<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) October 11, 1996
------------------------------
THE VILLAGE GREEN BOOKSTORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW YORK 16-1181167
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1357 MONROE AVENUE, ROCHESTER, NEW YORK 14618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (716) 442-1151
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On October 11, 1996, The Village Green Bookstore, Inc. (the
"Registrant") and VGBS Acquisition Corporation ("VGBS") consummated a Credit
Agreement dated as of September 25, 1996, whereby VGBS agreed to loan up to
$1.2 million to the Registrant pursuant to a Senior Secured Promissory Grid
Note dated September 25, 1996 (the "Note"). The Note bears interest at the rate
of 9% per annum with principal and interest due in arrears in quarterly
installments commencing June 30, 1997. Pursuant to the Credit Agreement, the
Registrant has agreed that the $1.2 Million loan amount to be provided by VGBS
pursuant to the Note will be used by the Registrant solely to repay the entire
principal amount owed by the Registrant to the holders of the Registrant's 1994
7% Convertible Senior Subordinated Debentures (the "Debentures").
Concurrent with the consummation of the Credit Agreement, the Registrant
executed a Warrant to purchase up to 2,400,000 shares of the Registrant's Common
Stock, par value $.001 per share (the "Common Stock") at the purchase price of
$.50 per share in favor of VGBS (the "Warrant"). The Warrant is presently
exercisable and may be exercised through September 15, 2001. The Warrant is
subject to anti-dilution provisions and will not be registered under the
Securities Act of 1933, as amended.
The Registrant has also entered into a Security Agreement with VGBS
pursuant to which the Registrant has granted VGBS a security interest on the
indebtedness incurred by the Registrant pursuant to the Credit Agreement and
Note. The Security Agreement is senior in right of payment and in collateral
except for up to $500,000 of inventory financing for working capital. VGBS has
agreed to subordinate its security interest under the Security Agreement to the
holders of the Debentures in the event VGBS breaches its obligation to fund any
installment due to the Registrant under the Credit Agreement and Note.
Additionally, to induce VGBS to enter into the Credit Agreement, certain
of the Registrant's shareholders have granted an irrevocable proxy to VGBS
pursuant to a Shareholders' Agreement and Irrevocable Proxy to vote such
shareholders' shares of Common Stock (the "Shareholders' Agreement"). The total
number of shares of Common Stock subject to the Shareholders' Agreement is
225,000.
Furthermore, under the terms of the Credit Agreement, VGBS has the
right to reconstitute the entire Board of Directors of the Registrant, and, as
such, three of the four current directors of the Registrant have tendered their
resignations from the Board of Directors to the Registrant, such resignations
to be held by the Registrant pending acceptance by the Registrant.
Upon full exercise of the Warrant, VGBS will control 2,625,000 shares of
the Registrant's Common Stock. As of July 28, 1996, the Registrant had 3,741,255
shares of its Common Stock issued and outstanding (225,000 of which are subject
to the Shareholders' Agreement). Upon full exercise of the Warrant, VGBS will be
able to vote 43.0% of all such issued and outstanding shares of Common Stock.
<PAGE> 3
VGBS is an affiliate of H.J. Myers & Co., Inc., a market maker in the
Registrant's securities. The consideration for the transactions described above
was the result of arms-length negotiations between the Registrant and VGBS and
the information contained in this Form 8-K with respect to the transactions
described above is qualified in its entirety by reference to the complete text
of the Credit Agreement, Note, Warrant, Security Agreement and Shareholders'
Agreement, copies of which are attached hereto as exhibits.
ITEM 5. PRESS RELEASE.
On October 15, 1996 the Registrant issued the following press release:
The Village Green Bookstore, Inc. (the "Company") announced today that,
after extensive negotiations with VGBS Acquisition Corp. ("VGBS"), the Company
has entered into a Credit Agreement with VGBS, whereby VGBS will loan up to $1.2
million to the Company pursuant to a Senior Secured Promissory Grid Note
("Note"). The Note bears interest at the rate of 9% per annum with principal and
interest payments due in arrears in quarterly installments commencing June 30,
1997. The Credit Agreement provides for maximum borrowing of up to $1.2 million,
with funds to be loaned to the Company in four quarterly installments of
$300,000. The Company and VGBS have agreed that the $1.2 million loan amount
will be used by the Company solely to repay the entire p rincipal amount owed by
the Company under the debentures. The first $300,000 installment was delivered
to the Company's debentureholders today.
In connection with the Credit Agreement and in order to induce VGBS to
execute the Credit Agreement, the Company has: (i) delivered a Warrant to VGBS
to purchase up to 2.4 million shares of the Common Stock of the Company at $.50
per share; (ii) entered into a Security Agreement with VGBS to give VGBS a
senior security interest in all of the Company's assets; and (iii) entered into
a one year Financial Consulting Agreement with an affiliate of VGBS.
Furthermore, certain of the Company's shareholders have granted an irrevocable
proxy to VGBS to vote such shareholders' shares of the Company's Common Stock
and VGBS shall have the right to reconstitute the Company's Board of Directors.
As noted above, the indebtedness incurred pursuant to the Credit
Agreement will be secured by the assets of the Company and will be senior in
right of payment and in collateral except for up to $500,000 of inventory
financing for working capital. However, VGBS has agreed to subordinate its
security interest to the debentureholders and has agreed to subordinate any
outstanding indebtedness in favor of the debentureholders in the event VGBS
breaches its obligation to fund an installment under the Credit Agreement.
VGBS' obligation to fund future installments under the Credit Agreement
is subject to certain terms and conditions of the Credit Agreement having been
satisfied at that time. In any event, the Company will remain obligated to pay
debentureholders.
Ray Sparks, Village Green's Chairman of the Board and CEO, stated: "Our
prior efforts in securing financing have been substantial and this alternative
was the best possible way to serve the interests of our debentureholders and
shareholders. For almost a year the
<PAGE> 4
Company has been focusing much of its efforts on paying off its debt while being
challenged in the bookstore retail environment by the major expansion of the
superstores."
Village Green owns and operates five retail book stores in New York and
Pennsylvania and two Kideology(TM) stores in New York.
NASDAQ's symbols: Common Stock - Book; Warrants - Bookw
Boston Stock Exchange symbols: Common Stock - VGB; Warrants - VGBW
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information
Not applicable
(c) Exhibits.
See Index to Exhibits.
<PAGE> 5
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 hereunto duly authorized.
THE VILLAGE GREEN BOOKSTORE, INC.
Date: October 23, 1996 By: /s/ Raymond C. Sparks
-----------------------
Name: Raymond C. Sparks
Title: President and Chief Executive Officer
<PAGE> 6
INDEX TO EXHIBITS
(1) UNDERWRITING AGREEMENT
Not Applicable.
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
(a) Credit Agreement between the Registrant and VGBS dated as of
September 25, 1996 (including a list briefly identifying all
contents of all omitted exhibits and schedules thereto*), is
included herein as Exhibit 2(a).
(b) Senior Secured Promissory Grid Note for $1.2 million, executed by
the Registrant in favor of VGBS and dated September 25, 1996
(including a list briefly identifying all contents of all omitted
exhibits and schedules thereto*), is included herein as Exhibit
2(b).
(c) Warrant to Purchase up to 2,400,000 Shares of Common Stock of the
Registrant, par value $.001 per share, executed by the Registrant
in favor of VGBS and dated as of September 25, 1996, is included
herein as Exhibit 2(c).
(d) Shareholders' Agreement and Irrevocable Proxy between certain of
the Registrant's shareholders and VGBS, dated as of September 25,
1996 (including a list briefly identifying all contents of all
omitted exhibits and schedules thereto*), is included herein as
Exhibit 2(d).
(e) Security Agreement between the Registrant and VGBS, dated
September 25, 1996 (including a list briefly identifying all
contents of all omitted exhibits and schedules thereto*), is
included herein as Exhibit 2(e).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
Not Applicable.
(16) LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
Not Applicable.
(17) LETTER RE DIRECTOR RESIGNATION
Not Applicable.
- --------
* The Registrant will provide copies to security holders of any referenced
omitted schedules and exhibits upon written request.
<PAGE> 7
(20) OTHER DOCUMENTS OR STATEMENTS TO SECURITY HOLDERS
Not Applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL
Not Applicable.
(24) POWER OF ATTORNEY
Not Applicable.
(27) FINANCIAL DATA SCHEDULE
Not Applicable.
(99) ADDITIONAL EXHIBITS
None.
<PAGE> 1
EXHIBIT 2(a)
CREDIT AGREEMENT
Agreement dated as of September 25, 1996, between VGBS Acquisition
Corporation, a New York corporation having its principal office at 1895 Mt. Hope
Avenue, Rochester, New York 14620 (the "Lender"), and The Village Green
Bookstore, Inc., a New York corporation having its principal office at 1357
Monroe Avenue, Rochester, New York 14618 (the "Borrower" or "Company").
Contemporaneous with the execution of this Credit Agreement, Lender is
being issued a Secured Promissory Note and is being granted a Warrant to
purchase up to 2,400,000 shares in the Borrower pursuant to a Warrant dated as
of September 16, 1996 (the "Warrant") among Borrower and the Lender
(collectively the "Agreements"). As a material inducement to the Borrower's
agreement to grant the Warrant pursuant to the terms of the Agreement, Borrower
is entering into this Credit Agreement.
The parties hereby agree as follows:
1. Borrowing. Subject to and upon the terms and conditions set forth in
this Credit Agreement, the Company will borrow from the Lender, and the Lender
will lend to the Company up to $1.2 Million dollars in accordance with Schedule
2(a) which shall be utilized exclusively to repay outstanding principal
indebtedness of the Company's to Senior Subordinated Debentureholders.
2. Available Credit; Delivery to Debentureholders.
(a) The Lender agrees on the terms and conditions hereinafter
set forth, to make loans (the "Loans") to the Borrower
from time to time during the period from the date of this
Credit Agreement in an aggregate amount not to exceed One
Million Two Hundred Thousand Dollars ($1,200,000) ("Line
of Credit").
(b) Borrower may draw $300,000 against the Line of Credit upon
consummation of the Closing of the Agreements. Any draws
under the Line of Credit shall be delivered by Lender at
its option in the form of: (i) checks in the name of each
of the Debentureholders set forth on Schedule 2(b) as
repayment of the relative principal amount due and owing
each such Debentureholder; or (ii) in accordance with the
written instructions of Borrower delivered in accordance
with the terms of this Credit Agreement.
(c) After closing, Borrower may draw $300,000 against the Line
of Credit at the beginning of each of the periods set
forth on Schedule 2(a), provided Borrower has complied
with the terms of this Credit Agreement and the
representations and warranties made herein are accurate at
such time.
<PAGE> 2
(d) At the Closing Date the Company shall enter into an
agreement to pay to Bright Capital Group, LLC ("Bright") a
reorganization fee in the aggregate amount of $100,000, in
twelve equal monthly payments commencing November 1, 1996.
The Agreement between Bright and the Company shall be
executed in the form attached hereto as Exhibit 2(c).
(e) Each of the Lender and the Company agrees to bear all of
its own expenses incurred in connection with this
agreement and all transactions contemplated hereby.
3. Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at 10:00 A.M., local time, on the ___ day of
September, 1996, at the offices of Harter, Secrest & Emery, 700 Midtown Tower,
Rochester, New York 14604 or at such other time and place as the parties may
agree upon (the "Closing Date"). In the event any of the parties is entitled not
to close on the Closing Date because a condition to the Closing set forth in
Section 9 or 10 hereof has not been met or waived by the party entitled to waive
it, such party may postpone the Closing by giving written notice to the other
party, until the condition has been met (which all parties will use their best
efforts to cause to happen). However, the Closing Date shall be no later than
the 30th day of September, 1996.
4. Obligations at Closing.
(a) At the Closing, the Company will deliver to the Lender:
(i) the Warrant;
(ii) certified resolutions of the Board of Directors of
the Company approving the Credit Agreement and the
Agreements as well as an Incumbency Certificate as
title incumbency of the officer of Borrower
executing this Credit Agreement and the Agreements;
(iii) certificates as to the good standing of the Company
from the appropriate officials of the jurisdictions
in which it is incorporated or qualified and
authorized to do business as a foreign corporation
as of dates reasonably near the Closing Date; and
(iv) all other documents required to be delivered by the
Company to the Lender under the provisions of this
Agreement.
(b) At the Closing, the Lender will deliver to the Company:
(i) checks required by Section 2(b) hereof;
(ii) a copy of the resolutions of the Lender's Board of
Directors authorizing the execution, delivery and
performance of this Agreement and the transactions
contemplated hereunder.
<PAGE> 3
(iii) all other documents required to be delivered by the
Lender to the Company under the provisions of this
Agreement.
(c) At any time after the Closing, at the Lender's request and
in consideration of the agreements herein, the Company
will execute and deliver such other instruments of sale
and take such actions as the Lender may reasonably deem
necessary or desirable in order to carry out the intent of
this Credit Agreement.
5. Representations and Warranties by the Company. The Company represents
and warrants to the Lender as follows:
(a) Organization, Standing and Qualification. The Company is a
corporation organized, validly existing and in good
standing under the laws of the State of New York and is
not qualified to do business other than in the State of
Pennsylvania and neither the location of any of Borrower's
properties nor the nature of its activities require
Borrower to be qualified in any other jurisdiction. The
Company has all the requisite corporate power and
authority to own, lease or operate its business and
properties in the places where such business is now
conducted. The Company has made available to the Lender
true and complete copies of its Certificate of
Incorporation and the By-laws, and all amendments thereto,
and the minute book of the Company. Except as set forth in
Schedule 5(a), the Company has received no notification of
delisting of the Company from the NASDAQ small Cap Market
from the NASDAQ Stock Market.
(b) Subsidiaries. Schedule 5(b) sets forth each of the
Company's subsidiaries and their respective States of
incorporation. The Company has not made, nor will it make
prior to the Closing Date, any commitment to purchase any
interest, direct or indirect, in any other corporation or
of any partnership, joint venture or other business
enterprise or entity. The Company conducts the business
carried on by the Company only through the Company and its
subsidiaries.
(c) Execution, Delivery and Performance of Agreement;
Authority. Except as set forth in the Convertible
Debenture and any warrant thereto, the execution, delivery
and performance of this Agreement by the Company will not
conflict with, result in a default, right to accelerate or
loss of rights under or result in the creation of any
lien, charge or encumbrance pursuant to, or conflict with
any provision of the Company's Certificate of
Incorporation, By-laws, any franchise, mortgage, deed of
trust, material lease, license, agreement, law, rule or
regulation or any order, judgment or decree to which the
Company is a party or by which it may be bound. The
Company has the full capacity, power and authority to
enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and
<PAGE> 4
constitutes, or prior to the Closing will constitute, a
valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as the
enforceability hereof may be limited by (i) bankruptcy,
insolvency or other laws relating to or affecting
generally creditor's rights and (ii) general principles of
equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(d) Government Approvals, Notice and Filings. No consent or
approval of, giving of notice to, registration with, or
taking of any action in respect of or by any Federal,
state, local or foreign governmental authority or agency
is required with respect to the execution, delivery or
performance by the Company of this Agreement.
(e) Capitalization. Except as set forth in Schedule 5(e),
there are no outstanding subscriptions, options, warrants,
calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements under which
the Company is or may become obligated to issue, assign or
transfer any shares of the capital stock of the Company
other than as listed or described in the Company's
Commission Documents (as hereinafter defined).
(f) Ownership of the Stock. The authorized capital stock of
the Company consists of 10,000,000 shares of Common Stock,
par value $.001 per share, of which 3,741,155 shares are
currently issued and outstanding. The Company will deliver
at Closing a Warrant to purchase up to 2,400,000 shares of
Common Stock. After the Closing, and upon exercise of all
or part of the Warrant and receipt of valid consideration
therefor, the Company will issue and deliver up to
2,400,000 shares of Common Stock (previously defined
herein as the "Stock") to the Lender. The Company warrants
that it has the authority to issue the Stock issuable upon
exercise of the Warrant to be purchased hereunder. Upon
exercise and delivery of valid consideration to the
Borrower, the Lender will obtain good and marketable title
to the Stock, free and clear of all liens, claims,
encumbrances or restrictions of any kind. Upon exercise of
the Warrant and assuming valid consideration being
delivered to the Borrower upon exercise, the stock
issuable upon exercise of the Warrant will be validly
issued, fully paid and non-assessable and will not be
issued in violation of, and will not be subject to any
preemptive rights. The Company has reserved for issuance
the shares of stock issuable under the Warrant.
(g) Financial Statements. The Company has made available for
the Lender's inspection a true and complete copy of its
Registration Statement on Form SB-2 respecting the
registration of the Company's Common Stock with the
Securities and Exchange Commission (the "Commission") and
the Company's Annual Report on Form 10-KSB for the year
ended January 28, 1996 (collectively the "Commission
Documents"). Additionally, the
<PAGE> 5
Company has provided to the Lender (i) a balance sheet and
income statement (unaudited) dated June 30, 1996 (attached
hereto as Exhibit 5(g)(i)); (ii) projections for the six
months ending January 1997 for the Company's Monroe and
Perinton stores and the Company's two Kideology stores
(attached hereto as Schedule 5(g)(ii)); and (iii) an
analysis of the projected settlement costs on various
leases and lawsuits to which the Company has either
defaulted upon or is a party to (attached hereto as
Schedule 5(g)(iii)). As of their respective dates, none of
the documents described in this Section 5(g) contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary
to make statements made therein not misleading. The
financial statements of the Company included in the
Commission Documents comply as to form in all material
respects with applicable accounting requirements and with
the published Rules and Regulations of the Commission, and
have been prepared in accordance with generally accepted
accounting principals applied on a consistent basis during
the periods involved (except as may be indicated in the
notes thereto) and fairly present (subject, in the case of
the unaudited statements, to normal, recurring, audit
adjustments) the financial position of the Company as at
the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended.
(h) Absence of Undisclosed Liabilities. Except as otherwise
disclosed in this Agreement and except as set forth on
Schedule 5(h) and to the extent reflected or reserved
against on the Company Balance Sheet, as at June 30, 1996,
the Company does not have any debts, liabilities or
obligations. Except as otherwise disclosed in this
Agreement and except to the extent reserved adequately and
properly in the unaudited balance sheets, as of the
Closing the Company does not have any debts, liabilities,
obligations for the period commencing June 30, 1996
through the Closing Date, or any other debts, liabilities
or obligations relating to or arising out of any act,
transaction, circumstance or state of facts which occurred
or existed in the period commencing June 30, 1996, through
the Closing Date, then known, due or payable.
(i) Taxes. All taxes imposed by the United States or by any
other taxing authority, which are due or payable by the
Company and all interest and penalties thereon, have been
paid in full or properly reserved for; all tax returns and
reports required to be filed in connection therewith have
been accurately prepared and duly and timely filed; and
all deposits required by law to be made by the Company
with respect to estimated taxes, employees income
withholding and social security taxes have been duly made.
(j) Absence of Changes or Events. Except as set forth on
Schedule 5(j), since January 28, 1996 the Company has
conducted its business only in the ordinary course and has
not:
<PAGE> 6
(i) incurred any obligation or liability, whether due
or to become due, except liabilities for trade or
business obligations incurred in the ordinary
course of business and consistent with its prior
practice;
(ii) discharged or satisfied any lien, charge or
encumbrance other than those then required to be
discharged or satisfied, or paid any obligation or
liability other than current liabilities shown on
the Company Balance Sheet and current liabilities
incurred since June 30, 1996, in the ordinary
course of business and consistent with its prior
practice;
(iii) declared or made any payment of dividends or other
distribution in respect of any shares of its
capital stock, or purchased, retired or redeemed,
or obligated itself to purchase, retire or redeem,
any of its shares of capital stock or other
securities;
(iv) mortgaged, pledged or subjected to lien or any
other encumbrance any of its material property or
assets;
(v) sold, transferred, leased to others or otherwise
disposed of any of its material assets, except for
inventory sold in the ordinary course of business,
or canceled or compromised any debt or material
claim, or waived or released any right of
substantial value;
(vi) received any notice of termination of any contract,
lease or other agreement or suffered any damage,
destruction or loss (whether or not covered by
insurance) which, in any case or in the aggregate,
has had or is reasonably likely to have a material
adverse effect on the business of the Company taken
as a whole;
(vii) encountered any material labor union organizing
activity, had any actual or, to the best knowledge
of the Company, threatened employee strikes, work
stoppages, slow-downs or lock-outs, or that any
material change in its relations with its
significant employees, agents, customers or
suppliers;
(viii) made any material change in the rate of
compensation payable to or paid or agreed or orally
promised to pay, any shareholder, director,
officer, employee, salesman, distributor or agent;
(ix) made any capital expenditures or capital additions
or betterments, or entered into any leases;
(x) entered into any transaction, contract or
commitment other than in the ordinary course of
business or paid or agreed to pay any brokerage,
<PAGE> 7
finder's fee or other similar expenses in
connection with, or incurred any severance pay
obligations; or
(xi) entered into any agreement or made any commitment
to take any of the types of action described in
subparagraphs (i) through (xi) above.
(xii) Except as set forth on Schedule 5(j)(xii), incurred
any material adverse change with regard to the
Company's vendors.
(k) Litigation. There is no claim, legal action, suit,
arbitration, governmental investigation or other legal or
administrative proceeding, nor any order, decree or
judgment in progress, pending or in effect, or, to the
best knowledge of the Company, threatened, against the
Company or the transactions contemplated by this Agreement
other than as listed on Schedule 5(g)(iii).
(l) Compliance with Laws and Other Instruments. The Company
has complied in all material respects with all existing
laws, rules, regulations, ordinances, orders, judgments
and decrees applicable to its business, properties or
operations as presently conducted. Neither the ownership
nor use of the properties nor the conduct of the business
of the Company conflicts with the rights of any other
person or violates, or with or without the giving of
notice or the passage of time, or both, will violate,
conflict with or result in a default, right to accelerate
or loss of rights under, any terms or provisions of the
Certificate of Incorporation or By-laws of the Company as
presently in effect, or any material lien, encumbrance,
mortgage, deed of trust, lease, license, agreement,
understanding, law, ordinance, rule or regulation, or any
order, judgment or decree to which the Company is a party
may be bound.
(m) Title of Properties. The Company has good, marketable and
insurable title to all the material properties and assets
it owns or purports to own in the operation of its
business. The Company has good, marketable and insurable
leasehold interests in or other rights to use all the
material properties and assets it uses or purports to use
in the operation of its business. None of such properties
and assets is subject to any mortgage, pledge, lien,
charge, security interest, encumbrance, restriction,
lease, license, easement, liability or adverse claim of
any nature whatsoever except as listed on Schedule
5(g)(iii). All the properties and assets which are in use
by the Company are in good operating condition and repair,
are suitable for the purposes used, are adequate and
sufficient for their current operations.
<PAGE> 8
(n) Schedules. Attached hereto are disclosure schedules to
this Credit Agreement. Such disclosure schedules, listed
below, are accurate and true as of the date hereof:
(i) Schedule 5(n)(i). All real property owned by the
Company or in which the Company has a leasehold or
other interest or which is used by the Company
together with a description of each related lease,
sublease, license, or other instrument.
(ii) Schedule 5(n)(ii). All machinery, tools, equipment,
motor vehicles, rolling stock, depreciable assets
and other tangible personal property owned, leased
or used by the Company, except for individual items
having a book value of not more than $1,000 in the
aggregate.
(iii) Schedule 5(n)(iii). All material patents, patent
applications patent licenses, trademarks, trademark
registrations, and applications therefor, service
marks, service names, trade names, copyrights and
copyright registrations, and applications therefor,
owned or held by the Company or used in the
operation of its businesses.
(iv) Schedule 5(n)(iv). All fire, theft, casualty,
liability and other insurance policies insuring the
Company.
(v) Schedule 5(n)(v). All material sales agency or
distributorship agreements or franchises or other
material agreements providing for the services of
an independent contractor to which the Company is a
party.
(vi) Schedule 5(n)(vi). All material contracts,
agreements, commitments or licenses relating to
patents, trademarks, trade names, copyrights,
inventions, processes, know how, formula or trade
secrets to which the Company is a party.
(vii) Schedule 5(n)(vii). All loan agreements, indentures
and mortgages; all pledges, conditional sale or
title retention agreements, security agreements,
equipment obligations, guaranties and leases or
lease purchase agreements covering any material
assets to which the Company is a party.
(viii) Schedule 5(n)(viii). All contracts, agreements and
commitments in respect of the issuance, sale or
transfer of the capital stock, bonds or other
securities of the Company or pursuant to which the
Company has acquired any substantial portion of its
business or assets.
(ix) Schedule 5(n)(ix). All collective bargaining
agreements, employment and consulting agreements,
executive compensation plans, bonus
<PAGE> 9
plans, deferred compensation agreements employee
pension plans or retirement plans, employee stock
options or stock purchase plans and group life,
health and accident insurance and other employee
benefit plans, agreements, arrangements or
commitments to which the Company is a party or
bound or which relate to the operation of its
business.
(x) Schedule 5(n)(x). All other material contracts,
agreements, commit- ments or arrangements not
described in the foregoing subparagraphs (i)
through (ix) of this Section 5(n) to which the
Company is a party and to which are not
substantially performed by any party thereto,
excluding (A) purchase and sales orders and
commitments made in the ordinary course of business
and consistent with its prior practice (B)
contracts entered into in the ordinary course of
business and consistent with its prior practice and
involving payments or receipts by the Company of
less than $1,000 in the case of any single contract
but not more than $10,000 in the aggregate, and (C)
contracts entered into in the ordinary course of
business which are terminable by the Company on
less than 30 days' notice without any penalty or
consideration.
(xi) Schedule 5(n)(xi). The names and current annual
salary rates of all persons who either receive a
salary from the Company or act as independent
commission agents whose annual compensation (direct
or indirect) from the Company is currently at the
rate of more than $100,000 per year.
(xii) Schedule 5(n)(xii). The names of all directors and
officers of the Company, the name of each bank in
which the Company has an account or safe deposit
box and the names of all persons authorized to draw
thereon or who have access thereto.
(xiii) All of the contracts and agreements given to Lender
for inspection and copying pursuant to this Section
5 (other than those which have been substantially
performed) are valid and binding, enforceable by
the Company in accordance with their respective
terms in full force and effect and, except as
otherwise specified by the Company or otherwise
provided herein will be unaffected by the sale of
the Stock to the Lender hereunder. True and
complete copies of all such contracts, agreements,
leases, licenses, policies, indentures, mortgages
and other documents described in this Section 5
(together with any and all material amendments
thereto) have been made available to the Lender for
inspection and copying.
(o) Guaranties. None of the obligations or liabilities of the
Company is guaranteed by any other person, firm or
corporation, nor has the Company
<PAGE> 10
guaranteed the obligations or liabilities of any other
person, firm or corporation.
(p) Inventory. The inventory and related supplies of the
Company and reflected on the Company's balance sheets or
thereafter acquired are merchantable, or suitable and
usable, for sale in the ordinary course of business.
(q) Receivables. All receivables of the Company have arisen
only from bona fide transactions in the ordinary course of
business and shall be fully collected within 120 days
after they arose except to the extent of the normal
allowance for doubtful accounts computed as a percentage
of sales consistent with prior practices as reflected on
the Company's balance sheets.
(r) Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of the
Company are substantially complete and correct in all
material respects, and there have been no transactions
involving the business of the Company which are required
to have been set forth therein and which have not been so
set forth.
(s) Employee Benefit Plans.
(i) The Company has made available to the Lender for
inspection and copying all employee benefit plan
texts and other agreements adopted in connection
with any such plans, along with any other material
information and reports relating to each benefit
plan.
(ii) To the best of the Company's knowledge, with
respect to each employee benefit plan, full payment
has been made of all amounts which the Company is
or has been required under the terms of each such
plan to have paid as contributions to such plan.
(iii) To the best of the Company's knowledge, with
respect to each employee benefit plan, each such
plan conforms to, and its administration is in
compliance with, all applicable laws and
regulations.
(t) Environmental. Borrower is in full compliance with all
applicable Environmental Laws or Regulations, orders and
directives of Federal, state or local governments or
governmental authorities. The term "Environmental Laws or
Regulations" includes regulatory programs involving (1)
air emissions, (2) liquid discharges to streams, ponds,
ditches or other surface waters, (3) liquid discharges to
ground waters, (4) liquid discharges to publicly-owned
treatment works, (5) disposal of solid and/or hazardous
wastes, (6) marking, maintenance and/or removal of
electrical equipment containing PCBs, (7) manufacture
and/or construction (including
<PAGE> 11
renovation) involving asbestos materials, (8) activities
in or adjacent to fresh water wetlands, flood hazard
areas, coastal zone management areas and/or historic
preservation areas, (9) registration, operation, testing
and/or removal or replacement of storage tanks for
petroleum products and/or hazardous substances, and (10)
emergency, planning and community right-to-know laws,
including submission of hazardous substance inventory
information to Federal, state or local authorities.
(u) Disclosure. No representation or warranty made by the
Company in this Agreement or in any Schedule annexed
hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material
fact required to make the statements herein or therein
contained not misleading.
(v) Disclaimer. Except for the warranties and representations
expressly set forth herein, the Company has not relied
upon and no representations have been made to them by the
Lender, its attorneys, agents, employees or
representatives with respect to the Lender, its respective
assets, financial condition, profitability, operations or
business prospects and/or potential.
6. Representations and Warranties by the Lender. The Lender represents
and warrants to the Company as follows:
(a) Organization. The Lender is a corporation duly organized,
validly existing and in good standing under the laws of
the State of New York and has all requisite corporate
power and authority to own, lease or operate its
properties as and in the places where such business is now
conducted. The Lender has all requisite corporate power
and authority to enter into this Agreement and to carry
out the transactions contemplated hereby.
(b) Execution, Delivery and Performance of Agreement and
Guaranties; Authority. The execution, delivery and
performance of this Agreement by the Lender will not
conflict with, or result in a default, right to accelerate
or loss of rights under, or result in the creation of any
lien, charge or encumbrance pursuant to, any provision of
the Lender's Certificate of Incorporation or By-laws, or
any franchise, mortgage, deed of trust, material lease,
license, agreement, law, ordinance, rule or regulation or
any order, judgment or decree to which the Lender is a
party or by which it may be bound. This Agreement has been
dully authorized by the Lender and constitutes a valid and
binding obligation of the Lender, enforceable against the
Lender in accordance with its terms.
(c) Purpose of Lender. Upon exercise of the Warrant, the
Lender will be acquiring the Stock solely for investment
purposes and not with a view to subsequent transfer or
resale. The Lender recognizes upon exercise, the Stock
will be "Restricted Securities" under the Securities Act
of 1933, as
<PAGE> 12
amended (the "Securities Act") and will be subject to
substantial limitations on resale or other transfer.
Accordingly, the Lender agrees to bear the economic risk
of investment in the Stock for an indefinite period of
time. The Lender agrees that the Company will restrict the
offer, sale, transfer, assignment or other disposition of
the Stock by placing a legend on the Stock to the effect
that the Company has not registered the Stock under the
Securities Act or any state securities laws and that the
holder may not sell or otherwise transfer the Stock
without registration or an opinion of counsel acceptable
to the Company that such transaction will not result in a
prohibited transaction under the Securities Act and
applicable state laws and by referring to the
above-described restrictions in the transfer records of
the Company. The Lender represents that it will not sell
or otherwise transfer the Stock without registration under
the Securities Act and applicable state laws, or
appropriate exemptions therefrom.
(d) Government Approvals, Notices and Filings. No consent or
approval of, giving of notice to, registration with, or
taking of any action in respect of or by, any Federal,
state or local governmental authority or agency is
required with respect to the execution, delivery or
performance by the Lender of this Agreement.
(e) Ownership of the Lender. The Lender was incorporated in
New York and as of the date of this Agreement has no
assets or liabilities, except immaterial assets and
liabilities created or arising as a result of its
incorporation. The Lender is an affiliate of H.J. Meyers &
Co., Inc., a New York corporation with an address at 1895
Mt. Hope Avenue, Rochester, New York.
(f) Litigation. There is no claim, legal action, suit,
arbitration, governmental investigation or other legal or
administrative proceeding, nor any order, decree or
judgment in progress, pending or in effect, or to the best
knowledge of the Lender threatened, against or relating to
the Lender in connection with the transactions
contemplated by this Agreement.
(g) Disclosure. No representation or warranty made by the
Lender in this Agreement contains or will contain any
untrue statement of a material fact, or omits or will omit
to state any material fact required to make the statements
herein contained not misleading.
(h) Confidentiality. The Lender agrees not to disclose the
contents of this Agreement or any documents provided by
the Company to the Lender pursuant to this Agreement with
any party not affiliated with the Lender without the prior
written consent of the Company, which may be withheld for
any reason.
<PAGE> 13
7. Conduct of Business Prior to Closing.
(a) From and after the date hereof the Company shall use its
best efforts to conduct its business and affairs only in
the ordinary course of business and consistent with prior
practice and to maintain, keep and preserve its assets and
properties in good condition and repair and maintain
insurance thereon in accordance with present practices.
Without limiting the generality of the foregoing, prior to
the Closing the Company will not, without the Lender's
prior written consent after due consultation with the
Lender, permit the Company to:
(i) change its Certificate of Incorporation or By-laws
or merge or consolidate or obligate itself to do so
with or into any other entity;
(ii) enter into any material contract, agreement,
commitment or other understanding or arrangement.
(iii) perform, take any action or incur or permit to
exist in any of the acts, transactions, events or
occurrences of the type described in subparagraphs
(i), (ii), (iii), (iv), (v), (viii), (ix), (x),
(xi), or (xii) of Section 5(j) hereof which would
be inconsistent with the representations and
warranties set forth therein.
(b) The Company shall give the Lender prompt written notice of
any material change in any of the information contained in
the representations and warranties made in Section 5 or
elsewhere in this Agreement or the Schedules annexed
hereto which occurs prior to the Closing.
(c) From and after the date hereof, the Company shall refrain
from soliciting or engaging in negotiations or discussions
with respect to or entering into any agreement or
arrangement with any person for the transfer, sale,
pledge, assignment or other disposition of the capital
stock or all or substantially all of the assets of the
Company.
8. Access to Information and Documents. The Company will give the
Lender and the Lender's attorneys, accountants and other
representatives full access to the documents, contracts, books
and records of the Company as are necessary and required to
satisfy the Company's disclosure obligation under this Agreement.
9. Conditions Precedent to Lender's Obligations. All obligations of
the Lender at the Closing are subject to the fulfillment of each
of the following conditions at or prior to the Closing:
(a) All representations and warranties of the Company
contained herein and in any Schedule annexed hereto or
document delivered at the time of the
<PAGE> 14
execution and delivery hereof shall be true and correct in
all material respects when made and at, and as of, the
Closing Date.
(b) All covenants, agreements and obligations required by the
terms of this Agreement to be performed by the Company at
or before the Closing shall have been duly and properly
performed.
(c) Since the date of this Agreement there shall not have
occurred any material adverse change in the properties,
assets, operations, business, financial condition or
prospects of the Company, taken as a whole.
(d) There shall be delivered to Lender a certificate executed
by the Chairman of the Board and President of the Company
on their own behalf dated the Closing Date, certifying
that the conditions set forth in paragraph (a), (b) (c)
and (f) of this Section 9 have been fulfilled.
(e) All documents required by this Agreement to be delivered
by the Company to the Lender at or prior to the Closing
shall have been so delivered.
(f) All guaranties by the Company of obligations or
liabilities of any other person shall have been
effectively discharged and terminated.
(g) Board of Directors. The Board of Directors of the Company
consists of four directors. Each Director shall deliver to
Lender his resignation in escrow at closing. Lender shall
have the absolute right to name replacement directors.
(h) The Lender shall have received a fully executed agreement
between Bright and the Company in the form attached hereto
as Exhibit 2(c).
10. Conditions Precedent to the Company's Obligations. All
obligations of the Company at the Closing are subject to the
fulfillment of each of the following conditions at or prior to
the Closing:
(a) All representations and warranties of the Lender contained
herein shall be true and correct when made and at and as
of the Closing Date.
(b) All covenants, agreements and obligations required by the
terms of this Agreement to be performed by the Lender at
or before the Closing shall have been duly and properly
performed.
(c) There shall be delivered to the Company a certificate
executed by the President and Secretary of the Lender,
dated the Closing Date, certifying that the conditions set
forth in paragraphs (a) and (b) of this Section 10 have
been fulfilled.
<PAGE> 15
(d) All documents required by this Agreement to be delivered
by the Lender to the Company at or prior to the Closing
shall have been so delivered.
11. Indemnification.
(a) For a period commencing on the Closing Date and ending one
year thereafter, the Company hereby agrees that in the
event the assets set forth in Schedule 5(g)(i) prove to be
less than represented, the liabilities set forth in
Schedule 5(g)(i) prove to be greater than projected, or
the settlement costs set forth in Schedule 5(g)(iii) prove
to be greater than projected, that the Lender shall be
entitled to receive an additional Warrant to purchase that
number of additional shares of Stock equal to the
disparity multiplied by a factor of "2."
(b) For a period commencing on the Closing Date and ending one
year thereafter, each of the Lender and the Borrower
hereby indemnifies and agrees to hold the Company harmless
from, against and in respect of, and shall on demand
reimburse it for:
(i) Any and all loss, liability or damage suffered or
incurred by the Company by reason of any untrue,
incorrect or incomplete representation or warranty
or nonfulfillment or nonperformance of any covenant
or agreement by either party contained herein;
(ii) Any and all loss, liability or damage suffered or
incurred by the Company by reason of or in
connection with any claim for finder's fee or
brokerage or other commission arising by reason of
any services alleged to have been rendered to or at
the instance of either party with respect to this
Agreement or the transactions contemplated hereby;
and
(iii) Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and
expenses, including, without limitation, reasonable
legal fees and expenses, incident to any of the
foregoing or incurred in investigating or
attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
(c) Whenever any claim shall arise for indemnification under
Section 11(a) or (b) hereof, the party claiming
indemnification shall promptly notify the other party of
the claim and, when known, the facts constituting the
basis for such claim, except that in the event of any
claim for indemnification hereunder resulting from or in
connection with any claim, action, suit or legal
proceeding by a third party, the notice shall specify, if
known, the amount or an estimate of the amount of the
liability arising therefrom. Should the parties hereto be
unable to agree as to the amount of indemnification or the
date payment is to be made, the claim shall be
<PAGE> 16
submitted to binding arbitration subject to the rules of
the American Arbitration Association.
12. Survival of Representations and Warranties. Each statement,
representation, warranty, indemnity, covenant and agreement made by any party
hereto shall (i) survive any audit or investigation by or on behalf of any other
party hereto and (ii) survive the Closing Date for a period of one year, unless
any other party hereto gives written notice to such party prior to the
expiration of such one year period of the assertion of any claim for liability
under this Agreement, in which case they shall survive until the final
settlement or judicial resolution of such claim.
13. Notices. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
three days after mailing by first class registered mail, return receipt
requested, or one day after delivery to an overnight courier, addressed to the
parties at the addresses set forth herein or as each party may from time to time
designate. A copy of any notice given to Lender shall be sent in accordance with
this Section 13 to Kenneth Rose at Morse, Zelnick, Rose & Lander, LLP, 450 Park
Avenue, Suite 902, New York, New York 10022. A copy of any notice given to the
Company shall be sent in accordance with this Section 13 to James M. Jenkins at
Harter, Secrest & Emery, 700 Midtown Tower, Rochester, New York 14604.
14. Additional Covenants.
(a) Public Announcements. Prior to the Closing, each of the
Company and the Lender covenants and agrees to refrain
from issuing any public announcement, statement or
communication regarding the matters contemplated hereby
without first notifying the other party, providing them
with a copy of the text thereof and requesting written
consent thereto, which shall not be unreasonably withheld.
15. Termination Rights. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual written consent of the Company and the Lender;
(b) by the Company, if there has been a material
misrepresentation, breach of covenant or breach of
warranty of the Lender's respective representations,
warranties and covenants as set forth herein;
(c) by the Lender, if there has been a material
misrepresentation, breach of covenant or breach of
warranty of the Company's representations, warranties and
covenants set forth herein;
<PAGE> 17
(d) by the Company, if any of the conditions provided in
Section 10 herein have not been met at the Closing and
have not been waived by the Company;
(e) by the Lender if any of the conditions provided in Section
9 herein have not been met at the Closing and have not
been waived by the Lender;
(f) by either party if the Closing has not occurred on or
before September 30, 1996.
16. Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 15
herein, this Agreement shall be of no further force and
effect and there shall be no further liability hereunder
on the part of either party or its affiliates, directors,
officers, shareholders, agents or other representatives.
(b) Notwithstanding anything to the contrary contained herein,
the provisions of Sections 15 and 16 shall survive any
termination of this Agreement.
17. Miscellaneous.
(a) This writing, together with the Schedules and Exhibits
annexed hereto, constitutes the entire agreement of the
parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto,
and may not be modified, amended or terminated except by a
written agreement signed by the parties hereto.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party
giving such waiver. No delay or omission to exercise any
right or remedy against any party hereto shall be
construed to be a waiver thereof.
(c) This Agreement shall be binding upon and inure to the
benefit of the Lender, its successors and assigns. The
Lender may assign this Agreement to an affiliate.
(d) The section and paragraph headings contained herein are
for the purposes of convenience only and are not intended
to define or limit the contents of said sections or
paragraphs. Words and definitions in the singular shall be
read and construed as though in the plural, and vice
versa, unless the context otherwise requires, and words in
the masculine, neuter or feminine gender shall be read and
construed as though in either of the other genders where
the context so requires.
<PAGE> 18
(e) Each party hereto shall cooperate, shall take such further
action and shall execute and deliver such further
documents as may be reasonably requested by any other
party in order to carry out the provisions and purposes of
this Agreement.
(f) This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed
one original.
(g) Unless the context otherwise requires, (a) all references
to Sections, Articles, Schedules or Exhibits are to
Sections, Articles, Schedules or Exhibits of or to this
Agreement, (b) each term defined in this Agreement has the
meaning so assigned to it, (c) each accounting term not
otherwise defined in this Agreement has the meaning
assigned to it in accordance with the GAAP, (d) all
references to the "knowledge" of a party will be deemed to
refer to the actual knowledge of such party after due
inquiry, (e) all references to a party's "best efforts"
and references of like import will be deemed to refer to
the best efforts of such party in accordance with
reasonable commercial practice and without incurring
unreasonable expense, and (g) as used in this Agreement, a
"material" change shall be interpreted as referring to a
change or effect that has a significant impact on a
party's business as a whole.
(h) No provision of this Agreement will be interpreted in
favor of, or against, any party by reason of the extent to
which any such party or its counsel participated in the
drafting thereof or by reason of the extent to which any
such provision is inconsistent with any prior draft of
such provision or of this Agreement.
(i) Except as previously provided herein, nothing contained in
this Agreement is intended to confer upon any person,
other than the parties and their successors and permitted
assigns, any rights or remedies under or by reason of this
Agreement.
(j) This Agreement and all amendments hereof shall be governed
by construed and enforced in accordance with the internal
laws of the State of New York, without regard to such
state's laws regarding the conflict of laws.
<PAGE> 19
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
VGBS ACQUISITION CORPORATION
By: /s/ James A. Villa
-------------------------------------
Name: James A. Villa
Title: President
THE VILLAGE GREEN BOOKSTORE, INC.
By: /s/ Raymond C. Sparks
-------------------------------------
Name: Raymond C. Sparks
Title: President and Chief
Executive Officer
<PAGE> 20
CREDIT AGREEMENT
BETWEEN
VGBS ACQUISITION CORPORATION
AND
THE VILLAGE GREEN BOOKSTORE, INC.
IDENTIFICATION OF CONTENTS OF OMITTED SCHEDULES AND EXHIBIT
<TABLE>
<CAPTION>
SCHEDULE OR EXHIBIT
<S> <C>
Schedule 2(a): Timing of Draws
Schedule 2(b): List of Debentureholders and the Principal Amount Owed to
Each Debentureholder
Schedule 2(c): Financial Consulting Agreement With Bright Capital Group,
LLC
Schedule 5(a): Organization, Standing and Qualification
Schedule 5(b): List of Subsidiaries
Schedule 5(e): Capital Obligations
Schedule 5(g)(i): Unaudited Balance Sheet dated June 30, 1996
Schedule 5(g)(ii): Projections
Schedule 5(g)(iii): Projected Settlement Costs
Schedule 5(h): Liabilities
Schedule 5(j): Changes and Events
Schedule 5(k): Litigation
Schedule 5(n)(i): Leases
Schedule 5(n)(ii): Tangible Personal Property
Schedule 5(n)(iii): Trademarks
Schedule 5(n)(iv): Insurance
Schedule 5(n)(v): Material Agreements
Schedule 5(n)(vi): Intellectual Property
Schedule 5(n)(vii): Tangible Personal Property Leases
Schedule 5(n)(viii): Stock Options and Warrants
Schedule 5(n)(ix): Employment and Employee Benefit Agreements
Schedule 5(n)(x): Other Material Agreements
Schedule 5(n)(xi): Employees Earning More Than $100,000 Per Year
Schedule 5(n)(xii): Officers, Directors and Bank Accounts
Exhibit (9)(i): Notices to Debentureholders
</TABLE>
<PAGE> 1
EXHIBIT 2(b)
THE VILLAGE GREEN BOOKSTORE, INC.
SENIOR SECURED PROMISSORY GRID NOTE
$1,200,000.00 ROCHESTER, NEW YORK
SEPTEMBER 25, 1996
FOR VALUE RECEIVED, THE VILLAGE GREEN BOOKSTORE, INC., having an address
at 1357 Monroe Avenue, Rochester, New York 14618 ("Maker"), hereby promises to
pay to the order of the VGBS ACQUISITION CORP., having an address at 1895 Mt.
Hope Avenue, Rochester, New York 14620 ("Payee" or "Holder"), the principal sum
of up to One Million Two Hundred Thousand Dollars ($1,200,000.00) (the "Maximum
Amount") or the outstanding principal amount of this Grid Note (the "Outstanding
Amount"), if less, upon the following terms:
(k) INTEREST RATE; PAYMENT PERIOD. Interest on this Note shall accrue at
the rate of 9% per annum. Interest and Principal on the Note shall be payable
quarterly in arrears with the first payment of principal and interest to be made
on June 30, 1997. Each payment shall be in an amount equal to the then
outstanding principal amount divided by the remaining principal payments plus
accrued interest and shall be made on the fifth day following the end of the
quarter. Equal successive payments of interest and principal shall be made
quarterly for a period of 3 years, with the first such quarterly installment due
on June 30, 1997 for the period ended June 25, 1997. This Grid Note shall mature
on June 30, 2000.
(l) PLACE OF PAYMENT. Payments shall be made to the attention of
President, VGBS Acquisition Corp., 1895 Mt. Hope Avenue, Rochester, New York
14620, or at such other address as Payee may designate to Maker in writing.
(m) NEGOTIABILITY. This Note is negotiable and may be transferred by
Payee to its affiliates and such successors and assigns as may be permitted by
Maker upon the written consent of the Maker, which consent shall not be
unreasonably withheld.
(n) PREPAYMENT. Maker shall have the right to prepay any and all amounts
due under this Note at any time, without penalty and without advance notice to
Payee.
5. CONSIDERATION. This Grid Note is issued by Maker to Holder in
consideration of a certain line of Credit Agreement made available by Holder to
Maker dated September 16, 1996.
6. PURPOSE. Maker certifies that all loans made by Payee hereunder will
be used by the Maker to pay the principal amount of the Maker's $1,200,000 7%
Convertible Senior Subordinated Debentures due 1996 (the "Debentures"). Maker
further certifies that pursuant to Section 8 below, Maker shall request that all
draws under this Grid Note be delivered in
<PAGE> 2
accordance with the Credit Agreement for distribution to the Debentureholders
listed on Schedule 6 attached hereto.
7. SUBORDINATION. Except as set forth in Section 8 below, this Grid Note
is senior to all indebtedness currently outstanding or subsequently incurred
except with respect to up to $500,000 of inventory financing of the Maker.
8. TIMING OF BORROWING. Subject to the terms and conditions of the
Credit Agreement, Payee shall permit Maker to draw under this Grid Note the sums
listed on Schedule 8 hereto at the dates listed on such Schedule 8. Failure by
Payee to provide the funds within 20 days of each such date listed on Schedule 8
shall result in an immediate default under this Grid Note by Payee such that the
rights of the Debentureholders relating to any remaining outstanding amounts
shall immediately be senior to any payment rights due Payee under this Grid
Note.
9. HOLDER'S RECORDS. Holder shall set forth on a schedule attached to
this Note or maintained on computer, the date and original principal amount of
each amount loaned to Maker hereunder and the date and amount of each payment to
be applied to the Outstanding Amount of this Grid Note. The Outstanding Amount
set forth on any such schedule shall be presumptive evidence of the Outstanding
Amount of this Grid Note and of all loans made hereunder. No failure by Holder
to make, and no error by Holder in making any annotation on any such schedule
shall effect Maker's obligation to pay the principal amount due and payable
pursuant to this Grid Note.
10. EVENTS OF DEFAULT. Upon the occurrence of any of the following
events of default, Payee may, upon ten (10) days prior written notice to Maker,
declare the entire indebtedness evidenced by this Grid Note to be due and
payable:
(i) default in the payment of any installment in any payment due
hereunder for a period of 20 days beyond the due date of such payment;
(ii) the insolvency of Maker or the appointment of a receiver or
liquidator, whether voluntary or involuntary, for Maker or for any of Maker's
property; the filing by Maker of a petition under the provisions of any state
insolvency law, or the Bankruptcy Code, as now in effect or hereafter amended;
the filing against Maker of a petition for adjudication as a bankrupt, which
petition is not discharged within ninety (90) days from the date of entry; the
granting by Maker of an assignment for the benefit of Maker's creditors; or the
institution by Maker of any other type of insolvency proceeding (under
bankruptcy laws or otherwise) or proceeding for the settlement of claims against
Maker; or the institution against Maker of any other type of insolvency
proceeding (under the bankruptcy laws or otherwise) or proceeding for the
settlement of claims against Maker, which proceeding has not been discharged or
otherwise terminated by Maker within ninety (90) days from entry;
(iii) the taking of any judgment against Maker, which judgment is
not paid, discharged, stayed or bonded within sixty (60) days from the entry
thereof;
<PAGE> 3
d. any default by the Maker under the Security Agreement of even
date herewith;
e. the breach of any representation, warranty or covenant in the
Credit Agreement, the Security Agreement or Warrant, each of even date herewith;
f. upon the occurrence of any event in this Section 10, the
interest rate on the principal amount then due under this Grid Note shall
increase to 18%.
11. ADJUSTMENT OF WARRANT EXERCISE PRICE. Upon an event of default under
this Note, the exercise price of the Warrant shall be reduced to $.25 per share.
12. NOTICES. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Note shall be in
writing and shall be deemed to have been duly given when personally delivered or
three days after mailing by first class registered mail, return receipt
requested, or one day after delivery to an overnight courier, addressed to the
parties at the addresses set forth herein or as each party may from time to time
designate. A copy of any notice given to Holder shall be sent in accordance with
this Section 12 to Kenneth Rose at Morse, Zelnick, Rose & Lander, LLP, 450 Park
Avenue, Suite 902, New York, New York 10022. A copy of any notice given to the
Maker shall be sent in accordance with this Section 12 to James M. Jenkins at
Harter, Secrest & Emery, 700 Midtown Tower, Rochester, New York 14604.
13. NO WAIVER. No failure on the part of Payee to exercise, and no delay
in exercising any of the rights provided for herein shall operate as a waiver
thereof, nor shall any single or partial exercise by Payee of any right preclude
any other or future exercise thereof or the exercise of any other right.
14. GOVERNING LAW. This Note is to be interpreted and construed
according to the laws of the State of New York applicable to contracts made and
to be performed entirely in New York State, without giving effect to such
state's conflict of laws principles.
15. BINDING EFFECT. This Note is binding on the representatives,
successors, heirs, and transferees of the parties.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed
and delivered as of the date set forth below.
THE VILLAGE GREEN BOOKSTORE, INC.
By: /s/ Raymond C. Sparks
-------------------------------------
Raymond C. Sparks
Chief Executive Officer
<PAGE> 4
SENIOR SECURED PROMISSORY GRID NOTE
EXECUTED BY
THE VILLAGE GREEN BOOKSTORE, INC.
IN FAVOR OF
VGBS ACQUISITION CORPORATION
IDENTIFICATION OF CONTENTS OF OMITTED SCHEDULES AND EXHIBIT
<TABLE>
<CAPTION>
SCHEDULE OR EXHIBIT
<S> <C>
Schedule G: List of Debentureholders
Schedule F: Timing of Draws
Exhibit A: Warrant to Purchase up to 2,400,000 Shares of Common Stock,
Par Value $.001 Per Share*
<FN>
- --------
* This omitted Exhibit is attached to this Form 8-K as Exhibit 2(c).
</TABLE>
<PAGE> 1
EXHIBIT 2(c)
WARRANT TO PURCHASE UP TO 2,400,000 SHARES OF COMMON STOCK
WARRANT
Dated: September 25, 1996
THIS CERTIFIES THAT VGBS ACQUISITION CORP., a New York corporation
(herein sometimes called the "Holder") is entitled to purchase from THE VILLAGE
GREEN BOOKSTORE, INC., a New York corporation (the "Company"), at the price and
during the period hereinafter specified, up to 2,400,000 shares of the Common
Stock, $.001 par value, of the Company (the "Common Stock"). Each Warrant
("Warrant") is exercisable to purchase one share of Common Stock at any time
commencing on September 16, 1996, and ending on September 15, 2001, at an
exercise price of $.50 per share or as otherwise provided in Section 1 hereof.
This Warrant is issued in consideration of a Credit Agreement for an amount of
up to $1,200,000 extended to the Company by the Holder for use by the Company in
paying the principal amount due under the Company's $1,200,000 7% Convertible
Senior Subordinated Debentures due 1996. The Company has issued a Negotiable
Promissory Grid Note for up to $1,200,000 (the "Promissory Note") to the Holder
pursuant to the Credit Agreement. Except as otherwise expressly provided herein,
the shares of Common Stock issued upon exercise of this Warrant shall bear the
same terms and conditions described under the caption "Description Of
Securities" in the Company's registration statement (File No. 33-88376) on Form
SB-2, except such Common Stock will not be registered under the Securities Act
of 1933, as amended (the "Act"). Each certificate evidencing the Common Stock
shall bear the appropriate restrictive legend set forth below, except that any
such certificate shall not bear such restrictive legend if (a) it is transferred
in compliance with Rule 144 or Rule 144A promulgated under the Act, or (b) the
Company is provided with an opinion of counsel to the effect that such legend is
not required in order to establish compliance with the provisions of the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
COPIES OF THE WARRANT RESTRICTING THE TRANSFER OF THESE SECURITIES MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE OFFICE OF
THE COMPANY AT ROCHESTER, NEW YORK."
<PAGE> 2
Unless the context otherwise requires, all references herein to a "Section"
shall mean the appropriate Section of this Warrant.
1. EXERCISE PRICE AND PERIOD. The rights represented by this Warrant
shall be exercisable at $.50 per share (the "Exercise Price") or by cancellation
of outstanding indebtedness under the Promissory Note (as described below)
effective as of September 16, 1996 through September 15, 2001 (the "Expiration
Date") payable at Holder's sole discretion in cash or by reduction or
cancellation of outstanding indebtedness under the Senior Secured Promissory
Grid Note. Only VGBS or its successors or assigns shall be allowed to exercise
this Warrant for a reduction in the amount due VGBS under the Promissory Note.
Any exercise of this Warrant must be made in accordance with Section 2 hereof.
After the Expiration Date, the Holder shall have no right to purchase any Common
Stock hereunder.
2. EXERCISE. The rights represented by this Warrant may be exercised,
in whole or in part, by the Holder at any time within the periods specified in
Section 1 by: (a) surrender of this Warrant for cancellation (with the purchase
form at the end hereof properly executed) at the principal executive office of
the Company (or at such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company); and (b) payment of the exercise price.
This Warrant shall be deemed to have been exercised, in whole or in part to the
extent specified, immediately prior to the close of business on the date on
which all of the provisions of this Section 2 are satisfied, and the person(s)
designated in the purchase form shall become the holder(s) of record of the
shares of Common Stock issuable upon such exercise at that time and date. The
certificates representing the shares of Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten business
days, after this Warrant shall have been so exercised.
3. TRANSFER OF WARRANT. Any transfer of this Warrant shall be effected
by: (i) surrender of this Warrant for cancellation (with the assignment form at
the end hereof properly executed) at the office or agency of the Company
referred to in Section 2; (ii) delivery of a certificate (signed, if the Holder
is a corporation or partnership, by an authorized officer or partner thereof),
stating that each transferee designated in the assignment form is a permitted
transferee under this Section 3; and (iii) delivery of an opinion of counsel
stating that the proposed transfer may be made without registration or
qualification under applicable Federal or state securities laws. This Warrant
shall be deemed to have been transferred, in whole or in part to the extent
specified, immediately prior to the close of business on the date the provisions
of this Section 3 are satisfied, and the transferee(s) designated in the
assignment form shall become the holder(s) of record at that time and date. Any
transfer of this Warrant may be made to an affiliate of the Holder or to
successors or assigns of the Holder upon the written consent of the Company,
such consent not to be unreasonably withheld. The Company shall issue, in the
name(s) of the designated transferee(s) (including the Holder if this Warrant
has been transferred in part) a new Warrant or Warrants of like tenor and
representing, in the aggregate, rights to purchase the same numbers of Common
Stock as are then purchasable under this Warrant. Such new Warrant or Warrants
shall be delivered to the record holder(s) thereof within a reasonable time, not
exceeding ten business days, after the rights represented by this Warrant shall
have
<PAGE> 3
been so transferred. As used herein (unless the context otherwise requires), the
term "Holder" shall include each such transferee, and the term "Warrant" shall
include each such transferred Warrant.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
shares of Common Stock which may be issued upon exercise of this Warrant, shall,
upon issuance in accordance with the terms hereof, be duly and validly issued,
fully paid and non-assessable, with no personal liability attaching to the
Holder thereof. The Company further covenants and agrees that during the period
within which this Warrant may be exercised, the Company shall at all times have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of this Warrant.
5. SHAREHOLDERS' RIGHTS. This Warrant shall not entitle the Holder to
any voting rights or other rights as a shareholder of the Company.
6. ANTI-DILUTION. In the event that the outstanding shares of Common
Stock are changed into or exchanged for a different number or kind of shares or
other security of the Company or of another corporation through reorganization,
merger, consolidation, liquidation, recapitalization, or at any time increased
or decreased in number due to a stock split, reverse split, combination of
shares or stock dividends payable with respect to such Common Stock, appropriate
adjustments shall be made in the number and kind of such securities then subject
to this Warrant and in the Exercise Price of this Warrant effective as of the
date of such occurrence, so that the position of the Holder upon exercise of
this Warrant shall be the same as it would have been had it owned immediately
prior to the occurrence of such event the Common Stock subject to this Warrant;
provided, however, that in no event shall two adjustments be made for the same
event. For example, if the Company declares a 2-for-1 stock dividend or stock
split, then the number of shares of Common Stock then subject to this Warrant
shall be doubled, and the Share Exercise Price shall each be reduced by 50
percent; such adjustments shall be made successively whenever any event
described by this Section 7 shall occur.
7. PRE-EMPTIVE RIGHTS. Provided that this Warrant remains outstanding,
the Holder shall have pre-emptive rights to purchase any additional shares of
Common Stock issued by the Company during the term of this Warrant on the same
terms as such Common Stock is offered to third parties, such that the position
of the Holder upon exercise of this Warrant shall be the same as it would have
been had such Holder owned immediately prior to the occurrence of such event all
of the Common Stock subject to this Warrant.
8. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State without reference to its
principles of conflicts of laws.
9. AMENDMENT OR WAIVER. Any provision of this Warrant may be amended,
waived or modified upon the written consent of the Company; provided, however,
that such amendment, waiver or modification applies by its terms to each Holder;
and provided
<PAGE> 4
further, that a Holder may waive any of its rights or the Company's obligations
to such Holder without obtaining the consent of any other Holder.
IN WITNESS WHEREOF, THE VILLAGE GREEN BOOKSTORE, INC. has caused this
Warrant to be signed by its duly authorized officers under its corporate seal
and to be dated as of the date set forth on the first page hereof.
THE VILLAGE GREEN BOOKSTORE, INC.
By: /s/ Raymond C. Sparks
-------------------------------------
Name: Raymond C. Sparks
Title: President and Chief
Executive Officer
<PAGE> 5
PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the Holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ________ shares of the Common Stock, $.001 par
value per share, of THE VILLAGE GREEN BOOKSTORE, INC. (the "Company") and (fill
in where applicable):
(i) herewith makes payment of an aggregate of $____________
therefor; and/or
(ii) herewith agrees to reduce the principal amount due under the
Promissory Note between the Company and the Holder by
$___________, such that the total amount now due and payable
under said Promissory Note is equal to $________.
The undersigned requests that the certificates for the shares of such
Common Stock be issued in the name(s) of, and delivered to, the person(s) whose
name(s) and address(es) are set forth below:
Dated: _____________________
__________________________________
Name
__________________________________
Address
Signatures guaranteed by:
_____________________________
Taxpayer Identification Number:
_____________________________
<PAGE> 6
TRANSFER FORM
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto ___________________________________________ the right to purchase
_____ shares of the Common Stock, $.001 par value per share, of THE VILLAGE
GREEN BOOKSTORE, INC. (the "Company") and appoints ________________________
attorney to transfer such rights on the books of the Company, with full power of
substitution in the premises.
Dated: _____________________
___________________________________
Name
___________________________________
Address
Signatures guaranteed by:
_____________________________
Taxpayer Identification Number:
_____________________________
<PAGE> 1
EXHIBIT 2(d)
SHAREHOLDERS' VOTING AGREEMENT
AND IRREVOCABLE PROXY
SHAREHOLDERS' VOTING AGREEMENT (the "Agreement") made this 25th day of
September, 1996 by and among VGBS Acquisition Corporation, a New York
corporation ("VGBS"), Steven B. Sands, Martin S. Sands, Sands Brothers, Ltd.,
John P. Holmes and Raymond C. Sparks (each of the foregoing parties to this
Agreement is hereinafter referred to individually as a "Shareholder" and
collectively as the "Shareholders").
WHEREAS, the Shareholders are the owners of issued and outstanding
shares of Common Stock, par value $.001 per share (the "Stock"), of The Village
Green Bookstore, Inc.
(the "Company").
WHEREAS, it being in the best interests of the Company and the
Shareholders, the Shareholders desire to enter into an agreement to be
specifically enforceable against each Shareholder pursuant to which each
Shareholder agrees to vote his Stock in the manner and for the purposes
specified herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and the sum of Five Dollars ($5.00), the Shareholders hereby agree as
follows:
1. Voting Agreement. Each Shareholder, individually and on behalf of all
of his respective assigns, successors, affiliates, limited partnerships,
subsidiaries and divisions, and with respect to any Stock beneficially owned,
directly or indirectly, including any trust over which such Shareholder
exercises control, agrees to grant VGBS or any entity to which VGBS assigns its
rights under that Credit Agreement between VGBS and the Company dated September
25, 1996 (the "Line of Credit Agreement"), the absolute right to vote all Stock
of the Company held by such Shareholder, whether such shares of Stock are
presently owned or hereinafter acquired, on any and all corporate matters which
are presented by the Company to its shareholders for a vote.
2. Irrevocable Proxy. In order to insure the voting of the Shareholders
in accordance with this Agreement, each Shareholder agrees to execute an
irrevocable proxy simultaneously with the execution of this Agreement in the
form attached hereto as Exhibit A. Such irrevocable proxy grants to VGBS, or to
any entity to which VGBS assigns its rights under the Line of Credit Agreement,
the right to vote or to execute and deliver Shareholder written consents in
respect of all Stock now owned or hereafter registered in the name of each
Shareholder. It is understood and agreed that such irrevocable proxy gives VGBS
or its assigns the absolute right to vote the respective shares of Stock of the
Company held by each Shareholder, whether currently owned or hereafter acquired,
on any and all corporate matters which are presented by the Company to its
shareholders for a vote.
<PAGE> 2
3. Legended Certificates. Each Shareholder agrees to the placement of a
legend on each of his stock certificates representing shares of stock covered by
this Agreement stating that such shares are restricted by this Voting Agreement.
4. Changes in Common Stock. In the event that subsequent to the date of
this Agreement, any stock or other securities are issued on, or in exchange for,
any of the shares of Stock held by the Shareholders by reason of any stock
dividend, stock split, consolidation of shares, reclassification, or
consolidation involving the Company, such securities shall be deemed to be Stock
for purposes of this Agreement.
5. Representations of Shareholders. Each Shareholder hereby represents
and warrants to each of the other Shareholders and to VGBS that (i) Exhibit B
attached hereto includes all shares owned directly or indirectly by him and all
shares over which he has the right to vote; (ii) he has full power to enter into
this Agreement and has not, prior to the date of this Agreement, executed or
delivered any proxy or entered into any other voting agreement or similar
arrangement other than one which has expired or terminated prior to the date
hereof; and (iii) he will not take any action inconsistent with the purposes and
provisions of this Agreement.
6. Enforceability. Each Shareholder agrees that this Agreement shall be
governed by and construed with the laws of the State of New York applicable to
agreements made and to be performed entirely in such state, without regard to
such state's laws respecting the conflict of laws. Each Shareholder agrees that
the terms of this Agreement are specifically enforceable by any New York court
of competent jurisdiction.
7. General Provisions.
(a) All of the covenants and agreements contained in this
Agreement shall be binding upon, and inure to the benefit of, the respective
parties and their successors, assigns, heirs, executors, administrators and
other legal representatives, as the case may be.
(b) This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together shall
constitute one and the same instrument.
(c) This Agreement shall remain in effect from the date set forth
hereof until September 15, 2001.
(d) If any provision of this Agreement shall be declared null,
void or unenforceable by any court or administrative board, such provision shall
be deemed to have been severed from the remainder of this Agreement and this
Agreement shall continue in all other respects to be valid and enforceable.
(e) No waivers of any breach of this Agreement extended by any
party hereto to any other party shall be construed as a waiver of any rights or
remedies of any other party hereto or with respect to any subsequent breach.
<PAGE> 3
(f) Whenever the context of this Agreement shall so require, the
use of the singular shall also include the plural and the use of any gender
shall include both genders.
IN WITNESS WHEREOF, each Shareholder has executed this Agreement on the
date and year first above written.
SANDS BROTHERS, LTD.
By: /s/ Steven B. Sands
-------------------------------------
Name: Steven B. Sands
Title: Chairman
/s/ John P. Holmes
-------------------------------------
JOHN P. HOLMES
/s/ Raymond C. Sparks
-------------------------------------
RAYMOND C. SPARKS
/s/ Steven B. Sands
-------------------------------------
STEVEN B. SANDS
/s/ Martin S. Sands
-------------------------------------
MARTIN S. SANDS
VGBS ACQUISITION CORPORATION
By: /s/ James A. Villa
-------------------------------------
Name: James A. Villa
Title: President
<PAGE> 4
SHAREHOLDERS' VOTING AGREEMENT AND IRREVOCABLE PROXY
BY AND AMONG
VGBS ACQUISITION CORPORATION,
SANDS BROTHERS, LTD.,
JOHN P. HOLMES,
RAYMOND C. SPARKS,
STEVEN B. SANDS AND
MARTIN S. SANDS
IDENTIFICATION OF CONTENTS OF OMITTED EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A: Irrevocable Proxy
Exhibit B: List of Shares Owned by Shareholders
</TABLE>
<PAGE> 1
EXHIBIT 2(e)
SECURITY AGREEMENT
THIS AGREEMENT has been made on this 25th day of September, 1996 by and
between THE VILLAGE GREEN BOOKSTORE, INC., having an address at 1357 Monroe
Avenue, Rochester, New York 14618 ("Debtor"), and VGBS ACQUISITION CORP. (the
"Secured Party"), having an address at 1895 Mt. Hope Avenue, Rochester, New York
14620.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
SECURITY INTEREST
1. Debtor hereby grants a present security interest in and assigns to
Secured Party the collateral described in Article II hereof (the "Security
Interest") to secure payment and performance of all debts, liabilities and
obligations of Debtor to Secured Party arising under the Senior Secured
Promissory Grid Note dated of even date herewith (the "Note") attached hereto as
Exhibit A.
B. The Security Interest granted herein shall become null and void upon
the repayment or cancellation of the entire outstanding indebtedness under the
Note.
C. The Security Interest granted herein shall become subordinate to the
interests of the holders of the Debentures in the event the Secured Party fails
to provide funds to the Debtor in accordance with the terms and conditions of
the Senior Secured Promissory Note and the Credit Agreement, all dated of even
date herewith. In the event of such a failure to provide said funds to the
Debtor, the Secured Party shall file a UCC financing statement subordinating its
Security Interest to the Company within five business days.
D. In the event of a default by Secured Party under Section 10 of the
Note, the Secured Party shall file a UCC financing statement subordinating its
interest to holders of the Debtor's 7% Convertible Senior Subordinated
Debentures due 1996 (the "Debentures") upon the written request of 51% of the
holders of principal representing the Company's outstanding indebtedness
underlying the Debentures.
COLLATERAL
The collateral which is subject to the Security Interest and to this
Security Agreement is all of the assets of Debtor described in this Article II
(collectively called the "Collateral"):
1. all accounts receivable, notes, drafts, and other forms of
obligations heretofore received by or owing to Debtor, whether arising from the
sale of goods or the rendering of services by Debtor or otherwise (including
without limitation, for the purposes of this definition, any such obligation
that might be characterized as an account, contract right,
<PAGE> 2
instrument, general intangible or chattel paper under the Uniform Commercial
Code as in effect in any jurisdiction), all of Debtor's rights in, to and under
all purchase orders heretofore, now or hereafter received by Debtor for goods or
services, and all moneys due or to become due to Debtor under all contracts for
the sale of goods and the performance of services by Debtor (whether or not yet
earned by performance) or in connection with any other transaction (all of the
foregoing being collectively called the "accounts"), and in and to all rights
and remedies which Debtor might exercise with respect thereto but for the
execution of this Security Agreement;
B. all inventory now or hereafter owned or acquired by Debtor, including
without limitation goods held for sale or lease or to be furnished under
contracts of service, raw materials, work in progress, materials to be used or
consumed in Debtor's business, all documents covering such inventory, and all
such inventory which is returned or repossessed;
C. all goods, machinery, equipment, motor vehicles, furniture, fixtures,
parts thereof, accessories thereto and special tools which are now owned by
Debtor or in which Debtor has an interest, or which Debtor may purchase or in
which Debtor may acquire an interest at any time and from time to time in the
future, and all additions and accessions thereto;
D. all other assets real, personal or mixed, tangible or intangible, of
every kind and description, wherever located which are owned by Debtor or in
which Debtor has an interest, or which Debtor may purchase or in which Debtor
may acquire an interest at any time and from time to time in the future, and all
additions and accessions thereto and any and all profits and products thereof or
accruing thereto; and
E. all of the proceeds of any of the foregoing in any form, including
insurance proceeds.
SENIORITY OF INTEREST
Except in the event of a default by Secured Party pursuant to Section 10
of the Note and except with respect to $500,000 of Inventory Financing, the
Security Interest is and shall be senior to any and all security interests now
existing or hereafter created, with respect to the Collateral.
DEBTOR'S REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants and, so long as any of the obligations
hereunder remain unpaid, shall be deemed continuously to represent and warrant
that:
1. Debtor is the owner of the Collateral free of all security interests,
liens or other encumbrances.
2. Debtor is authorized to enter into this Security Agreement.
<PAGE> 3
3. This Security Agreement is effective to vest in Secured Party the
Security Interest in the Collateral as set forth herein.
4. Debtor is engaged in business operations which are carried on by the
Debtor and its subsidiaries at the addresses specified in Schedule B annexed
hereto.
5. Debtor's records concerning the Collateral are kept at the Debtor's
main address, 1357 Monroe Avenue, Rochester, New York 14618.
6. The Collateral is located at the addresses specified in Schedule B
annexed hereto.
7. The Collateral is used or bought for use primarily for Debtor's
business operations.
COVENANTS OF DEBTOR
So long as any of the obligations hereunder remain unpaid, Debtor
covenants and agrees as follows:
1. Debtor shall defend the Collateral against the claims and demands of
all other parties; except that Debtor need not so defend the Collateral against
purchasers and lessees of inventory in the ordinary course of Debtor's business.
2. Debtor shall keep the Collateral free from all security interests,
liens or other encumbrances.
3. Debtor shall not sell, transfer, assign or otherwise dispose of any
Collateral or any interest therein, except that Debtor may sell or lease
inventory in the ordinary course of Debtor's business until the occurrence of a
default as hereinafter provided.
4. Debtor shall indemnify Secured Party against all claims arising out
of or in connection with Debtor's ownership or use of the Collateral.
5. Debtor shall at all times maintain, in accordance with generally
accepted accounting principles consistently applied, complete and accurate books
and records concerning the Collateral.
6. Debtor shall permit the Secured Party or their agents to inspect the
Collateral, to audit the books and records of Debtor relating to the Collateral
upon reasonable notice and at reasonable times.
7. Debtor shall advise Secured Party promptly in writing, in sufficient
detail, of any substantial change in the Collateral or the occurrence of any
event which would have a material effect on the value of the Collateral as a
whole or on the lien and Security Interest granted to Secured Party hereby.
<PAGE> 4
8. Debtor shall, on Secured Party's reasonable request, execute and
deliver to Secured Party such financing statements and other papers as may be
necessary or appropriate to establish and maintain a valid and prior security
interest in the Collateral. Debtor shall pay all costs of any filings of
financing statements or other papers.
9. Debtor shall promptly notify Secured Party in writing of any change
in any of Debtor's business addresses specified in Schedule B annexed hereto or
the existence of additional locations at which the Collateral or records
concerning it are kept.
10. Debtor shall keep the Collateral in good condition and repair, and
shall not allow it to deteriorate or to be misused, abused or wasted, except for
the ordinary wear and tear of its intended primary use, and shall not use it in
violation of any provisions of this Security Agreement, any applicable statute,
regulation or ordinance, or any policy insuring it.
DEFAULT
Each and any of the following events or conditions shall constitute a
default hereunder:
1. non-payment when due (after expiration of the applicable period of
grace, provided by the Note), whether by acceleration or otherwise, of any other
payment comprising the obligations under the Note;
2. default by Debtor in the performance of any of the material terms,
obligations, covenants or provisions contained or referred to in this Security
Agreement;
3. the insolvency of Debtor; the appointment of a receiver or
liquidator, whether voluntary or involuntary, for Debtor or for any of its
properties; the filing by or against Debtor of a petition under the provisions
of any state insolvency law, or the Bankruptcy Code, as now in effect or
hereafter amended; the making by Debtor of an assignment for the benefit of its
creditors; or the institution by or against Debtor of any other type of
insolvency proceeding (under bankruptcy laws or otherwise) or proceeding for the
settlement of claims against it;
4. the taking of any judgment against Debtor, which judgment is not
paid, discharged, stayed or bonded within 60 days from the entry thereof;
5. the failure of Debtor to pay or discharge any taxes, assessments or
governmental charges upon it, or upon its income or properties, prior to the
date on which penalties are assessed thereon, unless and to the extent only that
such taxes, assessments or governmental charges shall be contested in good faith
and by appropriate proceedings by Debtor;
6. the institution by the Debtor or its agents of any formal or informal
proceeding for the dissolution or liquidation, or the winding up of the affairs,
of Debtor;
<PAGE> 5
SECURED PARTY'S REMEDIES ON DEFAULT
1. On the occurrence of any default, and at any time thereafter, upon 20
days notice to Debtor, Secured Party may:
1. declare any or all of the Obligations secured by this
Security Agreement immediately due and payable; and
Secured Party's rights and remedies with respect to the
Collateral shall be those of a Secured Party under the
Uniform Commercial Code and under any other applicable
law, as the same may from time to time be in effect, in
addition to those rights granted herein; and
2. at Secured Party's option:
a. assemble the Collateral and make it available to
Secured Party at such place, to be designated in
said notice, as is reasonably convenient to both
parties; or
b. require Debtor to liquidate such Collateral in a
timely manner and make the proceeds thereof
immediately available to the Secured Party.
2. After any declaration of default under this Security Agreement, any
payments on or other proceeds of accounts received by Debtor shall be held by
Debtor in trust for Secured Party in the same medium in which received, shall
not be commingled with any assets of Debtor and shall be distributed to Secured
Party following their receipt in the manner provided for in (VII)(A)(2)(b)
above. Debtor shall also promptly notify Secured Party of the return to or
repossession by Debtor of any inventory or goods underlying any account, and
Debtor shall hold the same in trust for Secured Party and shall dispose of the
same as Secured Party directs. After any default, Secured Party may also demand,
collect and sue on the accounts in either Debtor's or Secured Party's name at
the latter's option, with the right to enforce, compromise, settle or discharge
any account, and may endorse Debtor's name on any and all checks, commercial
paper and any other instruments pertaining to the accounts.
3. Any notice given by Secured Party of any sale, disposition or other
intended action hereunder or in connection herewith, whether required by the
Uniform Commercial Code or otherwise, shall constitute reasonable notice to
Debtor if such notice is mailed by regular or certified mail, postage prepaid,
at least ten days prior to such action, to Debtor's address at 1357 Monroe
Avenue, Rochester, New York 14618 or to any other address which Debtor has
specified in writing to Secured Party as the address at which notices hereunder
shall be given to Debtor.
4. Debtor agrees to pay all costs and expenses actually incurred by
Secured Party in enforcing this Security Agreement, in realizing upon any
Collateral and in enforcing and collecting any of the obligations hereunder,
including reasonable attorneys' fees.
<PAGE> 6
5. No act, delay, omission or course of dealing between Debtor and
Secured Party shall be a waiver of any of Secured Party's rights or remedies
under this Security Agreement. A waiver by Secured Party of any rights or
remedies under the terms of this Security Agreement or with respect to any of
the obligations hereunder on any occasion shall not be a bar to the exercise of
any right or remedy on any subsequent occasion. Secured Party may remedy any
default by Debtor hereunder or with respect to any of the obligations hereunder
in any reasonable manner without waiving the default remedied and without
waiving any other prior or subsequent default by Debtor.
OTHER RIGHTS OF SECURED PARTY
1. Debtor hereby authorizes Secured Party, at Debtor's expense, to file
such financing statement or statements relating to the Collateral as Secured
Party at its option may reasonably deem necessary in order to perfect the
Security Interest hereunder, and appoints Secured Party as Debtor's
attorney-in-fact to execute any such financing statement or statements in
Debtor's name to perfect and continue the Security Interest and to protect and
preserve the Collateral.
GENERAL PROVISIONS
1. As used in this Security Agreement, "Debtor" includes Debtor's
successors, assigns, receivers and trustees; and "Secured Party" means VGBS
Acquisition Corp., the holder of the Note attached hereto as Exhibit A.
2. If any provision of this Security Agreement is invalid or
unenforceable under any law, such provision is and will be totally ineffective
to that extent, but the remaining provisions shall be unaffected.
3. Article headings used in this Security Agreement are for convenience
only and are to be given no substantive meaning or significance whatever in
construing the terms and provisions of this Security Agreement.
4. Any requirement of giving notice to Secured Party may be satisfied by
mailing the notice, postage prepaid, to such party at its last known address.
5. This Security Agreement and the transactions evidenced hereby shall
be interpreted, construed, applied and enforced in accordance with the laws of
the State of New York applicable to agreements made and to be performed entirely
within such State, as such laws may from time to time be in effect, without
giving effect to such state's principles respecting the conflict of laws.
6. This Security Agreement, together with the Note, constitute the
entire understanding between the parties with respect to the transactions
contemplated hereby; and no modification, rescission, release, amendment or
waiver (except as provided by this Security Agreement) of any provision of this
Security Agreement shall be made except by a written agreement subscribed by the
Debtor and the Secured Party.
<PAGE> 7
7. All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural, as the identity of the
person or persons may require.
8. The exercise by the Secured Party or failure to exercise any
authority granted it hereunder shall in no way affect Debtor's liability to
Secured Party hereunder or under any the Note; and Secured Party shall not be
under any obligation or duty to exercise any of the powers hereby conferred upon
them, and they shall be without liability for any act or failure to act in
connection with the collection of, or the preservation of any rights with regard
to, any of the Collateral.
IN WITNESS WHEREOF, the parties have duly executed this Security
Agreement on the date first above written.
THE VILLAGE GREEN BOOKSTORE, INC.
By: /s/ Raymond C. Sparks
-------------------------------------
Name: Raymond C. Sparks
Title: President and Chief
Executive Officer
VGBS ACQUISITION CORP.
By: /s/ James A. Villa
-------------------------------------
Name: James A. Villa
Title: President
<PAGE> 8
SECURITY AGREEMENT
BY AND BETWEEN
THE VILLAGE GREEN BOOKSTORE, INC.
AND
VGBS ACQUISITION CORPORATION
IDENTIFICATION OF CONTENTS OF OMITTED EXHIBIT AND SCHEDULE
<TABLE>
<CAPTION>
EXHIBIT OR SCHEDULE
<S> <C>
Exhibit A: $1.2 Million Senior Secured Promissory Grid Note, Dated
September 25, 1996*
Schedule (iv)(B): List of Subsidiaries of the Registrant
</TABLE>
- --------
* This Exhibit is attached to this Form 8-K as Exhibit 2(b).
