EXHIBIT 99.1 Post-petition Credit Agreement Commitment Letter
July 30, 1998
THREE D DEPARTMENTS, INC.
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
Attn.: Xx. Xxxxxx X. Xxxxxx
Re: DEBTOR-IN-POSSESSION FINANCING
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Dear Xxx,
In accordance with our recent discussions, FOOTHILL CAPITAL
CORPORATION ("Lender") is pleased to issue this financing commitment for
debtor-in-possession financing to THREE D DEPARTMENTS, INC. ("Borrower").
Subject to the satisfactory completion of each of the conditions contained
herein, the financing would be as follows:
1. REVOLVING LINE OF CREDIT (the "Line"):
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a. MAXIMUM CREDIT LINE: $10,000,000.
b. REVOLVING INVENTORY LINE: Lender would extend credit to
Borrower under the Line up to the lesser of (i) the Maximum
Credit Line, and (ii) the Borrowing Base. For purposes of the
foregoing, the Borrowing Base shall mean:
(x) an amount equal to the lesser of
(1) 50% of the orderly liquidation value of
Xxxxxxxx's owned and leased real property
that is subject to a first priority lien in
favor of Xxxxxx, and
(2) an amount equal to
(A) $2,500,000 for the period from
the Closing Date (as herein defined)
up to and including August 31, 1998,
(B) $2,357,000 for the period from
and after September 1, 1998 up to
and including September 30, 1998,
(C) $2,214,000 for the period from
and after October 1, 1998 up to and
including October 31, 1998,
(D) $2,071,000 for the period from
and after November 1, 1998 up to and
including November 30, 1998, and
(E) $2,000,000 on and after December
1, 1998; PLUS
(y) the lesser of:
(1) 60% of the value of Borrower's
inventory, such value to be calculated at
the lower of cost or market after
subtracting the sum of
(A) as to inventory of Borrower in
existence on the Closing Date, a
general reserve in an amount equal
to
(i) $700,000 for the period
from and after the Closing
Date up to and including
August 31, 1998,
(ii) $500,000 for the
period from and after
September 1, 1998 up to and
including September 30,
1998,
(iii) $300,000 for the
period from and after
October 1, 1998 up to and
including October 31, 1998,
(iv) $100,000 for the
period from and after
November 1, 1998 up to and
including November 30,
1998, and
(v) zero, on and after
December 1, 1998, and
(B) as to inventory of Borrower
acquired after the Closing Date,
such reserves for xxxx-xxxxx,
shrinkage, and other items affecting
the value of Borrower's inventory as
Foothill may require from time to
time in the good faith exercise of
its discretion, together with a
reserve for any delinquent monetary
obligations of Borrower with respect
to any parcel of real property that
is included in the calculation of
availability under clause (x)(1)
above, in each case, as determined
by Lender in the exercise of its
reasonable (from the perspective of
a secured lender) judgment; and
(2) 85% of the so-called
"going-out-of-business" value of Borrower's
inventory as determined by a third party
appraiser acceptable to Lender; MINUS
(z) a $200,000 reserve relating to professional fees
and disbursements and other administrative fees that
are "Carve-Out Expenses" as defined below.
c. LETTER OF CREDIT FACILITY: Under the Line, Borrower would be
entitled to request that Lender issue letters of credit for
the account of Borrower ("L/Cs") or issue guarantees ("L/C
Guarantees") of payment with respect to letters of credit
issued by one or more issuing banks in an aggregate undrawn
amount not to exceed $1,000,000. The aggregate undrawn amount
of outstanding L/Cs and L/C Guarantees would be reserved, on a
dollar-for-dollar basis, against the credit availability
created under clause (b) above.
Xxxxxx understands that Borrower may not be permitted to utilize the
full amount of the Line until Xxxxxxxx's motion to obtain credit has
been approved by the United States Bankruptcy Court (the "Bankruptcy
Court") following a final hearing on at least 15 days notice after
service of the motion to parties entitled to notice. In the interim,
Borrower may seek authority to obtain financing under the Line for such
amount as the Bankruptcy Court may approve, on an emergency basis, on
the terms and conditions of the Bankruptcy Court order required hereby.
Xxxxxx is willing to advance based on an appropriate interim order,
pending a final hearing and entry of a final order, so long as Xxxxxx
has the liens, priorities, and other protections contemplated herein,
and provided that the initial draw shall be at least sufficient to
repay in full the outstanding pre-petition obligations due Foothill.
2. INTEREST RATE:
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The rate of interest charged with respect to all obligations would be
two percentage points (2.00%) above the reference rate publicly
announced by Norwest Bank Minnesota, N.A. Xxxxxxxx would be charged a
letter of credit fee of two percent (2.0%) per annum times the undrawn
and unreimbursed amounts of L/Cs and L/C Guarantees. If L/C Guarantees
are used to induce a commercial bank to issue letters of credit,
Xxxxxxxx also would be responsible for all related bank charges for the
underlying letter of credit. Interest and letter of credit fees would
be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed and would be payable monthly in arrears. In no
event would the rate of interest charged be less than eight (8.00%)
percent per annum.
3. COLLECTION:
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As a condition to the Closing Date, Borrower and Lender would establish
one or more depository accounts at financial institutions reasonably
acceptable to Lender. Borrower would direct all collections or other
proceeds of collateral to the depository accounts, to be applied to
reduce the balance of Borrower's loan account, which could then be
reborrowed subject to availability and satisfaction of applicable
conditions to borrowing. All collections received in such depository
accounts would be subject to a 2 business day clearance charge. The
terms and conditions of the agreements relative to such depository
accounts would need to be reasonably acceptable to Lender and would
need to provide Lender with dominion and control over any funds
deposited into such deposit accounts.
4. FEES AND EXPENSES:
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a. COMMITMENT FEE: In consideration of Xxxxxx's issuance of this
commitment letter, Borrower shall pay to Lender a fee (the
"Commitment Fee") in the amount of $25,000. The Commitment Fee
shall be fully earned and non-refundable by Lender upon entry
by the Bankruptcy Court of its interim order approving initial
advances under the Line (the "Order Date") and payable on the
Closing Date. Xxxxxxxx agrees that following its execution of
this letter it will present this letter to the Bankruptcy
Court for approval as soon as practicable.
b. FACILITY FEE: Xxxxxxxx agrees to pay Lender the following
facility fees on the following dates (i) $25,000 on September
15, 1998, (ii) $25,000 on November 15, 1998, (iii) $25,000 on
January 15, 1999, and (iv) $25,000 on March 15, 1999;
PROVIDED, HOWEVER, that, if the credit facility contemplated
hereby is terminated and all of the obligations owed to Lender
are paid in full in cash, in each case prior to any of the
foregoing dates, then the facility fee due on each date
subsequent to the payoff date shall not become due or payable
and such amount shall not be included in the payoff amount
owed to Lender at the time of such repayment in full in cash.
c. SERVICING FEE: Borrower would be obligated to pay to Lender a
fee (the "Servicing Fee") of $1,250 per month for each month
of during which the credit facility remains outstanding or any
obligations remain unpaid to Lender thereunder.
d. FOOTHILL EXPENSES: Xxxxxxxx agrees to reimburse Lender for all
of Xxxxxx's reasonable out-of-pocket costs and expenses
relating to this financing transaction, including, but not
limited to, filing and recording fees and attorneys fees and
expenses (collectively, "Foothill Expenses").
5. XXXX XXXXXXXX AND PREPAYMENT:
-----------------------------
The loan would mature upon the earlier of (i) Xxxxxxxx's emergence from
Chapter 11, (ii) conversion of the case into a Chapter 7, and (iii) 12
months after the Order Date. Borrower would have the right to terminate
the Line and prepay all of the obligations in full in cash at any time,
upon prior written notice, without penalty or premium.
6. PURPOSE:
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The purpose of this financing would be to refinance certain
pre-petition debt owed to Lender, to provide for the ongoing working
capital needs of Borrower, and to fund the payment of certain fees and
expenses associated with the financing proposal herein.
7. FINANCIAL EXAMINATION AND APPRAISAL FEES:
-----------------------------------------
Borrower would be obligated to pay to Lender a fee of $650 per day per
examiner for financial audits and examinations and $1,500 per day per
appraiser for collateral appraisals, plus out-of-pocket expenses for
each such audit, examination, and appraisal performed by third persons
for Lender (provided that, so long as no default has occurred and is
continuing, Borrower's obligation with respect to fees in connection
with audit and examinations shall not exceed (a) $5,000 for Xxxxxx's
initial audit and examination, and (b) $2,500 for each audit and
examination performed thereafter (with a maximum of 4 audits per
annum), Xxxxxxxx's obligation with respect to fees in connection with
appraisals of Borrower's inventory shall not exceed (i) $5,000 for
Lender's initial such appraisal, and (ii) $2,500 for each such
appraisal performed thereafter (with a maximum of 6 such appraisals per
annum), and Xxxxxxxx's obligation with respect to fees in connection
with appraisals of Borrower's real property shall not arise unless
there are amounts outstanding under the Line as of September 15, 1998
and, in such case, shall not exceed (y) $2,500 for Lender's appraisal
of Borrower's leasehold and owned building located in Phoenix, Arizona,
and (z) $1,000 for each appraisal of the 15 store leaseholds Borrower
intends to retain and $1,000 for each appraisal of any of the 8 stores
Borrower intends to close and reject that are not so closed and
rejected by November 30, 1998.
8. COLLATERAL AND PRIORITY:
------------------------
All obligations of the Borrower to Lender shall be: (a) entitled to
superpriority administrative expense claim status pursuant to 11 U.S.C.
section 364(c)(1), subject only to (i) in the event that an Event of
Default has occurred and is continuing, the payment of allowed
professional fees and disbursements incurred by Borrower and its
Committee of Unsecured Creditors, in an aggregate amount not in excess
of $200,000 (the "Expense Cap"); and (ii) the payment of fees pursuant
to 28 U.S.C. section 1930 (collectively, the "Carve-Out Expenses"); and
(b) secured pursuant to 11 U.S.C. sections 364(c)(2), (c)(3), and
(d)(1) by a first priority (subject only to permitted priority liens as
agreed to by Lender in its sole and absolute discretion) security
interest in and lien on all now owned or hereafter acquired assets and
property of the estate (as defined in the Bankruptcy Code), real and
personal, of Borrower, including inventory, accounts, chattel paper,
contract rights, documents, equipment, fixtures, general intangibles
(including, without limitation, all copyrights, deposit accounts,
licensing agreements, patents, trademarks, and trade names),
instruments, real property (including fee and leasehold estates),
securities, avoiding power causes of action and recoveries and the
proceeds of all of the foregoing, wherever located. The foregoing is
collectively referred to as the "Collateral." Borrower shall be
permitted to pay, as or after the same may become due and payable: (i)
administrative expenses of the kind specified in 11 U.S.C. section
503(b) incurred in the ordinary course of business, including any
previously deferred administrative expenses permitted to be paid as a
permitted purpose referenced above (the "Ordinary Administrative
Expense Exception"); (ii) compensation and reimbursement of expenses to
professionals allowed and payable under 11 U.S.C. sections 330 and 331;
and (iii) amounts payable to the United States Trustee pursuant to 28
U.S.C. section 1930(a)(6); and, in the absence of the occurrence and
continuance of an event of default, the payment of such compensation
and reimbursement of expenses to professionals shall not reduce the
Expense Cap; and provided further that the Ordinary Administrative
Expense Exception shall not be paid after the occurrence and
continuance of an event of default.
9. CERTAIN SPECIFIC COVENANTS:
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Borrower would covenant to (a) achieve 85% of projected merchandise
sales and gross margin levels, as measured on a cumulative basis, such
covenant to be tested on a monthly basis commencing on October 1, 1998,
(b) achieve 85% of projected inventory levels (on a cost basis)
calculated on a monthly basis beginning with the month ended October,
1998, and (c) receive, by no later than December 31, 1998, net cash
proceeds, or binding contracts for sale, or any combination thereof,
that will produce not less than $850,000 net on account of the sale of
real property leaseholds relative to the eight stores of Borrower that
are to be discontinued and the 7,000 square feet of space at the
Woodland Hills store that Borrower intends to sublease.
10. CONDITIONS PRECEDENT:
---------------------
The following would be conditions precedent to Xxxxxx's obligation to
extend credit to Borrower:
a. Borrower would need to be a corporation in good standing in
the jurisdiction of its incorporation and qualified to do
business in any other jurisdiction where such qualification is
necessary or appropriate to its business.
b. The Line would need to be made pursuant to, and subject to,
the terms of loan agreements, notes, and other financing
documents (the "Loan Documents") executed and delivered by
Borrower on or prior to the Closing Date. The Loan Documents
would contain such representations, warranties, and covenants
(affirmative and negative, in additional to those specifically
described in paragraph 9 above) as are customary, in Lender's
experience, for a transaction of this type.
c. Borrower would need to have executed and/or delivered, or
caused to be delivered, to Lender prior to the Closing Date,
such security agreements, financing statements, fixture
filings, deeds of trust, mortgages, and chattel mortgages,
title insurance policies and endorsements, depository account
agreements, copies of leases, landlord waivers, bailee
agreements, and other agreements affecting the Collateral,
insurance certificates and endorsements, and other
documentation relative to the liens and security interest in
the Collateral as Lender reasonably may request (the "Security
Documents"). Each of the Loan Documents and the Security
Documents (the "Documents") would need to be in form and
substance reasonably satisfactory to Lender and its counsel.
To the extent that it is not practicable to execute and
deliver certain of the collateral documentation prior to
closing, such as financing statements, fixture filings, deeds
of trust, mortgages, or title insurance policies, Lender will
defer satisfaction of such conditions for a reasonable period
of time post-closing so long as a satisfactory Bankruptcy
Court order is entered granting Lender a lien on the
Collateral, and so long as Borrower has executed and delivered
one or more security agreements with respect to the personal
property Collateral.
d. No material adverse change would have occurred in the value of
the Collateral.
e. Xxxxxx would need to have received such opinions of Xxxxxxxx's
counsel and such advice of Xxxxxx's local counsel as Xxxxxx
would reasonably require, which opinions and/or advice would
need to be in form and substance reasonably satisfactory to
Lender and its counsel. Such opinions of Xxxxxxxx's counsel
would include, but not be limited to, opinions as to
Xxxxxxxx's corporate existence, Xxxxxxxx's power and authority
to enter into the Documents, the validity, binding effect, and
enforceability of each of the Documents.
f. The Bankruptcy Court shall have entered its order, in form and
substance satisfactory to Lender, in its sole discretion
reasonably exercised, which order shall contain provisions
granting to Lender, and authorizing Borrower to grant to
Lender, the collateral, liens, lien priorities, and
administrative superpriority provided for in Section 8 of this
letter, which administrative superpriority shall be subject
only to the Carve-Out Expenses to the extent provided in
Section 8 of this letter. Without limiting the generality of
the foregoing, the order of the Bankruptcy Court shall provide
(1) that Borrower shall have no right, whether at the maturity
of the Line or, earlier, if the Line is terminated because of
an Event of Default, to use or seek to use Xxxxxx's cash
collateral and (2) that such provision of the order will not
be contravened by another order of the Court without the
written consent of Lender.
11. BROKERS' FEES:
--------------
Any brokerage commission or finder's fees payable in connection with
the financing arrangement outlined herein would be payable by Xxxxxxxx
and not by Xxxxxx. Borrower represents and warrants to Lender that it
has not incurred any obligation for a brokerage commission or a
finder's fee. Xxxxxxxx agrees to indemnify, defend, and hold Xxxxxx
harmless from and against any claim of any broker or finder arising out
of the financing arrangement outlined herein.
12. CLOSING DATE:
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If the initial advance with respect to the financing arrangement
contemplated by this letter is not consummated on or before August 7,
1998 then, without any requirement of notice or other formality, no
party hereto would have any obligation to pursue the financing
arrangement outlined in this letter; PROVIDED, HOWEVER, that prior
thereto Borrower and Lender agree to use their respective reasonable
best efforts to cause the financing to be consummated on or before such
date. The date on which the first advance (or L/C or L/C Guarantee) is
made under the Line would be deemed the "Closing Date." If and only if
the Closing Date occurs, Xxxxxx has agreed, to first become effective
on such Closing Date and not before, to waive any and all claims that
it has to charge an early termination fee under its existing credit
facility with Borrower (which amounts to $360,000 as of July 28, 1998)
or to impose an early termination fee under the credit facility to be
provided hereunder.
13. COMPLETE AGREEMENT; NO ORAL MODIFICATIONS.
------------------------------------------
This commitment letter embodies the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes
all prior proposals, negotiations, or agreements whether written or
oral, relating to the subject matter hereof. This letter may not be
modified, amended, supplemented, or otherwise changed, except by a
document in writing signed by the parties hereto.
14. GOVERNING LAW; JURY WAIVER.
---------------------------
THIS LETTER SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA AND THE VALIDITY OF THIS LETTER, AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES
HERETO RELATING TO ANY AND ALL CLAIMS OR CAUSES OF ACTION ARISING IN
CONNECTION HEREWITH OR RELATED HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. XXXXXXXX AND XXXXXX XXXXXX EXPRESSLY WAIVE ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING ARISING UNDER OR RESPECT TO THIS LETTER, OR IN ANY WAY
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO WITH
RESPECT TO THIS LETTER, OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN
EACH CASE WHETHER NOW OR HEREAFTER ARISING, IRRESPECTIVE OF WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE. XXXXXXXX AND XXXXXX XXXXXX
AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT
ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER
PARTY HERETO TO WAIVE ITS RIGHT TO TRIAL BY JURY.
15. FOOTHILL EXPENSES:
------------------
In order for Lender to pursue the subject financing, it will be
necessary for Lender to make certain financial, legal, and collateral
investigations and determinations. In connection with making such
investigations and determinations, Xxxxxx will incur Foothill Expenses
relating to the subject financing transaction. Accordingly, Xxxxxx has
requested and Xxxxxxxx has agreed that such Foothill Expenses will be
for the account of Borrower. Borrower will be obligated to reimburse
Lender on demand for such Lender Expenses irrespective of whether
definitive financing documents are ultimately entered into or whether
financing is ultimately approved by the Bankruptcy Court and Xxxxxxxx
has agreed that all such amounts may be charged by Lender to the
outstanding balance of the existing loan account owed by Borrower to
Lender.
If you wish to proceed on the basis outlined above, please execute this letter
in the space provided below and return it to the undersigned before the
commencement of your bankruptcy proceeding, but no later than 5:00 p.m.,
California time, on or before July 30, 1998. If you fail to do so before you
commence your bankruptcy proceeding and by such date and time, this letter shall
expire automatically. If you do sign and return this letter by such time, then,
as soon as practicable thereafter, Borrower shall present this letter to the
Bankruptcy Court for approval. This letter is being provided to Borrower and is
not for the benefit of, nor should it be relied upon by, any third party.
Very truly yours,
FOOTHILL CAPITAL CORPORATION,
By: /s/ Xxxxxx X. Xxxxxx
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Title: Vice President
The foregoing terms and conditions of this letter are hereby accepted and agreed
to as of July 30, 1998.
THREE D DEPARTMENTS, INC.
By: /s/ Xxxxxx Xxxxxxxx
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Title: Vice President, CFO
