AMENDMENT NO. 3 TO CREDIT AGREEMENT
AMENDMENT NO. 3 TO CREDIT AGREEMENT, dated as of October 8, 1997
(this "AMENDMENT"), among GANTOS, INC., a Michigan corporation (the
"BORROWER"), the lenders named therein (each individually, a "LENDER" and
collectively, the "LENDERS"), and FLEET BANK, N.A. (formerly known as
Natwest Bank N.A.) as agent for the Lenders (in such capacity, the "AGENT").
WHEREAS, the Borrower, the Lenders, and the Agent are party to the
Revolving Credit Agreement, dated as of March 10, 1995 (as amended by
amendment no. 1, dated April 25, 1996 and amendment no. 2, dated March 18,
1997, and as otherwise and/or further amended, supplemented or modified from
time to time in accordance with its terms, the "CREDIT AGREEMENT"); and
WHEREAS, subject to the terms and conditions hereof, the parties
hereto desire to amend certain provisions of the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and subject to the fulfillment of the
conditions set forth below, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise specifically defined herein,
all capitalized terms used herein shall have the respective meanings ascribed
to such terms in the Credit Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the conditions as
to effectiveness set forth in Paragraph 4 of this Amendment, the Credit
Agreement is hereby amended as follows:
(a) The definition of "Applicable Margin" appearing in Article I
of the Credit
Agreement is
amended and
restated in its
entirety as
follows:
"APPLICABLE MARGIN" means:
(a) until the day immediately preceding the first Adjustment
Date (i) with respect to Prime Rate Loans, one and one-quarter
percent (1-1/4%) and (ii) with respect to Eurodollar Loans, two and
one-half percent (2-1/2%), in each case, subject to adjustment
pursuant to Section 2.05(d) hereof; and
(b) for each Calculation Period, the margin set forth below for
Prime Rate Loans or Eurodollar Loans, respectively, opposite the
level of EBITDA set forth below (000's omitted) for the period of
four consecutive fiscal quarters ending with the fiscal quarter (or
fiscal quarter ending a Fiscal Year) reflected in the financial
statements required to be delivered as of the first day of such
Calculation Period (EBITDA being deemed to be not over $2,400,000
for any Calculation Period as of the first date of which any
financial statements and accompanying documents have not been
delivered within the time period required by Section 6.05(a) and
Section 6.05(d) or Section 6.05(b)(ii) hereof, respectively):
EBITDA for four
consecutive fiscal Margin for Margin for
quarters (000'S omitted) Eurodollar Loans Prime Rate Loans
------------------------ ---------------- ----------------
Over $10,800 1.75% 0.50%
Over $9,800 and
not over $10,800 2.00% 0.75%
Over $8,800 and
not over $9,800 2.25% 1.00%
Over $4,400 and
not over $8,800 2.50% 1.25%
Over $3,400 and
not over $4,400 2.75% 1.50%
Over $2,400 and
not over $3,400 3.00% 1.75%
Not over $2,400 3.25% 2.00%
(b) The definition of "Borrowing Base" appearing in Article I of the
Credit Agreement
is amended and
restated in its
entirety as
follows:
"BORROWING BASE" shall mean an amount equal to:
(a) ninety percent (90%) of the Net Amount of Eligible Receivables,
PLUS
(b) the excess of:
(i) the lesser of (A) (1) at any time during each four month
period commencing on October 1 and ending on January 31, fifty-
five percent (55%) of the Eligible Inventory valued at the lower
of cost (on a FIFO
basis) and current market value and (2) at any time during
each eight month period commencing on February 1 and ending
on September 30, forty-five percent (45%) of the Eligible
Inventory valued at the lower of cost (on a FIFO basis) and
current market value and (B) thirty-five percent (35%) of the
Retail Value of Eligible Inventory, OVER
(ii) the aggregate amount of all outstanding gift
certificates sold by the Borrower.
(c) The following definition is added in its proper alphabetically
determined place in Article I of the Credit Agreement:
"FISCAL PERIOD" shall mean any four or five week fiscal period
(as applicable) of the Borrower.
(d) The definition of "Trigger Date" appearing in Article I of the
Credit Agreement is amended and restated in its entirety as follows:
"TRIGGER DATE" means the last day of any Fiscal Period (i) for
which the average amount (calculated on a daily basis for each
Business Day in such Fiscal Period) of Availability was less than
$5,000,000 OR (ii) during which the amount of Availability
(calculated at the close of business of each day during such Fiscal
Period) was less than $3,500,000 at the end of any Business Day;
PROVIDED, that in the event that a default occurs under Section
6.05(j)(ii) hereof for any reason, the Trigger Date shall for all
purposes of this Agreement be deemed to have occurred as of the last
day of the Fiscal Period immediately preceding the date such default
occurs.
(e) Section 6.05(j) of the Credit Agreement is amended and
restated in its entirety as follows:
(j) (i) no later than the Wednesday next following the end of
each week, a certificate substantially in the form of SCHEDULE
6.05(J) hereto (or in such other form as is mutually agreed to by the
Borrower and the Agent) executed by the Financial Officer of the
Borrower (or another duly authorized financial officer of the
Borrower) demonstrating compliance as at the close of business on
Saturday of the previous week with the Borrowing Base and (ii) no
later than the third Business Day of each Fiscal Period, a
certificate substantially in the form of SCHEDULE 6.05(J)(II) hereto
(or in such other form as is mutually agreed to by the Borrower and
the Agent) executed by the Financial Officer of the Borrower (or
another duly authorized financial officer of the Borrower) setting
forth with respect to the immediately preceding Fiscal Period (A) the
average amount (calculated on a daily basis for each Business Day in
such prior Fiscal Period) of Availability and (B) the actual amount
of Availability as of the close of business of each day during such
Fiscal Period;
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(f) Section 7.09 of the Credit Agreement is amended and restated
in its entirety as follows:
SECTION 7.09. FIXED CHARGE COVERAGE RATIO. From and after the
Trigger Date, permit or suffer the Fixed Charge Coverage Ratio of the
Borrower and its subsidiaries to be less than 1.0:1.0 as of the last
day of any fiscal quarter which ends on or after the Trigger Date.
(g) Section 7.10 of the Credit Agreement is amended and restated in
its entirety as follows:
SECTION 7.10. EBITDA. From and after the Trigger Date, permit
EBITDA of the Borrower and its subsidiaries at the end of each fiscal
quarter ending on or after the Trigger Date for the four-quarter
period then ending to be less than the respective amounts set forth
below for the periods indicated:
Four Fiscal Quarters Minimum
Ending on or about EBITDA
------------------ ------
January 31, 1997 $9,500,000
April 30, 1997 $7,900,000
July 31, 1997 $6,000,000
October 31, 1997 $5,800,000
January 31, 1998 $7,000,000
April 30, 1998 $6,800,000
July 31, 1998 $6,200,000
October 31, 1998 $6,400,000
January 31, 1999 $7,600,000
April 30, 1999 $8,600,000
July 31, 1999 $8,700,000
October 31, 1999 and
the last day of each
fiscal quarter thereafter $8,600,000
(h) Section 7.11 of the Credit Agreement is amended and restated
in its entirety as follows:
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SECTION 7.11. INTEREST COVERAGE RATIO. From and after the
Trigger Date, permit or suffer the Interest Coverage Ratio of the
Borrower and its subsidiaries at the end of each fiscal quarter
ending on or after the Trigger Date for the four quarter period then
ending to be less than the respective amounts set forth below for the
periods indicated:
Four Fiscal Quarters Ending
On or about Minimum Ratio
----------- -------------
January 31, 1997 2.0:1
April 30, 1997 3.4:1
July 31, 1997 3.2:1
October 31, 1997 2.9:1
January 31, 1998 3.8:1
April 30, 1998 3.9:1
July 31, 1998 3.5:1
October 31, 1998 3.4:1
January 31, 1999 4.1:1
April 30, 1999 4.4:1
July 31, 1999 4.4:1
October 31, 1999 and
the last day of each
fiscal quarter thereafter 4.1:1
(i) The proviso appearing at the end of Section 7.19(a) of the
Credit Agreement, which was added pursuant to Amendment No. 2 to Credit
Agreement dated as of March 18, 1997, is amended and restated in its entirety
as follows::
PROVIDED, FURTHER, that notwithstanding the foregoing and
notwithstanding Section 7.06 hereof, in addition to the Borrower's
rights under the immediately preceding proviso in this Section
7.19(a), the Borrower may prepay, purchase or redeem and concurrently
retire any or all of the Senior Notes, at par or less, without
obtaining the prior written consent of the Required Lenders, so long
as (i) at least three Business Days prior to the date of such
prepayment, purchase or redemption the Required Lenders shall have
received financial operation projections for the Borrower and its
subsidiaries giving effect to such transaction for the period
commencing on the date of such transaction and ending with on the
last day of the twelfth full Fiscal Period ending thereafter, which
projections (x) shall include balance sheets, statements of profit
and loss, statements of cash flow and Availability forecasts (in each
case on a daily, weekly, monthly, quarterly or other basis as the
Required Lenders may in their sole discretion require), (y) shall
include calculations demonstrating that the Borrower will be in
compliance with Sections 7.07 through and including 7.12 hereof at
all times during such period and (z) shall be certified by the
Financial Officer of the Borrower (or another duly authorized
financial officer of the Borrower) as having been prepared in good
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faith based upon reasonable assumptions and the best information
then available, (ii) at the time of any such prepayment, purchase or
redemption and concurrent retirement, no Default or Event of Default
is continuing or would arise as a result thereof, and (iii) the
Borrower shall pay all fees then due and payable to the Agent,
including without limitation all fees payable pursuant to the fee
letter agreement dated as of October 8, 1997.
(j) In the event the Borrower prepays, purchases or redeems any or
all of the Senior Notes in accordance with the further proviso clause of
Section 7.19(a) then immediately prior to any such prepayment, purchase or
redemption and at all times thereafter, the definition of "Borrowing Base"
appearing in Article I of the Credit Agreement shall be amended and restated
in its entirety as follows:
"BORROWING BASE" shall mean an amount equal to the sum of (a)
ninety percent (90%) of the Net Amount of Eligible Receivables plus (b) the
excess of (i) the lesser of (A) forty-five percent (45%) of the Eligible
Inventory valued at the lower of cost (on a FIFO basis) and current market
value and (B) thirty-five percent (35%) of the Retail Value of Eligible
Inventory over (ii) the aggregate amount of all outstanding gift certificates
sold by the Borrower.
(k) Section 8.01(g) is amended and restated in its entirety as
follows:
(g) (i) default shall be made with respect to any
Indebtedness or obligations under a Capitalized Lease Obligation
of any Credit Party the aggregate principal amount of which
exceeds $500,000 (excluding the Obligations and Indebtedness
arising under the Indenture Documents) if the effect of any such
default shall be to accelerate, or to permit the holder or
obligee of any such Indebtedness or obligations under a
Capitalized Lease Obligation (or any trustee on behalf of such
holder or obligee) at its option to accelerate, the maturity of
such Indebtedness or obligations under a Capitalized Lease
Obligation, unless such default has been waived or unless such
Indebtedness or obligations or such default is being contested
in good faith by appropriate proceedings diligently prosecuted
and no acceleration of such Indebtedness or obligations has
taken place or (ii) default shall be made with respect to
Indebtedness arising under the Indenture Documents and (A) the
maturity of such Indebtedness shall have been accelerated or (B)
such default shall have permitted the holder of any such
Indebtedness (or any trustee on behalf of such holder) at its
option to accelerate the maturity of such Indebtedness and such
holder (or trustee) shall have accelerated such Indebtedness or
taken any action or exercised any remedy intended to enforce
collection of such Indebtedness (it being understood and agreed
that mere delivery to one or more Credit Parties of a notice of
default, notice of a proposed acceleration at a future date or
notice of demand for payment at a future date shall not
constitute such an action or remedy for purposes of this Section
8.01 (g)(ii)(B)), unless such default has been waived or unless
such Indebtedness or default is being
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contested in good faith by appropriate proceedings diligently
prosecuted and no acceleration of such Indebtedness has taken
place;
(l) SCHEDULE 6.05(j)(ii) annexed to this Amendment is hereby
incorporated into the Credit Agreement as SCHEDULE 6.05(j)(ii) thereto.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants as follows (which representations and warranties shall survive
the execution and delivery of this Amendment) as of the date hereof that:
(1) All representations and warranties contained in the Credit
Agreement and each of the other Loan Documents are true and correct in all
material respects as of the date hereof 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).
(2) The Borrower has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Amendment and has
taken all necessary corporate action to authorize the execution, delivery and
performance of this Amendment.
(3) This Amendment has been duly executed and delivered and
constitutes the legal, valid and binding obligation of the Borrower, 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) 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 Borrower in
connection with the execution, delivery, performance, validity or enforcement
of this Amendment 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 a Form 10-Q
or a Form 10-K with the Securities and Exchange Commission.
(5) The execution, delivery and performance of this Amendment by
the Borrower will not violate any provision of the certificate or articles of
incorporation or bylaws of the Borrower 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 Borrower or any of its
subsidiaries, or violate, result in the breach of or constitute a default
under any indenture, agreement or other instrument to which the Borrower or
any of its subsidiaries or any of their respective properties or assets are
or may be bound.
(6) The Borrower is in compliance with all of the various
covenants and agreements applicable to it set forth in the Credit Agreement
and each of the other Loan Documents.
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(7) 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 Credit Agreement or any of the other Loan
Documents, or an Event of Default (as defined in the Indenture) under the
Indenture.
(8) The Borrower has no defense to or setoff, counterclaim or
claim against payment of the Obligations or enforcement of the Loan Documents
based upon a fact or circumstance existing or occurring on or prior to the
date hereof.
4. CONDITIONS PRECEDENT. Notwithstanding any term or provision of
this Amendment to the contrary, no amendment set forth in Paragraph 2 hereof
shall become effective until the Agent shall have determined that each of the
following conditions precedent shall have been satisfied:
(1) All required corporate actions in connection with the
execution and delivery of this Amendment shall have been taken, and each
shall be satisfactory in form and substance to the Agent, and the Agent shall
have received all information and copies of all documents, including, without
limitation, records of requisite corporate action that the Agent may
reasonably request, to be certified by the appropriate corporate person or
government authorities.
(2) All representations and warranties made by the Borrower
contained in Paragraph 3 hereof shall be true and correct with the same
effect as though such representations and warranties had been made on the
date of effectiveness of the amendments contained in this Amendment after
giving effect to such amendments (unless any such representation or warranty
speaks expressly to an earlier date).
(3) Counterparts of the separate fee letter agreement dated the
date hereof among the Borrower, the Lenders and the Agent shall have been
duly executed and delivered on behalf of each of the parties thereto and such
fee letter agreement shall be in full force and effect.
(4) Counterparts of this Amendment shall have been duly executed
and delivered on behalf of the Borrower, the Lenders and the Agent.
5. CONTINUED EFFECTIVENESS. The term "Agreement", "hereof",
"herein" and similar terms as used in the Credit Agreement, and references in
the other Loan Documents to the Credit Agreement, shall mean and refer to,
from and after the effective date of the amendments contained herein as
determined in accordance with Paragraph 4 hereof, the Credit Agreement as
amended by this Amendment. Each of the parties hereto agrees that, as amended
by this Amendment, all of the covenants and agreements and other provisions
contained in the Credit Agreement and the other Loan Documents are hereby
ratified and confirmed in all respects and shall remain in full force and
effect from and after the date of this Amendment.
6. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute
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a single instrument. Delivery of an executed counterpart of a signature page
to this Amendment by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
GANTOS, INC., as Borrower
By:________________________________
Name:
Title:
FLEET BANK, N.A. (formerly known as Natwest
Bank N.A.), as Agent and as a Lender
By:________________________________
Name:
Title:
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