SEVENTH AMENDMENT TO LOAN AND SECURITY
AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AND
SECURITY AGREEMENT (the "Amendment"), dated as
of March 27, 2000, is entered into between
CONGRESS FINANCIAL CORPORATION (WESTERN), a
California corporation ("Lender), and
GOTTSCHALKS INC., a Delaware corporation
("Borrower"), with its corporate office
located at 0 Xxxxx Xxxx Xxxxx Xxxx, Xxxxxx,
Xxxxxxxxxx 00000.
RECITAL
A. Borrower and Lender have previously
entered into that certain Loan and Security
Agreement dated December 20, 1996, as amended
by the First Amendment to Loan and Security
Agreement, dated as of August 20, 1998, the
Second Amendment to Loan and Security
Agreement, dated as of September 1, 1998, the
Third Amendment to Loan and Security
Agreement, dated as of December 18, 1998, the
Fourth Amendment to Loan and Security
Agreement, dated as of January 29, 1999, the
Fifth Amendment to Loan and Security
Agreement, dated as of March 1, 1999 and the
Sixth Amendment to Loan and Security
Agreement, dated as of August 12, 1999 (as
amended, supplemented or modified from time to
time, the "Loan Agreement"), pursuant to which
Lender has made certain loans and financial
accommodations available to Borrower. Terms
used herein without definition shall have the
meanings ascribed to them in the Loan
Agreement.
B. Lender and Borrower wish to further amend
the Loan Agreement under the terms and
conditions set forth in this Amendment.
Lender and Borrower are entering into this
Amendment with the understanding and agreement
that, except as specifically provided herein,
none of Lender's rights or remedies as set
forth in the Loan Agreement is being waived or
modified by the terms of this Amendment.
NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants herein
contained, and for other good and valuable
consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties
hereby agree as follows:
1. Definitions.
(a) Section 1.59 is hereby added to
the Loan Agreement and reads in its entirety
as follows:
"1.59 "Net Income" shall
mean, with respect to any Person, for any
period, the aggregate of the net income
(loss) of such Person and its
Subsidiaries, on a consolidated basis,
for such period (excluding to the extent
included therein any extraordinary or one-
time gains or losses) after deducting all
charges which should be deducted before
arriving at the net income (loss) for
such period and after deducting the
Provision for Taxes for such period, all
as determined in accordance with GAAP."
(b) Section 1.60 is hereby added to
the Loan Agreement and reads in its entirety
as follows:
"1.60 "Provision for Taxes"
shall mean an amount equal to all taxes
imposed on or measured by net income,
whether Federal, State or local, whether
current or deferred, and whether foreign
or domestic, that are paid or payable by
any Person and its Subsidiaries in
respect of such fiscal year on a
consolidated basis in accordance with
GAAP."
2. Interest Rate. Section 1.34 of the
Loan Agreement is hereby amended to read in
its entirety as follows:
"1.34 "Interest Rate"
shall mean, (a) as to Prime Rate Loans, a
rate of one quarter of one (.25)
percentage point per annum less than the
Prime Rate and, as to Eurodollar Rate
Loans, a rate of two (2.00) percentage
points per annum in excess of the
Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the
Interest Period selected by Borrower as
in effect three (3) Business Days after
the date of receipt by Lender of the
request of Borrower for such Eurodollar
Rate Loans in accordance with the terms
hereof, whether such rate is higher or
lower than any rate previously quoted to
Borrower); and (b) with respect to
Revolving Loans outstanding during any
period in which Borrower shall have
elected to use the advance rate option
provided for in Section 2.1(a)(i)(B) and
in which the sum of the Revolving Loans
and Letter of Credit Accommodations
exceeds the least of seventy five percent
(75%) of the Value of the Eligible
Inventory, thirty-eight and one half
percent (38.5%) of the Retail Sales Price
of the Eligible Inventory, or eighty-five
percent (85%) of the Appraised Value of
the Eligible Inventory, a rate of two and
one-quarter (2.25) percentage points per
annum in excess of the Adjusted
Eurodollar Rate; provided, however, that
(y) in the event Borrower's Net Income
for its fiscal year ending January 29,
2000 exceeds Six Million Dollars
($6,000,000) and (z) Borrower has average
Excess Availability for the ninety (90)
days preceding such date of not less than
Ten Million Dollars ($10,000,000) and
Twenty Million Dollars ($20,000,000)
thereafter (it being understood that
Lender may reduce such Excess
Availability amount upon the completion
of an acquisition of another entity
permitted by Lender), the applicable
Interest Rate provided for in the
preceding clause (a) of this Section 1.34
shall be reduced by one-eighth of one
(.125) percentage point, such reduction
in the applicable Interest Rate to be
effective as of the first day of the
month immediately following the date of
receipt by Lender of Borrower's audited
annual financial statements, as provided
by Borrower to Lender pursuant to Section
9.6(a)(iii) hereof, indicating the
required pretax income (and such
reduction shall continue to be in effect
for so long as the Excess Availability is
not less than Twenty Million Dollars
($20,000,000) (it being understood that
Lender may reduce such Excess
Availability amount upon the completion
of an acquisition of another entity
permitted by Lender) and continues to be
met as measured on a quarterly basis);
and provided further, however, the
Interest Rate shall mean the rate of two
and one-quarter (2.25) percentage points
per annum in excess of the Prime Rate as
to Prime Rate Loans and the rate of four
and one-half (4.50) percentage points per
annum in excess of the Adjusted
Eurodollar Rate as to Eurodollar Rate
Loans, at Lender's option, without
notice, (a) for the period on and after
the date of termination or non-renewal
hereof, or the date of the occurrence of
any Event of Default or event which with
notice or passage of time or both would
constitute an Event of Default, and for
so long as such Event of Default or other
event is continuing as determined by
Lender and until such time as all
Obligations are indefeasibly paid in full
(notwithstanding entry of any judgment
against Borrower) and (b) on the
Revolving Loans at any time outstanding
in excess of the amounts available to
Borrower under Section 2 (whether or not
such excess(es) arise or are made with or
without Lender's knowledge or consent and
whether made before or after an Event of
Default)."
3. Revolving Loans. Section 2.1(a)(i)
of the Loan Agreement is hereby amended to
read in its entirety as follows:
"(i) either (A) the least of: (I)
seventy-five percent (75%) of the Value
of the Eligible Inventory, (II) eighty-
five percent (85%) of the Appraised Value
of the Eligible Inventory, or (III)
thirty-seven and one-half percent (37.5%)
of the Retail Sales Price of the Eligible
Inventory; or (B) provided no Event of
Default shall have occurred and be
continuing, then at Borrower's option and
upon one (1) day's prior written notice
to Lender, from November 1 through
December 31 of each calendar year, the
least of (I) eighty percent (80%) of the
Value of Eligible Inventory, (II) eighty-
five percent (85%) of the Appraised Value
of the Eligible Inventory, or (III)
thirty-nine percent (39%) of the Retail
Sales Price of the Eligible Inventory,
which percentages shall remain in effect
through December 31 unless revoked by
Borrower upon one (1) day's prior written
notice to Lender; provided, however, that
advances against Eligible Domestic In-
Transit Inventory shall not, at any one
time, exceed Five Million Dollars
($5,000,000); minus"
4. Inventory Covenants. Section 7.3(d)
of the Loan Agreement is hereby amended to
read in its entirety as follows:
"(d) upon Lender's request, Borrower
shall, at its expense, no more than once
in any calendar quarter, but at any time
or times as Lender may request upon the
occurrence and during the continuance of
an Event of Default, deliver or cause to
be delivered to Lender written reports or
appraisals as to the Inventory in form,
scope and methodology reasonably
acceptable to Lender by an appraiser
reasonably acceptable to Lender,
addressed to Lender or upon which Lender
is expressly permitted to rely (with the
understanding that Lender may revise the
definition of "Eligible Inventory"
hereunder or establish Availability
Reserves as Lender may deem advisable in
good faith based upon the results of such
updated appraisals), but in any event, at
least two of such appraisals delivered in
any calendar year shall be conducted to
include the full scope of Inventory and
at least two other of such appraisals
shall be conducted to include gross
recovery updates of the Inventory;"
5. Adjusted Net Worth. Section 9.14 of
the Loan Agreement is hereby amended to read
in its entirety as follows:
"Borrower shall, at all times,
maintain Adjusted Net Worth of not less
than One Hundred Fifteen Million Dollars
($115,000,000) and beginning with fiscal
January 31, 2002, One Hundred Fifteen
Million Dollars ($115,000,000) plus fifty
percent (50%) of Borrower's Net Income;
provided, however, Lender will only test
for Borrower's compliance with this
financial covenant only in the event that
Borrower's Excess Availability is less
than Ten Million Dollars ($10,000,000)."
6. Term. Lender and Borrower hereby
agree to renew the term of the Loan Agreement
and the other Financing Agreements pursuant to
Section 12.1(a) of the Loan Agreement. The
Loan Agreement and the other Financing
Agreements shall continue in force and effect
for a term ending on March 31, 2002.
7. Consent to Acquisition Financing.
Notwithstanding Sections 9.8 and 9.9 of the
Loan Agreement, Lender hereby consents to
Borrower obtaining acquisition financing for
the purpose of acquiring all of the assets or
stock of an entity up to the amount of Twenty
Million Dollars ($20,000,000) on terms and
conditions reasonably acceptable to Lender in
its sole discretion. Lender's consent is
contingent upon its receipt of certain
documentation as reasonably required by
Lender, including without limitation a
subordination agreement, intercreditor
agreement and access agreement, delivered to
Lender and reasonably satisfactory to Lender
in form and substance.
8. Effectiveness of this Amendment.
Lender must have received the following items,
in form and content acceptable to Lender,
before this Amendment is effective and before
Lender is required to extend any credit to
Borrower as provided for by this Amendment.
The date on which all of the following
conditions have been satisfied is the "Closing
Date".
(a) Amendment. This Amendment
fully executed in a sufficient number of
counterparts for distribution to Lender
and Borrower.
(b) Authorizations. Evidence that
the execution, delivery and performance
by Borrower and any instrument or
agreement required under this Amendment
have been duly authorized.
(c) Representations and Warranties.
The representations and warranties set
forth herein and in the Loan Agreement
must be true and correct.
(d) Accommodation Fee. Lender
shall have received from Borrower a fee
in the amount of Seventy Five Thousand
Dollars ($75,000) for the processing and
approval of this Amendment.
(e) Other Required Documentation.
All other documents and legal matters in
connection with the transactions
contemplated by this Amendment shall have
been delivered or executed or recorded
and shall be in form and substance
satisfactory to Lender.
7. Representations and Warranties. The
Borrower represents and warrants as follows:
(a) Authority. The Borrower and
each other Loan Party has the requisite
corporate power and authority to execute
and deliver this Amendment, as
applicable, and to perform its
obligations hereunder and under the Loan
Documents (as amended or modified hereby)
to which it is a party. The execution,
delivery and performance by the Borrower
of this Amendment and by each other Loan
Party of each Loan Document (as amended
or modified hereby) to which it is a
party have been duly approved by all
necessary corporate action of such Loan
Party and no other corporate proceedings
on the part of such Loan Party are
necessary to consummate such
transactions.
(b) Enforceability. This Amendment
has been duly executed and delivered by
the Borrower. This Amendment and each
Loan Document (as amended or modified
hereby) is the legal, valid and binding
obligation of each Loan Party hereto or
thereto, enforceable against such Loan
Party in accordance with its terms, and
is in full force and effect.
(c) Representations and Warranties.
The representations and warranties
contained in each Loan Document (other
than any such representations or
warranties that, by their terms, are
specifically made as of a date other than
the date hereof) are correct on and as of
the date hereof as though made on and as
of the date hereof.
(d) No Default. No event has
occurred and is continuing that
constitutes an Event of Default.
8. Choice of Law. The validity of this
Amendment, its construction, interpretation
and enforcement, the rights of the parties
hereunder, shall be determined under, governed
by, and construed in accordance with the
internal laws of the State of California
governing contracts only to be performed in
that State.
9. Counterparts. This Amendment may be
executed in any number of counterparts and by
different parties and separate counterparts,
each of which when so executed and delivered,
shall be deemed an original, and all of which,
when taken together, shall constitute one and
the same instrument. Delivery of an executed
counterpart of a signature page to this
Amendment by telefacsimile shall be effective
as delivery of a manually executed counterpart
of this Amendment.
10. Due Execution. The execution,
delivery and performance of this Amendment are
within the power of Borrower, have been duly
authorized by all necessary corporate action,
have received all necessary governmental
approval, if any, and do not contravene any
law or any contractual restrictions binding on
Borrower.
11. Reference to and Effect on the Loan
Documents.
(a) Upon and after the
effectiveness of this Amendment, each
reference in the Loan Agreement to "this
Agreement", "hereunder", "hereof" or
words of like import referring to the
Loan Agreement, and each reference in the
other Loan Documents to "the Loan
Agreement", "thereof" or words of like
import referring to the Loan Agreement,
shall mean and be a reference to the Loan
Agreement as modified and amended hereby.
(b) Except as specifically amended
above, the Loan Agreement and all other
Loan Documents, are and shall continue to
be in full force and effect and are
hereby in all respects ratified and
confirmed and shall constitute the legal,
valid, binding and enforceable
obligations of Borrower to Lender.
(c) The execution, delivery and
effectiveness of this Amendment shall
not, except as expressly provided herein,
operate as a waiver of any right, power
or remedy of Lender under any of the Loan
Documents, nor constitute a waiver of any
provision of any of the Loan Documents.
(d) To the extent that any terms
and conditions in any of the Loan
Documents shall contradict or be in
conflict with any terms or conditions of
the Loan Agreement, after giving effect
to this Amendment, such terms and
conditions are hereby deemed modified or
amended accordingly to reflect the terms
and conditions of the Loan Agreement as
modified or amended hereby.
12. Ratification. Borrower hereby
restates, ratifies and reaffirms each and
every term and condition set forth in the Loan
Agreement, as amended hereby, and the Loan
Documents effective as of the date hereof.
13. Estoppel. To induce Lender to enter
into this Amendment and to continue to make
advances to Borrower under the Loan Agreement,
Borrower hereby acknowledges and agrees that,
after giving effect to this Amendment, as of
the date hereof, there exists no Event of
Default and no right of offset, defense,
counterclaim or objection in favor of Borrower
as against Lender with respect to the
Obligations.
IN WITNESS WHEREOF, the parties have
entered into this Amendment as of the date
first above written.
"BORROWER"
GOTTSCHALKS INC.,
a Delaware corporation
By:/s/Xxxxxxx X. Xxxxx
Title: Senior Vice President/CFO
"LENDER"
CONGRESS FINANCIAL CORPORATION
(WESTERN), a California corporation
By:/s/Xxxxxxxx Xxxxxxxxxx
Title: Vice President
