FORBEARANCE AGREEMENT
This Forbearance Agreement (this "Forbearance Agreement") is entered into as
of the 11th day of December, 1995, by and between Fleet Capital Corporation,
formerly known as Shawmut Capital Corporation, a Connecticut corporation, as
successor-in-interest to Barclays Business Credit, Inc. ("Lender"), and
Gottschalks Inc., a Delaware corporation ("Borrower"), with reference to the
following facts:
A. Lender and Borrower are parties to that certain Loan and Security
Agreement, dated as of March 30, 1994, as amended, pursuant to which
Lender has provided financial accommodations to Borrower on the terms
and conditions set forth therein. (Said Loan and Security Agreement,
as in effect from time to time, together with all exhibits and
schedules thereto, is hereinafter referred to as the "Loan
Agreement.")
B. Borrower's business has experienced certain negative developments, and
Borrower has informed Lender that Borrower anticipates being in
violation of certain financial covenants contained in Section 8.3 of
the Loan Agreement as of the end of its December 1995 and January 1996
Fiscal Periods.
C. Borrower has requested that Lender agree to temporarily forbear from
taking action against Borrower based upon Borrower's anticipated
violations of certain financial covenants contained in Section 8.3 of
the Loan Agreement, and Lender is willing to do so on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, Lender and Borrower hereby agree as follows:
1. Use of Terms Defined in Loan Agreement. All capitalized terms
that are defined in the Loan Agreement and that are used without definition
herein shall have the meanings given to them in the Loan Agreement.
2. Borrower's Acknowledgment of Existing Loans. Borrower
acknowledges and agrees that, as of December 1, 1995, Borrower was indebted
to Lender for outstanding Loans in an aggregate outstanding principal amount
of not less than $60,687,397.64, and that Borrower does not have any
offsets, defenses, counterclaims, disputes or disagreements of any kind or
nature whatsoever with respect to the amount of such indebtedness.
3. Borrower's Acknowledgment of Anticipated Events of Default.
a. Borrower acknowledges that it anticipates being in
violation of the following financial covenants of the Loan Agreement as of
the end of its December 1995 Fiscal Period.
i. Section 8.3(D)(iii), which requires that Borrower
have Consolidated Adjusted Net Earnings from Operations of not less than
<$2,500,000> for the period of twelve (12) consecutive Fiscal Periods
including and ending with such Fiscal Period; and
ii. Section 8.3(G), which requires that Borrower have a
Times Interest Earned Ratio of not less than .70 to 1.0 at all times during
such Fiscal Period.
b. Borrower acknowledges that it anticipates being in
violation of the following financial covenants of January 1996 Fiscal
Period:
i. Section 8.3(D)(i), which requires that Borrower have
Consolidated Adjusted Net Earnings from Operations of not less than
<$2,500,000> for such Fiscal Period;
ii. Section 8.3(D)(iii), which requires that Borrower
have Consolidated Adjusted Net Earnings from Operations of not less than
<$2,500,000> for the period of twelve (12) consecutive Fiscal Periods
including and ending with such Fiscal Period;
iii. Section 8.3(F), which requires that Borrower have a
Senior Debt Coverage Ratio of not less than 1.0 to 1.0 at all times during
such Fiscal Period; and
iv. Section 8.3(F), which requires that Borrower have a
Times Interest Earned Ratio of not less than .70 to 1.0 at all time during
such Fiscal Period.
Borrower acknowledges that each of the violations described in this
paragraph 3 (collectively, the "Anticipated Defaults") would constitute an
Event of Default under the Loan Agreement.
4. Lender's Agreement to Forbear Action Based on Anticipated
Defaults. Lender agrees that until February 28, 1996, it will forbear from
exercising any remedies arising from the occurrence of any of the
Anticipated Defaults; provided, however, that Lender, in its sole
discretion, may terminate such forbearance without any notice or demand of
any kind whatsoever upon the occurrence of any of the following:
a. Borrower has Consolidated Adjusted Net Earnings
from Operations of less than <$3,000,000> for its
January 1996 Fiscal Period;
b. Borrower has Consolidated Adjusted Net Earnings
from Operations of less than <$7,200,000> for the
period of twelve (12) consecutive Fiscal Periods
including and ending with its January 1996 Fiscal
Period; or
c. any Event of Default occurs under the Loan
Agreement, other than the Anticipated Defaults.
Such forbearance shall not constitute a waiver by Lender of the existence of
any of the Anticipated Defaults that may arise, and Lender shall not be
under any obligation to waive any of the Anticipated Defaults or to grant
any further forbearances with respect thereto. This Forbearance Agreement
shall not constitute a waiver or agreement to forbear with respect to any
other Default that might now exist or hereafter arise under the Loan
Agreement.
5. Continuing Representations of Borrower. Borrower
represents and warrants to Lender that as of the date hereof all
representations and warranties continued in the Loan Agreement are complete
and correct in all material respects, and that no Defaults or Events of
Default under the Loan Agreement have occurred and are continuing.
6. Incorporation into Loan Agreement. The terms and
conditions of this Forbearance Agreement shall be incorporated by reference
in the Loan Agreement as thought set forth in full therein. In the event of
any inconsistency between the provisions of this Forbearance Agreement and
any other provision of the Loan Agreement, the terms and provisions of this
Forbearance Agreement shall govern and control. Except to the extent, if
any, otherwise provided herein, all of the provisions of the Loan Agreement
shall remain in full force and effect to the extent in effect on the date
hereof. The Loan Agreement, this Forbearance Agreement, and the other Loan
Documents constitute the complete agreement among the parties and supersede
any prior written or oral agreements, writing, communications, or
understandings of the parties with respect to the subject matter hereof and
thereof.
7. Section Headings. The headings of the Sections hereof are
for convenience only and without substantive meaning, and shall not be used
in interpreting any provision of this Forbearance Agreement.
8. Counterparts. This Forbearance Agreement may be executed
in counterparts, each of which shall be deemed to be an original but all of
which shall be one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Forbearance Agreement as of the day and year first written above.
("Lender")
FLEET CAPITAL CORPORATION
By_CLARANCE A. KRANTZ____
("Borrower")
GOTTSCHALKS INC.
By__S/XXXX X. WEINSTEIN_____
Xxxx X. Xxxxxxxxx
Senior Vice President and
Chief Financial Officer
