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EXHIBIT 4.6
December 1, 1999
BY FAX
Gantos, Inc.
Attention: President
0000 X. Xxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, XX 00000
Re: Gantos, Inc. - Existing Defaults
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement dated November 18,
1998 by and among Gantos, Inc. (the "Borrower") and Foothill Capital
Corporation, as Agent (the "Agent"), and the Lenders party thereto (as amended
by a certain First Amendment to Loan and Security Agreement dated as of February
28, 1999 by and among the Borrower and the 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, the Agent and the Lenders (the
"Second Amendment"), as further amended by and through the date of this letter,
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.
The Borrower is required to meet certain retail performance covenants
as set forth on Amended Schedule 7.21 to the Loan Agreement. Amended Schedule
7.21 provides, among other things, that on a rolling three week basis the
Borrower's Sales shall not vary from plan by more than ten percent (10%) (the
"Sales Covenant"). The Borrower has failed to meet the Sales Covenant for the
weeks ending October 30, 1999 and November 6, 1999.
Pursuant to subsection 6.2(c) of the Loan Agreement, the Borrower is
required, within thirty (30) days of the fiscal month end, to provide the Agent
with financial statements for such month, including balance sheet, income
statement, cash flow report and comparison of store sales. As of the date
hereof, the Agent has not received the required financial statements for the
months of September and October 1999 (collectively, the "Financial Statements").
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Gantos, Inc.
December 1, 1999
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Moreover the Borrower has verbally informed the Agent that the Borrower
is in default of certain other financial covenants including, but not limited
to, the Minimum Purchase Test (both weekly and monthly). In the absence of the
above referenced Financial Statements, it is impossible for the Agent to
determine the existence of these or additional financial covenant defaults.
Pursuant to a certain letter agreement dated November 8, 1999 by and
between the Borrower, the Agent and the Lenders, the Borrower was required to
deliver projections to the Lenders by November 23, 1999 setting forth the
financial position of the Borrower in the event the Borrower did not have a
liquidity event (the "Plan"). The Borrower has failed to deliver the Plan to the
Lenders as of the date hereof (collectively, with each of the covenant defaults
described above, the "Existing Defaults"). The Lenders are informed that the
Borrower has engaged a workout consultant from Deloite & Touche LLP to assist it
in developing the above-referenced Plan. It is imperative that the Agent receive
the Plan no later than December 6, 1999.
The Borrower is hereby informed that commencing December 1, 1999, in
calculating the Borrowing Base under subsection 2.1 of the Loan Agreement,
pursuant to the Agent's rights under subsection 2.1(b) thereof, the Agent shall
reduce the percentage advanced for the Special Sub Line Advance against the Cost
value of Eligible Inventory (the "Inventory Advance Rate") as set forth in
subsection 2.1(a)(ii)(x), by two percent (2%) to eight percent (8%). Moreover,
the Agent reserves its right, pursuant to the Loan Agreement, to further reduce
the Inventory Advance Rate by an incremental two percent (2%) for each remaining
week in December.
The Lenders do not waive the Existing Defaults and reserve their rights
to enforce the provisions of Loan Agreement and the other Loan Documents at law,
at equity or otherwise. The Borrower is further informed (i) that the Borrower
is in default of its obligations under the Loan Agreement by reason of the
occurrence of the Existing Defaults and (ii) the Agent is making the reduction
in the Inventory Advance Rate. The Borrower is further informed that (i) the
Lenders are not waiving the Existing Defaults and (ii) 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.
FOOTHILL CAPITAL CORPORATION,
For itself and as Agent
By:
(Title)
PARAGON CAPITAL, LLC, as a Lender
By:
(Title)
cc: Xxxxx X. Xxxxxxxxx, Esq.
