulfillment of its functions and powers pursuant to the Loan
Documents.
17.2 DELEGATION OF DUTIES. Except as otherwise provided in this
Section, Agent may execute any of its duties under this Agreement or any other
Loan Document by or through agents, employees, or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects as long as such selection was made in
compliance with this Section and without gross negligence or willful misconduct.
The foregoing notwithstanding, Agent shall not make any material delegation of
duties to subagents or non-employee delegees without the prior written consent
of Required Lenders (it being understood that routine delegation of such
administrative matters as filing financing statements, or conducting appraisals
or audits, is not viewed as a material delegation that requires prior Required
Lender approval). Notwithstanding anything herein which may be construed to the
contrary, the Lenders and Borrower acknowledge and agree that Agent may engage
the Oversight Agent pursuant to the Oversight Agreement as it may be modified
and amended from time to time and the Oversight Agent may carry out its duties
as set forth in such agreement.
17.3 LIABILITY OF AGENT-RELATED PERSONS. None of the Agent-Related
Persons shall (i) be liable for any action taken or omitted to be taken by any
of them under or in connection with this Agreement or any other Loan Document or
the transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or, (ii) be responsible in any manner to any of the Lenders
for any recital, statement, representation or warranty made by Borrower, or any
Subsidiary or Affiliate of Borrower, or any officer or director thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement, or other document referred to or provided for
in, or received by Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document, or for any failure
of Borrower or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under any obligation
to any Lender to ascertain or
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to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or
to inspect the properties, books, or records of Borrower, or any of
Borrower's Subsidiaries or Affiliates.
17.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex, or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to Borrower or counsel to any Lender), independent accountants, and other
experts selected by Agent. Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required Lenders
or all Lenders, as applicable, and until such instructions are received, Agent
shall act, or refrain from acting, as it deems advisable so long as it is not
grossly negligent or guilty of wilful misconduct. If Agent so requests, it
shall first be indemnified to its reasonable satisfaction by Lenders against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Provided Agent acts in good faith, Agent
shall in all cases be fully protected in acting, or in refraining from acting,
except for acts of willful misconduct or gross negligence by Agent, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Required Lenders or all Lenders, as applicable, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.
17.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event
of Default, except with respect to defaults in the payment of principal,
interest, fees, and expenses required to be paid to Agent for the account of
Agent or the Lenders, except with respect to actual knowledge of the
existence of an Overadvance, and except with respect to Defaults and Events
of Default of which Agent has actual knowledge, unless Agent shall have
received written notice from a Lender or Borrower referring to this
Agreement, describing such Default or Event of Default, and stating that such
notice is a "notice of default." Agent promptly will notify the Lenders of
its receipt of any such notice or of any Event of Default of which Agent has,
or is deemed to have, actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the
other Lenders and Agent of such Event of Default. Each Lender shall be solely
responsible for giving any notices to its Participants, if any. Subject to
SECTION 17.4, Agent shall take such action with respect to such Default or
Event of Default as may be requested by the Required Lenders; PROVIDED,
HOWEVER, that:
(a) At all times, Agent may propose and, with the consent of
Required Lenders (which shall not be unreasonably withheld and which shall be
deemed to have been given by a Lender unless such Lender has notified Agent
to the contrary in writing within three days of notification of such proposed
actions by Agent) exercise, any remedies on behalf of the Lender Group. In
the event of a conflict between Foothill and Paragon Capital LLC ("Paragon")
with respect to giving Agent consent pursuant to this SECTION 17.5(a) to
follow a particular course
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of action, then Foothill shall have the right, at its option and upon two
Business Days notice, to purchase from Paragon 100% of Paragon's rights and
obligations as a Lender hereunder, and Paragon shall be obliged to assign
such rights and obligations. Such assignment shall be consummated pursuant
to the terms of SECTION 15.1, and the purchase price shall be an amount equal
to the outstanding principal balance of Paragon's pro rata share of the
Obligations, together with accrued interest and earned fees in respect
thereof; and
(b) At all times, once Required Lenders or all Lenders, as the
case may be, have approved the exercise of a particular remedy or pursuit of a
course of action, Agent may, but shall not be obligated to, make all
administrative decisions, in consultation with Oversight Agent, in connection
therewith or take all other actions reasonably incidental thereto (for example,
if the Required Lenders approve the foreclosure of certain Collateral, Agent
shall not be required to seek consent for the administrative aspects of
conducting such sale or handling of such Collateral).
17.6 CREDIT DECISION. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by Agent hereinafter taken, including any review of the affairs of
Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender.
Each Lender represents to Agent that it has, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial
and other condition, and creditworthiness of Borrower and any other Person
(other than the Lender Group) party to a Loan Document, and all applicable
bank regulatory laws relating to the transactions contemplated hereby, and
made its own decision to enter into this Agreement and to extend credit to
Borrower. Each Lender also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit analysis, appraisals, and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition, and
creditworthiness of Borrower, and any other Person (other than the Lender
Group) party to a Loan Document. Except for notices, reports, and other
documents expressly herein required to be furnished to the Lenders by Agent,
Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects,
operations, property, financial and other condition, or creditworthiness of
Borrower, and any other Person party to a Loan Document that may come into
the possession of any of the Agent-Related Persons.
17.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and pay
Lender Group Expenses to the extent Agent deems reasonably necessary or
appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including without limiting the
generality of the foregoing, but subject to any requirements of the Loan
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Documents that it obtain any applicable consents or engage in any required
consultation, court costs, reasonable attorneys fees and expenses, costs of
collection by outside collection agencies and auctioneer fees and costs of
security guards or insurance premiums paid to maintain the Collateral,
whether or not Borrower are obligated to reimburse Agent or Lenders for such
expenses pursuant to the Loan Agreement or otherwise. Agent is authorized
and directed to deduct and retain sufficient amounts from Collections to
reimburse Agent for such out-of-pocket costs and expenses prior to the
distribution of any amounts to Lenders. In the event Agent is not reimbursed
for such costs and expenses from Collections, each Lender hereby agrees that
it is and shall be obligated to pay to or reimburse Agent for the amount of
such Lender's Pro Rata Share thereof. Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand
the Agent-Related Persons (to the extent not reimbursed by or on behalf of
Borrower and without limiting the obligation of Borrower to do so), according
to their Pro Rata Shares, from and against any and all Indemnified
Liabilities; PROVIDED, HOWEVER, that no Lender shall be liable for the
payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence, bad faith,
or willful misconduct. Without limitation of the foregoing, each Lender
shall reimburse Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including attorney fees and expenses) incurred by
Agent in connection with the preparation, execution, delivery,
administration, modification, amendment, or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect
of rights or responsibilities under, this Agreement, any other Loan Document,
or any document contemplated by or referred to herein, to the extent that
Agent is not reimbursed for such expenses by or on behalf of Borrower. The
undertaking in this SECTION 17.7 shall survive the payment of all Obligations
hereunder and the resignation or replacement of Agent.
17.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates may
make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests, in and generally engage in any kind of
banking, trust, financial advisory, underwriting, or other business with
Borrower and its Subsidiaries and Affiliates and any other Person party to
any Loan Documents as though Foothill were not Agent hereunder without notice
to or consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, Foothill and its Affiliates may receive information regarding
Borrower or their Affiliates and any other Person party to any Loan Documents
that is subject to confidentiality obligations in favor of Borrower or such
other Person and that prohibit the disclosure of such information to the
Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver Agent
will use its reasonable best efforts to obtain), Agent shall be under no
obligation to provide such information to them. With respect to the Agent
Loans and Agent Advances, Foothill shall have the same rights and powers
under this Agreement as any other Lender and may exercise the same as though
it were not Agent, and the terms "Lender" and "Lenders" include Foothill in
its individual capacity.
17.9 SUCCESSOR AGENT. Agent may resign as Agent following notice of
such resignation ("Notice") to the Lenders and Borrower, and effective upon the
appointment of and acceptance of
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such appointment by, a successor Agent. If Agent resigns under this
Agreement, the Required Lenders shall appoint any Lender or Eligible
Transferee as successor Agent for the Lenders. If no successor Agent is
appointed within 30 days of such retiring Agent's Notice, Agent may appoint a
successor Agent, after consulting with the Lenders and Borrower. In any such
event, upon the acceptance of its appointment as successor Agent hereunder,
such successor Agent shall succeed to all the rights, powers and duties of
the retiring Agent and the term "Agent" shall mean such successor Agent and
the retiring Agent's appointment, powers, and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this SECTION 17 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
17.10 WITHHOLDING TAX.
(a) If any Lender is a "foreign corporation, partnership or
trust" within the meaning of the IRC and such Lender claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such
Lender agrees with and in favor of Agent and Borrower, to deliver to Agent and
Borrower:
(i) if such Lender claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under
this Agreement;
(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Lender and in each succeeding taxable year of such Lender during
which interest may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under
the IRC or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding tax.
Such Lender agrees to promptly notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of Borrower, such Lender agrees to notify Agent
and Borrower of the percentage amount in which it is no longer the beneficial
owner of Obligations of Borrower to such Lender. To the extent of such
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percentage amount, Agent and Borrower will treat such Lender's IRS Form 1001
as no longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
Borrower to such Lender, such Lender agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441
and 1442 of the IRC.
(d) If any Lender is entitled to a reduction in the
applicable withholding tax, Agent may withhold from any interest payment to
such Lender an amount equivalent to the applicable withholding tax after
taking into account such reduction. If the forms or other documentation
required by subsection (a) of this Section are not delivered to Agent, then
Agent may withhold from any interest payment to such Lender not providing
such forms or other documentation an amount equivalent to the applicable
withholding tax.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that Agent or Borrower
did not properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify Agent and Borrower of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender shall
indemnify Agent and Borrower fully for all amounts paid, directly or
indirectly, by Agent or Borrower as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to Agent or Borrower under this Section, together with all costs and
expenses (including attorneys fees and expenses). The obligation of the
Lenders under this subsection shall survive the payment of all Obligations
and the resignation of Agent.
17.11 COLLATERAL MATTERS.
(a) The Lenders hereby irrevocably authorize Agent, to
release any Lien on any Collateral (i) upon the termination of the
Commitments and payment and satisfaction in full by Borrower of all
Obligations; and upon such termination and payment Agent shall deliver to
Borrower, at Borrower's sole cost and expense, all UCC termination statements
and any other documents necessary to terminate the Loan Documents and release
the Liens with respect to the Collateral; (ii) constituting property being
sold or disposed of if a release is required or desirable in connection
therewith and if Borrower certifies to Agent that the sale or disposition is
permitted under SECTION 7.4 of this Agreement or the other Loan Documents
(and Agent may rely conclusively on any such certificate, without further
inquiry); (iii) constituting property in which Borrower owned no interest at
the time the Lien was granted or at any time thereafter; or (iv) constituting
property leased to Borrower under a lease that has expired or been terminated
in a transaction permitted under this Agreement. Except as provided above,
Agent will not release any Lien on any Collateral without the prior written
authorization of the Lenders. Upon request by Agent or Borrower at any time,
the Lenders will confirm in writing Agent's authority to
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release any such Liens on particular types or items of Collateral pursuant to
this SECTION 17.11; PROVIDED, HOWEVER, that (i) Agent shall not be required
to execute any document necessary to evidence such release on terms that, in
Agent's opinion, would expose Agent to liability or create any obligation or
entail any consequence other than the release of such Lien without recourse,
representation, or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens (other than those
expressly being released), upon (or obligations of Borrower in respect of)
all interests retained by Borrower, including, the proceeds of any sale, all
of which shall continue to constitute part of the Collateral.
(b) Except to the extent of its own willful misconduct or gross
negligence, Agent shall have no obligation whatsoever to any of the Lenders to
assure that the Collateral exists or is owned by Borrower, is cared for,
protected, or insured or has been encumbered, or that the Liens of the Agent
(for the benefit of the Lender Group) have been properly or sufficiently or
lawfully created, perfected, protected, or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure, or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent pursuant to any of
the Loan Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, subject to the terms
and conditions contained herein, Agent may act in any manner it may deem
appropriate, in its sole discretion given Agent's own interest in the Collateral
in its capacity as one of the Lenders and that Agent shall have no other duty or
liability whatsoever to any Lender as to any of the foregoing, except as
otherwise provided herein.
17.12 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.
(a) Each of the Lenders agrees that it shall not, without the
express consent of Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of Agent, set off against the Obligations
any amounts owing by such Lender to Borrower or any accounts of Borrower now or
hereafter maintained with such Lender. Each of the Lenders further agrees that
it shall not, unless specifically requested to do so by Agent, take or cause to
be taken any action, including the commencement of any legal or equitable
proceedings, to foreclose any Lien on, or otherwise enforce any security
interest in, any of the Collateral the purpose of which is, or could be, to give
such Lender any preference or priority against the other Lenders with respect to
the Collateral.
(b) Subject to SECTION 17.8, if, at any time or times any
Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any
proceeds of Collateral or any payments with respect to the Obligations of
Borrower to such Lender arising under, or relating to, this Agreement or the
other Loan Documents, except for any such proceeds or payments received by such
Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from
Agent in excess of such Lender's Pro Rata Share of all such distributions by
Agent, such Lender shall promptly (1) turn the same over to Agent, in kind, and
with such endorsements as may be required to negotiate the same to Agent, or in
same day funds, as applicable, for the account of all of the Lenders and for
application to the Obligations in accordance with the applicable
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provisions of this Agreement, or (2) purchase, without recourse or warranty,
an undivided interest and participation in the Obligations owed to the other
Lenders so that such excess payment received shall be applied ratably as
among the Lenders in accordance with their Pro Rata Shares; PROVIDED,
HOWEVER, that if all or part of such excess payment received by the
purchasing party is thereafter recovered from it, those purchases of
participations shall be rescinded in whole or in part, as applicable, and the
applicable portion of the purchase price paid therefor shall be returned to
such purchasing party, but without interest except to the extent that such
purchasing party is required to pay interest in connection with the recovery
of the excess payment.
17.13 AGENCY FOR PERFECTION. Agent and each Lender hereby appoints each
other Lender as agent for the purpose of perfecting the Liens of the Lender
Group in assets which, in accordance with Division 9 of the UCC can be perfected
only by possession. Should any Lender obtain possession of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent's request
therefor shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
17.14 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made by
Agent to the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds pursuant to the instructions set forth on SCHEDULE
C-1, or pursuant to such other wire transfer instructions as each party may
designate for itself by written notice to Agent. Concurrently with each such
payment, Agent shall identify whether such payment (or any portion thereof)
represents principal, premium or interest on revolving advances or otherwise.
17.15 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each member
of the Lender Group authorizes and directs Agent to enter into this Agreement
and the other Loan Documents relating to the Collateral, for the ratable benefit
(subject to SECTIONS 2.3(b) AND 4.1) of the Lender Group. Each member of the
Lender Group agrees that any action taken by Agent, Required Lenders, or all
Lenders, as applicable, in accordance with the terms of this Agreement or the
other Loan Documents relating to the Collateral and the exercise by Agent,
Required Lenders, or all Lenders, as applicable, of their respective powers set
forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.
17.16 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS
BY LENDERS; OTHER REPORTS AND INFORMATION. By signing this Agreement, each
Lender and, with respect to subparagraph (d), the Agent and the Oversight Agent;
(a) is deemed to have requested that Agent furnish such Lender,
promptly after it becomes available, a copy of each field audit or examination
report (each a "Report" and collectively, "Reports") prepared by Agent, and
Agent shall so furnish each Lender with such Reports;
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(b) expressly agrees and acknowledges that Agent (i) does not
make any representation or warranty as to the accuracy of any Report, and (ii)
shall not be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Borrower
and will rely significantly upon Borrower's books and records, as well as on
representations of Borrower's personnel;
(d) agrees to keep all Reports and other material information
obtained by it pursuant to the requirements of this Agreement in accordance with
its reasonable customary procedures for handling confidential information; it
being understood and agreed by Borrower that in any event such Lender may make
disclosures (i) reasonably required by any BONA FIDE potential or actual
Assignee, transferee, or Participant in connection with any contemplated or
actual assignment or transfer by such Lender of an interest herein or any
participation interest in such Lender's rights hereunder, (ii) of information
that has become public by disclosures made by Persons other than such Lender,
its Affiliates, assignees, transferees, or participants, or (iii) as required or
requested by any court, governmental or administrative agency, pursuant to any
subpoena or other legal process, or by any law, statute, regulation, or court
order; PROVIDED, HOWEVER, that, unless prohibited by applicable law, statute,
regulation, or court order, such Lender shall notify Borrower of any request by
any court, governmental or administrative agency, or pursuant to any subpoena or
other legal process for disclosure of any such non-public material information
concurrent with, or where practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold
Agent, Oversight Agent and any other Lender preparing a Report harmless from any
action the indemnifying Lender may take or conclusion the indemnifying Lender
may reach or draw from any Report in connection with any loans or other credit
accommodations that the indemnifying Lender has made or may make to Borrower, or
the indemnifying Lender's participation in, or the indemnifying Lender's
purchase of, a loan or loans of Borrower; and (ii) to pay and protect, and
indemnify, defend, and hold Agent, Oversight Agent and any other Lender
preparing a Report harmless from and against, the claims, actions, proceedings,
damages, costs, expenses and other amounts (including, attorney costs) incurred
by Agent, Oversight Agent and any other Lender preparing a Report as the direct
or indirect result of any third parties who might obtain all or part of any
Report through the indemnifying Lender.
In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent, and, upon receipt of such request, Agent
shall provide a copy of same to such Lender promptly upon receipt thereof; (y)
to the extent that Agent is entitled, under any provision of the Loan Documents,
to request additional reports or information from Borrower, any Lender may, from
time to time, reasonably request Agent to exercise such right as specified in
such Lender's notice to Agent, whereupon Agent promptly shall request of
Borrower the additional reports or
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information specified by such Lender, and, upon receipt thereof, Agent
promptly shall provide a copy of same to such Lender; and (z) any time that
Agent renders to Borrower a statement regarding the Loan Account, Agent shall
send a copy of such statement to each Lender.
17.17 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be
executed only by or in favor of Agent in its capacity as such, and not by or
in favor of the Lenders, any and all obligations on the part of Agent (if
any) to make any Advances shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such Advances not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any
interest in, or subject any Lender to any liability for, or in respect of,
the business, assets, profits, losses, or liabilities of any other Lender.
Each Lender shall be solely responsible for notifying its Participants of any
matters relating to the Loan Documents to the extent any such notice may be
required, and no Lender shall have any obligation, duty, or liability to any
Participant of any other Lender. Except as provided in SECTION 17.7, no
member of the Lender Group shall have any liability for the acts of any other
member of the Lender Group. No Lender shall be responsible to Borrower or
any other Person for any failure by any other Lender to fulfill its
obligations to make Advances, nor to advance for it or on its behalf in
connection with its Commitment, nor to take any other action on its behalf
hereunder or in connection with the financing contemplated herein.
18. GENERAL PROVISIONS.
18.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and the Lender Group.
18.2 SECTION HEADINGS. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
18.3 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against the Lender Group or
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
18.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
18.5 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when
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executed and delivered, shall be deemed to be an original, and all of which,
when taken together, shall constitute but one and the same Agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile shall
be equally as effective as delivery of an original executed counterpart of
this Agreement. Any party delivering an executed counterpart of this
Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect
of this Agreement.
18.6 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by any or all of such parties to the Lender Group of any
property of either or both of such parties should for any reason subsequently
be declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable
payments of money or transfers of property (collectively, a "Voidable
Transfer"), and if the Lender Group is required to repay or restore, in whole
or in part, any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such Voidable Transfer, or
the amount thereof that the Lender Group is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of the
Lender Group related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
18.7 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof,
except as agreed to in a writing executed by the Borrower and the Required
Lenders (or the Agent at the request of the Required Lenders).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Boston, Massachusetts.
GANTOS, INC.
By: /s/ Arlene H. Stern
---------------------------
Title: President
------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent and
as a Lender
By: /s/ Christopher O'Connor VP
--------------------------------
Title
PARAGON CAPITAL, LLC, as a Lender
By: /s/ Andrew Moser
--------------------------------
President & COO Title
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COMMITMENTS ON CLOSING DATE
<TABLE>
<S> <C>
Foothill Capital Corporation $33,000,000.00
Paragon Capital LLC $ 7,000,000.00
---------------
Total $40,000,000.00
---------------
---------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
FACILITY ADDRESS CITY COUNTY STATE AND LENDERS' NAME OF AMOUNT OF
NAME ZIP CODE LIEN POSITION PRIOR PRIOR LIEN
LIENOR
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
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EXHIBIT A-1
-----------
FORM OF ASSIGNMENT AND ACCEPTANCE
---------------------------------
This ASSIGNMENT AND ACCEPTANCE (this "ASSIGNMENT AND ACCEPTANCE") dated
as of ____________________, 199_ is made between _____________________________
(the "ASSIGNOR") and ______________________________ (the "ASSIGNEE").
RECITALS
A. The Assignor is party to that certain Loan and Security Agreement,
dated as of _____________ (as amended, amended and restated, modified,
supplemented or renewed from time to time, the "LOAN AGREEMENT"), among
____________________________________________________________________ [jointly
and severally as borrowers (collectively, "Borrower"),] the several financial
institutions from time to time party thereto (including the Assignor,
collectively, the "LENDERS"), and Foothill Capital Corporation, a California
corporation, as agent for the Lenders (the "AGENT"). Any terms defined in the
Loan Agreement and not defined in this Assignment and Acceptance are used herein
as defined in the Loan Agreement;
B. As provided under the Loan Agreement, the Assignor has committed
to making Loans (the "COMMITTED LOANS") to the Borrower in an aggregate amount
not to exceed $________________ (the "COMMITMENT");
C. [The Assignor has made Committed Loans in the aggregate principal
amount of $________________ to the Borrower] [No Committed Loans are outstanding
under the Loan Agreement];
D. [The Assignor has acquired a participation in the Agent's
liability under Letters of Credit in an aggregate outstanding principal amount
of $____________ (the "L/C OBLIGATIONS")] [No Letters of Credit are outstanding
under the Loan Agreement]; and
E. The Assignor wishes to assign to the Assignee [part of the]
[all]rights and obligations of the Assignor under the Loan Agreement in
respect of its Commitment, [together with a corresponding portion of each of
its outstanding Committed Loans and L/C Obligations,] in an amount equal to
$____________ (the "ASSIGNED AMOUNT") on the terms and subject to the conditions
set forth herein and the Assignee wishes to accept assignment of such rights and
to assume such obligations from the Assignor on such terms and subject to such
conditions.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. ASSIGNMENT AND ACCEPTANCE.
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(a) Subject to the terms and conditions of this Assignment and
Acceptance, (i) the Assignor hereby sells, transfers, delegates, and assigns to
the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes
from the Assignor, without recourse and without representation or warranty
(except as provided in this Assignment and Acceptance) __%(1) (the "ASSIGNEE'S
PERCENTAGE SHARE") of (A) the Commitment [and the Committed Loans and the L/C
Obligations] of the Assignor and (B) all related rights, benefits, obligations,
liabilities and indemnities of the Assignor under and in connection with the
Loan Agreement and the other Loan Documents.
[If appropriate, add paragraph specifying payment to Assignor by
Assignee of outstanding principal of, accrued interest on, and fees with respect
to, Committed Loans and L/C Obligations assigned.]
(b) With effect on and after the Effective Date (as defined in
Section 5 hereof), the Assignee shall be a party to the Loan Agreement and
succeed to all of the rights and be obligated to perform all of the obligations
of a Lender under the Loan Agreement, including the requirements concerning
confidentiality (if any) and the payment of indemnification to the Agent, with a
Commitment in an amount equal to the Assigned Amount. The Assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Loan Agreement are required to be performed by it as a Lender.
It is the intent of the parties hereto that the Commitment of the Assignor
shall, as of the Effective Date, be reduced by an amount equal to the Assigned
Amount and the Assignor shall relinquish its rights and be released from its
obligations under the Loan Agreement to the extent such obligations have been
assumed by the Assignee; PROVIDED, HOWEVER, the Assignor shall not relinquish
the rights under the Loan Agreement to the extent such rights relate to the time
prior to the Effective Date.
(c) After giving effect to the assignment and assumption set
forth herein, on the Effective Date the Assignee's Commitment will be $______.
(d) After giving effect to the assignment and assumption set
forth herein, on the Effective Date the Assignor's Commitment will be $______.
2. PAYMENTS.
(a) As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the
Effective Date in immediately available funds an amount equal to $____________,
representing the Assignee's Percentage Share of the principal amount of all
Committed Loans.
(b) The [Assignor] [Assignee] further agrees to pay to the
Agent a processing fee in the amount of ___________________ ($_______), as
specified in Section 15.1(a) of the Loan Agreement.
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3. REALLOCATION OF PAYMENTS.
Any interest, fees and other payments accrued to the Effective
Date with respect to the Commitment [,] [and] Committed Loans [and L/C
Obligations] shall be for the account of the Assignor. Any interest, fees and
other payments accrued on and after the Effective Date with respect to the
Assigned Amount shall be for the account of the Assignee. Each of the Assignor
and the Assignee agrees that it will hold in trust for the other party any
interest, fees and other amounts which it may receive to which the other party
is entitled pursuant to the preceding sentence and pay to the other party any
such amounts which it may receive promptly upon receipt.
4. INDEPENDENT CREDIT DECISION
The Assignee (a) acknowledges that it has received a copy of the Loan
Agreement and the Schedules and Exhibits thereto, together with copies of the
most recent financial statements referred to in Section 6.2 of the Loan
Agreement, and such other documents and information as it has deemed appropriate
to make its own credit and legal analysis and decision to enter into this
Assignment and Acceptance; and (b) agrees that it will, independently and
without reliance upon the Assignor, the Agent or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit and legal decisions in taking or not taking
action under the Loan Agreement.
5. EFFECTIVE DATE; NOTICES.
(a) As between the Assignor and the Assignee, the effective
date for this Assignment and Acceptance (the "EFFECTIVE DATE") shall be the
later of: (i) ____________, 199_; and (ii) the first day on which the following
conditions precedent have been satisfied:
(i) this Assignment and Acceptance shall be executed and
delivered by the Assignor and the Assignee;
(ii) the consent of the Agent required for an effective
assignment of the Assigned Amount by the Assignor to the Assignee under
Section 15.1(a) of the Loan Agreement shall have been duly obtained and
shall be in full force and effect as of the Effective Date;
(iii) the Assignee shall pay to the Assignor all amounts due to
the Assignor under this Assignment and Acceptance;
(iv) the processing fee referred to in Section 2(b) hereof and
in Section 15.1 of the Loan Agreement in the amount of
_______________________ ($______), shall have been paid to the Agent; and
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(v) the Assignor shall have assigned and the Assignee shall
have assumed a percentage equal to the Assignee's Percentage Share of the
rights and obligations of the Assignor under the Loan Agreement.
(b) Promptly following the execution of this Assignment and
Acceptance, the Assignor shall deliver to the Borrower and the Agent for
acknowledgment by the Agent, a Notice of Assignment [substantially] in the form
attached hereto as SCHEDULE 1.
6. AGENT.
[(a)] The Assignee hereby appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under the
Loan Agreement as are delegated to the Agent by the Lenders pursuant to the
terms of the Loan Agreement.
[INCLUDE ONLY IF ASSIGNOR IS AGENT] [(b) The Assignee shall assume no
duties or obligations held by the Assignor in its capacity as Agent under the
Loan Agreement.]
7. WITHHOLDING TAX.
The Assignee (a) represents and warrants to the Lenders, the Agent and
the Borrower that under applicable law and treaties no tax will be required to
be withheld by the Lenders with respect to any payments to be made to the
Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of
any jurisdiction other than the United States or any State thereof) to the Agent
and the Borrower prior to the time that the Agent or the Borrower is required to
make any payment of principal, interest or fees hereunder, duplicate executed
originals of either U.S. Internal Revenue service Form 4224 or U.S. Internal
Revenue Service Form 1001 (wherein the Assignee claims entitlement to the
benefits of a tax treaty that provides for a complete exemption from U.S.
federal income withholding tax on all payments hereunder) and agrees to provide
new Forms 4224 or 1001 upon the expiration of any previously delivered form or
comparable statements in accordance with all applicable U.S. laws and
regulations and amendments thereto, duly executed and completed by the Assignee,
and (c) agrees to comply with all applicable U.S. laws and regulations with
regard to such withholding tax exemption.
8. REPRESENTATIONS AND WARRANTIES.
(a) The Assignor represents and warrants that (i) it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any lien or other adverse claim; (ii) it
is duly organized and existing and it has the full power and authority to take,
and has taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance and to fulfill
its obligations hereunder; (iii) no notices to, or consents, authorizations or
approvals of, any person are required (other than any already given or obtained)
for its due execution, delivery and performance of this Assignment
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and Acceptance, and apart from any agreements or undertakings or filings
required by the Loan Agreement, no further action by, or notice to, or filing
with, any person is required of it for such execution, delivery or
performance; and (iv) this Assignment and Acceptance has been duly executed
and delivered by it and constitutes the legal, valid and binding obligation
of the Assignor, enforceable against the Assignor in accordance with the
terms hereof, subject, as to enforcement, to bankruptcy, insolvency,
moratorium, reorganization and other laws of general application relating to
or affecting creditors' rights and to general equitable principles.
(b) The Assignor makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Loan Agreement or any other instrument or document furnished pursuant
thereto. The Assignor makes no representation or warranty in connection with,
and assumes no responsibility with respect to, the financial condition of the
Borrower, or the performance or observance by the Borrower, of any of its
obligations under the Loan Agreement or any other instrument or document
furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly
organized and existing and is an Eligible Transferee and it has full power and
authority to take, and has taken, all action necessary to execute and deliver
this Assignment and Acceptance and any other documents required or permitted to
be executed or delivered by it in connection with this Assignment and
Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or
consents, authorizations or approvals of, any person are required (other than
any already given or obtained) for its due execution, delivery and performance
of this Assignment and Acceptance; and apart from any agreements or undertakings
or filings required by the Loan Agreement, no further action by, or notice to,
or filing with any person is required of it for such execution, delivery or
performance; (iii) this Assignment and Acceptance has been duly executed and
delivered by it and constitutes the legal, valid and binding obligation of the
Assignee, enforceable against the Assignee in accordance with the terms hereof,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors' rights and to general equitable principles.
9. FURTHER ASSURANCES.
The Assignor and the Assignee each hereby agrees to execute and deliver
such other instruments, and take such other action, as either party may
reasonably request in connection with the transactions contemplated by this
Assignment and Acceptance, including the delivery of any notices or other
documents or instruments to the Borrower or the Agent, which may be required in
connection with the assignment and assumption contemplated hereby.
10. MISCELLANEOUS.
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(a) Any amendment or waiver of any provision of this Assignment
and Acceptance shall be in writing and signed by the parties hereto. No failure
or delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance shall be without prejudice to any
rights with respect to any other or further breach thereof.
(b) All payments made hereunder shall be made without any
set-off or counterclaim.
(c) The Assignor and the Assignee shall each pay its own costs
and expenses incurred in connection with the negotiation, preparation, execution
and performance of this Assignment and Acceptance.
(d) This Assignment and Acceptance may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall together constitute one and the same agreement.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE DEEMED TO HAVE BEEN
MADE IN THE COMMONWEALTH OF MASSACHUSETTS AND SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF SUCH STATE, EXCEPT THAT NO DOCTRINE
OF CHOICE OF LAW SHALL BE USED TO APPLY THE LAWS OF ANY OTHER STATE OR
JURISDICTION. The Assignor and Assignee each agrees that, in addition to any
other courts that may have jurisdiction under applicable laws or rules, any
action or proceeding to enforce or arising out of this Assignment and Acceptance
may be commenced in the Superior Court of the State of California for Los
Angeles County, or in the United States District Court for the Central District
of California, and the Assignor and Assignee each consents and submits in
advance to such jurisdiction and agrees that venue will be proper in such courts
on any such matter. Each party to this Assignment and Acceptance hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding.
(f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY WAIVES TRIAL BY
JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS IN ANY LITIGATION
IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS
ASSIGNMENT AND ACCEPTANCE, THE LOAN AGREEMENT, ANY RELATED DOCUMENTS AND
AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER
ORAL OR WRITTEN) DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR
DISPUTE HOWSOEVER ARISING, BETWEEN THE ASSIGNOR AND THE ASSIGNEE. THE ASSIGNOR
AND THE ASSIGNEE EACH CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND
FREELY MADE.
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[Other provisions to be added as may be negotiated between the
Assignor and the Assignee, provided that such provisions are not inconsistent
with the Loan Agreement.]
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed and delivered by their duly authorized
officers as of the date first above written.
[ASSIGNOR]
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Address:
----------------------------
------------------------------------
[ASSIGNEE]
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Address:
----------------------------
------------------------------------
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SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
___________, 199_
Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, CA 90025-3333
Attn: ________________
[Name and Address of Borrower]
Ladies and Gentlemen:
We refer to the Loan and Security Agreement, dated as of ______________
(as amended, amended and restated, modified, supplemented or renewed from time
to time, the "LOAN AGREEMENT"), [among/between] _____________________ [jointly
and severally as borrowers ([collectively,] "Borrower"),] the several financial
institutions from time to time party thereto (collectively, the "LENDERS"), and
Foothill Capital Corporation, as agent for the Lenders (the "AGENT"). defined
in the Loan Agreement are used herein as therein defined.
1. We hereby give you notice of, and request your consent to, the
assignment by __________ (the "ASSIGNOR") to _______________ (the "ASSIGNEE")
of _____% of the right, title and interest of the Assignor in and to the Loan
Agreement (including, without limitation, the right, title and interest of the
Assignor in and to the Commitments of the Assignor[,] [and] all outstanding
loans made by the Assignor [and the Assignor's participation in the Letters of
Credit]) pursuant to the Assignment and Acceptance Agreement attached hereto
(the "ASSIGNMENT AND ACCEPTANCE"). Before giving effect to such assignment, the
Assignor's Commitment is $_______________[,] [and] the aggregate amount of its
outstanding loans is $____________[, and its participation in L/C Obligations is
$_________________].
2. The Assignee agrees that, upon receiving the consent of the Agent
to such assignment, the Assignee will be bound by the terms of the Loan
Agreement as fully and to the same extent as if the Assignee were the Lender
originally holding such interest in the Loan Agreement.
3. The following administrative details apply to the Assignee:
(A) Notice Address:
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Assignee name:
-----------------------------
Address:
------------------------------------
--------------------------------------------
(B) Payment Instructions:
Account No.:
--------------------------------
At:
-----------------------------------------
Reference:
----------------------------------
Attention:
----------------------------------
4. You are entitled to rely upon the representations, warranties and
covenants of each of the Assignor and Assignee contained in the Assignment and
Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice
of Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
Very truly yours,
[ASSIGNOR]
By:
-----------------------------
Title:
--------------------------
By:
-----------------------------
Title:
--------------------------
Address:
------------------------
--------------------------------
[ASSIGNEE]
By:
-----------------------------
Title:
--------------------------
By:
-----------------------------
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<PAGE>
Title:
--------------------------
Address:
------------------------
--------------------------------
ACKNOWLEDGED:
_______________________,
a ___________ corporation, as Borrower
By:
-----------------------------
Title:
--------------------------
ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO:
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent
By:
-----------------------------
Title:
--------------------------
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<PAGE>
EXHIBIT C-1
-----------
COMPLIANCE CERTIFICATE SAMPLE COPY
----------------------------------
(Loan and Security Agreement Section 6.2)
Date _______________, 199_
FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Santa Monica, California 90025-3333
Attention: ________________________
RE: LOAN AND SECURITY AGREEMENT, DATED AS OF ______________ ___, 199___ (THE
"AGREEMENT") BY AND BETWEEN FOOTHILL CAPITAL CORPORATION AS AGENT
("AGENT") FOR CERTAIN FINANCIAL INSTITUTIONS AND _____________________
("BORROWER").
Dear _______________:
In accordance with Section 6.2 of the Agreement, this letter shall serve
as certification to Agent that to the best of my knowledge: (i) all financial
statements have been prepared in accordance with GAAP and fairly represent the
financial condition of Borrower, (ii) the representations and warranties of
Borrower set forth in the Agreement and other Loan Documents are true and
correct in all material respects on and as of the date of this certification,
(iii) as demonstrated on Exhibit 1 attached hereto, Borrower is in compliance
with each of its financial covenants set forth in Section 7.20 of the Agreement
as of the date of this certification, and (iv) there does not exist any
condition or event that constitutes a Default or Event of Default. Such
certification is made as of the fiscal month ending ______________, 199___.
Sincerely,
Chief Financial Officer
98
<PAGE>
December 8, 1998
Gantos, Inc.
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
Ladies and Gentlemen:
Gantos, Inc., a Michigan corporation (the "Company"), intends to
transmit for filing with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, as amended (the
"Registration Statement"), which relates to the resale by the selling
shareholders named in the Registration Statement of up to 375,000 common shares
(the "Shares") of the Company issuable upon exercise of warrants ("Warrants").
This opinion is an exhibit to the Registration Statement.
We have acted as counsel to the Company in connection with the
issuance of the Warrants and the proposed offer and sale of the Shares as
contemplated by the Registration Statement. However, we are not general
counsel to the Company and would not ordinarily be familiar with or aware of
matters relating to the Company unless they are brought to our attention by
representatives of the Company. We have examined copies (in each case
signed, certified or otherwise proved to our satisfaction) of the Company's
charter and By-Laws as presently in effect, minutes and other instruments
evidencing actions taken by the Company's directors and stockholders, and
such other documents and instruments relating to the Company and the proposed
offering as we have deemed necessary under the circumstances. In our
examination of all such agreements, documents, certificates and instruments,
we have assumed the genuineness of all signatures and the authenticity of all
agreements, documents, certificates and instruments submitted to us as
originals and the conformity with the originals of all agreements,
instruments, documents and certificates submitted to us as copies. Insofar
as this opinion relates to securities to be issued in the future, we have
assumed that all applicable laws, rules and regulations in effect at the time
of such issuance are the same as such laws, rules and regulations in effect
as of the date hereof.
Our opinion in paragraph 1 is solely based on our review of the
Restated Articles of Incorporation of the Company, certified by the Michigan
Department of Consumer and Industry Services on November 9, 1998.
<PAGE>
Gantos, Inc.
December 8, 1998
Page 2
We note that we are members of the Bar of the State of New York and
do not opine herein on the laws of any jurisdiction other than the State of
New York and the federal laws of the United States.
Based on the foregoing, and subject to and in reliance on the accuracy
and completeness of the information relevant thereto provided to us, it is our
opinion that:
1. The Company has been duly incorporated under the laws of the
State of Michigan and has an authorized capital stock consisting
of 20,000,000 common shares, par value $.01 per share, and
2,000,000 preferred shares, par value $.01 per share.
2. The Shares have been duly authorized and (subject to the
effectiveness of the Registration Statement and compliance with
applicable state securities laws), when issued upon proper
exercise of the Warrants, will be legally and validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any filing made by the Company under
the securities or "Blue Sky" laws of any state.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes, except as expressly provided in the
preceding paragraph.
Very truly yours,
/s/ Swidler Berlin Shereff Friedman, LLP
-----------------------------------------
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
SBSF, LLP:CIW:JSH:GA
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
April 30, 1998 except as to Note 12, which is as of November 10, 1998 appearing
on page F-2 of Gantos, Inc.'s Annual Report on Form 10-K/A Amendment No. 4 for
the year ended January 31, 1998. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Battle Creek, Michigan
December 7, 1998
99
