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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 November 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6675
THE ARLEN CORPORATION
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(Exact name of registrant as specified in its charter)
New York 13-2668657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Eighth Avenue, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 736-8100
Not Applicable
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(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
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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 - 29,770,234 shares outstanding as of January 4,
1996 (excluding shares owned by subsidiaries of the Registrant)
1
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THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX
================================================================================
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated balance sheets -- November 30, 1995 and 1994
(unaudited) 4
Consolidated balance sheet -- February 28, 1995 (unaudited) 5
Consolidated statements of operations -- Nine and three
months ended November 30, 1995 and 1994 (unaudited) 6
Consolidated statements of cash flows -- Nine
months ended November 30, 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 17-20
SIGNATURES 21
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
3
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
November 30,
------------
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,058 $ 1,149
Certificates of deposit 228 222
Accounts receivable, net 10,661 10,912
Inventories 6,311 4,581
Other current assets 490 291
--------- ---------
TOTAL CURRENT ASSETS 18,748 17,155
PROPERTY AND EQUIPMENT, net 1,397 934
OTHER ASSETS 1,622 713
--------- ----------
TOTAL ASSETS $ 21,767 $ 18,802
======== =========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable (including $2,742 and $2,732 due to related
parties in 1995 and 1994) $ 3,793 $ 5,342
Accounts payable 1,827 2,293
Accrued interest payable (including $827 and $786 due to
related parties in 1995 and 1994) 1,011 934
Accrued state income taxes 1,044 1,212
Accrued other 10,687 10,414
Current portion of long-term obligations (including $299
and $240 due to related parties in 1995 and 1994) 455 343
--------- ---------
TOTAL CURRENT LIABILITIES 18,817 20,538
LONG-TERM OBLIGATIONS (including $1,192 and $1,500
due to related parties in 1995 and 1994) 4,428 1,500
SUBORDINATED AMOUNTS DUE TO RELATED PARTIES 125,483 116,364
--------- ---------
TOTAL LIABILITIES 148,728 138,402
COMMITMENTS AND CONTINGENCIES
CAPITAL DEFICIT (126,961) (119,600)
--------- ---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $ 21,767 $ 18,802
========= =========
</TABLE>
See notes to consolidated financial statements
4
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, 1995
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
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
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine months ended Three months ended
November 30, November 30,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $40,597 $37,572 $12,171 $12,097
COST OF SALES 26,108 22,422 8,432 7,287
------- ------- ------- -------
Gross profit on sales 14,489 15,150 3,739 4,810
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 11,985 11,333 3,697 3,773
------- ------- ------- -------
Operating income 2,504 3,817 42 1,037
OTHER (CHARGES) CREDITS:
Interest expense (including amounts
due to related parties of $7,348 and
$2,450 in 1995 and $6,811 and $2,098
in 1994) (7,997) (7,332) (2,641) (2,420)
Other income 24 10 1 4
------- ------- ------- -------
Net loss $(5,469) $(3,505) $(2,598) $(1,379)
======= ======= ======= =======
LOSS PER COMMON SHARE $ (0.18) $ (0.11) $ (0.09) $ (0.04)
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements
6
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THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine months ended
November 30,
------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($5,469) ($3,505)
------- -------
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 456 476
Provision for losses on accounts
receivable (470) 356
Increase in subordinated amounts due related
parties in exchange for interest 7,102 6,695
Changes in assets and liabilities, net of effects from the
purchase of a new automotive aftermarket business:
(Increase) decrease in assets:
Accounts receivable 1,406 (2,056)
Inventories (640) (1,011)
Other current assets 61 -
Other assets (1,070) -
Increase (decrease) in liabilities:
Accounts payable (1,499) (84)
Accrued interest payable 228 102
Accrued state income taxes (93) 202
Accrued other liabilities 639 1,127
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Total adjustments 6,120 5,807
------- -------
Net cash provided by operating activities 651 2,302
------- -------
</TABLE>
See notes to consolidated financial statements
7
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THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
(Continued)
================================================================================
<TABLE>
<CAPTION>
Nine months ended
November 30,
------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certificates of deposit (561) (4)
Investment in capital assets (298) (279)
Acquisition of new automotive aftermarket
business, net of cash acquired (54) -
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Net cash used in investing activities (913) (283)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit line (13,424) (28,861)
Proceeds from revolving credit line 13,982 27,572
Principal payments on short-term borrowings (622) (5)
Principal payments on long-term borrowings (362) (237)
Principal payments on subordinated debt - (57)
-------- --------
Net cash used by financing activities (426) (1,588)
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NET INCREASE IN CASH AND
CASH EQUIVALENTS (688) 431
CASH AND CASH EQUIVALENTS, at
February 28, 1995 and 1994 1,192 718
-------- --------
CASH AND CASH EQUIVALENTS, at
November 30, 1995 and 1994 $ 504 $ 1,149
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months ended
November 30, 1995 and 1994 for interest $ 372 $ 229
======== ========
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.
</TABLE>
See notes to consolidated financial statements
8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of November 30, 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 indebtedness to
present or former officers and directors of the Registrant, or to persons
related to them or their trusts or affiliated entities, it has been able to
obtain extensions on such 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, on November 30, 1995, a subsidiary of the
Registrant failed to make a required $175,000 debt payment to the Registrant's
chief executive officer, Arthur G. Cohen. As reported in Item 3 of Part II of
this Report, such default has triggered a notice of acceleration of the
aforesaid indebtedness having an outstanding balance of approximately
$125,000,000 (the "Notes") and a notice scheduling a sale, pursuant to the
New York Uniform Commercial Code ("UCC"), of the stock of the Registrant's
subsidiary which is the parent of all the Registrant's operating companies.
In order to mitigate the anticipated loss of such operating companies which is
expected to result from the involuntary sale of such stock and to augment the
25% of the net proceeds from the UCC sale which the Registrant is entitled to
for its residual interest in the stock of its subsidiary, the Registrant has
entered into a forbearance agreement with the holders of the Notes and
Mataponi, L.L.C. ("Mataponi"), a company controlled by a trust for Mr. Cohen's
wife, who is a principal shareholder of the Registrant. Mataponi expects to
bid for the subsidiary's stock at the UCC sale.
Pursuant to the forbearance agreement, the Registrant, with the assistance of
the other parties thereto, has satisfied a financial institution's judgment and
terminated its pending lawsuits against the Registrant, discharged two
promissory notes of the Registrant held by such financial institution and
obtained the release from Mataponi and the holders of the Notes of the stock of
one of the Registrant's operating subsidiaries. The forbearance agreement also
provides that if Mataponi shall be the successful bidder at the UCC sale, the
maturity date of the accelerated indebtedness will be extended for 38 years
(during which time interest will accrue at the current rate of 8% per annum),
the Registrant will receive a $2,000,000 promissory note payable over two
years and certain other benefits may be available to the Registrant. If the
UCC sale shall take place and the Registrant shall lose all of its operating
companies, the Registrant must rely on this promissory note to fund its
operating expenses while new business opportunities are explored. If Mataponi
is not the successful bidder at the UCC sale, the Registrant will not receive
the benefits provided for in the forbearance agreemeent, including this
promissory note and the extension in the maturity date of the accelerated
indebtedness (which will remain immediately due and payable in full), and will
have certain obligations to Mataponi, including to pay $3,000,000 on the Notes
and to return the previously released stock of an operating subsidiary.
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 nine month
period ended November 30, 1995 are not necessarily indicative of the results
that may be expected for the fiscal year ending February 29, 1996 and, in view
of the scheduled UCC sale involving the parent of the Registrant's operating
companies, may give no indication of the results that may be expected for
future periods. For further information, reference is made to the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements included in the 1995 10-K.
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THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of November 30, 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 which has since been paid off 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 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 its operations are immaterial to the financial
statements.
<TABLE>
<CAPTION>
November 30,
------------
Note C -- Inventories 1995 1994
------ ------
<S> <C> <C>
Major classes of inventory consist of the following: $3,271 $2,637
Raw material 633 635
Work - in - process 2,407 1,309
------ ------
Finished goods $6,311 $4,581
====== ======
</TABLE>
Note D -- Long-Term Obligations
Included in Long-Term Obligations is the outstanding indebtedness ($3,000,000 at
November 30, 1995) of the Registrant's automotive aftermarket subsidiaries under
a 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. Pursuant to an amendment to the Loan Agreement, the
subsidiaries borrowed $3,000,000 on a term loan basis in January 1996, which
loan is repayable in 18 months.
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 term loan bears interest at a rate
2.75% above the bank's "prime" rate and is to be repaid in 18 monthly
installments between March 31, 1996 and August 31, 1997. The subsidiaries may
THE ARLEN CORPORATION AND SUBSIDIARIES
10
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of November 30, 1995
(UNAUDITED)
(Concluded)
================================================================================
Note D -- Long-Term Obligations (Continued)
also elect to have all or portions of their loans bear interest at the
Eurodollar rate plus a spread of between 2% and 2.75% (depending upon certain
financial tests) or 4.75% in the case of the term loan; 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 three of such subsidiaries, and
are guaranteed by the Registrant's subsidiary, Rucon Services Corp., the
outstanding stock of which is subject to a UCC sale. 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 November 30, 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 nine and
three month periods ended November 30, 1995 and 1994, respectively, inclusive of
Class B common shares.
11
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
12
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THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
Liquidity and Capital Resources
At November 30, 1995, the Registrant had a shareholders' deficit of $126,961,000
and its ratio of current assets to current liabilities was 1.00 (having improved
from the current ratio of 0.85 at February 28, 1995). The shareholders' deficit
at November 30, 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 $130,766,000. As
reported in Item 3 of Part II of this Report, the Registrant has received a
notice of acceleration of approximately $125,000,000 of this indebtedness as a
result of the failure of a subsidiary of the Registrant to make a required
$175,000 debt payment to the Registrant's Chairman of the Board, Arthur G.
Cohen, on November 30, 1995. The promissory notes which evidence the
accelerated indebtedness (the "Notes") are collateralized by the stock of the
Registrant's subsidiary which is the parent of all the Registrant's operating
companies. The Registrant has received a notice scheduling a sale, pursuant to
the New York Uniform Commercial Code ("UCC"), of the stock of such subsidiary.
In order to mitigate the anticipated loss of the Registrant's operating
companies which is expected to result from the involuntary sale of such stock
and to augment the 25% of the net proceeds from the UCC sale which the
Registrant is entitled to for its residual interest in the stock of its
subsidiary, the Registrant has entered into a forbearance agreement with the
holders of the Notes and Mataponi, L.L.C. ("Mataponi"), a company controlled by
a trust for Mr. Cohen's wife (who is a principal shareholder of the
Registrant), which expects to bid for the subsidiary's stock at the UCC sale.
Pursuant to the forbearance agreement, the Registrant, with the assistance of
the other parties thereto, has satisfied a financial institution's judgment and
terminated its pending lawsuits against the Registrant, discharged two
promissory notes of the Registrant held by such financial institution and
obtained the release from Mataponi and the holders of the Notes of the stock of
one of the Registrant's operating subsidiaries (which stock was used to obtain
the $3,000,000 necessary to satisfy and discharge the Registrant's obligations
to the financial institution). The forbearance agreement also provides that,
if Mataponi shall be the successful bidder at the UCC sale, the maturity of the
accelerated indebtedness will be extended for 38 years (during which time
interest will accrue at the current rate of 8% per annum), the Registrant will
receive a $2,000,000 promissory note payable over two years and certain other
benefits may be available. If the benefits of the forbearance agreement are
not available to the Registrant, it would be unable to pay the accelerated Notes
and could be compelled to liquidate, as a result of which the Registrant would
cease to continue as a viable business entity.
If the UCC sale shall take place and the Registrant shall lose all of
its operating companies, the Registrant must rely on the $2,000,000 promissory
note to fund its operating expenses while new business opportunities are
explored. However, the Registrant will no longer be subject to the pending
threats of an unsatisfied judgment, past due promissory notes and a maturity
date for the Notes which is less than two years away,
13
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THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
Liquidity and Capital Resources (Continued)
though the Registrant must still resolve the substantial previously
reported claim of the Internal Revenue Service with respect to the
accumulated funding deficiency relating to the Registrant's retirement
plan.
Results of Operations
Sales for the nine and three months ended November 30, 1995 increased by 8%
and 1% over the corresponding period of the prior year. The increase is the
result of additional sales from a newly acquired subsidiary, combined with
an increase of 7% for the nine-month period and a decrease of 3% for the
three-month period in sales of the existing subsidiaries. The sales
decrease in existing subsidiaries reflects a softening of demand in the
automotive aftermarket industry. The sales of the Registrant's subsidiary
serving the construction industry decreased by approximately 20% and 28%
for the nine and three months ended November 30, 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
decreasing by 4% and 9% for the nine and three months ended November 30,
1995 when compared with such margins for the comparable periods of the
prior year. This decline was primarily the result of a change in the
customer mix. The gross margins of the construction subsidiary for the
current nine and three month periods decreased by 11% and 20% ,
respectively, from the periods of the prior year (reflecting unfavorable
bid terms on certain contracts). The gross margins of the automotive
subsidiaries decreased by 4% and 6% for the nine and three months ended
November 30, 1995 from the comparable periods of the prior year. The
decline is attributable to increased material prices and increased costs
associated with the newly acquired subsidiary.
Corporate, selling, general and administrative expenses increased by 6% and
decreased by 2% for the nine and three months ended November 30, 1995 over
the corresponding periods of the prior year. The increase is made up of
12% and 6% 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 40% and 58% decrease at the construction subsidiary
associated with the decline in sales.
Operating income as a percentage of sales declined by 4% and 8% for the
nine and three months ended November 30, 1995 over the corresponding period
of the prior year, primarily due to increased costs of sales and
administrative expenses at the automotive aftermarket subsidiaries
necessitated by the sustained increase in the level of sales.
Interest expense increased by 9% for the nine and three months ended
November 30, 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
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THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Concluded)
================================================================================
Results of Operations (Continued)
The net loss for the nine and three months ended November 30, 1995 increased by
56% and 89% from the corresponding periods of the prior year primarily because
of the increase in cost of sales, administrative expenses and interest expense.
In view of the scheduled UCC sale involving the parent of the Registrant's
operating companies, the results of operations reported herein may give no
indication of the results that may be expected for future periods.
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 nine months ended November 30, 1995 reflect the
operations of the Registrant's newest subsidiary, which was acquired on August
17, 1995.
15
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PART II - OTHER INFORMATION
16
<PAGE> 17
Item 3. Defaults Upon Senior Securities.
On November 30, 1995, Rucon Services Corp. (formerly Arlen
Holdings Corp.), a wholly-owned subsidiary of the Registrant ("Rucon"), failed
to make a $175,000 installment payment to Arthur G. Cohen ("Mr. Cohen"), the
Registrant's Chairman of the Board, pursuant to the Current Obligations
Agreement dated March 29, 1993 between Rucon and Mr. Cohen. In December 1995,
the Registrant and Rucon received a notice of such default (the "Current
Obligations Default") from Mr. Cohen. The Current Obligations Default is an
event which, after notice and time to cure, becomes an Event of Default under
the Registrant's 5-1/4% Subordinated Notes, having an outstanding balance of
approximately $125,000,000, issued to Mr. Cohen (the "Cohen Notes") and to
members or entities of the family of Arthur N. Levien, a deceased former
director/officer of the Registrant (the "Levien Notes" and, collectively with
the Cohen Notes, the "Notes"). The Cohen Notes, which had an outstanding
balance of approximately $84,000,000 at November 30, 1995, have been pledged
since 1993 to Bank Leumi Trust Company of New York ("Bank Leumi") as security
for certain obligations of Mr. Cohen to Bank Leumi. In 1993, the Registrant
collateralized the Notes with, among other things, a pledge of the outstanding
shares of capital stock of Rucon (the "Rucon Shares"), which indirectly owns
the outstanding capital stock of all the Registrant's operating subsidiaries.
Shortly after January 1, 1996, the Registrant and Rucon
received from Mr. Cohen, as the agent (the "Agent") for the holders of the Notes
(the "Holders"), a notice accelerating all principal and interest due under the
Notes and were advised by the Agent that, in his capacity as the Agent, he
expected to ultimately foreclose on the Rucon Shares and to conduct a public
sale of the Rucon Shares in accordance with the New York Uniform Commercial
Code. Such a sale (the "UCC Sale"), if consummated, will result in the loss by
the Registrant of all its operating subsidiaries and produce for the Registrant
only (a) a reduction in the outstanding indebtedness under the Notes equal to
75% of the net purchase price paid for the Rucon Shares by the successful bidder
at the public sale and (b) proceeds for the residual interest of the Registrant
in the Rucon Shares equal in amount to 25% of such net purchase price.
Inasmuch as neither the Registrant nor Rucon is currently
financially able to cure the Current Obligations Default, to pay the principal
and accrued interest asserted by the Agent to be due under the Notes or to
challenge the UCC Sale in the courts, the Registrant and Rucon have, since the
Current Obligations Default, been discussing certain opportunities which the
Agent and Mataponi, L.L.C. ("Mataponi"), a limited liability company controlled
by Mr. Cohen's wife (who is a principal shareholder of the Registrant), have
offered to the Registrant and Rucon if Mataponi is the successful bidder at the
UCC Sale. These opportunities include the opportunity to:
(1) facilitate the assignment of the indebtedness of Mr. Cohen
secured by the Notes (and the collateral securing the Notes) from Bank
Leumi to Mataponi, following which Mataponi and the Agent will
consent to an extension in the maturity date of the Notes from July
31, 1997 to December 28, 2033 and the release of the pledged shares
of Common Stock of the Registrant's and Rucon's subsidiary, Grant
Products, Inc. ("Grant"), from the collateral securing the Notes;
(2) satisfy the currently-unsatisfied judgment obtained against
the Registrant by Morgan Guaranty Trust Company of New York ("Morgan"),
have discontinued (with prejudice) the pending lawsuits initiated by
Morgan against the Registrant and Rucon and have discharged and
cancelled the two past due promissory notes held by Morgan which the
Registrant had issued to Mr. Cohen and which Mr. Cohen had assigned to
Morgan (all of the foregoing obligations to Morgan being collectively
referred to as the "Morgan Obligations" and being described in the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1995), all of which could not be accomplished without (i)
the availability of the shares of Common Stock of Grant (the
17
<PAGE> 18
"Grant Stock") for their pledge to Grant's lender, Sumitomo Bank of
California ("Sumitomo"), as security for a $3,000,000 term loan which
would be upstreamed to Arlen to discharge and satisfy the Morgan
obligations and (ii) the consent of the Agent to such term loan and the
use of the proceeds thereof for such purpose;
(3) satisfy, with the 25% of the net proceeds of the UCC Sale
that the Registrant will retain for its residual interest, if Mataponi
is the successful bidder for the Rucon Shares, certain secured
obligations (the "Secured Obligations") to third parties who may be
deemed to be affiliates of Mr. Cohen; and
(4) attempt to acquire on favorable terms, with the assistance
of Mataponi if Mataponi is the successful bidder for the Rucon Shares,
two mortgage notes, secured by certain property on White Plains Road,
Bronx, New York.
After considering the opportunities (including the 38-year
extension in the maturity date of the Notes) offered by Mataponi and the
holders of the Notes to mitigate the anticipated loss of the Registrant's
operating companies which will occur upon the involuntary UCC Sale of the Rucon
Shares, the Registrant and Rucon entered into a Forbearance Agreement (the
"Forbearance Agreement") with Mataponi and Mr. Cohen, dated as of January 5,
1996, which provides (assuming that Mataponi is the successful bidder for the
Rucon Shares at the UCC Sale), among other things, that:
(a) in consideration for the forbearances, extensions,
opportunities and other benefits provided to the Registrant and Rucon
under the Forbearance Agreement, they will not litigate or otherwise
contest the acceleration of the Notes or the foreclosure and public
sale of the Rucon Shares;
(b) Rucon, as an accommodation to Mataponi, will acquire from
Bank Leumi, pursuant to an Assignment and Assumption Agreement between
Bank Leumi and Rucon (the "Assignment Agreement"), for $5,500,000 to be
provided by Mataponi, and then assign to Mataponi, certain indebtedness
(the "Leumi Debt") of Mr. Cohen to Bank Leumi, having a principal
balance of approximately $12,000,000, which is secured by the Cohen
Notes (which in turn are secured by, inter alia, the Rucon Shares and
the Grant Stock);
(c) in order to induce Mataponi and the Agent to consent to the
release of the Grant Stock from the collateral for the Notes, Rucon
will pledge to Bank Leumi, pursuant to a Restructuring Agreement
between Bank Leumi and Mr. Cohen (the "Restructuring Agreement"), as
collateral for indebtedness of Mr. Cohen to Bank Leumi in the
principal amount of $2,722,513.33, 55% of the outstanding shares of
capital stock of Rucon's wholly-owned subsidiary, Curtis Holding
Corporation ("Curtis Holding"), and will cause Curtis Holding to
pledge to Bank Leumi, as additional collateral therefor, 55% of the
outstanding shares of capital stock of Curtis Partition Corporation
("Curtis Partition");
(d) upon the assignment to Mataponi of the Leumi Debt and the
collateral therefor and the pledge of 55% of the capital stock of
Curtis Holding and Curtis Partition to Bank Leumi, the Holders,
Mataponi and the Agent will cause the Grant Stock to be released;
(e) upon the release of the Grant Stock from the collateral for
the Notes, it will be pledged to Sumitomo to induce Sumitomo to loan to
Grant and a sister company, on a term loan basis, $3,000,000 (the
"Sumitomo Advance"), which Sumitomo, Mataponi and the Agent would
permit to be dividended through to Rucon, which would
18
<PAGE> 19
pay these funds to the Registrant to obtain a release of certain
obligations that had been assumed by Rucon from the Registrant in 1993;
(f) upon the receipt of the aforesaid $3,000,000 payment from
Rucon, the Registrant will use these funds to obtain from Morgan the
satisfaction, discharge and cancellation of the Morgan Obligations;
(g) the Registrant may attempt to acquire the Mortgage Notes,
which will mature on December 28, 2034, on favorable terms, with the
assistance of Mataponi if Mataponi is the successful bidder for the
Rucon Shares;
(h) in addition to receiving 25% of the net proceeds from the
UCC Sale of the Rucon Shares for the Registrant's residual interest
therein (which the Registrant will apply to the satisfaction of the
Secured Obligations), the Registrant will receive from Rucon, if
Mataponi is the successful bidder for the Rucon Shares, a $2,000,000
promissory note (the "$2,000,000 Note") of Rucon's then parent
company, payable in quarterly installments over a two year period; and
(i) the Registrant, on the one hand, and Rucon and its
subsidiaries, on the other hand, will exchange mutual releases, the
Registrant will deliver a general release to Mataponi and the
Registrant will be released from any further obligations under the 1993
Current Obligations Agreement between Rucon and Mr. Cohen.
On January 16, 1996, the transactions described above in
clauses (b), (c), (d), (e) and (f) were consummated and, on January 17, 1996,
the Agent notified the Registrant and Rucon that the UCC Sale has been scheduled
for February 6, 1996.
If the UCC Sale takes place as contemplated (a situation which
is outside the control of the Registrant and in which the Registrant is not a
participant) and Mataponi is the successful bidder for the Rucon Shares, the
Forbearance Agreement requires that (1) the Agent remit 25% of the net proceeds
from the UCC Sale to the Registrant for its residual interest in the Rucon
Shares, (2) the Holders, Mataponi and the Agent withdraw the
previously-delivered acceleration notice and extend the maturity date of the
Notes to December 28, 2033, (3) Rucon deliver the $2,000,000 Note to the
Registrant and (4) Mataponi assist the Registrant in attempting to acquire the
Mortgage Notes on a favorable basis.
In the event that the UCC Sale occurs, the Registrant will
lose all of its operating companies and cease to have any source of income from
operations in the near term. However, the Registrant will receive 25% of the
net proceeds from the UCC Sale and, if Mataponi is the successful bidder for the
Rucon Shares, will have the installment payments from the $2,000,000 Note to
meet its short-term cash needs and the opportunity to acquire the Mortgage Notes
to add long-term asset value to its balance sheet. The Notes will have been
extended for 38 years (during which time interest will accrue at the current
rate of 8% per annum) and will no longer be subject to default other than for
non-payment of principal or interest or bankruptcy-related events. As
extended, the Notes will provide for the Holders to receive 50% of the
Registrant's Net Income (as defined in the Forbearance Agreement) quarterly on
account of the indebtedness under the Notes and will, at the request of the
Holders, be secured by certain assets which may be acquired by the Registrant
within the next 18 months.
In entering into the Forbearance Agreement, the Registrant
believed that if the benefits thereof are not available, the Registrant would be
unable to pay the acceperated Notes and would be compelled to liquidate, as a
result which the Registrant would cease to continue as a viable business
entity.
If the Forbearance Agreement is consummated, the Registrant
retains its substantial net operating loss carryforwards and, having
satisfied the Morgan Obligations and, with the cooperation of Mataponi, having
achieved the release of the Notes and the collateral therefor from the liens
thereon of Bank Leumi, expects to seek new business opportunities.
In the event that the UCC sale occurs but Mataponi is not the
successful bidder for the Rucon Shares, the Registrant will be entitled to
payment for its 25% residual interest therein. However, inasmuch as the
transactions contemplated by the Forbearance Agreement are intended to be
integrated parts of a single transaction which can be consummated only in its
entirety, the Registrant will not receive certain of the benefits provided for
in the Forbearance Agreement, including the extension in the maturity date of
the Notes (which will then remain immediately due and payable in full) and the
$2,000,000 promisory note which the Registrant considers necessary to meet its
short-term operating expenses. The Registrant will also have certain
obligations to Mataponi, including obligations to pay to the holders of the
Notes an amount equal to the Sumitomo Advance and to deliver the Grant Stock
back to Mataponi. If Mataponmi is not the successful bidder for the Rucon
Shares, the Agent and Mataponi will continue to hold security interests in
the outstanding stock of Arlen Automotive, Inc., which is wholly-owned by Rucon
and is the direct parent of all of the Registrant's operating
subsidiaries other than Curtis Partition.
The foregoing summary of the transactions described in the
Forbearance Agreement, the Assignment Agreement and the Restructuring Agreement
is qualified in its entirety by reference to such Agreements, copies of which
are filed as Exhibits 10.15, 10.16 and 10.17, respectively, to this Report.
19
<PAGE> 20
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits:
Exhibit
Number Description
------- -----------
10.15 Forbearance Agreement dated as of January 5, 1996 among the
Registrant, Rucon Services Corp., Mataponi, L.L.C. and the
holders of certain of the Registrant's 5-1/4% Notes by
their agents, Arthur G. Cohen and Philip J. Levien, and/or
substitute agent, Mataponi, L.L.C.
10.16 Assignment and Assumption Agreement dated as of January 16,
1996 between Bank Leumi Trust Company of New York and Rucon
Services Corp.
10.17 Restructuring Agreement dated as of January 16, 1996 between
Bank Leumi Trust Company of New York and Arthur G. Cohen.
(b) Reports on Form 8-K.
None.
20
<PAGE> 21
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
/s/ Allan J. Marrus
------------------------------------
Date: January 19, 1996 By Allan J. Marrus, President
/s/ David S. Chaiken
------------------------------------
Date: January 19, 1996 By David S. Chaiken, Treasurer
21
<PAGE> 22
EXHIBIT INDEX
Exhibit Page
Number Description No.
------- ----------- ----
10.15 Forbearance Agreement dated as of January 5, 1996 among the
Registrant, Rucon Services Corp., Mataponi, L.L.C. and the
holders of certain of the Registrant's 5-1/4% Notes by
their agents, Arthur G. Cohen and Philip J. Levien, and/or
substitute agent, Mataponi, L.L.C.
10.16 Assignment and Assumption Agreement dated as of January 16,
1996 between Bank Leumi Trust Company of New York and Rucon
Services Corp.
10.17 Restructuring Agreement dated as of January 16, 1996 between
Bank Leumi Trust Company of New York and Arthur G. Cohen.
<PAGE> 1
EXHIBIT 10.15
<PAGE> 2
================================================================================
FORBEARANCE AGREEMENT
DATED JANUARY 5, 1996
CONFORMED COPY
================================================================================
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Arlen Default and Inability to Cure......................... 11
SECTION 2. Forbearance................................................. 12
SECTION 3. Interest on the Notes....................................... 12
SECTION 4. Mandatory Payments in Respect of the Notes.................. 12
SECTION 5. Defaults Under the Notes.................................... 14
SECTION 6. Extension of Lezam Obligations.............................. 14
SECTION 7. Acquisition of Leumi Indebtedness........................... 14
SECTION 8. Procedures for a Commercially Reasonable UCC Sale;
No Assumption of Liabilities or Obligations of
Arlen, Rucon or Rucon's Subsidiaries....................... 16
SECTION 9. Satisfaction of Morgan Indebtedness......................... 16
SECTION 10. Satisfaction of Secured Obligations......................... 17
SECTION 11. General Provisions Relating to the Satisfaction of
the Morgan Indebtedness and the Secured
Obligations................................................ 18
SECTION 12. Assignment of Automotive Accessories Holdings,
L.L.C. Promissory Note..................................... 19
SECTION 13. Cancellation of Certain Agreements between Rucon
and its Subsidiaries and Arlen; Cancellation of
Certain Provisions of the Stock Transfer and
Assumption Agreement; Cancellation of Current
Obligations Agreement...................................... 19
SECTION 14. Exchange of Releases........................................ 19
SECTION 15. 17 Battery Notes............................................ 20
SECTION 16. Security For the Payment of the Notes....................... 20
SECTION 17. Tax Reserve Payments........................................ 21
SECTION 18. Effectiveness of this Agreement............................. 21
</TABLE>
(i)
<PAGE> 4
<TABLE>
<S> <C>
SECTION 19. Representations and Warranties.............................. 22
(a) Due Execution................................................. 22
(b) Certain Corporate Changes of Arlen............................ 22
SECTION 20. Indemnification............................................. 23
SECTION 21. Integrated Transaction...................................... 25
SECTION 22. Payment of Expenses......................................... 25
SECTION 23. Miscellaneous............................................... 25
(a) Waiver........................................................ 26
(b) Notices....................................................... 26
(c) Headings...................................................... 27
(d) Severability.................................................. 27
(e) Entire Agreement.............................................. 27
(f) Assignment; Successors and Assigns............................ 28
(g) No Third Party Beneficiaries.................................. 28
(h) Amendment..................................................... 28
(i) Governing Law; Consent to Jurisdiction........................ 28
(j) Further Action................................................ 28
(k) Counterparts.................................................. 29
(l) Specific Performance.......................................... 29
</TABLE>
SCHEDULES
SCHEDULE A LIST OF AGC NOTES
SCHEDULE B LIST OF LEVIEN NOTES
SCHEDULE C LIST OF LEZAM NOTES
SCHEDULE D CONSOLIDATED, MODIFIED AND RESTATED MORTGAGE
NOTES
SCHEDULE E COMPONENTS OF A COMMERCIALLY REASONABLE UCC SALE
EXHIBITS
EXHIBIT A FORM OF NON-RECOURSE ASSIGNMENT OF ARLEN ACCESSORIES
HOLDINGS, L.L.C. PROMISSORY NOTE
EXHIBIT B FORM OF GENERAL RELEASE FROM ARLEN TO MATAPONI
EXHIBIT C FORM OF GENERAL RELEASE FROM ARLEN TO RUCON AND
RUCON'S SUBSIDIARIES
(ii)
<PAGE> 5
EXHIBIT D FORM OF GENERAL RELEASE FROM RUCON AND RUCON'S
SUBSIDIARIES TO ARLEN
(iii)
<PAGE> 6
FORBEARANCE AGREEMENT
FORBEARANCE AGREEMENT dated as of the 5th day of January, 1996 (this
"Agreement") by and among THE ARLEN CORPORATION, a New York corporation
("Arlen"), RUCON SERVICES CORP., a Delaware corporation and a wholly-owned
subsidiary of Arlen ("Rucon"), MATAPONI, L.L.C., a New York limited liability
company ("Mataponi"), and the holders of certain of the 5-1/4% Subordinated
Notes of Arlen listed on Schedules A and B annexed hereto and made a part hereof
(the "Note Holders") by their agent ARTHUR G. COHEN ("AGC") pursuant to the
terms and conditions of the Intercreditor Agreement (as defined below) and/or by
Mataponi as substitute agent to AGC under the Intercreditor Agreement and as
attorney-in-fact for AGC pursuant to the terms and conditions of the Bank Leumi
Documents (as defined below).
W I T N E S E T H:
WHEREAS, reference is made to the 5-1/4% Subordinated Notes of Arlen
referred to in Schedule A attached hereto (collectively, the "AGC Notes") which
were issued to AGC in the aggregate original principal amount of $30,115,333.33
(which amount includes only the amount of AGC's beneficial interest in the case
of the note issued to ANDLAN REALTY CORP. ("Andlan"));
WHEREAS, reference is made to the 5-1/4% Subordinated Notes of Arlen
referred to in Schedule B attached hereto (collectively, the "Levien Notes" and
together with the AGC Notes collectively referred to as the "Notes") which were
issued to Arthur N. Levien (now deceased) ("ANL"), his children and entities
affiliated with some of them (collectively, the "Leviens") in the aggregate
original principal amount of $15,364,333.34 (which amount includes only the
amount of the Leviens' beneficial interest in the case of the note issued to
Andlan);
WHEREAS, reference is made to the 5-1/4% Subordinated Notes of Arlen
referred to in Schedule C attached hereto (collectively, the "Lezam Notes")
which were issued to AGC and to certain of the Leviens in the aggregate original
principal amount of $7,593,000.00 (of which Lezam Notes in the aggregate
principal amount of $5,062,000 were issued to AGC and are included in the AGC
Notes, and Lezam Notes in the aggregate principal amount of $2,531,000 were
issued to certain of the Leviens and are included in the Levien Notes), and
which Lezam Notes were pledged to Arlen as collateral security for certain
obligations owed to Arlen by an entity which was affiliated with AGC and ANL
(the "Lezam Obligations");
<PAGE> 7
WHEREAS, interest has been accruing on the Notes since their issuance
and as of November 30, 1995 the total of all accrued interest and principal due
in respect of the Notes was approximately $125,000,000.00 exclusive of the
interest and principal due under the Lezam Notes;
WHEREAS, reference is made to the various agreements by which the
Note Holders have from time to time heretofore extended the maturity date of the
Notes, the most recent of which was the letter agreement dated March 29, 1993
(the "1993 Extension Agreement") among Arlen, certain of Arlen's subsidiaries,
AGC, the Agent (as defined below) and the holders of the Levien Notes;
WHEREAS, pursuant to the terms and conditions of that certain Agency
and Intercreditor Agreement dated March 29, 1993 (the "Intercreditor Agreement")
by and among AGC, AGC as agent (the "Agent"), and Barry J. Levien or Philip J.
Levien, as representatives, the Agent was duly appointed as the agent for the
Note Holders;
WHEREAS, upon consummation of the Leumi Assignment (as defined
below), Mataponi, as successor in interest to Bank Leumi (as defined below) and
as the holder of all of the collateral security in respect of the Leumi
Indebtedness (as defined below), is entitled, as substitute agent under the
Intercreditor Agreement and, in addition, as attorney-in-fact under the Bank
Leumi Documents (as defined below), to consent and agree to the extension of the
due date for all principal and interest due or to become due under the Notes and
in accordance with the terms and conditions of the Bank Leumi Documents, and
Mataponi, in addition to executing and delivering this Agreement in its
individual capacity, is also executing and delivering this Agreement as AGC's
attorney-in-fact and in AGC's capacity as agent under the Intercreditor
Agreement;
WHEREAS, as part of the 1993 Extension Agreement and as consideration
for the agreement by the Note Holders to extend the maturity date of the Notes,
Arlen collateralized the Notes by granting to the Agent, inter alia, pledges of
the outstanding capital stock of Rucon, ARLEN AUTOMOTIVE, INC., a Delaware
corporation and a wholly-owned subsidiary of Rucon ("New Automotive"), and GRANT
PRODUCTS, INC., a Delaware corporation and a wholly-owned subsidiary of New
Automotive ("Grant"), as well as the collateral assignment of the right to all
or a portion of the proceeds from certain corporate transactions which may
involve Arlen, Rucon, New Automotive, Grant or G.T. STYLING, INC., a California
corporation and a wholly-owned subsidiary of New Automotive ("GTS"),
(collectively, the "Note Collateral");
WHEREAS, pursuant to the 1993 Extension Agreement: (i) Arlen, the
Agent and the Note Holders entered into that certain
- 2 -
<PAGE> 8
Stock Pledge Agreement (Automotive) dated March 29, 1993 (the "Stock Pledge
Agreement"); and (ii) AGC and Rucon entered into that certain Current
Obligations Agreement dated March 29, 1993 (the "Current Obligations Agreement")
pursuant to which, inter alia, Rucon and AGC agreed upon the installment payment
terms on which Rucon would pay certain obligations of Arlen to AGC which had
been assumed by Rucon pursuant to that certain Stock Transfer and Assumption
Agreement dated February 26, 1993 (the "Rucon Assumption Agreement") between
Arlen and Rucon;
WHEREAS, pursuant to the terms and conditions of the Current
Obligations Agreement, Rucon was required to pay to AGC $175,000.00 on or before
November 30, 1995 (the "November 1995 Payment");
WHEREAS, Rucon failed to make the November 1995 Payment to AGC;
WHEREAS, Rucon acknowledges and agrees that it has failed to make the
November 1995 Payment when due and as a result of such failure Rucon is in
default under the Current Obligations Agreement (the "Current Obligations
Default");
WHEREAS, by virtue of the Current Obligations Default, the Agent has
determined that an Event of Default (as defined in the 1993 Extension Agreement)
under the 1993 Extension Agreement has occurred (the "Extension Agreement
Default") and, accordingly, the Agent is permitted under the terms and
conditions of the 1993 Extension Agreement and Stock Pledge Agreement, inter
alia: (i) to foreclose on all of the shares of capital stock of Rucon consisting
of one hundred (100) shares of Common Stock, without par value (the "Rucon
Shares"), which were pledged to the Agent pursuant to the Stock Pledge
Agreement; and (ii) to accelerate the due date for the payment of all principal
and interest due under the AGC Notes and the Levien Notes;
WHEREAS, the Agent has determined that the applicable period during
which the Extension Agreement Default could, in accordance with the terms and
conditions of the 1993 Extension Agreement and the Stock Pledge Agreement, be
cured has expired, the Agent has duly caused to be delivered to each of Arlen
and Rucon a notice of acceleration relating to the acceleration of all principal
and interest due under the AGC Notes and the Levien Notes and asserts that,
unless extensions and forbearances in respect of the Notes are granted by the
Note Holders pursuant to the terms and conditions of this Agreement, Arlen will
be compelled to immediately pay to the Note Holders all accrued interest and
principal due under the Notes;
- 3 -
<PAGE> 9
WHEREAS, Arlen acknowledges and agrees that the Current Obligations
Default has occurred and is continuing but has asserted that the cure period may
not have expired, though given Arlen's financial condition, Arlen is unable to
cure the Current Obligations Default in the foreseeable future or to pay to the
Note Holders all of the outstanding principal and interest due under the Notes
as accelerated;
WHEREAS, Rucon has frequently been late in fulfilling its obligations
contained in the Current Obligations Agreement and the Agent has asserted that
Arlen and Rucon have exhausted any and all cure periods that Arlen or Rucon may
have possessed pursuant to the terms and conditions of the 1993 Extension
Agreement or the Stock Pledge Agreement;
WHEREAS, although Arlen has not admitted that it has exhausted any
and all cure periods that Arlen may possess pursuant to the terms and conditions
of the 1993 Extension Agreement or the Stock Pledge Agreement, Arlen
acknowledges and agrees that, in maintaining such view as a litigation position,
Arlen might lose, and, in any event, Arlen is unable to timely cure the Current
Obligations Default and the Extension Agreement Default;
WHEREAS, in consideration of the parties' obligations contained
herein, Arlen and the Note Holders acknowledge and agree that any and all cure
periods contained in the 1993 Extension Agreement and Stock Pledge Agreement
have expired and been exhausted;
WHEREAS, pursuant to the terms and conditions of the 1993 Extension
Agreement, all principal and accrued interest due in respect of the Notes would
be payable in full on July 31, 1997 (if not accelerated sooner) and Arlen will
be unable to satisfy its obligations with respect to the Notes on such date;
WHEREAS, Arlen believes that the forbearances and extensions in
respect of the Notes to be granted to Arlen pursuant to the terms and conditions
of this Agreement are absolutely necessary and essential to permit Arlen to
continue as a viable business entity in that if such forbearances and extensions
were not granted, Arlen could be compelled, in any event, to liquidate Rucon and
its subsidiaries without realizing any value for Arlen therefrom and, in
addition, Arlen would itself be forced to liquidate under extremely adverse
circumstances;
WHEREAS, pursuant to certain promissory notes, guarantees and related
agreements, instruments and documents (the "Bank Leumi Documents") executed and
delivered by AGC and/or his affiliates to BANK LEUMI TRUST COMPANY OF NEW YORK
("Bank Leumi"), AGC and/or his affiliates are indebted to Bank Leumi in a
principal amount in
- 4 -
<PAGE> 10
excess of $12,000,000.00, plus accrued but unpaid interest thereon and fees and
other charges due with respect thereto (collectively, the "Leumi Indebtedness");
WHEREAS, in accordance with the terms and conditions of the Bank
Leumi Documents, AGC pledged to Bank Leumi all of the AGC Notes (secured by the
Note Collateral) as collateral security for the Leumi Indebtedness and thereby
Bank Leumi acquired, inter alia, a pledge of the Grant Stock (as defined below)
included within the Note Collateral;
WHEREAS, it is contemplated that not later than January 16, 1996: (i)
Rucon, acting for Mataponi, shall acquire from Bank Leumi (the "Leumi
Acquisition") Bank Leumi's position (the "Leumi Position") with respect to
certain of the Leumi Indebtedness in the amount of $12,000,000.00 for
$5,500,000.00 (the "Leumi Cash Portion"), which amount will be loaned to Rucon
by Mataponi; (ii) Bank Leumi will agree that it shall accept payment of
$2,722,513.33 (the "Leumi Obligation") in satisfaction of the balance of the
Leumi Indebtedness (which balance may be in excess of such amount) provided
timely installment payments of the Leumi Obligation are made when due; and (iii)
Rucon shall pledge to Bank Leumi fifty-five percent (55%) of the outstanding
shares of Common Stock and Class B Stock of Rucon's wholly-owned subsidiary,
CURTIS HOLDING CORPORATION, a Delaware corporation ("Curtis Holding"), and cause
Curtis Holding to pledge to Bank Leumi fifty-five percent (55%) of the
outstanding shares of Common Stock of CURTIS PARTITION CORPORATION, a New Jersey
corporation and a wholly-owned subsidiary of Curtis Holding ("Curtis
Partition"), as collateral security for the full payment of the Leumi
Obligation;
WHEREAS, in order to facilitate Mataponi's acquiring the Leumi
Position, which is in Rucon's and Arlen's best interests for the reasons
described herein, and the transactions contemplated pursuant to this Agreement,
including, without limitation, the forbearances and extensions with respect to
the Notes, and in consideration of the parties' obligations contained herein,
Rucon is willing: (i) to act for Mataponi to purchase the Leumi Position, (ii)
to enter into the Pledge Agreement (as defined below) and perform its
obligations thereunder, and (iii) immediately upon the consummation of the Leumi
Acquisition, to assign to Mataponi (the "Leumi Assignment"), without recourse to
Rucon, all of Rucon's right, title and interest in and to the Leumi Position
together with all collateral security related thereto in full and final
satisfaction of the Rucon Loan (as defined below);
WHEREAS, Rucon is willing to act on Mataponi's behalf in respect of
the Leumi Acquisition because it is in Rucon's and Arlen's best interests for
Mataponi to obtain the Leumi Position inasmuch as Mataponi, as
successor-in-interest to Bank Leumi with
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<PAGE> 11
respect to the Leumi Position and the collateral in respect thereof, is willing,
inter alia: (i) to consent to certain forbearances and extensions with respect
to the Notes; and (ii) to release the existing lien on all of the outstanding
shares of capital stock of Grant (the "Grant Stock"), which the Agent, in turn,
in consideration for Rucon's aforesaid proposed pledge of certain outstanding
shares of capital stock of Curtis Holding as collateral for the Leumi
Obligation, is willing to release completely from the Note Collateral and
deliver to Rucon and, in connection therewith, to permit New Automotive to
pledge the Grant Stock to SUMITOMO BANK OF CALIFORNIA ("Sumitomo") in order to
induce Sumitomo to make the Sumitomo Advance (as defined below);
WHEREAS, in order to consummate the Leumi Acquisition, Mataponi has
agreed to loan to Rucon the Leumi Cash Portion (the "Rucon Loan") and Rucon has
agreed, as collateral security for Rucon's non-recourse demand note which will
evidence such loan and its obligation to make the Leumi Assignment to Mataponi,
to execute and deliver a pledge agreement (the "Pledge Agreement") in favor of
Mataponi, pursuant to which Rucon shall pledge to Mataponi all of Rucon's right,
title and interest in and to the Leumi Position;
WHEREAS, immediately upon the consummation of the Leumi Acquisition,
Rucon is to make the Leumi Assignment to Mataponi and thereby be relieved of the
indebtedness evidenced by the Rucon Loan;
WHEREAS, as a result of the Current Obligations Default and the
Extension Agreement Default, it is contemplated that subsequent to the
consummation of the Leumi Acquisition, the Agent, on behalf of the Note Holders,
will foreclose on the Rucon Shares in accordance with the terms and conditions
of the Stock Pledge Agreement and this Agreement;
WHEREAS, pursuant to the terms and conditions of this Agreement, it
is contemplated that the Agent will conduct a duly advertised public sale of the
Rucon Shares in accordance with the New York Uniform Commercial Code (the "Rucon
UCC Sale");
WHEREAS, Mataponi intends to bid, and may be the successful bidder at
the Rucon UCC Sale, in which case it will obtain the Rucon Shares;
WHEREAS, pursuant to the terms and conditions of the Stock Pledge
Agreement, seventy five percent (75%) of the net purchase price to be paid by
the successful bidder at the Rucon UCC Sale will be paid to the Agent, on behalf
of the Note Holders, in payment on account of the Notes, and the remaining
twenty five percent (25%) of such net purchase price will be paid to Arlen or
for Arlen's account (the "Arlen Portion");
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<PAGE> 12
WHEREAS, the Arlen Portion is pledged to secure the repayment of
certain obligations (the "Secured Obligations") including certain obligations
payable to entities which may be deemed to be affiliates of Arlen, and the
Secured Obligations are to be repaid or otherwise satisfied or forgiven in
connection with the consummation of the transactions contemplated hereby;
WHEREAS, Arlen acknowledges and agrees that, if Mataponi obtains the
Rucon Shares at the Rucon UCC Sale, then, except for the Arlen Portion, Arlen is
not entitled to any other interests (residual or otherwise) in Rucon or Rucon's
subsidiaries;
WHEREAS, in consideration of Arlen's obligations contained herein, if
Mataponi obtains the Rucon Shares at the Rucon UCC Sale, then on the Rucon
Consummation Date (as defined below), Mataponi has agreed to cause Rucon to
assign to Arlen on a non-recourse basis (the "Note Assignment") all of Rucon's
right, title and interest in and to that certain $2,000,000.00 principal amount
promissory note issued by AUTOMOTIVE ACCESSORIES HOLDINGS, L.L.C., a New York
limited liability company ("Automotive Accessories Holdings, L.L.C."), which
promissory note shall be payable over two (2) years in equal quarterly
installments, the first such installment being due and payable on the date the
Note Assignment is effected (the "Automotive Accessories Holdings Promissory
Note");
WHEREAS, if Mataponi obtains the Rucon Shares at the Rucon UCC Sale,
then Mataponi, as the owner of the Rucon Shares, will own Rucon and its
subsidiaries, including, without limitation, New Automotive, Grant and GTS, and
each of New Automotive, Grant and GTS will remain liable to Sumitomo for the
Sumitomo Advance;
WHEREAS, SACKBAR HOLDING CORP., a New York corporation ("Sackbar"),
is now the owner and holder of:
(A) those certain consolidated, modified and restated mortgage notes
as listed on Schedule D annexed hereto (collectively, the
"$100,000,000 Note"), which mortgage notes are secured by those
certain mortgages that are consolidated and modified pursuant to that
certain Mortgage Consolidation, Modification and Spreader Agreement
between 17 Battery Place North Associates ("17 BPNA") and Kawasaki
Leasing International, Inc., as agent, dated September 8, 1989 and
recorded on October 10, 1989 in Reel 1626, Page 1483 in the New York
City Register's office for New York County, New York and which
mortgage notes are the subject of that certain Loan Agreement, dated
as of September 1, 1989 (the "$100,000,000 Loan Agreement") by and
among 17 BPNA, as borrower, and Kawasaki Leasing International, Inc.,
Sefco
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<PAGE> 13
(U.S.A.) Inc., Hokkaido Leasing (U.S.A.) Inc., Kajima Leasing America
Inc., K.L. America Inc., CTB Leasing (U.S.A.) Inc., KLC Leasing
(U.S.A.) Corp., Marubeni Finance and Lease Corp., Nichiboshin (UK)
Ltd. and YTB Leasing (America) Inc., as lenders; and
(B) that certain mortgage note dated May 31, 1991, in the original
principal amount of $25,000,000, made by 17 BPNA in favor of Kawasaki
Leasing International, Inc. (the "$25,000,000 Note"), which mortgage
note is secured by that certain Mortgage made by 17 BPNA to Kawasaki
Leasing International, Inc. in the original principal amount of
$25,000,000.00, dated May 31, 1991 and recorded on June 7, 1991 in
Reel 1788 Page 1613 in the City Register's office for New York County
and which mortgage note is the subject of that certain Building Loan
Agreement of even date therewith (the "$25,000,000 Loan Agreement")
by and between 17 BPNA, as borrower, and Kawasaki Leasing
International Inc., as lender;
WHEREAS, the term of the $100,000,000 Note and the $25,000,000 Note
have been extended to December 28, 2034 and the lien of the mortgages securing
said notes as referred to above (the "Mortgages") has been spread to cover the
premises commonly known as 1076 White Plains Road, Bronx, New York (Section 14,
Block 3733, Lot 9);
WHEREAS, pursuant to an Agreement of Reduction of Mortgage
Indebtedness dated December 28, 1995 between Downtown Acquisition Partners, L.P.
("DAP") and 17 BPNA, DAP granted 17 BPNA (i) a reduction in the indebtedness
evidenced by the $100,000,000 Note, so that the total principal and interest
outstanding thereunder as of such date was $68,787,793.00 of principal and
$50,473,000.00 of interest and (ii) a reduction in the indebtedness evidenced by
the $25,000,000 Note, so that the total principal and interest outstanding
thereunder as of such date was $17,884,207.00 of principal and $9,305,000.00 of
interest;
WHEREAS, following such reductions in the indebtedness evidenced by
the $100,000,000 Note and the $25,000,000 Note, various individuals having a
direct or indirect interest in 17 BPNA executed Assumption Agreements whereby
they agreed to assume the obligation to pay portions of the indebtedness
evidenced by the $100,000,000 Note and the $25,000,000 Note;
WHEREAS, following the spreading of the lien of the Mortgages and the
assumption of portions of the indebtedness evidenced by the $100,000,000 Note
and the $25,000,000 Note as described above, the lien of the Mortgages was
released from the premises, 17 Battery Place, New York, New York and from the
Ground
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<PAGE> 14
Lease encumbering such premises (collectively, the "17 Battery Place Premises");
WHEREAS, in consideration of, and as a condition to, Arlen's
obligations contained in this Agreement, if Mataponi obtains the Rucon Shares at
the Rucon UCC Sale, then following the Rucon Consummation Date, Mataponi has
agreed to use its commercially reasonable efforts to cause Sackbar to sell to
Arlen on the most favorable terms obtainable by Mataponi for Arlen the
$100,000,000 Note, the $25,000,000 Note, the Mortgages, the $100,000,000 Loan
Agreement, the $25,000,000 Loan Agreement and all other loan documents
pertaining to either of the loans evidenced by the $100,000,000 Note or the
$25,000,000 Note (such notes and all of such documents referred to in this
recital, hereinafter, collectively referred to as the "17 Battery Notes");
WHEREAS, as of the date hereof Arlen is indebted to: MORGAN GUARANTY
TRUST COMPANY OF NEW YORK ("Morgan") in the approximate amount of $4,000,000.00
(the "Morgan Indebtedness");
WHEREAS, Arlen is in default of its obligations in respect of the
Morgan Indebtedness and Arlen is subject to various judgments, lawsuits and
other actions taken in enforcement of the Morgan Indebtedness, and given Arlen's
current financial situation, Arlen is currently unable to, and is highly
unlikely in the future to be able to, satisfy its obligations with respect to
the Morgan Indebtedness or to satisfy the judgments, lawsuits and other actions
pending in enforcement of the Morgan Indebtedness unless the transactions
provided for in this Agreement are consummated;
WHEREAS, Arlen desires to satisfy the Morgan Indebtedness in order:
(i) to substantially improve Arlen's financial condition; (ii) to enable Arlen
to continue as a viable business entity; and (iii) to avoid the forced
liquidation of Arlen under extremely adverse circumstances;
WHEREAS, as an accommodation to Arlen and in consideration of Arlen's
obligations contained herein, Mataponi, AGC and Arlen have agreed to cause the
Morgan Indebtedness to be satisfied in full in accordance with the terms and
conditions of this Agreement;
WHEREAS, in order to satisfy the Morgan Indebtedness, Mataponi has
agreed that upon completion of the Leumi Assignment, Mataponi, as successor in
interest to Bank Leumi with respect to the Leumi Position (including, without
limitation, as pledgee of the Grant Stock), shall release the existing lien of
Bank Leumi on, and permit the Agent to release from the Note Collateral in order
to enable Rucon to deliver to New Automotive to pledge to Sumitomo, the Grant
Stock, to satisfy the conditions required by Sumitomo to
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<PAGE> 15
make an additional cash advance of up to $3,000,000.00 (the "Sumitomo Advance")
to Grant and GTS under the existing credit facility which New Automotive, Grant
and GTS have with Sumitomo;
WHEREAS, upon receiving the Sumitomo Advance, Grant and GTS have
agreed to upstream the proceeds of the Sumitomo Advance to New Automotive, which
in turn will upstream such proceeds to Rucon in order to enable Rucon to obtain
the release of certain liabilities and obligations which it had previously
assumed from Arlen and to enable Arlen to pay such proceeds to Morgan in
satisfaction of the Morgan Indebtedness, and the Note Holders and Mataponi have
agreed to permit such proceeds to be used to satisfy the Morgan Indebtedness in
lieu of being applied in part satisfaction of the Notes;
WHEREAS, it is contemplated that, upon satisfaction of the Morgan
Indebtedness, Morgan shall cancel the 5-1/4% Subordinated Note of Arlen dated
March 1, 1991 issued to AGC in the principal amount of $1,557,830.96 (the "First
Morgan Note") and the Non-Negotiable Promissory Note of Arlen dated April 4,
1991 issued to AGC in the principal amount of $1,039,073.76 (the "Second Morgan
Note" and together with the First Morgan Note collectively referred to as the
"Morgan Notes"), which Morgan Notes were assigned by AGC to Morgan as collateral
security for certain obligations that AGC has to Morgan;
WHEREAS, the consummation of the transactions contemplated by this
Agreement will enable Arlen to have settled and satisfied the Morgan
Indebtedness owed by Arlen to Morgan as well as to terminate various pending
lawsuits, judgments and other enforcement actions in respect of the Morgan
Indebtedness;
WHEREAS, in order to satisfy the Secured Obligations, if Mataponi
obtains the Rucon Shares at the Rucon UCC Sale, then upon consummation of the
Rucon UCC Sale and on such date that Mataponi acquires the Rucon Shares (the
"Rucon Consummation Date"): (i) Arlen has agreed to pay the proceeds from the
Arlen Portion to the holders of the Secured Obligations in part satisfaction of
the Secured Obligations; and (ii) Mataponi has agreed that, upon such payment by
Arlen, on the Rucon Consummation Date, Mataponi shall pay to the holders of the
Secured Obligations, or, in the alternative, cause the holders of the Secured
Obligations to otherwise forgive, for the account and benefit of Arlen, up to a
maximum of $870,000, in respect of any amounts which are still owed to the
holders of the Secured Obligations after Arlen shall have applied the proceeds
from the Arlen Portion in the manner described above;
WHEREAS, Arlen has agreed to pay all of the reasonable costs and
expenses incurred in connection with the transactions
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<PAGE> 16
contemplated hereby, including, without limitation, all legal fees and
disbursements, but excluding any costs and expenses that may be incurred in
connection with the Rucon UCC Sale;
WHEREAS, as a further accommodation to Arlen, AGC has agreed that if
Mataponi obtains ownership of the Rucon Shares at the Rucon UCC Sale, then AGC
shall cancel any and all obligations of Arlen or Rucon contained in the Current
Obligations Agreement; and
WHEREAS, the parties hereto acknowledge and agree that the Rucon UCC
Sale is purely an involuntary sale and Arlen and Rucon, by virtue of their
execution and delivery of this Agreement, are not taking any actions which would
be deemed to change the involuntary nature of the Rucon UCC Sale to a voluntary
sale.
NOW, THEREFORE, in consideration of these presents and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Arlen Default and Inability to Cure. Arlen
acknowledges and agrees that: (i) Rucon has failed to pay the November 1995
Payment within the time period permitted under the Current Obligations Agreement
and as a result thereof Rucon is in default under the terms and conditions of
the Current Obligations Agreement; (ii) as a result of the Current Obligations
Default, the Agent and the Note Holders have asserted that Arlen is in default
under the terms and conditions of the 1993 Extension Agreement and as a result
thereof the Agent and the Note Holders have asserted that approximately
$125,000,000.00 of principal and accrued interest is immediately due and payable
with respect to the Notes; (iii) Rucon has frequently been late in fulfilling
its obligations contained in the Current Obligations Agreement and the Agent and
the Note Holders have asserted that all cure periods contained in the 1993
Extension Agreement have expired and been exhausted by Arlen; (iv) given the
current financial situation of Arlen, Arlen's inability to borrow or obtain
funds on its own and Arlen's inability to upstream any borrowed funds from Rucon
or its other subsidiaries to cure the Current Obligations Default or the
Extension Agreement Default, it is impossible for Arlen to cure such defaults
within the foreseeable future; and (v) in consideration for the forbearances,
further extensions in the maturity date of the Notes and other benefits which
are to become available to Arlen under this Agreement (including, without
limitation, the opportunities hereunder to obtain the release from the Note
Collateral of the Grant Stock, the satisfaction and discharge of the Morgan
Indebtedness and the Secured Obligations and the potential to acquire the 17
Battery Notes) and in order to avoid the expense and other burdens and risks of
litigation,
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<PAGE> 17
neither Arlen, Rucon nor any of Rucon's subsidiaries will take any action to
litigate or contest the assertion by the Agent and the Note Holders that the
Extension Agreement Default currently exists and is continuing and that all cure
periods that Arlen may possess pursuant to the terms and conditions of the 1993
Extension Agreement have expired and been exhausted. Arlen further acknowledges
and agrees that it understands that following the consummation of the Leumi
Acquisition it is contemplated that the Agent will foreclose on the Rucon Shares
and conduct a public sale of the Rucon Shares in accordance with the terms and
conditions set forth in Section 8 below.
SECTION 2. Forbearance. Notwithstanding the 1993 Extension
Agreement and provided that Arlen complies in all respects with the terms and
conditions of this Agreement, then, effective on, and conditioned upon: (i) the
consummation of the Leumi Acquisition, (ii) the consummation of the Rucon UCC
Sale with Mataponi obtaining the ownership of the Rucon Shares thereat, and
(iii) the satisfaction of the Morgan Indebtedness in accordance with Section 9
below, the Note Holders, the Agent, and Mataponi, individually and in its
capacities described in the first paragraph of this Agreement and in the last
sentence of Section 7(d) below, hereby agree that, subject to Section 4 below,
the due date for all principal and interest payments due or to become due under
the Notes shall be extended to December 28, 2033 (the "Extended Due Date") and
that from and after the effectiveness of the Extended Due Date, no default or
Event of Default (as defined in the Notes or the 1993 Extension Agreement) shall
be deemed to have occurred prior to the Extended Due Date so long as Arlen is in
full compliance with its obligations set forth in Section 4 below; and the
notice of acceleration with respect to the Notes which was heretofore delivered
to Arlen and Rucon shall, upon the satisfaction of the conditions precedent
enumerated in this Section 2, be deemed withdrawn.
SECTION 3. Interest on the Notes. Interest shall accrue on the
Notes at the rate of EIGHT PERCENT (8%) per annum (the "Interest Rate") through
the Extended Due Date and until payment in full of the principal amount of the
Notes and shall be added to principal annually. The parties hereto acknowledge
and agree that the Interest Rate: (i) is the same interest rate which is
currently in effect with respect to the Notes; (ii) has been in effect since
prior to January 1, 1993; and (iii) is the default rate provided for in the
Notes.
SECTION 4. Mandatory Payments in Respect of the Notes.
(a) Notwithstanding any provision contained herein to the
contrary, Arlen covenants and agrees to pay to the Note Holders, pari passu,
within thirty (30) days after the end of each
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<PAGE> 18
fiscal quarter of Arlen, commencing with Arlen's first fiscal quarter in Arlen's
fiscal year ending February 28, 1997 and terminating in the last fiscal quarter
in the fiscal year in which the Extended Due Date occurs, FIFTY PERCENT (50%) of
Arlen's Net Income (as defined in Section 4(b) below). Each such cash payment
shall be applied, without premium or penalty, first as a payment of the accrued
but unpaid interest on the Notes and then, after all such accrued but unpaid
interest shall have been paid in full, as a payment of the remaining unpaid
principal balance of the Notes.
(b) For purposes of this Agreement, "Net Income" means
Arlen's "Net Income" determined in accordance with generally accepted accounting
principles consistently applied ("GAAP"), as reported on Arlen's annual audited
financial statements which have been certified by Arlen's certified public
accountants, after payment or provision for Arlen's "Current Liabilities" (as
such term is used and understood under GAAP) without deduction for depreciation,
amortization or debt service but less reasonable reserves and reserves for
acquisitions (collectively the "Reserves") as determined by Arlen's Board of
Directors in good faith.
(c) The parties hereto acknowledge and agree that the Note
Holders shall at all times retain: (i) a fifty percent (50%) interest in and to
the Reserves; and (ii) a fifty percent (50%) residual interest in all assets
acquired with the Reserves and the proceeds thereof. As clarification to, but
without limiting the generality of, the immediately preceding sentence, the Note
Holders shall be entitled to receive fifty percent (50%) of the Reserves if
unused, and if such Reserves are used then the Note Holders shall be entitled to
a fifty percent (50%) residual interest in and to the assets acquired with the
Reserves and the proceeds thereof.
(d) Arlen shall keep full, complete and accurate books,
records and accounts suitable for the preparation of financial statements in
accordance with GAAP, and maintain such records for a period of at least ten
(10) years from the date of preparation. The Note Holders and their
representatives shall be entitled to audit all of the books and records of Arlen
during regular business hours not more than once during each calendar quarter,
upon five (5) business days prior written notice. Arlen shall cooperate fully
with the Note Holders and their representatives conducting any such audit. In
the event that any such audit reveals an under reporting by an amount in excess
of three percent (3%) between actual Net Income and Net Income as reported to
the Note Holders, then Arlen shall promptly pay the cost of such audit as well
as the additional amount due to the Note Holders.
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<PAGE> 19
SECTION 5. Defaults Under the Notes.
(a) The Note Holders acknowledge, agree and covenant that,
notwithstanding anything contained herein or in the Notes or the documents and
instruments related thereto to the contrary, from and after such date as the
conditions precedent enumerated in the first sentence of Section 2 above shall
have been fulfilled and upon effectiveness of the Extended Due Date, the Note
Holders shall only declare an event of default on, or seek an acceleration of
the principal and interest due under, or seek to enforce any collateral for, the
Notes if, and only if, any of one or more of the following events shall have
occurred and be continuing:
(i) if any payment of principal or interest due under the
Notes, including, without limitation, pursuant to Section 4 above, has not
been made when due and such failure has continued for ten (10) days after
Arlen has received notice of such default; or
(ii) if Arlen shall make an assignment for the benefit of
creditors, or shall commence a case under the federal bankruptcy laws, or
any state insolvency laws, or shall file any petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, or shall file an answer admitting or not
contesting the material allegations of a petition against it in any such
proceeding, or shall seek or acquiesce in the appointment of any trustee,
custodian, receiver or liquidator of Arlen; or if, within sixty (60) days
after the commencement of an action against Arlen seeking a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, such
action shall not have been dismissed or all orders entered therein or
proceedings thereunder shall not have been vacated.
SECTION 6. Extension of Lezam Obligations. Arlen hereby agrees
that the due date for all principal and interest payments due under the Lezam
Obligations is hereby deemed extended to the Extended Due Date.
SECTION 7. Acquisition of Leumi Indebtedness.
(a) Arlen acknowledges, agrees and covenants that on or
about January 16, 1996, Rucon shall act for Mataponi, and in such capacity,
Rucon shall purchase the Leumi Position with respect to the Leumi Indebtedness
from Bank Leumi for the Leumi Cash Portion. In connection with the transactions
relating to the Leumi
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<PAGE> 20
Acquisition, it is contemplated that Bank Leumi will agree to accept the Leumi
Obligation in satisfaction of the balance of the Leumi Indebtedness provided
timely installment payments of the Leumi Obligation are made when due and Rucon
shall pledge to Bank Leumi fifty-five percent (55%) of the outstanding shares of
the Common Stock and Class B Stock of Curtis Holding and cause Curtis Holding to
pledge to Bank Leumi fifty-five percent (55%) of the Common Stock of Curtis
Partition as collateral security for the full payment of the Leumi Obligation.
(b) In order to consummate the Leumi Acquisition, Mataponi
agrees that it shall make the Rucon Loan to Rucon in order to finance the Leumi
Cash Portion and Rucon agrees that Rucon shall execute and deliver the Pledge
Agreement to Mataponi, which shall be satisfactory to Mataponi in all respects
and which shall provide for a pledge by Rucon to Mataponi of all of Rucon's
right, title and interest in and to the Leumi Position.
(c) Following the consummation of the Leumi Acquisition and
in any event promptly upon Mataponi's demand, Arlen covenants and agrees that it
shall cause Rucon to assign to Mataponi all of Rucon's right, title and interest
in and to the Leumi Position, including, without limitation, the Note Collateral
held by Bank Leumi with respect to the Leumi Indebtedness, in full and final
satisfaction of the Rucon Loan.
(d) The parties hereto hereby acknowledge and agree that
upon completion of the Leumi Assignment, Mataponi, as successor to Leumi and as
the holder of all of the collateral security in respect of the Leumi
Indebtedness, will be entitled to consent and agree to the extension of the due
date for all principal and interest payments due or to become due under the
Notes made pursuant to Section 2 above. In furtherance of the immediately
preceding sentence and in accordance with the terms and conditions of the Bank
Leumi Documents, the parties hereto acknowledge and agree that Mataponi, in
addition to executing and delivering this Agreement in its individual capacity,
is also executing and delivering this Agreement as AGC's attorney-in-fact and in
AGC's capacity as agent under the Intercreditor Agreement.
(e) Each of Arlen, Rucon and Mataponi shall use all
reasonable efforts to take, or to cause to be taken, all appropriate action, do
or cause to be done all things proper, necessary, or advisable under applicable
laws and regulations, execute and deliver such documents and other papers, as
may be required to carry out and make effective the transactions contemplated by
this Section 7.
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<PAGE> 21
SECTION 8. Procedures for a Commercially Reasonable UCC Sale; No
Assumption of Liabilities or Obligations of Arlen, Rucon or Rucon's
Subsidiaries.
(a) The parties hereto hereby acknowledge, agree and
covenant that if the Agent substantially complies with the procedures and
provisions set forth on Schedule E attached hereto with respect to the Rucon
Shares, then a commercially reasonable foreclosure sale with respect to the
Rucon Shares shall be deemed to have occurred in accordance with the terms and
provisions of the New York Uniform Commercial Code (the "UCC"). In furtherance
of the foregoing, the parties hereto hereby further acknowledge, agree and
covenant that any third party (including, without limitation, Mataponi or
affiliates of the Note Holders) other than the Note Holders may bid on, and, if
successful, purchase, the Rucon Shares at the Rucon UCC Sale so long as no such
third party receives direct funding from any of the Note Holders and in
connection with any such Rucon UCC Sale, Arlen, by virtue of the Stock Pledge
Agreement, shall only be entitled to the Arlen Portion (after deducting the
expenses of the Rucon UCC Sale).
(b) Arlen hereby acknowledges, agrees and covenants that if
Mataponi obtains the Rucon Shares at the Rucon UCC Sale, then Mataponi: (i)
shall not assume any liabilities or obligations of Arlen, Rucon or Rucon's
subsidiaries by virtue of the Rucon UCC Sale or in connection with, or related
to, any other matter, and that Arlen is solely and exclusively responsible for
all of Arlen's liabilities and obligations, provided that New Automotive, Grant
and GTS shall remain liable to Sumitomo for the Sumitomo Advance; and (ii) shall
own all of the Rucon Shares free and clear of any and all liens, claims,
security interests or encumbrances or any other interests or claims of any kind
whatsoever (whether secured, unsecured, contingent or fixed) of Arlen or its
successors, assigns and affiliates. In furtherance of, but without limiting the
generality of the foregoing, Arlen acknowledges and agrees that if Mataponi
obtains the Rucon Shares at the Rucon UCC Sale, then upon consummation of the
Rucon UCC Sale, Arlen is not entitled to any interest (residual or otherwise) in
Rucon or Rucon's subsidiaries except for the Arlen Portion.
SECTION 9. Satisfaction of Morgan Indebtedness.
(a) Arlen acknowledges and agrees that: (i) Arlen is in
default of its obligations with respect to the Morgan Indebtedness and that
given Arlen's current financial situation and inability to obtain or borrow
funds in its own capacity or through upstreaming borrowed funds from Rucon or
Rucon's subsidiaries, Arlen is currently unable, and expects to continue to be
unable for the foreseeable future, to satisfy its obligations with respect to
the Morgan Indebtedness unless the transactions described in this
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<PAGE> 22
Agreement are consummated. Notwithstanding Arlen's inability to satisfy the
Morgan Indebtedness, Arlen acknowledges and agrees that the satisfaction of the
Morgan Indebtedness would, inter alia: (i) substantially improve Arlen's
financial condition; (ii) enable Arlen to continue as a viable business entity;
and (iii) avoid the liquidation of Arlen under extremely adverse circumstances.
Accordingly, as an accommodation to Arlen, Mataponi, AGC and Arlen have agreed
to satisfy the Morgan Indebtedness in full in accordance with the terms and
conditions of this Section 9.
(b) Mataponi hereby agrees that upon completion of the Leumi
Assignment, Mataponi, as successor-in-interest to Bank Leumi with respect to the
Leumi Position and the collateral in respect thereof (including, without
limitation, the Grant Stock), shall release the existing lien of Bank Leumi on
the Grant Stock and permit the Agent to release the Grant Stock from the Note
Collateral in order to enable Rucon to deliver the Grant Stock to New Automotive
to pledge the same to Sumitomo in order to induce Sumitomo to make the Sumitomo
Advance to Grant and GTS under the existing credit facility with Sumitomo. Upon
receiving the proceeds of the Sumitomo Advance, Arlen covenants to, and agrees
with, AGC and Mataponi, that: (i) Grant and GTS will dividend upstream such
proceeds to New Automotive, which in turn will dividend upstream such proceeds
to Rucon to enable Rucon to obtain the release from Arlen of certain liabilities
and obligations which it had previously assumed from Arlen; and (ii) upon Arlen
receiving such proceeds, Arlen shall immediately and forthwith pay over such
proceeds to Morgan in part satisfaction of the Morgan Indebtedness rather than
utilizing such proceeds in partial satisfaction of the Notes or the Leumi
Indebtedness. The parties hereto acknowledge and agree that Arlen would be
unable to borrow any amounts from Sumitomo and upstream the proceeds thereof if
Mataponi and the Agent were unwilling to permit the release of the Grant Stock
from the Note Collateral and the pledge of the Grant Stock to Sumitomo, which
Mataponi and the Agent have agreed to do as an accommodation to Arlen.
(c) The parties hereto acknowledge and agree that upon
satisfaction of the Morgan Indebtedness, Morgan shall cancel the Morgan Notes
which are currently being held by Morgan as part of the collateral securing the
Morgan Indebtedness. AGC hereby agrees that he shall have no claim nor make any
objection with respect to the cancellation of the Morgan Notes.
SECTION 10. Satisfaction of Secured Obligations.
(a) In order to satisfy the Secured Obligations, Arlen
covenants to, and agrees with, AGC and Mataponi, that if Mataponi acquires the
Rucon Shares at the Rucon UCC Sale, then upon the Rucon Consummation Date, Arlen
shall pay over the proceeds of
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<PAGE> 23
the Arlen Portion to the holders of the Secured Obligations in part satisfaction
of the Secured Obligations.
(b) To the extent that the proceeds of the Sumitomo Advance
and Arlen Portion are insufficient to satisfy the Secured Obligations (the
dollar amount of such insufficiency being referred to herein as the "Deficiency
Amount"), Mataponi hereby covenants to, and agrees with, Arlen that, if Mataponi
acquires the Rucon Shares at the Rucon UCC Sale, then immediately following the
Rucon Consummation Date, Mataponi shall pay to the holders of the Secured
Obligations, or, in the alternative, cause the holders of the Secured
Obligations to otherwise forgive, for the account and benefit of Arlen, up to a
maximum of $870,000.00 in respect of the Deficiency Amount.
SECTION 11. General Provisions Relating to the Satisfaction of the
Morgan Indebtedness and the Secured Obligations.
(a) Arlen hereby covenants and agrees that if Mataponi shall
at any time prior to the Rucon Consummation Date provide to Arlen any funds in
respect of the Deficiency Amount or the Morgan Indebtedness, then all of such
funds shall be deemed a demand loan from Mataponi to Arlen which loan shall bear
interest at the rate of eight percent (8%) per annum and shall be evidenced by a
demand promissory note from Arlen to Mataponi. Notwithstanding the immediately
preceding sentence, if Mataponi obtains the Rucon Shares at the Rucon UCC Sale,
then on the Rucon Consummation Date any amounts loaned to Arlen by Mataponi
pursuant to the immediately preceding sentence shall be forgiven and no longer
be an obligation of Arlen.
(b) The parties hereto acknowledge and agree that the
covenants and agreements contained in this Agreement to satisfy the Morgan
Indebtedness and the Secured Obligations: (i) are solely for the benefit of the
parties hereto and are not enforceable by the holders of the Morgan Indebtedness
or the Secured Obligations or any other third party or creditor of Arlen, Rucon
or Rucon's subsidiaries; and (ii) apply solely and exclusively to the Morgan
Indebtedness and the Secured Obligations and not to any other debts or creditors
of Arlen, Rucon or Rucon's subsidiaries.
(c) Each party to this Agreement shall use all reasonable
efforts to take, or to cause to be taken, all appropriate action, do or cause to
be done all things proper, necessary, or advisable under applicable laws and
regulations, execute and deliver such documents and other papers, as may be
required to carry out and make effective the transactions contemplated pursuant
to Sections 9 and 10 above.
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<PAGE> 24
SECTION 12. Assignment of Automotive Accessories Holdings, L.L.C.
Promissory Note. Mataponi hereby covenants and agrees that if Mataponi acquires
the Rucon Shares at the Rucon UCC Sale, then on the Rucon Consummation Date,
Mataponi shall cause Rucon to make a non-recourse assignment to Arlen of all of
Rucon's right, title and interest in and to the Automotive Accessories Holdings,
L.L.C. Promissory Note by causing Rucon to execute and deliver to Arlen the
Non-Recourse Assignment in the form of Exhibit A attached hereto.
SECTION 13. Cancellation of Certain Agreements between Rucon and
its Subsidiaries and Arlen; Cancellation of Certain Provisions of the Stock
Transfer and Assumption Agreement; Cancellation of Current Obligations
Agreement.
(a) Arlen hereby acknowledges, agrees and covenants that, if
Mataponi acquires the Rucon Shares at the Rucon UCC Sale, then effective as of
the Rucon Consummation Date, any and all guarantees or assumptions of
liabilities or obligations made by any of Rucon or Rucon's subsidiaries for the
benefit of Arlen or any other agreements or understandings pursuant to which
Rucon or Rucon's subsidiaries are liable to, or responsible for, the obligations
of Arlen shall be cancelled and terminated and shall have no further force or
effect. In furtherance of the foregoing, if Mataponi acquires the Rucon Shares
at the Rucon UCC Sale, then effective as of the Rucon Consummation Date, any and
all guarantees or assumptions of liabilities or obligations made by Arlen on
behalf of Rucon or Rucon's subsidiaries or any other agreements or
understandings pursuant to which Arlen is liable to, or responsible for, the
obligations of Rucon or Rucon's subsidiaries shall be cancelled and terminated
and shall have no further force or effect.
(b) Without limiting the generality of Section 13(a) above,
Arlen and Rucon hereby acknowledge and agree that in consideration for payment
of the $3,000,000.00 to be received by Rucon by way of dividend from New
Automotive in connection with the Sumitomo Advance, then effective not later
than the date on which the Morgan Indebtedness shall be satisfied, clauses (a)
and (b) of Paragraph 4 of the Rucon Assumption Agreement shall be deemed
terminated and of no further force or effect.
(c) The parties hereto acknowledge and agree that if
Mataponi obtains the Rucon Shares at the Rucon UCC Sale, then upon the Rucon
Consummation Date, the Current Obligations Agreement shall be deemed cancelled
and of no further force or effect.
SECTION 14. Exchange of Releases. If Mataponi obtains the Rucon
Shares at the Rucon UCC Sale, then on the Rucon Consummation Date: (i) Arlen
covenants and agrees to execute and deliver (A) to Mataponi the General Release
in the form of Exhibit
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<PAGE> 25
B attached hereto; and (B) to Rucon and Rucon's subsidiaries the General Release
in the form of Exhibit C attached hereto; and (ii) Rucon covenants and agrees to
execute and deliver to Arlen, and to cause Rucon's subsidiaries to execute and
deliver to Arlen, the General Release in the form of Exhibit D attached hereto.
SECTION 15. 17 Battery Notes.
(a) Mataponi covenants and agrees that if Mataponi acquires
the Rucon Shares at the Rucon UCC Sale, then following the Rucon Consummation
Date, Mataponi shall use its commercially reasonable efforts to cause Sackbar to
sell to Arlen the 17 Battery Notes on the most favorable terms obtainable. The
parties hereto acknowledge and agree that Arlen's Obligations contained in this
Agreement are conditioned upon Arlen acquiring the 17 Battery Notes.
(b) At such time as Arlen shall acquire the 17 Battery Notes
(the "17 Battery Notes Acquisition Date"), Arlen covenants and agrees that: (i)
Arlen shall under no circumstances be deemed a holder in due course of the 17
Battery Notes; (ii) Arlen shall at all times remain the record and beneficial
owner of the 17 Battery Notes; and (iii) under no circumstances shall Arlen,
directly or indirectly, sell, transfer, negotiate, assign or otherwise dispose
of, or permit voluntarily or involuntarily any security interest, pledge,
mortgage, lien, charge, encumbrance, adverse claim, preferential assignment or
restriction of any kind on, the 17 Battery Notes.
(c) Arlen acknowledges, agrees and covenants that,
notwithstanding anything contained herein or in the 17 Battery Notes or the
documents and instruments related thereto to the contrary, from and after the 17
Battery Notes Acquisition Date, Arlen shall not, under any circumstance
whatsoever, declare an event of default on, or seek an acceleration of the
principal and interest due under, or seek to enforce any mortgage or collateral
for, the 17 Battery Notes prior to the maturity date thereof.
SECTION 16. Security For the Payment of the Notes.
(a) To secure the prompt and complete payment, observance
and performance of all of Arlen's obligations under the Notes, Arlen hereby
covenants and agrees that, at such time as any of the Note Holders shall
request, Arlen shall assign and pledge to the Note Holders, and grant to the
Note Holders, a security interest in, all of Arlen's right, title and interest
in and to any and all notes or bonds acquired by Arlen (as the Note Holders in
their discretion determine) within the eighteen (18) month period following the
date hereof and the proceeds thereof (collectively, the "Collateral Security").
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<PAGE> 26
(b) At such time as the Note Holders exercise their rights
provided in Section 16(a) above, Arlen agrees to perform any and all steps
reasonably requested by the Note Holders, including, without limitation,
executing and delivering security agreements, mortgages, pledges, collateral
assignments and financing or continuation statements, or amendments thereof in
form and substance satisfactory to the Note Holders with respect to the
Collateral Security and such other documents and materials the Note Holders
request to perfect, maintain and protect the Note Holders' security interest in
the Collateral Security or to enable the Note Holders to exercise their rights
and remedies under any documents with respect to the Collateral Security.
(c) At such time as the Note Holders shall request, Arlen
covenants and agrees to enter into a separate agreement with the Note Holders to
evidence the terms and provisions of this Section 16.
SECTION 17. Tax Reserve Payments. The parties hereto acknowledge
and agree that for all periods up until the Rucon Consummation Date, Rucon, New
Automotive and New Automotive's subsidiaries shall be entitled to continue to
pay and upstream dividends to Arlen in accordance with Rucon's, New Automotive's
and New Automotive's subsidiaries' prior business practices up to a maximum of
thirty-four percent (34%) of Rucon's, New Automotive's and New Automotive's
subsidiaries' taxable income pro rated as of the Rucon Consummation Date. The
parties hereto acknowledge and agree that the provisions of this Section 17
shall not apply to Curtis Holding or Curtis Partition.
SECTION 18. Effectiveness of this Agreement.
(a) The terms and provisions of this Agreement and the
transactions contemplated hereby which are obligations of the Note Holders, AGC
or Mataponi are expressly conditioned on no claims, demands, suits or
proceedings (collectively, "Actions") being initiated by any third party
(including, without limitation, by creditors or shareholders of Arlen, Rucon or
its subsidiaries or of any of the other parties hereto) relating to or otherwise
questioning or challenging the terms and provisions of this Agreement, the
transactions contemplated hereby or related hereto, or the proposed Leumi
Acquisition, the satisfaction of the Morgan Indebtedness or the Secured
Obligations pursuant to Sections 9 and 10 above, or the Rucon UCC Sale. Upon the
commencement of any such Actions, each of Mataponi, the Note Holders or AGC,
either individually or in his capacity as agent for the Note Holders, shall have
the right, at each of their sole and exclusive option, by delivering written
notice to Arlen in accordance with Section 23(b) below, to terminate this
Agreement. Upon any such termination, the terms and provisions of this Agreement
shall be
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<PAGE> 27
deemed null and void, except for such provisions which by their terms are
expressly stated to survive such termination.
(b) In furtherance of Section 18(a) above, if for any reason
Mataponi does not acquire the Rucon Shares at the Rucon UCC Sale, then
immediately following the Rucon Consummation Date Arlen covenants and agrees
that it shall forthwith and immediately pay to the Note Holders the dollar
amount of the Sumitomo Advance and deliver back to Mataponi the Grant Stock, it
being the understanding and agreement among the parties hereto that the release
of the Grant Stock from the Note Collateral in order to induce Sumitomo to make
the Sumitomo Advance and the Note Holders agreement to permit the Sumitomo
Advance to be used in satisfaction of the Morgan Indebtedness is conditioned on
Mataponi acquiring the Rucon Shares at the Rucon UCC Sale.
SECTION 19. Representations and Warranties.
(a) Due Execution. Each of the parties hereto hereby
represents and warrants to the other parties hereto that this Agreement was duly
executed by him or it and that this Agreement is a legal, valid and binding
obligation of such party enforceable in accordance with its terms.
(b) Certain Corporate Changes of Arlen. Arlen hereby
represents and warrants to the other parties hereto that: (i) between April 26,
1995 and May 15, 1995, ARLEN AUTOMOTIVE, INC., a Delaware corporation and a
wholly-owned subsidiary of Arlen ("Old Automotive"), changed its name to ARLEN
HOLDINGS CORP. ("Holdings") and thereafter Holdings transferred its ownership in
Grant and GTS to New Automotive, a newly-organized, wholly-owned subsidiary of
Holdings having Holdings' former name "ARLEN AUTOMOTIVE, INC.", (ii) prior to
the date hereof, Holdings formed New Automotive as a wholly-owned subsidiary and
thereafter transferred to New Automotive all of Holdings' ownership interest in
Grant and GTS, (iii) prior to the date hereof, New Automotive formed GRIZZLY
PRODUCTS, INC. ("Grizzly") and A&A SPECIALTIES CORP. ("Specialties"), both as
wholly-owned subsidiaries, which thereafter acquired businesses from unrelated
third parties, and (iv) prior to the date hereof, Holdings changed its name to
"RUCON SERVICES CORP.". As a result of the transactions described in the
immediately preceding sentence, Arlen hereby represents and warrants that, as of
the date hereof, Arlen is the beneficial and record owner of all of the
outstanding shares of capital stock of Rucon, Rucon is the beneficial and record
owner of all of the outstanding shares of capital stock of New Automotive and
Curtis Holding, New Automotive is the beneficial and record owner of all of the
outstanding shares of capital stock of Grant, GTS, Grizzly and Specialties, and
Curtis Holding is the beneficial and record owner of all of the outstanding
shares of capital stock of Curtis
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<PAGE> 28
Partition. Accordingly, the parties hereto acknowledge, agree and covenant that
any and all references to Old Automotive in the 1993 Extension Agreement and all
documents and instruments executed in connection therewith shall be deemed to
mean "RUCON SERVICES CORP., a Delaware corporation".
SECTION 20. Indemnification.
(a) The Note Holders, Mataponi, Rucon, Rucon's subsidiaries
and their respective affiliates, officers, directors, shareholders, managers and
members (and any trustees, officers, directors or shareholders of any such
managers or members), employees, partners, representatives, consultants, agents,
successors and assigns (each an "Arlen Indemnified Party") shall be indemnified,
defended and held harmless by Arlen for any and all liabilities, losses,
damages, claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable attorneys' and consultants' fees and
expenses) actually suffered or reasonably incurred by them (including, without
limitation, any action brought or otherwise initiated by any of them)
(hereinafter a "Loss" and collectively "Losses"), arising out of or resulting
from:
(i) the breach of any representation or warranty made by
Arlen contained in this Agreement; or
(ii) the breach of any covenant or agreement by Arlen
contained in this Agreement; or
(iii) any and all liabilities of Arlen whether arising prior
to, on or after the date hereof incurred by any Arlen Indemnified
Party as a result of, or relating to, demands or claims of the
creditors or shareholders of Arlen.
To the extent that Arlen's undertakings set forth in this Section 20(a) may be
unenforceable, Arlen shall contribute the maximum amount that it is permitted to
contribute under applicable law to the payment and satisfaction of all Losses
incurred by the Arlen Indemnified Parties.
(b) Arlen and its respective officers, directors, employees,
partners, representatives, consultants, agents, successors and assigns (each a
"Mataponi Indemnified Party") shall be indemnified, defended and held harmless
by Mataponi for any and all Losses actually suffered or reasonably incurred by
them (including, without limitation, any action brought or otherwise initiated
by any of them), arising out of or resulting from:
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<PAGE> 29
(i) the breach of any representation or warranty made by
Mataponi contained in this Agreement; or
(ii) the breach of any covenant or agreement by Mataponi
contained in this Agreement.
To the extent that Mataponi's undertakings set forth in this Section 20(b) may
be unenforceable, Mataponi shall contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and satisfaction of
all Losses incurred by the Mataponi Indemnified Parties.
(c) An Arlen Indemnified Party or a Mataponi Indemnified Party
(collectively the "Indemnified Parties" and each individually an "Indemnified
Party") shall give the indemnifying party (the "Indemnifying Party") notice of
any matter which an Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within sixty (60) days
of such determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligations and liabilities of an Indemnifying Party under this
Section 20 with respect to Losses arising from claims of any third party that
are subject to the indemnification provided for in this Section 20 ("Third Party
Claims") shall be governed by and contingent upon the following additional terms
and conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim within sixty (60) days of the receipt by the Indemnified Party
of such notice; provided, however, that the failure to provide such notice shall
not release the Indemnifying Party from any of its obligations under this
Section 20 except to the extent the Indemnifying Party is materially prejudiced
by such failure and shall not relieve the Indemnifying Party from any other
obligation or liability that it may have to an Indemnified Party otherwise than
under this Section 20. If the Indemnifying Party acknowledges in writing its
obligation to indemnify the Indemnified Party hereunder against any Losses that
may result from such Third Party Claims, then the Indemnifying Party shall be
entitled to assume and control the defense of such Third Party Claim at its
expense and through counsel of its choice if the Indemnifying Party gives notice
of its intention to do so to the Indemnified Party within five (5) days of the
receipt of such notice from the Indemnified Party; provided, however, that if
there exists or is reasonably likely to exist a conflict of interest that would
make it inappropriate in the reasonable judgment of the Indemnified Party for
the same counsel to represent both the Indemnified Party and the Indemnifying
Party, then the Indemnified Party shall be entitled to retain its own counsel,
in each jurisdiction for which
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<PAGE> 30
the Indemnified Party determines counsel is required, at the expense of the
Indemnifying Party. In the event the Indemnifying Party exercises the right to
undertake any such defense against any such Third Party Claim as provided above,
the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the
Indemnified Party, at the Indemnifying Party's expense, all such witnesses,
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party without the written consent of the Indemnified Party.
(d) If any Arlen Indemnified Party is entitled to indemnification
pursuant to the terms and conditions of this Agreement, then the Note Holders
may set off the dollar amount of such claimed indemnification against any
obligation of the Note Holders to Arlen, including, without limitation, against
the 17 Battery Notes from and after the 17 Battery Notes Acquisition Date, which
action shall not be considered a default under the 17 Battery Notes or this
Agreement.
(e) The obligations of Arlen under this Section 20 shall survive
the termination or the expiration of this Agreement.
SECTION 21. Integrated Transaction. The parties hereto acknowledge
and agree that all of the transactions contemplated pursuant to this Agreement
are one integrated transaction and that each individual transaction contemplated
pursuant to this Agreement is an integral component of all of the other
transactions contemplated pursuant to this Agreement.
SECTION 22. Payment of Expenses. Arlen covenants and agrees to pay
all of the reasonable costs and expenses incurred in connection with the
transactions contemplated hereby, including, without limitation, all legal fees
and disbursements; provided, however, that Arlen shall not be responsible
pursuant to this Section 22 to pay any costs and expenses incurred in connection
with the Rucon UCC Sale.
SECTION 23. Miscellaneous.
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<PAGE> 31
(a) Waiver. Any party to this Agreement may (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document delivered by
the other parties pursuant hereto, or (iii) waive compliance with any of the
agreements or conditions of the other parties contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party to be bound thereby. Any waiver of any term or condition
shall not be construed as a waiver of any subsequent breach or a subsequent
waiver of the same term or condition, or a waiver of any other term or
condition, of this Agreement. The failure of any party to assert any of such
party's rights hereunder shall not constitute a waiver of any of such rights.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
23(b):
(a) if to Arlen, and prior to the Rucon Consummation Date, if to
Rucon or any of Rucon's subsidiaries:
THE ARLEN CORPORATION
505 Eighth Avenue
New York, New York 10018
Attention: President
Telecopy: (212) 736-5108
with a copy to:
Stephen Delman, Esq.
505 Eighth Avenue
Suite 300
New York, New York 10018
Telecopy: (212) 279-9595
(b) if to the Note Holders:
Mr. Arthur G. Cohen
505 Eighth Avenue
New York, New York 10015
Telecopy: (212) 736-2459
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<PAGE> 32
with a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Telecopy: (212) 889-7577
Attention: Leonard Grunstein, Esq.
(c) if to Mataponi, and after the Rucon Consummation Date, to Rucon
or any of Rucon's subsidiaries:
MATAPONI, L.L.C.
85 West Hawthorne Avenue
Valley Stream, New York 11580
Attention: Manager
Telecopy: (516) 825-0063
with a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Telecopy: (212) 889-7577
Attention: Leonard Grunstein, Esq.
(c) Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
(d) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
(e) Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the transactions contemplated
hereby and supersedes all prior agreements and undertakings, both written and
oral, between the parties hereto with respect to the transactions contemplated
hereby.
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<PAGE> 33
(f) Assignment; Successors and Assigns. This Agreement may
not be assigned by Arlen by operation of law or otherwise without the express
written consent of the Note Holders and Mataponi, which consent may be granted
or withheld in the sole discretion of the Note Holders and Mataponi. The Note
Holders and/or Mataponi may assign this Agreement without the consent of Arlen.
This Agreement shall be binding upon and inure to the benefit of successors and
permitted assigns of the parties hereto.
(g) No Third Party Beneficiaries. Except as otherwise
provided in Sections 20 and 23(f) above: (i) this Agreement is for the sole
benefit of the parties hereto and their permitted assigns; and (ii) nothing
contained in this Agreement, express or implied, is intended to or shall confer
upon any other person or entity (a "Third Party") any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement
and this Agreement shall not be enforceable by any such Third Party.
(h) Amendment. This Agreement may not be amended or modified
except (i) by an instrument in writing signed by, or on behalf of, each party
hereto, or (ii) by a waiver in accordance with Section 23(a) above.
(i) Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New York, applicable to contracts executed in and to be performed entirely
within that state. The undersigned irrevocably consent that any legal action or
proceeding against any such party, arising out of or in any manner relating to
this Agreement, may be brought in any federal or state court sitting in New
York, New York. The undersigned, by execution and delivery of this Agreement,
expressly and irrevocably consent and submit to the personal jurisdiction of any
of such courts in any such action or proceeding. The undersigned further
irrevocably consent to the service of any complaint, summons, notice or other
process relating to any such action or proceeding by delivery thereof to such
party by hand or by certified mail, delivered or addressed as set forth in
Section 23(b) above. The undersigned hereby expressly and irrevocably waive any
claim or defense in any such action or proceeding based on any alleged lack of
personal jurisdiction, improper venue or forum non conveniens or any similar
basis. Nothing in this Section 23(i) shall affect or impair in any manner or to
any extent the right any party hereto to commence legal proceedings or otherwise
proceed against any party hereto in any jurisdiction or to serve process in any
manner permitted by law.
(j) Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary,
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<PAGE> 34
proper or advisable under applicable laws and regulations, execute and deliver
such documents and other papers, as may be required to carry out the provisions
hereof and consummate and make effective the transactions contemplated hereby.
(k) Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
(l) Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not to be performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
THE NEXT PAGE IS THE SIGNATURE PAGE
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<PAGE> 35
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the date first set forth above.
THE ARLEN CORPORATION
By /s/ Allan J. Marrus
---------------------------------------
Name: Allan J. Marrus
Title: President
/s/ Arthur G. Cohen
-----------------------------------------
Arthur G. Cohen, as Agent under the
Intercreditor Agreement
/s/ Philip J. Levien
-----------------------------------------
Barry J. Levien or Philip J. Levien, as
Agent for the Leviens under the
Intercreditor Agreement
RUCON SERVICES CORP.
By /s/ Allan J. Marrus
---------------------------------------
Name: Allan J. Marrus
Title: President
MATAPONI, L.L.C.
By: MATAPONI MANAGEMENT, INC., its
Manager
By /s/ Leonard Grunstein
----------------------------------
Name: Leonard Grunstein
Title: Secretary
[Signatures continued on following page]
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<PAGE> 36
MATAPONI, L.L.C., as attorney-in-fact
under the Bank Leumi Documents for Arthur
G. Cohen and as substitute Agent under
the Intercreditor Agreement
By: MATAPONI MANAGEMENT, INC., its
Manager
By /s/ Leonard Grunstein
----------------------------------
Name: Leonard Grunstein
Title: Secretary
The undersigned, with respect to certain
AGC Notes and Levien Notes held by Parker
Chapin Flattau & Klimpl, as escrow holder
for the undersigned, hereby accepts the
foregoing, advises such escrow holder of
the foregoing and directs such escrow
holder (to the extent that such direction
may be necessary to effectuate the
foregoing) to accept the foregoing with
respect to such AGC Notes and Levien
Notes:
THE ARLEN CORPORATION
By /s/ Allan J. Marrus
---------------------------------------
Name: Allan J. Marrus
Title: President
- 31 -
<PAGE> 1
EXHIBIT 10.16
<PAGE> 2
ASSIGNMENT AND
ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT made as of January 16, 1996,
between BANK LEUMI TRUST COMPANY OF NEW YORK, a New York banking corporation
("Assignor"), and RUCON SERVICES CORP. (formerly known as Arlen Holdings Corp.
and, prior to that, as Arlen Automotive, Inc.), a Delaware corporation
("Assignee").
WHEREAS, pursuant to certain promissory notes listed on Exhibit A
annexed hereto (collectively, the "Loan Documents"), Arthur G. Cohen (the
"Borrower") is indebted to Assignor in the aggregate principal amount of
$12,000,000.00 (the "Indebtedness"); and
WHEREAS, the Indebtedness is secured by certain collateral consisting
of various promissory notes, shares of stock and contract rights (the
"Collateral") pursuant to certain agreements, instruments and related documents
(the "Collateral Documents"), all as listed on Exhibit B annexed hereto; and
WHEREAS, Assignee wishes to purchase from Assignor, and Assignor is
willing to sell and assign to Assignee, all of Assignor's right, title and
interest in and to and all of Assignor's obligations under the Indebtedness, the
Loan Documents, the Collateral and the Collateral Documents, in each case on an
"as is" basis without any representation or warranty of any nature (except as
set forth in Section 2.1 hereof), all upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, Assignor and Assignee agree as follows:
1. Assignment and Assumption.
1.1. Assignor hereby sells and assigns to Assignee, and
Assignee hereby purchases from Assignor, all of Assignor's right, title and
interest in and to the Indebtedness, the Loan Documents, the Collateral and the
Collateral Documents, in each case on an "as is" basis without any
representation or warranty of any nature whatsoever, except as specifically set
forth in Section 2.1 hereof. Assignor also hereby assigns to Assignee (in each
case on an "as is" basis without any representation or
<PAGE> 3
warranty whatsoever, except as provided herein) all other documents evidencing
or securing any or all of the Indebtedness, and all collateral held by Assignor
securing any part of the Indebtedness (collectively, the "Other Assigned
Documents and Collateral").
1.2. Assignee hereby agrees to assume, and to duly perform
as and when due, each and every obligation and liability of Assignor under the
Loan Documents and the Collateral Documents.
1.3. As consideration for the assignment hereunder of the
Indebtedness, the Loan Documents, the Collateral and the Collateral Documents,
concurrently with the execution and delivery of this Assignment Agreement, (i)
Assignee shall pay Assignor by wire transfer to Assignor's account at the
Assignor, ABA #026 002 794, Credit Items in Suspense, Account No. 2090 104 3302,
the sum of Five Million Five Hundred Thousand Dollars ($5,500,000) (the
"Assignment Price"), and (ii) Assignee shall pledge to the Bank such number of
shares of common stock and class B stock of Curtis Holding Corporation, a New
Jersey corporation ("Curtis Holding"), as is set forth in the Stock Pledge
Agreement (Curtis Holding) dated the date hereof between Assignee and Assignor,
and shall cause Curtis Holding to pledge to the Bank such number of shares of
common stock of Curtis Partition Corporation, a New Jersey corporation, as is
set forth in the Stock Pledge Agreement (Curtis Partition) dated the date hereof
between Curtis Holding and Assignor.
2. Assignment "As Is".
2.1. Assignor is making the assignment pursuant to this
Assignment Agreement on an "as is" basis without any representation or warranty
whatsoever, except that Assignor hereby represents and warrants to Assignee that
Assignor or BLN Corporation, a New York corporation ("BLN Corporation"), an
affiliate of the Bank, is the sole owner and holder of the Loan Documents, free
and clear of all security interests, liens or other encumbrances, except for the
claims asserted as referred to in Section 2.3 hereof. Without limitation to the
foregoing, Assignor makes no representation or warranty and assumes no
responsibility with respect to (i) any statements, warranties or representations
made in or in connection with the execution, legality, validity, enforceability,
perfection, genuineness, sufficiency or value of the Loan Documents, the
Collateral Documents or any Collateral with respect thereto or any other
instrument or document furnished pursuant thereto, and
2
<PAGE> 4
(ii) the financial condition of or any other matter relating to the Borrower or
any guarantor guaranteeing any portion of the Indebtedness (a "Guarantor"), or
the performance or observance by the Borrower or any Guarantor of his or its
obligations under the Loan Documents, the Collateral Documents or any other
instrument or document furnished pursuant thereto.
2.2. Assignee recognizes that Assignor is selling and
assigning, and Assignee is purchasing and assuming, the Indebtedness, the Loan
Documents, the Collateral and the Collateral Documents "as is" without any
representation or warranty, except as specifically provided in Section 2.1
hereof. Assignee agrees that the sale, assignment, purchase and assumption of
the Indebtedness, the Loan Documents, the Collateral and the Collateral
Documents is subject to all of the provisions of (i) that certain Agreement
dated as of April 16, 1993, as amended, between Assignor and the Borrower (the
"Forbearance Agreement"), (ii) that certain Agency and Intercreditor Agreement
dated March 29, 1993 by and among the Borrower, Arthur G. Cohen as Agent, Barry
J. Levien and Philip J. Levien (the "Intercreditor Agreement") and (iii) all
agreements, documents and instruments executed in connection with the foregoing.
Assignee acknowledges that it has been offered a reasonable opportunity to
investigate the Loan Documents, the Indebtedness, the Collateral and the
Collateral Documents and the Borrower's financial condition, and Assignee has
been offered access to Assignor's books and records relating to the Loan
Documents, the Indebtedness, the Collateral and the Collateral Documents.
Assignee agrees to be bound by the terms and conditions of the Loan Documents,
including without limitation the Forbearance Agreement and the Intercreditor
Agreement, and of the Collateral Documents. Assignee has made its own
investigation and is familiar with the Borrower's assets and financial
condition. Assignee is entering into the transactions described in this
Assignment Agreement on the basis of its independent evaluation and
investigation, and does not rely on any statement or representation made by
Assignor or Assignor's directors, officers, employees or legal or financial
advisers with respect to the Indebtedness, the Loan Documents, the Collateral or
the Collateral Documents (except as set forth in Section 2.1 hereof), or the
value of the Borrower's assets or the Borrower's financial condition. Assignee
hereby agrees that it shall have no recourse against Assignor or Assignor's
directors, officers, employees or legal or financial advisers with respect to
the Indebtedness, the Loan
3
<PAGE> 5
Documents, the Collateral, the Collateral Documents or any of the transactions
referred to in this Assignment Agreement or with respect to any other documents
delivered in connection herewith (except with respect to a breach of a
representation or warranty set forth in Section 2.1 hereof).
2.3. Without limiting the generality of the provisions of
Section 2.2, Assignor has advised Assignee of claims made by each of European
American Bank ("EAB") and Allan V. Rose ("Rose") of an interest in the
Collateral or a portion thereof and Assignee hereby agrees that such claims
shall not form the basis of any claims by Assignee against Assignor.
2.4. Assignee covenants and agrees that it will not take any
action that will result in, or may be deemed to result in, a waiver or amendment
or modification of any rights of Assignor against any person or entity other
than Cohen pursuant to any agreement, instrument or document related to the
Indebtedness, including without limitation any co-guarantor or co-obligor under
the Indebtedness, or be construed as limiting or prohibiting Assignor from
enforcing any right or remedy Assignor may have against any such other person or
entity. Notwithstanding the foregoing, nothing in this Assignment Agreement is
intended to prohibit or prejudice Assignee's right to (i) assign this Assignment
Agreement, the Indebtedness, the Loan Documents, the Collateral or the
Collateral Documents, provided that any assignee of such assignment shall take
such assignment subject to this Assignment Agreement (and acknowledge such in
writing), or (ii) enforce any of its rights or remedies with respect to the
Indebtedness or the Collateral, including without limitation any right it may
have to foreclose on or otherwise proceed against the Collateral.
3. Representations and Warranties of Assignee. Assignee hereby
represents and warrants to Assignor that:
3.1. Assignee is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the power and authority to own its properties and to transact the business in
which it is engaged.
3.2. Assignee has full power and authority to enter into and
perform this Assignment Agreement. This Assignment Agreement has been duly
authorized by all necessary corporate action. No consent or approval
(governmental or otherwise) or the giving of notice or the
4
<PAGE> 6
taking of any other action is required as a condition to the validity or
enforceability of this Assignment Agreement.
3.3. This Assignment Agreement has been duly executed and
delivered and constitutes the valid and legally binding obligation of Assignee,
enforceable in accordance with its terms, except that such enforcement may be
subject to or limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally, and the
application of general principles of equity.
3.4. The execution, delivery and performance by Assignee of this
Assignment Agreement does not and will not (i) violate any provision of its
Certificate of Incorporation or By-laws or any other constituent documents of
Assignee; (ii) violate any order, decree or judgment, or any provisions of any
law, statute, rule or regulation, domestic or foreign, to which Assignee or any
of its properties or assets are subject; (iii) violate or conflict with or
result in a breach of or constitute (with notice or lapse of time or both) a
default under any agreement, mortgage, indenture or contract to which Assignee
is a party, or by which Assignee or any of its properties or assets is bound or
affected; or (iv) except as contemplated hereby, result in the creation or
imposition of any lien of any nature whatsoever upon any property or assets of
Assignee.
3.5. Assignee is not now, nor will the consummation of the
transactions contemplated hereby render it, (i) "insolvent" as that term is
defined in Section 101(32) of the United States Bankruptcy Code (the "Bankruptcy
Code"), or Section 271 of the New York Debtor and Creditor Law ("NYDCL"), (ii)
unable to pay its debts as they mature, within the meaning of Section
548(a)(2)(B)(iii) of the Bankruptcy Code or Section 275 of the NYDCL, or (iii)
left with an unreasonably small capital. The execution and delivery of this
Assignment Agreement by Assignee does not constitute a "fraudulent transfer"
within the meaning of the Bankruptcy Code as now constituted or under any other
applicable statute. No bankruptcy or insolvency proceedings are pending against
Assignee, contemplated by Assignee or, to the knowledge of Assignee, threatened
against Assignee.
4. Assignor's Conditions to Close. The obligations of Assignor to
consummate the transactions under this Assignment Agreement are subject to the
satisfaction on or prior to the date hereof of the following conditions:
5
<PAGE> 7
4.1. Representations and Warranties True at Closing. The
representations and warranties of Assignee contained in this Assignment
Agreement (including the Exhibits and Schedules hereto) or any certificate or
document delivered to Assignor in connection herewith shall be true in all
material respects.
4.2. No Action/Proceeding. No action or proceeding before a
court or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transaction herein contemplated, and no
governmental agency or body or other entity shall have taken any other action or
made any request of Assignor or Assignee as a result of which Assignor
reasonably and in good faith deems that to pursue the transactions hereunder may
constitute a violation of law.
4.3. Payment by Assignee. Assignee shall have paid the
Assignment Price to Assignor on or prior to the date hereof by wire transfer in
accordance with Section 1.2 hereof.
4.4. Board and Stockholder Approval. Assignee shall have
delivered to Assignor resolutions of the Board of Directors and of the sole
stockholder of Assignee, certified by the Assistant Secretary of Assignee as
being true and in full force and effect, approving the execution and delivery of
this Assignment Agreement and the transactions contemplated hereby.
4.5. Opinion of Counsel. Assignee shall have delivered to
Assignor an opinion of (i) Herrick Feinstein, LLP, special counsel to Assignee
and Curtis Holding and (ii) Stephen B. Delman, Esq., counsel to Assignee and
Curtis Holding, in each case in forms satisfactory to the Bank.
4.6. Good Standing. Assignee shall have delivered to
Assignor a Certificate of Good Standing for Assignee, certified by the Secretary
of State of Delaware.
4.7. Morgan Settlement. Each of Cohen and The Arlen
Corporation ("Arlen") shall have obtained satisfactions of all claims against
them (or any of Arlen's subsidiaries) relating to that certain action entitled
Morgan Guaranty Trust Company of New York v. The Arlen Corporation, et al.,
Index No. 122525/95, and all other actions commenced by Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") in connection therewith, and Cohen
6
<PAGE> 8
and Arlen shall have delivered to Assignor copies of all documentation
evidencing such satisfactions, including without limitation any and all releases
and/or discharges signed by Morgan Guaranty in favor of Cohen and Arlen.
4.8. Restructuring Agreement. The Restructuring Agreement
dated the date hereof between Assignor and the Borrower shall have been fully
executed and delivered.
5. Indemnification.
5.1. Indemnification. Assignee hereby indemnifies and agrees
to fully defend, save and hold Assignor harmless from and against all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
costs and expenses, including, without limitation, interest, penalties,
disbursements and expenses (collectively, the "Damages"), asserted against, or
imposed upon or incurred by Assignor, or any of its affiliates, directly or
indirectly, arising out of or resulting from:
(a) any material untruth or inaccuracy in any
representation made by Assignee or the material breach of any warranty made by
Assignee set forth in this Assignment Agreement or in any agreement or
instrument executed in connection herewith;
(b) any claim that is brought or asserted by any third
party against Assignor arising out of the assignment of the Indebtedness, the
Loan Documents, the Collateral or the Collateral Documents by Assignor to
Assignee, or any actions taken with Cohen or Rucon or any of their affiliates in
connection with, in contemplation of, or pursuant to said assignment; and
(c) any action taken by Assignee or any other person in the
future relating to the Indebtedness, the Loan Documents, the Collateral, or the
Collateral Documents.
5.2. Defense of Actions. Assignor shall give written notice
(the "Claim Notice") within a reasonably prompt period of time to Assignee of
any written claim by a third party which is likely to give rise to a claim by
Assignor against Assignee based on the indemnity agreements contained in this
Section 5, stating the nature and basis of said claim and the amount thereof, to
the extent known. If within thirty (30) days after delivery of the Claim Notice
Assignee advises Assignor that it will assume the defense at
7
<PAGE> 9
Assignee's expense, then so long as such defense is being conducted diligently
and in good faith, Assignor shall not settle or admit liability with respect to
the claim and shall afford to Assignee and defense counsel all reasonable
assistance in defending against the claim. If Assignee assumes the defense,
counsel shall be selected by Assignee at its expense and if Assignor then
retains its own counsel, it shall do so at its own expense; provided, however,
that if Assignor determines reasonably and in good faith that a conflict of
interest exists or may exist between itself and Assignee in connection with any
third party claim (other than a conflict arising out of the wish of one of the
parties to settle the claim), Assignor shall be entitled to select its own
counsel at Assignee's expense, regardless of whether Assignee has elected to
defend such action and is doing so diligently and in good faith. If Assignee
fails to advise Assignor that it will assume the defense at its expense within
thirty (30) days after delivery by Assignor to Assignee of a Claim Notice, the
claim for indemnity shall be conclusively presumed to have been assented to and
approved, and in such case Assignor may control the defense of the matter or
case with counsel selected by Assignor at Assignee's expense and, at Assignor's
sole discretion, settle or admit liability at Assignee's expense.
5.3. Expiration. The provisions of Sections 5.1 and 5.2
shall expire on the sixth anniversary of the date hereof and shall thereafter be
of no further force or effect, except with respect to an action commenced prior
to the date of such expiration.
6. Covenant by Assignee Not to Sue. Assignee, for itself,
its successors, assigns, stockholders, directors, representatives and agents
hereby covenants and represents that it will not institute any complaints,
claims, charges, lawsuits, or proceedings of any kind with any governmental
agency or any court, against Assignor or any of Assignor's parent companies,
subsidiaries, affiliates, divisions, or any otherwise related entity by reason
of any claim, present or future, known or unknown, arising from or related in
any way to the terms and provisions of this Assignment Agreement or any other
agreement between Assignee and Assignor executed prior to the date hereof or
contemporaneously herewith, whether oral or written, express or implied, except
with respect to (i) a breach of any representation or warranty made by Assignor
in Section 2.1 hereof, (ii) a material breach of the Assignor's obligations
pursuant to Section 7.3, or (iii) the unenforceability of any assignment made in
accordance with
8
<PAGE> 10
this Assignment Agreement (a) by reason of a lack of authority on the part of
Assignor or any person executing this Assignment Agreement on behalf of Assignor
or (b) because this Assignment Agreement or any assignment made hereby is in
violation or contravention of any applicable law, statute, order, regulation or
other governmental or quasi-governmental authority or any contract or agreement
to which Assignor is a party.
7. Miscellaneous.
7.1. ASSIGNEE HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND
ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN
ANY WAY RELATED TO THIS ASSIGNMENT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY AND/OR THE ENFORCEMENT OF ANY OF ASSIGNOR'S RIGHTS AND REMEDIES
HEREUNDER.
7.2. Neither the failure nor any delay on the part of
Assignor to exercise any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
7.3. Each of Assignee and Assignor shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as the other party hereto may reasonably request in order to carry out
the intent and accomplish the purposes of this Assignment Agreement and the
consummation of the transactions contemplated hereby, including without
limitation performing such further acts required to be performed under any of
the Loan Documents.
7.4. Any notice, consent, approval, request, demand or other
communication required or permitted hereunder must be in writing to be effective
and shall be deemed delivered and received (i) if personally delivered or if
delivered by telex or telecopy with electronic confirmation when actually
received by the party to whom sent, or (ii) if delivered by mail (whether
actually received or not), at the close of business on the third day next
following the day when placed in the federal mail, postage prepaid, certified or
registered mail, return receipt requested, or (iii) if delivered by a recognized
overnight mail service at the close of business on the next
9
<PAGE> 11
day following the day when placed in the custody of such service, addressed as
follows:
If to Assignee:
Rucon Services Corp.
505 Eighth Avenue
New York, New York 10018
FAX: (212) 736-5108
With copies to:
Stephen B. Delman, Esq.
Suite 300
505 Eighth Avenue
New York, New York 10018
FAX: (212) 279-9595
Herrick Feinstein, LLP
2 Park Avenue
New York, New York 10016
Attention: Carl F. Schwartz, Esq.
FAX: (212) 889-7577
If to Assignor:
Bank Leumi Trust Company of New York
562 Fifth Avenue
New York, New York 10017
Attn: Richard I. Schwam
First Vice President
FAX: (212) 626-1144
With a copy to:
Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attention: Frederick R. Cummings, Jr., Esq.
FAX: (212) 972-9150
10
<PAGE> 12
7.5. This Assignment Agreement shall inure to the benefit of
and shall be binding upon the parties and their respective heirs, successors and
permitted assigns. Nothing in this Assignment Agreement, expressed or implied,
is intended to or shall (a) confer on any person other than the parties, and
their respective heirs, successors or assigns, any rights, remedies, obligations
or liabilities under or by reason of this Assignment Agreement, or (b)
constitute the parties partners or participants in a joint venture.
7.6. No person shall be deemed to be a third party
beneficiary of this Assignment Agreement, and nothing contained herein shall be
construed as a waiver or amendment or modification of any rights of Assignor
against any other person or entity pursuant to any agreement, instrument or
document or be construed as limiting or prohibiting Assignor from enforcing any
right or remedy Assignor may have against any other person or entity or from
amending, modifying, limiting, waiving, releasing any such right or remedy that
it may have against any other person or entity, including, without limitation,
any other obligor or guarantor of the Indebtedness, or any part thereof, or from
amending, modifying or extending the terms of the Indebtedness with respect to
such other persons or entities, all of which rights and remedies of the Bank are
expressly reserved, and all of which agreements, instruments and documents
remain in full force and effect.
7.7. Nothing contained herein shall be construed as a waiver
or amendment or modification of any rights of Assignor against the Borrower or
any other person or entity under any agreement, instrument or document (other
than those comprising the Loan Documents) pursuant to which the Borrower or such
other person or entity is indebted or obligated to Assignor, whether as
principal obligor, guarantor or otherwise, or be construed as limiting or
prohibiting Assignor from enforcing any right or remedy Assignor may have
against the Borrower (or any other such person or entity) pursuant thereto
(except to the extent assigned to Assignee herein), including, without
limitation, the right to enforce Assignor's rights to any collateral therefor,
all of which rights and remedies of Assignor are expressly reserved, and all of
which agreements, instruments and documents and agreements remain in full force
and effect.
7.8. This Assignment Agreement may not be modified or
amended except by an agreement or instrument in
11
<PAGE> 13
writing signed by the party against whom enforcement of any such modification or
amendment is sought. Any party may waive performance or compliance by any other
party with respect to any term or provision of this Assignment Agreement on the
part of such other party to be performed or complied with; provided, however,
that such waiver shall be effective only if evidenced by an instrument in
writing signed by the party waiving such compliance or performance. The waiver
by any party of a breach of any term or provision of this Assignment Agreement
shall not be construed as a waiver of any subsequent breach. No failure or delay
by Assignor in exercising any right or remedy it may have shall operate as a
waiver thereof.
7.9. This Assignment Agreement and any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by Assignee without the prior written consent of Assignor; provided,
however, that no such assignment by Assignee shall relieve Assignee of any
liability or obligation hereunder, including without limitation Assignee's
obligations under Section 5 hereof, and provided further that any assignee
pursuant to this Section 7.9 acknowledges in writing that it takes such
assignment subject to this Agreement.
7.10. This Assignment Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.11. Any term or provision of this Assignment Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Assignment Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction.
7.12. This Assignment Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the conflicts of law provisions thereof. Assignee hereby consents and
submits to the jurisdiction of the courts of the State of New York located
within the City of New York and of the courts of the United States located
within the City of New York for all purposes of this Agreement, including,
without limitation, any action for the enforcement of any right,
12
<PAGE> 14
remedy, obligation or liability arising under or by reason of this Assignment
Agreement.
7.13. All prior or contemporaneous agreements, contracts,
promises, representations and statements, if any, among the parties hereto, or
their representatives, as to the subject matter hereof, including without
limitation that certain letter dated October 17, 1995 from Assignor to the
Borrower, are merged into this Assignment Agreement, and this Assignment
Agreement shall constitute the entire agreement between Assignor and Assignee
with respect to the subject matter hereof.
13
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement as of the date first set forth above.
BANK LEUMI TRUST COMPANY
OF NEW YORK
By: /s/ Richard I. Schwam
----------------------------
Name: Richard I. Schwam
Title: First Vice President
RUCON SERVICES CORP.
By: /s/ Allan J. Marrus
----------------------------
President
The undersigned is executing this Assignment Agreement only with
respect to the provisions of Section 2.1 hereof and joins in the assignment of
the Indebtedness, the Loan Documents, the Collateral, the Collateral Documents
and the Other Assigned Documents and Collateral to the extent of its ownership
therein.
BLN CORPORATION
By: /s/ Richard I. Schwam
----------------------------
Name: Richard I. Schwam
Title: Vice President
14
<PAGE> 16
EXHIBIT A TO ASSIGNMENT AGREEMENT(*)
The following list of documents is not intended to be a complete
representation of the documents and instruments relating to the Indebtedness or
the collateral securing the Indebtedness:
1. Installment Promissory Note dated May 1, 1991 in the original principal
amount of $500,000, as amended, executed by Arthur G. Cohen.
2. Installment Promissory Note dated May 8, 1991 in the original principal
amount of $2,000,000, as amended, executed by Arthur G. Cohen.
3. Floating Rate Promissory Note dated November 1, 1991 in the original
principal amount of 366,666.67, as amended, executed by Arthur G. Cohen.
4. Promissory Note dated April 1, 1992 in the original principal amount of
$4,000,000, executed by Arthur G. Cohen.
5. Severance Secured Note dated January 16, 1996, in the original principal
amount of $5,133,334.00, executed by Arthur G. Cohen.
- --------------
(*) The notes listed in Nos. 1 through 4 of this Exhibit A are modified by the
provisions of (i) that certain Forbearance Agreement dated as of April 16, 1993,
as amended, between Bank Leumi Trust Company of New York and Arthur G. Cohen,
and (ii) that certain Agency and Intercreditor Agreement dated March 29, 1993 by
and among Arthur G. Cohen, Arthur G. Cohen as Agent, and Barry J. Levien or
Philip J. Levien and (iii) all agreements, documents and instruments executed in
connection with the foregoing.
<PAGE> 17
EXHIBIT B TO ASSIGNMENT AGREEMENT
1. 5-1/4% Subordinated Note of The Arlen Corporation, a New York Corporation
("Arlen"), dated September 29, 1979, issued to Arthur G. Cohen ("Cohen") in
the principal amount of $15,500,000.00.
2. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $7,833,333.00.
3. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $666,667.00.
4. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $333,333.00.
5. 5-1/4% Subordinated Note of Arlen dated July 5, 1979 issued to Cohen in the
principal amount of $386,667.00.
6. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $2,000,000.00 (current holder Parker Chapin
Flattau & Klimpl, as escrow holder for Arlen).*
7. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $666,667.00 (current holder Parker Chapin
Flattau & Klimpl, as escrow holder for Arlen).*
8. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $1,000,000.00 (current holder Parker Chapin
Flattau & Klimpl, as escrow holder for Arlen).*
9. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $1,333,333.00 (current holder Parker Chapin
Flattau & Klimpl, as escrow holder for Arlen).*
- -------------------
* Neither the Bank nor Cohen has possession of this Note.
<PAGE> 18
10. 5-1/4% Subordinated Note of Arlen dated September 29, 1978 issued to Cohen
in the principal amount of $62,000.00 (current holder Parker Chapin Flattau
& Klimpl, as escrow holder for Arlen).*
11. 5-1/4% Subordinated Note of Arlen dated July 5, 1979 issued to Andlan
Realty Corp. in the principal amount of $333,333.33 (this is a $500,000.00
note in which Cohen has a 66-2/3% interest).
12. Extension Agreement dated March 29, 1993 between Cohen and Arlen.
13. Collateral Assignment of Proceeds (Arlen) dated March 29, 1993 between
Cohen and Arlen.
14. Collateral Assignment of Proceeds (Rucon (formerly Automotive)) dated March
29, 1993 between Cohen and Rucon.
15. Stock Pledge Agreement (Rucon (formerly Automotive)) dated March 29, 1993
between Cohen and Arlen relating to the shares of Rucon.
16. Stock Pledge Agreement (Grant) dated March 29, 1993 between Cohen and Rucon
(formerly Automotive) relating to the shares of Grant Products, Inc., a
Delaware corporation ("Grant").
17. Current Obligations Agreement dated March 29, 1993 between Cohen and Rucon
(formerly Automotive).
18. Agency and Intercreditor Agreement dated March 29, 1993 between Cohen and
Barry Levien and Philip Levien.
19. Agreement among Cohen, Arlen and Bank Leumi Trust Company of New York dated
as of April 6, 1993, relating to transfer of common stock of Arlen by
Cohen.
20. Letter of Direction from Cohen to Arlen, Rucon and New Automotive.
21. Security Agreement dated April 16, 1993 made by Cohen to Bank Leumi Trust
Company of New York ("Assignor") (the "Security Agreement").
- -----------------------
* Neither the Bank nor Cohen has possession of this Note.
2
<PAGE> 19
22. Amendment dated January 16, 1996 to the Security Agreement.
23. Note in the original principal amount of $5,000,000 dated June 25, 1988
made by BIA-COR Holdings, Inc. to Cohen.
24. 100 shares of the Common Stock of the Assignee pledged by The Arlen
Corporation to Cohen.
25. 100 shares of the Common Stock of Grant Products, Inc. pledged by the
Assignee to Cohen.
26. Any and all other collateral granted or posted by Cohen or any third party
to the Assignor solely to secure any or all obligations of Cohen described
on the Schedule entitled "Arthur Cohen Sale - Revised," a copy of which is
annexed hereto, but this item 24 does not include either: (i) collateral
securing obligations of any party other than Cohen, or (ii) deposits of
Cohen with the Assignor.
The 5-1/4% Subordinated Notes of Arlen (the "Subordinated Notes")
were originally issued in 1969 by Spartans Industries, Inc., which was merged
into Arlen, then known as Arlen Realty & Development Corp., on February 26,
1971. The aggregate original principal amount of the Subordinated Notes is
$30,115,333.33 (which amount includes only the amount of Cohen's beneficial
interest in the case of the Subordinated Note issued to Andlan Realty Corp.).
The documents listed above are to be modified by certain
restatements, amendments and supplemental documents to reflect the May 15, 1995
corporate reorganization of certain subsidiaries of Arlen.
3
<PAGE> 1
EXHIBIT 10.17
<PAGE> 2
RESTRUCTURING AGREEMENT dated as of the 16th day of January, 1996
between BANK LEUMI TRUST COMPANY OF NEW YORK (the "Bank"), a New York banking
corporation, having an office at 579 Fifth Avenue, New York, New York 10017, and
ARTHUR G. COHEN ("Cohen"), an individual with an address at 505 Eighth Avenue,
New York, New York 10018.
WHEREAS, pursuant to certain promissory notes, guarantees and related
agreements, instruments and documents listed on Exhibit A annexed hereto
(collectively, the "Loan Documents"), Cohen is indebted to the Bank (i) in the
aggregate amount set forth on Schedule 1A hereto under the caption "Cohen Grand
Total Prin. + Inter.", which amount is comprised of principal due the Bank on
the date hereof in the amount set forth on Schedule 1A hereto under the caption
"4/16/93 Allocated Principal" (the "Personal Indebtedness"), and accrued and
unpaid interest thereon and fees and other charges due with respect thereto on
the date hereof in the amount set forth on Schedule 1A hereto under the caption
"Cohen Total Inter. + Fees" (the "Personal Interest"), and (ii) in the aggregate
amount set forth on Schedule 1B hereto under the caption "Cohen Grand Total
Prin. + Inter.," such amount representing (x) Cohen's Share (derived as provided
below) of the principal due with respect to the indebtedness described in
Schedule 1B (the full principal balance of each such indebtedness as of 4/16/93
being set forth under the caption "4/16/93 Cust. Balance" and Cohen's Share of
the principal balance of each such indebtedness (as of 4/16/93 and the date
hereof) being set forth under the caption "4/16/93 Allocated Principal"), plus
(y) the unpaid interest and fees and other charges due with respect to Cohen's
Share of each such indebtedness in the amount set forth on Schedule 1B hereto
under the caption "Cohen Total Inter. and Fees." Cohen's Share of the principal
referred to in clause (ii) of the preceding sentence is referred to herein as
the "Secondary Indebtedness" and, together with the Personal Indebtedness, as
the "Indebtedness"; and the interest, fees and other charges referred to in the
preceding sentence are referred to herein as the "Secondary Interest", and
together with the Personal Interest, as the "Interest Due." Cohen's Share was,
in each case, derived by multiplying the appropriate item of indebtedness times
the percentage set forth under the caption "Cohen % Owed" for such indebtedness,
such percentage representing Cohen's percentage interest in the primary obligor
with respect thereto or, in cases in which he is a primary obligor, his
allocated percentage of such indebtedness; and
WHEREAS, pursuant to certain other promissory notes, guarantees and
related agreements, instruments and documents listed on Exhibit B annexed hereto
(collectively, the "Retained Loan Documents"), Cohen is indebted to the Bank in
the aggregate amount set forth on Schedule 2 hereto under the caption "Cohen
Grand Total Prin. + Inter." (such amount being herein sometimes
<PAGE> 3
called the "Retained Indebtedness"), such amount representing (x) Cohen's Share
(derived as provided above) of the principal due with respect to the
indebtedness described in Schedule 2 (the full principal balance of each such
indebtedness as of 4/16/93 being set forth under the caption "4/16/93 Cust.
Balance" and Cohen's Share of the principal balance of each such indebtedness
being set forth under the caption "4/16/93 Allocated Principal"), plus (y) the
unpaid interest thereon, and fees and other charges due with respect to each
such indebtedness in the amount set forth on Schedule 2 hereto under the caption
"Cohen Total Inter. + Fees"; and
WHEREAS, Rucon Services Corp. ("Rucon") (formerly known as Arlen
Holdings Corp. and, prior to that, as Arlen Automotive, Inc.) has agreed to
acquire all of the Bank's right, title and interest in and to the Indebtedness
and the collateral securing the Indebtedness (the "Rucon Assignment") pursuant
to the terms of the Assignment and Assumption Agreement to be executed
immediately after the execution hereof between the Bank and Rucon (the
"Assignment Agreement"); and
WHEREAS, Cohen has requested that the Bank grant Cohen the right to
satisfy the Retained Indebtedness at a substantial discount by making or causing
to be made payments of principal totaling $2,722,513.33 in the aggregate
together with interest thereon and the Bank is willing to grant such right to
Cohen, all on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. Acknowledgement of Indebtedness and Retained Indebtedness.
1.1 Cohen hereby acknowledges and agrees that:
(a) Each of the Loan Documents and the Retained Loan Documents
and, in the case of Loan Documents and Retained Loan Documents which are
guarantees, each document or instrument evidencing the underlying
obligations to which such Loan Documents and Retained Loan Documents
relate, is in full force and effect, enforceable in accordance with its
terms.
(b) Cohen has no defense, offset, claim or counterclaim of any
kind with respect to the Indebtedness, the Retained Indebtedness, the Loan
Documents or the Retained Loan Documents, nor does there exist any basis
therefor.
(c) The amounts set forth on Schedules 1A, 1B and 2 under the
caption "Cohen Grand Total Prin. + Inter.",
2
<PAGE> 4
hereto accurately reflect the amounts owed by Cohen to the Bank as of the
date hereof under the Personal Indebtedness, the Secondary Indebtedness
and the Retained Indebtedness, respectively.
1.2 The Bank acknowledges and agrees that the amounts set forth in
Schedules 1A, 1B and 2 under the caption "Cohen Grand Total Prin. + Inter"
accurately reflect the amounts owed by Cohen to the Bank as of the date hereof
under the Personal Indebtedness, the Secondary Indebtedness and the Retained
Indebtedness.
1.3 Simultaneously with the execution hereof, Cohen is delivering to
the Bank a promissory note in the form annexed hereto as Exhibit C-1 (the
"Severance Note") in the principal amount of $5,133,334.00, such amount
representing the total amount of the Secondary Indebtedness. The Severance Note
is being delivered in full satisfaction of the Secondary Indebtedness, and upon
delivery of the Severance Note Cohen shall have no further obligations under any
other guaranty, note or other document creating or evidencing the Secondary
Indebtedness (except any security document being modified as provided in the
next sentence). In connection therewith, simultaneously with the execution
hereof, Cohen and the Bank shall enter into an amendment to the Security
Agreement dated April 16, 1993 in the form annexed hereto as Exhibit D.
1.4 Simultaneously with the execution hereof, Cohen is delivering to
the Bank a promissory note in the form annexed hereto as Exhibit C-2 (the
"Interest Note") in the principal amount of $1,268,532.18, such amount
representing the Interest Due. The Interest Note is being delivered in full
satisfaction of the Interest Due and shall hereafter constitute a portion of the
Retained Indebtedness.
2. Satisfaction of Retained Indebtedness. Subject to the terms and
conditions set forth in this Agreement, the Bank hereby agrees that if (i) Cohen
shall have paid or caused to be paid to the Bank the Designated Payment (as
defined in Section 3), (ii) Cohen shall have paid the Bank any fees and charges
then owed by Cohen to the Bank under this Agreement, and (iii) at the time of
the payment of the sums set forth in the preceding clauses (i) and (ii) the Bank
shall not have filed the Confession of Judgment referred to in Section 5 in
accordance with the terms of this Agreement, then the Retained Indebtedness
shall be deemed satisfied in full and subject to the provisions of Section
4.1(b) the Bank shall return the Cohen Collateral (as defined in Section 4
hereof) to the parties entitled thereto.
3. Principal and Interest on Retained Indebtedness. In order to obtain
the satisfaction of the Retained Indebtedness as provided in Section 2, Cohen
shall pay or cause to be paid to the
3
<PAGE> 5
Bank the following, after giving effect to the cure period set forth in Section
5.2(i) hereof (collectively, the "Designated Payment"):
3.1 The principal sum of $2,500,000, said principal sum to be paid in
twenty equal consecutive installments of $125,000 on each January 1, April 1,
July 1 and October 1, commencing January 1, 1997 and ending October 1, 2001.
3.2 The principal sum of $53,713.33, said principal sum to be paid in
full on April 16, 1996.
3.3 The principal sum of $168,800.00, said principal sum to be paid in
full on November 15, 1996.
3.4 Interest on the outstanding principal amount referred to in
Section 3.1 shall accrue at a rate per annum equal to 400 basis points above the
rate at which United States Dollar six-month deposits are offered to the Bank in
the London Interbank Eurodollar Market ("LIBOR") on the date hereof, as adjusted
as of the first day of December of each year. Together with each installment due
under Section 3.1 hereof, Cohen shall pay to the Bank interest on the
outstanding amount referred to in Section 3.1 at a rate per annum equal to 100
basis points above LIBOR (determined and adjusted as set forth above). The
difference between the interest required to be paid pursuant to the first
sentence of this Section 3.4 and the interest actually paid pursuant to the
second sentence of this Section 3.4 shall be referred to herein as the "Interest
Deficiency". Provided that Cohen timely makes the payments required to be made
pursuant to Sections 3.1, 3.2 and 3.3, the Bank shall have no right to collect
the Interest Deficiency and Cohen shall have no further obligation with respect
thereto. If, however, Cohen shall fail to timely make the payments required to
be made pursuant to Sections 3.1, 3.2 and 3.3 (after giving effect to any grace,
notice and cure periods), (i) the Interest Deficiency shall be immediately due
and payable, (ii) interest on the outstanding unpaid amounts under Sections 3.1,
3.2 and 3.3 shall thereafter be payable at the rate of 400 basis points above
LIBOR (determined and adjusted as set forth above and payable on demand), and
(iii) Cohen shall no longer have the right to pay interest on the amount set
forth in Section 3.1 at 100 basis points above LIBOR. In the event that the Bank
shall have determined that by reason of the circumstances affecting the London
Interbank Eurodollar Market adequate and reasonable means do not exist for
ascertaining LIBOR for any period, the effective rate of interest during such
period shall be the Bank's Reference Rate (the rate designated by the Bank, and
in effect from time to time, as its "Reference Rate"), adjusted when said
Reference Rate changes. Notwithstanding anything to the contrary set forth
above, in no event shall the interest payable hereunder exceed the maximum rate
permitted by law.
4
<PAGE> 6
3.5 Upon the receipt by the Bank of payment in full of the Designated
Payment and any fees and charges due under this Agreement, provided the Bank has
not theretofore filed the Confession of Judgment referred to in Section 5 in
accordance with the terms of this Agreement, (x) the Bank will deliver to Cohen
a release pursuant to which it will release, remise and discharge Cohen from
liability in any capacity for the Retained Indebtedness or hereunder other than
the provisions of Sections 4 and 10, which shall continue to remain in full
force and effect, (y) the Bank will release and return the pledges made pursuant
to Section 4 hereof and the Pledge Agreements and return the collateral pledged
pursuant to the Pledge Agreements, and (z) Cohen shall be deemed to have made
payment of the Retained Indebtedness in full.
3.6 Notwithstanding anything contained herein to the contrary, nothing
herein shall be deemed to affect the obligations of Cohen relating to the
Indebtedness of Ascot Associates to the Bank, which obligations shall remain in
full force and effect.
3.7 Cohen acknowledges and agrees that he shall have no claim to or
interest in any real property that secures or formerly secured the Indebtedness
or Retained Indebtedness on Schedules 1B and 2 referred to as "SLW" or "34th
Street", which property now constitutes the sole and exclusive property of the
Bank or its affiliates.
4. Grant of Security Interests.
4.1 Pledge of Stock.
(a) Contemporaneously herewith, as security for the payment by
Cohen of the Retained Indebtedness and for the fulfillment of all of
Cohen's other obligations to the Bank hereunder and as security for the
obligations of Rucon to indemnify the Bank pursuant to Section 5 of the
Assignment Agreement, Cohen shall cause Rucon, and as part of the
consideration for the Rucon Assignment Rucon hereby agrees, (a) to pledge
to the Bank, pursuant to a stock pledge and hypothecation agreement dated
the date hereof (the "Holding Pledge Agreement") between Rucon and the
Bank, 550 outstanding shares of common stock ("Holding Common Stock") and
5.5 outstanding shares of class B stock ("Holding Class B Stock") of
Curtis Holding Corporation, a New Jersey corporation ("Curtis Holding"),
which numbers of shares represent 55% of the number of shares of each
class of capital stock of Curtis Holding issued and outstanding, and (b)
to cause Curtis Holding, and as part of the consideration for the Rucon
Assignment Curtis Holding hereby agrees, to pledge to the Bank, pursuant
to a stock pledge and hypothecation agreement dated the date hereof (the
5
<PAGE> 7
"Partition Pledge Agreement", and together with the Holding Pledge
Agreement, the "Pledge Agreements") between Curtis Holding and the Bank,
110 outstanding shares of common stock ("Partition Common Stock") of
Curtis Partition Corporation, a New Jersey corporation ("Curtis
Partition", and together with Curtis Holding, the "Curtis Entities"),
which number of shares represents 55% of the number of shares of capital
stock of Curtis Partition issued and outstanding. The collateral to be
pledged to the Bank pursuant to this Section 4 shall be referred to herein
as the "Cohen Collateral".
(b) Notwithstanding the provisions of Section 2 hereof, the Bank
shall return the Cohen Collateral to the parties entitled thereto and all
obligations under the Pledge Agreements shall terminate (such events,
collectively, the "Pledge Termination") upon the later to occur of (x) the
date which is three years from the date hereof or (y)(i) payment in full
by Cohen to the Bank of the Designated Payment and (ii) delivery
simultaneously with such payment or at any time thereafter by Rucon or its
successors to the Bank of financial statements demonstrating that the net
worth of Rucon and any such successors, determined in accordance with
generally accepted accounting principles ("GAAP") without giving effect to
amounts due from affiliates, is not less than $7,500,000; provided,
however, that in any event the Pledge Termination shall occur not later
than the sixth anniversary of the date hereof, provided that Cohen shall
prior to such anniversary have made the Designated Payment in full.
4.2 Financial Statements. Cohen covenants and agrees with the Bank
that, so long as this Agreement shall remain in effect or any principal or
interest payable pursuant to Section 3 hereof, or any fee, expense or amount
payable hereunder or in connection with any of the transactions contemplated
hereby shall be unpaid, he will cause Curtis Holding to deliver to the Bank:
(a) within 120 days after the end of each fiscal year of Curtis
Partition, (i) a balance sheet showing the financial condition of Curtis
Partition as of the close of such fiscal year and (ii) an income statement
showing the results of its operations during such fiscal year, all of the
foregoing accompanied by the notes thereto and the audit report thereon of
BDO Seidman or other independent certified public accountants reasonably
acceptable to the Bank (which auditor's report shall not contain any
qualification except with respect to new accounting principles mandated by
the Financial Accounting Standards Board);
(b) within 60 days after the end of each fiscal quarter (other
than the fourth quarter of a fiscal year) of
6
<PAGE> 8
Curtis Partition, (i) an unaudited balance sheet showing the financial
condition of Curtis Partition as of the close of such fiscal quarter and
(ii) an unaudited statement of income showing the results of its
operations during such fiscal quarter, all of the foregoing accompanied by
the notes thereto and a certificate of the chief executive or financial or
accounting officer of Curtis Partition, to the effect that such unaudited
financial statements fairly present the financial condition and the
results of operations of Curtis Partition for the period indicated in
accordance with GAAP consistently applied (except as indicated in the
notes thereto and subject to year-end audit adjustments); and
(c) within 30 days after the end of each fiscal month of Curtis
Partition, an aging schedule of the Receivables (as defined below) in form
and substance reasonably satisfactory to the Bank (it being understood
that the form of aging schedule of Receivables heretofore provided by
Curtis Partition to the Bank is deemed to be acceptable to the Bank). For
purposes hereof, "Receivables" shall mean and include all of the accounts,
instruments, documents, chattel paper and general intangibles of Curtis
Partition, whether secured or unsecured and whether now existing or
hereafter created.
4.3 Curtis Holding Financial Statements. Cohen covenants and agrees
with the Bank that, if and to the extent any balance sheets or income statements
are prepared by Curtis Holding and delivered to a third party, he will cause
Curtis Holding to deliver a copy thereof to the Bank promptly following such
delivery.
4.4 Curtis Partition Debt to the Bank. Without limiting the generality
of Section 11.9 hereof, Cohen, Rucon, Curtis Holding and Curtis Partition hereby
agree that nothing contained in this Section 4 shall be construed as a waiver or
amendment or modification of any obligations of Curtis Partition to the Bank, or
any rights of the Bank against Curtis Partition under any agreement, instrument,
or document pursuant to which Curtis Partition is indebted or obligated to the
Bank, whether as obligor, guarantor or otherwise, or be construed as limiting or
prohibiting the Bank from enforcing any right or remedy the Bank may have
against Curtis Partition (or any other party) pursuant thereto, including
without limitation, the right to enforce its rights to any collateral therefor,
all of which rights and remedies of the Bank are expressly reserved and all of
which agreements, instruments and documents remain in full force and effect.
7
<PAGE> 9
5. Confession of Judgment.
5.1 Concurrently with the execution of this Agreement, and again
between September 1, 1998 and September 30, 1998, Cohen shall execute and
deliver to the Bank an Affidavit of Confession of Judgment, each in the form
annexed hereto as Exhibit E (except that the Affidavit delivered in 1998 shall
be in the amount of the then unpaid principal balance of the Retained
Indebtedness), dated the respective dates of delivery, which shall be held by
the Bank pursuant to the terms of this Agreement, relating to the Retained
Indebtedness.
5.2 Without limiting in any way any of the other rights and remedies
available to the Bank, all of which are expressly reserved, the Bank shall have
the right at any time after the tenth day after the Bank has given Cohen notice
of the occurrence of an Event of Default, to file the Affidavit of Confession of
Judgment referred to in Section 5.1 and to enter judgment pursuant thereto
against Cohen in the full unpaid amount thereof plus interest thereon at the
accrual rate of interest set forth in Section 3.4 hereof and to have execution
thereon from and after the occurrence of any of the following, each of which
shall constitute an "Event of Default":
(i) the failure by Cohen to pay any installment of principal or
interest payable pursuant to Sections 3.1, 3.2, 3.3 or 3.4, or any other
fee or charge referred to in this Agreement, as and when due and payable
or within five (5) business days thereafter;
(ii) if any material representation, warranty or other statement
of fact made by or on behalf of Cohen herein shall be false or misleading
in any material respect when given or if any material writing,
certificate, report or statement at any time hereafter furnished to the
Bank by Cohen pursuant to or in connection with this Agreement shall be
false or misleading in any material respect when given;
(iii) if a material default shall be made by Cohen in the
observance or performance of any covenant, agreement or provision
contained in this Agreement on his part to be observed or performed which,
in the case of a default with respect to any covenant, agreement or
provision other than pursuant to Section 3 hereof, is not cured within
twenty (20) days after notice thereof delivered by the Bank to Cohen;
provided, however, that with respect to the delivery of any financial
statements pursuant to this Agreement or the Affidavit of Confession of
Judgment referred to in Section 5.1, an Event of Default shall not be
deemed to have occurred unless failure to so deliver is not cured within
thirty (30) days after notice thereof delivered by the Bank to Cohen;
8
<PAGE> 10
(iv) Cohen shall contest the validity or enforceability of this
Agreement or any document or instrument executed by Cohen pursuant hereto,
or if this Agreement or any document or instrument executed pursuant
hereto shall terminate, be terminable or be terminated or become void or
unenforceable for any reason whatsoever pursuant to a final non-appealable
order of a court of competent jurisdiction;
(v) the occurrence of a default of any material obligation under
either of the Pledge Agreements, which default has not been cured within
five (5) business days after notice thereof delivered by the Bank in
accordance with the provisions set forth therein;
(vi) the filing with respect to Curtis Holding or Curtis
Partition of a petition in bankruptcy or of an application for
reorganization, in each case whether voluntary or involuntary (which, in
the case of involuntary petitions or applications only, is not discharged
within ninety (90) days), or any arrangement or readjustment of
indebtedness, the appointment or the filing of an application for the
appointment of any receiver, trustee, liquidator or any committee, an
assignment for the benefit of creditors, in each case with respect to
Curtis Holding or Curtis Partition, or all or any substantial portion of
the assets of Curtis Holding or Curtis Partition;
(vii) this Agreement shall for any reason cease to be, or shall
be asserted by Cohen or either of the Curtis Entities not to be, a legal,
valid and binding obligation of Cohen, Rucon or Curtis Holding enforceable
in accordance with its terms, or any security interest purported to be
created by the Pledge Agreements shall for any reason cease to be, or be
asserted by Cohen or either of the Curtis Entities not to be, a valid,
first priority perfected security interest in any Cohen Collateral (except
to the extent otherwise permitted under this Agreement or either of the
Pledge Agreements), subject to the following provisions of this clause
(vii). Notwithstanding anything to the contrary in this Agreement, Curtis
Partition has received a certificate dated January 5, 1996 issued by the
Secretary of State of the State of New Jersey stating that the charter of
Curtis Partition was revoked "for non-payment of Annual Reports on
December 31, 1993"; and Curtis Holding has received a certificate dated
January 5, 1996 issued by the Secretary of State of the State of New
Jersey stating that the charter of Curtis Holding was revoked "for
non-payment of Annual Reports on March 31, 1994." Upon the filing of the
required reinstatement documents for Curtis Holding and Curtis Partition,
which have not yet been filed, and compliance by the Curtis Entities with
Section 14A:4-5(7) of
9
<PAGE> 11
the New Jersey Statutes, the charter of each Curtis Entity will be
reinstated retroactively. Such reinstatement will validate the execution
and delivery by Curtis Holding of the Partition Pledge Agreement and the
Restructuring Agreement. Until the charter of each Curtis Entity is
reinstated, any actions by such Curtis Entity may not have any legal
effect, and no Event of Default shall occur under this Agreement, by
virtue of the revocation of the charter of either Curtis Entity or the
invalidity of any action by either Curtis Entity before such
reinstatement, so long as, by April 16, 1996, such charter is reinstated
and Curtis Holding shall have delivered to the Bank evidence of such
reinstatement together with legal opinions of New Jersey counsel as the
Bank may reasonably request (x) to the effect that such charter has been
reinstated, (y) with respect to the due authority and corporate power of
Holding to execute and deliver the Partition Pledge Agreement and the
Restructuring Agreement, and (z) that the Partition Pledge Agreement and
the Restructuring Agreement constitute the valid and binding obligations
of Holding, enforceable in accordance with their respective terms (subject
to customary qualifications); provided that the foregoing agreement is
subject to the following: (i) each Curtis Entity shall have filed all
required documentation with the appropriate New Jersey State authority not
later than January 19, 1996 to initiate the reinstatement of its charter,
and (ii) the Curtis Entities shall pursue such reinstatement with
diligence and shall report on the status of such reinstatement to the Bank
not less frequently than monthly. At such time the Bank shall also receive
legal opinions, in form and substance reasonably satisfactory to the Bank,
to the effect that it has a first priority, perfected security interest in
the shares of stock subject to the Pledge Agreements.
5.3 Concurrently, with the execution of this Agreement, the Bank shall
deliver to Cohen the Affidavit of Confession of Judgment dated April 16, 1993,
executed by Cohen, marked "Canceled".
5.4 The Bank agrees that, until such time as there shall occur or
exist an Event of Default, it will not assert any rights available to it with
respect to the Retained Indebtedness as a result of the occurrence or existence
of any default under the Retained Loan Documents, including without limitation
the right to seek payment of principal, accrued interest or fees under the
Retained Indebtedness.
6. Representations and Warranties of Cohen, Rucon and Curtis Holding.
Each of Cohen (as to himself), and Rucon and Curtis Holding (as to themselves
jointly), hereby represents and warrants that:
10
<PAGE> 12
6.1 This Agreement has been duly executed and delivered by Cohen,
Rucon and Curtis Holding and constitutes the valid and binding obligation of
Cohen, Rucon and Curtis Holding, enforceable in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency, moratorium
or other similar laws currently or hereafter in effect affecting the enforcement
of creditors' rights generally, and the application of general principles of
equity.
6.2 No consent, authorization or approval of, or exemption by, any
governmental or public body or authority, nor any consent of any third party, is
required to be obtained by Cohen, Rucon or Curtis Holding in connection with the
execution, delivery and performance by Cohen, Rucon and Curtis Holding of this
Agreement or any of the instruments or agreements herein referred to or the
taking of any action herein contemplated, or if required, has been obtained.
6.3 The execution, delivery and performance of this Agreement by
Cohen, Rucon and Curtis Holding and the consummation of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time, or both (i) violate any provision of law, statute, rule or regulation
to which Cohen, Rucon or Curtis Holding is subject, (ii) violate any judgment,
order, writ or decree of any court applicable to Cohen, Rucon or Curtis Holding,
or (iii) result in the breach of or conflict with any term, covenant, condition
or provision of, result in the modification or termination of, constitute a
default under, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any properties or assets of Cohen, Rucon or
Curtis Holding pursuant to any commitment, contract or other agreement or
instrument to which any of them is a party or by which any assets or properties
of Cohen, Rucon or Curtis Holding is or may be bound or to which they may be
subject.
6.4 Neither Rucon nor Curtis Holding is now, nor will the consummation
of the transactions contemplated hereby render either of them, (i) "insolvent"
as that term is defined in Section 101(32) of the United States Bankruptcy Code
(the "Bankruptcy Code"), or Section 271 of the New York Debtor and Creditor Law
("NYDCL"), (ii) unable to pay its debts as they mature, within the meaning of
Section 548(a)(2)(B)(iii) of the Bankruptcy Code or Section 275 of the NYDCL, or
(iii) left with an unreasonably small capital. The execution and delivery of
this Agreement by Cohen, Rucon, and Curtis Holding does not constitute a
"fraudulent transfer" within the meaning of the Bankruptcy Code as now
constituted or under any other applicable statute. No bankruptcy or insolvency
proceedings are pending against Cohen, or pending or, to the knowledge of each
of Rucon, Curtis Holding and Curtis Partition, threatened against Rucon, Curtis
Holding or Curtis Partition, respectively.
11
<PAGE> 13
6.5 The financial statements of Curtis Partition dated February 28,
1995, previously delivered to the Bank, fairly present the financial condition
of Curtis Partition as of such date and the results of operations for the period
then ended, and there has been no material adverse change in the financial
condition or results of operation of Curtis Partition since such date (it being
understood that no such material adverse change shall be deemed to have occurred
if the operating income before intercompany charges of Curtis Partition for the
nine months ended November 30, 1995 shall have been at least $600,000).
6.6 The shares of Holding Common Stock and Holding Class B Stock being
pledged to the Bank pursuant to the Holding Pledge Agreement represent 55% of
the issued and outstanding shares of each class of capital stock of Curtis
Holding and there are not (i) outstanding any options, warrants or other rights
to purchase or otherwise acquire any shares of capital stock of Curtis Holding,
(ii) any securities outstanding convertible into or exchangeable for shares of
capital stock of Curtis Holding, or (iii) any other issued and outstanding
classes of capital stock of Curtis Holding. The shares of Partition Common Stock
pledged to the Bank pursuant to the Partition Pledge Agreement represent 55% of
the issued and outstanding shares of capital stock of Curtis Partition and there
are not (x) outstanding any options, warrants or other rights to purchase or
otherwise acquire any shares of capital stock of Curtis Partition, (y) any
securities outstanding convertible into or exchangeable for shares of capital
stock of Curtis Partition, or (z) any other issued and outstanding classes of
capital stock of Curtis Partition.
6.7 Morgan Satisfaction. The satisfactions referred to in Section 8.7
hereof serve to discharge all claims made by Morgan Guaranty Trust Company of
New York ("Morgan Guaranty") against The Arlen Corporation ("Arlen") or any of
its subsidiaries, and against Cohen to the extent that such claims against Cohen
relate to Arlen or any of its subsidiaries.
7. Release and Waiver. As an inducement for, and in consideration of, the
Bank's agreements herein, Cohen hereby releases, waives, remises, acquits and
forever discharges the Bank and each of its employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors, partners,
predecessors, successors and assigns, subsidiary corporations, parent
corporations, and related corporate divisions (all of the foregoing hereinafter
called the "Released Parties"), from any and all actions and causes of action,
judgments, executions, suits, debts, claims, setoffs, counterclaims, demands,
liabilities, obligations, damages and expenses of any and every character, known
or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or
nature (collectively, "Claims"), whether heretofore or hereafter arising, for or
because of any matter or things done, omitted or
12
<PAGE> 14
suffered to be done by any of the Released Parties prior to and including the
date of execution hereof, in any way directly or indirectly arising out of the
Loan Documents, the Retained Loan Documents, the Rucon Assignment, and all
related documents (all of the foregoing hereinafter called the "Released
Matters"), except any Claims arising out of this Agreement. Cohen represents and
warrants to the Bank that the foregoing constitutes a full and complete release
of all Released Matters and confirms that the foregoing release and waiver is
informed and freely given.
8. Bank's Conditions to Close. The Bank shall enter into this Agreement
only upon the satisfaction of the following conditions:
8.1 Representations and Warranties True at Closing. The
representations and warranties of Cohen contained in this Agreement (including
the Exhibits and Schedules hereto) or any certificate or document delivered to
the Bank in connection herewith, including without limitation the Holding Pledge
Agreement and the Partition Pledge Agreement, shall be true in all material
respects.
8.2 No Action/Proceeding. No action or proceeding before a court or
any other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transaction herein contemplated or the transactions
contemplated by the Rucon Assignment, and no governmental agency or body or
other entity shall have taken any other action or made any request of the Bank
or Cohen as a result of which the Bank reasonably and in good faith deems that
to pursue the transactions hereunder or pursuant to the Rucon Assignment may
constitute a violation of law.
8.3 Compliance with Agreement. Cohen shall have made to the Bank the
deliveries required by this Agreement on or prior to the date hereof.
8.4 Board and Shareholder Approval. Cohen shall have delivered to the
Bank resolutions of the Board of Directors and of the shareholders of each of
Rucon and Curtis Holding, certified by the Assistant Secretary of each of such
entities as being true and in full force and effect, such resolutions approving
the Holding Pledge Agreement and the Partition Pledge Agreement, respectively,
and reflecting the determination that such agreements were entered into for
sufficient consideration.
8.5 Opinion of Counsel. Cohen shall have delivered to the Bank an
opinion of Brown Raysman & Millstein, counsel to Cohen, in a form satisfactory
to the Bank.
13
<PAGE> 15
8.6 Legal Fees. Cohen shall have delivered to the Bank a check to the
order of Warshaw Burstein Cohen Schlesinger & Kuh, LLP representing the amount
owed by Cohen in respect of legal fees and disbursements incurred by the Bank in
connection with the Indebtedness and the Retained Indebtedness, whether incurred
in connection with the transactions contemplated by this Agreement or in
connection with any and all previous matters relating to the Indebtedness and
the Retained Indebtedness to the extent such amounts remain unpaid.
8.7 Morgan Satisfaction. Each of Cohen and Arlen shall have satisfied
all claims against them (or any of Arlen's subsidiaries) relating to that
certain action entitled Morgan Guaranty Trust Company of New York v. The Arlen
Corporation, et al., Index No. 122525/95, and all other actions commenced in
connection therewith, and Cohen and Arlen shall have delivered to the Bank
copies of all documentation evidencing such satisfactions, including without
limitation any and all releases and/or discharges signed by Morgan Guaranty in
favor of Cohen and Arlen.
9. Waiver of Provisions of the Automatic Stay. As an inducement for, and
in consideration of the Bank's agreements herein, Cohen agrees that if he (a) is
adjudicated bankrupt or insolvent, or (b) commences a voluntary case under the
Federal Bankruptcy Law (as now or hereafter in effect), any stay imposed by
Section 105 or 362 of the Bankruptcy Code prohibiting the Bank from enforcing
its rights against the Collateral is waived and shall have no force and effect
as against the Bank, and the Bank shall be permitted to continue to exercise all
rights and remedies granted to it under this Agreement, the documents and
instruments executed pursuant hereto and the Retained Loan Documents.
10. Reinstatement. If claim is ever made upon the Bank for repayment or
recovery of any amount or amounts received by the Bank pursuant to this
Agreement, or otherwise in connection with the Retained Indebtedness, and the
Bank repays all or part of such amounts, by reason of (i) any final and
non-appealable judgment, decree or order of any court or administrative body
having jurisdiction over the Bank or any property of the Bank (a "Final Order")
(including without limitation a Final Order invalidating such payments or
declaring such payments to be a fraudulent conveyance or preferential and set
aside or required to be paid to a trustee, debtor-in-possession or any other
party under any bankruptcy law or otherwise), or (ii) any settlement or
compromise of any claim effected by the Bank with any such claimant (including
Cohen) but not in excess of an amount equal to 15% of the principal of the
Designated Payment theretofore received by the Bank (the "Settlement Amount"),
then and in such event, Cohen agrees that any such Final Order or Settlement
Amount shall be binding upon Cohen notwithstanding the provisions
14
<PAGE> 16
of Section 2 of this Agreement, and Cohen shall be and remain liable to the Bank
hereunder for the amount so repaid or recovered, together with all interest and
costs assessed against or incurred by the Bank in connection therewith to the
same extent as if such amount had never originally been received by the Bank,
anything elsewhere in this Agreement to the contrary notwithstanding. The
provisions of this Section 10 shall be and remain effective notwithstanding any
contrary action which the Bank may have taken in reliance upon such payment, and
any such contrary action so taken shall be without prejudice to the Bank's
rights hereunder and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. The provisions of this Section 10 shall
survive the expiration or termination of this Agreement.
11. Miscellaneous.
11.1 Not less frequently than once per year, Cohen shall deliver to
the Bank a net worth statement in form reasonably satisfactory to the Bank.
11.2 COHEN HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE
ENFORCEMENT OF ANY OF THE BANK'S RIGHTS AND REMEDIES HEREUNDER OR UNDER ANY OF
THE LOAN DOCUMENTS OR THE RETAINED LOAN DOCUMENTS.
11.3 Neither the failure nor any delay on the part of the Bank to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
11.4 Cohen hereby agrees that the Bank, in its sole discretion, may
freely sell, assign or otherwise transfer participations, portions, co-lender
interests or other interest in all or any portion of the Retained Indebtedness
or the Bank's rights under this Agreement (subject, however, to the Bank's
obligations hereunder). In the event of any such transfer, the transferee may,
in the Bank's discretion, have and enforce all the rights, remedies and
privileges of the Bank. Cohen consents to the release by the Bank to any bona
fide potential transferee of any and all information (including, without
limitation, financial information) pertaining to Cohen as the Bank, in its sole
discretion, may deem appropriate.
11.5 Each of Cohen and the Bank shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
the other may
15
<PAGE> 17
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby,
including without limitation, in the case of Cohen only, executing and
delivering one or more powers of attorney in favor of the Bank; provided,
however, that the authority granted pursuant to any power of attorney executed
and delivered by Cohen pursuant to this Section 11.5 shall be limited to
executing a Confession of Judgment pursuant to Section 5.1 hereof.
11.6 Cohen acknowledges that the Bank will not have an adequate remedy
at law if Cohen fails to perform any of his obligations hereunder. Therefore,
the Bank shall have the right, in addition to any other rights it may have, to
specific enforcement of this Agreement if Cohen shall fail to perform any of
Cohen's obligations hereunder.
11.7 Any notice, consent, approval, request, demand or other
communication required or permitted hereunder must be in writing to be effective
and shall be deemed delivered and received (i) if personally delivered or if
delivered by telex or telecopy with electronic confirmation when actually
received by the party to whom sent, or (ii) if delivered by mail (whether
actually received or not), at the close of business on the third day next
following the day when placed in the federal mail, postage prepaid, certified or
registered mail, return receipt requested, or (iii) if delivered by a recognized
overnight mail service, at the close of business on the next day following the
day when placed in the custody of such service, addressed as follows:
If to Cohen:
Arthur G. Cohen
505 Eighth Avenue
New York, New York 10018
FAX: (212) 319-5173
With a copy to:
Rucon Services Corp.
Suite 300
505 Eighth Avenue
New York, New York 10018
FAX: (212) 736-5108
16
<PAGE> 18
With a copy to:
Curtis Holding Corporation
Suite 300
505 Eighth Avenue
New York, New York 10018
FAX: (212) 736-5108
With a courtesy copy to:
Brown Raysman & Millstein LLP
120 West 45th Street
New York, New York 10036
Attention: Kenneth J. Block, Esq.
FAX: (212) 840-2429
With a copy to:
Stephen B. Delman, Esq.
Suite 300
505 Eighth Avenue
New York, New York 10018
FAX: (212) 279-9595
and
With a courtesy copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Carl F. Schwartz, Esq.
FAX: (212) 889-7577
If to the Bank:
Bank Leumi Trust Company of New York
562 Fifth Avenue
New York, New York 10017
Attention: Richard I. Schwam,
First Vice President
FAX: (212) 626-1144
17
<PAGE> 19
With a copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attention: Frederick R. Cummings, Jr., Esq.
FAX: (212) 972-9150
11.8 This Agreement shall inure to the benefit of and shall be binding
upon the parties and their respective heirs, successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to or shall (a)
confer on any person other than the parties, and their respective heirs,
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, or (b) constitute the parties partners or
participants in a joint venture.
11.9 No person shall be deemed to be a third party beneficiary of this
Agreement, and, except for the provisions of Sections 1.3, 1.4, 2 and 3.5
hereof, nothing contained herein shall be construed as a waiver or amendment or
modification of any rights of the Bank against any other person or entity
pursuant to any agreement, instrument or document or be construed as limiting or
prohibiting the Bank from enforcing any right or remedy the Bank may have
against any other person or entity or from amending, modifying, limiting,
waiving, releasing any such right or remedy that it may have against any other
person or entity, including, without limitation, any other obligor or guarantor
of the Retained Indebtedness, or any part thereof, or from amending, modifying
or extending the terms of the Retained Indebtedness, all of which rights and
remedies of the Bank are expressly reserved, and all of which agreements,
instruments and documents remain in full force and effect.
11.10 This Agreement may not be modified or amended except by an
agreement or instrument in writing signed by the party against whom enforcement
of any such modification or amendment is sought. Any party may waive performance
or compliance by any other party with respect to any term or provision of this
Agreement on the part of such other party to be performed or complied with;
provided, however, that such waiver shall be effective only if evidenced by an
instrument in writing signed by the party waiving such compliance or
performance. The waiver by any party of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach. No
failure or delay by the Bank in exercising any right or remedy it may have shall
operate as a waiver thereof.
11.11 Neither this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof
18
<PAGE> 20
shall be assignable by Cohen, except by will or intestacy, without the prior
written consent of the Bank.
11.12 This Agreement may be executed in counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument.
11.13 Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
11.14 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflicts
of law provisions thereof. Cohen hereby consents and submits to the jurisdiction
of the courts of the State of New York within the City of New York and of the
courts of the United States located within the City of New York for all purposes
of this Agreement, including, without limitation, any action for the enforcement
of any right, remedy, obligation or liability arising under or by reason of this
Agreement.
11.15 In the event of any inconsistency between the provisions of this
Agreement and the provisions of any of the Loan Documents, the provisions hereof
shall be controlling.
11.16 Cohen agrees to pay all costs and expenses incurred by the Bank
in connection with the preparation of this Agreement or any amendments,
modifications, waivers, extensions, renewals, renegotiations or "workouts" of
the provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated); or incurred by the Bank after the occurrence
of an Event of Default in connection with the enforcement or protection of its
rights in connection with this Agreement or with the transactions contemplated
hereby; or in connection with any pending or threatened action, proceeding, or
investigation relating to the foregoing, including but not limited to the
reasonable fees and disbursements of counsel for the Bank.
11.17 All prior or contemporaneous agreements, contracts, promises,
representations and statements, if any, among the parties hereto, or their
representatives, as to the subject matter hereof, including without limitation
that certain letter dated October 17, 1995 from the Bank to Cohen, are merged
into this Agreement, and this Agreement shall constitute the entire agreement
between them with respect to the subject matter hereof.
19
<PAGE> 21
11.18 Cohen hereby waives any obligation the Bank may have pursuant to
the last sentence of Section 11.8 of that certain Agreement dated April 16, 1993
to obtain an agreement from Rucon in connection with the Rucon Assignment that
Rucon will not apply any assets of Cohen (or proceeds from the disposition
thereof) which are held by Rucon as collateral for another obligation of Cohen
against payment of the Indebtedness.
11.19 Cohen and the Bank hereby agree that whenever the phrase
"causing to be made" or "causing to be paid" or any variation thereof appears in
this Agreement referring to payments made on behalf of Cohen, it is agreed that
the party entitled to perform pursuant to such phrase shall not include any
co-guarantor or co-obligor under the Retained Indebtedness.
11.20 Cohen agrees that he will not assert any right of contribution
he may have against any co-guarantor of any underlying indebtedness to which the
Indebtedness or the Retained Indebtedness relates, except by way of defense,
set-off, counterclaim or cross-claim, in each case in a related claim.
20
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
BANK LEUMI TRUST COMPANY
OF NEW YORK
By:
----------------------------
Name: Richard I. Schwam
Title: First Vice
President
-------------------------------
ARTHUR G. COHEN
The undersigned is executing this Agreement only with respect to the
provisions of, and acknowledges and consents to the assignment of, pledge of and
grant of security interests in and to the Holding Common Stock and the Holding
Class B Stock set forth in, Sections 4.1, 4.4 and 6 hereof.
RUCON SERVICES CORP.
By:
----------------------------
President
The undersigned is executing this Agreement only with respect to the
provisions of, and acknowledges and consents to the assignment of, pledge of and
grant of security interests in and to the Partition Common Stock set forth in,
Sections 4.1, 4.4 and 6 hereof.
CURTIS HOLDING CORPORATION
By:
----------------------------
President
The undersigned is executing this Agreement only with respect to the
provisions of Section 4.4 hereof.
CURTIS PARTITION CORPORATION
By:
----------------------------
21
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<PERIOD-START> MAR-01-1995
<PERIOD-END> NOV-30-1995
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