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EXHIBIT 4.5
November 8, 1999
BY FAX
Gantos, Inc.
Attention: President
0000 X. Xxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, XX 00000
Re: Gantos, Inc. - Existing Defaults and Overadvance
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement dated November 18,
1998 by and among the Borrower and Foothill, as Agent, and the Lenders (as
amended by a certain First Amendment to Loan and Security Agreement dated as of
February 28, 1999 by and among the Borrower and Foothill as Agent and the
Lenders, as further amended by a certain Second Amendment to Loan and Security
Agreement dated as of August 27, 1999 by and among the Borrower and Foothill as
Agent and the Lenders (the "Second Amendment"), as further amended by and
through the date of this letter agreement, and as hereafter amended and/or
restated from time to time, the "Loan Agreement"). Capitalized terms not defined
herein shall have the meaning set forth in the Loan Agreement.
1. Existing Defaults
Pursuant to the terms of the Second Amendment as extended by a certain
letter agreement dated October 1, 1999 (the "Letter Agreement") the Borrower is
required to meet certain retail performance covenants as set forth on Amended
Schedule 7.21 to the Loan Agreement (a copy of which is attached hereto).
Amended Schedule 7.21 provides, among other things, that (i) on a rolling three
week basis the Borrower's Sales shall not vary from plan by more than ten
percent (10%) (the "Sales Covenant") and (ii) on a weekly basis, Total Actual
Purchases, as a percentage of Planned Purchases at cost, shall not vary
negatively from plan in any week by more than twenty percent (20%) (the "Weekly
Purchase Covenant"). The Borrower acknowledges that it has failed to meet the
Sales Covenant for the weeks ending October 16 and 23, 1999 and failed to meet
the
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Weekly Purchase Covenant for the weeks ending October 9 and 16, 1999,
(collectively, the "Existing Defaults"). The Borrower has requested that the
Lenders waive the Existing Defaults.
2. Overadvance
Pursuant to the terms and conditions of the Second Amendment as extended
by Letter Agreement, the Lenders agreed to extend a certain $1,500,000
overadvance to the Borrower through October 26, 1999. The Borrower has requested
that the Lenders (i) extend an overadvance in the amount $1,500,000 as of the
date hereof through November 15, 1999, (ii) reduce the overadvance to $500,000
as of November 16, 1999 through November 30, 1999 and (iii) eliminate the
overadvance as of December 1, 1999.
3. Terms and Conditions for Waiver of Existing Defaults and Overadvance
In consideration of the mutual promises and agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Lenders are willing to waive the Existing
Defaults and extend the overadvance as described in Section 2 above on the terms
and conditions set forth below:
a) The Borrower and Lenders agree to eliminate the so-called "LCM
Accrual" which is currently being added into the Borrowing Base. In
order to eliminate such LCM Accrual, the Lenders will create an
Adjustment Reserve the balance of which will be deducted each month
from the Borrower Base. The Adjustment Reserve will be calculated as
follows:
Month Adjustment Reserve
----- ------------------
December 1999 $250,000
January 2000 $500,000
February 2000 $600,000
Beginning in March 2000, the Adjustment Reserve will be increased by
$100,000 each month until the Adjustment Reserve equals the LCM
Accrual included in the Borrowing Base. Once the Adjustment Reserve
and the LCM Accrual are equal, the LCM Accrual will be permanently
removed from the Borrowing Base and the Adjustment Reserve will be
removed by the Lenders. The Lenders reserve their right under Section
2.1(b) of the Loan Agreement to create any additional reserves they
deem necessary.
b) The Borrower shall continue to meet all covenants set forth in the
amended Schedule 7.21 until agreed otherwise in writing by the
Lenders;
c) This letter agreement and all other agreements, instruments and
certificates reasonably required by the Lenders in connection
herewith and therewith, shall have been executed and delivered by
each of the parties thereto;
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d) The Borrower shall have delivered or caused to be delivered to the
Agent such other instruments, certificates or documents as the Agent
or any Lender shall reasonably request, each of which shall be in
form and substance satisfactory to the Agent and the Lenders, for the
purposes of implementing or effectuating the provisions of the Loan
Agreement and the other Loan Documents, each as amended hereby;
e) Within five days of the execution of this letter agreement, the
Borrower shall deliver to the Agent a covenant compliance certificate
for the immediately preceding month demonstrating the Borrower's
ongoing compliance with the covenants set forth in the Loan
Agreement, as of the date hereof;
f) The Borrower shall pay to the Agent, for the ratable benefit of the
Lenders, a further extension fee of $10,000 as of the date hereof;
and
g) No later than November 23, 1999 the Borrower shall deliver to the
Agent all projections required by the Lenders in the form requested
thereby.
4. Acknowledgment of Defaults.
The Borrower acknowledges and confirms to the Lenders that the Borrower is
in default of its obligations under the Loan Agreement by reason of the
occurrence of the Existing Defaults. The Borrower acknowledges and agrees with
the Lenders that the Lenders' waiver hereunder relates solely to the Existing
Defaults as of the dates expressly set forth in this Letter Agreement and to no
other defaults or Events of Default, now existing or hereafter arising and now
known or unknown to the Lenders. The Borrower acknowledges and agrees with the
Lenders that by reason of the occurrence of the Existing Defaults, the Lenders
are currently entitled to exercise the full range of their rights and remedies
against the Borrower under the Loan Documents, without defense or counterclaim
of any kind on the part of the Borrower.
5. Representations and Warranties; Confirmation of Representations,
Warranties.
This letter agreement has been duly authorized, executed and delivered by
the Borrower. The Loan Agreement, as amended hereby, and each of the other Loan
Documents, as amended by and through the date hereof, constitute legal, valid
and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms. The Borrower, by execution of this
letter agreement, certifies to the Agent and each of the Lenders that each of
the representations and warranties set forth in the Loan Agreement and the other
Loan Documents is true and correct as of the date hereof, except to the extent
such representations and warranties expressly relate to an earlier date, as if
fully set forth in this letter agreement, and that, as of the date hereof,
except as expressly set forth above, no Default or Event of Default has occurred
and is
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continuing under the Loan Agreement or any other Loan Document. The Borrower
acknowledges and agrees that this letter agreement shall become a part of the
Loan Agreement and shall be a Loan Document.
6. Conditions to Lending; Compliance with Loan Documents, Borrower's
Covenant.
The Borrower hereby represents and warrants to the Agent and the Lenders
that all of the conditions precedent to lending specified in Section 4.2 of the
Loan Agreement have been and continue to be satisfied as of the date hereof.
Without limiting the generality of the foregoing, the Borrower hereby confirms
that it is in compliance with all of the terms and provisions set forth in the
Loan Agreement and each of the other Loan Documents, as amended hereby, on its
part to be observed or performed on or prior to the date hereof.
7. No Novation; Effect; Counterparts; Governing Law.
Except to the extent specifically amended hereby, the Loan Agreement and
each of the other Loan Documents shall be unaffected hereby and shall remain in
full force and effect; this letter agreement shall not be deemed a novation of
the Loan Agreement or any other Loan Document. The Borrower hereby acknowledges,
confirms and ratifies its obligations under the Loan Agreement and each of the
other Loan Documents. This letter agreement may be executed in any number of
counterparts, and by the different parties on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all the
counterparts shall together constitute one instrument. This letter agreement
shall be governed by the internal laws of The Commonwealth of Massachusetts
(without reference to conflicts of law principles) and shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. The Borrower shall pay all reasonable out-of-pocket expenses
of the Agent and the Lenders in connection with the preparation, execution and
delivery of this letter agreement.
8. Miscellaneous.
The Borrower, by execution hereof, acknowledges and confirms that for all
purposes of the Loan Agreement and the other Loan Documents, the term "Loan
Agreement" shall mean the Loan Agreement as amended by and through the date of
this letter agreement and as further amended and/or restated from time to time
hereafter. The Borrower, the Agent and the Lenders are discussing several
additional amendments to the Loan Agreement. It is the intention of all parties
that the issues raised herein will be incorporated into a formal amendment of
the Loan Agreement and, accordingly, all parties have agreed to avoid the
expense of a formal amendment to the Loan Agreement at this time. Except as
expressly set forth above, the Loan Agreement and each of the other Loan
Documents shall be unaffected hereby and shall continue in full force and
effect.
Except as expressly set forth above, regarding the Existing Defaults, the
undersigned Lenders have not waived any terms of the Loan Agreement and
expressly reserve their
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rights to enforce all provisions of the Loan Agreement and the other Loan
Documents at law, in equity or otherwise. The undersigned Lenders do not hereby
obligate themselves to grant any other waiver similar extension at any time in
the future.
Please acknowledge your agreement with the foregoing by signing in the
space indicated below.
FOOTHILL CAPITAL CORPORATION,
For itself and as Agent
By:
(Title)
PARAGON CAPITAL, LLC, as a Lender
By:
(Title)
ACKNOWLEDGED
AND AGREED
GANTOS, INC.
By:
(Title)
cc: Xxxxx X. Xxxxxxxxx, Esq.
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AMENDED
SCHEDULE 7.21
INVENTORY COMPOSITION AND IMBALANCE GUIDELINES:
Total EOM Dress Inventory at Cost (including Department # 500, 1300, 1500) shall
not be less than 25% of total EOM Inventory at Cost.
MIN/MAX INVENTORY
Measured monthly, on a rolling three-month basis, commencing EOM February 1999,
average EOM inventory at cost shall be at least 8.50% of plan, and not more than
115.0% of plan.
MINIMUM PURCHASES TEST (MONTHLY):
Measured monthly on a rolling two month basis, Total Actual Purchases, as a
percentage of Planned Purchases at cost, shall not vary negatively from plan in
any one fiscal month by more than 10.0%.
MINIMUM PURCHASE TEST (WEEKLY): Measured weekly beginning August 30, 1999, Total
Actual Purchases, as a percentage of Planned Purchases at cost, shall not vary
negatively from plan in any week by more than 20.0%
SALES:
Measured weekly on a rolling three-week basis, commencing with the third fiscal
week of February 1999, Sales shall not vary negatively from plan by more than
10%. If Sales vary negatively from plan by more than 10%, the advance rate will
be decreased by 1.5 ppts the first week and 0.5 ppt each week until such time as
Sales are within 90% of plan as measured on a rolling three-week basis. In the
event that weekly plan sales figures are not provided by the Company, weekly
plan sales shall be calculated based upon the monthly plan sales figure per the
Company's business plan divided by 4.3 average weeks.
