Document:

VIRGINIA ELECTRIC AND POWER COMPANY

 

 

 

 

 

DOMINION RESOURCES, INC.

Issuer

TO

JPMORGAN CHASE BANK

(formerly known as The Chase Manhattan Bank)

Trustee

 

-------------------------

Thirteenth Supplemental Indenture

Dated as of September 16, 2002

-------------------------

 

 

 

 

 

          THIS THIRTEENTH SUPPLEMENTAL INDENTURE is made as of the 16th day of September, 2002, by and between DOMINION RESOURCES, INC., a Virginia corporation, having its principal office at 120 Tredegar Street, Richmond, Virginia 23219 (the "Company"), and JPMORGAN CHASE BANK (formerly known as The Chase Manhattan Bank), a New York banking corporation, as Trustee (herein called the "Trustee").

W I T N E S S E T H:

          WHEREAS, the Company has heretofore entered into a Senior Indenture, dated as of June 1, 2000 (the "Original Indenture"), as heretofore supplemented and amended, with the Trustee;

          WHEREAS, the Original Indenture is incorporated herein by this reference and the Original Indenture, as heretofore supplemented and amended and as further supplemented by this Thirteenth Supplemental Indenture, is herein called the "Indenture"; and

          WHEREAS, all conditions necessary to authorize the execution and delivery of this Thirteenth Supplemental Indenture and to make it a valid and binding obligation of the Company have been done or performed.

          NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I

AGREEMENT FOR THE BENEFIT OF HOLDERS OF THE SENIOR NOTES

          SECTION 101.     Definitions. The following defined terms used herein shall, unless the context otherwise requires, have the meanings specified below. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Original Indenture.

          "Moody's" means Moody's Investors Service, Inc. or any successor rating agency.

          "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill Companies, Inc., or any successor rating agency.

          "Senior Notes" means the Company's 2002 Series C 5.70% Senior Notes Due 2012.

 

 

          SECTION 102.     Interest Rate Adjustment. If, on or before September 15, 2004, the ratings on the Company's senior unsecured indebtedness are downgraded below Baa1 by Moody's or BBB+ by S&P, the interest rate on the Senior Notes will be adjusted as follows, but for only as long as any such downgrade is in effect:

	

Moody's Rating
	
Moody's

Cumulative

Adjustment Amount
	

S&P Rating
	
S&P

Cumulative

Adjustment Amount

	
Baa2 
	
0.25%
	
BBB
	
0.25%

	
Baa3 or lower 
	
0.50%
	
BBB- or lower
	
0.50%

	
 
	
 
	
 
	
 

          The adjusted annual interest rate for the Senior Notes (and the rate at which any overdue principal or interest shall bear interest, to the extent legally enforceable) will be 5.70%, plus the sum of the applicable Moody's cumulative adjustment amount and the applicable S&P cumulative adjustment amount, in each case as provided in the above table.

          If a ratings change is made by one of either Moody's or S&P during any interest payment period (that is, the period from the Original Issue Date to the first Interest Payment Date or thereafter from any Interest Payment Date to the next Interest Payment Date), the amount of interest to be paid with respect to the period will be calculated at an annual rate equal to the weighted average of the interest rate in effect immediately before the change and the rate in effect upon any new ratings being given, calculated by multiplying each such rate by the number of days the rate is in effect during the interest payment period, determining the sum of the products and dividing the sum by the actual number of days in that interest payment period.

          For purposes of Section 106(ii) of the Twelfth Supplemental Indenture, the scheduled payments of interest from any Redemption Date shall be determined based upon the interest rate on the Senior Notes as in effect on the third Business Day preceding the Redemption Date in accordance with this Section 102.

          The Company shall give the Trustee prompt written notice of any change in Moody's or S&P's ratings of the Company's senior unsecured indebtedness that would result in a change to the interest rate on the Senior Notes under this Section 102.

.

2

ARTICLE II

MISCELLANEOUS PROVISIONS

          SECTION 201.     Recitals by Company. The recitals in this Thirteenth Supplemental Indenture are made by the Company only and not by the Trustee, and all of the provisions contained in the Original Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of the Senior Notes and of this Thirteenth Supplemental Indenture as fully and with like effect as if set forth herein in full.

          SECTION 202.     Ratification and Incorporation of Original Indenture. As supplemented hereby, the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this Thirteenth Supplemental Indenture shall be read, taken and construed as one and the same instrument.

          SECTION 203.     Executed in Counterparts. This Supplemental Indenture may be executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument.

          SECTION 204.     Assignment. The Company shall have the right at all times to assign any of its rights or obligations under the Indenture with respect to the Senior Notes to a direct or indirect wholly-owned subsidiary of the Company; provided that, in the event of any such assignment, the Company shall remain primarily liable for the performance of all such obligations. The Indenture may also be assigned by the Company in connection with a transaction described in Article Eight of the Original Indenture.

 

3

          IN WITNESS WHEREOF, each party hereto has caused this instrument to be signed in its name and behalf by its duly authorized officer, all as of the day and year first above written.

	
DOMINION RESOURCES, INC.

	
 

	
By:      /s/ G. Scott Hetzer                                    

	
Name:    G. Scott Hetzer                                      

	
Title:      Senior Vice President and Treasurer        

	
JPMORGAN CHASE BANK, as Trustee

	
 

	
By:    /s/ Natalia Rodriguez                                 

	
Name:     Natalia Rodriguez                                

	
Title:      Assistant Vice President                        

 

4Q2 2003 10Q Exhibit 10.1

	
LOAN NUMBER
	
LOAN NAME
	
ACCT. NUMBER
	
AGREEMENT DATE
	
INITIALS

	
80905301
	
Gottschalks Inc.
	 	
5/24/02
	
BAW

	
NOTE AMOUNT
	
INDEX (w/Margin)
	
RATE
	
MATURITY DATE
	
LOAN PURPOSE

	
$3,700,000.00
	
United Security Bank

Reference Rate plus

1.500%
	
6.250%

Creditor Use Only
	
5/24/05
	
Commercial

 

PROMISSORY NOTE

(Commercial - Single Advance - Variable
Rate)

 

DATE AND PARTIES.  The date of this Promissory Note (Note) is
May 24, 2002.  The parties and their addresses are:

LENDER:

UNITED SECURITY BANK

Main Office

1525 E. Shaw Avenue, Ste. 100

Fresno, California  93710

Telephone:  (559) 248-4945

BORROWER:

GOTTSCHALKS INC.

a Delaware Corporation

7 River Park Place East

Fresno, California  93720

	DEFINITIONS.  As used in this Note, the terms have
the following meanings:

	Pronouns.  The pronouns "I,"
"me," and "my" refer to each Borrower signing this Note,
individually and together with their heirs, successors and assigns, and each
other person or legal entity (including guarantors, endorsers, and sureties) who
agrees to pay this Note.  "You" and "Your" refer to the
Lender, with its participants or syndicators, successors and assigns, or any
person or company that acquires an interest in the Loan.

	Note.  Note refers to this document, and any
extensions, renewals, modifications and substitutions of this Note.

	Loan.  Loan refers to this transaction generally,
including obligations and duties arising from the terms of all documents
prepared or submitted for this transaction such as applications, security
agreements, disclosures or notes, and the Note.

	Property.  Property is any property, real,
personal or intangible, that secures my performance of the obligations of this
Loan.

	Percent.  Rates and rate change limitations are
expressed as annualized percentages.

	PROMISE TO PAY.  For value received, I promise to
pay you or your order, at your address, or at such other location as you may
designate, the principal sum of $3,700,000.00 (Principal) plus interest from May
24, 2002 on the unpaid Principal balance until this Note matures or this
obligation is accelerated.

	INTEREST.  Interest will accrue on the unpaid
Principal balance of this Note at the rate of 6.250 percent (Interest Rate)
until May 25, 2002, after which time it may change as described in the Variable
Rate subsection.

	Interest After Default.  If you declare a default
under the terms of this Loan, including for failure to pay in full at maturity,
you may increase the Interest Rate otherwise payable as described in this
section.  In such event, interest will accrue on the unpaid Principal balance of
this Note at a rate equal to the rate in effect prior to default, plus 3.000
percent, until paid in full.

	Maximum Interest Amount.  Any amount assessed or
collected as interest under the terms of this Note or obligation will be limited
to the Maximum Lawful Amount of interest allowed by state or federal law.
Amounts collected in excess of the Maximum Lawful Amount will be applied first
to the unpaid Principal balance.  Any remainder will be refunded to me.

	Statutory Authority.  The amount assessed or
collected on this Note is authorized by the California Banking Law (Cal. Fin.
Code, Div. 1).

	Accrual.  During the scheduled term of the Loan
interest accrues using an Actual/360 days counting method.

	Variable Rate.  The Interest Rate may change
during the term of this transaction.

	Index.  Beginning with the first Change Date, the
Interest Rate will be based on the following index: the United Security Bank
Reference Rate.

The Current Index is the most recent index figure available
on each Change Date.  You do not guaranty by selecting this Index, or the
margin, that the Interest Rate on this Note will be the same rate you charge on
any other loans or class of loans you make to me or other borrowers.  If this
Index is no longer available, you will substitute a similar index.  You will
give me notice of your choice.

	Change Date.  Each date on which the Interest Rate may
change is called a Change Date.  The Interest Rate may change May 25, 2002 and
daily thereafter.

	Calculation Of Change.  On each Change Date, you will
calculate the Interest Rate, which will be the Current Index plus 1.500 percent.
The result of this calculation will be rounded up to the nearest .001 percent.
Subject to any limitations, this will be the Interest Rate until the next Change
Date.  The new Interest Rate will become effective on each Change Date.  The
Interest Rate and other charges on this Note will never exceed the highest rate
or charge allowed by law for this Note.

	Effect of Variable Rate.  A change in the Interest Rate
will have the following effect on the payments: The amount of scheduled payments
and the amount of the final payment will change.

	ADDITIONAL CHARGES.  As additional consideration,
I agree to pay, or have paid, the fees and charges listed on the APPENDIX: FEES
AND CHARGES, which is attached to and made part of this Note.  I understand and
agree that some payments to third parties as part of this transaction may also
involve money retained by you or paid back to you as commissions or other
remuneration.

	REMEDIAL CHARGES.  In addition to interest or
other finance charges, I agree that I will pay these additional fees based on my
method and pattern of payment.  Additional remedial charges may be described
elsewhere in this Note.

	Late Charge.  If a payment is more than 10 days
late, I will be charged 5.000 percent of the Unpaid Portion of Payment or
$15.00, whichever is greater.  I will pay this late charge promptly but only
once for each late payment.

	Returned Check Charge.  I agree to pay a fee not
to exceed $15.00 for each check, negotiable order of withdrawal or draft I issue
in connection with this Loan that is returned because it has been
dishonored.

	GOVERNING AGREEMENT.  This Note is further
governed by the Commercial Loan Agreement executed between you and me as part of
this Loan, as modified, amended or supplemented.  Upon execution of this Note, I
represent that I have reviewed and am in compliance with the terms contained in
the Commercial Loan Agreement.

	PAYMENT.  I agree to pay this Note in installments
of accrued interest beginning June 24, 2002, and then on the 24th day
of each month thereafter.  I agree to pay the entire unpaid Principal and any
accrued but unpaid interest on May 24, 2005.

Payments will be rounded up to the nearest $.01.  With the
final payment I also agree to pay any additional fees or charges owing and the
amount of any advances you have made to others on my behalf.  Payments scheduled
to be paid on the 29th, 30th or 31st day of a
month that contains no such day will, instead, be made on the last day of such
month.

Each payment I make on this Note will be applied first to
interest that is due then to principal that is due, and finally to any charges
that I owe other than principal and interest.  If you and I agree to a different
application of payments, we will describe our agreement on this Note.  The
actual amount of my final payment will depend on my payment record.

	PREPAYMENT.  I may prepay this Loan in full or in
part at any time.  Any partial prepayment will not excuse any later scheduled
payments until I pay in full.

	LOAN PURPOSE.  The purpose of this Loan is to
provide working capital.

	SECURITY.  This Loan is secured by separate
security instruments prepared together with this Note as follows:

Document NameParties to Document

Security Agreement - Gottschalks Inc.Gottschalks
Inc.

Assignment of Partnership Interest - ParkGottschalks
Inc.

41, a California Limited Partnership

	ASSUMPTIONS.  Someone buying the Property cannot
assume the obligation.  You may declare the entire balance of the Note to be
immediately due and payable upon the creation of, or contract for the creation
of, any lien, encumbrance, or transfer of the Property.  However, I may sell or
similarly dispose of any Property that is inventory.

	WAIVERS AND CONSENT.  To the extent not prohibited
by law, I waive protest, presentment for payment, demand, notice of
acceleration, notice of intent to accelerate and notice of
dishonor.

A.Additional Waivers By Borrower.  In
addition, I, and any party to this Note and Loan, to the extent permitted by
law, consent to certain actions you may take, and generally waive defenses that
may be available based on these actions or based on the status of a party to
this Note.

(1)You may renew or extend payments on this Note,
regardless of the number of such renewals or extensions.

(2)You may release any Borrower, endorser, guarantor,
surety, accommodation maker or any other signer.

	You may release, substitute or impair any Property
securing this Note.

	You, or any institution participating in this Note, may
invoke your right of set-off.

	You may enter into any sales, repurchases or
participations of this Note to any person in any amounts and I waive notice of
such sales, repurchases or participations.

	I agree that any of us signing this Note as a Borrower is
authorized to modify the terms of this Note or any instrument securing,
guarantying or relating to this Note.

B.No Waiver By Lender.  Your course of dealing, or
your forbearance from, or delay in, the exercise of any of your rights,
remedies, privileges or right to insist upon my strict performance of any
provisions contained in this Note, or other Loan documents, shall not be
construed as a waiver by you, unless any such waiver is in writing and is signed
by you.

	SUPENSION OF REMEDIES.  You may not use any Remedy
if I fail to make a payment which becomes due during a disability claim period
and for which disability insurance coverage is provided.  However, this term
will not prohibit the use of any remedy if a payment is for an amount advanced
after I have given you notice of a disability claim, unless a different
disability caused the nonpayment.

	APPLICABLE LAW.  This Note is governed by the laws
of California, the United States of America and to the extent required, by the
laws of the jurisdiction where the Property is located.  In the event of a
dispute, the exclusive forum, venue and place of jurisdiction will be in
California, unless otherwise required by law.

	JOINT AND INDIVIDUAL LIABILITY AND SUCCESSORS.  My
obligation to pay this Loan is independent of the obligation of any other person
who has also agreed to pay it.  You may sue me alone, or anyone else who is
obligated on this Loan, or any number of us together, to collect this Loan.
Extending this Loan or new obligations under this Loan, will not affect my duty
under this Loan and I will still be obligated to pay this Loan.  The duties and
benefits of this Loan will bind and benefit the successors and assigns of you
and me.

	AMENDEMNT, INTEGRATION AND SEVERABLILITY.  This Note may
not be amended or modified by oral agreement.  No amendment or modification of
this Note is effective unless made in writing and executed by you and me.  This
Note is the complete and final expression of the agreement.  If any provision of
this Note is unenforceable, then the unenforceable provision will be severed and
the remaining provisions will still be enforceable.

	INTERPRETAION.  Whenever used, the singular
includes the plural and the plural includes the singular.  The section headings
are for convenience only and are not to be used to interpret or define the terms
of this Note.

	NOTICE, FINANCIAL REPORTS AND ADDITIONAL
DOCUMENTS.  Unless otherwise required by law, any notice will be given by
delivering it or mailing it by first class mail to the appropriate party's
address listed in the DATE AND PARTIES section, or to any other address
designated in writing.  Notice to one party will be deemed to be notice to all
parties.  I will inform you in writing of any change in my name, address or
other application information.  I agree to sign, deliver, and file any
additional documents or certifications that you may consider necessary to
perfect, continue, and preserve my obligations under this Loan and to confirm
your lien status on any Property.  Time is of the essence.

	CREDIT INFORMATION.  I agree that from time to
time you may obtain credit information about me from others, including other
lenders and credit reporting agencies.

	ERRORS AND OMISSIONS.  I agree, if requested by
you, to fully cooperate in the correction, if necessary, in the reasonable
discretion of you of any and all loan closing documents so that all documents
accurately describe the loan between you and me.  I agree to assume all costs
including by way of illustration and not limitation, actual expenses and legal
fees for failing to reasonably comply with your requests within thirty (30)
days.

	SIGNATURES.  By signing, I agree to the terms
contained in this Note.  I also acknowledge receipt of a copy of this
Note.

BORROWER:

Gottschalks Inc.

/s/ Michael Geele

Michael Geele, Sr. Vice President & CFO

 

	
LOAN NUMBER
	
LOAN NAME
	
ACCT. NUMBER
	
AGREEMENT DATE
	
INITIALS

	
80905301
	
Gottschalks Inc.
	 	
5/24/02
	
BAW

	
NOTE AMOUNT
	
INDEX (w/Margin)
	
RATE
	
MATURITY DATE
	
LOAN PURPOSE

	
$3,700,000.00
	
United Security Bank

Reference Rate plus

1.500%
	
6.250%

Creditor Use Only
	
5/24/05
	
Commercial

 

 

 

COMMERCIAL LOAN AGREEMENT

Single Advance Loan

 

DATE AND PARTIES.  The date of this Commercial Loan Agreement
(Agreement) is May 24, 2002.  The parties and their addresses are as
follows:

LENDER:

UNITED SECURITY BANK

Main Office

1525 E. Shaw Avenue, Ste. 100

Fresno, California  93710

BORROWER:

GOTTSCHALKS INC.

a Delaware Corporation

7 River Park Place East

Fresno, California  93720

1.DEFINITIONS.  For the purposes of this
Agreement, the following terms have the following meanings.
A.Accounting Terms.  In this Agreement, any
accounting terms that are not specifically defined will have their customary
meanings under generally accepted accounting principles.

B.Insiders.  Insiders include those defined as
insiders by the United States Bankruptcy Code, as amended; or to the extent left
undefined, include without limitation any officer, or director, or any person or
entity which, directly or indirectly, controls, is controlled by or is under
common control with me.

C.Loan.  The Loan refers to this transaction
generally, including obligations and duties arising from the terms of all
documents prepared or submitted for this transaction.

D.Pronouns.  The pronouns "I",
"me" and "my" refer to every Borrower signing this
Agreement, individually or together, and their heirs, successors and assigns.
"You" and "your" refers to the Loan's lender, any
participants or syndicators, or any person or company that acquires an interest
in the Loan and their successors and assigns.

E.Property.  Property is any property, real,
personal or intangible, that secures my performance of the obligations of this
Loan.

2.SINGLE ADVANCE.  In accordance with the terms of
this Agreement and other Loan documents, you will provide me with a term note in
the amount of $3,700,000.00 (Principal).  I will receive the funds from this
Loan in one advance.  No additional advances are contemplated, except those made
to protect and preserve your interests as provided in this Agreement or other
Loan documents.

3.MATURITY DATE.  I agree to fully repay the Loan
by May 24, 2005.

4.WARRANTIES AND REPRESENTATIONS.  I make to you
the following warranties and representations which will continue as long as this
Loan is in effect, except when this Agreement provides otherwise.

	Power.  I am duly organized, and validly existing
and in good standing in all jurisdictions in which I operate.  I have the power
and authority to enter into this transaction and to carry on my business or
activity as it is now being conducted and, as applicable, am qualified to do so
in each jurisdiction in which I operate.

	Authority.  The execution, delivery and
performance of this Loan and the obligation evidenced by the Note are within my
powers, have been duly authorized, have received all necessary governmental
approval, will not violate any provision of law, or order of court or
governmental agency, and will not violate any agreement to which I am a party or
to which I am or any of my property is subject.

	Name and Place of Business.  Other than previously
disclosed in writing to you I have not changed my name or principal place of
business within the last 10 years and have not used any other trade or
fictitious name.  Without your prior written consent, I do not and will not use
any other name and will preserve my existing name, trade names and
franchises.

	Loan Purpose.  This Loan is for Commercial
purposes.

	No Other Liens.  I own or lease all property that
I need to conduct my business and activities.  I have good and marketable title
to all property that I own or lease.  All of my Property is free and clear of
all liens, security interests, encumbrances and other adverse claims and
interests, except those to you or those you consent to in writing.

	Compliance With Laws.  I am not violating any
laws, regulations, rules, order, judgments or decrees applicable to me or my
property, except for those which I am challenging in good faith through proper
proceedings after providing adequate reserves to fully pay the claim and its
challenge should I lose.

	Legal Dispute.  There are no pending or threatened
lawsuits, arbitrations or other proceedings against me or my property that
singly or together may materially and adversely affect my property, operations,
financial condition, or business.

	Adverse Agreements.  I am not a party to, nor am I
bound by, any agreement that is now or is likely to become materially adverse to
my business, Property or operations.

	Other Claims.  There are no outstanding claims or
rights that would conflict with the execution, delivery or performance by me of
the terms and conditions of this Agreement or the other Loan documents.  No
outstanding claims or rights exist that may result in a lien on the Property,
the Property's proceeds and the proceeds of proceeds, except liens that were
disclosed to and agreed to by you in writing.

	Solvency.  I am able to pay my debts as they
mature, my assets exceed my liabilities and I have sufficient capital for my
current and planned business and other activities.  I will not become insolvent
by the execution or performance of this Loan.

5.FINANCIAL STATEMENTS.  I will prepare and
maintain my financial records using consistently applied generally accepted
accounting principles then in effect.  I will provide you with financial
information in a form that you accept and under the following terms.

	Certification.  I represent and warrant that any
financial statements that I provide you fairly represents my financial condition
for the stated periods, is current, complete, true and accurate in all material
respects, includes all of my direct or contingent liabilities and there has been
no material adverse change in my financial condition, operations or business
since the date the financial information was prepared.

	Frequency.  In addition to the financial
statements provided to you prior to closing, I will provide you with current
financial statements on an annual basis, or as otherwise requested by you, until
I have performed all of my obligations under the Loan and you terminate the Loan
in writing.

	SEC Reports.  I will provide you with true and
correct copies of all reports, notices or statements that I provide to the
Securities and Exchange Commission, any securities exchange or my stockholders,
owners, or the holders of any material indebtedness as soon as available or at
least within 15 days after issuance.

	Requested Information.  I will provide you with
any other information about my operations, financial affairs and condition
within 15 days after your request.

6.COVENANTS.  Until the Loan and all related
debts, liabilities and obligations are paid and discharged, I will comply with
the following terms, unless you waive compliance in writing.

	Participation.  I consent to you participating or
syndicating the Loan and sharing any information that you decide is necessary
about me and the Loan with the other participants or syndicators.

	Inspection.  Upon reasonable notice, I will permit
you or your agents to enter any of my premises and any location where my
Property is located during regular business hours to do the
following.

(1)You may inspect, audit, check, review and obtain
copies from my books, records, journals, orders, receipts, and any
correspondence and other business related data.

(2)You may discuss my affairs, finances and business with
any one who claims to be my creditor.

	You may inspect my Property, audit for the use and
disposition of the Property's proceeds and proceeds of proceeds; or do whatever
you decide is necessary to preserve and protect the Property and your interest
in the Property.

After prior notice to me, you may discuss my financial
condition and business operations with my independent accountants, if any, or my
chief financial officer and I may be present during these discussions.  As long
as the Loan is outstanding, I will direct all of my accountants and auditors to
permit you to examine my records in their possession and to make copies of these
records.  You will use your best efforts to maintain the confidentiality of the
information you or your agents obtain, except you may provide your regulator, if
any, with required information about my financial condition, operation and
business or that of my parent, subsidiaries or affiliates.

	Business Requirements.  I will preserve and
maintain my present existence and good standing in the jurisdiction where I am
organized and all of my rights, privileges and franchises.  I will do all that
is needed or required to continue my business or activities as presently
conducted, by obtaining licenses, permits and bonds everywhere I engage in
business or activities or own, lease or locate my property.  I will obtain your
prior written consent before I cease my business or before I engage in any new
line of business that is materially different from my present business.

	Compliance with Laws.  I will not violate any
laws, regulations, rules, orders, judgments or decrees applicable to me or my
Property, except for those which I challenge in good faith through proper
proceedings after providing adequate reserves to fully pay the claim and its
appeal should I lose.  Laws include without limitation the Federal Fair Labor
Standards Act requirements for producing goods, the federal Employee Retirement
Income Security Act of 1974's requirements for the establishment, funding and
management of qualified deferred compensation plans for employees, health and
safety laws, environmental laws, tax laws, licensing and permit laws.

	New Organizations.  I will obtain your written
consent and any necessary changes to the Loan documents before I merge into or
consolidate with any one, permit any one else to merge into me, otherwise
materially change my legal structure, management, ownership or financial
condition.

	Dealings with Insiders.  I will not purchase,
acquire or lease any property or services from, or sell, provide or lease any
property or services to, or permit any outstanding loans or credit extensions
to, or otherwise deal with, any Insiders except as required under contracts
existing at the time I applied for the Loan and approved by you or as this
Agreement otherwise permits.  I will not change or breach these contracts
existing at Loan application so as to cause an acceleration of or an increase in
any payments due.

	Other Debts.  I will pay when due any and all
other debts owed or guaranteed by me and will faithfully perform, or comply with
all the conditions and obligations imposed on me concerning the debt or
guaranty.

	Notice to You.  I will promptly notify you of any
material change in my financial condition, of the occurrence of a default under
the terms of this Agreement, or a default by me under any agreement between me
and any third party which materially and adversely affects my property,
operations, financial condition or business.

	Certification of No Default.  On your request, my
chief financial officer will provide you with a written certification that to
the best of his knowledge no event of default exists under the terms of this
Agreement or the other Loan documents, and that there exists no other action,
condition or event which with the giving of notice or lapse of time or both
would constitute a default.  If an action, condition or event of default does
exist, the certificate must accurately and fully disclose the extent and nature
of this action, condition or event and state what must be done to correct
it.

	Use of Loan Proceeds.  I will not permit the loan
proceeds to be used to purchase, carry, reduce, or retire any loan incurred to
purchase or carry any margin stock.

	Dispose of No Assets.  Without your prior written
consent or as the Loan documents permit, I will not sell, lease, assign,
transfer, dispose of or otherwise distribute all or substantially all of my
assets to any person other than in the ordinary course of business for the
assets' depreciated book value or more.

	Guaranties.  I will not guaranty or become liable
in any way as surety, endorser (other than as endorser of negotiable instruments
in the ordinary course of business) or accommodation endorser or otherwise for
the debt or obligations of any other person or entity, except to you or as you
otherwise specifically agree in writing.

	No Default under Other Agreements.  I will not
allow to occur, or to continue unremedied, any act, event or condition which
constitutes a default, or which, with the passage of time or giving of notice,
or both, would constitute a default under any agreement, document, instrument or
undertaking to which I am a party or by which I may be bound.

	Legal Disputes.  I will promptly notify you in
writing of any threatened or pending lawsuit, arbitration or other proceeding
against me or any of my property, not identified in my financial statements, or
that singly or together with other proceedings may materially and adversely
affect my property, operations, financial condition or business.

	Other Notices.  I will immediately provide you
with any information that may materially and adversely affect my ability to
perform this Agreement and of its anticipated effect.

	No Change in Capital.  I will not release, redeem,
retire, purchase or otherwise acquire, directly or indirectly, any of my capital
stock or other equity security or partnership interest, or make any change in my
capital structure, except to the extent required by any agreements signed prior
to this Agreement and disclosed to you or with your prior written
consent.

	Loan Obligations.  I will make full and timely
payment of all principal and interest obligations, and comply with the other
terms and agreements contained in this Agreement and in the other Loan
documents.

	Insurance.  I will obtain and maintain insurance
with insurers, in amounts and coverages that are customary with industry
practice.  This may include without limitation insurance policies for public
liability, fire, hazard and extended risk, workers compensation, and business
interruption insurance.  

	Property Loss.  I will immediately notify you, and
the insurance company when appropriate, of any material casualty, loss or
depreciation to the Property or to my other property that affects my
business.

	Additional Covenants.  BORROWER AGREES TO THE
FOLLOWING:  (1) Submit annually a copy of its 10K filing; (2) Submit on a
minimum quarterly basis a copy of the compliance certificates provided to the
Agent; (3) Bank to receive signed copy of the Consent and Waiver Agreement that
allows Borrower to pledge, hypothecate or encumber the limited partners interest
on the partnership to a lender; (4) Submit the written approval of the Agent of
the terms and conditions of this Agreement and related documents.

7.DEFAULT.  I will be in default if any of the
following occur:
A.Payments.  I fail to make a payment in full when
due.

B.Insolvency.  I make an assignment for the
benefit of creditors or become insolvent, either because my liabilities exceed
my assets or I am unable to pay my debts as they become due.

C.Business Termination.  I merge, dissolve,
reorganize, end my business or existence.

D.Failure to Perform.  I fail to perform any
condition or to keep any promise or covenant of this Agreement.

E.Other Documents.  A default occurs under the
terms of any other transaction document.

F.Other Agreements.  I am in default on any other
debt or agreement I have with you.

G.Misrepresentations.  I make any written
statement or provide any financial information that is untrue, inaccurate, or
conceals a material fact at the time it is made or provided.

H.Judgment.  I fail to satisfy or appeal any
judgment against me.

I.Forfeiture.  The Property is used in a manner or
for a purpose that threatens confiscation by a legal authority.

J.Name Change.  I change my name without notifying
you before making such a change.

K.Property Transfer.  I transfer all or a
substantial part of my money or property.

L.Property Value.  The value of the Property
declines or is impaired.

M.Insecurity.  You reasonably believe that you are
insecure.

8.REMEDIES.  After I default, and after you give
any legally required notice and opportunity to cure the default, you may at your
option do any one or more of the following.

A.Acceleration.  You may make all or any part of
the amount owing by the terms of the Loan immediately due.

B.Sources.  You may use any and all remedies you
have under state or federal law or in any instrument securing the Loan.

C.Payments Made On My Behalf.  Amounts advanced on
my behalf will be immediately due and may be added to the balance owing under
the term of the Loan, and accrue interest at the highest post-maturity interest
rate.

D.Set-Off.  You may use the right of set-off.
This means you may set-off any amount due and payable under the terms of the
Loan against any right I have to receive money from you.

My right to receive money from you includes any deposit or
share account balance I have with you; any money owed to me on an item presented
to you or in your possession for collection or exchange; and any repurchase
agreement or other non-deposit obligation.  "Any amount due and payable
under the terms of the Loan" means the total amount to which you are
entitled to demand payment under the terms of the Loan at the time you set-
off.

Subject to any other written contract, if my right to receive
money from you is also owned by someone who has not agreed to pay the Loan, your
right of set-off will apply to my interest in the obligation and to any other
amounts I could withdraw on my sole request or endorsement.

Your right of set-off does not apply to an account or other
obligation where my rights arise only in a representative capacity.  It also
does not apply to any Individual Retirement Account or other tax-deferred
retirement account.  In addition, your right to set-off against any demand
deposit accounts I have deposited with you may be limited by applicable
California law.  In certain circumstances, I may be entitled to a notice of set-off.
 State law may further limit your right of set-off.

You will not be liable for the dishonor of any check when the
dishonor occurs because you set-off against any of my accounts.  I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.

F.Waiver.  Except as otherwise required by law, by
choosing any one or more of these remedies you do not give up your right to use
any other remedy.  You do not waive a default if you choose not to use a remedy.
By electing not to use any remedy, you do not waive your right to later consider
the event a default and to use any remedies if the default continues or occurs
again.

9.COLLECTION EXPENSES AND ATTORNEYS' FEES.  On or
after Default, to the extent permitted by law, I agree to pay all expenses of
collection, enforcement or protection of your rights and remedies under this
Agreement.  Expenses include, but are not limited to, attorneys' fees, court
costs and other legal expenses.  These expenses are due and payable immediately.
If not paid immediately, these expenses will bear interest from the date of
payment until paid in full at the highest interest rate in effect as provided
for in the terms of this Loan.  All fees and expenses will be secured by the
Property I have granted to you, if any.  To the extent permitted by the United
States Bankruptcy Code, I agree to pay the reasonable attorneys' fees you incur
to collect this debt as awarded by any court exercising jurisdiction under the
Bankruptcy Code.

10.APPLICABLE LAW.  This Agreement is governed by
the laws of California, the United States of America and to the extent required,
by the laws of the jurisdiction where the Property is located.  In the event of
a dispute, the exclusive forum, venue and place of jurisdiction will be in
California, unless otherwise required by law.

11.JOINT AND INDIVIDUAL LIABILITY AND SUCCESSORS.
My obligation to pay this Loan is independent of the obligation of any other
person who has also agreed to pay it.  You may sue me alone, or anyone else who
is obligated on this Loan, or any number of us together, to collect this Loan.
Extending this Loan or new obligations under this Loan, will not affect my duty
under this Loan and I will still be obligated to pay this Loan.  The duties and
benefits of this Loan will bind and benefit the successors and assigns of you
and me.

12.AMENDMENT, INTEGRATION AND SEVERABILITY.  This
Agreement may not be amended or modified by oral agreement.  No amendment or
modification of this Agreement is effective unless made in writing and executed
by you and me.  This Agreement is the complete and final expression of the
understanding between you and me.  If any provision of this Agreement is
unenforceable, then the unenforceable provision will be severed and the
remaining provisions will still be enforceable.

13.INTERPRETATION.  Whenever used, the singular
includes the plural and the plural includes the singular.  The section headings
are for convenience only and are not to be used to interpret or define the terms
of this Agreement.

14.NOTICE, FINANCIAL REPORTS AND ADDITIONAL
DOCUMENTS.  Unless otherwise required by law, any notice will be given by
delivering it or mailing it by first class mail to the appropriate party's
address listed in the DATE AND PARTIES section, or to any other address
designated in writing.  Notice to one party will be deemed to be notice to all
parties.  I will inform you in writing of any change in my name, address or
other application information.  I will provide you any financial statement or
information you request.  All financial statements and information I give you
will be correct and complete.  I agree to sign, deliver, and file any additional
documents or certifications that you may consider necessary to perfect,
continue, and preserve my obligations under this Loan and to confirm your lien
status on any Property.  Time is of the essence.

15.SIGNATURES.  By signing, I agree to the terms
contained in this Agreement.  I also acknowledge receipt of a copy of this
Agreement.

BORROWER:LENDER:

Gottschalks Inc.United Security Bank

/s/ Michael Geele/s/ Bob
Welles

Sr. Vice President & CFOVP &
Commercial Loan Officer

ADDENDUM TO COMMERCIAL LOAN AGREEMENT

This Addendum to Commercial Loan Agreement
("Addendum") is made and entered into by between United Security Bank
("Lender") and Gottschalks Inc. ("Borrower") for the purpose
of amending the Commercial Loan Agreement ("Agreement") made by the
parties to this Addendum of even date herewith.

1.DEFINITIONS.

1.1Part B of Section 1 of the Agreement by striking
the period after the word "me" at the end of Part B and adding the
following:

,except that the term "Insider" shall not
include The Harris Company or its affiliates.

1.2These definitions are added to Section 1 of the
Agreement:

F.Agent.  Agent means GECC as agent under the
GECC Credit Agreement and any successor institution appointed as Agent under the
GECC Credit Agreement.

G.GECC.  GECC means General Electric Capital
Corporation, a Delaware corporation.

H.GECC Credit Agreement.  GECC Credit Agreement
means the Credit Agreement date as of January 31, 2002, by and among the lenders
party thereto, Gottschalks Inc. and GECC as Agent, as amended from time to
time.

2.WARRANTIES AND REPRESENTATIONS.

2.1Part B of Section 4 of the Agreement is changed by
striking the period after the word "subject" at the end of Part B, and
adding the following:

 

,subject to approval of this Agreement and the
related loan documents by the Agent as required by the GECC Credit Agreement and
the consent of the general partner of Park 41, a California limited
partnership.

2.2Part C of Section 4 of the Agreement is deleted
and the following is added in its place:

C.Name and place of business.  Other than
previously disclosed in writing to you I have not changed my name or principal
place of business within the last 10 years.  I will preserve my existing name,
trade names and franchises, except in connection with the closing of stores in
locations where management deems continued operation not to be in my best
interests and except where the failure to preserve trade names, fictitious names
and franchises would not materially and adversely affect my business or
financial condition.

3.FINANCIAL STATEMENTS.

3.1Part C of Section 5 of the Agreement is deleted
and the following is added in its place:

C.SEC Reports.  I will provide you with true and
correct copies of all reports on forms 10-K, 10-Q and 8-K and all annual reports
and proxy statements that I provide to the Securities and Exchange Commission,
any securities exchange or my stockholders as soon as available or at least
within 15 days after issuance.

4.COVENANTS.

4.1Part A of Section 6 is changed by deleting the
period after the word "syndicators" and adding the following:

who have agreed to the confidentiality provisions of
Section 6.B.

4.2Part C of Section 6 is changed by deleting the
period at the end of the second sentence after the word "property",
and adding the following:

, except in connection with the closing of stores in
locations where management deems continued operation not to be in my best
interests and except where the failure to obtain licenses, permits or bonds
would not materially and adversely affect my business or financial
condition.

4.3The last sentence of Part C of Section 6 of the
Agreement is changed by inserting the words "as a whole" between the
words "business" and "or."

4.4Part F of Section 6 of the Agreement is deleted,
and the following is added in its place:

F.Dealings with Insiders.  I will not enter into
or be a party to any transaction with an Insider except in the ordinary course
of, and pursuant to the reasonable requirements of, my business and upon fair
and reasonable terms that are no less favorable to me than would be obtained in
a comparable arm's length transaction with a person who is not an Insider,
except as required under contracts existing at the time I applied for the loan
and approved by you or as this Agreement otherwise permits.  I will not change
or breach these contracts existing at loan application so as to cause an
acceleration of or an increase in any payments due.  In addition, the terms of
any transaction with an Insider I propose to enter into after the date hereof
must be disclosed in advance to you.  Notwithstanding the foregoing, any loans
to my officers and employees in the ordinary course of business consistent with
past practices for travel and entertainment expenses, relocation costs and
similar purposes and stock option financing shall not be considered a
transaction with an Insider restricted by this section 6F.

4.5Part G of Section 6 of the Agreement is deleted,
and the following is added in its place:

G.Other Debts.  I will pay when due any and all
debts owed under the GECC Credit Agreement, subject to any waivers to which the
Lenders thereunder may agree.

4.6Part O of Section 6 of this Agreement is changed
by striking the words "any.bound" at the end of the sentence, and
inserting in their place the following:

the GECC Credit Agreement, which in any case, is not
waived or consented to by the Lenders under the GECC Credit Agreement.

5.DEFAULT.

5.1Part E of Section 7 is changed by striking the
words "any. document" and substituting in their place these words:

the GECC Credit Agreement which in any case, is not
waived or consented to by the Lenders under the GECC Credit Agreement.

5.2Part H of Section 7 of the Agreement is deleted
and the following is added in its place:

H.  Judgment.  A final judgment or judgments for the
payment of money in excess of $250,000 in any one case or in excess of $500,000
in the aggregate at any time are outstanding against me and the same are not,
within 30 days after the entry thereof, discharged or execution thereof stayed
or bonded pending appeal, or such judgments are not discharged prior to the
expiration of any such stay.

5.3Part L of Section 7 is changed by inserting the
word "materially" between the words "property" and
"declines," and between the words "is" and
"impaired."

6.NOTICE, FINANCIAL REPORTS AND ADDITIONAL
DOCUMENTS.

6.1Despite the terms of Section 14 of the Agreement,
whenever notice is required to be given under the terms of the Agreement, it
shall be personally delivered, mailed by certified mail or delivered by
overnight courier.  First class mail is insufficient to constitute effective
delivery.

 

 

Dated:May 24, 2002Gottschalks Inc.

By: /s/ Michael
Geele

Senior Vice President and CFO

 

Dated:May 24, 2002United Security
Bank

 

By: /s/ Bob Welles

Vice President

SECURITY AGREEMENT

 

 

DATE AND PARTIES.  The date of this Security Agreement
(Agreement) is May 24, 2002.  The parties and their addresses are:

SECURED PARTY:

UNITED SECURITY BANK

Main Office

1525 E. Shaw Avenue, Ste. 100

Fresno, California  93710

DEBTOR:

GOTTSCHALKS INC.

a Delaware Corporation

7 River Park Place East

Fresno, California  93720

The pronouns "you" and "your" refer to
the Secured Party.  The pronouns "I," "me" and
"my" refer to each person or entity signing this Agreement as Debtor
and agreeing to give the Property described in this Agreement as security for
the Secured Debts.

1.SECURED DEBTS. This Agreement will secure the
following Secured Debts:

A.Specific Debts.  The following debts and all
extensions, renewals, refinancings, modifications and replacements.  A
promissory note, No. 80905301, dated May 24, 2002, from me to you, in the
amount of $3,700,000.00

B.Sums Advanced.  All sums advanced and
expenses incurred by you under the terms of this Agreement.

2.SECURITY INTEREST.  To secure the payment and
performance of the Secured Debts, I give you a security interest in all of the
Property described in this Agreement that I own or have sufficient rights in
which to transfer an interest, now or in the future, wherever the Property is or
will be located, and all proceeds and products from the Property (including, but
not limited to, all parts, accessories, repairs, replacements, improvements, and
accessions to the Property).  Property is all the collateral given as security
for the Secured Debts and described in this Agreement, and includes all
obligations that support the payment or performance of the Property.
"Proceeds" includes anything acquired upon the sale, lease, license,
exchange, or other disposition of the Property; any rights and claims arising
from the Property; and any collections and distributions on account of the
Property.

This Agreement remains in effect until terminated in writing,
even if the Secured Debts are paid and you are no longer obligated to advance
funds to me under any loan or credit agreement.

3.PROPERTY DESCRIPTION.  The Property is described
as follows:

The 36% Limited Partnership interest owned by Gottschalks
Inc. in the Park 41, a California Limited Partnership.

4.WARRANTIES AND REPRESENTATIONS.  I make to you
the following warranties and representations which will continue as long as this
Agreement is in effect:

A.Power.  I am duly organized, and validly
existing and in good standing in all jurisdictions in which I operate.  I have
the power and authority to enter into this transaction and to carry on my
business or activity as it is now being conducted and, as applicable, am
qualified to do so in each jurisdiction in which I operate.

B.Authority.  The execution, delivery and
performance of this Agreement and the obligation evidenced by this Agreement are
within my powers, have been duly authorized, have received all necessary
governmental approval, will not violate any provision of law, or order of court
or governmental agency, and will not violate any agreement to which I am a party
or to which I am or any of my property is subject.

C.Name and Location.  My name indicated in the
DATE AND PARTIES section is my exact legal name.  I am an entity organized and
registered under the laws of Delaware.  I will provide verification of
registration and location upon your request.  I will provide you with at least
30 days notice prior to any change in my name, address, or state of organization
or registration.

D.Business Name.  Other than previously
disclosed in writing to you I have not changed my name or principal place of
business within the last 10 years and have not used any other trade or
fictitious name.  Without your prior written consent, I do not and will not use
any other name and will preserve my existing name, trade names and
franchises.

E.Ownership of Property.  I represent that I
own all of the Property.  Your claim to the Property is ahead of the claims of
any other creditor, except as disclosed in writing to you prior to any advance
on the Secured Debts.  I represent that I am the original owner of the Property
and, if I am not, that I have provided you with a list of prior owners of the
Property.

5.DUTIES TOWARD PROPERTY.

A.Protection of Secured Party's Interest.  I
will defend the Property against any other claim.  I agree to do whatever you
require to protect your security interest and to keep your claim in the Property
ahead of the claims of other creditors.  I will not do anything to harm your
position.

I will keep books, records and accounts about the Property
and my business in general.  I will let you examine these and make copies at any
reasonable time.  I will prepare any report or accounting you request which
deals with the Property.

B.Use, Location, and Protection of the
Property.  I will keep the Property in my possession and in good repair.  I
will use it only for commercial purposes.  I will not change this specified use
without your prior written consent.  You have the right of reasonable access to
inspect the Property and I will immediately inform you of any loss or damage to
the Property.  I will not cause or permit waste to the Property.

I will keep the Property at my address listed in the DATE AND
PARTIES section unless we agree I may keep it at another location.  If the
Property is to be used in other states, I will give you a list of those states.
The location of the Property is given to aid in the identification of the
Property.  It does not in any way limit the scope of the security interest
granted to you.  I will notify you in writing and obtain your prior written
consent to any change in location of any of the Property.  I will not use the
Property in violation of any law.  I will notify you in writing prior to any
change in my address, name or, if an organization, any change in my identity or
structure.

Until the Secured Debts are fully paid and this Agreement is
terminated, I will not grant a security interest in any of the Property without
your prior written consent.  I will pay all taxes and assessments levied or
assessed against me or the Property and provide timely proof of payment of these
taxes and assessments upon request.

C.Selling, Leasing or Encumbering the
Property.  I will not sell, offer to sell, lease, or otherwise transfer or
encumber the Property without your prior written permission, except for
Inventory sold in the ordinary course of business at fair market value, or at a
minimum price established between you and me.  If I am in default under this
Agreement, I may not sell the Inventory portion of the Property even in the
ordinary course of business.  Any disposition of the Property contrary to this
Agreement will violate your rights.  Your permission to sell the Property may be
reasonably withheld without regard to the creditworthiness of any buyer or
transferee.  I will not permit the Property to be the subject of any court order
affecting my rights to the Property in any action by anyone other than you.  If
the Property includes chattel paper or instruments, either as original
collateral or as proceeds of the Property, I will note your security interest on
the face of the chattel paper or instruments.

6.INSURANCE.  I agree to keep the Property insured
against the risks reasonably associated with the Property.  I will maintain this
insurance in the amounts you require.  This insurance will last until the
Property is released from this Agreement.  I may choose the insurance company,
subject to your approval, which will not be unreasonably withheld.  I
acknowledge that you have not conditioned the making of this loan upon the
selection of a particular agent or broker.

I will have the insurance company name you as loss payee on
any insurance policy.  I will give you and the insurance company immediate
notice of any loss.  You may apply the insurance proceeds toward what is owed on
the Secured Debts.  You may require added security as a condition of permitting
any insurance proceeds to be used to repair or replace the Property.

If you acquire the Property in damaged condition, my right to
any insurance policies and proceeds will pass to you to the extent of the
Secured Debts.

I will immediately notify you of cancellation or termination
of insurance.  If I fail to keep the Property insured, you may obtain insurance
to protect your interest in the Property.  This insurance may include coverages
not originally required of me, may be written by a company other than one I
would choose, and may be written at a higher rate than I could obtain if I
purchased the insurance.

7.AUTHORITY TO PERFORM.  I authorize you to do
anything you deem reasonably necessary to protect the Property, and perfect and
continue your security interest in the Property.  If I fail to perform any of my
duties under this Agreement or any other security interest, you are authorized,
without notice to me, to perform the duties or cause them to be performed.

These authorizations include, but are not limited to,
permission to:

A.pay and discharge taxes, liens, security interests
or other encumbrances at any time levied or placed on the Property.

B.pay any rents or other charges under any lease
affecting the Property.

C.order and pay for the repair, maintenance and
preservation of the Property.

D.sign, when permitted by law, and file any financing
statements on my behalf and pay for filing and recording fees pertaining to the
Property.

E.place a note on any chattel paper indicating your
interest in the Property.

F.take any action you feel necessary to realize on
the Property, including performing any part of a contract or endorsing it in my
name.

G.handle any suits or other proceedings involving the
Property in my name.

H.prepare, file, and sign my name to any necessary
reports or accountings.

I.make an entry on my books and records showing the
existence of this Agreement.

If you perform for me, you will use reasonable care.
Reasonable care will not include:  any steps necessary to  preserve rights
against prior parties; the duty to send notices, perform services or take any
other action in a connection with the management of the Property; or the duty to
protect, preserve or maintain any security interest given to others by me or
other parties.  Your authorization to perform for me will not create an
obligation to perform and your failure to perform will not preclude you from
exercising any other rights under the law or this Agreement.

If you come into actual or constructive possession of the
Property, you will preserve and protect the Property.  For purposes of this
paragraph, you will be in actual possession of the Property only when you have
physical, immediate and exclusive control over the Property and you have
affirmatively accepted that control.  You will be in constructive possession of
the Property only when you have both the power and the intent to exercise
control over the Property.

8.DEFAULT.   I will be in default if any of the
following occur:

A.Payments.  I fail to make a payment in full
when due.

B.Insolvency.  I make an assignment for the
benefit of creditors or become insolvent, either because my liabilities exceed
my assets or I am unable to pay my debts as they become due.

C.Business Termination.  I merge, dissolve,
reorganize, end my business or existence, or a partner or majority owner dies or
is declared legally incompetent.

D.Failure to Perform.  I fail to perform any
condition or to keep any promise or covenant of this Agreement.

E.Other Documents.  A default occurs under the
terms of any other transaction document.

F.Other Agreements.   I am in default on any
other debt or agreement I have with you.

G.Misrepresentation.  I make any verbal or
written statement or provide any financial information that is untrue,
inaccurate, or conceals a material fact at the time it is made or provided.

H.Judgment.  I fail to satisfy or appeal any
judgment against me.

I.Forfeiture.  The Property is used in a
manner or for a purpose that threatens confiscation by a legal authority.

J.Name Change.  I change my name or assume an
additional name without notifying you before making such a change.

K.Property Transfer.  I transfer all or a
substantial part of my money or property.

L.Property Value.  The value of the Property
declines or is impaired.

M.Material Change.  Without first notifying
you, there is a material change in my business, including ownership, management,
and financial conditions.

N.Insecurity.  You reasonably believe that you
are insecure. 

9.REMEDIES.  After I default, and after you give
any legally required notice and opportunity to cure the default, you may at your
option do any one or more of the following. 

A.Acceleration.  You may make all or any port of
the amount owing by the terms of the Secured Debts immediately due.

B.Sources.  You may use any and all remedies you
have under state or federal law or in any instrument evidencing or pertaining to
the Secured Debts.

C.Insurance Benefits.  You may make a claim for
any and all insurance benefits or refunds that may be available on my
default.

D.Payments Made on My Behalf.  Amounts advanced on
my behalf will be immediately due and may be added to the Secured Debts.

E.Assembly of Property.  You may require me to
gather the Property and make it available to you in a reasonable fashion.

F.Repossession.  You may repossess the Property so
long as the repossession does not involve a breach of the peace.  You may sell
the Property as provided by law.  You may apply what you receive from the sale
of the Property to your expenses, your attorneys' fees and legal expenses (where
not prohibited by law), and any debt I owe you.  If what you receive from the
sale of the Property does not satisfy the debt, I will be liable for the
deficiency (where permitted by law).  In some cases, you may keep the Property
to satisfy the debt.

Where a notice is required, I agree that ten days prior
written notice sent by first class mail to my address listed in this Agreement
will be reasonable notice to me under the California Uniform Commercial Code.
If the Property is perishable or threatens to decline speedily in value, you
may, without notice to me, dispose of any or all of he Property in a
commercially reasonable manner at my expense following any commercially
reasonable preparation or processing.  

If any items not otherwise subject to this Agreement are
contained in the Property when you take possession , you may hold these items
for me at my risk and you will not be liable for taking possession of them.

G.Use and Operation.  You may enter upon my
premises and take possession of all or any part of my property for the purpose
of preserving the Property or its value, so long as you do not breach the peace.
You may use and operate my property for the length of time you feel is necessary
to protect your interest, all without payment or compensation to me.  

H.Waiver.  By choosing any one or more of these
remedies you do not give up your right to use any other remedy.  You do not
waive a default if you choose not to use a remedy.  By selecting not to use any
remedy, you do not waive your right to later consider the event a default and to
use any remedies if the default continues or occurs again.

10.WAIVER OF CLAIMS.  I waive all claims for loss
or damage caused by your acts or omissions where you acted reasonably and in
good faith.

11.ADDITIONAL TERMS.  The 36% Limited partnership
interest owned by Gottschalks Inc. in the Park 41, a California Limited
Partnership.

12.PERFECTION OF SECURITY INTEREST.  I authorize
you to file a financing statement covering the Property.  I will comply with,
facilitate, and otherwise assist you in connection with obtaining perfection or
control over the Property for purposes of perfecting your security interest
under the Uniform Commercial Code.  

I agree that a copy of this Agreement may be used as a
financing statement where allowed by law.  You may file a financing statement
covering the Property that does not contain my signature, where permitted by
law. 

13.APPLICABLE LAW.  This Agreement is governed by
the laws of California, the United States of America and to the extent required,
by laws of the jurisdiction where the Property is located.  In the event of a
dispute, the exclusive forum, venue and place of jurisdiction will be in
California, unless otherwise required by law. 

14.JOINT AND INDIVIDUAL LIABILITY AND SUCCESSORS.
Each Debtor's obligations under this Agreement are independent of the
obligations of any Debtor.  You may sue each Debtor individually or together
with any other Debtor.  You may release any part of the Property and I will
still be obligated under this Agreement for the remaining Property.  The duties
and benefits of this Agreement will bind and benefit the successors and assigns
of you and me.

15.AMENDMENT, INTEGRATION AND SEVERABILITY.  This
Agreement may not be amended or modified by oral agreement.  No amendment or
modification of this Agreement is effective unless made in writing and executed
by you and me.  This Agreement is the complete and final expression of the
understanding between you and me.  If any provision of this Agreement is
unenforceable, then the unenforceable provision will be severed and the
remaining provisions will still be enforceable. 

16.INTERPRETATION.  Whenever used, the singular
includes the plural and the plural includes the singular.  The section headings
are for convenience only and are not to be used to interpret or define the terms
of this Agreement.  

17.NOTICE, FINANCIAL REPORTS AND ADDITIONAL
DOCUMENTS.  Unless otherwise required by law, any notice will be given by
delivering it or mailing it by first class mail to the appropriate party's
address listed in the DATE AND PARTIES section, or to any other address
designated in writing.  Notice to one party will be deemed to be notice to all
parties.  I will inform you in writing of any change in my name, address or
other application information.  I will provide you any financial statement or
information you request.  All financial statements and information I give you
will be correct and complete.  I agree to sign, deliver, and file any additional
documents or certifications that you may consider necessary to perfect,
continue, and preserve my obligations under this Agreement and to confirm your
lien status on any Property.  Time is of the essence.

SIGNATURES.  By signing, I agree to the terms
contained in this Agreement.  I also acknowledge receipt of a copy of this
Agreement.

DEBTOR:
Gottschalks Inc.
By: /s/ Michael Geele

Sr. Vice President & CFO

ADDENDUM TO SECURITY AGREEMENT

This Addendum to Security Agreement
("Addendum") is made by Gottschalks Inc. ("Debtor") and
United Security Bank ("Secured Party") for the purpose of amending the
Security Agreement ("Agreement") made by Debtor of even date
herewith.

1.RECITALS.
1.1The Agreement is one of a number of loan documents
signed by Debtor in connection with a loan made by Secured Party to Debtor of
even date herewith.

1.2Parties have amended some of the loan documents,
including the Authorization by Corporation, the Assignment of Partnership
Interest, and the Commercial Loan Agreement.

1.3The parties wish to amend the Agreement to conform to
the amendments made to the other loan documents.

2.INTERPRETATION. 
2.1If any term of the Agreement is inconsistent with any
term of the other loan documents, as amended, this Agreement shall be
interpreted so that its terms are consistent with, and not contradictory to, the
terms of the other loan documents, as amended.

Dated:  May 24, 2002GOTTSCHALKS INC.
By: /s/ Michael Geele

Sr. Vice President & CFO

 

Dated:  May 24, 2002UNITED SECURITY BANK

 
By: /s/ Bob Welles

 Vice President

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