<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 1-6675
THE ARLEN CORPORATION
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2668657
- ---------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Eighth Avenue, New York, New York 10018
- ---------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 736-8100
Not Applicable
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $1 par value - 29,770,224 shares outstanding as of
October 6, 1995
(excluding shares owned by subsidiaries of the Registrant)
PAGE 1 OF 210 PAGES
EXHIBIT INDEX ON PAGE 21
<PAGE> 2
THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX
================================================================================
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets -- August 31, 1995 and 1994
(unaudited) 4
Consolidated balance sheet -- February 28, 1995 (unaudited) 5
Consolidated statements of operations -- Six and three
months ended August 31, 1995 and 1994 (unaudited) 6
Consolidated statements of cash flows -- Six
months ended August 31, 1995 and 1994 (unaudited) 7-8
Notes to consolidated financial statements 9-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-15
PART II. OTHER INFORMATION 16-19
SIGNATURES 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
3
<PAGE> 4
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
August 31,
----------
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,435 $ 826
Certificates of deposit 228 218
Accounts receivable, net 12,248 11,104
Inventories 6,429 4,147
Other current assets 898 313
----------- ----------
TOTAL CURRENT ASSETS 21,238 16,608
PROPERTY AND EQUIPMENT, net 1,450 985
OTHER ASSETS 704 765
----------- ----------
TOTAL ASSETS $23,392 $18,358
=========== ==========
LIABILITIES AND CAPITAL DEFICIT
-------------------------------
CURRENT LIABILITIES:
Notes payable (including $2,742 and $2,754 due to related
parties in 1995 and 1994) $ 3,803 $ 6,025
Accounts payable 3,363 2,780
Accrued interest payable (including $766 and $761 due to
related parties in 1995 and 1994) 933 1,621
Accrued state income taxes 1,182 1,210
Accrued other 10,375 9,674
Current portion of long-term obligations (including $455
and $476 due to related parties in 1995 and 1994) 612 486
----------- ----------
TOTAL CURRENT LIABILITIES 20,268 21,796
LONG-TERM OBLIGATIONS (including $1,203 and $1,383
due to related parties in 1995 and 1994) 4,370 1,387
SUBORDINATED AMOUNTS DUE TO RELATED PARTIES 123,116 113,396
----------- ----------
TOTAL LIABILITIES 147,754 136,579
COMMITMENTS AND CONTINGENCIES
CAPITAL DEFICIT (124,362) (118,221)
----------- ----------
TOTAL LIABILITIES AND CAPITAL DEFICIT $23,392 $18,358
=========== ==========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, 1995
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,192
Certificates of deposit 222
Accounts and notes receivable, net 11,109
Inventories 4,731
Other current assets 529
------------
TOTAL CURRENT ASSETS 17,783
PROPERTY AND EQUIPMENT, net 903
OTHER ASSETS 703
------------
TOTAL ASSETS $19,389
============
LIABILITIES AND CAPITAL DEFICIT
-------------------------------
CURRENT LIABILITIES:
Notes payable (including $2,742 due to related parties) $ 6,281
Accounts payable 2,344
Accrued interest payable (including $622 due to related parties) 776
Accrued state income taxes 1,137
Accrued other 9,993
Current portion of long-term obligations (including
$722 due to related parties) 722
------------
TOTAL CURRENT LIABILITIES 21,253
LONG-TERM OBLIGATIONS (including $1,246 due to related parties) 1,246
SUBORDINATED AMOUNTS DUE TO RELATED PARTIES 118,381
------------
TOTAL LIABILITIES 140,880
COMMITMENTS AND CONTINGENCIES
CAPITAL DEFICIT (121,491)
------------
TOTAL LIABILITIES AND CAPITAL DEFICIT $19,389
============
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Six months ended Three months ended
August 31, August 31,
---------- ----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $28,426 $25,475 $15,276 $12,822
COST OF SALES 17,676 15,135 9,744 7,480
-------- -------- -------- --------
Gross profit on sales 10,750 10,340 5,532 5,342
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 8,288 7,560 4,253 3,906
-------- -------- -------- --------
Operating income 2,462 2,780 1,279 1,436
OTHER (CHARGES) CREDITS:
Interest expense (including amounts
due to related parties of $4,898 and
$2,450 in 1995 and $4,585 and $2,300
in 1994) (5,356) (4,912) (2,698) (2,459)
Other income 23 6 14 3
-------- -------- -------- --------
Net loss ($2,871) ($2,126) ($1,405) ($1,020)
======== ======== ======== ========
LOSS PER COMMON SHARE ($0.09) ($0.07) ($0.05) ($0.04)
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Six months ended
August 31,
----------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,871) ($2,126)
----------- -----------
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 288 337
Provision for losses on accounts
receivable (457) 83
Increase in subordinated amounts due related
parties in exchange for interest 4,735 4,463
Changes in assets and liabilities, net of effects from the
purchase of a new automotive aftermarket business:
(Increase) decrease in assets:
Accounts receivable (195) (1,975)
Inventories (758) (577)
Other current assets (348) (22)
Other assets (100) -
Increase (decrease) in liabilities:
Accounts payable 36 403
Accrued interest payable 150 55
Accrued state income taxes 45 200
Accrued other liabilities 328 388
----------- -----------
Total adjustments 3,724 3,355
----------- -----------
Net cash provided by operating activities 853 1,229
----------- -----------
</TABLE>
See notes to consolidated financial statements
7
<PAGE> 8
THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000's Omitted)
(UNAUDITED)
(Continued)
================================================================================
<TABLE>
<CAPTION>
Six months ended
August 31,
----------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certificates of deposit (6) -
Investment in capital assets (233) (243)
Acquisition of new automotive aftermarket
business, net of cash acquired (54) -
------------ ----------
Net cash used in investing activities (293) (243)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit line (13,424) (19,345)
Proceeds from revolving credit line 13,882 18,711
Principal payments on short-term borrowings (455) (83)
Principal payments on long-term borrowings (320) (104)
Principal payments on subordinated debt - (57)
------------ ----------
Net cash used by financing activities (317) (878)
------------ ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 243 108
CASH AND CASH EQUIVALENTS, at
February 28, 1995 and 1994 1,192 718
------------ ----------
CASH AND CASH EQUIVALENTS, at
August 31, 1995 and 1994 $ 1,435 $ 826
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six months ended
August 31, 1995 and 1994 for interest $ 262 $ 158
============ ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
During May 1995, a newly organized, wholly-owned subsidiary of the
Registrant acquired certain assets of a business. In acquiring the business,
the new subsidiary paid $110,000 and assumed liabilities of $1,789,000.
See notes to consolidated financial statements
8
<PAGE> 9
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of August 31, 1995
(UNAUDITED)
================================================================================
Note A -- Basis of Presentation
The accompanying financial statements have been prepared on the basis that
the Registrant will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. Although the Registrant has incurred substantial losses
for many years, resulting principally from interest charges accrued on its
subordinated debt, it has been able to obtain extensions on such subordinated
debt and defer payments on certain of its other debt so that cash flow
generated from operations has been sufficient to cover necessary
expenditures. However, certain of the subordinated notes constituting this
subordinated indebtedness, as described in Note 7 of the Notes to
Consolidated Financial Statements included in the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1995 (the "1995 10-K"),
and a note payable, as described in Note 5 of such Notes to Consolidated
Financial Statements, issued by the Registrant to an officer/director, have
been pledged to financial institutions by the officer/director as security
for personal obligations.
The officer/director has been declared in default on a loan from one of
the financial institutions and an action was instituted against him. Two
Registrant notes totaling approximately $3,639,000, including accrued interest
of $1,043,000, had been pledged as collateral for this loan. The financial
institution commenced an action against the Registrant for collection of these
notes and, in April 1995, a judgment in the amount of $976,000 was entered
against the Registrant on certain of such institution's claims. The action is
continuing as to an additional $2,120,000 of the institution's claims.
If the Registrant is required to satisfy this judgment and repay the notes,
the Registrant could face a severe liquidity problem, which may be mitigated
by negotiating a workable payout with the financial institution and/or
generating sufficient cash flow from its continuing operations to meet the
obligations. There is no assurance that the Registrant would be successful
in these efforts. The financial statements do not include any adjustments
that might be necessary if the Registrant is unable to continue as a going
concern.
The Registrant has received an examination report from the District
Director of the Internal Revenue Service (the "IRS"), asserting that a payment
of $6,726,613 is required in order to cure the accumulated funding deficiency
of the Registrant's defined benefit pension plan and to pay excise taxes and
penalties relating thereto. As indicated below in paragraph (b) of Note E,
the Registrant believes that it will be able to achieve a manageable
settlement of this deficiency claim with the IRS.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information in accordance with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended August 31, 1995 are not necessarily indicative of
the results that may be expected for the fiscal year ending February 29,
1996. For further information, reference is made to the Consolidated
Financial Statements and Notes to Consolidated Financial Statements included
in the 1995 10-K.
9
<PAGE> 10
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of August 31, 1995
(UNAUDITED)
(Continued)
================================================================================
Note B -- Acquisitions
The accompanying financial statements reflect the acquisition in May 1995, by
a newly-organized, wholly-owned subsidiary of the Registrant, of a business
located in Duarte, California, which manufactures and sells metal grille
guards, light bars, tubular bumpers and side bars (steps) nationwide to the
light truck and sport utility market and performs contract metal-bending
work. In acquiring this business, the new subsidiary purchased assets,
including fixed assets of $499,000, and assumed certain bank debt and other
liabilities, including bank debt of $461,000 maturing at various dates over
the next six years and $120,000 of notes payable maturing over the next two
years. In addition, the new subsidiary entered into a six-year consulting
agreement with the seller of this business, pursuant to which the new
subsidiary will pay certain consulting fees depending upon the future
earnings of the subsidiary. Certain of the new subsidiary's obligations with
respect to this acquisition transaction, including the bank debt of
approximately $461,000, are guaranteed by the subsidiary's parent, which
itself is a wholly-owned subsidiary of the Registrant.
On August 17, 1995, another newly-organized, wholly-owned subsidiary of the
Registrant acquired a business, located in Placentia, California, which
manufactures and sells molded polyurethane, plastic and fiberglass components
for the automotive specialties and other markets. In acquiring this
business, the new subsidiary purchased assets, including inventory and fixed
assets, and assumed certain liabilities, consisting primarily of trade
accounts payable (which may not exceed $136,000) and obligations to certain
former owners of the business (which aggregate $371,000, most of which is
payable in installments over a four-year period). In addition, the new
subsidiary agreed to pay the seller of the business $554,000 in installments
over five years and, beginning with calendar year 1996 and continuing for
three and one-half years, to pay a former owner 2% of the sales of the
business in excess of a specified annual level. The accompanying financial
statements do not reflect the acquisition of this business inasmuch as it was
concluded near the end of the period covered by such financial statements and
its results of operations to the end of such period are immaterial to the
financial statements.
<TABLE>
<CAPTION>
August 31,
----------
Note C -- Inventories 1995 1994
---- ----
<S> <C> <C>
Major classes of inventory consist of the following: $3,059 $2,426
Raw material 337 323
Work - in - process 3,033 1,398
Finished goods ------- -------
$6,429 $4,147
======= =======
</TABLE>
Note D -- Long-Term Obligations
Included in Long-Term Obligations is the outstanding indebtedness
($2,900,000 at August 31, 1995) of the Registrant's automotive aftermarket
subsidiaries under a new loan agreement (the "Loan Agreement") entered into in
August 1995 with a banking institution. Under the Loan Agreement, the
subsidiaries may borrow, on a revolving credit basis, amounts not to exceed
the lesser of $8,500,000 or a borrowing base calculated with reference to the
subsidiaries' accounts receivable and inventories. A portion of the borrowing
limit may be used for letters of credit. The revolving credit line will
terminate on July 31, 1997, unless extended.
Borrowings under the revolving line require monthly payments of interest only
at an interest rate between the bank's "prime" rate and .75% above such rate
(depending upon certain financial tests). The subsidiaries may also elect to
10
<PAGE> 11
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of August 31, 1995
(UNAUDITED)
(Concluded)
================================================================================
have all or portions of their loan bear interest at the Eurodollar
rate plus a spread of between 2% and 2.75% (depending upon certain financial
tests); such interest is payable at the end of the applicable interest period.
Borrowings under the Loan Agreement are secured by substantially all the
assets of the borrower subsidiaries and the stock of two of such
subsidiaries, and are guaranteed by the Registrant's subsidiary, Arlen
Holdings Corp. The Loan Agreement has various covenants which, among other
things, require the borrowers to maintain certain consolidated financial
ratios and limit their capital expenditures and payment of dividends.
Note E -- Contingencies
(a) Environmental Matter
A subsidiary of the Registrant has received a general notice of liability
indicating that such subsidiary may be a potentially responsible party in
connection with contamination at a San Fernando Valley Area 2 Superfund Site.
The subsidiary has hired a geological consulting firm to assist in this
matter. The ultimate outcome of this matter is uncertain and no adjustments
have been made to the accompanying financial statements. Although the EPA
has indicated its intention to issue special notice letters to parties that
it determines are potentially liable with respect to the Site, the
Registrant's subsidiary has not, as of the date hereof, received any such
special notice letter. In the opinion of management, the ultimate resolution
of this matter will not have a significant impact, if any, on the
Registrant's financial statements taken as a whole.
(b) Pension Plan
The Registrant is the sponsor of a defined benefit pension plan (the "Plan")
which was frozen in 1981. Although the actuarial valuation of the Plan as of
March 1, 1993 (the latest Plan valuation) indicated that the unfunded
actuarial accrued liability was approximately $850,000, the Registrant
received an examination report in July 1995 from the IRS asserting that a
payment of $6,726,613 is required in order to cure the Plan's accumulated
funding deficiency for prior years and pay excise taxes and penalties arising
therefrom. Based upon preliminary discussions with the IRS following receipt
of this examination report, the Registrant believes that it will be able to
obtain a waiver of a substantial portion of the taxes and penalties claimed
to be due and to settle the remaining deficiency, through installment
payments over a number of years, on a basis not significantly inconsistent
with the $850,000 provision already reflected in the accompanying balance
sheets.
Note F -- Loss Per Share
Loss per common share is computed by dividing the net loss by the weighted
average number of common shares and common share equivalents outstanding
during each period. Convertible securities that are deemed to be common share
equivalents are assumed to have been converted at the beginning of each
period. The Registrant's common share equivalents and convertible issues
were anti-dilutive at August 31, 1995 and 1994 and, therefore, were not
included in the loss per share computations for these periods. The weighted
average number of shares used to compute per share amounts were 29,712,000
for the six and three month periods ended August 31, 1995 and 1994,
respectively, inclusive of Class B common shares.
11
<PAGE> 12
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
12
<PAGE> 13
THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
Liquidity and Capital Resources
At August 31, 1995, the Registrant had a shareholders' deficit of
$124,362,000 and its ratio of current assets to current liabilities was 0.92
(having improved from the current ratio of 0.85 at February 28, 1995). The
shareholders' deficit at August 31, 1995 takes into account indebtedness to
present or former officers and directors of the Registrant, or to persons
related to them or their trusts or affiliated entities, in the aggregate
amount of $128,963,000. As a result of certain transactions concluded by the
Registrant in May 1993 with the then holders of notes evidencing $123,116,000
of this indebtedness (the "Notes") (as described in Item 1 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended February 28,
1995 (the "1995 10-K")), the Registrant obtained a significant extension, to
July 31, 1997, in the maturity dates applicable to the Notes, though the
Registrant was required to provide substantial collateral to secure the
Registrant's payment obligations under the Notes. By achieving this result,
the Registrant avoided the possibility that the Notes could all have been
accelerated in July 1993, and deferred the substantial payment obligations
under the Notes until at least July 31, 1997 (subject, however, to (a) the
occurrence of an event of default which could accelerate such payment
obligations and (b) the mandatory prepayments required upon the occurrence of
certain corporate transactions involving the collateral).
While the transactions involving the extension and collateralization of
the Notes are believed to have eased the Registrant's liquidity needs over the
four years following such transactions, the settlement of certain obligations
(the "Current Obligations") owed to the Registrant's Chairman of the Board (as
described in Item 1 of the 1995 10-K) has added additional periodic payment
obligations to those already borne by the Registrant and its subsidiaries.
Such payment obligations are specified in Item 1 of the 1995 10-K.
Nevertheless, based upon the experience of the Registrant's prior arrangements
with certain of its creditors and management's expectations of the cash flow
to be available from the Registrant's operating subsidiaries, the Registrant
believes that it will be able to meet the expenses of current operations.
Further information with respect to the payment obligations of the Registrant
and its operating subsidiaries is provided in Notes 5, 6, and 7 of the Notes
to Consolidated Financial Statements included in the 1995 10-K; however, it
should be noted that the revolving credit line referred to in such Note 5
which was available to the Registrant's subsidiaries, Grant Products, Inc.
and G.T. Styling, Inc., at February 28, 1995 has been replaced by the new
credit facilities with Sumitomo Bank of California which are described in
Note D of the Notes to Consolidated Financial Statements included in this
Report and in Item 2 of Part II of this Report. These new credit facilities
are believed to be sufficient to meet the financing needs of the Registrant's
automotive aftermarket subsidiaries for the next two years.
If, as a result of insufficient cash flow or otherwise, the Registrant should
be unable to meet its payment obligations under the Current Obligations, such
a default would also constitute an event of default under the Notes,
permitting the holders of the Notes to accelerate the indebtedness thereunder
and to foreclose upon the outstanding shares of common stock of the
Registrant's subsidiaries, Arlen Holdings Corp., Arlen Automotive, Inc. and
Grant Products, Inc., held as collateral for the Notes, thereby effectively
depriving the Registrant of substantially all of its operating assets, and,
if such foreclosure does not produce sufficient proceeds to pay off the
indebtedness in full as the Registrant believes it would not, the Registrant
would remain potentially liable for the amount of any deficiency.
13
<PAGE> 14
THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
Liquidity and Capital Resources (Continued)
In addition to the potential liquidity problems which could result from a
default as described in the preceding paragraph, the Registrant acknowledges
that, if the Registrant is unable to negotiate a manageable settlement with
Morgan Guaranty Trust Company of New York, the pledgee of certain promissory
notes of the Registrant and the holder of a judgment against the Registrant
(as discussed in Item 3 of the 1995 10-K and in Item 1 of Part II of this
Report), the Registrant may face a severe liquidity crisis and be unable to
continue as a going concern. Similarly, the Registrant must resolve the
claim of the Internal Revenue Service with respect to the accumulated funding
deficiency relating to the Registrant's retirement plan (see Item 1 of Part
II of this Report).
Results of Operations
Sales for the six and three months ended August 31, 1995 increased by 12% and
19% over the corresponding period of the prior year. The increase is the
result of additional sales from a newly acquired subsidiary, enhanced by
respective increases of 11% and 18% in sales of the existing subsidiaries.
The sales increases reflect a continuation of improving market conditions in
the automotive aftermarket industry. The sales of the Registrant's
subsidiary serving the construction industry decreased by approximately 14%
and 9% for the six and three months ended August 31, 1995 from the
corresponding periods of the prior year. The primary reason for the decrease
is the volatility of the construction industry.
The increase in cost of sales was primarily a function of the higher sales,
with the gross profit margins of the operating subsidiaries as a group
relatively constant for the six and three months ended August 31, 1995 when
compared with such margins for the comparable periods of the prior year. The
gross margins of the construction subsidiary for the current three and six
month periods decreased by 19% and 6%, respectively, from the periods of the
prior year (reflecting unfavorable bid terms on certain contracts). The
gross margins of the automotive subsidiaries decreased by 3% for the six and
three months ended August 31, 1995 from the comparable periods of the prior
year. This decline is attributable to increased material prices and
increased costs associated with the newly acquired subsidiary.
Corporate, selling, general and administrative expenses increased by 10% and
9% for the six and three months ended August 31, 1995 over the corresponding
periods of the prior year. The increase is made up of 15% and 20% increases
at the automotive aftermarket subsidiaries due to increased selling expenses
related to increased sales and increased administrative expenses necessitated
by a sustained increase in the level of sales and the acquisition of the new
subsidiary. These increases are partially offset by a 26% and 50% decrease
at the construction subsidiary associated with the decline in sales.
Operating income as a percentage of sales declined by 2% and 3% for the six
and three months ended August 31, 1995 over the corresponding period of the
prior year, primarily due to increased administrative expenses at the
automotive aftermarket subsidiaries necessitated by the sustained increase in
the level of sales.
Interest expense increased by 9% and 10% for the six and three months ended
August 31, 1995 from the corresponding periods of the prior year. The
increase is primarily the result of the compounding of interest on related
party obligations and additional interest expense from the newly acquired
subsidiary.
14
<PAGE> 15
THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Concluded)
================================================================================
Results of Operations
The net loss for the six and three months ended August 31, 1995 increased by
35% and 38% from the corresponding periods of the prior year primarily
because of the increase in interest expense.
NOTE: For the reasons indicated in Note B of the Notes to Consolidated
Financial Statements included in this Report, neither the accompanying
financial statements nor this management's discussion of the results of
operations of the Registrant for the three and six months ended August 31,
1995 reflect the operations of the Registrant's newest subsidiary, which was
acquired on August 17, 1995.
15
<PAGE> 16
PART II - OTHER INFORMATION
16
<PAGE> 17
Item 1. Legal Proceedings.
(a) In September 1995, Morgan Guaranty Trust Company of New
York ("Morgan") commenced an action in the Supreme Court of the State of New
York, County of New York, against the Registrant, its wholly-owned subsidiary,
Arlen Holdings Corp., and the holders of certain outstanding promissory notes
issued by the Registrant (the "Notes", as such term is defined in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this Report (the "MD&A")).
The defendant holders of the Notes include the Registrant's
Chairman of the Board, Arthur G. Cohen, as well as persons related to a
deceased former director and officer of the Registrant and trusts for their
benefit or entities with which they are affiliated. The action seeks to void
the 1993 pledge of the outstanding capital stock of the Registrant's
subsidiaries, Arlen Automotive, Inc. (now known as Arlen Holdings Corp.) and
Grant Products, Inc., to the holders of the Notes as security for the repayment
of the Notes. Such stock pledge took place in connection with the granting to
the Registrant of a significant extension in the maturity dates of the Notes,
as discussed above in the MD&A. According to Morgan's complaint, if the stock
pledge can be set aside, the pledged stock will be available to satisfy
Morgan's claims as a creditor of the Registrant. As indicated above in the
MD&A, Morgan had previously instituted an action against the Registrant, in
which a judgment was entered in April 1995 against the Registrant in the amount
of $975,952.73; such action is continuing with respect to Morgan's claim for an
additional $2,119,861.83 (plus interest). The Registrant believes that the new
action commenced by Morgan is without merit and intends to vigorously defend
against Morgan's claims.
Reference is made to Items 1 and 3 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 28, 1995 for further
information regarding the Notes, the Registrant's pledge of the stock of Arlen
Holdings Corp. and Grant Products, Inc. and the previous action commenced by
Morgan against the Registrant.
(b) In July 1995, the Registrant received from the District
Director of the Internal Revenue Service (the "IRS") an examination report with
respect to the Registrant's defined benefit pension plan (the "Plan"). In such
report, the IRS has asserted that a payment by the Registrant of $6,726,613 is
required in order to cure the Plan's accumulated funding deficiency for prior
years and pay excise taxes and penalties arising therefrom. Based upon
preliminary discussions with the IRS following receipt of the examination
report, the Registrant believes that it will be able to obtain a waiver of a
substantial portion of the taxes and penalties claimed to be due and to settle
the remaining deficiency, through installment payments over a number of years,
on a basis not substantially inconsistent with the $850,000 provision already
reflected in the balance sheets included in this Report.
Item 2. Changes in Securities.
As of August 10, 1995, the Registrant's wholly-owned
subsidiary, Arlen Automotive, Inc. ("Automotive"), together with Grant
Products, Inc. ("Grant") and G.T. Styling, Inc. ("GTS"), both of which are
wholly-owned subsidiaries of Automotive, entered into a Commercial Loan
Agreement (the "Loan Agreement") with Sumitomo Bank of California (the
"Lender"). The Loan Agreement permits Grant and GTS (collectively, with
Automotive, the "Borrowers") to borrow up to a combined maximum of $8,500,000
on a revolving credit basis, with the amount available for borrowing being
limited according to the respective borrowing bases of Grant and GTS; such
borrowing bases are based upon
17
<PAGE> 18
the inventory and accounts receivable levels of Grant and GTS. A part of the
revolving credit line may be used for letters of credit. The revolving credit
facility will terminate on July 31, 1997, at which time all outstanding
borrowings must be repaid, unless the facility shall be extended.
The revolving credit loans bear interest at an annual rate
which will vary between the Lender's "prime" rate and a rate which can be no
higher than 0.75% above such "prime" rate, depending upon the ratio of the
consolidated Total Liabilities of Grant and GTS to the consolidated Tangible
Net Worth of Grant and GTS. The Borrowers may also elect to have all or
portions of their revolving credit loans bear interest at the Eurodollar Rate
plus a spread, which can vary between 2.00% and 2.75%. Total Liabilities,
Tangible Net Worth and Eurodollar Rate are defined in the Loan Agreement.
Interest is payable monthly in arrears (or, in the case of borrowings bearing
interest at the Eurodollar Rate, at the end of the applicable interest period).
The revolving credit facility replaces, and has been used to
repay, the revolving credit facility previously provided to Grant and GTS by
Shawmut Capital Corporation (formerly Barclays Business Credit, Inc.); future
borrowings under the new line will be used for working capital purposes.
In addition to the revolving credit facility, the Loan
Agreement provides for additional loans to the Borrowers of up to $3,000,000 on
a non-revolving basis to finance stock or asset acquisitions during the period
prior to August 1, 1996. Any such acquisition loans will bear interest at the
same choice of rates as applies to the revolving credit borrowings, plus an
additional spread of 0.25%. On July 31, 1996, all such borrowings will become
repayable as a term loan, with monthly installments payable over the four-year
period ending July 31, 2000. The Borrowers may not utilize this acquisition
line until certain conditions have been satisfied.
All borrowings from the Lender under the Loan Agreement are
collateralized by security interests in substantially all the assets of Grant
and GTS. In addition, the repayment obligations of the Borrowers are secured by
a guaranty in favor of the Lender from Arlen Holdings Corp., the direct
subsidiary of the Registrant which is the sole stockholder of Automotive, and
the pledge by Automotive to the Lender of the outstanding shares of capital
stock of Grant and GTS (with such pledge of the Grant stock not taking effect
until such stock is released by the bank which currently holds such stock).
The Loan Agreement imposes certain affirmative and negative
covenants upon the Borrowers. Such covenants, among other things, require Grant
and GTS (on a consolidated basis) to maintain certain specified financial
ratios. The Loan Agreement also prohibits dividends by the Borrowers exceeding
20% of net profits after taxes on an annual basis. A change in the ownership of
the stock, or in the office of the President, of any of the Borrowers will
constitute an event of default entitling the Lender to declare the indebtedness
outstanding under the Loan Agreement immediately due and payable.
The foregoing summary of the Loan Agreement is qualified in
its entirety by reference to the Loan Agreement and the other documents
relating thereto, copies of which are filed as Exhibits to this Report.
18
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
4.9 Commercial Loan Agreement dated August 10, 1995 among
Sumitomo Bank of California ("Sumitomo"), as lender,
and Arlen Automotive, Inc. (Automotive"), Grant
Products, Inc. ("Grant") and G.T. Styling, Inc.
("GTS"), as borrowers, including Schedule 1 and Exhibit
D thereto.
4.9.1 Revolving Line Note dated August 10, 1995 in the
principal amount of $8,500,000, issued by Automotive,
Grant and GTS to Sumitomo.
4.9.2 Non-Revolving Line Note dated August 10, 1995 in the
principal amount of $3,000,000, issued by Automotive,
Grant and GTS to Sumitomo.
4.9.3 Security Agreement dated August 10, 1995 from
Automotive, Grant and GTS in favor of Sumitomo.
4.9.4 Pledge Agreement dated August 10, 1995 from Automotive
in favor of Sumitomo.
4.9.5 Guaranty dated August 10, 1995 from Arlen Holdings
Corp. in favor of Sumitomo.
10.11 Consulting Agreement dated as of August 1, 1995 between
Grant and DAT Consulting, LLC.
10.12 Consulting Agreement dated as of August 1, 1995 between
GTS and DAT Consulting, LLC.
10.13 Consulting Agreement dated as of October 1, 1995
between Grizzly Products, Inc. and DAT Consulting, LLC.
10.14 Consulting Agreement dated as of October 1, 1995
between A & A Specialties Corp. and DAT Consulting,
LLC.
</TABLE>
(b) Reports on Form 8-K.
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ARLEN CORPORATION
(Registrant)
By: /s/ Allan J. Marrus
---------------------------------------
Allan J. Marrus, President
Date: October 18, 1995
By: /s/ David S. Chaiken
---------------------------------------
David S. Chaiken, Treasurer
Date: October 18, 1995
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
------- Page
Number Description No.
------ ----------- ---
<S> <C> <C>
4.9 Commercial Loan Agreement dated August 10, 1995 among 22
Sumitomo Bank of California ("Sumitomo"), as lender,
and Arlen Automotive, Inc. (Automotive"), Grant
Products, Inc. ("Grant") and G.T. Styling, Inc.
("GTS"), as borrowers, including Schedule 1 and Exhibit
D thereto.
4.9.1 Revolving Line Note dated August 10, 1995 in the 72
principal amount of $8,500,000, issued by Automotive,
Grant and GTS to Sumitomo.
4.9.2 Non-Revolving Line Note dated August 10, 1995 in the 76
principal amount of $3,000,000, issued by Automotive,
Grant and GTS to Sumitomo.
4.9.3 Security Agreement dated August 10, 1995 from 80
Automotive, Grant and GTS in favor of Sumitomo.
4.9.4 Pledge Agreement dated August 10, 1995 from Automotive 94
in favor of Sumitomo.
4.9.5 Guaranty dated August 10, 1995 from Arlen 107
Holdings Corp. in favor of Sumitomo.
10.11 Consulting Agreement dated as of August 1, 1995 119
between Grant and DAT Consulting, LLC.
10.12 Consulting Agreement dated as of August 1, 1995 between 142
GTS and DAT Consulting, LLC.
10.13 Consulting Agreement dated as of October 1, 1995 165
between Grizzly Products, Inc. and DAT Consulting, LLC.
10.14 Consulting Agreement dated as of October 1, 1995 188
between A & A Specialties Corp. and DAT Consulting,
LLC.
27 Financial Data Schedule
</TABLE>
21
<PAGE> 1
EXHIBIT 4.9
22
<PAGE> 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMERCIAL LOAN AGREEMENT
BY
SUMITOMO BANK OF CALIFORNIA,
as Bank
AND
ARLEN AUTOMOTIVE, INC.,
GRANT PRODUCTS, INC., and
G.T. STYLING, INC.,
as Borrowers
Dated August 10, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
23
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. CREDIT FACILITIES, AMOUNT AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Accounts Receivable/Inventory Revolving Line of Credit Amount . . . . . . . . . . . . . . 1
(b) Collection of Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Revolving Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Subline Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Minimum Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) Maximum Loan Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(g) Availability Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(h) Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(i) Repayment Terms/Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 9
(j) Letter of Credit Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2 Non-Revolving Acquisition Line of Credit/Term Out Option . . . . . . . . . . . . . . . . . . . . . 10
(a) Non-Revolving Line of Credit Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Non-Revolving Line of Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Availability Period/Non Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . 11
(d) Interest Rate/Non-Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . 11
(e) Repayment Terms/Non-Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . 11
2. FEES, EXPENSES AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Unused Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 All Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. DISBURSEMENTS, PAYMENTS AND COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 Request for Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Disbursements and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Telephone Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Direct Debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 Banking Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.7 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.8 Interest Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.9 Interest on Late Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.10 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.11 Overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.12 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
24
<PAGE> 4
<TABLE>
<S> <C> <C>
(b) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Evidence of Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Landlord's/Mortgagee Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(h) Business Interruption Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(i) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(j) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(k) Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(l) Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(m) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(n) Other Required Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Conditions to Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Organization of Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Enforceable Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Permits, Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.10 Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.11 Income Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.12 No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.13 ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Non-Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5 Total Liabilities to Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.6 Interest Charge Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.7 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.9 Other Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.10 Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.11 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.12 Dividends/Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.13 Loans to Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.14 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.15 Notices to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.16 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.17 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.19 Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
25
<PAGE> 5
<TABLE>
<S> <C> <C>
7.20 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.21 Perfection of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.22 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Insurance Covering Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) General Business Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.24 Operating/Business Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.25 Additional Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.26 No Consumer Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.27 ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.28 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.29 Arlen Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.30 Appointment of Bank as Attorney in Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Failure to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Non-Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Lien Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(e) False Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(f) Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(g) Receivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(h) Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(j) Government Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(k) Default under Guaranty or Subordination Agreement . . . . . . . . . . . . . . . . . . . . 30
(l) Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(m) Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(n) ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.3 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.1 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 California Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Severability; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.5 Multiple Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.11 Hazardous Waste Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.12 Joint Borrower Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.13 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
Schedule 1 Joint Borrowing Provisions
26
<PAGE> 6
Schedule 6.7 Lawsuits
Schedule 6.8 Permitted Encumbrances
Exhibit A - Revolving Line Note
Exhibit B - Non Revolving Line Note
Exhibit C - Term Note
Exhibit D - Collateral
Exhibit E - Request for Credit
Exhibit F - Borrowing Base Certificate
Exhibit G - Subordination Agreement
27
<PAGE> 7
COMMERCIAL LOAN AGREEMENT
This Commercial Loan Agreement dated as of August 10, 1995
("Agreement") is made between Sumitomo Bank of California ("Bank") and Arlen
Automotive, Inc., a Delaware corporation ("Arlen"), Grant Products, Inc. a
Delaware corporation ("Grant"), and G.T. Styling, Inc., a California
corporation ("G.T.") (each a "Borrower", collectively, the "Borrowers").
1. CREDIT FACILITIES, AMOUNT AND TERMS.
Bank agrees to make available to Borrowers the following
lines of credit and/or credit accommodations on the following terms, covenants
and conditions:
1.1 Revolving Line of Credit.
(a) Accounts Receivable/Inventory Revolving
Line of Credit Amount. During the Availability Period (defined below), so long
as no Event of Default or Potential Event of Default (in each case as defined
below), Bank will, on a revolving basis, make advances (each, an "Advance") to
Grant and/or G.T. under their respective sublines, which may not at any time
exceed, in the aggregate outstanding, the lesser of Eight Million Five Hundred
Thousand and No/100 Dollars ($8,500,000) (the "Commitment") or the Borrowing
Base. Borrowers' obligation to repay advances under this revolving line of
credit (the "Revolving Line of Credit") is evidenced by a promissory note,
substantially in the form of Exhibit A attached hereto (the "Revolving Line
Note").
(i) "Borrowing Base" shall mean the
sum of (A) eighty percent (80%) of the net face amount of
Grant's Eligible Accounts, after deduction of such reserves
as Bank deems necessary and proper, plus fifteen percent
(15%) of Grant's Eligible Raw Materials Inventory, after
deduction of such reserves as Bank deems necessary and
proper, plus thirty-five percent (35%) of Grant's Eligible
Finished Goods Inventory but such advances combined shall
not, at any time, exceed the Commitment (the "Grant
Subline") and (B) seventy percent (70%) of G.T.'s Eligible
Accounts, after deduction of such reserves as Bank deems
necessary and proper, plus forty percent (40%) of G.T.'s
Eligible Inventory, after deduction of such reserves as
Bank deems necessary and proper, but such advances combined
shall not, at any time, exceed the Commitment (the "G.T.
Subline").
(ii) "Accounts Receivable" shall mean
open accounts arising in the ordinary course of a
Borrower's
28
<PAGE> 8
business from services performed or goods sold by such
Borrower.
(iii) "Account Debtor" shall mean the
obligor on any Accounts Receivable.
(iv) "Eligible Accounts" shall mean
Accounts Receivable, excluding the following:
(A) Accounts Receivable (excluding
Dating Term Accounts) which remain uncollected
more than ninety (90) days from the date they are
first invoiced.
(B) Dating Term Accounts which
remain uncollected more than thirty (30) days from
the date they are first due. "Dating Term
Accounts" shall mean Accounts Receivable stated to
be due more than sixty (60) but not more than one
hundred twenty (120) days after the original
invoice date.
(C) Accounts Receivable due from an
Account Debtor which suspends business, suffers a
business failure or the termination of its
existence, or makes an assignment for the benefit
of creditors, or as to which a dissolution,
insolvency or bankruptcy proceeding has been
commenced, or as to whose property a trustee,
receiver or conservator has been appointed.
(D) Accounts Receivable due from an
Account Debtor affiliated with a Borrower, such as
a stockholder, owner, parent, subsidiary, officer,
director, agent or employee of Borrower.
(E) Accounts Receivable with
respect to which payment is or may be contingent
or conditional.
(F) Accounts Receivable due from an
Account Debtor who is not a resident or citizen
of, located in, or subject to service of process
in the United States of America or Canada.
(G) Accounts Receivable against
which is asserted a defense, counterclaim,
discount or setoff.
(H) Accounts Receivable due from an
Account Debtor which is any national, federal,
state, county or municipal government, including,
without limitation, any instrumentality, division,
agency,
29
<PAGE> 9
body or department thereof, unless (A) there has
been compliance with the federal Assignment of
Claims Act or any similar state or local law which
may apply and (B) Bank deems such Accounts
Receivable to be Eligible Accounts in the exercise
of its sole discretion.
(I) Accounts Receivable commonly
known as "bill and hold" or subject to any
repurchase or return agreement, or which relate to
goods on consignment or on approval or any similar
arrangement.
(J) Accounts Receivable relating to
an Account Debtor with respect to which
twenty-five percent (25%) or more of the total
Accounts Receivable owing by such Account Debtor
remain uncollected more than ninety (90) days from
the date they are first invoiced.
(K) Accounts Receivable due from an
Account Debtor which, in the aggregate, exceed
twenty-five percent (25%) of the aggregate amount
of all Eligible Accounts, except that Accounts
Receivable due from Keystone Automotive, Autozone
and Pep Boys shall each be subject to a
concentration limit not to exceed thirty percent
(30%).
(L) Accounts Receivable as to which
Borrower is or may become liable to an Account
Debtor for services rendered or sales made or for
any other reason, except to the extent that such
Accounts Receivable exceed the amount of such
liability.
(M) Accounts Receivable which are
not owned by Borrower or are not free of all
liens, encumbrances, charges, rights or interests
of any kind, except in favor of Bank.
(N) Accounts Receivable which are
evidenced by chattel paper or an instrument of any
kind.
(O) Accounts Receivable which are
not evidenced by an invoice or other documentation
in form acceptable to Bank.
(P) Accounts Receivable which are
otherwise unacceptable to Bank.
(v) "Eligible Inventory" shall mean
those items of Inventory consisting of raw materials, and
finished goods which are in good condition and currently
saleable in the ordinary course of a Borrower's business
30
<PAGE> 10
and are not otherwise unacceptable to Bank in its sole
discretion. Eligible Inventory shall not include work in
process, shipping and packing materials, purchased
components owned by G.T. and supplies. Such Inventory
shall not be subject to any other lien or claim, shall not
have been consigned or sold to any person (nor have been
purchased by a Borrower) as part of any bulk sale unless
there was compliance with all applicable bulk sale or
transfer laws. Such Inventory shall be located at such
locations as are acceptable to Bank and shall, at all
times, be subject to and covered by, Bank's perfected
security interest. "Eligible Raw Materials Inventory"
shall mean and be limited to raw materials which otherwise
satisfy the requirements for Eligible Inventory, and
"Eligible Finished Goods Inventory" shall mean and be
limited to finished goods which otherwise satisfy the
requirements for Eligible Inventory.
(vi) "Inventory" shall mean all
inventory (as that term is defined in the Commercial Code
of the State of California) wherever located, which is or
may at any time be held for sale or lease, furnished under
any contract of service or held as raw materials, work in
process, supplies or materials used or consumed in a
Borrower's business or which are or might be used in
connection with the manufacturing, shipping, advertising or
selling or finishing of such goods, merchandise and other
personal property and all documents of title or documents
representing the same, and all such property, the sale or
other disposition of which has given rise to Accounts
Receivable and which has been returned to or repossessed or
stopped in transit by a Borrower.
(b) Collection of Accounts Receivable.
Borrowers shall have the privilege, subject to revocation at the sole
discretion of Bank, to collect, at Borrowers' expense, the payments due on
Accounts Receivable upon the express condition that all such collections shall
be received by Borrowers in trust for Bank. Upon demand by Bank, whether
before or after an Event of Default, Borrowers shall promptly deliver to Bank,
at the location specified in this Agreement, in kind, all remittances received
by Borrowers on Accounts Receivable, or if sales are made for cash, the
identical checks, cash, or other form of payment. The receipt of any check or
other item of payment by Bank shall not be considered a payment in reduction of
the Loan Balance until such check or other item of payment is honored and
finally paid. At any time, Bank in its sole discretion may, but is not
obligated to, notify any Account Debtor to make payment directly to Bank, and
exercise any and all of Borrowers' rights regarding the Account Receivable or
the Account Debtor.
31
<PAGE> 11
(c) Revolving Line. This is a revolving line
of credit. During the Availability Period, Borrowers may repay principal
amounts and Grant and G.T. may reborrow them.
(d) Subline Facility. A revolving line of
credit subline facility for letters of credit is available under the Revolving
Line of Credit, as set forth in Section 1.1(j) hereof. The aggregate
outstanding face amount of letters of credit may not exceed One Million Dollars
($1,000,000).
(e) Minimum Advance. Each advance must be for
at least One Hundred Thousand Dollars ($100,000.00), or for the amount of the
remaining available Revolving Line of Credit, if less.
(f) Maximum Loan Balance. Borrowers agree not
to permit the outstanding principal balance of the Revolving Line of Credit
plus the outstanding amounts of any letters of credit, including amounts drawn
on letters of credit and not yet reimbursed (such sum is the "Loan Balance"),
to exceed the lesser of the Commitment or the Borrowing Base.
(g) Availability Period. The period under
which Borrowers may draw on the Revolving Line of Credit ("Availability
Period") is between the date of this Agreement and July 31, 1997 (the "Maturity
Date") unless Borrowers are in default, in which event Bank need not make any
advances.
(h) Interest Rate.
(i) Unless the Agent (defined below)
on behalf of Borrowers elects an Optional Interest Rate as
described below, the interest rate is Bank's Prime Rate in
effect from time to time plus the Applicable Rate (as
defined below), per annum.
(A) The "Prime Rate" equals the
rate of interest set from time to time by Bank at
its head office in San Francisco, California as
its Prime Rate. The Prime Rate is determined by
Bank as a means of pricing credit extensions to
some customers and is neither tied to any external
rate of interest or index nor is it necessarily
the lowest rate of interest charged by Bank at any
given time for any particular class of customers
or credit extensions. Any changes in the interest
rate resulting from a change in the Prime Rate
shall take effect without notice on the date
specified at the time the Prime Rate is set.
32
<PAGE> 12
(B) The "Applicable Rate" shall be
determined based upon Grant's and G.T.'s
consolidated Total Liabilities to Tangible Net
Worth ratio as follows:
Applicable Rate Total Debt to Tangible Net Worth
--------------- --------------------------------
0.75% greater than or equal to 1.75:1.00
0.50% 1.25:1.00 - 1.74:1.00
0.25% 0.65:1.00 - 1.24:1.00
0.00% less than 0.65:1.00
and shall be set on the first day of each quarter
based upon Borrowers' most recent monthly
financial statement.
(ii) Optional Interest Rate. Instead
of the interest rate based on Bank's Prime Rate, Agent on
behalf of Borrowers may elect to have all or portions of
the Revolving Line of Credit during the Availability Period
bear interest at the rate described in Section 1.1(h)(iii)
below (the "Optional Interest Rate") during an interest
period agreed to by the Bank and Agent on behalf of
Borrowers. Each interest rate is a rate per annum.
Interest will be paid on the last day of each interest
period and, if the interest period is longer than thirty
(30) days, then on the first day of each month during the
interest period. At the end of any interest period, the
interest rate will revert to the rate based on the Prime
Rate, unless Agent on behalf of Borrowers has again
designated the Optional Interest Rate for that portion.
(iii) Eurodollar Rate/Rate Plus
Disclosed Spread. Agent on behalf of Borrowers may elect
to have all or portions of the principal balance of the
Revolving Line of Credit bear interest at the Eurodollar
Rate plus the Disclosed Spread (each an "Eurodollar Rate
Portion"). The "Disclosed Spread" shall be determined
based upon Grant's and G.T.'s consolidated Total
Liabilities to Tangible Net Worth as follows:
Disclosed Spread Total Debt to Tangible Net Worth
---------------- --------------------------------
2.75% greater than or equal to 1.75:1.00
2.50% 1.25:1.00 - 1.74:1.00
2.25% 0.65:1.00 - 1.24:1.00
2.00% less than 0.65:1:00
and shall be set on the first day of each quarter based
upon Borrowers' most recent monthly financial statement.
Designation of a Eurodollar Rate Portion is subject to the
following requirements:
33
<PAGE> 13
(A) Each request for an Advance
hereunder to bear interest at the Optional
Interest Rate must be received by Bank by 9:00
a.m. (Los Angeles time) at least two (2) Banking
Days before the first day of the applicable
interest period.
(B) The interest period during
which the Optional Interest Rate will be in effect
will be a period of either 30, 60, or 90 days, as
selected by Borrowers, with the consent of Bank.
The last day of the interest period will be
determined by Bank using the practices of the
Eurodollar inter- bank market.
(C) Unless the Optional Interest
Rate is not available to Borrowers under the
provisions of this Agreement, Agent on behalf of
Borrowers shall at times elect the Optional
Interest Rate for an amount equal to the lesser of
the Loan Balance or One Million and no/100 Dollars
($1,000,000.00), and in any case in integral
multiples of Five Hundred Thousand and no/100
Dollars ($500,000.00). Each incremental
Eurodollar Rate Portion will be for an amount not
less than Five Hundred Thousand and No/100 Dollars
($500,000) ("Eurodollar Rate Loan").
(D) The "Eurodollar Rate" means the
interest rate determined by the following formula,
rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be
determined by Bank as of the first day of interest
period.)
Eurodollar Rate = LIBOR Rate
----------
(1.00 - Reserve Percentage)
Where,
(1) "LIBOR Rate" means the
interest rate (rounded upward to the
nearest 1/16th of one percent) at which
Bank's Branch in London, England, would
offer U.S. dollar deposits for the
applicable interest period to other major
banks in the Eurodollar inter-bank market.
(2) "Reserve Percentage"
means the total of the maximum reserve
percentages for determining the reserves
to be maintained by member banks of the
Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal
Reserve Board Regulation D, rounded upward
to the nearest 1/100 of one percent. The
per-
34
<PAGE> 14
centage will be expressed as a decimal,
and will include, but not be limited to,
marginal, emergency, supplemental,
special, and other reserve percentages.
(3) Borrowers may not
elect the Optional Interest Rate with
respect to any portion of the principal
balance of the Revolving Line of Credit
which is scheduled to be repaid before the
last day of the applicable interest period.
(4) No portion of the
principal balance of the Revolving Line
of Credit already bearing interest at the
Optional Interest Rate may be converted to
a different rate during its interest
period.
(E) Each prepayment of a Eurodollar
Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount
prepaid, and a prepayment fee equal to the amount
(if any) by which:
(1) the additional
interest which would have been payable
on the amount prepaid had it not been paid
until the last day of the interest period,
exceeds
(2) the interest
which would have been recoverable by
Bank by placing the amount prepaid on
deposit in the Eurodollar market for a
period starting on the date on which it was
prepaid and ending on the last day of the
interest period for such portion.
(3) Bank will have
no obligation to accept an election of
Eurodollar Rate Portion if any of the
following described events has occurred and
is continuing:
(x) Dollar deposits in the
principal amount, and
for periods equal to
the interest period,
of a Eurodollar Rate
Portion are not
available in the
Eurodollar interbank
market; or
35
<PAGE> 15
(y) the Eurodollar Rate
does not accurately
reflect the cost of
Eurodollar Rate
portion.
(i) Repayment Terms/Revolving Line of Credit.
(i) Borrowers will pay interest in
arrears commencing on September 1, 1995, and then on the
first day of each month thereafter until payment in full of
all amounts outstanding under the Revolving Line of Credit.
(ii) Borrowers will repay in full, all
principal, interest and other charges outstanding under the
Revolving Line of Credit no later than the Maturity Date.
(iii) Any amount bearing interest at an
Optional Interest Rate may be repaid at the end of the
applicable interest period.
(iv) Subject to provisions contained
elsewhere herein, Borrowers may prepay the Revolving Line
of Credit in full or in part at any time without penalty or
premium, except for the prepayment fee with respect to the
prepayment of Eurodollar Rate Portion, if applicable, as
set forth in Section 1.1(h)(iii)(E). The prepayment will
be applied first to interest and charges and then to the
most remote installment of principal due under this
Agreement.
(j) Letter of Credit Line. This Revolving
Line of Credit may be used for financing: (1) commercial letters of credit with
a maximum maturity of 365 days but not to extend beyond the Maturity Date, and
each such commercial letter of credit will require drafts payable up to 90 days
after sight; or (2) standby letters of credit with a maximum maturity of 365
days but not to extend beyond the Maturity Date.
(i) The amount of outstanding letters of
credit, including amounts drawn on letters of credit and
not yet reimbursed, may not exceed at any one time One
Million Dollars ($1,000,000).
(ii) Any sum drawn under a letter of
credit shall be added to the principal amount outstanding
under this Agreement. The amount will bear interest at the
rate set forth in Section 1.1(h)(i) and be due as described
elsewhere in this Agreement.
(iii) In the event any letters of credit
are outstanding on the Maturity Date, or in the event an
Event
36
<PAGE> 16
of Default shall have occurred, Borrowers shall immediately
prepay such letters of credit and deposit with Bank, as
cash collateral for the obligations of Borrowers under such
letters of credit (and Borrowers hereby grant to Bank a
security interest in such cash collateral), an amount equal
to the face amount of all outstanding letters of credit, to
be applied to repay draws under such letters of credit as
and when made.
(iv) The issuance of any letter of credit
or any amendment to a letter of credit is subject to Bank's
written approval and must be in form and content
satisfactory to Bank and in favor of a beneficiary
acceptable to Bank.
(v) Borrowers will sign Bank's form
Application and Security Agreement for Commercial Letter of
Credit or Application and Agreement for Standby Letter of
Credit.
(vi) Borrowers agree that Bank may
automatically charge the Account (defined below) for
applicable fees, discounts, and other charges relating to
any letters of credit.
(vii)Borrowers will pay any issuance
and/or other fees that Bank notifies Borrowers will be
charged for issuing and processing letters of credit for
Borrowers.
1.2 Non-Revolving Acquisition Line of Credit/Term Out
Option.
(a) Non-Revolving Line of Credit Amount.
During the Non-Revolving Line Availability Period, Bank will, on a
non-revolving basis, make advances to Borrowers, which may not at any time
exceed in the aggregate principal amount of Three Million and No/100 Dollars
($3,000,000.00) (the "Non-Revolving Commitment"). This is a "Non-Revolving
Line of Credit" with a term repayment option to be used by Borrowers. Any
amount borrowed, even if repaid before the end of the Non-Revolving Line of
Credit Availability Period, permanently reduces the remaining available
Non-Revolving Line of Credit and such amounts may not be reborrowed.
Borrowers' obligation to repay advances under the Non-Revolving Line of Credit
shall be evidenced by a promissory note, substantially in the form of Exhibit B
attached hereto (the "Non-Revolving Line Note").
(b) Non-Revolving Line of Credit Advances.
Each advance under the Non-Revolving Line of Credit shall be used solely to
fund stock or asset purchases or acquisitions, each subject to review and
approval by Bank on a case by case
37
<PAGE> 17
basis as permitted by the terms of this Agreement. All stock or assets
acquired with the proceeds of such advances shall be free and clear of any
security interests, liens, encumbrances of rights of others except the security
interests of Bank under any security agreements required under this Agreement
unless otherwise approved by Bank. Each request for an advance under the
Non-Revolving Line of Credit shall describe in adequate detail the stock or
assets proposed to be purchased or acquired by Borrowers and shall be
accompanied by a copy of the purchase and sale agreement or other documentary
evidence acceptable to Bank for the stock and/or assets to be purchased with
the proceeds of the advance. Bank reserves the right to withhold approval of
any requested advance in the exercise of its sole discretion, which it shall
exercise without unreasonable delay. Each advance under the Non-Revolving Line
of Credit must be for at least Fifty Thousand and No/100 Dollars ($50,000.00),
or for the remaining Non-Revolving Line of Credit, if less.
(c) Availability Period/Non Revolving Line of
Credit. The Non-Revolving Line of Credit shall be available upon
("Non-Revolving Line Availability Period") the later of (i) the date on which
Bank completes a satisfactory field audit of Grizzly Products, Inc. ("Grizzly")
or (ii) the date on which Grizzly becomes a Borrower under this Agreement, and
shall terminate on July 31, 1996 (the "Conversion Date") unless Borrowers are
in default hereunder in which event Bank need not make any advances under the
Non-Revolving Line of Credit.
(d) Interest Rate/Non-Revolving Line of
Credit. Each advance outstanding under the Non-Revolving Line of Credit shall
bear interest at a rate per annum equal to Bank's Prime Rate in effect from
time to time plus the Applicable Rate or at an Optional Interest Rate, each as
set forth in Section 1.1(h), plus, in each case, one-quarter of one percent
(0.25%).
(e) Repayment Terms/Non-Revolving Line of
Credit.
(i) Borrowers will pay interest
commencing on September 1, 1995, and then on the first day
of each month thereafter, whether under the Non-Revolving
Line Note or the Term Note (defined below).
(ii) On the Conversion Date (which may
be extended, in the exercise of Bank's discretion, for the
length of any applicable cure period permitted hereunder),
so long as Borrowers are in compliance with all terms and
conditions contained herein and in any other documents and
agreements executed in connection herewith, Bank will
convert the then outstanding amount of the Non-Revolving
Line of Credit to a term loan. Borrowers shall execute and
deliver to Bank a Term Note substantially in the form
38
<PAGE> 18
of Exhibit C attached hereto and made a part hereof (the
"Term Note"), payable to Bank or its order to evidence such
conversion of the Non-Revolving Line of Credit to a term
loan (the "Term Loan").
(iii) As will be further set forth in
the Term Note, Borrowers will repay the principal amount
outstanding on the Conversion Date in forty-seven (47)
successive equal monthly installments commencing on August
31, 1996, and then on the forty-eighth (48th) and final
installment in an amount equal to the then remaining
principal balance of the Term Note plus accrued and unpaid
interest and other charges thereon due and payable on July
31, 2000.
(iv) Borrowers may prepay the
Non-Revolving Line of Credit Note or the Term Note, as the
case may be, in full or in part at anytime without penalty
or premium, except that any such partial prepayment shall
be (A) an integral multiple of $50,000, (B) in an amount of
not less than $100,000, and (C) any prepayment of an
Offshore Rate Portion shall include the fees as set forth
in Section 1.1(h)(iii)(E). Any such prepayment will be
applied first to the interest and charges then to the most
remote installment of principal due under the Non-Revolving
Line of Credit Note or the Term Note, as applicable.
2. FEES, EXPENSES AND DEPOSITS.
2.1 Fees.
(a) Unused Commitment Fee.
(i) Revolving Line of Credit.
Borrowers agree to pay an unused commitment fee equal to
one-quarter of one percent (0.25%) times the average daily
difference between the Revolving Line of Credit Commitment
and the principal balance evidenced by the Revolving Line
Note. This fee is payable in arrears and is due commencing
on September 30, 1995 and on the first Banking Day
following the last day of each quarter until the expiration
of the Availability Period.
(ii) Non-Revolving Line of Credit.
Borrowers agree to pay an unused commitment fee equal to
one-quarter of one percent (0.25%) times the average daily
difference between the Non-Revolving Commitment and the
principal indebtedness evidenced by the Non-Revolving Line
Note. This fee shall begin to accrue upon the earlier of
(A) the date upon which Grizzly becomes a Borrower
hereunder or (B) September 30, 1995, and shall be due and
payable commencing December 31, 1995 and thereafter on the
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first Banking Day following the last day of each quarter
until the expiration of the Non-Revolving Availability
Period.
2.2 Expenses.
(a) Borrowers agree to immediately repay Bank
for costs and expenses that include, without limitation, filing, recording and
search fees, appraisal fees, title report fees, documentation fees, and all
other costs and expenses incurred in the negotiation, preparation,
administration and enforcement of this Agreement and any agreement or
instrument required by this Agreement, and any amendments or modifications of
the foregoing. Expenses include, but are not limited to, reasonable attorneys'
fees, including any allocated costs of Bank's in-house counsel.
(b) Borrowers agree to reimburse Bank for the
cost of periodic audits and appraisals of the personal property collateral
securing this Agreement, at such intervals as Bank may reasonably require but,
unless an Event of Default or Potential Event of Default has occurred or
exists, no more frequently than semi-annually. The audits and appraisals may
be performed by employees of Bank or by independent appraisers.
3. COLLATERAL.
3.1 All Personal Property. Borrowers' obligations to
Bank under this Agreement are secured by, and Borrowers hereby grants Bank a
security interest in, all personal property Borrowers now own or will own in
the future and other property described in Exhibit D attached hereto, including
the Stock of G.T., Grant, effective concurrently with the release of the lien
of Bank Leumi Trust Company of New York as to the Stock of Grant only, pursuant
to the Subordination Agreement, and any other stock owned by any Borrower
("Collateral"), and as is further described in security agreements and pledge
agreements of even date herewith executed by Borrowers in favor of Bank (the
"Security Agreements"). In addition, all Collateral securing this Agreement
shall also secure all other present and future obligations of Borrowers to Bank
(excluding any consumer credit covered by the federal Truth in Lending law,
unless Borrower has otherwise agreed in writing). All personal property
Collateral securing any other present or future obligations of Borrower to Bank
shall also secure this Agreement.
4. DISBURSEMENTS, PAYMENTS AND COSTS.
4.1 Request for Credit. Each request for an extension
of credit will be made in writing by an authorized officer of Arlen, Grant or
G.T. acting on behalf of the
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Borrowers (the "Agent"), in a manner acceptable to Bank, substantially in the
form of Exhibit E or by another means acceptable to Bank.
4.2 Disbursements and Payments. Each disbursement by
Bank and each payment by Borrowers will be:
(a) made at Bank's branch (or other location)
selected by Bank from time to time.
(b) made for the account of Bank's branch
selected by Bank from time to time.
(c) made in immediately available funds, or
such other type of funds selected by Bank.
(d) evidenced by records kept by Bank. In
addition, Bank may, at its discretion, require Borrowers to sign one or more
promissory notes.
4.3 Telephone Authorization.
(a) Bank may honor telephone instructions for
advances or repayments or for the designation of optional interest rates given
by any officer of Borrowers or a person or persons so authorized by any officer
of Borrowers.
(b) Advances will be deposited in, and
repayments will be withdrawn from, Borrowers' account numbers 01800149770
("Arlen Account"), 01800146270 ("Grant Account") or 01800144670 ("G.T.
Account") (collectively, the "Accounts"), or such other account(s) with Bank as
designated in writing by Borrowers.
(c) Bank will provide written confirmation to
Borrowers of transactions made based on telephone instructions. Borrowers
agree to notify Bank promptly of any discrepancy between the confirmation and
telephone instructions. If there is a discrepancy and Bank has already acted
on the telephone instructions, the telephone instructions will prevail over the
written confirmation.
(d) Borrowers indemnify and holds harmless
Bank (including its officers, employees, and agents) from all liability, loss,
and costs in connection with any act resulting from telephone instructions it
reasonably believes are made by an officer of any Borrower or a person
authorized by an officer of any Borrower. This indemnity and agreement to hold
harmless will survive this Agreement's termination.
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4.4 Direct Debit.
(a) Borrowers agree that interest and
principal payments and any fees will be deducted automatically on the due date
from the Arlen Account, or any of the other Accounts which contains sufficient
funds.
(b) Bank will debit the Accounts on the dates
the payments become due. If a due date does not fall on a Banking Day, Bank
will debit the Accounts on the first Banking Day following the due date.
(c) Borrowers will maintain sufficient funds
in the Arlen Account on the dates Bank enters debits authorized by this
Agreement. If there are insufficient funds in the Arlen Account or the other
Accounts on the date Bank enters any debit authorized by this Agreement,
Borrowers shall immediately, after notice from Bank, pay such shortfall to
Bank.
4.5 Banking Days. Unless otherwise provided in this
Agreement, a "Banking Day" is a day other than a Saturday or a Sunday, on which
Bank is open for business in California. For amounts bearing interest at an
Offshore Rate (if any), a Banking Day is a day other than a Saturday or a
Sunday on which Bank is open for business in California and dealing in offshore
dollars. All payments and disbursements which would be due on a day which is
not a Banking Day will be due on the next Banking Day. All payments received
on a day which is not a Banking Day will be applied to the applicable Line of
Credit on the next Banking Day.
4.6 Taxes. Borrowers will not deduct any taxes from
any payments made to Bank. If any government authority imposes any taxes or
charges on any payments made by the Borrowers, Borrowers will pay the taxes or
charges. Upon request by Bank, Borrowers will confirm that it has paid the
taxes by giving Bank official tax receipts (or notarized copies) within 30 days
after the due date.
4.7 Additional Costs. Borrowers will pay Bank, on
demand, for Bank's costs or losses arising from any statute or regulation, or
any request or requirement of a regulatory agency which is applicable to Bank.
The costs and losses will be allocated to the loans in a manner determined by
Bank, using any reasonable method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to Bank's
assets and commitments for credit.
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4.8 Interest Calculation. Except as otherwise stated
in this Agreement, all interest and fees, if any, will be computed on the basis
of a 360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
4.9 Interest on Late Payments. At Bank's sole option
in each instance, any amount not paid when due under this Agreement (including
interest) shall bear interest from the due date until paid at Bank's Prime Rate
plus two percent (2.0%). This may result in compounding of interest.
4.10 Default Rate. Upon the occurrence and during the
continuance of any Event of Default, at Bank's sole option Borrowers shall pay
interest on the outstanding principal and interest at the rate of interest
otherwise provided under this Agreement plus three percent (3.0%) (the "Default
Rate"). This will not constitute a waiver of any Event of Default.
4.11 Overdrafts. At Bank's sole option in each
instance, Bank may make advances under this Agreement to prevent or cover an
overdraft on any account of Borrowers with Bank. Each such advance will accrue
interest from the date of the advance or the date on which the account is
overdrawn, whichever occurs first, at the interest rate described in this
Agreement.
4.12 Overadvances. If at any time the Loan Balance
exceeds the lesser of the Commitment or the Borrowing Base, at Bank's option
that amount shall be immediately due and payable on demand.
5. CONDITIONS.
5.1 Initial Advance. Bank must have received the
following items, in form and content acceptable to Bank, before it is required
to extend any credit to Borrowers under this Agreement:
(a) Authorizations. Evidence that the
execution, delivery and performance by Borrowers and each guarantor of this
Agreement and any instrument or agreement required under this Agreement have
been duly authorized.
(b) Notes. The fully executed Revolving Line
Note and Non-Revolving Line Note.
(c) Borrowing Base Certificate. Borrowing
Base Certificate, substantially in the form of Exhibit F hereto, signed by
designated officers of Borrowers and delivered to Banks.
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(d) Security Agreements. Signed original
security agreements, pledge agreements, financing statements and fixture
filings which Bank requires. Borrowers shall also have delivered or caused to
be delivered to Bank all such Collateral, including but not limited to the
stock of G.T., in which Bank requires a possessory security interest.
(e) Evidence of Priority. Evidence that
security interests and liens in favor of Bank are valid, enforceable, perfected
and prior to all other rights and interests, except those Bank consents to in
writing.
(f) Landlord's/Mortgagee Waivers. For any
personal property Collateral located on real property which is subject to a
mortgage or deed of trust or which is not owned by a Borrower, Borrowers shall
use their best efforts to obtain a Landlord's and/or Mortgagee's Waiver from
the owner/lessor of the real property and the holder of any mortgage or deed of
trust.
(g) Insurance. Evidence of insurance
coverage, as required in the "Covenants" section of this Agreement.
(h) Business Interruption Insurance. A
business interruption insurance policy for Grant for at least Two Million Seven
Hundred Thousand Dollars ($2,700,000), and for G.T. for at least Four Million
Dollars ($4,000,000), with an insurer acceptable to Bank, and with Bank named
as an additional loss payee, provided, however, evidence of such coverage may
be provided to Bank within thirty (30) days of the Closing Date.
(i) Guaranties. Continuing Guaranty signed by
Arlen Holdings Corp. ("Arlen Holdings"), in the amount of Eleven Million Five
Hundred Fifty Thousand Dollars ($11,550,000).
(j) Legal Opinion. A written opinion from
Borrowers' legal counsel, covering such matters as Bank may require. The legal
counsel and the terms of the opinion must be acceptable to Bank.
(k) Good Standing. Certificates of good
standing for Borrowers from their state of incorporation and from any other
state in which Borrowers are required to qualify to conduct their business.
(l) Accounts. The Accounts shall have been
opened, and Borrowers shall have established with Bank all of Borrowers'
primary operating and business accounts.
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(m) Expenses. All Bank's expenses incurred in
connection with the preparation and negotiation of this Agreement.
(n) Other Required Documentation:
Subordination Agreement ("Subordination Agreement"), substantially in the form
of Exhibit G hereto, signed by all signatories indicated therein.
The date on which all of the foregoing conditions have been
satisfied is the "Closing Date." This Agreement, the Notes, the Security
Agreements, the Continuing Guaranty, the Subordination Agreement and the
Authorizations and any amendments, modifications or replacements thereof may be
referred to, collectively as the "Loan Documents."
5.2 Conditions to Each Advance. Before each extension
of credit, including the first:
(a) A Request For Credit in form and substance
satisfactory to Bank.
(b) Borrowing Base Certificate signed by
Borrower and delivered to Bank.
(c) In the case of each Advance under the
Revolving Line of Credit and each issuance of a letter of credit, the Loan
Balance, after giving effect to such Advance or letter of credit, as the case
may be, shall not exceed the lesser of the Commitment or the Borrowing Base.
(d) In the case of an advance under the
Non-Revolving Line of Credit, the stock or asset acquisition shall have been
approved by Bank, as provide in Section 7.28.
(e) Bank's most recent audit of Borrower's
records must be satisfactory.
(f) The Representations and Warranties
hereunder must be true and correct in all material respects.
(g) No Event of Default or condition, event or
act which with the giving of notice or the passage of time or both would
constitute an Event of Default (any such condition, event or act being referred
to herein as a "Potential Event of Default"), shall have occurred and be
continuing or shall exist.
(h) Any other items that Bank reasonably
requires.
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6. REPRESENTATIONS AND WARRANTIES.
When Borrowers sign this Agreement, and until Bank is
repaid in full, Borrowers make the following representations and warranties.
Each request for an extension of credit constitutes a renewed representation.
6.1 Organization of Borrowers. G.T. is a corporation
duly formed and validly existing under the laws of the State of California.
Arlen and Grant are corporations duly formed and validly existing under the
laws of the State of Delaware.
6.2 Authorization. This Agreement, and any instrument
or agreement required hereunder, are within Borrowers' powers, have been duly
authorized, and do not conflict with any of its organizational papers.
6.3 Enforceable Agreement. This Agreement and any
related loan documents, are legal, valid and binding agreements of Borrowers,
enforceable against Borrowers in accordance with their terms, and any
instrument or agreement required hereunder or thereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
6.4 Good Standing. In each state in which Borrowers
do business, they are properly licensed, in good standing, and, where required,
in compliance with fictitious name statutes.
6.5 No Conflicts. This Agreement does not conflict
with any law, agreement, or obligation by which any Borrower is bound.
6.6 Financial Information. All financial and other
information that has been or will be supplied to Bank, including Borrowers'
financial statement dated as of February 28, 1995, is:
(a) sufficiently complete to give Bank
accurate knowledge of Borrowers' and Arlen Holdings' financial condition;
(b) in form and content required by Bank; and
(c) in compliance with all government
regulations that apply.
Since the dates of the financial statements specified
above, there has been no material adverse change in the assets or the financial
condition of any Borrower or Arlen Holdings.
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6.7 Lawsuits. There is no lawsuit, tax claim or other
dispute pending or threatened against any Borrower or any guarantor except as
disclosed on Schedule 6.7 attached hereto.
6.8 Collateral. All Collateral required in this
Agreement is owned by the grantor of the security interest, free of any title
defects or any liens or interests of others, except as disclosed on Schedule
6.8 attached hereto (collectively, the "Permitted Encumbrances").
6.9 Permits, Franchises. Each Borrower possesses all
permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable it to conduct the business in which it is now engaged
without conflict with the rights of others.
6.10 Other Obligations. Borrowers are not in default
on any obligation for borrowed money, any purchase money obligation or any
other material lease, commitment, contract, instrument or obligation.
6.11 Income Tax Returns. Borrowers have filed all
required tax returns and have no knowledge of any pending assessments or
adjustments of its income tax for any year.
6.12 No Event of Default. No event has occurred which
is, or with notice or lapse of time or both would be, an Event of Default under
this Agreement.
6.13 ERISA Plans.
(a) Each Borrower has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and the Code
with respect to each Plan and is in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and has not incurred
any liability with respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under
Section 4043(b) of ERISA for which the PBGC requires 30 day notice.
(c) No action by any Borrower to terminate or
withdraw from any Plan has been taken and no notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with
respect to a Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement of such a
proceeding.
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(e) The following terms have the meanings
indicated for purposes of this Agreement:
(i) "Code" means the Internal Revenue
Code of 1986, as amended from time to time.
(ii) "ERISA" means the Employee
Retirement Income Act of 1974, as amended from time to
time.
(iii) "PBGC" means the Pension Benefit
Guaranty Corporation established pursuant to Subtitle A of
Title IV of ERISA.
(iv) "Plan" means any employee pension
benefit plan maintained or contributed to by Borrower and
insured by the Pension Benefit Guaranty Corporation under
Title IV of ERISA.
7. COVENANTS.
Borrowers agree, so long as credit is available under this
Agreement and until Bank is repaid in full:
7.1 Use of Proceeds.
(a) Revolving Line of Credit. To use the
proceeds of the Revolving Line of Credit only to repay Grant's and G.T.'s
existing lines of credit with Shawmut Capital Corporation and for working
capital purposes (which shall not include any acquisitions of the stock or
assets of any businesses except for inventory acquired in the ordinary course
of business).
(b) Non-Revolving Line of Credit. To use the
proceeds of the Non-Revolving Line of Credit for purchases or acquisitions of
the stock or assets of businesses, as approved by Bank and its counsel on a
case by case basis in the exercise in its sole discretion, as provided in
Section 7.28.
7.2 Financial Information. To provide the following
financial information and statements and such additional information as
requested by Bank from time to time:
(a) Within 120 days of Borrowers' fiscal year
end, Borrowers' annual financial statements. These financial statements must
be audited (with an unqualified opinion) by a Certified Public Accountant
("CPA") acceptable to Bank. The statements shall be prepared on a consolidated
and consolidating basis.
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(b) Within 30 days of the period's end,
Borrowers' monthly financial statements. These financial statements may be
Borrower prepared. The statements shall be prepared on a consolidated and
consolidating basis.
(c) Within 15 days of period end, a monthly
detailed aging of Borrowers' accounts receivable and accounts payable, a
detailed analysis of Borrowers' Inventory and a Borrowing Base Certificate.
(d) Within 30 days of fiscal year end,
Borrowers' annual projections, to include twelve month running balance street,
income statement and cash flow statements. These projections may be prepared
by the Borrowers. The projections shall be prepared on a consolidated and
consolidating basis.
(e) Copies of The Arlen Corporation's Form
10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report
within 15 days after the date of filing with the Securities and Exchange
Commission.
(f) Such financial statements or other
information regarding Arlen Holdings which Bank may reasonably request from
time to time.
7.3 Current Ratio. To maintain on a consolidated
basis as of the last day of each month, a ratio of current assets to current
liabilities of at least 1:50:1.00.
7.4 Tangible Net Worth. To maintain on a consolidated
basis as of the last day of each month, Tangible Net Worth equal to at least
Seven Million Two Hundred Fifty Thousand Dollars ($7,250,000).
"Tangible Net Worth" means the gross book value of
Borrowers' assets (excluding goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt discount and expense,
deferred research and development costs, deferred marketing expenses, and other
like intangibles, and monies due from affiliates, officers, directors or
shareholders of Borrowers) less total liabilities, including, without
limitation, accrued and deferred income taxes, and any reserves against assets,
plus subordinated debt acceptable to Bank.
7.5 Total Liabilities to Tangible Net Worth. To
maintain on a consolidated basis as of the last day of each month, a ratio of
Total Liabilities to Tangible Net Worth not exceeding 2:00:1.00.
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"Total Liabilities" means the sum of current liabilities
plus long term liabilities less subordinated debt acceptable to Bank.
7.6 Interest Charge Ratio. To maintain on a
consolidated basis as of the last day of each month, calculated on a rolling
twelve-month basis, an Interest Charge ratio of at least 2.50:1.00.
"Interest Charge Ratio" means the ratio of Cash Flow to
Interest Charges. "Cash Flow" is defined as net income from operations and
investments, before taxes, plus interest expense. "Interest Charges" is
defined as the sum of all interest payable for the period to a lender in
connection with borrowed money or the deferred purchase price of assets that is
treated as interest in accordance with GAAP.
7.7 Fixed Charge Coverage Ratio. To maintain on a
consolidated basis as of the end of each month, calculated on a rolling
twelve-month basis, a Fixed Charge Coverage Ratio of at least 2.00:1.00.
"Fixed Charge Coverage Ratio" means the ratio of Adjusted
Net Income to the current portion of long-term debt determined in accordance
with GAAP. "Adjusted Net Income" means the sum of net income after taxes, plus
depreciation and amortization expense.
7.8 Profitability. Borrowers shall maintain, on a
consolidated basis, a positive net income after taxes and extraordinary items
on an annual basis, and shall not suffer losses for any two consecutive
quarters.
7.9 Other Debts. Not to have outstanding or incur any
direct or contingent debts or lease obligations (other than those to Bank), or
guaranty or become liable for the debts of others without Bank's written
consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise
on normal trade credit.
(b) Endorsing negotiable instruments received
in the usual course of business.
(c) Obtaining surety bonds in the usual course
of business.
(d) Debts and lines of credit and leases in
existence on the date of this Agreement disclosed in writing to
Bank prior to the date of this Agreement or in Borrowers' financial
statement dated February 28, 1995.
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(e) Additional debts and operating lease
obligations for the acquisition of fixed or capital assets, except
to the extent prohibited elsewhere in this Agreement.
(f) Intercompany loans of the proceeds of the
Revolving Line of Credit among the Borrowers to be used for working
capital purposes only.
7.10 Other Liens. Not to create, assume, or allow any
security interest or lien (including judicial liens) on property Borrowers now
or later own (including the Stock of Grant), except:
(a) Liens or security interests in favor of
Bank.
(b) Liens for taxes not yet due.
(c) The Permitted Encumbrances outstanding on
the date of this Agreement.
7.11 Capital Expenditures. Not to spend or incur
capital leases or direct obligations for more than Seven Hundred Fifty Thousand
dollars ($750,000) in any single fiscal year to acquire fixed or capital
assets, excluding asset acquisitions permitted under the Non-Revolving Line of
Credit or other acquisitions permitted under Section 7.28 of this Agreement.
7.12 Dividends/Distributions. Not to declare or pay
any dividends or distributions on any of its shares in excess of 20% of net
profits after taxes on an annual basis, and not to purchase, redeem or
otherwise acquire for value any of its shares, or create any sinking fund in
relation thereto.
7.13 Loans to Officers. Not to make any loans,
advances or other extensions of credit to any of Borrowers' executives,
officers, directors, shareholders or employees (or any relatives of any of the
foregoing) in excess of an aggregate of $50,000 in any fiscal year.
7.14 Change of Control. Not to cause, permit, or
suffer any change, direct or indirect, in any Borrower's ownership, including
but not limited to a change in ownership arising from the sale, transfer or
foreclosure of the stock of any Borrower which has been pledged to another
financial institution; or any change in the office of the President of any
Borrower.
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7.15 Notices to Bank. To promptly notify Bank in
writing of:
(a) any lawsuit over One Hundred Thousand
Dollars ($100,000) against any Borrower or any guarantor;
(b) any substantial dispute between any
Borrower or any guarantor and any government authority;
(c) any proposed or anticipated sale,
transfer, or foreclosure of the stock of any Borrower which has
been pledged to another financial institution, at least thirty (30)
days in advance thereof;
(d) any failure to comply with this Agreement;
(e) any material adverse change in any
Borrower's or any guarantor's financial condition or operations;
(f) any change in any Borrower's name, address,
or legal structure; and
(g) the occurrence of any Event of Default.
7.16 Books and Records. To maintain adequate books
and records.
7.17 Audits. To allow Bank and its agents to inspect
Borrowers' properties and examine, audit and make copies of books and records
at any reasonable time. If any of Borrowers' properties, books or records are
in the possession of a third party, Borrowers authorize that third party to
permit Bank or its agents to have access to perform inspections or audits and
to respond to Bank's requests for information concerning such properties, books
and records.
7.18 Compliance with Laws. To comply in all material
respects with the laws, regulations, and orders of any government body with
authority over Borrowers' businesses (including any fictitious name statute and
all statutes regarding the processing, manufacture, storage, transportation,
sale or use of hazardous or toxic materials).
7.19 Preservation of Rights. To maintain and preserve
all rights, privileges, and franchises Borrowers now has which are necessary to
carry on Borrowers' businesses.
7.20 Maintenance of Properties. To make any repairs,
renewals, or replacements to keep Borrowers' properties in good working
condition.
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7.21 Perfection of Liens. To help Bank perfect and
protect its security interests and liens, and reimburse the Bank for related
costs incurred to protect its security interests and liens.
7.22 Cooperation. To take any action requested by Bank
to carry out the intent of this Agreement.
7.23 Insurance.
(a) Insurance Covering Collateral. To
maintain all risk property damage insurance policies covering the
tangible property comprising the Collateral. Each insurance policy
must be in an amount acceptable to Bank. The insurance must be
issued by an insurance company acceptable to Bank and must include
a lender's loss payable endorsement in favor of Bank in a form
acceptable to Bank.
(b) General Business Insurance. To maintain
insurance as is usual for the business it is in.
(c) Evidence of Insurance. Upon the request
of Bank, to deliver to Bank a copy of each insurance policy, or, if
permitted by Bank, a certificate of insurance listing all insurance
in force.
7.24 Operating/Business Accounts. Establish and
maintain with Bank all of Borrowers' operating and business accounts and all
other banking services associated with the operation of Borrowers' businesses,
including without limitation any demand deposit accounts, except that Borrowers
may maintain an account no. 05413095-01 at Bank Leumi Trust Company of New
York, with a balance not to exceed $200,000, and Grant may maintain account no.
12010-17361 at Bank of America, with a balance not to exceed $2,500.
7.25 Additional Negative Covenants. Not to, without
Bank's prior written consent:
(a) engage in any business activities
substantially different from Borrowers' present businesses.
(b) liquidate or dissolve any Borrower's
business.
(c) enter into any consolidation, merger,
pool, joint venture, syndicate, or other combination.
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(d) sell, lease or dispose of all or a
substantial part of any Borrower's business or assets except in the
ordinary course of such Borrower's business.
(e) sell or otherwise dispose of any assets
for less than fair market value, or enter into any sale and
leaseback agreement covering any of its fixed or capital assets.
(f) issue any new stock of any Borrower or any
subsidiary of any Borrower in which Bank does not have a first
priority, perfected security interest.
(g) voluntarily suspend its business for more
than ten (10) days in any thirty (30) day period.
7.26 No Consumer Purpose. Not to use any loans or
advances hereunder for personal, family or household purposes.
7.27 ERISA Plans. To give prompt written notice to
Bank of:
(a) The occurrence of any reportable event
under Section 4043(b) of ERISA for which the PBGC requires 30 day
notice.
(b) Any action by any Borrower to terminate or
withdraw from a Plan or the filing of any notice of intent to
terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with
respect to a Plan under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with
respect to a Plan under Section 4042 of ERISA.
7.28 Acquisitions. Not to acquire or purchase a
business or its assets without the prior written consent of Bank unless (a)
Borrowers are currently, and on a proforma basis, in compliance with the
requirements of the Loan Documents, (b) a Borrower is the surviving entity
after the acquisition, (c) the acquisition involves a business in a related
line to the acquiring Borrower's business, (d) all such acquisitions do not
exceed One Million Dollars ($1,000,000) in the aggregate in any calendar year
and (e) the documentation and the transactions contemplated thereby for each
such acquisition has been approved by Bank and its legal counsel.
7.29 Arlen Guaranty. Not to permit the liability of
Arlen, pursuant to a guaranty of the obligations of Grizzly in favor of
American Pacific Savings Bank, to increase above the principal amount of
$500,000.
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7.30 Appointment of Bank as Attorney in Fact. Until
all the obligations of Borrowers to Bank have been paid in full, each Borrower
irrevocably appoints Bank as its attorney in fact and authorizes and empowers
it to:
(a) Endorse and affix such Borrower's name to
or upon any check, draft, note, instrument or other writing
relating to the collection of Accounts Receivable, or relating to
any other Collateral, or upon any check or other instrument given
in payment thereof, or upon any omitted assignment, notification of
assignment, demand or auditor's verification relating to Collateral
and upon all other instruments and writings required to assert and
protect Bank's rights in the Collateral.
(b) Upon the happening of an Event of Default,
receive, open and dispose of all mail addressed to any Borrower and
notify the Post Office authorities to change the address for the
delivery of mail addressed to such Borrower to such address as Bank
may designate. These powers, being coupled with an interest, are
irrevocable while Borrowers' obligations to Bank remain unpaid.
8. DEFAULT.
8.1 Events of Default. The occurrence of any one or
more of the following events shall constitute an "Event of Default":
(a) Failure to Pay. Borrowers fail to make a
payment under this Agreement when due.
(b) Non-Compliance. Borrowers or any
guarantor fail to meet the conditions of, or fail to perform any
obligation under:
(i) this Agreement (provided, however,
Borrowers shall be permitted a ten (10) day cure period for
any Event of Default arising from a failure to timely
deliver financial reports and other information required
under Section 7.2 hereof),
(ii) any guaranty,
(iii) any other agreement made in
connection with this Agreement, or
(iv) any other agreement any Borrower or
any guarantor has with Bank or any affiliate of Bank.
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(c) Other Defaults. Any default occurs under
any agreement in connection with any credit Borrowers or any
guarantor has obtained from any other creditor or which any
Borrower or any guarantor has guaranteed if the default consists of
failing to make a payment when due or gives the other creditor the
right to accelerate the obligation.
(d) Lien Priority. Bank fails to have an
enforceable first lien (except for any liens to which Bank has
consented in writing) on or security interest in any Collateral.
(e) False Information. Any representation or
warranty under this Agreement or any agreement, instrument or
certificate executed pursuant to this Agreement or in connection
with any transaction contemplated hereby shall prove to have been
false or misleading in any material respect when made or when
deemed to have been made.
(f) Bankruptcy. Any Borrower or any guarantor
files a bankruptcy petition, a bankruptcy petition is filed against
any Borrower or any guarantor or any Borrower or any guarantor
makes a general assignment for the benefit of creditors. The
default will be deemed cured if any bankruptcy petition filed
against a Borrower or any guarantor is dismissed within a period of
sixty (60) days after the filing; provided, however, that Bank will
not be obligated to extend any additional credit to such Borrower
during any bankruptcy period.
(g) Receivers. A receiver or similar official
is appointed for any Borrower's or any guarantor's business, or the
business is terminated.
(h) Lawsuits. Any lawsuit or lawsuits are
filed on behalf of one or more trade creditors against any Borrower
or any guarantor in an aggregate amount of Two Hundred Thousand
Dollars ($200,000.00) and such lawsuit or lawsuits are not
dismissed or fully bonded within twenty (20) calendar days after
service of process upon such Borrower or any guarantor.
(i) Judgments. Any judgments or arbitration
awards are entered against any Borrower or any guarantor and,
absent procurement of a stay of execution, such judgment or award
remains unbonded or unsatisfied for ten (10) calendar days after
the date of entry; or Borrower or any guarantor enters into any
settlement agreement with respect to any litigation or arbitration,
in an aggregate amount of Fifty Thousand Dollars ($50,000.00) or
more in excess of any insurance coverage.
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(j) Government Action. Any government
authority takes action that Bank reasonably believes adversely
affects any Borrower's or any guarantor's financial condition or
ability to repay.
(k) Default under Guaranty or Subordination
Agreement. Any guaranty, subordination agreement, security
agreement, deed of trust, or other document required by this
Agreement is violated, revoked or no longer in effect.
(l) Change of Control. Any change of
ownership of any Borrower arising from the sale, transfer or
foreclosure of the stock of any Borrower which has been pledged to
another financial institution.
(m) Material Adverse Change. A material
adverse change occurs in any Borrower's or any guarantor's
financial condition, properties or prospects, or ability to repay
the obligations hereunder.
(n) ERISA Plans. The occurrence of a
reportable event with respect to a Plan which is, in the reasonable
judgment of Bank, likely to result in the termination of such Plan
for purposes of Title IV of ERISA, or could reasonably be expected,
in the judgment of Bank, to subject Borrower to any tax, penalty or
liability (or any combination of the foregoing) which,in the
aggregate, would have a material adverse effect on the financial
condition of Borrower with respect to a Plan.
8.2 Remedies. Upon and after the occurrence of an
Event of Default, Bank shall have all of the following rights and remedies:
(a) All obligations and indebtedness hereunder
may, at the option of Bank and without demand, notice, or legal
process of any kind, be declared, and immediately shall become, due
and payable;
(b) The Loans shall bear interest at the
Default Rate;
(c) All of the rights and remedies of a
secured party under the California Commercial Code or other
applicable law, all of which rights and remedies shall be
cumulative, and not exclusive, to the extent permitted by law, in
addition to any other rights and remedies contained in this
Agreement or in any of the documents or agreements executed in
connection herewith or which Bank may otherwise have under any
applicable law or in equity;
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(d) The right to (i) peacefully enter upon the
premises of any Borrower or any other place or places where the
Collateral is located, without any obligation to pay rent to such
Borrower or any other person, through self-help and without
judicial process or first obtaining a final judgment or giving such
Borrower notice and opportunity for a hearing on the validity of
Bank's claim, and remove the Collateral from such premises and
places to the premises of Bank or any agent of Bank, for such time
as Bank may require to collect or liquidate the Collateral, and/or
(ii) require Borrower to assemble and deliver the Collateral to
Bank at a place to be designated by Bank;
(e) The right to (i) open Borrowers' mail and
collect any and all amounts due from Account Debtors or direct that
Borrowers' mail be diverted to a post office box or other location
as determined by Bank, (ii) notify Account Debtors that the
Accounts Receivable have been assigned to Bank and that Bank has a
security interest therein and (iii) direct such Account Debtors to
make all payments due from them upon the Accounts Receivable,
directly to Bank or to a lock box designated by Bank. Bank shall
promptly furnish Borrowers with a copy of any such notice sent and
Borrowers hereby agree that any such notice in Bank's sole
discretion, may be sent on Bank's stationery, in which event, such
Borrower shall, upon demand, co-sign such notice with Bank; and
The right to sell, lease or to otherwise
dispose of all or any Collateral in its then condition, or after
any further manufacturing or processing thereof, at public or
private sale or sales, in lots or in bulk, for cash or on credit,
all as Bank, in its sole discretion, may deem advisable. At any
such sale or sales of the Collateral, the Collateral need not be in
view of those present and attending the sale, nor at the same
location at which the sale is being conducted. Bank shall have the
right to conduct such sales on Borrowers' premises or elsewhere and
shall have the right to use Borrowers' premises without charge for
such sales for such time or times as Bank may see fit. Bank is
hereby granted a license or other right to use, without charge,
Borrowers' labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or
any property of a similar nature, as it pertains to the Collateral,
in advertising for sale and selling any Collateral and Borrowers'
rights under all licenses and all franchise agreements shall inure
to Bank's benefit but Bank shall have no obligations thereunder.
Bank may purchase all or any part of the
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Collateral at public or, if permitted by law, private sale and, in
lieu of actual payment of such purchase price, may setoff the
amount of such price against amounts due under this Agreement. The
proceeds realized from the sale of any Collateral shall be applied
first to the costs and expenses, including attorneys' fees,
incurred by Bank for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral;
second to interest due upon the Loans; and third to the principal
of the Loans. Bank shall account to Borrower for any surplus. If
any deficiency shall arise, Borrower shall remain liable to Bank
therefor.
8.3 Costs and Expenses. Upon the occurrence of any
Event of Default, Bank shall be entitled to recover all costs, expenses, and
reasonable attorneys' fees (including any allocated costs of in-house counsel)
in connection with the administering or enforcing of this Agreement, whether or
not an action is filed, in accordance with Section 2.2 hereof.
9. MISCELLANEOUS.
9.1 GAAP. Except as otherwise stated in this
Agreement, all financial information provided to Bank and all financial
covenants will be made under generally accepted accounting principles
consistently applied ("GAAP").
9.2 California Law. This Agreement is governed by
California law.
9.3 Successors and Assigns. This Agreement is binding
on Borrowers' and Bank's successors and assignees. Borrowers agree that they
may not assign this Agreement without Bank's prior written consent. Bank may
sell participations in or assign these loans, or any portion thereof, and may
exchange financial information about Borrowers with actual or potential
participants or assignees. If a participation is sold or any portion of the
loans is assigned, the purchaser will have the right of set-off against
Borrowers.
9.4 Severability; Waivers. If any part of this
Agreement is not enforceable, the rest of the Agreement may be enforced. No
failure on the part of Bank to exercise, and no delay in exercising, any right,
power, or remedy under this Agreement shall operate as a waiver thereof; nor
shall any single or partial exercise of any right under this Agreement preclude
any other or further exercise thereof or the exercise of any other right. Any
consent or waiver under this Agreement must be in writing. If Bank waives a
default, it may enforce a later default.
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9.5 Multiple Borrowers. If two or more borrowers sign
this Agreement, each will be individually obligated to repay Bank in full, and
all will be obligated together.
9.6 Entire Agreement. This Agreement and any related
security or other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings
and agreements between Bank and Borrowers concerning this credit;
and
(b) replace any prior oral or written
agreements between Bank and Borrowers concerning this credit; and
(c) are intended by Bank and Borrowers as the
final, complete and exclusive statement of the terms agreed to by
them.
In the event of any conflict between this Agreement and any
other agreements required by this Agreement, this Agreement will prevail.
9.7 Notices. Except as otherwise provided herein, all
notices required under this Agreement shall be personally delivered or sent by
first class mail, postage prepaid, to the addresses on the signature page of
this Agreement, or to such other addresses as Bank and Borrowers may specify
from time to time in writing.
9.8 Headings. Article and paragraph headings are for
reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement.
9.9 Counterparts. This Agreement may be executed in
as many counterparts as necessary or convenient, and by the different parties
on separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
9.10 Further Assurances. Borrowers shall, at their
expense and without expense to Bank, do, execute and deliver such further acts
and documents as Bank from time to time reasonably requires for the assuring to
Bank the rights created or intended to be created by this Agreement, the
perfection or priority of Bank's liens and security interests, and for carrying
out the intention or facilitating the performance of the terms of this
Agreement or any document executed in connection with this Agreement.
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9.11 Hazardous Waste Indemnification. Borrowers will
indemnify and hold harmless Bank from any loss or liability directly or
indirectly arising out of the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal or presence of a
hazardous substance. This indemnity will apply whether the hazardous substance
is on, under or about Borrowers' property or operations or property leased to
Borrowers. The indemnity includes but is not limited to attorneys' fees
(including the reasonable estimate of the allocated cost of in-house counsel
and staff). The indemnity extends to Bank, its parent, subsidiaries and all of
their directors, officers, employees, agents, successors, attorneys and
assigns. For these purposes, the term "hazardous substances" means any
substance which is or becomes designated as "hazardous" or "toxic" under any
federal, state or local law. This indemnity will survive repayment of
Borrowers' obligations to Bank.
Upon demand by Bank, Borrowers will defend any
investigation, action or proceeding alleging the presence of any hazardous
substance in any such location, which affects any of Borrowers' or operations
or property leased to Borrowers or which is brought or commenced against Bank,
whether alone or together with Borrowers or any other person, all at Borrowers'
own cost and by counsel to be approved by Bank in the exercise of its
reasonable judgment. In the alternative, Bank may elect to conduct its own
defense at the expense of Borrower.
9.12 Joint Borrower Provisions. The Joint Borrower
Provisions set forth on Schedule 1 attached hereto are incorporated herein as
if fully set forth are hereby made a part of this Agreement.
9.13 Waiver of Jury Trial. The parties to this
Agreement acknowledge that jury trials often entail additional expenses and
delays not occasioned by nonjury trials. The parties to this Agreement further
agree and stipulate that a fair trial may be had before a state or federal
judge by means of a bench trial without a jury. In view of the foregoing, and
as a specifically negotiated provision of this Agreement, each party to this
Agreement hereby expressly waives any right to trial by jury of any claim,
demand, action or cause of action (1) arising under this Agreement or any other
instrument, document or agreement executed or delivered in connection herewith,
or (2) in any way connected with or related or incidental to the dealings of
the parties hereto or any of them with respect to this Agreement or any other
instrument, document or agreement executed or delivered in connection herewith,
or the transactions related hereto or thereto, in each case whether now
existing or hereafter arising, and whether sounding in contract or tort or
otherwise; and each party hereby agrees and consents that any such claim,
demand,
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action or cause of action shall be decided by court trial without a jury, and
that any party to this Agreement may file an original counterpart or a copy of
this section with any court as written evidence of the consent of the parties
hereto to the waiver of their right to trial by jury.
This Agreement is executed as of the date stated at the top
of the first page.
"Borrowers"
ARLEN AUTOMOTIVE, INC., a Delaware
corporation
By /s/ Allan J.Marrus
------------------------------------
Allan J. Marrus, President
By /s/ Stephen B. Delman
------------------------------------
Stephen B. Delman,
Assistant Secretary
Address where notices to all Borrowers
are to be sent:
c/o Arlen Automotive, Inc.
505 Eighth Avenue
New York, NY 10018
Attn: Allan J. Marrus
GRANT PRODUCTS, INC.,
a Delaware corporation
By /s/ Tommy A. Poteet
------------------------------------
Tommy A. Poteet, President
By /s/ Stephen B. Delman
------------------------------------
Stephen B. Delman,
Assistant Secretary
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G.T. STYLING, INC.,
a California corporation
By /s/ Jeffery J. Gati
----------------------------------
Jeffery J. Gati, President
By /s/ Stephen B. Delman
----------------------------------
Stephen B. Delman,
Assistant Secretary
"Bank"
SUMITOMO BANK OF CALIFORNIA
By /s/ Matthew R.Steenhuyse
-----------------------------------
Matthew R. Van Steenhuyse
Vice President
Address where notices to Bank are to be
sent:
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, California 90071
Attn: Matthew R. Van Steenhuyse
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Schedule 1
Joint Borrower Provisions
Borrowers acknowledge and agree that Borrowers shall be
jointly and severally liable for all obligations arising under this Agreement,
the Revolving Line Note, the Non-Revolving Line Note, the Term Note and all of
the other documents and agreements executed in connection with this Agreement
(collectively, the "Loan Documents"). In furtherance thereof, Borrowers
acknowledge and agree as follows:
1. For the purpose of implementing the joint borrower
provisions of the Loan Documents, Borrowers hereby irrevocably appoint each
other as their agent and attorney-in-fact for all purposes of the Loan
Documents, including the giving and receiving of notices and other
communications.
2. It is understood and agreed that the handling of
this credit facility on a joint borrowing basis as set forth in this Agreement
is solely as an accommodation to Borrowers and at their request, and that Bank
shall incur no liability to Borrowers as a result thereof. To induce Bank to
do so, and in consideration thereof, Borrowers hereby agree to indemnify Bank
and hold Bank harmless from and against any and all liabilities, expenses,
losses, damages and/or claims of damage or injury asserted against Bank by
Borrowers or by any other person or entity arising from or incurred by reason
of Bank's handling of the financing arrangement of Borrowers as herein
provided, reliance by Bank on any requests or instructions from Borrowers or
any other action taken by Bank.
3. Each Borrower acknowledges that the liens and
security interests created or granted herein and by the other Loan Documents
will or may secure obligations of persons or entities other than such Borrower
and, in full recognition of that fact, Borrowers consent and agree that Bank
may, at any time and from time to time, without notice or demand, and without
affecting the enforceability or security hereof or of any other Loan Document:
(a) supplement, modify, amend, extend, renew,
accelerate, or otherwise change the time for payment or the terms
of the obligations of Borrowers or any part thereof, including any
increase or decrease of the rate(s) of interest thereon;
(b) supplement, modify, amend or waive, or
enter into or give any agreement, approval or consent with respect
to, the obligations of Borrowers or any part thereof or any of the
Loan Documents or any additional
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security or guaranties, or any condition, covenant, default,
remedy, right, representation or term thereof or thereunder;
(c) accept new or additional instruments,
documents or agreements in exchange for or relative to any of the
Loan Documents or the obligations of Borrowers or any part thereof;
(d) accept partial payments on the obligations
of Borrowers;
(e) receive and hold additional security or
guaranties for the obligations of Borrowers or any part thereof;
(f) release, reconvey, terminate, waive,
abandon, subordinate, exchange, substitute, transfer and enforce
any security or guaranties, and apply any security and direct the
order or manner of sale thereof as Bank in its sole and absolute
discretion may determine;
(g) release any person or entity or any
guarantor from any personal liability with respect to the
obligations of Borrowers or any part thereof;
(h) settle, release on terms satisfactory to
Bank or by operation of applicable laws or otherwise liquidate or
enforce any obligations of Borrowers and any security or guaranty
therefor in any manner, consent to the transfer of any security and
bid and purchase at any sale; and
(i) consent to the merger, change or any other
restructuring or termination of the corporate existence of
Borrowers or any other person, and correspondingly restructure the
obligations of Borrowers, and any such merger, change,
restructuring or termination shall not affect the liability of
Borrowers or the continuing existence of any lien or security
interest hereunder, under any other Loan Document to which any
Borrower is a party or the enforceability hereof or thereof with
respect to all or any part of the obligations of Borrowers.
Upon the occurrence of and during the continuance of any
Event of Default, Bank may enforce this Agreement and the other Loan Documents
independently as to each Borrower and independently of any other remedy or
security Bank at any time may have or hold in connection with the obligations
of Borrowers, and it shall not be necessary for Bank to marshal assets in favor
of any of the Borrowers or any other person or entity or to proceed upon or
against and/or exhaust any other
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security or remedy before proceeding to enforce this Agreement and the other
Loan Documents. Each of the Borrowers expressly waives any right to require
Bank to marshal assets in favor of any Borrower or any other person or entity
or to proceed against any other person or entity or any Collateral provided by
any other person, and agrees that Bank may proceed against any persons or
entities and/or Collateral in such order as it shall determine in its sole and
absolute discretion. Bank may file a separate action or actions against any
Borrower, whether action is brought or prosecuted with respect to any other
security or against any other person, or whether any other person or entity is
joined in any such action or actions. Each of the Borrowers agrees that Bank
and each of the Borrowers and any other person or entity may deal with each
other in connection with the obligations of Borrowers or otherwise, or alter
any contracts or agreements now or hereafter existing between any of them, in
any manner whatsoever, all without in any way altering or affecting the
security of this Agreement or the other Loan Documents. Each of the Borrowers
expressly waives the benefit of any statute(s) of limitations affecting its
liability hereunder or the enforcement of the obligations of Borrowers or any
liens or security interests created or granted herein or by any other Loan
Document. The rights of Bank hereunder and under the other Loan Documents
shall be reinstated and revived, and the enforceability of this Agreement and
the other Loan Documents shall continue, with respect to any amount at any time
paid on account of the obligations of Borrowers which thereafter shall be
required to be restored or returned by Bank upon bankruptcy, insolvency or
reorganization of any Borrower or any other person, or otherwise, all as though
such amount had not been paid. The enforceability of this Agreement and the
other Loan Documents at all times shall remain effective even though the
obligations of Borrowers, including any part thereof or any other security or
guaranty therefor, may be or hereafter may become invalid or otherwise
unenforceable as against any of the Borrowers or any other person or entity and
whether or not any of the Borrowers or any other person or entity shall have
any personal liability with respect thereto. Each of the Borrowers expressly
waives any and all defenses now or hereafter arising or asserted by reason of
(a) any disability or other defense of any of the other Borrowers or any other
person or entity with respect to the obligations of Borrowers, (b) the
unenforceability or invalidity of any security or guaranty for the obligations
of Borrowers or the lack of perfection or continuing perfection or failure of
priority of any security for the obligations of Borrowers, (c) the cessation
for any cause whatsoever of the liability of any other Borrower or any other
person or entity (other than by reason of the full payment and performance of
all obligations of Borrowers), (d) any failure of Bank to marshal assets in
favor of any of the Borrowers or any other person, (e) any failure of Bank to
give notice of sale or
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other disposition to any of the other Borrowers or any other person or entity
or any defect in any notice that may be given in connection with any sale or
disposition, (f) any failure of Bank to comply with applicable laws in
connection with the sale or other disposition of any Collateral or other
security for any obligation of Borrowers, including any failure of Bank to
conduct a commercially reasonable sale or other disposition of any Collateral
or other security for any obligation of Borrowers, (g) any act or omission of
Bank or others that directly or indirectly results in or aids the discharge or
release of any Borrower or any other person or entity or the obligations of
Borrowers or any other security or guaranty therefor by operation of law or
otherwise, (h) any law which provides that the obligation of a surety or
guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety's or
guarantor's obligation in proportion to the principal obligation, (i) any
failure of Bank to file or enforce a claim in any bankruptcy or other
proceeding with respect to any person, (j) the election by Bank, in any
bankruptcy proceeding of any person, of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code, (k) any extension of
credit or the grant of any lien under Section 364 of the United States
Bankruptcy Code, (l) any use of cash collateral under Section 363 of the United
States Bankruptcy Code, (m) any agreement or stipulation with respect to the
provision of adequate protection in any bankruptcy proceeding of any person,
(n) the avoidance of any lien or security interest in favor of Bank for any
reason, or (o) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by or
against any person, including any discharge of, or bar or stay against
collecting, all or any of the obligations of Borrowers (or any interest
thereon) in or as a result of any such proceeding.
4. Each of the Borrowers represents and warrants to
Bank that such Borrower has established adequate means of obtaining from the
other Borrowers, on a continuing basis, financial and other information
pertaining to the businesses, operations and condition (financial and
otherwise) of the other Borrowers and their respective properties, and each of
the Borrowers now is and hereafter will be completely familiar with the
businesses, operations and condition (financial and otherwise) of the other
Borrowers and their respective properties. Each of the Borrowers hereby
expressly waives and relinquishes any duty on the part of Bank to disclose to
such Borrower any matter, fact or thing related to the businesses, operations
or condition (financial or otherwise) of any other Borrower or such other
Borrower's properties, whether now known or hereafter known by Bank during the
life of this Agreement. With respect to any of the obligations of Borrowers,
Bank need
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not inquire into the powers of any of the Borrowers or the officers or
employees acting or purporting to act on its behalf.
5. In the event that all or any part of the
obligations of Borrowers at any time are secured by any one or more deeds of
trust or mortgages creating or granting liens on any interests in real
property, each of the Borrowers authorizes Bank, upon the occurrence of and
during the continuance of any Event of Default, at the sole option, without
notice or demand and without affecting any obligations of Borrowers, the
enforceability of this Agreement, or the validity or enforceability of any
liens or security interests of Bank on any Collateral, to foreclose any or all
of such deeds of trust or mortgages by judicial or nonjudicial sale. Each of
the Borrowers expressly waives any defenses to the enforcement of this
Agreement or the other Loan Documents or any liens or security interests
created or granted hereby or by the other Loan Documents or to the recovery by
Bank against any other Borrower or any other person or entity liable therefor
of any deficiency after a judicial or nonjudicial foreclosure or sale, even
though such a foreclosure or sale may impair the subrogation rights of such
Borrower and may preclude any of them from obtaining reimbursement or
contribution from any other person. Each of the Borrowers expressly waives any
defenses or benefits that may be derived from California Code of Civil
Procedure Section Section 580a, 580b, 580d or 726, or comparable provisions of
the laws of any other jurisdiction, and all other suretyship defenses it
otherwise might or would have under California law or other applicable law.
Each of the Borrowers expressly waives any right to receive notice of any
judicial or nonjudicial foreclosure or sale of any real property or interest
therein subject to any such deeds of trust or mortgages made by any other
Borrower and failure to receive any such notice shall not impair or affect any
Borrower's obligations hereunder or the enforceability of this Agreement or the
other Loan Documents or any liens created or granted hereby or thereby.
6. Notwithstanding anything to the contrary elsewhere
contained herein or in any other Loan Document to which any Borrower is a
party, each of the Borrowers hereby waives with respect to each other Borrower
and its respective successors and assigns (including any surety) and any other
party any and all rights at law or in equity, to subrogation, to reimbursement,
to exoneration, to contribution, to setoff or to any other rights that could
accrue to a surety against a principal, to a guarantor against a maker or
obligor, to an accommodation party against the party accommodated, or to a
holder or transferee against a maker and which each of the Borrowers may have
or hereafter acquire against any other Borrower or any other party in
connection with or as a result
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of any Borrower's execution, delivery and/or performance of this Agreement or
any other Loan Document to which any such Borrower is a party. Each of the
Borrowers agrees that it shall not have or assert any such rights against any
other Borrower or any such Borrower's successors and assigns or any other
person or entity (including any surety), either directly or as an attempted
setoff to any action commenced against such Borrower by the other such Borrower
(as borrower or in any other capacity) or any other person. Each of the
Borrowers hereby acknowledges and agrees that this waiver is intended to
benefit Bank and shall not limit or otherwise affect any of the Borrowers'
liability hereunder, under any other Loan Document to which any Borrower is a
party, or the enforceability hereof or thereof.
7. Each of the Borrowers warrants and agrees that
each of the waivers and consents set forth herein is made with full knowledge
of its significance and consequences, with the understanding that events giving
rise to any defense waived may diminish, destroy or otherwise adversely affect
rights which each of the Borrowers otherwise may have against the other
Borrowers, Bank, or others, or against any Collateral. If any of the waivers
or consents herein are determined to be contrary to any applicable law or
public policy, such waivers and consents shall be effective to the maximum
extent permitted by law.
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EXHIBIT D
Description of Collateral
"Collateral" means all present and future right, title and
interest of Borrowers in or to any personal property or assets whatsoever, and
all rights and powers of Borrowers to transfer any interest in or to any
personal property or assets whatsoever, including, without limitation, any and
all of the following property:
(a) All present and future accounts, accounts
receivable, agreements, contracts, leases, contract rights, rights
to payment, instruments, documents, chattel paper, security
agreements, guaranties, undertakings, surety bonds, insurance
policies, notes and drafts, and all forms of obligations owing to
any Borrower or in which Borrower may have any interest, however
created or arising;
(b) All present and future general
intangibles, all tax refunds of every kind and nature to which
Borrower now or hereafter may become entitled, however arising, all
other refunds, and all deposits, goodwill, choses in action, trade
secrets, computer programs, software, customer lists, trademarks,
trade names, patents, licenses, copyrights, technology, processes,
proprietary information, franchises and insurance proceeds;
(c) All present and future deposit accounts of
Borrower, including, without limitation, any demand, time, savings,
passbook or like account maintained by any Borrower with any bank,
savings and loan association, credit union or like organization,
and all money, cash and cash equivalents of Borrower, whether or
not deposited in any such deposit account;
(d) All present and future books and records,
including, without limitation, books of account and ledgers of
every kind and nature, all electronically recorded data relating to
any Borrower or the business thereof, all receptacles and
containers for such records, and all files and correspondence;
(e) All present and future goods, including,
without limitation, all consumer goods, farm products, inventory,
equipment, machinery, tools, molds, dies, furniture, furnishings,
fixtures, trade fixtures, motor vehicles and all other goods used
in connection with or in the conduct of any
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Borrower's business, including without limitation, all goods as
defined in Section 9109(2) of the California Commercial Code;
(f) All present and future inventory and
merchandise, including, without limitation, all present and future
goods held for sale or lease or to be furnished under a contract of
service, all raw materials, work in process and finished goods, all
packing materials, supplies and containers relating to or used in
connection with any of the foregoing, and all bills of lading,
warehouse receipts or documents of title relating to any of the
foregoing;
(g) All present and future accessions,
appurtenances, components, repairs, repair parts, spare parts,
replacements, substitutions, additions, issue and/or improvements
to or of or with respect to any of the foregoing;
(h) All other tangible and intangible property
of any Borrower;
(i) All rights, remedies, powers and/or
privileges of any Borrower with respect to any of the foregoing;
and
(j) Any and all proceeds and products of any
of the foregoing, including, without limitation, all money,
accounts, general intangibles, deposit accounts, documents,
instruments, chattel paper, goods, insurance proceeds, and any
other tangible or intangible property received upon the sale or
disposition of any of the foregoing.
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<PAGE> 1
EXHIBIT 4.9.1
72
<PAGE> 2
REVOLVING LINE NOTE
$8,500,000 August 10, 1995
Los Angeles, California
FOR VALUE RECEIVED, the undersigned promise to pay to the
order of Sumitomo Bank of California (the "Bank"), the principal amount of
EIGHT MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($8,500,000) or such
lesser aggregate amount of advances under the Revolving Line of Credit as may
be made by the Bank pursuant to the Loan Agreement referred to below, together
with interest on the principal amount of each advance under the Revolving Line
of Credit remaining unpaid from time to time from the date of each such advance
under the Revolving Line of Credit until the date of payment in full, payable
as hereinafter set forth.
Reference is made to the Commercial Loan Agreement dated as
of even date herewith, by and among the undersigned, as Borrowers, and the Bank
(the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise
defined herein are used herein with the meanings defined for those terms in the
Loan Agreement. This is the Revolving Line Note referred to in the Loan
Agreement, and any holder hereof is entitled to all of the rights, remedies,
benefits and privileges, and subject to all of the obligations of the Bank
provided for in the Loan Agreement as originally executed or as it may from
time to time be supplemented, modified or amended. The Loan Agreement, among
other things, contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events upon the terms and conditions therein
specified.
The principal indebtedness evidenced by this Revolving Line
Note shall be payable as provided in the Loan Agreement and in any event on
July 31, 1997.
Interest shall be payable on the outstanding daily unpaid
principal amount of advances under the Revolving Line of Credit from the date
first written above until payment in full and shall accrue and be payable at
the rate and on the dates set forth in the Loan Agreement both before and after
default and before and after maturity and judgment, with interest on overdue
principal and interest to bear interest at the rate set forth in Section 4.9 of
the Loan Agreement, to the fullest extent permitted by applicable law.
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<PAGE> 3
Each payment hereunder shall be made to the Bank in
immediately available funds not later than 1:00 p.m. (Los Angeles time) on the
day of payment (which must be a Banking Day). All payments received after 1:00
p.m. (Los Angeles time) on any particular Banking Day shall be deemed received
on the next succeeding Banking Day. All payments shall be made in lawful money
of the United States of America.
The Bank shall use its best efforts to keep a record of
advances under the Revolving Line of Credit made by it and payments received by
it with respect to this Revolving Line Note, and, absent manifest error, such
record shall be presumptive evidence of the amounts owing under this Revolving
Line Note.
The undersigned hereby promise to pay all costs and
expenses of any rightful holder hereof incurred in collecting the undersigned's
obligations hereunder or in enforcing or attempting to enforce any of such
holder's rights hereunder, including reasonable attorneys' fees and
disbursements (including the allocated costs of in-house counsel), whether or
not an action is filed in connection therewith.
Subject to the provisions of the Loan Agreement, the
undersigned hereby waives presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other notice or formality, to the
fullest extent permitted by applicable laws.
This Revolving Line Note shall be delivered to and accepted
by the Bank in the State of California, and shall be governed by, and construed
and enforced in accordance with, the local laws thereof.
ARLEN AUTOMOTIVE, INC., GRANT PRODUCTS, INC.,
a Delaware corporation a Delaware corporation
By /s/ Allan J. Marrus By /s/ Tommy A. Poteet
------------------- -------------------
Allan J. Marrus Tommy A. Poteet
President President
By Stephen B. Delman By /s/ Stephen B. Delman
----------------- ---------------------
Stephen B. Delman Stephen B. Delman
Assistant Secretary Assistant Secretary
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<PAGE> 4
G.T. STYLING, INC.,
a California corporation
By /s/ Jeffery J. Gati
-------------------
Jeffery J. Gati
President
By /s/ Stephen B. Delman
---------------------
Stephen B. Delman
Assistant Secretary
75
<PAGE> 1
EXHIBIT 4.9.2
76
<PAGE> 2
NON-REVOLVING LINE NOTE
$3,000,000 August 10, 1995
Los Angeles, California
FOR VALUE RECEIVED, the undersigned promise to pay to the
order of Sumitomo Bank of California (the "Bank"), the principal amount of
THREE MILLION AND NO/100 DOLLARS ($3,000,000) or such lesser aggregate amount
of advances under the Non-Revolving Line of Credit as may be made by the Bank
pursuant to the Loan Agreement referred to below, together with interest on the
principal amount of each advance under the Non-Revolving Line of Credit
remaining unpaid from time to time from the date of each such advance under the
Non-Revolving Line of Credit until the date of payment in full, payable as
hereinafter set forth.
Reference is made to the Commercial Loan Agreement dated as
of even date herewith, by and among the undersigned, as Borrowers, and the Bank
(the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise
defined herein are used herein with the meanings defined for those terms in the
Loan Agreement. This is the Non-Revolving Line Note referred to in the Loan
Agreement, and any holder hereof is entitled to all of the rights, remedies,
benefits and privileges, and subject to all of the obligations of the Bank
provided for in the Loan Agreement as originally executed or as it may from
time to time be supplemented, modified or amended. The Loan Agreement, among
other things, contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events upon the terms and conditions therein
specified.
The principal indebtedness evidenced by this Non-Revolving
Line Note shall be payable as provided in the Loan Agreement and in any event
on July 31, 1996.
Interest shall be payable on the outstanding daily unpaid
principal amount of advances under the Non-Revolving Line of Credit from the
date first written above until payment in full and shall accrue and be payable
at the rate and on the dates set forth in the Loan Agreement both before and
after default and before and after maturity and judgment, with interest on
overdue principal and interest to bear interest at the rate set forth in
Section 4.9 of the Loan Agreement, to the fullest extent permitted by
applicable law.
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<PAGE> 3
Each payment hereunder shall be made to the Bank in
immediately available funds not later than 1:00 p.m. (Los Angeles time) on the
day of payment (which must be a Banking Day). All payments received after 1:00
p.m. (Los Angeles time) on any particular Banking Day shall be deemed received
on the next succeeding Banking Day. All payments shall be made in lawful money
of the United States of America.
The Bank shall use its best efforts to keep a record of
advances under the Non-Revolving Line of Credit made by it and payments
received by it with respect to this Non-Revolving Line Note, and, absent
manifest error, such record shall be presumptive evidence of the amounts owing
under this Non-Revolving Line Note.
The undersigned hereby promise to pay all costs and
expenses of any rightful holder hereof incurred in collecting the undersigned's
obligations hereunder or in enforcing or attempting to enforce any of such
holder's rights hereunder, including reasonable attorneys' fees and
disbursements (including the allocated costs of in-house counsel), whether or
not an action is filed in connection therewith.
Subject to the provisions of the Loan Agreement, the
undersigned hereby waives presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other notice or formality, to the
fullest extent permitted by applicable laws.
This Non-Revolving Line Note shall be delivered to and
accepted by the Bank in the State of California, and shall be governed by, and
construed and enforced in accordance with, the local laws thereof.
ARLEN AUTOMOTIVE, INC., GRANT PRODUCTS, INC.,
a Delaware corporation a Delaware corporation
By /s/ Allan J. Marrus By /s/ Tommy A. Poteet
------------------- -------------------
Allan J. Marrus Tommy A. Poteet
President President
By /s/ Stephen B. Delman By /s/ Stephen B. Delman
--------------------- ---------------------
Stephen B. Delman Stephen B. Delman
Assistant Secretary Assistant Secretary
78
<PAGE> 4
G.T. STYLING, INC.,
a California corporation
By /s/ Jeffery J. Gati
-------------------
Jeffery J. Gati
President
By /s/ Stephen B. Delman
---------------------
Stephen B. Delman
Assistant Secretary
79
<PAGE> 1
EXHIBIT 4.9.3
80
<PAGE> 2
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of August
10, 1995, is made by ARLEN AUTOMOTIVE, INC., a Delaware corporation, GRANT
PRODUCTS, INC., a Delaware corporation and G.T. STYLING, INC., a California
corporation (each a "Grantor", collectively, "Grantors"), in favor of SUMITOMO
BANK OF CALIFORNIA ("Secured Party"), with reference to the following facts:
RECITALS
A. Pursuant to that certain Commercial Loan Agreement of even
date herewith by and between Grantors, as Borrowers, and Secured Party (as such
agreement may from time to time be supplemented, modified, amended, renewed,
extended or supplanted, the "Loan Agreement"), Secured Party has agreed to
extend certain credit facilities to Grantors.
B. The Loan Agreement provides, as a condition precedent to
Secured Party's obligation to extend credit facilities to Grantors, that
Grantors shall grant to Secured Party a security interest in certain of its
assets under the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce Secured Party to
continue to extend credit facilities to Grantors under the Loan Agreement, and
for other good and valuable consideration, the receipt and adequacy of which
hereby are acknowledged, Grantor hereby represents, warrants, covenants,
agrees, assigns and grants as follows:
1. Definitions. This Agreement is the Security
Agreement referred to in the Loan Agreement and is one of the loan documents
referred to therein. Terms defined in the Loan Agreement and not otherwise
defined in this Agreement shall have the meanings given those terms in the Loan
Agreement. Terms defined in the California Commercial Code and not otherwise
defined in the Agreement or in the Loan Agreement shall have the meanings
defined for those terms in the California Commercial Code. The following terms
shall have the meanings respectively set forth after each:
"Agreement" means this Security Agreement and any
extensions, modifications, renewals, restatements, supplements or
amendments hereof.
"Collateral" means all present and future right,
title and interest of Grantors in or to any property or
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<PAGE> 3
assets whatsoever, and all rights and powers of Grantors to
transfer any interest in or to any property or assets whatsoever,
including, without limitation, any and all of the following
property:
(1) All present and future accounts,
accounts receivable, agreements, contracts, leases,
contract rights, rights to payment, instruments, documents,
chattel paper, security agreements, guaranties,
undertakings, surety bonds, insurance policies, notes and
drafts, and all forms of obligations owing to Grantors or
in which Grantors may have any interest, however created or
arising;
(2) All present and future general
intangibles, all tax refunds of every kind and nature to
which Grantors now or hereafter may become entitled,
however arising, all other refunds, and all deposits,
goodwill, choses in action, trade secrets, computer
programs, software, customer lists, trademarks, trade
names, patents, licenses, copyrights, technology,
processes, proprietary information, franchises and
insurance proceeds;
(3) All present and future deposit
accounts of Grantors, including, without limitation, any
demand, time, savings, passbook or like account maintained
by Grantors with any bank, savings and loan association,
credit union or like organization, and all money, cash and
cash equivalents of Grantors, whether or not deposited in
any such deposit account;
(4) All present and future books and
records, including, without limitation, books of account
and ledgers of every kind and nature, all electronically
recorded data relating to Grantors or the business thereof,
all receptacles and containers for such records, and all
files and correspondence;
(5) All present and future goods,
including, without limitation, all consumer goods, farm
products, inventory, equipment, machinery, tools, molds,
dies, furniture, furnishings, fixtures, trade fixtures,
motor vehicles and all other goods used in connection with
or in the conduct of Grantors' businesses, including
without limitation, all goods as defined in Section 9109(2)
of the California Commercial Code;
(6) All present and future inventory
and merchandise, including, without limitation, all present
and future goods held for sale or lease or to
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be furnished under a contract of service, all raw
materials, work in process and finished goods, all packing
materials, supplies and containers relating to or used in
connection with any of the foregoing, and all bills of
lading, warehouse receipts or documents of title relating
to any of the foregoing;
(7) All present and future
accessions, appurtenances, components, repairs, repair
parts, spare parts, replacements, substitutions, additions,
issue and/or improvements to or of or with respect to any
of the foregoing;
(8) All other tangible and intangible
property of Grantors;
(9) All rights, remedies, powers
and/or privileges of Grantors with respect to any of the
foregoing; and
(10) Any and all proceeds and products
of any of the foregoing, including, without limitation, all
money, accounts, general intangibles, deposit accounts,
documents, instruments, chattel paper, goods, insurance
proceeds, and any other tangible or intangible property
received upon the sale or disposition of any of the
foregoing.
"Loan Documents" means collectively, the Loan
Agreement, the Revolving Line Note, the Non-Revolving Line Note and
the Term Note, this Agreement, the Pledge Agreement, and any other
certificates, documents or agreements of any type or nature
heretofore or hereafter executed and delivered by any Grantor to
Bank in any way relating to or in furtherance of the Loan
Agreement, in each case either as originally executed or as the
same may from time to time be supplemented, modified, amended,
restated, extended or supplanted.
"Notes" means collectively, the Revolving Line
Note, the Non-Revolving Line Note and the Term Note.
"Person" means and includes any natural person,
corporation, firm, association, government, governmental agency or
any other entity, whether acting in an individual, fiduciary or
other capacity.
2. Security Agreement. For valuable consideration,
Grantors hereby grant and assign to Secured Party a security interest in all of
the Collateral now or hereafter owned by Grantors as security for the timely
payment and performance of the obligations of Grantors under the Loan Agreement
and other
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<PAGE> 5
Loan Documents, including but not limited to the Notes (collectively, the
"Obligations"). This Agreement is a continuing agreement and all the rights,
powers and remedies hereunder shall apply to any and all Obligations, including
those arising under successive transactions which shall either continue the
Obligations, increase or decrease them, or from time to time create new
Obligations after all or any prior Obligations have been satisfied, and
notwithstanding the bankruptcy of any Grantor or any other party to the Loan
Agreement and related documents or any other event or proceeding affecting any
of the aforementioned persons.
3. Further Assurances. At any time and from time to
time at the request of Secured Party, Grantors shall execute and deliver to
Secured Party all such financing statements and other instruments and documents
in form and substance reasonably satisfactory to Secured Party, as shall be
necessary or reasonably desirable to fully perfect, when filed and/or recorded,
Secured Party's security interest granted pursuant to Section 2 of this
Agreement. At any time and from time to time, Secured Party shall be entitled
to file and/or record any or all such financing statements, instruments and
documents held by it, and any or all such further financing statements,
documents and instruments, and to take all such other actions, as Secured Party
may deem appropriate to perfect and to maintain perfected the security interest
granted in Section 2 of this Agreement. Before and after the occurrence of any
Event of Default, at Secured Party's request, Grantors shall execute all such
further financing statements, instruments and documents, and shall do all such
further acts and things, as may be deemed necessary or reasonably desirable by
Secured Party to create and perfect, and to continue and preserve, the security
interest in the Collateral in favor of Secured Party, or the priority thereof.
With respect to any Collateral consisting of instruments, documents,
certificates of title or the like, as to which Secured Party's security
interest is required to be perfected by, or the priority thereof is required to
be assured by, possession of or notation on the certificate of title pertaining
to such Collateral, Grantors will upon demand of Secured Party deliver
possession of same in pledge to Secured Party, or note the lien on such
certificate of title in favor of Secured Party for the benefit of Secured
Party.
4. Grantors' Representations, Warranties and
Agreements. Except as otherwise disclosed to Secured Party in writing
concurrently herewith, Grantors represent, warrant and agree that: (a) the
security interests granted in Section 2 of this Agreement are first priority
security interests in the Collateral indefeasible by any third party; (b)
except for financing statements in favor of Secured Party and as otherwise
disclosed to Secured Party in writing, no financing statement
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<PAGE> 6
covering any of the Collateral or the proceeds thereof is on file in any public
office or held by any person; (c) Grantors have and will continue to have,
except for security interests granted pursuant to the Loan Agreement and
related documents in favor of Secured Party and except for such other liens as
are permitted pursuant to the Loan Agreement, full title to the Collateral,
free from any lien, security interest, encumbrance or claim, and full power and
authority to grant to Secured Party the security interest in the Collateral as
provided herein subject to the Permitted Encumbrances, and will, at its sole
cost and expense, defend any action which might materially affect the
Collateral or Secured Party's security interest in the Collateral; (d) Grantors
will pay, prior to delinquency, all taxes, charges, liens and assessments
against the Collateral, unless such taxes, charges, liens or assessments are
not yet required to be paid, and upon its failure to pay or so contest such
taxes, charges, liens and assessments, Secured Party at its option may pay any
of them, and Secured Party shall be the sole judge of the legality or validity
thereof and the amount necessary to discharge the same; (e) the Collateral will
not be used for any unlawful purpose or in violation of any law, regulation or
ordinance, nor used in any way that will void or impair any insurance required
to be carried in connection therewith; (f) Grantors will, to the extent
consistent with good business practice, keep the Collateral in reasonably good
repair, working order and condition, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto and,
as appropriate and applicable, will otherwise deal with such portion of the
Collateral in all such ways as are considered good practice by owners of like
property; (g) Grantors will take all reasonable steps to preserve and protect
the Collateral; (h) Grantors will maintain, with responsible insurance
companies, insurance covering the Collateral against such insurable losses as
is required by the Loan Agreement and will cause Secured Party to be designated
as loss payee with respect to such insurance, will obtain the written agreement
of the insurers that such insurance shall not be cancelled without at least ten
(10) days prior written notice to Secured Party, and will furnish copies of
such insurance policies or certificates to Secured Party promptly upon request
therefor; (i) Grantors will promptly notify Secured Party in writing in the
event of any substantial or material damage to the Collateral from any source
whatsoever, and, except for the disposition of collections and other proceeds
of the Collateral permitted by Section 6 hereof, Grantors will not remove or
permit to be removed any part of the Collateral from its places of business
without the prior written consent of Secured Party, except for such items of
the Collateral as are removed in the ordinary course of business or in
connection with any transaction or disposition otherwise permitted by the Loan
Agreement; and
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<PAGE> 7
(j) no Grantor will move its principal place of business without giving at
least ten (10) days' notice to Secured Party.
5. Secured Party's Rights Regarding Collateral. At
any time (whether or not an Event of Default has occurred, except as provided
in clause (b) below), without notice or demand and at the expense of Grantors,
Secured Party may, to the extent it may be necessary or desirable to protect
the security hereunder, but Secured Party shall not be obligated to: (a) enter
upon any premises on which Collateral is situated and examine the same or (b)
after an Event of Default has occurred and is continuing, perform any
obligation of Grantors under this Agreement or any obligation of any other
party under the Loan Documents. At any time and from time to time (except as
provided in clause (iii) below), at the expense of Grantors, Secured Party may
to the extent it may be necessary or desirable to protect the security
hereunder, but Secured Party shall not be obligated to: (i) notify obligors on
the Collateral that the Collateral has been assigned to Secured Party; (ii) at
any time and from time to time request from obligors on the Collateral, in the
name of Grantors or in the name of Secured Party, information concerning the
Collateral and the amounts owing thereon; and (iii) after an Event of Default
has occurred and is continuing, cause the Collateral to be registered in the
name of Secured Party, as legal owner. Grantors shall maintain books and
records pertaining to the Collateral in such detail, form and scope as Secured
Party shall reasonably require consistent with Secured Party's interests
hereunder. Grantors will at any time at Secured Party's request mark the
Collateral and/or Grantors' ledger cards, books of account, and other records
relating to the Collateral with appropriate notations satisfactory to Secured
Party disclosing that they are subject to Secured Party's security interests.
Secured Party shall at all times on notice have full access to and the right to
audit any and all of Grantors' books and records pertaining to the Collateral,
and to confirm and verify the value of the Collateral and to do whatever else
Secured Party may deem necessary or desirable to protect its interests.
Secured Party shall be under no duty or obligation whatsoever to take any
action to preserve any rights of or against any prior or other parties in
connection with the Collateral, or make or give any presentments, demands for
performance, notices of non-performance, protests, notices of protests, notices
of dishonor, or notices of any other nature whatsoever in connection with the
Collateral or the Obligations. Secured Party shall be under no duty or
obligation whatsoever to take any action to protect or preserve the Collateral
or any rights of Grantors therein, or to make collections or enforce payment
thereon, or to participate in any foreclosure or other proceeding in connection
therewith.
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<PAGE> 8
6. Collections on the Collateral. Grantors shall
have the right to use and to continue to make collections on and receive other
proceeds of all of the Collateral in the ordinary course of business so long as
no Event of Default shall have occurred and be continuing. Upon the occurrence
of an Event of Default, at the option of Secured Party, Grantors' right to make
collections on and receive proceeds of the Collateral and to use or dispose of
such collections and proceeds shall terminate, and any and all proceeds and
collections, including all partial or total prepayments, then held or
thereafter received on or on account of the Collateral will be held or received
by Grantors in trust for Secured Party and immediately delivered to same. Any
remittance received by Grantors from customers shall be presumed to relate to
the Collateral and to be subject to the Secured Party's security interests.
Upon the occurrence of an Event of Default, Secured Party shall have the right
at all times to receive, receipt for, endorse, assign, deposit and deliver, in
the name of Secured Party or in the name of Grantors, any and all checks,
notes, drafts and other instruments for the payment of money constituting
proceeds of or otherwise relating to the Collateral; and each Grantor hereby
authorizes Secured Party to affix, by facsimile signature or otherwise, the
general or special endorsement of it, in such manner as Secured Party shall
deem advisable, to any such instrument in the event the same has been delivered
to or obtained by Secured Party without appropriate endorsement, and Secured
Party and any collecting bank are hereby authorized to consider such
endorsement to be a sufficient, valid and effective endorsement by such
Grantor, to the same extent as though it were manually executed by the duly
authorized officer of such Grantor, regardless of by whom or under what
circumstances or by what authority such facsimile signature or other
endorsement actually is affixed, without duty of inquiry or responsibility as
to such matters, and Grantors hereby expressly waives demand, presentment,
protest and notice of protest or dishonor and all other notices of every kind
and nature with respect to any such instrument.
7. Possession of Collateral by Secured Party. All
the Collateral now, heretofore or hereafter delivered to Secured Party shall be
held by Secured Party in its possession, custody and control. Any or all of
the Collateral consisting of money delivered to Secured Party shall be held in
an interest bearing account, and prior to an Event of Default, interest thereon
shall accrue to Grantors; however, Grantors shall not be entitled to any other
compensation thereon or by reason of Secured Party's possession and/or use
thereof. Upon the occurrence of an Event of Default, whenever any of the
Collateral is in Secured Party's possession, Secured Party may use, operate and
consume the Collateral, whether for the purpose of preserving and/or protecting
the Collateral, or for the purpose of performing any of Grantors' obligations
with
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<PAGE> 9
respect thereto, or otherwise. Secured Party may at any time deliver or
redeliver the Collateral or any part thereof to Grantors, and the receipt of
any of the same by Grantors shall be complete and full acquittance for the
Collateral so delivered, and Secured Party thereafter shall be discharged from
any liability or responsibility therefor. So long as Secured Party exercises
reasonable care with respect to any Collateral in its possession, custody or
control, Secured Party shall have no liability for any loss of or damage to
such Collateral, and in no event shall Secured Party have liability for any
diminution in value of Collateral occasioned by economic or market conditions
or events. Secured Party shall be deemed to have exercised reasonable care
within the meaning of the preceding sentence if the Collateral in the
possession, custody or control of Secured Party is accorded treatment
substantially equal to that which Secured Party accords its own similar
property, it being understood that Secured Party shall not have any
responsibility for taking any necessary steps to preserve rights against any
Person with respect to any Collateral.
8. Events of Default. There shall be an Event of
Default hereunder upon the occurrence of an Event of Default under the Loan
Agreement.
9. Remedies.
9.1 Rights Upon Event of Default. Upon the
occurrence of an Event of Default, Secured Party shall have in any jurisdiction
where enforcement hereof is sought, in addition to all other rights and
remedies which Secured Party may have under applicable law or in equity or
under this Agreement (including, without limitation, all rights set forth in
Section 6 hereof) or under any other Loan Document, all of its rights and
remedies as a secured party under the Uniform Commercial Code as enacted in any
jurisdiction, and in addition the following rights and remedies, all of which
may be exercised to the maximum extent permitted by law with or without further
notice to Grantors and without affecting the liability of Grantors hereunder or
the enforceability of the security interests created hereby: (a) to foreclose
the liens and security interests created hereunder or under any other agreement
relating to any Collateral by any available judicial procedure or without
judicial process; (b) to enter any premises where any Collateral may be located
for the purpose of taking possession of or removing the same; (c) to sell,
assign, lease or otherwise dispose of any Collateral or any part thereof,
either at public or private sale or at any broker's board, in lot or in bulk,
for cash, on credit or otherwise, with or without representations or warranties
and upon such terms as shall be acceptable to Secured Party; (d) to notify
obligors on the Collateral that the Collateral has been
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assigned to Secured Party and that all payments thereon are to be made directly
and exclusively to Secured Party; (e) to collect by legal proceedings or
otherwise all interest, principal or other sums now or hereafter payable upon
or on account of the Collateral; (f) to enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral, and in connection therewith,
Secured Party may deposit or surrender control of the Collateral and/or accept
other property in exchange for the Collateral; (g) to settle, compromise or
release, on terms acceptable to Secured Party, in whole or in part, any amounts
owing on the Collateral; (h) to extend the time of payment, make allowances and
adjustments and issue credits in connection with the Collateral in the name of
Secured Party or in the name of Grantors; (i) to enforce payment and prosecute
any action or proceeding with respect to any or all of the Collateral and take
or bring, in the name of Secured Party or in the name of Grantors, steps,
actions, suits or proceedings deemed by Secured Party necessary or desirable to
effect collection of or to realize upon the Collateral, including any judicial
or nonjudicial foreclosure thereof or thereon, and Grantors specifically
consents to any nonjudicial foreclosure of any or all of the Collateral or any
other action taken by Secured Party which may release any obligor from personal
liability on any of the Collateral, and each Grantor waives any right not
expressly provided for in this Agreement to receive notice of any public or
private judicial or nonjudicial sale or foreclosure of any security or any of
the Collateral; and any money or other property received by Secured Party in
exchange for or on account of the Collateral, whether representing collections
or proceeds of Collateral, and whether resulting from voluntary payments or
foreclosure proceedings or other legal action taken by Secured Party or
Grantors shall be applied by Secured Party without notice to Grantors to the
Obligation(s) in the order and manner as is provided for in the Loan Agreement
or, if no such provision is applicable, in such order and manner as Secured
Party in its sole discretion shall determine; (j) to insure, process and
preserve the Collateral; (k) to exercise all rights under any of the Loan
Documents; (l) to remove from any premises where the same may be located, the
Collateral and any and all documents, instruments, files and records, and any
receptacles and cabinets containing the same, relating to the Collateral, and
Secured Party may, at the cost and expense of Grantors, use such of its
supplies and space at its places of business as may be necessary to properly
administer and control the portion of the Collateral owned by it or the
handling of collections and realizations thereon; (m) to receive, open and
dispose of all mail addressed to Grantors and notify postal authorities to
change the address for delivery thereof to such address as Secured Party may
designate; provided that Secured Party agrees that it will promptly deliver
over to Grantors such opened mail as does not
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relate to the Collateral; and (n) to exercise all other rights, powers and
remedies of an owner of the Collateral; all at Secured Party's sole option and
as Secured Party in its sole discretion may deem advisable. Grantors will, at
Secured Party's request, assemble all Collateral and make it available to
Secured Party at places which Secured Party may designate, whether at the
premises of Grantors or elsewhere, and will make available to Secured Party all
premises and facilities of Grantors for the purpose of Secured Party's taking
possession of the Collateral or removing or putting the Collateral in salable
form.
9.2 Possession by Secured Party. Upon the occurrence
of an Event of Default, Secured Party also shall have the right, without notice
or demand, either in person, by agent or by a receiver to be appointed by a
court (and Grantors hereby expressly consent to the appointment of such a
receiver), and without regard to the adequacy of any security for the
Obligations, to take possession of the Collateral or any part thereof and to
collect and receive the rents, issues, profits, income and proceeds thereof.
Taking possession of the Collateral shall not cure or waive any Event of
Default or notice thereof or invalidate any act done pursuant to such notice.
The rights, remedies and powers of any receiver appointed by a court shall be
as ordered by said court.
9.3 Sale of Collateral. Any public or private
sale or other disposition of the Collateral may be held at any office of
Secured Party, or at Grantors' places of business, or at any other place
permitted by applicable law, and without the necessity of the Collateral's
being within the view of prospective purchasers. Secured Party may direct the
order and manner of sale of the Collateral, or portions thereof, as it in its
sole and absolute discretion may determine. Secured Party or any Person on
Secured Party's behalf may bid and purchase at any such sale or other
disposition.
9.4 Notice of Sale. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will send or otherwise
make available to Grantors reasonable notice of the time and place of any
public sale thereof or of the time on or after which any private sale or other
disposition thereof is to be made. The requirement of sending reasonable
notice conclusively shall be met if such notice is mailed, first class mail,
postage prepaid, to Grantors at the address set forth in the Loan Agreement at
least five (5) days before the time of the sale or disposition. Grantor
expressly waive any right to receive notice of any public or private sale of
any Collateral or other security for the Obligation(s) except as expressly
provided for in the preceding sentence.
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9.5 Title of Purchasers. Upon consummation of any
sale of Collateral hereunder, Secured Party shall have the right to assign,
transfer and deliver to the purchaser or purchasers thereof the Collateral so
sold. Each such purchaser at any such sale shall hold the Collateral so sold
absolutely free from any claim or right upon the part of Grantors or any other
person claiming through Grantors, and Grantors hereby waive (to the extent
permitted by law) all rights of redemption, stay and appraisal which they now
have or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. If the sale of all or any part of the
Collateral is made on credit or for future delivery, Secured Party shall not be
required to apply any portion of the sale price to the Obligations until such
amount is actually received by Secured Party, and any Collateral so sold may be
retained by Secured Party until the sale price is paid in full by the purchaser
or purchasers thereof. Secured Party shall not incur any liability in case any
such purchaser or purchasers shall fail to pay for the Collateral so sold, and,
in case of any such failure, the Collateral may be sold again.
10. Secured Party Appointed Attorney-in-Fact. Each Grantor
hereby irrevocably nominates and appoints Secured Party as its attorney-in-fact
for the following purposes: (a) to do all acts and things which Secured Party
may deem necessary or advisable to perfect and continue perfected the security
interests created by this Agreement and, upon the occurrence of an Event of
Default, to preserve, process, develop, maintain and protect the Collateral;
(b) to prepare, sign, file and/or record, for such Grantor in the name of such
Grantor, any financing statement, application for registration, and like papers
and to take any other action deemed by Secured Party necessary or desirable in
order to perfect the security interests granted hereby; (c) to execute any and
all papers and instruments and do all other things necessary or desirable to
preserve and protect the Collateral and to protect Secured Party's security
interests therein; and (d) upon the occurrence of an Event of Default, to do
any and every act which such Grantor is obligated to do under this Agreement,
at the expense of such Grantor; provided, however, that Secured Party shall be
under no obligation whatsoever to take any of the foregoing actions, and absent
bad faith or actual malice, Secured Party shall have no liability or
responsibility for any act or omission taken with respect thereto.
11. Costs and Expenses. Grantors agree to pay to
Secured Party all costs and expenses (including without limitation reasonable
attorneys' fees and disbursements, including the allocated costs of in-house
counsel) incurred by Secured Party in the enforcement of this Agreement with
regard to the Collateral owned by it, whether or not an action is filed in
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connection therewith, and in connection with any waiver or amendment of any
term or provision hereof. All advances, charges, costs and expenses, including
reasonable attorneys' fees, incurred or paid by Secured Party in exercising any
right, power or remedy conferred by this Agreement (including without
limitation the right to perform any Obligation of Grantor under the Loan
Documents), or in the enforcement thereof, shall be secured hereby and shall
become a part of the Obligations and shall be paid to Secured Party by
Grantors, immediately upon demand, together with interest thereon at the
rate(s) provided for under the Loan Agreement.
12. Statute of Limitations and Other Laws. Until the
Obligations shall have been paid and performed in full, the power of sale and
all other rights, powers and remedies granted to Secured Party hereunder shall
continue to exist and may be exercised by Secured Party at any time and from
time to time irrespective of the fact that any of the Obligations may have
become barred by any statute of limitations. Grantors expressly waive the
benefit of any and all statutes of limitation, laws providing for exemption of
property from execution or for valuation and appraisal upon foreclosure to the
maximum extent permitted by applicable law.
13. Other Agreements. Nothing herein shall in any way modify
or limit the effect of terms or conditions set forth in any other security or
other agreement executed by Grantors or in connection with the Obligations, but
each and every term and condition hereof shall be in addition thereto.
14. Liens on Real Property. In the event that all or any part
of the Obligations at any time are secured by any one or more deeds of trust or
mortgages or other instruments creating or granting liens on any interest in
real property, Grantors authorize Secured Party, upon the occurrence of any
Event of Default, at the sole option of Secured Party, without notice or demand
and without affecting any Obligations of Grantors, the enforceability of this
Agreement, or the validity or enforceability of any liens of Secured Party on
any Collateral, to foreclose any or all of such deeds of trust or mortgages or
other instruments by judicial or nonjudicial sale. Grantors expressly waive
any defenses to the enforcement of this Agreement or any liens created or
granted hereby or to the recovery by Secured Party against any guarantor or any
other Person liable therefor of any deficiency after a judicial or nonjudicial
foreclosure or sale. Grantors expressly waive any defenses or benefits that
may be derived from California Code of Civil Procedure Section Section 580a,
580b, 580d or 726, or comparable provisions of the laws of any other
jurisdiction, and all other suretyship defenses it otherwise might or would
have under California law or other applicable law.
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15. Understandings With Respect to Waivers and Consents.
Grantors warrant and agree that each of the waivers and consents set forth
herein are made with full knowledge of their significance and consequences,
with the understanding that events giving rise to any defense or right waived
may diminish, destroy or otherwise adversely affect rights which Grantors
otherwise may have against Secured Party or others, or against any Collateral.
If any of the waivers or consents herein are determined to be unenforceable
under applicable law, such waivers and consents shall be effective to the
maximum extent permitted by law.
16. Governing Law. This Agreement shall be governed and
construed in accordance with the Laws of the State of California.
IN WITNESS WHEREOF, Grantors have executed this Agreement
by its duly authorized officers as of the date first written above.
"Grantors":
ARLEN AUTOMOTIVE, INC., GRANT PRODUCTS, INC.,
a Delaware corporation a Delaware corporation
By /s/ Allan J. Marrus By /s/ Tommy A. Poteet
------------------- -------------------
Allan J. Marrus Tommy A. Poteet
President President
By /s/ Stephen B. Delman By /s/ Stephen B. Delman
--------------------- ---------------------
Stephen B. Delman Stephen B. Delman
Assistant Secretary Assistant Secretary
G.T. STYLING, INC.,
a California corporation
By /s/ Jeffery J. Gati
-------------------
Jeffery J. Gati
President
By /s/ Stephen B. Delman
---------------------
Stephen B. Delman
Assistant Secretary
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EXHIBIT 4.9.4
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PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Agreement"), dated as of August 10,
1995, is made by ARLEN AUTOMOTIVE, INC., a Delaware corporation ("Grantor"), in
favor of SUMITOMO BANK OF CALIFORNIA ("Secured Party"), with reference to the
following facts:
RECITALS
A. Pursuant to a Commercial Loan Agreement of even
date herewith, by and among Grantor, Grant Products, Inc., a Delaware
corporation ("Grant"), and G.T. Styling, Inc., a California corporation
("G.T.") (each a "Borrower" and, collectively, "Borrowers") and Secured Party
(as the same may from time to time be supplemented, modified, amended, replaced
or supplemented the "Loan Agreement") and the related documents, Secured Party
has agreed to extend credit facilities to Borrowers. Borrowers will borrow up
to ELEVEN MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS ($11,550,000), as
evidenced by the Revolving Line Note, the Non-Revolving Line Note and the Term
Note and other agreements executed by Borrowers in favor of Bank. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth
in the Loan Agreement.
B. Grantor is the owner of 100% of the issued and
outstanding capital stock of Grant and G.T.
C. As a condition to the extension of credit to
Borrowers by Secured Party and to induce Secured Party to continue to extend
credit to Borrowers, Grantor has agreed to the terms and conditions contained
herein and to allow certain collateral to be used as security for the payment
and performance of certain obligations of Borrowers to Secured Party.
AGREEMENT
NOW, THEREFORE, in order to induce Secured Party to extend
credit facilities to Borrowers under the Loan Agreement, and for other good and
valuable consideration, the receipt and adequacy of which hereby is
acknowledged, Grantor hereby represents, warrants, covenants, agrees, and
pledges as follows:
1. Definitions. Terms defined in the Loan Agreement and not
otherwise defined in this Agreement shall have the meanings given those terms
in the Loan Agreement as though set forth
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herein in full. The following terms shall have the meanings respectively set
forth after each:
"Agreement" means this Pledge Agreement and any extensions,
modifications, renewals, restatements, supplements or amendments
thereof.
"Certificates" means and includes all certificates,
instruments or other documents now or hereafter representing or
evidencing any Pledged Securities.
"Grantor" means Arlen Automotive, Inc., a Delaware
corporation.
"Obligations" means and includes all loans, advances,
debts, liabilities, obligations or any other financial
accommodations, howsoever arising, owing by Borrowers to Secured
Party of every kind and description (whether or not evidenced by a
note or other instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising pursuant to the terms
of the Loan Agreement and all documents executed in connection
therewith, including, without limitation, all interest, fees,
charges, expenses, reasonable attorneys' fees and accountants' fees
chargeable to Borrowers or incurred by Secured Party in connection
with its dealings with Borrowers.
"Person" means and includes any natural person,
corporation, firm, association, government, governmental agency or
any other entity, whether acting in an individual, fiduciary or
other capacity.
"Pledged Collateral" means (i) the Pledged Securities and
the Certificates representing or evidencing same, (ii) any other
property of Grantor from time to time delivered to Secured Party
pursuant to a writing which designates the same as "Pledged
Collateral" under this Agreement and (iii) any and all proceeds and
products of any of the foregoing, and any and all collections,
dividends (whether in cash, stock or otherwise), distributions,
redemption payments or liquidation payments with respect to any of
the foregoing.
"Pledged Securities" means (i) any and all shares of
capital stock owned or hereafter acquired by Grantor in Grant and
G.T. (the "Pledged Companies"), (ii) any and all securities now or
hereafter issued in substitution, exchange or replacement therefor,
or with respect thereto, (iii) any and all warrants, options or
other rights to subscribe to or acquire any additional capital
stock of
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the Pledged Companies owned by Grantor, and (iv) any and all
additional capital stock of the Pledged Companies owned by Grantor.
2. Creation of Security Interest.
2.1 Pledge of Pledged Collateral. Grantor hereby pledges
to Secured Party and grants to Secured Party a security interest in and to all
Pledged Collateral for the benefit of Secured Party, together with all
products, proceeds, dividends, redemption payments, liquidation payments, cash,
instruments and other property, and any and all rights, titles, interests,
privileges, benefits and preferences appertaining or incidental to the Pledged
Collateral, provided, however, that the pledge of the stock of Grant shall not
take effect until the release of the lien of Bank Leumi Trust Company of New
York in said stock, pursuant to the Subordination Agreement required under
Section 5.1(n) of the Loan Agreement. The security interest and pledge created
by this Section 2.1 shall continue in effect so long as any Obligations are
owed to Secured Party or any commitment to extend credit to Grantor remains
outstanding from Secured Party.
2.2 Delivery of Certain Pledged Collateral. On or before
the execution hereof, Grantor shall cause to be pledged and delivered to
Secured Party the Certificates evidencing One Hundred percent (100%) of the
capital stock of the Pledged Companies. At any time after the date hereof,
additional Pledged Collateral may from time to time be delivered to Secured
Party by agreement between Secured Party and Grantor. All Certificates at any
time delivered to Secured Party shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.
Secured Party shall hold all Certificates pledged hereunder pursuant to this
Agreement unless and until released in accordance with Section 2.3 of this
Agreement.
2.3 Release of Pledged Collateral. Pledged Collateral
that is required to be released from the pledge and security interest created
by this Agreement in order to permit Grantor to consummate any disposition of
stock or assets, merger, consolidation, amalgamation, investment, acquisition,
dividend or distribution that does not violate the terms of the Loan Agreement,
if any, shall be so released by Secured Party at such times and to the extent
necessary to permit Grantor to consummate such permitted transactions promptly
following Secured Party's receipt of written request therefor by Grantor and
the Pledged Companies specifying the purpose for which release is requested and
such further certificates or other documents as Secured Party reasonably shall
request in its discretion to confirm that Grantor is permitted to consummate
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such permitted transaction and to confirm Secured Party's replacement lien on
appropriate collateral.
3. Security for Obligations. This Agreement and the pledge
and security interests granted herein secure the prompt payment, in full in
cash, and full performance of, all Obligations, whether for principal,
interest, fees, expenses or otherwise, including, without limitation, all
Obligations of Grantor now or hereafter existing under this Agreement, and all
interest that accrues on all or any part of any of the Obligations after the
filing of any petition or pleading against Grantor, any one of the Borrowers,
the Pledged Companies or any other Person for a proceeding under any bankruptcy
or debtor relief law.
4. Covenants. In accordance with the terms of the Loan
Agreement, Grantor hereby agrees that Grantor shall not, without Secured
Party's prior written consent, transfer all or any portion or its ownership
interest in the Pledged Companies to any Person other than Secured Party.
5. Further Assurances. Grantor agrees that at any time, and
from time to time, at its own expense Grantor will promptly execute, deliver
and file or record all further financing statements, instruments and documents,
and will take all fur-ther actions, including, without limitation, causing the
Pledged Companies to so execute, deliver, file or take other actions, that may
be necessary or desirable, or that Secured Party reasonably may request, in
order to perfect and protect any pledge or security interest granted hereby or
to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral and to preserve, protect and
maintain the Pledged Collateral and the value thereof, including, without
limitation, payment of all taxes, assessments and other charges imposed on or
relating to the Pledged Collateral. Grantor hereby consents and agrees that
the issuers of, or obligors on, the Pledged Collateral, or any registrar or
transfer agent or trustee for any of the Pledged Collateral, shall be entitled
to accept the provisions of this Agreement as conclusive evidence of the right
of Secured Party to effect any transfer or exercise any right hereunder,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by Grantor or any other Person to such issuers or such obligors
or to any such registrar or transfer agent or trustee.
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6. Voting Rights; Dividends; etc. So long as no Event of
Default under the Loan Agreement occurs and remains continuing:
6.1 Voting Rights. Grantor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Pledged
Securities, or any part thereof, for any purpose not prohibited by the terms of
this Agreement, the Loan Agreement, or the other documents executed in
connection therewith; provided, however, that Grantor shall not exercise, or
shall refrain from exercising, any such right if it would result in an Event of
Default.
6.2 Dividend and Distribution Rights. Grantor shall be
entitled to receive and to retain and use any and all dividends or
distributions paid in respect of the Pledged Securities; provided, however,
that any and all such dividends or distributions received in the form of
capital stock shall be, and the Certificates representing such capital stock
forthwith shall be delivered to Secured Party to hold as, Pledged Collateral
and shall, if received by Grantor, be received in trust for the benefit of
Secured Party, be segregated from the other property of Grantor, and forthwith
be delivered to Secured Party as Pledged Collateral in the same form as so
received (with any necessary endorsements).
7. Rights During Event of Default. When an Event of Default
has occurred and is continuing:
7.1 Voting, Dividend, and Distribution Rights. At the
option of Secured Party, all rights of Grantor to exercise the voting and other
consensual rights which Grantor would otherwise be entitled to exercise
pursuant to Section 6.1 above, and to receive the dividends and distributions
which it would otherwise be authorized to receive and retain pursuant to
Section 6.2 above, shall cease, and all such rights shall thereupon become
vested in Secured Party who shall thereupon have the sole right to exercise
such voting and other consensual rights and to receive and to hold as Pledged
Collateral such dividends and distributions. Secured Party shall give notice
to Grantor of its election to exercise voting rights with respect to the
Pledged Collateral; provided, however, that (i) neither the giving of such
notice nor the receipt thereof by Grantor shall be a condition to exercise of
any rights of Secured Party hereunder, and (ii) Secured Party shall incur no
liability for failing to give such notice.
7.2 Dividends and Distributions Held in Trust. All
dividends and other distributions which are received by Grantor contrary to the
provisions of this Agreement shall be received in trust for the benefit of
Secured Party, shall be segregated
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from other funds of Grantor, and forthwith shall be paid over to Secured Party
as Pledged Collateral in the same form as so received (with any necessary
endorsements).
7.3 Irrevocable Proxy. Grantor hereby revokes all
previous proxies with regard to the Pledged Securities and appoints Secured
Party as its proxyholder to attend and vote at any and all meetings of the
shareholders of the corporations which issued the Pledged Securities, and any
adjournments thereof, held on or after the date of the giving of this proxy and
prior to the termination of this proxy and to execute any and all written
consents of shareholders of such corporations executed on or after the date of
the giving of this proxy and prior to the termination of this proxy, with the
same effect as if Grantor had personally attended the meetings or had
personally voted its shares or had personally signed the written consents;
provided, however, that the proxyholder shall have rights hereunder only upon
the occurrence and during the continuance of an Event of Default under the Loan
Agreement and only when so elected by Secured Party. Grantor hereby authorizes
Secured Party to substitute another person as the proxyholder and, upon the
occurrence or during the continuance of any Event of Default, hereby authorizes
and directs the proxyholder to file this proxy and the substitution instrument
with the secretary of the appropriate corporation. This proxy is coupled with
an interest and is irrevocable until such time as no commitment to extend
credit to Grantor remains outstanding from Secured Party and until such time as
all Obligations have been paid and performed in full.
8. Transfers and Other Liens. Grantor agrees that, except as
specifically permitted under the Loan Agreement or the other documents executed
in connection therewith, Grantor will not (i) sell, assign, exchange, transfer
or otherwise dispose of, or contract to sell, assign, exchange, transfer or
otherwise dispose of, or grant any option with respect to, any of the Pledged
Collateral, (ii) create or permit to exist any lien upon or with respect to any
of the Pledged Collateral, except for liens in favor of Secured Party, or (iii)
take any action with respect to the Pledged Collateral which is prohibited by
the provisions or purposes of this Agreement or the Loan Agreement.
9. Secured Party Appointed Attorney-in-Fact. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor, and in the name of Grantor, or
otherwise, from time to time, in Secured Party's sole and absolute discretion
to do any of the following acts or things: (a) to do all acts and things and
to execute all documents necessary or advisable to perfect and continue
perfected the security interests created by this Agreement and to preserve,
maintain and protect the Pledged
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Collateral; (b) to do any and every act which Grantor is obligated to do under
this Agreement; (c) to prepare, sign, file and record, in Grantor's name, any
financing statement covering the Pledged Collateral; and (d) to endorse and
transfer the Pledged Collateral upon foreclosure by Secured Party; provided,
however, that Secured Party shall be under no obligation whatsoever to take any
of the foregoing actions, and Secured Party shall have no liability or
responsibility for any act (other than Secured Party's own gross negligence or
willful misconduct) or omission taken with respect thereto. Grantor hereby
agrees to repay immediately upon demand all reasonable costs and expenses
incurred or expended by Secured Party in exercising any right or taking any
action under this Agreement, together with interest as provided for in the Loan
Agreement.
10. Secured Party May Perform Obligations: If Grantor fails to
perform any Obligation contained herein, Secured Party may, but without any
obligation to do so and without notice to or demand upon Grantor, perform the
same and take such other action as Secured Party may deem necessary or
desirable to protect the Pledged Collateral or Secured Party's security
interests therein, Secured Party being hereby authorized (without limiting the
general nature of the authority hereinabove conferred) to pay, purchase,
contest and compromise any lien which in the reasonable judgment of Secured
Party appears to be prior or superior to Secured Party's security interests,
and in exercising any such powers and authority to pay necessary expense,
employ counsel and pay reasonable attorneys' fees. Grantor hereby agrees to
repay immediately upon demand all sums so expended by Secured Party, together
with interest from the date of expenditure at the rates provided for in the
Loan Agreement. Secured Party shall not be under any duty or obligation to (i)
preserve, maintain or protect the Pledged Collateral or any of any Grantor's
rights or interest therein, (ii) exercise any voting rights with respect to the
Pledged Collateral, whether or not an Event of Default has occurred or is
continuing, or (iii) make or give any notices of default, presentments, demands
for performance, notices of nonperformance or dishonor, protests, notices of
protest or notice of any other nature whatsoever in connection with the Pledged
Collateral on behalf of Grantor or any other Person having any interest
therein; and Secured Party does not assume and shall not be obligated to
perform the obligations of Grantor, if any, with respect to the Pledged
Collateral.
11. Reasonable Care. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially similar to that which Secured Party accords its own property, it
being under-stood that Secured Party shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, con-
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versions, exchanges, maturities, tenders or other matters relative to any
Pledged Collateral, whether or not Secured Party has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve
rights against any Person with respect to any Pledged Collateral.
12. Events of Default and Remedies.
12.1 Rights Upon Event of Default. Upon the occurrence
and during the continuance of an Event of Default, Grantor shall be in default
hereunder and Secured Party shall have in any jurisdiction where enforcement is
sought, in addition to all other rights and remedies that Secured Party may
have under this Agreement and under applicable law or in equity, all of its
rights and remedies as a secured party under the Uniform Commercial Code as
enacted in any such jurisdiction, and in addition the following rights and
remedies, all of which may be exercised with or without further notice to
Grantor:
(a) to notify any issuer of any Pledged
Securities, and any and all other obligors on any Pledged Collateral, that the
same has been pledged to Secured Party and that all dividends and other
payments thereon are to be made directly and exclusively to Secured Party; to
renew, extend, modify, amend, accelerate, accept partial payments on, make
allowances and adjustments and issue credits with respect to, release, settle,
compromise, compound, collect or otherwise liquidate, on terms acceptable to
Secured Party, in whole or in part, the Pledged Collateral and any amounts
owing thereon or any guaranty or security therefor; to enter into any other
agreement relating to or affecting the Pledged Collateral; and to give all
consents, waivers and ratifications with respect to the Pledged Collateral and
exercise all other rights (including voting rights), powers and remedies and
otherwise act with respect thereto as if Secured Party were the owner thereof;
(b) to enforce payment and prosecute any
action or proceeding with respect to any and all of the Pledged Collateral and
take or bring, in Secured Parties' names or in the name of Grantor, all steps,
actions, suits or proceedings deemed by Secured Party necessary or desirable to
effect collection of or to realize upon the Pledged Collateral;
(c) in accordance with applicable law, to take
possession of the Pledged Collateral with or without judicial process;
(d) to endorse, in the name of Grantor, all
checks, notes, drafts, money orders, instruments and other evidences of payment
relating to the Pledged Collateral;
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(e) to transfer any or all of the Pledged
Collateral into the name of Secured Party or its nominee or nominees; and
(f) in accordance with applicable law, to
foreclose the liens and security interests created under this Agreement or
under any other agreement relating to the Pledged Collateral by any available
judicial procedure or without judicial process, and to sell, assign or
otherwise dispose of the Pledged Collateral or any part thereof, either at
public or private sale or at any broker's board or securities exchange, in lots
or in bulk, for cash, on credit or on future delivery, or otherwise, with or
without representations or warranties, and upon such terms as shall be
acceptable to Secured Party; all at the sole option of and in the sole
discretion of Secured Party.
12.2 Notice of Sale. Secured Party shall give Grantor at
least five (5) days' written notice of sale of all or any part of the Pledged
Collateral. Any sale of the Pledged Collateral shall be held at such time or
times and at such place or places as Secured Party may determine in the
exercise of its sole and absolute discretion. Secured Party may bid (which bid
may be, in whole or in part, in the form of cancellation of Obligations) for
and purchase for the account of Secured Party or any nominee of Secured Party
the whole or any part of the Pledged Collateral. Secured Party shall not be
obligated to make any sale of the Pledged Collateral if it shall determine not
to do so regardless of the fact that notice of sale of the Pledged Collateral
may have been given. Secured Party may, without notice or publication, adjourn
the sale from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned.
12.3 Private Sales. Whether or not any of the Pledged
Collateral has been effectively registered under the Securities Act of 1933 or
other applicable laws, Secured Party may, in its sole and absolute discretion,
sell all or any part of the Pledged Collateral at private sale in such manner
and under such circumstances as Secured Party may deem necessary or advisable
in order that the sale may be lawfully conducted. Without limiting the
foregoing, Secured Party may (i) approach and negotiate with a limited number
of potential purchasers, and (ii) restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing the
Pledged Collateral for their own account for investment and not with a view to
the distribution or resale thereof. In the event that any of the Pledged
Collateral is sold at private sale, Grantor agrees that if the Pledged
Collateral is sold for a price which Secured Party in good faith believes to be
reasonable, then (A) the sale shall be deemed to be commercially
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reasonable in all respects, (B) Grantor shall not be entitled to a credit
against the Obligations in an amount in excess of the purchase price, and (C)
Secured Party shall not incur any liability or responsibility to Grantor in
connection therewith, notwithstanding the possibility that a substantially
higher price might have been realized at a public sale. Grantor recognizes
that a ready market may not exist for Pledged Collateral which is not regularly
traded on a recognized securities exchange, and that a sale by the Secured
Party of any such Pledged Collateral for an amount substantially less than a
pro rata share of the fair market value of the issuer's assets minus
liabilities may be commercially reasonable in view of the difficulties that may
be encountered in attempting to sell a large amount of Pledged Collateral or
Pledged Collateral that is privately traded.
12.4 Title of Purchasers. Upon consummation of any sale
of Pledged Collateral pursuant to this Section 12, Secured Party shall have the
right to assign, transfer and deliver to the purchaser or purchasers thereof
the Pledged Collateral so sold. Each such purchaser at any such sale shall
hold the Pledged Collateral sold absolutely free from any claim or right on the
part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. If the sale of all or any part of the Pledged
Collateral is made on credit or for future delivery, Secured Party shall not be
required to apply any portion of the sale price to the Obligations until such
amount actually is received by Secured Party, and any Pledged Collateral so
sold may be retained by Secured Party until the sale price is paid in full by
the purchaser or purchasers thereof. Secured Party shall not incur any
liability in case any such purchaser or purchasers shall fail to pay for the
Pledged Collateral so sold, and, in case of any such failure, the Pledged
Collateral may be sold again upon like notice.
12.5 Disposition of Proceeds of Sale. The net cash
proceeds resulting from the collection, liquidation, sale or other disposition
of the Pledged Collateral shall be applied, first, to the reasonable costs and
expenses (including reasonable attorneys fees) of retaking, holding, storing,
processing and preparing for sale, selling, collecting and liquidating the
Pledged Collateral, and the like; second, to the satisfaction of all
Obligations, with application as to any particular Obligations to be in the
order set forth in the Loan Agreement or other documents executed in connection
therewith; and, third, to all other indebtedness secured hereby in such order
and manner as Secured Party in its sole and absolute discretion may determine.
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13. Covenant Not to Issue Uncertificated Securities. Grantor
represents and warrants to Secured Party that all of the capital stock of the
Pledged Companies is in certificated form (as contemplated by Division 8 of the
California Commercial Code), and covenants to Secured Party that Grantor will
use its best efforts to prevent the Pledged Companies from issuing any capital
stock in uncertificated form or seeking to convert all or any part of its
existing capital stock into uncertificated form (as contemplated by Division 8
of the California Commercial Code).
14. Covenant Not to Dilute Interests of Secured Party in
Pledged Securities. Grantor represents, warrants and covenants to Secured
Party that Grantor will not at any time vote to authorize the Pledged Companies
to issue any additional capital stock, or any warrants, options or other rights
to acquire any additional capital stock, if the effect thereof would be to
dilute in any way the interests of Secured Party in any Pledged Securities or
any corporation whose securities constitute Pledged Securities.
15. Attorneys Fees. Grantor agrees to pay to Secured Party all
costs and expenses (including without limitation reasonable attorneys' fees and
disbursements, including the allocated costs of in-house counsel) incurred by
Secured Party in the enforcement of this Agreement with regard to the
Collateral owned by it, whether or not an action is filed in connection
therewith, and in connection with any waiver or amendment of any term or
provision hereof. All advances, charges, costs and expenses, including
reasonable attorneys' fees, incurred or paid by Secured Party in exercising any
right, power or remedy conferred by this Agreement (including without
limitation the right to perform any Obligation of Grantor under the loan
documents), or in the enforcement thereof, shall be secured hereby and shall
become a part of the Obligations and shall be paid to Secured Party by Grantor,
immediately upon demand, together with interest thereon at the rate(s) provided
for under the Loan Agreement.
16. Governing Law. This Agreement shall be governed and
construed in accordance with the Laws of the State of California.
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17. Successors and Assigns of Secured Party. This Agreement
shall inure to the benefit of the successors and assigns of Secured Party.
IN WITNESS WHEREOF, Grantor has caused this Agreement to be
duly executed as of the date first above written.
"Grantor"
ARLEN AUTOMOTIVE, INC.,
a Delaware corporation
By: Allan J. Marrus
---------------
Allan J. Marrus
President
By: /s/ Stephen B. Delman
---------------------
Stephen B. Delman
Assistant Secretary
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EXHIBIT 4.9.5
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GUARANTY
This Guaranty ("Guaranty") is made as of August 10, 1995, by ARLEN
HOLDINGS CORP., a Delaware corporation ("Guarantor") in favor of SUMITOMO BANK
OF CALIFORNIA ("Bank").
Factual Background
A. Guarantor is executing this Guaranty to induce Bank to make
certain credit facilities (the "Loan") available to Arlen Automotive, Inc.,
Grant Products, Inc. and G.T. Styling, Inc. (collectively, "Borrowers"), in the
principal amount of Eleven Million Five Hundred Fifty Thousand and No/100
Dollars ($11,550,000.00) (the "Loan Amount"). The loan is to be evidenced, in
part, by a Commercial Loan Agreement (the "Loan Agreement") entered into as of
even date herewith between Bank and Borrowers, and promissory notes (the
"Notes") dated as of even date herewith made payable to Bank.
B. This Guaranty is one of several "Loan Documents", as that
term is defined in the Loan Agreement. Capitalized terms used but not
otherwise defined herein shall have the meanings given them in the Loan
Agreement.
C. Guarantor is affiliated with, and is interested in the
financial success of, each of Borrowers, and will realize direct and indirect
benefit as a result of the Loan being made available to Borrowers. In order to
induce the Bank to make the Loan available to Borrowers, Guarantor is willing
to make this Guaranty in favor of Bank.
GUARANTY
1. Guaranty of Loan.
(a) Guarantor unconditionally guaranties to Bank the
full payment of all of the obligations of Borrowers under the Loan Documents,
including, without limitation, the payment of all indebtedness and accrued
interest, and any and all charges, fees and expenses, under the Notes; the
payment of all charges, fees and expenses for which Borrowers are obligated
under the Loan Agreement; and any other fees, charges, sums, costs and expenses
which may be owing at any time under any of the Loan Documents, as any or all
of them may from time to time be modified, amended, extended or renewed
(collectively, the "Loan Obligations"); and Guarantor unconditionally agrees to
pay to Bank the full amount of the Loan Obligations.
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(b) In addition to the foregoing, Guarantor hereby
agrees to pay any and all costs and expenses (including, without limitation,
reasonable attorneys' fees and costs, including allocated costs for services of
Bank's in-house counsel) incurred by Bank in enforcing any rights or remedies
under this Guaranty (including in the context of any Insolvency Proceedings (as
that term is hereinafter defined)). From the time(s) incurred until paid in
full to Bank, all such sums shall bear interest at the Default Rate, as defined
in the Loan Agreement.
(c) This is a guaranty of payment, not of collection.
If Borrowers default in the payment when due of any of all or any part of the
Loan Obligations, Guarantor shall in lawful money of the United States pay to
Bank or its order, on demand, all sums due with respect to the Loan
Obligations. If the amount outstanding under the Loan is determined by a court
of competent jurisdiction, that determination shall be conclusive and binding
on Guarantor, regardless of whether or not Guarantor was a party to the
proceeding in which the determination was made.
2. Rights of Bank. Guarantor authorizes Bank to perform any
or all of the following acts at any time in its sole discretion, all without
notice to Guarantor and without affecting Guarantor's obligations under this
Guaranty:
(a) Bank may alter any terms of the Loan Documents,
including renewing, compromising, extending or accelerating, or otherwise
changing the time for payment of, or increasing or decreasing the rate of
interest on, the Loan or any part of it.
(b) Bank may take and hold security for the Loan or
this Guaranty, accept additional or substituted security for either, and
subordinate, exchange, enforce, waive, release, compromise, fail to perfect and
sell or otherwise dispose of any such security.
(c) Bank may direct the order and manner of any sale
of all or any part of any security now or later to be held for the Loan or this
Guaranty, and Bank may also bid at any such sale.
(d) Bank may apply any payments or recoveries from
Borrowers, Guarantor or any other source, and any proceeds of any security, to
Borrowers' obligations under the Loan Documents in such manner, order and
priority as Bank may elect, whether or not those obligations are guarantied by
this Guaranty or secured at the time of the application.
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(e) Bank may release any Borrower or Borrowers of
their liability for the Loan, the Loan Obligations or any portion thereof.
(f) Bank may substitute, add or release any one or
more guarantors or endorsers.
(g) In addition to the Loan, Bank may extend other
credit to Borrowers, and may take and hold security for the credit so extended,
all without affecting Guarantor's liability under this Guaranty.
3. Guaranty to be Absolute. Guarantor expressly agrees that
until the Loan Obligations are paid and performed in full and each and every
term, covenant and condition of this Guaranty is fully performed, Guarantor
shall not be released by or because of:
(a) Any act or event which might otherwise discharge,
reduce, limit or modify Guarantor's obligations under this Guaranty;
(b) Any waiver, extension, modification, forbearance,
delay or other act or omission of Bank, or its failure to proceed promptly or
otherwise as against Borrowers, Guarantor or any security;
(c) Any action, omission or circumstance which might
increase the likelihood that Guarantor may be called upon to perform under this
Guaranty or which might affect the rights or remedies of Guarantor as against
Borrower;
(d) Any dealings occurring at any time between
Borrowers and Bank, whether relating to the Loan or otherwise; or
(e) Any action of Bank described in Section 2 above.
Guarantor hereby acknowledges that absent this Section 3,
Guarantor might have a defense to the enforcement of this Guaranty as a result
of one or more of the foregoing acts, omissions, agreement, waivers or matters.
Guarantor hereby expressly waives and surrenders any defense to any liability
under this Guaranty based upon any of such acts, omissions, agreements, waivers
or matters. It is the express intent of Guarantor that Guarantor's obligations
under this Guaranty are and shall be absolute, unconditional and irrevocable.
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4. Guarantor's Waivers. Guarantor waives:
(a) All statutes of limitations as a defense to any
action or proceeding brought against Guarantor by Bank, to the fullest extent
permitted by law;
(b) Any right it may have to require Bank to proceed
against Borrowers, proceed against or exhaust any security held from Borrowers,
or pursue any other remedy in Bank's power to pursue;
(c) Any defense based on any claim that Guarantor's
obligations exceed or are more burdensome than those of Borrowers;
(d) Any defense based on: (i) any legal disability of
Borrowers, (ii) any release, discharge, modification, impairment or limitation
of the liability of Borrowers to Bank from any cause, whether consented to by
Bank or arising by operation of law or from any bankruptcy or other voluntary
or involuntary proceeding, in or out of court, for the adjustment of
debtor-creditor relationships ("Insolvency Proceeding") and (iii) any rejection
or disaffirmance of the Loan, or any part of it, or any security held for it,
in any such Insolvency Proceeding;
(e) Any defense based on any action taken or omitted
by Bank in any Insolvency Proceeding involving any Borrower, including any
election to have Bank's claim allowed as being secured, partially secured or
unsecured, any extension of credit by Bank to any Borrower in any Insolvency
Proceeding, and the taking and holding by Bank of any security for any such
extension of credit;
(f) All presentments, demands for performance, notices
of nonperformance, protests, notices of protest, notices of dishonor, notices
of acceptance of this Guaranty and of the existence, creation, or incurring of
new or additional indebtedness, and demands and notices of every kind except
for any demand or notice by Bank to Guarantor expressly provided for in Section
1;
(g) Any defense based on or arising out of any defense
that Borrowers may have to the payment or performance of the Loan Obligations
or any part of it; and
(h) Any defense based on or arising out of any action
of Bank described in Sections 2 or 3 above.
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5. Waivers of Subrogation and Other Rights and Defenses.
(a) Upon a default by Borrowers, Bank in its sole
discretion, without prior notice to or consent of Guarantor, may elect to: (i)
foreclose either judicially or nonjudicially against any real or personal
property security it may hold for the Loan, (ii) accept a transfer of any such
security in lieu of foreclosure, (iii) compromise or adjust the Loan or any
part of it or make any other accommodation with Borrowers or Guarantor, or (iv)
exercise any other remedy against any Borrower or any security. No such action
by Bank shall release or limit the liability of Guarantor, who shall remain
liable under this Guaranty after the action, even if the effect of the action
is to deprive Guarantor of any subrogation rights, rights of indemnity, or
other rights to collect reimbursement from Borrowers for any sums paid to Bank,
whether contractual or arising by operation of law or otherwise. Guarantor
expressly agrees that under no circumstances shall it be deemed to have any
right, title, interest or claim in or to any real or personal property to be
held by Bank or any third party after any foreclosure or transfer in lieu of
foreclosure of any security for the Loan.
(b) Regardless of whether Guarantor may have made any
payments to Bank, Guarantor forever waives: (i) all rights of subrogation, all
rights of indemnity, and any other rights to collect reimbursement from
Borrowers for any sums paid to Bank, whether contractual or arising by
operation of law (including, United States Bankruptcy Code or any successor or
similar statute) or otherwise, (ii) all rights to enforce any remedy that Bank
may have against Borrowers, and (iii) all rights to participate in any security
now or later to be held by Bank for the Loan. Guarantor further agrees that,
to the extent the waiver or agreement to withhold the exercise of its rights of
subrogation, reimbursement, indemnification and contribution as set forth
herein is found by a court of competent jurisdiction to be void or voidable for
any reason, any rights of subrogation, reimbursement, and indemnification
Guarantor may have against Borrowers or against any collateral or security,
shall be junior and subordinate to any rights Bank may have against Borrowers,
and to all right, title and interest Bank may have in any such collateral or
security. If any amount shall be paid to Guarantor on account of any such
subrogation, reimbursement or indemnification rights at any time when all Loan
Obligations have not been paid in full, such amount shall be held in trust for
Bank and shall forthwith be paid over to Bank to be credited and applied
against the Loan Obligations, whether matured or unmatured, in accordance with
the terms of the Loan Documents.
(c) Guarantor understands and acknowledges that if
Bank forecloses judicially or nonjudicially against any real
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property security for the Loan, that foreclosure could impair or destroy any
ability that Guarantor may have to seek reimbursement, contribution or
indemnification from Borrowers or others based on any right Guarantor may have
of subrogation, reimbursement, contribution or indemnification for any amounts
paid by Guarantor under this Guaranty. Guarantor further understands and
acknowledges that in the absence of this Section 5, such potential impairment
or destruction of Guarantor's rights, if any, may entitle Guarantor to assert a
defense to this Guaranty based on Section 580d of the California Code of Civil
Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968).
By executing this Guaranty, Guarantor freely, irrevocably and unconditionally:
(i) waives and relinquishes that defense and agrees that Guarantor will be
fully liable under this Guaranty even though Bank may foreclose judicially or
nonjudicially against any real property security for the Loan; (ii) agrees that
Guarantor will not assert that defense in any action or proceeding which Bank
may commence to enforce this Guaranty; (iii) acknowledges and agrees that the
rights and defenses waived by Guarantor under this Guaranty include any right
or defense that Guarantor may have or be entitled to assert based upon or
arising out of any one or more of Sections 580a, 580b, 580d or 726 of the
California Code of Civil Procedure or Section 2848 of the California Civil Code
(including, without limitation, any defense that any exercise by Bank of any
right or remedy hereunder or under the Loan Documents violates, or would, in
combination with the previous or subsequent exercise by Guarantor of any rights
of subrogation, reimbursement, contribution, or indemnification against
Borrowers or any other person, directly or indirectly result in, or be deemed
to be, a violation of any of such statutory provisions); and (iv) acknowledges
and agrees that Bank is relying on this waiver in making the Loan, and that
this waiver is a material part of the consideration which Bank is receiving for
making the Loan.
(d) Guarantor waives the Guarantor's rights of
subrogation and reimbursement and any other rights and defenses available to
the Guarantor by reason of Sections 2787 to 2855, inclusive, of the Civil Code
including, without limitation, (1) any defenses the Guarantor may have to the
Guaranty obligation by reason of an election of remedies by Bank and (2) any
rights or defenses the Guarantor may have by reason of protection afforded to
the Borrowers with respect to the obligation so guaranteed pursuant to the
antideficiency or other laws of California limiting or discharging the
Borrowers' indebtedness, including, without limitation, Section 580a, 580b,
580d, or 726 of the Code of Civil Procedure.
(e) Guarantor waives all rights and defenses arising
out of an election of remedies by Bank, even though that
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election of remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed the Guarantor's rights of
subrogation and reimbursement against the Borrowers by the operation of Section
580d of the Code of Civil Procedure of otherwise.
(f) No provision or waiver in this Guaranty shall be
construed as limiting the generality of any other waiver contained in this
Guaranty.
6. Revival and Reinstatement. If Bank is required to pay,
return or restore to any Borrower or any other person any amounts previously
paid on any Loan Obligations because of any Insolvency Proceeding of any
Borrower or any other reason, the obligations of Guarantor shall be reinstated
and revived and the rights of Bank shall continue with regard to such amounts,
all as though they had never been paid.
7. Information Regarding Borrowers. Before signing this
Guaranty, Guarantor investigated the financial condition and business
operations of Borrowers, the present and former condition, uses and ownership
of its properties, and such other matters as Guarantor deemed appropriate to
assure itself of Borrowers' ability to discharge its obligations under the Loan
Documents. Guarantor assumes full responsibility for that due diligence, as
well as for keeping informed of all matters which may affect Borrowers' ability
to pay and perform its obligations to Bank. Bank has no duty to disclose to
Guarantor any information which Bank may have or receive about Borrowers'
financial condition or business operations, or any other circumstances bearing
on Borrowers' ability to perform.
8. Subordination. All rights of Guarantor to receive any
payments by Borrowers (including withdrawal of capital invested or receipt of
other distributions from any Borrower) shall at all times by subordinate as to
lien and time of payment and in all other respects to the full and prior
payment to Bank of the Loan Obligations; provided, however, so long as no Event
of Default has occurred and is continuing under the Loan Agreement, Borrowers
shall be permitted to make payments of interest, tax treaty payments and
management fees as reflected in financial reports provided to Bank. Subject to
the foregoing, Guarantor shall not be entitled to enforce or receive payment of
any sums hereby subordinated until all Loan Obligations have been paid and
performed in full and any such sums received in violation of this Guaranty
shall be received by Guarantor in trust for Bank.
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9. Guarantor's Representations and Warranties. Guarantor
represents and warrants that:
(a) All financial statements and other financial
information furnished or to be furnished to Bank in all material respects do or
will fairly represent the financial condition of Guarantor (including all
contingent liabilities);
(b) All financial statements were or will be prepared
in accordance with generally accepted accounting principles, or such other
accounting principles as may be acceptable to Bank at the time of their
preparation, consistently applied; and
(c) There has been no material adverse change in
Guarantor's financial condition since the dates of the statements most recently
furnished to Bank.
10. Events of Default. Bank may declare Guarantor to be in
default under this Guaranty upon the occurrence of any of the following events.
(a) Guarantor fails to perform any of its obligations
under this Guaranty; or
(b) Guarantor revokes this Guaranty or this Guaranty
becomes ineffective for any reason; or
(c) Any representation or warranty made or given by
Guarantor to Bank proves to be false or misleading in any material respect; or
(d) Guarantor becomes insolvent or the subject of any
Insolvency Proceeding; or
(e) Guarantor dies, dissolves or liquidates, or any of
these events happens to Guarantor's chief executive, or Guarantor's president
ceases for any reason to act in that capacity.
11. Waiver of Jury Trial. Guarantor acknowledges that jury
trials often entail additional expenses and delays not occasioned by nonjury
trials. Guarantor further agrees and stipulates that a fair trial may be had
before a state or federal judge by means of a bench trial without a jury. In
view of the foregoing, and as a specifically negotiated provision of this
Guaranty, Guarantor hereby expressly waives any right to trial by jury of any
claim, demand, action or cause of action (1) arising under this Guaranty or any
other instrument, document or agreement executed or delivered in connection
herewith, or (2) in any way connected with or related or incidental to the
dealings of Borrowers, Bank and
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Guarantor or any of them with respect to this Guaranty or any other instrument,
document or agreement executed or delivered in connection herewith, or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether sounding in contract or tort or otherwise; and
Guarantor hereby agrees and consents that any such claim, demand, action or
cause of action shall be decided by court trial without a jury, and that Bank
may file an original counterpart or a copy of this section with any court as
written evidence of the consent of Guarantor to the waiver of their right to
trial by jury.
12. Authorization; No Violation. Guarantor is authorized to
execute, deliver and perform under this Guaranty, which is a valid and binding
obligation of Guarantor. No provision or obligation of Guarantor contained in
this Guaranty violates any applicable law, regulation or ordinance, or any
order or ruling of any court or governmental agency. No such provision or
obligation conflicts with, or constitutes a breach or default under, any
agreement to which Guarantor is a party. No consent, approval or authorization
of or notice to any person or entity is required in connection with Guarantor's
execution of and obligations under this Guaranty.
13. Additional and Independent Obligations. Guarantor's
obligations under this Guaranty are in addition to its obligations under any
other existing or future guaranties, each of which shall remain in full force
and effect until it is expressly modified or released in a writing signed by
Bank. Guarantor's obligations under this Guaranty are independent of those of
Borrowers on the Loan. Bank may bring a separate action against Guarantor
without first proceeding against Borrowers, any other person or any security
that Bank may hold, and without pursuing any other remedy. Bank's rights under
this Guaranty shall not be exhausted by any action by Bank until all of the
Loan Obligations have been paid and performed in full.
14. No Waiver; Consents; Cumulative Remedies. Each waiver by
Bank must be in writing, and no waiver shall be construed as a continuing
waiver. No waiver shall be implied from Bank's delay in exercising or failure
to exercise any right or remedy against Borrowers, Guarantor or any security.
Consent by Bank to any act or omission by Borrowers or Guarantor shall not be
construed as a consent to any other or subsequent act or omission, or as a
waiver of the requirement for Bank's consent to be obtained in any future or
other instance. All remedies of Bank against Borrowers and Guarantor are
cumulative.
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15. No Release. Guarantor shall not be released from its
obligations under this Guaranty except by a writing signed by Bank.
16. Heirs, Successors and Assigns; Participations. The terms
of this Guaranty shall bind and benefit the heirs, legal representatives,
successors and assigns of Bank and Guarantor; provided, however, that Guarantor
may not assign this Guaranty, or assign or delegate any of its rights or
obligations under this Guaranty, without the prior written consent of Bank in
each instance. Bank in its sole discretion may sell or assign participations
or other interests in the Loan and this Guaranty, in whole or in part, all
without notice to or the consent of Guarantor and without affecting Guarantor's
obligations under this Guaranty.
17. Notices. All notices given under this Guaranty must be in
writing and shall be effectively served upon delivery by facsimile or
otherwise, or if mailed, upon the first to occur of receipt or the expiration
of seventy-two hours after deposit in certified United States mail, postage
prepaid, sent to the party at its address given at the end of this Guaranty.
Those addresses may be changed by Bank or Guarantor by written notice to the
other party. Service of any notice on any one Guarantor signing this Guaranty
shall be effective service on Guarantor for all purposes.
18. Rules of Construction. When the context and construction
so require, all words used in the singular shall be deemed to have been used in
the plural and vice versa. No listing of specific instances, items or matters
in any way limits the scope or generality of any language of this Guaranty.
All headings appearing in this Guaranty are for convenience only and shall be
disregarded in construing this Guaranty.
19. Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of California.
20. Costs and Expenses. Without limiting the generality of the
obligation of Guarantor to pay the fees and expenses of Bank as provided in
Section 1 hereof, if any lawsuit, reference or arbitration is commenced which
arises out of, or which relates to this Guaranty, the Loan Documents or the
Loan, the prevailing party shall be entitled to recover from each other party
such sums as the court, referee or arbitrator may adjudge to be reasonable
attorneys' fees (including allocated costs for services of in-house counsel) in
the action or proceeding, in addition to costs and expenses otherwise allowed
by law.
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21. Consideration. Guarantor acknowledges that it expects to
benefit from Bank's extension of the Loan to Borrowers because of its
relationship to Borrowers, and that it is executing this Guaranty in
consideration of that anticipated benefit.
22. Integration; Modifications. This Guaranty supersedes all
oral negotiations and prior writings with respect to its subject matter, and is
intended by Guarantor and Bank as the complete and final expression of the
agreement with respect to the terms and conditions set forth in this Guaranty.
This Guaranty may not be modified except in a writing signed by both Bank and
Guarantor.
23. Miscellaneous. The liability of all persons who are in any
manner obligated under this Guaranty shall be joint and several. The
illegality or unenforceability of one or more provisions of this Guaranty shall
not affect any other provision. Time is of the essence in the performance of
this Guaranty by Guarantor.
24. Counsel. Guarantor acknowledges that Guarantor
has had adequate opportunity to carefully read this Guaranty and to consult
with an attorney of Guarantor's choice prior to signing it.
IN WITNESS WHEREOF, the parties hereto have executed this Guaranty
as of the date first above written.
"Guarantor": Address Where Notices to
Guarantor are to be Sent:
ARLEN HOLDINGS CORP., Arlen Holdings Corp.
a Delaware corporation 505 Eighth Avenue, Suite 300
New York, NY 10018
Attention: Mr. Allan J. Marrus
By /s/ Allan J. Marrus
-------------------
Allan J. Marrus
President
By /s/ Stephen B. Delman Address Where Notices to Bank
--------------------- are to be Sent:
Stephen B. Delman
Assistant Secretary
Sumitomo Bank of California
611 West Sixth Street
Suite 3900
Los Angeles, California 90071
Attn: Matthew R. Van Steenhuyse
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EXHIBIT 10.11
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CONSULTING AGREEMENT
CONSULTING AGREEMENT effective as of August 1, 1995 between GRANT
PRODUCTS, INC., a Delaware corporation (THE "COMPANY"), and DAT CONSULTING,
LLC, a New York limited liability company ("CONSULTANT").
W I T N E S S E T H :
WHEREAS, the efficient conduct of the Company's business operations
and the enhancement of its growth potential require that it have available to
it the services of a suitable chief operating officer and the support of an
organization which can offer the Company, on a consulting basis, a broad range
of administrative, strategic planning, business development, financial analysis
and structuring, licensing, leasing and acquisition-related management
consulting services; and
WHEREAS, Tom A. Poteet has heretofore served the Company as its
President and chief operating officer pursuant to an employment arrangement
with the Company, but Mr. Poteet, who has never had an employment agreement
with the Company, now desires to make his managerial services available to the
Company only through Consultant, with whom he expects to enter into an
employment agreement; and
WHEREAS, Allan J. Marrus has previously provided the Company with
certain of the aforementioned services pursuant to a consulting arrangement
with the Company, but the Company and Mr. Marrus have mutually terminated such
arrangement, recognizing that the Company's expanding business activities
require the availability of a broader scope of services than those previously
provided by Mr. Marrus alone; and
WHEREAS, Consultant expects to be able to provide the Company not only
with the
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managerial services of Mr. Poteet and the expertise of Mr. Marrus, or of other
suitable persons who will be able to provide similar services, but also,
through Consultant's resources, with a broad range of administrative, strategic
planning, business development, financial analysis and structuring, licensing,
leasing and acquisition-related management consulting services; and
WHEREAS, in view of the foregoing, the Company desires to retain
Consultant, and Consultant is willing to be retained by the Company, to provide
the Company with the services described above, on a consulting basis, during
the term of this Agreement, upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements set forth below and intending to be legally bound, the parties
hereto agree as follows:
1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain
the Consultant, and the Consultant hereby agrees to serve, as an independent
management consultant to the Company, in accordance with the terms and
provisions of this Agreement, during the Retention Period (as hereinafter
defined). The "Retention Period" shall mean the five-year period beginning on
the effective date of this Agreement and ending at the close of business on
July 31, 2000, unless terminated sooner as hereinafter provided; provided,
however, that, on each August 1 after the date hereof, the Retention Period
shall be automatically extended for one (1) additional year unless, at least
six (6) months prior to such August 1, either party hereto shall have notified
the other party hereto that the Retention Period shall not be further extended.
2. CONSULTING SERVICES OF CONSULTANT.
(a) The consulting services to be performed by Consultant as an
independent management
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consultant to the Company during the Retention Period shall relate to
administration, strategic planning, business development, financial analysis
and structuring, licensing, leasing and acquisitions and shall, in addition to
providing the Company with the managerial services of a chief operating officer
(who may be Tom A. Poteet or another suitable person), include, but not be
limited to, the following:
(i) monitoring of the Company's business operations and
product lines and providing general advice regarding the
administration of the Company and its business;
(ii) analysis of the operations of the Company with a view to
improving the efficiency of its operations and enhancing the
reputation of the Company and its products;
(iii) development of additional business relationships for the
Company;
(iv) assisting the Company in its labor relations with its
employees (including the hiring of new management personnel) and in
developing appropriate benefit programs for such employees;
(v) analysis of the Company's plant and equipment requirements
and, where necessary, the evaluation and negotiation of new lease
transactions;
(vi) review and evaluation of the Company's capital
expenditure programs;
(vii) assessing the Company's insurance needs and assisting
the Company in negotiating favorable rates with insurance brokers and
in placing such insurance;
(viii) providing the Company with advice regarding its
internal accounting and controls systems and procedures;
(ix) assisting the Company in arranging the restructuring
and/or refinancing of its existing credit facilities and in seeking
other financing sources;
(x) reviewing the Company's accounts receivable and making
recommendations with respect to the extension of credit to customers;
(xi) promoting the reputation of the Company in the investment
community and evaluating opportunities for raising equity capital in
the public or private
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capital markets;
(xii) assisting the Company in strategic business planning and
in analysis of potential acquisition candidates for the Company;
(xiii) assisting the Company in negotiating and consummating
acquisition transactions which the Company decides to pursue;
(xiv) evaluation of proposed purchasers for assets or
operations of the Company which have been designated for disposition;
and
(xv) evaluation and negotiation of proposed licensing
arrangements.
(b) In performing its services hereunder, Consultant expects to be
utilizing the services of qualified personnel, such as Tom A. Poteet, Allan J.
Marrus and other members, managers, officers, employees, agents and
representatives of Consultant, as well as other persons (which may include,
directly or indirectly, other consultants and subconsultants) who may be
retained by Consultant from time to time to perform such services. All members,
managers, officers, employees, agents and representatives of Consultant, as
well as any other persons (including direct or indirect consultants and
subconsultants) who may be retained by Consultant from time to time in
connection with Consultant's performance of its services to the Company
hereunder, shall be compensated for their services directly by Consultant and
not by the Company. All staffing decisions with respect to the services to be
provided by Consultant hereunder shall be solely within the discretion of
Consultant and, at any time and from time to time, Consultant may make any
changes in such staffing which it considers necessary or appropriate.
(c) Consultant and the Company acknowledge that the services to be
performed by Consultant pursuant to this Agreement shall be performed by
Consultant, including its members, managers, officers, employees, agents,
representatives and other retained persons (including direct or indirect
consultants and subconsultants) (all of which members, managers, officers,
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employees, agents, representatives and other retained persons are hereinafter
collectively referred to as "Consultant's Personnel"), as an independent
contractor and that nothing herein contained shall be deemed to constitute an
employer-employee relationship between the Company, on the one hand, and
Consultant (and Consultant's Personnel), on the other hand.
(d) Although it is not possible to estimate the amount of time that
Consultant's Personnel will be devoting to the performance of Consultant's
services under this Agreement, Consultant agrees that it will cause
Consultant's Personnel (none of whom, with the exception of the person
designated to serve as the chief operating officer of the Company, will be
required or expected to be employed by Consultant on a full-time basis) to
devote such time, during normal business hours, to the business and affairs of
the Company as shall be reasonably necessary to enable Consultant to perform
the services to be performed by Consultant hereunder.
(e) The Company and Consultant acknowledge that the services to be
performed by Consultant hereunder will generally not require that Consultant
(or Consultant's Personnel), other than the person designated to serve as the
chief operating officer of the Company, perform such services or otherwise be
present at the Company's business premises in the State of California, though
periodic visits to the Company's California location by one or more of
Consultant's Personnel may be appropriate. Accordingly, it is contemplated that
Consultant's services will generally be performed at such locations as shall be
convenient for Consultant's Personnel and as Consultant from time to time
shall, in its sole discretion consider appropriate, provided, however, that,
when specifically requested by the Company, Consultant will make Consultant's
Personnel available to meet with representatives of the Company at reasonable
times upon reasonable notice.
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(f) The Company and Consultant acknowledge that nothing contained in
this Agreement shall prohibit Consultant or Consultant's Personnel from (i)
being a consultant, director, officer, employee, investor, lender, shareholder,
joint venturer, partner, manager or member in, or serving in any other capacity
with, any other enterprise, association, corporation, joint venture,
partnership or company (hereinafter collectively referred to as the "Other
Business"), provided that the business of the Other Business does not directly
compete with the business of the Company, or (ii) serving in any capacity or
having any business relationship with, or being affiliated in any manner with,
the Company or any of its affiliates.
3. CONSULTING FEES. During the Retention Period, as full compensation
for the services to be rendered by Consultant pursuant to this Agreement, the
Company agrees to pay to Consultant, and Consultant agrees to accept,
consulting fees at an annual rate equal to the sum of (a) the total annual rate
of payroll expense (including the cost to Consultant of employee benefit plans
and programs and other employee perquisites) which the Company will incur with
respect to Consultant's Personnel (who may include Tom A. Poteet) who shall be
providing services to the Company on substantially a full-time basis and
generally at the Company's business premises in the State of California, and
(b) $530,000, which fees shall increase on each August 1 after the date hereof
by 5% of the rate of the consulting fees payable immediately prior thereto. The
consulting fees payable hereunder (the "Consulting Fees") shall be payable in
equal monthly installments in advance on the 1st day of each month or, if such
day is not a business day, on the immediately-preceding business day; at the
request of Consultant, all payments of the Consulting Fees shall be made by
wire transfer to such account or accounts as shall be designated from time to
time by Consultant.
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4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees
payable to Consultant as provided above in paragraph 3, Consultant shall be
reimbursed, upon submission to the Company of appropriate vouchers and
receipts, for out-of-pocket expenses (including, without limitation, travel
expenses) reasonably incurred by Consultant in furtherance of the Company's
business. Such reimbursement shall take place promptly after the required
submissions, and in no event less frequently than bi-weekly.
5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of
any other amounts payable to Consultant under this Agreement which are not paid
when due shall bear interest at the rate which is 2% above the "prime" rate in
effect from time to time.
6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its
retention of Consultant under this Agreement at any time during the Retention
Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated
breaches by Consultant of Consultant's obligations under this Agreement, which
breaches (a) were demonstrably willful and deliberate on Consultant's part, (b)
were committed in bad faith or without the reasonable belief that such breaches
were in the best interests of the Company and (c) have not been remedied in a
reasonable period of time after receipt of written notice from the Company
specifying such breaches and demanding that they be remedied within a
reasonable period of time.
7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate
its retention by the Company under this Agreement for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to Consultant of any duties or
responsibilities inconsistent in any respect with the terms of
Consultant's retention hereunder or any other action by the Company
which results in a diminution of Consultant's involvement with the
business of the Company or its authorities, powers,
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functions or duties under this Agreement or imposes upon Consultant
any requirement for the performance of its services hereunder which
did not exist as of the date hereof, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given to the Company by Consultant;
(b) any failure by the Company to pay when due any payment of
the Consulting Fees or other amounts payable to Consultant hereunder,
other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by Consultant;
(c) any purported termination by the Company of Consultant's
retention other than as expressly permitted by this Agreement;
(d) any failure by the Company to comply with and satisfy
subparagraph (c) of paragraph 15 below, provided that the successor to
which such paragraph applies has received at least ten (10) days'
prior written notice from the Company or the Consultant of the
requirements of such paragraph;
(e) the occurrence of a "Change in Control of the Company" (as
hereinafter defined); or
(f) (i) the filing by the Company of a petition in bankruptcy
or seeking reorganization or arrangement under any federal or state
bankruptcy, insolvency or reorganization law, (ii) the making by the
Company of a general assignment for the benefit of its creditors or of
any other composition or reorganization agreement with its creditors,
(iii) the appointment of a trustee or receiver of the Company or of
the whole or any substantial part of its property or (iv) on a
petition in bankruptcy or seeking reorganization or arrangement under
any federal or state bankruptcy, insolvency or reorganization law
filed against the Company, the adjudication of the Company as a
bankrupt, the failure of the Company to contest such filing, the
admission by the Company of the material allegations of such petition
or the failure of the Company to have such petition vacated, set aside
or stayed within sixty (60) days from the date of the filing thereof.
Consultant may terminate its retention by the Company under this
Agreement for "Good Reason" at any time during the Retention Period, except
that any such termination pursuant to subparagraph (e) above of this paragraph
7 must take place within twelve (12) months after the occurrence of the "Change
in Control of the Company".
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For purposes of this Agreement, any good faith determination of "Good
Reason" made by Consultant shall be conclusive and binding on the Company,
absent manifest error.
For purposes of this Agreement, a "Change in Control of the Company"
shall have occurred (i) if there has occurred a change in control of the
Company as the term "control" is defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons
who are the current members of the Company's Board of Directors cease to
constitute at least a majority of such Board of Directors and their
replacements were not persons elected or appointed with the favorable vote or
consent of Consultant; (iii) if the shareholder(s) of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; (iv) if the shareholder(s) of the Company
approve a plan of complete liquidation of the Company; (v) if the
shareholder(s) of the Company approve an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets; or (vi) if
the Company shall cease to be a member of the affiliated group (within the
meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended) of
which The Arlen Corporation, a New York corporation, is the parent corporation.
8. NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by Consultant for Good Reason, shall be communicated by a Notice of Termination
to the other party hereto
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in accordance with paragraph 16 below. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (a) indicates the specific
termination provision in this Agreement relied upon, (b) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Consultant's retention under the
provision so indicated and (c) if the Termination Date (as hereinafter defined)
is other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than fifteen (15) days after the giving of
such notice). The failure by Consultant or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause shall not constitute a waiver of any right of
Consultant or the Company hereunder or preclude Consultant or the Company from
asserting such fact or circumstance in enforcing Consultant's or the Company's
rights hereunder.
9. TERMINATION DATE. For purposes of this Agreement, the Termination
Date means, whether Consultant's retention is terminated by the Company for
Cause, by Consultant for Good Reason or otherwise by Consultant or the Company,
the date of receipt of the Notice of Termination or any later date specified
therein, as the case may be.
10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT.
(a) Prior to a Change in Control of the Company, if Consultant
terminates its retention by the Company for Good Reason or if Consultant's
retention is terminated by the Company for any reason other than Cause, the
Company shall pay to Consultant, in cash in a lump sum on the Termination Date,
(i) all unpaid Consulting Fees through the Termination Date, (ii) all
unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and
(iii) all Consulting Fees which would be payable to Consultant through the end
of the Retention Period
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if Consultant were to continue to perform its services hereunder through the
end of the Retention Period (provided that the amount representing payment of
such future Consulting Fees shall be discounted to their present value,
applying a discount rate equal to 1% below the "prime" rate as in effect at the
close of business on the business day immediately preceding the Termination
Date).
(b) After a Change in Control of the Company has occurred, if
Consultant terminates its retention by the Company for Good Reason or if
Consultant's retention is terminated by the Company for any reason other than
Cause, the Company shall pay to Consultant, in cash in a lump sum on the
Termination Date, (i) all unpaid Consulting Fees through the Termination Date,
(ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4
above and (iii) as Consultant, in its sole discretion may elect, either (A) all
Consulting Fees which would be payable to Consultant through the end of the
Retention Period if Consultant were to continue to perform its services
hereunder through the end of the Retention Period (provided that the amount
representing payment of such future Consulting Fees shall be discounted to
their present value, applying a discount rate equal to 1% below the "prime"
rate as in effect at the close of business on the business day immediately
preceding the Termination Date) or (B) as liquidated damages (which the parties
hereto acknowledge to be fair and reasonable in view of the impossibility of
determining the actual damages which Consultant may suffer as a result of such
termination), the sum of $1,500,000.
(c) At any time during the Retention Period, if Consultant's retention
is terminated by the Company for Cause, the Company shall pay to Consultant, in
cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees
through the Termination Date and (ii) all
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unreimbursed expenses payable to Consultant pursuant to paragraph 4 above.
(d) In the event that, in the case of a termination by the Company of
Consultant's retention for Cause, Consultant shall have notified the Company
(the "Notice of Dispute"), within ten (10) business days after having received
the Notice of Termination, that Consultant disputes whether the Company had
"Cause" for such termination, then, notwithstanding and in addition to the
payment required above by subparagraph (b) of this paragraph 10, the Company
shall continue without interruption the payment of the Consulting Fees payable
pursuant to paragraph 3 above, provided, however, that all such payments of the
Consulting Fees shall be made to an attorney designated by Consultant for such
purpose in the Notice of Dispute, with the aggregate amount of all such
payments (and all interest earned thereon) being held in escrow by such
attorney, pending (i) agreement by Consultant and the Company as to the issue
of "Cause" and the disposition of the escrowed funds or (ii) a final,
non-appealable order of a court of competent jurisdiction determining these
matters (with the prevailing party with respect to such order be entitled to
recover its attorneys' fees and disbursements, court costs and other costs and
expenses relating to this dispute from the other party).
(e) Upon payment in full of the applicable payments required above by
subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to
subparagraph (d) of this paragraph 10), this Agreement shall terminate and be
of no further force or effect, except that the provisions of paragraph 14 below
shall survive such termination.
(f) Consultant shall not be required to mitigate the payment of any
payments received pursuant to subparagraphs (a), (b), (c) or (d) of this
paragraph 10 by seeking other consulting engagements and, to the extent that
Consultant shall, after the Termination Date, receive
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compensation from any other consulting engagements, the payments
received hereunder shall not be adjusted.
11. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Consultant, any of Consultant's Personnel or others.
12. INDEMNIFICATION.
(a) The Company shall indemnify, defend and hold harmless Consultant
and Consultant's Personnel from and against any and all claims, demands,
actions, suits and other proceedings, judgments and awards, and all costs and
expenses thereof (including, without limitation, attorneys' fees and
disbursements, court costs and amounts paid in settlement of such matters),
asserted against Consultant and/or Consultant's Personnel by reason of the
business and operations of the Company or Consultant's duties hereunder,
excluding only such of the foregoing as are determined by a court of competent
jurisdiction (without any further right of appeal) to have resulted from the
willful and wanton misconduct or fraud of Consultant or Consultant's Personnel.
(b) Upon Consultant's discovery of any claim by a third party which,
if sustained, would be subject to indemnification pursuant to subparagraph (a)
of this paragraph 12, Consultant shall give prompt notice to the Company of
such claim, provided, however, that the failure of Consultant to so promptly
notify the Company of such claim shall not relieve the Company of any
indemnification obligation under this Agreement unless the Company shall have
been substantially prejudiced thereby. Unless Consultant shall, in its sole
discretion, agree in writing
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to assume and control the defense of any action for which indemnification may
be sought, the Company shall assume and control such defense, in which event
Consultant shall have the right to employ counsel at Consultant's expense to
represent it in addition to counsel employed by the Company. If the Company
shall fail or refuse to undertake the defense within fifteen (15) days after
receiving notice that a claim has been made, Consultant shall have the right
(but not the obligation) to assume the defense of such claim in such manner as
it deems appropriate until the Company shall, with the consent of Consultant,
assume control of such defense, and the Company shall indemnify Consultant
pursuant to subparagraph (a) of this paragraph 12 from and against the costs
and expenses of such defense. The party hereto handling the defense of an
action shall keep the other party hereto fully informed at all times of the
status of the claim. Neither the Company nor the Consultant, when handling the
defense of a claim for which indemnification may be sought by Consultant, shall
settle such claim without the consent of the other party hereto (which consent
shall not be unreasonably withheld or delayed) unless such settlement shall (i)
impose no additional liability or obligation upon the party hereto (or its
shareholders, directors and officers and, in the case of Consultant,
Consultant's Personnel) whose consent would otherwise be required and (ii)
where the Company is handling the defense and settlement of the claim, provide
Consultant and Consultant's Personnel with a general release with respect to
the subject claim.
(c) In any matter with respect to which Consultant may be entitled to
indemnification from the Company pursuant to subparagraph (a) of this paragraph
12, the Company shall, to the extent not prohibited by applicable law, advance
to Consultant and Consultant's Personnel, pending the final disposition of such
matter, all costs and expenses which Consultant and/or
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Consultant's Personnel may incur in such matter, including, without limitation,
all attorneys' fees and disbursements, court costs and the fees and
disbursements of accountants, other experts and consultants.
(d) The rights of indemnification provided by this paragraph 12 shall
be in addition to, and not be deemed exclusive of, any other rights and
remedies apart from this Agreement which may be available to Consultant and
Consultant's Personnel, whether by contract, at law, in equity or otherwise.
13. NO JOINT VENTURE, ETC.
(a) Nothing in this Agreement shall be construed as (i) creating a
partnership, joint venture or agency relationship between the Company and
Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or
otherwise be liable for any portion of any losses directly or indirectly
incurred by the Company and arising out of or otherwise connected with the
services performed or to be performed by Consultant pursuant to this Agreement.
(b) Neither Consultant nor Consultant's Personnel shall be liable,
responsible or in any way accountable in damages or otherwise to the Company or
any other entity or person for any loss or damage incurred by the Company by
reason of any act or omission to act by Consultant or Consultant's Personnel,
except the willful and wanton misconduct or fraud of Consultant or or
Consultant's Personnel in connection with the performance of Consultant's
services hereunder.
(c) Consultant does not represent, warrant, guarantee or ensure any
particular business results from the services which may be performed for, or
the projections, plans, reports or studies which may be prepared for, the
Company pursuant to this Agreement.
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(d) In the event that Consultant refers or introduces to the Company,
or arranges for the Company to utilize the services of, third parties such as
attorneys, accountants, investment bankers, brokers, finders, sales or
marketing representatives, contractors or other consultants (who will not be
retained without the consent of the Company, which will not be unreasonably
withheld or delayed), such third parties will be direct contractors for the
Company and not Consultant and their fees, commissions, disbursements and other
charges will be the sole responsibility of the Company.
14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION.
(a) Consultant shall hold, and shall use its best efforts to cause
Consultant's Personnel to hold, in strict confidence for the benefit of the
Company, all secret or confidential information, knowledge or data relating to
the Company and its business, which shall have been obtained by Consultant or
Consultant's Personnel during Consultant's retention by the Company and which
shall not be or have become (i) generally available to the public other than as
a result of a disclosure by Consultant, (ii) already known by Consultant on a
non-confidential basis prior to having been furnished by the Company to
Consultant or (iii) available to Consultant on a non-confidential basis from a
source other than the Company if such source was not known to be subject to any
prohibition against the transmittal of such information. Consultant will not,
without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such confidential
information, knowledge or data to anyone other than the Company and those
designated by it.
In the event of a breach or threatened breach by Consultant of the
immediately-preceding paragraph of this subparagraph (a) of this paragraph 14,
the Company shall be entitled, upon
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establishing the existence of such breach or threatened breach, to an
injunction to be issued by any tribunal of competent jurisdiction to restrain
Consultant from committing or continuing any such violation. In any proceeding
for a temporary or permanent injunction, Consultant agrees that its ability to
answer in damages shall not be a bar or be interposed as a defense to the
granting of such a temporary or permanent injunction against it. Consultant
acknowledges that the Company will not have an adequate remedy at law in the
event of any breach by Consultant as aforesaid and that the Company may suffer
irreparable damage and injury in the event of such a breach by Consultant.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedy or remedies available to the Company, including,
without limitation, the recovery of damages from Consultant for any such
breach.
(b) The Company acknowledges that, in connection with Consultant's
performance of its services hereunder, Consultant and Consultant's Personnel
must at all times rely, as to accuracy and completeness, upon information
furnished to them by the Company's officers, employees and agents. Accordingly,
Consultant and Consultant's Personnel shall have no liability for any acts or
omissions taken, or reports and documentation produced, in reliance upon
information furnished to them by the Company's officers, employees and agents,
and the Company shall, as provided above in paragraph 12, indemnify, defend and
hold harmless Consultant and Consultant's Personnel from and against any and
all claims, demands, actions, suits and other proceedings, judgments and
awards, and all costs and expenses thereof (including, without limitation,
attorneys' fees and disbursements, court costs and amounts paid in settlement
of such matters), asserted against Consultant and/or Consultant's Personnel,
which are attributable to such reliance by Consultant and Consultant's
Personnel upon information furnished by the
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Company's officers, employees and agents.
15. SUCCESSORS.
(a) This Agreement is personal to Consultant and, without the prior
written consent of the Company, this Agreement shall not be assignable by
Consultant. This Agreement shall inure to the benefit of, be binding upon and
be enforceable by Consultant.
(b) This Agreement shall not be assignable by the Company except to a
successor of the Company which has complied with the requirements below of
subparagraph (c) of this paragraph 15. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by the Company and its
successors and assigns who have complied with the requirements below of
subparagraph (c) of this paragraph 15.
(c) The Company will require any successor (whether direct or
indirect, by purchase of assets or capital stock, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, the "Company"
shall mean the Company as hereinabove defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law or otherwise.
16. GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflict of laws.
(b) Each party hereto, for itself and its successors and assigns,
hereby consents to personal jurisdiction over it in the courts of the State of
New York, in and for New York
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County, and in any federal court located in the State of New York, in and for
the Southern District of New York, in connection with any action, suit or
proceeding arising out of or relating in any way to this Agreement. Each party
hereto, for itself and its successors and assigns, agrees that personal service
of process upon it may be made in any manner permitted by the laws of the State
of New York and hereby agrees that service will be deemed sufficient over it if
service is made by registered or certified mail to the addresses specified
below in subparagraph (b) of paragraph 17. The Company, for itself and its
successors and assigns, agrees that no action, suit or proceeding of any kind
may be brought, and no claim may be asserted (whether by counterclaim,
cross-claim or otherwise) by it or them against Consultant or Consultant's
Personnel with respect to any matter arising from, relating to or in connection
with this Agreement except in the courts of the State of New York, in and for
New York County, and the federal courts located in the State of New York, in
and for the Southern District of New York.
17. MISCELLANEOUS.
(a) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended,
modified, repealed, waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of such amendment,
modification, repeal, waiver, extension or discharge is sought. No person,
other than pursuant to a resolution of the Board of Directors or a committee
thereof, shall have authority on behalf of the Company to agree to amend,
modify, repeal, waive, extend or discharge any provision of this Agreement or
anything in reference thereto.
(b) All notices, requests, demands and other communications which are
required or permitted to be given under this Agreement shall be in writing and
shall be deemed received (i)
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on the date delivered if personally delivered or sent by telecopier (with
receipt confirmed), (ii) on the first business day after sent by an overnight
air express delivery service guaranteeing next-day delivery or (iii) on the
third business day after being deposited in the United States mail, if mailed
by certified or registered mail, return receipt requested, with first class
postage affixed thereon, and properly addressed as follows:
(a) if to Consultant, to:
DAT Consulting, LLC
85 West Hawthorne Avenue
Valley Stream, NY 11580
FAX: 516/825-0063)
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Leonard Grunstein, Esq.
(FAX: 212/889-7577)
(b) if to the Company, to:
Grant Products, Inc.
700 Allen Avenue
Glendale, CA 91201
Attention: President
(FAX: 818/241-4683)
with a copy to:
Stephen B. Delman, Esq.
10 River Road
New York, NY 10044
(FAX: 212/279-9595)
or to such other person or address as any party hereto shall have specified by
notice in writing to the other party hereto.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect
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the validity or enforceability of any other provision of this Agreement.
(d) Consultant's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right which Consultant or the Ccmpany may have hereunder, including, without
limitation, the right of Consultant to terminate employment for Good Reason
pursuant to paragraph 7 above, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
(e) This instrument contains the entire agreement of the parties
hereto with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements are merged
herein and superseded hereby.
(f) This Agreement is for the sole benefit of the Company and
Consultant (and, in connection with the indemnification provisions of
paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein,
express or implied, is intended to, or shall, confer on any other person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
(g) Each of the parties hereto represents and warrants to the other
party hereto that this Agreement has been duly authorized by all necessary
corporate or company action, has been duly executed and delivered and
constitutes the legal, valid and binding obligation of such party enforceable
in accordance with its terms.
IN WITNESS WHEREOF, the Company and Consultant have caused this Agreement
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to be executed as of the day and year first above written.
GRANT PRODUCTS, INC.
BY: /s/ TOM A. POTEET
-----------------------------------
TOM A. POTEET, PRESIDENT
DAT CONSULTING, LLC
BY: WAVEROCK CONSULTING, INC.
BY: /s/ ALLAN J. MARRUS
-----------------------------------
ALLAN J. MARRUS, PRESIDENT
BY: ROSEMARK, INC.
BY: /s/ MARK ROSENBERG
-----------------------------------
MARK ROSENBERG, PRESIDENT
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EXHIBIT 10.12
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CONSULTING AGREEMENT
CONSULTING AGREEMENT effective as of August 1, 1995 between G.T.
STYLING, INC., a California corporation (THE "COMPANY"), and DAT CONSULTING,
LLC, a New York limited liability company ("CONSULTANT").
W I T N E S S E T H :
WHEREAS, the efficient conduct of the Company's business operations
and the enhancement of its growth potential require that it have available to
it the services of a suitable chief operating officer and the support of an
organization which can offer the Company, on a consulting basis, a broad range
of administrative, strategic planning, business development, financial analysis
and structuring, licensing, leasing and acquisition-related management
consulting services; and
WHEREAS, Jeffery J. Gati has heretofore served the Company as its
President and chief operating officer pursuant to an employment arrangement
with the Company, but Mr. Gati, who does not have an employment agreement with
the Company, now desires to make his managerial services available to the
Company only through Consultant, with whom he expects to enter into an
employment agreement; and
WHEREAS, Allan J. Marrus and Douglas A. Turner have previously
provided the Company with certain of the aforementioned services pursuant to
their respective consulting arrangements with the Company, but the Company and
Mr. Marrus have mutually terminated their arrangement and the Company's
consulting arrangement with Mr. Turner will soon terminate by its terms; and
WHEREAS, Consultant expects to be able to provide the Company not only
with the managerial services of Mr. Gati and the expertise of Mr. Marrus and
Mr. Turner, or of other
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suitable persons who will be able to provide similar services, but also,
through Consultant's resources, with a broad range of administrative, strategic
planning, business development, financial analysis and structuring, licensing,
leasing and acquisition-related management consulting services; and
WHEREAS, in view of the foregoing, the Company desires to retain
Consultant, and Consultant is willing to be retained by the Company, to provide
the Company with the services described above, on a consulting basis, during
the term of this Agreement, upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements set forth below and intending to be legally bound, the parties
hereto agree as follows:
1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain
the Consultant, and the Consultant hereby agrees to serve, as an independent
management consultant to the Company, in accordance with the terms and
provisions of this Agreement, during the Retention Period (as hereinafter
defined). The "Retention Period" shall mean the five-year period beginning on
the effective date of this Agreement and ending at the close of business on
July 31, 2000, unless terminated sooner as hereinafter provided; provided,
however, that, on each August 1 after the date hereof, the Retention Period
shall be automatically extended for one (1) additional year unless, at least
six (6) months prior to such August 1, either party hereto shall have notified
the other party hereto that the Retention Period shall not be further extended.
2. CONSULTING SERVICES OF CONSULTANT.
(a) The consulting services to be performed by Consultant as an
independent management
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consultant to the Company during the Retention Period shall relate to
administration, strategic planning, business development, financial analysis
and structuring, licensing, leasing and acquisitions and shall, in addition to
providing the Company with the managerial services of a chief operating officer
(who may be Jeffery J. Gati or another suitable person), include, but not be
limited to, the following:
(i) monitoring of the Company's business operations and
product lines and providing general advice regarding the
administration of the Company and its business;
(ii) analysis of the operations of the Company with a view to
improving the efficiency of its operations and enhancing the
reputation of the Company and its products;
(iii) development of additional business relationships for the
Company;
(iv) assisting the Company in its labor relations with its
employees (including the hiring of new management personnel) and in
developing appropriate benefit programs for such employees;
(v) analysis of the Company's plant and equipment requirements
and, where necessary, the evaluation and negotiation of new lease
transactions;
(vi) review and evaluation of the Company's capital expenditure
programs;
(vii) assessing the Company's insurance needs and assisting
the Company in negotiating favorable rates with insurance brokers and
in placing such insurance;
(viii) providing the Company with advice regarding its
internal accounting and controls systems and procedures;
(ix) assisting the Company in arranging the restructuring
and/or refinancing of its existing credit facilities and in seeking
other financing sources;
(x) reviewing the Company's accounts receivable and making
recommendations with respect to the extension of credit to customers;
(xi) promoting the reputation of the Company in the investment
community and evaluating opportunities for raising equity capital in
the public or private
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capital markets;
(xii) assisting the Company in strategic business planning and
in analysis of potential acquisition candidates for the Company;
(xiii) assisting the Company in negotiating and consummating
acquisition transactions which the Company decides to pursue;
(xiv) evaluation of proposed purchasers for assets or
operations of the Company which have been designated for disposition;
and
(xv) evaluation and negotiation of proposed licensing
arrangements.
(b) In performing its services hereunder, Consultant expects to be
utilizing the services of qualified personnel, such as Jeffery J. Gati, Allan
J. Marrus and Douglas A. Turner and other members, managers, officers,
employees, agents and representatives of Consultant, as well as other persons
(which may include, directly or indirectly, other consultants and
subconsultants) who may be retained by Consultant from time to time to perform
such services. All members, managers, officers, employees, agents and
representatives of Consultant, as well as any other persons (including direct
or indirect consultants and subconsultants) who may be retained by Consultant
from time to time in connection with Consultant's performance of its services
to the Company hereunder, shall be compensated for their services directly by
Consultant and not by the Company. All staffing decisions with respect to the
services to be provided by Consultant hereunder shall be solely within the
discretion of Consultant and, at any time and from time to time, Consultant may
make any changes in such staffing which it considers necessary or appropriate.
(c) Consultant and the Company acknowledge that the services to be
performed by Consultant pursuant to this Agreement shall be performed by
Consultant, including its members, managers, officers, employees, agents,
representatives and other retained persons (including
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direct or indirect consultants and subconsultants) (all of which members,
managers, officers, employees, agents, representatives and other retained
persons are hereinafter collectively referred to as "Consultant's Personnel"),
as an independent contractor and that nothing herein contained shall be deemed
to constitute an employer-employee relationship between the Company, on the one
hand, and Consultant (and Consultant's Personnel), on the other hand.
(d) Although it is not possible to estimate the amount of time that
Consultant's Personnel will be devoting to the performance of Consultant's
services under this Agreement, Consultant agrees that it will cause
Consultant's Personnel (none of whom, with the exception of the person
designated to serve as the chief operating officer of the Company, will be
required or expected to be employed by Consultant on a full-time basis) to
devote such time, during normal business hours, to the business and affairs of
the Company as shall be reasonably necessary to enable Consultant to perform
the services to be performed by Consultant hereunder.
(e) The Company and Consultant acknowledge that the services to be
performed by Consultant hereunder will generally not require that Consultant
(or Consultant's Personnel), other than the person designated to serve as the
chief operating officer of the Company, perform such services or otherwise be
present at the Company's business premises in the State of California, though
periodic visits to the Company's California location by one or more of
Consultant's Personnel may be appropriate. Accordingly, it is contemplated that
Consultant's services will generally be performed at such locations as shall be
convenient for Consultant's Personnel and as Consultant from time to time
shall, in its sole discretion consider appropriate, provided, however, that,
when specifically requested by the Company, Consultant will make Consultant's
Personnel available to meet with representatives of the Company at reasonable
times
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upon reasonable notice.
(f) The Company and Consultant acknowledge that nothing contained in
this Agreement shall prohibit Consultant or Consultant's Personnel from (i)
being a consultant, director, officer, employee, investor, lender, shareholder,
joint venturer, partner, manager or member in, or serving in any other capacity
with, any other enterprise, association, corporation, joint venture,
partnership or company (hereinafter collectively referred to as the "Other
Business"), provided that the business of the Other Business does not directly
compete with the business of the Company, or (ii) serving in any capacity or
having any business relationship with, or being affiliated in any manner with,
the Company or any of its affiliates.
3. CONSULTING FEES. During the Retention Period, as full compensation
for the services to be rendered by Consultant pursuant to this Agreement, the
Company agrees to pay to Consultant, and Consultant agrees to accept,
consulting fees at an annual rate equal to the sum of (a) the total annual rate
of payroll expense (including the cost to Consultant of employee benefit plans
and programs and other employee perquisites) which the Company will incur with
respect to Consultant's Personnel (who may include Jeffery J. Gati) who shall
be providing services to the Company on substantially a full-time basis and
generally at the Company's business premises in the State of California, and
(b) $1,000,000, which fees shall increase on each August 1 after the date
hereof by 5% of the rate of the consulting fees payable immediately prior
thereto. The consulting fees payable hereunder (the "Consulting Fees") shall be
payable in equal monthly installments in advance on the 1st day of each month
or, if such day is not a business day, on the immediately-preceding business
day; at the request of Consultant, all payments of the Consulting Fees shall be
made by wire transfer to such account or accounts as
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<PAGE> 8
shall be designated from time to time by Consultant.
4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees
payable to Consultant as provided above in paragraph 3, Consultant shall be
reimbursed, upon submission to the Company of appropriate vouchers and
receipts, for out-of-pocket expenses (including, without limitation, travel
expenses) reasonably incurred by Consultant in furtherance of the Company's
business. Such reimbursement shall take place promptly after the required
submissions, and in no event less frequently than bi-weekly.
5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of
any other amounts payable to Consultant under this Agreement which are not paid
when due shall bear interest at the rate which is 2% above the "prime" rate in
effect from time to time.
6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its
retention of Consultant under this Agreement at any time during the Retention
Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated
breaches by Consultant of Consultant's obligations under this Agreement, which
breaches (a) were demonstrably willful and deliberate on Consultant's part, (b)
were committed in bad faith or without the reasonable belief that such breaches
were in the best interests of the Company and (c) have not been remedied in a
reasonable period of time after receipt of written notice from the Company
specifying such breaches and demanding that they be remedied within a
reasonable period of time.
7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate
its retention by the Company under this Agreement for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to Consultant of any duties or responsibilities
inconsistent in any respect with the terms of Consultant's retention
hereunder or
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any other action by the Company which results in a diminution of
Consultant's involvement with the business of the Company or its
authorities, powers, functions or duties under this Agreement or
imposes upon Consultant any requirement for the performance of its
services hereunder which did not exist as of the date hereof,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given to the Company by
Consultant;
(b) any failure by the Company to pay when due any payment of the
Consulting Fees or other amounts payable to Consultant hereunder,
other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by Consultant;
(c) any purported termination by the Company of Consultant's
retention other than as expressly permitted by this Agreement;
(d) any failure by the Company to comply with and satisfy
subparagraph (c) of paragraph 15 below, provided that the successor to
which such paragraph applies has received at least ten (10) days'
prior written notice from the Company or the Consultant of the
requirements of such paragraph;
(e) the occurrence of a "Change in Control of the Company" (as
hereinafter defined); or
(f) (i) the filing by the Company of a petition in bankruptcy or
seeking reorganization or arrangement under any federal or state
bankruptcy, insolvency or reorganization law, (ii) the making by the
Company of a general assignment for the benefit of its creditors or of
any other composition or reorganization agreement with its creditors,
(iii) the appointment of a trustee or receiver of the Company or of
the whole or any substantial part of its property or (iv) on a
petition in bankruptcy or seeking reorganization or arrangement under
any federal or state bankruptcy, insolvency or reorganization law
filed against the Company, the adjudication of the Company as a
bankrupt, the failure of the Company to contest such filing, the
admission by the Company of the material allegations of such petition
or the failure of the Company to have such petition vacated, set aside
or stayed within sixty (60) days from the date of the filing thereof.
Consultant may terminate its retention by the Company under this
Agreement for "Good Reason" at any time during the Retention Period, except
that any such termination pursuant to subparagraph (e) above of this paragraph
7 must take place within twelve (12) months after the
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occurrence of the "Change in Control of the Company".
For purposes of this Agreement, any good faith determination of "Good
Reason" made by Consultant shall be conclusive and binding on the Company,
absent manifest error.
For purposes of this Agreement, a "Change in Control of the Company"
shall have occurred (i) if there has occurred a change in control of the
Company as the term "control" is defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons
who are the current members of the Company's Board of Directors cease to
constitute at least a majority of such Board of Directors and their
replacements were not persons elected or appointed with the favorable vote or
consent of Consultant; (iii) if the shareholder(s) of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; (iv) if the shareholder(s) of the Company
approve a plan of complete liquidation of the Company; (v) if the
shareholder(s) of the Company approve an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets; or (vi) if
the Company shall cease to be a member of the affiliated group (within the
meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended) of
which The Arlen Corporation, a New York corporation, is the parent corporation.
8. NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by Consultant
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for Good Reason, shall be communicated by a Notice of Termination to the other
party hereto in accordance with paragraph 16 below. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (a) indicates
the specific termination provision in this Agreement relied upon, (b) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Consultant's retention under the
provision so indicated and (c) if the Termination Date (as hereinafter defined)
is other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than fifteen (15) days after the giving of
such notice). The failure by Consultant or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause shall not constitute a waiver of any right of
Consultant or the Company hereunder or preclude Consultant or the Company from
asserting such fact or circumstance in enforcing Consultant's or the Company's
rights hereunder.
9. TERMINATION DATE. For purposes of this Agreement, the Termination
Date means, whether Consultant's retention is terminated by the Company for
Cause, by Consultant for Good Reason or otherwise by Consultant or the Company,
the date of receipt of the Notice of Termination or any later date specified
therein, as the case may be.
10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT.
(a) Prior to a Change in Control of the Company, if Consultant
terminates its retention by the Company for Good Reason or if Consultant's
retention is terminated by the Company for any reason other than Cause, the
Company shall pay to Consultant, in cash in a lump sum on the Termination Date,
(i) all unpaid Consulting Fees through the Termination Date, (ii) all
unreimbursed expenses payable to Consultant pursuant to paragraph 4 above and
(iii) all
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Consulting Fees which would be payable to Consultant through the end of the
Retention Period if Consultant were to continue to perform its services
hereunder through the end of the Retention Period (provided that the amount
representing payment of such future Consulting Fees shall be discounted to
their present value, applying a discount rate equal to 1% below the "prime"
rate as in effect at the close of business on the business day immediately
preceding the Termination Date).
(b) After a Change in Control of the Company has occurred, if
Consultant terminates its retention by the Company for Good Reason or if
Consultant's retention is terminated by the Company for any reason other than
Cause, the Company shall pay to Consultant, in cash in a lump sum on the
Termination Date, (i) all unpaid Consulting Fees through the Termination Date,
(ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4
above and (iii) as Consultant, in its sole discretion may elect, either (A) all
Consulting Fees which would be payable to Consultant through the end of the
Retention Period if Consultant were to continue to perform its services
hereunder through the end of the Retention Period (provided that the amount
representing payment of such future Consulting Fees shall be discounted to
their present value, applying a discount rate equal to 1% below the "prime"
rate as in effect at the close of business on the business day immediately
preceding the Termination Date) or (B) as liquidated damages (which the parties
hereto acknowledge to be fair and reasonable in view of the impossibility of
determining the actual damages which Consultant may suffer as a result of such
termination), the sum of $2,900,000.
(c) At any time during the Retention Period, if Consultant's retention
is terminated by the Company for Cause, the Company shall pay to Consultant, in
cash in a lump sum on the
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Termination Date, (i) all unpaid Consulting Fees through the Termination Date
and (ii) all unreimbursed expenses payable to Consultant pursuant to paragraph
4 above.
(d) In the event that, in the case of a termination by the Company of
Consultant's retention for Cause, Consultant shall have notified the Company
(the "Notice of Dispute"), within ten (10) business days after having received
the Notice of Termination, that Consultant disputes whether the Company had
"Cause" for such termination, then, notwithstanding and in addition to the
payment required above by subparagraph (b) of this paragraph 10, the Company
shall continue without interruption the payment of the Consulting Fees payable
pursuant to paragraph 3 above, provided, however, that all such payments of the
Consulting Fees shall be made to an attorney designated by Consultant for such
purpose in the Notice of Dispute, with the aggregate amount of all such
payments (and all interest earned thereon) being held in escrow by such
attorney, pending (i) agreement by Consultant and the Company as to the issue
of "Cause" and the disposition of the escrowed funds or (ii) a final,
non-appealable order of a court of competent jurisdiction determining these
matters (with the prevailing party with respect to such order be entitled to
recover its attorneys' fees and disbursements, court costs and other costs and
expenses relating to this dispute from the other party).
(e) Upon payment in full of the applicable payments required above by
subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to
subparagraph (d) of this paragraph 10), this Agreement shall terminate and be
of no further force or effect, except that the provisions of paragraph 14 below
shall survive such termination.
(f) Consultant shall not be required to mitigate the payment of any
payments received pursuant to subparagraphs (a), (b), (c) or (d) of this
paragraph 10 by seeking other consulting
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engagements and, to the extent that Consultant shall, after the Termination
Date, receive compensation from any other consulting engagements, the payments
received hereunder shall not be adjusted.
11. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Consultant, any of Consultant's Personnel or others.
12. INDEMNIFICATION.
(a) The Company shall indemnify, defend and hold harmless Consultant
and Consultant's Personnel from and against any and all claims, demands,
actions, suits and other proceedings, judgments and awards, and all costs and
expenses thereof (including, without limitation, attorneys' fees and
disbursements, court costs and amounts paid in settlement of such matters),
asserted against Consultant and/or Consultant's Personnel by reason of the
business and operations of the Company or Consultant's duties hereunder,
excluding only such of the foregoing as are determined by a court of competent
jurisdiction (without any further right of appeal) to have resulted from the
willful and wanton misconduct or fraud of Consultant or Consultant's Personnel.
(b) Upon Consultant's discovery of any claim by a third party which,
if sustained, would be subject to indemnification pursuant to subparagraph (a)
of this paragraph 12, Consultant shall give prompt notice to the Company of
such claim, provided, however, that the failure of Consultant to so promptly
notify the Company of such claim shall not relieve the Company of any
indemnification obligation under this Agreement unless the Company shall have
been
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substantially prejudiced thereby. Unless Consultant shall, in its sole
discretion, agree in writing to assume and control the defense of any action
for which indemnification may be sought, the Company shall assume and control
such defense, in which event Consultant shall have the right to employ counsel
at Consultant's expense to represent it in addition to counsel employed by the
Company. If the Company shall fail or refuse to undertake the defense within
fifteen (15) days after receiving notice that a claim has been made, Consultant
shall have the right (but not the obligation) to assume the defense of such
claim in such manner as it deems appropriate until the Company shall, with the
consent of Consultant, assume control of such defense, and the Company shall
indemnify Consultant pursuant to subparagraph (a) of this paragraph 12 from and
against the costs and expenses of such defense. The party hereto handling the
defense of an action shall keep the other party hereto fully informed at all
times of the status of the claim. Neither the Company nor the Consultant, when
handling the defense of a claim for which indemnification may be sought by
Consultant, shall settle such claim without the consent of the other party
hereto (which consent shall not be unreasonably withheld or delayed) unless
such settlement shall (i) impose no additional liability or obligation upon the
party hereto (or its shareholders, directors and officers and, in the case of
Consultant, Consultant's Personnel) whose consent would otherwise be required
and (ii) where the Company is handling the defense and settlement of the claim,
provide Consultant and Consultant's Personnel with a general release with
respect to the subject claim.
(c) In any matter with respect to which Consultant may be entitled to
indemnification from the Company pursuant to subparagraph (a) of this paragraph
12, the Company shall, to the extent not prohibited by applicable law, advance
to Consultant and Consultant's Personnel,
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pending the final disposition of such matter, all costs and expenses which
Consultant and/or Consultant's Personnel may incur in such matter, including,
without limitation, all attorneys' fees and disbursements, court costs and the
fees and disbursements of accountants, other experts and consultants.
(d) The rights of indemnification provided by this paragraph 12 shall
be in addition to, and not be deemed exclusive of, any other rights and
remedies apart from this Agreement which may be available to Consultant and
Consultant's Personnel, whether by contract, at law, in equity or otherwise.
13. NO JOINT VENTURE, ETC.
(a) Nothing in this Agreement shall be construed as (i) creating a
partnership, joint venture or agency relationship between the Company and
Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or
otherwise be liable for any portion of any losses directly or indirectly
incurred by the Company and arising out of or otherwise connected with the
services performed or to be performed by Consultant pursuant to this Agreement.
(b) Neither Consultant nor Consultant's Personnel shall be liable,
responsible or in any way accountable in damages or otherwise to the Company or
any other entity or person for any loss or damage incurred by the Company by
reason of any act or omission to act by Consultant or Consultant's Personnel,
except the willful and wanton misconduct or fraud of Consultant or or
Consultant's Personnel in connection with the performance of Consultant's
services hereunder.
(c) Consultant does not represent, warrant, guarantee or ensure any
particular business results from the services which may be performed for, or
the projections, plans, reports or
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studies which may be prepared for, the Company pursuant to this Agreement.
(d) In the event that Consultant refers or introduces to the Company, or
arranges for the Company to utilize the services of, third parties such as
attorneys, accountants, investment bankers, brokers, finders, sales or
marketing representatives, contractors or other consultants (who will not be
retained without the consent of the Company, which will not be unreasonably
withheld or delayed), such third parties will be direct contractors for the
Company and not Consultant and their fees, commissions, disbursements and other
charges will be the sole responsibility of the Company.
14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION.
(a) Consultant shall hold, and shall use its best efforts to cause
Consultant's Personnel to hold, in strict confidence for the benefit of the
Company, all secret or confidential information, knowledge or data relating to
the Company and its business, which shall have been obtained by Consultant or
Consultant's Personnel during Consultant's retention by the Company and which
shall not be or have become (i) generally available to the public other than as
a result of a disclosure by Consultant, (ii) already known by Consultant on a
non-confidential basis prior to having been furnished by the Company to
Consultant or (iii) available to Consultant on a non-confidential basis from a
source other than the Company if such source was not known to be subject to any
prohibition against the transmittal of such information. Consultant will not,
without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such confidential
information, knowledge or data to anyone other than the Company and those
designated by it.
In the event of a breach or threatened breach by Consultant of the
immediately-preceding
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paragraph of this subparagraph (a) of this paragraph 14, the Company shall be
entitled, upon establishing the existence of such breach or threatened breach,
to an injunction to be issued by any tribunal of competent jurisdiction to
restrain Consultant from committing or continuing any such violation. In any
proceeding for a temporary or permanent injunction, Consultant agrees that its
ability to answer in damages shall not be a bar or be interposed as a defense
to the granting of such a temporary or permanent injunction against it.
Consultant acknowledges that the Company will not have an adequate remedy at
law in the event of any breach by Consultant as aforesaid and that the Company
may suffer irreparable damage and injury in the event of such a breach by
Consultant. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company,
including, without limitation, the recovery of damages from Consultant for any
such breach.
(b) The Company acknowledges that, in connection with Consultant's
performance of its services hereunder, Consultant and Consultant's Personnel
must at all times rely, as to accuracy and completeness, upon information
furnished to them by the Company's officers, employees and agents. Accordingly,
Consultant and Consultant's Personnel shall have no liability for any acts or
omissions taken, or reports and documentation produced, in reliance upon
information furnished to them by the Company's officers, employees and agents,
and the Company shall, as provided above in paragraph 12, indemnify, defend and
hold harmless Consultant and Consultant's Personnel from and against any and
all claims, demands, actions, suits and other proceedings, judgments and
awards, and all costs and expenses thereof (including, without limitation,
attorneys' fees and disbursements, court costs and amounts paid in settlement
of such matters), asserted against Consultant and/or Consultant's Personnel,
which are attributable to
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such reliance by Consultant and Consultant's Personnel upon information
furnished by the Company's officers, employees and agents.
15. SUCCESSORS.
(a) This Agreement is personal to Consultant and, without the prior
written consent of the Company, this Agreement shall not be assignable by
Consultant. This Agreement shall inure to the benefit of, be binding upon and
be enforceable by Consultant.
(b) This Agreement shall not be assignable by the Company except to a
successor of the Company which has complied with the requirements below of
subparagraph (c) of this paragraph 15. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by the Company and its
successors and assigns who have complied with the requirements below of
subparagraph (c) of this paragraph 15.
(c) The Company will require any successor (whether direct or
indirect, by purchase of assets or capital stock, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, the "Company"
shall mean the Company as hereinabove defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law or otherwise.
16. GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflict of laws.
(b) Each party hereto, for itself and its successors and assigns,
hereby consents to
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personal jurisdiction over it in the courts of the State of New York, in and
for New York County, and in any federal court located in the State of New York,
in and for the Southern District of New York, in connection with any action,
suit or proceeding arising out of or relating in any way to this Agreement.
Each party hereto, for itself and its successors and assigns, agrees that
personal service of process upon it may be made in any manner permitted by the
laws of the State of New York and hereby agrees that service will be deemed
sufficient over it if service is made by registered or certified mail to the
addresses specified below in subparagraph (b) of paragraph 17. The Company, for
itself and its successors and assigns, agrees that no action, suit or
proceeding of any kind may be brought, and no claim may be asserted (whether by
counterclaim, cross-claim or otherwise) by it or them against Consultant or
Consultant's Personnel with respect to any matter arising from, relating to or
in connection with this Agreement except in the courts of the State of New
York, in and for New York County, and the federal courts located in the State
of New York, in and for the Southern District of New York.
17. MISCELLANEOUS.
(a) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended,
modified, repealed, waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of such amendment,
modification, repeal, waiver, extension or discharge is sought. No person,
other than pursuant to a resolution of the Board of Directors or a committee
thereof, shall have authority on behalf of the Company to agree to amend,
modify, repeal, waive, extend or discharge any provision of this Agreement or
anything in reference thereto.
(b) All notices, requests, demands and other communications which are
required or
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permitted to be given under this Agreement shall be in writing and shall be
deemed received (i) on the date delivered if personally delivered or sent by
telecopier (with receipt confirmed), (ii) on the first business day after sent
by an overnight air express delivery service guaranteeing next-day delivery or
(iii) on the third business day after being deposited in the United States
mail, if mailed by certified or registered mail, return receipt requested, with
first class postage affixed thereon, and properly addressed as follows:
(a) if to Consultant, to:
DAT Consulting, LLC
85 West Hawthorne Avenue
Valley Stream, NY 11580
FAX: 516/825-0063)
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Leonard Grunstein, Esq.
(FAX: 212/889-7577)
(b) if to the Company, to:
G.T. Styling, Inc.
16702 Von Karman Avenue
Irvine, CA 92714
Attention: President
(FAX: 714/476-9071)
with a copy to:
Stephen B. Delman, Esq.
10 River Road
New York, NY 10044
(FAX: 212/279-9595)
or to such other person or address as any party hereto shall have specified by
notice in writing to the other party hereto.
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(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Consultant's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right which Consultant or the Ccmpany may have hereunder, including, without
limitation, the right of Consultant to terminate employment for Good Reason
pursuant to paragraph 7 above, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
(e) This instrument contains the entire agreement of the parties
hereto with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements are merged
herein and superseded hereby.
(f) This Agreement is for the sole benefit of the Company and
Consultant (and, in connection with the indemnification provisions of
paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein,
express or implied, is intended to, or shall, confer on any other person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
(g) Each of the parties hereto represents and warrants to the other
party hereto that this Agreement has been duly authorized by all necessary
corporate or company action, has been duly executed and delivered and
constitutes the legal, valid and binding obligation of such party enforceable
in accordance with its terms.
IN WITNESS WHEREOF, the Company and Consultant have caused this Agreement
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to be executed as of the day and year first above written.
G.T. STYLING, INC.
BY: /s/ JEFFERY J. GATI
-----------------------------------------------
JEFFERY J. GATI, PRESIDENT
DAT CONSULTING, LLC
BY: WAVEROCK CONSULTING, INC.
BY: /s/ ALLAN J. MARRUS
-----------------------------------------------
ALLAN J. MARRUS, PRESIDENT
BY: ROSEMARK, INC.
BY: /s/ MARK ROSENBERG
-----------------------------------------------
MARK ROSENBERG, PRESIDENT
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<PAGE> 1
EXHIBIT 10.13
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CONSULTING AGREEMENT
CONSULTING AGREEMENT effective as of October 1, 1995 between GRIZZLY
PRODUCTS, INC., a Delaware corporation (THE "COMPANY"), and DAT CONSULTING,
LLC, a New York limited liability company ("CONSULTANT").
W I T N E S S E T H :
WHEREAS, the efficient conduct of the Company's business operations
and the enhancement of its growth potential require that it have available to
it the services of a suitable chief operating officer and the support of an
organization which can offer the Company, on a consulting basis, a broad range
of administrative, strategic planning, business development, financial analysis
and structuring, licensing, leasing and acquisition-related management
consulting services; and
WHEREAS, Consultant has heretofore entered into a Consulting Agreement
with the Company's affiliate, Grant Products, Inc. ("Grant"), pursuant to
which Consultant is to provide to Grant not only the services of Tom A. Poteet
(or of another suitable person) as the chief operating officer of Grant, but
also, through the Company's resources, a broad range of administrative,
strategic planning, business development, financial analysis and structuring,
licensing, leasing and acquisition-related management consulting services; and
WHEREAS, in view of the foregoing, the Company desires to retain
Consultant, and Consultant is willing to be retained by the Company, to provide
the Company with the services described above, on a consulting basis, during
the term of this Agreement, upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements set forth below and intending to be legally bound, the parties
hereto agree as
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<PAGE> 3
follows:
1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain
the Consultant, and the Consultant hereby agrees to serve, as an independent
management consultant to the Company, in accordance with the terms and
provisions of this Agreement, during the Retention Period (as hereinafter
defined). The "Retention Period" shall mean the five-year period beginning on
the effective date of this Agreement and ending at the close of business on
September 30, 2000, unless terminated sooner as hereinafter provided; provided,
however, that, on each October 1 after the date hereof, the Retention Period
shall be automatically extended for one (1) additional year unless, at least
six (6) months prior to such October 1, either party hereto shall have notified
the other party hereto that the Retention Period shall not be further extended.
2. CONSULTING SERVICES OF CONSULTANT.
(a) The consulting services to be performed by Consultant as an
independent management consultant to the Company during the Retention Period
shall relate to administration, strategic planning, business development,
financial analysis and structuring, licensing, leasing and acquisitions and
shall, in addition to providing the Company with the managerial services of a
chief operating officer (who may be Tom A. Poteet or another suitable person),
include, but not be limited to, the following:
(i) monitoring of the Company's business operations and
product lines and providing general advice regarding the
administration of the Company and its business;
(ii) analysis of the operations of the Company with a view to
improving the efficiency of its operations and enhancing the
reputation of the Company and its products;
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(iii) development of additional business relationships for the
Company;
(iv) assisting the Company in its labor relations with its
employees (including the hiring of new management personnel) and in
developing appropriate benefit programs for such employees;
(v) analysis of the Company's plant and equipment requirements
and, where necessary, the evaluation and negotiation of new lease
transactions;
(vi) review and evaluation of the Company's capital
expenditure programs;
(vii) assessing the Company's insurance needs and assisting
the Company in negotiating favorable rates with insurance brokers and
in placing such insurance;
(viii) providing the Company with advice regarding its
internal accounting and controls systems and procedures;
(ix) assisting the Company in arranging the restructuring
and/or refinancing of its existing credit facilities and in seeking
other financing sources;
(x) reviewing the Company's accounts receivable and making
recommendations with respect to the extension of credit to customers;
(xi) promoting the reputation of the Company in the investment
community and evaluating opportunities for raising equity capital in
the public or private capital markets;
(xii) assisting the Company in strategic business planning and
in analysis of potential acquisition candidates for the Company;
(xiii) assisting the Company in negotiating and consummating
acquisition transactions which the Company decides to pursue;
(xiv) evaluation of proposed purchasers for assets or
operations of the Company which have been designated for disposition;
and
(xv) evaluation and negotiation of proposed licensing
arrangements.
(b) In performing its services hereunder, Consultant expects to be
utilizing the services of qualified personnel, such as Tom A. Poteet, Allan J.
Marrus and other members, managers, officers, employees, agents and
representatives of Consultant, as well as other persons (which
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<PAGE> 5
may include, directly or indirectly, other consultants and subconsultants) who
may be retained by Consultant from time to time to perform such services. All
members, managers, officers, employees, agents and representatives of
Consultant, as well as any other persons (including direct or indirect
consultants and subconsultants) who may be retained by Consultant from time to
time in connection with Consultant's performance of its services to the Company
hereunder, shall be compensated for their services directly by Consultant and
not by the Company. All staffing decisions with respect to the services to be
provided by Consultant hereunder shall be solely within the discretion of
Consultant and, at any time and from time to time, Consultant may make any
changes in such staffing which it considers necessary or appropriate.
(c) Consultant and the Company acknowledge that the services to be
performed by Consultant pursuant to this Agreement shall be performed by
Consultant, including its members, managers, officers, employees, agents,
representatives and other retained persons (including direct or indirect
consultants and subconsultants) (all of which members, managers, officers,
employees, agents, representatives and other retained persons are hereinafter
collectively referred to as "Consultant's Personnel"), as an independent
contractor and that nothing herein contained shall be deemed to constitute an
employer-employee relationship between the Company, on the one hand, and
Consultant (and Consultant's Personnel), on the other hand.
(d) Although it is not possible to estimate the amount of time that
Consultant's Personnel will be devoting to the performance of Consultant's
services under this Agreement, Consultant agrees that it will cause
Consultant's Personnel (none of whom, with the exception of the person
designated to serve as the chief operating officer of the Company, will be
required or expected to be employed by Consultant on a full-time basis) to
devote such time, during normal business
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<PAGE> 6
hours, to the business and affairs of the Company as shall be reasonably
necessary to enable Consultant to perform the services to be performed by
Consultant hereunder.
(e) The Company and Consultant acknowledge that the services to be
performed by Consultant hereunder will generally not require that Consultant
(or Consultant's Personnel), other than the person designated to serve as the
chief operating officer of the Company, perform such services or otherwise be
present at the Company's business premises in the State of California, though
periodic visits to the Company's California location by one or more of
Consultant's Personnel may be appropriate. Accordingly, it is contemplated that
Consultant's services will generally be performed at such locations as shall be
convenient for Consultant's Personnel and as Consultant from time to time
shall, in its sole discretion consider appropriate, provided, however, that,
when specifically requested by the Company, Consultant will make Consultant's
Personnel available to meet with representatives of the Company at reasonable
times upon reasonable notice.
(f) The Company and Consultant acknowledge that nothing contained in
this Agreement shall prohibit Consultant or Consultant's Personnel from (i)
being a consultant, director, officer, employee, investor, lender, shareholder,
joint venturer, partner, manager or member in, or serving in any other capacity
with, any other enterprise, association, corporation, joint venture,
partnership or company (hereinafter collectively referred to as the "Other
Business"), provided that the business of the Other Business does not directly
compete with the business of the Company, or (ii) serving in any capacity or
having any business relationship with, or being affiliated in any manner with,
the Company or any of its affiliates.
3. CONSULTING FEES. During the Retention Period, as full compensation
for the services
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to be rendered by Consultant pursuant to this Agreement, the Company agrees to
pay to Consultant, and Consultant agrees to accept, consulting fees at an
annual rate equal to the sum of (a) the total annual rate of payroll expense
(including the cost to Consultant of employee benefit plans and programs and
other employee perquisites) which the Company will incur with respect to
Consultant's Personnel (who may include Tom A. Poteet) who shall be providing
services to the Company on substantially a full-time basis and generally at the
Company's business premises in the State of California, and (b) the amount
which represents four percent (4%) of the Company's "net sales" for the
applicable year. The consulting fees referred to in clause (a) of the preceding
sentence are hereinafter referred to as the "Payroll Fees"; the consulting fees
referred to in clause (b) of the preceding sentence are hereinafter referred to
as the "Revenue Fees".
The Payroll Fees payable hereunder shall be payable in equal monthly
installments in advance on the 1st day of each month or, if such day is not a
business day, on the immediately-preceding business day. The Revenue Fees
payable hereunder shall be payable monthly in arrears, with each such monthly
payment to be made within ten (10) days after the end of the month with respect
to which the Revenue Fees are payable. At the request of Consultant, all
payments of the Payroll Fees and the Revenue Fees (collectively, the
"Consulting Fees") shall be made by wire transfer to such account or accounts
as shall be designated from time to time by Consultant.
For purposes of this Agreement, "net sales" shall be the total of the
invoice prices for all products and services sold by the Company, less all
returns, trade discounts and allowances. Returns, trade discounts and
allowances shall be charged against gross revenues in the month during which
they are accepted or allowed. Within ten (10) days after the end of each month
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<PAGE> 8
during the Retention Period, the Company will provide Consultant with a sales
report for the preceding month which calculates the "net sales" of the Company
for such month. Consultant shall be permitted access at any time to the
Company's sales records for the purpose of verifying the accuracy of the sales
reports so provided to Consultant.
4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees
payable to Consultant as provided above in paragraph 3, Consultant shall be
reimbursed, upon submission to the Company of appropriate vouchers and
receipts, for out-of-pocket expenses (including, without limitation, travel
expenses) reasonably incurred by Consultant in furtherance of the Company's
business. Such reimbursement shall take place promptly after the required
submissions, and in no event less frequently than bi-weekly.
5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of
any other amounts payable to Consultant under this Agreement which are not paid
when due shall bear interest at the rate which is 2% above the "prime" rate in
effect from time to time.
6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its
retention of Consultant under this Agreement at any time during the Retention
Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated
breaches by Consultant of Consultant's obligations under this Agreement, which
breaches (a) were demonstrably willful and deliberate on Consultant's part, (b)
were committed in bad faith or without the reasonable belief that such breaches
were in the best interests of the Company and (c) have not been remedied in a
reasonable period of time after receipt of written notice from the Company
specifying such breaches and demanding that they be remedied within a
reasonable period of time.
7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate
its retention
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by the Company under this Agreement for "Good Reason". For purposes of this
Agreement, "Good Reason" shall mean:
(a) the assignment to Consultant of any duties or
responsibilities inconsistent in any respect with the terms of
Consultant's retention hereunder or any other action by the Company
which results in a diminution of Consultant's involvement with the
business of the Company or its authorities, powers, functions or
duties under this Agreement or imposes upon Consultant any requirement
for the performance of its services hereunder which did not exist as
of the date hereof, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof
given to the Company by Consultant;
(b) any failure by the Company to pay when due any payment of
the Consulting Fees or other amounts payable to Consultant hereunder,
other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by Consultant;
(c) any purported termination by the Company of Consultant's
retention other than as expressly permitted by this Agreement;
(d) any failure by the Company to comply with and satisfy
subparagraph (c) of paragraph 15 below, provided that the successor to
which such paragraph applies has received at least ten (10) days'
prior written notice from the Company or the Consultant of the
requirements of such paragraph;
(e) the occurrence of a "Change in Control of the Company" (as
hereinafter defined); or
(f) (i) the filing by the Company of a petition in bankruptcy
or seeking reorganization or arrangement under any federal or state
bankruptcy, insolvency or reorganization law, (ii) the making by the
Company of a general assignment for the benefit of its creditors or of
any other composition or reorganization agreement with its creditors,
(iii) the appointment of a trustee or receiver of the Company or of
the whole or any substantial part of its property or (iv) on a
petition in bankruptcy or seeking reorganization or arrangement under
any federal or state bankruptcy, insolvency or reorganization law
filed against the Company, the adjudication of the Company as a
bankrupt, the failure of the Company to contest such filing, the
admission by the Company of the material allegations of such petition
or the failure of the Company to have such petition vacated, set aside
or stayed within sixty (60) days from the date of the filing thereof.
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Consultant may terminate its retention by the Company under this
Agreement for "Good Reason" at any time during the Retention Period, except
that any such termination pursuant to subparagraph (e) above of this paragraph
7 must take place within twelve (12) months after the occurrence of the "Change
in Control of the Company".
For purposes of this Agreement, any good faith determination of "Good
Reason" made by Consultant shall be conclusive and binding on the Company,
absent manifest error.
For purposes of this Agreement, a "Change in Control of the Company"
shall have occurred (i) if there has occurred a change in control of the
Company as the term "control" is defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons
who are the current members of the Company's Board of Directors cease to
constitute at least a majority of such Board of Directors and their
replacements were not persons elected or appointed with the favorable vote or
consent of Consultant; (iii) if the shareholder(s) of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; (iv) if the shareholder(s) of the Company
approve a plan of complete liquidation of the Company; (v) if the
shareholder(s) of the Company approve an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets; or (vi) if
the Company shall cease to be a member of the affiliated group (within the
meaning of Section 1504(a) of the Internal
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Revenue Code of 1986, as amended) of which The Arlen Corporation, a New York
corporation, is the parent corporation.
8. NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by Consultant for Good Reason, shall be communicated by a Notice of Termination
to the other party hereto in accordance with paragraph 16 below. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (a)
indicates the specific termination provision in this Agreement relied upon, (b)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Consultant's
retention under the provision so indicated and (c) if the Termination Date (as
hereinafter defined) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than fifteen (15)
days after the giving of such notice). The failure by Consultant or the Company
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not constitute a waiver
of any right of Consultant or the Company hereunder or preclude Consultant or
the Company from asserting such fact or circumstance in enforcing Consultant's
or the Company's rights hereunder.
9. TERMINATION DATE. For purposes of this Agreement, the Termination
Date means, whether Consultant's retention is terminated by the Company for
Cause, by Consultant for Good Reason or otherwise by Consultant or the Company,
the date of receipt of the Notice of Termination or any later date specified
therein, as the case may be.
10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT.
(a) Prior to a Change in Control of the Company, if Consultant
terminates its retention by the Company for Good Reason or if Consultant's
retention is terminated by the Company for
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any reason other than Cause, the Company shall pay to Consultant, in cash in a
lump sum on the Termination Date, (i) all unpaid Consulting Fees through the
Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant
to paragraph 4 above and (iii) all Consulting Fees which would be payable to
Consultant through the end of the Retention Period if Consultant were to
continue to perform its services hereunder through the end of the Retention
Period (assuming, for the purpose of this clause (iii), that the "net sales" of
the Company during the remainder of the Retention Period after the Termination
Date would increase at a growth rate of 6% per annum and provided that the
amount representing payment of such future Consulting Fees shall be discounted
to their present value, applying a discount rate equal to 1% below the "prime"
rate as in effect at the close of business on the business day immediately
preceding the Termination Date).
(b) After a Change in Control of the Company has occurred, if
Consultant terminates its retention by the Company for Good Reason or if
Consultant's retention is terminated by the Company for any reason other than
Cause, the Company shall pay to Consultant, in cash in a lump sum on the
Termination Date, (i) all unpaid Consulting Fees through the Termination Date,
(ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4
above and (iii) as Consultant, in its sole discretion may elect, either (A) all
Consulting Fees which would be payable to Consultant through the end of the
Retention Period if Consultant were to continue to perform its services
hereunder through the end of the Retention Period (assuming, for the purpose of
this clause (A), that the "net sales" of the Company during the remainder of
the Retention Period after the Termination Date would increase at a growth rate
of 6% per annum and provided that the amount representing payment of such
future Consulting Fees shall be
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discounted to their present value, applying a discount rate equal to 1% below
the "prime" rate as in effect at the close of business on the business day
immediately preceding the Termination Date), or (B) as liquidated damages
(which the parties hereto acknowledge to be fair and reasonable in view of the
impossibility of determining the actual damages which Consultant may suffer as
a result of such termination), the sum of $750,000.
(c) At any time during the Retention Period, if Consultant's retention
is terminated by the Company for Cause, the Company shall pay to Consultant, in
cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees
through the Termination Date and (ii) all unreimbursed expenses payable to
Consultant pursuant to paragraph 4 above.
(d) In the event that, in the case of a termination by the Company of
Consultant's retention for Cause, Consultant shall have notified the Company
(the "Notice of Dispute"), within ten (10) business days after having received
the Notice of Termination, that Consultant disputes whether the Company had
"Cause" for such termination, then, notwithstanding and in addition to the
payment required above by subparagraph (b) of this paragraph 10, the Company
shall continue without interruption the payment of the Consulting Fees payable
pursuant to paragraph 3 above, provided, however, that all such payments of the
Consulting Fees shall be made to an attorney designated by Consultant for such
purpose in the Notice of Dispute, with the aggregate amount of all such
payments (and all interest earned thereon) being held in escrow by such
attorney, pending (i) agreement by Consultant and the Company as to the issue
of "Cause" and the disposition of the escrowed funds or (ii) a final,
non-appealable order of a court of competent jurisdiction determining these
matters (with the prevailing party with respect to such order be entitled to
recover its attorneys' fees and disbursements, court costs and other
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costs and expenses relating to this dispute from the other party).
(e) Upon payment in full of the applicable payments required above by
subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to
subparagraph (d) of this paragraph 10), this Agreement shall terminate and be
of no further force or effect, except that the provisions of paragraph 14 below
shall survive such termination.
(f) Consultant shall not be required to mitigate the payment of any
payments received pursuant to subparagraphs (a), (b), (c) or (d) of this
paragraph 10 by seeking other consulting engagements and, to the extent that
Consultant shall, after the Termination Date, receive compensation from any
other consulting engagements, the payments received hereunder shall not be
adjusted.
11. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Consultant, any of Consultant's Personnel or others.
12. INDEMNIFICATION.
(a) The Company shall indemnify, defend and hold harmless Consultant
and Consultant's Personnel from and against any and all claims, demands,
actions, suits and other proceedings, judgments and awards, and all costs and
expenses thereof (including, without limitation, attorneys' fees and
disbursements, court costs and amounts paid in settlement of such matters),
asserted against Consultant and/or Consultant's Personnel by reason of the
business and operations of the Company or Consultant's duties hereunder,
excluding only such of the foregoing as are determined by a court of competent
jurisdiction (without any further right of
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appeal) to have resulted from the willful and wanton misconduct or fraud of
Consultant or Consultant's Personnel.
(b) Upon Consultant's discovery of any claim by a third party which,
if sustained, would be subject to indemnification pursuant to subparagraph (a)
of this paragraph 12, Consultant shall give prompt notice to the Company of
such claim, provided, however, that the failure of Consultant to so promptly
notify the Company of such claim shall not relieve the Company of any
indemnification obligation under this Agreement unless the Company shall have
been substantially prejudiced thereby. Unless Consultant shall, in its sole
discretion, agree in writing to assume and control the defense of any action
for which indemnification may be sought, the Company shall assume and control
such defense, in which event Consultant shall have the right to employ counsel
at Consultant's expense to represent it in addition to counsel employed by the
Company. If the Company shall fail or refuse to undertake the defense within
fifteen (15) days after receiving notice that a claim has been made, Consultant
shall have the right (but not the obligation) to assume the defense of such
claim in such manner as it deems appropriate until the Company shall, with the
consent of Consultant, assume control of such defense, and the Company shall
indemnify Consultant pursuant to subparagraph (a) of this paragraph 12 from and
against the costs and expenses of such defense. The party hereto handling the
defense of an action shall keep the other party hereto fully informed at all
times of the status of the claim. Neither the Company nor the Consultant, when
handling the defense of a claim for which indemnification may be sought by
Consultant, shall settle such claim without the consent of the other party
hereto (which consent shall not be unreasonably withheld or delayed) unless
such settlement shall (i) impose no additional liability or obligation upon the
party hereto (or its
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shareholders, directors and officers and, in the case of Consultant,
Consultant's Personnel) whose consent would otherwise be required and (ii)
where the Company is handling the defense and settlement of the claim, provide
Consultant and Consultant's Personnel with a general release with respect to
the subject claim.
(c) In any matter with respect to which Consultant may be entitled to
indemnification from the Company pursuant to subparagraph (a) of this paragraph
12, the Company shall, to the extent not prohibited by applicable law, advance
to Consultant and Consultant's Personnel, pending the final disposition of such
matter, all costs and expenses which Consultant and/or Consultant's Personnel
may incur in such matter, including, without limitation, all attorneys' fees
and disbursements, court costs and the fees and disbursements of accountants,
other experts and consultants.
(d) The rights of indemnification provided by this paragraph 12 shall
be in addition to, and not be deemed exclusive of, any other rights and
remedies apart from this Agreement which may be available to Consultant and
Consultant's Personnel, whether by contract, at law, in equity or otherwise.
13. NO JOINT VENTURE, ETC.
(a) Nothing in this Agreement shall be construed as (i) creating a
partnership, joint venture or agency relationship between the Company and
Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or
otherwise be liable for any portion of any losses directly or indirectly
incurred by the Company and arising out of or otherwise connected with the
services performed or to be performed by Consultant pursuant to this Agreement.
(b) Neither Consultant nor Consultant's Personnel shall be liable,
responsible or in any
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way accountable in damages or otherwise to the Company or any other entity or
person for any loss or damage incurred by the Company by reason of any act or
omission to act by Consultant or Consultant's Personnel, except the willful and
wanton misconduct or fraud of Consultant or or Consultant's Personnel in
connection with the performance of Consultant's services hereunder.
(c) Consultant does not represent, warrant, guarantee or ensure any
particular business results from the services which may be performed for, or
the projections, plans, reports or studies which may be prepared for, the
Company pursuant to this Agreement.
(d) In the event that Consultant refers or introduces to the Company,
or arranges for the Company to utilize the services of, third parties such as
attorneys, accountants, investment bankers, brokers, finders, sales or
marketing representatives, contractors or other consultants (who will not be
retained without the consent of the Company, which will not be unreasonably
withheld or delayed), such third parties will be direct contractors for the
Company and not Consultant and their fees, commissions, disbursements and other
charges will be the sole responsibility of the Company.
14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION.
(a) Consultant shall hold, and shall use its best efforts to cause
Consultant's Personnel to hold, in strict confidence for the benefit of the
Company, all secret or confidential information, knowledge or data relating to
the Company and its business, which shall have been obtained by Consultant or
Consultant's Personnel during Consultant's retention by the Company and which
shall not be or have become (i) generally available to the public other than as
a result of a disclosure by Consultant, (ii) already known by Consultant on a
non-confidential basis prior
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to having been furnished by the Company to Consultant or (iii) available to
Consultant on a non-confidential basis from a source other than the Company if
such source was not known to be subject to any prohibition against the
transmittal of such information. Consultant will not, without the prior
written consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such confidential information, knowledge or
data to anyone other than the Company and those designated by it.
In the event of a breach or threatened breach by Consultant of the
immediately-preceding paragraph of this subparagraph (a) of this paragraph 14,
the Company shall be entitled, upon establishing the existence of such breach
or threatened breach, to an injunction to be issued by any tribunal of
competent jurisdiction to restrain Consultant from committing or continuing any
such violation. In any proceeding for a temporary or permanent injunction,
Consultant agrees that its ability to answer in damages shall not be a bar or
be interposed as a defense to the granting of such a temporary or permanent
injunction against it. Consultant acknowledges that the Company will not have
an adequate remedy at law in the event of any breach by Consultant as aforesaid
and that the Company may suffer irreparable damage and injury in the event of
such a breach by Consultant. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedy or remedies available to
the Company, including, without limitation, the recovery of damages from
Consultant for any such breach.
(b) The Company acknowledges that, in connection with Consultant's
performance of its services hereunder, Consultant and Consultant's Personnel
must at all times rely, as to accuracy and completeness, upon information
furnished to them by the Company's officers, employees and agents. Accordingly,
Consultant and Consultant's Personnel shall have no liability for any
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acts or omissions taken, or reports and documentation produced, in reliance
upon information furnished to them by the Company's officers, employees and
agents, and the Company shall, as provided above in paragraph 12, indemnify,
defend and hold harmless Consultant and Consultant's Personnel from and against
any and all claims, demands, actions, suits and other proceedings, judgments
and awards, and all costs and expenses thereof (including, without limitation,
attorneys' fees and disbursements, court costs and amounts paid in settlement
of such matters), asserted against Consultant and/or Consultant's Personnel,
which are attributable to such reliance by Consultant and Consultant's
Personnel upon information furnished by the Company's officers, employees and
agents.
15. SUCCESSORS.
(a) This Agreement is personal to Consultant and, without the prior
written consent of the Company, this Agreement shall not be assignable by
Consultant. This Agreement shall inure to the benefit of, be binding upon and
be enforceable by Consultant.
(b) This Agreement shall not be assignable by the Company except to a
successor of the Company which has complied with the requirements below of
subparagraph (c) of this paragraph 15. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by the Company and its
successors and assigns who have complied with the requirements below of
subparagraph (c) of this paragraph 15.
(c) The Company will require any successor (whether direct or
indirect, by purchase of assets or capital stock, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if
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no such succession had taken place. As used in this Agreement, the "Company"
shall mean the Company as hereinabove defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law or otherwise.
16. GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflict of laws.
(b) Each party hereto, for itself and its successors and assigns,
hereby consents to personal jurisdiction over it in the courts of the State of
New York, in and for New York County, and in any federal court located in the
State of New York, in and for the Southern District of New York, in connection
with any action, suit or proceeding arising out of or relating in any way to
this Agreement. Each party hereto, for itself and its successors and assigns,
agrees that personal service of process upon it may be made in any manner
permitted by the laws of the State of New York and hereby agrees that service
will be deemed sufficient over it if service is made by registered or certified
mail to the addresses specified below in subparagraph (b) of paragraph 17. The
Company, for itself and its successors and assigns, agrees that no action, suit
or proceeding of any kind may be brought, and no claim may be asserted (whether
by counterclaim, cross-claim or otherwise) by it or them against Consultant or
Consultant's Personnel with respect to any matter arising from, relating to or
in connection with this Agreement except in the courts of the State of New
York, in and for New York County, and the federal courts located in the State
of New York, in and for the Southern District of New York.
17. MISCELLANEOUS.
(a) The captions of this Agreement are not part of the provisions
hereof and shall have
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no force or effect. This Agreement may not be amended, modified, repealed,
waived, extended or discharged except by an agreement in writing signed by the
party against whom enforcement of such amendment, modification, repeal, waiver,
extension or discharge is sought. No person, other than pursuant to a
resolution of the Board of Directors or a committee thereof, shall have
authority on behalf of the Company to agree to amend, modify, repeal, waive,
extend or discharge any provision of this Agreement or anything in reference
thereto.
(b) All notices, requests, demands and other communications which are
required or permitted to be given under this Agreement shall be in writing and
shall be deemed received (i) on the date delivered if personally delivered or
sent by telecopier (with receipt confirmed), (ii) on the first business day
after sent by an overnight air express delivery service guaranteeing next-day
delivery or (iii) on the third business day after being deposited in the United
States mail, if mailed by certified or registered mail, return receipt
requested, with first class postage affixed thereon, and properly addressed as
follows:
(a) if to Consultant, to:
DAT Consulting, LLC
85 West Hawthorne Avenue
Valley Stream, NY 11580
FAX: 516/825-0063)
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Leonard Grunstein, Esq.
(FAX: 212/889-7577)
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(b) if to the Company, to:
Grizzly Products, Inc.
1802 Santo Domingo Avenue
Duarte, CA 91010
Attention: President
(FAX: 818/357-4017)
with a copy to:
Stephen B. Delman, Esq.
10 River Road
New York, NY 10044
(FAX: 212/279-9595)
or to such other person or address as any party hereto shall have specified by
notice in writing to the other party hereto.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Consultant's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right which Consultant or the Ccmpany may have hereunder, including, without
limitation, the right of Consultant to terminate employment for Good Reason
pursuant to paragraph 7 above, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
(e) This instrument contains the entire agreement of the parties
hereto with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements are merged
herein and superseded hereby.
(f) This Agreement is for the sole benefit of the Company and
Consultant (and, in connection with the indemnification provisions of
paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein,
express or implied, is intended to, or shall, confer on any other
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person or entity any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
(g) Each of the parties hereto represents and warrants to the other
party hereto that this Agreement has been duly authorized by all necessary
corporate or company action, has been duly executed and delivered and
constitutes the legal, valid and binding obligation of such party enforceable
in accordance with its terms.
IN WITNESS WHEREOF, the Company and Consultant have caused this
Agreement to be executed as of the day and year first above written.
GRIZZLY PRODUCTS, INC.
BY: /s/ TOM A. POTEET
-----------------------------------------------
TOM A. POTEET, PRESIDENT
DAT CONSULTING, LLC
BY: WAVEROCK CONSULTING, INC.
BY: /s/ ALLAN J. MARRUS
-----------------------------------------------
ALLAN J. MARRUS, PRESIDENT
BY: ROSEMARK, INC.
BY: /s/ MARK ROSENBERG
-----------------------------------------------
MARK ROSENBERG, PRESIDENT
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EXHIBIT 10.14
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CONSULTING AGREEMENT
CONSULTING AGREEMENT effective as of October 1, 1995 between A & A
SPECIALTIES CORP., a Delaware corporation (THE "COMPANY"), and DAT CONSULTING,
LLC, a New York limited liability company ("CONSULTANT").
W I T N E S S E T H :
WHEREAS, the efficient conduct of the Company's business operations
and the enhancement of its growth potential require that it have available to
it the services of a suitable chief operating officer and the support of an
organization which can offer the Company, on a consulting basis, a broad range
of administrative, strategic planning, business development, financial analysis
and structuring, licensing, leasing and acquisition-related management
consulting services; and
WHEREAS, Consultant has heretofore entered into a Consulting Agreement
with the Company's affiliate, G.T. Styling, Inc. ("GTS"), pursuant to which
Consultant is to provide to GTS not only the services of Jeffery J. Gati (or of
another suitable person) as the chief operating officer of GTS, but also,
through the Company's resources, a broad range of administrative, strategic
planning, business development, financial analysis and structuring, licensing,
leasing and acquisition-related management consulting services; and
WHEREAS, in view of the foregoing, the Company desires to retain
Consultant, and Consultant is willing to be retained by the Company, to provide
the Company with the services described above, on a consulting basis, during
the term of this Agreement, upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements set forth below and intending to be legally bound, the parties
hereto agree as
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follows:
1. RETENTION OF CONSULTANT; TERM. The Company hereby agrees to retain
the Consultant, and the Consultant hereby agrees to serve, as an independent
management consultant to the Company, in accordance with the terms and
provisions of this Agreement, during the Retention Period (as hereinafter
defined). The "Retention Period" shall mean the five-year period beginning on
the effective date of this Agreement and ending at the close of business on
September 30, 2000, unless terminated sooner as hereinafter provided; provided,
however, that, on each October 1 after the date hereof, the Retention Period
shall be automatically extended for one (1) additional year unless, at least
six (6) months prior to such October 1, either party hereto shall have notified
the other party hereto that the Retention Period shall not be further extended.
2. CONSULTING SERVICES OF CONSULTANT.
(a) The consulting services to be performed by Consultant as an
independent management consultant to the Company during the Retention Period
shall relate to administration, strategic planning, business development,
financial analysis and structuring, licensing, leasing and acquisitions and
shall, in addition to providing the Company with the managerial services of a
chief operating officer (who may be Jeffery J. Gati or another suitable
person), include, but not be limited to, the following:
(i) monitoring of the Company's business operations and
product lines and providing general advice regarding the
administration of the Company and its business;
(ii) analysis of the operations of the Company with a view to
improving the efficiency of its operations and enhancing the
reputation of the Company and its products;
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(iii) development of additional business relationships for the
Company;
(iv) assisting the Company in its labor relations with its
employees (including the hiring of new management personnel) and in
developing appropriate benefit programs for such employees;
(v) analysis of the Company's plant and equipment requirements
and, where necessary, the evaluation and negotiation of new lease
transactions;
(vi) review and evaluation of the Company's capital
expenditure programs;
(vii) assessing the Company's insurance needs and assisting
the Company in negotiating favorable rates with insurance brokers and
in placing such insurance;
(viii) providing the Company with advice regarding its
internal accounting and controls systems and procedures;
(ix) assisting the Company in arranging the restructuring
and/or refinancing of its existing credit facilities and in seeking
other financing sources;
(x) reviewing the Company's accounts receivable and making
recommendations with respect to the extension of credit to customers;
(xi) promoting the reputation of the Company in the investment
community and evaluating opportunities for raising equity capital in
the public or private capital markets;
(xii) assisting the Company in strategic business planning and
in analysis of potential acquisition candidates for the Company;
(xiii) assisting the Company in negotiating and consummating
acquisition transactions which the Company decides to pursue;
(xiv) evaluation of proposed purchasers for assets or
operations of the Company which have been designated for disposition;
and
(xv) evaluation and negotiation of proposed licensing
arrangements.
(b) In performing its services hereunder, Consultant expects to be
utilizing the services of qualified personnel, such as Jeffery J. Gati, Allan
J. Marrus and other members, managers, officers, employees, agents and
representatives of Consultant, as well as other persons (which
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may include, directly or indirectly, other consultants and subconsultants) who
may be retained by Consultant from time to time to perform such services. All
members, managers, officers, employees, agents and representatives of
Consultant, as well as any other persons (including direct or indirect
consultants and subconsultants) who may be retained by Consultant from time to
time in connection with Consultant's performance of its services to the Company
hereunder, shall be compensated for their services directly by Consultant and
not by the Company. All staffing decisions with respect to the services to be
provided by Consultant hereunder shall be solely within the discretion of
Consultant and, at any time and from time to time, Consultant may make any
changes in such staffing which it considers necessary or appropriate.
(c) Consultant and the Company acknowledge that the services to be
performed by Consultant pursuant to this Agreement shall be performed by
Consultant, including its members, managers, officers, employees, agents,
representatives and other retained persons (including direct or indirect
consultants and subconsultants) (all of which members, managers, officers,
employees, agents, representatives and other retained persons are hereinafter
collectively referred to as "Consultant's Personnel"), as an independent
contractor and that nothing herein contained shall be deemed to constitute an
employer-employee relationship between the Company, on the one hand, and
Consultant (and Consultant's Personnel), on the other hand.
(d) Although it is not possible to estimate the amount of time that
Consultant's Personnel will be devoting to the performance of Consultant's
services under this Agreement, Consultant agrees that it will cause
Consultant's Personnel (none of whom, with the exception of the person
designated to serve as the chief operating officer of the Company, will be
required or expected to be employed by Consultant on a full-time basis) to
devote such time, during normal business
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hours, to the business and affairs of the Company as shall be reasonably
necessary to enable Consultant to perform the services to be performed by
Consultant hereunder.
(e) The Company and Consultant acknowledge that the services to be
performed by Consultant hereunder will generally not require that Consultant
(or Consultant's Personnel), other than the person designated to serve as the
chief operating officer of the Company, perform such services or otherwise be
present at the Company's business premises in the State of California, though
periodic visits to the Company's California location by one or more of
Consultant's Personnel may be appropriate. Accordingly, it is contemplated that
Consultant's services will generally be performed at such locations as shall be
convenient for Consultant's Personnel and as Consultant from time to time
shall, in its sole discretion consider appropriate, provided, however, that,
when specifically requested by the Company, Consultant will make Consultant's
Personnel available to meet with representatives of the Company at reasonable
times upon reasonable notice.
(f) The Company and Consultant acknowledge that nothing contained in
this Agreement shall prohibit Consultant or Consultant's Personnel from (i)
being a consultant, director, officer, employee, investor, lender, shareholder,
joint venturer, partner, manager or member in, or serving in any other capacity
with, any other enterprise, association, corporation, joint venture,
partnership or company (hereinafter collectively referred to as the "Other
Business"), provided that the business of the Other Business does not directly
compete with the business of the Company, or (ii) serving in any capacity or
having any business relationship with, or being affiliated in any manner with,
the Company or any of its affiliates.
3. CONSULTING FEES. During the Retention Period, as full compensation
for the services
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to be rendered by Consultant pursuant to this Agreement, the Company agrees to
pay to Consultant, and Consultant agrees to accept, consulting fees at an
annual rate equal to the sum of (a) the total annual rate of payroll expense
(including the cost to Consultant of employee benefit plans and programs and
other employee perquisites) which the Company will incur with respect to
Consultant's Personnel (who may include Tom A. Poteet) who shall be providing
services to the Company on substantially a full-time basis and generally at the
Company's business premises in the State of California, and (b) the amount
which represents four percent (4%) of the Company's "net sales" for the
applicable year. The consulting fees referred to in clause (a) of the preceding
sentence are hereinafter referred to as the "Payroll Fees"; the consulting fees
referred to in clause (b) of the preceding sentence are hereinafter referred to
as the "Revenue Fees".
The Payroll Fees payable hereunder shall be payable in equal monthly
installments in advance on the 1st day of each month or, if such day is not a
business day, on the immediately-preceding business day. The Revenue Fees
payable hereunder shall be payable monthly in arrears, with each such monthly
payment to be made within ten (10) days after the end of the month with respect
to which the Revenue Fees are payable. At the request of Consultant, all
payments of the Payroll Fees and the Revenue Fees (collectively, the
"Consulting Fees") shall be made by wire transfer to such account or accounts
as shall be designated from time to time by Consultant.
For purposes of this Agreement, "net sales" shall be the total of the
invoice prices for all products and services sold by the Company, less all
returns, trade discounts and allowances. Returns, trade discounts and
allowances shall be charged against gross revenues in the month during which
they are accepted or allowed. Within ten (10) days after the end of each month
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during the Retention Period, the Company will provide Consultant with a sales
report for the preceding month which calculates the "net sales" of the Company
for such month. Consultant shall be permitted access at any time to the
Company's sales records for the purpose of verifying the accuracy of the sales
reports so provided to Consultant.
4. REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fees
payable to Consultant as provided above in paragraph 3, Consultant shall be
reimbursed, upon submission to the Company of appropriate vouchers and
receipts, for out-of-pocket expenses (including, without limitation, travel
expenses) reasonably incurred by Consultant in furtherance of the Company's
business. Such reimbursement shall take place promptly after the required
submissions, and in no event less frequently than bi-weekly.
5. INTEREST ON LATE PAYMENTS. Payments of the Consulting Fees and of
any other amounts payable to Consultant under this Agreement which are not paid
when due shall bear interest at the rate which is 2% above the "prime" rate in
effect from time to time.
6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate its
retention of Consultant under this Agreement at any time during the Retention
Period for "Cause". For purposes of this Agreement, "Cause" shall mean repeated
breaches by Consultant of Consultant's obligations under this Agreement, which
breaches (a) were demonstrably willful and deliberate on Consultant's part, (b)
were committed in bad faith or without the reasonable belief that such breaches
were in the best interests of the Company and (c) have not been remedied in a
reasonable period of time after receipt of written notice from the Company
specifying such breaches and demanding that they be remedied within a
reasonable period of time.
7. TERMINATION BY CONSULTANT FOR GOOD REASON. Consultant may terminate
its retention
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<PAGE> 9
by the Company under this Agreement for "Good Reason". For purposes of this
Agreement, "Good Reason" shall mean:
(a) the assignment to Consultant of any duties or
responsibilities inconsistent in any respect with the terms of
Consultant's retention hereunder or any other action by the Company
which results in a diminution of Consultant's involvement with the
business of the Company or its authorities, powers, functions or
duties under this Agreement or imposes upon Consultant any requirement
for the performance of its services hereunder which did not exist as
of the date hereof, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof
given to the Company by Consultant;
(b) any failure by the Company to pay when due any payment of
the Consulting Fees or other amounts payable to Consultant hereunder,
other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by Consultant;
(c) any purported termination by the Company of Consultant's
retention other than as expressly permitted by this Agreement;
(d) any failure by the Company to comply with and satisfy
subparagraph (c) of paragraph 15 below, provided that the successor to
which such paragraph applies has received at least ten (10) days'
prior written notice from the Company or the Consultant of the
requirements of such paragraph;
(e) the occurrence of a "Change in Control of the Company" (as
hereinafter defined); or
(f) (i) the filing by the Company of a petition in bankruptcy
or seeking reorganization or arrangement under any federal or state
bankruptcy, insolvency or reorganization law, (ii) the making by the
Company of a general assignment for the benefit of its creditors or of
any other composition or reorganization agreement with its creditors,
(iii) the appointment of a trustee or receiver of the Company or of
the whole or any substantial part of its property or (iv) on a
petition in bankruptcy or seeking reorganization or arrangement under
any federal or state bankruptcy, insolvency or reorganization law
filed against the Company, the adjudication of the Company as a
bankrupt, the failure of the Company to contest such filing, the
admission by the Company of the material allegations of such petition
or the failure of the Company to have such petition vacated, set aside
or stayed within sixty (60) days from the date of the filing thereof.
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<PAGE> 10
Consultant may terminate its retention by the Company under this
Agreement for "Good Reason" at any time during the Retention Period, except
that any such termination pursuant to subparagraph (e) above of this paragraph
7 must take place within twelve (12) months after the occurrence of the "Change
in Control of the Company".
For purposes of this Agreement, any good faith determination of "Good
Reason" made by Consultant shall be conclusive and binding on the Company,
absent manifest error.
For purposes of this Agreement, a "Change in Control of the Company"
shall have occurred (i) if there has occurred a change in control of the
Company as the term "control" is defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"); (ii) when the persons
who are the current members of the Company's Board of Directors cease to
constitute at least a majority of such Board of Directors and their
replacements were not persons elected or appointed with the favorable vote or
consent of Consultant; (iii) if the shareholder(s) of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; (iv) if the shareholder(s) of the Company
approve a plan of complete liquidation of the Company; (v) if the
shareholder(s) of the Company approve an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets; or (vi) if
the Company shall cease to be a member of the affiliated group (within the
meaning of Section 1504(a) of the Internal
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<PAGE> 11
Revenue Code of 1986, as amended) of which The Arlen Corporation, a New York
corporation, is the parent corporation.
8. NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by Consultant for Good Reason, shall be communicated by a Notice of Termination
to the other party hereto in accordance with paragraph 16 below. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (a)
indicates the specific termination provision in this Agreement relied upon, (b)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Consultant's
retention under the provision so indicated and (c) if the Termination Date (as
hereinafter defined) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than fifteen (15)
days after the giving of such notice). The failure by Consultant or the Company
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not constitute a waiver
of any right of Consultant or the Company hereunder or preclude Consultant or
the Company from asserting such fact or circumstance in enforcing Consultant's
or the Company's rights hereunder.
9. TERMINATION DATE. For purposes of this Agreement, the Termination
Date means, whether Consultant's retention is terminated by the Company for
Cause, by Consultant for Good Reason or otherwise by Consultant or the Company,
the date of receipt of the Notice of Termination or any later date specified
therein, as the case may be.
10. OBLIGATIONS OF THE COMPANY UPON TERMINATION OF CONSULTANT.
(a) Prior to a Change in Control of the Company, if Consultant
terminates its retention by the Company for Good Reason or if Consultant's
retention is terminated by the Company for
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<PAGE> 12
any reason other than Cause, the Company shall pay to Consultant, in cash in a
lump sum on the Termination Date, (i) all unpaid Consulting Fees through the
Termination Date, (ii) all unreimbursed expenses payable to Consultant pursuant
to paragraph 4 above and (iii) all Consulting Fees which would be payable to
Consultant through the end of the Retention Period if Consultant were to
continue to perform its services hereunder through the end of the Retention
Period (assuming, for the purpose of this clause (iii), that the "net sales" of
the Company during the remainder of the Retention Period after the Termination
Date would increase at a growth rate of 6% per annum and provided that the
amount representing payment of such future Consulting Fees shall be discounted
to their present value, applying a discount rate equal to 1% below the "prime"
rate as in effect at the close of business on the business day immediately
preceding the Termination Date).
(b) After a Change in Control of the Company has occurred, if
Consultant terminates its retention by the Company for Good Reason or if
Consultant's retention is terminated by the Company for any reason other than
Cause, the Company shall pay to Consultant, in cash in a lump sum on the
Termination Date, (i) all unpaid Consulting Fees through the Termination Date,
(ii) all unreimbursed expenses payable to Consultant pursuant to paragraph 4
above and (iii) as Consultant, in its sole discretion may elect, either (A) all
Consulting Fees which would be payable to Consultant through the end of the
Retention Period if Consultant were to continue to perform its services
hereunder through the end of the Retention Period (assuming, for the purpose of
this clause (A), that the "net sales" of the Company during the remainder of
the Retention Period after the Termination Date would increase at a growth rate
of 6% per annum and provided that the amount representing payment of such
future Consulting Fees shall be
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<PAGE> 13
discounted to their present value, applying a discount rate equal to 1% below
the "prime" rate as in effect at the close of business on the business day
immediately preceding the Termination Date), or (B) as liquidated damages
(which the parties hereto acknowledge to be fair and reasonable in view of the
impossibility of determining the actual damages which Consultant may suffer as
a result of such termination), the sum of $600,000.
(c) At any time during the Retention Period, if Consultant's retention
is terminated by the Company for Cause, the Company shall pay to Consultant, in
cash in a lump sum on the Termination Date, (i) all unpaid Consulting Fees
through the Termination Date and (ii) all unreimbursed expenses payable to
Consultant pursuant to paragraph 4 above.
(d) In the event that, in the case of a termination by the Company of
Consultant's retention for Cause, Consultant shall have notified the Company
(the "Notice of Dispute"), within ten (10) business days after having received
the Notice of Termination, that Consultant disputes whether the Company had
"Cause" for such termination, then, notwithstanding and in addition to the
payment required above by subparagraph (b) of this paragraph 10, the Company
shall continue without interruption the payment of the Consulting Fees payable
pursuant to paragraph 3 above, provided, however, that all such payments of the
Consulting Fees shall be made to an attorney designated by Consultant for such
purpose in the Notice of Dispute, with the aggregate amount of all such
payments (and all interest earned thereon) being held in escrow by such
attorney, pending (i) agreement by Consultant and the Company as to the issue
of "Cause" and the disposition of the escrowed funds or (ii) a final,
non-appealable order of a court of competent jurisdiction determining these
matters (with the prevailing party with respect to such order be entitled to
recover its attorneys' fees and disbursements, court costs and other
200
<PAGE> 14
costs and expenses relating to this dispute from the other party).
(e) Upon payment in full of the applicable payments required above by
subparagraphs (a), (b) or (c) of this paragraph 10 (and subject, however, to
subparagraph (d) of this paragraph 10), this Agreement shall terminate and be
of no further force or effect, except that the provisions of paragraph 14 below
shall survive such termination.
(f) Consultant shall not be required to mitigate the payment of any
payments received pursuant to subparagraphs (a), (b), (c) or (d) of this
paragraph 10 by seeking other consulting engagements and, to the extent that
Consultant shall, after the Termination Date, receive compensation from any
other consulting engagements, the payments received hereunder shall not be
adjusted.
11. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Consultant, any of Consultant's Personnel or others.
12. INDEMNIFICATION.
(a) The Company shall indemnify, defend and hold harmless Consultant
and Consultant's Personnel from and against any and all claims, demands,
actions, suits and other proceedings, judgments and awards, and all costs and
expenses thereof (including, without limitation, attorneys' fees and
disbursements, court costs and amounts paid in settlement of such matters),
asserted against Consultant and/or Consultant's Personnel by reason of the
business and operations of the Company or Consultant's duties hereunder,
excluding only such of the foregoing as are determined by a court of competent
jurisdiction (without any further right of
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<PAGE> 15
appeal) to have resulted from the willful and wanton misconduct or fraud of
Consultant or Consultant's Personnel.
(b) Upon Consultant's discovery of any claim by a third party which,
if sustained, would be subject to indemnification pursuant to subparagraph (a)
of this paragraph 12, Consultant shall give prompt notice to the Company of
such claim, provided, however, that the failure of Consultant to so promptly
notify the Company of such claim shall not relieve the Company of any
indemnification obligation under this Agreement unless the Company shall have
been substantially prejudiced thereby. Unless Consultant shall, in its sole
discretion, agree in writing to assume and control the defense of any action
for which indemnification may be sought, the Company shall assume and control
such defense, in which event Consultant shall have the right to employ counsel
at Consultant's expense to represent it in addition to counsel employed by the
Company. If the Company shall fail or refuse to undertake the defense within
fifteen (15) days after receiving notice that a claim has been made, Consultant
shall have the right (but not the obligation) to assume the defense of such
claim in such manner as it deems appropriate until the Company shall, with the
consent of Consultant, assume control of such defense, and the Company shall
indemnify Consultant pursuant to subparagraph (a) of this paragraph 12 from and
against the costs and expenses of such defense. The party hereto handling the
defense of an action shall keep the other party hereto fully informed at all
times of the status of the claim. Neither the Company nor the Consultant, when
handling the defense of a claim for which indemnification may be sought by
Consultant, shall settle such claim without the consent of the other party
hereto (which consent shall not be unreasonably withheld or delayed) unless
such settlement shall (i) impose no additional liability or obligation upon the
party hereto (or its
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<PAGE> 16
shareholders, directors and officers and, in the case of Consultant,
Consultant's Personnel) whose consent would otherwise be required and (ii)
where the Company is handling the defense and settlement of the claim, provide
Consultant and Consultant's Personnel with a general release with respect to
the subject claim.
(c) In any matter with respect to which Consultant may be entitled to
indemnification from the Company pursuant to subparagraph (a) of this paragraph
12, the Company shall, to the extent not prohibited by applicable law, advance
to Consultant and Consultant's Personnel, pending the final disposition of such
matter, all costs and expenses which Consultant and/or Consultant's Personnel
may incur in such matter, including, without limitation, all attorneys' fees
and disbursements, court costs and the fees and disbursements of accountants,
other experts and consultants.
(d) The rights of indemnification provided by this paragraph 12 shall
be in addition to, and not be deemed exclusive of, any other rights and
remedies apart from this Agreement which may be available to Consultant and
Consultant's Personnel, whether by contract, at law, in equity or otherwise.
13. NO JOINT VENTURE, ETC.
(a) Nothing in this Agreement shall be construed as (i) creating a
partnership, joint venture or agency relationship between the Company and
Consultant or (ii) requiring Consultant or Consultant's Personnel to bear or
otherwise be liable for any portion of any losses directly or indirectly
incurred by the Company and arising out of or otherwise connected with the
services performed or to be performed by Consultant pursuant to this Agreement.
(b) Neither Consultant nor Consultant's Personnel shall be liable,
responsible or in any
203
<PAGE> 17
way accountable in damages or otherwise to the Company or any other entity or
person for any loss or damage incurred by the Company by reason of any act or
omission to act by Consultant or Consultant's Personnel, except the willful and
wanton misconduct or fraud of Consultant or or Consultant's Personnel in
connection with the performance of Consultant's services hereunder.
(c) Consultant does not represent, warrant, guarantee or ensure any
particular business results from the services which may be performed for, or
the projections, plans, reports or studies which may be prepared for, the
Company pursuant to this Agreement.
(d) In the event that Consultant refers or introduces to the Company,
or arranges for the Company to utilize the services of, third parties such as
attorneys, accountants, investment bankers, brokers, finders, sales or
marketing representatives, contractors or other consultants (who will not be
retained without the consent of the Company, which will not be unreasonably
withheld or delayed), such third parties will be direct contractors for the
Company and not Consultant and their fees, commissions, disbursements and other
charges will be the sole responsibility of the Company.
14. CONFIDENTIAL INFORMATION; RELIANCE ON COMPANY INFORMATION.
(a) Consultant shall hold, and shall use its best efforts to cause
Consultant's Personnel to hold, in strict confidence for the benefit of the
Company, all secret or confidential information, knowledge or data relating to
the Company and its business, which shall have been obtained by Consultant or
Consultant's Personnel during Consultant's retention by the Company and which
shall not be or have become (i) generally available to the public other than as
a result of a disclosure by Consultant, (ii) already known by Consultant on a
non-confidential basis prior
204
<PAGE> 18
to having been furnished by the Company to Consultant or (iii) available to
Consultant on a non-confidential basis from a source other than the Company if
such source was not known to be subject to any prohibition against the
transmittal of such information. Consultant will not, without the prior
written consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such confidential information, knowledge or
data to anyone other than the Company and those designated by it.
In the event of a breach or threatened breach by Consultant of the
immediately-preceding paragraph of this subparagraph (a) of this paragraph 14,
the Company shall be entitled, upon establishing the existence of such breach
or threatened breach, to an injunction to be issued by any tribunal of
competent jurisdiction to restrain Consultant from committing or continuing any
such violation. In any proceeding for a temporary or permanent injunction,
Consultant agrees that its ability to answer in damages shall not be a bar or
be interposed as a defense to the granting of such a temporary or permanent
injunction against it. Consultant acknowledges that the Company will not have
an adequate remedy at law in the event of any breach by Consultant as aforesaid
and that the Company may suffer irreparable damage and injury in the event of
such a breach by Consultant. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedy or remedies available to
the Company, including, without limitation, the recovery of damages from
Consultant for any such breach.
(b) The Company acknowledges that, in connection with Consultant's
performance of its services hereunder, Consultant and Consultant's Personnel
must at all times rely, as to accuracy and completeness, upon information
furnished to them by the Company's officers, employees and agents. Accordingly,
Consultant and Consultant's Personnel shall have no liability for any
205
<PAGE> 19
acts or omissions taken, or reports and documentation produced, in reliance
upon information furnished to them by the Company's officers, employees and
agents, and the Company shall, as provided above in paragraph 12, indemnify,
defend and hold harmless Consultant and Consultant's Personnel from and against
any and all claims, demands, actions, suits and other proceedings, judgments
and awards, and all costs and expenses thereof (including, without limitation,
attorneys' fees and disbursements, court costs and amounts paid in settlement
of such matters), asserted against Consultant and/or Consultant's Personnel,
which are attributable to such reliance by Consultant and Consultant's
Personnel upon information furnished by the Company's officers, employees and
agents.
15. SUCCESSORS.
(a) This Agreement is personal to Consultant and, without the prior
written consent of the Company, this Agreement shall not be assignable by
Consultant. This Agreement shall inure to the benefit of, be binding upon and
be enforceable by Consultant.
(b) This Agreement shall not be assignable by the Company except to a
successor of the Company which has complied with the requirements below of
subparagraph (c) of this paragraph 15. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by the Company and its
successors and assigns who have complied with the requirements below of
subparagraph (c) of this paragraph 15.
(c) The Company will require any successor (whether direct or
indirect, by purchase of assets or capital stock, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if
206
<PAGE> 20
no such succession had taken place. As used in this Agreement, the "Company"
shall mean the Company as hereinabove defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law or otherwise.
16. GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflict of laws.
(b) Each party hereto, for itself and its successors and assigns,
hereby consents to personal jurisdiction over it in the courts of the State of
New York, in and for New York County, and in any federal court located in the
State of New York, in and for the Southern District of New York, in connection
with any action, suit or proceeding arising out of or relating in any way to
this Agreement. Each party hereto, for itself and its successors and assigns,
agrees that personal service of process upon it may be made in any manner
permitted by the laws of the State of New York and hereby agrees that service
will be deemed sufficient over it if service is made by registered or certified
mail to the addresses specified below in subparagraph (b) of paragraph 17. The
Company, for itself and its successors and assigns, agrees that no action, suit
or proceeding of any kind may be brought, and no claim may be asserted (whether
by counterclaim, cross-claim or otherwise) by it or them against Consultant or
Consultant's Personnel with respect to any matter arising from, relating to or
in connection with this Agreement except in the courts of the State of New
York, in and for New York County, and the federal courts located in the State
of New York, in and for the Southern District of New York.
17. MISCELLANEOUS.
(a) The captions of this Agreement are not part of the provisions
hereof and shall have
207
<PAGE> 21
no force or effect. This Agreement may not be amended, modified, repealed,
waived, extended or discharged except by an agreement in writing signed by the
party against whom enforcement of such amendment, modification, repeal, waiver,
extension or discharge is sought. No person, other than pursuant to a
resolution of the Board of Directors or a committee thereof, shall have
authority on behalf of the Company to agree to amend, modify, repeal, waive,
extend or discharge any provision of this Agreement or anything in reference
thereto.
(b) All notices, requests, demands and other communications which are
required or permitted to be given under this Agreement shall be in writing and
shall be deemed received (i) on the date delivered if personally delivered or
sent by telecopier (with receipt confirmed), (ii) on the first business day
after sent by an overnight air express delivery service guaranteeing next-day
delivery or (iii) on the third business day after being deposited in the United
States mail, if mailed by certified or registered mail, return receipt
requested, with first class postage affixed thereon, and properly addressed as
follows:
(a) if to Consultant, to:
DAT Consulting, LLC
85 West Hawthorne Avenue
Valley Stream, NY 11580
FAX: 516/825-0063)
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Leonard Grunstein, Esq.
(FAX: 212/889-7577)
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<PAGE> 22
(b) if to the Company, to:
A & A Specialties Corp.
220 E. Santa Fe Avenue
Placentia, CA 92670
Attention: President
(FAX: 714/993-3402)
with a copy to:
Stephen B. Delman, Esq.
10 River Road
New York, NY 10044
(FAX: 212/279-9595)
or to such other person or address as any party hereto shall have specified by
notice in writing to the other party hereto.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Consultant's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right which Consultant or the Ccmpany may have hereunder, including, without
limitation, the right of Consultant to terminate employment for Good Reason
pursuant to paragraph 7 above, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
(e) This instrument contains the entire agreement of the parties
hereto with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements are merged
herein and superseded hereby.
(f) This Agreement is for the sole benefit of the Company and
Consultant (and, in connection with the indemnification provisions of
paragraphs 12 and 14, Consultant's Personnel), and nothing contained herein,
express or implied, is intended to, or shall, confer on any other
209
<PAGE> 23
person or entity any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
(g) Each of the parties hereto represents and warrants to the other
party hereto that this Agreement has been duly authorized by all necessary
corporate or company action, has been duly executed and delivered and
constitutes the legal, valid and binding obligation of such party enforceable
in accordance with its terms.
IN WITNESS WHEREOF, the Company and Consultant have caused this
Agreement to be executed as of the day and year first above written.
A & A SPECIALTIES CORP.
BY: /s/ JEFFERY J. GATI
-----------------------------------------------
JEFFERY J. GATI, PRESIDENT
DAT CONSULTING, LLC
BY: WAVEROCK CONSULTING, INC.
BY: /s/ ALLAN J. MARRUS
-----------------------------------------------
ALLAN J. MARRUS, PRESIDENT
BY: ROSEMARK, INC.
BY: /s/ MARK ROSENBERG
-----------------------------------------------
MARK ROSENBERG, PRESIDENT
210
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