AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST __, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
LONDON FOG INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
DELAWARE 2385 36-3425294
(State or other jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number) Identification Number)
</TABLE>
1332 LONDONTOWN BOULEVARD, ELDERSBURG, MARYLAND 21784, (410) 795-5900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
EDWARD M. KRELL
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
LONDON FOG INDUSTRIES, INC.
1332 LONDONTOWN BOULEVARD
ELDERSBURG, MARYLAND 21784
(410) 795-5900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
SUBSIDIARY GUARANTOR REGISTRANTS
<TABLE>
<CAPTION>
EXACT NAME OF SUBSIDIARY GUARANTOR AS PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER STATE OF INCORPORATION CLASSIFICATION CODE NUMBER IDENTIFICATION NUMBER
- --------------------------------------- ------------------------ ----------------------------- ----------------------
<S> <C> <C> <C>
Clipper Mist, Inc. Maryland 2385 52-0910239
London Fog Sportswear, Inc. Delaware 2385 58-1148067
Matthew Manufacturing Co. Inc. Maryland 2385 52-0910348
Pacific Trail, Inc. Washington 2385 91-0502298
PTI Holding Corp. Nevada 2385 36-3857281
PTI Top Company, Inc. Nevada 2385 36-3857280
Star Sportswear Manufacturing Corp. Delaware 2385 04-1865930
The Mounger Corporation Washington 2385 91-0992719
The Scranton Outlet Corporation Delaware 2385 36-2956896
Washington Holding Company Georgia 2385 43-1141194
</TABLE>
----------------
Copies of Communications to:
STUART B. FISHER, ESQ. LAWRENCE H. BUDISH, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL PROSKAUER ROSE LLP
AND SECRETARY 1585 BROADWAY
LONDON FOG INDUSTRIES, INC. NEW YORK, NEW YORK 10036
8 WEST 40TH ST. (212) 969-3000
NEW YORK, NEW YORK 10018
(212) 790-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE(1) AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share ..... 8,614,525 shares $ 5.38 $ 46,346,144 $13,672
10% Senior Subordinated Notes due 2003 ..... $100,000,000 100% $100,000,000 $29,500
principal amount
Total ...................................... $146,346,144 $43,172
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
The Co-Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Co-Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 28, 1998
LONDON FOG INDUSTRIES, INC.
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
8,614,525 SHARES COMMON STOCK
AND
$100,000,000 10% SENIOR SUBORDINATED NOTES DUE 2003
This prospectus covers (i) up to 8,000,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of London Fog Industries, Inc., a
Delaware corporation (the "Company"), that are being offered for resale by
certain selling stockholders of the Company (the "Selling Securityholders"),
(ii) up to 614,525 shares of Common Stock issuable upon the exercise of warrants
to purchase shares of Common Stock (the "Warrants") and (iii) up to $100,000,000
principal amount of 10% Senior Subordinated Notes due 2003 (the "Notes") that
are being offered for resale by the Selling Securityholders. The exercise price
of the warrants is $15.72 per share. Therefore, if all of the Warrants are
exercised, the Company will receive net proceeds of $9,660,333. The Company will
not receive any of the proceeds from the sale of the shares of Common Stock or
the Notes being offered by the Selling Securityholders.
The Notes mature on February 27, 2003, unless previously redeemed. The
Notes bear interest at the rate of 10% per annum from February 27, 1998, or from
the most recent date to which interest has been paid or provided for, payable
semi-annually to holders of record at the close of business on the February 15
or August 15 immediately preceding the interest payment date on March 1 and
September 1 of each year, commencing September 1, 1998. The Notes are
redeemable, in whole or in part, at the option of the Company at any time at the
redemption prices set forth herein, plus accrued and unpaid interest, if any,
thereon to the date of redemption. Upon the occurrence of a Change of Control
(as defined), each holder of the Notes will have the right to require the
Company to repurchase all or any part of such holder's Notes at a price in cash
equal to 101% of the aggregate principal amount of the Notes plus accrued and
unpaid interest, if any, thereon to the date of repurchase.
The Notes are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company pursuant to an Intercreditor and
Subordination Agreement (the "Subordination Agreement"). The Notes are
guaranteed (the "Subsidiary Guarantees"), jointly and severally, on a senior
subordinated basis by the Company's subsidiaries representing substantially all
of the assets, cash flow and operations of the Company (collectively, the
"Subsidiary Guarantors"). The obligations under the Notes are secured, on a
senior subordinated basis, by a pledge of the capital stock of each Subsidiary
Guarantor and by a security interest in substantially all of the assets of the
Company and each Subsidiary Guarantor. As of May 30, 1998, the aggregate
principal amount of Senior Indebtedness of the Company was approximately $90.0
million and the aggregate amount of pari passu Indebtedness (as defined) was
approximately $11.2 million. In addition, as of May 30, 1998, the Company had up
to an additional $110.0 million of available borrowings under the Senior Credit
Facility (as defined), which borrowings would rank senior in right of payment to
the Notes. The Subsidiary Guarantees are subordinated in right of payment to all
existing and future Senior Indebtedness of the Subsidiary Guarantors on the same
basis as the Notes are subordinated to Senior Indebtedness of the Company. The
security interests granted by the Company and the Subsidiary Guarantors for the
benefit of the holders of the Notes are subordinate in priority to the security
interests held by the lender under the Senior Credit Facility in accordance with
the terms of the Subordination Agreement.
Prior to this offering, there has been no public market for the Common
Stock or the Notes and the Company does not intend to list the Common Stock or
the Notes on any securities exchange. The Notes are currently eligible for
trading in the Private Offerings, Resales and Trading through Automatic Linkages
("PORTAL") market. The Company intends to make the Common Stock eligible for
trading in the PORTAL market after the registration statement relating to this
Prospectus is declared effective.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
This Prospectus covers the distribution of shares of Common Stock and Notes
being offered by the Selling Securityholders and the shares of Common Stock
issuable upon exercise of the Warrants. The Common Stock and the Notes being
offered by the Selling Securityholders may be offered and sold from time to time
by the Selling Securityholders through underwriters, dealers or agents or
directly to one or more purchasers in fixed price offerings, in negotiated
transactions, at prices prevailing at the time of sale or at prices related to
such prices. The Common Stock and the Notes may be sold separately from each
other. The Shares issued upon exercise of the Warrants will be freely tradeable
upon issuance, and delivery of this Prospectus will not be required in
connection with such sales. See "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus, including information
under "Risk Factors".
THE COMPANY
The Company is a leading designer, marketer and distributor of quality
men's and women's rainwear and outerwear in the United States. The Company
designs, markets and distributes its products under the Company-owned LONDON
FOG(Reg. TM) and PACIFIC TRAIL(Reg. TM) and related brand names, as well as
under the DOCKERS(Reg. TM), LEVI'S(Reg. TM) and SPERRY(Reg. TM) labels pursuant
to licenses from the owners thereof, and sells its products through most major
channels of distribution in its markets. The Company believes it has a dominant
share of the men's rainwear market in department stores and a significant share
of the men's outerwear and women's rainwear and outerwear markets in department
stores. The Company also distributes its products to specialty retailers
(including sport specialty retailers), national and regional chain stores, and
discount and off-price retailers. In addition, the Company generates a
significant portion of its sales from distributing its products through
Company-operated retail stores. As of May 30, 1998, the Company operated 134
factory outlet stores, eight superstores and three Weather Stores(TM). In Fiscal
1998, the Company had net sales of approximately $336 million.
The Company's products marketed under the LONDON FOG(Reg. TM) and the
related FOG(Reg. TM) and TOWNE(Reg. TM) brands and under the SPERRY(Reg. TM)
brand (licensed to the Company by the owner thereof) are referred to as the
"London Fog Products" and the products marketed under the PACIFIC TRAIL(Reg.
TM), INSIDE EDGE(Reg. TM) and BLACK DOT(Reg. TM) brands, and under the
DOCKERS(Reg. TM) and LEVI'S(Reg. TM) brands (licensed to the Company by the
owner thereof) are referred to as "Pacific Trail Products".
BUSINESS STRENGTHS
Management believes that the Company has several competitive advantages
which are important to its business, including the following:
IMAGE AND CONSUMER RECOGNITION. The LONDON FOG(Reg. TM) brand name was
introduced in 1954 and has become one of the most well known apparel brand names
in the United States, with a strong reputation for quality and value. The LONDON
FOG(Reg. TM) brand name ranked 6th in the 1997 Fairchild 100 Consumer Survey of
the most recognizable apparel and accessory brands. In the same survey, the
LONDON FOG(Reg. TM) brand name ranked 1st among the outerwear brands. The
Company has capitalized on the strength of the LONDON FOG(Reg. TM) brand name by
expanding from its initial roots in formal men's rainwear to a broad range of
rainwear, outerwear and related products each providing consumers with the
quality, functionality and value they expect from the LONDON FOG(Reg. TM) brand.
In addition, the PACIFIC TRAIL(Reg. TM) brand has developed a strong and growing
niche as a competitively priced brand which targets value-conscious consumers
who seek authentic, quality outerwear for recreational activities and casual
wearing occasions. Management believes that the Company will be able to continue
to capitalize on the strength of its brands by expanding into additional product
categories, such as sportswear, and utilizing a sub-branding strategy to enable
product and distribution channel extensions while preserving the identity of the
LONDON FOG(Reg. TM) and PACIFIC TRAIL(Reg. TM) brand names.
BROAD AND DIVERSIFIED DISTRIBUTION CHANNELS. The Company sells its products
through a varied array of distribution channels. The Company believes that its
ability to distribute its products through varied wholesale distribution
channels (including department stores, specialty retailers, sport specialty
retailers, national and regional chain stores, and discount and off-price
retailers) and through its own retail stores (factory outlet stores and new
retail concept stores) places the Company at a competitive advantage by reducing
the Company's dependency on any one distribution channel.
2
<PAGE>
RETAILING AS A COMPETITIVE ADVANTAGE. For Fiscal 1998, approximately 42% of
the Company's net sales were generated through its retail stores, predominantly
through its factory outlet stores. The Company's factory outlet stores are
located in many of the primary outlet malls throughout the United States and the
Company expects to open 20-25 additional factory outlet stores this year. The
Company believes that operating its own retail stores provides the Company with
the following advantages: (i) mitigating the Company's inventory risk by
providing a controlled channel for selling excess inventory; (ii) increasing the
breadth and control of the distribution of its products; (iii) preventing the
Company from being solely dependent on third party retailers; and (iv) enabling
the testing of new products, new product categories and new merchandise
concepts. The Company also believes that its experience in operating its own
retail stores provides the Company with a better understanding of the needs of
its wholesale customers and the ultimate consumers of the Company's products. To
further capitalize on these advantages, the Company is seeking to expand the
distribution of its products by testing new Company-operated retail concepts
through its superstores, Weather Stores(TM) and other potential retail store
concepts.
VARIETY OF PRODUCTS AND TARGET CONSUMERS. Through its well-known LONDON
FOG(Reg. TM), PACIFIC TRAIL(Reg. TM) and related brands, as well as under the
DOCKERS(Reg. TM), LEVI'S(Reg. TM), AND SPERRY(Reg. TM) labels pursuant to
licenses from the owners thereof, the Company provides consumers with a broad
selection of quality products, including a full assortment of outerwear for the
entire family, for different end uses and different lifestyles at a broad range
of price points. The Company provides products for use in all weather conditions
and for use in dress, casual, outdoor and active end-uses. The Company believes
this segmentation of its product offerings, targeting specific products to meet
specific consumer lifestyle and end use requirements, increases its ability to
satisfy the product needs of a broad consumer base. The Company is continuing to
increase the variety of products it offers through the development of its own
focused men's and women's sportswear collections to be marketed solely through
the Company's retail stores. In addition, the Company continues to pursue
additional opportunities to develop and market products under other well known
brand names through license arrangements, as evidenced by the Company's license
to market outerwear under the FOSSIL(Reg. TM) and related labels beginning in
the fall 1999 season.
STABLE PRODUCT LINES. The Company believes that the stability and
continuity of the Company's core product lines relative to the fashion industry
generally, with a significant portion of annual revenues being generated by
similar styles carried over from the previous year, makes the Company less
sensitive to fashion risk.
WORLDWIDE PRODUCT SOURCING. The Company's merchandise is produced worldwide
by independent manufacturers selected, monitored and coordinated by local
Company employees to assure conformity to strict quality, cost and delivery
standards. The Company believes the use of independent manufacturers, together
with the Company's dedicated sourcing personnel, increases its production
flexibility and capacity and allows it to maintain control over all aspects of
the sourcing process, while at the same time substantially reducing capital
expenditures and avoiding the costs of managing a large production work force.
INTEGRATED OPERATING STRUCTURE. The integration of the Company's design,
product procurement, production planning, marketing and merchandising functions
enables the Company to effectively distribute products to its wholesale and
retail customers in a timely manner and to control inventory.
BUSINESS STRATEGY
The Company's mission is to be the international leader in the design,
marketing and distribution of quality rainwear, outerwear and other related
products that protect consumers in all weather conditions. To achieve this
objective, the Company focuses on maximizing the market penetration of its
brands by executing a life style/end-use segmentation approach to the design,
merchandising and marketing of the Company's broad range of products. The
Company aims to develop a clearer understanding of the target customer for each
of the Company's brands and product lines, and to segment its
3
<PAGE>
products by types of target customers, which are differentiated by gender, age
group and lifestyle and end-use requirements. In implementing this strategy, the
Company has adopted an approach that divides its product offerings and brands
into "dress," "casual," "outdoor," and "active" categories, through which the
Company offers a broad range of products to satisfy different customer
preferences and end-use requirements, all of which provide a consistently high
standard of quality and value at price points consistent with the positioning of
each brand.
In addition to increasing the penetration of its existing brands and
product lines, the Company's business plan includes seeking to add new brands
(both through licensing of well-known, third party brands and development of new
brands) and new product offerings to increase the breadth of coverage of the
Company's products in terms of price, distribution channels and target
consumers. Such new brands and product offerings must adhere to the Company's
stringent standards of product quality, value and design while being positioned
appropriately in the marketplace within the Company's overall life style/end-use
segmentation approach. The Company may, in the future, under appropriate
circumstances, enter into complementary acquisition opportunities consistent
with the foregoing strategy in order to expand its stable of brand names and
augment its product lines.
The Company's business plans are designed to build upon the steps the
Company has taken to grow its outerwear businesses, continuing the Company's
transformation from a significant rainwear designer, marketer and distributor to
a market force in all aspects of rainwear, outerwear and related products. This
continued transformation is extremely important to the Company's future growth
since the market for traditional rainwear is significantly smaller than the
markets for either outerwear or other apparel products, such as sportswear, and
the market demand for traditional rainwear continues to be adversely affected by
the growth of casual attire in the workplace. Of Fiscal 1998 total net sales of
$335.6 million, outerwear comprised 68%, rainwear comprised 27% and sportswear,
accessories and other (primarily consisting of sales of goods purchased from
licensees and other companies for sale in the Company's retail stores, such as
hats, umbrellas, gloves, scarves and luggage) comprised 5%. This compares with
Fiscal 1994 total net sales of $356.6 million, of which outerwear comprised 40%,
rainwear comprised 42%, and sportswear, accessories and other (primarily
consisting of a wholesale sportswear line consisting primarily of men's sweaters
and knit shirts, which was discontinued at the end of Fiscal 1994, and men's and
women's sportswear lines marketed solely through the Company's retail stores,
which were discontinued during Fiscal 1996) comprised 18%.
The Company's strategy of augmenting its range of brands, product offerings
and target consumers was advanced significantly by the acquisition of Pacific
Trail in April 1994. Pacific Trail, headquartered in Seattle since 1945 and
inspired by the rugged outdoor lifestyle of the Pacific Northwest, is a leading
designer, marketer and distributor of authentic, moderate-priced casual, outdoor
and active outerwear for men, women and children. Wholesale sales of Pacific
Trail Products in Fiscal 1998 were $85.8 million.
After having discontinued its sportswear product lines in Fiscal 1996 as
part of the Company's strategy to recover from the significant deterioration of
its financial condition and operating results during Fiscal 1995 by streamlining
the Company's operations and refocusing its operational and financial resources
on its core rainwear and outerwear product categories, the Company has decided
to reenter the business of marketing sportswear. Management plans to market
focused lines of men's and women's sportswear through its retail stores, and
expects that sportswear will be a growing product category for the Company.
Management believes that the new sportswear lines will help broaden the appeal
of the Company's stores to both existing and new customers, increase store
sales, reduce the seasonality of the Company's sales and provide a product base
to support potential additional Company-operated retail store concepts.
A central part of the Company's growth plan is to increase its sales
through Company-operated retail stores. The Company is already the dominant
provider of men's rainwear and a significant provider of women's rainwear and
men's and women's outerwear to department stores. However,
4
<PAGE>
department stores are becoming an increasingly competitive environment as a
result of the increased emphasis on private label products at lower prices and
lifestyle "collection" brands at higher prices. In addition, the consolidation
of department store groups over the past several years has significantly reduced
the number of potential customers for the Company's products. Also, delivery
problems in fall 1994 and spring 1995 had an adverse effect on the Company's
relations with some of its department store customers, which contributed to a
significant decrease in wholesale sales of London Fog Products. Therefore,
Company-operated retail stores are an increasingly important distribution
channel to the Company. In Fiscal 1998, net sales at the Company's retail stores
totaled $139.9 million (41.7% of total net sales), as compared to $96.5 million
(35.2% of total net sales) in Fiscal 1996. Retail sales include sales at the
Company's factory outlet stores, superstores and Weather Stores(TM). At May 30,
1998, the Company operated 134 factory outlet stores. A typical factory outlet
store is approximately 4,700 square feet and is located in a manufacturers'
outlet mall. Factory outlet stores appeal to the value-oriented consumer and
sell excess inventory, out-of-season merchandise and seconds, as well as current
season, first-quality products. As of May 30, 1998, the Company operated eight
test superstores. The Company's superstores, the first of which was opened in
May 1997 in North Canton, Ohio, were opened to test an alternative, larger
format retail distribution channel for the Company's product offerings to
supplement its traditional wholesale and factory outlet store retail
distribution channels. A typical superstore is located in a suburban shopping
mall or strip mall and offers a superior selection of current season, first
quality product for the entire family at highly competitive prices. Based on
initial sales results for these test retail superstores, management has
determined that most of the existing superstores, many of which are larger than
25,000 square feet, are too large to generate acceptable profitability within an
acceptable period of time. The Company is currently targeting 10,000 to 12,000
square feet as the optimal size to test for its larger format superstores. In
connection with adopting a plan to restructure its superstores, during the
quarter ended May 30, 1998, the Company recorded a restructuring charge of $3.5
million related to the planned closing or downsizing of five of the Company's
eight superstores open as of May 30, 1998. The Company expects to open one
additional large format superstore during the remainder of the current Fiscal
year (other than potential relocations of existing superstores in connection
with their downsizing pursuant to the Company's superstore restructuring plan),
an approximately 11,000 square foot store expected to open in late fall 1998 in
Columbus, Ohio. The Company will continue to evaluate the optimal size and the
best locations for its future superstores.
The Company's principal executive offices are located at 1332 Londontown
Boulevard, Eldersburg, Maryland 21784. The telephone number of the Company is
(410) 795-5900.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock and the Notes.
THE OFFERINGS
COMMON STOCK
- ------------
Shares of Common Stock
Offered................. 8,614,525 shares, including 614,525 shares
issuable upon exercise of the Warrants.
Use of Proceeds........ The Company will not receive any of the proceeds
from the sale of Shares by the Selling
Securityholders. If all of the Warrants are
exercised, the Company will receive net proceeds
of $9,660,333.
5
<PAGE>
NOTES
- -----
Notes Offered........... $100,000,000 aggregate principal amount of 10%
Senior Subordinated Notes due 2003.
Maturity Date............ February 27, 2003.
Interest Payment Dates.. Each March 1 and September 1, commencing
September 1, 1998.
Optional Redemption by
the Company............ The Notes are redeemable, in whole or in part, at
the option of the Company at any time at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. See "Description of Notes -- Terms of
the Notes -- Optional Redemption."
Change of Control
Repurchase............. Upon a Change of Control, each of the holders of
the Notes will have the right to require the
Company to purchase all or any portion of such
holder's Notes at a price equal to 101% of the
aggregate principal amount thereon, plus accrued
and unpaid interest, if any, to the date of
repurchase. See "Description of Notes -- Change
of Control" for a discussion of the circumstances
in which the Company may be required to make such
a repurchase. The Senior Credit Facility
prohibits the Company from purchasing any of the
Notes and also provides that certain change of
control events with respect to the Company
constitute a default thereunder. See "Risk
Factors -- Possible Inability to Repurchase Notes
upon Change of Control."
Security................. The Notes are secured, on a senior subordinated
basis, by a pledge of the capital stock of each
Subsidiary Guarantor, and by a security interest
in substantially all of the assets of the Company
and the Subsidiary Guarantors.
Subordination............ The Notes are subordinated in right of payment to
all existing and future Senior Indebtedness of
the Company, including all indebtedness of the
Company under the Senior Credit Facility. As of
May 30, 1998, the aggregate principal amount of
Senior Indebtedness of the Company was
approximately $90.0 million and the aggregate
amount of pari passu Indebtedness was $11.2
million. In addition, as of May 30, 1998, the
Company had up to an additional $110.0 million of
available borrowings under the Senior Credit
Facility, which borrowings would rank senior in
right of payment to the Notes.
Subsidiary Guarantees... The Notes are guaranteed, jointly and severally,
on a senior subordinated basis by the Company's
subsidiaries representing substantially all of
the assets, cash flow and operations of the
Company. The Subsidiary Guarantees are
subordinated in right of payment to all existing
and future Senior Indebtedness of the Subsidiary
Guarantors on the same basis as the Notes are
subordinated to Senior Indebtedness of the
Company.
6
<PAGE>
Principal Covenants..... The Indenture for the Notes (the "Indenture")
imposes certain limitations on the ability of the
Company and its subsidiaries to, among other
things, incur additional indebtedness, pay
dividends or make certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur
liens, merge or consolidate with any other person
or sell assign, transfer, lease, convey or
otherwise dispose of, all or substantially all of
the assets of the Company.
Use of Proceeds........ The Company will not receive any of the proceeds
from the sale of the Notes.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that are intended to
provide investors with meaningful and useful information. These forward-looking
statements represent management's current expectations, estimates, beliefs and
assumptions concerning future business conditions and the outlook for the
Company based on currently available information. Whenever possible, the Company
has identified these forward-looking statements by words such as "anticipates,"
"believes," "expects," "estimates," "intends," "will be," "planned," variations
of such words and similar expressions. These forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties
related to the Company's operations, some of which are beyond the Company's
control. Certain factors that could cause the Company's actual results or
performance to differ materially from those expressed in these forward-looking
statements are described in "Risk Factors," including, but not limited to the
following: significant competition in the Company's primary product markets;
significant seasonality of sales and cash flow; high degree of sensitivity of
sales to weather; uncertain ability to achieve growth strategy and risks
associated with the Company's superstores and new retail initiatives; impact of
changing consumer preferences; dependence on key personnel; risks associated
with international production and dependence on independent manufacturers; risks
associated with production lead times and advance purchase of products; and the
Company's substantial indebtedness, related covenants, restrictions and events
of default and continued availability of financing. Given these risks and
uncertainties, investors are cautioned not to place undue reliance on these
forward-looking statements. The Company undertakes no obligation to update
publicly any such risks and uncertainties or to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The summary consolidated financial information for the fiscal years ended
February 26, 1994, February 25, 1995, February 24, 1996, February 22, 1997 and
February 28, 1998 has been derived from the Company's audited Consolidated
Financial Statements. The Consolidated Financial Statements for the fiscal years
ended February 24, 1996, February 22, 1997 and February 28, 1998 and the
fourteen weeks ended May 31, 1997 and thirteen weeks ended May 30, 1998 are
included elsewhere in this Propectus. The summary consolidated financial
information for the fourteen weeks ended May 31, 1997 and the thirteen weeks
ended May 30, 1998 and as of May 31, 1997 and May 30, 1998 has been derived from
the Unaudited Condensed Consolidated Financial Statements of the Company, which,
in the opinion of management, have been prepared on the same basis as the
Consolidated Financial Statements included elsewhere in this Prospectus and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and the results of
operations of the Company. Results for the fourteen weeks ended May 31, 1997 and
the thirteen weeks ended May 30, 1998 are not indicative of the results for a
full year. The information set forth below should be read in conjunction with
the historical Consolidated Financial Statements, Unaudited Condensed
Consolidated Financial Statements and related notes thereto of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
FEBRUARY 26, FEBRUARY 25, FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1994 (A) 1995 (A) 1996 1997 1998 (B)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .................................. $ 356,632 $ 330,520 $ 274,394 $ 279,107 $ 335,621
Cost of goods sold ......................... 253,429 290,372 203,469 185,102 227,405
--------- ---------- ---------- ----------- ---------
Gross profit .............................. 103,203 40,148 70,925 94,005 108,216
Licensing revenues ......................... 4,221 3,184 1,947 3,064 4,055
--------- ---------- ---------- ----------- ---------
107,424 43,332 72,872 97,069 112,271
Selling, general and administrative
expenses .................................. 75,004 106,908 86,641 83,848 98,499
Restructuring and special charges (c) ...... 28,275 61,190 -- -- 7,535
Deferred compensation expense (d) .......... -- -- -- -- 2,735
Amortization of goodwill and licensing
agreements ................................ 5,253 6,643 4,024 2,487 2,126
Write-off of goodwill and licensing
agreements (e) ............................ 16,651 51,136 -- -- --
--------- ---------- ---------- ----------- ---------
Operating income (loss) ................... (17,759) (182,545) (17,793) 10,734 1,376
Interest expense, net ...................... 24,624 29,506 16,790 12,530 14,664
Gain from sale of investment. .............. -- -- -- -- (2,260)
--------- ---------- ---------- ----------- ---------
Income (loss) before provision (benefit)
for income taxes, extraordinary items
and cumulative effect of accounting
change .................................... $ (42,383) $ (212,051) $ (34,583) $ (1,796) $ (11,028)
--------- ---------- ---------- ----------- ---------
Income (loss) before extraordinary items
and cumulative effect of accounting
change .................................... $ (32,383) $ (212,251) $ (34,759) $ (1,954) $ (5,096)
Extraordinary gain (loss) on
extinguishment of debt, net of tax (f)..... (3,267) (11,877) -- -- 160,855
Net income (loss) ......................... (35,650) (225,436) (34,759) (1,954) 155,759
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (g) ........................ $ 90,184 $ (22,898) $ 69,276 $ 72,694 $ 49,000
Total assets ............................... 270,998 259,296 210,713 206,345 215,091
Total debt (h). ............................ 162,706 316,579 329,533 330,325 179,498
Total stockholders' equity (deficit) ....... 32,907 (127,427) (160,813) (162,066) (4,589)
OTHER DATA:
EBITDA (i) ................................. 36,824 (59,343) (9,933) 18,647 20,799
Depreciation expense ....................... 4,404 4,233 3,836 5,426 7,027
Adjusted cash interest (j) ................. 22,811 26,971 11,461 9,210 12,211
Capital expenditures.. ..................... 5,157 11,526 4,696 7,703 11,844
Ratio of EBITDA to Adjusted cash
interest (k) .............................. 1.6 x -- -- 2.0 x 1.7 x
Retail stores open at end of period ........ 110 122 99 125 136
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOURTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 31, MAY 30,
1997 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .................................. $ 41,678 $ 36,627
Cost of goods sold ......................... 27,022 22,753
---------- ---------
Gross profit .............................. 14,656 13,874
Licensing revenues ......................... 1,010 860
---------- ---------
15,666 14,734
Selling, general and administrative
expenses .................................. 20,039 21,754
Restructuring and special charges (c) ...... 3,500 3,500
Deferred compensation expense (d) .......... -- 684
Amortization of goodwill and licensing
agreements ................................ 561 532
Write-off of goodwill and licensing
agreements (e) ............................ -- --
---------- ---------
Operating income (loss) ................... (8,434) (11,736)
Interest expense, net ...................... 4,011 1,455
Gain from sale of investment. .............. -- --
---------- ---------
Income (loss) before provision (benefit)
for income taxes, extraordinary items
and cumulative effect of accounting
change .................................... $ (12,445) $ (13,191)
---------- ---------
Income (loss) before extraordinary items
and cumulative effect of accounting
change .................................... $ (12,493) $ (13,242)
Extraordinary gain (loss) on
extinguishment of debt, net of tax (f)..... -- --
Net income (loss) ......................... (12,493) (13,242)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (g) ........................ $ 60,718 $ 37,733
Total assets ............................... 218,728 246,232
Total debt (h). ............................ 356,845 224,413
Total stockholders' equity (deficit) ....... (174,562) (17,401)
OTHER DATA:
EBITDA (i) ................................. (2,697) (5,062)
Depreciation expense ....................... 1,676 1,958
Adjusted cash interest (j) ................. 2,614 3,724
Capital expenditures.. ..................... 2,173 2,212
Ratio of EBITDA to Adjusted cash
interest (k) .............................. -- --
Retail stores open at end of period ........ 126 145
</TABLE>
8
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(a) The Company acquired Pacific Trail, Inc. and affiliated entities in April
1994. The statement of operations data and other data presented for the
period preceding the acquisition do not include amounts for the acquired
entities and therefore are not comparable to subsequent periods.
Additionally, the statement of operations data and other data presented
for the year in which the acquisition occurred are not comparable to
subsequent periods.
(b) The statement of operations data and other data for the fiscal year ended
February 28, 1998 are based on a 53-week year.
(c) The restructuring charge in Fiscal 1994 relates to the restructuring of
the Company's operations (including the closing of three production
facilities), brand repositioning (including the discontinuation of its
knitwear division) and relocation of certain Company office facilities.
The restructuring charge in Fiscal 1995 includes charges related to the
restructuring of the Company's manufacturing, distribution, retail store
and other operations, changes in senior management, the restructuring of
its debt and equity capitalization, and a writedown related to an
investment in a joint venture. The Fiscal 1998 charges relate to the
closing of the Company's rainwear manufacturing plant located in
Baltimore, Maryland and special payments made to certain executives of the
Company due to the triggering of contractual "change of control" payment
rights in the employment agreements of such executives. The restructuring
charge in the fourteen weeks ended May 31, 1997 relates to the closing of
the Company's Baltimore, Maryland rainwear manufacturing facility. The
restructuring charge in the thirteen weeks ended May 30, 1998 relates to
the planned closing or downsizing of five of the Company's eight test
retail superstores open as of May 30, 1998. See Note 16 of Notes to
Consolidated Financial Statements and Note 4 of Notes to Unaudited
Condensed Consolidated Financial Statements.
(d) Deferred compensation expense in Fiscal 1998 and the thirteen weeks ended
May 30, 1998 consists of compensation expense related to stock-based
compensation of approximately $1,718 and $430, respectively, and
compensation expense related to non-cash accruals under a deferred
compensation plan of approximately $1,017 and $254, respectively. See Note
11 of Notes to Consolidated Financial Statements.
(e) The write-off of goodwill and licensing agreements in Fiscal 1994
represents a write-off of goodwill attributable to the Company's
discontinued knitwear division and a write-off of intangible assets
related to licensing agreements terminated or not renewed by the Company
as part of the Company's brand repositioning. The Fiscal 1995 figure
represents a write-off of goodwill recorded based on the Company's
evaluation of the impairment of goodwill resulting from the significant
declines in sales, profitability and cash flow experienced in Fiscal 1995.
(f) The extraordinary losses recorded in Fiscal 1994 and Fiscal 1995 represent
the cumulative catch-up of amortization of deferred financing costs and
redemption premium paid in connection with refinancings of certain of the
Company's debt. The extraordinary gain recorded in Fiscal 1998 relates to
the extinguishment of debt in connection with the 1998 Recapitalization.
See Notes 8 and 13 of Notes to Consolidated Financial Statements.
(g) Working capital represents current assets less current liabilities.
Current liabilities include future interest payments capitalized under the
provisions of SFAS 15 of $10,000 at each of February 28, 1998 and May 30,
1998. See Note 8 of Notes to Consolidated Financial Statements.
(h) Total debt represents long-term debt, including current portion, plus
revolving credit borrowings. Total debt includes future interest payments
capitalized under the provisions of SFAS 15 of $91,533, $77,383, $50,000,
$73,448 and $50,000 at February 24, 1996, February 22, 1997, February 28,
1998, May 31, 1997 and May 30, 1998, respectively. See Note 8 of Notes to
Consolidated Financial Statements.
(i) EBITDA represents operating income (loss) plus write-off of goodwill and
licensing agreements, depreciation and amortization, deferred compensation
expense and restructuring and special charges. The Company believes that
EBITDA, as presented, provides useful information regarding the Company's
ability to service its debt; however, EBITDA does not represent cash flow
from operations as defined by generally accepted accounting principles and
should not be considered a substitute for net income as an indicator of
the Company's operating performance or cash flow as a measure of
liquidity. In addition, the method of calculating EBITDA set forth above
may be different from calculations of EBITDA employed by other companies
and, accordingly, may not be directly comparable to such other
calculations.
(j) Adjusted cash interest represents interest expense less non-cash interest
expense, including the accretion of principal and the amortization of
deferred financing costs, plus cash interest accrued or paid during the
period which was accounted for in accordance with the provisions of SFAS
15 and, therefore, is not included in interest expense.
(k) EBITDA was not sufficient to cover Adjusted cash interest in the fiscal
years ended February 25, 1995 and February 24, 1996 and the fourteen weeks
ended May 31, 1997 and the thirteen weeks ended May 30, 1998 in the amount
of $86,314, $21,394, $5,311 and $8,786, respectively.
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE COMMON STOCK AND NOTES OFFERED BY THIS
PROSPECTUS.
INDEBTEDNESS AND LEVERAGE
The Company is highly leveraged. As of May 30, 1998, the Company had
outstanding indebtedness of $224.4 million, including $50 million of future
interest payments on the $100 million principal amount of Notes capitalized in
accordance with the provisions of SFAS 15. See "Capitalization." In addition,
the Company's earnings have historically been insufficient to cover fixed
charges and were insufficient by $11.0 million and $13.2 million for Fiscal 1998
and the thirteen week period ended May 30, 1998, respectively.
The ability of the Company to repay or refinance its debt obligations will
be dependent upon the future performance of the Company, which in turn will be
subject to prevailing economic and competitive conditions and to other factors,
some of which are beyond the control of the Company. Due to the highly seasonal
nature of the rainwear and outerwear business, the Company's inventory and
accounts receivable levels, and the associated capital needs and debt service
obligations, fluctuate significantly during the year. There is no assurance that
the Company's operating results, cash flow and capital resources will be
sufficient to meet its debt service obligations (including the principal amount
owing on the Notes when due). If such operating results, cash flow and capital
resources are insufficient to meet the Company's debt service obligations, the
Company will have to adopt one or more alternatives, such as reducing or
delaying capital expenditures, refinancing or restructuring its debt, or selling
assets in order to satisfy its debt obligations. The Company expects to need to
refinance the Notes to meet the obligation to repay the principal amount owing
on the Notes upon maturity. There is no assurance that any such reduction or
delay of capital expenditures, refinancing or restructuring of debt (prior to or
at maturity), or sales of assets could be effected on satisfactory terms, would
be permitted by the Senior Credit Facility or would generate sufficient cash
flow to meet such debt service obligations.
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes and the Shares, including: (i) the
Company's vulnerability to adverse general economic and industry conditions;
(ii) the Company's ability to obtain additional financing for future working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes; and (iii) the dedication of a substantial portion of the Company's
cash flow from operations to the payment of principal and interest on
indebtedness, thereby reducing the funds available for operations and future
business opportunities.
SUBORDINATION; EFFECT OF ASSET ENCUMBRANCES
Principal of, premium, if any, and interest on the Notes will be
subordinated to all existing and future Senior Indebtedness of the Company,
including all indebtedness pursuant to the Senior Credit Facility. Therefore, in
the event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company or upon the acceleration of the Notes or any
indebtedness, the assets of the Company will be available to pay obligations on
the Notes only after Senior Indebtedness has been paid in full, and there may
not be sufficient assets remaining to pay amounts due on any or all of the
Notes. In addition, under certain circumstances, no payments may be made for a
specified period with respect to the principal of, premium, if any, or interest
on the Notes if a default exists with respect to certain Senior Indebtedness.
See "Description of the Notes -- Subordination." As of May 30, 1998, the
aggregate principal amount of Senior Indebtedness of the Company was
approximately $90.0 million and the Company had up to an additional $110.0
million of available borrowings (assuming there was an adequate collateral
borrowing base) under the Senior Credit Facility, which borrowings would rank
senior in right of payment to the Notes. Further, the claims of holders of the
Notes will be effectively subordinated to indebtedness of the Company's
subsidiaries. Subject to certain exceptions and financial tests set forth in the
Indenture and the Senior Credit Facility, the Company may also incur additional
Senior Indebtedness, and the Company's subsidiaries may incur additional
indebtedness, in the future.
The Company's obligations under the Senior Credit Facility are secured by a
pledge of substantially all of the assets of the Company and guaranteed by
substantially all of the Company's subsidiaries, representing substantially all
of the assets, cash flow and operations of the Company. The Company's
indebtedness under the Notes is also
10
<PAGE>
secured by a pledge of assets of the Company and guaranteed by the Company's
subsidiaries to the same extent as the Senior Credit Facility, but on a
subordinated basis to the Senior Credit Facility. Therefore, if an event of
default occurs under the Senior Credit Facility, the lenders thereunder will
have a claim on substantially all of the assets of the Company and its
subsidiaries (including trademarks) prior to any claim of the holders of the
Notes. There can be no assurance that the remaining assets, if any, will be
sufficient to satisfy the Company's obligations on the Notes. See "Description
of the Senior Credit Facility."
RESTRICTIONS UNDER FINANCING AGREEMENTS; VARIABLE INTEREST RATE
The Senior Credit Facility contains certain financial and other covenants,
including covenants requiring the Company to maintain certain financial ratios
and restricting the ability of the Company and its subsidiaries to incur
indebtedness or to create or suffer to exist certain liens. The ability of the
Company to comply with such provisions may be affected by events beyond its
control. A failure to make any required payment under the Senior Credit
Facility, or to comply with any of the financial and operating covenants
included in the Senior Credit Facility, would result in an event of default
thereunder, permitting the lender to accelerate the maturity of the indebtedness
under the Senior Credit Facility and foreclose upon its collateral and,
depending upon the action taken by such lender, delaying or precluding payment
of principal of, premium, if any, or interest on the Notes. See "Description of
the Senior Credit Facility." Such an acceleration could also result in the
acceleration of the Company's and its subsidiaries' other indebtedness. The
Indenture also has certain covenants which, if not complied with, would result
in an event of default thereunder permitting holders of the Notes to accelerate
the Notes. See "Description of the Notes -- Events of Default." Any such event
of default or acceleration could also result in the acceleration of other
indebtedness of the Company. If the lender under the Senior Credit Facility
accelerates the maturity of the indebtedness thereunder, there can be no
assurance that the Company will have sufficient assets to satisfy its
obligations under the Notes, nor could there be any assurance that the Company
would be able to repay in full such indebtedness and other indebtedness of the
Company, and in such event the equity holders could lose their entire
investment.
The Company's right to borrow under the Senior Credit Facility is dependent
on the Company having an adequate collateral borrowing base, which is determined
by a formula based on the eligible accounts receivable and the eligible
inventory of the Company plus certain amounts during certain periods of the
year.
The Company's indebtedness under the Senior Credit Facility bears interest
at rates that will fluctuate with changes in certain prevailing interest rates.
A substantial increase in interest rates could adversely affect the Company's
ability to satisfy its debt service obligations.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL.
The Senior Credit Facility prohibits the Company from purchasing any of the
Notes and also provides that certain change of control events with respect to
the Company constitute a default thereunder. Any future credit agreements or
other agreements relating to debt which is senior to the Senior Indebtedness to
which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when the Company
is prohibited from purchasing the Notes, the Company could seek the consent of
its lenders to the purchase of the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowings, the Company will remain prohibited from
purchasing the Notes by the relevant Senior Indebtedness. In such case, the
Company's failure to purchase the tendered Notes would constitute an event of
default under the Indenture which would, in turn, constitute a default under the
Senior Credit Facility and could constitute a default under other Senior
Indebtedness. In such circumstances, the subordination provisions in the
Subordination Agreement would restrict payments to the holders of the Notes.
Furthermore, no assurance can be given that the Company, if permitted to
repurchase the Notes, will have sufficient resources to satisfy its repurchase
obligation with respect to the Notes following a Change of Control. See
"Description of Notes"
SUBSTANTIAL COMPETITION
The apparel industry, in general, and the markets for rainwear and
outerwear, in particular, are highly competitive. The Company must remain
competitive in the areas of product functionality, style, quality, brand
recognition, price and customer service. The Company faces significant
competition from numerous branded apparel
11
<PAGE>
companies, including those which market predominantly rainwear and/or outerwear,
as well as those which market full line apparel "collections" including rainwear
and/or outerwear. In addition, the Company faces significant competition from
various retailers, including many of the Company's department store customers,
which market rainwear and/or outerwear under their own "private" labels. These
and other competitors pose significant challenges to the Company's market share
in each of its product categories. Many of the Company's competitors are
significantly larger and have substantially greater financial, distribution,
marketing and other resources than the Company. There is no assurance that the
Company will be able to compete successfully against present or future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on the Company. See "Business Competition."
CHANGING FASHION TRENDS
Although the Company's rainwear and outerwear products have been
historically less sensitive to fashion trends than other apparel products, the
apparel industry is subject to rapidly changing consumer preferences, which may
affect companies which misjudge such preferences. In addition, in recent years
the Company has been adversely affected by the growth of casual attire in the
workplace, which has decreased overall market demand for rainwear products used
primarily with "dress" or formal attire. Furthermore, changes in fashion trends
could have a greater impact as the Company expands its product offerings to
include more sportswear. To compete successfully in the apparel industry, the
Company must be able to anticipate, gauge and respond to changing consumer
demand and tastes relatively far in advance of customer orders, as well as to
operate within substantial production and delivery constraints. If the Company
materially misjudges the market for a particular product or product group, the
Company may be faced with a substantial amount of excess inventory. Although the
Company attempts to mitigate its inventory risk by obtaining a significant
portion of its wholesale orders in advance, production orders must generally be
placed with manufacturers before all of a season's wholesale orders are received
by the Company, and such wholesale customer orders are, in many instances,
cancelable by the customer. In addition, although the Company is subject to the
same risk of changing consumer demand and tastes in its own retail stores, the
Company's factory outlet stores provide a controlled distribution channel for
selling excess inventory. Nonetheless, failure to anticipate and respond to
changes in consumer preferences and demands could lead to, among other things,
lower sales, lower gross margins, excess inventories, and reduced future
consumer acceptance of the Company's brand names and product lines, which could
have a material adverse effect on the Company.
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS; WEATHER
The Company's results of operations have fluctuated and will continue to
fluctuate significantly from period to period. Most of the Company's products
are marketed on a seasonal basis, with a product mix currently weighted
substantially toward the fall season. Historically, the Company has realized its
highest level of sales (approximately 40% of the full year's net sales) in its
third fiscal quarter (September through November) and its lowest level of sales
in its first fiscal quarter (March through May). Related to this seasonality of
sales, the Company historically has generated significant operating losses in
the first fiscal quarter and has generated significantly stronger operating
income in the third fiscal quarter than in any of the other quarters. Thus, the
Company's annual results are highly dependent upon its ability to deliver
product and realize strong sales to the end-consumer during the key fall selling
period. The impact of warm and dry weather in the fall and winter months can
have a negative effect on sales during the crucial fall and winter retail season
as well as the following spring and fall seasons. For example, the Company
believes that unseasonably warm weather in many regions of the United States
during fall 1997 and winter 1997/1998 adversely affected the Company's net
sales, gross margin and operating income during its fiscal year ended February
28, 1998 ("Fiscal 1998") and contributed to the level of excess inventory held
at the end of Fiscal 1998. Sustained periods of unseasonably warm and dry
weather could have a material adverse effect on the Company. The seasonality of
the Company's sales and the impact of weather on sales, along with other factors
that are beyond the Company's control, including general economic conditions,
changes in consumer behavior, availability of import quotas and currency
exchange rate fluctuations, could adversely affect the Company and cause its
results of operations to fluctuate. Results of operations in any period should
not be considered indicative of the results to be expected in any future period.
UNCERTAIN ABILITY TO ACHIEVE GROWTH STRATEGY
As a primary focus of its growth strategy and in response to the increased
competitive pressures faced by the Company in recent years in its traditional
wholesale distribution channels, in Fiscal 1998 the Company began to open
Company-operated retail superstores to test an alternative, larger format retail
distribution channel for the
12
<PAGE>
Company's product offerings to supplement the Company's existing wholesale and
factory outlet store distribution channels. In Fiscal 1998, the Company opened
seven test superstores in suburban locations in the northeast and midwest
regions of the United States and the Company opened an eighth superstore in the
first quarter of Fiscal 1999. The first superstore, opened in May 1997, was
approximately 37,000 square feet and the average size of the first seven
superstores was approximately 23,000 square feet, with four of the stores larger
than 26,000 square feet. Each of the seven test superstores was unprofitable in
Fiscal 1998 as a result of costs related to the start-up of these stores and
lower than expected sales levels. The seven superstores as a whole generated an
operating loss of $4.1 million, before allocation of corporate overhead
expenses, for Fiscal 1998. Based on the experience with these initial test
superstores, the Company believes that most of the existing superstores are too
large to generate acceptable profitability within an acceptable period of time.
As a result, the Company has adopted a plan to restructure its larger format
store strategy by closing or significantly downsizing five of the Company's
eight current test superstores and shifting to a revised format which focuses on
a store size significantly smaller than 25,000 square feet and includes the
planned expansion of product offerings beyond rainwear and outerwear, such as
sportswear and accessories. The Company is currently targeting 10,000 to 12,000
square feet as the optimal size to test for its larger format superstores. The
Company believes that the planned reduction in store size and expansion of
product offerings will help broaden the appeal of the stores to both existing
and new customers, increase store sales, reduce the seasonality of the Company's
sales and increase store profitability. There can be no assurance that the
restructuring of the Company's superstores will result in improved financial
results or that the Company's superstore growth strategy will be successful in
increasing the sales or profitability of the Company.
In connection with adopting a plan to restructure its superstores, during
the quarter ended May 30, 1998, the Company recorded a restructuring charge of
$3.5 million related to the planned closing or downsizing of five of the
Company's eight superstores open as of May 30, 1998. Included in this charge is
an accrual of $1.6 million for anticipated cash restructuring expenditures to
cover costs associated with amending or terminating store leases and other
related costs, and $1.9 million of non-cash charges related to anticipated
write-offs of fixed assets, including fixtures and leasehold improvements, in
the stores to be closed or downsized. As of May 30, 1998, the Company leased
eight superstores, averaging approximately 23,000 square feet with an average
remaining lease term of approximately nine years, excluding any renewal options
exercisable at the election of the Company, and average annual base rent
payments (excluding related common area maintenance, insurance and property
taxes) of approximately $310,000 per year during their remaining lease terms.
There can be no assurance that the Company will complete the closing or
downsizing of the five targeted superstores as scheduled or that the costs
involved will not significantly exceed those accrued for in the restructuring
charge for the quarter ended May 30, 1998.
In addition to its larger format superstores, the Company is currently
analyzing other initiatives for growth, including additional Company-operated
retail store concepts. Such retail initiatives typically require cash for store
opening capital expenditures and initial working capital. There can be no
assurance that these initiatives will be pursued and, if pursued, that they will
be successful in increasing the sales or profitability of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend in part on the continued service
of certain key management and other personnel, including Robert E. Gregory, Jr.,
the Company's Chairman and Chief Executive Officer, and C. William Crain, the
Company's President and Chief Operating Officer, and on the Company's ability to
attract and retain qualified managerial, design, sales and marketing personnel.
Competition for these employees is intense. The Company has employment
agreements with Messrs. Gregory and Crain through February 2002. There is no
assurance that the Company can retain its existing key personnel or that it can
attract and retain sufficient numbers of qualified employees in the future. The
loss of key employees or the inability to hire or retain qualified personnel in
the future could have a material adverse effect on the Company. See
"Management."
DEPENDENCE ON INDEPENDENT MANUFACTURERS
The Company's products are produced by approximately 90 independent
manufacturers worldwide. For Fiscal 1998, over 99% (by dollar volume) of the
Company's total production was produced by independent manufacturers located
outside of the United States, principally in Asia. The Company's last
Company-operated manufacturing facility, its rainwear manufacturing facility in
Baltimore, Maryland, was closed in May 1997 and accounted for less than 1% (by
dollar volume) of the Company's total Fiscal 1998 production. No manufacturer
accounted for more than five percent of the Company's total production for
Fiscal 1998.
13
<PAGE>
The inability of a manufacturer to ship orders of the Company's products in
a timely manner or to meet the Company's quality standards could cause the
Company to miss the delivery requirements of its wholesale customers and
Company-operated retail stores for those items, which could result in
cancellation of orders, refusal to accept deliveries or a reduction in purchase
prices, any of which could have a material adverse effect on the Company.
Although the Company enters into a number of purchase order commitments each
season specifying a time frame for delivery, method of payment, design and
quality specifications and other standard industry provisions, the Company does
not have long-term contracts with any manufacturer. In addition, the Company
competes with other companies for the production capacity of independent
manufacturers and import quota availability. Certain of these competing
companies have substantially greater financial and other resources than the
Company and thus may have an advantage in the competition for production
capacity and import quota availability.
The Company requires its independent manufacturers to operate in compliance
with applicable laws and regulations. Although the Company's internal and vendor
operating guidelines promote ethical business practices and the Company's
sourcing personnel periodically visit and monitor the operations of its
independent manufacturers, the Company does not control these vendors or their
labor practices. The violation of labor or other laws by an independent
manufacturer of the Company, or the divergence of an independent manufacturer's
labor practices from those generally accepted as ethical in the United States,
could result in adverse publicity for the Company and could have a material
adverse effect on the Company.
ADVANCE PURCHASE OF PRODUCTS
As a result of the lead time required for the offshore manufacture and
transportation of the Company's products and related raw materials, as well as
to minimize purchasing costs by reserving production capacity and avoiding costs
related to expedited service, the time necessary to fill customer orders and the
risk of non-delivery, the Company places orders for its products with its
independent manufacturers prior to the time the Company has received all of its
wholesale customers' orders and maintains an inventory of certain products that
it anticipates will be in greater demand. There is no assurance, however, that
the Company will be able to sell the products it has ordered from manufacturers
or that it has in its inventory. Customer orders, moreover, are, in many
instances, cancelable by the customer. Inventory levels in excess of customer
demand may result in inventory write-downs and the sale of excess inventory at
discounted prices, which could have a material adverse effect on the Company. As
a result of lower than expected sales in fall 1997 and winter 1997/1998, the
Company's inventory was approximately $21.6 million higher at February 28, 1998
than at February 22, 1997 and was approximately $28.2 million higher at May 30,
1998 than at May 31, 1997. This higher level of inventory may have an adverse
effect on the Company's gross margin and profitability achieved on its sales
during Fiscal 1999. As of May 30, 1998, the Company had $26.7 million of letters
of credit outstanding related to open purchase orders with its manufacturers and
$124.8 million of inventory at cost.
DEPENDENCE ON RAW MATERIAL SUPPLIERS
Certain of the raw materials (such as fabrics, linings and trim items) used
by the Company are manufactured to its custom specifications to be shipped to
its independent manufacturers and may be available in the short term from only
one or a very limited number of vendors. While the Company believes it could
find additional vendors to produce these raw materials, the interruption or
delay of supply of these materials by existing vendors, for any reason, could
have a material adverse effect on the Company. Four of the Company's raw
material suppliers accounted for approximately 37% of the Company's raw material
needs (excluding trim items) for the fall 1997 and spring 1998 seasons. South
Korean-based suppliers account for a significant majority of the Company's
fabric purchases.
INTERNATIONAL OPERATIONS
As indicated above, nearly all of the Company's products are sourced
outside the United States through arrangements with approximately 90
manufacturers in approximately 15 countries, principally in Asia. As a result,
the Company's business is subject to the risks generally associated with doing
business abroad, such as foreign governmental regulations, political unrest,
disruptions or delays in shipments, labor relations and changes in economic
conditions in countries in which the Company manufactures its products,
including the economic instability in recent months in several Asian countries.
These factors, among others, could influence the Company's ability to
14
<PAGE>
manufacture its products or procure certain materials. If any such factors were
to render the conduct of business in a particular country undesirable or
impractical, there could be a material adverse effect on the Company. The
Company continues to monitor the political stability of the countries in which
it conducts business and the financial condition of its independent
manufacturers.
In addition, the Company realizes international licensing revenues from
licensing agreements with third parties which provide for the manufacture and
marketing in certain foreign countries of various apparel and accessories under
Company-owned trade names. For Fiscal 1998, the Company generated $2.1 million
of licensing revenues with respect to its licensing activities outside of the
United States. The Company's international licensing business is also subject to
the risks generally associated with doing business abroad described above.
IMPORTS AND IMPORT RESTRICTIONS
Many of the Company's imports are subject to existing or potential duties,
tariffs or quotas that may limit the quantity of certain types of goods that may
be imported into the United States, including constraints imposed by bilateral
textile agreements between the United States and a number of foreign countries.
These agreements impose quotas on the amount and type of goods which can be
imported into the United States from these countries. Changes in quota
availability could force the Company to alter its production schedules, causing
potential delivery delays. Such agreements also allow the United States to
impose, at any time, restraints on the importation of categories of merchandise
that, under the terms of the agreements, are not subject to specific limits. The
Company's imported goods are also subject to United States customs duties which
are a material portion of the Company's cost of goods. The United States and the
countries in which the Company's products are manufactured may, from time to
time, impose new quotas, duties, tariffs or other restrictions, or adversely
adjust presently prevailing quotas, duties or tariff levels. While the Company
is unaware of any current impositions, adjustments or increased scrutiny which
would materially adversely affect the Company or its ability to continue to
import products at current or increased levels or the amount of the customs
duties on those products, the Company cannot predict the likelihood or frequency
of any such events occurring.
A significant portion of the Company's products are produced in China. In
June 1998 President Clinton extended to June 1999 "most favored nation" ("MFN")
non-discriminatory trading status to China. Under U.S. law, MFN status for China
is reviewed annually. The United States has extended MFN status to China each
year since 1980. A revocation of MFN status for China would result in a
substantial increase in tariff rates on goods imported from China and therefore
could have a material adverse effect on the Company.
CURRENCY EXCHANGE RATE FLUCTUATIONS
The Company generally purchases its products in U.S. dollars. The Company,
however, sources nearly all of its products overseas and the cost of these
products may be affected by changes in the value of the relevant currencies.
Price increases caused by currency exchange rate fluctuations could make the
Company's products less competitive or have an adverse effect on the Company's
profit margins. Currency exchange rate fluctuations could also disrupt the
business of the independent manufacturers that produce the Company's apparel by
making their purchases of raw materials more expensive and adversely affecting
their ability to obtain financing for raw materials. The Company does not engage
in hedging activities with respect to such exchange rate risks.
SIGNIFICANT MATERIALITY OF GOODWILL
The Company's balance sheet as of May 30, 1998 includes $68.8 million of
goodwill, which represents 27.9% of the Company's total assets. The Company's
goodwill was recognized on its balance sheet in connection with: (i) the June
1990 acquisition of the equity of the Company (through the purchase of the
common stock of a holding company ("Holdings") of which the Company was a
wholly-owned subsidiary at the time) by an investor group; and (ii) the April
1994 acquisition of Pacific Trail, Inc. by Holdings. Goodwill arises when an
acquirer pays more for a business than the fair value of the tangible and
separately measurable intangible net assets. Generally accepted accounting
principles require that this and all other intangible assets be amortized over
the period benefitted. Management has determined that the period benefitted by
the goodwill will be no less than 40 years. If management failed to separately
recognize a material intangible asset having a benefit period less than 40 years
or failed to give effect to shorter benefit periods of factors giving rise to a
material portion of the goodwill, then earnings
15
<PAGE>
reported in periods immediately following the acquisition would be overstated.
In later years, the Company would be burdened by a continuing charge against
earnings without the associated benefit to income valued by management in
arriving at the consideration paid for the business. Earnings in later years
also could be significantly affected if management determined that the remaining
balance of goodwill was impaired. Management has reviewed all of the factors and
related future cash flows which it considered in arriving at the amount incurred
in each of the transactions which gave rise to recording goodwill. Management
concluded that the anticipated future cash flows associated with intangible
assets recognized in the acquisitions will continue indefinitely and there is no
persuasive evidence that any material portion will dissipate over a period
shorter than 40 years. The Company continually evaluates whether later events
and circumstances have occurred that indicate the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of goodwill
may not be recoverable. When factors indicate that goodwill should be evaluated
for possible impairment, the Company uses an estimate of the related business
units' operating earnings over the remaining life of the goodwill in measuring
whether the goodwill is recoverable. Consistent with this policy, the Company
wrote off approximately $10.9 million in goodwill attributable to its knitwear
division in Fiscal 1994 and $51.1 million in goodwill attributable to its other
divisions in Fiscal 1995.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no active public market for the Notes or the Common Stock
and the Company does not intend to apply for listing of the Notes or the Common
Stock on any securities exchange or for quotation on NASDAQ. The Notes are
currently eligible for trading in the PORTAL market. The Company intends to make
the Common Stock eligible for trading in the PORTAL market after the
Registration Statement becomes effective. There can be no assurance as to the
liquidity of the market for the Notes or the Common Stock or that an active
market for the Notes or Common Stock will develop. If an active market does not
develop, the price and liquidity of the Notes or the Shares, as the case may be,
may be adversely affected. The Company believes quarterly fluctuations in its
financial results and factors not directly related to the Company's operating
performance, such as product or financial results announcements by other apparel
companies, could contribute to the volatility of the prices of the Notes and the
Common Stock, causing the prices of the Notes and the Common Stock to fluctuate
significantly. These factors, as well as general economic conditions, such as
recessions or high interest rates, may adversely affect the market prices of the
Notes and the Common Stock.
POTENTIAL ANTI-TAKEOVER EFFECT OF DELAWARE LAW
Certain provisions of Delaware law could make a merger, tender offer or
proxy contest involving the Company more difficult, even if such events could be
beneficial to the interests of the stockholders. These provisions include
Section 203 of the Delaware General Corporation Law, which prohibits certain
business combinations with interested stockholders. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Common Stock. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE
As of February 28, 1998, options to purchase a total of 1,925,334 shares
had been granted (of which options to purchase 508,445 shares were exercisable
as of February 28, 1998) under the 1998 Stock Option Plan and there remained
available for future grant options to purchase 74,666 shares under the Plan. The
Company intends to file promptly after the registration statement relating to
this Prospectus is declared effective a registration statement on Form S-8 (the
"S-8") under the Securities Act of 1933 (the "Securities Act") covering the
2,000,000 shares of Common Stock reserved for issuance under the 1998 Stock
Option Plan. See "Management -- Stock-Based Compensation Plans." The S-8 is
expected to become effective immediately upon filing, whereupon, subject to Rule
144 volume limitations applicable to "affiliates" of the Company (as that term
is defined under the rules and regulations of the Securities Act) during the
first 12 months after the effectiveness of the Prospectus, shares of Common
Stock issued upon exercise of outstanding stock options granted pursuant to the
1998 Stock Option Plan will be available for immediate resale.
16
<PAGE>
THE RECAPITALIZATION
On February 27, 1998, the Company consummated a restructuring of its
outstanding subordinated debt and equity capitalization (the "1998
Recapitalization"). The objectives of the 1998 Recapitalization were to improve
the Company's financial condition and provide the Company with a capital
structure to facilitate its continued growth through execution of its strategic
business plan.
In the 1998 Recapitalization, the aggregate principal amount outstanding
under a term loan entered into by the Company on May 31, 1995 in the original
principal amount of $175 million (the "1995 Term Loan") and under a note dated
May 31, 1995 in the original principal amount of $36 million (the "1995 Note")
which, together with deferred or accrued interest, aggregated approximately
$257.2 million as of February 27, 1998 was restructured into: (i) the Notes in
the aggregate principal amount of $100 million and (ii) 8,000,000 shares of
newly issued common stock of the Company, representing 100% of the outstanding
shares of common stock as of February 28, 1998, and representing 80% of the
shares of Common Stock outstanding after giving pro forma effect to the
potential issuance of 2,000,000 shares of Common Stock pursuant to the Company's
1998 Stock Option Plan, but not giving pro forma effect to the potential shares
to be issued upon the exercise of the 1998 Recapitalization Warrants (as defined
below) or the management warrants issued in connection with the Company's 1998
Stock Option Plan (the "1998 Management Warrants"). See "Management."
Pursuant to the 1998 Recapitalization transactions, all of the aggregate
outstanding shares of Series A and Series B Preferred Stock of the Company as of
February 27, 1998 were converted into warrants to purchase an aggregate of
530,726 common shares of the Company (the "1998 Recapitalization Warrants").
Each of the 1998 Recapitalization Warrants represents the right to purchase one
share of common stock of the Company at a price of $15.72 per share at any time
through February 28, 2005. The options held by certain executive officers to
purchase shares of Series C cumulative preferred stock at an exercise price of
$13 per share were canceled as a result of the 1998 Recapitalization
transactions.
Also pursuant to the 1998 Recapitalization transactions, all of the shares
of Common Stock outstanding immediately prior to giving effect to the 1998
Recapitalization were canceled and each share of Common Stock held by the
holders of Series B Preferred Stock was converted into $.01 in cash per share.
The 1998 Recapitalization Warrants together with the 1998 Management
Warrants constitute the Warrants.
THE COMPANY
The Company is a leading designer, marketer and distributor of quality
men's and women's rainwear and outerwear in the United States. The Company
designs, markets and distributes its products under the Company-owned LONDON
FOG(Reg. TM) and PACIFIC TRAIL(Reg. TM) and related brand names, as well as
under the DOCKERS(Reg. TM), LEVI'S(Reg. TM) and SPERRY(Reg. TM) labels pursuant
to licenses from the owners thereof, and sells its products through most major
channels of distribution in its markets. The Company believes it has a dominant
share of the men's rainwear market in department stores and a significant share
of the men's outerwear and women's rainwear and outerwear markets in department
stores. The Company also distributes its products to specialty retailers
(including sport specialty retailers), national and regional chain stores, and
discount and off-price retailers. In addition, the Company generates a
significant portion of its sales from distributing its products through
Company-operated retail stores. As of May 30, 1998, the Company operated 134
factory outlet stores, eight superstores and three Weather Stores(TM). In Fiscal
1998, the Company had net sales of approximately $336 million.
The Company's products marketed under the LONDON FOG(Reg. TM) and the
related FOG(Reg. TM) and TOWNE(Reg. TM) brands and under the SPERRY(Reg. TM)
brand (licensed to the Company by the owner thereof) are referred to as the
"London Fog Products" and the products marketed under the PACIFIC TRAIL(Reg.
TM), INSIDE EDGE(Reg. TM) and BLACK DOT(Reg. TM) brands, and under the
DOCKERS(Reg. TM) and LEVI'S(Reg. TM) brands (licensed to the Company by the
owner thereof) are referred to as the "Pacific Trail Products".
17
<PAGE>
The Company traces the origins of its business back over 70 years to a
small manufacturer of fine men's clothing and topcoats. The nationally
recognized LONDON FOG(Reg. TM) brand name was introduced in 1954. In 1976, the
Company was purchased by INTERCO Incorporated ("Interco"). In 1988, Interco sold
the Company to Holdings, which was formed by certain members of the Company's
management and whose primary investor was General Electric Capital Corporation.
In 1990, investment funds managed by Merrill Lynch Capital Partners purchased a
significant majority of the equity of Holdings. In April 1994, the Company
acquired all the outstanding shares of Pacific Trail, Inc. ("Pacific Trail"), a
leading designer, marketer and distributor of authentic, moderate priced casual,
outdoor and active outerwear for men, women and children. On May 31, 1995, the
Company consummated a restructuring of its outstanding debt and equity
capitalization (the "1995 Recapitalization"). On February 27, 1998, the Company
consummated a further restructuring of its outstanding subordinated debt and
equity capitalization. See "The Recapitalization."
The Company's principal executive offices are located at 1332 Londontown
Boulevard, Eldersburg, Maryland 21784. The telephone number of the Company is
(410) 795-5900.
USE OF PROCEEDS
Up to a total of 614,525 shares of Common Stock that are covered by this
Prospectus will be issued upon exercise of the Warrants. Specifically, up to
530,726 shares of Common Stock that are covered by this Prospectus will be
issued upon exercise of the 1998 Recapitalization Warrants and up to 83,799
shares of Common Stock that are covered by this Prospectus will be issued upon
exercise of the 1998 Management Warrants. Assuming that all of the 1998
Recapitalization Warrants and all of the 1998 Management Warrants are exercised,
the maximum net proceeds to the Company will be $9,660,333. Any net proceeds
received upon exercise of the 1998 Recapitalization Warrants or the 1998
Management Warrants will be used for general corporate purposes. The Company
will not receive any of the proceeds from the sale of the shares of Common Stock
or Notes or the shares issued upon exercise of the Warrants by the Selling
Securityholders.
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain any future earnings for use in
the Company's business. Normally, the payment of dividends is within the
discretion of the Company's Board of Directors and depends on the earnings,
capital requirements and operating and financial condition of the Company, among
other factors. However, the Senior Credit Facility prohibits, and the Indenture
significantly restricts, the ability of the Company to pay dividends. See
"Description of Notes", "Description of Certain Indebtedness - Senior Credit
Facility" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
18
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the actual short-term debt and
capitalization of the Company as of February 28, 1998 and May 30, 1998. The
information set forth below should be read in conjunction with the Consolidated
Financial Statements and related notes thereto of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 30,
1998 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Short-term debt:
Revolving credit borrowings (a). .................................. $ 18,176 $ 63,213
Current portion of long-term debt:
Principal. ...................................................... 512 526
Future interest capitalized per SFAS 15 (b) ..................... 10,000 10,000
---------- ----------
Total short-term debt. ......................................... $ 28,688 $ 73,739
========== ==========
Long-term debt, net of current portion:
Mortgage note payable ............................................. $ 10,810 $ 10,674
10% Senior Subordinated Notes due 2003 (b)
Principal (b) ................................................... 100,000 100,000
Future interest capitalized per SFAS 15 (b). .................... 40,000 40,000
---------- ----------
Total recorded amount (b) ....................................... 140,000 140,000
---------- ----------
Total long-term debt, net of current portion (b) ............... 150,810 150,674
---------- ----------
Stockholders' equity (deficit):
Common Stock, 12,000,000 shares authorized; 8,000,000 shares issued
and outstanding (c). ............................................ 80 80
Warrants outstanding. ............................................. 536 536
Additional paid-in-capital ........................................ 165,493 165,493
Unearned portion of stock options ................................. (4,789) (4,359)
Accumulated deficit ............................................... (165,909) (179,151)
---------- ----------
Total stockholders' equity (deficit). .......................... (4,589) (17,401)
---------- ----------
Total capitalization ........................................... $ 146,221 $ 133,273
========== ==========
</TABLE>
- ----------
(a) Excludes outstanding letters of credit of $24.8 million as of February 28,
1998 and $26.7 million as of May 30, 1998.
(b) The Notes were issued pursuant to the 1998 Recapitalization in an aggregate
principal amount of $100 million. The Company has accounted for the 1998
Recapitalization in accordance with the provisions of SFAS 15. Since the
Notes require total future payments of $150 million, including $50 million
of interest payments over five years, SFAS 15 requires the Company to record
$150 million of debt on its balance sheet related to the $100 million
principal amount of the Notes. As a result, the Company will record all
future payments on the Notes, including principal and $10 million per year
of interest payments as a reduction of the recorded debt balance and no
interest expense will be recorded on the Company's Consolidated Statements
of Operations with respect to the Notes. Of the $150 million total recorded
amount of the Notes as of February 28, 1998 and May 30, 1998, the scheduled
interest payments of $10 million during the next twelve months are reflected
in current portion of long-term debt with the remaining $140 million
reflected in long-term debt, net of current portion. See Note 8 of Notes to
Consolidated Financial Statements.
(c) Excludes 2,000,000 shares reserved for issuance under the 1998 Stock Option
Plan, of which 1,925,334 and 1,910,194 shares were subject to outstanding
options at February 28, 1998 and May 30, 1998, respectively, at an exercise
price of $2.00 per share. Also excludes 614,525 shares reserved for issuance
upon the exercise of the 1998 Recapitalization Warrants and the 1998
Management Warrants, of which 611,393 and 610,758 shares were subject to
outstanding warrants at February 28, 1998 and May 30, 1998, respectively, at
an exercise price of $15.72 per share. See "The Recapitalization",
"Management -- Stock Incentive Plans" and Notes 8 and 10 of Notes to
Consolidated Financial Statements.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Unaudited Pro Forma Consolidated Financial Data is derived
from the Company's consolidated statement of operations for the fiscal year
ended February 28, 1998. The unaudited Pro Forma Consolidated Statement of
Operations is adjusted to give effect to the 1998 Recapitalization as if the
transaction had occurred at the beginning of the period. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. No pro forma consolidated balance sheet is
presented since the historical Consolidated Balance Sheet of the Company as of
February 28, 1998 reflects the balance sheet impact of the 1998
Recapitalization, which was consummated on February 27, 1998. The Unaudited Pro
Forma Consolidated Financial Data should be read in conjunction with the
Company's Consolidated Financial Statements as of and for the fiscal year ended
February 28, 1998 and related notes thereto included elsewhere in this
Prospectus. The Unaudited Pro Forma Consolidated Financial Data do not purport
to represent what the Company's results of operations would have been had the
above transaction occurred on the date specified or to project the Company's
results of operations for or at any future period or date.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------------------- ------------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .................................................... $ 335,621 $ -- $335,621
Cost of goods sold ........................................... 227,405 -- 227,405
----------- ---------- ------------
Gross profit ................................................ 108,216 -- 108,216
Licensing revenues ........................................... 4,055 -- 4,055
----------- ---------- ------------
112,271 -- 112,271
Selling, general and administrative expenses ................. 98,499 -- 98,499
Restructuring and special charges ............................ 7,535 -- 7,535
Deferred compensation expense ................................ 2,735 2,735 (a) 5,470 (a)
Amortization of goodwill and licensing agreements ............ 2,126 -- 2,126
----------- ---------- ------------
Operating income (loss) ..................................... 1,376 (2,735) (1,359)
Interest expense, net ........................................ 14,664 (6,285) (b) 8,379 (c)
Gain from sale of investment ................................. (2,260) -- (2,260)
----------- ---------- ------------
Income (loss) before provision (benefit) for income taxes and
extraordinary gain ........................................ (11,028) 3,550 (7,478)
Provision (benefit) for income taxes ......................... (5,932) -- (5,932)
----------- ---------- ------------
Loss before extraordinary gain .............................. $ (5,096) $ 3,550 $ (1,546)
=========== ========== ============
Basic and diluted earnings per share
Income (loss) available to common stockholders before
extraordinary gain ........................................ $ (4.12) (d) $ (0.19)
=========== ============
Weighted average shares outstanding ......................... 8,000,000 8,000,000
=========== ============
OTHER DATA:
EBITDA (e) ................................................... $ 20,799 $ 20,799
Adjusted cash interest (f) ................................... 12,211 16,848
Ratio of EBITDA to Adjusted cash interest .................... 1.7 x 1.2 x
</TABLE>
- ----------
(a) To record the pro forma effect of a full year of vesting on the stock
options and non-cash accrual under the Company's deferred compensation plan
in addition to the actual expense recognized at the date of grant.
(b) To record the pro forma effect on interest expense for the 1998
Recapitalization as follows:
<TABLE>
<S> <C>
Interest on deferred compensation plan balances ......................... $ 218
Interest on 1995 Term Loan and 1995 Note ................................ (6,396)
Amortization of deferred financing costs on 1995 Term Loan and 1995 Note (107)
--------
Pro forma adjustment .................................................... $ (6,285)
========
</TABLE>
(c) The Notes were issued pursuant to the 1998 Recapitalization in an aggregate
principal amount of $100 million. The Company has accounted for the 1998
Recapitalization in accordance with the provisions of SFAS 15. Since the
Notes require total future payments of $150 million, including $50 million
of interest payments over five years, SFAS 15 requires the Company to record
20
<PAGE>
$150 million of debt on its balance sheet related to the $100 million
principal amount of the Notes. As a result, the Company will record all
future payments on the Notes, including principal and $10 million per year
of interest payments, as a reduction of the recorded debt balance and no
interest expense will be recorded on the Company's Consolidated Statements
of Operations with respect to the Notes. See Note 8 of Notes to Consolidated
Financial Statements.
(d) For the fiscal year ended February 28, 1998, dividends of $27,864 on the
17.5% cumulative voting preferred stock had accumulated and therefore are
deducted from earnings in arriving at income (loss) available to common
stockholders before extraordinary gain. However, given that such dividends
had not been declared and that management believed there was a remote chance
that such dividends would be declared, the Company has not recorded such
dividends in its financial statements.
(e) EBITDA represents operating income (loss) plus write-off of goodwill and
licensing agreements, depreciation and amortization, deferred compensation
expense and restructuring and special charges. The Company believes that
EBITDA, as presented, provides useful information regarding the Company's
ability to service its debt; however, EBITDA does not represent cash flow
from operations as defined by generally accepted accounting principles and
should not be considered as a substitute for net income as an indicator of
the Company's operating performance or cash flow as a measure of liquidity.
In addition, the method of calculating EBITDA set forth above may be
different from calculations of EBITDA employed by other companies and,
accordingly, may not be directly comparable to such other calculations.
(f) Adjusted cash interest represents interest expense less non-cash interest
expense, including the accretion of principal and the amortization of
deferred financing costs, plus cash interest accrued or paid during the
period which was accounted for in accordance with the provisions of SFAS 15
and, therefore, is not included in interest expense.
21
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial information for the fiscal years ended
February 26, 1994, February 25, 1995, February 24, 1996, February 22, 1997 and
February 28, 1998 has been derived from the Company's audited Consolidated
Financial Statements. The Consolidated Financial Statements for the fiscal years
ended February 24, 1996, February 22, 1997 and February 28, 1998 and the
fourteen weeks ended May 31, 1997 and the thirteen weeks ended May 30, 1998 are
included elsewhere in this Prospectus. The selected consolidated financial
information for the fourteen weeks ended May 31, 1997 and the thirteen weeks
ended May 30, 1998 and as of May 31, 1997 and May 30, 1998 has been derived from
the Unaudited Condensed Consolidated Financial Statements of the Company, which,
in the opinion of management, have been prepared on the same basis as the
Consolidated Financial Statements included elsewhere in this Prospectus and
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position and the results of
operations of the Company. Results for the fourteen weeks ended May 31, 1997 and
the thirteen weeks ended May 30, 1998 are not indicative of the results for a
full year. The information set forth below should be read in conjunction with
the historical Consolidated Financial Statements, Unaudited Condensed
Consolidated Financial Statements and related notes thereto of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
FEBRUARY 26, FEBRUARY 25, FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1994 (A) 1995 (A) 1996 1997 1998 (B)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $ 356,632 $ 330,520 $ 274,394 $ 279,107 $ 335,621
Cost of goods sold. ......................... 253,429 290,372 203,469 185,102 227,405
---------- ---------- ---------- ---------- ----------
Gross profit. .............................. 103,203 40,148 70,925 94,005 108,216
Licensing revenues .......................... 4,221 3,184 1,947 3,064 4,055
---------- ---------- ---------- ---------- ----------
107,424 43,332 72,872 97,069 112,271
Selling, general and administrative
expenses ................................... 75,004 106,908 86,641 83,848 98,499
Restructuring and special charges (c) ....... 28,275 61,190 -- -- 7,535
Deferred compensation expense (d) ........... -- -- -- -- 2,735
Amortization of goodwill and licensing
agreements. ................................ 5,253 6,643 4,024 2,487 2,126
Write-off of goodwill and licensing
agreements (e) ............................. 16,651 51,136 -- -- --
---------- ---------- ---------- ---------- ----------
Operating income (loss).. .................. (17,759) (182,545) (17,793) 10,734 1,376
Interest expense, net. ...................... 24,624 29,506 16,790 12,530 14,664
Gain from sale of investment ................ -- -- -- -- (2,260)
---------- ---------- ---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes, extraordinary items
and cumulative effect of
accounting change ......................... (42,383) (212,051) (34,583) (1,796) (11,028)
Provision (benefit) for income taxes ........ (10,000) 200 176 158 (5,932)
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
items and cumulative effect of
accounting change ......................... (32,383) (212,251) (34,759) (1,954) (5,096)
Extraordinary gain (loss) on extinguish-
ments of debt, net of tax (f). ............. (3,267) (11,877) -- -- 160,855
Cumulative effect of accounting change....... -- (1,308) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) ........................... $ (35,650) $ (225,436) $ (34,759) $ (1,954) $ 155,759
========== ========== ========== ========== ==========
Income (loss) available to common
stockholders before extraordinary items
and cumulative effect of accounting
change (g) ................................. $ (35,631) $ (216,460) $ (52,812) $ (25,191) $ (32,960)
========== ========== ========== ========== ==========
Basic and diluted earnings (loss) per share
available to common stockholders:
Income (loss) before extraordinary items
and cumulative effect of accounting
change (g) ................................ $ (4.45) $ (27.06) $ (6.60) $ (3.15) $ (4.12)
========== ========== ========== ========== ==========
Weighted average shares outstanding (h) 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOURTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 31, MAY 30,
1997 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $ 41,678 $ 36,627
Cost of goods sold. ......................... 27,022 22,753
---------- ----------
Gross profit. .............................. 14,656 13,874
Licensing revenues .......................... 1,010 860
---------- ----------
15,666 14,734
Selling, general and administrative
expenses ................................... 20,039 21,754
Restructuring and special charges (c) ....... 3,500 3,500
Deferred compensation expense (d) ........... -- 684
Amortization of goodwill and licensing
agreements. ................................ 561 532
Write-off of goodwill and licensing
agreements (e) ............................. -- --
---------- ----------
Operating income (loss).. .................. (8,434) (11,736)
Interest expense, net. ...................... 4,011 1,455
Gain from sale of investment ................ -- --
---------- ----------
Income (loss) before provision (benefit)
for income taxes, extraordinary items
and cumulative effect of
accounting change ......................... (12,445) (13,191)
Provision (benefit) for income taxes ........ 48 51
---------- ----------
Income (loss) before extraordinary
items and cumulative effect of
accounting change ......................... (12,493) (13,242)
Extraordinary gain (loss) on extinguish-
ments of debt, net of tax (f). ............. -- --
Cumulative effect of accounting change....... -- --
---------- ----------
Net income (loss) ........................... $ (12,493) $ (13,242)
========== ==========
Income (loss) available to common
stockholders before extraordinary items
and cumulative effect of accounting
change (g) ................................. $ (19,446) $ (13,242)
========== ==========
Basic and diluted earnings (loss) per share
available to common stockholders:
Income (loss) before extraordinary items
and cumulative effect of accounting
change (g) ................................ $ (2.43) $ (1.66)
========== ==========
Weighted average shares outstanding (h) 8,000,000 8,000,000
========== ==========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
FEBRUARY 26, FEBRUARY 25, FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1994 (A) 1995 (A) 1996 1997 1998 (B)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (i) ........................ $ 90,184 $ (22,898) $ 69,276 $ 72,694 $ 49,000
Total assets ............................... 270,998 259,296 210,713 206,345 215,091
Total debt (j) ............................. 162,706 316,579 329,533 330,325 179,498
Total stockholders' equity (deficit) ....... 32,907 (127,427) (160,813) (162,066) (4,589)
OTHER DATA:
EBITDA (k) ................................. $ 36,824 $ (59,343) $ (9,933) $ 18,647 $ 20,799
Depreciation expense ....................... 4,404 4,233 3,836 5,426 7,027
Adjusted cash interest (l) ................. 22,811 26,971 11,461 9,210 12,211
Capital expenditures ....................... 5,157 11,526 4,696 7,703 11,844
Ratio of earnings to fixed charges (m). -- -- -- -- --
Ratio of EBITDA to Adjusted cash
interest (n) .............................. 1.6 x -- -- 2.0 x 1.7 x
Retail stores open at end of period. ....... 110 122 99 125 136
<CAPTION>
FOURTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 31, MAY 30,
1997 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (i) ........................ $ 60,718 $ 37,733
Total assets ............................... 218,728 246,232
Total debt (j) ............................. 356,845 224,413
Total stockholders' equity (deficit) ....... (174,562) (17,401)
OTHER DATA:
EBITDA (k) ................................. $ (2,697) $ (5,062)
Depreciation expense ....................... 1,676 1,958
Adjusted cash interest (l) ................. 2,614 3,724
Capital expenditures ....................... 2,173 2,212
Ratio of earnings to fixed charges (m). -- --
Ratio of EBITDA to Adjusted cash
interest (n) .............................. -- --
Retail stores open at end of period. ....... 126 145
</TABLE>
- ---------
(a) The Company acquired Pacific Trail, Inc. and affiliated entities in April
1994. The statement of operations data and other data presented for the
period preceding the acquisition do not include amounts for the acquired
entities and therefore are not comparable to subsequent periods.
Additionally, the statement of operations data and other data presented for
the year in which the acquisition occurred are not comparable to subsequent
periods.
(b) The statement of operations data and other data for the fiscal year ended
February 28, 1998 are based on a 53-week year.
(c) The restructuring charge in Fiscal 1994 relates to the restructuring of the
Company's operations (including the closing of three production facilities),
brand repositioning (including the discontinuation of its knitwear division)
and relocation of certain Company office facilities. The restructuring
charge in Fiscal 1995 includes charges related to the restructuring of the
Company's manufacturing, distribution, retail store and other operations,
changes in senior management, the restructuring of its debt and equity
capitalization, and a writedown related to an investment in a joint venture.
The Fiscal 1998 charges relate to the closing of the Company's rainwear
manufacturing plant located in Baltimore, Maryland and special payments made
to certain executives of the Company due to the triggering of contractual
"change of control" payment rights in the employment agreements of such
executives. The restructuring charge in the fourteen weeks ended May 31,
1997 relates to the closing of the Company's Baltimore, Maryland rainwear
manufacturing facility. The restructuring charge in the thirteen weeks ended
May 30, 1998 relates to the planned closing or downsizing of five of the
Company's eight test retail superstores open as of May 30, 1998. See Note 16
of Notes to Consolidated Financial Statements and Note 4 of Notes to
Unaudited Condensed Consolidated Financial Statements.
(d) Deferred compensation expense in Fiscal 1998 and the thirteen weeks ended
May 30, 1998 consists of compensation expense related to stock-based
compensation of approximately $1,718 and $430, respectively, and
compensation expense related to non-cash accruals under a deferred
compensation plan of approximately $1,017 and $254, respectively. See Note
11 of Notes to Consolidated Financial Statements.
(e) The write-off of goodwill and licensing agreements in Fiscal 1994 represents
a write-off of goodwill attributable to the Company's discontinued knitwear
division and a write-off of intangible assets related to licensing
agreements terminated or not renewed by the Company as part of the Company's
brand repositioning. The Fiscal 1995 figure represents a write-off of
goodwill recorded based on the Company's evaluation of the impairment of
goodwill resulting from the significant declines in sales, profitability and
cash flow experienced in Fiscal 1995.
(f) The extraordinary losses recorded in Fiscal 1994 and Fiscal 1995 represent
the cumulative catch-up of amortization of deferred financing costs and
redemption premium paid in connection with refinancings of certain of the
Company's debt. The extraordinary gain recorded in Fiscal 1998 relates to
the extinguishment of debt in connection with the 1998 Recapitalization. See
Notes 8 and 13 of Notes to Consolidated Financial Statements.
(g) For the fiscal years ended February 26, 1994 and February 25, 1995,
dividends and charges to accrete the carrying value of $3,248 and $4,209,
respectively, on the 10% cumulative redeemable senior preferred stock had
accumulated and therefore are deducted from earnings in arriving at income
(loss) available to common stockholders before extraordinary items and
cumulative effect of accounting change. For the fiscal years ended February
24, 1996, February 22, 1997 and February 28, 1998 and for the fourteen weeks
ended May 31, 1997, dividends of $18,053, $23,237, $27,864 and $6,953,
respectively, on the 17.5% cumulative voting preferred stock had accumulated
and therefore are deducted from earnings in arriving at income (loss)
available to common stockholders before extraordinary items and cumulative
effect of accounting change. However, given that such dividends had not been
declared and that management believed there was a remote chance that such
dividends would be declared, the Company has not recorded such dividends in
its financial statements.
(h) Pursuant to the 1998 Recapitalization, the Company issued 8,000,000 shares
of common stock. All shares and per share amounts have been restated for all
periods to reflect the 1998 Recapitalization.
(i) Working capital represents current assets less current liabilities. Current
liabilities include future interest payments capitalized under the
provisions of SFAS 15 of $10,000 at each of February 28, 1998 and May 30,
1998. See Note 8 of Notes to Consolidated Financial Statements.
23
<PAGE>
(j) Total debt represents long-term debt, including current portion, plus
revolving credit borrowings. Total debt includes future interest payments
capitalized under the provisions of SFAS 15 of $91,533, $77,383, $50,000,
$73,448 and $50,000 at February 24, 1996, February 22, 1997, February 28,
1998, May 31, 1997 and May 30, 1998, respectively. See Note 8 of Notes to
Consolidated Financial Statements.
(k) EBITDA represents operating income (loss) plus write-off of goodwill and
licensing agreements, depreciation and amortization, deferred compensation
expense and restructuring and special charges. The Company believes that
EBITDA, as presented, provides useful information regarding the Company's
ability to service its debt; however, EBITDA does not represent cash flows
from operations as defined by generally accepted accounting principles and
should not be considered as a substitute for net income, as an indicator of
the Company's operating performance or cash flow as a measure of liquidity.
In addition, the method of calculating EBITDA set forth above may be
different from calculations of EBITDA employed by other companies and,
accordingly, may not be directly comparable to such other calculations.
(l) Adjusted cash interest represents interest expense less non-cash interest
expense, including the accretion of principal and the amortization of
deferred financing costs, plus cash interest accrued or paid during the
period which was accounted for in accordance with the provisions of SFAS 15
and therefore is not included in interest expense.
(m) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before provision (benefit) for income taxes, extraordinary
items and cumulative effect of accounting change plus fixed charges. Fixed
charges consist of interest expense (including amortization of deferred
financing costs) and the portion of rental expense that is deemed
representative of the interest factor. Earnings were not sufficient to cover
fixed charges in the fiscal years ended February 26, 1994, February 25,
1995, February 24, 1996, February 22, 1997 and February 28, 1998 and the
fourteen weeks ended May 31, 1997 and the thirteen weeks ended May 30, 1998
in the amount of $42,383, $212,051, $34,583, $1,796, $11,028, $12,445, and
$13,191, respectively.
(n) EBITDA was not sufficient to cover Adjusted cash interest in the fiscal
years ended February 25, 1995 and February 24, 1996 and the fourteen weeks
ended May 31, 1997 and the thirteen weeks ended May 30, 1998 in the amount
of $86,314, $21,394, $5,311 and $8,786, respectively.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data and Consolidated Financial Statements
and related notes thereto of the Company included elsewhere in this Prospectus.
The Company's fiscal year ends on the last Saturday in February. Accordingly,
all fiscal years for which financial information is included in this Prospectus
consisted of 52 weeks, except for Fiscal 1998, which consisted of 53 weeks.
The following sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of operations for the fiscal periods shown below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOURTEEN THIRTEEN
-------------------------------------------- WEEKS WEEKS
FEBRUARY 24, FEBRUARY 22, FEBRUARY 28, ENDED ENDED
1996 1997 1998 MAY 31, 1997 MAY 30, 1998
-------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales ................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ....................... 74.2 66.3 67.8 64.8 62.1
----- ----- ----- ----- -----
Gross profit ............................ 25.8 33.7 32.2 35.2 37.9
Licensing revenues ....................... 0.7 1.1 1.2 2.4 2.3
----- ----- ----- ----- -----
26.6 34.8 33.5 37.6 40.2
Selling, general and administrative
expenses ................................ 31.6 30.0 29.3 48.1 59.4
Restructuring and special charges ........ -- -- 2.2 8.4 9.6
Deferred compensation expense ............ -- -- 0.8 -- 1.9
Amortization of goodwill and licensing
agreements .............................. 1.5 0.9 0.6 1.3 1.5
----- ----- ----- ----- -----
Operating income (loss) ................. ( 6.5)% 3.8% 0.4% (20.2)% (32.0)%
===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 30, 1998 (FIRST QUARTER OF FISCAL 1999) COMPARED TO
FOURTEEN WEEKS ENDED MAY 31, 1997 (FIRST QUARTER OF FISCAL 1998)
Sales of rainwear and outerwear, the principal products of the Company, are
highly seasonal. Historically, the Company has realized its highest level of
sales in its third fiscal quarter (September through November) and its lowest
level of sales in its first fiscal quarter (March through May). Related to this
seasonality of sales, historically the Company has generated significant
operating losses in its first fiscal quarter.
Net Sales. Net sales decreased 12.1% to $36.6 million in the first quarter
of Fiscal 1999 from $41.7 million in the first quarter of Fiscal 1998. This
decrease resulted from decreased sales to wholesale customers, particularly
sales of London Fog Products, driven by both lower full-price and off-price
sales. Sales in the Company's retail stores increased slightly for the first
quarter of Fiscal 1999 compared to the first quarter of Fiscal 1998, resulting
from an increase in the average number of stores in operation compared to the
prior year period, largely offset by a decrease in comparable store sales of
approximately 8% and the detrimental impact of the current period consisting of
one less week (13 weeks) compared to the prior year period (14 weeks).
Comparable store sales were negatively impacted by unusually warm weather during
this year's period compared to the prior year's period.
Gross Profit. Gross profit decreased 5.3% to $13.9 million in the first
quarter of Fiscal 1999 from $14.7 million in the comparable prior year period.
Gross profit as a percentage of net sales (gross margin) increased to 37.9% in
the current year first quarter from 35.2% in the comparable prior year period.
The increase in gross margin resulted primarily from an increased percentage of
consolidated sales coming from retail store sales, which typically generate a
higher gross margin than wholesale sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8.6% to $21.8 million in the current year
first quarter from $20.0 million in the comparable prior year period. This
increase resulted from increased retail store operating expenses related to the
increased
25
<PAGE>
number of stores in operation compared to the prior year period, including the
impact of expenses related to the operation of the Company's retail superstores.
As of May 30, 1998 the Company operated eight retail superstores compared to
operating one retail superstore as of May 31, 1997.
Restructuring and Special Charges. During the first quarter of Fiscal 1999,
the Company recorded a restructuring charge of $3.5 million related to the
planned closing or downsizing of five of the Company's eight retail test
superstores open as of May 30, 1998. These superstores, the first of which was
opened in May 1997, were opened to test an alternative, larger format retail
distribution channel for the Company's product offerings to supplement the
Company's traditional wholesale and factory outlet store retail distribution
channels. Based on initial sales results for these test superstores, management
has determined that most of the existing superstores, many of which are greater
than 25,000 square feet in size, are too large to generate acceptable
profitability within an acceptable period of time. As a result, the Company has
adopted a plan to restructure its larger format store strategy by closing or
significantly downsizing most of the Company's current superstores and shifting
to a revised format which focuses on a store size significantly smaller than
25,000 square feet and includes the planned expansion of product offerings
beyond rainwear and outerwear, such as sportswear and accessories. The Company
is currently targeting 10,000 to 12,000 square feet as the optimal size to test
for its larger format superstores. The Company believes that the planned
reduction in store size and expansion of product offerings will help broaden the
appeal of the stores to both existing and new customers, increase store sales,
reduce the seasonality of the Company's sales and increase store profitability.
The restructuring charge of $3.5 million included an accrual of $1.6 million for
anticipated cash restructuring expenditures, to cover costs associated with
amending or terminating store leases and other related costs, and $1.9 million
of non-cash charges related to anticipated write-offs of fixed assets in the
stores to be closed or downsized.
During the first quarter of Fiscal 1998, the Company recorded a
restructuring charge of $3.5 million related to the closing of the Company's
Baltimore, Maryland rainwear manufacturing facility. In the fourth quarter of
Fiscal 1998, the Company increased the restructuring charge related to the
closing of the facility to $3.7 million.
Deferred Compensation Expense. For the first quarter of Fiscal 1999, the
Company recorded $684,000 of non-cash deferred compensation expense. This amount
consisted of: (i) $430,000 of compensation expense related to stock options
granted during Fiscal 1998; and (ii) $254,000 of compensation expense related to
non-cash accruals under the Company's deferred compensation plan adopted during
Fiscal 1998.
Interest Expense, net. Interest expense, net decreased by approximately
$2.5 million to $1.5 million in the first quarter of Fiscal 1999 from $4.0
million in the comparable prior year period. The decrease resulted both from the
impact of the Company's February 1998 debt restructuring and recapitalization,
which reduced the Company's debt obligations and related interest expense, and a
reduction in amortization of deferred financing costs. Interest expense, net
recorded for both the current year and prior year periods has been reduced as a
result of the impact of accounting for both the Company's 1995 Recapitalization
and its 1998 Recapitalization in accordance with SFAS 15. Using the provisions
of SFAS 15, the Company recorded the debt issued pursuant to both the 1995
Recapitalization and the 1998 Recapitalization at figures significantly in
excess of their respective principal amounts, with the difference effectively
representing future interest payments and, thus, reducing interest expense in
subsequent periods.
FISCAL YEAR ENDED FEBRUARY 28, 1998 (FISCAL 1998) COMPARED TO
FISCAL YEAR ENDED FEBRUARY 22, 1997 (FISCAL 1997)
As previously indicated, Fiscal 1998 consisted of 53 weeks and Fiscal 1997
consisted of 52 weeks.
Net Sales. Net sales increased 20.2% to $335.6 million in Fiscal 1998 from
$279.1 million in Fiscal 1997. This increase resulted primarily from increased
sales in the Company's retail stores and increased sales of Pacific Trail
Products to wholesale customers. The growth in retail sales was primarily due to
sales from stores opened during Fiscal 1998, increased sales from the full year
impact of stores opened during Fiscal 1997, and an increase in comparable store
sales of approximately 2%. The growth in
26
<PAGE>
wholesale sales of Pacific Trail Products was primarily due to increased sales
of fall 1997 outerwear through existing customers, particularly in the women's
outerwear category, driven by extremely strong sales performance of Pacific
Trail's fall 1996 merchandise. The increases in sales both from the Company's
retail stores and from wholesale sales of Pacific Trail Products were due
primarily to increased unit volume rather than price increases.
The consolidated net sales increase from Fiscal 1997 to Fiscal 1998 also
reflects the beneficial impact of Fiscal 1998 consisting of an extra week (53
weeks) compared to Fiscal 1997 (52 weeks).
Gross Profit. Gross profit increased 15.1% to $108.2 million in Fiscal 1998
from $94.0 million in Fiscal 1997. Gross profit as a percentage of net sales
(gross margin) decreased to 32.2% in Fiscal 1998 from 33.7% in Fiscal 1997. The
decrease in gross margin resulted from decreased gross margin in the Company's
retail stores and decreased gross margin obtained from wholesale sales of London
Fog Products, driven primarily by increased markdowns in the Company's retail
stores and increased off-price sales of excess inventory and steeper discounts
provided on such off-price sales of London Fog Products. The increased markdowns
and off-price sales were taken to help stimulate sales and reduce inventory
levels in the face of lower than expected sales from the Company's retail stores
and from wholesale sales of London Fog Products during the key September through
December fall sales period, which was significantly adversely affected by
unusually warm weather during this period. The lower than expected sales in the
Company's retail stores reflected lower than expected sales in both the
Company's factory outlet stores as well as its superstores, which commenced
operations during Fiscal 1998.
Licensing Revenues. Licensing revenues increased by $1.0 million to $4.1
million in Fiscal 1998 from $3.1 million in Fiscal 1997. This increase resulted
from increased licensing revenues from both existing and new licensees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.5% to $98.5 million in Fiscal 1998 from
$83.8 million in Fiscal 1997. This increase resulted primarily from increased
retail store operating expenses related to the increased number of stores,
including the impact of expenses related to the opening and operation of the
superstores opened in Fiscal 1998. Selling, general and administrative expenses
as a percentage of net sales decreased to 29.3% in Fiscal 1998 from 30.0% in
Fiscal 1997. The decrease resulted primarily from economies of scale associated
with leveraging certain expenses over an increased sales volume.
Restructuring and Special Charges. During Fiscal 1998, the Company recorded
restructuring and special charges of $7.5 million. This charge consisted of a
$3.7 million restructuring charge related to the closing of the Company's
Baltimore, Maryland rainwear manufacturing facility and a $3.8 million charge
reflecting special payments made to certain executives of the Company due to the
triggering of contractual "change of control" payment rights in the employment
agreements of such executives. The $3.7 million Baltimore plant closing charge
included $1.2 million of cash expenditures, primarily related to employee
severance and ongoing occupancy costs, and a $2.5 million charge related to the
loss from sales of fixed assets as well as the increase in the Company's
multiemployer pension liability resulting from the closure of the facility.
Deferred Compensation Expense. During Fiscal 1998, the Company recorded
$2.7 million of non-cash deferred compensation expense. This amount consisted
of: (i) $1.7 million of compensation expense related to stock options granted
and vested during Fiscal 1998; and (ii) $1.0 million of compensation expense
related to non-cash accruals under a deferred compensation plan adopted during
Fiscal 1998.
Operating Income. Operating income decreased by $9.4 million, to $1.4
million in Fiscal 1998 from $10.7 million in Fiscal 1997. This decrease resulted
from the $7.5 million of restructuring and special charges and $2.7 million of
deferred compensation expense incurred in Fiscal 1998.
Interest Expense, net. Interest expense, net increased by $2.1 million to
$14.7 million in Fiscal 1998 from $12.5 million in Fiscal 1997. This increase
resulted primarily from higher average revolving credit borrowings during Fiscal
1998 compared to Fiscal 1997. Interest expense, net recorded for both Fiscal
1998 and Fiscal 1997 has been reduced as a result of the impact of accounting
for the Company's 1995 Recapitalization in accordance with SFAS 15. Using the
provisions of SFAS 15, the Company recorded
27
<PAGE>
the debt issued pursuant to the 1995 Recapitalization at a figure significantly
in excess of its principal amount, with the difference effectively representing
future interest payments and, thus, reducing interest expense in subsequent
periods.
Gain From Sale of Investment. During Fiscal 1998, the Company sold an
equity investment for $2,260,000 which resulted in a gain of $2,260,000.
Provision (Benefit) For Income Taxes. The provision (benefit) for income
taxes was a benefit of $5.9 million for Fiscal 1998 compared to an expense of
$158,000 for Fiscal 1997. The $5.9 million benefit for Fiscal 1998 reflects the
utilization of net operating losses to offset tax liability resulting from
cancellation of indebtedness income arising from the 1998 Recapitalization.
Extraordinary Gain on Extinguishment of Debt, net. The extraordinary gain
on extinguishment of debt, net, totaling $160.9 million, resulted from the 1998
Recapitalization. Pursuant to this transaction, the Company's subordinated debt
obligations were reduced from an outstanding debt amount of $257.2 million (with
a recorded value of $319.7 million in accordance with SFAS 15) to an outstanding
debt amount of $100.0 million (with a recorded value of $150.0 million in
accordance with SFAS 15). The extraordinary gain of $160.9 million equals the
excess of the $319.7 million of debt previously recorded over the $150.0 million
of new debt recorded as of February 27, 1998, or $169.7 million, less $2.7
million of transaction costs incurred and an income tax provision of $6.1
million.
FISCAL YEAR ENDED FEBRUARY 22, 1997 (FISCAL 1997) COMPARED TO
FISCAL YEAR ENDED FEBRUARY 24, 1996 (FISCAL 1996)
Net Sales. Net sales increased 1.7% to $279.1 million in Fiscal 1997 from
$274.4 million in Fiscal 1996. This increase resulted primarily from increased
sales in the Company's retail stores which more than offset decreased sales to
wholesale customers. The increase in sales in the Company's retail stores
resulted from both the increased average number of stores in operation compared
to the previous year, as well as an increase in comparable store sales of
approximately 6%. The decrease in sales to wholesale customers resulted from a
decrease in wholesale sales of London Fog Products, which more than offset an
increase in wholesale sales of Pacific Trail Products. The decrease in wholesale
sales of London Fog Products was due to continued competitive pressures both
from within and outside of the primary department store wholesale customer base,
as well as the adverse impact on unit and dollar sales of the Company's
increased focus on improving the gross margin and profitability realized on its
wholesale sales of London Fog Products, even at the expense of unit volume. The
increase in wholesale sales of Pacific Trail Products resulted primarily from
increased sales of PACIFIC TRAIL(Reg. TM) brand outerwear and increased sales of
men's outerwear under the DOCKERS(Reg. TM) label pursuant to a license
agreement.
On a consolidated basis, the net sales increase of 1.7% resulted from
increased average prices, primarily due to changes in product mix and lesser
markdowns and discounts, rather than increased consolidated unit volume.
Gross Profit. Gross profit increased 32.5% to $94.0 million in Fiscal 1997
from $70.9 million in Fiscal 1996, resulting from a strong increase in gross
margin. Gross margin increased to 33.7% of net sales in Fiscal 1997 from 25.8%
of net sales in Fiscal 1996. The increase in gross margin was broad based, with
significant gross margin increases achieved on both sales through the Company's
retail stores and sales to wholesale customers. The gross margin increase on
sales through the Company's retail stores resulted from an improved inventory
mix and resulting lower level of markdowns in Fiscal 1997. The inventory mix for
the Company's retail stores in Fiscal 1996 was adversely affected by the
Company's late production deliveries and poor sell-through results in fall 1994,
which resulted in significant excess fall 1994 inventory being carried over to
sell in the Company's retail stores in Fiscal 1996. The gross margin increase on
sales to wholesale customers resulted primarily from the higher initial gross
margins of the fall 1996 product lines compared to fall 1995 and improved
sell-through results achieved by the Company's wholesale customers resulting in
lesser merchandise returns and off-price sales. In addition, the gross margin on
sales to wholesale customers for Fiscal 1996 was adversely affected by
significant off-price sales of fall 1994 and spring 1995 product in early Fiscal
1996 to reduce excess inventory levels.
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Licensing Revenues. Licensing revenues increased by $1,117,000 to
$3,064,000 in Fiscal 1997 from $1,947,000 in Fiscal 1996. This increase resulted
from increased licensing revenues from both existing and new licensees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 3.2% to $83.8 million in Fiscal 1997 from
$86.6 million in Fiscal 1996. This decrease resulted from the Company's
continued expense reduction initiatives, including reductions in advertising
expenditures. Selling, general and administrative expenses as a percentage of
net sales decreased to 30.0% in Fiscal 1997 from 31.6% in Fiscal 1996. The
decrease resulted from the Company's overall expense reduction initiatives as
well as decreased expenses as a percentage of net sales for the Company's retail
stores due to the favorable impact of closing certain poor performing stores
during Fiscal 1996 and Fiscal 1997 and achieving an increase in comparable store
sales of approximately 6%.
Operating Income (Loss). Operating income increased by $28.5 million to
income of $10.7 million in Fiscal 1997 from a loss of $17.8 million in Fiscal
1996, with the increase resulting primarily from the significant increase in
gross profit and gross margin.
Interest Expense, net. Interest expense, net decreased by $4.3 million to
$12.5 million in Fiscal 1997 from $16.8 million in Fiscal 1996. The decrease
resulted from the full year effect in Fiscal 1997 of the May 1995 debt
restructuring and recapitalization, which reduced the Company's interest
expense. Interest expense, net recorded for both Fiscal 1997 and Fiscal 1996 has
been reduced as a result of the impact of accounting for the Company's 1995
Recapitalization in accordance with SFAS 15.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity to fund its operations are
revolving credit borrowings and letters of credit under the Company's credit
facility and cash flows from operations. The Company's working capital levels
and associated borrowing needs fluctuate significantly during the year due to
the highly seasonal nature of the rainwear and outerwear business. The Company
begins to build inventory for the fall season starting in January, with
aggregate inventory and accounts receivable levels usually peaking sometime
between late August and early October.
The Company's net cash used in operating activities was $39.7 million for
the first quarter of Fiscal 1999 and $45.4 million for the first quarter of
Fiscal 1998. The Company's net cash used in operating activities for each of the
first quarter periods resulted primarily from the seasonal increase in
inventories during the quarter, due to production required to satisfy
anticipated sales demand for fall merchandise. Inventories increased by $55.1
million during the first quarter of Fiscal 1999 (from February 28, 1998 to May
30, 1998) and increased by $48.5 million during the first quarter of Fiscal 1998
(from February 22, 1997 to May 31, 1997). The decreased net cash used in
operations for the first quarter of Fiscal 1999 versus the comparable prior year
period, despite the increase in inventory, primarily reflects a decrease in
accounts receivable and an increase in accounts payable.
The Company's cash provided from (used in) operating activities was $(31.7)
million in Fiscal 1998, $1.5 million in Fiscal 1997, and $8.2 million in Fiscal
1996. The Company's net cash used in operating activities of $31.7 million in
Fiscal 1998 resulted primarily from an increase in inventory of $21.6 million
and an increase in accounts receivable of $7.9 million during the year. The
inventory increase of $21.6 million, to $69.7 million at February 28, 1998 from
$48.1 million at February 22, 1997, resulted primarily from achieving lower than
expected sales both from the Company's retail stores and from wholesale sales of
London Fog Products during the key September through December fall sales period,
which was significantly adversely affected by unusually warm weather during this
period. The lower than expected sales in the Company's retail stores reflected
lower than expected sales in both the Company's factory outlet stores as well as
its test superstores, which commenced operations during Fiscal 1998. The
increase in inventory also resulted partially from the increase in required
inventory to support the Company's increased sales volume and increased number
of retail stores in operation, including the superstores opened in Fiscal 1998.
Due to the lead time associated with the Company's production, the Company
must, to a significant extent, commit production in anticipation of sales and
carry inventory levels to meet expected demand. Thus, in the event of lower than
expected sales, the Company only has limited ability in the short term
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to adjust production quantities, resulting in higher than desired inventory
levels for a period of time. The Company reacts to this situation by reducing
quantities for production orders not yet placed and taking measures to stimulate
sales including, where appropriate, selling excess inventory at discounted
prices. Such selling of excess inventory at discounted prices has the effect of
reducing the Company's gross margin and profitability achieved on its sales.
As a result of the lower than expected sales in fall 1997 and winter
1997/1998 and the resulting higher inventory levels as of February 28, 1998, the
Company has reduced quantities for production orders for fall 1998 merchandise.
Although inventory at May 30, 1998 was approximately $28.2 million higher than
at May 31, 1997, the Company expects that, as a result of reducing its fall 1998
production, the level of inventory at the end of the second quarter of Fiscal
1999 (August 29, 1998) will not be significantly higher than the level of
inventory at the end of the second quarter of Fiscal 1998 (August 30, 1997).
Also, although the higher inventory level at February 28, 1998 and May 30, 1998
compared to the same times in the previous year may have an adverse effect on
the Company's gross margin and profitability achieved on its sales during Fiscal
1999, the Company does not expect that the higher inventory level at these dates
will have a material adverse effect on the Company. There can be no assurance
that these expectations of the Company will be met.
The accounts receivable increase of $7.9 million during Fiscal 1998, to
$31.5 million at February 28, 1998 from $23.6 million at February 22, 1997,
resulted primarily from the wholesale sales increase in Fiscal 1998 compared to
Fiscal 1997 and the related increase in wholesale shipments occurring in January
and February of Fiscal 1998 compared to Fiscal 1997.
The Company's primary uses of cash have been for debt service requirements,
working capital and capital expenditures. Net cash used in investing activities
was $2.2 million for the first quarter of Fiscal 1999 and $1.8 million for the
comparable prior year period. The net cash used in investing activities for each
of the first quarter periods primarily reflects capital expenditures for opening
new retail stores, refurbishing existing retail stores and enhancing the
Company's management information systems.
Net cash used in investing activities was $9.0 million for Fiscal 1998,
$6.8 million for Fiscal 1997 and $4.4 million for Fiscal 1996. The net cash used
in investing activities primarily reflects capital expenditures for opening new
retail stores, refurbishing existing retail stores, expanding and reconfiguring
distribution facilities, and enhancing the Company's management information
systems. The increase in capital expenditures to $11.8 million in Fiscal 1998
from $7.7 million in Fiscal 1997 primarily reflects capital expenditures for the
opening of the initial superstores in Fiscal 1998. The increase in capital
expenditures to $7.7 million in Fiscal 1997 from $4.7 million in Fiscal 1996
primarily reflects the increased number of retail stores opened in Fiscal 1997
compared to Fiscal 1996 and, to a lesser extent, increased expenditures related
to the expansion and reconfiguration of the Company's Maryland distribution
facility.
For the first quarter of Fiscal 1999, the Company's principal source of
liquidity to fund its cash needed for operating activities and investing
activities was borrowings under the Company's Senior Credit Facility, resulting
in $63.2 million of outstanding revolving credit borrowings at May 30, 1998
compared to $18.2 million of borrowings at February 28, 1998 and $26.3 million
at May 31, 1997. Net cash flow provided from financing activities was $44.1
million for the first quarter of Fiscal 1999 and $24.1 million for the
comparable prior year period. The significant change reflected the Company's
ability to fund a significant portion of its cash needed for operating
activities and investing activities during the first quarter of Fiscal 1998 from
the utilization of $23.1 million of existing cash balances. By comparison, the
Company did not have significant existing cash balances to fund its cash needed
for operating activities and investing activities during the first quarter of
Fiscal 1999. The Company's $36.9 million higher level of outstanding revolving
credit borrowings at May 30, 1998 compared to May 31, 1997 primarily reflects
financing the $28.2 million higher level of inventory at May 30, 1998 as
compared to May 31, 1997.
For Fiscal 1998, the Company's principal sources of liquidity to fund its
cash needed for operating activities and investing activities were utilization
of existing cash balances, resulting in a decrease of cash and cash equivalents
to $0.6 million at February 28, 1998 from $26.8 million at February 22, 1997,
and
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borrowings under the Company's credit facility, resulting in $18.2 million of
outstanding revolving credit borrowings at February 28, 1998 compared to no
outstanding revolving credit borrowings at February 22, 1997.
The Company finances its working capital requirements with revolving credit
borrowings and letters of credit under the Company's credit facility. The peak
outstanding balance of revolving credit borrowings and letters of credit under
the Company's credit facility was $131.5 million for Fiscal 1998 and $76.5
million for Fiscal 1997. The increase in peak usage of the Company's credit
facility resulted primarily from higher seasonal working capital requirements to
finance the $56.5 million increase in net sales realized in Fiscal 1998 compared
to Fiscal 1997, as well as from capital expenditures and inventory requirements
associated with opening additional retail stores, including the initial
superstores.
The Company's current credit facility (the Senior Credit Facility) was
obtained on May 15, 1997, replacing a previous credit facility, and initially
had a maximum line of credit of $140 million through April 30, 1998 and $150
million from May 1, 1998 through April 30, 2000. In connection with the February
1998 debt restructuring and recapitalization, on February 27, 1998 the Company
amended certain terms and provisions of the Senior Credit Facility (the 1998
Amendment), including increasing the maximum line of credit to $200 million and
extending the expiration date of the facility from April 30, 2000 to April 30,
2001. Within this $200 million limit, up to $90 million may be used for
outstanding letters of credit. The obligations outstanding on the Senior Credit
Facility are secured by substantially all of the assets of the Company and
cannot exceed the aggregate of stipulated percentages of collateral values
associated with the Company's eligible inventory, accounts receivable, letters
of credit goods and, during certain portions of the year, trademarks. As of May
30, 1998, the Company had outstanding revolving credit borrowings of $63.2
million, outstanding letters of credit of $26.7 million and, based on collateral
value restrictions, had additional borrowings available of approximately $37
million under the Senior Credit Facility. As of February 28, 1998, the Company
had outstanding revolving credit borrowings of $18.2 million, outstanding
letters of credit of $24.8 million, and, based on collateral value restrictions,
had additional borrowings available of approximately $31 million under the
Senior Credit Facility. The agreement governing the Senior Credit Facility
contains customary covenants, restrictions and events of default.
The Company expects that its primary uses of cash will be for debt service
requirements, working capital and capital expenditures. The Company's debt
service requirements include periodic interest payments and other fees related
to the Company's Senior Credit Facility, its $100 million principal amount of
Notes, and its mortgage note having a remaining principal amount of $11.2
million as of May 30, 1998. As described above, the Senior Credit Facility is a
revolving credit facility with an expiration date of April 30, 2001. The Notes
have a maturity of February 27, 2003 and contain provisions permitting early
redemption by the Company, at its option, in whole or in part, at a defined
redemption price. In addition, in the event of the occurrence of a Change Of
Control Triggering Event (as defined), each holder of the Notes has the right to
require that the Company purchase all or a portion of such holder's Notes at a
purchase price of 101% of principal amount, plus accrued interest to the date of
purchase. The mortgage note requires monthly principal and interest payments,
with a final balloon payment of approximately $10.6 million due at the July 1999
maturity of the mortgage note. The Company intends to meet the required balloon
payment by refinancing the mortgage note or obtaining other replacement
financing prior to or upon the maturity of the mortgage note.
The Company estimates that capital expenditures for Fiscal 1999 will be
approximately $12-14 million. These capital expenditures will be primarily for
opening new retail stores, refurbishing existing retail stores, and enhancing
the Company's management information systems, including the planned replacement
of the Company's financial and retail information systems.
The Company believes cash flows from operations and borrowings under the
Senior Credit Facility will be sufficient to satisfy the Company's liquidity
requirements, including capital expenditures, over the next 12 months. The
Company believes it will be able to meet its longer term liquidity requirements,
including scheduled debt payments, through cash flows from operations,
borrowings under the Company's credit facility, and refinancings of the
Company's Senior Credit Facility and long-term indebtedness.
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The Company's ability to fund its operations, to make capital expenditures, to
meet scheduled debt payments, to refinance indebtedness and to remain in
compliance with the various restrictions and financial covenants under its debt
agreements depends on its future operating performance and cash flows which, in
turn, are subject to prevailing economic conditions and other business and
financial factors, some of which are beyond the Company's control. See "Risk
Factors".
YEAR 2000 ISSUE
Currently, many existing computer programs use only two digits (rather than
four) to identify a year in the date field. If not corrected, many computer
system applications could fail or create erroneous results beginning at or
before the year 2000 by recognizing a date coded as "00" as the year 1900 rather
than the year 2000. If not adequately resolved, this problem, commonly referred
to as the Year 2000 Issue, could have a material adverse effect on the Company's
business, operations or financial condition in the future.
The Company has assessed the impact that the Year 2000 Issue will have on
its computer systems, with a primary focus on the Company's critical business
and information systems. The Company has developed a project plan which includes
an inventory of all critical systems, identification of those systems requiring
modifications or replacement to address the Year 2000 Issue, and an action plan
and time table for the completion and testing of required modifications and
systems replacements. Based on the Company's project plan, the Company expects
to have any required modifications to critical systems completed on a timely
basis. However, if such modifications are not completed on a timely basis (which
in certain cases is expected to be before the year 2000), the Year 2000 Issue
could have a material adverse impact on the Company's business, operations, or
financial condition. In addition, many of the third parties with which the
Company conducts business will need to modify their computer systems to address
the Year 2000 Issue and the failure of such third parties to address the problem
on a timely basis could have a material adverse impact on the Company.
Included in the Company's planned capital expenditures for Fiscal 1999 is
approximately $3 million for the replacement of the Company's financial and
retail information systems with systems which have greater functionality and are
Year 2000 compliant. The Company believes the cost of making the required Year
2000 modifications to its other systems will not have a material impact on the
Company's results of operations or financial condition.
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BUSINESS
GENERAL
The Company is a leading designer, marketer and distributor of quality
men's and women's rainwear and outerwear in the United States. The Company
designs, markets and distributes its products under the Company-owned LONDON
FOG(Reg. TM) and PACIFIC TRAIL(Reg. TM) and related brand names, as well as
under the DOCKERS(Reg. TM), LEVI'S(Reg. TM) and SPERRY(Reg. TM) labels pursuant
to licenses from the owners thereof, and sells its products through most major
channels of distribution in its markets. The Company believes it has a dominant
share of the men's rainwear market in department stores and a significant share
of the men's outerwear and women's rainwear and outerwear markets in department
stores. The Company also distributes its products to specialty retailers
(including sport specialty retailers), national and regional chain stores, and
discount and off-price retailers. In addition, the Company generates a
significant portion of its sales from distributing its products through
Company-operated retail stores. As of May 30, 1998, the Company operated 134
factory outlet stores, eight superstores and three Weather Stores(TM). In Fiscal
1998, the Company had net sales of approximately $336 million.
BUSINESS STRENGTHS
Management believes that the Company has several competitive advantages
which are important to its business, including the following:
IMAGE AND CONSUMER RECOGNITION. The LONDON FOG(Reg. TM) brand name was
introduced in 1954 and has become one of the most well known apparel brand names
in the United States, with a strong reputation for quality and value. The LONDON
FOG(Reg. TM) brand name ranked 6th in the 1997 Fairchild 100 Consumer Survey of
the most recognizable apparel and accessory brands. In the same survey, the
LONDON FOG(Reg. TM) brand name ranked 1st among the outerwear brands. The
Company has capitalized on the strength of the LONDON FOG(Reg. TM) brand name by
expanding from its initial roots in formal men's rainwear to a broad range of
rainwear, outerwear and related products each providing consumers with the
quality, functionality and value they expect from the LONDON FOG(Reg. TM) brand.
In addition, the PACIFIC TRAIL(Reg. TM) brand has developed a strong and growing
niche as a competitively priced brand which targets value-conscious consumers
who seek authentic, quality outerwear for recreational activities and casual
wearing occasions. Management believes that the Company will be able to continue
to capitalize on the strength of its brands by expanding into additional product
categories, such as sportswear, and utilizing a sub-branding strategy to enable
product and distribution channel extensions while preserving the identity of the
LONDON FOG(Reg. TM) and PACIFIC TRAIL(Reg. TM) brand names.
BROAD AND DIVERSIFIED DISTRIBUTION CHANNELS. The Company sells its products
through a varied array of distribution channels. The Company believes that its
ability to distribute its products through varied wholesale distribution
channels (including department stores, specialty retailers, sport specialty
retailers, national and regional chain stores, and discount and off-price
retailers) and through its own retail stores (factory outlet stores and new
retail concept stores) places the Company at a competitive advantage by reducing
the Company's dependency on any one distribution channel.
RETAILING AS A COMPETITIVE ADVANTAGE. For Fiscal 1998, approximately 42% of
the Company's net sales were generated through its retail stores, predominantly
through its factory outlet stores. The Company's factory outlet stores are
located in many of the primary outlet malls throughout the United States and the
Company expects to open 20-25 additional factory outlet stores this year. The
Company believes that operating its own retail stores provides the Company with
the following advantages: (i) mitigating the Company's inventory risk by
providing a controlled channel for selling excess inventory; (ii) increasing the
breadth and control of the distribution of its products; (iii) preventing the
Company from being solely dependent on third party retailers; and (iv) enabling
the testing of new products, new product categories and new merchandise
concepts. The Company also believes that its experience in operating its own
retail stores provides the Company with a better understanding of the needs of
its wholesale customers and the ultimate consumers of the Company's products. To
further capitalize on these advantages, the Company is seeking to expand the
distribution of its products by testing new Company-operated retail concepts
through its superstores, Weather Stores(TM) and other potential retail store
concepts.
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VARIETY OF PRODUCTS AND TARGET CONSUMERS. Through its well-known LONDON
FOG(Reg. TM), PACIFIC TRAIL(Reg. TM) and related brands, as well as under the
DOCKERS(Reg. TM), LEVI'S(Reg. TM), AND SPERRY(Reg. TM) labels pursuant to
licenses from the owners thereof, the Company provides consumers with a broad
selection of quality products, including a full assortment of outerwear for the
entire family, for different end-uses and different lifestyles at a broad range
of price points. The Company provides products for use in all weather conditions
and for use in dress, casual, outdoor and active end uses. The Company believes
this segmentation of its product offerings, targeting specific products to meet
specific consumer lifestyle and end use requirements, increases its ability to
satisfy the product needs of a broad consumer base. The Company is continuing to
increase the variety of products it offers through the development of its own
focused men's and women's sportswear collections to be marketed solely through
the Company's retail stores. In addition, the Company continues to pursue
additional opportunities to develop and market products under other well known
brand names through license arrangements, as evidenced by the Company's license
to market outerwear under the FOSSIL(Reg. TM) and related labels beginning in
the fall 1999 season.
STABLE PRODUCT LINES. The Company believes that the stability and
continuity of the Company's core product lines relative to the fashion industry
generally, with a significant portion of annual revenues being generated by
similar styles carried over from the previous year, makes the Company less
sensitive to fashion risk.
WORLDWIDE PRODUCT SOURCING. The Company's merchandise is produced worldwide
by independent manufacturers selected, monitored and coordinated by local
Company employees to assure conformity to strict quality, cost and delivery
standards. The Company believes the use of independent manufacturers, together
with the Company's dedicated sourcing personnel, increases its production
flexibility and capacity and allows it to maintain control over all aspects of
the sourcing process, while at the same time substantially reducing capital
expenditures and avoiding the costs of managing a large production work force.
INTEGRATED OPERATING STRUCTURE. The integration of the Company's design,
product procurement, production planning, marketing and merchandising functions
enables the Company to effectively distribute products to its wholesale and
retail customers in a timely manner and to control inventory.
Management believes that these strengths provide a platform upon which
management will continue to implement its business plans and maintain the
Company's position as a leading branded apparel designer, marketer and
distributor.
BUSINESS STRATEGY
The Company's mission is to be the international leader in the design,
marketing and distribution of quality rainwear, outerwear and other related
products that protect consumers in all weather conditions. To achieve this
objective, the Company focuses on maximizing the market penetration of its
brands by executing a life style/end-use segmentation approach to the design,
merchandising and marketing of the Company's broad range of products. The
Company aims to develop a clearer understanding of the target customer for each
of the Company's brands and product lines, and to segment these products by
types of target customers, which are differentiated by gender, age group and
lifestyle and end-use requirements. In implementing this strategy, the Company
has adopted an approach that divides its product offerings and brands into
"dress," "casual," "outdoor," and "active" categories, through which the Company
offers a broad range of products to satisfy different customer preferences and
end-use requirements, all of which provide a consistently high standard of
quality and value at price points consistent with the positioning of that brand.
In addition to increasing the penetration of its existing brands and
product lines, the Company's business plan includes seeking to add new brands
(both through licensing of well-known, third party brands and development of new
brands) and new product offerings to increase the breadth of coverage of the
Company's products in terms of price, distribution channels and target
consumers. Such new brands and product offerings must adhere to the Company's
stringent standards of product quality, value and design while being positioned
appropriately in the marketplace within the Company's overall
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life style/end-use segmentation approach. The Company may, in the future, under
appropriate circumstances, enter into complementary acquisition opportunities
consistent with the foregoing strategy in order to expand its stable of brand
names and augment its product lines.
The Company's business plans are designed to build upon the steps the
Company has taken to grow its outerwear businesses, continuing the Company's
transformation from a significant rainwear designer, marketer and distributor to
a market force in all aspects of rainwear, outerwear and related products. This
continued transformation is extremely important to the Company's future growth
since the market for traditional rainwear is significantly smaller than the
markets for either outerwear or other apparel products, such as sportswear, and
the market demand for traditional rainwear continues to be adversely affected by
the growth of casual attire in the workplace. Of Fiscal 1998 total net sales of
$335.6 million, outerwear comprised 68%, rainwear comprised 27% and sportswear,
accessories and other (primarily consisting of sales of goods purchased from
licensees and other companies for sale in the Company's retail stores, such as
hats, umbrellas, gloves, scarves and luggage) comprised 5%. This compares with
Fiscal 1994 total net sales of $356.6 million, of which outerwear comprised 40%,
rainwear comprised 42%, and sportswear, accessories and other (primarily
consisting of a wholesale sportswear line consisting primarily of men's sweaters
and knit shirts, which was discontinued at the end of Fiscal 1994, and men's and
women's sportswear lines marketed solely through the Company's retail stores,
which were discontinued during Fiscal 1996) comprised 18%.
The Company's strategy of augmenting its range of brands, product offerings
and target consumers was advanced significantly by the acquisition of Pacific
Trail in April 1994. Pacific Trail, headquartered in Seattle since 1945 and
inspired by the rugged outdoor lifestyle of the Pacific Northwest, is a leading
designer, marketer and distributor of authentic, moderate-priced casual, outdoor
and active outerwear for men, women and children. Wholesale sales of Pacific
Trail Products in Fiscal 1998 were $85.8 million.
After having discontinued its sportswear product lines in Fiscal 1996 as
part of the Company's strategy to recover from the significant deterioration of
its financial condition and operating results during Fiscal 1995 by streamlining
the Company's operations and refocusing its operational and financial resources
on its core rainwear and outerwear product categories, the Company has decided
to reenter the business of marketing sportswear. Management plans to market
focused lines of men's and women's sportswear through its retail stores, and
expects that sportswear will be a growing product category for the Company.
Management believes that the new sportswear lines will help broaden the appeal
of the Company's stores to both existing and new customers, increase store
sales, reduce the seasonality of the Company's sales and provide a product base
to support potential additional Company-operated retail store concepts.
A central part of the Company's growth plan is to increase its sales
through Company-operated retail stores. The Company is already the dominant
provider of men's rainwear and a significant provider of women's rainwear and
men's and women's outerwear to department stores. However, department stores are
becoming an increasingly competitive environment as a result of the increased
emphasis on private label products at lower prices and lifestyle "collection"
brands at higher prices. In addition, the consolidation of department store
groups over the past several years has significantly reduced the number of
potential customers for the Company's products. Also, delivery problems in fall
1994 and spring 1995 had an adverse effect on the Company's relations with some
of its department store customers, which contributed to a significant decrease
in wholesale sales of London Fog Products. Therefore, Company-operated retail
stores are an increasingly important distribution channel to the Company. In
Fiscal 1998, net sales at the Company's retail stores totaled $139.9 million
(41.7% of total net sales), as compared to $96.5 million (35.2% of total net
sales) in Fiscal 1996. Retail sales include sales at the Company's factory
outlet stores, superstores and Weather Stores(TM). As of May 30, 1998, the
Company operated 134 factory outlet stores. A typical factory outlet store is
approximately 4,700 square feet and is located in a manufacturers' outlet mall.
Factory outlet stores appeal to the value-oriented consumer and sell excess
inventory, out-of-season merchandise and seconds, as well as current season,
first-quality products. As of May 30, 1998, the Company operated eight test
superstores. The Company's superstores, the first of which was opened in May
1997 in North Canton, Ohio, were opened to test an alternative, larger format
retail distribution channel for the Company's product offerings to supplement
its tradi-
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tional wholesale and factory outlet store retail distribution channels. A
typical superstore is located in a suburban shopping mall or strip mall and
offers a superior selection of current season, first quality product for the
entire family at highly competitive prices. Based on initial sales results for
these test superstores, management has determined that most of the existing
superstores, many of which are larger than 25,000 square feet, are too large to
generate acceptable profitability within an acceptable period of time. The
Company is currently targeting 10,000 to 12,000 square feet as the optimal size
to test for its larger format superstores. In connection with adopting a plan to
restructure its superstores, during the quarter ended May 30, 1998, the Company
recorded a restructuring charge of $3.5 million related to the planned closing
or downsizing of five of the Company's eight superstores open as of May 30,
1998. The Company expects to open one additional large format superstore during
the remainder of the current fiscal year (other than potential relocations of
existing superstores in connection with their downsizing pursuant to the
Company's superstore restructuring plan), an approximately 11,000 square foot
store expected to open in late fall 1998 in Columbus, Ohio. The Company will
continue to evaluate the optimal size and the best locations for its future
superstores.
MARKETING
As part of the Company's marketing approach, the Company segments the
markets for the Company's products by consumer lifestyle and end-use
requirements, targeting particular product lines to specific consumer fashion
preferences and price requirements. This approach involves segmenting the
Company's product lines on the basis of targeted consumer end-use into "dress,"
"casual," "outdoor," and "active" categories. These categories are then marketed
as follows: "dress" men's and women's rainwear and outerwear products are
marketed primarily under the LONDON FOG(Reg. TM) and TOWNE(Reg. TM) labels.
"Casual" men's and women's rainwear and outerwear products are marketed
primarily under the LONDON FOG(Reg. TM), TOWNE(Reg. TM), FOG(Reg. TM) and
DOCKERS(Reg. TM) labels. "Outdoor" men's and women's outerwear is marketed
primarily under the PACIFIC TRAIL(Reg. TM), FOG(Reg. TM), SPERRY(Reg. TM) and
LEVI'S(Reg. TM) labels, with children's "outdoor" outerwear marketed under the
PACIFIC TRAIL(Reg. TM) label. "Active" men's, women's and children's outerwear
is marketed primarily under the PACIFIC TRAIL(Reg. TM), INSIDE EDGE(Reg. TM) and
BLACK DOT(Reg. TM) labels. Products are sold under the DOCKERS(Reg. TM),
LEVI'S(Reg. TM) and SPERRY(Reg. TM) labels pursuant to licenses from the owners
thereof. Commencing in fall 1999, pursuant to a license agreement, the Company
will market a line of outerwear under the FOSSIL(Reg. TM) label. See "Business
- -- Licenses and Trademarks"'.
The LONDON FOG(Reg. TM) brand is positioned as the premium brand for the
"dress" and "casual" categories. The FOG(Reg. TM) label is expected to become a
premium brand for the "casual" and "outdoor" categories. Both the LONDON
FOG(Reg. TM) and FOG(Reg. TM) brands are targeted to consumers who have
traditional fashion tastes and demand premium quality, with the FOG(Reg. TM)
brand expected to be aimed at the younger consumer. The PACIFIC TRAIL(Reg. TM)
brand is positioned as a moderate-price brand in the "outdoor" and "active"
categories, which targets value conscious consumers who seek a fashionable
quality product. The TOWNE(Reg. TM) product line is the Company's moderate-price
brand in the "dress" and "casual" categories. This brand was developed to
compete with private label rainwear and outerwear retailing at lower prices. The
SPERRY(Reg. TM) and LEVI'S(Reg. TM) product lines produced by the Company are
positioned at market competitive prices in the "outdoor" category and cater to
customers who want a quality product that is moderately priced and backed by a
trusted brand name. The DOCKERS(Reg. TM) brand is positioned as a market
competitive brand in the "casual" category. INSIDE EDGE(Reg. TM) and BLACK
DOT(Reg. TM) brands are market competitive brands of the PACIFIC TRAIL(Reg. TM)
product lines in the "active" category and are marketed to younger consumers who
want a quality outerwear product that is sturdy enough for active outdoor use
(such as skiing or snow-boarding), yet offered at a competitive price.
Each product line is designed and sourced in accordance with the Company's
product line structure which divides the product line into three profiles of
products, "core basic," "basic fashion" and "fashion."
Core Basic Products. Core basic products are products which have maintained
substantially the same silhouette, fabric and color for three or more seasons.
These products are the most familiar to consumers and account for approximately
55% to 60% of the Company's net sales, thereby making the Company less sensitive
to fashion risk.
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<PAGE>
Basic Fashion Products. Basic fashion products are products that alter one
of the following features of the product: silhouette, fabric or color. The
Company believes that modest changes to its products adds freshness to its
product lines and appeals to new customers without alienating its current
customers with a product that is very unfamiliar to them. Basic fashion products
account for approximately 30% to 35% of the Company's sales volume and over time
often become core basic products.
Fashion Products. Fashion products are products that alter previous
silhouettes, fabric and color combinations and introduce new trends. They are
products that consumers are least familiar with and account for the remaining
approximately 5% to 10% of the Company's sales volume. Although many fashion
products are only offered for a single season, certain fashion products create
sufficient demand so that the Company will continue to offer such products.
This product line structure enables the Company to offer its customers a
balance of fresh but familiar products and reduces fashion risk. In addition to
the utilization of the product line structure, each product line team maintains
an operating line calendar and other operating disciplines that control and
coordinate the number of products produced, the size of the product line, sales
and production forecasts, costs and gross margins and delivery windows.
PRODUCT LINES
The Company produces a wide range of branded value-added products that are
function driven, of outstanding quality and fashion correct. The following table
compares historical net sales and percentage of net sales for the Company
(including Pacific Trail figures in Fiscal 1998) by major product line
(including wholesale and Company-operated retail store sales) for Fiscal 1994
and Fiscal 1998 (in millions of dollars).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 26, 1994 FEBRUARY 28, 1998
------------------------ ------------------------
$ % $ %
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Men's Rainwear ................ $ 66.5 18.6% $ 48.5 14.5%
Women's Rainwear .............. 84.6 23.7 41.1 12.2
-------- ----- -------- -----
Total Rainwear ............... 151.1 42.4 89.6 26.7
-------- ----- -------- -----
Men's Outerwear ............... 86.0 24.1 124.9 37.2
Women's Outerwear ............. 53.1 14.9 88.4 26.3
Children's Outerwear .......... 2.9 0.8 16.5 4.9
-------- ----- -------- -----
Total Outerwear .............. 142.0 39.8 229.8 68.5
-------- ----- -------- -----
Sportswear .................... 58.7 16.5 0.1 0.0
Accessories and Other ......... 4.8 1.3 16.1 4.8
-------- ----- -------- -----
TOTAL NET SALES .............. $ 356.6 100.0% $ 335.6 100.0%
======== ===== ======== =====
</TABLE>
Rainwear. Men's rainwear products are made primarily of polyester and
cotton blends, cotton, wear-resistant breathable fibers and micro fibers. The
Company's most popular type of men's rainwear is the double-breasted trench
coat.
Women's rainwear fabrics are similar to those used in the men's rainwear
products. The Company offers over 120 styles of women's rainwear featuring a
wide range of fashion profiles, materials and tailoring.
The significant decline in the Company's net sales of rainwear from Fiscal
1994 to Fiscal 1998 reflects the growth of casual attire in the workplace, which
has decreased overall market demand for "dress" rainwear products, as well as
competitive pressures faced by the Company in its traditional department store
customer base.
Outerwear. Men's and women's outerwear products are made of water-resistant
fabrics similar to the Company's rainwear products. The Company offers nearly
300 styles of men's outerwear and nearly 300 styles of women's outerwear
products in an assortment of lengths and colors. Linings for these outerwear
garments include wool, down and synthetic linings, such as the Company's
proprietary NRG 2000(TM) and Thermostat 37(TM).
37
<PAGE>
As part of the Company's outerwear product category, the Company offers a
variety of active outerwear products. Through Pacific Trail, the Company
participates in the skiwear market by selling skiwear under the INSIDE EDGE(Reg.
TM) brand name and related brand names. INSIDE EDGE(Reg. TM) is a moderate to
value-priced line of skiwear for men, women and children which is sold through
national and regional sporting goods chains, specialty stores and ski shops.
Through Pacific Trail's BLACK DOT(Reg. TM) brand the Company is one of the
leading sellers of snowboard apparel in the United States.
Children's Outerwear. Pacific Trail offers a broad line of outerwear and
skiwear primarily for boys, but also for girls and toddlers, which, in
conjunction with its adult outerwear business, enables Pacific Trail to offer
products targeted to the entire family. Management believes that Pacific Trail's
strong presence in the children's outerwear market contributes to achieving the
Company's strategic goal of increasing the breadth of market coverage for the
Company's overall product offerings. The Company also sells LONDON FOG(Reg. TM)
brand children's outerwear, which is purchased from a Company licensee, through
its retail stores. Such licensee also sells these products in traditional
wholesale channels.
The significant increase in the Company's net sales of outerwear from
Fiscal 1994 to Fiscal 1998 reflects the inclusion in the Fiscal 1998 figures
(but not in the Fiscal 1994 figures) of sales of Pacific Trail Products, which
have grown since the acquisition of Pacific Trail in early Fiscal 1995.
Sportswear. The Company is developing its own men's and women's sportswear
collections which will be marketed solely through the Company's retail stores.
The Company believes there are significant growth opportunities for men's and
women's sportswear, primarily in the Company's factory outlet stores and new
retail concept stores, due to the high levels of consumer awareness and
acceptance of the LONDON FOG(Reg. TM) and FOG(Reg. TM) names and established
consumer traffic in the Company's retail stores. Management believes that the
new sportswear lines will help broaden the appeal of the Company's stores to
both existing and new customers, increase store sales, reduce the seasonality of
the Company's sales and provide a product base to support potential additional
Company-operated retail store concepts.
The Fiscal 1994 net sales of sportswear consisted of: (i) sales of a
wholesale sportswear line consisting primarily of men's sweaters and knit
shirts, which was discontinued at the end of Fiscal 1994 as part of the
Company's brand repositioning; and (ii) sales of men's and women's sportswear
lines marketed solely through the Company's retail stores, which were
discontinued during Fiscal 1996 as part of the Company's refocusing of
operational and financial resources on its core rainwear and outerwear product
categories.
Accessories and Other. Through its retail stores, the Company sells
accessories and other products bearing the LONDON FOG(Reg. TM) and PACIFIC
TRAIL(Reg. TM) brand names which are manufactured by licensees for the Company
pursuant to licensing agreements or other purchasing arrangements, as discussed
below under "Licensing." Among these products are hats, umbrellas, gloves,
scarves, luggage, and sunglasses. These products are marketed along the same
lifestyle segments as the Company's core rainwear and outerwear product
categories.
DISTRIBUTION CHANNELS
The Company markets its products through wholesale and retail distribution
channels. Through its wholesale distribution channels, the Company markets its
products through department stores and specialty retailers (including sport
specialty retailers), national and regional chain stores, and discount and
off-price retailers. In Fiscal 1998, the wholesale distribution channels
accounted for approximately 58% of the Company's total net sales. Through its
retail distribution channels, the Company markets its products through its own
factory outlet stores, superstores and Weather Stores(TM). In Fiscal 1998, sales
from Company-operated retail stores accounted for approximately 42% of the
Company's total net sales with those net sales allocated as follows: factory
outlet stores, approximately 39% of total net sales; superstores and Weather
Stores(TM), approximately 3% of total net sales. In Fiscal 1998, no single
outside customer accounted for more than 10% of the Company's total net sales.
WHOLESALE DISTRIBUTION CHANNELS
Department Stores. The Company offers its products under most of its brand
names to moderate and better department stores. These customers include all the
major department store groups, including Dayton Hudson Corporation, Dillard's,
Inc., Federated Department Stores, Inc., May Department
38
<PAGE>
Stores, Mercantile Stores Company, Inc., and Proffitts, Inc. and include
substantially all the major department store chains in the United States,
including Belks, Carson Pirie Scott, Dayton's, Dillard's, Filene's, Hecht's,
Hudson's, Lord & Taylor, Macy's, Proffitt's and Younkers.
Specialty Retailers and Sport Specialty Retailers. The Company offers its
products under a variety of its brand names to a broad range of local and
regional specialty retailers, including both specialty retail chains, such as
Bob's Stores, Emporium, GI Joe's and Today's Man, and independent local
specialty stores.
The Company also offers its outdoor and active outerwear products,
primarily under the PACIFIC TRAIL(Reg. TM), INSIDE EDGE(Reg. TM) and BLACK
DOT(Reg. TM) brands, to a variety of sport specialty retailers, including chains
such as Copelands and Gart Sports, and many independent sporting goods, outdoor
and ski stores.
National and Regional Chain Stores. The Company markets certain portions of
its rainwear and outerwear product offerings under various Company-owned labels
to national and regional chains such as JC Penney, Sears, Fred Meyer and
Mervyn's.
Discount and Off-Price Retailers. The Company also markets a variety of its
products, including excess inventory of rainwear and outerwear, through discount
and off-price retailers such as Burlington Coat Factory, Ross Stores and TJ
Maxx.
COMPANY-OPERATED RETAIL STORES
Factory Outlet Stores
To broaden the distribution of its products and to market the Company's
products to consumers who favor value-oriented retailing formats, the Company
has pursued a strategy of distributing its products through its own factory
outlet stores. The Company's factory outlet stores average approximately 4,700
square feet in size and are located primarily in major outlet centers in
locations such as tourist destination areas. As of May 30, 1998, the Company
operated 134 factory outlet stores located in 40 states and Puerto Rico. The
Company's factory outlet stores sell a broad range of rainwear and outerwear
offered by the Company, as well as products purchased from licensees and outside
vendors, at highly competitive prices. The primary role of the Company's factory
outlet stores is to sell excess inventory, out-of-season merchandise and
seconds, thus helping the Company to mitigate its inventory risk. However, to
provide a satisfactory merchandise assortment, the factory outlet stores also
sell current season, first-quality product. The Company is re-introducing
sportswear as a test at its factory outlet stores and expects that sales of
sportswear will become a more significant product category to the Company.
Management believes that selling sportswear will reduce the seasonality of the
Company's sales, increase the number of customers who will visit the stores,
increase the frequency of visits among its customers and increase sales per
customer. Sportswear products will include knit shirts, casual pants, woven
shirts and shorts.
The following table sets forth factory outlet store net sales for each of
the last five fiscal years and the number of factory outlet stores operated at
the end of each of those fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
FEB. 26, FEB. 25, FEB. 24, FEB. 22, FEB. 28,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales (in millions of dollars) ................ $ 119.9 $ 122.8 $ 96.5 $ 108.5 $ 131.0
Total stores operated at fiscal year end ......... 110 122 99 123 126
</TABLE>
The Company is focusing on increasing the productivity and profitability of
its existing store base, as well as on growth through measured expansion in the
number of stores. The Company expects to open 20-25 factory outlet stores this
fiscal year. The Company employs real estate consultants expert in the field of
factory outlet stores to aid the Company in determining new locations for its
factory outlet stores. The Company also analyzes the performance and growth
potential of each of its existing locations and has closed and may continue to
close stores that do not meet the Company's performance objectives.
39
<PAGE>
NEW RETAIL CONCEPT STORES
Superstores. As a central part of its strategy to increase sales through
Company-owned retail stores, beginning in May 1997, the Company began to open
test superstores in which the Company offers to its customers a superior
selection of its products and licensed products in an attractive shopping
environment, at highly attractive prices and convenient locations. As of May 30,
1998, the Company operated eight superstores, all of which are located in the
midwest or northeast United States. These eight superstores, open as of May 30,
1998, are an average of 22,625 square feet in size, have an average remaining
lease term of approximately nine years (excluding renewal options exercisable at
the election of the Company) and have average annual base rent payments
(excluding related common area maintenance, insurance and property taxes) of
approximately $310,000 per store during their remaining lease terms.
For Fiscal 1998, the superstores generated sales of $7.5 million and an
operating loss of $4.1 million, before allocation of corporate overhead
expenses.
Based on the experience with these initial test superstores, the Company
believes that most of the existing superstores are too large to generate
acceptable profitability within an acceptable period of time. As a result, the
Company has adopted a plan to restructure its larger format retail store
strategy by closing or significantly downsizing five of the Company's eight
current superstores and shifting to a revised format which focuses on a store
size significantly smaller than 25,000 square feet and includes the planned
expansion of product offerings beyond rainwear and outerwear, such as sportswear
and accessories. The Company is currently targeting 10,000 to 12,000 square feet
as the optimal size to test for its larger format superstores. The Company
believes that the planned reduction in store size and the expansion of product
offerings will help broaden the appeal of the stores to both existing and new
customers, increase store sales, reduce the seasonality of the Company's sales
and increase store profitability.
In connection with adopting a plan to restructure its superstores, during
the quarter ended May 30, 1998, the Company recorded a restructuring charge of
$3.5 million related to the planned closing or downsizing of five of the
Company's eight test superstores open as of May 30, 1998. Included in this
charge is an accrual of $1.6 million for anticipated cash restructuring
expenditures to cover costs associated with amending or terminating store leases
and other related costs, and $1.9 million of non-cash charges related to
anticipated write-offs of fixed assets, including fixtures and leasehold
improvements, in the stores to be closed or downsized.
Weather Stores(TM). During the past two years, the Company has also tested
a smaller concept store format offering a limited selection of the Company's
products focused on weather protection for the traveler. These stores, operating
under the name The Weather Store(TM), are located in high-traffic locations and
present the Company's products in a weather-theme environment. As of May 30,
1998, the Company operated three Weather Stores(TM), one in the Pittsburgh
International Airport, one in Union Station in Washington, D.C. and the third in
a shopping mall in Waterbury, Connecticut. These stores, which average less than
2,000 square feet in size, generated net sales of $1.4 million and generated an
operating loss of $0.1 million during Fiscal 1998, before allocation of
corporate overhead expenses. Management believes that the Weather Stores(TM)
serve to strengthen the image of the Company's brands and product offerings with
consumers as high quality authentic weather protection apparel. While management
believes that the Weather Stores(TM) are a promising concept, the Company is
currently focusing its efforts on its superstores and other Company-operated
retail store concepts. See "-- Business Strategy."
INTERNATIONAL
Although the Company has historically focused on marketing its products in
the United States, the Company also offers its products in certain international
markets. The Company's net sales outside the United States (which excludes
licensing revenues derived from international licensing arrangements) consists
of sales of rainwear and outerwear products in the United Kingdom. For Fiscal
1998, the Company generated net sales outside the United States of approximately
$0.4 million.
The Company has licensing arrangements with companies in certain other
countries, including Canada, China, Japan, Australia, New Zealand and South
Korea, to produce and market rainwear and outerwear products under the LONDON
FOG(Reg. TM) and/or PACIFIC TRAIL(Reg. TM) brand names. The Company
40
<PAGE>
continues to explore licensing opportunities in overseas markets. For Fiscal
1998, the Company generated licensing revenues from licensing activities
outside of the United States of approximately $2.1 million. See "-- Licenses
and Trademarks"
MERCHANDISING AND DESIGN
Both London Fog and Pacific Trail maintain their own dedicated design
staffs. Approximately 85 people are employed by the Company in various aspects
of product design and merchandising, including technical services, fabric
selection and procurement.
Each season, the Company develops product lines based upon previous and
present season's market information gathered from both wholesale and retail
sales staffs, fashion consultants and internal staff. The Company's design
staffs explore fabrics and fashion ideas from Europe and Asia as well as the
United States. Working closely with the Company's sales and marketing team, the
design and merchandising team's goal is to assemble a collection that is
directed to the customer's needs and lifestyle and, at the same time, provides
fashionable products consistent with the Company's image. Each product line has
a team of personnel assigned to it, which develops its products based on a
sophisticated operating process which includes the gathering and analysis of
market research (including direct feedback from consumers both through the
Company's field retail marketers and consumer focus groups) and computer-aided
design renderings, in addition to traditional pattern making, prototyping and
test-marketing. In the development of all of the Company's product lines, the
Company follows a detailed product development calendar which coordinates the
creative and operational aspects of product development, sourcing and delivery,
including controlling the size of product lines, setting sales and production
forecasts, determining product costs, prices and gross margins, and setting raw
material purchase and finished goods production timetables to meet required
product delivery windows.
SALES AND ADVERTISING
Sales. The Company's wholesale division utilizes a customer-oriented sales
process to sell its products. Each major customer is presented with a business
plan for the sale of the Company's products and provided with a comprehensive
product assortment which together provide the customer with a groundwork for
selling and marketing the Company's products. In addition, the Company provides
these wholesale customers with a "wholesale customer service plan," which has
several attractive features, including pre-ticketing of the Company's products
and quick reorder capabilities, including ordering through electronic data
interchange. The Company employs approximately ten full-time field retail
marketers who are responsible for working with employees of the Company's
customers in designing and assembling in-store displays, providing training with
respect to the Company's products and motivating the customers' employees
through productivity contests. By being in the customers' stores on a regular
basis, the retail marketers are able to gather market research data directly,
which enables management to react more quickly to changes in consumer
preferences.
Advertising. The Company has a fully integrated advertising and marketing
program, which includes campaigns that range from national initiatives to store
specific initiatives. The Company's national advertising appears primarily in
print ads in both consumer and trade magazines which are intended to reinforce
and enhance the image and consumer awareness of the Company's brands and product
lines and to advertise specific LONDON FOG(Reg. TM) and PACIFIC TRAIL(Reg. TM)
products. The Company offers a cooperative advertising program for most of its
product lines and all of its wholesale customers who purchase such products have
access to it. The Company maintains control over all cooperative advertising by
requiring the retailer to adhere to specified cooperative advertising guidelines
set by the Company. Finally, the Company engages in store specific partnership
marketing programs. Through the partnership marketing programs the Company's
employees collaborate directly with employees of its customers. The partnership
marketing programs utilize local ads, special events (e.g., "gift-with-purchase"
promotions) and special displays to promote the Company's products. As a result
of this "personalized" treatment, management believes that the partnership
marketing program fosters loyalty among its trade customers and thereby
increases the stability of its business. The Company's total advertising
expenditures (including for the Company's retail stores) were approximately $9.9
million in Fiscal 1998.
41
<PAGE>
MANUFACTURING AND SOURCING
The Company's products are produced worldwide by independent manufacturers
selected, monitored and coordinated by United States and foreign-based Company
employees to assure conformity to the Company's strict quality standards. The
Company does not own or operate any manufacturing facilities. The Company
maintains contract manufacturing arrangements for rainwear and outerwear with
approximately 90 contractors located in foreign countries, including China, Sri
Lanka, Indonesia, Colombia, and the Philippines. The Company selects its
contract manufacturers carefully, in some instances through local agents who are
familiar with the local manufacturing industry, gradually phasing in production
and closely monitoring these operations to ensure compliance with the Company's
detailed contracting arrangements and strict quality standards. The Company
maintains a staff of approximately 130 employees based in the United States and
in three offshore sourcing and quality control offices, in South Korea, Sri
Lanka and the Philippines, to direct and monitor the Company's manufacturing by
its offshore contractors. This staff of Company employees includes on-site
overseas quality specialists who monitor the quality control and delivery
schedules of the Company's offshore contractors. These employees also search
for, review and evaluate new manufacturing contractors and countries for the
Company's products and perform other services, such as coordination of sending
raw materials and manufacturing specifications to contractors, final product
inspections, order placement, sample preparation, monitoring of quota and other
import restrictions, and communications with the Company's sourcing,
merchandising and design personnel in the United States. The Company strives to
develop long-term relationships with its contractors and provides them with
significant technical and administrative assistance.
As part of management's continuing focus on controlling costs and
maintaining quality control, the Company sources much of its products through
"cut, make, and pack" ("CMP") sourcing arrangements, whereby the Company
directly purchases raw materials, principally fabric and trim items, from
suppliers, and ships the materials in a "kit," together with patterns, samples,
and most other necessary items, to the independent manufacturer that has been
selected by the Company to produce the finished product. While the CMP process
advances the timing for inventory purchases and exposes the Company to certain
additional risks before a garment is manufactured, the Company believes that
this process controls quality consistency, further increases its manufacturing
flexibility and provides it with a cost advantage over traditional "FOB" product
sourcing arrangements, in which the independent manufacturer purchases the raw
materials needed to produce the garment from sources approved by the Company, at
prices negotiated between the independent manufacturer and fabric supplier. The
Company sources approximately 75% (by dollar volume) of its production using CMP
sourcing arrangements.
Raw materials for rainwear and outerwear include polyester and cotton
blends, polyester and nylon blends, cotton, micro fibers and polyester and wool
blends. The Company has strict quality requirements for these materials. All of
the fabrics are tested in accordance with United States safety standards. South
Korean-based suppliers account for a significant majority of the Company's
fabric purchases.
The Company has no significant long-term contracts with its independent
manufacturers or raw material suppliers. The Company has from time to time
experienced difficulty in meeting its raw material and finished goods
requirements on a timely basis, and any such future difficulties could have a
material adverse impact on the Company. See "Risk Factors -- Dependence on
Independent Manufacturers" and "-- Dependence on Raw Material Suppliers."
INFORMATION SYSTEMS
From Fiscal 1996 through Fiscal 1998, the Company incurred approximately
$6.5 million in capital expenditures on software and hardware to modernize its
management information systems. In addition, included in the Company's planned
capital expenditures for Fiscal 1999 is approximately $3 million for the
replacement of the Company's financial and retail store information systems with
systems which have greater functionality and are Year 2000 compliant. The
Company's management information systems provide, among other things,
comprehensive production, order processing, sales, inventory, accounting and
financial information for the management of the operations of the Company and
for use for accounting and financial reporting purposes.
42
<PAGE>
The Company has assessed the impact that the Year 2000 Issue will have on
its computer systems, with a primary focus on the Company's critical business
and information systems. The Year 2000 Issue is the concern that many computer
systems are not capable of differentiating the year 1900 from the year 2000,
because the system only identifies a given year by its final two digits. The
lack of this capability could cause certain computer systems to not operate
properly. The Company has developed a project plan which includes an inventory
of all critical systems, identification of those systems requiring modifications
or replacement to address the Year 2000 Issue, and an action plan and time table
for the completion and testing of required modifications and systems
replacements. Based on the Company's project plan, the Company expects to have
any required modifications to critical systems completed on a timely basis.
However, if such modifications are not completed on a timely basis (which in
certain cases is expected to be before the year 2000), the Year 2000 Issue could
have a material adverse impact on the Company's business, operations, or
financial condition. In addition, many of the third parties with which the
Company conducts business will need to modify their computer systems to address
the Year 2000 Issue and the failure of such third parties to address the problem
on a timely basis could have a material adverse impact on the Company.
COMPETITION
The apparel industry is highly competitive and fragmented. The Company
competes on the basis of product functionality, style, quality, brand
recognition, price and customer service. The Company sells its rainwear,
outerwear and sportswear products throughout the United States and competes
against a variety of other brand name and private label merchandise.
LONDON FOG(Reg. TM) and related brand name rainwear products compete
against a number of brands, including Chaps by Ralph Lauren, Fleet Street,
Forecaster, Gallery and Jones New York. LONDON FOG(Reg. TM), PACIFIC TRAIL(Reg.
TM) and related brand name outerwear products compete against a number of
brands, including Bromley, Chaps by Ralph Lauren, Columbia, Fleet Street,
Forecaster, Gallery, Jones New York, Members Only, Weatherproof and collection
brands such as Nautica, Polo by Ralph Lauren and Tommy Hilfiger. Many of the
Company's competitors are substantially larger and have substantially greater
financial, distribution, marketing and other resources than the Company. See
"Risk Factors -- Substantial Competition."
LICENSES AND TRADEMARKS
The Company has registered its major trademarks, LONDON FOG(Reg. TM),
FOG(Reg. TM), TOWNE(Reg. TM), and PACIFIC TRAIL(Reg. TM), and other marks used
in its business with the United States Patent and Trademark Office and in many
foreign countries. The Company considers its trademarks, especially its LONDON
FOG(Reg. TM) and PACIFIC TRAIL (Reg. TM) trademarks, to be among its most
valuable assets. The Company vigorously defends its trademarks against
infringement and, when necessary, initiates litigation to protect such
trademarks. The Company also vigorously enforces its license agreements and its
trademark rights under such agreements.
The Company strategically extends the Company's product lines and broadens
the distribution, domestically and internationally, of such products by
licensing its trademarks to other manufacturers pursuant to various license
agreements. These license agreements permit the Company to enter new markets
without a significant capital investment and to benefit from the local
licensee's knowledge of and relationships within the local foreign market. The
Company currently licenses its trademarks to other manufacturers for children's
outerwear, luggage and umbrellas, wool coats and leather outerwear, gloves and
sunglasses in the United States; rainwear and outerwear, men's slacks, men's
knit tops, men's tailored clothing and women's sportswear in Canada; and
rainwear and outerwear in certain other countries, including China, Japan,
Australia, New Zealand and South Korea.
The Company currently has licensing agreements for Company-owned trademarks
with approximately 15 licensees, primarily in the United States and Canada.
Licensing revenues were approximately $4.1 million for Fiscal 1998, of which
47%, 31%, 16%, and 6% were derived from the Company's licensing arrangements in
the United States, Canada, Japan, and all other countries, respectively.
43
<PAGE>
The Company continues to pursue international licensing opportunities. For
example, in Fiscal 1997 the Company, pursuant to a license agreement, licensed
its PACIFIC TRAIL(Reg. TM) brand to a Japanese trading company for the
production of "head-to-toe" products bearing the PACIFIC TRAIL(Reg. TM) brand to
be marketed in Japan. This Japanese licensee markets these products as a
collection in specially designated areas in over 150 Ito-Yokado department
stores in Japan.
The Company has recently become a licensee of the FOSSIL(Reg. TM) brand
from Fossil, Inc. for the production of outerwear beginning in fall 1999, and
the exclusive outerwear licensee of the SPERRY(Reg. TM) brand from S. R.
Holdings, Inc. for the production of nautically-inspired outerwear. In
addition, the Company (through Pacific Trail) is the exclusive licensee in the
United States of the LEVI'S(Reg. TM) brand for men's, women's and children's
(non-jean and non-leather) outerwear and of the DOCKERS(Reg. TM) brand for
men's (non-jean and non-dress) outerwear.
PROPERTIES
The Company's headquarters and largest distribution facility is located in
Eldersburg, Maryland and consists of two connected buildings containing 645,000
square feet, situated on approximately 36 acres of land. This facility is owned
by the Company, and approximately 550,000 square feet of it are devoted to the
warehousing of finished products. The Eldersburg facility is the Company's
corporate headquarters and also houses the Company's distribution operations and
many of its administrative operations, including finance and accounting, human
resources, information systems, technical design, retail division support and
manufacturing support. The Company distributes PACIFIC TRAIL (Reg. TM) and
related products through a distribution facility in Martinsville, Virginia
pursuant to an operating agreement, under which the Company can utilize up to
250,000 square feet of this facility.
The Company leases approximately 39,000 square feet of office and showroom
space in New York, New York, which is used for design of LONDON FOG(Reg. TM),
FOG(Reg. TM) and certain licensed products, for sales and marketing offices, for
retail store operations, for the showrooms for LONDON FOG (Reg. TM) and PACIFIC
TRAIL (Reg. TM) products and for certain executive offices. The Company leases
space in Seattle, Washington for Pacific Trail's divisional headquarters,
including executive and design offices. In Greensboro, North Carolina, the
Company leases office space for the employees of the Company who are overseeing
the product development and sourcing of the Company's sportswear product lines.
As of May 30, 1998, the Company leased 133 of its 134 factory outlet
stores. The other factory outlet store is operated out of the Company's
Eldersburg, Maryland distribution and headquarters facility. The 134 factory
outlet stores have, in the aggregate, over 626,000 square feet of space. The
average size per store is approximately 4,700 square feet, with an average
remaining lease term of approximately 3.2 years, excluding renewal options
exercisable at the election of the Company. The remaining terms of the Company's
factory outlet store leases from May 30, 1998 (including renewal options
exercisable at the Company's option) are summarized as follows:
FACTORY OUTLET STORE LEASES
NUMBER
LEASES EXPIRING WITHIN OF STORES
-------------------------------- ----------
1 year ......................... 15
2 years ........................ 11
3 years ........................ 16
4 years ........................ 11
5 years ........................ 13
6 years or more ................ 67
As of May 30, 1998, the Company leased eight test superstores aggregating
approximately 181,000 square feet of space. The average size per store is
approximately 22,625 square feet with an average remaining lease term of
approximately nine years, excluding renewal options exercisable at the election
of the Company. See "Business -- Distribution Channels -- Company-Operated
Retail Stores."
44
<PAGE>
As of May 30, 1998, the Company leased three Weather Stores(TM) aggregating
approximately 5,600 square feet of space. The average store size is
approximately 1,860 square feet with an average remaining lease term of between
five and six years.
Management considers existing distribution and administrative facilities to
be sufficient to support the Company's near-term growth requirements.
BACKLOG
The Company's backlog of unshipped orders was approximately $162 million at
May 30, 1998 and approximately $173 million at May 31, 1997. The Company's
backlog generally peaks in the late spring, as the Company prepares to ship
orders for the fall retail season.
Based upon industry practice and past experience, the Company believes that
the backlog of unshipped orders provides some useful information regarding
expected future shipments. The backlog, however, is dependent upon various
factors, such as timing of meetings between salespeople and major accounts and
the speed with which orders are received from such major accounts. Historically,
the Company has shipped the significant majority of its backlog. However, in
many instances, customers may cancel all or a portion of their unshipped orders,
as the Company has experienced in the past, including in the fall of 1997. As a
result of these factors, as well as the changes from year to year in the timing
of shipments and the magnitude of in-season orders and reorders, backlog may not
be indicative of eventual wholesale shipments. Furthermore, a significant
percentage (42% for Fiscal 1998) of the Company's consolidated net sales are
derived from sales in the Company's retail stores, which are not represented in
backlog figures. Accordingly, the backlog at May 30, 1998 as compared with May
31, 1997 may not be indicative of what net sales will be in Fiscal 1999 as
compared with Fiscal 1998.
EMPLOYEES
As of May 30, 1998, the Company employed approximately 1,465 people,
including 420 part-time employees primarily employed in the Company's retail
stores. The Company has not experienced a material work stoppage for over ten
years. Approximately 125 employees working in the Company's Eldersburg, Maryland
distribution center are represented by the Union of Needletrades, Industrial and
Textile Employees ("UNITE") pursuant to a contract that expires in February
1999.
LEGAL PROCEEDINGS
The Company is a party to various claims, complaints and other legal
actions that have arisen in the normal course of business from time to time. The
Company believes that the outcome of all pending legal proceedings will not have
a material adverse effect on its financial condition.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS.
The names, ages and positions of the directors and executive officers of
the Company are set forth below:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------ ----- -----------------------------------------------------
<S> <C> <C>
Robert E. Gregory, Jr. 56 Chairman and Chief Executive Officer and Director
C. William Crain 57 President and Chief Operating Officer
Edward M. Krell 35 Executive Vice President and Chief Financial Officer
Lynne Y. MacFarlane 45 Executive Vice President--Human Resources and Ad-
ministration
Stuart B. Fisher 55 Senior Vice President, General Counsel and Secretary
James J. Gaffney 57 Director
Walker Lewis 53 Director
Christopher H. Smith 59 Director
Michael J. Starshak 57 Director
</TABLE>
Directors are elected annually and serve for a one-year term. Executive
officers serve at the pleasure of the Board of Directors. Set forth below is a
description of the business experience of each director and executive officer of
the Company.
Robert E. Gregory, Jr. has served as Chairman of the Board and Chief
Executive Officer and a director of the Company since joining the Company in
January 1995. From 1993 to 1994 Mr. Gregory served as Chairman and Chief
Executive Officer and was a member of the Board of Directors of The Gitano
Group, an apparel supplier. From 1982 to 1991 Mr. Gregory served as President,
Chief Operating Officer and was a member of the Board of Directors of VF
Corporation, an apparel manufacturer and distributor. Mr. Gregory left VF
Corporation in 1991 to establish a private investment company prior to joining
The Gitano Group in 1993.
C. William Crain has served as President and Chief Operating Officer since
joining the Company in January 1995. From 1993 to 1994, Mr. Crain served as Vice
Chairman and Chief Operating Officer and a director of The Gitano Group, Inc.
From 1991 to 1992, Mr. Crain served as Executive Vice President of Crystal
Brands, Inc., a men's and women's apparel and jewelry products company.
Edward M. Krell serves as Executive Vice President and Chief Financial
Officer. Mr. Krell was appointed to this position in November 1995. Mr. Krell
joined the Company in June of 1991 as Controller for the Factory Store
Division. He was promoted to Vice President and Corporate Controller in May
1993. From January 1995 until November 1995, Mr. Krell was Senior Vice
President of Finance.
Lynne Y. MacFarlane serves as Executive Vice President--Human Resources
and Administration. Ms. MacFarlane joined the Company in January 1994, and has
full responsibility for all Human Resource functions including staffing,
compensation, and benefits. Ms. MacFarlane joined Heublein Inc. in 1985 as
Director, Human Resource Development. She was appointed Director, Human
Resource Development/North America for Grand Metropolitan PLC, the parent
company of Heublein, in 1987.
Stuart B. Fisher has served as Senior Vice President, General Counsel and
Secretary since joining the Company in October 1994. From October 1985 to June
1992 Mr. Fisher was Senior Vice President, General Counsel and Secretary of
Laura Ashley (USA) Inc. From June 1992 to October 1994, Mr. Fisher was General
Counsel to Revman Industries, Inc. and from November 1993 to October 1994, Mr.
Fisher was also Associate Counsel to Uniforce Services, Inc.
46
<PAGE>
James J. Gaffney became a director of the Company in May 1998. Mr. Gaffney
has been the Chairman of the Board of Maine Investments, a New Zealand holding
company involved in mining, retail, manufacturing and distribution, since 1997.
From 1995 to 1997 Mr. Gaffney served as Chairman of the Board and Chief
Executive Officer of General Aquatics, Inc., a manufacturer of swimming pool
equipment. From 1993 to 1995 Mr. Gaffney was the President and Chief Executive
Officer of KDI Corporation, which was the predecessor corporation to General
Aquatics, Inc. He also is a director of Advantica Restaurant Group, Inc. and
Insilco Corp.
Walker Lewis became a director of the Company in May 1998. Mr. Lewis has
been the Chairman of Devon Value Advisers, a financial consulting firm, since
1997. From January 1994 to December 1994, Mr. Lewis was a Managing Director of
Kidder, Peabody & Co. Incorporated. From January 1995 to 1997, Mr. Lewis was a
Senior Advisor to Dillon, Read & Co.
Christopher H. Smith became a director of the Company in May 1998. In 1993
Mr. Smith became International Counsel to the Managing Board of Escada AG,
Munich, Germany. Currently, Mr. Smith serves as Vice Chairman and Chief
Operating Officer, Director, Secretary and General Counsel of Escada (USA) Inc.
and its affiliates.
Michael J. Starshak became a Director of the Company in May 1995.
Mr. Starshak, a certified public accountant, heads his own firm, Starshak and
Associates, Inc., in Chicago, Illinois, where he has worked for more than the
past five years. Starshak and Associates, Inc. is a crisis management
organization dedicated to enhancing the value of businesses and providing
turnaround expertise.
BOARD OF DIRECTORS
The non-executive directors receive $25,000 per year in cash, payable
quarterly, plus $1,000 for each Board and committee meeting attended. In
addition, the Company is obligated to attempt to purchase $40,000 of its stock
in the open market per year for each non-executive director. The non-executive
directors are also reimbursed for their out-of-pocket expenses for attending
Board and committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has two standing committees: (i) the
Compensation Committee and (ii) the Finance Committee.
The Compensation Committee approves the compensation for senior executives
of the Company, makes recommendations to the Board of Directors with respect to
compensation levels and administers the Company's Stock Option Plan. The members
of the Compensation Committee are Messrs. Lewis and Smith.
The Finance Committee has general responsibility for surveillance of
financial controls, as well as for accounting and audit activities of the
Company. The Finance Committee annually reviews the qualifications of the
Company's independent certified accountants, makes recommendations to the Board
of Directors as to their selection and reviews the plan, fees and results of
their audit. The members of the Finance Committee are Messrs. Starshak and
Gaffney.
47
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation for the fiscal year ended
February 28, 1998 (which consisted of 53 weeks) of the Chief Executive Officer
of the Company and each of the other four most highly compensated executive
officers of the Company.
SUMMARY COMPENSATION TABLE
FISCAL YEAR 1998
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- -------------------------
OTHER
ANNUAL ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($)(A) ($)(B) (#) ($)(C)
- -------------------------------------- ----------- --------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Robert E. Gregory, Jr. ............... 1,348,173 919,680 6,471 694,599 2,400,000
Chairman and Chief Executive Officer
C. William Crain ..................... 758,358 613,120 6,855 347,299 1,350,000
President and Chief Operating Officer
Edward M. Krell ...................... 234,615 102,500 5,020 93,031 --
Executive Vice President
and Chief Financial Officer
Stuart B. Fisher ..................... 193,750 52,500 5,579 49,490 --
Senior Vice President, General
Counsel and Secretary
Lynne Y. MacFarlane .................. 161,154 39,500 5,056 41,155 --
Executive Vice President --
Human Resources and Administration
</TABLE>
- ----------
(a) The Company has a Management Bonus Plan to provide bonus awards to certain
executives and key employees.
(b) Represents the sum of amounts (i) paid as a matching contribution to the
Company's 401(k) Plan, (ii) reimbursed under the Company's Executive
Medical Reimbursement Plan and (iii) paid as premiums for excess life
insurance.
(c) Pursuant to the terms of their employment agreements (the "Employment
Agreements"), a change in control of the Company (as defined in the
Employment Agreements) occurred in Fiscal 1998, which entitled Mr. Gregory
and Mr. Crain to receive payments of two times their original base salaries
($2,400,000 for Mr. Gregory and $1,350,000 for Mr. Crain) under letters of
credit established pursuant to the Employment Agreements.
48
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table summarizes option grants to the named executive
officers during the fiscal year ended February 28, 1998.
OPTION GRANT TABLE
FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(A)
OPTIONS IN PRICE PER EXPIRATION ----------------------------------
NAME GRANTED (#) FISCAL YEAR SHARE ($) DATE 5%($) 10%($)
- -------------------------------- ------------- ------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Gregory, Jr. ......... 666,666 33.2% $ 2.00 2/27/08 $4,508,964 $7,969,548
27,933 1.4 15.72 2/28/05 0 0
C. William Crain ............... 333,333 16.6 2.00 2/27/08 2,254,482 3,984,774
13,966 0.7 15.72 2/28/05 0 0
Edward M. Krell ................ 89,290 4.5 2.00 2/27/08 603,909 1,067,403
3,741 0.2 15.72 2/28/05 0 0
Stuart B. Fisher ............... 47,500 2.4 2.00 2/27/08 321,264 567,831
1,990 0.1 15.72 2/28/05 0 0
Lynne Y. MacFarlane ............ 39,500 2.0 2.00 2/27/08 267,156 472,196
1,655 0.1 15.72 2/28/05 0 0
</TABLE>
- ----------
(a) The Common Stock is not publicly traded. The calculation of the potential
realizable value assumes a fair market value of the Common Stock of $5.38
per share on February 27, 1998, the date of the grants, which represents the
appraised fair value (including valuation discounts for minority interest
and lack of marketability) of the Company's Common Stock at that date based
on an independent appraisal. These estimates of values were developed solely
for the purpose of comparative disclosure in accordance with the rules and
regulations of the Securities and Exchange Commission and are not intended
to predict the future values of the Common Stock.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
No stock options were exercised in Fiscal 1998. The following table
provides information on the number and value of unexercised stock options for
the fiscal year ended February 28, 1998 for the named executive officers.
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FEB. 28, 1998 OPTIONS AT FEB. 28, 1998 ($)(A)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXCERCISABLE UNEXERCISABLE
- -------------------------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Robert E. Gregory, Jr. ......... 133,333 561,266 $ 450,666 $ 1,802,665
C. William Crain ............... 66,667 280,632 225,333 901,332
Edward M. Krell ................ 29,763 63,268 100,600 201,200
Stuart B. Fisher ............... 15,833 33,657 53,516 107,034
Lynne Y. MacFarlane ............ 13,167 27,988 44,503 89,007
</TABLE>
- ----------
(a) The fair market value of the Common Stock at February 28, 1998 is assumed to
be $5.38 per share, which represents the appraised fair value (including
valuation discounts for minority interest and lack of marketability) of the
Common Stock at that date based on an independent appraisal. The Common
Stock is not publicly traded.
49
<PAGE>
STOCK-BASED COMPENSATION PLANS
STOCK OPTIONS. On February 27, 1998, the Board of Directors adopted, and
the shareholders approved, the 1998 Stock Option Plan, which provides for the
grant to eligible participants of options to purchase up to a total of 2,000,000
shares of the Company's common stock, subject to adjustment for future stock
dividends, stock splits, reorganizations and other events. The 1998 Stock Option
Plan authorizes the Compensation Committee of the Board of Directors to
administer the plan and to grant to eligible participants stock options under
the plan. Pursuant to the provisions of the 1998 Stock Option Plan, options
granted under the plan expire ten years from the date of grant and have an
exercise price equal to at least 25% of the fair value of the Company's common
stock at the date of grant.
As of February 28, 1998, options to purchase a total of 1,925,334 shares
had been granted under the 1998 Stock Option Plan and there remained available
for future grant options to purchase 74,666 shares under the Plan. The options
granted under the plan have an exercise price of $2.00 per share, expire on
February 27, 2008, and vest in equal annual installments, with the first
installment vesting on the date of grant and the remainder vesting on the first
two anniversaries of the date of grant (or the first four anniversaries of the
date of grant in the cases of Messrs. Gregory and Crain), subject to accelerated
vesting provisions under certain circumstances as described in the plan.
1998 MANAGEMENT WARRANTS. On February 27, 1998, as part of the 1998
Recapitalization transactions and pursuant to the 1998 Stock Option Plan, the
Company's shareholders and Board of Directors approved the issuance to the
participants in the 1998 Stock Option Plan of the 1998 Management Warrants to
purchase up to an aggregate of 83,799 shares of the Company's common stock at a
purchase price of $15.72 per share. The 1998 Management Warrants expire on
February 28, 2005 (subject to adjustment as specified in the Warrant Agreement)
and vest in proportional installments as the options which are held by such
participant under the 1998 Stock Option Plan vest. In addition, the 1998
Management Warrants are only exercisable after the first date on which any of
the 1998 Recapitalization Warrants are exercised. As of February 28, 1998, the
Company had issued 1998 Management Warrants to purchase an aggregate of 80,667
shares to participants under the 1998 Stock Option Plan.
DEFINED BENEFIT AND ACTUARIAL PLANS
RETIREMENT PLAN. The Company has a non-contributory defined benefit
"account balance" retirement plan, the London Fog Retirement Plan, in which the
named executives participate. Prior to January 1, 1996, Plan participant account
balances were credited annually with 4% of compensation up to 62.5% of the
social security taxable wage base plus 4.75% of the excess, subject to maximum
compensation limits established by IRS Code Section 401(a)(17), as amended by
the Omnibus Budget Reconciliation Act of 1993. As of January 1, 1996, all future
annual credits based on compensation have been frozen. Accounts of active
participants are credited with interest at a variable rate equal to the 5-year
Treasury constant maturity rate, compounded annually to retirement. Accounts of
terminated participants are credited annually with interest at 4%. However,
there is a minimum benefit equal to the participant's January 1, 1994 account
balance, compounded annually with 7.5% interest to retirement. Participants are
100% vested in their account balances after five years of credited service. As
of January 1, 1998, the account balances of the named executives were as
follows: Mr. Gregory -- $0; Mr. Crain -- $0; Mr. Krell -- $24,810; Mr. Fisher --
$0; and Ms. MacFarlane -- $7,101.
SAVINGS PLAN. The Company has a defined contribution 401(k) savings plan
(the "Savings Plan") covering all non-union employees except retail store hourly
wage employees. Participants can elect to make pre-tax contributions between 1%
and 15% of their salary to the Savings Plan subject to legal limitations. The
Company's contribution is a 50% match of each participant's pre-tax contribution
up to a maximum Company contribution of 1.5% of the employee's base salary.
EMPLOYMENT CONTRACTS
Mr. Gregory and Mr. Crain entered into employment agreements dated December
31, 1994 when they joined the Company. In connection with the 1998
Recapitalization, their employment agreements were amended and restated by new
employment agreements dated February 27, 1998 (the "Employment Agreements")
that, among other things, extended the term of their employment agreements to
February 28, 2002.
50
<PAGE>
Mr. Gregory is the Chairman and Chief Executive Officer of the Company and
Mr. Crain is the President and Chief Operating Officer of the Company. Mr.
Gregory's current base salary is $1,389,150 and Mr. Crain's is $781,397. Their
base salaries are subject to annual increases of 5% or such higher amount as
approved by the Board. Through Fiscal 1999, Mr. Gregory and Mr. Crain are
entitled to a bonus, respectively, of 6% and 4% of the Company's Consolidated
EBITA (as defined in the Employment Agreements). For the balance of the term of
their Employment Agreements, Mr. Gregory's and Mr. Crain's bonus will be
determined by the Board of Directors.
If either Mr. Gregory or Mr. Crain is terminated without cause or
terminates his employment for Good Reason (as defined in the Employment
Agreements), such individual is entitled to a severance payment equal to the sum
of two times his current base salary plus the highest annual bonus paid in the
two prior years, together with a prorated bonus for the year in which the
termination occurs. Good Reason includes a breach of the employment agreement by
the Company, an entity that was not a stockholder of the Company as of February
28, 1998 becoming the holder of 50% or more of the Company's voting stock by way
of purchase, transfer, merger or the like or the sale of 80% or more of the
assets of the Company to an entity that does not own or control 50% or more of
the Company's voting stock.
Each of Mr. Gregory and Mr. Crain is entitled to participate in the
employee benefit programs maintained by the Company for its employees.
For a period of one year after the end of the term of their contracts, Mr.
Gregory and Mr. Crain are precluded from working for, advising or investing in
(except for investments of up to 1% of the equity of a publicly traded company)
a company whose outerwear/rainwear sales exceed 37.5% of its total business.
If a payment by the Company under the Employment Agreements is subject to
an excise tax under Section 4999 of the Internal Revenue Code of 1986, the
Company is required to gross-up the payment for such taxes.
Each of Messrs. Krell and Fisher and Ms. MacFarlane have severance
agreements with the Company which provide for the payment of one year's salary
upon the termination (other than for cause) of such employee.
51
<PAGE>
PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth as of July 16, 1998 the number of shares of
Common Stock and as of July 8, 1998 the principal amount of Notes owned by (i)
each Director of the Company, (ii) each executive officer named in the Summary
Compensation Table above, (iii) all of the Company's Directors and executive
officers as a group, and (iv) each Selling Securityholder. Unless otherwise
indicated, each holder has sole voting and investment power (or shares such
powers with his or her spouse) with respect to the shares of Common Stock owned
by such holder.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF PRINCIPAL
COMMON STOCK COMMON AMOUNT OF
NAME BENEFICIALLY OWNED(A) STOCK NOTES
- ------------------------------------------------------------------- ----------------------- --------------- -------------
<S> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
- --------------------------------------
Robert E. Gregory, Jr. ........................................... 133,333 1.6% $ 0
C. William Crain ................................................. 66,667 * 0
Edward M. Krell .................................................. 29,763 * 0
Stuart B. Fisher ................................................. 15,833 * 0
Lynne Y. MacFarlane .............................................. 13,167 * 0
James Gaffney .................................................... 0(b) -- 0
Walker Lewis ..................................................... 0(b) -- 0
Christopher H. Smith ............................................. 0(b) -- 0
Michael J. Starshak .............................................. 0(b) -- 0
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP .................. 258,763 3.1 0
SELLING SECURITYHOLDERS
- -----------------------
Baker Nye Special Credits, Inc. .................................. 75,258 * 0
Bank of America Personal Trust, as Custodian ..................... 0 -- 2,888,418
BankAmerica Investment Corporation ............................... 359,690 4.5 1,607,717
Bear, Stearns & Co. Inc. ......................................... 418,332 5.2 0
Bear, Stearns Securities Corp. as Custodian for Contrarian Capital
Fund I LP and Contrarian Capital Fund II LP ..................... 247,514 3.1 6,699,803
Beneficial Standard Life Insurance Company ....................... 128,749 1.6 0
B III Capital Partners, L.P. ..................................... 622,715 7.8 7,783,942
BOST & Company ................................................... 116,200 1.5 0
Boston Safe Deposit and Trust Company, as Custodian .............. 0 -- 8,578,189
The Chase Manhattan Bank ......................................... 154,937 1.9 0
Chase Securities Inc. ............................................ 0 -- 4,960,506
Chase Manhattan Bank/Municipal Dealer ............................ 0 -- 3,000,000
CIBC Oppenheimer Corporation ..................................... 655,005 8.2 0
CIBC Oppenheimer Corporation, as Agent ........................... 0 -- 6,002,249
Citibank ......................................................... 46,454 * 0
Citibank, N.A., as Custodian ..................................... 0 -- 9,419,906
Cobra LDC ........................................................ 76,961 * 0
Contrarian Capital Fund I LLP .................................... 45,016 * 0
Contrarian Capital Offshore Fund Limited ......................... 6,431 * 0
Daystar LLC ...................................................... 77,170 * 0
Daystar LLC As Agent ............................................. 334,234 4.2 0
Daystar Special Situations Fund, LP .............................. 1,116,968 14.0 0
DLJ Capital Funding, Inc. ........................................ 128,382 1.6 0
Donaldson Lufkin & Jenrette Securities Corporation ............... 63,824 * 1,852,466
Foothill Capital Corp. ........................................... 398,871 5.0 0
Goldman Sachs & Co., as Custodian ................................ 0 -- ,2,935,207
Mellon, Bank N.A. as Trustee for First Plaza Group Trust ......... 294,371 3.7 3,679,633
Morgan Stanley & Co. Incorporated ................................ 116,228 1.5 0
Morgan Stanley & Co. Incorporated, as Agent ...................... 0 -- 14,666,485
MWV Separate Account Alpha, LLC .................................. 61,855 * 773,185
Prime Income Trust ............................................... 129,050 1.6 1,613,131
Smith Barney Inc., as Custodian .................................. 0 -- 9,997,899
Tribeca Investments LLC .......................................... 77,099 * 0
Van Kampen American Capital PRIT ................................. 1,083,301 13.5 13,541,264
Restart Partners, L.P. ........................................... 150,755 1.9 0
Restart Partners II, L.P. ........................................ 498,013 6.2 0
Restart Partners IV, L.P. ........................................ 171,549 2.1 0
Restart Partners V, L.P. ......................................... 47,825 * 0
Morgens Waterfall Income Partners ................................ 46,786 * 0
Endowment Restart, L.L.C. ........................................ 200,755 2.5 0
Morgens Waterfall Domestic Partners, L.L.C. ...................... 49,702 * 0
</TABLE>
- ----------
* Less than 1.0%
(a) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares that such person has the right to acquire within 60
days after the date of this Prospectus. Does not include any of the 1998
Recapitalization Warrants or 1998 Management Warrants since the exercise
price of these Warrants significantly exceeds the marked value of the
shares. Shares that the person has the right to acquire within 60 days after
the date of this Prospectus are deemed to be outstanding in calculating the
percentage ownership of the person or group but are not deemed to be
outstanding as to any other person or group.
(b) Does not include shares of Common Stock which the Company is obligated to
attempt to purchase in the open market in the amount of $40,000 per year for
each non-executive director.
52
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to 8,000,000 shares of Common Stock and the
issuance of up to 614,525 shares of Common Stock issuable upon exercise of the
Warrants (together, the "Resale Shares") and the Notes being offered for resale
by the Selling Securityholders. The Common Stock and Notes may be sold
independently. The exercise price for the Warrants is $15.72 per share.
Therefore, if all of the Warrants are exercised, the Company will receive net
proceeds of $9,660,333. The Company will not receive any of the proceeds from
the sale of the Common Stock or the Notes being offered by the Selling
Securityholders.
The Company has been advised by the Selling Securityholders that the Resale
Shares and the Notes may be sold or distributed from time to time by the Selling
Securityholders directly to or through one or more purchasers (including
pledgees), in transactions in the over the counter market, through the writing
of options, or through brokers, dealers or underwriters who may act solely as
agents or may acquire Resale Shares or Notes as principals or a combination of
such methods of sale, at market prices prevailing at the time of sale, or at
prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed.
If any broker-dealer purchases the Resale Shares or the Notes as principal
it may effect resales of the Resale Shares or the Notes from time to time
directly or through other broker-dealers, and the other broker-dealers may
receive compensation in the form of discounts concessions or commissions from
the Selling Securityholders and/or the purchasers of the Resale Shares or the
Notes for whom they may act as agents or to whom they may sell as principals.
The Selling Securityholders and any underwriter, dealer or agent that
participates in the distribution of the Resale Shares or the Notes may be deemed
underwriters under the Securities Act, and any profit on the sale of the Resale
Shares or the Notes by them and any discounts, commissions, concessions or other
compensation received by any such underwriters, dealers or agents may be deemed
to be underwriting discounts and commissions under the Securities Act.
In addition, the Selling Securityholders have informed the Company that
they may, on an individual basis, from time to time following the effective date
of the Registration Statement of which this Prospectus is a part, sell shares of
Common Stock in short-sale transactions (including, without limitation, selling
short against the box) and use some or all of the Resale Shares to cover such
transactions.
At the time a particular offer of the Resale Shares is made, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
number of shares of Common Stock or the Notes being offered and the terms of the
offering, including the name or names of any underwriters, brokers, dealers, or
agents (whether such party is acting as a principal or as an agent for the
Selling Securityholders), any discounts, commissions, concessions and other
items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or re-allowed or paid to dealers.
The terms of the 1998 Recapitalization require the Company to file a shelf
registration statement (the "Shelf Registration Statement") covering the Resale
Shares and the Notes. The Registration Statement of which this Prospectus is a
part constitutes the Shelf Registration Statement. The Company has agreed to use
its best reasonable efforts to cause the Shelf Registration Statement to become
effective and keep the Shelf Registration Statement effective until the earlier
of (i) such time as all of the Resale Shares or Notes have been sold pursuant to
the Shelf Registration Statement, (ii) such time as all of the Resale Shares and
the Notes are eligible for sale pursuant to Rule 144(k) promulgated under the
Securities Act and (iii) the two year anniversary of the effectiveness of the
Shelf Registration Statement.
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DESCRIPTION OF COMMON STOCK
The Company's Certificate of Incorporation provides for authorized capital
stock of 12,000,000 shares of Common Stock, par value $.01 per share. As of May
30, 1998, 8,000,000 shares of Common Stock were outstanding.
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to cumulative voting
rights. Therefore, holders of a majority of the shares voting for the election
of directors can elect all the directors. Subject to restrictions imposed by the
terms of any indebtedness of the Company, the holders of Common Stock are
entitled to dividends in such amounts and at such times as may be declared by
the Company's Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon liquidation or dissolution, holders of Common Stock are
entitled to share ratably in all the assets available for distribution to
stockholders. Holders of Common Stock have no redemption, conversion or
preemptive rights. The Common Stock currently outstanding, and the shares of
Common Stock covered by this Prospectus, is and will be validly issued, fully
paid and nonassessable.
The transfer agent for the Common Stock is ChaseMellon Shareholder
Services, L.L.C.
DESCRIPTION OF NOTES
GENERAL
The Notes were issued pursuant to an Indenture dated as of February 27,
1998, as amended (the "Indenture"), between the Company and IBJ Schroder Bank &
Trust Company, as trustee (the "Trustee"). The following summary of certain
provisions of the Indenture and the Notes does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Indenture, including the definitions therein of certain terms
used below. Copies of the Indenture will be made available upon request to the
Company. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions".
The Notes rank subordinate in right of payment to all existing and future
Senior Indebtedness of the Company pursuant to the Subordination Agreement.
As of the date of the Indenture, all of the Company's Subsidiaries were
Restricted Subsidiaries. Under certain circumstances, however, the Company will
be able to designate current and future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture. See "-- Certain Covenants".
TERMS OF THE NOTES
The Notes are limited to $100.0 million aggregate principal amount, and
will mature on February 27, 2003. Payment of the principal of, premium, if any,
and interest on the Notes is irrevocably and unconditionally guaranteed by each
of the Subsidiary Guarantors. The Notes bear interest at the rate of 10% per
annum from February 27, 1998, or from the most recent date to which interest has
been paid or provided for, payable semi-annually to holders of record at the
close of business on February 15 or August 15 immediately preceding the interest
payment date on March 1 and September 1 of each year, commencing September 1,
1998.
Optional Redemption. The Notes will be subject to redemption at the option
of the Company, in whole or in part, at any time upon giving notice to the
holders, not less than 30 nor more than 60 days before the redemption date, at
the redemption prices (expressed as percentage of principal amount) set
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forth below plus accrued and unpaid interest, if any, to the applicable
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the twelve-month period beginning on February 27 of the years
indicated below:
YEAR PERCENTAGE
-------------------------- -----------
1998 ..................... 105%
1999 ..................... 105%
2000 ..................... 105%
2001 ..................... 103%
2002 ..................... 101%
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash of all Obligations on Senior
Indebtedness pursuant to the Subordination Agreement dated February 27, 1998
between the Trustee and Congress. Upon any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Indebtedness
shall first be paid in full in cash, or such payment duly provided for to the
satisfaction of the holders of Senior Indebtedness, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Notes, or for the acquisition of any of the Notes for cash or property or
otherwise.
No payments can be made with respect to any Obligations on the Notes or to
acquire any of the Notes for cash or property or otherwise so long as any Senior
Indebtedness is outstanding, except that scheduled semi-annual interest payments
on the Notes can be made (1) except during a Blockage Period or when a Payment
Event of Default or Insolvency Event (each as defined in the Subordination
Agreement) has occurred and is continuing, and (2) except as provided below,
provided that the Excess Availability Test (as defined in the Subordination
Agreement) is satisfied. If payment of semi-annual interest cannot be made
solely because the Excess Availability Test is not satisfied, then the payment
will be postponed until the first day of the next month (if the Excess
Availability Test is then met) or the first day of the second month following
the original payment date (whether or not the Excess Availability Test is then
met).
As defined in the Subordination Agreement, (1) a "Blockage Period" means
the period from the date that notice of an Event of Default under the Senior
Credit Facility is given (other than for a Payment Event of Default) until the
earlier of (a) the date that the Event of Default has been cured or waived, or
(b) 180 days after the date that the Blockage Notice was given unless the lender
under the Senior Credit Facility accelerates the loans under the Senior Credit
Facility and enforces its remedies as a result thereof, in which event the
Blockage Period will continue until all Obligations under the Senior Credit
Facility have been paid in full, (2) "Payment Event of Default" means any
default in payment of any Obligations under the Senior Credit Facility which
continues beyond any applicable grace period and is not waived by the lender,
(3) "Insolvency Event" means any proceeding, voluntary or involuntary, relating
to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors,
and (4) "Excess Availability Test" means that for the 30 days preceding the date
of any payment, and giving pro forma effect to the payment, there shall be at
least $5,000,000 available to be borrowed by the Company under the Senior Credit
Facility in accordance with its terms.
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the Holders of the Notes, may recover less, ratably, than holders of
Senior Indebtedness.
As of May 30, 1998, the aggregate amount of Senior Indebtedness was
approximately $90.0 million. In addition, the Company had up to an additional
$110.0 million of available borrowings (assuming there was an adequate
collateral borrowing base) under the Senior Credit Facility.
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GUARANTEES
The Subsidiary Guarantors and certain future subsidiaries of the Company
(as described below) have or will irrevocably and unconditionally Guarantee on a
senior subordinated basis, jointly and severally, the performance and punctual
payment when due, whether at Stated Maturity, by acceleration or otherwise, of
all obligations of the Company under the Indenture, the Notes and the Security
Agreements, whether for payment of principal of or interest on the Notes,
expenses, indemnification or otherwise (all such obligations guaranteed by such
Subsidiary Guarantors being herein called the "Guaranteed Obligations" and the
Guarantee thereof by each Subsidiary Guarantor, a "Subsidiary Guarantee"). The
Subsidiary Guarantees are subordinated to Senior Indebtedness on the same basis
as the Notes are subordinated to Senior Indebtedness. Each Subsidiary Guarantor
also agreed to pay any and all costs and expenses (including reasonable
attorneys' fees and expenses) incurred by the Trustee or any holder in enforcing
any rights under any Subsidiary Guarantee. Each Subsidiary Guarantee is limited
in amount to an amount not to exceed the maximum amount that can be guaranteed
by the applicable Subsidiary Guarantor without rendering the applicable
Subsidiary Guarantee voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. If a Subsidiary Guarantee were to be rendered voidable, it
could be subordinated by a court to all other indebtedness (including guarantees
and other contingent liabilities) of the applicable Subsidiary Guarantor, and,
depending on the amount of such indebtedness, a Subsidiary Guarantor's liability
on its Subsidiary Guarantee could be reduced to zero.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all principal of or interest on
the Notes, and all other Guaranteed Obligations then due and payable, or upon
such Subsidiary Guarantor no longer being a Restricted Subsidiary, (b) be
binding upon each Subsidiary Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the holders of the Notes, and their successors,
transferees and assigns.
Upon the sale or other disposition of all the Capital Stock of a Subsidiary
Guarantor or the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor (in each case other than to the Company or an Affiliate of
the Company) permitted by the Indenture, such Subsidiary Guarantor will be
released and relieved from all its obligations under its Subsidiary Guarantee.
COLLATERAL
In order to secure the Company's Obligations under the Notes, (a) pursuant
to an Amended and Restated Pledge Agreement the Company pledged in favor of the
Trustee, for the benefit of the holders of the Notes, (i) all the issued and
outstanding capital stock of each Subsidiary Guarantor, (ii) all intercompany
notes, and (iii) all proceeds of the foregoing, and (b) pursuant to an Amended
and Restated Company Security Agreement, the Company granted to the Trustee, for
the benefit of the holders of the Notes, a security interest in substantially
all of the Company's assets, including, without limitation, all Accounts,
Chattel Paper, Contracts, Documents, Equipment, General Intangibles,
Instruments, Inventory, Investment Property, Patent Licenses, Patents, Trademark
Licenses, Trademarks (all as defined in the Security Agreement) and all proceeds
and products of the foregoing.
Pursuant to an Amended and Restated Subsidiary Security Agreement, and as
security for its Obligations under the Subsidiary Guarantees, each Subsidiary
Guarantor also granted the Trustee, for the benefit of the holders of the Notes,
a security interest in substantially all of its assets.
The pledge by the Company and the security interests granted by the Company
and the Subsidiary Guarantors are subordinate in priority to the security
interests held by the lender under the Senior Credit Facility in accordance with
the terms of the Subordination Agreement.
Upon performance and payment in full of all the of the Company's
Obligations, all such pledges and security interests in favor of the Trustee
shall terminate.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each holder
of the Notes will have the right to require the Company to repurchase all or any
part of such holder's Notes pursuant to the offer described below at an offer
price in cash equal to 101% of the aggregate principal amount of the
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Notes plus accrued and unpaid interest, if any, thereon to the date of
repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date). A "Change
of Control" means any of the following events:
(a) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of this
Indenture);
(b) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of this Indenture); or
(c) any Person or Group (other than (i) the holders on the Issue Date of
the Capital Stock of the Company or any Affiliates of such holders and (ii)
the holders of the Management Stock Options (as defined in the Master
Restructuring Agreement)) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than fifty percent
(50%) of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company, unless the Holders of a majority
of the outstanding principal amount of the Notes consents to such Person or
Group becoming the owner of such shares;
in each case together with a failure of the Notes to have a rating of at
least BBB -- (or equivalent successor rating) by Standard & Poor's Ratings
Service or at least Baa 3 (or equivalent successor rating) by Moody's
Investors Service, Inc. on the 30th day after the occurrence of any such
event.
Within 30 days following any Change of Control, the Company will distribute
a notice to the holders, with a copy to the Trustee, stating: (1) that a Change
of Control has occurred and that such holder has the right to require the
Company to repurchase such holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the repurchase date (which shall be no earlier than 30 days nor later than
45 days from the date such notice is given, other than as required by law) and
(3) the instructions determined by the Company, consistent with this covenant,
that a holder must follow in order to have its Notes purchased.
The Company shall comply, to the extent applicable, with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is solely a result of negotiations
between the Company and the original holders of the Notes. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to incur additional Indebtedness are
contained in the covenants described under "-- Certain Covenants -- Limitation
on Indebtedness" and "-- Limitation on Liens". Such restrictions can only be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. Except for the limitations contained in such covenants,
however, the Indenture does not contain any covenants or provisions that may
afford holders of the Notes protection in the event of a highly leveraged
transaction.
The Senior Credit Facility includes covenants that prohibit a sale of all
or substantially all of the assets of the Company, a merger in which the Company
is not the surviving corporation and a liquidation or dissolution of the
Company. The Subordination Agreement also prohibits the repurchase of the
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Notes prior to payment in full of the Company's Obligations under the Senior
Credit Facility. Therefore, the Company could not engage in certain events that
would constitute a Change of Control or repurchase the Notes without the consent
of the lender under the Senior Credit Facility.
Future indebtedness of the Company may also contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may also be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relative to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in the principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and the Company will not permit any of its Restricted Subsidiaries to, Incur,
any Indebtedness other than Permitted Indebtedness; provided, however, that if
no Default or Event of Default shall have occurred and be continuing at the time
or as a consequence of the incurrence of any such Indebtedness, the Company or
any Subsidiary Guarantor may incur Indebtedness if on the date of the incurrence
of such Indebtedness, after giving effect to the incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to
1.0. "Permitted Indebtedness" means, without duplication: (i) the Notes and the
obligations under the Subsidiary Guarantees; (ii) Indebtedness incurred pursuant
to the Senior Credit Facility; (iii) other Indebtedness of the Company and its
Restricted Subsidiaries outstanding on February 27, 1998 reduced by the amount
of any scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereon; (iv) Interest Swap Obligations of the
Company or any Restricted Subsidiary thereof covering Indebtedness of the
Company or any Restricted Subsidiary thereof; provided that any Indebtedness to
which any such Interest Swap Obligations correspond is otherwise permitted to be
incurred under the Indenture; provided, further, that such Interest Swap
Obligations are entered into, in the judgment of the Company, to protect the
Company and any such Restricted Subsidiary thereof from fluctuation in interest
rates on their respective outstanding Indebtedness; (v) Indebtedness under
Currency Agreements; (vi) intercompany Indebtedness owed by the Company to any
Wholly-Owned Restricted Subsidiary thereof or by any Restricted Subsidiary of
the Company to the Company or to any Wholly-Owned Restricted Subsidiary thereof;
(vii) Acquired Indebtedness of the Company or any Restricted Subsidiary thereof
in an aggregate principal amount outstanding not exceeding $10 million at any
one time; provided that, in the case of Acquired Indebtedness of a Restricted
Subsidiary of the Company, such Acquired Indebtedness was not incurred in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company; (viii) guarantees by the Company and the
Wholly-Owned Restricted Subsidiaries thereof of each other's Indebtedness;
provided that such Indebtedness is permitted to be incurred hereunder; (ix)
Indebtedness arising from the honoring by a bank or other financial institution
of a check, draft or other similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business; provided that such
Indebtedness is extinguished within five (5) business days of its incurrence;
(x) any refinancing, modification, replacement, renewal, restatement, refunding,
deferral, extension, substitution, supplement, reissuance or resale of existing
or future Indebtedness, including any additional Indebtedness incurred to pay
interest or premiums required by the instruments governing such existing or
future Indebtedness as in effect at the time of issuance thereof ("Required
Premiums") and fees in connection therewith; provided that any such event shall
not (i) result in an increase in the aggregate principal amount of Permitted
Indebtedness (except to the extent such increase is a result of a simultaneous
incurrence of additional Indebtedness (A) to pay Required Premiums and related
fees or (B) otherwise permitted to be incurred under the Indenture) of the
Company and the Restricted Sub-
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sidiaries thereof (except that this subclause (i) will not apply in the event
the Indebtedness being refinanced, modified, replaced, renewed, restated,
refunded, deferred, extended, substituted, supplemented, reissued or resold
(each, such transaction, a "Refinancing,") was originally incurred in reliance
upon clause (b) of this definition or the Refinancing is effected under the
Senior Credit Facility) and (ii) create Indebtedness with a Weighted Average
Life to Maturity at the time such Indebtedness is incurred that is less than the
Weighted Average Life to Maturity at such time of the Indebtedness being
refinanced, modified, replaced, renewed, restated, refunded, deferred, extended,
substituted, supplemented, reissued or resold (except that this subclause (ii)
will not apply in the event the Indebtedness being refinanced, modified,
replaced, renewed, restated, refunded, deferred, extended, substituted,
supplemented, reissued or resold was originally incurred in reliance upon clause
(b), (f), (g), (i) or (o) of this definition or the Refinancing is effected
under the Senior Credit Facility); provided that no Restricted Subsidiary of the
Company that is not a Subsidiary Guarantor may refinance any Indebtedness
pursuant to this clause (x) other than its own Indebtedness; (xi) Indebtedness
(including Capitalized Lease Obligations) incurred by the Company or any
Restricted Subsidiary thereof to finance the purchase, lease or improvement of
property (real or personal) or equipment (whether through the direct purchase of
assets or the Capital Stock of any Person owning such assets) in an aggregate
principal amount outstanding not to exceed $20 million at the time of any
incurrence thereof; (xii) Indebtedness incurred by the Company or any Restricted
Subsidiary thereof constituting reimbursement obligations (in addition to
reimbursement obligations constituting Senior Indebtedness) with respect to
letters of credit or bankers' acceptances issued in the ordinary course of
business, including, without limitation, letters of credit in respect of
workers' compensation claims or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers' compensation
claims; (xii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary thereof providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Restricted Subsidiary of the Company, other than guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition, provided
that the maximum assumable liability in respect of all such Indebtedness shall
at no time exceed the gross proceeds actually received by the Company and the
Restricted Subsidiaries thereof in connection with such disposition; (xiii)
obligations in respect of performance and surety bonds and completion guarantees
provided by the Company or any Restricted Subsidiary thereof in the ordinary
course of business; (xiv) additional Indebtedness of the Company and the
Restricted Subsidiaries thereof in an aggregate principal amount not to exceed
$10 million at any one time outstanding; (xv) the incurrence by a Receivables
Entity of Indebtedness in a Qualified Receivables Transaction that is not
recourse to the Company or any Subsidiary thereof (except for Standard
Securitization Undertakings); and (xvi) Indebtedness incurred by the Company in
connection with and pursuant to the put options of the Company described in
clause (xi) of the covenant under "Limitation on Restricted Payments" and the
Company's Deferred Compensation Plan, each as in effect on the date hereof.
Limitation on Restricted Payments. The Company will not, and will not
permit any Restricted Subsidiary thereof to, directly or indirectly, (i) declare
or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock) on or in respect of shares of
Capital Stock of the Company to holders of such Capital Stock, (ii) purchase,
redeem or otherwise acquire or retire for value any Capital Stock of the Company
or any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock, other than the exchange of such Capital Stock for Qualified
Capital Stock, or (iii) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (i), (ii) and (iii) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (A) a Default or an Event of
Default shall have occurred and be continuing, (B) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the Limitation on Indebtedness set forth above
or (C) the aggregate amount of Restricted Payments made subsequent to February
27, 1998 shall exceed the sum of: (1) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned subsequent to February 27, 1998 and on or prior
to the date the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus (2) 100% of the aggregate net
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cash proceeds received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale subsequent to February 27, 1998 and
on or prior to the Reference Date of Qualified Capital Stock of the Company
(including Capital Stock issued upon the conversion of convertible Indebtedness
or in exchange for outstanding Indebtedness); plus (3) without duplication of
any amounts included in clause (C)(2) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding any net cash proceeds from such equity
contribution to the extent used to redeem Notes in accordance with the optional
redemption provisions of the Notes); plus (4) to the extent that any Investment
(other than a Permitted Investment) that was made after February 27, 1998 is
sold for cash or otherwise liquidated or repaid for cash, the lesser of (aa) the
cash received with respect to such sale, liquidation or repayment of such
Investment (less the cost of such sale, liquidation or repayment, if any) and
(bb) the initial amount of such Investment.
The provisions of the foregoing paragraph shall not prohibit: (i) the
payment of any dividend or the consummation of any irrevocable redemption within
sixty (60) days after the date of declaration of such dividend or notice of such
redemption if the dividend or payment of the redemption price, as the case may
be, would have been permitted on the date of declaration or notice; (ii) if no
Event of Default shall have occurred and be continuing as a consequence thereof,
the acquisition of any shares of Capital Stock of the Company, either (A) solely
in exchange for shares of Qualified Capital Stock of the Company, or (B) through
the application of net proceeds of a substantially concurrent sale (other than
to a Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company; (iii) payments for the purpose of and in an amount equal to the amount
required to permit the Company to redeem or repurchase shares of its Capital
Stock or options in respect thereof, in each case in connection with the
repurchase provisions under employee stock option or stock purchase agreements
or other agreements to compensate management employees; provided that such
redemptions or repurchases pursuant to this clause (iii) shall not exceed $5
million (which amount shall be increased by the amount of any cash proceeds to
the Company from (A) sales of its Capital Stock to management employees
subsequent to February 27, 1998 and (B) any "key-man" life insurance policies
which are used to make such redemptions or repurchases) in the aggregate; (iv)
the payment of fees and compensation as permitted under clause (i) of the second
paragraph under "Limitation on Affiliate Transactions"; (v) so long as no
Default or Event of Default shall have occurred and be continuing, payments not
to exceed $100,000 in the aggregate, to enable the Company to make payments to
holders of its Capital Stock in lieu of issuance of fractional shares of its
Capital Stock; (vi) repurchases of Capital Stock deemed to occur upon the
exercise of stock options if such Capital Stock represents a portion of the
exercise price thereof; (vii) payments to management employees in connection
with, and pursuant to, the Company's Deferred Compensation Plan; (viii)
Restricted Payments by any Subsidiary of the Company to the Company or any other
Subsidiary thereof; (ix) payments for the purpose of and in an amount equal to
the amount required to permit the Company to redeem or repurchase shares of its
Capital Stock acquired upon the exercise of the options issued under the
Company's 1998 Stock Option Plan; (x) so long as no Default or Event of Default
shall have occurred and be continuing, payments in respect of Capital Stock
options of the Company, or similar rights with respect to Capital Stock of the
Company, to present or former officers or employees of the Company or any
Subsidiary thereof in an aggregate amount not to exceed $100,000; (xi) so long
as no Default or Event of Default shall have occurred and be continuing,
redemption and/or repurchase, in an aggregate amount not to exceed $550,000, of
certain shares and options to purchase shares of Capital Stock of the Company
owned by certain employees of the Company, pursuant to the exercise of put
options pursuant to the Stockholders' Agreement dated as of June 27, 1990, as
amended and in effect on the date hereof; and (xii) repurchase common stock of
the Company in open market transactions involving cash expenditures of not more
than $200,000 in any fiscal year of the Company, where such stock is used in
such fiscal year to pay directors' fees to outside directors of the Company.
In determining the aggregate amount of Restricted Payments made subsequent
to February 27, 1998 in accordance with clause (C) of the immediately preceding
paragraph, (a) amounts expended (to the extent such expenditure is in the form
of cash or other property other than Qualified Capital Stock) pursuant to
clauses (i), (ii) and (iii) above shall be included in such calculation,
provided that such expenditures pursuant to clause (iii) shall not be included
to the extent of cash proceeds received by the
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Company from any "key man" life insurance policies and (b) amounts expended
pursuant to clause (iv), (v) and (vi) shall be excluded from such calculation.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary thereof to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on its Capital Stock, (b) make any loans or advances or pay any
Indebtedness or other obligations owed to the Company or any Restricted
Subsidiary or (c) transfer any of its property or assets to the Company or any
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of: (i) applicable law; (ii) the Indenture; (iii)
non-assignment provisions of any contract or any lease entered into in the
ordinary course of business; (iv) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to the Company
or any Restricted Subsidiary thereof, or the properties or assets of any such
Person, other than the Person or the properties or assets of the Person so
acquired; (v) the Senior Credit Facility; (vi) other agreements existing on
February 27, 1998 (including, without limitation, the Master Restructuring
Agreement); (vii) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien; (viii)
restrictions imposed by any agreement to sell assets permitted under the
Indenture to any Person pending the closing of such sale (ix) any agreement or
instrument governing Capital Stock of any Person that is acquired after February
27, 1998; (x) an agreement effecting a refinancing, replacement or substitution
of Indebtedness issued, assumed or incurred pursuant to an agreement referred to
in clause (ii), (iv), (v) or (vi) above; provided, however, that the provisions
relating to such encumbrance or restriction contained in any such refinancing,
replacement or substitution agreement referred to in such clause (ii), (iv) or
(vi) are no less favorable to the Company or the Holders in any material respect
as determined by the Board of Directors of the Company than the provisions
relating to such encumbrance or restriction contained in agreements referred to
in such clause (ii), (iv) or (vi); or (xi) Indebtedness or other contractual
requirements of a Receivables Entity in connection with a Qualified Receivables
Transaction; provided that such restrictions apply only to such Receivables
Entity.
Limitation on Asset Sales. The Company will not, and will not permit any
Restricted Subsidiary thereof to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or such Restricted Subsidiary, as the case may be, from
such Asset Sale shall be cash or Cash Equivalents and is received at the time of
such disposition; provided that the amount of (A) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or such Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes or such Restricted
Subsidiary's Guarantee, if any) that are assumed by the transferee of any such
assets and (B) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Company or any such Restricted Subsidiary into cash or Cash Equivalents
(to the extent of the cash or Cash Equivalents received) shall be deemed to be
cash for purposes of this provision; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale (A) within 365 days of receipt
thereof either (1) to prepay any Senior Indebtedness or Guarantor Senior
Indebtedness, whether or not the amount prepaid is subsequently re-lent to the
Company or any Subsidiary thereof, and, in the case of any Senior Indebtedness
under any revolving credit facility, whether or not there is a permanent
reduction in the availability under such revolving credit facility, (2) to
reinvest in Productive Assets, or (3) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A)(1) and (iii)(A)(2) or (B) on the
366th day of receipt thereof in accordance with the next succeeding sentence. On
the 366th day after an Asset Sale or such earlier date, if any, as the Board of
Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(iii)(A)(1), (iii)(A)(2) and (iii)(A)(3) of the immediately preceding sentence
(each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash
Proceeds which have not been applied on or before such Net Proceeds Offer
Trigger Date
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as required in clauses (iii)(A)(1), (iii)(A)(2) and (iii)(A)(3) of the
immediately preceding sentence (each a "Net Proceeds Offer Amount") shall be
applied by the Company or such Restricted Subsidiary to make an offer to
purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment
Date") not less than thirty (30) nor more than forty-five (45) days following
the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata
basis that amount of Notes equal to the Net Proceeds Offer Amount at a price
equal to 100% of the principal amount of the Notes to be purchased, plus accrued
and unpaid interest thereon, if any, to the Net Proceeds Offer Payment Date;
provided, however, that if at any time any non-cash consideration received by
the Company or any Restricted Subsidiary thereof, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this paragraph.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$5 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Company
and the Restricted Subsidiaries thereof aggregate at least $5 million, at which
time the Company or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make a
Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $5 million or more shall be deemed to be a
Net Proceeds Offer Trigger Date).
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries thereof will be permitted to consummate an Asset
Sale without complying with such paragraphs to the extent (a) at least 75% of
the consideration for such Asset Sale constitutes Productive Assets and (b) such
Asset Sale is for at least fair market value (as determined in good faith by the
Company's Board of Directors); provided that any consideration not constituting
Productive Assets received by the Company or any Restricted Subsidiary thereof
in connection with any Asset Sale permitted to be consummated under this
paragraph shall constitute Net Cash Proceeds and shall be subject to the
provisions of the two preceding paragraphs; provided, that at the time of
entering into such transaction or immediately after giving effect thereto, no
Default or Event of Default shall have occurred or be continuing or would occur
as a consequence thereof.
Limitation on Affiliate Transactions. The Company will not, and will not
permit any Restricted Subsidiary thereof to, directly or indirectly, enter into
or permit to exist any transaction or series of related transactions (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction"), other than (i) Affiliate Transactions permitted under
the following paragraph and (ii) Affiliate Transactions on terms that are no
less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate; provided, however, that for a transaction or series of
related transactions with an aggregate value of $2 million or more, at the
Company's option (A) such determination shall be made in good faith by a
majority of the disinterested members of the Board of the Directors of the
Company or (B) the Board of Directors of the Company or any such Restricted
Subsidiary party to such Affiliate Transaction shall have received a favorable
opinion from a nationally recognized investment banking firm, appraisal firm or
accounting firm, as appropriate, that such Affiliate Transaction is on terms not
materially less favorable than those that might reasonably have been obtained in
a comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate; provided, further, that for a transaction or series of
related transactions with an aggregate value of $5 million or more, the Board of
Directors of the Company shall have received a favorable opinion from a
nationally recognized investment banking firm, appraisal firm or accounting
firm, as appropriate, that such Affiliate Transaction is on terms not materially
less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate.
The provisions of the foregoing paragraph shall not prohibit (i) reasonable
fees and compensation paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Com-
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pany or any Subsidiary thereof as determined in good faith by the Company's
Board of Directors or senior management (including, without limitation, the
amounts paid pursuant to the Company's Deferred Compensation Plan); (ii)
transactions exclusively between or among the Company and any Restricted
Subsidiary thereof or exclusively between or among the Restricted Subsidiaries
of the Company, provided that such transactions are not otherwise prohibited by
the Indenture; (iii) any agreement as in effect as of February 27, 1998 or any
amendment thereto or any transaction contemplated thereby (including pursuant to
any amendment thereto) or in any replacement agreement thereto so long as any
such amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
February 27, 1998; (iv) Restricted Payments permitted by the Indenture; (v)
transactions effected as part of a Qualified Receivables Transaction and (vi)
transactions pursuant to supply or similar agreements (including, without
limitation, for the purchase of inventory) entered into in the ordinary course
of business on customary terms that are not less favorable to the Company than
those that would have been obtained in a comparable transaction with an
unrelated Person, as determined in good faith by senior management of the
Company.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens of
any kind against or upon any of its properties or assets, or any proceeds
therefrom, unless (a) in the case of Liens securing Subordinated Obligations,
the Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (b) in all other cases, the Notes are
equally and ratably secured, except for Permitted Liens.
"Permitted Liens" means the following types of Liens: (a) Liens securing
any or all of the Senior Indebtedness, the Notes and the Guarantees; (b) Liens
for taxes, assessments or governmental charges or claims either (i) not
delinquent or (b) contested in good faith by appropriate proceedings and as to
which the Company or the Restricted Subsidiaries thereof shall have set aside on
its books such reserves as may be required pursuant to GAAP; (c) statutory Liens
of landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the ordinary
course of business for sums not yet delinquent or being contested in good faith,
if such reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof; (d) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security,
including any Lien securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money); (e) judgment Liens not giving rise to an Event of Default; (f)
easements, rights-of-way, zoning restrictions and other similar charges or
encumbrances in respect of real property not interfering in any material respect
with the ordinary conduct of the business of the Company or any Restricted
Subsidiary thereof; (g) any interest or title of a lessor under any Capitalized
Lease Obligation; (h) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary thereof, provided, however, that (i) the
related purchase money Indebtedness shall not exceed the cost of such property
or assets and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary thereof other than the property and assets so acquired
and (ii) the Lien securing such Indebtedness shall be created within ninety (90)
days of such acquisition; (i) Liens upon specific items of inventory or other
goods and proceeds of any Person securing such Person's obligations in respect
of bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other goods;
(j) Liens securing reimbursement obligations (in addition to Liens securing any
reimbursement obligations constituting Senior Indebtedness) with respect to
stand-by and commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds thereof;
(k) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company or
any Restricted Subsidiary thereof, including rights of offset and set-off; (l)
Liens securing Interest Swap Obligations which Interest Swap Obligations relate
to Indebtedness that is otherwise permitted under the Indenture; (m) Liens
securing Indebtedness under Currency Agreements; (n) Liens securing Acquired
Indebtedness incurred in reliance on clause (g) of the definition of Permitted
Indebtedness; provided that such Liens do not extend
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to or cover any property or assets of the Company or of any Restricted
Subsidiary thereof other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of
the Company or a Restricted Subsidiary thereof; (o) leases or subleases granted
to others that do not materially interfere with the ordinary course of business
of the Company and the Restricted Subsidiaries thereof; (p) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (q) Liens
on property of a Person existing at the time such Person is acquired by, or such
Person is merged into or consolidated or amalgamated with, the Company or any
Restricted Subsidiary thereof, provided that such Liens were not created in
contemplation of such acquisition, merger, consolidation or amalgamation and do
not extend to any assets other than those of the Person acquired by, or merged
into or consolidated or amalgamated with, the Company or any Restricted
Subsidiary thereof; (r) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of custom duties in connection with
the importation of goods; (s) Liens existing on February 27, 1998, together with
any Liens securing Indebtedness incurred in reliance on clause (j) of the
definition of Permitted Indebtedness in order to refinance the Indebtedness
secured by Liens existing on February 27, 1998; provided that the Liens securing
the refinancing Indebtedness (other than Senior Indebtedness) shall not extend
to property other than that pledged under the Liens securing the Indebtedness
being refinanced; (t) Liens of the Company or a Wholly-Owned Restricted
Subsidiary thereof on assets of any Subsidiary of the Company; (u) Liens on
assets transferred to a Receivables Entity or on assets of a Receivables Entity,
in either case incurred in connection with a Qualified Receivables Transaction;
and (v) Liens on goods which the Company or a Subsidiary thereof (acting as
consignee) has agreed to sell on a consignment basis in the ordinary course of
business.
Merger and Consolidation. The Company will not, in a single transaction or
a series of related transactions, consolidate with or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of, all or
substantially all of its assets to, any Person, unless
(i) either (A) the Company shall be the survivor of such merger or
consolidation or (B) the surviving Person is a corporation existing under
the laws of the United States, any state thereof or the District of Columbia
and such surviving Person shall expressly assume all the obligations of the
Company under the Notes and this Indenture;
(ii) immediately after giving effect to such transaction (on a pro forma
basis, including any Indebtedness incurred or anticipated to be incurred in
connection with such transaction and including adjustments that are (A)
directly attributable to such transaction and (B) factually supportable),
the Company or the surviving Person is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance
with the covenant designed under "Limitations on Indebtedness";
(iii) immediately before and immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), no Default or Event of
Default shall have occurred and be continuing;
(iv) each Subsidiary Guarantor, unless it is the other party to such
transaction, shall have by execution of a Guarantee substantially in the
form of the Subsidiary Guarantee confirmed that after consummation of such
transaction its Guarantee shall apply, as such Guarantee applied on the
date it was granted to the obligations of the Company under the Indenture
and the Notes, to the obligations of the Company or such Person, as the
case may be, under the Indenture and the Notes; and
(v) the Company has delivered to the Trustee an officers' certificate and
opinion of counsel, each stating that such consolidation, merger or transfer
complies with this Indenture, that the surviving Person agrees to be bound
thereby, and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the
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properties and assets of the Company. Notwithstanding the foregoing clauses (ii)
and (iii) above, (x) any Restricted Subsidiary of the Company may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company and (y) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of its Guarantee and
the Indenture in connection with any transaction complying with the provisions
of the covenant described under "Limitation on Asset Sales" or as otherwise
provided in the Indenture) will not, and the Company will not cause or permit
any Subsidiary Guarantor to, consolidate with or merge with or into any Person
other than the Company or any other Subsidiary Guarantor unless: (i) the entity
formed by or surviving any such consolidation or merger (if other than the
Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any state thereof or the District of Columbia;
(ii) such entity assumes by a Guarantee substantially in the form of the
Subsidiary Guarantee all of the obligations of the Subsidiary Guarantor on the
Guarantee; (iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom, on a pro forma basis, including adjustments that are (A) directly
attributable to such transaction and (B) factually supportable, the Company
could satisfy the provisions of clause (a)(ii) of the first paragraph of this
section.
Limitation on Incurrence of Subordinated Debt Senior to the Notes. Neither
the Company nor any Subsidiary Guarantor will incur or suffer to exist
Indebtedness that is senior in right of payment to the Notes or such Subsidiary
Guarantor's Guarantee and subordinate in right of payment to any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Restricted Subsidiaries to issue any Preferred Stock (other than to
the Company or to a Wholly-Owned Restricted Subsidiary thereof) or permit any
Person (other than the Company or a Wholly-Owned Restricted Subsidiary thereof)
to own any Preferred Stock of any Restricted Subsidiary of the Company.
Limitation on Future Guarantees. The Company will not permit any of its
Restricted Subsidiaries which is not a Subsidiary Guarantor, directly or
indirectly, to incur, guarantee or secure through the granting of Liens the
payment of Senior Indebtedness or any refunding or refinancing thereof, in each
case unless such Restricted Subsidiary, the Company and the Trustee also execute
and deliver a Guarantee substantially in the form of the Subsidiary Guarantee
evidencing such Restricted Subsidiary's guarantee of the Notes, such Guarantee
to be a senior subordinated secured obligation of such Restricted Subsidiary.
Neither the Company nor any such Subsidiary Guarantor shall be required to make
a notation on the Notes or the Guarantees to reflect any such subsequent
Guarantee.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar, related or ancillary
to the businesses in which the Company and the Restricted Subsidiaries thereof
were engaged on February 27, 1998.
Additional Information. The Company will deliver to the Trustee within
fifteen (15) days after the filing of the same with the Commission, copies of
the quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company will file with the Commission, to the extent
permitted, and provide the Trustee and the Holders with such annual reports and
such information, documents and other reports specified in Sections 13 and 15(d)
of the Exchange Act. The Company will also comply with the other provisions of
Section 314(a) of the Trust Indenture Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
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(a) the Company defaults in any payment of interest on any Note when the
same becomes due and payable, whether or not such payment shall be
prohibited by the Subordination Agreement, and such default continues for a
period of thirty (30) days;
(b) the Company defaults in the payment of the principal of any Note when
the same becomes due and payable at its Stated Maturity, upon optional
redemption, upon required repurchase pursuant to a Change of Control Offer
or a Net Proceeds Offer, upon declaration or otherwise, whether or not such
payment shall be prohibited by the Subordination Agreement;
(c) the Company defaults in the observance or performance of any other
covenant or agreement contained in the Indenture which default continues for
a period of sixty (60) days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the Trustee or the Holders of at least 25% of the outstanding principal
amount of the Notes;
(d) the Company fails to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary thereof (other
than a Receivables Entity), or the acceleration of the final stated maturity
of any such Indebtedness if, in either case, the aggregate principal amount
of such Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated, aggregates $10 million or more at any time;
(e) one or more judgments in an aggregate amount in excess of $10 million
shall have been rendered against the Company or any Significant Subsidiary
thereof and such judgments remain undischarged, unpaid or unstayed for a
period of sixty (60) days after such judgment or judgments become final and
non-appealable, and in the event such judgment is covered by insurance, an
enforcement proceeding has been commenced by any creditor upon such judgment
which is not promptly stayed;
(f) the Company or a Significant Subsidiary thereof pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of judgment, decree or order for relief
against it in an involuntary case or proceeding;
(iii) consents to the appointment of a custodian of it or for any
substantial part of its property;
(iv) makes a general assignment for the benefit of its creditors;
(v) consents to or acquiesces in the institution of a bankruptcy or an
insolvency proceeding against it; or
(vi) takes any corporate action to authorize or effect any of the
foregoing; or takes any comparable action under any foreign laws
relating to insolvency;
(g) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any Significant Subsidiary
thereof in an involuntary case;
(ii) appoints a custodian of the Company or any Significant Subsidiary
thereof or for any substantial part of its property; or
(iii) orders the winding up or liquidation of the Company or any
Significant Subsidiary thereof;
or any similar relief is granted under any foreign laws and the order,
decree or relief remains unstayed and in effect for sixty (60) days; or
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(h) any of the Guarantees of the Subsidiary Guarantors that are also
Significant Subsidiaries of the Company ceases to be in full force and
effect or any of such Guarantees is declared to be null and void and
unenforceable or any of such Guarantees is found to be invalid or any of
such Subsidiary Guarantors denies its liability under its Guarantee (other
than by reason of release of such Subsidiary Guarantor in accordance with
the terms of the Indenture).
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary occurs and is continuing, the principal of and interest on all the
Notes will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the Notes.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding Notes may rescind and cancel any such acceleration with respect
to the Notes and its consequences. Subject to the provisions of the Indenture
relating to the duties of the Trustee, in case an Event of Default occurs and is
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of the Notes unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium (if any) or interest when
due, no holder of a Note may pursue any remedy with respect to the Indenture,
any Security Agreements or the Notes unless (i) such holder has previously given
the Trustee notice that an Event of Default is continuing, (ii) holders of at
least 25% in principal amount of the outstanding Notes have requested the
Trustee to pursue the remedy, (iii) such holders have offered the Trustee
reasonable security or indemnity against any loss, liability or expenses, (iv)
the Trustee has not complied with such request within 45 days after the receipt
thereof and the offer of security or indemnity and (v) the holders of a majority
in principal amount of the outstanding Notes have not given the Trustee a
direction inconsistent with such request within such 45-day period. Subject to
certain restrictions, the holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a Note or that would involve the Trustee in personal liability.
The Indenture provides that if a default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 60 days after it occurs. Except in the case of a default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if it determines that withholding notice is in the interests of the
holders of the Notes. In addition, the Company and each Subsidiary Guarantor is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding, and any past Default or Event of Default or compliance with any
provisions may also be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding. However, without the consent of
each holder of an outstanding Note affected thereby, no amendment may (a) reduce
the amount of Notes whose holders must consent to an amendment; (b) reduce the
rate of or change or have the effect of changing the time for payment of
interest, including defaulted interest, on any Note; (c) reduce the principal of
or change or have the effect of changing the Stated Maturity of any Note, or
change the date on which any Notes may be subject to redemption or repurchase,
or reduce the redemption or repurchase price therefor; (d) make any Note payable
in money other than that stated in the Note; (e) make any change in
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provisions of the Indenture protecting the right of each holder to receive
payment of principal of, premium, if any, and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting
holders of a majority in outstanding principal amount of the Notes to waive
Defaults or Events of Default (other than Defaults or Events of Default with
respect to the payment of principal of, premium, if any, or interest on the
Notes); (f) modify the Subordination Agreement to affect the ranking of the
Notes or the priority of the claims of the holders in and to the Collateral in a
manner adversely affecting the holders in any material respect; or (g) release
any Subsidiary Guarantor that is a Significant Subsidiary of the Company from
any of its obligations under its Guarantee or the Indenture otherwise than in
accordance with the terms of the Indenture.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
Without the consent of any holder of the Notes, the Company and the Trustee
may amend the Indenture and the Security Agreements (a) to cure any ambiguity,
omission, defect or inconsistency; provided that such amendment does not in the
opinion of the Trustee, adversely affect the rights of any Holder in any
material respect; (b) to comply with the covenant described under "Merger and
Consolidation"; (c) to provide for uncertificated Notes in addition to or in
place of certificated Notes; (d) to make any change in the Subordination
Agreement that would limit or terminate the benefits of any holder of Senior
Indebtedness or Guarantor Senior Indebtedness (or representatives therefor)
under the Subordination Agreement; (e) to add Guarantees with respect to the
Notes or to provide additional security for the Notes; (f) to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power herein conferred upon the Company; (g) to comply with any
requirements of the Securities and Exchange Commission in connection with
qualifying the Indenture under the Trust Indenture Act; (h) to make any change
that does not adversely affect the rights of any Holder; or (i) to correct or
amplify the description of any assets subject to any Security Document or to
subject additional assets to any Security Document.
After an amendment under the Indenture or the Security Agreements becomes
effective, the Company is required to mail to holders of the Notes a notice
briefly describing such amendment. However, the failure to give such notice to
all holders of the Notes, or any defect therein, will not impair or affect the
validity of the amendment.
No amendment may make any change that adversely affects the rights under
the Subordination Agreement of any holder of Senior Indebtedness or Guarantor
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness or Guarantor Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent in a signed writing to such
change.
DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and have each
Subsidiary Guarantor's obligation, if any, discharged with respect to its
Subsidiary Guarantee ("Legal Defeasance") except for (i) the Company's
obligations with respect to such Notes concerning issuing temporary Notes,
registration of transfer or exchange of such Notes, replacement of mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payments, (ii) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith and (iii) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and have
each Subsidiary Guarantor's obligation, if any, released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any failure to comply with such obligations shall not constitute a
Default or Event of Default. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Defaults" will no longer constitute Events
of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be suffi-
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cient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel reasonably acceptable to such Trustee confirming that (A) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of the Indenture, there has been a change in the
applicable income tax law, in either case to the effect that, and based thereon
such opinions of counsel shall confirm that, the holders of the outstanding
Notes will not recognize income, gain or loss for income tax purposes as a
result of such Legal Defeasance and will be subject to income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel reasonably acceptable to such Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for income tax
purposes as a result of such Covenant Defeasance and will be subject to income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit or, insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
reasonably acceptable to the Trustee to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company must deliver to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Notes over the other creditors of
the Company, or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an officers' certificate and an opinion of counsel reasonably acceptable
to the Trustee, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture, and
the Registrar and Paying Agent with regard to the Notes.
The holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care and skill of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any holder of
Notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
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"Acquired Indebtedness" means Indebtedness (a) of a Person or any
Subsidiary thereof existing at the time such Person becomes a Restricted
Subsidiary of the Company or (b) assumed in connection with the acquisition of
assets from such Person, in each case whether or not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition. Acquired Indebtedness
shall be deemed to have been incurred, with respect to clause (a) of the
preceding sentence, on the date such Person becomes a Restricted Subsidiary of
the Company and, with respect to clause (b) of the preceding sentence, on the
date of consummation of such acquisition of assets.
"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, no Person (other than the Company or
any Subsidiary thereof) in whom a Receivables Entity makes an Investment in
connection with a Qualified Receivables Transaction shall be deemed to be an
Affiliate of the Company or any of its Subsidiaries solely by reason of such
Investment.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary thereof in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or of any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary thereof, or (b) the acquisition by the Company or any
Restricted Subsidiary thereof of the assets of any Person which constitute all
or substantially all of the assets of such Person, any division or line of
business of such Person or any other properties or assets of such Person other
than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly-Owned Restricted Subsidiary
thereof of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary
thereof other than in the ordinary course of business; provided, however, that
Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or any Restricted Subsidiary thereof receives
aggregate consideration of less than $1 million, (ii) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under the covenant described under "Certain
Covenants -- Merger and Consolidation", (iii) the sale or discount, in each case
without recourse, of accounts receivable arising in the ordinary course of
business but only in connection with the compromise or collection thereof, (iv)
the factoring of accounts receivable arising in the ordinary course of business
pursuant to arrangements customary in the industry, (v) the licensing of
intellectual property, (vi) disposals or replacements of obsolete equipment in
the ordinary course of business, (vii) the sale, lease, conveyance, disposition
or other transfer by the Company or any Restricted Subsidiary thereof of assets
or property to the Company or to one or more Wholly-Owned Restricted
Subsidiaries thereof in connection with Investments permitted under the covenant
described under "Certain Covenants -- Limitation on Restricted Payments", (viii)
sales of accounts receivable and related assets of the type specified in the
definition of "Qualified Receivables Transaction" to a Receivables Entity for
the fair market value thereof, including cash in an amount at least equal to 75%
of the book value thereof as determined in accordance with GAAP, and (ix)
transfers of accounts receivable and related assets of the type specified in the
definition of "Qualified Receivables Transaction" (or a fractional undivided
interest therein) by a Receivables Entity in a Qualified Receivables
Transaction. For the purposes of clause (viii), Purchase Money Notes shall be
deemed to be cash.
"Bankruptcy Law" means Title 11 of the United States Code, or any similar
Federal or state law for the relief of debtors.
"Capital Stock" means (a) with respect to any Person that is a corporation,
any and all shares, interests, rights to purchase, warrants, options,
participations or other equivalents (however designated) of capital stock,
including each class of common stock and preferred stock of such Person, but
excluding
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any debt securities convertible into such equity, and (b) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person, in each case whether now outstanding or hereafter
issued.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (c) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances (or, with respect to foreign
banks, similar instruments) maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank, in each case having at the date of acquisition thereof
combined capital and surplus of not less than $200 million; (e) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (a) above entered into with any bank meeting the
qualifications specified in clause (d) above; and (f) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (a) through (e) above.
"Collateral" means the collective reference to any and all property from
time to time subject to security interests to secure payment or performance of
the Indebtedness evidenced by the Notes or of the Guarantees pursuant to the
Security Documents.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (a) Consolidated Net Income and (b) to the
extent Consolidated Net Income has been reduced thereby, (i) all income taxes of
such Person and the Restricted Subsidiaries thereof paid or accrued in
accordance with GAAP for such period, (ii) Consolidated Interest Expense and
(iii) Consolidated Non-cash Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which financial statements are available (the "Four Quarter
Period") ending on or prior to the date of the transactions giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the
"Transactions Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to:
(a) the incurrence of any Indebtedness of such Person or any Restricted
Subsidiaries thereof (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof) occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transactions Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period;
(b) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of such Person or a Restricted Subsidiary thereof (including any
Person who becomes a Restricted Subsidiary as a result of any Asset
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including
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any Consolidated EBITDA (including any pro forma expense and cost reductions
that are (i) directly attributable to such transaction and (ii) factually
supportable) attributable to the assets which are the subject of any Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transactions Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability
for any such Indebtedness or Acquired Indebtedness) occurred on the first day
of the Four Quarter Period;
(c) with respect to any such Four Quarter Period commencing prior to the
Transactions, the Transactions (including any pro forma expense and cost
reductions related thereto that are (A) directly attributable to such
transaction and (B) factually supportable) shall be deemed to have taken
place on the first day of such Four Quarter Period; and
(d) any Asset Sales or Asset Acquisitions (including any Consolidated
EBITDA (including any pro forma expense and cost reductions that are (A)
directly attributable to such transaction and (B) factually supportable)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) that have been made by any Person
that has become a Restricted Subsidiary of the Company or has been merged
with or into the Company or any Restricted Subsidiary thereof during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transactions Date that would have
constituted Asset Sales or Asset Acquisitions had such transactions occurred
when such Person was a Restricted Subsidiary of the Company or subsequent to
such Person's merger into the Company, as if such asset sale or asset
acquisition (including the incurrence, assumption or liability for any
Indebtedness or Acquired Indebtedness in connection therewith) occurred on
the first day of the Four Quarter Period;
provided that to the extent that clause (b) or (d) of this sentence requires
that pro forma effect be given to an Asset Sale or Asset Acquisition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transactions Date of the Person, or division or line of business
of the Person, that is acquired or disposed for which financial information is
available. If such Person or any Restricted Subsidiary thereof directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary thereof had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (x) interest on
outstanding Indebtedness determined on a fluctuating basis as of the
Transactions Date and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transactions Date; (y) if
interest on any Indebtedness actually incurred on the Transactions Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transactions Date will be deemed to have been in
effect during the Four Quarter Period; and (z) notwithstanding clause (x) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Swap Obligations, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(excluding amortization or write-off of debt issuance costs) plus (b) the
product of (i) the amount of all dividend payments on any series of Preferred
Stock of such Person (other than dividends paid in Qualified Capital Stock)
times (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated Federal, state and
local tax rate of such Person expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (a) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and the Restricted Subsidiaries thereof, including the net costs
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associated with Interest Swap Obligations, for such period determined on a
consolidated basis in conformity with GAAP, and (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and the Restricted Subsidiaries thereof during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and the Restricted Subsidiaries
thereof for such period on a consolidated basis, determined in accordance with
GAAP; provided that there shall be excluded therefrom:
(a) gains and losses from Asset Sales or abandonments or reserves
relating thereto and the related tax effects according to GAAP;
(b) gains and losses due solely to fluctuations in currency values and
the related tax effects according to GAAP;
(c) items classified as extraordinary, unusual or nonrecurring gains and
losses, and the related tax effects according to GAAP;
(d) the net income (or loss) of any Person acquired in a pooling of
interests transaction accrued prior to the date it becomes a Restricted
Subsidiary of the Company or is merged or consolidated with the Company or
any Restricted Subsidiary thereof;
(e) the net income of any Restricted Subsidiary of the Company to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by contract, operation of
law or otherwise;
(f) the net loss of any Person other than a Restricted Subsidiary of the
Company;
(g) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the Company
or a Restricted Subsidiary thereof by such Person unless, in the case of a
Restricted Subsidiary of the Company who receives such dividends or
distributions, such Restricted Subsidiary is subject to clause (e) above;
(h) non-cash compensation charges, including any arising from existing
stock options resulting from any merger or recapitalization transaction; and
(i) net income (or loss) from discontinued operations.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and the Restricted Subsidiaries thereof reducing Consolidated Net
Income of such Person and the Restricted Subsidiaries thereof for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges (other than charges with respect to the Company's Deferred Compensation
Plan) which require an accrual of or a reserve for cash charges for any future
period).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary thereof against fluctuations in currency
values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(a) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (b) is convertible or exchangeable for Indebtedness or
Disqualified Capital Stock or (c) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the Stated Maturity of
the Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Capital Stock but for provisions thereof giving holders thereof the
right to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an asset sale or change of control occurring on or prior to the
Stated Maturity of the Notes shall not constitute Disqual-
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ified Capital Stock if the asset sale or change of control provisions applicable
to such Capital Stock are not more favorable to the holders of such Capital
Stock than the provisions specified in the covenants described under "-- Change
of Control" and "-- Certain Covenants -- Limitation on Asset Sales".
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, unless otherwise specified, with respect to any
asset or property, the price which could be negotiated in an arm's-length, free
market transaction, for cash, between a willing seller and a willing and able
buyer, neither of whom is under undue pressure or compulsion to complete the
transactions. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
resolution of the Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on February 27, 1998, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor under the Senior Credit
Facility or otherwise in respect of Senior Indebtedness, including interest
thereon (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such Subsidiary Guarantor whether
or not a claim for post-filing interest is allowed in such proceeding), whether
outstanding on February 27, 1998 or thereafter incurred.
"Incur" means directly or indirectly create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise with respect to or otherwise
become responsible for payment.
"Indebtedness" means with respect to any Person, without duplication: (a)
all obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments; (c)
all Capitalized Lease Obligations of such Person; (d) all obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (e) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction; (f)
guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (a) through (e) above and clause (h) below; (g) all obligations of
any third party of the type referred to in clauses (a) through (f) which are
secured by any Lien on any property or asset of such Person but which
obligations are not assumed by such Person, the amount of such obligation being
deemed to be the lesser of the fair market value of such property or asset or
the amount of the obligation so secured; (h) all obligations under Currency
Agreements and Interest Swap Obligations of such Person; and (i) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, (x) the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
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determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock and (y) any transfer
of accounts receivable or other assets which constitute a sale for purposes of
GAAP shall not constitute Indebtedness.
"Interest Swap Obligations" means the obligations of any Person, pursuant
to any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount,
including, without limitation, interest rate swaps, caps, floors, collars and
similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and the Restricted Subsidiaries thereof on commercially reasonable terms
in accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments", (a) "Investment" shall
include and be valued at the fair market value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (b) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any Restricted Subsidiary thereof,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions (including tax sharing payments) in
connection with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary thereof sells or otherwise disposes of any common stock of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, the Company no longer owns, directly or
indirectly, a majority of the outstanding common stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the common
stock of such Restricted Subsidiary not sold or disposed of.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Master Restructuring Agreement" means the Master Restructuring Agreement,
dated as of February 27, 1998, among the Company, the Subsidiary Guarantors, the
Lenders (as defined therein), The Chase Manhattan Bank, as agent for the
Lenders, and the Existing Management Holders (as defined therein), as the same
may be amended, supplemented or otherwise modified from time to time.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any Subsidiary thereof from such Asset Sale net of: (a)
out-of-pocket expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions); (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements; (c) repayment of Senior Indebtedness that is required
to be repaid in connection with such Asset Sale, whether or not all or any
portion of the amount repaid is re-lent to the Company or any
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Subsidiary thereof; (d) any portion of cash proceeds which the Company
determines in good faith should be reserved for post-closing adjustments, it
being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post-closing adjustments
payable by the Company or any Subsidiary thereof shall constitute Net Cash
Proceeds on such date; and (e) appropriate amounts which the Company determines
in good faith to be provided by the Company or any Subsidiary thereof, as the
case may be, as a reserve against any liabilities associated with such Asset
Sale and retained by the Company or any Subsidiary thereof, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in the Officers' Certificate delivered to the
Trustee.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness, without duplication.
"Permitted Investments" means: (a) Investments by the Company or any
Restricted Subsidiary thereof in any Wholly-Owned Restricted Subsidiary of the
Company (whether existing on February 27, 1998 or created thereafter) and
Investments in the Company by any Restricted Subsidiary thereof, provided that,
in the case of an Investment by the Company or any Restricted Subsidiary thereof
in any Wholly-Owned Restricted Subsidiary of the Company, such Wholly-Owned
Restricted Subsidiary is not restricted from making dividends or similar
distributions by contract, operation of law or otherwise; (b) cash and Cash
Equivalents; (c) Investments existing on February 27, 1998; (d) loans and
advances to employees and officers of the Company (other than as permitted under
clause (m)) and the Restricted Subsidiaries thereof not in excess of $1 million
at any one time outstanding; (e) accounts receivable created or acquired in the
ordinary course of business; (f) Currency Agreements and Interest Swap
Obligations; (g) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (h) guarantees by
the Company or any Restricted Subsidiaries thereof of Indebtedness otherwise
permitted to be incurred by the Company or any of its Restricted Subsidiaries
under the Indenture; (i) Investments by the Company or any Restricted Subsidiary
thereof in a Person, if as a result of such Investment (i) such Person becomes a
Wholly-Owned Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or a
Wholly-Owned Restricted Subsidiary thereof; (j) additional Investments having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (j) that are at the time outstanding, not exceeding $5
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value), plus an amount equal to (i) 100% of the aggregate
net cash proceeds received by the Company from any Person (other than a
Subsidiary of the Company) from the issuance and sale subsequent to February 27,
1998 of Qualified Capital Stock of the Company (including Qualified Capital
Stock issued upon the conversion of convertible Indebtedness or in exchange for
outstanding Indebtedness or as capital contributions to the Company (other than
from a Subsidiary)) and (ii) without duplication of any amounts included in
clause (j)(i) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock, that in the case of amounts described in clause (j)(i) or (j)(ii) are
applied by the Company within 180 days after receipt, to make additional
Permitted Investments under this clause (j) (such additional Permitted
Investments being referred to collectively as "Stock Permitted Investments");
(k) Investments received by the Company or its Restricted Subsidiaries as
consideration for asset sales, including Asset Sales; provided in the case of an
Asset Sale, such Asset Sale is effected in compliance with the covenant
described under "Certain Covenants -- Limitation on Asset Sales"; (1) any
Investment by the Company or a Wholly-Owned Subsidiary of the Company in a
Receivables Entity or any Investment by a Receivables Entity in any other Person
in connection with a Qualified Receivables Transaction; provided that any
Investment in a Receivables Entity is in the form of a Purchase Money Note or an
equity interest; and (m) loans and advances to employees and officers of the
Company in the form of Option Notes pursuant to, and as defined in, the
Company's 1998 Stock Option Plan.
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Any net cash proceeds that are used by the Company or any of its Restricted
Subsidiaries to make Stock Permitted Investments pursuant to clause (j) of this
definition shall not be included in subclauses (2) and (3) of clause (C) of the
covenant described under "Certain Covenants -- Limitation on Restricted
Payments".
"Person" means an individual, partnership, corporation, association,
joint-stock company, unincorporated organization, trust or joint venture,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Productive Assets" means assets (including Capital Stock) of a kind used
or usable in the businesses of the Company and the Restricted Subsidiaries
thereof as, or related to such business, conducted on the date of the relevant
Asset Sale.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary thereof in connection with a Qualified Receivables Transaction to a
Receivables Entity, which note shall be repaid from cash available to the
Receivables Entity, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"Qualified Capital Stock" means any stock that is not Disqualified Capital
Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any of its Subsidiaries may sell, convey or
otherwise transfer to (a) a Receivables Entity (in the case of a transfer by the
Company or any of its Subsidiaries) and (b) any other Person (in the case of a
transfer by a Receivables Entity), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Entity" means a Wholly-Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary thereof makes an
Investment and to which the Company or any Subsidiary thereof transfers accounts
receivable and related assets) which engages in no activities other than in
connection with the financing of accounts receivable and which is designated by
the Board of Directors of the Company (as provided below) as a Receivables
Entity (a) no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which (i) is guaranteed by the Company or any Subsidiary
thereof (excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization Undertakings),
(ii) is recourse to or obligates the Company or any Subsidiary thereof in any
way other than pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of the Company or any other Subsidiary thereof,
directly or indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to Standard Securitization Undertakings, (b) with which
neither the Company nor any other Subsidiary thereof has any material contract,
agreement, arrangement or understanding other than on terms no less favorable to
the Company or such Subsidiary than those that might be obtained at the time
from Persons that are not Affiliates of the Company, other than fees payable in
the ordinary course of business in connection with servicing accounts
receivable, and (c) to which neither the Company nor any other Subsidiary
thereof has any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the resolution of
the Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
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"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Credit Facility" means the revolving credit and letter of credit
facility governed by the Loan and Security Agreement, dated as of May 15, 1997,
as amended, among the Company, Pacific Trail, Inc., The Scranton Outlet
Corporation (a wholly-owned subsidiary of the Company) and Congress Financial
Corporation, together with all existing and future agreements, documents and
instruments related thereto (including, without limitation, any guarantees,
promissory notes, letters of credit and collateral documents), as each such
agreement or document may be amended, supplemented or otherwise modified from
time to time, or refunded, refinanced, restructured, replaced, renewed, repaid
or extended from time to time (whether with the original lender or other lenders
or otherwise, and whether provided under the original Senior Credit Facility or
other credit agreements or otherwise).
"Senior Indebtedness" means any and all obligations, liabilities and other
amounts, whether outstanding on the Issue Date or thereafter incurred, at any
time owed or payable by the Company or any Subsidiary thereof under or in
respect of the Senior Credit Facility, including principal, premium (if any),
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company or any Restricted
Subsidiary thereof whether or not a claim for post-filing interest is allowed in
such proceedings), fees, charges, expenses, reimbursement obligations,
indemnities, guarantees and all other amounts payable thereunder or in respect
thereof.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes and is not by its express terms subordinate in
right of payment to any Indebtedness of the Company other than Senior
Indebtedness.
"Significant Subsidiary" means, as of any date of determination, for any
Person, each Restricted Subsidiary of such Person which (a) for the most recent
fiscal year of such Person accounted for more than 10% of consolidated revenues
or consolidated net income of such Person or (b) as at the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of such Person.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary thereof
which are reasonably customary in an accounts receivable transaction.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) which is expressly
subordinate in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
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"Subsidiary Guarantee" means the Amended and Restated Subsidiary Guarantee,
dated as of even date herewith, made by each of the Subsidiary Guarantors in
favor of the Trustee, for the benefit of the Holders, substantially in the form
of Exhibit F, as the same may be amended, supplemented or otherwise modified
from time to time.
"Subsidiary Guarantor" means (a) each of the Company's Subsidiaries
existing on the Issue Date that is a borrower or has guaranteed the Indebtedness
under the Senior Credit Facility and (b) each of the Company's Subsidiaries that
in the future executes a Guarantee, substantially in the form of the Subsidiary
Guarantee.
"Unrestricted Subsidiary" of any Person means (a) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (b) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary thereof that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Trustee that such designation complies with Section 4.4 and (y) each Subsidiary
to be so designated and each of its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
pursuant to which the lender of any such Indebtedness has recourse to any of the
assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (a) immediately after giving effect to such designation and
treating all Indebtedness of such Unrestricted Subsidiary as being incurred on
such date, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.3
and (b) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations of, and obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than directors' qualifying shares or an immaterial amount of shares required to
be owned by other Persons pursuant to applicable law) are owned by such Person
or any Wholly-Owned Restricted Subsidiary of such Person.
DESCRIPTION OF WARRANTS
As of May 30, 1998, 530,726 1998 Recapitalization Warrants and 80,032 1998
Management Warrants were outstanding. Each Warrant entitles the holder to
purchase at any time until February 28, 2005 one share of Common Stock at an
exercise price of $15.72 per share. The Management Warrants are not exercisable
until the first date on which any of the 1998 Recapitalization Warrants are
exercised. The number of shares issued upon exercise of the Warrants is subject
to adjustment as the result of a stock split, combination of shares or stock
dividends payable with respect to the Common Stock. If the Company engages in a
merger, consolidation, reorganization, recapitalization or similar transaction,
thereafter a holder of a Warrant will be entitled to receive upon exercise of a
Warrant the kind and amount of
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shares of stock or other securities or assets which the holder would have been
entitled to receive after the occurrence of such event had such Warrant been
exercised immediately prior to such event (with appropriate adjustment, if any,
to the exercise price). The Warrants do not confer upon the holder thereof the
right to vote or to consent to or receive notice as a stockholder in respect of
meetings for the election of directors of the Company or any other matters or
any rights whatsoever as a stockholder of the Company.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
Pursuant to the Senior Credit Facility, Congress Financial Corporation
("Congress") has made available to the Company and certain of its subsidiaries a
revolving line of credit and letter of credit facility on the following terms:
Amount Available. The maximum amount available under the Senior Credit
Facility is the lesser of $200,000,000 or an amount determined by a formula
based on the eligible accounts receivable and the eligible inventory of the
Company plus certain amounts during certain periods of the year. Within this
$200 million limit, up to $90 million may be used for outstanding letters of
credit.
Repayment. The Senior Credit Facility is due and payable on April 30,
2001.
Security; Guaranty. The Senior Credit Facility is secured by a first
priority lien on substantially all of the tangible and intangible properties and
assets of the Company and its subsidiaries (including trademarks), owned now or
acquired later (other than the Eldersburg, Maryland facility). The Senior Credit
Facility is guaranteed by substantially all of the Company's subsidiaries that
are not borrowers.
Interest. At the Company's option, the interest rate per annum applicable
to the revolving credit borrowings under the Senior Credit Facility is a
fluctuating rate of interest measured by reference either to: (i) LIBOR plus
2.75% (or 2.5% if annual Consolidated EBITA (as defined in the Senior Credit
Facility) is more than $12,000,000) or (ii) Core States Bank, N.A.'s (or its
successor's) published prime rate plus .75%. Currently, the Company's LIBOR
based borrowing rate is LIBOR plus 2.5%.
Fees. The Company has agreed to pay certain fees with respect to the Senior
Credit Facility including (i) a closing fee of $1,125,000, (ii) servicing fees
of $10,000 per month, (iii) commitment fees of .5% per annum on the amount by
which $145,000,000 exceeds the average daily amount of the facility outstanding
during the months of May through November, (iv) a fee of $100,000 if certain
supplemental loans (as defined in the Senior Credit Facility) are made in any
year, (v) fees of $500,000 in connection with the amendment to the Senior Credit
Facility in February 1998 and (vi) fees at an annual rate of 1.5% of the average
amount of letters of credit outstanding under the Facility. In addition, the
Senior Credit Facility stipulates certain prepayment fees.
Covenants. The Senior Credit Facility contains covenants, among others,
restricting the ability of the Company and its subsidiaries to: (i) declare
dividends or redeem or repurchase capital stock; (ii) prepay, redeem or purchase
debt; (iii) incur liens; (iv) make loans, investments and guarantees; (v) incur
additional debt; (vi) make capital expenditures; (vii) engage in mergers,
acquisitions and asset sales; and (viii) transact with affiliates. The Senior
Credit Facility also contains certain customary affirmative covenants, including
a requirement that the Company maintain a minimum level of Consolidated EBITA
(as defined in the Senior Credit Facility) equal to $8,000,000 for the fiscal
year ending February 1999 and $10,000,000 for each of the fiscal years ending
February 2000 and February 2001. The Company is also required to maintain Excess
Availability (as defined in the Senior Credit Facility) of greater than
$15,000,000 for at least 30 consecutive days between December 1 of each year and
March 31 of the following year.
Events of Default. Events of default under the Senior Credit Facility
include: (i) the Company's failure to pay principal or interest when due; (ii)
the Company's breach of any covenant, representation or warranty contained in
the loan documents; (iii) customary cross-default provisions; (iv) events of
bankruptcy, insolvency or dissolution of the Company; (v) the levy of certain
judgments against the
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Company or its assets, (vi) a change of control of the Company; (vii) each of
the persons holding the offices of chief executive officer, chief operating
officer and chief financial officer shall cease to act in such capacity, unless
replaced by a successor of comparable experience and capability or (viii) a
material adverse change in the business or assets of the Company and its
subsidiaries taken as a whole.
MORTGAGE NOTE
The mortgage note payable had an outstanding principal amount of
approximately $11.2 million as of May 30, 1998, bears interest at an annual rate
of 10.25% and requires monthly principal and interest payments of $137,430
through June 1999, with a final payment of $10,626,505 in July 1999. The
mortgage is secured by the land, building and improvements of the Company's
Eldersburg, Maryland corporate offices and distribution center.
VALIDITY OF THE COMMON STOCK AND THE NOTES
The validity of the Common Stock and the Notes is being passed upon for the
Company by Proskauer Rose LLP, New York, New York.
EXPERTS
The audited financial statements and schedules included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 (together with all amendments and
exhibits, the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to the Company and the Common Stock
and the Notes offered hereby, reference is made to the Registration Statement
and to its exhibits and schedules. The Registration Statement, including
exhibits, may be inspected and copied without charge at the SEC's principal
office located at 450 Fifth Street, NW, Judiciary Plaza, Washington D.C. 20549
and at the regional offices of the SEC located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, upon the payment of
prescribed fees. The Commission also maintains a web site at http:// www.sec.gov
that contains reports, proxy and information statements, as well as other
information regarding registrants that file electronically with the SEC.
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LONDON FOG INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants ................................................ F-2
Consolidated Balance Sheets as of February 22, 1997 and February 28, 1998 ............... F-3
Consolidated Statements of Operations for the Fiscal Years Ended February 24, 1996,
February 22, 1997 and February 28, 1998 ................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Fiscal Years Ended
February 24, 1996, February 22, 1997 and February 28, 1998 ............................ F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended February 24, 1996,
February 22, 1997 and February 28, 1998 ............................................... F-6
Notes to Consolidated Financial Statements .............................................. F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of February 28, 1998 and May 30, 1998
(unaudited)............................................................................. F-26
Condensed Consolidated Statements of Operations (unaudited) for the fourteen weeks ended
May 31, 1997 and the thirteen weeks ended May 30, 1998 ................................ F-27
Condensed Consolidated Statements of Cash Flows (unaudited) for the fourteen weeks ended
May 31, 1997 and the thirteen weeks ended May 30, 1998 ................................ F-28
Notes to Unaudited Condensed Consolidated Financial Statements .......................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of London Fog Industries, Inc.:
We have audited the accompanying consolidated balance sheets of London Fog
Industries, Inc. and subsidiaries (the Company) as of February 22, 1997 and
February 28, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows of the Company for the years ended
February 24, 1996, February 22, 1997 and February 28, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of London Fog Industries, Inc.
and subsidiaries as of February 22, 1997 and February 28, 1998, and the results
of their operations and their cash flows for the years ended February 24, 1996,
February 22, 1997 and February 28, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
April 3, 1998
F-2
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 22, 1997 AND FEBRUARY 28, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 26,841 $ 566
Accounts receivable, net (Note 4) ....................................... 23,642 31,509
Inventories (Note 5) .................................................... 48,138 69,729
Prepaid expenses and other current assets ............................... 2,250 4,310
---------- ----------
Total current assets .................................................. 100,871 106,114
PROPERTY, PLANT AND EQUIPMENT, net (Note 6) .............................. 32,558 36,347
GOODWILL AND OTHER ASSETS (Note 7) ....................................... 72,916 72,630
---------- ----------
Total assets .......................................................... $ 206,345 $ 215,091
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving credit borrowings (Note 8) .................................... $ -- $ 18,176
Current portion of long-term debt (Note 8) .............................. 463 10,512
Accounts payable ........................................................ 4,689 4,226
Accrued expenses (Note 9) ............................................... 20,471 22,784
Accrued restructuring charges (Note 16) ................................. 2,554 1,416
---------- ----------
Total current liabilities ............................................. 28,177 57,114
LONG-TERM DEBT, net of current portion (Note 8) .......................... 329,862 150,810
OTHER LONG-TERM LIABILITIES .............................................. 10,372 11,756
---------- ----------
Total liabilities ..................................................... 368,411 219,680
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 12)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 8 and 10):
17.5% Cumulative voting preferred stock, $.01 par value, 400,000 shares
authorized; 115,242 shares issued and outstanding in 1997 ............. 1,500 --
Nonvoting common stock, $.01 par value, 110,000 shares authorized; 99,967
shares issued and outstanding in 1997 ................................. 1 --
Common stock, $.01 par value, 12,000,000 shares authorized; 8,000,000
shares issued and outstanding in 1998 ................................. -- 80
Warrants outstanding .................................................... -- 536
Additional paid-in capital .............................................. 158,101 165,493
Unearned portion of stock options ....................................... -- (4,789)
Accumulated deficit ..................................................... (321,668) (165,909)
---------- ----------
Total stockholders' equity (deficit) .................................. (162,066) (4,589)
---------- ----------
Total liabilities and stockholders' equity (deficit) .................. $ 206,345 $ 215,091
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Net sales ................................................. $ 274,394 $ 279,107 $ 335,621
Cost of goods sold ........................................ 203,469 185,102 227,405
---------- ---------- ----------
Gross profit ............................................. 70,925 94,005 108,216
Licensing revenues ........................................ 1,947 3,064 4,055
---------- ---------- ----------
72,872 97,069 112,271
Selling, general and administrative expenses .............. 86,641 83,848 98,499
Restructuring and special charges (Note 16) ............... -- -- 7,535
Deferred compensation expense (Note 11) ................... -- -- 2,735
Amortization of goodwill and licensing agreements (Note 7) 4,024 2,487 2,126
---------- ---------- ----------
Operating income (loss) .................................. (17,793) 10,734 1,376
Interest expense, net (Note 8) ............................ 16,790 12,530 14,664
Gain from sale of investment (Note 14) .................... -- -- (2,260)
---------- ---------- ----------
Loss before provision (benefit) for income taxes and
extraordinary gain ..................................... (34,583) (1,796) (11,028)
Provision (benefit) for income taxes (Note 13) ............ 176 158 (5,932)
---------- ---------- ----------
Loss before extraordinary gain ........................... (34,759) (1,954) (5,096)
Extraordinary gain on extinguishment of debt, net of income
taxes of $6,080 (Notes 8 and 13) ......................... -- -- 160,855
---------- ---------- ----------
Net income (loss) ........................................ $ (34,759) $ (1,954) $ 155,759
========== ========== ==========
Basic and diluted earnings (loss) per share available
to common stockholders (Note 17):
Income (loss) before extraordinary gain .................. $ (6.60) $ (3.15) $ (4.12)
========== ========== ==========
Net income (loss) ........................................ $ (6.60) $ (3.15) $ 15.99
========== ========== ==========
Weighted average shares outstanding ....................... 8,000,000 8,000,000 8,000,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE VOTING NONVOTING
PREFERRED STOCK COMMON STOCK COMMON STOCK
------------------- ----------------------- ----------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT
------------------- ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, February 25, 1995 ............................. $ -- -- $-- 100 $ --
Issuance of common stock (Note 8) ..................... -- 100,000 1 -- --
Issuance of preferred stock (Note 8) .................. 1,500 -- -- -- --
Redemption of equity and other ........................ -- (11) -- (100) --
Net loss .............................................. -- -- -- -- --
Reduction of minimum pension liability in excess of
unrecognized prior service cost ...................... -- -- -- -- --
--------- ------- --- ---- ----
BALANCE, February 24, 1996 ............................. 1,500 99,989 1 -- --
Redemption of common and preferred stock .............. -- (22) -- -- --
Net loss .............................................. -- -- -- -- --
Reduction of minimum pension liability in excess of
unrecognized prior service cost ...................... -- -- -- -- --
--------- ------- --- ---- ----
BALANCE, February 22, 1997 ............................. 1,500 99,967 1 -- --
Exchange of preferred stock and non-voting common stock
for stock warrants (Note 8) .......................... (1,500) (99,967) (1) -- --
Issuance of common stock (Note 8) ..................... -- 8,000,000 80
Issuance of stock options (Note 10) ................... -- -- -- -- --
Amortization of unearned stock-based compensation (Note
11) .................................................. -- -- -- -- --
Net income ............................................ -- -- -- -- --
--------- ------- ----- --------- ----
BALANCE, February 28, 1998 ............................. $ -- -- $ -- 8,000,000 $ 80
========= ======= ===== ========= ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL UNEARNED
WARRANTS PAID-IN PORTION OF ACCUMULATED
OUTSTANDING CAPITAL STOCK OPTIONS DEFICIT
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE, February 25, 1995 ............................. $ -- $158,273 $ -- $ (285,700)
Issuance of common stock (Note 8) ..................... -- (1) -- --
Issuance of preferred stock (Note 8) .................. -- -- -- --
Redemption of equity and other ........................ -- (171) -- --
Net loss .............................................. -- -- -- (34,759)
Reduction of minimum pension liability in excess of
unrecognized prior service cost ...................... -- -- -- 44
---- --------- -------- ----------
BALANCE, February 24, 1996 ............................. -- 158,101 -- (320,415)
Redemption of common and preferred stock .............. -- -- -- --
Net loss .............................................. -- -- -- (1,954)
Reduction of minimum pension liability in excess of
unrecognized prior service cost ...................... -- -- -- 701
---- --------- -------- ----------
BALANCE, February 22, 1997 ............................. -- 158,101 -- (321,668)
Exchange of preferred stock and non-voting common stock
for stock warrants (Note 8) .......................... 536 965 -- --
Issuance of common stock (Note 8) ..................... -- (80) -- --
Issuance of stock options (Note 10) ................... -- 6,507 (6,507) --
Amortization of unearned stock-based compensation (Note
11) .................................................. -- -- 1,718 --
Net income ............................................ -- -- -- 155,759
---- --------- -------- ----------
BALANCE, February 28, 1998 ............................. $536 $165,493 $ (4,789) $ (165,909)
==== ========= ======== ==========
<CAPTION>
TOTAL
--------------
<S> <C>
BALANCE, February 25, 1995 ............................. $ (127,427)
Issuance of common stock (Note 8) ..................... --
Issuance of preferred stock (Note 8) .................. 1,500
Redemption of equity and other ........................ (171)
Net loss .............................................. (34,759)
Reduction of minimum pension liability in excess of
unrecognized prior service cost ...................... 44
----------
BALANCE, February 24, 1996 ............................. (160,813)
Redemption of common and preferred stock .............. --
Net loss .............................................. (1,954)
Reduction of minimum pension liability in excess of
unrecognized prior service cost ...................... 701
----------
BALANCE, February 22, 1997 ............................. (162,066)
Exchange of preferred stock and non-voting common stock
for stock warrants (Note 8) .......................... --
Issuance of common stock (Note 8) ..................... --
Issuance of stock options (Note 10) ................... --
Amortization of unearned stock-based compensation (Note
11) .................................................. 1,718
Net income ............................................ 155,759
----------
BALANCE, February 28, 1998 ............................. $ (4,589)
==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ................................................... $ (34,759) $ (1,954) $ 155,759
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary gain on extinguishment of debt ...................... -- -- (166,935)
Gain on sale of investment ........................................ -- -- (2,260)
Depreciation ...................................................... 3,836 5,426 7,027
Deferred compensation expense ..................................... -- -- 2,735
Amortization of goodwill and licensing agreements ................. 4,024 2,487 2,126
Amortization of deferred financing costs .......................... 4,720 2,653 1,715
Loss on sale of property, plant and equipment ..................... 65 -- 459
Other ............................................................. 1,068 1,210 1,089
Changes in operating assets and liabilities:
Accounts receivable, net ......................................... 13,541 5,287 (7,867)
Inventories ...................................................... 31,075 (11,113) (21,591)
Prepaid expenses and other current assets ........................ 2,451 (117) (2,060)
Other assets ..................................................... (19) 128 27
Acounts payable .................................................. (6,365) 980 (463)
Accrued expenses ................................................. 5,864 2,294 (829)
Accrued restructuring charges .................................... (17,488) (5,804) (1,138)
Other long-term liabilities ...................................... 198 -- 485
--------- --------- ----------
Net cash flows from operating activities ....................... 8,211 1,477 (31,721)
--------- --------- ----------
Cash Flows From Investing Activities:
Capital expenditures ................................................ (4,696) (7,703) (11,844)
Proceeds from sale of investment .................................... -- -- 2,260
Other ............................................................... 284 933 569
--------- --------- ----------
Net cash flows from investing activities ....................... (4,412) (6,770) (9,015)
--------- --------- ----------
Cash Flows From Financing Activities:
Increase in borrowings under revolving credit facility .............. -- -- 18,176
Payments on long-term debt .......................................... (377) (417) (464)
Borrowings under long-term debt arrangements ........................ 7,000 -- --
Payment of deferred financing costs ................................. (4,766) -- (3,677)
Other ............................................................... -- -- 426
--------- --------- ----------
Net cash flows from financing activities ....................... 1,857 (417) 14,461
--------- --------- ----------
NET INCREASE (DECREASE) IN CASH ...................................... 5,656 (5,710) (26,275)
CASH AND CASH EQUIVALENTS, beginning of period ....................... 26,895 32,551 26,841
--------- --------- ----------
CASH AND CASH EQUIVALENTS, end of period ............................. $ 32,551 $ 26,841 $ 566
========= ========= ==========
CASH PAID FOR:
Interest ............................................................ $ 8,495 $ 9,215 $ 12,535
========= ========= ==========
Income taxes ........................................................ $ 219 $ 184 $ 165
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
London Fog Industries, Inc. , a Delaware corporation, and its subsidiaries
(the "Company") design, market and distribute men's and women's rainwear and
men's, women's and children's outerwear and skiwear and related accessories
under the LONDON FOG(Reg. TM) brand name, the PACIFIC TRAIL(Reg. TM) brand name
and related brand names. The Company sells its products to a variety of apparel
retailers located throughout the United States. Also, the Company receives
licensing revenues from licensing agreements with third parties which provide
for the manufacture and marketing of various apparel and accessories under trade
names owned by the Company. In addition, certain of the Company's revenues are
generated directly from consumers through its chain of retail stores (primarily
factory outlet stores) located in the United States and Puerto Rico.
On February 27, 1998, the Company completed a restructuring of the
Company's outstanding subordinated debt and equity capitalization (the "1998
Recapitalization") which significantly decreased the Company's debt obligations.
In addition to the 1998 Recapitalization, over the past three years management
has significantly restructured the Company's operations (see Note 16).
Subsequent to the 1998 Recapitalization (see Note 8), the Company remains highly
leveraged. The Company's viability is dependent upon its ability to finance its
operations and meet its debt obligations when due. While there can be no
assurance that these will occur, based on the Company's 1998 Recapitalization
and the Company's operating plan for Fiscal 1999, management believes that its
current capitalization and financing structure will be adequate to finance its
operations and meet its debt service obligations during Fiscal 1999 and beyond.
2. BASIS OF PRESENTATION
The Company was a wholly-owned subsidiary of London Fog Corporation
("Holdings") until May 31, 1995. Pursuant to the Company's Recapitalization on
May 31, 1995, Holdings was dissolved and all assets and liabilities of Holdings
were transferred to or assumed by the Company (see Note 8).
The Company reports on a 52-53 week fiscal year ending the last Saturday in
February. The fiscal years ended February 24, 1996 ("Fiscal 1996") and February
22, 1997 ("Fiscal 1997") consisted of 52 weeks. The fiscal year ended February
28, 1998 ("Fiscal 1998") consisted of 53 weeks.
The consolidated financial statements include the accounts of London Fog
Industries, Inc. and its subsidiaries. All intercompany transactions have been
eliminated in consolidation.
In June 1997, the Company effected a 1 for 1,000 reverse stock split with
respect to the cumulative voting preferred stock and the nonvoting common stock.
All shares and per share amounts in the accompanying financial statements and
related notes have been restated for all periods to reflect this reverse stock
split.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of operating and petty cash balances that
are used to conduct day-to-day business operations, as well as cash equivalents
having a maturity of 90 days or less.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market.
F-7
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company depreciates
property, plant and equipment and amortizes leasehold improvements on a
straight-line basis over the following useful lives:
<TABLE>
<CAPTION>
ASSET CLASS USEFUL LIVES
- ------------------------------------------------ -----------------------
<S> <C>
Building and improvements .......... 5-30 years
Equipment .......................... 3-15 years
Furniture and fixtures ............. 2-10 years
Leasehold improvements ............. Initial term of lease,
not to exceed 15 years
</TABLE>
Goodwill
Goodwill, representing the excess of acquisition cost over the fair value
of net identifiable assets acquired, is being amortized on a straight-line basis
over a period of forty years. The Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business units' operating earnings over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" (SFAS 107), requires disclosures of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
of future cash flows. SFAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
The fair value of the Company's debt is estimated using a discounted cash
flow analysis based on the Company's borrowing costs for similar credit
facilities at February 28, 1998. Other than with respect to the Company's 1998
10% Senior Subordinated Notes, ("Notes") (see Note 8), management believes the
carrying value of its financial instruments approximates fair value. With
respect to the Company's Notes issued on February 27, 1998, SFAS No. 15,
"Accounting By Debtors and Creditors for Troubled Debt Restructurings" (SFAS 15)
required the Company to record such debt on its balance sheet at $150 million,
representing the $100 million principal amount of such notes and $50 million of
future interest payments due during the five year term of the notes (see Note
8). Management believes the fair value of the Notes as of February 28, 1998
approximates its principal amount of $100 million.
This disclosure relates to financial instruments only. The fair value
assumptions were based upon subjective estimates of market conditions and
perceived risks of the financial instruments.
Deferred Financing Costs
Deferred financing costs are amortized over the lives of the related debt
using the effective interest method (see Note 8).
Advertising Expense
Advertising costs are generally expensed as the advertisements are run.
Advertising expense was approximately $10.4 million, $7.6 million and $9.9
million for Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively. Advertising
costs recorded in prepaid expenses were $468,000, $310,000 and $201,000 at the
end of Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively.
F-8
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
New Accounting Pronouncements
During June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" (SFAS 130), which establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Management intends to implement the pronouncement at
year end Fiscal 1999 and expects to report changes in the Company's minimum
pension liability as a component of comprehensive income.
During June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (SFAS 131), which establishes
a new approach for determining segments within a company and reporting
information on those segments. SFAS 131 is effective for fiscal years beginning
after December 15, 1997. Management intends to adopt the pronouncement at year
end Fiscal 1999. The Company has not yet completed its analysis of which
operating segments, if any, on which it will report.
During June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), which standardizes
the accounting for derivative instruments by requiring that an entity recognize
those items as assets or liabilities in the statement of financial position and
measure them at fair value. SFAS 133 is effective for fiscal quarters of all
fiscal years beginning after June 15, 1999. Management believes that the
implementation of SFAS 133 would not have had a material effect on the
accompanying financial statements.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109).
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and net operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. As a result
of historical losses, the Company has recorded a valuation allowance against its
deferred tax assets as of February 22, 1997 and February 28, 1998 (see Note 13).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results could
differ from these estimates.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of February 22, 1997 and
February 28, 1998 (dollars in thousands):
1997 1998
---------- ----------
Trade .......................................... $23,678 $30,168
Other .......................................... 1,949 2,578
------- -------
25,627 32,746
Less- Allowance for doubtful accounts .......... 1,985 1,237
------- -------
Accounts receivable, net ....................... $23,642 $31,509
======= =======
F-9
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of February 28, 1998, the Company had $2,288,000 of trade accounts
receivable due from several apparel retailers that are considered highly
leveraged.
5. INVENTORIES
Inventories consisted of the following as of February 22, 1997 and February
28, 1998 (dollars in thousands):
1997 1998
---------- ----------
Finished goods ........... $33,257 $52,716
Work in process .......... 3,291 8,883
Raw materials ............ 11,590 8,130
------- -------
$48,138 $69,729
======= =======
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of February 22,
1997 and February 28, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Land ........................................................ $ 1,400 $ 1,400
Buildings, improvements and leasehold improvements .......... 22,738 27,150
Equipment, furniture and fixtures ........................... 18,613 23,813
------- -------
42,751 52,363
Less- Accumulated depreciation and amortization ............. 10,193 16,016
------- -------
Property, plant and equipment, net .......................... $32,558 $36,347
======= =======
</TABLE>
Depreciation and amortization expense included in cost of goods sold was
$270,000, $345,000 and $137,000 for Fiscal 1996, Fiscal 1997 and Fiscal 1998,
respectively. Depreciation and amortization expense included in selling, general
and administrative expenses was $3,566,000, $5,081,000 and $6,890,000 for Fiscal
1996, Fiscal 1997 and Fiscal 1998, respectively.
7. GOODWILL AND OTHER ASSETS
Goodwill and other assets consisted of the following as of February 22,
1997 and February 28, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of $12,153 and
$14,240 .................................................... $71,414 $69,327
Deferred financing costs, net of accumulated amortization of
$4,841 and $917 ............................................ 369 2,236
Other ........................................................ 1,133 1,067
------- -------
$72,916 $72,630
======= =======
</TABLE>
Amortization expense related to goodwill and other assets was $8,744,000,
$5,140,000 and $3,841,000 for Fiscal 1996, Fiscal 1997 and Fiscal 1998, which
includes amortization of deferred financing costs of $4,720,000, $2,653,000 and
$1,715,000, respectively, recorded as interest expense. In connection with the
1995 Recapitalization and obtaining the 1995 Credit Facility (see Note 8), the
Company capitalized $4,766,000 of financing costs which were amortized over the
terms of the related debt.
F-10
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In connection with obtaining or amending certain of the Company's debt
facilities during Fiscal 1998, the Company capitalized $3,677,000 of financing
costs.
8. LONG-TERM DEBT
Long-term debt consisted of the following as of February 22, 1997 and
February 28, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Mortgage note payable ............................. $ 11,784 $ 11,322
10% Senior Subordinated Notes due 2003
Principal ........................................ -- 100,000
Future interest capitalized per SFAS 15 .......... -- 50,000
-------- --------
Total recorded amount ............................ -- 150,000
1995 Term Loan
Principal plus deferred interest ................. 196,601 --
Future interest capitalized per SFAS 15 .......... 63,141 --
-------- --------
Total recorded amount ............................ 259,742 --
1995 Note
Principal plus deferred interest ................. 44,557 --
Future interest capitalized per SFAS 15 .......... 14,242 --
-------- --------
Total recorded amount ............................ 58,799 --
-------- --------
Total long-term debt
Principal plus deferred interest ................. 252,942 111,322
Future interest capitalized per SFAS 15 .......... 77,383 50,000
-------- --------
Total recorded amount ............................ 330,325 161,322
-------- --------
Less - Current portion
Principal payments ............................... 463 512
Future interest capitalized per SFAS 15 .......... -- 10,000
-------- --------
Total recorded amount ............................ 463 10,512
-------- --------
Long-term debt, net of current portion ........... $329,862 $150,810
======== ========
</TABLE>
Interest Rate Protection Agreements
In July 1994, the Company entered into an interest rate cap agreement with
the agent for its May 1994 Bank Credit Agreement. This agreement effectively
limited the Company's interest rate exposure on $50 million of its floating rate
debt to a Eurodollar rate of 7% (plus the applicable spreads per the terms of
the May 1994 Bank Credit Agreement) through June 27, 1996. In connection with
this agreement, the Company paid $365,000. This amount was amortized through the
June 27, 1996 maturity date as additional interest expense.
Mortgage Note
The mortgage note payable bears interest at 10.25% and requires monthly
principal and interest payments of $137,430 through June 1999, with a final
payment of $10,626,505 in July 1999. The mortgage is secured by the land and the
building and improvements constructed thereon which house the Company's
Eldersburg, Maryland corporate offices and distribution center.
F-11
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1995 Credit Facility
On March 30, 1995, the Company obtained a revolving credit and letter of
credit facility (the "1995 Credit Facility") with various maximum line of credit
limits as high as $120 million, which accrued interest, payable monthly in
arrears, at the ABR (Alternate Base Rate) plus 2% or, at the Company's option,
one-, two- or three-month LIBOR plus 3%. The ABR was, for any day, the greatest
of the prime rate, the base certificate of deposit rate plus 1%, or the Federal
Funds effective rate plus 1/2%. The obligations outstanding on the facility were
secured by substantially all of the assets of the Company, except as otherwise
encumbered.
In addition to the payment terms noted above, the 1995 Credit Facility
stipulated certain prepayment terms and fees. An additional fee at an annual
rate of .5% was payable monthly in arrears on the average daily unused amount of
the available commitment. Additional fees were payable on the outstanding
balance of letters of credit under the 1995 Credit Facility at an annual rate of
1.5% for commercial letters of credit and 2.0% for standby letters of credit.
The average and highest amounts outstanding under the 1995 Credit Facility
were approximately $33.7 million and $69.6 million, respectively, for the period
from March 30, 1995 through February 24, 1996. The average and highest amounts
outstanding for Fiscal 1997 were approximately $42.9 million and $76.5 million,
respectively. The average and highest amounts outstanding under the 1995 Credit
Facility were approximately $61.0 million and $106.5 million, respectively, for
the period from February 23, 1997 through May 14, 1997. The average interest
rate on the revolving credit borrowings under the 1995 Credit Facility for the
period from March 30, 1995 through February 24, 1996, Fiscal 1997 and the period
from February 23, 1997 through May 14, 1997 were 9.3%, 8.8% and 10.5%,
respectively. Effective interest rates, including related fees and the
amortization of related deferred financing costs, for the period from March 30,
1995 through February 24, 1996, Fiscal 1997 and the period from February 23,
1997 through May 14, 1997, were 19.6%, 15.8% and 17.3%, respectively.
As of March 31, 1997, the Company negotiated an amendment of the 1995
Credit Facility which extended the expiration date from the original expiration
date of March 31, 1997 to May 15, 1997. This amendment established various
maximum lines of credit through May 15, 1997.
On May 15, 1997, the Company obtained a revolving credit and letter of
credit facility to replace the 1995 Credit Facility.
Senior Credit Facility
On May 15, 1997, the Company obtained a revolving credit and letter of
credit facility (the "Senior Credit Facility") with a maximum line of credit of
$140 million through April 30, 1998 and $150 million from May 1, 1998 through
April 30, 2000. In connection with the 1998 Recapitalization, on February 27,
1998 the Company amended certain terms and provisions of the Senior Credit
Facility (the "1998 Amendment"), including increasing the maximum line of credit
to $200 million and extending the expiration date of the facility from April 30,
2000 to April 30, 2001. Within this $200 million limit, up to $90 million may be
used for outstanding letters of credit. The balance outstanding on the facility
cannot exceed the aggregate of stipulated percentages of collateral values
associated with the Company's eligible inventory, accounts receivable and
letters of credit goods, plus certain amounts during certain periods of the
year. The obligations outstanding on the facility are secured by substantially
all of the assets of the Company (including trademarks), except as otherwise
encumbered. The original terms of the Senior Credit Facility required that
revolving credit borrowings under the facility be no more than $10 million for
at least 30 consecutive days during each December 1 through March 31 period for
the duration of the agreement. The terms of the 1998 Amendment eliminated this
provision. The terms of the Senior Credit Facility require that the Company
maintain excess availability (as defined) under the facility of greater than $15
million for at least 30 consecutive days during each December 1 through March 31
period for the duration of the agreement.
F-12
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Senior Credit Facility accrues interest, payable in cash monthly in
arrears, at the prime rate plus 0.75% per annum, or, at the Company's option,
one-, two- or three-month LIBOR plus 2.75% per annum. An interest rate reduction
of 0.25% per annum for the LIBOR option interest rate (to one-, two-or
three-month LIBOR plus 2.50% per annum) will be available to the Company
beginning in May 1998 if it attains certain financial performance benchmarks.
At February 28, 1998, based on collateral value restrictions, the Company
had additional borrowings available of approximately $31 million under the
Senior Credit Facility. The average and highest amounts outstanding under the
Senior Credit Facility were approximately $85.7 million and $131.5 million,
respectively, for the period from May 15, 1997 through February 28, 1998. For
this same period, the average interest rate on revolving credit borrowings under
the Senior Credit Facility was 8.8% and the effective interest rate, including
related fees and the amortization of related deferred financing costs, was 9.8%.
In addition to the payment terms noted above, the Senior Credit Facility
stipulates certain prepayment terms and fees. The original terms of the Senior
Credit Facility stipulated a fee at an annual rate of 0.5% payable in cash
monthly in arrears on the amount by which $110,000,000 exceeds the average daily
amount of the facility outstanding during the months of May through November.
Pursuant to the 1998 Amendment, beginning February 27, 1998 such fee becomes
payable in cash monthly in arrears at an annual rate of 0.5% on the amount by
which $145,000,000 exceeds the average daily amount of the facility outstanding
during the months of May through November. Additional fees at an annual rate of
1.5% are payable in cash monthly in arrears on the daily outstanding balance of
both commercial and standby letters of credit issued and outstanding for the
immediately preceding month.
1995 Recapitalization
On May 31, 1995, the Company consummated a restructuring of the Company's
outstanding debt and equity capitalization (the "1995 Recapitalization"). In the
accompanying financial statements the 1995 Recapitalization has been accounted
for in accordance with SFAS No. 15 "Accounting By Debtors and Creditors For
Troubled Debt Restructurings" (SFAS 15).
The aggregate outstanding debt as of May 31, 1995 of approximately $317.8
million (including approximately $6.8 million of accrued interest) under its May
1994 Bank Credit Agreement was restructured into a new facility (the "1995
Restructured Facility") consisting of: (i) a $175 million term loan (the "1995
Term Loan"), (ii) a $36 million note (the "1995 Note"), (iii) approximately
$106.8 million liquidation value of cumulative voting preferred stock, which was
recorded at its May 1995 appraised value of $1.5 million, and (iv) nonvoting
common shares representing 80% of the common stock of the Company. The debt and
equity securities issued in the 1995 Recapitalization were restructured and
retired on February 27, 1998 in connection with the 1998 Recapitalization.
1995 Term Loan. Tranche 1 of the 1995 Restructured Facility was a term loan
having a principal amount of $175 million (the "1995 Term Loan") which accrued
interest from April 1, 1995 at a rate of prime plus 1%.
From April, 1995 through May 31, 1997, the 1995 Term Loan bore cash
interest, payable monthly beginning in June 1995, at the rate of 3% per annum
with the difference (the "Deferred Interest") accruing on a non-interest bearing
basis. On May 15, 1997, the 1995 Term Loan was amended to extend through April
30, 2000, the period during which the 1995 Term Loan bore cash interest at the
rate of 3% per annum, with the difference accruing on a non-interest bearing
basis. Giving effect to the May 15, 1997 amendment, there were no scheduled
principal payments prior to the maturity date of May 31, 2002, at which time the
principal amount of $175 million, plus Deferred Interest would have become due
and payable.
F-13
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1995 Note. Tranche 2 of the 1995 Restructured Facility was a note having a
principal amount of $36 million (the "1995 Note") with a scheduled maturity of
May 31, 2002, which accrued interest on a non-interest bearing basis, at a fixed
rate per annum of 12.5%.
In accordance with SFAS 15, the Company recorded equity interests granted
under the 1995 Restructured Facility as partial settlement of the debt
outstanding under the May 1994 Bank Credit Agreement at their estimated fair
value. SFAS 15 requires the debtor to continue to record debt on its books at
the lesser of the outstanding balance prior to the restructuring or the total
amount due under the restructured debt. Since the remaining outstanding debt of
$316.3 million, net of $1.5 million of appraised value of equity interests
granted, under the May 1994 Bank Credit Agreement, including accrued interest,
was less than the total future principal and interest payments required under
the 1995 Term Loan and the 1995 Note, the Company continued to record the
restructured term debt at $316.3 million as of May 31, 1995, even though the
restructured principal amount of the 1995 Term Loan and the 1995 Note totaled
only $211 million. The difference of $105.3 million as of May 31, 1995
effectively represented future interest payments and, therefore, reduced
interest expense in subsequent periods.
Cumulative voting preferred stock. In connection with the 1995
Recapitalization, the Lenders also received 106,764 shares of Series A
cumulative voting preferred stock. In addition, the holders of the common stock
of Holdings (the "Old Common Stock") received 8,493 shares of Series B
cumulative voting preferred stock. The Company also granted options to certain
executive officers to purchase 6,066 shares of Series C cumulative preferred
stock at an exercise price of $13 per share.
Each series of the cumulative voting preferred stock has a liquidation
value of $1,000 per share and is redeemable at the Company's option, after the
1995 Term Loan, the 1995 Note and the Deferred Interest have been paid in full
in cash, at liquidation value plus dividends accrued and unpaid to that date.
The cumulative voting preferred stock accrued dividends quarterly from April 1,
1995 at an annual rate of 17.5%; however, no cash dividend payments on the
preferred stock could be made until the 1995 Term Loan, the 1995 Note and the
Deferred Interest had been paid in full, at which time the dividends, if
declared, would become payable in cash.
Nonvoting common stock. In connection with the 1995 Recapitalization, the
Lenders received 80,000 shares of $.01 par value nonvoting common stock of the
Company (the "1995 Nonvoting Common Stock") with an additional 20,000 shares
issued to holders of the Old Common Stock.
Reverse Stock Split. As discussed in Note 2, the accompanying financial
statements and related notes have been restated for all periods to reflect a 1
for 1,000 reverse stock split with respect to the cumulative voting preferred
stock and the 1995 Nonvoting Common Stock.
1998 Recapitalization
On February 27, 1998, the Company consummated a restructuring of the
Company's outstanding subordinated debt and equity capitalization (the "1998
Recapitalization"). The objectives of the 1998 Recapitalization were to improve
the Company's financial condition and provide the Company with a capital
structure to facilitate its continued growth through execution of its strategic
business plan. The Company has accounted for the 1998 Recapitalization in
accordance with the provisions of SFAS 15.
The aggregate principal plus deferred interest outstanding under the 1995
Term Loan and 1995 Note of approximately $257.2 million as of February 27, 1998
(including Deferred Interest on the 1995 Term Loan and accrued interest on the
1995 Note totaling approximately $46.2 million) was restructured into: (i) $100
million of 10% Senior Subordinated Notes (the "Notes") and (ii) 8,000,000 shares
of newly issued common stock of the Company, representing 100% of the
outstanding shares of common stock as of February 28, 1998, which represents 80%
of the common shares outstanding after giving pro forma effect to the potential
issuance of 2,000,000 shares of common stock pursuant to the 1998 Stock Option
Plan, but not giving pro forma effect to the potential shares to be issued upon
the exercise of the 1998 Recapitalization Warrants or the 1998 Management
Warrants (see Note 10).
F-14
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pursuant to the 1998 Recapitalization transactions, all of the aggregate
outstanding shares of cumulative voting preferred stock as of February 27, 1998
(represented by 106,764 shares of Series A cumulative voting preferred stock and
8,479 shares of Series B cumulative voting preferred stock) were converted into
warrants to purchase an aggregate of 530,726 common shares of the Company (the
"1998 Recapitalization Warrants"), with such shares of preferred stock being
cancelled pursuant to the 1998 Recapitalization transactions. Each of the 1998
Recapitalization Warrants represents the right to purchase one share of common
stock of the Company at a price of $15.72 per share at any time up to and
including the expiration date of February 28, 2005. The 1998 Recapitalization
Warrants were recorded on the February 28, 1998 balance sheet at their appraised
fair value of approximately $536,000 based on an appraisal of $1.01 per warrant
as of the date of the 1998 Recapitalization. The options held by certain
executive officers to purchase 6,066 shares of Series C cumulative preferred
stock at an exercise price of $13 per share were cancelled as a result of the
1998 Recapitalization transactions.
Also pursuant to the 1998 Recapitalization transactions, all of the 99,967
outstanding shares of the 1995 Nonvoting Common Stock were cancelled as of
February 27, 1998, with those shares of the 1995 Nonvoting Common Stock held by
holders of the Series B cumulative voting preferred stock being converted into
the right to receive $.01 in cash for each such share of 1995 Nonvoting Common
Stock.
Notes. The Notes were issued as of February 27, 1998 in an aggregate
principal amount of $100 million, with a maturity of February 27, 2003, and bear
interest at the rate of 10% per annum payable in semiannual interest payments on
March 1 and September 1 of each year, beginning September 1, 1998. The Notes are
redeemable at the Company's option, in whole or in part, at any time at a
defined redemption price. In addition, in the event of the occurrence of a
Change of Control Triggering Event (as defined), each holder of the Notes has
the right to require that the Company purchase all or a portion of such holder's
Notes at a purchase price of 101% of principal amount, plus accrued interest to
the date of purchase. The obligations under the Notes are secured, on a
subordinated basis, by substantially all of the assets of the Company, except as
otherwise encumbered, and are subordinated to all amounts due pursuant to the
Senior Credit Facility or any eligible successor facility on the terms and
conditions set forth in the Subordination Agreement.
As of February 26, 1998, the total recorded debt outstanding under the 1995
Term Loan and the 1995 Note, including future interest recorded in accordance
with SFAS 15, totaled approximately $319.7 million. Since the Notes issued
pursuant to the 1998 Recapitalization require total future payments of $150
million, including $50 million of interest payments over five years, SFAS 15
requires the Company to continue to record $150 million of debt on its books
related to the $100 million principal amount of the Notes. As a result, the
Company will record all future payments on the Notes, including principal and
interest, as a reduction of the recorded debt and no interest expense will be
recorded on the Company's Consolidated Statements of Operations with respect to
the Notes. The excess of the $319.7 million of debt previously recorded over the
$150 million recorded as of February 27, 1998, or $169.7 million, less $2.7
million of transaction costs incurred, has been recorded as an extraordinary
gain on early extinguishment of debt, less an income tax provision of $6.1
million.
Covenants
The Company's debt agreements contain various covenants, certain of which
require the maintenance of certain financial ratios and restrictions on the
declaration or payment of dividends and other distributions. The Company is in
compliance with all covenants related to its debt agreements.
F-15
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Aggregate Scheduled Maturities
Aggregate scheduled maturities of long-term debt for each of the fiscal
years subsequent to February 28, 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
SCHEDULED SCHEDULED
PRINCIPAL FUTURE INTEREST PAYMENTS
FISCAL YEAR ENDING FEBRUARY PAYMENTS CAPITALIZED PER SFAS 15 TOTAL
- ----------------------------- ----------- ------------------------- ----------
<S> <C> <C> <C>
1999 ........................ $ 512 $10,000 $ 10,512
2000 ........................ 10,810 10,000 20,810
2001 ........................ -- 10,000 10,000
2002 ........................ -- 10,000 10,000
2003 and thereafter ......... 100,000 10,000 110,000
-------- ------- --------
$111,322 $50,000 $161,322
======== ======= ========
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses consisted of the following as of February 22, 1997 and
February 28, 1998 (dollars in thousands):
1997 1998
--------- ---------
Payroll .................... $ 5,439 $ 5,388
Employee benefits .......... 4,767 3,559
Returns reserve ............ 2,766 2,901
Advertising ................ 3,084 2,815
Other ...................... 4,415 8,121
------- -------
$20,471 $22,784
======= =======
10. STOCK-BASED COMPENSATION PLANS
Effective February 27, 1998, the Board of Directors adopted, and the
shareholders approved, a stock option plan (the "1998 Stock Option Plan"), which
provides for the grant to eligible participants of options to purchase up to a
total of 2,000,000 shares of the Company's common stock, subject to adjustment
for future stock dividends, stock splits, reorganizations and other events. The
1998 Stock Option Plan authorizes the Compensation Committee of the Board of
Directors to administer the plan and to grant to eligible participants stock
options under the plan. Pursuant to the provisions of the 1998 Stock Option
Plan, options granted under the plan expire ten years from the date of grant and
have an exercise price equal to at least 25% of the fair value of the Company's
common stock at the date of grant.
As of February 28, 1998, options to purchase a total of 1,925,334 shares
had been granted under the 1998 Stock Option Plan and there remained available
for future grant options to purchase 74,666 shares under the plan. The options
granted under the plan have an exercise price of $2.00 per share, expire on
February 27, 2008, and vest in equal annual installments, with the first
installment vesting on the date of grant and the final installment vesting two
years to four years from the date of grant, subject to accelerated vesting
provisions under certain circumstances as described in the plan.
Effective February 27, 1998, as part of the 1998 Recapitalization
transactions and pursuant to the 1998 Stock Option Plan, the Company's
shareholders and Board of Directors approved the issuance of warrants (the "1998
Management Warrants") to purchase up to an aggregate of 83,799 shares of the
Company's common stock at a purchase price of $15.72 per share. The 1998
Management Warrants expire on February 28, 2005 (subject to adjustment as
specified in the Warrant Agreement) and vest in proportional installments as the
options vest which are held by such participant under the 1998 Stock
F-16
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Option Plan. In addition, the 1998 Management Warrants are only exercisable
after the first date on which any of the 1998 Recapitalization Warrants are
exercised. As of February 28, 1998, the Company had issued 1998 Management
Warrants to purchase an aggregate of 80,667 shares to participants under the
1998 Stock Option Plan.
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), the Company has elected to
follow the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), whereby the intrinsic value method is
used to measure compensation expense for its stock-based employee compensation
plans. As required by SFAS 123, the Company provides pro forma disclosures of
net income as if the fair value-based method prescribed by SFAS 123 had been
applied in measuring compensation expense.
The table below summarizes the activity in the Company's outstanding
options and warrants, represented by those granted pursuant to the 1998 Stock
Option Plan and the 1998 Management Warrants:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------ ------------------ ------------- -----------------
<S> <C> <C> <C> <C>
Outstanding at February 24, 1996 and
February 22, 1997 ....................... -- -- -- --
Fiscal 1998 Activity:
Granted ................................. 2,006,001 $ 2.55 -- --
Exercised ............................... -- -- -- --
Forfeited ............................... -- -- -- --
--------- ------ -- --
Outstanding at February 28, 1998 ......... 2,006,001 $ 2.55 529,748 $ 2.55
========= =======
</TABLE>
The following table summarizes information concerning options and 1998
Management Warrants outstanding at February 28, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------------------------- ---------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING VESTING REMAINING CONTRACTUAL NUMBER WEIGHTED-AVERAGE
PRICE OUTSTANDING PERIOD (IN YEARS) LIFE (IN YEARS) EXERCISABLE EXERCISE PRICE
- ------------ ------------- ------------------- ----------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 2.00 1,925,334 1.5 10.0 508,445 $ 2.00
15.72 80,667 1.5 7.0 21,303 15.72
- -------- --------- --- ---- ------- ------
$ 2.55 2,006,001 1.5 9.9 529,748 $ 2.55
========= =======
</TABLE>
Using the provisions of APB 25 and an appraised fair value (including
valuation discounts for minority interest and lack of marketability) of $5.38
per share for the Company's common stock as of the date of grant of the options,
the Company recorded compensation expense (included under the caption Deferred
Compensation Expense) of approximately $1,718,000 for Fiscal 1998 with respect
to vested options granted under the 1998 Stock Option Plan. No compensation
expense was recorded with respect to vested 1998 Management Warrants, since the
exercise price of such warrants exceeded the appraised fair value of the common
stock as of the date of grant.
If the Company had elected to recognize compensation expense based upon the
fair value at the date of grant of the options and 1998 Management Warrants,
consistent with the provisions of SFAS 123, the Company's net income for Fiscal
1998 would be reduced by approximately $540,000. The fair value of the options
and the 1998 Management Warrants for pro forma disclosure purposes was computed
as of the date of grant of such options or warrants using the Black-Scholes
option pricing model and the following weighted average assumptions: expected
volatility of approximately 41%; risk-free
F-17
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
interest rate of 5.24% - 5.53%; expected lives of six to ten years; and expected
dividend yield of zero. The weighted-average fair value of the options and 1998
Management Warrants granted was $3.63 per share for Fiscal 1998.
11. DEFERRED COMPENSATION EXPENSE
During Fiscal 1998, the Company recorded deferred compensation expense of
approximately $2,735,000, consisting of: (i) approximately $1,718,000 of
compensation expense calculated using the provisions of APB 25 related to
stock-based compensation (see Note 10); and (ii) approximately $1,017,000 of
compensation expense related to non-cash accruals under a deferred compensation
plan adopted at the time of the 1998 Recapitalization.
12. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Leases
The Company has various noncancelable operating leases for retail stores,
manufacturing, warehouse and administrative office facilities. In addition to
the minimum lease payments, certain leases require additional payments for
insurance, property taxes and a proportional share of maintenance costs. The
retail store leases generally provide for annual base minimum rentals plus
contingent rentals based upon sales in excess of specified minimums.
Future minimum lease payments under noncancelable operating leases for all
facilities and equipment with lease terms exceeding one year as of February 28,
1998 are as follows (dollars in thousands):
FISCAL YEAR ENDING FEBRUARY
--------------------------------
1999 ........................... $12,926
2000 ........................... 11,683
2001 ........................... 10,388
2002 ........................... 8,852
2003 ........................... 7,061
2004 and thereafter ............ 29,942
-------
Total minimum payments ......... $80,852
=======
Rent expense was approximately $13.7 million, $12.8 million and $15.7
million for Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively.
Compensation
As of February 28, 1998, the Company is committed to employment
arrangements with certain of its executives, through 2002, aggregating base
compensation of approximately $9.4 million over the remaining terms after
February 28, 1998. The arrangements also provide for additional incentive
payments subject to performance standards.
Litigation
The Company is a defendant in several lawsuits arising from the normal
course of business. Management believes that the ultimate outcome of such cases
will not have a material adverse effect on the Company's financial condition.
Concentrations
Certain of the raw materials (such as fabrics, linings and trim items)
used by the Company are manufactured to its custom specifications to be shipped
to its independent manufacturers and may be available in the short term from
only one or a very limited number of vendors. While the Company
F-18
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
believes it could find additional vendors to produce these raw materials, the
interruption or delay of supply of these materials by existing vendors, for any
reason, could have a material adverse effect on the Company. Four of the
Company's raw material suppliers accounted for approximately 37% of the
Company's raw material needs (excluding trim items) for the fall 1997 and spring
1998 seasons. South Korean-based suppliers account for a significant majority of
the Company's fabric purchases.
Other Contingencies
As of February 28, 1998, the Company was contingently liable for
outstanding letters of credit, aggregating approximately $24.8 million, relating
to the purchase of inventories.
13. INCOME TAXES
In connection with the 1998 Recapitalization, the Company triggered a
taxable gain of approximately $16 million, which has been offset by current year
net operating losses. In accordance with SFAS 109, the extraordinary gain for
financial reporting purposes has been recorded net of a $6.1 million tax
provision. Primarily due to the debt restructuring, the Company's available net
operating loss carryforward balance has been reduced from approximately $66
million as of February 22, 1997 to approximately $19 million as of February 28,
1998, which will begin to expire in 2011. This amount has been fully reserved in
the accompanying financial statements.
The provision (benefit) for income taxes is comprised of the following for
Fiscal 1996, Fiscal 1997 and Fiscal 1998 (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Provision (benefit) for income taxes before
extraordinary gain ...................................... $ 176 $158 $ (5,932)
Provision for income taxes on extraordinary gain ......... -- -- 6,080
----- ---- --------
Provision for income taxes ............................ $ 176 $158 $ 148
===== ==== ========
Federal:
Current ................................................. $ 155 $140 $ 119
Deferred ................................................ -- -- --
State:
Current ................................................. 21 18 29
Deferred ................................................ -- -- --
----- ---- --------
Provision for income taxes ............................ $ 176 $158 $ 148
===== ==== ========
</TABLE>
F-19
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The reconciliation of the provision (benefit) for income taxes before
extraordinary items to amounts computed by applying the Federal statutory rate
to earnings before provision for income taxes and extraordinary items is as
follows for Fiscal 1996, Fiscal 1997 and Fiscal 1998 (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Tax benefit at federal statutory rate .............................. $ (11,758) $ (611) $ (3,750)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit ........................ 14 12 19
Effect of nondeductible goodwill amortization ..................... 842 808 808
Valuation allowance ............................................... 10,629 (352) (3,213)
Other ............................................................. 449 301 204
--------- ------ --------
Provision (benefit) for income taxes before extraordinary gain ..... $ 176 $ 158 $ (5,932)
========= ====== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at February 22,
1997 and February 28, 1998 are presented below (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves ............................ $ 735 $ 459
Inventories ............................................. 4,064 5,414
Other accrued expenses .................................. 1,749 1,414
Accrued employee benefits (current) ..................... 1,243 995
Accrued employee benefits (noncurrent) .................. 4,153 4,071
Accrued restructuring expenses .......................... 761 256
Capital loss carryforward ............................... 1,898 --
Deferred financing fees ................................. 4,226 3,421
Long-term debt under SFAS 15 ............................ 27,899 18,980
Deferred compensation ................................... -- 1,038
Net operating loss and tax credit carryforwards ......... 25,613 7,112
Other ................................................... 3,131 3,099
Valuation allowance ..................................... (70,691) (41,234)
--------- ---------
Gross deferred tax assets .............................. 4,781 5,025
--------- ---------
Deferred tax liabilities:
Plant and equipment ..................................... (4,752) (5,010)
Other ................................................... (29) (15)
--------- ---------
Gross deferred tax liabilities ......................... (4,781) (5,025)
--------- ---------
Net deferred tax asset ................................. $ -- $ --
========= =========
</TABLE>
F-20
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. SALE OF INVESTMENT
During Fiscal 1998, the Company sold an equity investment for approximately
$2,260,000 which resulted in a gain of approximately $2,260,000.
15. BENEFIT PLANS
The Company has a defined benefit "account balance" pension plan covering
all nonunion employees. Prior to January 1, 1996, plan participant accounts were
credited annually with 4% of compensation up to 62.5% of social security taxable
wage base plus 4.75% of the excess. As of January 1, 1996, all further annual
credits based on compensation have been frozen. Accounts of active participants
are also credited with interest at a variable rate equal to the five year
Treasury constant maturity rate, compounded annually to retirement. Accounts of
terminated participants are credited annually with interest at 4%. However,
there is a minimum benefit equal to the participant's January 1, 1994 account
balance, compounded annually with 7.5% interest to retirement. Participants are
100% vested in their account balance after five years of credited service. Net
periodic pension costs for Fiscal 1996, Fiscal 1997 and Fiscal 1998 with respect
to the plan were $451,000, $23,000 and ($29,000), respectively.
The following table sets forth the plan's funded status at December 31,
1996 and 1997, based upon calculations made by the Company's consulting
actuaries (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Actuarial present value of obligations:
Accumulated benefit obligation including vested benefits of $5,342 and $6,371
as of December 31, 1996 and 1997, respectively ................................ $5,690 $6,659
====== ======
Projected benefit obligation for services rendered to date ...................... $5,690 $6,659
Plan assets at fair value ........................................................ 5,487 6,710
------ ------
Projected benefit obligation in excess of (less than) plan assets ................ 203 (51)
Unrecognized net gain from past experience different from that assumed and
effects of changes in assumptions ............................................... 459 72
Unrecognized prior service cost .................................................. (55) (51)
------ ------
Accrued (prepaid) pension cost .................................................. $ 607 $ (30)
====== ======
</TABLE>
The plan's assets at December 31, 1997 consisted of U.S. government and
agency debt securities, equity securities and short-term debt securities, with
the majority of the plan's assets comprised of U.S. government and agency debt
securities.
Net periodic pension cost, as determined by the Company's consulting
actuaries, included the following for the years ended December 31, 1996 and 1997
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Service costs--benefits earned during the period . $ -- $ --
Interest cost on projected benefit obligation ......... 442 442
Actual return on plan assets .......................... (341) (793)
Net amortization and deferral ......................... (78) 322
------ ------
$ 23 $ (29)
====== ======
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75% and 7.25% as of
December 31, 1996 and 1997, respectively. The weighted-average expected
long-term rate of return on plan assets for 1996 and 1997 was 8.5%.
F-21
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During Fiscal 1996 and Fiscal 1997, the Company recorded a credit to
retained earnings of $44,000 and $701,000, respectively, to reflect a reduction
in its minimum liability.
Certain of the Company's employees in its Eldersburg, Maryland distribution
facility are covered by collective bargaining agreements and participate in
pension and benefit plans administered by the national and local Amalgamated
Clothing and Textile Workers Union. Subsequent to signing the contract, the
Amalgamated Clothing and Textile Workers Union merged with the International
Ladies Garment Workers Union becoming the Union of Needletrades, Industrial and
Textile Employees ("UNITE"). The Company makes payments to the plans in
accordance with the collective bargaining agreements. Total payments relating to
the pension plans were $525,000, $545,000 and $355,000 for Fiscal 1996, Fiscal
1997 and Fiscal 1998, respectively.
The Company contributes to the Amalgamated Insurance Fund (the "Clothing
Fund"), a multiemployer pension plan, on behalf of the union employees at its
Eldersburg, Maryland facility pursuant to a collective bargaining agreement with
the Union. Under a separate collective bargaining agreement with the Union, the
Company contributed to another multiemployer pension plan, the Textile Pension
Fund (the "Textile Fund"), on behalf of the union employees at its former
Savannah, Georgia distribution center. Under the Multiemployer Pension Plan
Amendments Act of 1980 ("MPPAA"), an employer that completely or partially
withdraws from a multiemployer pension plan may be liable to such plan for a
share of the plan's unfunded vested benefits. Management believes, based upon
information received from the Textile Fund in March 1995, that the Company has
no contingent MPPAA withdrawal liability attributable to the Textile Fund. The
Clothing Fund has advised the Company that its contingent MPPAA withdrawal
liability for a complete withdrawal from the Clothing Fund was estimated to be
approximately $18.3 million as of the end of 1996, which is the last date as of
which such information is available. During Fiscal 1995, the Company recorded a
contingent liability of $8,250,000 related to a partial withdrawal from the plan
in connection with the restructuring of its domestic production operations.
During Fiscal 1996, an additional $665,000 was provided to increase this
provision to $8,915,000. During Fiscal 1998, an additional $485,000 was provided
to increase this provision to $9,400,000. The increase in the provision was due
to the closing of the Company's Baltimore Maryland manufacturing facility (see
Note 16). Under the terms of the plan, the Company believes it triggered a
partial withdrawal liability as of the end of calendar year 1997. The Company
estimates that this will result in an annual cash payment, consisting of
principal and interest, of approximately $1.8 million. This payment will be due
in quarterly installments, commencing in January 1998 or later, and continuing
until the liability is satisfied.
The Company has a 401(k) savings plan (the "Savings Plan") covering all
non-union employees except factory store hourly wage employees. Participants can
elect to make pre-tax contributions up to 15% of their salary to the Savings
Plan subject to legal limitations. The Company matches the contributions of
participating employees on the basis of a formula specified in the Savings Plan.
Total costs relating to the Savings Plan were $56,000, $224,000 and $235,000 for
Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively.
Prior to Fiscal 1997, in addition to providing pension benefits, the
Company provided certain life insurance benefits for retired employees. Such
benefits were available to employees who had certain minimum years of continuous
service at retirement. On February 28, 1993, the Company implemented Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (SFAS 106), which requires that
liabilities be accrued for such postretirement benefit obligations over the
service lives of the employees eligible for coverage. During Fiscal 1997, those
benefits were discontinued, which resulted in the elimination of a corresponding
$103,000 liability.
F-22
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. RESTRUCTURING AND SPECIAL CHARGES
Fiscal 1995 Restructuring
During Fiscal 1995, the Company recorded a $61.2 million charge related to
the restructuring of its manufacturing, distribution and other operations, the
changes in its senior management, the restructuring of its debt and equity
capitalization, the closing of certain factory outlet stores, the relocation of
its corporate headquarters and the consolidation of other office facilities, and
the write-down of a receivable from Holdings related to its investment in a
joint venture. Included in restructuring charges were approximately $24.4
million of noncash charges primarily related to asset writedowns resulting from
the closing of two production facilities and certain factory outlet stores and
the writedown of Holdings' investment in a joint venture.
Fiscal 1998 Restructuring
During Fiscal 1998, the Company discontinued operations at its rainwear
manufacturing plant located in Baltimore, Maryland. This action represents the
conclusion of a two year experiment in cooperation with the City of Baltimore,
the State of Maryland and the plant's employee union to determine whether a
domestic-based, rainwear manufacturing facility could provide quick response to
retail inventory demand and compete on a cost basis with off-shore contractors.
The results of this effort determined that the experiment was too costly to
continue. In connection with the closing of this facility, the Company recorded
a Fiscal 1998 restructuring charge of $3.7 million. Included in this
restructuring charge are $1.2 million of cash expenditures primarily related to
employee severance and ongoing occupancy costs and a $2.5 million charge related
to the loss from sale of fixed assets as well as the increase in the Company's
multiemployer pension liability resulting from the closure of the facility.
In addition, during Fiscal 1998, the Company made special payments of
approximately $3.8 million to certain executives of the Company due to the
triggering of contractual "change of control" payment rights in the employment
agreements of such executives. Such amount has been included in the $7.5 million
Restructuring and Special Charges figure for Fiscal 1998.
As of February 22, 1997 and February 28, 1998, the accrued restructuring
liability related to the Fiscal 1995 and Fiscal 1998 restructuring charges was
approximately $2,554,000 and $1,416,000, respectively.
F-23
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. EARNINGS PER SHARE
During 1997, the FASB issued Statement No. 128, "Earnings per Share" (SFAS
128), which establishes new standards for computing and presenting earnings per
share. SFAS 128 requires presentation of basic earnings per share and diluted
earnings per share. There were no adjustments to net income available to common
stockholders in computing diluted earnings per share for the periods presented.
The income (loss) available to common stockholders and the weighted average
shares used to calculate basic and diluted earnings per share in accordance with
SFAS 128 are as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Income (loss) before extraordinary gain .................... $ (34,759) $ (1,954) $ (5,096)
Preferred stock dividends declarable ....................... 18,053 23,237 27,864
---------- ---------- -----------
Income (loss) before extraordinary gain available to
common stockholders ....................................... (52,812) (25,191) (32,960)
Extraordinary gain ......................................... -- -- 160,855
---------- ---------- -----------
Net income (loss) available to common stockholders ......... $ (52,812) $ (25,191) $ 127,895
========== ========== ===========
Weighted average shares outstanding for basic earnings
per share ................................................. 8,000,000 8,000,000 8,000,000
Dilutive effect of common stock equivalents ................ -- -- --
---------- ---------- -----------
Weighted average shares outstanding for diluted earnings
per share ................................................. 8,000,000 8,000,000 8,000,000
========== ========== ===========
Income (loss) before extraordinary gain per share avail-
able to common stockholders -- basic and diluted .......... $ (6.60) $ (3.15) $ (4.12)
Extraordinary gain per share available to common
stockholders -- basic and diluted ......................... -- -- 20.11
---------- ---------- -----------
Net income (loss) per share available to common
stockholders -- basic and diluted ......................... $ (6.60) $ (3.15) $ 15.99
========== ========== ===========
</TABLE>
For the fiscal years ended February 24, 1996, February 22, 1997 and
February 28, 1998, dividends of $18,053, $23,237 and $27,864, respectively, on
the 17.5% cumulative voting preferred stock had accumulated and therefore are
deducted from earnings in arriving at net income (loss) available to common
stockholders. However, given that such dividends had not been declared and that
management believed there was a remote chance that such dividends would be
declared, the Company has not recorded such dividends in the accompanying
financial statements.
Pursuant to the 1998 Recapitalization, on February 27, 1998, the Company
issued 8,000,000 shares of common stock (see Note 8). For purposes of
calculating earnings per share, all shares and per share amounts for the fiscal
years ended February 24, 1996, February 22, 1997 and February 28, 1998, have
been restated to reflect the 1998 Recapitalization. Weighted average shares
outstanding for calculating diluted earnings per share include basic shares
outstanding, plus shares issuable upon the exercise of stock options, using the
treasury stock method. As of February 28, 1998, the Company had outstanding
stock options and warrants with an anti-dilutive effect of 1,925,334 shares and
611,393 shares, respectively.
F-24
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. SUMMARY FINANCIAL INFORMATION
The Notes are guaranteed, jointly and severally, on a senior subordinated
basis, by all of the Company's subsidiaries other than London Fog Raincoats
Limited, the Company's United Kingdom subsidiary, (collectively, the "Subsidiary
Guarantors"). The obligations under the Notes are secured, on a senior
subordinated basis, by the capital stock of each Subsidiary Guarantor, and by
substantially all of the assets of the Company and each Subsidiary Guarantor.
The following represents summary financial information for London Fog
Industries, Inc., the Subsidiary Guarantors and London Fog Raincoats Limited
(dollars in thousands):
FISCAL YEAR ENDED FEBRUARY 24, 1996
<TABLE>
<CAPTION>
LONDON FOG SUBSIDIARY LONDON FOG
INDUSTRIES, INC. GUARANTORS RAINCOATS LIMITED CONSOLIDATED
------------------ ------------ ------------------- -------------
<S> <C> <C> <C> <C>
Net sales .............................. $ 166,005 $108,014 $ 375 $ 274,394
Gross profit ........................... 43,444 27,424 57 70,925
Income (loss) before extraordinary gain (25,925) (8,779) (55) (34,759)
Net income (loss) ...................... (25,925) (8,779) (55) (34,759)
Current assets ......................... $ 80,585 $ 20,321 $ 409 $ 101,315
Non-current assets ..................... 94,042 15,356 -- 109,398
Current liabilities .................... 26,311 5,685 43 32,039
Non-current liabilities ................ 339,487 -- -- 339,487
</TABLE>
FISCAL YEAR ENDED FEBRUARY 22, 1997
<TABLE>
<CAPTION>
LONDON FOG SUBSIDIARY LONDON FOG
INDUSTRIES, INC. GUARANTORS RAINCOATS LIMITED CONSOLIDATED
------------------ ------------ ------------------- -------------
<S> <C> <C> <C> <C>
Net sales .............................. $149,389 $129,200 $518 $279,107
Gross profit ........................... 46,291 47,567 147 94,005
Income (loss) before extraordinary gain (6,304) 4,329 21 (1,954)
Net income (loss) ...................... (6,304) 4,329 21 (1,954)
Current assets ......................... $ 68,597 $ 31,481 $793 $100,871
Non-current assets ..................... 98,893 6,581 -- 105,474
Current liabilities .................... 25,713 2,378 86 28,177
Non-current liabilities ................ 340,211 23 -- 340,234
</TABLE>
FISCAL YEAR ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
LONDON FOG SUBSIDIARY LONDON FOG
INDUSTRIES, INC. GUARANTORS RAINCOATS LIMITED CONSOLIDATED
------------------ ------------ ------------------- -------------
<S> <C> <C> <C> <C>
Net sales .............................. $ 166,300 $168,990 $ 331 $335,621
Gross profit ........................... 47,623 60,518 75 108,216
Income (loss) before extraordinary gain (10,444) 5,379 (31) (5,096)
Net income (loss) ...................... 150,411 5,379 (31) 155,759
Current assets ......................... $ 62,898 $ 42,186 $1,030 $106,114
Non-current assets ..................... 100,799 8,178 -- 108,977
Current liabilities .................... 53,715 3,346 53 57,114
Non-current liabilities ................ 162,543 23 -- 162,566
</TABLE>
F-25
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 30,
1998 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 566 $ 2,714
Accounts receivable, net ....................................... 31,509 7,856
Inventories .................................................... 69,729 124,829
Prepaid expenses and other current assets ...................... 4,310 4,224
---------- ----------
Total current assets ......................................... 106,114 139,623
PROPERTY, PLANT AND EQUIPMENT, net .............................. 36,347 34,701
GOODWILL AND OTHER ASSETS ....................................... 72,630 71,908
---------- ----------
Total assets ................................................. $ 215,091 $ 246,232
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving credit borrowings .................................... $ 18,176 $ 63,213
Current portion of long-term debt .............................. 10,512 10,526
Accounts payable ............................................... 4,226 8,470
Accrued expenses ............................................... 22,784 16,813
Accrued restructuring charges .................................. 1,416 2,868
---------- ----------
Total current liabilities .................................... 57,114 101,890
LONG-TERM DEBT, net of current portion .......................... 150,810 150,674
OTHER LONG-TERM LIABILITIES ..................................... 11,756 11,069
---------- ----------
Total liabilities .............................................. 219,680 263,633
---------- ----------
COMMITMENTS AND CONTINGENCIES ...................................
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock ................................................... 80 80
Warrants outstanding ........................................... 536 536
Additional paid-in capital ..................................... 165,493 165,493
Unearned portion of stock options .............................. (4,789) (4,359)
Accumulated deficit ............................................ (165,909) (179,151)
---------- ----------
Total stockholders' equity (deficit) ......................... (4,589) (17,401)
---------- ----------
Total liabilities and stockholders' equity (deficit) ......... $ 215,091 $ 246,232
========== ==========
</TABLE>
The accompanying notes are an integral part of these
unaudited condensed consolidated balance sheets.
F-26
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FOURTEEN FOR THE THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 31, 1997 MAY 30, 1998
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Net sales ..................................................... $ 41,678 $ 36,627
Cost of goods sold ............................................ 27,022 22,753
---------- ----------
Gross profit ................................................. 14,656 13,874
Licensing revenues ............................................ 1,010 860
---------- ----------
15,666 14,734
Selling, general and administrative expenses .................. 20,039 21,754
Restructuring and special charges ............................. 3,500 3,500
Deferred compensation expense ................................. -- 684
Amortization of goodwill and licensing agreements ............. 561 532
---------- ----------
Operating loss ............................................... (8,434) (11,736)
Interest expense, net ......................................... 4,011 1,455
---------- ----------
Loss before provision for income taxes ....................... (12,445) (13,191)
Provision for income taxes .................................... 48 51
---------- ----------
Net loss ..................................................... $ (12,493) $ (13,242)
========== ==========
Basic and diluted earnings (loss) per share available to
common stockholders:
Net loss ..................................................... $ (2.43) $ (1.66)
========== ==========
Weighted average shares outstanding ........................... 8,000,000 8,000,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these
unaudited condensed consolidated statements.
F-27
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOURTEEN FOR THE THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 31, 1997 MAY 30, 1998
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................. $ (12,493) $ (13,242)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation .......................................................... 1,676 1,958
Deferred compensation ................................................. -- 684
Amortization of goodwill and licensing agreements ..................... 561 532
Amortization of deferred financing costs .............................. 1,139 181
Loss on sale of property, plant and equipment ......................... 78 --
Anticipated loss on disposal of property, plant and equipment ......... -- 1,900
Other ................................................................. 290 --
Changes in operating assets and liabilities:
Accounts receivable, net ............................................. 16,991 23,653
Inventories .......................................................... (48,526) (55,100)
Prepaid expenses and other current assets ............................ (2,694) 86
Other assets ......................................................... 7 9
Accounts payable ..................................................... 834 4,244
Accrued expenses ..................................................... (5,214) (5,376)
Accrued restructuring charges ........................................ 739 1,452
Other long-term liabilities .......................................... 1,250 (687)
--------- ---------
Net cash flows from operating activities ........................... (45,362) (39,706)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................................... (2,173) (2,212)
Other ................................................................... 357 --
--------- ---------
Net cash flows from investing activities ........................... (1,816) (2,212)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings under revolving credit facility .................. 26,341 45,037
Payments on long-term debt .............................................. (111) (122)
Payment of deferred financing costs ..................................... (2,917) --
Other ................................................................... 750 (849)
--------- ---------
Net cash flows from financing activities ........................... 24,063 44,066
--------- ---------
NET INCREASE (DECREASE) IN CASH .......................................... (23,115) 2,148
CASH AND CASH EQUIVALENTS, beginning of period ........................... 26,841 566
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ................................. $ 3,726 $ 2,714
========= =========
CASH PAID FOR:
Interest ................................................................ $ 2,835 $ 1,201
========= =========
Income taxes ............................................................ $ 20 $ 19
========= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited condensed consolidated statements.
F-28
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
The condensed consolidated financial statements include the accounts of
London Fog Industries, Inc., a Delaware corporation, and its subsidiaries (the
Company). The Company designs, markets and distributes men's and women's
rainwear and men's, women's and children's outerwear and skiwear and related
accessories under the LONDON FOG(Reg. TM) brand name, the PACIFIC TRAIL(Reg. TM)
brand name and related brand names. The Company sells its products to a variety
of apparel retailers located throughout the United States. Also, the Company
receives licensing revenues from licensing agreements with third parties which
provide for the manufacture and marketing of various apparel and accessories
under trade names owned by the Company. In addition, certain of the Company's
revenues are generated directly from consumers through its chain of retail
stores (primarily factory outlet stores) located in the United States and Puerto
Rico.
The condensed consolidated financial statements for the thirteen weeks
ended May 30, 1998, and the fourteen weeks ended May 31, 1997, are unaudited,
but, in the opinion of management, such condensed consolidated financial
statements have been presented on the same basis as the audited consolidated
financial statements for the year ended February 28, 1998, and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for these periods. These
condensed consolidated financial statements do not include all disclosures
normally included with audited consolidated financial statements and,
accordingly, should be read in conjunction with the audited consolidated
financial statements and notes as of February 28, 1998.
Sales of rainwear and outerwear, the principal products of the Company, are
highly seasonal. Historically, the Company has realized its highest level of
sales in its third fiscal quarter (September through November) and its lowest
level of sales in its first fiscal quarter (March through May). The results of
operations for the periods presented are not necessarily indicative of the
operating results for an entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of operating and petty cash balances that
are used to conduct day-to-day business operations, as well as cash equivalents
having a maturity of 90 days or less.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company depreciates
property, plant and equipment and amortizes leasehold improvements on a
straight-line basis over the following useful lives:
ASSET CLASS USEFUL LIVES
- ------------------------------------------- -----------------------
Building and improvements .......... 5-30 years
Equipment .......................... 3-15 years
Furniture and fixtures ............. 2-10 years
Leasehold improvements ............. Initial term of lease,
not to exceed 15 years
Goodwill
Goodwill, representing the excess of acquisition cost over the fair value
of net identifiable assets acquired, is being amortized on a straight-line basis
over a period of forty years. The Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining esti-
F-29
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
mated useful life of goodwill may warrant revision or that the remaining balance
of goodwill may not be recoverable. When factors indicate that goodwill should
be evaluated for possible impairment, the Company uses an estimate of the
related business units' operating earnings over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
Deferred Financing Costs
Deferred financing costs are amortized over the lives of the related debt
using the effective interest method.
New Accounting Pronouncements
During June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" (SFAS 130), which establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Management intends to implement the pronouncement at
year end Fiscal 1999 and expects to report changes in the Company's minimum
pension liability as a component of comprehensive income.
During June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (SFAS 131), which establishes
a new approach for determining segments within a company and reporting
information on those segments. SFAS 131 is effective for fiscal years beginning
after December 15, 1997. Management intends to adopt the pronouncement at year
end Fiscal 1999. The Company has not yet completed its analysis of which
operating segments, if any, on which it will report.
During June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), which standardizes
the accounting for derivative instruments by requiring that an entity recognize
those items as assets or liabilities in the statement of financial position and
measure them at fair value. SFAS 133 is effective for fiscal quarters of all
fiscal years beginning after June 15, 1999. Management believes that the
implementation of SFAS 133 would not have had a material effect on the
accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results could
differ from these estimates.
3. INVENTORIES
Inventories consisted of the following as of February 28, 1998 and May 30,
1998 (dollars in thousands):
FEBRUARY 28, MAY 30,
1998 1998
-------------- ------------
(UNAUDITED)
Finished goods .......... $52,716 $ 73,625
Work in process ......... 8,883 43,205
Raw materials ........... 8,130 7,999
------- --------
$69,729 $124,829
======= ========
F-30
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. RESTRUCTURING CHARGES
During the thirteen week period ended May 30, 1998, the Company recorded a
restructuring charge of $3.5 million related to the planned closing or
downsizing of five of the Company's eight test retail superstores open as of May
30, 1998. These superstores, the first of which was opened in May 1997, were
opened to test an alternative, larger format retail distribution channel for the
Company's product offerings to supplement the Company's traditional wholesale
and factory outlet store retail distribution channels. Based on initial sales
results for these test retail superstores, management has determined that most
of the existing superstores, many of which are greater than 25,000 square feet
in size, are too large to generate acceptable profitability within an acceptable
period of time. As a result, the Company has adopted a plan to restructure its
larger concept store strategy by closing or significantly downsizing most of the
Company's current superstores and focusing on a store size significantly smaller
than 25,000 square feet. The restructuring charge of $3.5 million included an
accrual of $1.6 million for anticipated cash restructuring expenditures,
primarily to cover costs associated with amending or terminating store leases,
and $1.9 million of non-cash charges related to anticipated write-offs of fixed
assets in the stores to be closed or downsized.
During the fourteen week period ended May 31, 1997, the Company recorded a
restructuring charge of $3.5 million related to the closing of the Company's
Baltimore, Maryland rainwear manufacturing facility. In the fourth quarter of
Fiscal 1998, the Company increased the restructuring charge related to this
facility to $3.7 million.
5. EARNINGS PER SHARE
During 1997, the FASB issued Statement No. 128, "Earnings per Share" (SFAS
128), which establishes new standards for computing and presenting earnings per
share. SFAS 128 requires presentation of basic earnings per share and diluted
earnings per share. There were no adjustments to net income available to common
stockholders in computing diluted earnings per share for the periods presented.
The income (loss) available to common stockholders and the weighted average
shares used to calculate basic and diluted earnings per share in accordance with
SFAS 128 are as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
FOURTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 31, MAY 30,
1997 1998
------------- ------------
<S> <C> <C>
Net Loss ............................................................. $ 12,493 $ 13,242
Preferred stock dividends declarable ................................. 6,953 --
---------- ---------
Net loss available to common stockholders ............................ $ 19,446 $ 13,242
========== =========
Weighted average shares outstanding for basic earnings per share ..... 8,000,000 8,000,000
Dilutive effect of common stock equivalents .......................... -- --
---------- ---------
Weighted average shares outstanding for diluted earnings per share . 8,000,000 8,000,000
========== =========
Net loss per share available to common stockholders --
basic and diluted ................................................... $ (2.43) $ (1.66)
========== =========
</TABLE>
During the fourteen weeks ended May 31, 1997, dividends of $6,953 on the
17.5% cumulative voting preferred stock had accumulated and therefore are
deducted from earnings in arriving at net loss available to common stockholders.
However, given that such dividends had not been declared and that management
believed there was a remote chance that such dividends would be declared, the
Company has not recorded such dividends in the accompanying financial
statements.
F-31
<PAGE>
LONDON FOG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pursuant to the 1998 Recapitalization, on February 27, 1998, the Company
issued 8,000,000 shares of common stock. For purposes of calculating earnings
per share, all shares and per share amounts for the fourteen weeks ended May 31,
1997 have been restated to reflect the 1998 Recapitalization. Weighted average
shares outstanding for calculating diluted earnings per share include basic
shares outstanding, plus shares issuable upon the exercise of stock options,
using the treasury stock method. As of May 30, 1998, the Company had outstanding
stock options and warrants with an anti-dilutive effect of 1,910,194 shares and
610,758 shares, respectively.
6. SUMMARY FINANCIAL INFORMATION
The Notes are guaranteed, jointly and severally, on a senior subordinated
basis, by all of the Company's subsidiaries other than London Fog Raincoats
Limited, the Company's United Kingdom subsidiary (collectively, the "Subsidiary
Guarantors"). The obligations under the Notes are secured, on a senior
subordinated basis, by the capital stock of each Subsidiary Guarantor, and by
substantially all of the assets of the Company and each Subsidiary Guarantor.
The following represents summary financial information for London Fog
Industries, Inc., the Subsidiary Guarantors and London Fog Raincoats Limited
(dollars in thousands):
FOURTEEN WEEKS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
LONDON FOG SUBSIDIARY LONDON FOG
INDUSTRIES, INC. GUARANTORS RAINCOATS LIMITED CONSOLIDATED
------------------ ------------ ------------------- -------------
<S> <C> <C> <C> <C>
Net sales ....................... $ 17,374 $ 24,228 $ 76 $ 41,678
Gross profit .................... 5,740 8,893 23 14,656
Net income (loss) ............... (6,765) (5,728) -- (12,493)
Current assets .................. $ 63,105 $ 48,077 $800 $ 111,982
Non-current assets .............. 99,610 7,136 -- 106,746
Current liabilities ............. 48,334 2,891 36 51,261
Non-current liabilities ......... 342,003 23 -- 342,026
</TABLE>
THIRTEEN WEEKS ENDED MAY 30, 1998
<TABLE>
<CAPTION>
LONDON FOG SUBSIDIARY LONDON FOG
INDUSTRIES, INC. GUARANTORS RAINCOATS LIMITED CONSOLIDATED
------------------ ------------ ------------------- -------------
<S> <C> <C> <C> <C>
Net sales ....................... $ 14,520 $ 22,032 $ 75 $ 36,627
Gross profit .................... 5,487 8,366 21 13,874
Net income (loss) ............... (6,833) (6,410) 1 (13,242)
Current assets .................. $ 77,890 $ 61,372 $361 $ 139,623
Non-current assets .............. 98,895 7,714 -- 106,609
Current liabilities ............. 98,359 3,500 30 101,889
Non-current liabilities ......... 161,720 23 -- 161,743
</TABLE>
F-32
<PAGE>
====================================== ======================================
No person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus, and, if
given or made, such information or
representations must not be relied
upon as having been authorized. This
Prospectus does not constitute an LONDON FOG INDUSTRIES, INC.
offer to sell or the solicitation of
an offer to buy any securities other
than the securities to which it
relates or an offer to sell or the
solicitation of an offer to buy such
securities in any circumstances in
which such offer or solicitation is
unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder
shall, under any circumstances, create
any implication that there has been no 8,614,525 SHARES COMMON STOCK
change in the affairs of the Company AND
since the date hereof or that the $100,000,000 10% SENIOR SUBORDINATED
information contained herein is NOTES DUE 2003
correct as of any time subsequent to
its date.
--------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ............... 2
Risk Factors ..................... 10
The Recapitalization. ............ 17
The Company ...................... 17
Use of Proceeds .................. 18 [LONDON FOG LOGO]
Dividend Policy .................. 18
Capitalization ................... 19
Unaudited Pro Forma Consolidated
Financial Data ................ 20
Selected Historical Consolidated
Financial Data ................ 22
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations .................... 25
Business ......................... 33
Management ....................... 46
Principal and Selling [PACIFIC TRAIL LOGO]
Securityholders ............... 52
Plan of Distribution ............. 53
Description of Common Stock ...... 54
Description of Notes ............. 54
Description of Warrants .......... 79
Description of Certain
Indebtedness .................. 80
Validity of the Common Stock and
the Notes ..................... 81
Experts .......................... 81
Available Information ............ 81
Index to Financial Statements .... F-1
-------------------------------- _____________, 1998
Until __________, 2000 all
dealers that effect transactions in
these securities, whether or not
participating in this offering, may be
required to deliver a Prospectus. This
is in addition to the dealers'
obligation to deliver a Prospectus
when acting as underwriters and with
respect to their unsold allotments or
subscriptions.
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses and costs expected to
be incurred by the Registrant in connection with the issuance and distribution
of the securities being registered under this registration statement. Except for
the SEC filing fees, all expenses have been estimated and are subject to future
contingencies.
SEC registration fee .................................... $43,172
Legal fees and expenses* ................................
Printing and engraving expenses* ........................
Accounting fees and expenses* ...........................
Other legal fees and expenses* ..........................
Transfer agent and registrar fees and expenses* .........
Miscellaneous* .......................................... -------
Total* .................................................. $
=======
- ----------
* To be provided in an amendment to this Registration Statement.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SIXTH of the Registrant's Certificate of Incorporation provides
that the Registrant shall indemnify and hold harmless, to the fullest extent
authorized by the Delaware General Corporation Law, its officers and directors
against all expenses, liability and loss actually and reasonably incurred in
connection with any civil, criminal, administrative or investigative action,
suit or proceeding. The Certificate of Incorporation also extends
indemnification to those serving at the request of the Registrant as directors,
officers, employees or agents of other enterprises.
In addition, Article FIFTH of the Registrant's Certificate of Incorporation
provides that no director shall be personally liable for monetary damages for
any breach of fiduciary duty. Article FIFTH does not eliminate a director's
liability (i) for a breach of his or her duty of loyalty to the Registrant or
its stockholders, (ii) for acts of intentional misconduct, (iii) under Section
174 of the Delaware General Corporation Law for unlawful declarations of
dividends or unlawful stock purchases or redemptions, or (iv) for any
transactions from which the director derived an improper personal benefit.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or officers acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification may be
made only for expenses actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the
II-1
<PAGE>
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
Pursuant to Section 145 of the General Corporation Law of the State of
Delaware and the Certificate of Incorporation and the By-laws of the Registrant,
the Registrant maintains directors' and officers' liability insurance coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold
by the Registrant within the past three years which were not registered under
the Securities Act:
(1) In connection with a recapitalization of the Registrant, on February
27, 1998, the Registrant restructured its outstanding subordinated debt and
equity capitalization (the "1998 Recapitalization"). Pursuant to the 1998
Recapitalization an aggregate of approximately $257.2 million of the
Registrant's outstanding debt, including accrued interest, was restructured
into (i) $100 million of 10% senior subordinated notes (the "Notes") and (ii)
8,000,000 shares (the "Shares") of newly issued common stock of the
Registrant, representing 100% of the outstanding shares of common stock. The
Shares and Notes were issued to the holders of the Registrant's debt.
(2) Also in connection with the 1988 Recapitalization, all of the
aggregate outstanding shares of cumulative preferred stock as of February 27,
1998 (represented by 106,764 shares of Series A cumulative voting preferred
stock and 8,479 shares of Series B cumulative voting preferred stock) were
converted into warrants to purchase at an exercise price of $15.72 an
aggregate of 530,726 shares of common stock of the Registrant and issued to
the holders of the Registrant's cumulative preferred stock.
(3) Pursuant to the Registrant's 1998 Stock Option Plan, (i) options to
purchase 1,925,334 shares have been granted to officers and other employees
of the Registrant, in each case exercisable for $2.00 per share (ii) and
warrants to purchase 80,667 shares have been granted to officers and other
employees of the Registrant, in each case exercisable for $15.72.
The sales described in this Item 15 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. The foregoing
transactions did not involve a distribution or public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2 Master Restructuring Agreement dated as of February 27, 1998, among the
Registrant, the Subsidiary Guarantors (as defined therein), the Lenders
(as defined therein), The Chase Manhattan Bank, as agent for the
Lenders, and the Existing Management Holders (as defined therein)
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Loan and Security Agreement (the "Loan and Security Agreement"), dated
as of May 15, 1997, by and among Congress Financial Corporation, the
Registrant, Pacific Trail, Inc., and The Scranton Outlet Corporation.
4.2 Amendment No. 1 to the Loan and Security Agreement, dated February 27,
1998.
4.3 Amendment No. 2 to the Loan and Security Agreement, dated April 28,
1998.
4.4 Indenture dated as of February 27, 1998, between the Registrant and IBJ
Schroder Bank & Trust Company.
II-2
<PAGE>
5.1* Opinion of Proskauer Rose LLP
10.1 Registrant's 1998 Stock Option Plan
10.2 Form of Management Stock Option Agreement
10.3 Form of Robert E. Gregory, Jr.'s Option Agreement issued pursuant to the
Registrant's 1998 Stock Option Plan
10.4 Form of C. William Crain's Option Agreement issued pursuant to the
Registrant's 1998 Stock Option Plan
10.5 Registrant's Deferred Compensation Plan.
10.6 Form of Management Anti-dilution Warrant.
10.7 Form of 1998 Recapitalization Warrant.
10.8 Lease Agreement, dated May 4, 1994, between London Fog Corporation and
40th Street Associates (the "May 4 Lease").
10.9 Agreement dated August 11, 1994, between London Fog Corporation and 40th
Street Associates.
10.10 Assignment and Assumption of the May 4 Lease between London Fog
Corporation, as assignor, and London Fog Industries, Inc., as assignee.
10.11 Lease Agreement, dated August 23, 1994, between Pacific Trail, Inc. and
The Bartell Drug Company.
10.12 Lease Addendum between Pacific Trail, Inc. and the Bartell Drug Company.
10.13 Deed of Trust and Security Agreement dated December 27, 1989 by
Londontown Corporation to Daniel L. Wiencke and Jack N. Zemil, as
trustees for the benefit of MetLife Capital Credit Corporation.
10.14 Assignment of Leases and Rents dated December 27, 1989 by Londontown
Corporation to MetLife Capital Credit Corporation.
10.15 Deed of Trust Note dated December 27, 1989 signed by Londontown
Corporation, as borrower, in favor of MetLife Capital Credit
Corporation, as lender.
10.16 Second Amended and Restated Employment Agreement between Robert E.
Gregory, Jr. and the Registrant dated as of February 27, 1998.
10.17 Second Amended and Restated Employment Agreement between C. William
Crain and the Registrant dated as of February 27, 1998.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries.
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Proskauer Rose LLP (contained in opinion filed as Exhibit
5.1)
24.1 Power of Attorney (included on signature page)
25* Statement of Eligibility of Trustee
27.1 Financial Data Schedule
- ----------
* To be filed by amendment
(b) Financial Statement Schedules
The following financial statement schedule of the Registrant included
herein should be read in conjunction with the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Registration Statement.
Schedule II -- Valuation and Qualifying Accounts
All other schedules for the Registrant are omitted because either they are
not applicable or the required information is shown in the financial statements
or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this registration statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of Prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
LONDON FOG INDUSTRIES, INC.
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman, Chief Executive Officer and
Director
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Robert E. Gregory, Jr.,
Edward M. Krell and Stuart B. Fisher, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) and the Securities Act of 1933, to file the same
with all exhibits thereto and all other documents in connection therewith with
the Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts and
things requisite or necessary to be done, and to execute all such other
documents as they, or any of them, may deem necessary or desirable in connection
with the foregoing, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman, Chief Executive Officer and August 28, 1998
- ----------------------------- Director (principal executive officer)
Robert E. Gregory, Jr.
/s/ C. William Crain President and Chief Operating Officer August 28, 1998
- -----------------------------
C. William Crain
/s/ Edward M. Krell Executive Vice President and Chief August 28, 1998
- ----------------------------- Financial Officer (principal financial
Edward M. Krell and accounting officer)
/s/ James J. Gaffney Director August 28, 1998
- -----------------------------
James J. Gaffney
/s/ Walker Lewis Director August 28, 1998
- -----------------------------
Walker Lewis
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Christopher H. Smith Director August 28, 1998
- -----------------------------
Christopher H. Smith
/s/ Michael J. Starshak Director August 28, 1998
- -----------------------------
Michael J. Starshak
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th of August, 1998.
CLIPPER MIST, INC.
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ C. William Crain President and Director August 28, 1998
- -----------------------------
C. William Crain
/s/ Edward M. Krell Senior Vice President -- Finance August 28, 1998
- ----------------------------- and Director (principal financial
Edward M. Krell and accounting officer)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
LONDON FOG SPORTSWEAR, INC.
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ C. William Crain President and Director August 28, 1998
- -----------------------------
C. William Crain
/s/ Edward M. Krell Senior Vice President -- Finance August 28, 1998
- ----------------------------- and Director (principal financial
Edward M. Krell and accounting officer)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
MATTHEW MANUFACTURING CO., INC.
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ C. William Crain President and Director August 28, 1998
- -----------------------------
C. William Crain
/s/ Edward M. Krell Senior Vice President -- Finance August 28, 1998
- ----------------------------- and Director (principal financial
Edward M. Krell and accounting officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
PACIFIC TRAIL, INC.
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Robert E. Gregory, Jr.,
Edward M. Krell and Stuart B. Fisher, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) and the Securities Act of 1933, to file the same
with all exhibits thereto and all other documents in connection therewith with
the Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts and
things requisite or necessary to be done, and to execute all such other
documents as they, or any of them, may deem necessary or desirable in connection
with the foregoing, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- -------------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ William Dragon, Jr. President and Director August 28, 1998
- -----------------------------
William Dragon, Jr.
/s/ Edward M. Krell Senior Vice President -- Finance and August 28, 1998
- ----------------------------- Director (principal financial and
Edward M. Krell accounting officer)
/s/ C. William Crain Director August 28, 1998
- -----------------------------
C. William Crain
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
PTI HOLDING CORP.
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Robert E. Gregory, Jr.,
Edward M. Krell and Stuart B. Fisher, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) and the Securities Act of 1933, to file the same
with all exhibits thereto and all other documents in connection therewith with
the Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts and
things requisite or necessary to be done, and to execute all such other
documents as they, or any of them, may deem necessary or desirable in connection
with the foregoing, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ William Dragon, Jr. President and Director August 28, 1998
- -----------------------------
William Dragon, Jr.
/s/ Edward M. Krell Senior Vice President-Finance and August 28, 1998
- ----------------------------- Director (principal financial and
Edward M. Krell accounting officer)
/s/ C. William Crain Director August 28, 1998
- -----------------------------
C. William Crain
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
PTI TOP COMPANY, INC.
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Robert E. Gregory, Jr.,
Edward M. Krell and Stuart B. Fisher, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) and the Securities Act of 1933, to file the same
with all exhibits thereto and all other documents in connection therewith with
the Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts and
things requisite or necessary to be done, and to execute all such other
documents as they, or any of them, may deem necessary or desirable in connection
with the foregoing, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ William Dragon, Jr. President and Director August 28, 1998
- -----------------------------
William Dragon, Jr.
/s/ Edward M. Krell Senior Vice President-Finance and August 28, 1998
- ----------------------------- Director (principal financial and
Edward M. Krell accounting officer)
/s/ C. William Crain Director August 28, 1998
- -----------------------------
C. William Crain
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
STAR SPORTSWEAR MANUFACTURING
CORPORATION
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ Edward M. Krell President and Director August 28, 1998
- -----------------------------
C. William Crain
/s/ Edward M. Krell Senior Vice President-Finance and August 28, 1998
- ----------------------------- Director (principal financial and
Edward M. Krell accounting officer)
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
THE MOUNGER CORPORATION
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Robert E. Gregory, Jr.,
Edward M. Krell and Stuart B. Fisher, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) and the Securities Act of 1933, to file the same
with all exhibits thereto and all other documents in connection therewith with
the Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts and
things requisite or necessary to be done, and to execute all such other
documents as they, or any of them, may deem necessary or desirable in connection
with the foregoing, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ William Dragon, Jr. President and Director August 28, 1998
- -----------------------------
William Dragon, Jr.
/s/ Edward M. Krell Senior Vice President-Finance and August 28, 1998
- ----------------------------- Director (principal financial and
Edward M. Krell accounting officer)
/s/ C. William Crain Director August 28, 1998
- -----------------------------
C. William Crain
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
THE SCRANTON OUTLET CORPORATION
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ C. William Crain President and Director August 28, 1998
- -----------------------------
C. William Crain
/s/ Edward M. Krell Senior Vice President-Finance and August 28, 1998
- ----------------------------- Director (principal financial and
Edward M. Krell accounting officer)
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of August, 1998.
WASHINGTON HOLDING COMPANY
By:/s/ Robert E. Gregory, Jr.
----------------------------------------
Robert E. Gregory, Jr.
Chairman and Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Robert E. Gregory, Jr. Chairman and Director (principal August 28, 1998
- ----------------------------- executive officer)
Robert E. Gregory, Jr.
/s/ C. William Crain President and Director August 28, 1998
- -----------------------------
C. William Crain
/s/ Edward M. Krell Senior Vice President-Finance and August 28, 1998
- ----------------------------- Director (principal financial and
Edward M. Krell accounting officer)
</TABLE>
II-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
London Fog Industries, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of London Fog Industries, Inc. included in this
prospectus and have issued our report thereon dated April 3, 1998. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The accompanying Schedule of Valuation and Qualifying Accounts
is the responsibility of the company's management and is presented for the
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
April 3, 1998
S-1
<PAGE>
SCHEDULE II
LONDON FOG INDUSTRIES, INC
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND CHARGED TO END OF
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS (A) PERIOD
- ----------------------------------------- -------------- ------------ ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Fiscal 1996
Allowance for doubtful accounts ......... $2,825 $ 954 $ -- $1,036 $2,743
Fiscal 1997
Allowance for doubtful accounts ......... 2,743 381 -- 1,139 1,985
Fiscal 1998
Allowance for doubtful accounts ......... 1,985 (490) -- 258 1,237
</TABLE>
- ----------
(a) Amounts written off net of recoveries on accounts previously written off.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- -----------------------------------------------------------------------
<S> <C>
2 Master Restructuring Agreement dated as of February 27, 1998, among the
Registrant, the Subsidiary Guarantors (as defined therein), the Lenders
(as defined therein), The Chase Man- hattan Bank, as agent for the
Lenders, and the Existing Management Holders (as defined therein)
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Loan and Security Agreement (the "Loan and Security Agreement"), dated
as of May 15, 1997, by and among Congress Financial Corporation, the
Registrant, Pacific Trail, Inc., and The Scranton Outlet Corporation.
4.2 Amendment No. 1 to the Loan and Security Agreement, dated February 27,
1998.
4.3 Amendment No. 2 to the Loan and Security Agreement, dated April 28,
1998.
4.4 Indenture dated as of February 27, 1998, between the Registrant and IBJ
Schroder Bank & Trust Company.
5.1* Opinion of Proskauer Rose LLP
10.1 Registrant's 1998 Stock Option Plan
10.2 Form of Management Stock Option Agreement
10.3 Form of Robert E. Gregory, Jr.'s Option Agreement issued pursuant to the
Registrant's 1998 Stock Option Plan
10.4 Form of C. William Crain's Option Agreement issued pursuant to the
Registrant's 1998 Stock Option Plan
10.5 Registrant's Deferred Compensation Plan.
10.6 Form of Management Anti-dilution Warrant.
10.7 Form of 1998 Recapitalization Warrant.
10.8 Lease Agreement, dated May 4, 1994, between London Fog Corporation and
40th Street Associates (the "May 4 Lease").
10.9 Agreement dated August 11, 1994, between London Fog Corporation and 40th
Street Associates.
10.10 Assignment and Assumption of the May 4 Lease between London Fog
Corporation, as assignor, and London Fog Industries, Inc., as assignee.
10.11 Lease Agreement, dated August 23, 1994, between Pacific Trail, Inc. and
The Bartell Drug Company.
10.12 Lease Addendum between Pacific Trail, Inc. and the Bartell Drug Company.
10.13 Deed of Trust and Security Agreement dated December 27, 1989 by
Londontown Corporation to Daniel L. Wiencke and Jack N. Zemil, as
trustees for the benefit of MetLife Capital Credit Corporation.
10.14 Assignment of Leases and Rents dated December 27, 1989 by Londontown
Corporation to MetLife Capital Credit Corporation.
10.15 Deed of Trust Note dated December 27, 1989 signed by Londontown
Corporation, as borrower, in favor of MetLife Capital Credit
Corporation, as lender.
10.16 Second Amended and Restated Employment Agreement between Robert E.
Gregory, Jr. and the Registrant dated as of February 27, 1998.
10.17 Second Amended and Restated Employment Agreement between C. William
Crain and the Registrant dated as of February 27, 1998.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries.
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Proskauer Rose LLP (contained in opinion filed as Exhibit
5.1)
24.1 Power of Attorney (included on signature page)
25* Statement of Eligibility of Trustee
27.1 Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment
EXHIBIT 2
================================================================================
MASTER RESTRUCTURING AGREEMENT
among
LONDON FOG INDUSTRIES, INC.,
THE EXISTING MANAGEMENT HOLDERS,
THE SEVERAL LENDERS
PARTIES HERETO
and
THE CHASE MANHATTAN BANK,
as Agent
Dated as of February 27, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS............................................. 2
1.1 Defined Terms................................................ 2
1.2 Other Definitional Provisions................................ 9
SECTION 2. MERGER OF LFI MERGER CORP. WITH AND INTO
LONDON FOG............................................ 10
2.1 Formation of LFI Merger Corp................................. 10
2.2 Filing of Certificate of Merger; Effect of Merger............ 10
SECTION 3. TREATMENT OF CONGRESS; RESTRUCTURE OF EXISTING
SUBORDINATED OBLIGATIONS; TREATMENT OF
EXISTING EQUITY AND MANAGEMENT HOLDERS;
ALLOCATION............................................ 11
3.1 Treatment of Existing Congress Obligations................... 11
3.2 Restructure of Existing Subordinated Obligations............. 11
3.3 Treatment of Existing Series B Equity Holders................ 14
3.4 Treatment of Management Holders.............................. 14
3.5 Old Debt Agreements Superseded............................... 15
3.6 Cancellation of Old Master Restructuring Agreement........... 15
3.7 Existing Management Holders' Employment Agreements........... 15
SECTION 4. APPOINTMENT OF BOARD OF DIRECTORS....................... 16
4.1 Board of Directors........................................... 16
SECTION 5. SHELF REGISTRATION...................................... 16
5.1 Shelf Registration........................................... 16
5.2 Registration Procedures...................................... 17
5.3 Registration Expenses........................................ 20
5.4 Indemnification.............................................. 20
SECTION 6. REPRESENTATIONS AND WARRANTIES.......................... 20
6.1 No Material Tax Liability.................................... 20
6.2 Capitalization............................................... 21
6.3 Corporate Existence; Compliance with Law..................... 21
6.4 Corporate Power; Authorization; Enforceable
Obligations................................................ 21
6.5 No Legal Bar................................................. 22
- i -
<PAGE>
Page
----
6.6 No Material Litigation....................................... 22
6.7 No Default................................................... 22
SECTION 7. CONDITIONS PRECEDENT.................................... 22
7.1 Conditions to Restructure of Existing Obligations............ 22
SECTION 8. MISCELLANEOUS........................................... 25
8.1 Amendments and Waivers....................................... 25
8.2 Notices...................................................... 26
8.3 Payment of Expenses.......................................... 26
8.4 Counterparts................................................. 27
8.5 Severability................................................. 27
8.6 Integration.................................................. 27
8.7 GOVERNING LAW................................................ 27
8.8 Submission To Jurisdiction; Waivers.......................... 28
8.9 Acknowledgements............................................. 28
8.10 WAIVERS OF JURY TRIAL........................................ 29
- ii -
<PAGE>
SCHEDULES
1A Lender Allocation Schedule
1B Existing Series B Equity Allocation Schedule
1C Management Holder Allocation Schedule
2 Additional Management Holders
2.1 Distribution of Common Stock of LFI Merger Corp.
3.2 Legend
5.4 Indemnification with Respect to Shelf Registration Statement
6.2 Capitalization of London Fog
8.2 Address for Notices
EXHIBITS
A Amended and Restated By-Laws
B Amended and Restated Certificate of Incorporation
C-1 Second Amended and Restated Employment Agreement With
Respect to Robert E. Gregory, Jr.
C-2 Second Amended and Restated Employment Agreement With
Respect to C. William Crain.
D Amendment to Senior Loan Agreement
E-1 Agreement of Merger
E-2 Certificate of Merger
F Existing Series B Equity Holder Consent and Joinder
G Management Stock Option Agreements
H Form of Management Warrant
I Form of Merger Warrant
J New Subordinated Note Indenture
K Registration Rights Agreement
L Stock Subscription Agreement
M Form of Closing Certificate
N-1 Opinion of Proskauer Rose LLP
N-2 Opinion of Stuart Fisher, Esq.
N-3 Opinion of Young, Conaway, Stargatt & Taylor
- iii -
<PAGE>
MASTER RESTRUCTURING AGREEMENT, dated as of February 27, 1998, among
(i) London Fog Industries, Inc., a Delaware corporation ("London Fog"), (ii) the
Subsidiary Guarantors (as defined in Subsection 1.1), (iii) the several banks
and other financial institutions from time to time parties to the Term Loan
Agreement and the Note Agreement (each as defined in the Recitals) (the
"Lenders"), (iv) The Chase Manhattan Bank, a New York banking corporation, as
agent for the Lenders (in such capacity, the "Agent"), and (v) the Existing
Management Holders (as defined in subsection 1.1).
W I T N E S S E T H :
WHEREAS, London Fog, the Lenders and the Agent are parties to a Term
Loan Agreement dated as of May 31, 1995 (as heretofore amended, supplemented or
otherwise modified, the "Term Loan Agreement"), pursuant to which loans to
London Fog by the Lenders in the original aggregate principal amount of
$175,000,000 plus interest accreted and accrued and unpaid thereon are
outstanding;
WHEREAS, London Fog, the Lenders and the Agent are parties to a Note
Agreement dated as of May 31, 1995 (as heretofore amended, supplemented or
otherwise modified, the "Note Agreement"; together with the Term Loan Agreement,
collectively, together with all related documents, instruments and agreements,
including, without limitation, predecessor agreements, the "Old Debt
Agreements"), pursuant to which loans to London Fog by the Lenders in the
original aggregate principal amount of $36,000,000 plus interest accreted and
unpaid thereon are outstanding;
WHEREAS, pursuant to the Subsidiary Guarantee dated as of May 20, 1994
(as amended by Amendment No. 1 thereto dated as of May 31, 1995, the "Existing
Subsidiaries Guarantee") by the Subsidiary Guarantors in favor of the Agent for
the ratable benefit of the Lenders, the Subsidiary Guarantors guaranteed the
Existing Subordinated Obligations (as defined in subsection 1.1).
WHEREAS, Congress, London Fog and the Subsidiary Guarantors are
parties to a Loan and Security Agreement dated as of May 15, 1997, (as
heretofore or as may hereafter be amended, supplemented or otherwise modified,
the "Senior Loan Agreement"), pursuant to which Congress (as defined in
subsection 1.1) has from time to time made loans to, and issued letters of
credit for the account of, London Fog, guaranteed by the Subsidiary Guarantors;
WHEREAS, the Lenders and the Existing Series B Equity Holders (as
defined in subsection 1.1) hold approximately 88% and 7%, respectively, of the
issued and outstanding Old Preferred Stock (as defined in subsection 1.1) (on a
fully diluted basis) and the Existing
<PAGE>
2
Management Holders hold Old Series C Options (as defined in subsection 1.1) to
purchase 5% of the Old Preferred Stock (on a fully diluted basis);
WHEREAS, (a) London Fog, the Lenders and the Agent have engaged in
negotiations to effect (i) a restructuring of London Fog's obligations under the
Old Debt Agreements and (ii) a recapitalization of London Fog, including the
merger of LFI Merger Corp. with and into London Fog, with London Fog being the
surviving corporation and (b) London Fog and Congress have engaged in
negotiations to effect certain modifications to the Senior Loan Agreement; and
WHEREAS, (a) London Fog has requested, and the Agent and the Lenders
are agreeable, that the obligations of London Fog and the Subsidiary Guarantors
under the Old Debt Agreements be restructured, LFI Merger Corp. be merged with
and into London Fog, and London Fog be recapitalized, as contemplated by this
Agreement, and (b) London Fog has requested, and Congress is agreeable, that the
Senior Loan Agreement be modified, as contemplated by the Amendment to Senior
Loan Agreement (as defined in subsection 1.1).
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Additional Management Holders": the individuals listed on Schedule 2
and any other individuals to whom Management Stock Options are issued after
the date hereof, together with their successors, heirs and assigns.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either (a) to vote securities
having 10% or more of the ordinary voting power for the election of
directors of such Person or (b) to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Agent": The Chase Manhattan Bank, as the agent for the Lenders under
this Agreement and the other Restructuring Documents.
"Agreement": this Master Restructuring Agreement, as amended,
supplemented or otherwise modified from time to time.
"Agreement of Merger": the Agreement of Merger dated as of February
27, 1998 between LFI Merger Corp. and London Fog, substantially in the form
of Exhibit E-1.
<PAGE>
3
"Amended and Restated By-Laws": the amended and restated by-laws of
London Fog, substantially in the form of Exhibit A.
"Amended and Restated Certificate of Incorporation": the amended and
restated certificate of incorporation of London Fog, substantially in the
form of Exhibit B.
"Amended and Restated Management Holders' Employment Agreements ": the
collective reference to (a) the Second Amended and Restated Employment
Agreement dated as of February 27, 1998 between Robert E. Gregory, Jr. and
London Fog and (b) the Second Amended and Restated Employment Agreement
dated as of February 27, 1998 between C. William Crain and London Fog,
substantially in the forms of Exhibits C-1 and C-2, respectively.
"Amendment to Senior Loan Agreement": Amendment No. 1 dated as of
February 27, 1998 among London Fog, Pacific Trail, Inc., The Scranton
Outlet Corporation and Congress with respect to the Senior Loan Agreement,
substantially in the form of Exhibit D.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person that is not a
corporation and any and all warrants or options to purchase any of the
foregoing.
"Certificate of Merger": the Certificate of Merger of LFI Merger Corp.
with and into London Fog, substantially in the form of Exhibit E-2.
"Chase": The Chase Manhattan Bank, a New York banking corporation.
"Closing": the time on the Closing Date at which the conditions
precedent set forth in subsection 7.1 shall have been satisfied or waived
in accordance with the terms hereof.
"Closing Date": the date on which the conditions precedent set forth
in subsection 7.1 shall have been satisfied or waived in accordance with
the terms hereof.
"Commission": the United States Securities and Exchange Commission or
any successor thereto.
"Congress": Congress Financial Corporation, a California corporation.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
<PAGE>
4
"Exchange Act": the Securities Exchange Act of 1934, as amended, and
any successor legislation thereto.
"Existing Congress Obligations": the indebtedness and other
obligations of London Fog and the Subsidiary Guarantors to Congress under
the Senior Loan Agreement and the other Financing Agreements referred to
therein.
"Existing Management Holders": Robert E. Gregory, Jr. and C. William
Crain, together with their successors, heirs and assigns.
"Existing Management Holders' Employment Agreements": the collective
reference to (a) the Amended and Restated Employment Agreement dated as of
May 31, 1995 between Robert E. Gregory, Jr. and London Fog and (b) the
Amended and Restated Employment Agreement dated as of May 31, 1995 between
C. William Crain and London Fog.
"Existing Series B Equity Allocation Schedule": the Existing Series B
Equity Allocation Schedule annexed as Schedule 1B, setting forth for each
Existing Series B Equity Holder, the number of Warrants to be delivered,
pursuant to the Certificate of Merger, to such Existing Series B Equity
Holder at the Closing.
"Existing Series B Equity Holder Consent and Joinder": the Existing
Series B Equity Holder Consent and Joinder, substantially in the form of
Exhibit F.
"Existing Series B Equity Holders": all holders as of the Closing Date
of Old Series B Preferred Stock.
"Existing Subordinated Obligations": the indebtedness and other
obligations of London Fog and the Subsidiary Guarantors to the Lenders
under the Old Debt Agreements and the other Loan Documents referred to
therein.
"Form S-1": such form of registration statement under the Securities
Act as in effect on the date hereof or any successor form thereto.
"Form S-3": such form of registration statement under the Securities
Act as in effect on the date hereof or any successor form thereto.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Holders": the holders from time to time of the Registerable
Securities.
<PAGE>
5
"Lender Allocation Schedule": the Lender Allocation Schedule annexed
as Schedule 1A, setting forth for each Lender (a) the principal amount of
the New Subordinated Indebtedness to be issued at the Closing to such
Lender, (b) the number of shares of New Common Stock to be delivered to
such Lender at the Closing and (c) the number of Merger Warrants to be
delivered, pursuant to the Certificate of Merger and subsection 3.2(d), to
such Lender at the Closing.
"Lenders": the financial institutions parties to the Old Debt
Agreements, together with their successors and assigns.
"LFI Merger Corp.": LFI Merger Corp., a Delaware corporation.
"Management Anti-Dilution Warrants": the warrants of London Fog issued
to the Management Holders terminating on the seventh anniversary of the
Closing Date which are exercisable, upon the terms and conditions contained
therein, in the aggregate into 83,799 shares of the New Common Stock
(representing in the aggregate approximately 0.79% of the issued and
outstanding New Common Stock after giving effect to the issuance of
2,000,000 shares of New Common Stock pursuant to the Management Stock
Options and after giving effect to the exercise of the Management
Anti-Dilution Warrants and the exercise of the Merger Warrants),
substantially in the form of Exhibit H.
"Management Holder Allocation Schedule": the Management Holder
Allocation Schedule annexed as Schedule 1C, setting forth for each
Management Holder (i) the number of Management Stock Options to be
delivered to such Management Holder at the Closing and (ii) the number of
Management Anti-Dilution Warrants to be delivered to such Management Holder
at the Closing.
"Management Holders": the collective reference to the Existing
Management Holders and the Additional Management Holders.
"Management Stock Options": the options granted to the Management
Holders representing the right to acquire an aggregate of 2,000,000 shares
of the New Common Stock (representing in the aggregate 20% of the issued
and outstanding New Common Stock after giving effect to the issuance of
2,000,000 shares of New Common Stock pursuant to the Management Stock
Options but not giving effect to the exercise of the Management
Anti-Dilution Warrants and the exercise of the Merger Warrants) pursuant
to, and upon the terms and conditions contained in, the Management Stock
Option Agreements.
"Management Stock Option Agreements": the Management Stock Option
Agreements between London Fog and each Management Holder with respect to
the Management Stock Options, substantially in the form of Exhibit G.
<PAGE>
6
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of London Fog and its Subsidiaries taken as a whole or (b) the
validity or enforceability of this Agreement or any of the other
Restructuring Documents or the rights or remedies of the Agent or the
Lenders hereunder or thereunder.
"Merger Warrants": the warrants of London Fog issued to each holder of
Old Series B Preferred Stock or each holder of common stock of LFI Merger
Corp., as the case may be, terminating on the seventh anniversary of the
Closing Date which are exercisable in the aggregate into 530,726 shares of
the New Common Stock (representing in the aggregate 5.0% of the issued and
outstanding New Common Stock after giving effect to the issuance of
2,000,000 shares of New Common Stock pursuant to the Management Stock
Options and after giving effect to the exercise of the Management
Anti-Dilution Warrants and the exercise of the Merger Warrants) issued
pursuant to, and upon the terms and conditions contained in, the
Certificate of Merger, substantially in the form of Exhibit I.
"New Common Stock": the common stock, $.01 par value per share, of
London Fog, authorized pursuant to the Amended and Restated Certificate of
Incorporation.
"New Subordinated Indebtedness": the $100,000,000 of subordinated
indebtedness issued to the Lenders pursuant to the New Subordinated Note
Indenture.
"New Subordinated Note Indenture": the Indenture dated as of February
27, 1998 among London Fog, the Subsidiary Guarantors and IBJ Schroder Bank
& Trust Company, as Trustee, substantially in the form of Exhibit J.
"New Subordinated Notes": the Initial Notes and, when issued in
exchange for Initial Notes upon the effectiveness of the Shelf Registration
Statement as provided in the New Subordinated Note Indenture, the Exchange
Notes, in each case as defined in the New Subordinated Note Indenture.
"Old By-Laws": the by-laws of London Fog in effect immediately prior
to the Closing.
"Old Certificate of Incorporation": the certificate of incorporation
of London Fog in effect immediately prior to the Closing.
"Old Common Stock": the common stock, $.01 par value per share, of
London Fog issued and outstanding immediately prior to the filing of the
Certificate of Merger pursuant to subsection 2.2(a).
"Old Debt Agreements': as defined in the Recitals hereto.
<PAGE>
7
"Old Master Restructuring Agreement": the Master Restructuring
Agreement dated as of May 31, 1995, as amended, among London Fog, London
Fog Corporation, certain of the Existing Series B Equity Holders, the
Existing Management Holders, the Lenders and the Agent.
"Old Preferred Stock": the 17.5% Per Annum Cumulative Preferred Stock,
Series A-1, A-2, B and C, of London Fog issued and outstanding immediately
prior to the filing of the Certificate of Merger pursuant to subsection
2.2(a).
"Old Series A Preferred Stock": the collective reference to the Old
Series A-1 Preferred Stock and Old Series A-2 Preferred Stock.
"Old Series A-1 Preferred Stock": the 17.5% Per Annum Cumulative
Preferred Stock, Series A-1, of London Fog, issued pursuant to, and upon
the terms and conditions contained in, the Old Certificate of
Incorporation.
"Old Series A-2 Preferred Stock": the 17.5% Per Annum Cumulative
Preferred Stock, Series A-2, of London Fog, issued pursuant to, and upon
the terms and conditions contained in, the Old Certificate of
Incorporation.
"Old Series B Preferred Stock": the 17.5% Per Annum Cumulative
Preferred Stock, Series B, of London Fog, issued pursuant to, and upon the
terms and conditions contained in, the Old Certificate of Incorporation.
"Old Series C Option Agreement": the Series C Option Agreement dated
as of May 31, 1995 between the Existing Management Holders and London Fog
with respect to the Old Series C Options.
"Old Series C Options": the options to purchase shares of Old Series C
Preferred Stock granted to the Existing Management Holders pursuant to, and
upon the terms and conditions contained in, the Old Series C Option
Agreement.
"Old Series C Preferred Stock": the 17.5% Per Annum Cumulative
Preferred Stock, Series C, of London Fog, issuable pursuant to, and upon
the terms and conditions contained in, the Old Certificate of
Incorporation.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Preliminary Prospectus": each preliminary prospectus included in a
Registration Statement or in any amendment thereto prior to the date on
which such Registration Statement is declared effective under the
Securities Act, including any prospectus filed with the Commission pursuant
to Rule 424(a) under the Securities Act.
<PAGE>
8
"Prospectus": each prospectus included in a Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective
Registration Statement in accordance with Rule 430A), together with any
supplement thereto, as filed with, or transmitted for filing to, the
Commission pursuant to Rule 424(b) under the Securities Act.
"Registerable Securities": (a) the New Subordinated Notes, (b) the New
Common Stock and (c) any other securities issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, the New Subordinated Notes or the New Common
Stock.
"Registration": registration of securities pursuant to the Securities
Act.
"Registration Rights Agreement": the Registration Rights Agreement
dated as of February 27, 1998 with respect to shares of New Common Stock
issued (i) upon exercise of the Merger Warrants and (ii) upon exercise of
the Management Anti- Dilution Warrants, substantially in the form of
Exhibit K.
"Registration Statement": any registration statement (including the
Preliminary Prospectus, the Prospectus, any amendments (including any
post-effective amendments) thereof, any supplements and all exhibits
thereto and any documents incorporated therein by reference pursuant to the
rules and regulations of the Commission), filed by London Fog with the
Commission which complies with the requirements of the Securities Act and
the rules and regulations of the Commission thereunder.
"Required Lenders": the holders of at least a majority in outstanding
principal amount of the New Subordinated Indebtedness.
"Requirement of Law": as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Restructuring Documents": this Agreement, the New Subordinated Note
Indenture, the New Subordinated Notes, the Registration Rights Agreement,
the Amended and Restated By-Laws, the Amended and Restated Certificate of
Incorporation, the Certificate of Merger and any other agreement or
instrument executed and delivered in connection herewith and therewith.
"Rule 415": Rule 415 promulgated by the Commission under the
Securities Act or any successor to such Rule.
<PAGE>
9
"Rule 424(b)": Rule 424(b) promulgated by the Commission under the
Securities Act or any successor to such Rule.
"Rule 430A": Rule 430A promulgated by the Commission under the
Securities Act or any successor to such Rule.
"Securities Act": the Securities Act of 1933, as amended, or any
successor legislation thereto.
"Senior Loan Agreement": as defined in the Recitals hereto.
"Shelf Filing Period": the period from 90 days following the Closing
Date to July 31, 1998.
"Shelf Registration Period": as defined in subsection 5.1(b).
"Shelf Registration Statement": as defined in subsection 5.1(a).
"Stock Subscription Agreement": the Stock Subscription Agreement dated
as of February 27, 1998 among the Lenders and LFI Merger Corp.,
substantially in the form of Exhibit L.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of London Fog.
"Subsidiary Guarantors": as defined in the New Subordinated Note
Indenture.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the
defined meanings when used in the other Restructuring Documents or any
certificate or other document made or delivered pursuant hereto or thereto.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
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10
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. MERGER OF LFI MERGER CORP. WITH AND INTO LONDON FOG
2.1 Formation of LFI Merger Corp. Effective on the Closing Date, but
immediately prior to the action taken pursuant to subsection 2.2, (a) the
Lenders and LFI Merger Corp. shall (i) enter into the Stock Subscription
Agreement pursuant to which the Lenders shall contribute to LFI Merger Corp. (A)
all shares of Old Series A Preferred Stock held by the Lenders (an aggregate of
106,763.589 shares) and (B) all shares of Old Common Stock held by the Lenders
(an aggregate of 80,000 shares) in exchange for 100% of the issued and
outstanding shares of common stock of LFI Merger Corp. (an aggregate of
245,839.5 shares), which shares of common stock of LFI Merger Corp. shall
thereupon be distributed to each Lender on a pro rata basis as set forth on
Schedule 2.1, and (ii) take all action necessary to consummate the merger set
forth in subsection 2.2 and otherwise comply with the provisions of the Stock
Subscription Agreement and (b) LFI Merger Corp. and London Fog shall enter into
the Agreement of Merger and take all action necessary to consummate the merger
set forth in subsection 2.2.
2.2 Filing of Certificate of Merger; Effect of Merger. (a) Effective
on the Closing Date, contemporaneously with the consummation of the transactions
set forth in Section 3, London Fog shall file or cause to be filed with the
Secretary of State of the State of Delaware the Certificate of Merger.
(b) Upon the filing of the Certificate of Merger and pursuant to the
Agreement of Merger, the following events shall occur contemporaneously with the
transactions set forth in subsections 3.1, 3.2, 3.3 and 3.4:
(i) LFI Merger Corp. shall merge with and into London Fog, with London Fog
being the surviving corporation;
(ii) the Old Preferred Stock shall be cancelled and retired and cease
to exist;
(iii) the Old Common Stock shall be cancelled and retired and cease to
exist;
(iv) all options (including, without limitation, the Old Series C
Options) to purchase Capital Stock of London Fog and warrants exercisable
into shares of Capital Stock of London Fog shall be cancelled and retired
and cease to exist;
(v) the common stock of LFI Merger Corp. shall be cancelled and
retired and cease to exist;
<PAGE>
11
(vi) each share of Old Series B Preferred Stock or other rights in
respect thereof immediately prior to cancellation thereof as set forth in
clause (ii) above shall be converted into 4.60536 Merger Warrants for each
such share of Old Series B Preferred Stock (and for each share into which
any options or warrants may have been exercisable);
(vii) each share of common stock of LFI Merger Corp. or other rights
in respect thereof immediately prior to cancellation thereof as set forth
in clause (v) above shall be converted into 2.0 Merger Warrants for each
such share of common stock (and for each share into which any options or
warrants may have been exercisable);
(viii) each share of Old Common Stock or other rights in respect
thereof immediately prior to cancellation thereof as set forth in clause
(iii) above shall be converted into $.01 in cash for each such share of Old
Common Stock (and for each share into which any options or warrants may
have been exercisable);
(ix) the Amended and Restated Certificate of Incorporation shall, as
set forth in the Certificate of Merger and pursuant to section 251(e) of
the Delaware General Corporation Law, without the necessity of any further
action by any party, be the certificate of incorporation of London Fog; and
(x) London Fog shall assume, by operation of law, all debts,
liabilities, obligations and contracts of LFI Merger Corp. and shall, by
operation of law, continue to be obligated for all debts, liabilities and
contracts of London Fog, and all property, real or personal, including,
without limitation, all of the Capital Stock of the Subsidiary Guarantors,
and all rights, privileges and powers of each of LFI Merger Corp. and
London Fog shall vest in London Fog, in accordance with the Delaware
General Corporation Law.
<PAGE>
12
SECTION 3. TREATMENT OF CONGRESS; RESTRUCTURE OF EXISTING SUBORDINATED
OBLIGATIONS; TREATMENT OF EXISTING EQUITY AND MANAGEMENT
HOLDERS; ALLOCATION; CERTAIN AGREEMENTS
3.1 Treatment of Existing Congress Obligations. At the Closing,
subject to the terms and conditions hereof, contemporaneously with the filing of
the Certificate of Merger pursuant to subsection 2.2(a), London Fog, the
Subsidiary Guarantors and Congress shall execute and deliver the Amendment to
Senior Loan Agreement, which Amendment shall, among other things, provide for
Congress' consent (to the extent required) to the transactions contemplated
hereby.
3.2 Restructure of Existing Subordinated Obligations. At the Closing,
subject to the terms and conditions hereof and in exchange for the consideration
set forth below, contemporaneously with the filing of the Certificate of Merger
pursuant to subsection 2.2(a), the Existing Subordinated Obligations shall be
restructured as follows:
(a) New Subordinated Notes. In renewal and extension of (but not in
substitution and exchange for, or in payment or novation of) $100,000,000
in aggregate principal amount of the Existing Subordinated Obligations,
London Fog shall issue, and the Subsidiary Guarantors shall guarantee, on
the terms and conditions contained in the New Subordinated Note Indenture,
$100,000,000 in aggregate principal amount of the New Subordinated Notes,
which New Subordinated Notes shall (i) be allocated among the Lenders in
accordance with the Lender Allocation Schedule, (ii) bear interest and be
paid in accordance with the terms of the New Subordinated Note Indenture,
(iii) until the effectiveness of the Shelf Registration Statement as
provided in Section 5, bear the legend substantially as set forth in
Schedule 3.2 and (iv) be otherwise subject to the terms and conditions of
the New Subordinated Note Indenture. To satisfy the requirements of this
subsection 3.2(a), at the Closing London Fog shall be permitted to issue
for the benefit of the Lenders temporary promissory notes representing
$100,000,000 in aggregate principal amount of the New Subordinated Notes to
be issued pursuant to the New Subordinated Note Indenture; provided that
the temporary promissory notes shall be exchanged for the New Subordinated
Notes to be issued pursuant to the New Subordinated Note Indenture as soon
as practicable after the Closing.
(b) New Common Stock. In satisfaction of the remainder of the
aggregate outstanding amount of the Existing Subordinated Obligations
(including, without limitation, (i) interest accrued and unpaid on the
remaining Existing Subordinated Obligations to the Closing Date and (ii)
fees (other than fees required to be paid at Closing pursuant to subsection
7.1(l)) accrued and unpaid on the remaining Existing Subordinated
Obligations to the Closing Date), London Fog shall issue to the Lenders an
aggregate of 8,000,000 shares of New Common Stock, which New Common Stock
shall (A) represent in the aggregate 80% of the New Common Stock issued and
outstanding after giving effect to the issuance of 2,000,000 shares of New
Common Stock pursuant to
<PAGE>
13
the Management Stock Options but not giving effect to the exercise of the
Management Anti-Dilution Warrants and the exercise of the Merger Warrants,
(B) be allocated among the Lenders in accordance with the Lender Allocation
Schedule and (C) until the effectiveness of the Shelf Registration
Statement as provided in Section 5, bear the legend substantially as set
forth in Schedule 3.2. To satisfy the requirements of this subsection
3.2(b), at the Closing London Fog shall be permitted to issue for the
benefit of the Lenders a global stock certificate in respect of the New
Common Stock, representing in the aggregate the number of shares of New
Common Stock to be issued to the Lenders pursuant to this subsection
3.2(b); provided that the New Common Stock shall be allocated among the
Lenders pursuant to clause (B) of the immediately preceding sentence as
soon as practicable after the Closing.
(c) Cancellation of Notes Under Old Debt Agreements; Certain
Acknowledgements. At the Closing, upon the consummation of the transactions
set forth in clauses (a) and (b) above, each Lender shall deliver to London
Fog all the promissory notes issued under, and evidencing the indebtedness
under, the Old Debt Agreements, which promissory notes, whether or not in
such Lender's possession and whether or not delivered pursuant to this
subsection 3.2(c), shall be deemed superseded, cancelled and replaced
(provided that the indebtedness evidenced by said notes shall have been
renewed and extended in the amount of $100,000,000 plus interest accruing
thereon after the date hereof and otherwise satisfied pursuant to
subsections 3.2(a) and (b)). Each Lender acknowledges, effective upon the
Closing, that such Lender shall hold no indebtedness or other obligations
or security interests under the Old Debt Agreements, except security
interests held by the Agent under the Old Debt Agreements that will be held
solely by the Trustee under the New Subordinated Note Indenture. The Agent
acknowledges that upon the Closing it has delivered to London Fog (and to
Congress) a true and correct copy of the Register of the Existing
Subordinated Obligations, as such Register has been maintained by the Agent
under the Old Debt Agreements, showing the registered holders of the
Existing Subordinated Obligations as the date hereof, based on the
information provided to the Agent in connection with the execution and
delivery of the Old Debt Agreements and any subsequent assignments of the
Existing Subordinated Obligations. The Agent further acknowledges that upon
execution and delivery of the New Subordinated Note Indenture, the Agent
shall no longer hold any security interests in or liens on any asset or
property of London Fog (after giving effect to the merger pursuant to
Section 2) or any of the Subsidiary Guarantors, and all such security
interests and liens previously held by the Agent shall, pursuant to the New
Subordinated Note Indenture and the Security Documents (as defined in the
New Subordinated Note Indenture), be held solely by the Trustee under the
New Subordinated Note Indenture for the benefit of the holders of the New
Subordinated Notes.
(d) Merger Warrants Effective upon the Closing, pursuant to the
Certificate of Merger and as set forth in subsection 2.2(b)(vii), London
Fog shall issue to the Lenders 491,679 in aggregate number of Merger
Warrants, which Merger Warrants shall (i) be exercisable into approximately
4.63% of the New Common Stock issued and outstanding
<PAGE>
14
after giving effect to the issuance of 2,000,000 shares of New Common Stock
pursuant to the Management Stock Options and after giving effect to the
exercise of the Management Anti-Dilution Warrants and the exercise of the
Merger Warrants and (ii) be allocated among the Lenders in accordance with
the Lender Allocation Schedule. To satisfy the requirements of this
subsection 3.2(d), at the Closing London Fog shall be permitted to issue
for the benefit of the Lenders a global warrant certificate representing
the aggregate number of Merger Warrants to be issued to the Lenders
pursuant to this subsection 3.2(d); provided that the Merger Warrants shall
be allocated among the Lenders pursuant to clause (ii) of the immediately
preceding sentence as soon as practicable after the Closing.
(e) Accredited Investor or QIB. Each Lender represents that it is
either an "accredited investor" within the meaning of Rule 501 under the
Securities Act or a QIB (as defined in the New Subordinated Note
Indenture), and is acquiring the New Subordinated Notes, the New Common
Stock and the Merger Warrants for its own account without a view toward
resale or distribution in a manner that would violate applicable securities
laws.
3.3 Treatment of Existing Series B Equity Holders. Effective
upon the Closing, pursuant to the Certificate of Merger and as set forth in
subsection 2.2(b)(vi), London Fog shall issue to the Existing Series B Equity
Holders 39,047 in aggregate number of Merger Warrants, which Merger Warrants
shall (i) be exercisable in the aggregate into approximately 0.37% of the New
Common Stock issued and outstanding after giving effect to the issuance of
2,000,000 shares of New Common Stock pursuant to the Management Stock Options
and after giving effect to the exercise of the Management Anti-Dilution Warrants
and the exercise of the Merger Warrants and (ii) be allocated among the Existing
Series B Equity Holders in accordance with the Existing Series B Equity
Allocation Schedule. To satisfy the requirements of this subsection 3.3, at the
Closing London Fog shall be permitted to issue for the benefit of the Existing
Series B Equity Holders a global warrant certificate representing in the
aggregate the number of Merger Warrants to be issued to the Existing Series B
Equity Holders pursuant to this subsection 3.3; provided that the Merger
Warrants shall be allocated among the Existing Series B Equity Holders pursuant
to clause (ii) of the immediately preceding sentence as soon as practicable
after the Closing.
3.4 Treatment of Management Holders.
(a) Existing Management Holders. At the Closing, contemporaneously
with the filing of the Certificate of Merger pursuant to subsection 2.2(a),
London Fog shall issue to the Existing Management Holders Management Stock
Options representing the right to acquire in the aggregate 1,000,000 shares of
New Common Stock, which Management Stock Options shall (i) represent the right
to purchase in the aggregate 10.00% of the New Common Stock issued and
outstanding after giving effect to the issuance of 2,000,000 shares of New
Common Stock pursuant to the Management Stock Options but not giving effect to
the exercise of the Management Anti-Dilution Warrants and the exercise of the
Merger Warrants, (ii) be allocated among the Existing Management Holders in
accordance with the Management Holder Allocation
<PAGE>
15
Schedule and (iii) be otherwise subject to the terms and conditions of, and vest
in favor of the Existing Management Holders as set forth in, the relevant
Management Stock Option Agreement.
(b) Cancellation of Old Series C Options and Old Series C Stock Option
Agreement. At the Closing, immediately prior to the consummation of the
transaction set forth in clause (a) above, the Old Series C Option Agreement and
the Old Series C Options shall, without the necessity of further action by any
party, be deemed terminated and cancelled and shall be of no further force and
effect.
(c) Additional Management Holders. At the Closing, contemporaneously
with the filing of the Certificate of Merger pursuant to subsection 2.2(a), or
from time to time following the Closing, London Fog shall issue to the
Additional Management Holders Management Stock Options representing the right to
acquire in the aggregate 1,000,000 shares of New Common Stock, which Management
Stock Options shall (i) represent the right to purchase in the aggregate 10.00%
of the New Common Stock issued and outstanding after giving effect to the
issuance of 2,000,000 shares of New Common Stock pursuant to the Management
Stock Options but not giving effect to the exercise of the Management Anti-
Dilution Warrants and the Merger Warrants, (ii) be allocated among the
Additional Management Holders in accordance with the Management Holder
Allocation Schedule and (iii) be otherwise subject to the terms and conditions
of, and vest in favor of the Additional Management Holders as set forth in, the
relevant Management Stock Option Agreement.
(d) Management Anti-Dilution Warrants. At the Closing,
contemporaneously with the filing of the Certificate of Merger pursuant to
subsection 2.2(a), or from time to time following the Closing, London Fog shall
issue to the Management Holders 83,799 in aggregate number of Management
Anti-Dilution Warrants, which Management Anti-Dilution Warrants shall (i) be
exercisable in the aggregate into approximately 0.79% of the New Common Stock
issued and outstanding after giving effect to the issuance of 2,000,000 shares
of New Common Stock pursuant to the Management Stock Options and after giving
effect to the exercise of the Management Anti-Dilution Warrants and the exercise
of the Merger Warrants and (ii) be allocated among the Management Holders in
accordance with the Management Holder Allocation Schedule.
3.5 Old Debt Agreements Superseded. Upon the Closing, the Old Debt
Agreements shall be superseded by this Agreement, the New Subordinated Note
Indenture and (to the extent applicable) the other Restructuring Documents and
shall be of no further force and effect (provided that the Existing Subordinated
Obligations shall have been renewed, extended and otherwise satisfied pursuant
to subsections 3.2(a) and (b)).
3.6 Cancellation of Old Master Restructuring Agreement. Upon the
Closing, the Old Master Restructuring Agreement shall, with respect to each
party hereto party to the Old Master Restructuring Agreement and each Existing
Series B Equity Holder who executes and delivers the Existing Series B Equity
Holder Consent and Joinder, be deemed terminated and cancelled and shall be of
no further force and effect.
<PAGE>
16
3.7 Existing Management Holders' Employment Agreements. At the
Closing, subject to the terms and conditions hereof, each Existing Management
Holder and London Fog shall execute and deliver the Amended and Restated
Existing Management Holder Employment Agreement with respect to such Existing
Management Holder, which Agreement shall provide, among other things, that (a)
the term of such Existing Management Holder Employment Agreement shall be
extended for at least three years from the termination date thereof (as set
forth in Section 1 therein) and (b) commencing with the beginning of the fiscal
year ending in February 2000, the provisions contained in such Existing
Management Holder Employment Agreements providing for an annual bonus based on
6% of Consolidated EBITA (as defined therein), in the case of Robert E. Gregory,
Jr., or 4% of Consolidated EBITA (as defined therein), in the case of C. William
Crain, as the case may be, shall be deleted and replaced with provisions
providing for an annual bonus to be paid to each such Existing Management Holder
as may be determined by the then-current Board of Directors of London Fog or a
sub-committee thereof.
SECTION 4. APPOINTMENT OF BOARD OF DIRECTORS
4.1 Board of Directors. During the period from the Closing Date to the
date that the directors elected at the first annual meeting of stockholders
following the Closing Date scheduled for the purpose of electing directors
pursuant to section 211 of the Delaware General Corporation Law shall commence
serving their respective terms (such date, the "Outside New Board Date"), the
individuals currently serving as directors on the Board of Directors of London
Fog shall, in accordance with the terms of the Amended and Restated By-Laws,
continue to serve as directors; provided, however, that as soon as practicable
following the Closing Date but in no event later than the Outside New Board
Date, the Board of Directors of London Fog shall consist of five (5) individuals
who shall be elected in accordance with the terms of the Amended and Restated
Certificate of Incorporation and the Amended and Restated By-Laws; provided,
further, that four directors shall be elected, as set forth in the Amended and
Restated By-Laws, by the holders of the New Common Stock and the fifth director
shall be the Chairperson of the Board of Directors of London Fog who shall also
be the then-current Chief Executive Officer of London Fog.
SECTION 5. SHELF REGISTRATION
5.1 Shelf Registration. (a) London Fog shall prepare and, at any time
during the Shelf Filing Period, shall file with the Commission a "shelf"
Registration Statement on Form S-1 or Form S-3, as appropriate, relating to the
offer and sale of the Registerable Securities by the Holders from time to time
in accordance with the methods of distribution set forth in such Registration
Statement (the "Shelf Registration Statement").
(b) London Fog shall use its best reasonable efforts to have the Shelf
Registration Statement declared effective under the Securities Act by the
Commission no later than 135 days after the filing thereof and shall keep the
Shelf Registration Statement continuously effective for a period of two years
from the date on which the Shelf Registration Statement is declared
<PAGE>
17
effective under the Securities Act or such shorter period (in either such case,
such period being called the "Shelf Registration Period") that will terminate
when either (i) all the Registerable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement or (ii) all the Registerable Securities are eligible for sale pursuant
to Rule 144(k) promulgated under the Securities Act. London Fog shall be deemed
not to have used its reasonable best efforts to keep the Shelf Registration
Statement effective during the Shelf Registration Period if it voluntarily takes
any action that would result in Holders of Registerable Securities covered
thereby not being able to offer and sell such Registerable Securities during the
Shelf Registration Period unless such action is required by applicable law;
provided, however, that the foregoing shall not apply to actions taken by London
Fog in good faith and for valid business reasons (not including avoidance of its
obligations hereunder and under the other Restructuring Documents), including,
without limitation, the acquisition or divestiture of assets, so long as London
Fog within 120 days thereafter complies with the requirements of subsection
5.2(h). Any such period during which London Fog fails to keep the Shelf
Registration Statement effective and usable for offers and sales of Registerable
Securities is referred to as a "Suspension Period." A Suspension Period shall
commence on and include the date that London Fog gives notice that the Shelf
Registration Statement is no longer effective or the Prospectus included therein
is no longer usable for offers and sales of Registerable Securities and shall
end on the date when each Holder of Registerable Securities covered by such
Shelf Registration Statement either receives the copies of the supplemented or
amended Prospectus contemplated by subsection 5.2(h) or is advised in writing by
London Fog that use of the Prospectus may be resumed. If one or more Suspension
Periods occur, the two-year time period referenced above shall be extended by
the number of days included in each such Suspension Period.
(c) Notwithstanding any other provisions hereof, London Fog will
ensure that (i) any Shelf Registration Statement and any amendment thereto and
any Prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in
either case, other than with respect to information included therein in reliance
upon or in conformity with written information furnished to London Fog by or on
behalf of any Holder specifically for use therein (the "Holders' Information"))
does not, when it becomes effective, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading and (iii) any Prospectus forming
part of any Shelf Registration Statement, and any supplement to such Prospectus
(in either case, other than with respect to the Holders' Information), does not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) In the event the Shelf Registration Statement is filed on Form
S-1, upon satisfaction of the requirements therefor, London Fog may amend the
Shelf Registration Statement on Form S-1 to become a Registration Statement on
Form S-3.
5.2 Registration Procedures. In connection with the Shelf Registration
Statement, the following provisions shall apply:
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18
(a) London Fog shall furnish to each Holder, prior to the filing
thereof with the Commission, a copy of the Shelf Registration Statement and
each amendment thereto and each supplement, if any, to the Prospectus
included therein and shall use reasonable efforts to reflect in each such
document, when so filed with the Commission, such comments as one counsel
for the Holders reasonably may propose.
(b) London Fog shall advise each Holder, and, if requested by any such
Holder, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the Prospectus included in the Shelf Registration Statement until the
requisite changes have been made):
(i) when the Shelf Registration Statement and any amendment thereto
has been filed with the Commission and when such Shelf Registration
Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements to
the Shelf Registration Statement or the Prospectus included therein or for
additional information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of the Shelf Registration Statement or the initiation of
any proceedings for that purpose;
(iv) of the receipt by London Fog of any notification with respect to
the suspension of the qualification of the Registerable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(v) of the happening of any event that requires the making of any
changes in the Shelf Registration Statement or the Prospectus so that, as
of such date, the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(c) London Fog shall use its best reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the Shelf
Registration Statement at the earliest possible time.
(d) London Fog shall furnish to each Holder of Registerable Securities
included within the coverage of the Shelf Registration Statement, without
charge, at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if any Holder so requests in writing, all exhibits
(including those incorporated by reference).
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19
(e) London Fog shall, during the Shelf Registration Period, promptly
deliver to each Holder of Registerable Securities included within the
coverage of the Shelf Registration Statement, without charge, as many
copies of the Prospectus (including each Preliminary Prospectus) included
in such Shelf Registration Statement and any amendment or supplement
thereto as any such Holder may reasonably request; and London Fog consents
to the use of the Prospectus or any amendment or supplement thereto by each
of the selling Holders of Registerable Securities in connection with the
offering and sale of the Registerable Securities covered by the Prospectus
or any amendment or supplement thereto.
(f) Prior to any public offering of Registerable Securities pursuant
to the Shelf Registration Statement, London Fog shall use its best
reasonable efforts to register, qualify or cooperate with the Holders of
Registerable Securities included therein and their respective counsel in
connection with the registration or qualification of such Registerable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holder reasonably requests in writing and do any
and all other acts or things necessary or advisable to enable the offer and
sale in such jurisdictions of the Registerable Securities covered by such
Shelf Registration Statement; provided, however, that London Fog shall not
be required to qualify generally to do business in any jurisdiction where
it is not then so qualified or to take any action which would subject it to
general service of process or to taxation in any such jurisdiction where it
is not then so subject.
(g) London Fog shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registerable
Securities to be sold pursuant to the Shelf Registration Statement free of
any restrictive legends and in such denominations and registered in such
names as the Holders may request in writing prior to sales of Registerable
Securities pursuant to such Shelf Registration Statement.
(h) If (i) any event contemplated by clauses (b)(ii) through (v) above
occurs during the Shelf Registration Period or (ii) any Suspension Period
remains in effect more than 120 days after the occurrence of any event
contemplated by clauses (b)(ii) through (v) above, London Fog will promptly
prepare a post-effective amendment to the Shelf Registration Statement or a
supplement to the related Prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Registerable Securities
from a Holder, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(i) Not later than the effective date of the Shelf Registration
Statement, London Fog shall provide a CUSIP number for the Registerable
Securities and provide the applicable trustee or transfer agent with
printed certificates for the Registerable Securities, as the case may be,
in a form eligible for deposit with The Depository Trust Company.
<PAGE>
20
(j) London Fog shall comply with all applicable rules and regulations
of the Commission and will make generally available to the Holders as soon
as practicable after the effective date of the Shelf Registration Statement
an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act; provided that in no event shall such earnings statement be
delivered later than 45 days after the end of a 12-month period (or 90
days, if such period is a fiscal year) beginning with the first month of
London Fog's first fiscal quarter commencing after the effective date of
the applicable Registration Statement, which statements shall cover such
12-month period.
(k) London Fog shall cause the New Subordinated Note Indenture to be
qualified under the Trust Indenture Act of 1939, as amended, as required by
applicable law in a timely manner.
(l) London Fog may require each Holder of Registerable Securities to
be sold pursuant to the Shelf Registration Statement to furnish to London
Fog such information regarding such Holder and the distribution of such
Registerable Securities as London Fog may, from time to time, reasonably
require for inclusion in such Shelf Registration Statement, and London Fog
may exclude from such registration the Registerable Securities of any
Holder that fails to furnish such information within a reasonable time
after receiving such request.
(m) Each Holder agrees by acquisition of the Registerable Securities
that, upon receipt of any notice from London Fog (i) of a Suspension Period
under subsection 5.1(b) or (ii) pursuant to subsection 5.2(b)(ii) through
(v) hereof, such Holder will discontinue any disposition of the
Registerable Securities held by it until such Holder's receipt of copies of
the supplemental or amended Prospectus contemplated by subsection 5.2(h)
hereof or until advised in writing (the "Advice") by London Fog that the
use of the applicable Prospectus may be resumed. If London Fog shall give
any notice under subsection 5.2(b)(ii) through (v) during the Shelf
Registration Period, the two-year period referenced in the definition of
"Shelf Registration Period" in subsection 5.1(b) shall be extended by the
number of days during such period from and including the date of the giving
of such notice to and including the date when each seller of Registerable
Securities covered by such Shelf Registration Statement shall have received
(x) the copies of the supplemental or amended Prospectus contemplated by
subsection 5.2(h) (if an amended or supplemental Prospectus is required) or
(y) the Advice (if no amended or supplemental Prospectus is required).
5.3 Registration Expenses. London Fog shall bear all expenses incurred
in connection with the performance of its obligations under this Section 5 and
London Fog shall reimburse the Holders for the reasonable fees and disbursements
of Simpson Thacher & Bartlett, as counsel to the Holders, in connection with the
Shelf Registration Statement.
<PAGE>
21
5.4 Indemnification. In connection with the Shelf Registration
Statement or any Prospectus delivery pursuant thereto, London Fog shall
indemnify and hold harmless each Holder, its directors, officers, agents and
employees and each Person, if any, who controls such Holder within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act and the
directors, officers, agents and employees of such controlling Persons as set
forth on Schedule 5.4.
SECTION 6. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to restructure the Existing Subordinated Obligations, London Fog hereby
represents and warrants to the Agent and each Lender:
6.1 No Material Tax Liability. The restructuring or the
recapitalization of London Fog will not result in any material current cash tax
liability of London Fog or its Subsidiaries to the United States Internal
Revenue Service, except for liabilities pursuant to the alternative minimum tax.
6.2 Capitalization. The authorized and issued Capital Stock of London
Fog as at the Closing Date (after giving effect to the transactions contemplated
by this Agreement) is as set forth in Schedule 6.2. There are no outstanding
rights, options, warrants or agreements for the purchase from, or sale by,
London Fog of any shares of its Capital Stock, except as set forth on Schedule
6.2. All of the issued and outstanding shares of Capital Stock of London Fog are
validly issued, fully paid and non-assessable.
6.3 Corporate Existence; Compliance with Law. Each of London Fog and
its Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has the corporate
power and authority, and the legal right, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
6.4 Corporate Power; Authorization; Enforceable Obligations. Each of
London Fog and the Subsidiary Guarantors have the corporate power and authority,
and the legal right, to make, deliver and perform this Agreement and the other
Restructuring Documents to which it is a party and London Fog has taken all
necessary corporate action to authorize (a) the execution, delivery and
performance of this Agreement and the other Restructuring Documents to which it
is a party and (b) the issuance and delivery of the New Common Stock, the Merger
Warrants, the Management Anti-Dilution Warrants and the Management Stock
Options. Upon delivery to the Lenders of certificates representing the New
Common Stock, pursuant to this Agreement, such
<PAGE>
22
shares will be validly issued, full paid and non-assessable and free of
preemptive rights, and the Lenders will have good title to such shares, free and
clear of any lien. Upon issuance of shares of New Common Stock upon the exercise
of the Merger Warrants or the Management Anti-Dilution Warrants, as the case may
be, such shares will be validly issued, fully paid and non-assessable and free
of preemptive rights, and the holders thereof will have good title to such
shares, free and clear of any lien. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the execution, delivery,
performance, validity or enforceability of this Agreement and the other
Restructuring Documents to which London Fog and the Subsidiary Guarantors is a
party. This Agreement has been, and each other Restructuring Document to which
each of London Fog and the Subsidiary Guarantors is a party will be, duly
executed and delivered on behalf of London Fog and each such Subsidiary
Guarantor. This Agreement constitutes, and each other Restructuring Document to
which it is a party when executed and delivered will constitute, a legal, valid
and binding obligation of London Fog and each such Subsidiary Guarantor
enforceable against London Fog and each such Subsidiary Guarantor in accordance
with its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
6.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Restructuring Documents to which each of London Fog and
the Subsidiary Guarantors is a party will not violate any Requirement of Law or
Contractual Obligation of any of London Fog or its Subsidiaries and will not
result in, or require, the creation or imposition of an lien on any of their
respective properties or revenues pursuant to any such Requirement of Law or
Contractual Obligation.
6.6 No Material Litigation. No litigation by, investigation by, or
proceeding of or before any arbitrator or any Governmental Authority is pending
or, to the knowledge of London Fog, threatened by or against any of London Fog,
or its Subsidiaries or against any of their respective properties or revenues
(including after giving effect to the merger of LFI Merger Corp. with and into
London Fog) (a) with respect to any of the Restructuring Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
6.7 No Default. None of London Fog or any Subsidiary Guarantor is in
default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect.
After giving effect to the transactions contemplated hereby, no default or event
of default has occurred and is continuing under the Senior Loan Agreement or the
New Subordinated Note Indenture.
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23
SECTION 7. CONDITIONS PRECEDENT
7.1 Conditions to Restructure of Existing Obligations. The agreement
of each Lender to restructure the Existing Subordinated Obligations, the
agreement of Congress to enter into the Amendment to the Senior Loan Agreement,
the agreement of each Lender and each Existing Management Holder to recapitalize
London Fog and the effectiveness of this Agreement is subject to the
satisfaction (unless otherwise waived to the extent permitted pursuant to
subsection 8.1), immediately prior to or concurrently with such restructuring on
the Closing Date, of the following conditions precedent:
(a) Restructuring Documents. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of each of
the parties hereto, with a counterpart for each party hereto, (ii) the New
Subordinated Note Indenture, executed and delivered by a duly authorized
officer of each of the parties thereto, together with all related
subordinated loan documents required to be executed and delivered
thereunder, with a counterpart for each Lender, and (iii) the Amendment to
the Senior Loan Agreement, executed and delivered by a duly authorized
officer of each of the parties thereto.
(b) Related Agreements. The Agent shall have received, with a copy for
each Lender, such other documents or instruments as may be reasonably
requested by the Agent, including, without limitation, a copy of any debt
instrument, security agreement or other material contract to which London
Fog or its Subsidiaries may be a party, including without limitation, (i)
the Amended and Restated Management Holders' Employment Agreements, (ii)
the Registration Rights Agreement and (iii) the Guarantees, the Security
Documents and the Subordination Agreement (each as defined in the New
Subordinated Note Indenture).
(c) Closing Certificate. The Agent shall have received, with a
counterpart for each Lender, a certificate of London Fog and each
Subsidiary Guarantor, dated the Closing Date, substantially in the form of
Exhibit M, with appropriate insertions and attachments, satisfactory in
form and substance to the Agent, executed by the President or any Vice
President and the Secretary or any Assistant Secretary of London Fog or
such Subsidiary Guarantor, as applicable.
(d) Corporate Proceedings. The Agent shall have received, with a
counterpart for each Lender, a copy of the resolutions, in form and
substance satisfactory to the Agent, of the Board of Directors (and, where
applicable, the stockholders) of each of London Fog, each Subsidiary
Guarantor and LFI Merger Corp. authorizing (i) the execution, delivery and
performance of the Restructuring Documents to which it is a party, (ii) the
restructure and recapitalization contemplated hereunder and (iii) the
merger of LFI Merger Corp. with and into London Fog, each certified by the
Secretary or an Assistant Secretary of London Fog, such Subsidiary
Guarantor or LFI Merger Corp., as applicable, as of the Closing Date, which
certificate shall be in form and substance satisfactory to the Agent
<PAGE>
24
and shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(e) Corporate Documents. The Agent shall have received, (i) with a
counterpart for each Lender, true and complete copies of the Amended and
Restated Certificate of Incorporation and Amended and Restated By-Laws of
London Fog certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of London Fog and (ii)
with a counterpart for each Lender, true and complete copies of the
certificate of incorporation and by-laws of each Subsidiary Guarantor,
certified as of the Closing Date as complete and correct copies thereof by
the Secretary or an Assistant Secretary of the applicable Subsidiary
Guarantor.
(f) Legal Opinions. (i) The Agent shall have received, with a
counterpart for each Lender, the following executed legal opinions:
(A) the legal opinion of Proskauer Rose LLP, special counsel
to London Fog and the Subsidiary Guarantors, substantially in the form
of Exhibit N-1;
(B) the legal opinion of Stuart Fisher, Esq., general
counsel of London Fog, substantially in the form of Exhibit N-2; and
(C) the legal opinion of Young, Conaway, Stargatt & Taylor,
special Delaware counsel to London Fog and the Subsidiary Guarantors,
substantially in the form of Exhibit N-3.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent may reasonably
require. Congress may rely on the provisions of the legal opinions referred
to above as may be specified therein.
(g) Delivery of New Common Stock. The Agent shall have received the
certificates or a global certificate representing the New Common Stock to
be issued to the Lenders in accordance with the Lender Allocation Schedule.
(h) Delivery of Lenders' Merger Warrants. The Agent shall have
received the certificates or a global certificate representing the Merger
Warrants to be issued to the Lenders in accordance with the Lender
Allocation Schedule.
(i) No Default. No Default or Event of Default shall have occurred and
be continuing under the Senior Loan Agreement or the New Subordinated Note
Indenture.
(j) Delivery of Existing Series B Equity Holders' Merger Warrants. The
Existing Series B Equity Holders shall have received the certificates or a
global certificate representing the Merger Warrants to be issued to the
Existing Series B Equity Holders
<PAGE>
25
pursuant to the Certificate of Merger and in accordance with the Existing
Series B Equity Holder Allocation Schedule.
(k) Management Stock Option Agreement. The Existing Management Holders
and London Fog shall have received, with a counterpart for the Agent and
each Lender and Congress, the Management Stock Option Agreements, with
respect to such Existing Management Holders, executed and delivered by the
parties thereto.
(l) Fees and Expenses. London Fog shall have reimbursed, with respect
to invoices received at least one Business Day prior to the Closing Date,
each Lender and the Agent for all its reasonable costs and expenses,
including, without limitation, (i) the reasonable fees and disbursements of
counsel to each Lender and the Agent (including Simpson Thacher & Bartlett
and the allocated fees and expenses of in-house counsel) and (ii) the
reasonable fees and expenses of Alvarez & Marsal, Inc., in connection with
the restructure and recapitalization contemplated hereby; provided that
with respect to invoices received by London Fog thereafter, London Fog
shall reimburse the entity submitting such invoice in accordance with this
Agreement as soon as practicable after receipt of such invoice.
(m) Agreement of Merger; Certificate of Merger. (i) The Agent shall
have received, with a copy for each Lender, a copy of the Agreement of
Merger, executed and delivered by a duly authorized officer of each of the
parties thereto. (ii) London Fog shall have filed or caused to be filed
with the Secretary of State of the State of Delaware, and the Secretary of
State of the State of Delaware shall have accepted for filing, the
Certificate of Merger.
(n) Amended and Restated Certificate of Incorporation.
Contemporaneously with the filing of the Certificate of Merger pursuant to
subsection 7.1(m), London Fog shall have filed or caused to be filed with
the Secretary of State of the State of Delaware, and the Secretary of State
of the State of Delaware shall have accepted for filing, the Amended and
Restated Certificate of Incorporation.
(o) Management Anti-Dilution Warrants. The Management Holders
receiving Management Stock Options at the Closing shall have received the
certificates or a global certificate representing the Management
Anti-Dilution Warrants to be issued to such Management Holders in
accordance with the Management Holder Allocation Schedule.
(p) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Restructuring
Documents shall be reasonably satisfactory in form and substance to the
Agent, and the Agent shall have received such other documents and legal
opinions in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
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26
SECTION 8. MISCELLANEOUS
8.1 Amendments and Waivers. Neither this Agreement, nor any terms
hereof, may be amended, waived, supplemented or modified except in accordance
with the provisions of this subsection 8.1. The Agent, the Required Lenders,
London Fog and the Existing Management Holders may from time to time, (a) enter
into written amendments, supplements or modifications hereto for the purpose of
adding any provisions to this Agreement or changing in any manner the rights of
the parties hereunder or (b) waive, on such terms and conditions as the parties
hereto may specify in such instrument, any of the requirements of this
Agreement; provided, however, that any such waiver and any such amendment,
supplement or modification which shall amend, modify or waive (i) any provisions
of subsection 3.1, and any corresponding definition in subsection 1.1, shall
only require the consent of each of London Fog, the Agent and the Required
Lenders, (ii) any provisions of Section 2, subsection 3.3 and Section 5, and any
corresponding definition of subsection 1.1, shall only require the consent of
each of London Fog, the Agent and the Required Lenders, (iii) any provisions of
subsection 3.2, and any corresponding definition of subsection 1.1, shall only
require the consent of each of London Fog, the Agent and each Lender affected
thereby, (iv) any provisions of subsections 3.4 and 3.7, and any corresponding
definition in subsection 1.1, shall only require the consent of each of London
Fog, the Agent, the Required Lenders and the Existing Management Holders and (v)
any provisions of subsections 3.5 and 3.6 and Section 4, and any corresponding
definition in subsection 1.1, shall only require the consent of each of London
Fog, the Agent and the Required Lenders. Any such waiver and any such amendment,
supplement or modification shall apply equally to, and shall be binding upon all
of, the parties hereto and all future holders of the New Subordinated
Indebtedness.
8.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of London Fog and the Agent, and as
set forth in Schedule 8.2 in the case of the other parties hereto, or to such
other address as may be hereafter notified by the respective parties hereto and
their successors and assigns:
London Fog: London Fog Industries, Inc.
1332 Londontown Boulevard
Eldersburg, Maryland 21784
Attention: Edward M. Krell
Telecopy: 410-549-8499
with a copy to: London Fog Industries, Inc.
8 West 40th Street
New York, New York 10018
Attention: Stuart Fisher, Esq.
Telecopy: 212-790-3195
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27
The Agent: The Chase Manhattan Bank
270 Park Avenue, 30th Floor
New York, New York 10017
Attention: Mr. Charles O. Freedgood
Telecopy: 212-661-8396
provided that any notice, request or demand to or upon the Agent and the Lenders
shall not be effective until received.
8.3 Payment of Expenses. London Fog agrees (a) to pay or reimburse the
Agent for all its out-of-pocket costs and expenses incurred in connection with
the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Restructuring Documents and any
other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Agent, (b) to pay or reimburse each Lender and the Agent for all
its costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Restructuring
Documents and any such other documents, including, without limitation, the fees
and disbursements of counsel (including the allocated fees and expenses of
in-house counsel) to each Lender and of counsel to the Agent, (c) to pay,
indemnify, and hold each Lender and the Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Restructuring
Documents and any such other documents, and (d) to pay, indemnify, and hold each
Lender and the Agent and their respective officers, directors, partners,
members, employees, affiliates, agents and controlling persons (each, an
"indemnitee") harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Restructuring Documents and any such other documents,
including, without limitation, any of the foregoing relating to the use of
proceeds of the loans or the violation of, noncompliance with or liability
under, any environmental law applicable to the operations of London Fog, any of
its Subsidiaries or any of their respective properties (all the foregoing in
this clause (d), collectively, the "indemnified liabilities"), provided, that
London Fog shall have no obligation hereunder to any indemnitee with respect to
indemnified liabilities to the extent such indemnified liabilities are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of such indemnitee. The
agreements in this subsection 8.3 shall survive repayment of the Senior Loan
Agreement and the New Subordinated Indebtedness, and all other amounts payable
under the Restructuring Documents.
<PAGE>
28
8.4 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with London Fog and the Agent.
8.5 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.6 Integration. This Agreement and the other Restructuring Documents
represents the agreement of London Fog, the Subsidiary Guarantors, the Agent,
the Lenders and the Existing Management Holders with respect to the subject
matter hereof, and there are no promises, undertakings, representations or
warranties by London Fog, the Subsidiary Guarantors, the Agent, any Lender or
any Existing Management Holder relative to the subject matter hereof not
expressly set forth or referred to herein or in the other Restructuring
Documents.
8.7 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.8 Submission To Jurisdiction; Waivers. Each of London Fog, the
Subsidiary Guarantors, the Agent, the Lenders and the Existing Management
Holders hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Restructuring Documents
to which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the Courts
of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to London Fog
and the Subsidiary Guarantors at
<PAGE>
29
their respective addresses set forth in subsection 8.2 or at such other
address of which the Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this subsection 8.8 any special, exemplary, punitive or consequential
damages.
8.9 Acknowledgements. Each of London Fog, the Subsidiary Guarantors
and the Existing Management Holders hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Restructuring Documents;
(b) neither the Agent nor any Lender (as a lender) has any fiduciary
relationship with or duty to London Fog arising out of or in connection
with this Agreement or any of the other Restructuring Documents, and the
relationship between Agent and Lenders, on the one hand, and London Fog, on
the other hand, in connection herewith or therewith is solely that of
debtor and creditor and, in the case of the Lenders, stockholder thereof;
and
(c) no joint venture is created hereby or by the other Restructuring
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among London Fog, the Subsidiary Guarantors,
the Existing Management Holders and the Lenders.
8.10 WAIVERS OF JURY TRIAL. EACH OF LONDON FOG, THE SUBSIDIARY
GUARANTORS, THE EXISTING MANAGEMENT HOLDERS, THE AGENT AND THE LENDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER RESTRUCTURING DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
LONDON FOG INDUSTRIES, INC.
By:
------------------------------------
Name: Edward M. Krell
Title: Chief Financial Officer
CLIPPER MIST, INC.
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
LONDON FOG SPORTSWEAR, INC.
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
MATTHEW MANUFACTURING CO., INC.
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
PACIFIC TRAIL, INC.
By:
-----------------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
PTI HOLDING CORP.
By:
-----------------------------------
Name: Stuart B. Fisher
Title: Secretary
PTI TOP COMPANY, INC.
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
STAR SPORTSWEAR MANUFACTURING
CORP.
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
THE MOUNGER CORPORATION
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
THE SCRANTON OUTLET CORPORATION
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
WASHINGTON HOLDING COMPANY
By:
------------------------------------
Name: Stuart B. Fisher
Title: Secretary
ROBERT E. GREGORY, JR., as an Existing
Management Holder
----------------------------------------
C. WILLIAM CRAIN, as an Existing
Management Holder
----------------------------------------
THE CHASE MANHATTAN BANK, as Agent
and as a Lender
By:
------------------------------------
Name:
Title:
<PAGE>
BIII CAPITAL PARTNERS L.P.
By:
------------------------------------
Name:
Title:
BAKER NYE SPECIAL CREDITS, INC.
By:
------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
------------------------------------
Name:
Title:
BEAR STEARNS & CO. INC.
By:
-------------------------------------
Name:
Title:
CIBC OPPENHEIMER CORP.
By: Contrarian Capital Advisors, L.L.C.,
its duly authorized agent
By:
------------------------------------
Name:
Title:
<PAGE>
CITIBANK, N.A.
By:
------------------------------------
Name:
Title:
CONTRARIAN CAPITAL PARTNERS L.L.C.
By:
------------------------------------
Name:
Title:
DLJ CAPITAL FUNDING, INC.
By:
------------------------------------
Name:
Title:
DAYSTAR LLC, as agent
By:
------------------------------------
Name:
Title:
DAYSTAR SPECIAL SITUATIONS FUND LP
By:
------------------------------------
Name:
Title:
<PAGE>
FOOTHILL CAPITAL CORPORATION
By:
------------------------------------
Name:
Title:
MELLON BANK, N.A., as Trustee for First
Plaza Group Trust, as directed by
Contrarian Capital Advisors, L.L.C.
By:
------------------------------------
Name:
Title:
MWV SEPARATE ACCOUNT ALPHA, LLC
By:
------------------------------------
Name:
Title:
MORGENS WATERFALL DOMESTIC
PARTNERS, L.L.C.
By:
------------------------------------
Name:
Title:
NATEXIS BANQUE BCFE
By:
------------------------------------
Name:
Title:
<PAGE>
PRIME INCOME TRUST
By:
-----------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:
------------------------------------
Name:
Title:
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LONDON FOG INDUSTRIES, INC.
London Fog Industries, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
I. The name of the Corporation is "London Fog Industries,
Inc." The original Certificate of Incorporation was filed with the Secretary of
the State of Delaware on March 3, 1986 under the name "LT Corporation".
II. The text of the Certificate of Incorporation as amended
heretofore is hereby amended and restated to read as herein set forth in full:
FIRST: The name of the corporation is London Fog
Industries, Inc.
SECOND: The address of the corporation's registered office in
Delaware is 1013 Centre Road, Wilmington (Newcastle County), Delaware 19805. The
Prentice-Hall Corporation System, Inc. is the corporation's registered agent at
that address.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of
Delaware.
FOURTH: The corporation shall have the authority to issue
12,000,000 shares of common stock, par value $.01 per
share.
FIFTH: A director of this corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for the breach of any fiduciary duty as a director, except in the case of (a)
any breach of the director's duty of loyalty to the corporation or its
stockholders, (b) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (c) under section 174 of
the General Corporation Law of the State of Delaware or (d) for any transaction
from which the director derives an improper personal benefit. Any repeal or
modification of this Article by the stockholders of the corporation shall not
adversely affect any right or protection of a director of the corporation
existing
<PAGE>
at the time of such repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification.
SIXTH: The corporation shall, to the fullest extent permitted by
law, as the same is now or may hereafter be in effect, indemnify each person
(including the heirs, executors, administrators and other personal
representatives of such person) against expenses including attorneys' fees,
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by such person in connection with any threatened, pending or completed
suit, action or proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be involved by
reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving any other incorporated or unincorporated
enterprise in such capacity at the request of the corporation.
SEVENTH: Unless, and except to the extent that, the by-laws of
the corporation shall so require, the election of directors of the corporation
need not be by written ballot.
EIGHTH: The corporation hereby confers the power to adopt,
amend or repeal bylaws of the corporation upon the
directors.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation which restates, integrates and amends the provisions of the
Certificate of Incorporation of the Corporation, having been duly adopted in
accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, has been executed by its duly
authorized officer and has been affixed hereunto with the corporate seal this
27th day of February, 1998.
LONDON FOG INDUSTRIES, INC.
By:
----------------------------------
2
AMENDED AND RESTATED
BY-LAWS
OF
LONDON FOG INDUSTRIES, INC.
ARTICLE I
OFFICES.
SECTION 1. REGISTERED OFFICE -- The registered office of
LONDON FOG INDUSTRIES, INC. (the "Corporation") shall be established and
maintained at the office of The Prentice-Hall Corporation System, Inc. at The
Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington (Newcastle
County), Delaware 19805, and said company shall be the registered agent of the
Corporation in charge thereof.
SECTION 2. OTHER OFFICES -- The Corporation may have other
offices, either within or without the State of Delaware, at such place or places
as the Board of Directors may from time to time select or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS.
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders
for the election of directors, and for such other business as may be stated in
the notice of the meeting, shall be held on such date, at such place, either
within or without the State of Delaware, and at such time as the Board of
Directors, by resolution, shall determine and as set forth in the notice of the
meeting. If the Board of Directors fails so to determine the time and place of
the meeting, the annual meeting of stockholders shall be held at 9:00 am at the
registered office of the Corporation on the last Tuesday in May. If the date of
the annual meeting shall fall upon a legal holiday, the meeting shall be held on
the next succeeding business day. Except as otherwise provided herein, at each
annual meeting, the stockholders entitled to vote shall elect a Board of
Directors and they may transact such other corporate business as shall be stated
in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS -- Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, the Chief Executive
<PAGE>
Officer, the President or the Secretary, by resolution of the Board of Directors
or by the holders of a majority of the outstanding stock of the Corporation.
SECTION 3. VOTING -- Each stockholder shall be entitled to one
vote for each share registered in his name and may vote in person or by proxy,
but no proxy shall be voted after three years from its date unless such proxy
provides for a longer period. All elections for directors shall be decided by
plurality vote; all other questions shall be decided by majority vote except as
otherwise provided by the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by law, the
presence, in person or by proxy, of stockholders holding shares constituting a
majority of the voting power of the Corporation shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be represented; provided,
however, that if the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At any such adjourned meeting at which the requisite amount
of stock entitled to vote shall be represented, any business may be transacted
that might have been transacted at the meeting as originally noticed; but only
those stockholders entitled to vote at the meeting as origi nally noticed shall
be entitled to vote at any adjournment or adjournments thereof. The stockholders
present at a duly called meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 5. NOTICE OF MEETINGS -- Written notice, stating the
place, date and time of the meeting, and the general nature of the business to
be considered, shall be given to each stockholder entitled to vote thereat at
his address as it appears on the records of the Corporation, not less than ten
nor more than sixty days before the date of the meeting. No business other than
that stated in the notice shall be transacted at a special meeting without the
unanimous consent of all the stockholders entitled to vote thereat.
-2-
<PAGE>
SECTION 6. ACTION WITHOUT MEETING -- Any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS.
SECTION 1. GENERAL POWERS -- The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. In
addition to the powers and authorities by these By-Laws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 2. NUMBER AND TERM -- The Board of Directors shall
initially consist of five directors. The number of directors may be changed by
resolution of a majority of the Board or by the stockholders, but no decrease
may shorten the term of any incumbent director and the number of directors shall
not be decreased to less than two. A director need not be a stockholder of the
Company. Directors shall be elected at each annual meeting of stockholders by a
plurality of the votes cast and shall hold office until the next annual meeting
of stockholders and until the election and qualification of their respective
successors. As used in these by-laws, the term "Whole Board" means the total
number of directors the Corporation would have, if there were no vacancies on
the Board.
SECTION 3. RESIGNATIONS -- Any director may resign at any
time. Such resignation shall be made in writing, and shall take effect at the
time specified therein, and if no time be specified, at the time of its receipt
by the Chairman of the Board, the Chief Executive Officer, the President or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
SECTION 4. VACANCIES -- Subject to applicable law, any vacancy
on the Board of Directors, including one created by an increase in the number of
directors, may be filled for the unexpired term by a majority vote of the
remaining directors, though less than a quorum.
-3-
<PAGE>
SECTION 5. REMOVAL -- Subject to the provisions of applicable
law and except as hereinafter provided, any director or directors may be removed
with or without cause at any time by vote of the stockholders.
SECTION 6. COMMITTEES -- The Board of Directors may, by
resolution or resolutions passed by a majority of the Whole Board, designate one
or more committees, each committee to consist of two or more directors of the
Corporation.
Any such committee, to the extent provided in the resolution
of the Board of Directors, or in these By-Laws, shall, unless prohibited by
applicable law, have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. A majority of the members of any committee may determine its
action and fix the time and place of its meetings, unless the Board of Directors
shall otherwise provide.
SECTION 7. MEETINGS -- The newly elected directors may hold
their first meeting for the purpose of organization and the transaction of
business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the directors.
Regular meetings of the directors may be held at such places
and times as shall be determined from time to time by resolution of the
directors, or as shall be stated in the call of the meeting.
Special meetings of the Board of Directors may be called by
the Chairman of the Board, the Chief Executive Officer or the President, or by
the Secretary on the written request of any director, and shall be held at such
place or places as may be determined by the directors, or as shall be stated in
the call of the meeting.
Members of the Board of Directors, or any committee designated
by the Board of Directors may participate in any meeting of the Board of
Directors or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
SECTION 8. NOTICE OF MEETINGS -- Written notice, stating the
place, date and time of the meeting and the general nature of the business to be
considered, shall be given to each director, if given by overnight mail, hand
delivery, telecopy, or telephone, not less than two days or, if given by regular
mail, not less than five days, before the date of any regular or special
meeting, unless notice to any director has been waived in writing by such
director.
-4-
<PAGE>
SECTION 9. QUORUM -- A majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by an
nouncement at the meeting which shall be so adjourned. The vote of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
SECTION 10. COMPENSATION -- Directors shall receive such
compensation as the Board determines, together with reimbursement of their
reasonable expenses in connection with the performance of their duties. A
director also may be paid for serving the Corporation or its affiliates or
subsidiaries in other capacities.
SECTION 11. ACTION WITHOUT MEETING -- Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE IV
OFFICERS.
SECTION 1. OFFICERS -- The officers of the Corporation may
include, as elected by the board of directors, a Chairman of the Board, a Chief
Executive Officer, a President, a Chief Financial Officer, one or more Vice
Presidents (including one or more Executive Vice Presidents and one or more
Senior Vice Presidents), a Treasurer and a Secretary, all of whom shall be
elected by the Board of Directors and shall hold office until their successors
are elected and qualified. In addition, the Board of Directors may elect such
Assistant Secretaries and Assistant Treasurers as they may deem proper. The
Board of Directors may appoint such other officers and agents as it may deem
advisable, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD -- The Chairman of the Board
shall preside at all meetings of the Board of Directors and shall have and
perform such other duties as may be assigned to him by the Board of Directors.
The Chairman of the Board shall have the power to execute bonds, mortgages and
other contracts on behalf of the Corporation, and to cause the seal of the
Corporation to be affixed to any instrument requiring it, and when so affixed,
the seal shall be attested to by the signature of the Secretary or the Treasurer
or an As sistant Secretary or an Assistant Treasurer. If so appointed by the
Board of Directors, the Chairman of the Board may also serve as an officer of
the Corporation.
-5-
<PAGE>
SECTION 3. CHIEF EXECUTIVE OFFICER -- The Chief Executive
Officer of the Corporation shall have and perform such duties as may be assigned
to him by the Board of Directors. The Chief Executive Officer shall have the
power to execute bonds, mortgages and other contracts on behalf of the
Corporation, and to cause the seal of the Corporation to be affixed to any
instrument requiring it, and when so affixed, the seal shall be attested to by
the signature of the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer.
SECTION 4. PRESIDENT -- The President shall be the Chief
Operating Officer of the Corporation. He shall have the general powers and
duties of supervision and management usually vested in the office of President
of a corporation. The President shall have the power to execute bonds, mortgages
and other contracts on behalf of the Corporation, and to cause the seal of the
Corporation to be affixed to any instrument requiring it, and when so affixed,
the seal shall be attested to by the signature of the Secretary or the Treasurer
or an As sistant Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENTS -- Each Vice President shall have
such powers and shall perform such duties as shall be assigned to him by the
Board of Directors.
SECTION 6. CHIEF FINANCIAL OFFICER -- The Chief Financial
Officer shall have the custody of the Corporate funds and securities and shall
keep full and accurate account of receipts and disbursements in books belonging
to the Corporation. He shall deposit all moneys and other valuables in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President, taking proper vouchers for such
disbursements. He shall render to the Chairman of the Board, the Chief Executive
Officer, the President and Board of Directors at the regular meetings of the
Board of Directors, or whenever they may request it, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
Corporation.
SECTION 7. SECRETARY -- The Secretary shall give, or cause to
be given, notice of all meetings of stockholders and directors and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chairman of the Board, the Chief Executive Of ficer or
the President, or by the directors, upon whose request the meeting is called as
provided in these By-Laws. He shall record all the proceedings of the meetings
of the Board of Directors, any committees thereof and the stockholders of the
Corporation in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President. He shall have the custody
of the seal of the Corporation and shall affix the same to all instruments
requiring it, when authorized by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President, and attest to the same.
-6-
<PAGE>
SECTION 8. TREASURER, ASSISTANT TREASURERS AND ASSISTANT
SECRETARIES -- A Treasurer, Assistant Treasurers and Assistant Secretaries, if
any, may be elected and shall have such powers and shall perform such duties as
shall be assigned to them, respectively, by the Board of Directors.
SECTION 9. REMOVAL -- Any officer elected, or agent appointed,
by the Board of Directors may be removed by the affirmative vote of a majority
of the Whole Board whenever, in their judgment, the best interests of the
Corporation would be served thereby.
ARTICLE V
MISCELLANEOUS.
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock
shall be issued to each stockholder certifying the number of shares owned by
such stockholder in the Corporation, provided that the Board of Directors may
provide, by resolution or resolutions, that some or all of any or all classes or
series of stock shall be uncertificated shares. Certificates of stock of the
Corporation shall be of such form and device as the Board of Directors may from
time to time determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may
be issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond, in such sum as
they may direct, not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE -- (a) In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days
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<PAGE>
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to action in
writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the day
on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stock holders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. Any prior notice of the fixing of a record date required to be given to
any holders of options or warrants to acquire the Corporation's Common Stock or
any other person entitled to notice pursuant to any agreement with the
Corporation shall be given.
SECTION 5. DIVIDENDS -- The Board of Directors may, out of
funds legally available therefor at any regular or special meeting, declare
dividends upon stock of the Corporation as and when they deem appropriate.
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<PAGE>
SECTION 6. SEAL -- The corporate seal of the Corporation shall
be in such form as shall be determined by resolution of the Board of Directors.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation
shall be determined by resolution of the Board of Directors. Until otherwise
determined by the Board of Directors, the fiscal year of the Corporation shall
be the 52 or 53-week period ending on the last Saturday of February.
SECTION 8. CHECKS -- All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner as shall be determined from time
to time by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice
is required to be given under these By-Laws, personal notice is not required
unless expressly so stated, and any notice so required shall be deemed to be
sufficient if given by delivering the same by hand, by mailing the same
overnight, by telecopying the same, by telephoning the same or by depositing the
same in the United States mail, postage prepaid, addressed to the person
entitled thereto at his address as it appears on the records of the Corporation,
and such notice shall be deemed to have been given on the day of such delivery,
telecopying, telephoning or mailing, as the case may be. Whenever any notice is
required to be given under the provisions of any law, or under the provisions of
the Certificate of Incorporation of the Corporation or of these By-Laws, a
waiver thereof, in writing and signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent to such required notice.
SECTION 10. VOTING OF SHARES IN OTHER CORPORATIONS -- Shares
in other corporations which are held by the Corporation may be represented and
voted by the Chief Executive Officer, the President, the Chief Financial Officer
or a Vice President of the Corporation or by proxy or proxies appointed by one
of them. The Board of Directors may, however, appoint some other person to vote
the shares. Notwithstanding the foregoing, the voting of shares in other
corporations which are held by the Corporation shall be in such a manner as is
approved by a majority of directors of the Corporation.
ARTICLE VI
AMENDMENTS.
The Board of Directors shall have the power to make, alter or
repeal these By-Laws.
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<PAGE>
ARTICLE VII
INDEMNIFICATION AND INSURANCE.
SECTION 1. Indemnification and Insurance. (A) Each person who
was or is made a party or is threatened to be made a party to or is involved in
any action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans maintained or sponsored by the
Corporation, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in paragraph (C) of this By-Law, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors. The
right to indemnification conferred in this By-Law shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition, such advances
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that if the General
Corporation Law of the State of Delaware requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this By-Law or otherwise.
(B) To obtain indemnification under this By-Law, a claimant
shall submit to the Corporation a written request, including therein or
therewith such documentation and infor mation as is reasonably available to the
claimant and is reasonably necessary to determine whether and to what extent the
claimant is entitled to indemnification. Upon written request by a
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<PAGE>
claimant for indemnification pursuant to the first sentence of this paragraph
(B), a determination, if required by applicable law, with respect to the
claimant's entitlement thereto shall be made as follows: (1) if requested by the
claimant, by Independent Counsel (as hereinafter defined), or (2) if no request
is made by the claimant for a determination by Independent Counsel, (i) by the
Board of Directors by a majority vote of the Disinterested Directors (as
hereinafter defined) even though less than a quorum, or (ii) if there are no
Disinterested Directors, or if the directors so direct, by Independent Counsel
in a written opinion to the Board of Directors, a copy of which shall be
delivered to the claimant, or (iii) by the stockholders of the Corporation. In
the event the determination of entitlement to indemnification is to be made by
Independent Counsel at the request of the claimant, the Independent Counsel
shall be selected by the Board of Directors unless there shall have occurred
within two years prior to the date of the commencement of the action, suit or
proceeding for which indemnification is claimed a Change of Control (as here
inafter defined), in which case the Independent Counsel shall be selected by the
claimant unless the claimant shall request that such selection be made by the
Board of Directors. If it is so determined that the claimant is entitled to
indemnification, payment to the claimant shall be made within 10 days after such
determination.
(C) If a claim under paragraph (A) of this By-Law is not paid
in full by the Corporation within thirty days after a written claim pursuant to
paragraph (B) of this By-Law has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, Independent
Counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(D) If a determination shall have been made pursuant to
paragraph (B) of this By-Law that the claimant is entitled to indemnification,
the Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to paragraph (C) of this By-Law.
(E) The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to paragraph (C) of this By-Law that the
procedures and
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<PAGE>
presumptions of this By-Law are not valid, binding and enforceable and shall
stipulate in such proceeding that the Corporation is bound by all the provisions
of this By-Law.
(F) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this By-Law shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or Dis interested
Directors or otherwise. No repeal or modification of this By-Law shall in any
way diminish or adversely affect the rights of any director, officer, employee
or agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
(G) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partner ship, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware. To the extent that
the Corporation maintains any policy or policies providing such insurance, each
such director or officer, and each such agent or employee to which rights to
indemnification have been granted as provided in paragraph (H) of this By-Law,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and rights to
be paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any employee or agent of the Corporation to
the fullest extent of the provisions of this By-Law with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(I) If any provision or provisions of this By-Law shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any paragraph of this By-Law
containing any such provision held to be invalid, illegal or unenforceable that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this ByLaw (including, without limitation, each such portion of
any paragraph of this By-Law containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
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<PAGE>
(J) For purposes of this By-Law:
(1) "Change of Control" shall be deemed to have
occurred in the event that, after the date of the Master
Restructuring Agreement (the "MRA"), dated as of February 27,
1998, any person or entity (a "Person") or group thereof
acting together which would constitute a "group" (a "Group")
for purposes of Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), or any successor provision
thereto, together with any Affiliates (as defined in Rule
12b-2 of the Exchange Act or any successor provision thereto)
or Related Persons (as hereinafter defined) thereof, who, as
of the date of the MRA, does not then own at least 50% of the
aggregate voting power of all classes of capital stock of the
Corporation entitled to vote generally in the election of
directors of the Corporation shall beneficially own (as
defined in Rule 13d-3 of the Exchange Act or any successor
provision thereto) at least 50% of the aggregate voting power
of all classes of capital stock of the Corporation entitled to
vote generally in the election of directors of the
Corporation.
(2) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the matter in
respect of which indemnification is sought by the claimant.
(3) "Independent Counsel" means a law firm, a member
of a law firm, or an independent practitioner, that is
experienced in matters of corporation law and shall include
any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an
action to determine the claimant's rights under this By-Law.
(4) "Related Person" of any Person means, without
limitation, any other person owning (a) 5% or more of the
outstanding common stock of such Person or (b) 5% or more of
the voting stock of such Person.
(K) Any notice, request or other communication required or
permitted to be given to the Corporation under this By-Law shall be in writing
and either delivered in person or sent by telecopy, telex, telegram, overnight
mail or courier service, or certified or registered mail, postage prepaid,
return receipt requested, to the Secretary of the Corporation and shall be
effective only upon receipt by the Secretary.
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LOAN AND SECURITY AGREEMENT
BY AND AMONG
CONGRESS FINANCIAL CORPORATION
AS LENDER
AND
LONDON FOG INDUSTRIES, INC.
PACIFIC TRAIL, INC.
THE SCRANTON OUTLET CORPORATION
AS BORROWERS
DATED: AS OF MAY ___, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS...................................................... 1
SECTION 2. CREDIT FACILITIES............................................... 16
2.1 Loans.......................................................... 16
2.2 Letter of Credit Accommodations................................ 19
2.3 Availability Reserves.......................................... 23
SECTION 3. INTEREST AND FEES............................................... 23
3.1 Interest....................................................... 23
3.2 Closing Fee.................................................... 26
3.3 Servicing Fee.................................................. 26
3.4 Unused Line Fee................................................ 26
3.5 Supplemental B Loan Fee........................................ 27
3.6 Changes in Laws and Increased Costs of Loans................... 27
SECTION 4. CONDITIONS PRECEDENT............................................. 28
4.1 Conditions Precedent to Initial Loans and Letter
of Credit Accommodations....................................... 28
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations.......................................... 31
SECTION 5. SECURITY INTEREST............................................... 31
SECTION 6. COLLECTION AND ADMINISTRATION................................... 33
6.1 Borrowers' Loan Accounts....................................... 33
6.2 Statements..................................................... 33
6.3 Collection of Accounts......................................... 33
6.4 Payments....................................................... 35
6.5 Authorization to Make Loans.................................... 36
6.6 Use of Proceeds................................................ 36
SECTION 7. COLLATERAL REPORTING AND COVENANTS.............................. 37
7.1 Collateral Reporting........................................... 37
7.2 Accounts Covenants............................................. 38
7.3 Inventory Covenants............................................ 40
7.4 Equipment Covenants............................................ 41
7.5 Appraisals of Intellectual Property Intangibles................ 42
7.6 Power of Attorney.............................................. 42
7.7 Right to Cure.................................................. 43
7.8 Access to Premises............................................. 43
SECTION 8. REPRESENTATIONS AND WARRANTIES.................................. 43
8.1 Corporate Existence, Power and Authority;
Subsidiaries................................................... 44
8.2 Financial Statements; No Material Adverse Change............... 44
8.3 Chief Executive Office; Collateral Locations................... 44
8.4 Priority of Liens; Title to Properties......................... 45
8.5 Tax Returns.................................................... 45
8.6 Litigation..................................................... 45
(i)
<PAGE>
8.7 Compliance with Other Agreements and Applicable
Laws........................................................... 46
8.8 Environmental Compliance....................................... 47
8.9 Credit Card Agreements......................................... 48
8.10 Employee Benefits.............................................. 48
8.11 Bank Accounts.................................................. 49
8.12 Interrelated Businesses........................................ 49
8.13 Accuracy and Completeness of Information....................... 50
8.14 Survival of Warranties; Cumulative............................. 50
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.............................. 50
9.1 Maintenance of Existence....................................... 50
9.2 New Collateral Locations....................................... 51
9.3 Compliance with Laws, Regulations, Etc......................... 51
9.4 Payment of Taxes and Claims.................................... 51
9.5 Insurance...................................................... 52
9.6 Financial Statements and Other Information..................... 52
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc............................................... 54
9.8 Encumbrances................................................... 55
9.9 Indebtedness................................................... 56
9.10 Loans, Investments, Guarantees, Etc............................ 58
9.11 Dividends and Redemptions...................................... 59
9.12 Transactions with Affiliates................................... 59
9.13 Credit Card Agreements......................................... 59
9.14 Compliance with ERISA.......................................... 60
9.15 Additional Bank Accounts....................................... 61
9.16 Capital Expenditures........................................... 61
9.17 EBITA.......................................................... 61
9.18 Cleanup and Excess Availability................................ 62
9.19 Costs and Expenses............................................. 62
9.20 Certain Notices................................................ 63
9.21 Further Assurances............................................. 63
SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................. 64
10.1 Events of Default.............................................. 64
10.2 Remedies....................................................... 66
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW ... 68
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver..................................... 68
11.2 Waiver of Notices.............................................. 69
11.3 Amendments and Waivers......................................... 70
11.4 Waiver of Counterclaims........................................ 70
11.5 Indemnification................................................ 70
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS................................ 71
12.1 Term........................................................... 71
12.2 Appointment of Borrowers' Agent................................ 72
12.3 Notices........................................................ 73
12.4 Partial Invalidity............................................. 73
(ii)
<PAGE>
12.5 Successors..................................................... 73
12.6 Entire Agreement............................................... 74
(iii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.7 Permits
Schedule 8.8 Environmental Disclosure
Schedule 8.9 Credit Card Agreements
Schedule 8.10 Employee Benefits
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Loans, Investments, Guarantees
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated May __, 1997 is entered into by and
among Congress Financial Corporation, a California corporation ("Lender") and
London Fog Industries, Inc., a Delaware corporation ("LFI"), Pacific Trail,
Inc., a Washington corporation ("PTI"), and The Scranton Outlet Corporation, a
Delaware corporation ("SOC"; and together with LFI and PTI, individually
referred to as a "Borrower" and collectively, as "Borrowers").
W I T N E S S E T H:
WHEREAS, Borrowers have requested that Lender enter into certain financing
arrangements with Borrowers pursuant to which Lender may make loans and provide
other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrowers shall, unless the context
otherwise expressly provides, mean each and all of them, individually and
collectively, jointly and severally. All references to Borrowers and Lender
pursuant to the definitions set forth in the recitals hereto, or to any other
person herein, shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this Agreement now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in accordance with Section
11.3 or cured in a manner
<PAGE>
satisfactory to Lender, if such Event of Default is capable of being cured as
determined by Lender. Any accounting term used herein unless otherwise defined
in this Agreement shall have the meanings customarily given to such term in
accordance with GAAP. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:
1.1 "Accounts" shall mean, as to each Borrower, all present and future
rights of such Borrower to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or chattel paper, and whether
or not earned by performance, and including, without limitation, Credit Card
Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Loans and Letter of Credit Accommodations that would
otherwise be available to Borrowers under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks that, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets or business of any Borrower or any Obligor or (iii) the security
interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of any Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c) in respect
of any state of facts which Lender determines in good faith constitutes an Event
of Default or may, with notice or passage of time or both, constitute an Event
of Default, or (d) to reflect outstanding Letter of Credit Accommodations as
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provided in Section 2.2 hereof or (e) as otherwise provided in Section 2.3
hereof or elsewhere in this Agreement.
1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.6 "Capital Expenditures" shall mean all expenditures for any fixed or
capital assets or improvements, or for replacements, substitutions or additions
thereto, which should be capitalized on a balance sheet in accordance with GAAP,
whether acquired by way of purchase, capital or finance lease, increased product
service charges, offset items or otherwise.
1.7 "Capital Stock" shall mean any and all shares, interests,
participations, or other equivalents (however designated) of corporate stock or
partnership interests and any options or warrants with respect to any of the
foregoing.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.9 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.10 "Cost" shall mean, as to Inventory as of any date, the cost of such
Inventory as of such date, determined on a first-in- first-out basis in
accordance with GAAP.
1.11 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender acknowledging
Lender's first priority security interest in the monies due and to become due to
a Borrower (including, without limitation, credits and reserves) under the
Credit Card Agreements, and agreeing to transfer all such amounts to the Blocked
Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
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<PAGE>
1.12 "Credit Card Agreements" shall mean all agreements (oral or written)
now or hereafter entered into by a Borrower with any Credit Card Issuer or any
Credit Card Processor, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, including, but
not limited to, the agreements identified on Schedule 8.9 hereto.
1.13 "Credit Card Issuer" shall mean any person (other than a Borrower) who
issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International and American Express, Discover, Diners Club, Carte Blanche and
other non-bank credit or debit cards, including, without limitation, credit or
debit cards issued by or through American Express Travel Related Services
Company, Inc. and NOVUS Services, Inc.
1.14 "Credit Card Processor" shall mean any servicing or processing agent
or any factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any of a Borrower's sales transactions involving credit card or
debit card purchases by customers using credit cards or debit cards issued by
any Credit Card Issuer (including, but not limited to, National Data Payment
Systems, Inc., American Express Travel Related Services Company, Inc. and NOVUS
Services, Inc.)
1.15 "Credit Card Receivables" shall mean collectively, (a) all present and
future rights of a Borrower to payment from any Credit Card Issuer, Credit Card
Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such goods or services using a credit
or debit card and (b) all present and future rights of a Borrower to payment
from any Credit Card Issuer, Credit Card Processor or other third party in
connection with the sale or transfer of Accounts arising pursuant to the sale of
goods or rendition of services to customers who have purchased such goods or
services using a credit card or a debit card, including, but not limited to, all
amounts at any time due or to become due from any Credit Card Issuer or Credit
Card Processor under the Credit Card Agreements or otherwise.
1.16 "EBITA" shall mean, for any measurement period, the Net Income (Loss)
for such period, plus (a) to the extent deducted in arriving at Net Income
(Loss) for such period, Interest Expense, write-off or amortization of deferred
financing costs, provision for Federal, state, local and foreign income taxes,
amortization expense, and any non-cash charges or non-cash losses (other than
inventory write-downs, but including, without
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limitation, increases in the amount of multiemployer pension plan liabilities,
loss attributable to changes in accounting principles and loss on sale or other
disposition of assets not in the ordinary course of business (other than loss on
sale or other disposition of inventory), and the amount of non-cash
restructuring expenses), minus (b) to the extent included in determining Net
Income (Loss) for such period, gains attributable to the effect of change in
accounting principles adopted by Borrowers, income tax benefit, extraordinary
gains and other non-operating income, such as, but not limited to, gains from
the sale or other disposition of assets other than in the ordinary course of
business, or from the sale of shares of Capital Stock, or income or gains from
forgiveness of indebtedness or from reduction of multiemployer pension plan
liabilities or from reversal of restructuring or other expenses and any non-cash
gains, minus (c) any payments made during such period in respect of
multiemployer pension plan liabilities in excess of the amount equal to $500,000
multiplied by the number of fiscal quarters included in such period, plus (d)
with respect to the determination of EBITA for any period during or comprising
the fiscal year ending the last Saturday in February, 1998, up to an aggregate
of $2,000,000 of cash restructuring charges relating to the closing of LFI's
Baltimore, Maryland manufacturing facility, in each case under clauses (a), (b)
and (d), determined for Borrowers and their subsidiaries for such period, on a
consolidated basis in accordance with GAAP.
1.17 "Eligible Accounts" shall mean, as to each Borrower, Accounts created
by such Borrower which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by such Borrower in the ordinary course of the business of
Borrowers which transactions are completed in accordance with the terms and
provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than seventy-five (75) days
after the original maturity date of the invoice therefor or more than one
hundred fifty (150) days after the date of the original invoice for them;
(c) such Accounts do not consist of Credit Card Receivables;
(d) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
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(e) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
(f) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or at Lender's option,
if the chief executive office of the account debtor with respect to such Account
is not located in the United States of America, Lender may deem such Accounts to
be Eligible Accounts if: (i) such Account is payable only in the United States
of America and in U.S. dollars and (ii) either: (A) the account debtor has
delivered to such Borrower an irrevocable letter of credit issued or confirmed
by a bank satisfactory to Lender, sufficient to cover such Account, in form and
substance satisfactory to Lender and, if required by Lender, the original of
such letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof has been notified of the assignment of the proceeds of such
letter of credit to Lender, (B) such Account is subject to credit insurance
payable to Lender issued by an insurer and on terms and in an amount acceptable
to Lender, or (C) such Account is otherwise acceptable in all respects to Lender
(subject to such lending formula with respect thereto as Lender may determine);
(g) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except, as to bill and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Lender, confirming the unconditional obligation of the
account debtor to take delivery of the goods related thereto and pay such
invoice;
(h) the account debtor with respect to such Accounts has not asserted
a counterclaim, chargeback, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by such Borrower to such
account debtor or claimed owed by such account debtor may be deemed Eligible
Accounts);
(i) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(j) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
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(k) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is any other Borrower or a
subsidiary thereof or an officer, employee or agent or an affiliate of such
Borrower directly or indirectly by virtue of family membership, ownership,
control, management or otherwise;
(l) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, if upon Lender's
request, such Borrower has complied with the Federal Assignment of Claims Act of
1940, as amended or any similar State or local law, if applicable, in a manner
satisfactory to Lender;
(m) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(n) such Accounts of a single account debtor or its affiliates do not
constitute more than twenty (20%) percent of all otherwise Eligible Accounts or,
in the case of each of Federated Department Stores, Inc., May Department Stores
Company, Dayton-Hudson Corporation and Dillard Department Stores, Inc., or its
respective affiliates, more than forty (40%) percent of all otherwise Eligible
Accounts, of all Borrowers considered in the aggregate (but the portion of the
Accounts not in excess of the applicable percentage set forth in this subsection
may be deemed Eligible Accounts);
(o) such Accounts are not owed by an account debtor whose Accounts
owed to one or more Borrowers that are unpaid more than seventy-five (75) days
after the original maturity date of the invoice therefor or more than one
hundred fifty (150) days after the date of the original invoice for them,
constitute more than fifty (50%) percent of the total Accounts of such account
debtor owed to all Borrowers considered in the aggregate;
(p) such Accounts are owed by account debtors whose total indebtedness
to all Borrowers, considered in the aggregate, does not exceed the credit limit
with respect to such account debtors, if any, as determined by Lender from time
to time (but the portion of the Accounts not in excess of such credit limit may
still be deemed Eligible Accounts); and
(q) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender, as determined by Lender.
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General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.18 "Eligible Inventory" shall mean, as to each Borrower, Inventory of
such Borrower consisting of finished goods (including Warehouse In-Transit Goods
and Non-Warehouse In- Transit Goods) held for resale in the ordinary course of
the business of Borrowers and raw materials of such Borrower for the production
of such finished goods, in each case that are acceptable to Lender based on the
criteria set forth below. In general, Eligible Inventory shall not include (a)
packaging and shipping materials; (b) supplies used or consumed in Borrowers'
business; (c) Inventory at premises other than those owned and controlled by a
Borrower located in the United States, except for (i) Inventory at retail store
locations (including temporary sites used for closeout liquidation events) of a
Borrower in the United States which are leased by it if either (A) Lender shall
have received a Landlord Agreement (as defined below) duly authorized, executed
and delivered by the owner and lessor of such premises or (B) if Lender has not
received such Landlord Agreement, then Lender shall have established an
Availability Reserve in an amount acceptable to Lender in respect of amounts due
or to become due to the owner and lessor of such retail store location;
provided, that, such Borrower shall use its reasonable best efforts to obtain
the Landlord Agreement with respect to each of such locations, (ii) Inventory at
other locations of a Borrower in the United States which are leased by it or
operated by third party warehousemen or that are owned by it subject to a
mortgage in favor of any Person other than Lender and otherwise permitted
hereunder, if Lender shall have received an agreement in writing from the owner
and lessor, or operator of such premises, or in the case of mortgaged premises,
from the mortgagee thereof, in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral
(such agreement, a "Landlord Agreement", "Warehouseman's Agreement" or
"Mortgagee Agreement", as applicable) and (iii) Inventory consisting of finished
goods sold on consignment to third parties and located at retail stores in the
United States that are operated by the consignee, if Lender shall have received
an agreement in writing from the consignee of such Inventory acknowledging
Lender's first priority security interest in such Inventory, waiving claims by
such person against such Inventory unless paid for and provided Lender is
satisfied with the creditworthiness of the consignee and shall have received
such other legal documentation (including a Landlord Agreement or Mortgagee
Agreement from the consignee's landlord and mortgagee
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and acknowledgements from consignee's secured parties) deemed necessary to
Lender, all of which to be acceptable to Lender; (d) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (e) bill and hold goods; (f) slow-moving Inventory
to the extent of increases thereof since the most recent field examination
conducted by Lender prior to the date of determination of Eligible Inventory;
(g) Inventory which is not subject to the first priority, valid and perfected
security interest of Lender; (h) damaged and/or defective Inventory to the
extent not written-down to an amount acceptable to Lender; (i) returned
Inventory that is not first quality and held for resale without the need for
further preparation or processing (other than normal cleaning and pressing), to
the extent not written-down to an amount acceptable to Lender (j) Inventory to
be returned to vendors; (k) Inventory subject to deposits made by customers for
sales of Inventory that has not been delivered; (l) Inventory that is in transit
to a Borrower's location in the United States unless Lender has a first priority
security interest and control of the documents of title covering such goods; and
(m) samples. General criteria for Eligible Inventory may be established and
revised from time to time by Lender in good faith. Any Inventory which is not
Eligible Inventory shall nevertheless be part of the Collateral.
1.19 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between a Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state
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counterparts to such laws, and (iii) any common law or equitable doctrine that
may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Materials.
1.20 "Equipment" shall mean, as to each Borrower, all of such Borrower's
now owned and hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.
1.21 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.22 "ERISA Affiliate" shall mean any person required to be aggregated with
a Borrower or any of its subsidiaries under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
1.23 "Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by a Borrower and approved by Lender) on
or about 9:00 a.m. (New York time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by or by LFI on behalf
of and available to Borrowers in accordance with this Agreement, with a maturity
of comparable duration to the Interest Period selected by a Borrower.
1.24 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.25 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.26 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the aggregate amount of
the Primary Loans available to Borrowers as of such time based on the applicable
lending formulas multiplied by the Net Amount of Eligible Accounts and the Value
of Eligible Inventory, as determined by Lender, plus
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the amount of Supplemental A Loans and Supplemental B Loans then available to
Borrowers, subject to the sublimits and Availability Reserves from time to time
established by Lender hereunder and (ii) the Maximum Credit less the face amount
of outstanding Letter of Credit Accommodations, minus (b) the sum of: (i) the
amount of all then outstanding and unpaid Obligations (other than the face
amount of outstanding Letter of Credit Accommodations), plus (ii) the aggregate
amount of all trade payables of Borrowers that are more than sixty (60) days
past due as of such time, other than those that are being disputed by Borrowers
in good faith.
1.27 "Existing Senior Lenders" shall mean the existing secured working
capital lenders to LFI, and The Chase Manhattan Bank, a New York banking
corporation, as agent for such lenders, pursuant to that certain Amended and
Restated Credit Agreement dated as of May 31, 1995, as amended.
1.28 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements, intercreditor and/or subordination
agreements, and other agreements, documents and instruments now or at any time
hereafter executed and/or delivered by any Borrower or any Obligor in connection
with this Agreement, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.29 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board(s) which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.17 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.30 "Guarantors" shall mean, individually and collectively, each Person
that at any time guarantees payment or performance of all or any portion of the
Obligations, including, as of the date hereof, PTI Holding Corp., a Nevada
corporation, PTI Top Company, Inc., a Nevada corporation, Star Sportswear
Manufacturing Corp., a Delaware corporation, Matthew Manufacturing Co., Inc., a
Maryland corporation, Washington Holding Company, a Georgia corporation, Clipper
Mist, Inc., a Maryland corporation, London Fog Sportswear, Inc., a Delaware
corporation and The Mounger Corporation, a Washington corporation, and their
respective successors and assigns.
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1.31 "Information Certificate" shall mean, collectively, the Information
Certificates of Borrowers constituting Exhibit A hereto containing material
information with respect to Borrowers, their business and assets, provided by or
on behalf of Borrowers to Lender in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.32 "Intellectual Property Intangibles" shall mean, as to each Borrower,
trademarks, tradenames and patents owned by such Borrower and royalties payable
to such Borrower under licenses with respect thereto.
1.33 "Interest Expense" shall mean, for any period, the amount which would,
in conformity with GAAP, be set forth opposite the caption "interest expense" or
any like caption on a consolidated statement of operations of Borrowers and
their subsidiaries prepared on a consolidated basis in accordance with GAAP,
excluding amortization of deferred financing costs.
1.34 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as Borrowers may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrowers may
not elect an Interest Period which will end after the last day of the
then-current term of this Agreement.
1.35 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of
three-quarters of one (3/4%) percent per annum in excess of the Prime Rate and,
as to Eurodollar Rate Loans, subject to adjustment pursuant to the provisions of
Section 3.1(e) hereof, a rate of two and three-quarters (2 3/4%) percent per
annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate
applicable for the Interest Period selected by Borrowers or by LFI on behalf of
Borrowers as in effect three (3) Business Days after the date of receipt by
Lender of the request by Borrowers or by LFI on behalf of Borrowers for such
Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is
higher or lower than any rate previously quoted to such Borrower); provided,
that: the Interest Rate shall be increased to a rate two (2%) percent per annum
in excess of the pre-default variable rate as to Prime Rate Loans and to a rate
two (2%) percent per annum in excess of the pre-default variable rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (a) for the period on
and after (i) the date of termination or non-renewal hereof and until such time
as all non-contingent Obligations are fully and finally paid (notwithstanding
entry of any judgment against any Borrower), or (ii) the date of the occurrence
of any Event of Default or act, condition or event which with notice or passage
of time or both would constitute an Event of Default, and for so long as such
Event of Default or
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other event is continuing as determined by Lender and (b) on the Loans at any
time outstanding in excess of the amounts available to a Borrower under Section
2 (whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default).
1.36 "Inventory" shall mean, as to each Borrower, all of such Borrower's
now owned and hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or nature, wherever
located.
1.37 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of any Borrower or, in Lender's
discretion, any Obligor or (b) with respect to which Lender has agreed to
indemnify the issuer or guaranteed to the issuer the performance by a Borrower
of its obligations to such issuer.
1.38 "Loans" shall mean, collectively, the Primary Loans, the Supplemental
A Loans and the Supplemental B Loans.
1.39 "Maximum Credit" shall mean $150,000,000, except that for the period
from the date hereof through April 30, 1998, such term shall mean $140,000,000.
1.40 "MetLife" shall mean MetLife Capital Financial Corp., a Delaware
corporation, and its successors and assigns.
1.41 "Net Amount of Eligible Accounts" shall mean, as to each Borrower, (a)
the aggregate gross amount of Eligible Accounts of such Borrower less (b) sales,
excise or similar taxes included in the amount thereof and less (c) without
duplication of amounts deemed excluded from Eligible Accounts pursuant to the
criteria set forth herein or established by Lender hereunder, returns (including
accruals for unprocessed returns that have been received by Borrowers),
discounts (including cash discount reserves), claims, credits and allowances
(including cooperative advertising allowances) of any nature at any time issued,
owing, granted, outstanding, available or claimed with respect thereto.
1.42 "Net Income (Loss)" shall mean, for any fiscal period, the aggregate
net income (or loss) after provision (benefit) for federal, state, local and
foreign income taxes of Borrowers and their subsidiaries, if any, for such
period, determined on a consolidated basis in accordance with GAAP.
1.43 "Net Recovery Cost Percentage" as to Inventory at any time shall mean
the fraction, expressed as a percentage, (a) the numerator of which is the
amount equal to the recovery on the aggregate amount of the Inventory at such
time on a "going out of business sale" basis as set forth as the mid-range
recovery
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amount in the most recent acceptable appraisal of Inventory received by Lender
in accordance with Section 7.3, net of operating and occupancy expenses,
liquidation expenses and commissions, and (b) the denominator of which is the
original Cost of the aggregate amount of the Inventory subject to appraisal.
1.44 "Non-Warehouse In-Transit Goods" shall mean Eligible Inventory of a
Borrower consisting of finished goods in transit to a warehouse, retail store of
a Borrower or third party location, in each case maintained as an Eligible
Inventory location hereunder covered by documents of title with respect to which
Lender has possession or control.
1.45 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by any or all Borrowers to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to any or all Borrowers under the United States Bankruptcy
Code or any similar statute (including, without limitation, the payment of
interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.46 "Obligor" shall mean any Guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than a Borrower.
1.47 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.48 "Permits" shall have the meaning set forth in Section 8.7 hereof.
1.49 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any
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government or any agency or instrumentality or political subdivision thereof.
1.50 "Primary Loans" shall mean the loans made to or for the benefit of
Borrowers by Lender on a revolving basis (including advances, repayments and
readvances) as set forth in Sections 2.1(a)(i) and 2.1(a)(ii) hereof.
1.51 "Prime Rate" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the best
rate available at such bank.
1.52 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
1.53 "Real Property" shall mean all now owned and hereafter acquired real
property of a Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.54 "Records" shall mean, as to each Borrower, all of such Borrower's
present and future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other shipping evidence,
statements, correspondence, memoranda, credit files and other data relating to
the Collateral or any account debtor, together with the tapes, disks, diskettes
and other data and software storage media and devices, file cabinets or
containers in or on which the foregoing are stored (including any rights of such
Borrower with respect to the foregoing maintained with or by any other person).
1.55 "Reference Bank" shall mean CoreStates Bank, N.A. or such other bank
as Lender may designate from time to time.
1.56 "Renewal Date" shall have the meaning set forth in Section 12.1
hereof.
1.57 "Supplemental A Loans," shall mean the loans made to or for the
benefit of Borrowers on a revolving basis (including advances, repayments and
readvances) as set forth in Section 2.1(a)(iii) hereof.
1.58 "Supplemental B Loans" shall mean the loans made to or for the benefit
of Borrowers on a revolving basis (including advances, repayments and
readvances) as set forth in Section 2.1(a)(iv) hereof.
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1.59 "Subordinated Lenders" shall mean, individually and collectively, the
subordinated lenders to LFI and The Chase Manhattan Bank as agent for such
lenders pursuant to the Subordinated Loan Documents, and their respective
successors and assigns.
1.60 "Subordinated Loan Documents" shall mean, collectively, the Term Loan
Agreement and the Note Agreement, each dated as of May 31, 1995, and the Credit
Agreement dated as of May 20, 1994, each as amended, among the Subordinated
Lenders and LFI, together with all documents and instruments that from time to
time evidence the indebtedness of LFI and its subsidiaries to the Subordinated
Lenders or secure or support payment or performance thereof.
1.61 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) Cost or (b) market value.
1.62 "Warehouse In-Transit Goods" shall mean Eligible Inventory of a
Borrower consisting of finished goods located in a warehouse of a Borrower
maintained as a location of Eligible Inventory hereunder prior to such Inventory
being entered into the warehouse computer inventory system of Borrowers as goods
on hand in such warehouse.
SECTION 2. CREDIT FACILITIES
2.1 Loans.
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Loans to Borrowers, from time to time in amounts requested
by Borrowers or LFI as agent for Borrowers, up to the amount equal to the sum
of:
(i) eighty (80%) percent of the Net Amount of Eligible Accounts
of LFI and PTI; plus
(ii) the sum of: (A) fifty (50%) percent of the Value of Eligible
Inventory of Borrowers consisting of raw materials, plus (B) the amount equal
to: (1) sixty-eight (68%) percent during the period January 1 through and
including April 30 in each calendar year, or (2) eighty-three (83%) percent
during the period May 1 through and including December 31 in each calendar year,
of the Value of Eligible Inventory of Borrowers consisting of finished goods;
plus
(iii) the amount equal to: (A) $10,000,000 during the months of
March and September in each calendar year, or (B) $20,000,000 during the period
of April 1 through and including August 31 in each calendar year; plus
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(iv) subject to the limitations set forth in Section 2.1(d)
hereof, available in the calendar years 1998 and 1999, for any one period in
each such calendar year not to exceed thirty (30) consecutive days during the
period of May 1 through and including July 31 of the same calendar year, an
amount not to exceed the lesser of: (A) $10,000,000 or (B) fifteen (15%) percent
of the Value of Eligible Inventory consisting of finished goods; less
(v) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to LFI as agent for Borrowers, reduce the
lending formula with respect to (i) Eligible Accounts to the extent that Lender
determines in good faith that: (A) the dilution with respect to the Accounts for
any period (based on the ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash to (2) the aggregate amount
of total sales) has increased in any material respect or may be reasonably
anticipated to increase in any material respect above historical levels, or (B)
the general creditworthiness of account debtors has declined in any material
respect, or (ii) Eligible Inventory to the extent that Lender determines in good
faith that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the nature, quality or mix of
the Inventory has deteriorated or (C) there is a decrease in the Net Recovery
Cost Percentage after the date hereof. In determining whether to reduce the
lending formula(s), Lender may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Availability Reserves. Notwithstanding the
foregoing, at no time shall the applicable lending percentage set forth above in
Section 2.1(a)(ii)(B) exceed the percentage, rounded to the nearest whole
percent, equal to ninety (90%) percent multiplied by the Net Recovery Cost
Percentage of Inventory of Borrowers at such time; provided, that in the case of
the lending percentages applicable in the calendar months of May and June in any
year, the Net Recovery Percentage for the "peak season" (as referred to in the
most recent appraisal received by Lender in accordance with Section 7.3) shall
be used instead of the Net Recovery Cost Percentage otherwise applicable to such
calendar months, notwithstanding that such months do not fall within the "peak
season" as identified in such appraisal.
(c) Notwithstanding the foregoing, at no time shall the amount of
Supplemental A Loans exceed an amount equal to seventy (70%) percent of the fair
market value of the Intellectual Property Intangibles as determined by the most
recent acceptable appraisal of Intellectual Property Intangibles received by
Lender in accordance with Section 7.5 hereof, or, in lieu of such maximum amount
in the case only of Supplemental A
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Loans available during any period specified in Section 2.1(a)(iii) which falls
within the period from the date hereof through the date of receipt by Lender of
the first such appraisal of Intellectual Property Intangibles delivered or
caused to be delivered after the date hereof under Section 7.5 hereof, the
amount of $20,000,000.
(d) In addition to the other terms and provisions of this Agreement
(including the conditions precedent to Loans and Letter of Credit Accommodations
set forth herein), Supplemental B Loans shall only be available to Borrowers in
any calendar year referred to in Section 2.1(a)(iv), if each of the following
additional conditions precedent are satisfied, as determined by Lender:
(i) there shall have been no outstanding Loans for at least
thirty (30) consecutive days during the period from December 1 of the calendar
year ending prior to the request for Supplemental B Loans through and including
March 31 of the then-current calendar year;
(ii) Excess Availability shall have been greater than $15,000,000
for each of at least thirty (30) consecutive days during which there were no
outstanding Loans, as referred to in Section 2.1(d)(i) above;
(iii) the EBITA of Borrowers and their subsidiaries for the
fiscal year most recently ended prior to the request for Supplemental B Loans,
shall have been not less than $10,000,000, as shown in the unaudited
consolidated financial statements prepared by Borrowers in accordance with GAAP
and delivered to Lender, subject to confirmation by the annual audited financial
statements delivered to Lender within the time, in the form and accompanied by
the audit report and opinion required under Section 9.6(a)(ii) hereof;
(iv) Lender shall have received updated appraisals of Inventory
and Intellectual Property Intangibles, each acceptable to Lender, on or prior to
April 15th of such year, the results of which shall confirm that there has been
no decline in the values or anticipated recovery from those set forth in the
appraisal reports by Buxbaum Ginsburg & Associates, Inc. as of February 22, 1997
as to the Inventory and by Daley-Hodkin Appraisal Corporation as of April 1997
as to the Intellectual Property Intangibles, each received by Lender prior to
the date hereof;
(v) Lender shall have received at or before the end of the fiscal
year most recently ended prior to the request for Supplemental B Loans,
financial projections for the next fiscal year of Borrowers based on the
reasonable good faith assumptions of senior management of Borrowers, reflecting
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borrowing availability under the lending formulas set forth herein for such
fiscal year deemed by Lender in good faith to be adequate in light of the
anticipated needs of the business; and
(vi) the Value of Inventory of Borrowers at the end of the March
fiscal month ending in such calendar year, as reported to Lender in the
financial report for such month delivered under Section 9.6(a) hereof (and which
shall be received by Lender prior to the request for Supplemental B Loans),
shall be no more than fifteen (15%) percent greater than the Value for such
month set forth in the financial projections applicable to such March fiscal
month, as provided by Borrowers to Lender on or before the end of the fiscal
year most recently ended prior thereto.
(e) The aggregate amount of Primary Loans outstanding at any time with
respect to Eligible Inventory, plus the aggregate amount of Supplemental B Loans
outstanding at any time, shall not exceed $125,000,000.
(f) Except in Lender's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit. In the event that the outstanding amount of the Loans, or
the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimit under Section 2.1(e), the sublimits for Letter of Credit Accommodations
set forth in Section 2.2(d) or the Maximum Credit, as applicable, such event
shall not limit, waive or otherwise affect any rights of Lender in that
circumstance or on any future occasions and Borrowers shall, upon demand by
Lender, which may be made at any time or from time to time, immediately repay to
Lender the entire amount of any such excess(es) for which payment is demanded.
(g) For purposes of applying the sublimit set forth in Section 2.1(e)
hereof, Lender may treat the amount of its reliance on Eligible Inventory that
is to be purchased under, or finished with labor the costs of which are to be
paid under, outstanding Letter of Credit Accommodations, as a Primary Loan based
on Eligible Inventory pursuant to Section 2.1(a)(ii). In determining the amount
of such reliance, the outstanding Loans and Availability Reserves shall first be
attributed to any available components of the lending formulas in Section 2.1(a)
that are not subject to such sublimit, before being attributed to available
components of the lending formulas subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein, at
the request of Borrowers or LFI as agent for
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Borrowers, Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of Borrowers containing terms and conditions
acceptable to Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Loans to Borrowers pursuant to this
Section 2. Notwithstanding that any Letter of Credit Accommodation may
designate, or any application therefor may designate or be signed by, only one
Borrower as account party, each of the Borrowers shall be jointly and severally
liable for all Obligations in respect of all Letter of Credit Accommodations or
relating thereto (in addition to all other Obligations).
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrowers
shall pay to Lender a letter of credit fee at a rate equal to one and one-half
(1 1/2%) percent per annum on the daily outstanding balance of the Letter of
Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month, except that
Borrowers shall pay to Lender such letter of credit fee, at Lender's option,
without notice, at a rate equal to three and one-half (3 1/2%) percent per annum
for (i) the period from and after the date of termination or non-renewal hereof
until Lender has received full and final payment of all non-contingent
Obligations and cash collateral (or a standby letter of credit in favor of
Lender acceptable to Lender in all respects) sufficient to cover all Obligations
in respect of outstanding Letter of Credit Accommodations or relating thereto
(notwithstanding entry of a judgment against such Borrower) and (ii) the period
from and after the date of the occurrence of an Event of Default and for so long
as such Event of Default is continuing. Such letter of credit fee shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrowers to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available to Borrowers
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Loans available to Borrowers (subject to the Maximum Credit,
applicable sublimits and any Availability Reserves in effect immediately prior
to such proposed issuance) are equal to or greater than (i) if the proposed
Letter of Credit Accommodation is for the purpose of purchasing Eligible
Inventory consisting of goods that are finished at the time of purchase or for
the purposes of purchasing raw materials, in each case under terms requiring, as
a condition of any drawing, the presentation of acceptable evidence of shipment
of the subject goods to the United States in the form purchased, the percentage
equal to one hundred (100%) percent minus the lending percentage applicable to
such Eligible
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Inventory under Section 2.1(a)(ii) above, multiplied by the sum of (A) the Value
of such Eligible Inventory, plus (B) freight, taxes, duty and other amounts that
Lender estimates must be paid in connection with such Inventory upon arrival and
for delivery to one of Borrowers' locations for Eligible Inventory; (ii) if the
proposed Letter of Credit Accommodations is for the purpose of paying labor
costs related to the production of Eligible Inventory using raw materials
located outside of the United States which are owned and have already been paid
for by Borrowers, an amount equal to zero (0%) percent of the face amount
thereof; and (iii) if the proposed Letter of Credit Accommodation is for any
purpose, other than those set forth in Sections 2.2(c)(i) or 2.2(c)(ii), an
amount equal to one hundred (100%) percent of the face amount thereof and all
other commitments and obligations made or incurred by Lender with respect
thereto. Effective on the issuance of each Letter of Credit Accommodations, an
Availability Reserve shall be established in the applicable amount set forth in
Sections 2.2(c)(i) or 2.2(c)(iii) hereof, subject to increase or decrease in the
case of Letter of Credit Accommodations described in Section 2.2(c)(i), based on
any change in the lending percentage applicable to such Eligible Inventory.
(d) Except in Lender's discretion, the aggregate amount of all
outstanding Letter of Credit Accommodations and any other commitments and
obligations made or incurred by Lender in connection therewith, shall not at any
time exceed $80,000,000. At any time an Event of Default exists or has occurred
and is continuing, upon Lender's request, Borrowers will either furnish cash
collateral to secure the reimbursement obligations to the issuer in connection
with any Letter of Credit Accommodations or furnish cash collateral to Lender
for the Letter of Credit Accommodations, and in either case, or, if at any other
time Borrowers furnish cash collateral to Lender for the Letter of Credit
Accommodations, the Loans otherwise available to Borrowers shall not be reduced
as provided in Section 2.2(c) to the extent of such cash collateral.
(e) Borrowers shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrowers assume all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed the agent of Borrowers. Borrowers assume all risks for, and agree to pay,
all foreign, Federal, State and local taxes, duties and levies relating to any
goods subject to
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any Letter of Credit Accommodations or any documents, drafts or acceptances
thereunder. Borrowers hereby release and hold Lender harmless from and against
any acts, waivers, errors, delays or omissions, whether caused by Borrowers, by
any issuer or correspondent or otherwise with respect to or relating to any
Letter of Credit Accommodation. The provisions of this Section 2.2(e) shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrowers any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrowers shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of a Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrowers shall not: (i) at any time an Event of Default
exists or has occurred and is continuing, (A) approve or resolve any questions
of non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in the name of a Borrower. Prior to an Event of Default, Lender
shall cooperate reasonably with Borrowers in considering and presenting to the
issuer Borrowers' requests regarding the matters described in clause (ii) of
this Section 2.2(f).
(g) Any rights, remedies, duties or obligations granted or undertaken
by a Borrower to any issuer or correspondent in any application for any Letter
of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by all Borrowers to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of
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Credit Accommodation, shall be deemed to have been undertaken by all Borrowers
to Lender and to apply in all respects to all Borrowers.
2.3 Availability Reserves. All Loans otherwise available to Borrowers
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves. Without limiting any other rights or
remedies of Lender under this Agreement or any of the other Financing Agreements
with respect to the establishment of Availability Reserves or otherwise, Lender
may establish and revise Availability Reserves to reflect: (a) inventory
shrinkage; (b) the aggregate amount of deposits, if any, received by a Borrower
from its retail customers in respect of unfilled orders for merchandise; (c)
amounts past due in respect of sales, use and/or withholding taxes; (d) any
rental payments, service charges or other amounts due to lessors, mortgagees or
operators of real or personal property to the extent Inventory or Records are
located in or on property or such Records are needed to monitor or otherwise
deal with the Collateral, but limited, in the case of property covered by a
Landlord Agreement, Mortgagee Agreement or Warehouseman's Agreement acceptable
to Lender to amounts estimated by Lender as necessary to be paid in connection
with the future exercise by Lender of its rights pursuant to such agreements or
(e) amounts owing by any Borrower to Credit Card Issuers or Credit Card
Processors in connection with the Credit Card Agreements.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrowers or LFI as agent for Borrowers may from time to time
request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional Interest Period. Such
request from or on behalf of Borrowers shall specify the amount of the Prime
Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits
set forth below) and the Interest Period to be applicable to such Eurodollar
Rate Loans. Subject to the terms and conditions contained herein, three (3)
Business Days after receipt by Lender of such a request from or on behalf of
Borrowers, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or
such Eurodollar Rate Loans shall continue, as the
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case may be, provided, that, as of such date each of the following conditions is
satisfied as determined by Lender: (i) no Event of Default, or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing, (ii) no party hereto shall have sent any notice
of termination or non-renewal of this Agreement, (iii) Borrowers shall have
complied with such customary procedures as are established by Lender and
specified by Lender to Borrowers from time to time for requests by or on behalf
of Borrowers for Eurodollar Rate Loans, (iv) no more than six (6) Interest
Periods may be in effect at any one time, (v) the aggregate amount of the
Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, (vi) the maximum amount of
the Eurodollar Rate Loans at any time requested by or on behalf of Borrowers
shall not exceed the amount equal eighty-five (85%) percent of the lowest
principal amount of the Loans which it is anticipated will be outstanding during
the applicable Interest Period, in each case as determined by Lender (but with
no obligation of Lender to make such Loans by virtue of this provision) and
(vii) Lender shall have determined that the Interest Period and Adjusted
Eurodollar Rate is available to Lender through the Reference Bank and can be
readily determined as of the date of the request for such Eurodollar Rate Loan
by or on behalf of Borrowers. Any request by or on behalf of Borrowers to
convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing
Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the
contrary contained herein, Lender and Reference Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the
provisions hereof shall be deemed to apply as if Lender and Reference Bank had
purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Lender
has received and approved a request to continue such Eurodollar Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrowers or LFI as agent for Borrowers, convert to Prime Rate
Loans upon the last day of the respective then-current Interest Period(s), in
the event that (i) an Event of Default or act, condition or event which with the
notice or passage of time or both would constitute an Event of Default, shall
exist or have occurred, (ii) this Agreement shall terminate or not be renewed,
or (iii) the aggregate principal amount of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate
Loans continued, as the case may be, at the beginning of an Interest Period
shall at any time during such Interest Period exceed either (A) the aggregate
principal amount of the Loans then
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outstanding, or (B) the Loans then available to Borrowers under Section 2
hereof. Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at
its option, charge any loan account of Borrowers) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrowers to Lender exceed the maximum amount
or the rate permitted under any applicable law or regulation, and if any such
part or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
(e) The Interest Rate with respect to Eurodollar Rate Loans is subject
to adjustment as follows:
(i) If the EBITA of Borrowers and their subsidiaries is greater
than $12,000,000 for the fiscal year of Borrowers ending the last Saturday in
February, 1998 or any fiscal year commencing after the last Saturday in
February, 1998, then the pre-default Interest Rate for Eurodollar Rate Loans
will be reduced to two and one-half (2 1/2%) percent per annum above the
Adjusted Eurodollar Rate.
(ii) Each adjustment in the Interest Rate for Eurodollar Rate
Loans shall be applicable to each then-operative Interest Period, effective as
of the first day of the month in which Lender receives the delivery of audited
financial statements of Borrowers and their subsidiaries for the applicable
fiscal year showing that the required financial results were achieved, which
audited financial statements shall be in the form required by Section 9.6(a)
hereof, accompanied by the unqualified audit report and opinion thereon of
independent certified public accountants acceptable to Lender, and such
adjustment shall continue to be applicable to all Interest Periods commencing
thereafter, subject to Section 3.1(e)(iv).
(iii) No reduction in the pre-default Interest Rate for
Eurodollar Rate Loans as described in this Section 3.1(e) shall become effective
if, at the time a reduction would
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otherwise be made under this Section 3.1(e), an Event of Default exists or has
occurred and is continuing.
(iv) After the occurrence of a reduction in the pre-default
Interest Rate for Eurodollar Rate Loans pursuant to this Section 3.1(e), in the
event the EBITA of Borrowers and their subsidiaries shall be less than
$12,000,000 with respect to any subsequent fiscal year, or if the audited
financial statements are not timely delivered in the form and accompanied by the
accountants report required under Section 3.1(e)(ii), the pre-default Interest
Rate for Eurodollar Rate Loans shall revert to two and three-quarters (2 3/4%)
percent per annum above the Adjusted Eurodollar Rate, applicable to all
then-operative Interest Periods, effective as of the ninetieth (90th) day
following the end of such fiscal year, and applicable to all Interest Periods
thereafter, subject to the re-application of this Section 3.1(e) in subsequent
fiscal years and (subject to Lender's default rights) as to the remainder of the
then-current fiscal year upon the delivery after its due date of the audited
financial statements in such form and accompanied by such report.
(f) Without Lender's prior written consent, Borrowers and their
subsidiaries shall not change their fiscal year from the period of fifty-two or
fifty-three weeks ending the last Saturday in February.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the amount
of $1,125,000 which shall be fully earned as of the date hereof, $375,000 of
which shall be payable on the date hereof, $375,000 of which shall be payable on
the first anniversary of the date hereof, and $375,000 of which shall be payable
on the second anniversary of the date hereof.
3.3 Servicing Fee. Borrowers shall pay to Lender monthly a servicing fee in
an amount equal to $10,000 for each month (or part thereof) while this Agreement
is in effect and for so long thereafter as any of the Obligations (other than
Obligations fully covered by cash collateral held by Lender or a standby letter
of credit in favor of Lender acceptable to Lender in all respects) are
outstanding, which fee shall be fully earned as of and payable in advance on the
date hereof and on the first day of each month hereafter.
3.4 Unused Line Fee. Borrowers shall pay to Lender with respect to the
calendar months of May through and including November (or part thereof) in each
year while this Agreement is in effect, an unused line fee at a rate equal to
one-half (1/2%) percent per annum calculated upon the amount by which
$110,000,000 exceeds the average daily principal balance of the outstanding
Loans and Letter of Credit Accommodations during such month (or part thereof),
which fee shall be payable on the first day following each applicable month, in
arrears.
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3.5 Supplemental B Loan Fee. If any Supplemental B Loans are made at any
time in any calendar year, or if any Supplemental B Loan availability is at any
time in any calendar year necessary to cover Availability Reserves or otherwise
maintain the outstanding Obligations within the lending formulas and subject to
the sublimits and Availability Reserves provided herein (each such Supplemental
B Loan or other such use of Supplemental B Loan availability, a "Supplemental B
Usage"), Borrowers shall pay to Lender, with respect to each such calendar year,
a fee equal to $100,000, which fee shall be earned and payable with respect to
any calendar year as of the date of the initial Supplemental B Loan made or
other Supplemental B Usage occurring in such calendar year.
3.6 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, or to LFI as
agent for Borrowers, convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or administration
thereof) shall either (A) make it unlawful for Lender, Reference Bank or any
participant to make or maintain Eurodollar Rate Loans or to comply with the
terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result
in the increase in the costs to Lender, Reference Bank or any participant of
making or maintaining any Eurodollar Rate Loans or by an amount deemed by Lender
to be material, or (C) reduce the amounts received or receivable by Lender in
respect thereof, by an amount deemed by Lender to be material or (ii) the cost
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. Borrowers shall pay to Lender, upon demand by Lender (or Lender
may, at its option, charge any loan account of Borrowers) any amounts required
to compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrowers and shall be conclusive,
absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral,
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Borrowers shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrowers) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any additional
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including, without limitation,
any loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, a release agreement and all releases, terminations and such other
documents as Lender may request to evidence and effectuate the termination by
the Existing Senior Lenders of their financing arrangements with LFI and its
Subsidiaries and the termination and release by the Existing Senior Lenders of
any interest in and to any assets and properties of Borrowers and its
subsidiaries, duly authorized, executed and delivered by it, including, but not
limited to, (i) UCC termination statements for all UCC financing statements
previously filed by them or their predecessors, as secured party, and any
Borrower or any of its subsidiaries, as debtor, (ii) satisfactions and
discharges of any mortgages, deeds of trust or deeds to secure debt by Borrowers
or any Obligor in favor of the Existing Senior Lenders or a trustee acting on
its behalf, in form acceptable for recording in the appropriate governmental
office, and (iii) foreign termination and release documents with respect to all
documents executed and/or filed in connection with foreign interests granted by
Borrowers and/or any Obligor in favor of Existing Senior Lenders, if any;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(c) Lender shall have received, in form and substance satisfactory to
Lender, unlimited guarantees of payment of the Obligations by each Guarantor in
favor of Lender, and, with respect to each Guarantor, (i) a security agreement
by each such
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Guarantor in favor of Lender, granting Lender a first priority security interest
in each such Guarantor's assets, and (ii) UCC-1 financing statements with
respect thereto, in each case duly authorized, executed and delivered by the
parties thereto;
(d) Lender shall have received, in form and substance satisfactory to
Lender, an intercreditor and subordination agreement from the Subordinated
Lenders acknowledged and agreed to by Borrowers, providing for, among other
things, (i) the subordination in priority of all security interests of the
Subordinated Lenders in assets of Borrowers and Obligors to the security
interests of Lender in such assets and the agreement of the Subordinated Lenders
not to enforce or exercise their rights or remedies with respect to such
security interests and claims against Borrowers and Obligors until the
indefeasible payment and satisfaction in full of the Obligations, except as
expressly permitted therein and (ii) the subordination in right of payment of
all amounts now or hereafter owing by Borrowers and Obligors to the Subordinated
Lenders to the indefeasible payment and satisfaction in full of the Obligations,
except as expressly provided therein;
(e) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(f) no material adverse change shall have occurred in the assets,
business or prospects of any Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair in any
material amount or to any material extent the ability of any Borrower or any
Obligor to perform its obligations hereunder or under any of the other Financing
Agreements to which it is a party or of Lender to enforce the Obligations or
realize upon the Collateral;
(g) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrowers, including, without
limitation, current agings of Accounts (setting forth Accounts outstanding at
thirty (30), sixty (60) and seventy-five (75) day intervals), current perpetual
inventory records and/or roll-forwards of Accounts and Inventory through the
date of closing, together with such supporting documentation as may be necessary
or appropriate, and other documents and information that will enable Lender to
accurately identify and verify the Collateral, the results of
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which shall be satisfactory to Lender, not more than three (3) Business Days
prior to the date hereof;
(h) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, acknowledgements by lessors,
mortgagees, consignees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(i) Borrowers shall have established the Blocked Accounts and Lender
shall have received, in form and substance satisfactory to Lender, all
agreements with the depository banks and Borrowers with respect to such Blocked
Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized,
executed and delivered by such depository banks and Borrowers;
(j) Lender shall have received evidence, in form and substance
satisfactory to Lender, that each Borrower has (i) directed the banks at which
such Borrower maintains deposit accounts for the initial receipt of cash, checks
and other items from such Borrower's retail store locations to transfer all
immediately available funds deposited in such bank only to the Blocked Accounts
as required pursuant to Section 6.3 hereof or as otherwise directed by Lender
and (ii) notified such banks of the security interests of Lender in such funds
and the other Collateral;
(k) Lender shall have received Credit Card Acknowledgements in each
case, duly authorized, executed and delivered by the Credit Card Issuers and
Credit Card Processors;
(l) Lender shall have received a copy of an amendment to the
Subordinated Loan Documents, in form and substance satisfactory to Lender,
setting forth amended terms and provisions for the indebtedness evidenced by the
Subordinated Loan Documents not inconsistent with the terms hereof and otherwise
acceptable to Lender;
(m) the Excess Availability as determined by Lender, as of the date
hereof, shall not be less than $12,000,000 after giving effect to the initial
Loans made or to be made and Letter of Credit Accommodations issued or to be
issued in connection with the initial transactions hereunder;
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(n) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(o) Lender shall have received, in form and substance satisfactory to
Lender, the opinion letters of counsel to Borrowers with respect to the
Financing Agreements and the security interests and liens of Lender with respect
to the Collateral and such other matters and Lender may reasonably request and
of special trademark counsel to Lender with respect to the Intellectual Property
Intangibles; and
(p) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrowers, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. SECURITY INTEREST
To secure payment and performance of all Obligations, each Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of such Borrower, whether now owned or
hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
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5.1 Accounts;
5.2 all present and future contract rights, general intangibles (including,
but not limited to, tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment and fixtures),
chattel paper, documents, instruments, securities and other investment property,
credit card sales drafts, credit card sales slips or charge slips or receipts
and other forms of store receipts, letters of credit, bankers' acceptances and
guaranties;
5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of such Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of such Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (i) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (ii) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (iii) goods described in invoices, documents, credit
card sales drafts, credit card sales slips or charge slips or receipts and other
forms of store receipts, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
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SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Accounts. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrowers and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time.
6.2 Statements. Lender shall render to Borrowers each month a statement
setting forth the balance in the Borrowers' loan account(s) maintained by Lender
for Borrowers pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrowers and conclusively binding
upon Borrowers as an account stated except to the extent that Lender receives a
written notice from any Borrower of any specific exceptions of such Borrower
thereto within forty-five (45) days after the date such statement has been
mailed by Lender. Until such time as Lender shall have rendered to Borrowers a
written statement as provided above, the balance in Borrowers' loan account(s)
shall be presumptive evidence of the amounts due and owing to Lender by
Borrowers.
6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense, deposit
account arrangements and merchant payment arrangements with the banks set forth
on Schedule 6.3 hereto and after prior written notice to Lender, subject to
Section 9.15, such other banks as Borrowers may hereafter select as are
acceptable to Lender. The banks set forth on Schedule 6.3 constitute all of the
banks with whom any Borrower has deposit account arrangements and merchant
payment arrangements as of the date hereof and identifies each of the deposit
accounts at such banks to a retail store location of a Borrower or otherwise
describes the nature of the use of such deposit account by the applicable
Borrower.
(i) Borrowers shall deposit all proceeds from sales of Inventory
in every form, including, without limitation, cash, checks, credit card sales
drafts, credit card sales or charge slips or receipts and other forms of daily
store receipts, from each retail store location of Borrowers on each business
day into the deposit accounts of Borrowers used solely for such purpose and
identified to each retail store location as set forth on Schedule 6.3. All such
funds deposited into the separate deposit accounts shall be sent by wire
transfer or via Automated
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Clearing House transfer on a daily basis and all other proceeds of Collateral
shall be sent by wire transfer, to the Blocked Accounts as provided in Section
6.3(a)(ii) below. Borrowers shall irrevocably authorize and direct in writing,
in form and substance satisfactory to Lender, each of the banks into which
proceeds from sales of Inventory from each retail store locations of Borrowers
are at any time deposited as provided above to send all funds deposited in such
accounts by wire transfer on a daily basis to the Blocked Accounts and, if at
any time required by Lender, Borrowers shall obtain the written agreement by
such banks to do so. Such authorization and direction shall not be rescinded,
revoked or modified without the prior written consent of Lender.
(ii) Borrowers shall establish and maintain, at its expense,
deposit accounts with such banks as are acceptable to Lender (the "Blocked
Accounts") into which Borrowers shall promptly either cause all amounts on
deposit in its deposit accounts used by each retail store location to be sent as
provided in Section 6.3(a)(i) above or shall themselves deposit or cause to be
deposited all proceeds from sales of Inventory, all amounts payable to Borrowers
from Credit Card Issuers and Credit Card Processors and all other proceeds of
Collateral. The banks at which the Blocked Accounts are established shall enter
into an agreement, in form and substance satisfactory to Lender, providing that
all items received or deposited in the Blocked Accounts are the property of
Lender, that the depository bank has no lien upon, or right of setoff against,
the Blocked Accounts, the items received for deposit therein, or the funds from
time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited into the Blocked Accounts to such bank account of Lender
as Lender may from time to time designate for such purpose ("Payment Account").
Each Borrower agrees that all amounts deposited in such Blocked Accounts or
other funds received and collected by Lender, whether as proceeds of inventory
or other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available to
Borrowers, such payments under Section 6.3(a) will be applied (conditional upon
final collection) to the Obligations on the Business Day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrowers' loan account(s) on such day, and if not, then on the next Business
Day. For purposes of calculating interest on the Obligations, such payments or
other funds received will be applied (conditional upon final collection) to the
Obligations on the Business Day of receipt of immediately available funds by
Lender
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in the Payment Account provided such payments or other funds and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit the Borrowers'
loan account(s) on such day, and if not, then on the next Business Day.
(c) Borrowers and all of their affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any cash, checks, credit card sales drafts, credit card
sales or charge slips or receipts, notes, drafts, all forms of store receipts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender; provided, that, if at any time the Excess Availability shall be less
than $1,000,000, Borrowers shall promptly upon Lender's request cause the
portion thereof representing sales and/or use taxes payable in connection with
such sales or otherwise to be deposited into a separate bank account or accounts
established for such purpose. In no event shall any such cash, checks, credit
card sales drafts, credit card sales or charge slips or receipts, notes, drafts
or other payments be commingled with Borrowers' own funds. Borrowers agree to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The Obligation of
Borrowers to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrowers or for the
account of Borrowers (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the non-contingent
Obligations, whether or not then due, in such order and manner as Lender
determines. At Lender's option, all principal, interest, fees, costs, expenses
and other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of Borrowers.
Borrowers shall make all payments to Lender on the Obligations free and clear
of, and without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to
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surrender or return such payment or proceeds to any Person for any reason, then
the Obligations intended to be satisfied by such payment or proceeds shall be
reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrowers
shall be liable to pay to Lender, and each Borrower does hereby indemnify and
hold Lender harmless for the amount of any payments or proceeds surrendered or
returned. This Section 6.4 shall remain effective notwithstanding any contrary
action which may be taken by Lender in reliance upon such payment or proceeds.
This Section 6.4 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans and
provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrowers or
LFI as agent for Borrowers or other authorized person or, at the discretion of
Lender, if such Loans are necessary to satisfy any Obligations. All requests for
Loans or Letter of Credit Accommodations hereunder shall specify the date on
which the requested advance is to be made or Letter of Credit Accommodations
established (which day shall be a Business Day) and the amount of the requested
Loan. Requests received after 11:00 a.m. New York time on any day shall be
deemed to have been made as of the opening of business on the immediately
following Business Day. All Loans and Letter of Credit Accommodations under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrowers when deposited to the credit of a
Borrower or LFI as agent for Borrowers, or otherwise disbursed or established in
accordance with the instructions of a Borrower or LFI as agent for Borrowers or
in accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans
and Letter of Credit Accommodations provided by Lender to Borrowers hereunder
only for: (a) payments to each of the persons listed in the disbursement
direction letter furnished by Borrowers to Lender on or about the date hereof,
(b) a back-up letter of credit, for the joint and several account of Borrowers,
designating LFI as the account party thereon and having terms acceptable to
Lender and the issuer thereof, in favor of the agent for the Existing Senior
Lenders with respect to outstanding letters of credit issued pursuant to the
existing working capital financing arrangements between LFI and the Existing
Senior Lenders, and (c) costs, expenses and fees in connection with the
preparation, negotiation, execution and delivery of this Agreement and the other
Financing Agreements. All other Loans made or Letter of Credit Accommodations
provided by Lender to Borrowers pursuant to the provisions hereof shall be used
by Borrowers only for general operating, working capital and other proper
corporate purposes of Borrowers not otherwise
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prohibited by the terms hereof. None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security or for
the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the Loans to be considered a "purpose credit" within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System,
as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrowers shall provide Lender with the following
documents in a form satisfactory to Lender: (a) on a monthly basis or more
frequently as Lender may request, (i) perpetual inventory reports, (ii)
inventory reports by category, (iii) agings of accounts payable, (iv) reports of
sales for each category of Inventory, and (v) reports on sales and use tax
collections, deposits and payments, including monthly sales and use tax
accruals, (b) on a daily basis as required by Lender, a schedule of Accounts,
credits and collections, (c) on a weekly basis or more frequently as Lender may
request, (i) reports of sales of Inventory, indicating gross sales, returns,
allowances and net sales, (ii) reports of aggregate Inventory purchases
(including all costs related thereto, such as freight, duty and taxes) and
identifying items of Inventory in transit to Borrowers related to the applicable
documentary letter of credit and/or bill of lading number, if possible, (iii)
reports of amounts of consigned Inventory held by consignees of Borrowers by
consignor, (iv) reports of the Cost of the Inventory and of markdowns taken with
respect to Inventory in Borrowers' retail stores, and (v) reports of outstanding
Letter of Credit Accommodations identifying the applicable purposes of each
based on the categories referred to in Section 2.2(c) hereof, (d) upon Lender's
request, (i) copies of customer statements and credit memos, remittance advices
and reports, and copies of deposit slips and bank statements, (ii) copies of
shipping and delivery documents, (iii) copies of purchase orders, invoices and
delivery documents for Inventory and Equipment acquired by Borrowers and (iv)
reports by retail store location of sales and operating profits for each such
retail store location; (e) agings of accounts receivable on a monthly basis or
more frequently as Lender may request, setting forth the outstanding Accounts of
each Borrower at thirty (30), sixty (60) and seventy-five (75) day intervals;
(f) as soon as available, but in any event not later than five (5) days after
receipt by Borrowers, the monthly statements received by Borrowers from any
Credit Card Issuers or Credit Card Processors, together with such additional
information with respect thereto as shall be sufficient to enable Lender to
monitor the transactions pursuant to the Credit Card Agreements; and (g) such
other reports as to the Collateral as Lender shall request from time to time. If
any of Borrowers' records or
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reports of the Collateral are prepared or maintained by an accounting service,
contractor, shipper or other agent, Borrowers hereby irrevocably authorize such
service, contractor, shipper or agent to deliver such records, reports, and
related documents to Lender and to follow Lender's instructions with respect to
further services at any time that an Event of Default exists or has occurred and
is continuing.
7.2 Accounts Covenants.
(a) Borrowers shall notify Lender promptly of (i) any material delay
in any Borrower's performance of any of its obligations to any account debtor or
the assertion of any claims, offsets, defenses or counterclaims by any account
debtor, Credit Card Issuer or Credit Card Processor or any disputes with any of
such persons or any settlement, adjustment or compromise thereof, in any
instance involving an amount of $250,000 or more, (ii) all material adverse
information relating to the financial condition of any account debtor, Credit
Card Issuer or Credit Card Processor, and (iii) any event or circumstance which,
to any Borrower's knowledge, would cause Lender to consider any Accounts in an
amount of $250,000 or more previously considered to be Eligible Accounts as no
longer constituting Eligible Accounts. No credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to any account
debtor, Credit Card Issuer or Credit Card Processor except in the ordinary
course of Borrowers' business in accordance with the current practices of
Borrowers as previously disclosed in writing to Lender. So long as no Event of
Default exists or has occurred and is continuing, Borrowers shall settle, adjust
or compromise any claim, offset, counterclaim or dispute with any account
debtor, Credit Card Issuer, Credit Card Processor. At any time that an Event of
Default exists or has occurred and is continuing, Lender shall, at its option,
have the exclusive right to settle, adjust or compromise any claim, offset,
counterclaim or dispute with account debtors, Credit Card Issuers or Credit Card
Processors or grant any credits, discounts or allowances.
(b) Without limiting the other reporting obligations of Borrowers
hereunder, Borrowers shall promptly report to Lender on a separate basis any
return of Inventory by any one account debtor if the Inventory so returned has a
value in excess of $250,000. At any time that Inventory is returned, reclaimed
or repossessed, the Account (or portion thereof) which arose from the sale of
such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrowers shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any
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credits, discounts or allowances with respect thereto without Lender's prior
written consent. Each Borrower shall notify Lender promptly of: (x) any notice
of a material default by such Borrower under any of the Credit Card Agreements
or of any default which might result in the Credit Card Issuer or Credit Card
Processor ceasing to make payments or suspending payments to Borrowers, (y) any
notice from any Credit Card Issuer or Credit Card Processor that such person is
ceasing or suspending, or will cease or suspend, any present or future payments
due or to become due to any Borrower from such person, or that such person is
terminating or will terminate any of the Credit Card Agreements, and (z) the
failure of any Borrower to comply with any material terms of the Credit Card
Agreements or any terms thereof which might result in the Credit Card Issuer or
Credit Card Processor ceasing or suspending payments to any Borrower.
(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments delivered to
Lender pursuant to the terms of this Agreement, (iii) no credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted by
a Borrower to any account debtor, Credit Card Issuer or Credit Card Processor,
except as reported to Lender in accordance with this Agreement and except for
credits, discounts, allowances or extensions made or given in the ordinary
course of such Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender, (iv) there shall be no setoffs,
deductions, contras, defenses, counterclaims or disputes existing or asserted
with respect thereto except as reported to Lender in accordance with the terms
of this Agreement, (v) none of the transactions giving rise thereto will violate
any applicable State or Federal Laws or regulations, all documentation relating
thereto will be legally sufficient under such laws and regulations and all such
documentation will be legally enforceable in accordance with its terms.
(d) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing: (i) notify any or all account debtors, Credit
Card Issuers and Credit Card Processors that the Accounts have been assigned to
Lender and that Lender has a security interest therein and Lender may direct any
or all account debtors, Credit Card Issuers and Credit Card Processors to make
payments of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such
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other obligations, but without any duty to do so, and Lender shall not be liable
for its failure to collect or enforce the payment thereof nor for the negligence
of its agents or attorneys with respect thereto and (iv) take whatever other
action Lender may deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices and statements sent to any account
debtor, Credit Card Issuer or Credit Card Processor shall state that the
Accounts owed by such account debtor, Credit Card Issuer or Credit Card
Processor and such other obligations have been assigned to Lender and are
payable directly and only to Lender and Borrowers shall deliver to Lender such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Lender may require.
(e) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(f) Each Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to such
Borrower, all chattel paper and instruments which such Borrower now owns or may
at any time acquire immediately upon such Borrower's receipt thereof, except as
Lender may otherwise agree.
7.3 Inventory Covenants. With respect to the Inventory: (a) each Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, such Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) each Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) no Borrower shall remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrowers'
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) Borrowers shall, at their
expense, once in every six (6) month period, but at any time or times as Lender
may request at Lender's expense, or at Borrowers' expense any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Inventory in form,
scope and methodology acceptable to Lender and by an appraiser
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acceptable to Lender, addressed to Lender or upon which Lender is expressly
permitted to rely; (e) upon Lender's request, Borrowers shall, at their expense,
conduct through RGIS Inventory Specialists, Inc. or another inventory counting
service acceptable to Lender, a physical count of the Inventory in form, scope
and methodology acceptable to Lender no more than once in any twelve (12) month
period, but at any time or times as Lender may request on or after an Event of
Default, the results of which shall be reported directly by such inventory
counting service to Lender and Borrowers shall promptly deliver confirmation in
a form satisfactory to Lender that appropriate adjustments have been made to the
inventory records of Borrowers to reconcile the inventory count to Borrowers'
inventory records; (f) Borrowers shall produce, use, store and maintain the
Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (g) each Borrower assumes all responsibility and liability arising
from or relating to the production, use, sale or other disposition of the
Inventory; (h) no Borrower shall sell Inventory to any customer on approval, or
any other basis which entitles the customer to return or may obligate such
Borrower to repurchase such Inventory, except for (A) consignment arrangements
in the ordinary course of business, with respect to which there exists
appropriate legal documentation evidencing the terms of consignment and
consignment filings against the consignee in favor of such Borrower assigned to
Lender, and (B) the right of return given to retail customers of such Borrower
in the ordinary course of the business of such Borrower in accordance with the
then-current return policy of such Borrower; (i) Borrowers shall keep the
Inventory in good and marketable condition; and (j) no Borrower shall, without
prior written notice to Lender, acquire or accept any Inventory on consignment
or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrowers shall, at their expense, at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender; (b)
Borrowers shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrowers shall use the
Equipment with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrowers' business and not for personal,
family, household or farming use; (e) no Borrower shall remove any Equipment
from the locations set forth or permitted herein, except to the extent necessary
to have any Equipment repaired or maintained in the ordinary course of
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the business of such Borrower or to move Equipment directly from one location
set forth or permitted herein to another such location and except for the
movement of motor vehicles used by or for the benefit of such Borrower in the
ordinary course of business; (f) the Equipment is now and shall remain personal
property and Borrowers shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (g) each Borrower assumes all
responsibility and liability arising from its use of the Equipment.
7.5 Appraisals of Intellectual Property Intangibles. Borrowers shall at
their expense, once in every twelve (12) month period, but at any time or times
as Lender may request at Lender's expense, or at any time or times as Lender may
request at Borrowers' expense on or after an Event of Default, deliver or cause
to be delivered to Lender written reports or appraisals as to the Intellectual
Property Intangibles, in form, scope and methodology acceptable to Lender and by
an appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely.
7.6 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as such Borrower's true
and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or
Lender's name, to: (a) at any time an Event of Default or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other proceeds
of Inventory or other Collateral, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of such Borrower's rights and
remedies to collect any Account or other Collateral, (iv) sell or assign any
Account upon such terms, for such amount and at such time or times as the Lender
deems advisable, (v) settle, adjust, compromise, extend or renew an Account,
(vi) discharge and release any Account, (vii) prepare, file and sign such
Borrower's name on any proof of claim in bankruptcy or other similar document
against an account debtor, (viii) notify the post office authorities to change
the address for delivery of such Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to such Borrower, and (ix) do
all acts and things which are necessary, in Lender's determination, to fulfill
such Borrower's obligations under this Agreement and the other Financing
Agreements and (b) at any time to (i) take control in any manner of any item of
payment or proceeds thereof, (ii) have access to any lockbox or postal box into
which such Borrower's mail is deposited, (iii) endorse such Borrower's name upon
any items of payment or proceeds thereof and deposit the same in the Lender's
account for application to the Obligations, (iv) endorse such Borrower's name
upon any chattel paper, document, instrument, invoice, or similar document or
agreement relating to any Account or any goods pertaining thereto or any other
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Collateral, (v) sign such Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in such Borrower's name and
file any UCC financing statements or foreign equivalents thereof or amendments
thereto. Each Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or wilful misconduct as determined
pursuant to a final non-appealable judgment of a court of competent
jurisdiction.
7.7 Right to Cure. Lender may, at its option, (a) cure any default by a
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against a Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge such
Borrower's account therefor, such amounts to be repayable by such Borrower on
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of any Borrower. Any payment made or other action taken by Lender
under this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.8 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrowers, (a) Lender or its designee shall have complete
access to all of Borrowers' premises during normal business hours and after
notice to Borrowers, or at any time and without notice to Borrowers if an Event
of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrowers' books
and records, including, without limitation, the Records, and (b) Borrowers shall
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and (c) use during normal business hours such
of Borrowers' personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrowers hereby, jointly and severally, represent and warrant to Lender
the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy
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of which is a continuing condition of the making of Loans and providing Letter
of Credit Accommodations by Lender to Borrowers:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on such Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within each Borrower's corporate powers, have been duly authorized and
are not in contravention of law or the terms of each Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which any Borrower is a party or by which any
Borrower or its property is bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of Borrowers
enforceable in accordance with their respective terms. Borrowers do not have any
subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrowers as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Borrowers to Lender prior to the date
of this Agreement, there has been no material adverse change in the assets,
liabilities, properties and condition, financial or otherwise, of Borrowers, on
a consolidated basis, since the date of the most recent audited financial
statements furnished by Borrowers to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower is located at the address set forth below and each
Borrower's Records concerning Accounts and Inventory are located at the address
set forth below and its only other places of business and the only other
locations of Collateral, if any, are the addresses set forth in the Information
Certificate, subject to the right of Borrowers to establish new locations in
accordance with Section 9.2 below. The Information Certificate correctly
identifies as of the date hereof any of such locations which are not owned by
Borrowers and sets forth the owners and/or operators thereof and, to the best
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of each Borrower's knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral, subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Each Borrower has
good and marketable title to all of its properties and assets, subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (in the case of returns for sales and/or use taxes and, if the
estimated liability of Borrowers is $250,000 or more, returns for any other
taxes, without requests for extension, except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Each Borrower has paid or caused
to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, and has collected, deposited and remitted in
accordance with all applicable laws all sales and/or use taxes applicable to the
conduct of its business, except taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and available to
such Borrower and with respect to which adequate reserves have been set aside on
its books. Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet
due and payable and whether or not disputed. Each Borrower has collected and,
when and if required by this Agreement, deposited in a separate bank account,
and, in all events timely remitted when due to the appropriate tax authority all
sales and/or use taxes applicable to its business required to be collected under
the laws of the United States and each possession or territory thereof, and each
State or political subdivision thereof, including any State in which such
Borrower owns any Inventory or owns or leases any other property, and under the
applicable laws of any foreign jurisdiction.
8.6 Litigation. Except as set forth on the Information Certificate, as of
the date hereof, there is no present investigation by any governmental agency
pending, or to the best of any Borrower's knowledge threatened, against or
affecting any Borrower, its assets or business and there is no action, suit,
proceeding or claim by any Person pending, or to the best of any
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Borrower's knowledge threatened, against any Borrower or its assets or goodwill,
or against or affecting any transactions contemplated by this Agreement, which
has a reasonable likelihood of an adverse determination and which, if adversely
determined against any Borrower, would result in any material adverse change in
the assets, business or prospects of Borrowers, on a consolidated basis or would
impair the ability of any Borrower to perform its Obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
(a) No Borrower is in default in any respect under, or in violation in
any respect of any of the terms of, any material agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound. Borrowers are in compliance in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority relating to their business, including,
without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, all federal, state and local statutes, regulations,
rules and orders relating to consumer credit (including, without limitation, as
each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act,
the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and
regulations, rules and orders promulgated thereunder), all federal, state and
local and foreign statutes, regulations, rules and orders pertaining to sales of
consumer goods (including, without limitation, the Consumer Products Safety Act
of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder).
(b) Each Borrower has obtained all material permits, licenses,
approvals, consents, certificates, orders or authorizations of any governmental
agency required for the lawful conduct of its business. Schedule 8.7 hereto sets
forth all material permits, licenses, approvals, consents, certificates, orders
or authorizations (the "Permits") issued to or held by Borrowers as of the date
hereof by any federal, state, local or foreign governmental agency and any
applications pending by Borrowers with such federal, state, local or foreign
governmental agency. The Permits constitute all permits, licenses, approvals,
consents, certificates, orders or authorizations necessary for each Borrower to
own and operate its business as presently conducted or proposed to be conducted
where the failure to have such Permits would have a material adverse effect on
the business, performance, operations or properties of such Borrower or the
legality, validity or enforceability of this Agreement or the other Financing
Agreements or the ability of such Borrower to
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perform its obligations under this Agreement or any of the other Financing
Agreements or the rights and remedies of Lender under this Agreement or any of
the other Financing Agreements. All of the Permits are valid and subsisting and
in full force and effect. There are no actions, claims or proceedings pending or
threatened that seek the revocation, cancellation, suspension or modification of
any of the Permits.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, no Borrower has
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law in any material respect or any license, permit, certificate,
approval or similar authorization issued to a Borrower thereunder and the
operations of Borrowers comply in all material respects with all applicable
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there is no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person pending or to the best
of each Borrower's knowledge threatened, with respect to any non-compliance with
or violation of the requirements of any applicable Environmental Law by such
Borrower nor has there been any release, spill or discharge, overtly threatened
or actual, of any Hazardous Material on any properties of Borrowers, or to the
best of each Borrower's knowledge, releases, spills or discharges from any
properties at which any Borrower has transported, stored or disposed of any
Hazardous Materials, or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental matter which affects any Borrower or its business,
operations or assets in any material respect.
(c) Except as set forth in Schedule 8.8 hereto, no Borrower has
material liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits, certificates, approvals
or similar authorizations required to be obtained or filed in connection with
the operations of such Borrower under any Environmental Law and all of such
licenses, permits, certificates, approvals or similar authorizations are valid
and in full force and effect in each case where the failure
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to obtain or maintain such licenses, permits, certificates, approvals or similar
authorizations would have a material adverse effect on the assets or business of
such Borrower or would impair the ability of such Borrower to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce any Obligations or realize upon any
Collateral.
8.9 Credit Card Agreements. Set forth on Schedule 8.9 hereto is a correct
and complete list of (a) all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between or
among each Borrower, any of its affiliates, the Credit Card Issuers, the Credit
Card Processors and any of their affiliates, (b) the percentage of each sale
payable to the Credit Card Issuer or Credit Card Processor under the terms of
the Credit Card Agreements, (c) all other fees and charges payable by Borrowers
under or in connection with the Credit Card Agreements and (d) the term of such
Credit Card Agreements. The Credit Card Agreements constitute all of such
agreements necessary for each Borrower to operate its business as presently
conducted with respect to credit cards and debit cards and no Accounts of
Borrowers arise from purchases by customers of Inventory with credit cards or
debit cards, other than those which are issued by Credit Card Issuers with whom
Borrowers shall have entered into one of the Credit Card Agreements set forth on
Schedule 8.9 hereto or with whom Borrowers shall have entered into a Credit Card
Agreement in accordance with Section 9.13 hereof. Each of the Credit Card
Agreements constitutes the legal, valid and binding obligation of each Borrower
party thereto and, to the best of each Borrower's knowledge, the other parties
thereto, is enforceable in accordance with its respective terms and is in full
force and effect. No default or event of default, or act, condition or event
which after notice or passage of time or both, would constitute a default or an
event of default under any of the Credit Card Agreements exists or has occurred.
Borrowers and the other parties thereto have complied with all of the terms and
conditions of the Credit Card Agreements to the extent necessary for Borrowers
to be entitled to receive all payments thereunder. Borrowers have delivered, or
caused to be delivered to Lender, true, correct and complete copies of all of
the Credit Card Agreements.
8.10 Employee Benefits.
(a) No Borrower has engaged in any transaction in connection with
which any Borrower or any of its ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to ERISA or a tax imposed the Code, including
any accumulated funding deficiency described in Section 8.10(c) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
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(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by any Borrower to be incurred with respect to any employee
benefit plan of any Borrower or any of its ERISA Affiliates. There has been no
reportable event (within the meaning of ERISA) or any other event or condition
with respect to any employee benefit plan of any Borrower or any of its ERISA
Affiliates which presents a risk of termination of any such plan by the Pension
Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which each Borrower or
any of its ERISA Affiliates is required under ERISA and the Code to have paid
under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no accumulated funding deficiency (as defined in ERISA and the
Code), whether or not waived, exists with respect to any employee pension
benefit plan, including any penalty or tax described in Section 8.10(a) hereof
and any deficiency with respect to vested accrued benefits described in Section
8.10(d) hereof.
(d) Except as set forth on Schedule 8.10 hereto, the current value of
all vested accrued benefits under all employee benefit plans maintained by each
Borrower that are subject to Title IV of ERISA does not exceed the current value
of the assets of such plans allocable to such vested accrued benefits, including
any penalty or tax described in Section 8.10(a) hereof and any accumulated
funding deficiency described in Section 8.10(c) hereof. The terms "current
value" and "accrued benefit" have the meanings specified in ERISA.
(e) Except as disclosed on Schedule 8.10 hereto, no Borrower or any
ERISA Affiliate of a Borrower is or has ever been obligated to contribute to any
"multiemployer plan" (as such term is defined in ERISA) that is subject to Title
IV of ERISA, and, except as disclosed on Schedule 8.10 hereto, no Borrower has
any existing or future liability under any such multiemployer plan.
8.11 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrowers maintained at any bank or
other financial institution are set forth on Schedule 6.3 hereto, subject to the
right of Borrowers to establish new accounts in accordance with Section 9.15
below.
8.12 Interrelated Businesses. Borrowers and Guarantors make up an
interrelated organization of various entities constituting a single economic and
business enterprise in which each of Borrowers and Guarantors shares an identity
of interests such that any benefit received by any one of the Borrowers and
Guarantors benefits the other Borrowers and Guarantors. Each of
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Borrowers and Guarantors purchases or sells and supplies goods and renders or
receives services to or from, or for the benefit of, the other such Persons and
provides or receives other financial accommodations to or for the benefit of the
other such Persons and administrative, marketing, payroll and management
services to or from or for the benefit of, the other Borrowers and Guarantors.
Borrowers and Guarantors have (i) substantially consolidated accounting,
administrative, financial, computer, credit, legal and other services, and (ii)
substantially common officers and directors and are identified to creditors as a
common entity.
8.13 Accuracy and Completeness of Information. All information furnished by
or on behalf of any Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of any
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.14 Survival of Warranties; Cumulative. All representations and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed to have been
relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
any Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on its business as presently or proposed to be
conducted. Each Borrower shall give Lender thirty (30) days prior written notice
of any proposed change in its corporate name, which notice shall set forth the
new name and such Borrower shall deliver to Lender a copy of the amendment to
the Certificate of Incorporation of such Borrower
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providing for the name change certified by the Secretary of State of the
jurisdiction of incorporation of such Borrower as soon as it is available.
9.2 New Collateral Locations. Subject to Section 9.16 hereof with respect
to certain Capital Expenditures, any Borrower may open any new location within
the continental United States provided such Borrower (a) gives Lender thirty
(30) days prior written notice of the intended opening of any such new location,
other than temporary sites for closeout liquidation events established on
reasonable advance notice to Lender and (b) executes and delivers, or causes to
be executed and delivered, to Lender such agreements, documents, and instruments
as Lender may deem reasonably necessary or desirable to protect its interests in
the Collateral at such location, including UCC financing statements, Landlord
Agreements, Mortgagee Agreements and Warehouseman's Agreements, as applicable.
9.3 Compliance with Laws, Regulations, Etc. Each Borrower shall at all
times comply in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders applicable to it and
duly observe all requirements, of any foreign, Federal, State or local
governmental authority, including, without limitation, the Occupational Safety
and Health Act of 1970, as amended, the Code, the Fair Labor Standards Act of
1938, as amended, and the rules and regulations thereunder, all Federal, State
and local statutes, regulations, rules and orders relating to consumer credit
(including, without limitation, as each has been amended, the Truth-in-Lending
Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair
Credit Reporting Act, and regulations, rules and orders promulgated thereunder),
all Federal, State and local statutes, regulations, rules and orders pertaining
to sales of consumer goods (including, without limitation, the Consumer Products
Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as
amended, and all regulations, rules and orders promulgated thereunder) and all
statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all Environmental Laws.
9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate reserves have been
set aside on its books. Each Borrower shall be liable for any tax or penalties
imposed on Lender as a result of the financing arrangements provided for herein
and Borrowers agree to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand
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the amount thereof, and until paid by Borrowers such amount shall be added and
deemed part of the Loans, provided, that, nothing contained herein shall be
construed to require any Borrower to pay any income or franchise taxes
attributable to the income of Lender from any amounts charged or paid hereunder
to Lender. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
9.5 Insurance. Each Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Each Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if any Borrower fails to
do so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrowers. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrowers in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrowers shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrowers shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by any Borrower or any of its affiliates.
At its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
(a) Each Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of such Borrower and its
subsidiaries (if any) in accordance with GAAP, and Borrowers shall furnish or
cause to be furnished to Lender: (i) within thirty (30) days after the end of
each fiscal month, monthly unaudited consolidated financial statements
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of
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shareholders' equity), and an unaudited consolidating statement of operations by
business unit, all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrowers and their subsidiaries
as of the end of and through such fiscal month and (ii) within ninety (90) days
after the end of each fiscal year, audited consolidated financial statements
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrowers and their
subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrowers and
reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrowers and their subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrowers shall promptly notify Lender in writing of the details
of (i) any loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations, in each case having a value of $250,000 or more, or which would
result in any material adverse change in any Borrower's business, properties,
assets, goodwill or condition, financial or otherwise and (ii) the occurrence of
any Event of Default or act, condition or event which, with the passage of time
or giving of notice or both, would constitute an Event of Default.
(c) Borrowers shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrowers
send to their stockholders generally and copies of all reports and registration
statements which Borrowers file with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrowers shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrowers, as Lender may, from time to time, reasonably
request. Lender is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of Borrowers to any
court or other government agency or to any participant or assignee or
prospective participant or assignee. Each Borrower hereby irrevocably authorizes
and directs all accountants or auditors to deliver to Lender, at Borrowers'
expense, copies of the financial statements of Borrowers and any reports or
management letters prepared by such accountants or auditors on behalf of
Borrowers and to disclose to Lender such
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information as they may have regarding the business of any Borrower. Any
documents, schedules, invoices or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrowers to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower
shall, directly or indirectly:
(a) merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with it, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any
stock or indebtedness to any other Person or any of its assets to any other
Person, except for:
(i) sales of Inventory in the ordinary course of business or
consignments of Inventory permitted hereunder,
(ii) the disposition of worn-out or obsolete Equipment, so long
as (A) if an Event of Default exists or has occurred and is continuing, any
proceeds are paid to Lender and (B) such sales do not involve Equipment having
an aggregate fair market value in excess of $500,000 for all such Equipment
disposed of in any fiscal year of Borrowers, but excluding for purposes of such
$500,000 limitation, the value of any Equipment that was previously used in
LFI's manufacturing facility in Baltimore, Maryland and is disposed of in any
such fiscal year,
(iii) sales or other dispositions by a Borrower of assets in
connection with the closing or sale of a retail store location of such Borrower
in the ordinary course of Borrowers' business which consist of leasehold
interests in the premises of such store, the Equipment and fixtures located at
such premises and the books and records relating exclusively and directly to the
operations of such store; provided, that, as to each and all such sales, (A) on
the date of, and after giving effect to, any such sale, Borrowers shall not have
closed or sold retail store locations accounting for more than twenty-five (25%)
of all retail store sales of Borrowers in the immediately preceding twelve (12)
month period, (B) Lender shall have received not less than ten (10) Business
Days prior written notice of such sale, which notice shall set forth in
reasonable detail satisfactory to Lender, the parties to such sale or other
disposition, the assets to be sold or otherwise disposed of, the purchase price
and the manner of payment thereof and such other information with respect
thereto as Lender may request, (C) as of the date of such sale or other
disposition and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time would constitute an
Event of Default, shall exist or have occurred and be continuing, (D) such sale
shall be on
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commercially reasonable prices and terms in a bona fide arm's length
transaction, and (E) any and all net proceeds payable or delivered to a Borrower
in respect of such sale or other disposition shall be paid or delivered, or
caused to be paid or delivered, to Lender in accordance with the terms of this
Agreement either, at Lender's option, for application to the Obligations in
accordance with the terms hereof (except to the extent such proceeds reflect
payment in respect of indebtedness secured by a properly perfected first
priority security interest in the assets sold, in which case, such proceeds
shall be applied to such indebtedness secured thereby) or to be held by Lender
as cash collateral for the Obligations on terms and conditions acceptable to
Lender; or
(c) form or acquire any subsidiaries, or
(d) wind up, liquidate or dissolve (except for dissolution of any
inactive Guarantors upon not less than twenty (20) days prior written notice to
Lender), or
(e) agree to do any of the foregoing.
9.8 Encumbrances. No Borrower shall create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrowers and with respect to which adequate reserves
have been set aside on their books; (c) non-consensual statutory liens (other
than liens securing the payment of taxes) arising in the ordinary course of
Borrowers' business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrowers, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on their books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of Real Property which do not interfere in any material
respect with the use of such Real Property or ordinary conduct of the business
of Borrowers as presently conducted thereon or materially impair the value of
the Real Property which may be subject thereto; (e) purchase money security
interests in Equipment (including capital leases) and purchase money mortgages
on real estate not to exceed $5,000,000 in the aggregate at any time outstanding
so long as such security interests and mortgages do not apply to any property of
Borrowers
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other than the Equipment or real estate so acquired, and the indebtedness
secured thereby does not exceed the cost of the Equipment or real estate so
acquired, as the case may be; (f) subordinate liens and security interests of
the Subordinated Lenders securing indebtedness and subject to the intercreditor
and subordination agreement in favor of Lender referred to in Section 9.9(d)
hereof; (g) liens and security interests with respect to the Real Property of
LFI located in Eldersburg, Maryland securing indebtedness permitted under
Section 9.9(e) or (f) hereof; (h) liens or rights of setoff on or against credit
balances of Borrowers with Credit Card Issuers (but not liens on or rights of
setoff against any other property or assets of Borrowers) pursuant to the Credit
Card Agreements to secure the obligations of Borrowers to the Credit Card
Issuers as a result of fees and chargebacks; (i) deposits of cash with the owner
or lessor of premises leased and operated by a Borrower in the ordinary course
of the business of Borrowers' to secure the performance by such Borrower of its
obligations under the terms of the lease for such premises; and (j) the liens
and security interests set forth on Schedule 8.4 hereto.
9.9 Indebtedness. No Borrower shall incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any indebtedness,
except:
(a) the Obligations;
(b) short-term intercompany loans by one Borrower to another Borrower
in the ordinary course of business;
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) fully subordinated indebtedness of Borrowers to the Subordinated
Lenders pursuant to the financing arrangements and documents, agreements and/or
instruments described on Schedule 9.9 hereto; provided, that, (i) Borrowers may
only make payments in respect of such indebtedness in accordance with the terms
of the Subordinated Loan Documents as in effect on the date hereof, and provided
each such payment is permitted under the intercreditor and subordination
agreement executed by the Subordinated Lenders in favor of Lender with respect
thereto, (ii) Borrowers shall not, directly or indirectly, (A) amend, modify,
alter or change in any way adverse to Lender or any Borrowers or Obligor, the
terms of such indebtedness or any agreement, document or instrument related
thereto as in effect on the date hereof, or (B) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (iii) Borrowers shall furnish
to Lender all notices or demands in connection with
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such indebtedness either received by Borrowers or on their behalf, promptly
after the receipt thereof, or sent by Borrowers or on their behalf, concurrently
with the sending thereof, as the case may be;
(e) indebtedness of LFI to MetLife pursuant to the financing
arrangements and documents, agreements and/or instruments described on Schedule
9.9 hereto; provided, that, (i) LFI may only make regularly scheduled payments
of principal and interest in respect of such indebtedness in accordance with the
terms of the document, agreement and/or instrument evidencing or giving rise to
such indebtedness as in effect on the date hereof, (ii) LFI shall not, directly
or indirectly, (A) amend, modify, alter or change in any way adverse to Lender
or any Borrower or Obligor, the terms of such indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set
aside or otherwise deposit or invest any sums for such purpose, and (iii) LFI
shall furnish to Lender all notices or demands in connection with such
indebtedness either received by LFI or on its behalf, promptly after the receipt
thereof, or sent by LFI or on its behalf, concurrently with the sending thereof,
as the case may be;
(f) indebtedness that refinances the indebtedness described in Section
9.9(e) on terms not involving an increased principal amount of such indebtedness
as so refinanced, or a shorter maturity, or a larger amortization of principal
required in any period, or an increased interest rate, or any additional
collateral or other provisions adverse to Lender or any Borrower or Obligor, and
provided the holder of any lien on the Real Property described in Section 9.8(g)
that secures such refinancing indebtedness executes and delivers a Mortgagee
Agreement in favor of Lender containing the same provisions for Lender's benefit
as the Mortgagee Agreement delivered by MetLife or such other terms as Lender
shall require or approve;
(g) indebtedness to certain employees of LFI evidenced by notes
required to be delivered by LFI if such employee exercises such employee's put
option in respect of shares of and options to purchase Capital Stock of LFI
subject thereto and LFI is not, for any reason, permitted to or able to pay the
purchase price for the shares and options subject to such exercise, in all
events limited by the terms of the Stockholders' Agreement dated as of June 27,
1990, as amended, as in effect on the date hereof; provided such indebtedness is
fully subordinated in right of payment to the prior indefeasible payment and
satisfaction of all Obligations; and
(h) indebtedness existing as of the date hereof set forth on Schedule
9.9 hereto, provided, that, (i) the applicable Borrower may only make regularly
scheduled payments of principal
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and interest in respect of such indebtedness in accordance with the terms of the
agreement or instrument evidencing or giving rise to such indebtedness as in
effect on the date hereof, (ii) such Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of such indebtedness or any
agreement, document or instrument related thereto as in effect on the date
hereof, or (B) redeem, retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) such Borrower shall furnish to Lender all notices or demands
in connection with such indebtedness either received by such Borrower or on its
behalf, promptly after the receipt thereof, or sent by such Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. None of the Borrowers shall
directly or indirectly make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part of
the assets or property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, except: (a) the endorsement of instruments for collection or deposit
in the ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of any
Borrower or to bearer and delivered to Lender, and (iii) commercial paper rated
A1 or P1; provided, that, as to any of the foregoing, unless waived in writing
by Lender, Borrowers shall take such actions as are deemed necessary by Lender
to perfect the security interest of Lender in such investments; (c) loans and
advances by one Borrower to another Borrower constituting permitted indebtedness
under Section 9.9 hereof; (d) advances to employees of Borrowers for travel and
relocation expenses, in the ordinary course of business, not to exceed $500,000
in the aggregate for all such advances by any and all Borrowers at any one time
outstanding; and (e) the existing loans, advances and guarantees by Borrowers
outstanding as of the date hereof as set forth on Schedule 9.10 hereto;
provided, that, as to such loans, advances and guarantees, (i) Borrowers shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire any such guarantee or set aside or otherwise deposit or
invest any sums for such purpose and (ii) Borrowers shall furnish to Lender all
notices, demands or other material in connection with such loans, advances or
guarantees either received by Borrowers or on their behalf, promptly after
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the receipt thereof, or sent by Borrowers or on their behalf, concurrently with
the sending thereof, as the case may be.
9.11 Dividends and Redemptions. No Borrower shall, directly or indirectly,
declare or pay any dividends on account of any shares of class of Capital Stock
of any Borrower now or hereafter outstanding, or set aside or otherwise deposit
or invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of Capital Stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any consideration
other than common stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except that LFI may, out of legally
available funds therefor, redeem and/or repurchase certain shares and options to
purchase shares of Capital Stock of LFI owned by certain employees of LFI,
pursuant to the exercise of the put options described in Section 9.9(g) hereof
("Management Put Repurchases"), but not to exceed the amount of $250,000 so
expended in any fiscal year of LFI and provided no Event of Default, and no
event or state of facts that would, with notice or passage of time or both,
constitute an Event of Default, exists or has occurred and is continuing, or
would exist or occur after giving effect to such redemption or repurchase or any
payment therefor (other than by delivery of a subordinated note evidencing
indebtedness permitted under Section 9.9(g) hereof). Any amount permitted to be
paid for Management Put Repurchases and not so used in any fiscal year may be
carried over to succeeding fiscal years, but in no event may the amount so paid,
including any amount carried over from prior years, exceed $500,000 in the
aggregate in any fiscal year of Borrowers.
9.12 Transactions with Affiliates. No Borrower shall, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, employee, shareholder, director, agent or
any other affiliate of such Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrowers' business and upon fair and
reasonable terms no less favorable to such Borrower than such Borrower would
obtain in a comparable arm's length transaction with an unaffiliated person or
(b) make any payments of management, consulting or other fees for management or
similar services, or of any indebtedness owing, to any officer, employee,
shareholder, director or other person affiliated with such Borrower except
reasonable compensation to officers, employees and directors for services
rendered to such Borrower in the ordinary course of business.
9.13 Credit Card Agreements. Each Borrower shall (a) observe and perform
all material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do,
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permit, suffer or refrain from doing anything, as a result of which there could
be a default under or breach of any of the terms of any of the Credit Card
Agreements and (c) at all times maintain in full force and effect the Credit
Card Agreements and not terminate, cancel, surrender, modify, amend, waive or
release any of the Credit Card Agreements, or consent to or permit to occur any
of the foregoing; except, that, each Borrower may terminate or cancel any of the
Credit Card Agreements in the ordinary course of the business of Borrowers;
provided, that, such Borrower shall give Lender not less than fifteen (15) days
prior written notice of its intention to so terminate or cancel any of the
Credit Card Agreements; (d) not enter into any new Credit Card Agreements with
any new Credit Card Issuer unless (i) Lender shall have received not less than
thirty (30) days prior written notice of the intention of a Borrower to enter
into such agreement (together with such other information with respect thereto
as Lender may request) and (ii) such Borrower delivers, or causes to be
delivered to Lender, a Credit Card Acknowledgment in favor of Lender; (e) give
Lender immediate written notice of any Credit Card Agreement entered into by
such Borrower after the date hereof, together with a true, correct and complete
copy thereof and such other information with respect thereto as Lender may
request; and (f) furnish to Lender, promptly upon the request of Lender, such
information and evidence as Lender may require from time to time concerning the
observance, performance and compliance by such Borrower or the other party or
parties thereto with the terms, covenants or provisions of the Credit Card
Agreements.
9.14 Compliance with ERISA.
(a) No Borrower shall with respect to any "employee benefit plans"
maintained by a Borrower or any ERISA Affiliate of a Borrower: (i) terminate any
of such employee benefit plans so as to incur any liability to the Pension
Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer
to exist any prohibited transaction involving any of such employee benefit plans
or any trust created thereunder which would subject a Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under the Code or ERISA, (iii) fail to pay to any such employee benefit
plan any contribution which it is obligated to pay under ERISA, the Code or the
terms of such plan, (iv) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such employee benefit
plan, (v) allow or suffer to exist any occurrence of a reportable event or any
other event or condition which presents a material risk of termination by the
Pension Benefit Guaranty Corporation of any such employee benefit plan that is a
single employer plan, which termination could result in any liability to the
Pension Benefit Guaranty Corporation, or (vi) except as described in Schedule
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8.10 hereto, incur any withdrawal liability with respect to any multiemployer
pension plan.
(b) As used in this Section 9.14, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in the Code and ERISA.
9.15 Additional Bank Accounts. No Borrower shall, directly or indirectly,
open, establish or maintain any deposit account, investment account or any other
account with any bank or other financial institution, other than the Blocked
Accounts and the accounts set forth in Schedule 6.3 hereto, except: (a) as to
any new or additional Blocked Accounts and other such new or additional accounts
which contain any Collateral or proceeds thereof, with the prior written consent
of Lender and subject to such conditions thereto as Lender may establish and (b)
as to any accounts used by Borrowers to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
9.16 Capital Expenditures. Borrowers and their subsidiaries shall not,
directly or indirectly, make any Capital Expenditures, during any measurement
period listed below, in excess of the amounts listed below for such period, on
an aggregate basis for all Borrowers and their subsidiaries:
Fiscal Year Ending the
Last Saturday in February Amount
1998 $12,000,000
1999 $20,000,000
2000 and, unless otherwise
agreed in writing by the
parties hereto, each year
thereafter $20,000,000
Up to $2,000,000 in the aggregate for Borrowers and their subsidiaries of
amounts permitted to be expended for Capital Expenditures as provided above, if
not expended in the fiscal year for which permitted, may be carried forward for
Capital Expenditures in the next following fiscal year.
9.17 EBITA. Borrowers shall not permit EBITA of Borrowers and their
subsidiaries for any period commencing on the first day of the applicable fiscal
year set forth below and ending on the last day of the applicable fiscal quarter
set forth below (each such period, a year-to-date ("YTD") or full fiscal year,
as
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applicable) to be less than the respective amount set forth below opposite such
fiscal quarter:
================================================================================
Fiscal Year Ending Last
Saturday in February, 1998 Minimum EBITA
- --------------------------------------------------------------------------------
First Quarter YTD ($12,000,000)
- --------------------------------------------------------------------------------
Second Quarter YTD ($12,000,000)
- --------------------------------------------------------------------------------
Third Quarter YTD $ 1,000,000
- --------------------------------------------------------------------------------
Full Fiscal Year $ 6,000,000
================================================================================
================================================================================
Fiscal Year Ending Last
Saturday in February, 1999
- --------------------------------------------------------------------------------
First Quarter YTD ($12,000,000)
- --------------------------------------------------------------------------------
Second Quarter YTD ($12,000,000)
- --------------------------------------------------------------------------------
Third Quarter YTD $ 3,000,000
- --------------------------------------------------------------------------------
Full Fiscal Year $ 8,000,000
================================================================================
================================================================================
Fiscal Year Ending Last Saturday in February, 2000 and, unless otherwise agreed
in writing by the parties hereto, each year thereafter
- --------------------------------------------------------------------------------
First Quarter YTD ($12,000,000)
- --------------------------------------------------------------------------------
Second Quarter YTD ($12,000,000)
- --------------------------------------------------------------------------------
Third Quarter YTD $ 5,000,000
- --------------------------------------------------------------------------------
Full Fiscal Year $10,000,000
================================================================================
9.18 Cleanup and Excess Availability. For at least thirty (30) consecutive
days during the period between December 1 of each calendar year and March 31 of
the immediately following calendar year, Borrowers (i) shall not permit the
aggregate principal amount of all outstanding Loans to be greater than
$10,000,000 and (ii) shall maintain Excess Availability of greater than
$15,000,000.
9.19 Costs and Expenses. Borrowers shall pay to Lender on demand all costs,
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation,
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enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement, the other Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect
hereof and thereof, including: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) all insurance premiums, appraisal fees and search fees; (c)
costs and expenses of remitting loan proceeds, collecting checks and other items
of payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrowers'
operations, plus a per diem charge at the rate of $600 per person per day for
Lender's examiners in the field and office; and (h) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.20 Certain Notices. Borrowers or LFI as agent for Borrowers shall
promptly send to Lender a copy of each default or termination notice sent by or
on behalf of any Borrower to, or to any Borrower by, any operator of a warehouse
where Eligible Inventory is kept, or any lessor of a material number of retail
store locations of Borrowers, or any mortgagee of Real Property of any Borrower,
or any Credit Card Issuer or Credit Card Processor, or any trademark licensor or
licensee of any Borrower, or any customs broker or similar agent for a Borrower,
or any material Equipment lessor, with respect to the existing or any future
arrangements or agreements between any Borrower and any such person(s).
9.21 Further Assurances. At the request of Lender at any time and from time
to time, Borrowers shall, at Borrowers' expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce
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the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Lender may at any time and from time to time request
a certificate from an officer of each Borrower and/or LFI as agent for Borrowers
representing that all conditions precedent to the making of Loans and providing
Letter of Credit Accommodations contained herein are satisfied. In the event of
such request by Lender, Lender may, at its option, cease to make any further
Loans or provide any further Letter of Credit Accommodations until Lender has
received such certificate and, in addition, Lender has determined that such
conditions are satisfied. Where permitted by law, each Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) any Borrower fails to pay when due any of the Obligations or fails
to perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against any
Borrower or any Obligor in excess of $250,000 in any one case or in excess of
$1,000,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against any
Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or any Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
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corporation, dissolves or suspends or discontinues doing business;
(f) any Borrower or any Obligor is generally unable to meet its debts
as they become due during the then-current term or renewal term of this
Agreement, makes an assignment for the benefit of creditors, or makes or sends
notice of a bulk transfer;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against any Borrower or any Obligor or all or any part of
its properties and such petition or application is not dismissed within thirty
(30) days after the date of its filing or any Borrower or any Obligor shall file
any answer admitting or not contesting such petition or application or indicates
its consent to, acquiescence in or approval of, any such action or proceeding or
the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by any Borrower or any Obligor or for all or any part of its
property; or
(i) any default by any Borrower or any Obligor under any of the
Subordinated Loan Documents or any default by any Borrower or any Obligor under
any other agreement, document or instrument relating to any indebtedness for
borrowed money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Lender, where the agreement, document or instrument under which the default
arises or exists, relates to such indebtedness or obligations in an amount in
excess of $1,000,000, which default continues for more than the applicable cure
period, if any, with respect thereto, or any default by any Borrower or any
Obligor under any material contract, lease, license or other obligation to any
person other than Lender, which default continues for more than the applicable
cure period, if any, with respect thereto;
(j) (i) any change in its controlling ownership occurs with respect to
any Borrower other than LFI, or (ii) with respect to LFI, if, other than as a
result of a public offering of the common stock of LFI, any person, or two or
more persons
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acting in concert, acquires ownership or control of shares of Capital Stock of
LFI representing more than fifty (50%) percent of the combined voting power of
all outstanding Capital Stock of LFI, or the power to designate or elect a
majority of the members of the Board of Directors of LFI, excluding, however,
(x) ownership or control of Capital Stock of LFI, or power to designate or elect
a majority of the members of the Board of Directors of LFI, whether or not
acquired after the date hereof by any or all of the existing holders of the
Capital Stock of LFI as of the date hereof, and (y) ownership or control of
Capital Stock of LFI or the power to designate or elect a majority of the
members of the Board of Directors of LFI, to the extent acquired by persons that
are not holders of the Capital Stock of LFI as of the date hereof but are
financial institutions or institutional investors acceptable to Lender;
(k) the indictment or threatened indictment of any Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against any Borrower or any Obligor, pursuant
to which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of such Borrower or such Obligor;
(l) each of the persons holding the offices of chief executive
officer, chief operating officer and chief financial officer of LFI as of the
date hereof, shall cease to act in such capacities, unless each is replaced
within a reasonable period of time with persons of comparable experience and
capability as reasonably determined by Lender;
(m) there shall be a material adverse change after the date hereof in
the business or assets of the Borrowers and Obligors, taken as a whole; or
(n) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by any Borrower or any Obligor, except as such notice or consent
is expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or
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more occasions, and shall include, without limitation, the right to apply to a
court of equity for an injunction to restrain a breach or threatened breach by
any Borrower or Obligor of this Agreement or any of the other Financing
Agreements. Lender may, at any time or times, proceed directly against any
Borrower or any Obligor to collect the Obligations without prior recourse to the
Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrowers, at Borrowers' expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of any Borrower, which right or equity of
redemption is hereby expressly waived and released by each Borrower and/or (vii)
terminate this Agreement. If any of the Collateral is sold or leased by Lender
upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, ten (10) days prior
notice by Lender to Borrowers, or to LFI as agent for Borrowers, designating the
time and place of any public sale or the time after which any private sale or
other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof to Borrowers and each Borrower, and LFI as agent for
Borrowers, waives any other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, each Borrower waives the posting of any bond which might otherwise be
required.
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(c) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Each Borrower shall remain liable
to Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including reasonable attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Loans and Letter of Credit Accommodations
available to Borrowers and/or (ii) terminate any provision of this Agreement
providing for any future Loans or Letter of Credit Accommodations to be made by
Lender to Borrowers.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consents and submits to the
non-exclusive jurisdiction of the Supreme Court of the State of New York and the
United States District Court for the Southern District of New York and waives
any objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against any Borrower or its property in
the courts of any other jurisdiction which Lender deems necessary or appropriate
in order to realize on the
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Collateral or to otherwise enforce its rights against such Borrower or its
property).
(c) Each Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon such Borrower in any other manner provided
under the rules of any such courts. Within thirty (30) days after such service,
such Borrower shall appear in answer to such process, failing which such
Borrower shall be deemed in default and judgment may be entered by Lender
against such Borrower for the amount of the claim and other relief requested.
(d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH BORROWER AND
LENDER HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to any Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by any Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment binding on Lender, that the losses were the result of
acts or omissions of Lender constituting gross negligence or willful misconduct.
In any such litigation, Lender shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement and the
other Financing Agreements.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and
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notices of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for herein.
No notice to or demand on any Borrower, or on LFI as agent for Borrowers, which
Lender may elect to give shall entitle such Borrower or any other Borrower or
LFI as agent for Borrowers to any other or further notice or demand in the same,
similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of each
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Each Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrowers shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel, except for any of such losses, claims, damages,
liabilities, costs and expenses resulting from Lender's own gross negligence or
wilful misconduct as determined by a final, non-appealable judgment of a court
of competent jurisdiction. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in this Section may be unenforceable because it
violates any law or public policy, each Borrower shall pay the maximum portion
which it is permitted to pay under applicable law to Lender in satisfaction of
indemnified
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matters under this Section. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on April 30, 2000 (the "Renewal
Date"), and from year to year thereafter, unless sooner terminated pursuant to
the terms hereof. Lender or Borrowers may terminate this Agreement and the other
Financing Agreements effective on the Renewal Date or on the anniversary of the
Renewal Date in any year by giving to the other parties at least sixty (60) days
prior written notice; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously. Upon the effective date of
termination or non-renewal of the Financing Agreements, Borrowers shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
reasonable attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted by
wire transfer in Federal funds to such bank account of Lender, as Lender may, in
its discretion, designate in writing to Borrowers for such purpose. Interest
shall be due until and including the next business day, if the amounts so paid
by Borrowers to the bank account designated by Lender are received in such bank
account later than 12:00 noon, New York time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge any Borrower of its respective duties, obligations
and covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end of
the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty
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of ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result thereof, Borrowers
agree to pay to Lender, upon the effective date of such termination, an early
termination fee in the amount set forth below if such termination is effective
in the period indicated:
Amount Period
(i) Two (2%) percent of $150,000,000 From the date hereof to
and including April 30,
1998.
(ii) One (1%) percent of $150,000,000 From May 1, 1998 to
and including April 30,
1999.
(iii) One (1%) percent of the daily From May 1, 1999 to
average of outstanding Loans and but not including
and Letter of Credit April 30, 2000.
Accommodations for the
twelve (12) months immediately
preceding the effective date of
termination.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and each Borrower
agrees that it is reasonable under the circumstances currently existing. In
addition, Lender shall be entitled to such early termination fee upon the
occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h)
hereof, even if Lender does not exercise its right to terminate this Agreement,
but elects, at its option, to provide financing to one or more Borrowers or
permit the use of cash collateral under the United States Bankruptcy Code. The
early termination fee provided for in this Section 12.1 shall be deemed included
in the Obligations. Notwithstanding the foregoing, no early termination fee
shall be payable if all Borrowers request the termination of the Agreement and
repay all of the Obligations with the proceeds of refinancing provided by
CoreStates Bank, N.A. and otherwise comply with the provisions of this Section
12.1.
12.2 Appointment of Borrowers' Agent.
(a) Each Borrower hereby irrevocably appoints LFI as agent for such
Borrower hereunder and under the other Financing Agreements, to act in such
capacity as agent for such Borrower hereunder and LFI hereby accepts such
appointment. Each Borrower further irrevocably authorizes LFI as agent for such
purposes to take such action on such Borrower's behalf and to exercise such
rights and powers hereunder and under the other Financing
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Agreements as are delegated to LFI in such capacity by the terms hereof and
thereof, together with such rights and powers as are reasonably incidental
thereto.
(b) LFI as agent for each Borrower is hereby expressly and irrevocably
authorized by each Borrower, without hereby limiting any implied or express
authority, (i) to give and receive on behalf of such Borrower all notices and
other materials delivered or provided to be delivered by Lender to such Borrower
or by such Borrower to Lender pursuant to the Financing Agreements, (ii) to
request Loans and Letter of Credit Accommodations on behalf of such Borrower,
(iii) to receive disbursements of Loans and other financing accommodations on
behalf of such Borrower, and (iv) to pay, on behalf of such Borrower, all
Obligations of such Borrower at any time due Lender pursuant to the terms of
this Agreement.
12.3 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
at their chief executive offices set forth below, or to such other address as
any party may designate by written notice to the other parties in accordance
with this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.4 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.5 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that Borrowers may not assign their rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrowers, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein
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to another financial institution or other person, in which event, the assignee
or participant shall have, to the extent of such assignment or participation,
the same rights and benefits as it would have if it were the Lender hereunder,
except as otherwise provided by the terms of such assignment or participation;
provided, however, that, unless an Event of Default exists or has occurred and
is continuing, and except at any time in favor of its affiliates or any entity
that acquires or succeeds to all or substantially all of its business, Lender
will not, without obtaining Borrowers' written consent (not to be unreasonably
withheld or delayed), grant any participation or assign any of its interests in
the Loans or Letter of Credit Accommodations under terms permitting any or all
such non-affiliated participants or non-affiliated assignees to determine or
restrict the right of Congress Financial Corporation or its existing or future
affiliates or any entity that acquires or succeeds to all or substantially all
of its business to determine, whether in its capacity as Lender, agent for the
then-Lender or Lenders or otherwise, the amounts of Eligible Accounts, Eligible
Inventory or Availability Reserves as provided herein, except that the foregoing
agreement by Lender contained in this proviso shall not apply to any
participation or assignment granted or made by Lender after the occurrence of an
Event of Default.
12.6 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
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IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
================================================================================
LENDER BORROWERS
CONGRESS FINANCIAL CORPORATION LONDON FOG INDUSTRIES, INC.
By:___________________________ By:___________________________
Title:________________________ Title:________________________
Address: Chief Executive Office:
1133 Avenue of the Americas 1332 Londontown Boulevard
New York, New York 10036 Eldersburg, Maryland 21784
PACIFIC TRAIL, INC.
By:___________________________
Title:________________________
Chief Executive Office:
1700 Westlake Avenue North
Suite 200
Seattle, Washington 98109
THE SCRANTON OUTLET
CORPORATION
By:___________________________
Title:________________________
Chief Executive Office:
1332 Londontown Boulevard
Eldersburg, Maryland 21784
================================================================================
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February 27, 1998
London Fog Industries, Inc.
1332 Londontown Blvd.
Eldersburg, Maryland 21784
Pacific Trail, Inc.
1700 Westlake Avenue North, Suite 200
Seattle, Washington 98109
The Scranton Outlet Corporation
1332 Londontown Blvd.
Elderbsurg, Maryland 21784
Re: Amendment No. 1 to Loan and Security Agreement
Gentlemen:
Reference is made to the Loan and Security Agreement (the "Loan
Agreement"), dated as of May 15, 1997, by and among Congress Financial
Corporation ("Lender"), London Fog Industries, Inc. ("LFI"), Pacific Trail, Inc.
("PTI") and The Scranton Outlet Corporation ("SCO"; and together with LFI and
PTI, collectively, "Borrowers"), together with all other agreements, documents,
supplements and instruments now or at any time hereafter executed and/or
delivered by Borrowers or any other person, with, to or in favor of Lender in
connection therewith (all of the foregoing, together with this Agreement and the
other agreements and instruments delivered hereunder, as the same now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, collectively, the "Financing Agreements"). All capitalized terms used
herein and not otherwise defined herein shall have the meanings given to them in
the Loan Agreement.
Borrowers and Guarantors have requested that Lender (a) consent to certain
transactions to be effected pursuant to the 1998 Restructuring Agreements (as
hereinafter defined), to the extent requiring Lender's consent, (b) permit LFI
and the other Borrowers and Guarantors to incur the indebtedness evidenced by
the New LFI Subordinated Notes and certain related indebtedness, (c) permit the
indebtedness evidenced by the New LFI Subordinated Notes (as hereinafter
defined) and certain related indebtedness to be secured by certain assets and
properties of Borrowers and Guarantors pursuant to the New LFI Subordinated Note
Agreements (as hereinafter defined), (d) increase the Maximum Credit from
<PAGE>
$150,000,000 to $200,000,000, (e) increase from $125,000,000 to $150,000,000,
the maximum aggregate amount of Primary Loans in respect of Eligible Inventory
and Supplemental B Loans that may at any one time be outstanding, (f) make
available to Borrowers Letter of Credit Accommodations in the form of banker's
acceptances of up to $10,000,000 at any one time outstanding, (g) increase from
$80,000,000 to $90,000,000 the maximum aggregate amount of Letter of Credit
Accommodations that may at any one time be outstanding, (h) amend certain
covenants and conditions of the Loan Agreement with respect to the amount of
outstanding Loans, (i) amend the definition of EBITA, and (j) extend the Renewal
Date to April 30, 2001. Lender is willing to do so to the extent and subject to
the terms and conditions set forth herein.
In consideration of the foregoing, the mutual agreements and covenants
contained in this Amendment No. 1 to Loan and Security Agreement (this
"Amendment"), and other good and valuable consideration, the adequacy and
sufficiency of which are hereby acknowledged, Borrowers, Guarantors and Lender
agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein or in any of the other
Financing Agreements, the following terms shall have the respective meanings
given to them below, and the Loan Agreement shall be deemed and is hereby
amended to include, in addition and not in limitation, each of the following
definitions:
(i) "Existing Subordinated Lenders" shall mean, individually
and collectively, the Subordinated Lenders and The Chase Manhattan Bank, as
agent for such lenders, pursuant to the Existing Subordinated Loan Documents,
and their respective successors and assigns.
(ii) "Existing Subordinated Loan Documents" shall mean,
individually and collectively, (A) the Existing LFI Subordinated Notes, (B) the
Master Restructuring Agreement dated as of May 31, 1995, the Term Loan Agreement
and the Note Agreement, each dated as of May 31, 1995, and the Credit Agreement,
dated as of May 20, 1994, each as amended through the date hereof, among the
Existing Subordinated Lenders and LFI, and (C) all agreements, documents and
instruments related thereto, including, without limitation, all agreements,
documents or instruments that evidence the obligations and indebtedness of LFI
and its subsidiaries to the Existing Subordinated Lenders or secure or support
payment or performance thereof.
(iii) "Existing LFI Capital Stock" shall mean, collectively,
all Capital Stock (including warrants, options and capital stock issued upon
exercise thereof), of LFI
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issued and outstanding immediately before the effectiveness of the 1998
Restructuring Agreements.
(iv) "Existing LFI Subordinated Notes" shall mean the
promissory note(s) issued pursuant to the Term Loan Agreement and the Note
Agreement, each dated as of May 31, 1995, each as amended through the date
hereof, among the Existing Subordinated Lenders and LFI, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
(v) "LFI Equity Agreements" shall mean, collectively, (A)
the Amended and Restated Certificate of Incorporation of LFI, (B) the 1998
Master Restructuring Agreement, (C) the Management Equity Agreements, and (D)
all other agreements, documents and instruments related to the issuance of the
New LFI Equity, as the same now exist among hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(vi) "LFI Restructuring Merger" shall mean the merger of LFI
Merger Corp., a Delaware corporation, with and into LFI, with LFI as the
surviving corporation, effected pursuant to the 1998 Master Restructuring
Agreement, the Agreement of Merger, dated as of the date hereof, between LFI and
LFI Merger Corp., and the Certificate of Merger filed by the Secretary of State
of the State of Delaware.
(vii) "LFI Subordinated Note Indenture" shall mean the
Indenture, dated of even date herewith, between LFI and the LFI Subordinated
Note Trustee with respect to the New LFI Subordinated Notes, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
(viii) "LFI Subordinated Note Trustee" shall mean IBJ
Schroder Bank & Trust Company, a New York banking corporation, as trustee for
the benefit of the New Subordinated Debtholders, and its successors and assigns,
and any successor or replacement trustee and/or collateral agent appointed
pursuant to the terms and conditions of the LFI Subordinated Note Indenture and
the instruments and agreements thereunder.
(ix) "Management Equity Agreements" shall mean,
collectively, (i) the 1998 Stock Option Plan of London Fog Industries, Inc.,
effective as of the date hereof, and the individual stock option agreements
entered into thereunder between LFI and members of LFI's senior management, (ii)
the Management Anti-Dilution Warrants issued to recipients of the options issued
under the Plan referred to in clause (i), and (iii) the Deferred Compensation
Plan of London Fog Industries, Inc., dated as of the date hereof, relating to
the Plan and
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<PAGE>
agreements referred to in clause (i), as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(x) "New LFI Equity" shall mean, collectively, all of the
Capital Stock (including warrants, options and capital stock issued at any time
upon exercise thereof) of LFI issued pursuant to the LFI Equity Agreements, as
in effect on the date hereof.
(xi) "New LFI Subordinated Note Agreements" shall mean,
individually and collectively, (A) the New LFI Subordinated Notes, (B) the LFI
Subordinated Note Indenture, (C) all agreements, documents and instruments at
any time granting a security interest in or lien upon any property of Borrowers
or their subsidiaries as security for all or any part of the indebtedness of LFI
evidenced by the New LFI Subordinated Notes and/or the New LFI Subordinated
Indenture, or guarantees thereof, or as security for other amounts owed by
Borrowers or their subsidiaries to any New Subordinated Debtholder, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(xii) "New LFI Subordinated Notes" shall mean, individually
and collectively, the 10% Subordinated Notes due 2003 issued by LFI pursuant to
the LFI Subordinated Note Indenture, in the aggregate original principal amount
of $100,000,000, including the "Temporary Notes", the "Initial Notes" and any
"Exchange Notes" as defined in the LFI Subordinated Note Indenture, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, exchanged, restated or replaced.
(xiii) "New Subordinated Debtholders" shall mean,
individually and collectively, the LFI Subordinated Note Trustee, the holders
from time to time of the New LFI Subordinated Notes, and any other holders of
subordinated obligations of LFI and/or its subsidiaries arising out of, under or
in connection with the 1998 Restructuring Agreements, and their respective
successors and assigns.
(xiv) "1998 Master Restructuring Agreement" shall mean the
Master Restructuring Agreement, dated as of the date hereof, among LFI, certain
of LFI's subsidiaries, the Existing Subordinated Lenders, and certain members of
senior management of LFI.
(xv) "1998 Intercreditor and Subordination Agreement" shall
mean the Intercreditor and Subordination Agreement, dated of even date herewith,
between the LFI Subordinated Note Trustee and Lender, as acknowledged by
Borrowers and certain Guarantors, as the same now exists or may
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<PAGE>
hereafter be amended, modified, supplemented, restated or replaced.
(xvi) "1998 Restructuring" shall mean the restructuring of
the indebtedness heretofore evidenced by or arising under the Existing
Subordinated Loan Documents, and the recapitalization of LFI, as provided for
under the 1998 Restructuring Agreements.
(xvii) "1998 Restructuring Agreements" shall mean,
collectively, (A) the New LFI Subordinated Note Agreements, (B) the 1998 Master
Restructuring Agreement, and (C) the other LFI Equity Agreements, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(xviii) "Securities Laws" shall mean the Securities Act of
1993, as amended, the Securities Exchange Act of 1934, as amended, the Trust
Indenture Act of 1939, as amended, and all rules, regulations and
interpretations issued pursuant thereto or in connection therewith, and all
State and local statutes, rules and regulations issued in connection therewith
or related thereto, as the same now exist or may hereafter be amended, modified,
interpreted, recodified or supplemented.
(b) Amendments to Definitions.
(i) EBITA. Section 1.16 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"1.16 "EBITA" shall mean, for any measurement period, the Net
Income (Loss) for such period, plus (a) to the extent deducted in
arriving at Net Income (Loss) for such period, Interest Expense,
write-off or amortization of deferred financing costs, provision for
Federal, state, local and foreign income taxes, amortization expense,
and any non-cash charges or non-cash losses (other than inventory
write-downs, but including, without limitation, increases in the
amount of multiemployer pension plan liabilities, non-cash loss
attributable to changes in accounting principles and non-cash loss on
sale or other disposition of assets not in the ordinary course of
business (other than non-cash loss on sale or other disposition of
inventory), non-cash expenses incurred by LFI under the Management
Equity Agreements, and the amount of non-cash restructuring expenses),
minus (b) to the extent included in determining Net Income (Loss) for
such period, gains attributable to the effect of change in accounting
principles adopted by Borrowers, income tax benefit, extraordinary
gains and other non-operating
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<PAGE>
income, such as, but not limited to, gains from the sale or other
disposition of assets other than in the ordinary course of business,
or from the sale of shares of Capital Stock, or income or gains from
forgiveness or exchange of indebtedness or from reduction of
multiemployer pension plan liabilities or from reversal of
restructuring or other expenses and any non-cash gains, minus (c) any
payments made during such period in respect of multiemployer pension
plan liabilities in excess of the amount equal to $500,000 multiplied
by the number of fiscal quarters included in such period, plus (d)
with respect to the determination of EBITA for any period during or
consisting of the fiscal year ending the last Saturday in February
1998, (i) up to an aggregate of $2,000,000 of cash restructuring
charges paid during such period relating to the closing of LFI's
Baltimore, Maryland manufacturing facility, plus (ii) up to an
aggregate amount of $3,750,000 paid in cash during such period by LFI
to reimburse The Chase Manhattan Bank for amounts drawn by Messrs.
Robert E. Gregory, Jr. and C. William Crain under letters of credit
securing payment of certain obligations of LFI to such Persons; in
each case under clauses (a), (b) and (d), determined for Borrowers and
their subsidiaries for such period, on a consolidated basis in
accordance with GAAP."
(ii) Banker's Acceptances. Section 1.37 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"1.37 "Letter of Credit Accommodations" shall mean the letters of
credit for the purchase of merchandise and banker's acceptances issued
with respect to drafts presented under letters of credit for the
purchase of merchandise, and merchandise purchase or other guaranties
which are from time to time either (a) issued or opened by Lender for
the account of any Borrower or, in Lender's discretion, any Obligor or
(b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by a Borrower of its
obligations to such issuer."
(iii) Maximum Credit. Section 1.39 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:
"1.39 "Maximum Credit" shall mean $200,000,000."
2. Consents. Notwithstanding anything to the contrary contained in
Sections 9.7(a), 9.7(b), 9.7(e), 9.9(d),
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<PAGE>
9.10(e) or 9.11 of the Loan Agreement as in effect prior to the effectiveness
hereof, and subject to the terms and conditions contained herein, to the extent
such consent is or may be required, Lender hereby consents to (i) the LFI
Restructuring Merger, and (ii) the issuance and exchange by LFI of the New LFI
Subordinated Notes and the New LFI Equity for the Existing LFI Subordinated
Notes and the cancellation of the Existing LFI Capital Stock, in each case as
provided in the 1998 Restructuring Agreements as in effect on the date hereof.
3. Supplemental B Loans.
(a) Section 2.1(a)(iv) of the Loan Agreement is hereby amended by
deleting the phrase "calendar years 1998 and 1999," appearing therein and
replacing such phrase with the following: "calendar years 1998, 1999 and 2000,".
(b) Sections 2.1(d)(i) and (ii) of the Loan Agreement are hereby
deleted in their entirety and replaced with the following:
"(i) [Intentionally Omitted];
(ii) Excess Availability shall have been greater than $15,000,000
for each of at least thirty (30) consecutive days during the
period from December 1 of the calendar year ending prior to the
request for Supplemental B Loans through and including March 31
of the then-current calendar year."
4. Sublimit on Primary Loans in respect of Eligible Inventory and
Supplemental B Loans. The reference to the amount "$125,000,000" contained in
Section 2.1(e) of the Loan Agreement is hereby deleted and replaced with the
following amount: "$150,000,000".
5. Letter of Credit Accommodation Fees; Availability Reserves for
Banker's Acceptances.
(a) Section 2.2(b) of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations,
Borrowers shall pay to Lender (i) a letter of credit fee at a rate
equal to one and one-half (1 1/2%) percent per annum on the daily
outstanding balance of the Letter of Credit Accommodations, other than
banker's acceptances, for
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<PAGE>
the immediately preceding month (or part thereof), (ii) an acceptance
fee at a rate equal to three (3%) percent per annum on the daily
outstanding balance of Letter of Credit Accommodations consisting of
or relating to banker's acceptances for the immediately preceding
month (or part thereof), in each case, payable in arrears as of the
first day of each succeeding month, except that Borrowers shall pay to
Lender such letter of credit fee under clause (i), at Lender's option,
without notice, at a rate equal to three and one-half (3 1/2%) percent
per annum, and such acceptance fee under clause (ii), at Lender's
option, without notice, at a rate equal to five (5%) percent per
annum, for (A) the period from and after the date of termination or
non-renewal hereof until Lender has received full and final payment of
all non-contingent Obligations and cash collateral (or a standby
letter of credit in favor of Lender acceptable to Lender in all
respects) sufficient to cover all Obligations in respect of
outstanding Letter of Credit Accommodations or relating thereto
(notwithstanding entry of a judgment against such Borrower) and (B)
the period from and after the date of the occurrence of an Event of
Default and for so long as such Event of Default is continuing. Such
letter of credit and acceptance fees shall be calculated on the basis
of a three hundred sixty (360) day year and actual days elapsed and
the obligation of Borrowers to pay such fees shall survive the
termination or non-renewal of this Agreement."
(b) Section 2.2(c) of the Loan Agreement is hereby amended by
adding a new sentence as follows immediately prior to the final sentence of such
Section 2.2(c):
"Notwithstanding anything to the contrary in Section 2.2(c)(i) or (ii)
hereof, upon the issuance of a banker's acceptance pursuant to a
Letter of Credit Accommodation hereunder, Lender shall establish an
Availability Reserve in an amount equal to one hundred (100%) percent
of the face amount of such banker's acceptance plus, without
duplication, the fees, taxes/duty and other amounts that Lender
estimates must be paid in connection with the Inventory purchased
under the letter of credit in respect of which a draft has been
presented and made the subject of such banker's acceptance."
(c) The reference to "$80,000,000 appearing at the end of the
first sentence in Section 2.2(d) of the Loan Agreement is hereby deleted and
replaced with the following:
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"$90,000,000; provided, however, the aggregate amount of all
outstanding Letter of Credit Accommodations consisting of or relating
to banker's acceptances and any other commitments and obligations made
or incurred by Lender in connection therewith, shall not at any time
exceed $10,000,000."
6. Unused Line Fee. The reference to the amount "$110,000,000"
contained in Section 3.4 of the Loan Agreement is hereby deleted and replaced
with the following amount: "$145,000,000".
7. Liens. Section 9.8(f) of the Loan Agreement is hereby deleted in
its entirety and replaced with the following:
"(f) subordinated liens and security interests of the LFI
Subordinated Note Trustee and/or the other New Subordinated
Debtholders securing indebtedness of LFI to the New Subordinated
Debtholders to the extent permitted in Section 9.9(d) hereof and
subject to the 1998 Intercreditor and Subordination Agreement;"
8. Indebtedness.
(a) Effective upon the effectiveness of the 1998 Restructuring,
Section 9.9(d) of the Loan Agreement shall be deleted in its entirety and
replaced with the following:
"(d) fully subordinated indebtedness of Borrowers to the New
Subordinated Debtholders pursuant to the New LFI Subordinated Note
Agreements (as in effect on the date of issuance of the New LFI
Subordinated Notes) not to exceed the aggregate principal amount of
$100,000,000; provided, that, (i) Borrowers may only make payments in
respect of such indebtedness in accordance with the terms of the New
LFI Subordinated Note Agreements as in effect on February 27, 1998 and
provided each such payment is permitted under the 1998 Intercreditor
and Subordination Agreement, (ii) Borrowers shall not, directly or
indirectly, (A) amend, modify, alter or change in any way adverse to
Lender or any Borrower or Obligor, the terms of such indebtedness or
any agreement, document or instrument related thereto as in effect on
the date hereof, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (iii) Borrowers shall furnish to Lender
all notices or demands in connection with such indebtedness either
received by Borrowers or on their behalf, promptly after the receipt
thereof, or sent by Borrowers or on their
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behalf, concurrently with the sending thereof, as the case may be;"
(b) Effective upon the effectiveness of the 1998 Restructuring,
Section 9.9 of the Loan Agreement shall be amended by deleting the word "and"
appearing at the end of Section 9.9(g), by deleting the period at the end of
Section 9.9(h) and replacing it with "; and" and by adding a new Section 9.9(i)
immediately following Section 9.9(h), as follows:
"(i) indebtedness of LFI to certain employees of LFI pursuant to
the Management Equity Agreements as in effect on the date
hereof."
9. Dividends and Redemptions. Effective upon the effectiveness of the
1998 Restructuring, Section 9.11 of the Loan Agreement shall be deleted in its
entirety and replaced with the following:
"9.11 Dividends and Redemptions. No Borrower shall, directly or
indirectly, declare or pay any dividends on account of any shares of
any class of Capital Stock of any Borrower now or hereafter
outstanding, or set aside or otherwise deposit or invest any sums for
such purpose, or redeem, retire, defease, purchase or otherwise
acquire any shares of any class of Capital Stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock, or apply or set apart any sum,
or make any other distribution (by reduction of capital or otherwise)
in respect of any such shares, or agree to do any of the foregoing,
(other than by delivery of a subordinated note evidencing indebtedness
permitted under Section 9.9(g) hereof) except that, provided no Event
of Default, and no event or state of facts that would, with notice or
passage of time or both, constitute an Event of Default, exists or has
occurred and is continuing, or would exist or occur after giving
effect to such redemption or repurchase or any payment therefor, LFI
may, out of legally available funds therefor: (i) redeem and/or
repurchase certain shares and options to purchase shares of Capital
Stock of LFI owned by certain employees of LFI, pursuant to the
exercise of the put options described in Section 9.9(g) hereof
("Management Put Repurchases"), but not to exceed the aggregate amount
which, when added to the amounts expended as permitted under clauses
(ii) and (iii) hereof in a given fiscal year of LFI, does not exceed
the amount of $250,000 so expended in such fiscal year, (ii)
repurchase fractional shares, or make payments in lieu of issuing
fractional shares, of common stock of
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LFI upon the exercise of stock options or warrants issued to employees
of LFI to the extent not issued in violation hereof, but not to exceed
the amount of $100,000 so expended in any one fiscal year of LFI, and
(iii) repurchase common stock of LFI in open market transactions
involving cash expenditures of not more than $100,000 in any fiscal
year of LFI, where such stock is used in such fiscal year to pay
directors' fees to outside directors of LFI. Any amount permitted to
be paid under clauses (i), (ii) or (iii) and not so used in any fiscal
year of LFI may be carried over under the respective clauses to
succeeding fiscal years, but in no event may the amounts carried
forward from any fiscal year under all such clauses exceed $250,000 in
the aggregate, and in no event may the amounts paid under all such
clauses in a given fiscal year of LFI, including any amounts carried
over from prior years, exceed $500,000 in the aggregate."
10. Amendments to Cleanup and Excess Availability Provisions. Section
9.18 of the Loan Agreement is hereby deleted in its entirety and replaced with
the following:
"9.18 Excess Availability. For at least thirty (30) consecutive
days during the period between December 1 of each calendar year and
March 31 of the immediately following calendar year, Borrowers shall
maintain Excess Availability of greater than $15,000,000."
11. Term.
(a) The first sentence of Section 12.1(a) of the Loan Agreement
is hereby deleted in its entirety and replaced with the following:
"(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page and shall
continue in full force and effect for a term ending on April 30, 2001
(the "Renewal Date") and from year to year thereafter, unless sooner
terminated pursuant to the terms hereof."
(b) Subsections 12.1(c)(i) through (iii) of the Loan Agreement
are hereby deleted in their entirety and replaced with the following:
"Amount Period
(i) Two (2%) percent From the date
of Maximum Credit hereof to and including
April 30, 1998.
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(ii) One (1%) percent of From May 1, 1998 to
Maximum Credit and including April 30,
1999.
(iii) One (1%) percent of From May 1, 1999 to
the daily average but not including
of outstanding Loans April 30, 2001."
and Letter of Credit
Accommodations for
the twelve (12)
months immediately
preceding the effective
date of termination.
12. Amendment to Schedule 8.4 to Loan Agreement. Effective upon the
effectiveness of the 1998 Restructuring, Schedule 8.4 to the Loan Agreement
shall be deemed amended by replacing the references to "Chemical Bank" with "IBJ
Schroder Bank & Trust Company, as Trustee".
13. Line Increase Fee. In addition to all other fees, charges,
interest and expenses payable by Borrowers to Lender hereunder and under the
other Financing Agreements, Borrowers shall pay to Lender a fee in respect of
the increase in the Maximum Credit provided for hereunder. Such fee shall be in
the amount of $375,000, which amount is fully earned as of the date hereof, of
which $125,000 is payable on the date hereof, $125,000 is payable on May 15,
1998, and $125,000 is payable on May 15, 1999; provided, that the installments
payable on May 15, 1998 and May 15, 1999 shall, at Lender's option, become
immediately due and payable upon or at any time after an Event of Default or any
termination or non-renewal hereof. Each portion or installment of such fee, when
payable as provided in this Section 13, may be charged directly to Borrowers'
loan account maintained by Lender.
14. Amendment Fee. In addition to all other fees, charges, interest
and expenses payable by Borrowers to Lender hereunder and under the other
Financing Agreements, Borrowers shall pay to Lender a fee for entering into this
Amendment in the amount of $125,000, which amount is fully earned and payable as
of the date hereof and may be charged directly to Borrowers' loan account
maintained by Lender.
15. Additional Event of Default. Without in any way limiting the
events or conditions constituting Events of Default as set forth in Section 10
of the Loan Agreement, any default under any of the 1998 Restructuring
Agreements that is not cured or waived within any applicable grace or cure
period thereunder shall constitute an Event of Default under the Loan Agreement
and other Financing Agreements.
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16. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrowers or Guarantors to Lender pursuant to the other Financing
Agreements, Borrowers and Guarantors hereby represent, warrant and covenant with
and to Lenders as follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof and shall be
incorporated into and made a part of the Financing Agreements):
(a) The 1998 Restructuring Agreements and the transactions
contemplated thereunder have, contemporaneously herewith, been duly executed,
delivered and performed in accordance with their terms by the respective parties
thereto in all respects, including the fulfillment (not merely the waiver) of
all conditions precedent set forth therein.
(b) The New LFI Subordinated Notes have, contemporaneously
herewith, been duly authorized, issued and delivered by LFI and all agreements,
documents and instruments related thereto, including, but not limited to, the
LFI Subordinated Note Indenture, have, contemporaneously herewith, been duly
authorized, executed and delivered and the transactions contemplated thereunder
performed in accordance with their terms by the respective parties thereto in
all respects, including the fulfillment (not merely the waiver) of all
conditions precedent set forth herein.
(c) All of the Existing LFI Subordinated Notes have,
contemporaneously herewith, been deemed cancelled in accordance with the terms
of the 1998 Restructuring Agreements, and all security interests in, and
mortgages and liens upon, any of the assets of Borrowers or any Guarantor
heretofore securing all or any part of the indebtedness or obligations evidenced
by or arising under the Existing Subordinated Loan Documents have,
contemporaneously herewith, been (i) amended and restated pursuant to the 1998
Restructuring Agreements, so as to be solely in favor of the LFI Subordinated
Note Trustee for the benefit of the New Subordinated Debtholders, and (ii) made,
together with all security interests, mortgages and liens securing any
obligations and indebtedness arising out of, under or in connection with the New
LFI Subordinated Note Agreements or any of the other 1998 Restructuring
Agreements, and the indebtedness and obligations at any time secured thereby,
expressly subject and subordinate to the security interests, mortgages and liens
held by Lender and subject and subordinate to the other rights and remedies of
Lender (including Lender's rights to prior payment of the Obligations) pursuant
to the 1998 Intercreditor and Subordination Agreement.
(d) All of the issued and outstanding Existing LFI Capital Stock
has, contemporaneously herewith, been cancelled, retired and converted in
accordance with the terms of the LFI
-13-
<PAGE>
Equity Agreements and the other 1998 Restructuring Agreements (except for
certain options to acquire common stock of LFI held by employees of LFI on the
date hereof), and all of the shares of the New LFI Capital Stock have been or,
in the case of shares issuable upon the exercise of options or warrants, when
issued will be, duly authorized, validly issued and fully paid and
non-assessable. All of the shareholders of LFI who own of record, or, to the
best of LFI's knowledge, directly or indirectly beneficially own, ten (10%)
percent or more of the issued and outstanding shares of the New LFI Capital
Stock are listed, and their percentage ownership of record and, to the best of
LFI's knowledge, beneficial ownership, is set forth next to such shareholder's
name, on Exhibit A attached hereto.
(e) All actions and proceedings required by the LFI 1998
Restructuring Agreements, applicable law and regulation have been taken and the
transactions required thereunder have, contemporaneously herewith, been duly and
validly taken and consummated.
(f) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of any of the
transactions described in the 1998 Restructuring Agreements, and no governmental
action or proceeding has been threatened or commenced seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
1998 Restructuring or any provision of the 1998 Restructuring Agreements.
(g) Borrowers and Guarantors have delivered, or caused to be
delivered, to Lender true, correct and complete copies of the 1998 Restructuring
Agreements.
(h) Neither the execution and delivery of the 1998 Restructuring
Agreements and the instruments and documents to be delivered pursuant thereto,
nor the consummation of the transactions therein contemplated, nor compliance
with the provisions thereof, (i) has violated or will violate any Securities
Laws or any other law or regulation or any order or decree of any court or
governmental instrumentality in any respect or (ii) does or will conflict with
or result in the breach of, or constitute a default in any respect under, any
indenture, mortgage, deed of trust, agreement or instrument to which any
Borrower or Guarantor is a party or may be bound, or (iii) result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property of Borrowers or Guarantors, except as specifically permitted hereunder
or under the other Financing Agreements, or (iv) does or shall violate any
provision of the Certificate of Incorporation or By-Laws of LFI or any other
Borrower or any Guarantor.
-14-
<PAGE>
(i) LFI Merger Corp. was incorporated under the laws of the State
of Delaware on February 13, 1998 and immediately prior to the LFI Restructuring
Merger shall own no assets (except for the preferred stock and common stock of
LFI contributed to LFI Merger Corp. by the holders thereof), and shall have no
liabilities, and shall have engaged in no business or transaction, except
becoming party to the 1998 Restructuring Merger.
(j) The 1998 Restructuring will not result in any material
current cash tax liability of LFI or its subsidiaries to the United States
Internal Revenue Service, except for liabilities pursuant to the alternative
minimum tax.
(k) No Event of Default exists on the date of this Amendment
(after giving effect to the consents under, and amendments to the Loan Agreement
provided in, this Amendment).
(l) This Amendment has been duly authorized, executed and
delivered by Borrowers and Guarantors, and the agreements and obligations of
Borrowers and Guarantors contained herein constitute legal, valid and binding
obligations of Borrowers and Guarantors enforceable against Borrowers and
Guarantors in accordance with their respective terms.
17. Conditions Precedent. The effectiveness of the consents and
amendments set forth herein shall be subject to the receipt by Lender of each of
the following, in form and substance satisfactory to Lender:
(a) an original of this Amendment, duly authorized, executed and
delivered by Borrowers and Guarantors;
(b) an original of the 1998 Intercreditor and Subordination
Agreement, between the LFI Subordinated Note Trustee and Lender, as acknowledged
by Borrowers and the Guarantors parties thereto, duly authorized, executed and
delivered by the LFI Subordinated Note Trustee, Borrowers and such Guarantors;
(c) all requisite corporate action and proceedings in connection
with this Amendment and the documents and instruments to be delivered hereunder
shall be in form and substance satisfactory to Lender, and Lender shall have
received all information and copies of all documents, including, without
limitation, records of requisite corporate action and proceedings which Lender
may have requested in connection therewith, such documents where requested by
Lender or its counsel to be certified by appropriate corporate officers or
governmental authorities;
(d) a pro-forma consolidated balance sheet of LFI and
subsidiaries, dated as of January 31, 1998, prepared so as to give pro-forma
effect to the consummation of the 1998
-15-
<PAGE>
Restructuring, accompanied by an officer's certificate dated as of the date
hereof, certified by the chief financial officer at LFI;
(e) evidence that the Certificate of Merger with respect to the
LFI Restructuring Merger and the Amended and Restated Certificate of
Incorporation of LFI have been filed by the Secretary of State of the State of
Delaware;
(f) opinion letters of counsel to Borrowers and Guarantors with
respect to the 1998 Restructuring Agreements and this Amendment, and such other
matters as Lender may request; and
(g) after giving effect to the consents under, and amendments to
the Loan Agreement provided in, this Amendment, no Event of Default shall exist
or have occurred and no event or condition shall have occurred or exist which
with notice or passage of time or both would constitute an Event of Default.
18. Effect of this Amendment. This Amendment and the instruments and
agreements delivered pursuant hereto constitute the entire agreement of the
parties with respect to the subject matter hereof and thereof, and supersede all
prior oral or written communications, memoranda, proposals, negotiations,
discussions, term sheets and commitments with respect to the subject matter
hereof and thereof. Except for the specific amendments and consents expressly
set forth herein, no other changes or modifications to or consents under the
Financing Agreements, and no waivers of any provisions thereof are intended or
implied, and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment shall
control. The Loan Agreement and this Amendment shall be read and construed as
one agreement.
19. Further Assurances. Borrowers shall execute and deliver such
additional documents and take such additional action as may be reasonably
requested by Lender to effectuate the provisions and purposes of this Amendment.
20. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the internal laws of the State of New York (without giving effect to
principles of conflicts of law).
21. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns.
22. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this
-16-
<PAGE>
Amendment, it shall not be necessary to produce or account for more than one
counterpart thereof signed by each of the parties hereto.
Please sign in the space provided below and return a counterpart of this
Amendment, whereupon this Amendment, as so agreed to and accepted, shall become
a binding agreement among Borrowers, Guarantors and Lender.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:
---------------------------
Title:
------------------------
AGREED AND ACCEPTED:
LONDON FOG INDUSTRIES, INC.
By:
---------------------------
Title:
------------------------
PACIFIC TRAIL, INC.
By:
---------------------------
Title:
------------------------
THE SCRANTON OUTLET CORPORATION
By:
---------------------------
Title:
------------------------
CONSENTED TO:
PTI HOLDING CORP.
By:
---------------------------
Title:
------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-17-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
PTI TOP COMPANY, INC.
By:
---------------------------
Title:
------------------------
STAR SPORTSWEAR MANUFACTURING CORP.
By:
---------------------------
Title:
------------------------
MATTHEW MANUFACTURING CO., INC.
By:
---------------------------
Title:
------------------------
WASHINGTON HOLDING COMPANY
By:
---------------------------
Title:
------------------------
CLIPPER MIST, INC.
By:
---------------------------
Title:
------------------------
LONDON FOG SPORTSWEAR, INC.
By:
---------------------------
Title:
------------------------
THE MOUNGER CORPORATION
By:
---------------------------
Title:
------------------------
-18-
EXHIBIT 4.3
April 22, 1998
London Fog Industries, Inc.
1332 Londontown Blvd.
Eldersburg, Maryland 21784
Pacific Trail, Inc.
1700 Westlake Avenue North, Suite 200
Seattle, Washington 98109
The Scranton Outlet Corporation
1332 Londontown Blvd.
Eldersburg, Maryland 21784
Re: Amendment No. 2 to Loan and Security Agreement
Gentlemen:
Reference is made to the Loan and Security Agreement (the "Loan
Agreement"), dated as of May 15, 1997, by and among Congress Financial
Corporation ("Lender"), London Fog Industries, Inc. ("LFI"), Pacific Trail, Inc.
("PTI") and The Scranton Outlet Corporation ("SCO"; and together with LFI and
PTI, collectively, "Borrowers"), as amended by Amendment No. 1 to Loan and
Security Agreement, dated as of February 27, 1998, together with all other
agreements, documents, supplements and instruments now or at any time hereafter
executed and/or delivered by Borrowers or any other person, with, to or in favor
of Lender in connection therewith (all of the foregoing, together with this
Amendment and the other agreements and instruments delivered hereunder, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, collectively, the "Financing Agreements"). All
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to them in the Loan Agreement.
Borrowers and Guarantors have requested that Lender agree to amend certain
provisions of Section 9.11 of the Loan Agreement, and Lender is willing to do so
to the extent and subject to the terms and conditions set forth herein.
In consideration of the foregoing, the mutual agreements and covenants
contained in this Amendment No. 2 to Loan and Security Agreement (this
"Amendment"), and other good and valuable consideration, the adequacy and
sufficiency of which are hereby acknowledged, Borrowers and Lender agree as
follows:
<PAGE>
1. Dividends and Redemptions. Section 9.11 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"9.11 Dividends and Redemptions. No Borrower shall, directly or indirectly,
declare or pay any dividends on account of any shares of any class of
Capital Stock of any Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital
Stock (or set aside or otherwise deposit or invest any sums for such
purpose) for any consideration other than common stock, or apply or set
apart any sum, or make any other distrubution (by reduction of capital or
otherwise) in respect of any such shares, or agree to do any of the
foregoing, (other than by delivery of a subordinated note evidencing
indebtedness permitted under Section 9.9(g) hereof), except that, provided
no Event of Default, and no event or state of facts that would, with notice
or passage of time or both, constitute an Event of Default, exists or has
occurred and is continuing, or would exist or occur after giving effect to
such redemption or repurchase or any payment therefor, LFI may, out of
legally available funds therefor: (i) redeem and/or repurchase certain
shares and options to purchase shares of Capital Stock of LFI owned by
certain employees of LFI, pursuant to the exercise of the put options
described in Section 9.9(g) hereof ("Management Put Repurchases"), but not
to exceed the aggregate amount which, when added to the amounts expended as
permitted under clauses (ii) and (iii) hereof in a given fiscal year of
LFI, does not exceed the amount of $350,000 so expended in such fiscal
year, (ii) repurchase fractional shares, or make payments in lieu of
issuing fractional shares, of common stock of LFI upon the exercise of
stock options or warrants issued to employees of LFI to the extent not
issued in violation hereof, but not to exceed the amount of $100,000 so
expended in any one fiscal year of LFI, and (iii) repurchase common stock
of LFI in open market transactions involving cash expenditures of not more
than $200,000 in any fiscal year of LFI, where such stock is used in such
fiscal year to pay directors' fees to outside directors of LFI. Any amount
permitted to be paid under clauses(i), (ii) or (iii) and not so used in any
fiscal year of LFI may be carried over under the respective clauses to
succeeding fiscal years, but in no event may the amounts carried forward
from any fiscal year under all such clauses exceed $250,000 in the
aggregate, and in no event may the
- 2 -
<PAGE>
amounts paid under all such clauses in a given fiscal year of LFI,
including any amounts carried over from prior years, exceed $600,000 in the
aggregate."
2. Representations, Warranties and Covenants. In addition to the continuing
representations, warranties and covenants heretofore or hereafter made by
Borrowers to Lender pursuant to the other Financing Agreements, Borrowers hereby
represent, warrant and covenant with and to Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No event of Default exists on the date of this Amendment (after
giving effect to the amendments to the Loan Agreement provided in this
Amendment).
(b) All of the representations and warranties set forth in the Loan
Agreement as amended hereby, and the other Financing Agreements, are true and
correct in all material respects, except to the extent any such representation
or warranty is made as of a specified date, in which case such representation or
warranty shall have been true and correct as of such date.
(c) This Amendment has been duly authorized, executed and delivered by
Borrowers and consented to by Guarantors, and the agreements and obligations of
Borrowers, contained herein constitute legal, valid and binding obligations of
Borrowers, enforceable against Borrowers in accordance with their respective
terms.
3. Conditions Precedent. The effectiveness of the amendments set forth
herein shall be subject to the receipt by Lender of each of the following, in
form and substance satisfactory to Lender:
(a) an original of this Amendment, duly authorized, executed and
delivered by Borrowers and consented to by Guarantors; and
(b) after giving effect to the amendments to the Loan Agreement
provided in, this Amendment, no Event of Default shall exist or have occurred
and no event or condition shall have occurred or exist which with notice or
passage of time or both would constitute an Event of Default.
4. Effect of this Amendment. This Amendment and the instruments and
agreements delivered pursuant hereto constitute the entire agreement of the
parties with respect to the subject matter hereof and thereof, and supersede all
prior oral or
- 3 -
<PAGE>
written communications, memoranda, proposals, negotiations, discussions, term
sheets and commitments with respect to the subject matter hereof and thereof.
Except for the specific amendments expressly set forth herein, no other changes
or modifications to the Financing Agreements, and no consents under or waivers
of any provisions of the Financing Agreements are intended or implied, and in
all other respects the Financing Agreements are hereby specifically ratified,
restated and confirmed by all parties hereto as of the effective date hereof. To
the extent of conflict between the terms of this Amendment and the other
Financing Agreements, the terms of this Amendment shall control. The Loan
Agreement and this Amendment shall be read and construed as one agreement.
5. Further Assurances. Borrowers shall execute and deliver such additional
documents and take such additional action as may be reasonably requested by
Lender to effectuate the provisions and purposes of this Amendment.
6. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the internal laws of the State of New York (without giving effect to
principles of conflicts of law).
7. Binding Effect. This Amendment shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
8. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
Please sign in the space provided below and return a counterpart of this
Amendment, whereupon this Amendment, as so agreed to and accepted, shall become
a binding agreement among Borrowers and Lender, consented to by Guarantors.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/ Lawernce S. Fonte
---------------------------
Title: First Vice President
------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 4 -
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AGREED AND ACCEPTED:
LONDON FOG INDUSTRIES, INC.
By:/s/
-------------------------------
Title: SR.VP
----------------------------
PACIFIC TRAIL, INC.
By:/s/
-------------------------------
Title: Secretary
----------------------------
THE SCRANTON OUTLET CORPORATION
By:/s/
-------------------------------
Title: Secretary
----------------------------
CONSENTED TO:
PTI HOLDING CORP.
By:/s/
-------------------------------
Title: Secretary
----------------------------
PTI TOP COMPANY, INC.
By:/s/
-------------------------------
Title: Secretary
----------------------------
STAR SPORTSWEAR MANUFACTURING CORP.
By:/s/
-------------------------------
Title: Secretary
----------------------------
- 5 -
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
MATTHEW MANUFACTURING CO., INC.
By:/s/
-------------------------------
Title: Secretary
----------------------------
WASHINGTON HOLDING COMPANY
By:/s/
-------------------------------
Title: Secretary
----------------------------
CLIPPER MIST, INC.
By:/s/
-------------------------------
Title: Secretary
----------------------------
LONDON FOG SPORTSWEAR, INC.
By:/s/
-------------------------------
Title: Secretary
----------------------------
THE MOUNGER CORPORATION
By:/s/
-------------------------------
Title: Secretary
----------------------------
- 6 -
================================================================================
LONDON FOG INDUSTRIES, INC.
$100,000,000
10% Senior Subordinated Notes
Due February 27, 2003
==========
INDENTURE
Dated as of February 27, 1998
==========
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C> <C>
310(a)(1) ..................................................................... 7.10
(a)(2) ..................................................................... 7.10
(a)(3) ..................................................................... N.A.
(a)(4) ..................................................................... N.A.
(b) ..................................................................... 7.8; 7.10
(c) ..................................................................... N.A.
311(a) ..................................................................... 7.11
(b) ..................................................................... 7.11
(c) ..................................................................... N.A.
312(a) ..................................................................... 2.5
(b) ..................................................................... 12.3
(c) ..................................................................... 12.3
313(a) ..................................................................... 7.6
(b)(1) ..................................................................... N.A.
(b)(2) ..................................................................... 7.6
(c) ..................................................................... 7.6
(d) ..................................................................... 7.6
314(a) ..................................................................... 4.18
4.20; 12.2
(b) ..................................................................... N.A.
(c)(1) ..................................................................... 12.4
(c)(2) ..................................................................... 12.4
(c)(3) ..................................................................... N.A.
(d) ..................................................................... 10.4; 10.5
(e) ..................................................................... 12.5
(f) ..................................................................... 4.19
315(a) ..................................................................... 7.1
(b) ..................................................................... 7.5; 12.2
(c) ..................................................................... 7.1
(d) ..................................................................... 7.1
(e) ..................................................................... 6.11
316(a)(last sentence) ..................................................................... 12.6
(a)(1)(A) ..................................................................... 6.5
(a)(1)(B) ..................................................................... 6.4
(a)(2) ..................................................................... N.A.
(b) ..................................................................... 6.4; 6.7
317(a)(1) ..................................................................... 6.8
(a)(2) ..................................................................... 6.9
(b) ..................................................................... 2.4
318(a) ..................................................................... 12.1
N.A. means Not Applicable.
</TABLE>
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions and Incorporation by Reference
<S> <C> <C>
SECTION 1.1. Definitions............................................................... 1
SECTION 1.2. Incorporation by Reference of Trust Indenture Act......................... 25
SECTION 1.3. Rules of Construction..................................................... 26
ARTICLE II
The Securities
SECTION 2.1. Form and Dating........................................................... 26
SECTION 2.2. Execution and Authentication.............................................. 28
SECTION 2.3. Registrar and Paying Agent................................................ 28
SECTION 2.4. Paying Agent To Hold Money in Trust....................................... 29
SECTION 2.5. Holder Lists.............................................................. 29
SECTION 2.6. Transfer and Exchange..................................................... 29
SECTION 2.7. Replacement Securities.................................................... 36
SECTION 2.8. Outstanding Securities.................................................... 37
SECTION 2.9. Temporary Securities...................................................... 37
SECTION 2.10. Cancellation.............................................................. 37
SECTION 2.11. Defaulted Interest........................................................ 37
SECTION 2.12. CUSIP Numbers............................................................. 38
ARTICLE III
Redemption
SECTION 3.1. Optional Redemption....................................................... 38
SECTION 3.2. Notices to Trustee........................................................ 38
SECTION 3.3. Selection of Securities To Be Redeemed.................................... 39
SECTION 3.4. Notice of Redemption...................................................... 39
SECTION 3.5. Effect of Notice of Redemption............................................ 40
SECTION 3.6. Deposit of Redemption Price............................................... 40
SECTION 3.7. Securities Redeemed in Part............................................... 40
ARTICLE IV
Covenants
SECTION 4.1. Payment of Securities..................................................... 41
SECTION 4.2. Limitation on Liens....................................................... 41
SECTION 4.3. Limitation on Incurrence of Additional Indebtedness....................... 41
SECTION 4.4. Limitation on Restricted Payments......................................... 41
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.5. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries....................................................................... 43
SECTION 4.6. Limitation on Asset Sales................................................. 44
SECTION 4.7. Limitation on Transactions with Affiliates................................ 46
SECTION 4.8. Change of Control......................................................... 47
SECTION 4.9. Limitation on Incurrence of Subordinated Debt Senior to the Securities.... 47
SECTION 4.10. Limitation on Preferred Stock of Subsidiaries............................. 47
SECTION 4.11. Limitation on Future Guarantees........................................... 48
SECTION 4.12. Conduct of Business....................................................... 48
SECTION 4.13. Maintenance of Office or Agency........................................... 48
SECTION 4.14. Corporate Existence....................................................... 48
SECTION 4.15. Payment of Taxes and Other Claims......................................... 48
SECTION 4.16. Maintenance of Properties and Insurance................................... 49
SECTION 4.17. Compliance with Laws...................................................... 49
SECTION 4.18. Additional Information.................................................... 49
SECTION 4.19. Further Instruments and Acts.............................................. 50
SECTION 4.20. Compliance Certificates................................................... 50
ARTICLE V
Successor Company
SECTION 5.1. When Company May Merge or Transfer Assets................................. 50
ARTICLE VI
Defaults and Remedies
SECTION 6.1. Events of Default......................................................... 52
SECTION 6.2. Acceleration.............................................................. 54
SECTION 6.3. Other Remedies............................................................ 54
SECTION 6.4. Waiver of Past Defaults................................................... 54
SECTION 6.5. Control by Majority....................................................... 55
SECTION 6.6. Limitation on Suits....................................................... 55
SECTION 6.7. Rights of Holders to Receive Payment...................................... 55
SECTION 6.8. Collection Suit by Trustee................................................ 56
SECTION 6.9. Trustee May File Proofs of Claim.......................................... 56
SECTION 6.10. Priorities................................................................ 56
SECTION 6.11. Undertaking for Costs..................................................... 56
ARTICLE VII
Trustee
SECTION 7.1. Duties of Trustee......................................................... 57
SECTION 7.2. Rights of Trustee......................................................... 58
SECTION 7.3. Individual Rights of Trustee.............................................. 59
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 7.4. Trustee's Disclaimer...................................................... 59
SECTION 7.5. Notice of Defaults........................................................ 59
SECTION 7.6. Reports by Trustee to Holders............................................. 59
SECTION 7.7. Compensation and Indemnity................................................ 59
SECTION 7.8. Replacement of Trustee.................................................... 60
SECTION 7.9. Successor Trustee by Merger............................................... 61
SECTION 7.10. Eligibility; Disqualification............................................. 61
SECTION 7.11. Preferential Collection of Claims Against Company......................... 62
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities...................................... 62
SECTION 8.2. Legal Defeasance and Covenant Defeasance.................................. 63
SECTION 8.3. Conditions to Defeasance.................................................. 64
SECTION 8.4. Application of Trust Money................................................ 66
SECTION 8.5. Repayment to Company or the Subsidiary Guarantors......................... 66
SECTION 8.6. Reinstatement............................................................. 67
SECTION 8.7. Release of Lien........................................................... 67
SECTION 8.8. Indemnity for Government Obligations...................................... 67
ARTICLE IX
Amendments
SECTION 9.1. Without Consent of Holders................................................ 67
SECTION 9.2. With Consent of Holders................................................... 68
SECTION 9.3. Compliance with Trust Indenture Act....................................... 69
SECTION 9.4. Revocation and Effect of Consents and Waivers............................. 69
SECTION 9.5. Notation on or Exchange of Securities..................................... 70
SECTION 9.6. Trustee To Sign Amendments................................................ 70
ARTICLE X
Security Documents
SECTION 10.1. Collateral and Security Documents........................................ 71
SECTION 10.2. Recording, Deposit of Pledged Securities, etc. .......................... 71
SECTION 10.3. Disposition of Inventory and Accounts Without Release.................... 72
SECTION 10.4. Release of Collateral.................................................... 73
SECTION 10.5. Trust Indenture Act Requirements......................................... 73
SECTION 10.6. Suits to Protect the Collateral.......................................... 73
SECTION 10.7. Determinations Relating to Collateral.................................... 73
SECTION 10.8. Impairment of Security Interests......................................... 74
</TABLE>
- iii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE XI
Ancillary Documents
<S> <C> <C>
SECTION 11.1. Security Documents and Guarantees........................................ 74
SECTION 11.2. Subordination Agreement.................................................. 74
ARTICLE XII
Miscellaneous
SECTION 12.1. Notices.................................................................. 75
SECTION 12.2. Communication by Holders with other Holders.............................. 76
SECTION 12.3. Certificate and Opinion as to Conditions Precedent....................... 76
SECTION 12.4. Statements Required in Certificate or Opinion............................ 76
SECTION 12.5. When Securities Disregarded.............................................. 77
SECTION 12.6. Rules by Trustee, Paying Agent and Registrar............................. 77
SECTION 12.7. Legal Holidays........................................................... 77
SECTION 12.8. Governing Law............................................................ 77
SECTION 12.9. No Recourse Against Others............................................... 77
SECTION 12.10. Successors............................................................... 77
SECTION 12.11. Multiple Originals....................................................... 78
SECTION 12.12. Variable Provisions...................................................... 78
SECTION 12.13. Qualification of Indenture............................................... 78
SECTION 12.14. Table of Contents; Headings.............................................. 78
SECTION 12.15. Severability............................................................. 78
SECTION 12.16. The Trustee.............................................................. 78
SECTION 12.17. Nonrecourse.............................................................. 78
SECTION 12.18. Counterparts............................................................. 78
</TABLE>
- iv -
<PAGE>
EXHIBITS
EXHIBIT A-1 FORM OF TEMPORARY NOTE
EXHIBIT A-2 FORM OF INITIAL NOTE
EXHIBIT B FORM OF EXCHANGE NOTE
EXHIBIT C FORM OF COMPANY PATENT AND TRADEMARK SECURITY
AGREEMENT
EXHIBIT D FORM OF COMPANY PLEDGE AGREEMENT
EXHIBIT E FORM OF COMPANY SECURITY AGREEMENT
EXHIBIT F FORM OF SUBSIDIARY GUARANTEE
EXHIBIT G FORM OF SUBSIDIARY PATENT AND TRADEMARK SECURITY
AGREEMENT
EXHIBIT H FORM OF SUBSIDIARY PLEDGE AGREEMENT
EXHIBIT I FORM OF SUBSIDIARY SECURITY AGREEMENT
EXHIBIT J FORM OF TRANSFEREE LETTER OF REPRESENTATION
EXHIBIT K SUBORDINATION AGREEMENT
EXHIBIT L ASSIGNMENT OF SECURITY INTERESTS
EXHIBIT M BAILMENT AGREEMENT
- v -
<PAGE>
INDENTURE dated as of February 27, 1998, between LONDON FOG
INDUSTRIES, INC., a Delaware corporation (as further defined below, the
"Company"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking
corporation, not in its individual capacity, but solely as trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders (as defined below) of the
Company's 10% Senior Subordinated Notes due 2003 that on the Issue Date (as
defined below) each Holder shall be issued a temporary note in favor of such
Holder (collectively, the "Temporary Notes") and, when issued in exchange for
the Temporary Notes as provided herein, the Company's 10% Senior Subordinated
Notes due 2003 (the "Initial Notes") and, when issued in exchange for Initial
Notes as provided in the Registration Statement (as defined below), the
Company's 10% Senior Subordinated Notes due 2003 (the "Exchange Notes" and,
together with the Temporary Notes and the Initial Notes, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.1. Definitions.
"Acquired Indebtedness" means Indebtedness (a) of a Person or any
Subsidiary thereof existing at the time such Person becomes a Restricted
Subsidiary of the Company or (b) assumed in connection with the acquisition of
assets from such Person, in each case whether or not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition. Acquired Indebtedness
shall be deemed to have been incurred, with respect to clause (a) of the
preceding sentence, on the date such Person becomes a Restricted Subsidiary of
the Company and, with respect to clause (b) of the preceding sentence, on the
date of consummation of such acquisition of assets.
"Affiliate" means a Person who directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, the Company. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Notwithstanding the foregoing, no Person (other than the
Company or any Subsidiary thereof) in whom a Receivables Entity makes an
Investment in connection with a Qualified Receivables Transaction shall be
deemed to be an Affiliate of the Company or any of its Subsidiaries solely by
reason of such Investment.
"Affiliate Transaction" has the meaning ascribed in Section 4.7.
"Agent Member" has the meaning ascribed in Section 2.1(c).
"all or substantially all" shall have the meaning given such phrase
in the Revised Model Business Corporation Act.
<PAGE>
2
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary thereof in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or of any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary thereof, or (b) the acquisition by the Company or any
Restricted Subsidiary thereof of the assets of any Person which constitute all
or substantially all of the assets of such Person, any division or line of
business of such Person or any other properties or assets of such Person other
than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary
thereof of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary
thereof other than in the ordinary course of business; provided, however, that
Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or any Restricted Subsidiary thereof receives
aggregate consideration of less than $1 million, (ii) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under Article V, (iii) the sale or discount,
in each case without recourse, of accounts receivable arising in the ordinary
course of business but only in connection with the compromise or collection
thereof, (iv) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the industry, (v) the
licensing of intellectual property, (vi) disposals or replacements of obsolete
equipment in the ordinary course of business, (vii) the sale, lease, conveyance,
disposition or other transfer by the Company or any Restricted Subsidiary
thereof of assets or property to the Company or to one or more Wholly Owned
Restricted Subsidiaries thereof in connection with Investments permitted under
Section 4.4, (viii) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" to a
Receivables Entity for the fair market value thereof, including cash in an
amount at least equal to 75% of the book value thereof as determined in
accordance with GAAP, and (ix) transfers of accounts receivable and related
assets of the type specified in the definition of "Qualified Receivables
Transaction" (or a fractional undivided interest therein) by a Receivables
Entity in a Qualified Receivables Transaction. For the purposes of clause
(viii), Purchase Money Notes shall be deemed to be cash.
"Assignment of Security Interests" means the Assignment of Security
Interests, dated as of the date hereof, by and between The Chase Manhattan Bank,
as agent for the Lenders referenced therein, and the Trustee, substantially in
the form of Exhibit L, as the same may be amended, supplemented or otherwise
modified from time to time.
"Bailment Agreement" the letter agreement, dated as of February 27,
1998, between Congress Financial Corporation, as bailee, and the Trustee, as
bailor, acknowledging the bailment arrangement with respect to the Capital Stock
of London Fog Raincoats Limited, as more fully described therein, substantially
in the form of Exhibit M, as the same may be amended, supplemented or otherwise
modified from time to time.
<PAGE>
3
"Bank Credit Agreement" means the Loan and Security Agreement, dated
as of May 15, 1997, among the Company, Pacific Trail, Inc., The Scranton Outlet
Corporation and Congress Financial Corporation, together with all existing and
future agreements, documents and instruments related thereto (including, without
limitation, any guarantees, promissory notes, letters of credit and collateral
documents), as each such agreement or document may be amended, supplemented or
otherwise modified from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid or extended from time to time (whether with the
original lender or other lenders or otherwise, and whether provided under the
original Bank Credit Agreement or other credit agreements or otherwise).
"Bankruptcy Law" has the meaning ascribed in Section 6.1.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, rights to purchase, warrants,
options, participations or other equivalents (however designated) of capital
stock, including each class of common stock and preferred stock of such Person,
but excluding any debt securities convertible into such equity, and (b) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person, in each case whether now outstanding or
hereafter issued.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (c) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances (or, with respect to foreign
banks, similar instruments) maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank, in each case having at the date of acquisition thereof
combined capital and surplus of not less than $200 million; (e) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause
<PAGE>
4
(a) above entered into with any bank meeting the qualifications specified in
clause (d) above; and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"Change of Control" means the occurrence of one or more of the
following events:
(a) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the
assets of the Company to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together with
any Affiliates thereof (whether or not otherwise in compliance with the
provisions of this Indenture);
(b) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of this
Indenture); or
(c) any Person or Group (other than (i) the holders on the Issue Date
of the Capital Stock of the Company or any Affiliates of such holders and
(ii) the holders of the Management Stock Options (as defined in the Master
Restructuring Agreement)) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than fifty percent
(50%) of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company, unless the Holders of a majority
of the outstanding principal amount of the Securities consents to such
Person or Group becoming the owner of such shares.
"Change of Control Triggering Event" means the occurrence of a Change
of Control and the failure of the Securities to have a Minimum Rating on the
30th day after the occurrence of such Change of Control.
"Closing" means the date of the closing of the Transactions.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means the collective reference to any and all property
from time to time subject to security interests to secure payment or performance
of the Indebtedness evidenced by the Securities or of the Guarantees pursuant to
the Security Documents, subject to Article X.
"Commission" means the Securities and Exchange Commission.
"Company" means London Fog Industries, Inc., until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"Company Patent and Trademark Security Agreement" means the Amended
and Restated Company Patent and Trademark Security Agreement, dated as of even
date herewith,
<PAGE>
5
made by the Company in favor of the Trustee, for the benefit of the Holders,
substantially in the form of Exhibit C, as the same may be amended, supplemented
or otherwise modified from time to time.
"Company Pledge Agreement" means the Amended and Restated Company
Pledge Agreement, dated as of even date herewith, made by the Company in favor
of the Trustee, for the benefit of the Holders, substantially in the form of
Exhibit D, as the same may be amended, supplemented or otherwise modified from
time to time.
"Company Security Agreement" means the Amended and Restated Company
Security Agreement, dated as of even date herewith, made by the Company in favor
of the Trustee, for the benefit of the Holders, substantially in the form of
Exhibit E, as the same may be amended, supplemented or otherwise modified from
time to time.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (a) Consolidated Net Income and (b) to
the extent Consolidated Net Income has been reduced thereby, (i) all income
taxes of such Person and the Restricted Subsidiaries thereof paid or accrued in
accordance with GAAP for such period, (ii) Consolidated Interest Expense and
(iii) Consolidated Non-cash Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which financial statements are available (the "Four Quarter
Period") ending on or prior to the date of the transactions giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the
"Transactions Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to:
(a) the incurrence of any Indebtedness of such Person or any
Restricted Subsidiaries thereof (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to
the Transactions Date, as if such incurrence or repayment, as the case may
be (and the application of the proceeds thereof), occurred on the first
day of the Four Quarter Period;
(b) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or a Restricted Subsidiary thereof
(including any Person who becomes a Restricted Subsidiary as a result of
any Asset Acquisition) incurring, assuming or otherwise being liable for
Acquired Indebtedness and also including any Consolidated EBITDA
(including any pro forma expense and cost reductions that are (i) directly
attributable to such transaction and (ii) factually supportable)
attributable to the assets which are the subject of any Asset Acquisition
or Asset Sale during the Four Quarter Period) occurring during the Four
Quarter
<PAGE>
6
Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transactions Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for
any such Indebtedness or Acquired Indebtedness) occurred on the first day
of the Four Quarter Period;
(c) with respect to any such Four Quarter Period commencing prior to
the Transactions, the Transactions (including any pro forma expense and
cost reductions related thereto that are (A) directly attributable to such
transaction and (B) factually supportable) shall be deemed to have taken
place on the first day of such Four Quarter Period; and
(d) any Asset Sales or Asset Acquisitions (including any Consolidated
EBITDA (including any pro forma expense and cost reductions that are (A)
directly attributable to such transaction and (B) factually supportable)
attributable to the assets which are the subject of the Asset Acquisition
or Asset Sale during the Four Quarter Period) that have been made by any
Person that has become a Restricted Subsidiary of the Company or has been
merged with or into the Company or any Restricted Subsidiary thereof
during the Four Quarter Period or at any time subsequent to the last day
of the Four Quarter Period and on or prior to the Transactions Date that
would have constituted Asset Sales or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary of the
Company or subsequent to such Person's merger into the Company, as if such
asset sale or asset acquisition (including the incurrence, assumption or
liability for any Indebtedness or Acquired Indebtedness in connection
therewith) occurred on the first day of the Four Quarter Period;
provided that to the extent that clause (b) or (d) of this sentence requires
that pro forma effect be given to an Asset Sale or Asset Acquisition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transactions Date of the Person, or division or line of business
of the Person, that is acquired or disposed for which financial information is
available. If such Person or any Restricted Subsidiary thereof directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary thereof had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (x) interest on
outstanding Indebtedness determined on a fluctuating basis as of the
Transactions Date and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transactions Date; (y) if
interest on any Indebtedness actually incurred on the Transactions Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transactions Date will be deemed to have been in
effect during the Four Quarter Period; and (z) notwithstanding clause (x) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Swap Obligations, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
<PAGE>
7
"Consolidated Fixed Charges" means, with respect to any Person for
any period, the sum, without duplication, of (a) Consolidated Interest Expense
(excluding amortization or write-off of debt issuance costs) plus (b) the
product of (i) the amount of all dividend payments on any series of Preferred
Stock of such Person (other than dividends paid in Qualified Capital Stock)
times (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated Federal, state and
local tax rate of such Person expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of, without duplication, (a) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and the Restricted Subsidiaries thereof, including the net costs
associated with Interest Swap Obligations, for such period determined on a
consolidated basis in conformity with GAAP, and (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and the Restricted Subsidiaries thereof during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and the Restricted Subsidiaries
thereof for such period on a consolidated basis, determined in accordance with
GAAP; provided that there shall be excluded therefrom:
(a) gains and losses from Asset Sales or abandonments or reserves
relating thereto and the related tax effects according to GAAP;
(b) gains and losses due solely to fluctuations in currency values
and the related tax effects according to GAAP;
(c) items classified as extraordinary, unusual or nonrecurring gains
and losses, and the related tax effects according to GAAP;
(d) the net income (or loss) of any Person acquired in a pooling of
interests transaction accrued prior to the date it becomes a Restricted
Subsidiary of the Company or is merged or consolidated with the Company or
any Restricted Subsidiary thereof;
(e) the net income of any Restricted Subsidiary of the Company to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by contract, operation
of law or otherwise;
(f) the net loss of any Person other than a Restricted Subsidiary of
the Company;
(g) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the
Company or a Restricted Subsidiary thereof by such Person unless, in the
case of a Restricted Subsidiary of the Company who receives such dividends
or distributions, such Restricted Subsidiary is subject to clause (e)
above;
<PAGE>
8
(h) non-cash compensation charges, including any arising from
existing stock options resulting from any merger or recapitalization
transaction; and
(i) net income (or loss) from discontinued operations.
"Consolidated Non-cash Charges" means, with respect to any Person for
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and the Restricted Subsidiaries thereof reducing Consolidated Net
Income of such Person and the Restricted Subsidiaries thereof for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges (other than charges with respect to the Deferred Compensation Plan)
which require an accrual of or a reserve for cash charges for any future
period).
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (a) was a member of such
Board of Directors on the Issue Date, (b) was elected to such Board of Directors
at the first annual meeting of shareholders following the Issue Date or (c) was
nominated for election or elected to such Board of Directors with, or whose
election to such Board of Directors was approved by, the affirmative vote of a
majority of the Continuing Directors who were members of such Board of Directors
at the time of such nomination or election.
"Covenant Defeasance" has the meaning ascribed in Section 8.2(c).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" has the meaning ascribed in Section 6.1.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Deferred Compensation Plan" means the Deferred Compensation Plan of
the Company, dated as of even date herewith, as the same may be amended,
supplemented or otherwise modified from time to time.
"Definitive Securities" has the meaning ascribed in Section 2.1(d).
"Depository" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depository institution
hereinafter appointed by the Company.
"Disqualified Capital Stock" means, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (a) matures or is mandatorily redeemable
<PAGE>
9
pursuant to a sinking fund obligation or otherwise, (b) is convertible or
exchangeable for Indebtedness or Disqualified Capital Stock or (c) is redeemable
at the option of the holder thereof, in whole or in part, in each case on or
prior to the Stated Maturity of the Securities; provided, however, that any
Capital Stock that would not constitute Disqualified Capital Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an asset sale or
change of control occurring on or prior to the Stated Maturity of the Securities
shall not constitute Disqualified Capital Stock if the asset sale or change of
control provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions specified in Sections 4.6
and 4.8.
"Event of Default" has the meaning ascribed in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning ascribed in the preamble hereto.
"fair market value" means, unless otherwise specified, with respect
to any asset or property, the price which could be negotiated in an
arm's-length, free market transaction, for cash, between a willing seller and a
willing and able buyer, neither of whom is under undue pressure or compulsion to
complete the transactions. Fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a resolution of the Board of Directors of the Company delivered to
the Trustee.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the Issue Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Global Security" has the meaning ascribed in Section 2.1(b).
"guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business.
<PAGE>
10
"Guarantees" means the collective reference to the Subsidiary
Guarantee and any additional guarantee of the Securities hereafter executed by
any Subsidiary of the Company, substantially in the form of the Subsidiary
Guarantee.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor under the Bank Credit
Agreement or otherwise in respect of the Senior Indebtedness, including interest
thereon (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such Subsidiary Guarantor whether
or not a claim for post-filing interest is allowed in such proceeding), whether
outstanding on the Issue Date or thereafter incurred.
"Holder" means the Person in whose name a Security is registered on
the Register.
"incur" has the meaning ascribed in Section 4.3.
"Indebtedness" means with respect to any Person, without duplication:
(a) all obligations of such Person for borrowed money;
(b) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(c) all Capitalized Lease Obligations of such Person;
(d) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business);
(e) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction;
(f) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (a) through (e) above and clause (h)
below;
(g) all obligations of any third party of the type referred to in
clauses (a) through (f) which are secured by any Lien on any property or
asset of such Person but which obligations are not assumed by such Person,
the amount of such obligation being deemed to be the lesser of the fair
market value of such property or asset or the amount of the obligation so
secured;
(h) all obligations under Currency Agreements and Interest Swap
Obligations of such Person; and
(i) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock
being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding
<PAGE>
11
accrued dividends, if any. For purposes hereof, (x) the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock,
such fair market value shall be determined reasonably and in good faith by
the Board of Directors of the issuer of such Disqualified Capital Stock
and (y) any transfer of accounts receivable or other assets which
constitute a sale for purposes of GAAP shall not constitute Indebtedness
hereunder.
"Indenture" means this Indenture as amended, supplemented or
otherwise modified from time to time.
"Initial Notes" has the meaning ascribed in the preamble hereto.
"Interest Payment Date" means the two dates specified on the reverse
side of the Securities on which the Company is scheduled to make semiannual
interest payments.
"Interest Swap Obligations" means the obligations of any Person,
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount, including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and the Restricted Subsidiaries thereof on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. For the purposes of Section 4.4, (a)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (b) the amount
of any Investment shall be the original cost of such Investment plus the cost of
all additional Investments by the Company or any Restricted Subsidiary thereof,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions (including tax sharing payments) in
connection with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any
<PAGE>
12
such other amounts shall reduce the amount of any Investment if such payment of
dividends or distributions or receipt of any such amounts would be included in
Consolidated Net Income. If the Company or any Restricted Subsidiary thereof
sells or otherwise disposes of any common stock of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any such
sale or disposition, the Company no longer owns, directly or indirectly, a
majority of the outstanding common stock of such Restricted Subsidiary, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the common stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Temporary
Notes.
"Legal Defeasance" has the meaning ascribed in 8.2(b).
"Legal Holiday" has the meaning ascribed in Section 12.8.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Master Restructuring Agreement" means the Master Restructuring
Agreement, dated as of even date herewith, among the Company, the Subsidiary
Guarantors, the Lenders (as defined therein), The Chase Manhattan Bank, as agent
for the Lenders and the Existing Management Holders (as defined therein), as the
same may be amended, supplemented or otherwise modified from time to time.
"Merger" means the merger of LFI Merger Corp., a Delaware
corporation, with and into the Company pursuant to the Merger Agreement.
"Merger Agreement" means the Agreement of Merger, dated as of even
date herewith, between the Company and LFI Merger Corp., a Delaware corporation.
"Minimum Rating" means either (a) a rating of at least BBB- (or
equivalent successor rating) by S&P or (b) a rating of at least Baa3 (or
equivalent successor rating) by Moody's.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any Subsidiary thereof from such Asset Sale
net of:
(a) out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees and sales commissions);
<PAGE>
13
(b) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(c) repayment of Senior Indebtedness that is required to be repaid in
connection with such Asset Sale, whether or not all or any portion of the
amount repaid is re-lent to the Company or any Subsidiary thereof;
(d) any portion of cash proceeds which the Company determines in good
faith should be reserved for post-closing adjustments, it being understood
and agreed that on the day that all such post-closing adjustments have
been determined, the amount (if any) by which the reserved amount in
respect of such Asset Sale exceeds the actual post-closing adjustments
payable by the Company or any Subsidiary thereof shall constitute Net Cash
Proceeds on such date; and
(e) appropriate amounts which the Company determines in good faith to
be provided by the Company or any Subsidiary thereof, as the case may be,
as a reserve against any liabilities associated with such Asset Sale and
retained by the Company or any Subsidiary thereof, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale, all as reflected in the Officers' Certificate
delivered to the Trustee.
"Net Proceeds Offer" has the meaning ascribed in Section 4.6(a).
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness, without duplication.
"Officer" means the Chairman of the Board of Directors, the
President, any Vice President, the Treasurer or the Secretary, in each case of
the Company, as applicable.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Paying Agent" has the meaning ascribed in Section 2.3.
"Permitted Indebtedness" means, without duplication:
(a) the Securities and the obligations under the Guarantees;
(b) Indebtedness incurred pursuant to the Bank Credit Agreement;
<PAGE>
14
(c) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(d) Interest Swap Obligations of the Company or any Restricted
Subsidiary thereof covering Indebtedness of the Company or any Restricted
Subsidiary thereof; provided that any Indebtedness to which any such
Interest Swap Obligations correspond is otherwise permitted to be incurred
under this Indenture; provided, further, that such Interest Swap
Obligations are entered into, in the judgment of the Company, to protect
the Company and any such Restricted Subsidiary thereof from fluctuation in
interest rates on their respective outstanding Indebtedness;
(e) Indebtedness under Currency Agreements;
(f) intercompany Indebtedness owed by the Company to any Wholly Owned
Restricted Subsidiary thereof or by any Restricted Subsidiary of the
Company to the Company or to any Wholly Owned Restricted Subsidiary
thereof;
(g) Acquired Indebtedness of the Company or any Restricted Subsidiary
thereof in an aggregate principal amount outstanding not exceeding $10
million at any one time; provided that, in the case of Acquired
Indebtedness of a Restricted Subsidiary of the Company, such Acquired
Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary of the
Company;
(h) guarantees by the Company and the Wholly Owned Restricted
Subsidiaries thereof of each other's Indebtedness; provided that such
Indebtedness is permitted to be incurred hereunder, including, with
respect to guarantees by the Wholly Owned Restricted Subsidiaries of the
Company, Section 4.11;
(i) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or other similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within five (5)
Business Days of its incurrence;
(j) any refinancing, modification, replacement, renewal, restatement,
refunding, deferral, extension, substitution, supplement, reissuance or
resale of existing or future Indebtedness, including any additional
Indebtedness incurred to pay interest or premiums required by the
instruments governing such existing or future Indebtedness as in effect at
the time of issuance thereof ("Required Premiums") and fees in connection
therewith; provided that any such event shall not (i) result in an
increase in the aggregate principal amount of Permitted Indebtedness
(except to the extent such increase is a result of a simultaneous
incurrence of additional Indebtedness (A) to pay Required Premiums and
related fees or (B) otherwise permitted to be incurred under this
Indenture) of the Company and the Restricted Subsidiaries thereof (except
that this subclause (i) will not apply in the event the Indebtedness being
refinanced, modified, replaced, renewed, restated, refunded, deferred,
<PAGE>
15
extended, substituted, supplemented, reissued or resold (each, such
transaction, a "Refinancing") was originally incurred in reliance upon
clause (b) of this definition or the Refinancing is effected under the
Bank Credit Agreement) and (ii) create Indebtedness with a Weighted
Average Life to Maturity at the time such Indebtedness is incurred that is
less than the Weighted Average Life to Maturity at such time of the
Indebtedness being refinanced, modified, replaced, renewed, restated,
refunded, deferred, extended, substituted, supplemented, reissued or
resold (except that this subclause (ii) will not apply in the event the
Indebtedness being refinanced, modified, replaced, renewed, restated,
refunded, deferred, extended, substituted, supplemented, reissued or
resold was originally incurred in reliance upon clause (b), (f), (g)(i) or
(o) of this definition or the Refinancing is effected under the Bank
Credit Agreement); provided that no Restricted Subsidiary of the Company
that is not a Subsidiary Guarantor may refinance any Indebtedness pursuant
to this clause (j) other than its own Indebtedness;
(k) Indebtedness (including Capitalized Lease Obligations) incurred
by the Company or any Restricted Subsidiary thereof to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount outstanding
not to exceed $20 million at the time of any incurrence thereof;
(l) Indebtedness incurred by the Company or any Restricted Subsidiary
thereof constituting reimbursement obligations (in addition to
reimbursement obligations constituting Senior Indebtedness) with respect
to letters of credit or bankers' acceptances issued in the ordinary course
of business, including, without limitation, letters of credit in respect
of workers' compensation claims or self-insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers'
compensation claims;
(m) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary thereof providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of the Company, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing
such acquisition, provided that the maximum assumable liability in respect
of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and the Restricted Subsidiaries thereof
in connection with such disposition;
(n) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
thereof in the ordinary course of business;
(o) additional Indebtedness of the Company and the Restricted
Subsidiaries thereof in an aggregate principal amount not to exceed $10
million at any one time outstanding;
<PAGE>
16
(p) the incurrence by a Receivables Entity of Indebtedness in a
Qualified Receivables Transaction that is not recourse to the Company or
any Subsidiary thereof (except for Standard Securitization Undertakings);
and
(q) Indebtedness incurred by the Company in connection with and
pursuant to the put options of the Company described in Section 4.4(b)(xi)
and the Deferred Compensation Plan, each as in effect on the date hereof.
"Permitted Investments" means:
(a) Investments by the Company or any Restricted Subsidiary thereof
in any Wholly Owned Restricted Subsidiary of the Company (whether existing
on the Issue Date or created thereafter) and Investments in the Company by
any Restricted Subsidiary thereof; provided that, in the case of an
Investment by the Company or any Restricted Subsidiary thereof in any
Wholly Owned Restricted Subsidiary of the Company, such Wholly Owned
Restricted Subsidiary is not restricted from making dividends or similar
distributions by contract, operation of law or otherwise;
(b) cash and Cash Equivalents;
(c) Investments existing on the Issue Date;
(d) loans and advances to employees and officers of the Company
(other than as permitted under clause (m)) and the Restricted Subsidiaries
thereof not in excess of $1 million at any one time outstanding;
(e) accounts receivable created or acquired in the ordinary course of
business;
(f) Currency Agreements and Interest Swap Obligations;
(g) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers;
(h) guarantees by the Company or any Restricted Subsidiaries thereof
of Indebtedness otherwise permitted to be incurred by the Company or any
of its Restricted Subsidiaries under this Indenture;
(i) Investments by the Company or any Restricted Subsidiary thereof
in a Person, if as a result of such Investment (i) such Person becomes a
Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
all or substantially all of its assets to, or is liquidated into, the
Company or a Wholly Owned Restricted Subsidiary thereof;
<PAGE>
17
(j) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (j)
that are at the time outstanding, not exceeding $5 million at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value), plus an amount equal to (i) 100% of the aggregate net cash
proceeds received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale subsequent to the Issue Date of
Qualified Capital Stock of the Company (including Qualified Capital Stock
issued upon the conversion of convertible Indebtedness or in exchange for
outstanding Indebtedness or as capital contributions to the Company (other
than from a Subsidiary)) and (ii) without duplication of any amounts
included in clause (j)(i) above, 100% of the aggregate net cash proceeds
of any equity contribution received by the Company from a holder of the
Company's Capital Stock, that in the case of amounts described in clause
(j)(i) or (j)(ii) are applied by the Company within 180 days after
receipt, to make additional Permitted Investments under this clause (j)
(such additional Permitted Investments being referred to collectively as
"Stock Permitted Investments");
(k) Investments received by the Company or its Restricted
Subsidiaries as consideration for asset sales, including Asset Sales;
provided in the case of an Asset Sale, such Asset Sale is effected in
compliance with Section 4.6;
(l) any Investment by the Company or a Wholly Owned Subsidiary of the
Company in a Receivables Entity or any Investment by a Receivables Entity
in any other Person in connection with a Qualified Receivables
Transaction; provided that any Investment in a Receivables Entity is in
the form of a Purchase Money Note or an equity interest; and
(m) loans and advances to employees and officers of the Company in
the form of Option Notes pursuant to, and as defined in, the Stock Option
Plan.
Any net cash proceeds that are used by the Company or any of its Restricted
Subsidiaries to make Stock Permitted Investments pursuant to clause (j) of this
definition shall not be included in subclauses (2) and (3) of clause (C) of
Section 4.4(a).
"Permitted Liens" means the following types of Liens:
(a) Liens securing any or all of the Senior Indebtedness, the
Securities and the Guarantees;
(b) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries thereof
shall have set aside on its books such reserves as may be required pursuant to
GAAP;
(c) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary
<PAGE>
18
course of business for sums not yet delinquent or being contested in good faith,
if suchreserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;
(d) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(e) judgment Liens not giving rise to an Event of Default;
(f) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or any
Restricted Subsidiary thereof;
(g) any interest or title of a lessor under any Capitalized Lease
Obligation;
(h) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary thereof; provided, however, that (i) the related
purchase money Indebtedness shall not exceed the cost of such property or assets
and shall not be secured by any property or assets of the Company or any
Restricted Subsidiary thereof other than the property and assets so acquired and
(ii) the Lien securing such Indebtedness shall be created within ninety (90)
days of such acquisition;
(i) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment, or storage of such inventory or other goods;
(j) Liens securing reimbursement obligations (in addition to Liens
securing any reimbursement obligations constituting Senior Indebtedness) with
respect to stand-by and commercial letters of credit which encumber documents
and other property relating to such letters of credit and products and proceeds
thereof;
(k) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the Company
or any Restricted Subsidiary thereof, including rights of offset and set-off;
(l) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(m) Liens securing Indebtedness under Currency Agreements;
<PAGE>
19
(n) Liens securing Acquired Indebtedness incurred in reliance on
clause (g) of the definition of Permitted Indebtedness; provided that such Liens
do not extend to or cover any property or assets of the Company or of any
Restricted Subsidiary thereof other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary thereof;
(o) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and the Restricted
Subsidiaries thereof;
(p) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(q) Liens on property of a Person existing at the time such Person is
acquired by, or such Person is merged into or consolidated or amalgamated with,
the Company or any Restricted Subsidiary thereof; provided that such Liens were
not created in contemplation of such acquisition, merger, consolidation or
amalgamation and do not extend to any assets other than those of the Person
acquired by, or merged into or consolidated or amalgamated with, the Company or
any Restricted Subsidiary thereof;
(r) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(s) Liens existing on the Issue Date, together with any Liens
securing Indebtedness incurred in reliance on clause (j) of the definition of
Permitted Indebtedness in order to refinance the Indebtedness secured by Liens
existing on the Issue Date; provided that the Liens securing the refinancing
Indebtedness (other than Senior Indebtedness) shall not extend to property other
than that pledged under the Liens securing the Indebtedness being refinanced;
(t) Liens of the Company or a Wholly Owned Restricted Subsidiary
thereof on assets of any Subsidiary of the Company;
(u) Liens on assets transferred to a Receivables Entity or on assets
of a Receivables Entity, in either case incurred in connection with a Qualified
Receivables Transaction; and
(v) Liens on goods which the Company or a Subsidiary thereof (acting
as consignee) has agreed to sell on a consignment basis in the ordinary course
of business.
"Person" means an individual, partnership, corporation, association,
joint-stock company, unincorporated organization, trust or joint venture,
government or any agency or political subdivision thereof or any other entity.
"Pledge Agreements" means the collective reference to the Company
Pledge Agreement, the Subsidiary Pledge Agreement and any additional pledge
agreement securing the Securities or any guarantee thereof executed by any
Subsidiary of the Company, substantially in the form of the Subsidiary Pledge
Agreement.
<PAGE>
20
"Preferred Stock" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"Preliminary Prospectus" means each preliminary prospectus included
in a Registration Statement or in any amendment thereto prior to the date on
which such Registration Statement is declared effective under the Securities
Act, including any prospectus filed with the Commission pursuant to Rule 424(a)
under the Securities Act.
"Productive Assets" means assets (including Capital Stock) of a kind
used or usable in the businesses of the Company and the Restricted Subsidiaries
thereof as, or related to such business, conducted on the date of the relevant
Asset Sale.
"Prospectus" means each prospectus included in a Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in accordance with Rule 430A under the Securities Act),
together with any supplement thereto, as filed with, or transmitted for filing
to, the Commission pursuant to Rule 424(b) under the Securities Act.
"Purchase Money Note" means a promissory note of a Receivables
Entity evidencing a line of credit, which may be irrevocable, from the Company
or any Subsidiary thereof in connection with a Qualified Receivables Transaction
to a Receivables Entity, which note shall be repaid from cash available to the
Receivables Entity, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"QIB" means any "qualified institutional buyer" (as defined in Rule
144A).
"Qualified Capital Stock" means any stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series
of transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any of its Subsidiaries may sell,
convey or otherwise transfer to (a) a Receivables Entity (in the case of a
transfer by the Company or any of its Subsidiaries) and (b) any other Person (in
the case of a transfer by a Receivables Entity), or may grant a security
interest in, any accounts receivable (whether now existing or arising in the
future) of the Company or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations in respect of
such accounts receivable, proceeds of such accounts receivable and other assets
which are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Entity" means a Wholly Owned Subsidiary of the Company
(or another Person in which the Company or any Subsidiary thereof makes an
Investment and to which the
<PAGE>
21
Company or any Subsidiary thereof transfers accounts receivable and related
assets) which engages in no activities other than in connection with the
financing of accounts receivable and which is designated by the Board of
Directors of the Company (as provided below) as a Receivables Entity (a) no
portion of the Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any Subsidiary thereof (excluding
guarantees of Obligations (other than the principal of, and interest on,
Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is
recourse to or obligates the Company or any Subsidiary thereof in any way other
than pursuant to Standard Securitization Undertakings or (iii) subjects any
property or asset of the Company or any other Subsidiary thereof, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings, (b) with which neither the
Company nor any other Subsidiary thereof has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable,
and (c) to which neither the Company nor any other Subsidiary thereof has any
obligation to maintain or preserve such entity's financial condition or cause
such entity to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the resolution of the Board of
Directors of the Company giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Register" has the meaning ascribed in Section 2.3.
"Registrar" has the meaning ascribed in Section 2.3.
"Registration Statement" means any registration statement (including
the Preliminary Prospectus, the Prospectus, any amendments (including any
post-effective amendments) thereof, any supplements and all exhibits thereto and
any documents incorporated therein by reference pursuant to the rules and
regulations of the Commission), filed by the Company with the Commission which
complies with the requirements of the Securities Act and the rules and
regulations of the Commission thereunder.
"Registration Statement Effective Date" means the date which the
Commission declares as the effective date of the Registration Statement with
respect to the Exchange Notes.
"Representative" means the indenture trustee or other trustee, agent
or representative in respect of the Senior Indebtedness or the Guarantor Senior
Indebtedness; provided that if, and for so long as, such Senior Indebtedness or
the Guarantor Senior Indebtedness, as the case may be, lacks such a
representative, then the Representative for such Senior Indebtedness or
Guarantor Senior Indebtedness, as the case may be, shall at all times constitute
the holders of a majority in outstanding principal amount of such Senior
Indebtedness or Guarantor Senior Indebtedness, as the case may be.
"Restricted Payment" has the meaning ascribed in Section 4.4(a).
<PAGE>
22
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person which at the time of determination is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act, or any
successor to such Rule.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" has the meaning ascribed in the preamble hereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreements" means the collective reference to the Company
Security Agreement and the Subsidiary Security Agreement.
"Security Documents" means the collective reference to the Company
Patent and Trademark Security Agreement, the Company Pledge Agreement, the
Company Security Agreement, the Subsidiary Patent and Trademark Security
Agreement, the Subsidiary Pledge Agreement, the Subsidiary Security Agreement,
the Bailment Agreement, any security agreement, pledge agreement, mortgage, deed
of trust or other agreement, instrument or document which may be entered into or
delivered after the date of this Indenture to secure the Indebtedness evidenced
by the Securities or any guarantee of the Securities (including without
limitation the Guarantees) and any other instruments, agreements or documents
entered into or delivered in connection with any of the foregoing, as such
agreements, instruments or documents may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and of this
Indenture.
"Senior Indebtedness" means any and all obligations, liabilities and
other amounts, whether outstanding on the Issue Date or thereafter incurred, at
any time owed or payable by the Company or any Subsidiary thereof under or in
respect of the Bank Credit Agreement, including principal, premium (if any),
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company or any Restricted
Subsidiary thereof whether or not a claim for post-filing interest is allowed in
such proceedings), fees, charges, expenses, reimbursement obligations,
indemnities, guarantees and all other amounts payable thereunder or in respect
thereof.
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23
"Senior Subordinated Indebtedness" means the Securities and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Securities and is not by its express terms
subordinate in right of payment to any Indebtedness of the Company other than
Senior Indebtedness.
"Significant Subsidiary" means, as of any date of determination, for
any Person, each Restricted Subsidiary of such Person which (a) for the most
recent fiscal year of such Person accounted for more than 10% of consolidated
revenues or consolidated net income of such Person or (b) as at the end of such
fiscal year, was the owner of more than 10% of the consolidated assets of such
Person.
"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary thereof which are reasonably customary in an accounts receivable
transaction.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
"Stock Option Plan" means the 1998 Stock Option Plan of the Company,
and the individual stock option agreements entered into thereunder, as each of
the same may be amended, supplemented or otherwise modified from time to time.
"Stock Permitted Investments" has the meaning ascribed in the
definition of "Permitted Investments."
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter incurred) which is
expressly subordinate in right of payment to the Securities pursuant to a
written agreement.
"Subordination Agreement" means the Intercreditor and Subordination
Agreement, dated as of even date herewith, between the Trustee and Congress
Financial Corporation, acknowledged and agreed to by the Company and the
Subsidiary Guarantors, substantially in the form of Exhibit K, as the same may
be amended, supplemented or otherwise modified, restated or replaced from time
to time.
"Subsidiary" means, with respect to any Person, (a) any corporation
of which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantee" means the Amended and Restated Subsidiary
Guarantee, dated as of even date herewith, made by each of the Subsidiary
Guarantors in favor of the Trustee, for
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24
the benefit of the Holders, substantially in the form of Exhibit F, as the same
may be amended, supplemented or otherwise modified from time to time.
"Subsidiary Guarantor" means (a) each of the Company's Subsidiaries
existing on the Issue Date that is a borrower or has guaranteed the Indebtedness
under the Bank Credit Agreement and (b) each of the Company's Subsidiaries that
in the future executes a Guarantee, substantially in the form of the Subsidiary
Guarantee.
"Subsidiary Patent and Trademark Security Agreement" means the
Amended and Restated Subsidiary Patent and Trademark Security Agreement, dated
as of even date herewith, made by each of the Subsidiary Guarantors in favor of
the Trustee, for the benefit of the Holders, substantially in the form of
Exhibit G, as the same may be amended, supplemented or otherwise modified from
time to time.
"Subsidiary Pledge Agreement" means the Amended and Restated
Subsidiary Pledge Agreement, dated as of even date herewith, made by each of the
Subsidiary Guarantors in favor of the Trustee, for the benefit of the Holders,
substantially in the form of Exhibit H, as the same may be amended, supplemented
or otherwise modified from time to time.
"Subsidiary Security Agreement" means the Amended and Restated
Subsidiary Security Agreement, dated as of even date herewith, made by each of
the Subsidiary Guarantors in favor of the Trustee, for the benefit of the
Holders, substantially in the form of Exhibit I, as the same may be amended,
supplemented or otherwise modified from time to time.
"Successor Company" has the meaning ascribed in Section 5.1.
"Temporary Notes" has the meaning ascribed in the preamble hereto.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture.
"Transactions" means the recapitalization, Merger, restructuring and
the other transactions contemplated by the Master Restructuring Agreement.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.6(f).
"Trust Officer" means any officer of the Trustee assigned by the
Trustee to administer this Indenture, or in the case of a successor trustee, an
officer assigned to the department, division or group performing the corporate
trust work of such successor and assigned to administer this Indenture.
"Unrestricted Subsidiary" of any Person means (a) any Subsidiary of
such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (b) any Subsidiary of an
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25
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any other Subsidiary thereof that is
not a Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation complies with Section 4.4
and (y) each Subsidiary to be so designated and each of its Subsidiaries has not
at the time of designation, and does not thereafter, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender of any such Indebtedness has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (a) immediately after giving effect to
such designation and treating all Indebtedness of such Unrestricted Subsidiary
as being incurred on such date, the Company is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
Section 4.3 and (b) immediately before and immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.2. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"indenture securities" means the Securities.
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26
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by the TIA reference to another statute or defined by the
Commission rule have the meanings assigned to them by such definitions.
SECTION 1.3. Rules of Construction. Unless the context otherwise
requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) "including" means including without limitation;
(e) words in the singular include the plural and words in the plural
include the singular;
(f) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(g) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be shown
on a balance sheet of the issuer dated such date prepared in accordance with
GAAP; and
(h) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation preference of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE II
The Securities
SECTION 2.1. Form and Dating. (a) The Temporary Notes and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A-1, which is hereby incorporated in, and expressly made a part of, this
Indenture. The Initial Notes and the Trustee's
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27
certificate of authentication shall be substantially in the form of Exhibit A-2,
which is hereby incorporated in, and expressly made a part of, this Indenture.
The Exchange Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit B, which is hereby incorporated in, and
expressly made a part of, this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage, in
addition to those set forth in Exhibits A-1, A-2 and B. The Company and the
Trustee shall approve the forms of the Securities and any notation, endorsement
or legend on them. Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibits A-1, A-2 and B are part of the
terms of this Indenture and, to the extent applicable, the Company, and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
be bound by such terms.
(b) Global Securities. The Initial Notes are being issued by the
Company pursuant to this Indenture and the Master Restructuring Agreement.
Initial Notes shall be issued in the form of one or more permanent
global securities in definitive, fully registered form without interest coupons
with the Global Securities Legend and Restricted Securities Legend set forth in
Exhibit A-2 (each, a "Global Security"), which shall be deposited on behalf of
the recipients of the Initial Notes with the Trustee, at its corporate trust
office, as custodian for the Depository (in such capacity, the "Securities
Custodian"), and registered in the name of the Depository, duly executed by the
Company and authenticated by the Trustee as provided below. The aggregate
principal amount of the Global Securities may from time to time be increased or
decreased by endorsements made on such Global Securities by the Trustee, the
Securities Custodian or the Depository as provided below.
(c) Book-Entry Provisions. This Section 2.1(c) shall apply only to
Global Securities deposited with the Securities Custodian.
Members of, participants in or beneficial owners of the Depository
("Agent Members") shall have no rights under this Indenture with respect to any
Global Security held on their behalf by the Depository or by the Securities
Custodian or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices of the Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Security.
(d) Certificated Securities. Except as provided in Section 2.6,
owners of beneficial interests in Global Securities will not be entitled to
receive certificated securities ("Definitive Securities"). Definitive Securities
shall bear the Restricted Securities Legend set forth in Exhibits A-1 and A-2
unless removed in accordance with Section 2.6(f).
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28
SECTION 2.2. Execution and Authentication. Two Officers shall sign
the Securities for the Company by manual or facsimile signature. The Company's
seal, if any, shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually authenticates the Security. The signature of the Trustee on a
Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
The Trustee shall authenticate and deliver: (a) Temporary Notes for
original issue in an aggregate principal amount of $100 million; (b) Initial
Notes for issue only in accordance with the provisions of the last paragraph of
Section 2.6 and only in exchange for the Temporary Notes in an equal principal
amount; and (c) Exchange Notes for issue only upon the Registration Statement
Effective Date, and only in exchange for Initial Notes in an equal principal
amount; in each case, upon a written order of the Company signed by two Officers
or by an Officer and either an Assistant Treasurer or an Assistant Secretary of
the Company. Such order shall specify the amount of the Securities to be
authenticated, the date on which the original issue of Securities is to be
authenticated and whether the Securities are to be Temporary Notes, Initial
Notes or Exchange Notes, as the case may be. The aggregate principal amount of
Securities outstanding at any time may not exceed $100 million except as
provided in Section 2.7.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, any such authenticating agent may authenticate the Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent.
SECTION 2.3. Registrar and Paying Agent. The Company shall maintain
an office or agency where the Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register (the "Register") of the Securities and of their transfer
and exchange. The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional paying
agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of each such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any of its domestically incorporated Wholly Owned Restricted
Subsidiaries may act as the Paying Agent, the Registrar or co-registrar.
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29
The Company initially appoints the Trustee as the Registrar and the
Paying Agent.
SECTION 2.4. Paying Agent To Hold Money in Trust. By at least 10:00
a.m. (New York City time) on the date on which any principal of or interest on
any Security is due and payable, the Company shall deposit with the Paying Agent
a sum sufficient to pay such principal or interest when due. The Company shall
require each Paying Agent (other than the Trustee) to agree in writing that such
Paying Agent shall hold in trust for the benefit of the Holders and the Trustee
all money held by such Paying Agent for the payment of principal of or interest
on the Securities and shall notify the Trustee of any default by the Company in
making any such payment. If the Company or a Wholly Owned Restricted Subsidiary
thereof acts as Paying Agent, it shall segregate the money held by it as Paying
Agent and hold it as a separate trust fund. The Company at any time may require
a Paying Agent (other than the Trustee) to pay all money held by it to the
Trustee and to account for any funds disbursed by such Paying Agent. Upon
complying with this Section, the Paying Agent (if other than the Company or a
Wholly Owned Restricted Subsidiary thereof) shall have no further liability for
the money delivered to the Trustee. Upon any bankruptcy, reorganization or
similar proceeding with respect to the Company, the Trustee shall serve as
Paying Agent for the Securities.
SECTION 2.5. Holder Lists. The Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of the Holders and the outstanding principal amount held by
each Holder. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee, in writing at least seven (7) Business Days before each interest
payment date and at such other times as the Trustee may request in writing, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Holders.
SECTION 2.6. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When Definitive
Securities are presented by a Holder to the Registrar or a co-registrar with a
request:
(i) to register the transfer of such Definitive Securities; or
(ii) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that:
(A) such Definitive Securities shall be duly endorsed or
accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company and the Registrar or co-registrar, duly
executed by such Holder or its attorney duly authorized in writing; and
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30
(B) if such Definitive Securities are Transfer Restricted
Securities, such Definitive Securities shall also be accompanied by the
following additional information and documents, as applicable:
(1) if such Transfer Restricted Securities are being delivered
to the Registrar or co-registrar by a Holder for registration in the
name of such Holder, without transfer, a certification from such
Holder to that effect (in the form set forth on the reverse of the
Security); or
(2) if such Transfer Restricted Securities are being transferred
(aa) to the Company or to a QIB in accordance with Rule 144A or (bb)
pursuant to an effective registration statement under the Securities
Act, a certification from such Holder to that effect (in the form set
forth on the reverse of the Security); or
(3) if such Transfer Restricted Securities are being transferred
(aa) pursuant to an exemption from registration in accordance with
Rule 144 or Regulation S under the Securities Act; or (bb) to an
institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring
the security for its own account, or for the account of such an
institutional accredited investor, in each case in a minimum
principal amount of the Securities of $250,000 for investment
purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act; or (cc) in
reliance on another exemption from the registration requirements of
the Securities Act: (I) a certification to that effect from such
Holder (in the form set forth on the reverse of the Security), (II)
if the Company or the Trustee so requests, an Opinion of Counsel
reasonably acceptable to the Company and to the Trustee to the effect
that such transfer is in compliance with the Securities Act and (III)
in the case of clause (bb), a signed letter from the transferee
substantially in the form of Exhibit J.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) certification (in the form set forth on the reverse of the
Security) to the effect that such Definitive Security is being transferred
to a QIB in accordance with Rule 144A; and
(ii) written instructions from the Holder thereof directing the
Trustee to make, or to direct the Securities Custodian to make, an
endorsement on the Global Security to reflect an increase in the aggregate
principal amount of the Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between
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31
the Depository and the Securities Custodian, the aggregate principal amount of
Securities represented by the Global Security to be increased accordingly. If no
Global Securities are then outstanding, the Company shall issue and the Trustee
shall authenticate, upon written order of the Company in the form of an
Officers' Certificate, a new Global Security in the appropriate principal
amount. The Trustee shall deliver copies of each certification and instruction
received by it pursuant to clauses (i) and (ii) above to the Depository and,
upon receipt thereof, the Depository shall make appropriate adjustments to its
books and records to reflect the exchange of such Definitive Security for an
interest in the Global Security in accordance with Section 2.6(c).
(c) Transfer and Exchange of Global Securities. (i) The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository or the Securities Custodian in accordance with this
Indenture (including applicable restrictions on transfer set forth herein, if
any) and the procedures of the Depository therefor.
(ii) A Global Security deposited with the Depository or the
Securities Custodian shall be transferred to the beneficial owners thereof only
if such transfer complies with this Section and (A) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within ninety (90) days of such notice, or (B) an Event of Default
has occurred and is continuing and the Registrar or any co-registrar has
received a request from the Depository or the Trustee to issue Definitive
Securities.
(iii) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depository
to the Trustee to be so transferred, in whole or from time to time in part,
without charge, and the Company shall sign and the Trustee shall authenticate
and deliver, upon such transfer of each portion of such Global Security, an
equal aggregate principal amount of Definitive Securities of authorized
denominations. Each Definitive Security delivered in exchange for any portion of
a Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 and any integral
multiple thereof and shall be registered in such names as the Depository shall
direct. Any Definitive Security delivered in exchange for an interest in the
Global Security shall, except as otherwise provided in Section 2.6(f), bear the
Restricted Securities Legend set forth in Exhibit A-1 and A-2.
(iv) Each Holder of a Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
(v) In the event of the occurrence of either of the events specified
in Section 2.6(c)(ii), the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
(d) Restriction on Transfer of a Beneficial Interest in a Global
Security for a Definitive Security.
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(i) Any person having a beneficial interest in a Global Security may
upon request exchange such beneficial interest for a Definitive Security
of the same aggregate principal amount; provided that such request is
accompanied by the information specified below. Upon receipt by the
Trustee of written instructions (or such other form of instructions as is
customary for the Depository) from the Depository on behalf of any Holder
having a beneficial interest in a Global Security and, in the case of a
Transfer Restricted Security, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the owner of a
beneficial interest in a Global Security, a certification from such
Person to that effect (in the form set forth on the reverse of the
Security); or
(B) if such beneficial interest is being transferred (1) to a
QIB in accordance with Rule 144A and such QIB does not desire to hold
such transferred interest through beneficial ownership in a Global
Security or (2) pursuant to an effective registration statement under
the Securities Act, a certification from such person to that effect
(in the form set forth on the reverse of the Security); or
(C) if such beneficial interest is being transferred (1)
pursuant to an exemption from registration in accordance with Rule
144 or Regulation S under the Securities Act; or (2) to an
institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring
the security for its own account, or for the account of such an
institutional accredited investor, in each case in a minimum
principal amount of the Securities of $250,000 for investment
purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act; or (3) in
reliance on another exemption from the registration requirements of
the Securities Act: (aa) a certification to that effect from the
transferee (in the form set forth on the reverse of the Security),
(bb) if the Company or the Trustee so requests, an Opinion of Counsel
reasonably acceptable to the Company and to the Trustee to the effect
that such transfer is in compliance with the Securities Act, and (cc)
in the case of clause (2), a signed letter from the transferee in the
form of Exhibit J;
then the Trustee shall cause, or direct the Securities Custodian to cause,
in accordance with the standing instructions and procedures existing
between the Depository and the Securities Custodian, the aggregate
principal amount of the Securities represented by the Global Security to
be reduced accordingly and, following such reduction, the Company will
execute and the Trustee will authenticate and deliver to the transferee
one or more Definitive Securities in accordance with clause (ii) below.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this subsection (d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee in writing. The
Trustee shall
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33
deliver such Definitive Securities to the Persons in whose names such
Definitive Securities are to be so registered in accordance with the
instructions of the Depository.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (c)), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(f) Legend.
(i) Except as permitted by the following paragraph (ii) each Security
certificate, whether evidencing Global Securities or Definitive Securities
(and all Securities issued in exchange therefor or substitution thereof),
shall bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH
THE COMPANY, ANY SUBSIDIARY GUARANTOR OR ANY AFFILIATE OF THE COMPANY
OR ANY SUBSIDIARY GUARANTOR WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT
TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION
S UNDER THE SECURITIES ACT, (E) TO AN
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INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING
THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION
WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND IN EACH CASE, ONLY IF A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 or upon the occurrence of the Registration
Statement Effective Date:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security
that does not bear the legend set forth in paragraph (i) above and
shall rescind any restriction on the transfer of such Security; and
(B) in the case of any such Transfer Restricted Security
represented by a Global Security, such Transfer Restricted Security
shall not be required to bear the legend set forth in paragraph (i)
above, although it shall continue to be subject to the provisions of
subsection (c); provided, however, that with respect to any request
for an exchange of a Transfer Restricted Security that is represented
by a Global Security for a Definitive Security that does not bear the
legend set forth in paragraph (i) above, which request is made in
reliance upon Rule 144, the Holder thereof shall certify in writing
to the Trustee that such request is being made pursuant to Rule 144
(such certification to be in the form set forth on the reverse of the
Security).
(g) Cancellation or Adjustment of Global Security. At such time as
all beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be retained and canceled by the Trustee. At any time prior to such
cancellation, if any beneficial interest in a Global Security is exchanged for
Definitive Securities, redeemed, repurchased or canceled, the principal amount
of Securities represented by such Global Security shall be reduced and an
endorsement shall be made on such Global Security by the Securities Custodian to
reflect such reduction.
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35
(h) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall, subject to the other terms and conditions of this Article, execute
and the Trustee shall authenticate Definitive Securities and Global
Securities at the Registrar's or any co-registrar's request.
(ii) No service charge shall be made to a Holder for any registration
of transfer or exchange, but the Company, the Registrar or any
co-registrar may require payment of a sum sufficient to cover any transfer
tax, assessments, or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental
charges payable upon exchange or transfer pursuant to Sections 4.6, 4.8 or
9.5 or pursuant to paragraph 5 of the Securities).
(iii) The Registrar or any co-registrar shall not be required to
register the transfer of or exchange of (A) any Definitive Security
selected for redemption in whole or in part pursuant to Article III,
except the unredeemed portion of any Definitive Security being redeemed in
part, or (B) any Security for a period beginning (1) fifteen (15) Business
Days before the mailing of a notice of an offer to repurchase or redeem
Securities and ending at the close of business on the day of such mailing
or (2) fifteen (15) Business Days before an interest payment date and
ending at the close of business on such interest payment date.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for
all other purposes whatsoever, whether or not such Security is overdue,
and none of the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(i) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, an Agent Member or other Person
with respect to the accuracy of the records of the Depository or of any
Agent Member, with respect to any ownership interest in the Securities or
with respect to the delivery to any Agent Member or other Person (other
than the Depository) of any notice (including any notice of redemption) or
the payment of any amount or delivery of any Securities (or other security
or property) under or with respect to such Securities. All notices and
communications to be given to the Holders and all payments to be made to
the Holders in respect of the Securities shall be given or made only to or
upon the order of the Holders as reflected on the Register (which shall be
the Depository in the case of a Global Security). The rights of beneficial
owners in any Global
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36
Security shall be exercised only through the Depository subject to the
applicable rules and procedures of the Depository. The Trustee may rely
and shall be fully protected in relying upon information furnished by the
Depository with respect to Agent Members.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Agent Members in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by, the
terms of this Indenture, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
The Recitals contained herein and in the Securities, except for the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness and it shall not
be responsible for the Company's use or application of the proceeds from the
Securities. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Notes or the Security Documents, except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the Securities and perform its obligations
hereunder.
Notwithstanding anything to the contrary contained in this Section
2.6, on the Issue Date, the Company shall issue pursuant to the Master
Restructuring Agreement, the Temporary Notes, which shall be held by the
Trustee, for the benefit of the Holders, until such time as the Temporary Notes
are exchanged for the Initial Notes upon written instruction delivered by the
Company not later than twenty (20) days after the Issue Date.
SECTION 2.7. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder claims that the Security has been
lost, destroyed or wrongfully taken, the Company shall issue and the Trustee
shall authenticate a replacement Security if the requirements of Section 8-405
of the Uniform Commercial Code are met and the Holder satisfies any other
reasonable requirements of the Trustee. If required by the Trustee or the
Company, such Holder shall furnish an indemnity bond sufficient in the judgment
of the Company and the Trustee to protect the Company, the Trustee, the Paying
Agent, the Registrar and any co-registrar from any loss which any of them may
suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their respective expenses in replacing a Security. Every replacement
Security is an additional obligation of the Company.
SECTION 2.8. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate thereof holds the Security.
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37
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Holders on that
date pursuant to the terms of this Indenture, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.9. Temporary Securities. Until Definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
Definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate Definitive Securities. After
the preparation of Definitive Securities, the temporary Securities shall be
exchangeable for Definitive Securities upon surrender of the temporary
Securities at any office or agency maintained by the Company for that purpose
and such exchange shall be without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute,
and the Trustee shall authenticate and deliver in exchange therefor, one or more
Definitive Securities representing an equal principal amount of Securities.
Until so exchanged, the Holder of temporary Securities shall in all respects be
entitled to the same benefits under this Indenture as a Holder of Definitive
Securities.
SECTION 2.10. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar (or any co-registrar)
and the Paying Agent shall forward to the Trustee any Securities surrendered to
them for registration of transfer, exchange or payment. The Trustee and no one
else shall cancel and destroy (subject to the record retention requirements of
the Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancellation and deliver a certificate of such destruction
to the Company unless the Company directs the Trustee to deliver canceled
Securities to the Company. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company shall pay the defaulted interest to the Holders on a
subsequent special record date. The Company shall fix or cause to be fixed (or
upon the Company's failure to do so the Trustee shall fix) any such special
record date and payment date to the reasonable satisfaction of the Trustee which
specified record date shall not be less than ten (10) days prior to the payment
date for such efaulted interest and shall promptly mail or cause to be mailed to
each Holder a notice that states the special record date, the payment date and
the amount of defaulted interest to be paid. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Security and the date of
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38
the proposed payment, and concurrently therewith the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed to be paid
in respect of such defaulted interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when so deposited to be held in trust for the benefit of the Holders
entitled to such defaulted interest as provided in this Section.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to the Holders,
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE III
Redemption
SECTION 3.1. Optional Redemption. The Securities will be redeemable,
at the Company's option, in whole or in part, upon not less than thirty (30) nor
more than sixty (60) days' prior notice mailed by first class mail to each
Holder's registered address, at the following redemption prices (expressed as
percentages of principal amount) if redeemed during the twelve month period
commencing on February 27 of the year set forth below plus, in each case,
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
Year Redemption Price
---- ----------------
1998............................................................105%
1999............................................................105%
2000............................................................105%
2001............................................................103%
2002........................................................... 101%
SECTION 3.2. Notices to Trustee. If the Company elects to redeem
Securities pursuant to Section 3.1 hereof and paragraph 5 of the Securities, it
shall notify the Trustee in writing of the redemption date and the principal
amount of Securities to be redeemed.
The Company shall give each notice to the Trustee provided for in this
Section at least sixty (60) days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply with
the conditions herein. If fewer than all the Securities are to be redeemed, the
record date relating to such redemption shall be selected by the Company and set
<PAGE>
39
forth in the related notice given to the Trustee, which record date shall be not
less than fifteen (15) days after the date of such notice.
SECTION 3.3. Selection of Securities To Be Redeemed. If fewer than all
the Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any (provided, however, that the
Company shall have previously notified the Trustee in writing of any securities
exchange upon which the Securities are listed), and that the Trustee shall deem
to be fair and appropriate and in accordance with methods generally used at the
time of selection by fiduciaries in similar circumstances. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of the
Securities to be redeemed.
SECTION 3.4. Notice of Redemption. At least thirty (30) days but not
more than sixty (60) days prior to the date fixed for redemption of the
Securities, the Company shall mail a notice of redemption by first-class mail,
postage prepaid, to each Holder to be redeemed at the last address for such
Holder then shown on the Register.
The notice shall identify the Securities to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) the name and address of the Paying Agent;
(d) that the Securities called for redemption must be surrendered to
the Paying Agent in order to collect the redemption price;
(e) the subparagraph of the Securities pursuant to which such
redemption is being made;
(f) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities
to be redeemed;
(g) that, unless the Company defaults in making such redemption payment
or the Paying Agent is prohibited from making such payment pursuant to
the terms of this Indenture or the Subordination Agreement, interest on
the Securities (or portion thereof) called for redemption ceases to
accrue on and after the redemption date;
(h) the CUSIP number, if any, printed on the Securities being redeemed;
and
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(i) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the
Securities;
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.5. Effect of Notice of Redemption. Once notice of redemption
is mailed, the Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest to, but not including the redemption
date; provided that if the redemption date is after a regular record date and on
or prior to the interest payment date, the accrued interest shall be payable to
the Holder of the redeemed Securities registered on the relevant record date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.6. Deposit of Redemption Price. By at least 10:00 a.m. (New
York City time) on the date which is at least one Business Day prior to the date
on which any principal of or interest on any Security is due and payable, the
Company shall deposit with the Paying Agent (or, if the Company or a Wholly
Owned Restricted Subsidiary thereof is the Paying Agent, shall segregate and
hold in trust) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date other than the Securities
or portions of the Securities called for redemption which are owned by the
Company or a Subsidiary and have been delivered by the Company or such
Subsidiary to the Trustee for cancellation.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such redemption price or the Paying Agent is
prohibited from making such payment, interest on the Securities to be redeemed
will cease to accrue on and after the applicable redemption date, whether or not
such Securities are presented for payment.
SECTION 3.7. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate for the Holder (at the Company's expense) a new Security equal in a
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
Covenants
---------
SECTION 4.1. Payment of Securities. The Company shall promptly pay the
principal of (and premium, if any) and interest on the Securities on the dates
and in the manner provided in the Securities and in this Indenture. Principal
(and premium, if any) and interest shall be considered paid on the date due if
on such date the Trustee or the Paying Agent holds in accordance with this
Indenture money sufficient to pay all principal (and premium, if any) and
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41
interest then due and the Trustee or the Paying Agent, as the case may be, is
not prohibited from paying such money to the Holders on that date pursuant to
the terms of this Indenture or the Subordination Agreement.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this Indenture,
the Paying Agent may, to the extent it is required to do so by law, deduct or
withhold income or other similar taxes imposed by the United States of America
from principal or interest payments hereunder.
SECTION 4.2. Limitation on Liens. The Company will not, and will not
permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to
exist any Liens of any kind against or upon any of its property or assets, or
any proceeds therefrom, unless (a) in the case of Liens securing Subordinated
Obligations, the Securities are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens and (b) in all other cases,
the Securities are equally and ratably secured, except for Permitted Liens.
SECTION 4.3. Limitation on Incurrence of Additional Indebtedness. The
Company will not, and will not permit any Restricted Subsidiary thereof,
directly or indirectly, to create, incur, assume, guarantee, acquire, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "incur") any Indebtedness other than
Permitted Indebtedness; provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time or as a consequence of
the incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor
may incur Indebtedness if on the date of the incurrence of such Indebtedness,
after giving effect to the incurrence thereof, the Consolidated Fixed Charge
Coverage Ratio of the Company is greater than 2.0 to 1.0.
SECTION 4.4. Limitation on Restricted Payments. (a) The Company shall
not, and shall not permit any Restricted Subsidiary thereof, directly or
indirectly, (i) to declare or pay any dividend or make any distribution (other
than dividends or distributions payable in Qualified Capital Stock) on or in
respect of shares of Capital Stock of the Company to holders of such Capital
Stock, (ii) to purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, other than the exchange of
such Capital Stock for Qualified Capital Stock, or (iii) to make any Investment
(other than Permitted Investments) (each of the foregoing actions set forth in
clauses (i), (ii) and (iii) being referred to as a "Restricted Payment"), if at
the time of such Restricted Payment or immediately after giving effect thereto,
(A) a Default or an Event of Default shall have occurred and be continuing, (B)
the Company is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with Section 4.3 or (C) the
aggregate amount of Restricted Payments made subsequent to the Issue Date shall
exceed the sum of: (1) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the
<PAGE>
42
"Reference Date") (treating such period as a single accounting period); plus (2)
100% of the aggregate net cash proceeds received by the Company from any Person
(other than a Subsidiary of the Company) from the issuance and sale subsequent
to the Issue Date and on or prior to the Reference Date of Qualified Capital
Stock of the Company (including Capital Stock issued upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness); plus (3)
without duplication of any amounts included in clause (C)(2) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding any net cash proceeds
from such equity contribution to the extent used to redeem Securities in
accordance with the optional redemption provisions of the Securities); plus (4)
to the extent that any Investment (other than a Permitted Investment) that was
made after the Issue Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (aa) the cash received with respect to such sale,
liquidation or repayment of such Investment (less the cost of such sale,
liquidation or repayment, if any) and (bb) the initial amount of such
Investment.
(b) Notwithstanding clause (a) above, the provisions set forth in the
immediately preceding paragraph do not prohibit: (i) the payment of any dividend
or the consummation of any irrevocable redemption within sixty (60) days after
the date of declaration of such dividend or notice of such redemption if the
dividend or payment of the redemption price, as the case may be, would have been
permitted on the date of declaration or notice; (ii) if no Event of Default
shall have occurred and be continuing as a consequence thereof, the acquisition
of any shares of Capital Stock of the Company, either (A) solely in exchange for
shares of Qualified Capital Stock of the Company, or (B) through the application
of net proceeds of a substantially concurrent sale (other than to a Subsidiary
of the Company) of shares of Qualified Capital Stock of the Company; (iii)
payments for the purpose of and in an amount equal to the amount required to
permit the Company to redeem or repurchase shares of its Capital Stock or
options in respect thereof, in each case in connection with the repurchase
provisions under employee stock option or stock purchase agreements or other
agreements to compensate management employees; provided that such redemptions or
repurchases pursuant to this clause (iii) shall not exceed $5 million (which
amount shall be increased by the amount of any cash proceeds to the Company from
(A) sales of its Capital Stock to management employees subsequent to the Issue
Date and (B) any "key-man" life insurance policies which are used to make such
redemptions or repurchases) in the aggregate; (iv) the payment of fees and
compensation as permitted under clause (i) of Section 4.7(b); (v) so long as no
Default or Event of Default shall have occurred and be continuing, payments not
to exceed $100,000 in the aggregate, to enable the Company to make payments to
holders of its Capital Stock in lieu of issuance of fractional shares of its
Capital Stock; (vi) repurchases of Capital Stock deemed to occur upon the
exercise of stock options if such Capital Stock represents a portion of the
exercise price thereof; (vii) payments to management employees in connection
with, and pursuant to, the Deferred Compensation Plan; (viii) Restricted
Payments by any Subsidiary of the Company to the Company or any other Subsidiary
thereof; (ix) payments for the purpose of and in an amount equal to the amount
required to permit the Company to redeem or repurchase shares of its Capital
Stock acquired upon the exercise of the options issued under the Stock Option
Plan; (x) so long as no Default or Event of Default shall have occurred and be
continuing, payments in respect of Capital Stock options of the Company, or
similar rights with respect to Capital Stock of the Company, to
<PAGE>
43
present or former officers or employees of the Company or any Subsidiary thereof
in an aggregate amount not to exceed $100,000; (xi) so long as no Default or
Event of Default shall have occurred and be continuing, redemption and/or
repurchase, in an aggregate amount not to exceed $550,000, of certain shares and
options to purchase shares of Capital Stock of the Company owned by certain
employees of the Company, pursuant to the exercise of put options pursuant to
the Stockholders' Agreement dated as of June 27, 1990, as amended and in effect
on the date hereof; and (xii) repurchase common stock of the Company in open
market transactions involving cash expenditures of not more than $100,000 in any
fiscal year of the Company, where such stock is used in such fiscal year to pay
directors' fees to outside directors of the Company. In determining the
aggregate amount of Restricted Payments made subsequent to the Issue Date in
accordance with clause (C) of the immediately preceding paragraph, (a) amounts
expended (to the extent such expenditure is in the form of cash or other
property other than Qualified Capital Stock) pursuant to clauses (i), (ii) and
(iii) of this Section 4.4(b) shall be included in such calculation, provided
that such expenditures pursuant to clause (iii) shall not be included to the
extent of cash proceeds received by the Company from any "key man" life
insurance policies and (b) amounts expended pursuant to clause (iv), (v) and
(vi) shall be excluded from such calculation.
SECTION 4.5. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary thereof to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary thereof; or (c) transfer any of its property or
assets to the Company or any other Restricted Subsidiary thereof, except for
such encumbrances or restrictions existing under or by reason of: (i) applicable
law; (ii) this Indenture; (iii) non-assignment provisions of any contract or any
lease entered into in the ordinary course of business; (iv) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to the Company or any Restricted Subsidiary thereof, or the
properties or assets of any such Person, other than the Person or the properties
or assets of the Person so acquired; (v) the Bank Credit Agreement; (vi) other
agreements existing on the Issue Date (including, without limitation, the Master
Restructuring Agreement); (vii) restrictions on the transfer of assets subject
to any Lien permitted under this Indenture imposed by the holder of such Lien;
(viii) restrictions imposed by any agreement to sell assets permitted under this
Indenture to any Person pending the closing of such sale; (ix) any agreement or
instrument governing Capital Stock of any Person that is acquired after the
Issue Date; (x) an agreement effecting a refinancing, replacement or
substitution of Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (ii), (iv), (v) or (vi) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such refinancing, replacement or substitution agreement
referred to in such clause (ii), (iv) or (vi) are no less favorable to the
Company or the Holders in any material respect as determined by the Board of
Directors of the Company than the provisions relating to such encumbrance or
restriction contained in agreements referred to in such clause (ii), (iv) or
(vi); or (xi) Indebtedness or other contractual requirements of a Receivables
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44
Entity in connection with a Qualified Receivables Transaction; provided that
such restrictions apply only to such Receivables Entity.
SECTION 4.6. Limitation on Asset Sales. (a) The Company will not, and
will not permit any Restricted Subsidiary thereof to, consummate an Asset Sale
unless (i) the Company or the applicable Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of (as determined in
good faith by the Company's Board of Directors), (ii) at least 75% of the
consideration received by the Company or such Restricted Subsidiary, as the case
may be, from such Asset Sale shall be cash or Cash Equivalents and is received
at the time of such disposition; provided that the amount of (A) any liabilities
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto) of the Company or such Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Securities
or such Restricted Subsidiary's Guarantee, if any) that are assumed by the
transferee of any such assets and (B) any notes or other obligations received by
the Company or any such Restricted Subsidiary from such transferee that are
immediately converted by the Company or any such Restricted Subsidiary into cash
or Cash Equivalents (to the extent of the cash or Cash Equivalents received)
shall be deemed to be cash for purposes of this provision; and (iii) upon the
consummation of an Asset Sale, the Company shall apply, or cause such Restricted
Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale (A)
within 365 days of receipt thereof either (1) to prepay any Senior Indebtedness
or Guarantor Senior Indebtedness, whether or not the amount prepaid is
subsequently re-lent to the Company or any Subsidiary thereof, and, in the case
of any Senior Indebtedness under any revolving credit facility, whether or not
there is a permanent reduction in the availability under such revolving credit
facility, (2) to reinvest in Productive Assets, or (3) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A)(1) and
(iii)(A)(2) or (B) on the 366th day of receipt thereof in accordance with the
next succeeding sentence. On the 366th day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A)(1), (iii)(A)(2) and (iii)(A)(3) of the
immediately preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as required in clauses (iii)(A)(1),
(iii)(A)(2) and (iii)(A)(3) of the immediately preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than thirty (30) nor more than
forty-five (45) days following the applicable Net Proceeds Offer Trigger Date,
from all Holders on a pro rata basis that amount of Securities equal to the Net
Proceeds Offer Amount at a price equal to 100% of the principal amount of the
Securities to be purchased, plus accrued and unpaid interest thereon, if any, to
the Net Proceeds Offer Payment Date; provided, however, that if at any time any
non-cash consideration received by the Company or any Restricted Subsidiary
thereof, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this Section 4.6(a).
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45
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less
than $5 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Company
and the Restricted Subsidiaries thereof aggregate at least $5 million, at which
time the Company or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make a
Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $5 million or more shall be deemed to be a
Net Proceeds Offer Trigger Date).
Notwithstanding the two immediately preceding paragraphs, the Company
and the Restricted Subsidiaries thereof will be permitted to consummate an Asset
Sale without complying with such paragraphs to the extent (a) at least 75% of
the consideration for such Asset Sale constitutes Productive Assets and (b) such
Asset Sale is for at least fair market value (as determined in good faith by the
Company's Board of Directors); provided that any consideration not constituting
Productive Assets received by the Company or any Restricted Subsidiary thereof
in connection with any Asset Sale permitted to be consummated under this
paragraph shall constitute Net Cash Proceeds and shall be subject to the
provisions of the two preceding paragraphs; provided, that at the time of
entering into such transaction or immediately after giving effect thereto, no
Default or Event of Default shall have occurred or be continuing or would occur
as a consequence thereof.
(b) Each Net Proceeds Offer will be mailed to the Holders as shown on
the Register within fifteen (15) days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in this Indenture. Upon receiving notice of the Net Proceeds Offer, the Holders
may elect to tender their Securities in whole or in part in integral multiples
of $1,000 in exchange for cash. To the extent the Holders properly tender
Securities in an amount exceeding the Net Proceeds Offer Amount, the Securities
of tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of twenty (20)
Business Days or such longer period as may be required by law. To the extent
that the aggregate amount of the Securities tendered pursuant to a Net Proceeds
Offer is less than the Net Proceeds Offer Amount, the Company may use any
remaining Net Proceeds Offer Amount for general corporate purposes. Upon
completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall
be reset at zero.
(c) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Securities pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with this
Section 4.6, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.6 by virtue thereof.
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46
SECTION 4.7. Limitation on Transactions with Affiliates. (a) The
Company will not, and will not permit any Restricted Subsidiary thereof,
directly or indirectly, to enter into or permit to exist any transaction or
series of related transactions (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with,
or for the benefit of, any Affiliate (an "Affiliate Transaction"), other than
(i) Affiliate Transactions permitted under paragraph (b) below and (ii)
Affiliate Transactions on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate; provided, however,
that for a transaction or series of related transactions with an aggregate value
of $2 million or more, at the Company's option (A) such determination shall be
made in good faith by a majority of the disinterested members of the Board of
the Directors of the Company or (B) the Board of Directors of the Company or any
such Restricted Subsidiary party to such Affiliate Transaction shall have
received a favorable opinion from a nationally recognized investment banking
firm, appraisal firm or accounting firm, as appropriate, that such Affiliate
Transaction is on terms not materially less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate; provided, further,
that for a transaction or series of related transactions with an aggregate value
of $5 million or more, the Board of Directors of the Company shall have received
a favorable opinion from a nationally recognized investment banking firm,
appraisal firm or accounting firm, as appropriate, that such Affiliate
Transaction is on terms not materially less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate.
(b) The foregoing restrictions shall not apply to (i) reasonable fees
and compensation paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Subsidiary thereof as
determined in good faith by the Company's Board of Directors or senior
management (including, without limitation, the amounts paid pursuant to the
Deferred Compensation Plan); (ii) transactions exclusively between or among the
Company and any Restricted Subsidiary thereof or exclusively between or among
the Restricted Subsidiaries of the Company, provided that such transactions are
not otherwise prohibited by this Indenture; (iii) any agreement as in effect as
of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) or in any replacement
agreement thereto so long as any such amendment or replacement agreement is not
more disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by
this Indenture; (v) transactions effected as part of a Qualified Receivables
Transaction and (vi) transactions pursuant to supply or similar agreements
(including, without limitation, for the purchase of inventory) entered into in
the ordinary course of business on customary terms that are not less favorable
to the Company than those that would have been obtained in a comparable
transaction with an unrelated Person, as determined in good faith by senior
management of the Company.
SECTION 4.8. Change of Control. (a) Upon the occurrence of a Change of
Control Triggering Event, each Holder will have the right to require that the
Company purchase all or a portion of such Holder's Securities pursuant to the
offer described below (the "Change of Control Offer"), at a purchase price equal
to 101% of the principal amount thereof plus accrued interest to
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47
the Change of Control Payment Date (as defined below). Prior to the mailing of
the notice referred to below, but in any event within thirty (30) days following
any Change of Control Triggering Event, the Company covenants to (i) repay in
full and terminate all commitments under the Senior Indebtedness or (ii) obtain
the requisite written consents under the Bank Credit Agreement to permit the
repurchase of the Securities as provided below. The Company shall first comply
with the covenant in the immediately preceding sentence before it shall be
required to repurchase Securities pursuant to the provisions described below.
(b) Within thirty (30) days following the date upon which the Change of
Control Triggering Event occurred, the Company must send, by first class mail, a
notice to each Holder, with a copy to the Trustee, which notice shall govern the
terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be no earlier than thirty (30) days nor
later than forty-five (45) days from the date such notice is mailed, other than
as may be required by law (the "Change of Control Payment Date"). The Holders
electing to have a Security purchased pursuant to a Change of Control Offer will
be required to surrender the Security, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Security completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
third Business Day prior to the Change of Control Payment Date.
(c) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with this
Section 4.8, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.8 by virtue thereof.
SECTION 4.9. Limitation on Incurrence of Subordinated Debt Senior to
the Securities. Neither the Company nor any Subsidiary Guarantor will incur or
suffer to exist Indebtedness that is senior in right of payment to the
Securities or such Subsidiary Guarantor's Guarantee and subordinate in right of
payment to any other Indebtedness of the Company or such Subsidiary Guarantor,
as the case may be.
SECTION 4.10. Limitation on Preferred Stock of Subsidiaries. The
Company will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (other than to the Company or to a Wholly Owned Restricted
Subsidiary thereof) or permit any Person (other than the Company or a Wholly
Owned Restricted Subsidiary thereof) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
SECTION 4.11. Limitation on Future Guarantees. The Company will not
permit any of its Restricted Subsidiaries which is not a Subsidiary Guarantor,
directly or indirectly, to incur, guarantee or secure through the granting of
Liens the payment of the Senior Indebtedness or any refunding or refinancing
thereof, in each case unless such Restricted Subsidiary, the Company and the
Trustee also execute and deliver a Guarantee substantially in the form of the
Subsidiary Guarantee evidencing such Restricted Subsidiary's guarantee of the
Securities, such Guarantee to
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48
be a senior subordinated secured obligation of such Restricted Subsidiary.
Neither the Company nor any such Subsidiary Guarantor shall be required to make
a notation on the Securities or the Guarantees to reflect any such subsequent
Guarantee. Nothing in this Section shall be construed to permit any Restricted
Subsidiary of the Company to incur Indebtedness otherwise prohibited by Section
4.3. Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for
all purposes of this Indenture.
SECTION 4.12. Conduct of Business. The Company and its Restricted
Subsidiaries will not engage in any businesses which are not the same, similar,
related or ancillary to the businesses in which the Company and the Restricted
Subsidiaries thereof are engaged on the Issue Date.
SECTION 4.13. Maintenance of Office or Agency. The Company shall
maintain the office or agency required under Section 2.3. The Company shall give
prior written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 12.2.
SECTION 4.14. Corporate Existence. Except as otherwise permitted by
Article V, the Company shall do or cause to be done, at its own cost and
expense, all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate existence of each Subsidiary thereof in
accordance with the respective organizational documents of each such Subsidiary
and the material rights (charter and statutory) and franchises of the Company
and each such Subsidiary; provided, however, that the Company shall not be
required to preserve, with respect to itself, any material right or franchise
and, with respect to any Subsidiary thereof, any such existence, material right
or franchise, if the Board of Directors of the Company shall determine in good
faith that the preservation thereof is no longer desirable in the conduct of the
business of the Company and the Subsidiaries thereof, taken as a whole.
SECTION 4.15. Payment of Taxes and Other Claims. The Company shall pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to taxes)
levied or imposed upon it or any Subsidiary thereof or properties of it or any
Subsidiary thereof and (b) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of it or
any Subsidiary thereof; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted for which adequate reserves, to the extent required under
GAAP, have been taken.
SECTION 4.16. Maintenance of Properties and Insurance. (a) The Company
shall, and shall cause each Subsidiary thereof to, maintain its material
properties in good working order and condition (subject to ordinary wear and
tear) and make all necessary repairs, renewals,
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49
replacements, additions, betterments and improvements thereto and actively
conduct and carry on its business; provided, however, that nothing in this
Section 4.16 shall prevent the Company or any Subsidiary thereof from
discontinuing the operation and maintenance of any of their respective
properties, if such discontinuance is, in the good faith judgment of the Board
of Directors of the Company or such Subsidiary, as the case may be, desirable in
the conduct of their respective businesses and is not disadvantageous in any
material respect to the Holders.
(b) The Company shall provide or cause to be provided, for itself and
each Subsidiary thereof, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the good faith judgment of the
Board of Directors of the Company, are adequate and appropriate for the conduct
of the business of the Company and such Subsidiary in a prudent manner, with
reputable insurers or with the government of the United States of America or any
agency or instrumentality thereof, in such amounts, with such deductibles, and
by such methods as shall be customary, in the good faith judgment of the Board
of Directors of the Company, for companies similarly situated in the industry.
SECTION 4.17. Compliance with Laws. The Company shall comply, and shall
cause each Subsidiary thereof to comply, with all applicable statutes, rules,
regulations, orders and restrictions of the United States of America, all states
and municipalities thereof, and of any governmental department, commission,
board, regulatory authority, bureau, agency and instrumentality of the
foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except for such noncompliance as are
not in the aggregate reasonably likely to have a material adverse effect on the
financial condition or results of operations of the Company and the Subsidiaries
thereof, taken as a whole.
SECTION 4.18. Additional Information. The Company will deliver to the
Trustee within fifteen (15) days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and the
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company and
the Subsidiary Guarantors will also comply with the other provisions of TIA ss.
314(a).
SECTION 4.19. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.20. Compliance Certificates. The Company and each Subsidiary
Guarantor shall deliver to the Trustee within 120 days after the end of each
fiscal year of the Company or such Subsidiary Guarantor an Officers' Certificate
stating that in the course of the performance by the signers of their duties as
Officers of the Company or such Subsidiary Guarantor they would normally have
knowledge of any Default and whether or not such signers know of any
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50
Default that occurred during such period. If they do, the certificate shall
describe the Default, its status and what action the Company or such Subsidiary
Guarantor is taking or proposes to take with respect thereto. The Company and
each Subsidiary Guarantor shall also comply with TIA ss. 314(a)(4).
ARTICLE V
Successor Company
SECTION 5.1. When Company May Merge or Transfer Assets. (a) The Company
will not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or Persons unless:
(i) either (A) the Company shall be the survivor of such merger or
consolidation or (B) the surviving Person is a corporation existing under the
laws of the United States, any state thereof or the District of Columbia and
such surviving Person shall expressly assume all the obligations of the Company
under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (on a pro
forma basis, including any Indebtedness incurred or anticipated to be incurred
in connection with such transaction and including adjustments that are (A)
directly attributable to such transaction and (B) factually supportable), the
Company or the surviving Person is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.3;
(iii) immediately before and immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be incurred
in connection with such transaction), no Default or Event of Default shall have
occurred and be continuing;
(iv) each Subsidiary Guarantor, unless it is the other party to such
transaction, shall have by execution of a Guarantee substantially in the form of
the Subsidiary Guarantee confirmed that after consummation of such transaction
its Guarantee shall apply, as such Guarantee applied on the date it was granted
to the obligations of the Company under this Indenture and the Securities, to
the obligations of the Company or such Person, as the case may be, under this
Indenture and the Securities; and
(v) the Company has delivered to the Trustee an Officers' Certificate
and Opinion of Counsel, each stating that such consolidation, merger or transfer
complies with this Indenture, that the surviving Person agrees to be bound
thereby, and that all conditions precedent in this Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or
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51
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company. Notwithstanding the foregoing clauses (ii) and (iii) above, (x) any
Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and (y) the
Company may merge with an Affiliate incorporated solely for the purpose of
reincorporating the Company in another jurisdiction.
(b) Upon any consolidation, combination or merger or any transfer of
all or substantially all of the assets of the Company in accordance with the
foregoing, the surviving entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture and the
Securities with the same effect as if such surviving entity had been named as
such; provided that solely for purposes of computing amounts described in clause
(C) of Section 4.4(a), any such surviving entity to the Company shall only be
deemed to have succeeded to and be substituted for the Company with respect to
periods subsequent to the effective time of such merger, consolidation,
combination or transfer of assets.
(c) Each Subsidiary Guarantor (other than any Subsidiary Guarantor
whose Guarantee is to be released in accordance with the terms of its Guarantee
and this Indenture in connection with any transaction complying with the
provisions of Section 4.6 or as otherwise provided in this Indenture) will not,
and the Company will not cause or permit any Subsidiary Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Subsidiary Guarantor unless: (i) the entity formed by or surviving any
such consolidation or merger (if other than the Subsidiary Guarantor) or to
which such sale, lease, conveyance or other disposition shall have been made is
a corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) such entity assumes by a
Guarantee substantially in the form of the Subsidiary Guarantee all of the
obligations of the Subsidiary Guarantor on the Guarantee; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (iv) immediately after giving effect to
such transaction and the use of any net proceeds therefrom, on a pro forma
basis, including adjustments that are (A) directly attributable to such
transaction and (B) factually supportable, the Company could satisfy the
provisions of Section 5.1(a)(ii).
ARTICLE VI
Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by the Subordination Agreement, and such default continues for a
period of thirty (30) days;
(b) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required
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52
repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer, upon
declaration or otherwise, whether or not such payment shall be prohibited by the
Subordination Agreement;
(c) the Company defaults in the observance or performance of any other
covenant or agreement contained in this Indenture which default continues for a
period of sixty (60) days after the Company receives written notice specifying
the default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Securities;
(d) the Company fails to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary thereof (other than a
Receivables Entity), or the acceleration of the final stated maturity of any
such Indebtedness if, in either case, the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal at final maturity or which has been
accelerated, aggregates $10 million or more at any time;
(e) one or more judgments in an aggregate amount in excess of $10
million shall have been rendered against the Company or any Significant
Subsidiary thereof and such judgments remain undischarged, unpaid or unstayed
for a period of sixty (60) days after such judgment or judgments become final
and non-appealable, and in the event such judgment is covered by insurance, an
enforcement proceeding has been commenced by any creditor upon such judgment
which is not promptly stayed;
(f) the Company or a Significant Subsidiary thereof pursuant to or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of judgment, decree or order for
relief against it in an involuntary case or proceeding;
(iii) consents to the appointment of a Custodian of it or for
any substantial part of its property;
(iv) makes a general assignment for the benefit of its
creditors;
(v) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it; or
(vi) takes any corporate action to authorize or effect any of
the foregoing; or takes any comparable action under any foreign laws
relating to insolvency;
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
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53
(i) is for relief against the Company or any Significant
Subsidiary thereof in an involuntary case;
(ii) appoints a Custodian of the Company or any Significant
Subsidiary thereof or for any substantial part of its property; or
(iii) orders the winding up or liquidation of the Company or
any Significant Subsidiary thereof;
or any similar relief is granted under any foreign laws and the order, decree or
relief remains unstayed and in effect for sixty (60) days; or
(h) any of the Guarantees of the Subsidiary Guarantors that are also
Significant Subsidiaries of the Company ceases to be in full force and effect or
any of such Guarantees is declared to be null and void and unenforceable or any
of such Guarantees is found to be invalid or any of such Subsidiary Guarantors
denies its liability under its Guarantee (other than by reason of release of
such Subsidiary Guarantor in accordance with the terms of this Indenture).
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11 of the United States Code, or
any similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
The Company shall deliver to the Trustee, within thirty (30) days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clauses (c), (e) or (h) of this Section 6.1.
SECTION 6.2. Acceleration. (a) If an Event of Default (other than an
Event of Default specified in 6.1(f) or (g)) occurs and is continuing, the
Trustee or the Holders of at least 25% in outstanding principal amount of
Securities may declare the principal of and accrued interest on all the
Securities to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration," and the same shall become immediately due and payable.
(b) If an Event of Default specified in Sections 6.1(f) or (g) occurs
and is continuing, then the principal of and accrued interest on all the
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder.
(c) At any time after a declaration of acceleration with respect to the
Securities as described in Section 6.2(a) or (b) above, the Holders of a
majority in principal amount of the
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Securities may rescind and cancel such declaration and its consequences (i) if
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due solely
because of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (v)
in the event of the cure or waiver of an Event of Default of the type described
in Section 6.1(f), (g) or (h), the Trustee shall have received an Officers'
Certificate and an Opinion of Counsel that such Event of Default has been cured
or waived; provided, however, that the declaration of the acceleration of the
Securities shall be automatically annulled if the holders of any Indebtedness
described in Section 6.1(d) have rescinded the declaration of the acceleration
in respect of such Indebtedness within ten days of the declaration of the
acceleration of the Securities.
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of not less than a
majority in outstanding principal amount of the Securities may, by written
notice to the Trustee, waive any existing Default or Event of Default under this
Indenture, and its consequences, except (a) a default in the payment when due of
the principal of or interest on any Security or (b) a Default or Event of
Default in respect of a provision that under Section 9.2 cannot be amended
without the consent of each Holder affected thereby. When a Default or Event of
Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any consequent right.
SECTION 6.5. Control by Majority. The Holders of a majority in
outstanding principal amount of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.1, that the Trustee determines is unduly prejudicial to the
rights of other Holders or would involve the Trustee in personal liability, it
being understood that (subject to Section 7.1) the Trustee shall have no duty to
ascertain whether or not such actions or forbearance are unduly prejudicial to
such Holders; provided, however, that the Trustee may take any other action
deemed proper by the Trustee that is not inconsistent with such direction. Prior
to taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
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SECTION 6.6. Limitation on Suits. A Holder may not pursue any remedy
with respect to this Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice stating that an
Event of Default has occurred and is continuing;
(b) the Holders of at least 25% in outstanding principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offers or offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(d) the Trustee does not comply with the request within forty-five (45)
days after receipt of the request and the offer of security or
indemnity; and
(e) the Holders of a majority in outstanding principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such forty-five (45) day period.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, but nevertheless subject to the provisions of
the Subordination Agreement, the right of any Holder to receive payment of
principal of and interest on the Securities held by such Holder, on or after the
respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder (except as to the
postponement of an interest payment which may be consented to as permitted in
TIA ss. 3.16(a)(2)).
SECTION 6.8. Collection Suit by Trustee. If an Event of Default
specified in Section 6.1(a) or (b) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Holders allowed in
any judicial proceedings relative to the Company, the Subsidiaries thereof or
their respective creditors or properties and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian appointed for the Company in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the
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56
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or property
pursuant to this Article, it shall pay out the money or property in the
following order:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to holders of Senior Indebtedness and Guarantor Senior
Indebtedness;
THIRD: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
FOURTH: to the Company or any other obligors on the Securities as their
interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section. At least fifteen (15) days before such record
date, the Trustee shall mail to each Holder and the Company a notice that states
the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more
than 10% in outstanding principal amount of the Securities.
ARTICLE VII
Trustee
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and use the same degree of care and skill in their exercise as
a prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Other than during the continuance of an Event of Default:
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(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine such certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law or by the Subordination
Agreement.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. (a) The Trustee may rely on and shall
be protected in acting or refraining from acting upon (whether in its original
or facsimile form) any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
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58
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document, but the Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel which shall conform to Section
12.5. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents or attorneys and shall not be
responsible for the misconduct or negligence of such agents or attorneys
appointed with due care and shall not be responsible for their suspension.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its choice, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in reliance on the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders of the Securities pursuant to this Indenture, unless such
Holders shall have offered to the Trustee security or
indemnity satisfactory to the Trustee against the costs, losses, expenses and
liabilities which might be incurred by it in compliance with such request or
direction.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or any Affiliate thereof with the same
rights it would have if it were not the Trustee. Any Paying Agent, Registrar or
co-registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Company in this Indenture or in any document issued in connection with
the sale of the Securities or in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default or Event of Default
occurs and is continuing and if a Trust Officer has actual knowledge thereof,
the Trustee shall mail to each
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59
Holder notice of the Default or Event of Default within sixty (60) days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of or interest on any Security (including payments pursuant to the
optional redemption or required repurchase provisions of such Security, if any)
or in the payment of any sinking or purchase fund installment, the Trustee may
withhold the notice if and so long as its Board of Directors, the Executive
Committee of its Board of Directors or a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of the Holders.
SECTION 7.6. Reports by Trustee to Holders. As promptly as practicable
after each May 15 beginning with the May 15 following the date of this
Indenture, and in any event prior to July 15 of each calendar year, the Trustee
shall mail to each Holder a brief report dated as of such May 15 that complies
with TIA ss. 313(a); provided, however, that no such report need be transmitted
if none of the events enumerated in TIA ss. 313(a) have occurred. The Trustee
also shall comply with TIA ss. 313(b) and transmit by mail all reports required
by TIA ss. 313(c).
A copy of each report at the time of its mailing to Holders shall be
filed with the Commission if required by law and each stock exchange (if any) on
which the Securities are listed. The Company agrees to notify promptly the
Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay to the
Trustee from time to time such compensation as shall be agreed to in writing
between the Company and the Trustee for all services rendered by it hereunder.
The Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall promptly reimburse the Trustee
upon request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, costs of preparing and reviewing reports,
certificates and other documents, costs of preparation and mailing of notices to
the Holders and reasonable costs of counsel retained by the Trustee in
connection with the delivery of an Opinion of Counsel or otherwise, in addition
to the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
consultants, counsel, accountants and experts. The Company shall indemnify the
Trustee and its officers, directors, stockholders, agents and employees against
any and all loss, liability or expense (including reasonable attorneys' fees)
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder, including the costs and expenses of
enforcing this Indenture (including this Section 7.7) and of defending itself
against any claims (whether asserted by any Holder, the Company or otherwise).
The Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company shall defend the claim and the
Trustee may have separate counsel and the Company shall pay the fees and
expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than
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money or property held in trust to pay principal of and interest on particular
Securities. The Trustee's right to receive payment of any amounts due under this
Section 7.7 shall not be subordinate to any other liability or indebtedness of
the Company, other than Senior Indebtedness, and the Company shall not enter
into any agreement with any third party (other than holders of Senior
Indebtedness or their Representative) in which the rights of the Trustee to
receive payment pursuant to this Section 7.7 are subordinated or are attempted
to be subordinated.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(f) or (g) with respect to
the Company, the expenses are intended to constitute expenses of administration
under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at any time
by so notifying the Company. The Holders of a majority in outstanding principal
amount of the Securities may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee. The Company shall remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent under any Bankruptcy
Law;
(c) a Custodian takes charge of the Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed by the Company or by the Holders
of a majority in outstanding principal amount of the Securities and such Holders
do not reasonably promptly appoint a successor Trustee, or if a vacancy exists
in the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly appoint
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Upon receipt of such
acceptance by the retiring Trustee, the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. The successor
Trustee shall mail a notice of its succession to Holders. The retiring Trustee
shall promptly transfer all property held by it as Trustee to the successor
Trustee, subject to the lien provided for in Section 7.7.
If a successor Trustee does not take office within sixty (60) days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of ten percent (10%) in outstanding principal amount of the Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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61
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion,
consolidation or transfer to the Trustee shall succeed to the trusts created by
this Indenture, any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50 million as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); provided, however, that there shall be excluded from the operation
of TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities. (a) The Company may
terminate its obligations under the Securities and this Indenture, except those
obligations referred to in Section 8.1(b), if all Securities previously
authenticated and delivered (other than destroyed, lost or stolen Securities
which have been replaced or paid or Securities for whose payment money has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.5) have
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been delivered to the Trustee for cancellation and the Company has paid all sums
payable by it hereunder, or if:
(i) either (A) pursuant to Article III, the Company shall have given
notice to the Trustee and mailed a notice of redemption to each Holder
of the redemption of all of the Securities under arrangements
satisfactory to the Trustee for the giving of such notice or (B) all
Securities have otherwise become due and payable hereunder;
(ii) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, money in such amount as is
sufficient without consideration of reinvestment of such money, to pay
principal of, premium on, if any, and interest on the outstanding
Securities to maturity or redemption, as the case may be; provided that
the Trustee shall have been irrevocably instructed to apply such money
to the payment of said principal, premium, if any, and interest with
respect to the Securities and, provided, further, that from and after
the time of deposit, the money deposited shall not be subject to the
rights of holders of Senior Indebtedness pursuant to the provisions of
the Subordination Agreement;
(iii) no Default or Event of Default with respect to this Indenture or
the Securities shall have occurred and be continuing on the date of
such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Company is a party or
by which it is bound;
(iv) the Company shall have paid all other sums payable by it
hereunder; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's obligations
under the Securities and this Indenture have been satisfied. Such
Opinion of Counsel shall also state that such satisfaction and
discharge does not result in a default under the Bank Credit Agreement
(if then in effect) or any other agreement or instrument then known to
such counsel that binds or affects the Company.
(b) Notwithstanding the foregoing paragraph, the Company's obligations
in Sections 2.2, 2.5, 2.6, 2.7, 2.8, 4.1, 4.13, 4.14, 4.15, 4.17, 7.7, 8.4, 8.5
and 8.6 shall survive until the Securities are no longer outstanding pursuant to
the last paragraph of Section 2.8. After the Securities are no longer
outstanding, the Company's obligations in Sections 7.7, 8.4, 8.5 and 8.6 shall
survive.
After such delivery or irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
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63
SECTION 8.2. Legal Defeasance and Covenant Defeasance. (a) The Company
may, at its option by resolution of its Board of Directors, at any time, elect
to have either paragraph (b) or (c) below applied to all outstanding Securities
upon compliance with the conditions set forth in Section 8.3.
(b) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (b), the Company and the Subsidiary
Guarantors, if any, shall, subject to the satisfaction of the conditions set
forth in Section 8.3, be deemed to have been discharged from its obligations
with respect to all outstanding Securities on the date the conditions set forth
in Section 8.3 are satisfied (hereinafter, "Legal Defeasance"). For this
purpose, Legal Defeasance means that the Company shall be deemed to have paid
and discharged the entire Indebtedness represented by the outstanding
Securities, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.4 and the other Sections of this Indenture referred to in
(i) through (iv) below, and to have satisfied all its other obligations under
such Securities and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), and the following provisions shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Sections 8.3 and 8.4, and as
more fully set forth in such Sections, payments in respect of the principal of
(and premium, if any, on) and interest on such Securities when such payments are
due, (ii) the Company's obligations with respect to such Securities under
Article II and Section 4.13, (iii) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the Company's obligations in connection
therewith and (iv) this Article. Provided all requisite written consents have
been obtained under the Subordination Agreement and the Bank Credit Agreement,
upon satisfaction of all of the conditions under Section 8.3, the Holders and
any amounts deposited under Section 8.3 shall cease to be subject to any
obligations to, or the rights of, any holder of Senior Indebtedness or Guarantor
Senior Indebtedness under the Subordination Agreement or otherwise. Subject to
compliance with this Article, the Company may exercise its option under this
paragraph (b) notwithstanding the prior exercise of its option under paragraph
(c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.3 hereof, be released from
its obligations under the covenants contained in Sections 4.2 through 4.12 and
Article V with respect to the outstanding Securities on and after the date the
conditions set forth in Section 8.3 are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of the
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Securities shall not be deemed outstanding for
accounting purposes). Provided all requisite written consents have been obtained
under the Subordination Agreement and the Bank Credit Agreement, upon
satisfaction of all of the conditions under Section 8.3, the Holders and any
amounts deposited under Sections 8.3 and 8.4 hereof shall cease to be subject to
any obligations to, or the rights of, any holder of Senior Indebtedness or
Guarantor Senior Indebtedness under the Subordination Agreement or otherwise.
For this purpose, such Covenant Defeasance means that, with respect to the
outstanding
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64
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.1(c)
hereof, but, except as specified above, the remainder of this Indenture and such
Securities shall be unaffected thereby.
SECTION 8.3. Conditions to Defeasance. The Company may exercise its
Legal Defeasance option or its Covenant Defeasance option only if:
(a) the Company irrevocably deposits with the Trustee, in trust, for
the benefit of the Holders cash in U.S. dollars, non-callable U.S.
Government Obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay the principal of, premium, if
any, and interest on the Securities on the stated date for payment
thereof or on the applicable redemption date, as the case may be;
provided that the Trustee shall have received an irrevocable written
order from the Company instructing the Trustee to apply such cash in
U.S. dollars or the proceeds of such U.S. Government Obligations to
said payments with respect to the Securities;
(b) in the case of a Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of a Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will
not recognize income, gain or loss for Federal income tax purposes as a
result of such Covenant Defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default or event which with notice or lapse
of time or both would become a Default or an Event of Default with
respect to the Securities shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default with
respect to this Indenture resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the
Securities concurrently with such
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65
incurrence) or insofar as Sections 6.1(f) and 6.1(g) hereof are
concerned, at any time in the period ending on the ninety-first (91st)
day after the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under this Indenture or
any other material agreement or instrument to which the Company or any
Subsidiary thereof is a party or by which the Company or any Subsidiary
thereof is bound (including, without limitation, the Subordination
Agreement and the Bank Credit Agreement);
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the
Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others;
(g) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities and this Indenture as
contemplated by this Article have been complied with;
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (i) the trust funds will not be subject to
any rights of holders of Indebtedness of the Company other than the
Securities and (ii) assuming no intervening bankruptcy of the Company
between the date of deposit and the ninety- first (91st) day following
the deposit and that no Holder is an insider of the Company, after the
ninety-first (91st) day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
and
(i) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute,
or is qualified as, a regulated investment company under the Investment
Company Act of 1940.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
SECTION 8.4. Application of Trust Money. The Trustee or the Paying
Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations
deposited with it pursuant to this Article, and shall apply the deposited U.S.
Legal Tender and the money from U.S. Government Obligations in accordance with
this Indenture to the payment of principal of, premium, if any, and interest on
the Securities. The Trustee shall be under no obligation to invest said U.S.
Legal Tender or U.S. Government Obligations except as it may agree with the
Company.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.3 hereof or the
principal, premium, if any, and interest received in respect
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thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the Company's request
any U.S. Legal Tender or U.S. Government Obligations held by it as provided in
Section 8.3 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.5. Repayment to Company or the Subsidiary Guarantors. Subject
to this Article, the Trustee and the Paying Agent shall promptly pay to the
Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such
Subsidiary Guarantor, upon request (a) any excess U.S. Legal Tender or U.S.
Government Obligations held by them at any time and thereupon shall be relieved
from all liability with respect to such money and (b) any money held by them for
the payment of principal or interest that remains unclaimed for two years;
provided that, in the case of clause (b), the Trustee or such Paying Agent,
before being required to make any payment, may at the expense of the Company
cause to be published once in a newspaper of general circulation in the City of
New York or mail to each Holder entitled to such money notice that such money
remains unclaimed and that after a date specified therein which shall be at
least thirty (30) days from the date of such publication or mailing any
unclaimed balance of such money then remaining will be repaid to the Company or
such Subsidiary Guarantor. After payment to the Company or such Subsidiary
Guarantor, as the case may be, the Holders entitled to such money must look to
the Company for payment as general creditors unless an applicable law designates
another Person.
SECTION 8.6. Reinstatement. If the Trustee or the Paying Agent is
unable to apply any U.S. Legal Tender or U.S. Government Obligations in
accordance with this Article by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities (and each Subsidiary Guarantor's
obligations under a Guarantee) shall be revived and reinstated as though no
deposit had occurred pursuant to this Article until such time as the Trustee or
the Paying Agent is permitted to apply all such U.S. Legal Tender or U.S.
Government Obligations in accordance with this Article; provided that if the
Company or any such Subsidiary Guarantor, as the case may be, has made any
payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Company or any such Subsidiary Guarantor,
as the case may be, shall be subrogated to the rights of the Holders of such
Securities to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or the Paying Agent.
SECTION 8.7. Release of Lien. Upon compliance with this Article VIII
and upon a written request signed in the name of the Company by an officer of
the Company with actual authority to bind the Company on such matters, delivered
to the Trustee and authorized by a Board Resolution, the Lien created hereby and
by the Security Documents shall cease and be released and discharged (except
with respect to U.S. Legal Tender or U.S. Government
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Obligations deposited pursuant to this Article VIII and held pursuant to Section
8.4) and the Trustee shall, at the expense of the Company, execute and deliver a
statement and such other instruments of release and discharge as may be
necessary and shall pay, assign, transfer and deliver to the Company all cash,
securities and other personal property then held by it hereunder as a part of
the Collateral.
SECTION 8.8. Indemnity for Government Obligations. The Company shall
pay and indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against U.S. Government Obligations deposited with the Trustee pursuant
hereto or the principal and interest received on such U.S. Government
Obligations.
ARTICLE IX
Amendments
SECTION 9.1. Without Consent of Holders. The Company and the Trustee
may amend this Indenture, the Securities, any Guarantee, any Security Document
or the Subordination Agreement without notice to or consent of any Holder:
(a) to cure any ambiguity, omission, defect or inconsistency; provided
that such amendment does not in the opinion of the Trustee, adversely affect the
rights of any Holder in any material respect;
(b) to comply with Article V;
(c) to provide for uncertificated Securities in addition to or in place
of certificated Securities; provided, however, that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of the
Code or in a manner such that the uncertificated Securities are described in
Section 163(f)(2)(B) of the Code;
(d) to make any change in the Subordination Agreement that would limit
or terminate the benefits of any holder of Senior Indebtedness or Guarantor
Senior Indebtedness (or Representatives therefor) under the Subordination
Agreement;
(e) to add Guarantees with respect to the Securities or to provide
additional security for the Securities;
(f) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company;
(g) to comply with any requirements of the Commission in connection
with qualifying this Indenture under the TIA;
(h) to make any change that does not adversely affect the rights of any
Holder;
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(i) to provide for the issuance of the Exchange Notes, which will have
terms substantially identical in all material respects to the Initial Notes
(except that the transfer restrictions contained in the Initial Notes will be
modified or eliminated, as appropriate), and which will be treated, together
with any outstanding Initial Notes, as a single issue of securities; or
(j) to correct or amplify the description of any assets subject to any
Security Document or to subject additional assets to any Security Document.
An amendment under this Section may not make any change that adversely
affects the rights under the Subordination Agreement of any holder of Senior
Indebtedness or Guarantor Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness or Guarantor Senior Indebtedness (or any
group or representative thereof authorized to give a consent) consent in a
signed writing to such change.
After an amendment under this Section becomes effective, the Company
shall mail to the Holders a notice briefly describing such amendment. The
failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.2. With Consent of Holders. The Company and the Trustee may
amend this Indenture, the Securities, any Guarantee, any Security Document or
the Subordination Agreement without notice to any Holder but with the written
consent of the Holders of at least a majority in outstanding principal amount of
the Securities. However, without the consent of each Holder affected, an
amendment may not:
(a) reduce the amount of Securities whose Holders must consent to an
amendment;
(b) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Security;
(c) reduce the principal of or change or have the effect of changing
the Stated Maturity of any Security, or change the date on which any Securities
may be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor;
(d) make any Security payable in money other than that stated in the
Security;
(e) make any change in provisions of this Indenture protecting the
right of each Holder to receive payment of principal of, premium, if any, and
interest on such Security on or after the due date thereof or to bring suit to
enforce such payment, or permitting holders of a majority in outstanding
principal amount of the Securities to waive Defaults or Events of Default (other
than Defaults or Events of Default with respect to the payment of principal of,
premium, if any, or interest on the Securities);
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(f) modify the Subordination Agreement to affect the ranking of the
Securities or the priority of the claims of the Holders in and to the Collateral
in a manner adversely affecting the Holders in any material respect; or
(g) release any Subsidiary Guarantor that is a Significant Subsidiary
of the Company from any of its obligations under its Guarantee or this Indenture
otherwise than in accordance with the terms of this Indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under the Subordination Agreement of any holder of Senior
Indebtedness or Guarantor Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness or Guarantor Senior Indebtedness (or any
group or representative thereof authorized to give a consent) consent in a
signed writing to such change.
After an amendment under this Section becomes effective, the Company
shall mail to the Holders a notice briefly describing such amendment. The
failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents and Waivers. A consent
to an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Security
or portion of the Security if the Trustee receives a notice of revocation before
the date the amendment or waiver becomes effective. After an amendment or waiver
becomes effective, it shall bind every Holder, unless it makes a change
described in any of clauses (a) through (h) of Section 9.2, in which case, the
amendment or waiver shall bind only each Holder who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder; provided that any such waiver shall not
impair or affect the right of any Holder to receive payment of principal of,
premium, if any, and interest on a Security, on or after the respective due
dates expressed in such Security, or to bring suit for the enforcement of any
such payment on or after such respective dates without the consent of such
Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to give their consent or take
any other action described above or required or permitted to be taken pursuant
to this Indenture. If a record date is fixed, then
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notwithstanding the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall become
valid or effective more than 120 days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of such
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on such Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for such Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
ARTICLE X
Security Documents
SECTION 10.1. Collateral and Security Documents.
(a) In order to secure the due and punctual payment of the Securities,
the Company, each Subsidiary Guarantor and the Trustee have entered into or will
enter into, as the case may be, the Security Documents to create the security
interests thereunder and for related matters. The Trustee, the Company and each
Subsidiary Guarantor hereby agree that the Trustee holds the Collateral in trust
for the benefit of the Holders and the Trustee pursuant to the terms of the
Security Documents, in each case pursuant to the terms of this Indenture and the
Security Documents, and the Company and the Subsidiary Guarantors, pursuant to
this Indenture and the Security Agreements, hereby grant to the Trustee, for the
benefit of the Holders, a security interest in the Collateral.
(b) Each Holder, by accepting a Security, agrees to all of the terms
and provisions of the Security Documents, as the same may be amended from time
to time pursuant to the provisions of the Security Documents and this Indenture.
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(c) The Trustee and each Holder, by accepting a Security, acknowledge
that, as more fully set forth in the Security Documents and the Subordination
Agreement, all Liens and rights of the holders of the Senior Indebtedness and
the Representative (if any) of such holders in and to the Collateral and
remedies thereagainst are senior in priority to the Liens and rights of the
Holders and the Trustee, on behalf of the Holders, in and to the Collateral and
the remedies thereagainst.
(d) As amongst the Holders, the Collateral as now or hereafter
constituted shall be held for the equal and ratable benefit of the Holders
without preference, priority or distinction of any thereof over any other by
reason of difference in time of issuance, sale or otherwise, as security for the
Securities.
SECTION 10.2. Recording, Deposit of Pledged Securities, etc.
The Company shall furnish to the Trustee:
(a) promptly after the execution and delivery of each of the Security
Documents or other instrument of further assurance, an Opinion of Counsel
stating that, in the opinion of such Counsel, the Security Documents and other
instruments of further assurance have been properly recorded, endorsed,
registered and filed, or have been received for record, registration or filing,
to the extent necessary to make effective the Lien intended to be created by the
Security Documents, and reciting the details of such action or stating that, in
the Opinion of such Counsel no such action is necessary to make such Liens
effective; and
(b) within thirty (30) days after December 31 in each year beginning
with the year 1998, an Opinion of Counsel, dated as of such date, either stating
that, in the opinion of such Counsel, such action has been taken with respect to
the recording, registering, filing, rerecording, re-registering and re-filing of
the Security Documents, financing statements, continuation statements or other
instruments of further assurance as is necessary to maintain the Lien of the
Security Documents and reciting the details of such action, or stating that, in
the Opinion of Counsel, no such action is necessary to maintain such Lien.
SECTION 10.3. Disposition of Inventory and Accounts Without Release.
(a) Notwithstanding the provisions of Section 10.4, the Company and
each Subsidiary Guarantor, as the case may be, may without any release or
consent by the Trustee, sell, exchange or otherwise dispose of Inventory and
Accounts (as defined in the Security Agreements) in the ordinary course of the
Company's or such Subsidiary Guarantor's business. Notwithstanding the foregoing
and the terms of the Security Agreements, the Company's right to rely upon this
paragraph (a) for each six-month period beginning on January 1 and July 1 (a
"Six-Month Period") shall be conditioned upon the Company delivering to the
Trustee and the Trustee, within thirty (30) days following the end of such
Six-Month Period, an Officers' Certificate to the effect that all sales,
exchanges or other dispositions of Inventory and Accounts by the Company or any
Subsidiary Guarantor, as the case may be, during such Six-Month Period were in
the ordinary course of the Company's or such Subsidiary Guarantor's business and
that all proceeds
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therefrom were used by the Company or such Subsidiary Guarantor in connection
with its business or to make other cash payments permitted by this Indenture.
(b) In the event that the Company or any of its Subsidiaries has sold,
exchanged or otherwise disposed of or proposes to sell, exchange or otherwise
dispose of any item of Inventory or Accounts which under the provisions of this
Section 10.3 may be sold, exchanged or otherwise disposed of by the Company or
such Subsidiary without any release or consent of the Trustee, and the Company
requests the Trustee to furnish a written disclaimer, release or quitclaim of
any interest in such property under this Indenture and the Security Documents,
the Trustee shall execute such an instrument upon delivery to the Trustee of (i)
an Officers' Certificate reciting the sale, exchange or other disposition made
or proposed to be made, describing in reasonable detail the property affected
thereby, and stating that such property may be sold, exchanged or otherwise
disposed of by the Company or such Subsidiary without any release or consent of
the Trustee in compliance with the provisions of this Section 10.3 and (ii) an
Opinion of Counsel to the effect that the sale, exchange or other disposition
made or proposed to be made by the Company or such Subsidiary is in compliance
with the provisions of this Section 10.3.
(c) Any release of Collateral made in compliance with the provisions of
this Section 10.3 shall be deemed not to impair the Liens granted pursuant to
the terms of the Security Documents and this Indenture in contravention of the
provisions of this Indenture.
SECTION 10.4. Release of Collateral.
To the extent applicable, without limitation, the Company and each
obligor on the Securities shall cause TIA ss. 314(d) relating to the release of
property or securities from the Liens of the Security Documents to be complied
with.
SECTION 10.5. Trust Indenture Act Requirements.
The release of any Collateral from the terms of any of the Security
Documents or the release, in whole or in part, of the Liens created by any of
the Security Documents, will not be deemed to impair the Liens pursuant to the
terms of the Security Documents and this Indenture in contravention of the
provisions of this Indenture if and to the extent the Collateral or Liens are
released pursuant to, and in accordance with, the applicable Security Documents
and pursuant to, and in accordance with, the terms hereof, or are released as
required by the Subordination Agreement. As set forth in Section 10.4, to the
extent applicable, without limitation, the Company and each obligor on the
Securities shall cause TIA ss. 314(d) relating to the release of property or
securities from the Liens of the Security Documents to be complied with. Any
certificate or opinion required by TIA ss. 314(d) may be made by two Officers
who are knowledgeable about the fair value of the subject matter of such
certificate or opinion, except in cases which Trust Indenture Act ss. 314(d)
requires that such certificate or opinion be made by an independent person.
SECTION 10.6. Suits to Protect the Collateral.
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Subject to the provisions of the Security Documents, the Trustee shall
have power to institute and to maintain such suits and proceedings as it may
deem expedient to prevent any impairment of the Collateral by any acts which may
be unlawful or in violation of any of the Security Documents or this Indenture
and such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders in the Collateral
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the Liens granted pursuant to the terms of the Security Documents and
this Indenture or be prejudicial to the interests of the Holders or the
Trustee).
SECTION 10.7. Determinations Relating to Collateral.
In the event (a) the Trustee shall receive any written request from the
Company or a Subsidiary Guarantor under any Security Document for consent or
approval with respect to any matter or thing relating to any Collateral or the
Company's or such Subsidiary Guarantor's obligations with respect thereto or (b)
there shall be due to or from the Trustee under the provisions of any Security
Document any material performance or the delivery of any material instrument or
(c) the Trustee shall become aware of any nonperformance by the Company or a
Subsidiary Guarantor of any covenant or any breach of any representation or
warranty of the Company or such Subsidiary Guarantor set forth in any Security
Document, then, in each such event, the Trustee shall be entitled to hire
experts, consultants, agents and attorneys to advise the Trustee on the manner
in which the Trustee should respond to such request or render any requested
performance or respond to such nonperformance or breach. The Trustee shall be
fully protected in the taking of any action recommended or approved by any such
expert, consultant, agent or attorney or agreed to by the Holders of a majority
in outstanding principal amount of the Securities pursuant to Section 6.5.
SECTION 10.8. Impairment of Security Interests.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, take or omit to take any action which might or would have the
result of affecting or impairing the Liens granted pursuant to the terms of the
Security Documents and this Indenture with respect to the Collateral in
contravention of this Indenture, unless required or permitted under the
Subordination Agreement, and the Company shall not (and shall cause its
Restricted Subsidiaries not to) grant to, or suffer to exist in favor of, any
Person (other than the Trustee, the holders of the Senior Indebtedness and any
Representative of such holders) any interest whatsoever in the Collateral except
as permitted by the Security Documents or this Indenture. The Company will not,
and will not permit any of its Restricted Subsidiaries to, enter into any
agreement or instrument that by its terms expressly requires that the proceeds
received from the sale of any Collateral be applied to repay, redeem or
otherwise retire any Indebtedness of any Person other than the Senior
Indebtedness (whether or not the amount repaid is subsequently re-lent to the
Company or any Subsidiary thereof) as set forth in this Article and in the
Security Documents.
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ARTICLE XI
Ancillary Documents
SECTION 11.1. Security Documents and Guarantees.
The parties hereto acknowledge that simultaneously with the execution
hereof, the Security Documents and the Guarantees are being entered into, to
provide additional security for the Securities. Each Holder, by accepting a
Security, agrees to all of the terms and provisions of the Security Documents
and the Guarantees, as the same may be amended from time to time pursuant to the
provisions thereof and this Indenture.
SECTION 11.2. Subordination Agreement.
The parties hereto further acknowledge that simultaneously with the
execution hereof, the Trustee and the holders of the Senior Indebtedness are
entering into the Subordination Agreement, dated the date hereof, between the
Trustee, for itself in that capacity and on behalf of the Holders, and the
holder of the Senior Indebtedness on the Issue Date in the form of Exhibit K,
acknowledged and agreed to by the Company and the Subsidiary Guarantors, which
sets forth the relative rights of the Trustee and the Holders, on the one hand,
and such holder of the Senior Indebtedness, on the other hand, as to the
priority of payment of the Senior Indebtedness over the Securities and related
obligations, the priority of the Liens and rights in and to the Collateral in
favor of such holder of Senior Indebtedness over the Liens and rights in and to
the Collateral in favor of the Trustee and the Holders, and certain limitations
on the rights and remedies of the Trustee and the Holders and related
requirements. Each Holder, by accepting a Security, agrees to all of the terms
and provisions of the Subordination Agreement, as the same may be amended from
time to time pursuant to the provisions thereof and this Indenture. Without
limiting the foregoing, each Holder, by accepting a Security, acknowledges and
agrees that its rights to payment of the obligations evidenced by the Securities
and the Guarantees are subordinated in favor of the Senior Indebtedness, that
its and the Trustee's Liens and rights in and to the Collateral are subordinated
in priority to the Liens and rights in and to the Collateral in favor of the
holders of the Senior Indebtedness, and that other rights and remedies of such
Holder and the Trustee are subject to certain limitations and related
requirements, as provided in the Subordination Agreement, and further agrees
that the Trustee is irrevocably authorized and directed to execute, deliver and
perform the Subordination Agreement in accordance with its terms. The Trustee
agrees that in the event of any conflict between this Indenture and the
Subordination Agreement, the provisions of the Subordination Agreement shall
control. In the event that the Senior Indebtedness existing on the Issue Date is
refunded or refinanced such that the holder of the Senior Indebtedness on the
Issue Date is no longer the holder of the Senior Indebtedness, then the Trustee
shall enter into an intercreditor and subordination agreement or a supplemental
indenture, in either case substantially on the terms and conditions contained in
Exhibit K. The provisions of this Section shall be expressly for the benefit of
the holders of the Senior Indebtedness (without thereby limiting any other
provisions of this Indenture or elsewhere provided for their benefit).
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ARTICLE XII
Miscellaneous
SECTION 12.1. Notices. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail addressed as follows:
if to the Company:
London Fog Industries, Inc.
1332 Londontown Boulevard
Eldersburg, Maryland 21784
Attention: Edward M. Krell
with a copy to:
London Fog Industries, Inc.
8 West 40th Street
New York, New York 10018
Attention: Stuart B. Fisher, Esq.
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to such
Holder at such Holder's address as it appears on the Register and shall be
sufficiently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 12.2. Communication by Holders with other Holders. Holders may
communicate pursuant to TIA ss. 312(b) with other Holders with respect to their
rights under this Indenture or the Securities. The Company, the Trustee, the
Registrar and anyone else shall have the protection of TIA ss. 312(c).
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SECTION 12.3. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 12.4. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(a) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such individual, such
individual has made such examination or investigation as is necessary
to enable such individual to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 12.5. When Securities Disregarded. In determining whether the
Holders of the required principal amount of the Securities have concurred in any
direction, waiver or consent, the Securities owned by the Company or any
Affiliate thereof shall be disregarded and deemed not to be outstanding, except
that, for the purpose of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee knows are so owned shall be so disregarded. Also, subject to the
foregoing, only Securities outstanding at the time shall be considered in any
such determination.
SECTION 12.6. Rules by Trustee, Paying Agent and Registrar. The Trustee
may make reasonable rules for action by or a meeting of Holders. The Registrar
and the Paying Agent may make reasonable rules for their functions.
SECTION 12.7. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday
or a day on which banking institutions are not required to be open in the State
of New York or in the state in which the corporate trust office of the Trustee
is located. If a payment date is a Legal Holiday,
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payment shall be made on the next succeeding day that is not a Legal Holiday. If
a regular record date is a Legal Holiday, the record date shall not be affected.
SECTION 12.8. Governing Law. This Indenture and the Securities shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby. Each of the parties hereto agrees to submit to the
jurisdiction of the Courts of the State of New York and the courts of the United
States of America for the Southern District of New York, in each case sitting in
the borough of Manhattan, and waives any objection as to venue or forum non
conveniens.
SECTION 12.9. No Recourse Against Others. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Holder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Securities.
SECTION 12.10. Successors. All agreements of the Company and the
Subsidiary Guarantors in this Indenture and the Securities shall bind their
respective successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 12.11. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 12.12. Variable Provisions. The Company initially appoints the
Trustee as Paying Agent and Registrar and Securities Custodian with respect to
any Global Securities.
SECTION 12.13. Qualification of Indenture. The Company shall qualify
this Indenture under the TIA in accordance with the terms and conditions of the
Registration Statement and the Master Restructuring Agreement and shall pay all
reasonable costs and expenses (including attorneys' fees for the Company, the
Trustee and the Holders) incurred in connection therewith, including, but not
limited to, costs and expenses of qualification of this Indenture and the
Securities and printing this Indenture and the Securities. The Trustee shall be
entitled to receive from the Company any such Officers' Certificates, Opinions
of Counsel or other documentation as it may reasonably request in connection
with any such qualification of this Indenture under the TIA.
SECTION 12.14. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE>
78
SECTION 12.15. Severability. In case any provision in or obligation
under this Indenture shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction shall not in any way be affected or impaired thereby.
SECTION 12.16. The Trustee. Where this Indenture provides that action
may be taken by the Trustee, such action may be taken by either the Trustee or a
Trust Officer. Where this Indenture provides that notices be given to or a
delivery (or some other action) is to be to the Trustee, it is sufficient to
give such notice or make such delivery to the Trustee. Where applicable state
law prohibits the Trustee from acting, this Indenture shall be interpreted as if
the Trust Officer were the only Trustee.
SECTION 12.17. Nonrecourse. The obligations of the Trustee hereunder
are undertaken solely in its capacity as Trustee under the Indenture. The
Company agrees and acknowledges that the Company shall have no recourse
hereunder to either the Trustee or any Trust Officer except in their capacities
as Trustees under this Indenture.
SECTION 12.18. Counterparts. This Indenture may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Indenture.
<PAGE>
79
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
Company:
--------
LONDON FOG INDUSTRIES INC.
By:
------------------------------
Edward M. Krell
Chief Financial Officer
Trustee:
--------
IBJ SCHRODER BANK & TRUST COMPANY,
not in its individual capacity, but
solely as Trustee
By:
------------------------------
Stephen J. Giurlando
Assistant Vice President
<PAGE>
EXHIBIT A-1
FORM OF
TEMPORARY NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY, ANY GUARANTOR
OR ANY AFFILIATE OF THE COMPANY OR ANY GUARANTOR WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO
A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION
S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF
THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH
CASE, ONLY IF A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE
OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND
THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER
THE RESALE RESTRICTION TERMINATION DATE.
<PAGE>
2
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, ACKNOWLEDGES AND AGREES
THAT ITS RIGHTS TO PAYMENT OF THE INDEBTEDNESS EVIDENCED HEREBY AND ITS AND THE
TRUSTEE'S SECURITY INTERESTS AND RIGHTS IN THE COLLATERAL AND THE GUARANTEES
THEREFOR, AND OTHER RIGHTS AND REMEDIES OF SUCH HOLDER AND THE TRUSTEE ARE
SUBJECT AND SUBORDINATE TO THE RIGHTS TO PAYMENT OF THE HOLDERS OF THE SENIOR
INDEBTEDNESS, AND THE SECURITY INTERESTS IN THE COLLATERAL THEREFOR, AND OTHER
RIGHTS AND REMEDIES OF THE HOLDERS OF THE SENIOR INDEBTEDNESS.
<PAGE>
3
LONDON FOG INDUSTRIES, INC.
No. __ Principal Amount $__________
10% Senior Subordinated Note due 2003
London Fog Industries, Inc., a Delaware corporation, promises
to pay to _____________________, or registered assigns, the principal sum of
_____________________________________________ Dollars on February 27, 2003.
Scheduled Interest Payment Dates: March 1 and September 1.
Record Dates: February 15 and August 15.
Additional provisions of this Security are set forth on the
other side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto and imprinted hereon.
Dated: LONDON FOG INDUSTRIES, INC.
---------------------------
By:
----------------------------
Edward M. Krell
Chief Financial Officer
By:
----------------------------
Stuart B. Fisher
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee, certifies that this
is one of the Securities referred to in the Indenture.
By:
--------------------------------
Authorized Signatory
<PAGE>
4
10% Senior Subordinated Note due 2003
1. Interest
London Fog Industries, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above.
The Company will pay interest semiannually on March 1 and
September 1 of each year, commencing September 1, 1998. Interest on the
Securities will accrue from the most recent date to which interest has been paid
on the Securities or, if no interest has been paid, from February 27, 1998. The
Company shall pay interest on overdue principal or premium, if any, and interest
at the rate borne by the Securities to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on
which any principal of or interest on any Security is due and payable, the
Company shall irrevocably deposit with the Trustee or the Paying Agent money
sufficient to pay such principal, premium, if any, and/or interest. The Company
will pay interest (except defaulted interest) to the Persons who are registered
Holders at the close of business on the February 15 or August 15 immediately
preceding the interest payment date even if the Securities are cancelled,
repurchased or redeemed after the record date and on or before the interest
payment date. Holders must surrender the Securities to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, IBJ Schroder Bank & Trust Company, a New York
banking corporation (the "Trustee"), will act as the Paying Agent and the
Registrar. The Company may appoint and change any Paying Agent, Registrar or
co-registrar without notice to any Holder. The Company or any of its
domestically incorporated Wholly Owned Subsidiaries may act as the Paying Agent,
the Registrar or co-registrar.
<PAGE>
5
4. Indenture
The Company issued the Securities under an Indenture dated as
of February 27, 1998 (as it may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof, the "Indenture"),
between the Company and the Trustee. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the
date of the Indenture (the "Act"). Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Holders are referred to the Indenture and the Act
for a statement of those terms.
The Securities are secured senior subordinated obligations of
the Company limited to $100 million aggregate principal amount (subject to
Section 2.7 of the Indenture). This Security is the Temporary Note referred to
in the Indenture. The Securities include the Temporary Note, the Initial Notes
issued in exchange for the Temporary Note pursuant to the Indenture, and any
Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture and the Registration Statement. The Temporary Note, the Initial Notes
and the Exchange Notes are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and its
Restricted Subsidiaries, the purchase or redemption of Capital Stock of the
Company and Capital Stock of such Restricted Subsidiaries, the sale or transfer
of assets and Capital Stock of Restricted Subsidiaries, the investments of the
Company, its Subsidiaries and transactions with Affiliates, Liens, dividends and
other payment restrictions affecting Subsidiaries, incurrence of senior
subordinated Indebtedness senior to the Securities, preferred stock of
Subsidiaries, future guarantees and conduct of business. In addition, the
Indenture limits the ability of the Company and its Restricted Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal,
premium, if any, and interest on the Securities and all other amounts payable by
the Company under the Indenture and the Securities when and as the same shall be
due and payable, whether at maturity, by acceleration or otherwise, according to
the terms of the Securities and the Indenture, the Subsidiary Guarantors will
have, jointly and severally, unconditionally guaranteed such obligations on a
senior subordinated basis pursuant to the terms of the Indenture and the
Guarantees.
5. Optional Redemption
The Securities will be redeemable, at the Company's option, in
whole or in part, upon not less than thirty (30) nor more than sixty (60) days'
prior notice mailed by first class mail to each Holder's registered address, at
the following redemption prices (expressed as percentages of principal amount)
if redeemed during the twelve month period commencing on February 27 of the year
set forth below plus, in each case, accrued and unpaid interest to the
redemption date
<PAGE>
6
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1998......................................................................105%
1999......................................................................105%
2000......................................................................105%
2001......................................................................103%
2002......................................................................101%
</TABLE>
6. Notice of Redemption
Notice of redemption will be mailed at least thirty (30) days
but not more than sixty (60) days before the redemption date to each Holder to
be redeemed at such Holder's registered address. If fewer than all the
Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee considers
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances.
7. Option of Holder to Elect Purchase
Upon a Change of Control Triggering Event, any Holder will
have the right to require that the Company purchase all or a portion of such
Holder's Securities pursuant to the Indenture at a purchase price equal to 101%
of the principal amount thereof plus accrued interest to the date of repurchase
as provided in, and subject to the terms of, the Indenture.
Under certain circumstances, in the event the Net Cash
Proceeds received by the Company or a Restricted Subsidiary from an Asset Sale
are not used (a) to prepay any Senior Indebtedness or Guarantor Senior
Indebtedness, whether or not the amount prepaid is subsequently re-lent, and, in
the case of any Senior Indebtedness under any revolving credit facility, whether
or not there is a permanent reduction in the availability under such revolving
credit facility, (b) to reinvest in Productive Assets or (c) a combination of
prepayment and investment permitted by the foregoing clauses (a) and (b), then
such aggregate amount of Net Cash Proceeds which have not been applied on or
before such Net Proceeds Offer Trigger Date shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase on a date not less than
thirty (30) nor more than forty-five (45) days following the applicable Net
Proceeds Offer Trigger Date from all Holders on a pro rata basis that amount of
Securities equal to the Net Proceeds Offer Amount at a price equal to 100% of
the principal amount of the Securities to be purchased, plus accrued and unpaid
interest thereon.
<PAGE>
7
8. Subordination
The Securities and Guarantees are subordinated in right of
payment to the Senior Indebtedness. To the extent provided in the Indenture and
the Subordination Agreement, the Senior Indebtedness must be paid before the
Securities may be paid. The security interests in the Collateral securing the
Securities and the Guarantees are subordinate in priority to the security
interests in the Collateral securing the Senior Indebtedness and the rights and
remedies of the Trustee and the Holders are subject to the limitations and
requirements for the benefit of the holders of the Senior Indebtedness as set
forth in the Subordination Agreement. The Company agrees, and each Holder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and the Subordination Agreement and authorizes the Trustee to give
them effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Security for a period beginning (a) fifteen (15) Business
Days before the mailing of a notice of an offer to repurchase or redeem
Securities and ending at the close of business on the day of such mailing or (b)
fifteen (15) Business Days before an interest payment date and ending on such
interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two (2) years, the Trustee or Paying Agent shall pay the money
back to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
<PAGE>
8
12. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations for the payment of principal of, premium,
if any, and interest on the Securities to redemption or maturity, as the case
may be.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (a)
the Indenture, the Securities, any Guarantee, any Security Document or the
Subordination Agreement may be amended with the written consent of the Holders
of at least a majority in principal amount of the outstanding Securities and (b)
any default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder, the Company and the Trustee may amend the Indenture
or the Securities to cure any ambiguity, omission, defect or inconsistency, or
to comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to make any
change in the Subordination Agreement to limit or terminate the benefits of any
holder of Senior Indebtedness or Guarantor Senior Indebtedness thereunder, or to
add guarantees with respect to the Securities or to provide additional security
for the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the Commission
in connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Holder, or to provide for the
issuance of the Exchange Notes, or to correct or amplify the description of any
Collateral in the Security Documents.
14. Defaults and Remedies
Under the Indenture, Events of Default include (a) default for
thirty (30) days in payment when due of interest on the Securities; (b) default
in payment of principal on the Securities at maturity, upon redemption pursuant
to Section 3.1 of the Indenture and paragraph 5 of the Securities, upon required
repurchase, upon declaration or otherwise; (c) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (d) failure to pay at final maturity
(giving effect to any applicable grace period and any extensions thereof) the
principal amount of any Indebtedness of the Company or any Restricted Subsidiary
of the Company (other than a Receivables Entity), or the acceleration of the
final maturity of any such Indebtedness, if, in either case, the aggregate
principal amount of any such Indebtedness, together with the principal amount of
any such other Indebtedness in default for failure to pay principal at final
maturity or which has been
<PAGE>
9
accelerated, aggregates $10 million or more at any time; (e) certain final,
non-appealable judgments or decrees for the payment of money in excess of $10
million against the Company or any Significant Subsidiary; (f) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary; and (g) any Guarantee by a Significant Subsidiary ceases to be in
full force and effect (except as contemplated by the terms of the Indenture) or
any Subsidiary Guarantor that is a Significant Subsidiary denies or disaffirms
its obligations under the Indenture or its Guarantee. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
outstanding principal amount of the Securities may declare all the Securities to
be due and payable immediately. Certain events of bankruptcy or insolvency are
Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Holders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in outstanding principal amount of
the Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders notice of any continuing Default or Event of
Default (except a Default or Event of Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
15. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Holder waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
<PAGE>
10
18. Abbreviations
Customary abbreviations may be used in the name of a Holder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to the Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
The Company will furnish to any Holder upon written request
and without charge to such Holder a copy of the Indenture which has in it the
text of this Security in larger type. Requests may be made to: London Fog
Industries, Inc., 8 West 40th Street, New York, New York 10018, Attention:
Stuart B. Fisher, Esq.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
----------------------------------------------------
---------------------------------------------------
---------------------------------------------------
(Print or type assignee's name, address and zip code)
---------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act for
him.
Date: Your Signature:
-------------------- -------------------
Signature Guarantee:
------------------------------
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate
thereof, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
(1) [ ] acquired for the undersigned's own account, without transfer
(in satisfaction of Section 2.6(a)(ii)(A) or Section
2.6(d)(i)(A) of the Indenture); or
(2) [ ] transferred to the Company; or
(3) [ ] transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
(4) [ ] transferred pursuant to an effective registration statement
under the Securities Act of 1933; or
<PAGE>
2
(5) [ ] transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
(6) [ ] transferred to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933), that has furnished to the Trustee a
signed letter containing certain representations and
agreements (the form of which letter appears as Exhibit C to
the Indenture); or
(7) [ ] transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
------------------------------
Signature
Signature Guarantee:
- ------------------------- ------------------------------
Signature
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
- ------------------------------------------------------------
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized officer
Date of Principal Amount of this Principal Amount of this Global Security following such of Trustee or Securities
Exchange Global Security Global Security decrease or increase Custodian
- -------- --------------- --------------- ------------------------------ ----------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, state
the amount in principal amount (must be integral multiple of $1,000): $
Date: Your Signature
---------- --------------------------------------
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee:
---------------------------------------
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
<PAGE>
EXHIBIT A-2
FORM OF INITIAL NOTE
(Face of Security)
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY, ANY GUARANTOR OR ANY AFFILIATE OF
THE COMPANY OR ANY GUARANTOR WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER
<PAGE>
2
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN
EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION
WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN EACH CASE, ONLY IF A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, ACKNOWLEDGES AND AGREES
THAT ITS RIGHTS TO PAYMENT OF THE INDEBTEDNESS EVIDENCED HEREBY AND ITS AND THE
TRUSTEE'S SECURITY INTERESTS AND RIGHTS IN THE COLLATERAL AND THE GUARANTEES
THEREFOR, AND OTHER RIGHTS AND REMEDIES OF SUCH HOLDER AND THE TRUSTEE ARE
SUBJECT AND SUBORDINATE TO THE RIGHTS TO PAYMENT OF THE HOLDERS OF THE SENIOR
INDEBTEDNESS, AND THE SECURITY INTERESTS IN THE COLLATERAL THEREFOR, AND OTHER
RIGHTS AND REMEDIES OF THE HOLDERS OF THE SENIOR INDEBTEDNESS.
<PAGE>
3
LONDON FOG INDUSTRIES, INC.
No. __ Principal Amount $_____________
CUSIP NO. _________
10% Senior Subordinated Note due 2003
London Fog Industries, Inc., a Delaware corporation, promises to pay to
__________, or registered assigns, the principal sum of
___________________________ Dollars on February 27, 2003.
Scheduled Interest Payment Dates: March 1 and September 1.
Record Dates: February 15 and August 15.
Additional provisions of this Security are set forth on the other side of
this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto and imprinted hereon.
Dated: March __, 1998 LONDON FOG INDUSTRIES, INC.
By:
------------------------
Name:
Title:
By:
------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY,
not in its individual capacity, butsolely as Trustee, certifies
that this is one of the Securities referred to in the
Indenture.
By: ________________________________
Authorized Signatory
<PAGE>
4
(Reverse of Security)
10% Senior Subordinated Note due 2003
1. Interest
London Fog Industries, Inc., a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security at the rate per annum shown above.
The Company will pay interest semiannually on March 1 and September 1 of
each year, commencing September 1, 1998. Interest on the Securities will accrue
from the most recent date to which interest has been paid on the Securities or,
if no interest has been paid, from February 27, 1998. The Company shall pay
interest on overdue principal or premium, if any, and interest at the rate borne
by the Securities to the extent lawful. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on any Security is due and payable, the Company shall
irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay
such principal, premium, if any, and/or interest. The Company will pay interest
(except defaulted interest) to the Persons who are registered Holders at the
close of business on the February 15 or August 15 immediately preceding the
interest payment date even if the Securities are cancelled, repurchased or
redeemed after the record date and on or before the interest payment date.
Holders must surrender the Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, IBJ Schroder Bank & Trust Company, a New York banking
corporation (the "Trustee"), will act as the Paying Agent and the Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Holder. The Company or any of its domestically
incorporated Wholly Owned Subsidiaries may act as the Paying Agent, the
Registrar or co-registrar.
<PAGE>
5
4. Indenture
The Company issued the Securities under an Indenture dated as of February
27, 1998 (as it may be amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof, the "Indenture"), between the Company
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Holders are referred to the Indenture and the Act
for a statement of those terms.
The Securities are secured senior subordinated obligations of the Company
limited to $100 million aggregate principal amount (subject to Section 2.7 of
the Indenture). This Security is one of the Initial Notes referred to in the
Indenture. The Securities include the Temporary Note, the Initial Notes issued
in exchange for the Temporary Note pursuant to the Indenture, and any Exchange
Notes issued in exchange for the Initial Notes pursuant to the Indenture and the
Registration Statement. The Temporary Note, the Initial Notes and the Exchange
Notes are treated as a single class of securities under the Indenture. The
Indenture imposes certain limitations on the incurrence of Indebtedness by the
Company and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, the sale or transfer of assets
and Capital Stock of Restricted Subsidiaries, the investments of the Company,
its Subsidiaries and transactions with Affiliates, Liens, dividends and other
payment restrictions affecting Subsidiaries, incurrence of senior subordinated
Indebtedness senior to the Securities, preferred stock of Subsidiaries, future
guarantees and conduct of business. In addition, the Indenture limits the
ability of the Company and its Restricted Subsidiaries to restrict distributions
and dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal, premium, if
any, and interest on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors will have,
jointly and severally, unconditionally guaranteed such obligations on a senior
subordinated basis pursuant to the terms of the Indenture and the Guarantees.
5. Optional Redemption
The Securities will be redeemable, at the Company's option, in whole or in
part, upon not less than thirty (30) nor more than sixty (60) days' prior notice
mailed by first class mail to each Holder's registered address, at the following
redemption prices (expressed as percentages of principal amount) if redeemed
during the twelve month period commencing on February 27 of the year set forth
below plus, in each case, accrued and unpaid interest to the redemption date
<PAGE>
6
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
Year Redemption Price
1998..............................................105%
1999..............................................105%
2000..............................................105%
2001..............................................103%
2002..............................................101%
6. Notice of Redemption
Notice of redemption will be mailed at least thirty (30) days but not more
than sixty (60) days before the redemption date to each Holder to be redeemed at
such Holder's registered address. If fewer than all the Securities are to be
redeemed, the Trustee shall select the Securities to be redeemed pro rata or by
lot or by a method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee considers fair and appropriate and in
accordance with methods generally used at the time of selection by fiduciaries
in similar circumstances.
7. Option of Holder to Elect Purchase
Upon a Change of Control Triggering Event, any Holder will have the right
to require that the Company purchase all or a portion of such Holder's
Securities pursuant to the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of repurchase as
provided in, and subject to the terms of, the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds received by
the Company or a Restricted Subsidiary from an Asset Sale are not used (a) to
prepay any Senior Indebtedness or Guarantor Senior Indebtedness, whether or not
the amount prepaid is subsequently re-lent, and, in the case of any Senior
Indebtedness under any revolving credit facility, whether or not there is a
permanent reduction in the availability under such revolving credit facility,
(b) to reinvest in Productive Assets or (c) a combination of prepayment and
investment permitted by the foregoing clauses (a) and (b), then such aggregate
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase on a date not less than thirty (30) nor
more than forty-five (45) days following the applicable Net Proceeds Offer
Trigger Date from all Holders on a pro rata basis that amount of Securities
equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal
amount of the Securities to be purchased, plus accrued and unpaid interest
thereon.
<PAGE>
7
8. Subordination
The Securities and Guarantees are subordinated in right of payment to the
Senior Indebtedness. To the extent provided in the Indenture and the
Subordination Agreement, the Senior Indebtedness must be paid before the
Securities may be paid. The security interests in the Collateral securing the
Securities and the Guarantees are subordinate in priority to the security
interests in the Collateral securing the Senior Indebtedness and the rights and
remedies of the Trustee and the Holders are subject to the limitations and
requirements for the benefit of the holders of the Senior Indebtedness as set
forth in the Subordination Agreement. The Company agrees, and each Holder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and the Subordination Agreement and authorizes the Trustee to give
them effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations of
principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange of
any Security for a period beginning (a) fifteen (15) Business Days before the
mailing of a notice of an offer to repurchase or redeem Securities and ending at
the close of business on the day of such mailing or (b) fifteen (15) Business
Days before an interest payment date and ending on such interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the owner of it
for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
(2) years, the Trustee or Paying Agent shall pay the money back to the Company
at its request unless an abandoned property law designates another Person. After
any such payment, Holders entitled to the money must look only to the Company
and not to the Trustee for payment.
<PAGE>
8
12. Defeasance
Subject to certain conditions set forth in the Indenture, the Company at
any time may terminate some or all of its obligations under the Securities and
the Indenture if the Company deposits with the Trustee U.S. Legal Tender or U.S.
Government Obligations for the payment of principal of, premium, if any, and
interest on the Securities to redemption or maturity, as the case may be.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (a) the
Indenture, the Securities, any Guarantee, any Security Document or the
Subordination Agreement may be amended with the written consent of the Holders
of at least a majority in principal amount of the outstanding Securities and (b)
any default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder, the Company and the Trustee may amend the Indenture
or the Securities to cure any ambiguity, omission, defect or inconsistency, or
to comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to make any
change in the Subordination Agreement to limit or terminate the benefits of any
holder of Senior Indebtedness or Guarantor Senior Indebtedness thereunder, or to
add guarantees with respect to the Securities or to provide additional security
for the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the Commission
in connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Holder, or to provide for the
issuance of the Exchange Notes, or to correct or amplify the description of any
Collateral in the Security Documents.
14. Defaults and Remedies
Under the Indenture, Events of Default include (a) default for thirty (30)
days in payment when due of interest on the Securities; (b) default in payment
of principal on the Securities at maturity, upon redemption pursuant to Section
3.1 of the Indenture and paragraph 5 of the Securities, upon required
repurchase, upon declaration or otherwise; (c) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (d) failure to pay at final maturity
(giving effect to any applicable grace period and any extensions thereof) the
principal amount of any Indebtedness of the Company or any Restricted Subsidiary
of the Company (other than a Receivables Entity), or the acceleration of the
final maturity of any such Indebtedness, if, in either case, the aggregate
principal amount of any such Indebtedness, together with the principal amount of
any such other Indebtedness in default for failure to pay principal at final
maturity or which has been
<PAGE>
9
accelerated, aggregates $10 million or more at any time; (e) certain final,
non-appealable judgments or decrees for the payment of money in excess of $10
million against the Company or any Significant Subsidiary; (f) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary; and (g) any Guarantee by a Significant Subsidiary ceases to be in
full force and effect (except as contemplated by the terms of the Indenture) or
any Subsidiary Guarantor that is a Significant Subsidiary denies or disaffirms
its obligations under the Indenture or its Guarantee. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
outstanding principal amount of the Securities may declare all the Securities to
be due and payable immediately. Certain events of bankruptcy or insolvency are
Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Holders may not enforce the Indenture or the Securities except as provided
in the Indenture. The Trustee may refuse to enforce the Indenture or the
Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in outstanding principal amount of
the Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders notice of any continuing Default or Event of
Default (except a Default or Event of Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
15. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Securities
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Holder waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Security.
<PAGE>
10
18. Abbreviations
Customary abbreviations may be used in the name of a Holder or an assignee,
such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN
(=joint tenants with rights of survivorship and not as tenants in common), CUST
(=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to the Holders. No representation is made
as to the accuracy of such numbers either as printed on the Securities or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in accordance with, the
laws of the State of New York but without giving effect to applicable principles
of conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
The Company will furnish to any Holder upon written request and without
charge to such Holder a copy of the Indenture which has in it the text of this
Security in larger type. Requests may be made to: London Fog Industries, Inc., 8
West 40th Street, New York, New York 10018, Attention: Stuart B. Fisher, Esq.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
(Print or type assignee's name, address and zip code)
-----------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: ____________________ Your Signature: ___________________
Signature Guarantee: ______________________________
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate
thereof, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
(1) [ ] acquired for the undersigned's own account, without transfer (in
satisfaction of Section 2.6(a)(ii)(A) or Section 2.6(d)(i)(A) of
the Indenture); or
(2) [ ] transferred to the Company; or
(3) [ ] transferred pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
(4) [ ] transferred pursuant to an effective registration statement under
the Securities Act of 1933; or
<PAGE>
2
(5) [ ] transferred pursuant to and in compliance with Regulation S under
the Securities Act of 1933; or
(6) [ ] transferred to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933), that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter appears as Exhibit J to the Indenture); or
(7) [ ] transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
------------------------------
Signature
Signature Guarantee:
- ------------------------- ------------------------------
Signature
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
- ------------------------------------------------------------
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized officer
Date of Principal Amount of this Principal Amount of this Global Security following of Trustee or Securities
Exchange Global Security Global Security such decrease or increase Custodian
- ------- ------------------------ ------------------------ ------------------------- -------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature __________________________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
<PAGE>
EXHIBIT B
FORM OF EXCHANGE NOTE
(Face of Security)
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF,
ACKNOWLEDGES AND AGREES THAT ITS RIGHTS TO PAYMENT OF THE INDEBTEDNESS EVIDENCED
HEREBY AND ITS AND THE TRUSTEE'S SECURITY INTERESTS AND RIGHTS IN THE COLLATERAL
AND THE GUARANTEES THEREFOR, AND OTHER RIGHTS AND REMEDIES OF SUCH HOLDER AND
THE TRUSTEE ARE SUBJECT AND SUBORDINATE TO THE RIGHTS TO PAYMENT OF THE HOLDERS
OF THE SENIOR INDEBTEDNESS, AND THE SECURITY INTERESTS IN THE COLLATERAL
THEREFOR, AND OTHER RIGHTS AND REMEDIES OF THE HOLDERS OF THE SENIOR
INDEBTEDNESS.
<PAGE>
2
LONDON FOG INDUSTRIES, INC.
No. __ Principal Amount $_____________
CUSIP NO. ___________
10% Senior Subordinated Note due 2003
London Fog Industries, Inc., a Delaware corporation, promises
to pay to __________, or registered assigns, the principal sum of
___________________________ Dollars on February 27, 2003.
Scheduled Interest Payment Dates: March 1 and September 1.
Record Dates: February 15 and August 15.
Additional provisions of this Security are set forth on the
other side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto and imprinted hereon.
Dated: _________ __, 1998 LONDON FOG INDUSTRIES, INC.
By:
---------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY, not in its individual capacity, but solely as
Trustee, certifies that this is one of the Securities referred to in the
Indenture.
By:
-------------------------------
Authorized Signatory
<PAGE>
3
(Reverse of Security)
10% Senior Subordinated Note due 2003
1. Interest
--------
London Fog Industries, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above.
The Company will pay interest semiannually on March 1 and
September 1 of each year, commencing September 1, 1998. Interest on the
Securities will accrue from the most recent date to which interest has been paid
on the Securities or, if no interest has been paid, from February 27, 1998. The
Company shall pay interest on overdue principal or premium, if any, and interest
at the rate borne by the Securities to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment
-----------------
By at least 10:00 a.m. (New York City time) on the date on
which any principal of or interest on any Security is due and payable, the
Company shall irrevocably deposit with the Trustee or the Paying Agent money
sufficient to pay such principal, premium, if any, and/or interest. The Company
will pay interest (except defaulted interest) to the Persons who are registered
Holders at the close of business on the February 15 or August 15 immediately
preceding the interest payment date even if the Securities are cancelled,
repurchased or redeemed after the record date and on or before the interest
payment date. Holders must surrender the Securities to the Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money. It may mail an interest check to a Holder's
registered address.
3. Paying Agent and Registrar
--------------------------
Initially, IBJ Schroder Bank & Trust Company, a New York
banking corporation (the "Trustee"), will act as the Paying Agent and the
Registrar. The Company may appoint and change any Paying Agent, Registrar or
co-registrar without notice to any Holder. The Company or any of its
domestically incorporated Wholly Owned Subsidiaries may act as the Paying Agent,
the Registrar or co-registrar.
<PAGE>
4
4. Indenture
---------
The Company issued the Securities under an Indenture dated as
of February 27, 1998 (as it may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof, the "Indenture"),
between the Company and the Trustee. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the
date of the Indenture (the "Act"). Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Holders are referred to the Indenture and the Act
for a statement of those terms.
The Securities are secured senior subordinated obligations of
the Company limited to $100 million aggregate principal amount (subject to
Section 2.7 of the Indenture). This Security is one of the Exchange Notes
referred to in the Indenture. The Securities include Temporary Note, the Initial
Notes issued in exchange for the Temporary Note pursuant to the Indenture and
any Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture and the Registration Statement. The Temporary Note, the Initial Notes
and the Exchange Notes are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and its
Restricted Subsidiaries, the purchase or redemption of Capital Stock of the
Company and Capital Stock of such Restricted Subsidiaries, the sale or transfer
of assets and Capital Stock of Restricted Subsidiaries, the investments of the
Company, its Subsidiaries and transactions with Affiliates, Liens, dividends and
other payment restrictions affecting Subsidiaries, incurrence of senior
subordinated Indebtedness senior to the Securities, preferred stock of
Subsidiaries, future guarantees and conduct of business. In addition, the
Indenture limits the ability of the Company and its Restricted Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal,
premium, if any, and interest on the Securities and all other amounts payable by
the Company under the Indenture and the Securities when and as the same shall be
due and payable, whether at maturity, by acceleration or otherwise, according to
the terms of the Securities and the Indenture, the Subsidiary Guarantors will
have, jointly and severally, unconditionally guaranteed such obligations on a
senior subordinated basis pursuant to the terms of the Indenture and the
Guarantees.
5. Optional Redemption
-------------------
The Securities will be redeemable, at the Company's option, in
whole or in part, upon not less than thirty (30) nor more than sixty (60) days'
prior notice mailed by first class mail to each Holder's registered address, at
the following redemption prices (expressed as percentages of principal amount)
if redeemed during the twelve month period commencing on February 27 of the year
set forth below plus, in each case, accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
<PAGE>
5
Year Redemption Price
---- ----------------
1998...................................................105%
1999...................................................105%
2000...................................................105%
2001...................................................103%
2002...................................................101%
6. Notice of Redemption
--------------------
Notice of redemption will be mailed at least thirty (30) days
but not more than sixty (60) days before the redemption date to each Holder to
be redeemed at such Holder's registered address. If fewer than all the
Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee considers
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances.
7. Option of Holder to Elect Purchase
----------------------------------
Upon a Change of Control Triggering Event, any Holder will
have the right to require that the Company purchase all or a portion of such
Holder's Securities pursuant to the Indenture at a purchase price equal to 101%
of the principal amount thereof plus accrued interest to the date of repurchase
as provided in, and subject to the terms of, the Indenture.
Under certain circumstances, in the event the Net Cash
Proceeds received by the Company or a Restricted Subsidiary from an Asset Sale
are not used (a) to prepay any Senior Indebtedness or Guarantor Senior
Indebtedness, whether or not the amount prepaid is subsequently re-lent, and, in
the case of any Senior Indebtedness under any revolving credit facility, whether
or not there is permanent reduction in the availability under such revolving
credit facility, (b) to reinvest in Productive Assets or (c) a combination of
prepayment and investment permitted by the foregoing clauses (a) and (b), then
such aggregate amount of Net Cash Proceeds which have not been applied on or
before such Net Proceeds Offer Trigger Date shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase on a date not less than
thirty (30) nor more than forty-five (45) days following the applicable Net
Proceeds Offer Trigger Date from all Holders on a pro rata basis that amount of
Securities equal to the Net Proceeds Offer Amount at a price equal to 100% of
the principal amount of the Securities to be purchased, plus accrued and unpaid
interest thereon.
<PAGE>
6
8. Subordination
-------------
The Securities and the Guarantees are subordinated in right of
payment to the Senior Indebtedness. To the extent provided in the Indenture and
the Subordination Agreement, the Senior Indebtedness must be paid before the
Securities may be paid. The security interests in the Collateral securing the
Securities and the Guarantees are subordinate in priority to the security
interests in the Collateral securing the Senior Indebtedness and the rights and
remedies of the Trustee and the Holders are subject to the limitations and
requirements for the benefit of the holders of the Senior Indebtedness as set
forth in the Subordination Agreement. The Company agrees, and each Holder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and the Subordination Agreement and authorizes the Trustee to give
them effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Security for a period beginning (a) fifteen (15) Business
Days before the mailing of a notice of an offer to repurchase or redeem
Securities and ending at the close of business on the day of such mailing or (b)
fifteen (15) Business Days before an interest payment date and ending on such
interest payment date.
10. Persons Deemed Owners
---------------------
The registered holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains
unclaimed for two (2) years, the Trustee or Paying Agent shall pay the money
back to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
<PAGE>
7
12. Defeasance
----------
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations for the payment of principal of, premium,
if any, and interest on the Securities to redemption or maturity, as the case
may be.
13. Amendment; Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (a)
the Indenture, the Securities, any Guarantee, any Security Document or the
Subordination Agreement may be amended with the written consent of the Holders
of at least a majority in principal amount of the outstanding Securities and (b)
any default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder, the Company and the Trustee may amend the Indenture
or the Securities to cure any ambiguity, omission, defect or inconsistency, or
to comply with Article V of the Indenture or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to make any
change in the Subordination Agreement to limit or terminate the benefits of any
holder of Senior Indebtedness or Guarantor Senior Indebtedness thereunder, or to
add guarantees with respect to the Securities or to provide additional security
for the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the Commission
in connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Holder, or to provide for the
issuance of the Exchange Notes, or to correct or amplify the description of any
Collateral in the Security Documents.
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (a) default for
thirty (30) days in payment when due of interest on the Securities; (b) default
in payment of principal on the Securities at maturity, upon redemption pursuant
to Section 3.1 of the Indenture and paragraph 5 of the Securities, upon required
repurchase, upon declaration or otherwise; (c) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (d) failure to pay at final maturity
(giving effect to any applicable grace period and any extensions thereof) the
principal amount of any Indebtedness of the Company or any Restricted Subsidiary
of the Company (other than a Receivables Entity), or the acceleration of the
final maturity of any such Indebtedness, if, in either case, the aggregate
principal amount of any such Indebtedness, together with the principal amount of
any such other Indebtedness in default for failure to pay principal at final
maturity or which has been accelerated, aggregates $10 million or more at any
time; (e) certain final, non-appealable judgments or decrees for the payment of
money in excess of $10 million against the Company or
<PAGE>
8
any Significant Subsidiary; (f) certain events of bankruptcy or insolvency with
respect to the Company or any Significant Subsidiary; and (g) any Guarantee by a
Significant Subsidiary ceases to be in full force and effect (except as
contemplated by the terms of the Indenture) or any Subsidiary Guarantor that is
a Significant Subsidiary denies or disaffirms its obligations under the
Indenture or its Guarantee. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in outstanding principal amount of the
Securities may declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Holders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in outstanding principal amount of
the Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders notice of any continuing Default or Event of
Default (except a Default or Event of Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Holder waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
17. Authentication
--------------
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
<PAGE>
9
18. Abbreviations
-------------
Customary abbreviations may be used in the name of a Holder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to the Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Governing Law
-------------
This Security shall be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
The Company will furnish to any Holder upon written request
and without charge to such Holder a copy of the Indenture which has in it the
text of this Security in larger type. Requests may be made to: London Fog
Industries, Inc., 8 West 40th Street, New York, New York 10018, Attention:
Stuart B. Fisher, Esq.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
(Print or type assignee's name, address and zip code)
-------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
----------------------- -----------------------
Signature Guarantee:_____________________________________
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Amount of decrease in Principal Amount of increase in Principal
Date of Amount of this Global Security Amount of this Global Security
Exchange ------------------------------- ------------------------------
--------
<S> <C>
Principal Amount of this Global Signature of authorized officer
Security following such of Trustee or Securities
decrease or increase Custodian
------------------------------- -------------------------------
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
[ ]1
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, state
the amount in principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature ________________________________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee: _______________________________________________
(Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.)
<PAGE>
EXHIBIT C
AMENDED AND RESTATED COMPANY
PATENT AND TRADEMARK SECURITY AGREEMENT
AMENDED AND RESTATED COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT, dated
as of February 27, 1998, made by London Fog Industries, Inc., a Delaware
corporation (the "Company"), in favor of IBJ Schroder Bank & Trust Company, as
trustee (in such capacity, the "Trustee") for the Holders under, and as defined
in, the Indenture, dated as of even date herewith (as amended, supplemented or
otherwise modified from time to time, the "Indenture"), between the Company and
the Trustee.
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, dated as of May 20, 1994 (as
amended, supplemented or otherwise modified prior to May 31, 1995, the "Original
Credit Agreement"), among the Company, The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent (in such capacity, the "Original Agent") for the
several banks and other financial institutions from time to time parties thereto
(the "Original Lenders") and the Original Lenders, the Original Lenders made
certain loans and other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the Original
Credit Agreement, the Company executed and delivered to the Original Agent, for
the benefit of the Original Lenders, the Borrower Patent and Trademark Security
Agreement, dated as of May 20, 1994 (as amended, supplemented or otherwise
modified prior to May 31, 1995, the "Original Patent and Trademark Security
Agreement"), pursuant to which the Company pledged to the Original Agent, for
the benefit of the Original Lenders, all of the Collateral (as defined in the
Original Patent and Trademark Security Agreement) as collateral security for the
Obligations (as defined in the Original Patent and Trademark Security
Agreement);
WHEREAS, the Company, the Original Agent and the Original Lenders agreed to
restructure the obligations of the Company under the Original Credit Agreement
by means of, among other things, the execution and delivery of the Master
Restructuring Agreement, dated as of May 31, 1995 (as heretofore amended,
supplemented or otherwise modified, the "Existing MRA"), among the Company, the
Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of the Existing
MRA, the Company executed and delivered (a) the Term Loan Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise modified, the
"Term Loan Agreement"), among the Company, The Chase Manhattan Bank (formerly
known as Chemical Bank), as agent (in such capacity, the "Term Loan Agent") for
the several banks and other financial institutions from time to time parties
thereto (the "Term Loan Lenders") and the Term
<PAGE>
2
Loan Lenders and (b) the Note Agreement, dated as of May 31, 1995 (as heretofore
amended, supplemented or otherwise modified, the "Note Agreement" and, together
with the Term Loan Agreement, collectively, the "Existing Agreements"), among
the Company, The Chase Manhattan Bank (formerly known as Chemical Bank), as
agent (in such capacity and also in its capacity as the Term Loan Agent, the
"Agent") for the several banks and other financial institutions from time to
time parties thereto (the "Note Lenders" and, together with the Term Loan
Lenders, collectively, the "Lenders") and the Note Lenders, pursuant to which
the Lenders made certain loans to the Company;
WHEREAS, in connection with the execution and delivery of the Existing MRA
and the Existing Agreements, the Company executed and delivered to the Agent,
for the benefit of the Lenders, Amendment No. 1 to the Borrower Patent and
Trademark Security Agreement, dated as of May 31, 1995 (the Original Patent and
Trademark Security Agreement as amended, supplemented or otherwise modified by
such Amendment No. 1, the "Existing Patent and Trademark Security Agreement"),
pursuant to which the Company granted to the Agent, for the benefit of the
Lenders, a security interest in all of the Collateral (as defined in the
Existing Patent and Trademark Security Agreement) as collateral security for the
Obligations (as defined in the Existing Patent and Trademark Security
Agreement);
WHEREAS, the Company, the Agent and the Lenders have agreed to restructure
the obligations of the Company under the Existing Agreements by means of, among
other things, the execution and delivery of the Indenture and the Master
Restructuring Agreement, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "MRA"), among the
Company, the Agent and the Lenders, among others; and
WHEREAS, it is a condition precedent to the effectiveness of the MRA and
the obligation of the Agent and the Lenders to consummate the restructuring
contemplated thereby, that, among other things, the Company shall have executed
and delivered this Agreement to the Trustee, for the benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and to induce the Agent
and the Lenders to restructure the obligations of the Company under the Existing
Agreements and to induce the Trustee to enter into the Indenture, the Company
hereby agrees with the Trustee, for the benefit of the Holders, that the
Existing Patent and Trademark Security Agreement shall be and hereby is amended
and restated in its entirety as follows:
1. Defined Terms. (a) Unless otherwise defined herein, capitalized terms defined
in the Indenture are used herein as defined therein. The following terms shall
have the following meanings:
"Agreement": this Amended and Restated Company Patent and Trademark
Security Agreement, as the same may be amended, supplemented, waived or
otherwise modified from time to time.
<PAGE>
3
"Code": the Uniform Commercial Code as from time to time in effect in
the State of New York.
"Collateral": as defined in Section 2 of this Agreement.
"General Intangibles": as defined in Section 9-106 of the Code,
including, without limitation, all Patents and Trademarks now or hereafter
owned by the Company to the extent such Patents and Trademarks would be
included in General Intangibles under the Code.
"Obligations": as defined in the Company Security Agreement.
"Patent Licenses": all license agreements with any other Person in
connection with any of the Patents or such other Person's patents, whether
the Company is a licensor or a licensee under any such license agreement,
including, without limitation, the license agreements listed on Schedule 1
attached hereto and made a part hereof, subject, in each case, to the terms
of such license agreements, and the right to prepare for sale, sell and
advertise for sale, all Inventory (as defined in the Company Security
Agreement) now or hereafter covered by such licenses.
"Patents": all patents, patent applications and patentable inventions,
including, without limitation, all patents and patent applications
identified in Schedule 1 attached hereto and made a part hereof, and
including without limitation (a) all inventions and improvements described
and claimed therein, and patentable inventions, (b) the right to sue or
otherwise recover for any and all past, present and future infringements
and misappropriations thereof, (c) all income, royalties, damages and other
payments now and hereafter due and/or payable with respect thereto
(including, without limitation, payments under all licenses entered into in
connection therewith, and damages and payments for past or future
infringements thereof), and (d) all rights corresponding thereto and all
reissues, divisions, continuations, continuations-in-part, substitutes,
renewals, and extensions thereof, all improvements thereon, and all other
rights of any kind whatsoever of the Company accruing thereunder or
pertaining thereto (Patents and Patent Licenses being, collectively, the
"Patent Collateral").
"Trademark Licenses": all license agreements with any other Person in
connection with any of the Trademarks or such other Person's names or
trademarks, whether the Company is a licensor or a licensee under any such
license agreement, including, without limitation, the license agreements
listed on Schedule 2 attached hereto and made a part hereof, subject, in
each case, to the terms of such license agreements, and the right to
prepare for sale, sell and advertise for sale, all Inventory (as defined in
the Company Security Agreement) now or hereafter covered by such licenses.
<PAGE>
4
"Trademarks": all trademarks, service marks, trade names, trade dress
or other indicia of trade origin, trademark and service mark registrations,
and applications for trademark or service mark registrations, and any
renewals thereof, including, without limitation, each registration and
application identified in Schedule 2 attached hereto and made a part
hereof, and including without limitation (a) the right to sue or otherwise
recover for any and all past, present and future infringements and
misappropriations thereof, (b) all income, royalties, damages and other
payments now and hereafter due and/or payable with respect thereto
(including, without limitation, payments under all licenses entered into in
connection therewith, and damages and payments for past or future
infringements thereof), and (c) all rights corresponding thereto and all
other rights of any kind whatsoever of the Company accruing thereunder or
pertaining thereto, together in each case with the goodwill of the business
connected with the use of, and symbolized by, each such trademark, service
mark, trade name, trade dress or other indicia of trade origin (Trademarks
and Trademark Licenses being, collectively, the "Trademark Collateral").
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Grant of Security Interest. The Company hereby confirms and reaffirms
its grant of a security interest in the Collateral (as defined in the Existing
Patent and Trademark Security Agreement) pursuant to the Existing Patent and
Trademark Security Agreement, which security interest is hereby amended and
restated to be solely in favor of the Trustee, for the ratable benefit of the
Holders, and shall secure only the Obligations, and which Existing Patent and
Trademark Security Agreement is replaced hereby. As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, the Company hereby
assigns, pledges and grants to the Trustee, for the ratable benefit of the
Holders, a security interest in all of the following property now owned or at
any time hereafter acquired by the Company or in which the Company now has or at
any time in the future may acquire any right, title or interest (collectively,
the "Collateral"):
(a) all Trademarks;
(b) all Trademark Licenses;
(c) all Patents;
(d) all Patent Licenses;
<PAGE>
5
(e) all General Intangibles connected with the use of or symbolized by
the Trademarks and Patents; and
(f) to the extent not otherwise included, all Proceeds and products of
any and all of the foregoing and all collateral security and guarantees
given by any person with respect to any of the foregoing.
3. Company Remains Liable; Limitations on Trustee's and Holders'
Obligations. Anything herein to the contrary notwithstanding, (a) the Company
shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Trustee of any of the rights hereunder shall
not release the Company from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) neither the Trustee
nor any Holder shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Trustee or any Holder be obligated to perform any of the obligations or duties
of the Company thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
4. Trustee's Appointment as Attorney-in-Fact.
(a) Powers. The Company hereby irrevocably constitutes and appoints the
Trustee and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of the Company and in the name of the Company or in its
own name, from time to time in the Trustee's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, the Company hereby gives the Trustee the power
and right, on behalf of the Company, without notice to or assent by the Company,
to do the following:
(i) to execute and deliver any and all agreements, instruments,
documents, and papers as the Trustee may reasonably request to evidence the
Trustee's and the Holders' security interest in any of the Collateral;
(ii) in the name of the Company or its own name, or otherwise, to take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
General Intangible (to the extent that any of the foregoing constitute
Collateral) or with respect to any other Collateral and to file any claim
or to take any other action or institute any proceeding in any court of law
or equity or otherwise deemed appropriate by the Trustee for the purpose of
collecting any and all such moneys due under any such General Intangible or
with respect to any such other Collateral whenever payable;
<PAGE>
6
(iii) to pay or discharge Liens placed on the Collateral, other than
Liens permitted under this Agreement or Permitted Liens; and
(iv) (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Trustee or as the Trustee shall direct; (B) to
ask for, or demand, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any of the Collateral; (C) to sign and indorse
any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications,
notices and other documents in connection with any of the Collateral; (D)
to commence and prosecute any applications, suits, actions or proceedings
at law or in equity in any court of competent jurisdiction or in the United
States Patent and Trademark Office to collect the Collateral or any thereof
and to enforce any other right in respect of any Collateral; (E) to defend
any suit, action or proceeding brought against the Company with respect to
any of the Collateral; (F) to settle, compromise or adjust any suit, action
or proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Trustee may deem appropriate;
(G) subject to any pre-existing rights or licenses, to assign any Patent or
Trademark constituting Collateral (along with the goodwill of the business
to which any such Trademark pertains), for such term or terms, on such
conditions, and in such manner, as the Trustee shall in its sole discretion
determine; and (H) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Trustee were the absolute owner thereof
for all purposes, and to do, at the Trustee's option and the Company's
expense, at any time, or from time to time, all acts and things which the
Trustee deems necessary to protect, preserve or realize upon the Collateral
and the Trustee's and the Holders' Liens thereon and to effect the intent
of this Agreement, all as fully and effectively as the Company might do.
The Company hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until payment in full of the Securities and
the other Obligations then due and owing.
(b) Other Powers. The Company also authorizes the Trustee to execute, in
connection with any sale provided for in Section 7 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
(c) No Duty on the Part of Trustee or Holders. The powers conferred on the
Trustee and the Holders hereunder are solely to protect the Trustee's and the
Holders' interests in the Collateral and shall not impose any duty upon the
Trustee or any Holder to exercise any such powers. The Trustee and the Holders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to the Company for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
<PAGE>
7
5. Performance by Trustee of Company's Obligations. If the Company fails to
perform or comply with any of its agreements contained herein and the Trustee,
as provided for by the terms of this Agreement, shall itself perform or comply,
or otherwise cause performance or compliance, with such agreement, the
reasonable expenses of the Trustee incurred in connection with such performance
or compliance, together with interest thereon at a rate per annum equal to 12%,
shall be payable by the Company to the Trustee on demand and shall constitute
Obligations secured hereby.
6. Proceeds. It is agreed that if an Event of Default shall occur and be
continuing, (a) all Proceeds of any Collateral received by the Company
consisting of cash, checks and other near-cash items shall be held by the
Company in trust for the Trustee and the Holders, segregated from other funds of
the Company, and at the request of the Trustee shall, forthwith upon receipt by
the Company, be turned over to the Trustee in the exact form received by the
Company (duly indorsed by the Company to the Trustee, if required by the
Trustee), and (b) any and all such Proceeds received by the Trustee (whether
from the Company or otherwise) may, in the sole discretion of the Trustee, be
held by the Trustee, for the ratable benefit of the Holders, as collateral
security for the Obligations (whether matured or unmatured), and/or then or at
any time thereafter may be applied by the Trustee against, the Obligations then
due and owing. Any balance of such Proceeds remaining after the payment in full
of the Securities and any other Obligations then due and owing shall be paid
over to the Company or to whomsoever may be lawfully entitled to receive the
same.
7. Remedies. If an Event of Default shall occur and be continuing, the
Trustee, on behalf of the Holders, may exercise all rights and remedies of a
secured party under the Code, and, to the extent permitted by law, all other
rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations.
Without limiting the generality of the foregoing, the Trustee, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Company or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances, to the
extent permitted by law, forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell, lease,
assign, give option or options to purchase, or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or office of the Trustee or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Trustee or any Holder shall have the right, to the extent permitted by law,
upon any such sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in the Company, which right
or equity is hereby waived or released. The Company further agrees, at the
Trustee's request, upon the occurrence and during the continuance of an Event of
Default, to assemble the Collateral and make it available to the Trustee at
places which the Trustee shall reasonably select, whether at the Company's
premises or elsewhere. In the event of any sale, assignment, or other
disposition of any of the Collateral, the goodwill of the business connected
with and symbolized by any Trademark Collateral subject to such disposition
shall be included, and the
<PAGE>
8
Company shall supply to the Trustee or its designee the Company's know-how and
expertise relating to the Collateral subject to such disposition, and the
Company's notebooks, studies, reports, records, documents and things embodying
the same or relating to the inventions, processes or ideas covered by, and to
the manufacture of any products under or in connection with, the Collateral
subject to such disposition, and the Company's customer's lists, studies and
surveys and other records and documents relating to the distribution, marketing,
advertising and sale of products relating to the Collateral subject to such
disposition. The Trustee shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Trustee and the Holders hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Obligations then due and owing, and only after such
application and after the payment by the Trustee of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Trustee account for the surplus, if any, to the Company. To the
extent permitted by applicable law, the Company waives all claims, damages and
demands it may acquire against the Trustee or any Holder arising out of the
repossession, retention or sale of the Collateral, other than any such claims,
damages and demands that may arise from the gross negligence or willful
misconduct of any of them. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least ten (10) days before such sale or other
disposition. The Company shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay the
then outstanding Obligations, including the reasonable fees and disbursements of
any attorneys employed by the Trustee or any Holder to collect such deficiency.
8. Limitation on Duties Regarding Preservation of Collateral. The Trustee's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Trustee deals with similar
property for its own account. None of the Trustee, any Holder, nor any of their
respective directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Company or any other Person.
9. Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are powers coupled with an interest and
are irrevocable until payment in full of the Securities and any other
Obligations then due and owing.
10. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
<PAGE>
9
11. Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
12. No Waiver; Cumulative Remedies. None of the Trustee nor any Holder
shall by any act (except pursuant to Section 13 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Trustee or any Holder, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Trustee or any Holder of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which the
Trustee or such Holder would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
13. Amendments in Writing; Successors and Assigns. None of the terms or
provisions of this Agreement may be waived, amended, supplemented or otherwise
modified except in accordance with Article IX of the Indenture. This Agreement
shall be binding upon the successors and assigns of the Company and shall inure
to the benefit of the Trustee and the Holders and their respective successors
and assigns, except that the Company may not assign, transfer or delegate any of
its rights or obligations under this Agreement without the prior written consent
of the Trustee.
14. Notices. All notices, requests and demands to or upon the respective
parties hereto shall be made in accordance with Section 12.2 of the Indenture.
15. Authority of Trustee. The Company acknowledges that the rights and
responsibilities of the Trustee under this Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as among the Trustee
and the Holders, be governed by the Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Trustee and the Company, the Trustee shall be conclusively presumed to be acting
as trustee for the Holders with full and valid authority so to act or refrain
from acting, and the Company shall not be under any obligation to make any
inquiry respecting such authority.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
17. Release of Collateral and Termination. (a) At such time as the payment
in full of the Securities and other Obligations then due and owing shall have
occurred, the Collateral shall be released from the Liens created hereby, and
this Agreement and all obligations
<PAGE>
10
(other than those expressly stated to survive such termination) of the Trustee
and the Company hereunder shall terminate, all without delivery of any
instrument or performance of any act by any party, and all rights to the
Collateral shall revert to the Company unless such reversion would be
inconsistent with the Subordination Agreement. Upon request of the Company
following any such termination, the Trustee shall deliver (at the sole cost and
expense of the Company) to the Company any Collateral held by the Trustee
hereunder, and execute and deliver (at the sole cost and expense of such
Company) to the Company such documents as the Company shall reasonably request
to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by the Company in a transaction permitted by the Indenture and the
Bank Credit Agreement, then the Trustee shall execute and deliver to the Company
(at the sole cost and expense of the Company) all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral.
18. Subordination. Each of the Company and the Trustee (for itself in that
capacity and on behalf of the Holders) acknowledge that the security interests
in the Collateral granted, confirmed and/or reaffirmed pursuant to this
Agreement or otherwise held by the Trustee or any Holder are subordinated in
priority to the security interests in the Collateral held by the holder of the
Senior Indebtedness as provided in, and the rights (including the right to
payment) and remedies of the Trustee hereunder and of the Holders, are
subordinated and subject to the terms and provisions of, the Subordination
Agreement.
19. Inconsistent Provisions. In the event of any inconsistency or conflict
between the provisions of this Agreement and the provisions of the Company
Security Agreement, the provisions of the Company Security Agreement shall
govern.
20. Counterparts. This Amendment may be executed by the parties hereto in
any number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
21. Incorporation of Certain Indenture Provisions. All provisions of
Article VII of the Indenture shall be construed as extending to and including
all of the rights, duties and obligations imposed upon the Trustee under this
Agreement as fully and for all purposes as if said Article VII were contained in
this Agreement.
<PAGE>
11
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and delivered as of the date first above written.
LONDON FOG INDUSTRIES, INC.
By:
---------------------------------
Name: Edward M. Krell
Title: Chief Financial Officer
<PAGE>
Schedule 1
PATENTS AND PATENT LICENSES
<PAGE>
Schedule 2
TRADEMARKS AND TRADEMARK LICENSES
<PAGE>
EXHIBIT D
AMENDED AND RESTATED COMPANY PLEDGE AGREEMENT
AMENDED AND RESTATED COMPANY PLEDGE AGREEMENT, dated as of February 27,
1998, made by London Fog Industries, Inc., a Delaware corporation (the
"Company"), in favor of IBJ Schroder Bank & Trust Company, as trustee (in such
capacity, the "Trustee") for the Holders under, and as defined in, the
Indenture, dated as of even date herewith (as amended, supplemented or otherwise
modified from time to time, the "Indenture"), between the Company and the
Trustee.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of May 20, 1994 (as
amended, supplemented or otherwise modified prior to May 31, 1995, the "Original
Credit Agreement"), among the Company, The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent (in such capacity, the "Original Agent") for the
several banks and other financial institutions from time to time parties thereto
(the "Original Lenders") and the Original Lenders, the Original Lenders made
certain loans and other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the Original
Credit Agreement, the Company executed and delivered to the Original Agent, for
the benefit of the Original Lenders, the Borrower Pledge Agreement, dated as of
May 20, 1994 (as amended, supplemented or otherwise modified prior to May 31,
1995, the "Original Pledge Agreement"), pursuant to which the Company pledged to
the Original Agent, for the benefit of the Original Lenders, the Collateral (as
defined in the Original Pledge Agreement) as collateral security for the
Obligations (as defined in the Original Pledge Agreement);
WHEREAS, the Company, the Original Agent and the Original Lenders agreed to
restructure the obligations of the Company under the Original Credit Agreement
by means of, among other things, the execution and delivery of the Master
Restructuring Agreement, dated as of May 31, 1995 (as heretofore amended,
supplemented or otherwise modified, the "Existing MRA"), among the Company, the
Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of the Existing
MRA, the Company executed and delivered (a) the Term Loan Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise modified, the
"Term Loan Agreement"), among the Company, The Chase Manhattan Bank (formerly
known as Chemical Bank), as agent (in such capacity, the "Term Loan Agent") for
the several banks and other financial institutions from time to time parties
thereto (the "Term Loan Lenders") and the Term
<PAGE>
2
Loan Lenders and (b) the Note Agreement, dated as of May 31, 1995 (as heretofore
amended, supplemented or otherwise modified, the "Note Agreement" and, together
with the Term Loan Agreement, collectively, the "Existing Agreements"), among
the Company, The Chase Manhattan Bank (formerly known as Chemical Bank), as
agent (in such capacity and also in its capacity as the Term Loan Agent, the
"Agent") for the several banks and other financial institutions from time to
time parties thereto (the "Note Lenders" and, together with the Term Loan
Lenders, collectively, the "Lenders") and the Note Lenders, pursuant to which
the Lenders made certain loans to the Company;
WHEREAS, in connection with the execution and delivery of the Existing MRA
and the Existing Agreements, the Company executed and delivered to the Agent,
for the benefit of the Lenders, Amendment No. 1 to the Borrower Pledge
Agreement, dated as of May 31, 1995 (the Original Pledge Agreement as amended,
supplemented or otherwise modified by such Amendment No. 1, the "Existing Pledge
Agreement"), pursuant to which the Company pledged to the Agent, for the benefit
of the Lenders, the Collateral (as defined in the Existing Pledge Agreement) as
collateral security for the Obligations (as defined in the Existing Pledge
Agreement);
WHEREAS, the Company, the Agent and the Lenders have agreed to restructure
the obligations of the Company under the Existing Agreements by means of, among
other things, the execution and delivery of the Indenture and the Master
Restructuring Agreement, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "MRA"), among the
Company, the Agent and the Lenders, among others; and
WHEREAS, it is a condition precedent to the effectiveness of the MRA and
the obligation of the Agent and the Lenders to consummate the restructuring
contemplated thereby, that, among other things, the Company shall have executed
and delivered this Agreement to the Trustee, for the benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and to induce the Agent
and the Lenders to restructure the obligations of the Company under the Existing
Agreements and to induce the Trustee to enter into the Indenture, the Company
hereby agrees with the Trustee, for the benefit of the Holders, that the
Existing Pledge Agreement shall be and hereby is amended and restated in its
entirety as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the
Indenture and used herein shall have the meanings given to them in the
Indenture.
(b) The following terms shall have the following meanings:
"Agreement": this Amended and Restated Company Pledge Agreement, as the
same may be amended, modified or otherwise supplemented from time to time.
<PAGE>
3
"Code": the Uniform Commercial Code from time to time in effect in the
State of New York.
"Collateral": the Pledged Securities and all Proceeds.
"Collateral Account": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Trustee, subject to
withdrawal by the Trustee for the account of the Holders only as provided in
Subsection.
"Foreign Subsidiary": any Subsidiary of the Company organized under the
laws of any jurisdiction outside the United States of America.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Intercompany Note": promissory notes evidencing intercompany loans made by
(a) the Company in favor of any of its Subsidiaries, (b) any Subsidiary of the
Company in favor of the Company or (c) any Subsidiary of the Company in favor of
any other Subsidiary of the Company.
"Issuers": the collective reference to the companies identified on Schedule
1 attached hereto as the issuers of the Pledged Stock and the Pledged Notes;
individually, each an "Issuer."
"Obligations": as defined in the Company Security Agreement.
"Pledged Notes": all Intercompany Notes at any time issued to the Company
and all other promissory notes issued to or held by the Company (other than
promissory notes issued in connection with extensions of trade credit by the
Company in the ordinary course of business).
"Pledged Securities": all of the Pledged Stock and Pledged Notes.
"Pledged Stock": the shares of capital stock listed on Schedule 1 hereto,
together with all stock certificates, options or rights of any nature whatsoever
that may be issued or granted by any Issuer to the Company while this Agreement
is in effect; provided that in no event shall more than 65% of the issued and
outstanding shares of capital stock of any Foreign Subsidiary be Pledged Stock.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of
the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Securities, collections thereon or distributions
with respect thereto.
<PAGE>
4
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section references are to
this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Pledge; Grant of Security Interest. The Company hereby confirms and
reaffirms its grant of a security interest in the Collateral (as defined in the
Existing Pledge Agreement) pursuant to the Existing Pledge Agreement, which
security interest is hereby amended and restated to be solely in favor of the
Trustee, for the ratable benefit of the Holders, and shall secure only the
Obligations, and which Existing Pledge Agreement is replaced hereby. The Company
hereby delivers to the Trustee, for the ratable benefit of the Holders, all the
Pledged Securities and hereby grants to the Trustee, for the ratable benefit of
the Holders, a security interest in the Collateral, prior and superior in right
to any other Person, other than the holders of the Senior Indebtedness as set
forth in the Subordination Agreement and the Bank Credit Agreement, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. Stock Powers and Endorsements. Concurrently with the delivery to the
Trustee of each certificate representing one or more shares of Pledged Stock to
the Trustee, the Company shall deliver an undated stock power covering such
certificate, duly executed in blank by the Company with, if the Trustee so
requests, signature guaranteed. All Pledged Notes, when delivered, shall be duly
endorsed in blank.
4. Representations and Warranties. The Company represents and warrants
that:
(a) The shares of Pledged Stock constitute all the issued and outstanding
shares of all classes of the capital stock of each Issuer.
(b) All the shares of the Pledged Stock have been duly and validly issued
and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and binding
obligation of the obligor with respect thereto, enforceable in accordance with
its terms, except to the extent that the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium
<PAGE>
5
or similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at law).
(d) The Company is the record and beneficial owner of, and has good and
marketable title to, the Pledged Securities, free of any and all Liens or
options in favor of, or claims of, any other Person, except the security
interest created by this Agreement and the Bank Credit Agreement.
(e) Upon delivery to the Trustee of the stock certificates and instruments
evidencing the Pledged Securities, the security interest created by this
Agreement will constitute a valid, perfected security interest in the
Collateral, prior and superior in right to any other Person other than the
holders of the Senior Indebtedness as set forth in the Subordination Agreement
and the Bank Credit Agreement, enforceable in accordance with its terms against
all creditors of the Company and any Persons purporting to purchase any
Collateral from the Company.
5. Covenants. The Company covenants and agrees with the Trustee and the
Holders that, from and after the date of this Agreement until this Agreement is
terminated and the security interests created hereby are released:
(a) If the Company shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof,
the Company shall accept the same as the agent of the Trustee and the Holders,
hold the same in trust for the Trustee and the Holders and deliver the same
forthwith to the Trustee in the exact form received, duly indorsed by the
Company to the Trustee, if required, together with an undated stock power
covering such certificate duly executed in blank by the Company and with, if the
Trustee so requests, signature guaranteed, to be held by the Trustee, subject to
the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Pledged Securities, upon the liquidation or
dissolution of any Issuer shall be paid over to the Trustee, to be held by it
hereunder as additional collateral security for the Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Securities
or any property shall be distributed upon or with respect to the Pledged
Securities pursuant to the recapitalization or reclassification of the capital
of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Trustee to be held by it hereunder as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Securities shall be
received by the Company, the Company shall, until such money or property is paid
or delivered to the Trustee, hold such money or property in trust for the
Holders, segregated from other funds of the Company, as additional collateral
security for the Obligations.
<PAGE>
6
(b) Without the prior written consent of the Trustee, the Company will not
(i) vote to enable, or take any other action to permit, any Issuer to issue any
stock or other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of any Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Collateral, (iii) create, incur or permit to exist any Lien or option in
favor of, or any claim of any Person with respect to, any of the Collateral, or
any interest therein, except for the security interests created by this
Agreement and the Bank Credit Agreement or (iv) enter into any agreement or
undertaking restricting the right or ability of the Company or the Trustee to
sell, assign or transfer any of the Collateral.
(c) The Company shall maintain the security interest created by this
Agreement as a perfected security interest in the Collateral, prior and superior
in right to any other Person, other than the holders of the Senior Indebtedness
as set forth in the Subordination Agreement and the Bank Credit Agreement, and
shall defend such security interest against claims and demands of all Persons
whomsoever. At any time and from time to time, upon the written request of the
Trustee, and at the sole expense of the Company, the Company will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Trustee may reasonably request for the purposes of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper shall be
immediately delivered to the Trustee, duly endorsed in a manner satisfactory to
the Trustee, to be held as Collateral pursuant to this Agreement.
(d) The Company shall pay, and save the Trustee and the Holders harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Agreement.
6. Cash Dividends; Voting Rights. Unless an Event of Default shall have
occurred and be continuing and the Trustee shall have given notice to the
Company of the Trustee's intent to exercise its corresponding rights pursuant to
Section below, the Company shall be permitted to receive all cash dividends in
respect of the Pledged Stock and all payments in respect of the Pledged Notes,
in each case (a) paid in the normal course of business of each Issuer and (b)
consistent with past practice, to the extent permitted by the Indenture, and to
exercise all voting and corporate rights with respect to the Pledged Securities;
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which, in the Trustee's reasonable judgment, would impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of this Agreement, the Indenture or any Security Document.
<PAGE>
7
7. Rights of the Holders and the Trustee. (a) All money Proceeds received
by the Trustee hereunder shall be held by the Trustee for the benefit of the
Holders in a Collateral Account. All Proceeds while held by the Trustee in a
Collateral Account (or by the Company in trust for the Trustee and the Holders)
shall continue to be held as collateral security for all the Obligations and
shall not constitute payment thereof until applied as provided in subsection .
(b) If an Event of Default shall occur and be continuing and the Trustee
shall give notice of its intent to exercise such rights to the Company, (i) the
Trustee shall have the right to receive any and all cash dividends or other
amounts paid in respect of the Pledged Securities and make application thereof
to the Obligations in such order as the Trustee may determine, and (ii) all
shares of the Pledged Securities shall be registered in the name of the Trustee
or its nominee, and the Trustee or its nominee may thereafter exercise (A) all
voting, corporate and other rights pertaining to such shares of the Pledged
Securities at any meeting of shareholders of any Issuer or otherwise and (B) any
and all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to such shares of the Pledged Securities as if
it were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Securities upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of any Issuer, or upon the exercise by the
Company or the Trustee of any right, privilege or option pertaining to such
shares of the Pledged Securities, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Securities with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Trustee may determine), all without liability except to
account for property actually received by it, but the Trustee shall have no duty
to the Company to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.
8. Remedies. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Trustee's election, the Trustee may apply all or
any part of Proceeds held in any Collateral Account in payment of the
Obligations in such order as the Trustee may elect.
(b) If an Event of Default shall have occurred and be continuing, the
Trustee, on behalf of the Holders, may exercise, in addition to all other rights
and remedies granted in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the Code. Without limiting the generality of the
foregoing, the Trustee, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Company or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, in the over-the-counter
market, at any exchange, broker's board or office of the Trustee or any Holder
or elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery
<PAGE>
8
without assumption of any credit risk. The Trustee or any Holder shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Company,
which right or equity is hereby waived and released. The Trustee shall apply any
Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Trustee and the Holders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Trustee, to the payment in whole or in part of
the Obligations, in such order as the Trustee may elect, and only after such
application and after the payment by the Trustee of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Trustee account for the surplus, if any, to the Company. To the
extent permitted by applicable law, the Company waives all claims, damages and
demands it may acquire against the Trustee or any Holder arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least ten (10) days before such sale or
other disposition. The Company shall remain liable for any deficiency if the
proceeds of any sale or other disposition of Collateral are insufficient to pay
the Obligations and the fees and disbursements of any attorneys employed by the
Trustee or any Holder to collect such deficiency.
9. Registration Rights; Private Sales. (a) If the Trustee shall determine
to exercise its right to sell any or all of the Pledged Stock pursuant to
Section hereof, and if in the opinion of the Trustee it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the Company will cause
each Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Trustee, necessary or advisable to register the Pledged Stock, or
that portion thereof to be sold, under the provisions of the Securities Act,
(ii) to use its best efforts to cause the registration statement relating
thereto to become effective and to remain effective for a period of one year
from the date of the first public offering of the Pledged Stock, or that portion
thereof to be sold, and (iii) to make all amendments thereto and/or to the
related prospectus which, in the opinion of the Trustee, are necessary or
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Commission applicable thereto. The Company agrees
to cause the Issuers to comply with the provisions of the securities or "Blue
Sky" laws of any and all jurisdictions which the Trustee shall designate and to
make available to its security holders, as soon as practicable, an earnings
statement (which need not be audited) which will satisfy the provisions of
subsection 11(a) of the Securities Act.
(b) The Company recognizes that the Trustee may be unable to effect a
public sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree,
<PAGE>
9
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Company acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Trustee shall
be under no obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit each Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.
(c) The Company further agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 9 valid and binding
and in compliance with any and all other applicable Requirements of Law. The
Company further agrees that a breach of any of the covenants contained in this
Section 9 will cause irreparable injury to the Trustee and the Holders, that the
Trustee and the Holders have no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section 9
shall be specifically enforceable against the Company, and the Company hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no Event of Default has
occurred under the Indenture.
10. Irrevocable Authorization and Instruction to the Issuers. The Company
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Trustee in writing that (a) states that an Event of
Default has occurred and (b) is otherwise in accordance with the terms of this
Agreement, without any other or further instructions from the Company, and the
Company agrees that each Issuer shall be fully protected in so complying.
11. Trustee's Appointment as Attorney-in-Fact. (a) The Company hereby
irrevocably constitutes and appoints the Trustee and any officer or agent of the
Trustee, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Company and in the name of the Company or in the Trustee's own
name, from time to time in the Trustee's discretion, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, including, without
limitation, any financing statements, endorsements, assignments or other
instruments of transfer.
(b) The Company hereby ratifies all that said attorneys shall lawfully do
or cause to be done pursuant to the power of attorney granted in subsection .
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
12. Duty of Trustee. The Trustee's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of
<PAGE>
10
the Code or otherwise, shall be to deal with it in the same manner as the
Trustee deals with similar securities and property for its own account, except
that the Trustee shall have no obligation to invest funds held in any Collateral
Account and may hold the same as demand deposits. Neither the Trustee, any
Holder nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Company or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.
13. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, the Company authorizes the Trustee to file financing statements with
respect to the Collateral without the signature of the Company in such form and
in such filing offices as the Trustee reasonably determines appropriate to
perfect the security interests of the Trustee under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
14. Authority of Trustee. The Company acknowledges that the rights and
responsibilities of the Trustee under this Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between the
Trustee and the Holders, be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Trustee and the Company, the Trustee shall be conclusively
presumed to be acting as agent for the Holders with full and valid authority so
to act or refrain from acting, and neither the Company nor the Issuers shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
15. Notices. All notices, requests and demands to or upon the respective
parties hereto shall be made in accordance with Section 12.2 of the Indenture.
16. Integration. This Agreement represents the agreement of the Company
with respect to the subject matter hereof and there are no promises or
representations by the Trustee or any Holder relative to the subject matter
hereof not reflected herein.
17. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
18. Amendments in Writing; No Waiver; Cumulative Remedies. None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except in accordance with Article IX of the Indenture. This
Agreement shall be binding upon the successors and assigns of the Company and
shall inure to the benefit of the
<PAGE>
11
Trustee and the Holders and their respective successors and assigns, except that
the Company may not assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Trustee.
19. Section Headings. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
20. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Company and shall inure to the benefit of the
Trustee and the Holders and their successors and assigns.
21. Release of Collateral and Termination. (a) At such time as the payment
in full of the Securities and the other Obligations then due or owing shall have
occurred, the Collateral shall be released from the Liens created hereby, and
this Agreement and all obligations (other than those expressly stated to survive
such termination) of the Trustee and the Company hereunder shall terminate, all
without delivery of any instrument or performance of any act by any party, and
all rights to the Collateral shall revert to the Company, unless such reversion
would be inconsistent with the Subordination Agreement. Upon request of the
Company following any such termination, the Trustee shall deliver (at the sole
cost and expense of the Company) to the Company any Collateral held by the
Trustee hereunder, and execute and deliver (at the sole cost and expense of such
Company) to the Company such documents as the Company shall reasonably request
to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by the Company in a transaction permitted by the Indenture and the
Bank Credit Agreement, then the Trustee shall execute and deliver to the Company
(at the sole cost and expense of the Company) all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral.
22. Subordination. Each of the Company and the Trustee (for itself in that
capacity and on behalf of the Holders) acknowledge that the security interests
in the Collateral granted, confirmed and/or reaffirmed pursuant to this
Agreement or otherwise held by the Trustee or any Holder are subordinated in
priority to the security interests in the Collateral held by the holder of the
Senior Indebtedness as provided in, and the rights (including the right to
payment) and remedies of the Trustee hereunder and of the Holders are
subordinated and subject to the terms and provisions of, the Subordination
Agreement.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
24. Incorporation of Certain Indenture Provisions. All provisions of
Article VII of the Indenture shall be construed as extending to and including
all of the rights, duties and
<PAGE>
12
obligations imposed upon the Trustee under this Agreement as fully and for all
purposes as if said Article VII were contained in this Agreement.
<PAGE>
13
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.
LONDON FOG INDUSTRIES, INC.
By:
------------------------------
Name: Edward M. Krell
Title: Chief Financial Officer
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned hereby acknowledges receipt of a copy of the
Amended and Restated Company Pledge Agreement, dated as of February 27, 1998,
made by London Fog Industries, Inc. in favor of IBJ Schroder Bank & Trust
Company, as trustee (in such capacity, the "Trustee") for the Holders (as
defined in the Pledge Agreement). Each of the undersigned agrees for the benefit
of the Trustee and the Holders as follows:
25. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
26. The undersigned will notify the Trustee promptly in writing of the
occurrence of any of the events described in subsection of the Pledge
Agreement.
27. The terms of subsections 9(a) and of the Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be
required of it under or pursuant to or arising out of Section of the Pledge
Agreement.
CLIPPER MIST, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
2
LONDON FOG RAINCOATS, LIMITED
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
LONDON FOG SPORTSWEAR, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
MATTHEW MANUFACTURING CO., INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
3
PTI TOP COMPANY, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
THE SCRANTON OUTLET CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
STAR SPORTSWEAR MANUFACTURING
CORP.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
Schedule 1
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
Class of Stock Certificate
Issuer Stock* No. No. of Shares
- ----------------------------------------- -------------------- ------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- --------
* Stock is assumed to be common stock unless otherwise indicated.
<PAGE>
EXHIBIT E
AMENDED AND RESTATED COMPANY SECURITY AGREEMENT
AMENDED AND RESTATED COMPANY SECURITY AGREEMENT, dated as of February 27,
1998, made by London Fog Industries, Inc., a Delaware corporation (the
"Company") in favor of IBJ Schroder Bank & Trust Company, as trustee (in such
capacity, the "Trustee") for the Holders under, and as defined in, the
Indenture, dated as of even date herewith (as amended, supplemented or otherwise
modified from time to time, the "Indenture"), between the Company and the
Trustee.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of May 20, 1994 (as
amended, supplemented or otherwise modified prior to May 31, 1995, the "Original
Credit Agreement"), among the Company, The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent (in such capacity, the "Original Agent") for the
several banks and other financial institutions from time to time parties thereto
(the "Original Lenders") and the Original Lenders, the Original Lenders made
certain loans and other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the Original
Credit Agreement, the Company executed and delivered to the Original Agent, for
the benefit of the Original Lenders, the Borrower Security Agreement, dated as
of May 20, 1994 (as amended, supplemented or otherwise modified prior to May 31,
1995, the "Original Security Agreement"), pursuant to which the Company pledged
to the Original Agent, for the benefit of the Original Lenders, all of the
Collateral (as defined in the Original Security Agreement) as collateral
security for the Obligations (as defined in the Original Security Agreement);
WHEREAS, the Company, the Original Agent and the Original Lenders agreed to
restructure the obligations of the Company under the Original Credit Agreement
by means of, among other things, the execution and delivery of the Master
Restructuring Agreement, dated as of May 31, 1995 (as heretofore amended,
supplemented or otherwise modified, the "Existing MRA"), among the Company, the
Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of the Existing
MRA, the Company executed and delivered (a) the Term Loan Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise modified, the
"Term Loan Agreement"), among the Company, The Chase Manhattan Bank (formerly
known as Chemical Bank), as agent (in such capacity, the "Term Loan Agent") for
the several banks and other
<PAGE>
2
financial institutions from time to time parties thereto (the "Term Loan
Lenders") and the Term Loan Lenders and (b) the Note Agreement, dated as of May
31, 1995 (as heretofore amended, supplemented or otherwise modified, the "Note
Agreement" and, together with the Term Loan Agreement, collectively, the
"Existing Agreements"), among the Company, The Chase Manhattan Bank (formerly
known as Chemical Bank), as agent (in such capacity and also in its capacity as
the Term Loan Agent, the "Agent") for the several banks and other financial
institutions from time to time parties thereto (the "Note Lenders" and, together
with the Term Loan Lenders, collectively, the "Lenders") and the Note Lenders,
pursuant to which the Lenders made certain loans to the Company;
WHEREAS, in connection with the execution and delivery of the Existing MRA
and the Existing Agreements, the Company executed and delivered to the Agent,
for the benefit of the Lenders, Amendment No. 1 to the Borrower Security
Agreement, dated as of May 31, 1995 (the Original Security Agreement as amended,
supplemented or otherwise modified by such Amendment No. 1, the "Existing
Security Agreement"), pursuant to which the Company granted to the Agent, for
the benefit of the Lenders, a security interest in all the Collateral (as
defined in the Existing Security Agreement) as collateral security for the
Obligations (as defined in the Existing Security Agreement);
WHEREAS, the Company, the Agent and the Lenders have agreed to restructure
the obligations of the Company under the Existing Agreements by means of, among
other things, the execution and delivery of the Indenture and the Master
Restructuring Agreement, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "MRA"), among the
Company, the Agent and the Lenders, among others; and
WHEREAS, it is a condition precedent to the effectiveness of the MRA and
the obligation of the Agent and the Lenders to consummate the restructuring
contemplated thereby, that, among other things, the Company shall have executed
and delivered this Agreement to the Trustee, for the benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and to induce the Agent
and the Lenders to restructure the obligations of the Company under the Existing
Agreements and to induce the Trustee to enter into the Indenture, the Company
hereby agrees with the Trustee, for the benefit of the Holders, that the
Existing Security Agreement shall be and hereby is amended and restated in its
entirety as follows:
1 Defined Terms.
1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the
Indenture and used herein shall have the meanings given to them in the
Indenture, and the following terms which are defined in the Uniform Commercial
Code in effect in the State of New York on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, General
Intangibles, Instruments, Inventory, Investment Property and Proceeds.
<PAGE>
3
(b) The following terms shall have the following meanings:
"Agreement": this Amended and Restated Company Security Agreement, as the
same may be amended, modified or otherwise supplemented from time to time.
"Code": the Uniform Commercial Code as from time to time in effect in the
State of New York.
"Collateral": as defined in Section 2 hereof.
"Collateral Account": any collateral account established by the Trustee as
provided in subsection or subsection hereof.
"Contracts": all contracts, agreements, instruments and indentures in any
form, and portions thereof, to which the Company is a party or under which the
Company has any right, title or interest or to which the Company or any property
of the Company is subject, as the same may from time to time be amended,
supplemented or otherwise modified, including, without limitation, (a) all
rights of the Company to receive moneys due and to become due to it thereunder
or in connection therewith, (b) all rights of the Company to damages arising out
of, or for, breach or default in respect thereof and (c) all rights of the
Company to perform and to exercise all remedies thereunder, in each case to the
extent the grant by the Company of a security interest pursuant to this
Agreement in its right, title and interest in such contract, agreement,
instrument or indenture is not prohibited by such contract, agreement,
instrument or indenture without the consent of any other party thereto, would
not give any other party to such contract, agreement, instrument or indenture
the right to terminate its obligations thereunder, or is permitted with consent
if all necessary consents to such grant of a security interest have been
obtained from the other parties thereto (it being understood that the foregoing
shall not be deemed to obligate the Company to obtain such consents); provided,
that the foregoing limitation shall not affect, limit, restrict or impair the
grant by the Company of a security interest pursuant to this Agreement in any
Account or any money or other amounts due or to become due under any such
contract, agreement, instrument or indenture.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Obligations": the unpaid principal of and interest on (including, without
limitation, interest accruing after the Stated Maturity of the Securities and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Company, whether or not a claim for post- filing or post-petition interest
is allowed in such proceeding) the Securities and all other obligations and
liabilities of the Company to the Trustee or to any Holder, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, the Indenture, the MRA, the other Restructuring Documents (as defined
in the MRA) or any other document made, delivered or given in
<PAGE>
4
connection herewith or therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees, charges and disbursements of counsel to the
Trustee or one counsel selected by the Holders that are required to be paid by
the Company pursuant hereto and thereto) or otherwise.
"Patent Licenses": all license agreements with any other Person in
connection with any of the Patents or such other Person's patents, whether the
Company is a licensor or a licensee under any such license agreement, including,
without limitation, the license agreements listed on Schedule 1 attached hereto
and made a part hereof, subject, in each case, to the terms of such license
agreements, and the right to prepare for sale, sell and advertise for sale, all
Inventory now or hereafter covered by such licenses.
"Patents": all patents, patent applications and patentable inventions,
including, without limitation, all patents and patent applications identified in
Schedule 1 attached hereto and made a part hereof, and including, without
limitation, (a) all inventions and improvements described and claimed therein,
and patentable inventions, (b) the right to sue or otherwise recover for any and
all past, present and future infringements and misappropriations thereof, (c)
all income, royalties, damages and other payments now and hereafter due and/or
payable with respect thereto (including, without limitation, payments under all
licenses entered into in connection therewith, and damages and payments for past
or future infringements thereof) and (d) all rights corresponding thereto and
all reissues, divisions, continuations, continuations-in- part, substitutes,
renewals, and extensions thereof, all improvements thereon, and all other rights
of any kind whatsoever of the Company accruing thereunder or pertaining thereto
(Patents and Patent Licenses being, collectively, the "Patent Collateral").
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Trademark Licenses": all license agreements with any other Person in
connection with any of the Trademarks or such other Person's names or
trademarks, whether the Company is a licensor or a licensee under any such
license agreement, including, without limitation, the license agreements listed
on Schedule 2 attached hereto and made a part hereof, subject, in each case, to
the terms of such license agreements, and the right to prepare for sale, sell
and advertise for sale, all Inventory now or hereafter covered by such licenses.
"Trademarks": all trademarks, service marks, trade names, trade dress or
other indicia of trade origin, trademark and service mark registrations, and
applications for trademark or service mark registrations, and any renewals
thereof, including, without limitation, each registration and application
identified in Schedule 2 attached hereto and made a part hereof, and including,
without limitation, (a) the right to sue or otherwise recover for any and all
past, present and future infringements and misappropriations thereof, (b) all
income, royalties, damages and other payments now and hereafter due and/or
payable with respect thereto
<PAGE>
5
(including, without limitation, payments under all licenses entered into in
connection therewith, and damages and payments for past or future infringements
thereof) and (c) all rights corresponding thereto and all other rights of any
kind whatsoever of the Company accruing thereunder or pertaining thereto,
together in each case with the goodwill of the business connected with the use
of, and symbolized by, each such trademark, service mark, trade name, trade
dress or other indicia of trade origin (Trademarks and Trademark Licenses being,
collectively, the "Trademark Collateral").
1.2 Other Definitional Provisions. (a) The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and section references are to this Agreement unless otherwise
specified.
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2 Grant of Security Interest. The Company hereby confirms and reaffirms its
grant of a security interest in the Collateral (as defined in the Existing
Security Agreement) pursuant to the Existing Security Agreement, which security
interest is hereby amended and restated to be solely in favor of the Trustee,
for the ratable benefit of the Holders, and shall secure only the Obligations,
and which Existing Security Agreement is replaced hereby. As collateral security
for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations, the Company
hereby grants to the Trustee for the ratable benefit of the Holders a security
interest in all of the following property now owned or at any time hereafter
acquired by the Company or in which the Company now has or at any time in the
future may acquire any right, title or interest (collectively, the
"Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Documents;
(e) all Equipment;
(f) all General Intangibles;
(g) all Instruments;
(h) all Inventory;
(i) all Investment Property;
<PAGE>
6
(j) all Patent Licenses;
(k) all Patents;
(l) all Trademark Licenses;
(m) all Trademarks;
(n) all books and records pertaining to the Collateral; and
(o) to the extent not otherwise included, all Proceeds and products of
any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
3 Representations and Warranties. The Company hereby represents and
warrants that:
3.1 Title; No Other Liens. Except for the security interest granted to the
Trustee for the ratable benefit of the Holders pursuant to this Agreement and
Liens existing on the Issue Date (the "Existing Liens"), the Company owns each
item of the Collateral free and clear of any and all Liens or claims of others.
No security agreement, financing statement or other public notice with respect
to all or any part of the Collateral is on file or of record in any public
office, except such as have been filed in favor of the Trustee for the ratable
benefit of the Holders pursuant to this Agreement or as have been filed or
recorded in connection with Existing Liens.
3.2 Perfected Liens. The security interests granted pursuant to this
Agreement (a) upon completion of the filings and other actions specified on
Schedule 3 attached hereto will constitute perfected security interests in the
Collateral in favor of the Trustee, for the ratable benefit of the Holders, (b)
are prior to all other Liens on the Collateral in existence on the date hereof
except for the Existing Liens and (c) are enforceable as such against (i) all
creditors of and purchasers from the Company (except purchasers of Inventory in
the ordinary course of business) and (ii) any Person having any interest in the
real property where any of the Equipment is located, except in each case as
enforceability is affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
3.3 Inventory and Equipment. The Inventory and the Equipment are kept at
the locations listed on Schedule 4 hereto.
3.4 Chief Executive Office. The Company's chief executive office and chief
place of business is located at 1332 Londontown Boulevard, Eldersburg, Maryland
21784.
3.5 Farm Products. None of the Collateral constitutes, or is the Proceeds
of, Farm Products.
<PAGE>
7
4 Covenants. The Company covenants and agrees with the Trustee and the
Holders that, from and after the date of this Agreement until this Agreement is
terminated and the security interests created hereby are released:
4.1 Delivery of Instruments and Chattel Paper. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Trustee, duly indorsed in a manner satisfactory to
the Trustee, to be held as Collateral pursuant to this Agreement.
4.2 Marking of Records. The Company will mark its books and records
pertaining to the Collateral to evidence this Agreement and the security
interests created hereby.
4.3 Maintenance of Insurance. (a) The Company will maintain, with
financially sound and reputable companies, insurance policies (i) insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Trustee and (ii) insuring
the Company and the Trustee, for the benefit of the Holders, against liability
for personal injury and property damage relating to such Inventory and
Equipment, such policies to be in such form and amounts and having such coverage
as may be reasonably satisfactory to the Trustee, with losses payable to the
Company and the Trustee, for the benefit of the Holders, as their respective
interests may appear.
(b) All such insurance shall (i) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be effective
until at least thirty (30) days after receipt by the Trustee of written notice
thereof, (ii) name the Trustee, for the benefit of the Holders, as insured
parties and (iii) be reasonably satisfactory in all other respects to the
Trustee.
(c) The Company shall deliver to the Trustee a report of a reputable
insurance broker with respect to such insurance during the month of January in
each calendar year and such supplemental reports with respect thereto as the
Trustee may from time to time reasonably request.
4.4 Payment of Obligations. The Company will pay and discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of income or profits therefrom, as well as all claims
of any kind (including, without limitation, claims for labor, materials and
supplies) against or with respect to the Collateral, except that no such charge
need be paid if the amount or validity thereof is currently being contested in
good faith by appropriate proceedings, reserves in conformity with GAAP with
respect thereto have been provided on the books of the Company and such
proceedings do not involve any material danger of the sale, forfeiture or loss
of any of the Collateral or any interest therein.
4.5 Maintenance of Perfected Security Interest; Further Documentation. (a)
The Company shall maintain the security interest created by this Agreement as a
perfected security
<PAGE>
8
interest subject only to Permitted Liens and shall defend such security interest
against claims and demands of all Persons whomsoever.
(b) At any time and from time to time, upon the written request of the
Trustee, and at the sole expense of the Company, the Company will promptly and
duly execute and deliver such further instruments and documents and take such
further action as the Trustee may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the security interests created hereby.
4.6 Changes in Locations, Name, etc. The Company will not, except upon
thirty (30) days' prior written notice to the Trustee and delivery to the
Trustee of (x) a written supplement to Schedule 4 showing the additional
location or locations at which Inventory or Equipment shall be kept and (y) all
additional executed financing statements and other documents reasonably
requested by the Trustee to maintain the validity, perfection and priority of
the security interests provided for herein:
(a) permit any of the Inventory or Equipment to be kept at a location other
than those listed on Schedule 4 hereto;
(b) change the location of its chief executive office and chief place of
business from that specified in subsection hereof; or
(c) change its name, identity or corporate structure to such an extent that
any financing statement filed by the Trustee in connection with this Agreement
would become seriously misleading.
4.7 Further Identification of Collateral. The Company will furnish to the
Trustee from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Trustee may reasonably request, all in reasonable detail.
4.8 Notices. The Company will advise the Trustee promptly, in reasonable
detail, at its address set forth in the Indenture of:
(a) any Lien (other than security interests created hereby or the Existing
Liens) on, or claim asserted against, any of the Collateral; and
(b) the occurrence of any other event which could reasonably be expected to
have a material adverse effect on the aggregate value of the Collateral or on
the security interests created hereby.
4.9 Compliance with Laws. The Company will comply in all material respects
with all Requirements of Law applicable to the Collateral or any part thereof,
except to the extent
<PAGE>
9
that failure to so comply would not be reasonably expected to materially
adversely affect, in the aggregate, the rights of the Trustee or the Holders
hereunder, the priority of their Liens on the Collateral or the value of the
Collateral.
4.10 Indemnification. The Company agrees to pay, and to save the Trustee
and the Holders harmless from, any and all liabilities, costs and expenses
(including, without limitation, legal fees and expenses) (a) with respect to, or
resulting from any delay in paying, any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral, (b) with respect to, or resulting from, any delay in complying with
any Requirement of Law applicable to any of the Collateral and (c) in connection
with any of the transactions contemplated by this Agreement.
5 Provisions Relating to Accounts.
5.1 Company Remains Liable under Accounts. Anything herein to the contrary
notwithstanding, the Company shall remain liable under each of the Accounts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise to each such Account. Neither the Trustee nor any Holder shall have
any obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Trustee or any Holder of any payment relating to such Account pursuant hereto,
nor shall the Trustee or any Holder be obligated in any manner to perform any of
the obligations of the Company under or pursuant to any Account (or any
agreement giving rise thereto), to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any agreement
giving rise thereto), to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
5.2 Analysis of Accounts. The Trustee shall have the right to make test
verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and the Company shall furnish all such
assistance and information as the Trustee may require in connection with such
test verifications. At any time and from time to time, upon the Trustee's
request and at the expense of the Company, the Company shall cause independent
public accountants or others satisfactory to the Trustee to furnish to the
Trustee reports showing reconciliations, aging and test verifications of, and
trial balances for, the Accounts. The Trustee in its own name or in the name of
others may communicate with account debtors on the Accounts to verify with them
to the Trustee's satisfaction the existence, amount and terms of any Accounts.
5.3 Collections on Accounts. (a) The Trustee hereby authorizes the Company
to collect the Accounts, subject to the Trustee's direction and control, and at
any time when an Event of Default shall have occurred and be continuing the
Trustee may curtail or terminate said authority. If required by the Trustee at
any time when an Event of Default shall have occurred and be continuing, any
payments of Accounts, when collected by the Company, (i) shall be
<PAGE>
10
forthwith (and, in any event, within two (2) Business Days) deposited by the
Company in the exact form received, duly indorsed by the Company to the Trustee
if required, in a Collateral Account maintained under the sole dominion and
control of the Trustee, subject to withdrawal by the Trustee for the account of
the Holders only as provided in subsection hereof, and (ii) until so turned
over, shall be held by the Company in trust for the Trustee and the Holders,
segregated from other funds of the Company.
(b) Each such deposit of Proceeds of Accounts shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.
(c) At the Trustee's request, the Company shall deliver to the Trustee all
original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts, including, without limitation, all
original orders, invoices and shipping receipts.
5.4 Representations and Warranties. (a) No amount payable to the Company
under or in connection with any Account is evidenced by any Instrument or
Chattel Paper which has not been delivered to the Trustee.
(b) The place where the Company keeps its records concerning the Accounts
is 1332 Londontown Boulevard, Eldersburg, Maryland 21784.
(c) None of the obligors on any Accounts is a Governmental Authority.
5.5 Covenants. (a) The amount represented by the Company to the Trustee
from time to time as owing by each account debtor or by all account debtors in
respect of the Accounts will at such time be correct in all material respects.
(b) The Company will not amend, modify, terminate or waive any agreement
giving rise to an Account in any manner which could reasonably be expected to
materially adversely affect the value of such Account as Collateral.
(c) The Company will not fail to exercise promptly and diligently each and
every material right which it may have under each agreement giving rise to an
Account (other than any right of termination).
(d) The Company will not fail to deliver to the Trustee a copy of each
material demand, notice or document received by it relating in any way to any
agreement giving rise to an Account.
(e) Other than in the ordinary course of business as generally conducted by
the Company over a period of time, the Company will not grant any extension of
the time of payment of any of the Accounts, compromise, compound or settle the
same for less than the full amount thereof, release, wholly or partially, any
Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon.
<PAGE>
11
(f) The Company will not remove its books and records from the location
specified in subsection hereof.
(g) In any suit, proceeding or action brought by the Trustee under any
Account for any sum owing thereunder, or to enforce any provisions of any
Contract, the Company will save, indemnify and keep the Trustee harmless from
and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of the
account debtor thereunder, arising out of a breach by the Company of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or its
successors from the Company.
6 Provisions Relating to Contracts.
6.1 Company Remains Liable under Contracts. Anything herein to the contrary
notwithstanding, the Company shall remain liable under each of its Contracts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with and pursuant to the terms and
provisions of each such Contract. Neither the Trustee nor any Holder shall have
any obligation or liability under any Contract by reason of or arising out of
this Agreement or the receipt by the Trustee or any Holder of any payment
relating to such Contract pursuant hereto, nor shall the Trustee or any Holder
be obligated in any manner to perform any of the obligations of the Company
under or pursuant to any Contract, to make any payment, to make any inquiry as
to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Contract, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
6.2 Communication With Contracting Parties. The Trustee in its own name or
in the name of others may communicate with parties to the Contracts to verify
with them to the Trustee's satisfaction the existence, amount and terms of any
Contracts.
6.3 Indemnity. In any suit, proceeding or action brought by the Trustee
under any Contract for any sum owing thereunder, or to enforce any provisions of
any Contract, the Company will save, indemnify and keep harmless the Trustee
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of the
obligor thereunder, arising out of a breach by the Company of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to or in favor of such obligor or its successors from the
Company.
7 Provisions Relating to Patents and Trademarks. The Company represents and
warrants as to itself and its Collateral as follows:
7.1 Representations and Warranties. (a) Except for the Liens granted to the
Trustee, for the ratable benefit of the Holders, pursuant to this Agreement and
Permitted Liens, the Company is (or, in the case of after-acquired Collateral,
will be) the sole, legal and beneficial owner of the entire right, title and
interest in and to the Patents set forth on Schedule 1 hereto and
<PAGE>
12
the Trademarks set forth on Schedule 2 hereto free and clear of any and all
Liens. No security agreement, financing statement or other public notice similar
in effect with respect to all or any part of the Collateral is on file or of
record in any public office (including, without limitation, the United States
Patent and Trademark Office), except such as may have been filed in favor of the
Trustee for the ratable benefit of the Holders pursuant to this Agreement or
Permitted Liens.
(b) No consent of any party (other than the Company) to any Patent License
or Trademark License constituting Collateral is required, or purports to be
required, to be obtained by or on behalf of the Company in connection with the
execution, delivery and performance of this Agreement that has not been
obtained. Each Patent License and Trademark License constituting Collateral is
in full force and effect and constitutes a valid and legally enforceable
obligation of the Company and (to the knowledge of the Company) each other party
thereto except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law) and except to the extent the failure of any such Patent License or
Trademark License constituting Collateral to be in full force and effect or
valid or legally enforceable would not be reasonably expected, in the aggregate,
to have a material adverse effect on the value of the Collateral. No consent or
authorization of, filing with or other act by or in respect of any Governmental
Authority is required in connection with the execution, delivery, performance,
validity or enforceability of any of the Patent Licenses or Trademark Licenses
constituting Collateral by any party thereto other than those which have been
duly obtained, made or performed and are in full force and effect and those the
failure of which to make or obtain would not be reasonably expected, in the
aggregate, to have a material adverse effect on the value of the Collateral.
Neither the Company nor (to the knowledge of the Company) any other party to any
Patent License or Trademark License constituting Collateral is in default in the
performance or observance of any of the terms thereof, except for such defaults
as would not reasonably be expected, in the aggregate, to have a material
adverse effect on the value of the Collateral. The right, title and interest of
the Company in, to and under each Patent License and Trademark License
constituting Collateral are not subject to any defense, offset, counterclaim or
claim which would be reasonably expected, either individually or in the
aggregate, to have a material adverse effect on the value of the Collateral (as
defined in the Indenture).
(c) Set forth in Schedule 1 and Schedule 2 is a complete and accurate list
of all of the Patents and Trademarks owned by the Company as of the date hereof.
The Company has made all necessary filings and recordations to protect and
maintain its interest in the Patents and Trademarks set forth in Schedule 1 and
Schedule 2, including, without limitation, all necessary filings and recordings,
and payments of all maintenance fees, in the United States Patent and Trademark
Office.
(d) As of the date hereof, each Patent and patent application of the
Company set forth in Schedule 1 is subsisting and has not been adjudged invalid,
unpatentable or unenforceable, in whole or in part, and, to the best of the
Company's knowledge, is valid, patentable and enforceable. As of the date
hereof, each of the Patent Licenses set forth in Schedule 1 is validly
subsisting and has not been adjudged invalid or unenforceable, in whole or
<PAGE>
13
in part, and, to the best of the Company's knowledge, is valid and enforceable.
As of the date hereof, the Company has notified the Trustee in writing of all
uses of any item of Patent Collateral material to the Company's business of
which the Company is aware which could reasonably be expected to lead to such
item becoming invalid or unenforceable.
(e) As of the date hereof, each trademark registration and trademark
application of the Company set forth in Schedule 2 is subsisting as of the date
hereof and has not been adjudged invalid, unregisterable or unenforceable, in
whole or in part, and, to the best of the Company's knowledge, is valid,
registrable and enforceable. As of the date hereof, each of the Trademark
Licenses set forth in Schedule 2 is validly subsisting and has not been adjudged
invalid or unenforceable, in whole or in part, and, to the best of the Company's
knowledge, is valid and enforceable. As of the date hereof, set forth on
Schedule 2 are all uses of any item of Trademark Collateral material to the
Company's business of which the Company is aware which could reasonably be
expected to lead to such item becoming invalid or unenforceable, including
unauthorized uses by third parties and uses which were not supported by the
goodwill of the business connected with such Collateral.
(f) As of the date hereof, the Company has not made a previous assignment,
sale, transfer or agreement constituting a present or future assignment, sale,
transfer or encumbrance of any of the Collateral, except with respect to
exclusive licenses granted in the ordinary course of business or as permitted by
this Agreement, the Indenture, the Security Documents or the Bank Credit
Agreement. As of the date hereof, the Company has not granted any license, shop
right, release, covenant not to sue, or non-assertion assurance to any Person
with respect to any part of the Collateral except in the ordinary course of
business.
(g) The Company has marked its products with the trademark registration
symbol (R), the numbers of all appropriate patents, the common law trademark
symbol (TM), or the designation "patent pending," as the case may be, to the
extent that it is reasonably and commercially practicable.
(h) Except for the Patent Licenses and Trademark Licenses listed in
Schedule 1 and Schedule 2 hereto, the Company has no knowledge of the existence
of any material right or any material claim (other than as provided by this
Agreement, the Indenture, the Security Documents or the Bank Credit Agreement)
that is likely to be made under or against any item of Collateral contained on
Schedule 1 and Schedule 2.
(i) No material claim has been made and is continuing or, to the best of
the Company's knowledge, threatened that the use by the Company of any item of
Collateral is invalid or unenforceable or that the use by the Company of any
Collateral does or may violate the rights of any Person. To the best of the
Company's knowledge, there is currently no material infringement or unauthorized
use of any item of Collateral contained on Schedule 1 and Schedule 2.
<PAGE>
14
7.2 Covenants. The Company covenants and agrees with the Trustee and the
Holders that, from and after the date of this Agreement until the payment in
full of the Securities and the other Obligations then due and owing:
(a) At any time and from time to time, upon the written request of the
Trustee or the Company, as the case may be, and at the sole expense of the
Company, the Company or the Trustee, as the case may be, will promptly and duly
execute and deliver such further instruments and documents and take such further
action as the Trustee or the Company may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The Company also
hereby authorizes the Trustee to file any such financing or continuation
statement without the signature of the Company to the extent permitted by
applicable law. A carbon, photostatic or other reproduction of this Agreement
shall be sufficient as a financing statement for filing in any jurisdiction. The
Trustee agrees to notify the Company and the Company agrees to notify the
Trustee of any financing or continuation statement filed by it pursuant to this
subsection 7.2(a), provided that any failure to give any such notice shall not
affect the validity or effectiveness of any such filing.
(b) The Company agrees to pay, and to save the Trustee and the Holders
harmless from, any and all liabilities and reasonable costs and expenses
(including, without limitation, reasonable legal fees and expenses) (i) with
respect to, or resulting from, any delay by the Company in complying with any
material Requirement of Law applicable to any of the Collateral, or (ii) in
connection with any of the transactions contemplated by this Agreement, provided
that such indemnity shall not, as to the Trustee or any Holder, be available to
the extent that such liabilities, costs and expenses resulted from the gross
negligence or willful misconduct of the Trustee or such Holder, as the case may
be. In any suit, proceeding or action brought by the Trustee or any Holder under
any of the Collateral for any sum owing thereunder, or to enforce any of the
Collateral, the Company will save, indemnify and keep the Trustee and such
Holder harmless from and against all expense, loss or damage suffered by reason
of any defense or counterclaim raised in any such suit, proceeding or action.
(c) The Company will keep and maintain at its own cost and expense
reasonably satisfactory and complete records of the Collateral, and shall mark
such records to evidence this Agreement and the Liens and the security interests
created hereby. For the Trustee's and the Holders' further security, the
Trustee, for the ratable benefit of the Holders, shall have a security interest
in all of the Company's books and records pertaining to the Collateral, and the
Company shall permit the Trustee or its representatives to review such books and
records upon reasonable advance notice during normal business hours at the
location where such books and records are kept and at the reasonable request of
the Trustee.
(d) Upon reasonable advance notice to the Company and at reasonable
intervals, or at any time and from time to time after the occurrence and during
the continuance of an Event of Default, the Trustee and its representatives
shall have reasonable access during normal business hours to all the books,
correspondence and records of the Company, and the Trustee and
<PAGE>
15
its representatives may examine the same, and to the extent reasonable take
extracts therefrom and make photocopies thereof, and the Company agrees to
render to the Trustee, at the Company's reasonable cost and expense, such
clerical and other assistance as may be reasonable requested with regard
thereto.
(e) The Company will comply in all material respects with all Requirements
of Law applicable to the Collateral or any part thereof, except to the extent
that the failure to so comply would not be reasonably expected to materially
adversely affect in the aggregate the Trustee's or the Holders' rights
hereunder, the priority of their Liens on the Collateral or the value of the
Collateral.
(f) The Company will furnish to the Trustee from time to time such
statements and schedules further identifying and describing the Collateral, and
such other reports in connection with the Collateral, as the Trustee may
reasonably request, all in reasonable detail.
(g) The Company agrees that, should it obtain an ownership interest in any
Patent Collateral or Trademark Collateral, which is not now a part of the
Collateral, (i) the provisions of Section 2 shall automatically apply thereto,
(ii) any such Patent Collateral and Trademark Collateral shall automatically
become part of the Collateral, and (iii) with respect to any ownership interest
in any Patent Collateral or Trademark Collateral that the Company should obtain
which the Company reasonably deems is material to its business, it shall give
notice thereof to the Trustee in writing, in reasonable detail, at its address
set forth in the Indenture within thirty (30) business days after acquiring such
ownership interest. The Company authorizes the Trustee to modify this Agreement
by amending Schedule 1 and Schedule 2 (and will cooperate reasonably with the
Trustee in effecting any such amendment) to include on Schedule 1 any Patent or
Patent License and on Schedule 2 any Trademark and Trademark License of which it
receives notice under this Section.
(h) The Company agrees to take all necessary steps, including, without
limitation, in the United States Patent and Trademark Office or in any court, to
(i) maintain each Patent and each Patent License identified on Schedule 1
hereto, and (ii) pursue each patent application, now or hereafter identified in
Schedule 1 hereto, including, without limitation, the filing of divisional,
continuation, continuation-in-part and substitute applications, the filing of
applications for reissue, renewal or extensions, the payment of maintenance
fees, and the participation in interference, reexamination, opposition,
infringement and misappropriation proceedings, except, in each case in which the
Company has reasonably determined that any of the foregoing is not of material
economic value to it. The Company agrees to take corresponding steps with
respect to each new or acquired patent, patent application, or any rights
obtained under any Patent License, in each case, which it is now or later
becomes entitled, except in each case in which the Company has reasonably
determined that any of the foregoing is not of material economic value to it.
Any expenses incurred in connection with such activities shall be borne by the
Company.
(i) The Company agrees to take all necessary steps, including, without
limitation, in the United States Patent and Trademark Office or in any court, to
(i) maintain each trademark registration and each Trademark License identified
on Schedule 2 hereto, and (ii) pursue each
<PAGE>
16
trademark application now or hereafter identified in Schedule 2 hereto,
including, without limitation, the filing of responses to office actions issued
by the United States Patent and Trademark Office, the filing of applications for
renewal, the filing of affidavits under Sections 8 and 15 of the United States
Trademark Act, and the participation in opposition, cancellation, infringement
and misappropriation proceedings, except, in each case in which the Company has
reasonably determined that any of the foregoing is not of material economic
value to it. The Company agrees to take corresponding steps with respect to each
new or acquired trademark registration, trademark application or any rights
obtained under any Trademark License, in each case, which it is now or later
becomes entitled, except in each case in which the Company has reasonably
determined that any of the foregoing is not of material economic value to it.
Any expenses incurred in connection with such activities shall be borne by the
Company.
(j) The Company shall not abandon any trademark registration, patent or any
pending trademark or patent application, without the written consent of the
Trustee, unless the Company shall have previously determined that such use or
the pursuit or maintenance of such trademark registration, patent or pending
trademark or patent application is not of material economic value to it, in
which case, the Company will, at least annually, give notice of any such
abandonment to the Trustee in writing, in reasonable detail, at its address set
forth in the Indenture.
(k) In the event that the Company becomes aware that any item of the
Collateral which the Company has reasonably determined to be material to its
business is infringed or misappropriated by a third party, the Company shall
notify the Trustee promptly and in writing, in reasonable detail, at its address
set forth in the Indenture, and shall take such actions as the Company or the
Trustee deems reasonably appropriate under the circumstances to protect such
Collateral, including, without limitation, suing for infringement or
misappropriation and for an injunction against such infringement or
misappropriation. Any expense incurred in connection with such activities shall
be borne by the Company. The Company will advise the Trustee promptly and in
writing, in reasonable detail, at its address set forth in the Indenture, of any
adverse determination or the institution of any proceeding (including, without
limitation, the institution of any proceeding in the United States Patent and
Trademark Office or any court) regarding any item of the Collateral which has a
material adverse effect on (i) the business, operations, property, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries taken
as a whole or (ii) the validity or enforceability of this Agreement, any of the
other Security Documents or the Indenture or the rights or remedies of the
Trustee or the Holders hereunder or thereunder.
(l) The Company shall mark its products with the trademark registration
symbol (R), the numbers of all appropriate patents, the common law trademark
symbol (TM), or the designation "patent pending," as the case may be, to the
extent that it is reasonably and commercially practicable.
(m) The Company will not create, incur or permit to exist, will defend the
Collateral against, and will take such other action as is reasonably necessary
to remove, any Lien or material adverse claim on or to any of the Collateral,
other than non-exclusive licenses granted
<PAGE>
17
in the ordinary course of business, the Liens created by this Agreement and
Permitted Liens and will defend the right, title and interest of the Trustee and
the Holders in and to any of the Collateral against the claims and demands of
all Persons whomsoever.
(n) Without the prior written consent of the Trustee, the Company will not
sell, assign, transfer, exchange or otherwise dispose of, or grant any option
with respect to, the Collateral, or attempt, offer or contract to do so, except
with respect to non-exclusive licenses in the ordinary course of business or as
expressly permitted by the Indenture and the Security Documents or as permitted
under the Bank Credit Agreement.
(o) The Company will advise the Trustee promptly, in reasonable detail, at
its address set forth in the Indenture, (i) of any Lien (other than Liens
created hereby or Permitted Liens) on, or material adverse claim asserted
against, Patents or Trademarks and (ii) of the occurrence of any other event
which would reasonably be expected in the aggregate to have a material adverse
effect on the aggregate value of the Collateral or the Liens created hereunder.
8 Remedies.
8.1 Notice to Account Debtors and Contract Parties. Upon the request of the
Trustee at any time after the occurrence and during the continuance of an Event
of Default, the Company shall notify account debtors on the Accounts and parties
to the Contracts that the Accounts and the Contracts have been assigned to the
Trustee for the ratable benefit of the Holders and that payments in respect
thereof shall be made directly to the Trustee.
8.2 Proceeds to be Turned Over To Trustee. In addition to the rights of the
Trustee and the Holders specified in subsection hereof with respect to payments
of Accounts, if an Event of Default shall occur and be continuing, all Proceeds
received by the Company consisting of cash, checks and other near-cash items
shall be held by the Company in trust for the Trustee and the Holders,
segregated from other funds of the Company, and shall, forthwith upon receipt by
the Company, be turned over to the Trustee in the exact form received by the
Company (duly indorsed by the Company to the Trustee, if required) and held by
the Trustee in a Collateral Account maintained under the sole dominion and
control of the Trustee. All Proceeds while held by the Trustee in a Collateral
Account (or by the Company in trust for the Trustee and the Holders) shall
continue to be held as collateral security for all the Obligations and shall not
constitute payment thereof until applied as provided in subsection hereof.
8.3 Application of Proceeds. At such intervals as may be agreed upon by the
Company and the Trustee, or, if an Event of Default shall have occurred and be
continuing, at any time at the Trustee's election, the Trustee may apply all or
any part of Proceeds held in any Collateral Account in payment of the
Obligations in such order as the Trustee may elect, and any part of such funds
which the Trustee elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the Trustee
to the Company or to whomsoever may be lawfully entitled to receive the same.
Any balance of such Proceeds remaining after the Obligations shall have been
paid in full shall be paid over to the Company or to whomsoever may be lawfully
entitled to receive the same.
<PAGE>
18
8.4 Code Remedies. If an Event of Default shall occur and be continuing,
the Trustee, on behalf of the Holders may exercise, in addition to all other
rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Trustee, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Company or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any exchange, broker's board or office of the Trustee or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Trustee or any Holder shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Company, which right or equity is
hereby waived or released. The Company further agrees, at the Trustee's request,
to assemble the Collateral and make it available to the Trustee at places which
the Trustee shall reasonably select, whether at the Company's premises or
elsewhere. The Trustee shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Trustee and the Holders hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Obligations, in such order as the Trustee may elect,
and only after such application and after the payment by the Trustee of any
other amount required by any provision of law, including, without limitation,
Section 9-504(1)(c) of the Code, need the Trustee account for the surplus, if
any, to the Company. To the extent permitted by applicable law, the Company
waives all claims, damages and demands it may acquire against the Trustee or any
Holder arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least ten
(10) days before such sale or other disposition.
8.5 Deficiency. The Company shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Trustee or any Holder to collect such deficiency.
9 Trustee's Appointment as Attorney-in-Fact; Trustee's Performance of
Company's Obligations.
9.1 Powers. The Company hereby irrevocably constitutes and appoints the
Trustee and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of the Company
<PAGE>
19
and in the name of the Company or in its own name, from time to time in the
Trustee's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement, and, without limiting the generality of the
foregoing, the Company hereby gives the Trustee the power and right, on behalf
of the Company, without notice to or assent by the Company, to do the following:
(a) in the case of any Account, at any time when the authority of the
Company to collect the Accounts has been curtailed or terminated pursuant to
subsection hereof, or in the case of any other Collateral, at any time when any
Event of Default shall have occurred and is continuing, in the name of the
Company or its own name, or otherwise, to take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any Account, Instrument, General Intangible or
Contract or with respect to any other Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Trustee for the purpose of collecting any and all such
moneys due under any Account, Instrument, General Intangible or Contract or with
respect to any other Collateral whenever payable;
(b) in the case of any Patents or Trademarks, to execute and deliver any
and all agreements, instruments, documents, and papers as the Trustee may
request to evidence the Trustee's and the Holders' security interest in any
Patent or Trademark and the goodwill and general intangibles of the Company
relating thereto or represented thereby;
(c) to pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral, to effect any repairs or any insurance called for by the
terms of this Agreement and to pay all or any part of the premiums therefor and
the costs thereof;
(d) to execute, in connection with the sale provided for in subsection
hereof, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(e) upon the occurrence and during the continuance of any Event of Default,
(i) to direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Trustee or as the Trustee shall direct; (ii) to ask or demand for, collect,
receive payment of and receipt for, any and all moneys, claims and other amounts
due or to become due at any time in respect of or arising out of any Collateral;
(iii) to sign and indorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (iv) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of any
Collateral; (v) to defend any suit, action or proceeding brought against the
Company with respect to any Collateral; (vi) to settle, compromise or adjust any
such suit, action or proceeding and, in connection therewith, to give such
discharges or releases as the Trustee may deem appropriate; (vii) to assign any
Patent or Trademark (along with the goodwill of the business to which any such
Patent or Trademark
<PAGE>
20
pertains), throughout the world for such term or terms, on such conditions, and
in such manner, as the Trustee shall in its sole discretion determine; and
(viii) generally, to sell, transfer, pledge and make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Trustee were the absolute owner thereof for all purposes, and to do,
at the Trustee's option and the Company's expense, at any time, or from time to
time, all acts and things which the Trustee deems necessary to protect, preserve
or realize upon the Collateral and the Trustee's and the Holders' security
interests therein and to effect the intent of this Agreement, all as fully and
effectively as the Company might do.
9.2 Performance by Trustee of Company's Obligations. If the Company fails
to perform or comply with any of its agreements contained herein, the Trustee,
at its option, but without any obligation so to do, may perform or comply, or
otherwise cause performance or compliance, with such agreement.
9.3 Company's Reimbursement Obligation. The expenses of the Trustee
incurred in connection with actions undertaken as provided in this Section 9,
together with interest thereon at a rate per annum equal to the 12%, from the
date of payment by the Trustee to the date reimbursed by the Company, shall be
payable by the Company to the Trustee on demand.
9.4 Ratification; Power Coupled With An Interest. The Company hereby
ratifies all that said attorneys shall lawfully do or cause to be done by virtue
hereof. All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated
and the security interests created hereby are released.
10 Duty of Trustee. The Trustee's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the same
manner as the Trustee deals with similar property for its own account. Neither
the Trustee, any Holder nor any of their respective directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Company or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on the
Trustee and the Holders hereunder are solely to protect the Trustee's and the
Holders' interests in the Collateral and shall not impose any duty upon the
Trustee or any Holder to exercise any such powers. The Trustee and the Holders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to the Company for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
11 Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, the Company authorizes the Trustee to file financing statements with
respect to the Collateral without the signature of the Company in such form and
in such filing offices as the Trustee reasonably determines appropriate to
perfect the security interests of the Trustee under this
<PAGE>
21
Agreement. A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement for filing in any jurisdiction.
12 Authority of Trustee. The Company acknowledges that the rights and
responsibilities of the Trustee under this Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between the
Trustee and the Holders, be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Trustee and the Company, the Trustee shall be conclusively
presumed to be acting as trustee for the Holders with full and valid authority
so to act or refrain from acting, and the Company shall be under no obligation,
or entitlement, to make any inquiry respecting such authority.
13 Notices. All notices, requests and demands to or upon the respective
parties hereto shall be made in accordance with subsection 12.2 of the
Indenture.
14 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15 Amendments in Writing; No Waiver; Cumulative Remedies. None of the terms
or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except in accordance with Article IX of the Indenture. This
Agreement shall be binding upon the successors and assigns of the Company and
shall inure to the benefit of the Trustee and the Holders and their respective
successors and assigns, except that the Company may not assign, transfer or
delegate any of its rights or obligations under this Agreement without the prior
written consent of the Trustee.
16 Section Headings. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
17 Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Company and shall inure to the benefit of the
Trustee and the Holders and their successors and assigns.
18 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
19 Release of Collateral and Termination. (a) At such time as the payment
in full of the Securities and the other Obligations then due and owing shall
have occurred, the
<PAGE>
22
Collateral shall be released from the Liens created hereby, and this Agreement
and all obligations (other than those expressly stated to survive such
termination) of the Trustee and the Company hereunder shall terminate, all
without delivery of any instrument or performance of any act by any party, and
all rights to the Collateral shall revert to the Company unless such reversion
would be inconsistent with the Subordination Agreement. Upon request of the
Company following any such termination, the Trustee shall deliver (at the sole
cost and expense of the Company) any Collateral held by the Trustee hereunder,
and execute and deliver (at the sole cost and expense of the Company) to the
Company such documents as the Company shall reasonably request to evidence such
termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by the Company in a transaction permitted by the Indenture or the
Bank Credit Agreement, then the Trustee shall execute and deliver to the Company
(at the sole cost and expense of the Company) all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral.
20 Subordination. Each of the Company and the Trustee (for itself in that
capacity and on behalf of the Holders) acknowledge that the security interests
in the Collateral granted, confirmed and/or reaffirmed pursuant to this
Agreement or otherwise held by the Trustee or any Holder are subordinated in
priority to the security interests in the Collateral held by the holder of the
Senior Indebtedness as provided in, and the rights (including the right to
payment) and remedies of the Trustee hereunder and of the Holders are
subordinated and subject to the terms and provisions of, the Subordination
Agreement.
21 Incorporation of Certain Indenture Provisions. All provisions of Article
VII of the Indenture shall be construed as extending to and including all of the
rights, duties and obligations imposed upon the Trustee under this Agreement as
fully and for all purposes as if said Article VII were contained in this
Agreement.
<PAGE>
23
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.
LONDON FOG INDUSTRIES, INC.
By:
------------------------------
Name: Edward M. Krell
Title: Chief Financial Officer
<PAGE>
Schedule 1
PATENTS AND PATENT LICENSES
<PAGE>
Schedule 2
TRADEMARKS AND TRADEMARK LICENSES
<PAGE>
Schedule 3
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
COMPANY JURISDICTION
London Fog Industries, Inc. Secretary of State, CALIFORNIA
Clerk of SAN BERNADINO COUNTY,
California
Clerk of SANTA CLARA COUNTY,
California
Clerk of SOLANO COUNTY, California
Clerk of the Superior Court, BANKS
COUNTY, Georgia
Clerk of HENRY COUNTY, Georgia
Clerk of the Superior Court,
CHATHAM COUNTY, Georgia
Clerk of the Superior Court,
GORDON COUNTY,Georgia
Clerk of the Superior Court,
LOWDENS COUNTY, Georgia
Clerk of the Superior Court, WHITE
COUNTY, Georgia
Clerk of the Superior Court,
WILKES COUNTY, Georgia
Secretary of State, ILLINOIS
<PAGE>
2
COMPANY JURISDICTION
Clerk of DOUGLASS COUNTY, Illinois
<PAGE>
3
COMPANY JURISDICTION
London Fog Industries, Inc. Department of Assessments and
Taxation, MARYLAND
Clerk of the Circuit Court,
BALTIMORE CITY, Maryland
Clerk of the Circuit Court, CARROLL
COUNTY, Maryland
Clerk of the Circuit Court,
WASHINGTON COUNTY, Maryland
Secretary of the Commonwealth,
MASSACHUSETTS
Registry of Deeds, BARNSTABLE
COUNTY, Massachusetts
Clerk of the Town, BOURNE,
Massachusetts
Clerk of the Town, SAGAMORE,
Massachusetts
Registry of Deeds, BERKSHIRE
COUNTY, Massachusetts
Clerk of the Town, LENOX,
Massachusetts
Registry of Deeds, BRISTOL COUNTY,
Massachusetts
Clerk of the Town, FALL RIVER,
Massachusetts
Clerk of the Town, NEW BEDFORD,
Massachusetts
Clerk of the Town, TAUNTO,
Massachusetts
Secretary of State, NEW YORK
<PAGE>
4
COMPANY JURISDICTION
County Clerk, CLINTON COUNTY,
New York
London Fog Industries, Inc. County Clerk, DUCHESS COUNTY,
New York
County Clerk, NIAGARA COUNTY,
New York
County Clerk, ONEIDA COUNTY,
New York
County Clerk, ORANGE COUNTY,
New York
County Clerk, STEUBEN COUNTY,
New York
County Clerk, SULLIVAN COUNTY,
New York
County Clerk, WARREN COUNTY,
New York
City Register, NEW YORK COUNTY,
New York
Secretary of State, TENNESSEE
Clerk of CUMBERLAND COUNTY,
Tennessee
Secretary of State, TEXAS
Clerk of HAYS COUNTY, Texas
Secretary of Commonwealth,
VIRGINIA
State Corporation Commission,
VIRGINIA
Clerk of the Circuit Court,
AUGUSTA COUNTY, Virginia
<PAGE>
5
COMPANY JURISDICTION
Clerk of the Circuit Court, JAMES
CITY COUNTY, Virginia
London Fog Industries, Inc. Clerk of the Circuit Court, PRINCE
WILLIAM COUNTY, Virginia
Clerk of the Circuit Court, WYTHE
COUNTY, Virginia
Secretary of State, WASHINGTON
Patent and Trademark Filings
UCC filings and filing of the Borrower Patent and Trademark Security Agreement
with the United States Patent and Trademark Office.
Other Actions
None.
<PAGE>
Schedule 4
LOCATION OF INVENTORY AND EQUIPMENT
Item Location
<PAGE>
EXHIBIT F
AMENDED AND RESTATED SUBSIDIARY GUARANTEE
AMENDED AND RESTATED SUBSIDIARY GUARANTEE, dated as of
February 27, 1998, made by each of the corporations that are signatories hereto
(the "Guarantors"), in favor of IBJ Schroder Bank & Trust Company as trustee (in
such capacity, the "Trustee") for the Holders under, and as defined in, the
Indenture, dated as of even date herewith (as amended, supplemented or otherwise
modified from time to time, the "Indenture"), between London Fog Industries,
Inc., a Delaware corporation (the "Company"), and the Trustee.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of May 20,
1994 (as amended, supplemented or otherwise modified prior to May 31, 1995, the
"Original Credit Agreement"), among the Company, The Chase Manhattan Bank
(formerly known as Chemical Bank), as agent (in such capacity, the "Original
Agent") for the several banks and other financial institutions from time to time
parties thereto (the "Original Lenders") and the Original Lenders, the Original
Lenders made certain loans and other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the
Original Credit Agreement, the Guarantors executed and delivered to the Original
Agent, for the benefit of the Original Lenders, the Subsidiary Guarantee, dated
as of May 20, 1994 (as amended, supplemented or otherwise modified prior to May
31, 1995, the "Original Guarantee"), pursuant to which each Guarantor, jointly
and severally for the benefit of the Original Agent and the Original Lenders,
guaranteed the prompt and complete payment and performance by the Company of the
Obligations (as defined in the Original Guarantee);
WHEREAS, the Company, the Original Agent and the Original
Lenders agreed to restructure the obligations of the Company under the Original
Credit Agreement by means of, among other things, the execution and delivery of
the Master Restructuring Agreement, dated as of May 31, 1995 (as heretofore
amended, supplemented or otherwise modified, the "Existing MRA"), among the
Company, the Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of
the Existing MRA, the Company executed and delivered (a) the Term Loan
Agreement, dated as of May 31, 1995 (as heretofore amended, supplemented or
otherwise modified, the "Term Loan Agreement"), among the Company, The Chase
Manhattan Bank (formerly known as Chemical Bank), as agent (in such capacity,
the "Term Loan Agent") for the several banks and other financial institutions
from time to time parties thereto (the "Term Loan Lenders") and the Term Loan
Lenders and (b) the Note Agreement, dated as of May 31, 1995 (as heretofore
amended,
<PAGE>
2
supplemented or otherwise modified, the "Note Agreement" and, together with the
Term Loan Agreement, collectively, the "Existing Agreements"), among the
Company, The Chase Manhattan Bank (formerly known as Chemical Bank), as agent
(in such capacity and also in its capacity as the Term Loan Agent, the "Agent")
for the several banks and other financial institutions from time to time parties
thereto (the "Note Lenders" and, together with the Term Loan Lenders,
collectively, the "Lenders") and the Note Lenders, pursuant to which the Lenders
made certain loans to the Company;
WHEREAS, in connection with the execution and delivery of the
Existing MRA and the Existing Agreements, the Guarantors executed and delivered
to the Agent, for the benefit of the Lenders, Amendment No. 1 to the Subsidiary
Guarantee, dated as of May 31, 1995 (the Original Guarantee as amended,
supplemented or otherwise modified by such Amendment No. 1, the "Existing
Guarantee"), pursuant to which the Guarantors, jointly and severally for the
benefit of the Agent and the Lenders, guaranteed the prompt and complete payment
and performance by the Company of the Obligations (as defined in the Existing
Guarantee);
WHEREAS, the Company, the Agent and the Lenders have agreed to
restructure the obligations of the Company under the Existing Agreements by
means of, among other things, the execution and delivery of the Indenture and
the Master Restructuring Agreement, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "MRA"), among the
Company, the Agent and the Lenders, among others; and
WHEREAS, it is a condition precedent to the effectiveness of
the MRA and the obligation of the Agent and the Lenders to consummate the
restructuring contemplated thereby, that, among other things, the Guarantors
shall have executed and delivered this Guarantee to the Trustee, for the benefit
of the Holders.
NOW, THEREFORE, in consideration of the premises and to induce
the Agent and the Lenders to restructure the obligations of the Company under
the Existing Agreements and to induce the Trustee to enter into the Indenture,
the Guarantors hereby agree with the Trustee, for the benefit of the Holders,
that the Existing Guarantee shall be and hereby is amended and restated in its
entirety as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms
defined in the Indenture and used herein shall have the meanings given to them
in the Indenture. The following terms shall have the following meanings:
"Guarantee": this Amended and Restated Subsidiary Guarantee,
as the same may be amended, supplemented, waived or otherwise modified
from time to time.
"Obligations" as used herein means the unpaid principal of and
interest on (including, without limitation, interest accruing after the
Stated Maturity of the Securities and interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Company,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) the Securities and all other obligations
and liabilities of the Company to the Trustee or to any
<PAGE>
3
Holder, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Guarantee, the Indenture,
the MRA, the other Restructuring Documents (as defined in the MRA) or
any other document made, delivered or given in connection herewith or
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees, charges and disbursements of counsel to the
Trustee or one counsel selected by the Holders that are required to be
paid by the Company pursuant to this Guarantee or the Indenture) or
otherwise.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Guarantee shall refer to this Guarantee as a
whole and not to any particular provision of this Guarantee, and section
references are to this Guarantee unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Guarantee (a) Each of the Guarantors hereby confirms and
reaffirms its guarantee of the Obligations (as defined in the Existing
Guarantee) pursuant to the Existing Guarantee, which Existing Guarantee is
replaced hereby. Subject to the provisions of Section , each of the Guarantors
hereby, jointly and severally, unconditionally and irrevocably, guarantees to
the Trustee, for the ratable benefit of the Holders and their respective
successors, indorsees, transferees and assigns, the prompt and complete payment
and performance by the Company when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
(b) Anything herein or in the Indenture or any Security
Document to the contrary notwithstanding, the maximum liability of each
Guarantor hereunder and under the Indenture and the Security Documents shall in
no event exceed the amount which can be guaranteed by such Guarantor under
applicable federal and state laws relating to the insolvency of debtors.
(c) Each Guarantor further agrees to pay any and all expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by the Trustee or any Holder in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting, any
or all of the Obligations and/or enforcing any rights with respect to, or
collecting against, such Guarantor under this Guarantee. This Guarantee shall
remain in full force and effect until the Obligations are paid in full.
(d) Each Guarantor agrees that the Obligations may at any time
and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing this Guarantee or affecting the rights and remedies
of the Trustee or any Holder hereunder.
(e) No payment or payments made by the Company, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Trustee or any Holder from the Company, any of the Guarantors, any other
guarantor or any other Person by virtue of any
<PAGE>
4
action or proceeding or any set-off or appropriation or application at any time
or from time to time in reduction of or in payment of the Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of any
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by such Guarantor in respect of the Obligations or
payments received or collected from such Guarantor in respect of the
Obligations, remain liable for the Obligations up to the maximum liability of
such Guarantor hereunder until the Obligations are paid in full.
(f) Each Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Trustee or any Holder on account
of its liability hereunder, it will notify the Trustee in writing that such
payment is made under this Guarantee for such purpose.
3. Right of Contribution. Each Guarantor hereby agrees that to
the extent that a Guarantor shall have paid more than its proportionate share of
any payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder who has not paid its
proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section hereof. The provisions
of this Section 3 shall in no respect limit the obligations and liabilities of
any Guarantor to the Trustee and the Holders, and each Guarantor shall remain
liable to the Trustee and the Holders for the full amount guaranteed by such
Guarantor hereunder.
4. Right of Set-off. Each Guarantor hereby irrevocably
authorizes the Trustee and each Holder at any time and from time to time without
notice to such Guarantor or any other Guarantor, any such notice being expressly
waived by each Guarantor, to set-off and appropriate and apply any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Trustee or such Holder to or for the
credit or the account of such Guarantor, or any part thereof in such amounts as
the Trustee or such Holder may elect, against and on account of the obligations
and liabilities of such Guarantor to the Trustee or such Holder hereunder and
claims of every nature and description of the Trustee or such Holder against
such Guarantor, in any currency, whether arising hereunder, under the Indenture,
any Security Document or otherwise, as the Trustee or such Holder may elect,
whether or not the Trustee or any Holder has made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Trustee and each Holder shall notify such Guarantor promptly of
any such set-off and the application made by the Trustee or such Holder,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Trustee and each Holder under
this Section 4 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Trustee or such Holder may have.
5. No Subrogation. Notwithstanding any payment or payments
made by any of the Guarantors hereunder or any set-off or application of funds
of any of the Guarantors by any Trustee, no Guarantor shall be entitled to be
subrogated to any of the rights of the Trustee or any Holder against the Company
or any other Guarantor or any collateral security or guarantee or right of
offset held by any Holder for the payment of the Obligations, nor shall any
Guarantor seek or be entitled to seek any contribution or reimbursement from the
Company or any other
<PAGE>
5
Guarantor in respect of payments made by such Guarantor hereunder, until all
amounts owing to the Trustee and the Holders by the Company on account of the
Obligations are paid in full. If any amount shall be paid to any Guarantor on
account of such subrogation rights at any time when all of the Obligations shall
not have been paid in full, such amount shall be held by such Guarantor in trust
for the Trustee and the Holders, segregated from other funds of such Guarantor,
and shall, forthwith upon receipt by such Guarantor, be turned over to the
Trustee in the exact form received by such Guarantor (duly indorsed by such
Guarantor to the Trustee, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Trustee may determine.
6. Amendments, etc. with respect to the Obligations; Waiver of
Rights. Each Guarantor shall remain obligated hereunder notwithstanding that,
without any reservation of rights against any Guarantor and without notice to or
further assent by any Guarantor, any demand for payment of any of the
Obligations made by the Trustee or any Holder may be rescinded by such party and
any of the Obligations continued, and the Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security, or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Trustee, and the Indenture
and the Security Documents and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, in accordance with Article IX of the Indenture, and any
collateral security, guarantee or right of offset at any time held by the
Trustee or any Holder for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Trustee nor any Holder shall have
any obligation to protect, secure, perfect or insure any Lien at any time held
by it as security for the Obligations or for this Guarantee or any property
subject thereto. When making any demand hereunder against any of the Guarantors,
the Trustee or any Holder may, but shall be under no obligation to, make a
similar demand on the Company or any other Guarantor or guarantor, and any
failure by the Trustee or any Holder to make any such demand or to collect any
payments from the Company or any such other Guarantor or guarantor or any
release of the Company or such other Guarantor or guarantor shall not relieve
any of the Guarantors in respect of which a demand or collection is not made or
any of the Guarantors not so released of their several obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of the Trustee or any Holder against
any of the Guarantors. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
7. Guarantee Absolute and Unconditional. Each Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Trustee or any Holder upon
this Guarantee or acceptance of this Guarantee, the Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred,
or renewed, extended, amended or waived, in reliance upon this Guarantee; and
all dealings between the Company and any of the Guarantors, on the one hand, and
the Trustee and the Holders, on the other hand, likewise shall be conclusively
presumed to have been had or consummated in reliance upon this Guarantee. Each
Guarantor waives diligence, presentment, protest, demand for payment and notice
of default or nonpayment to or upon the Company or any of the Guarantors with
respect to the Obligations. Each Guarantor
<PAGE>
6
understands and agrees that this Guarantee shall be construed as a continuing,
absolute and unconditional guarantee of payment without regard to (a) the
validity, regularity or enforceability of the Indenture, any other Guarantee,
any Security Document, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Trustee or any Holder, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Company against the Trustee or any
Holder, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Company or such Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Company for the
Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against any
Guarantor, the Trustee and any Holder may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Company or any other
Person or against any collateral security or guarantee for the Obligations or
any right of offset with respect thereto, and any failure by the Trustee or any
Holder to pursue such other rights or remedies or to collect any payments from
the Company or any such other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
the Company or any such other Person or any such collateral security, guarantee
or right of offset, shall not relieve such Guarantor of any liability hereunder,
and shall not impair or affect the rights and remedies, whether express, implied
or available as a matter of law, of the Trustee and the Holders against such
Guarantor. This Guarantee shall remain in full force and effect and be binding
in accordance with and to the extent of its terms upon each Guarantor and the
successors and assigns thereof, and shall inure to the benefit of the Trustee
and the Holders, and their respective successors, indorsees, transferees and
assigns, until all the Obligations and the obligations of each Guarantor under
this Guarantee shall have been satisfied by payment in full.
8. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Trustee or any Holder upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Company or any
Guarantor or any substantial part of its property, or otherwise, all as though
such payments had not been made.
9. Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Trustee without set-off or counterclaim in U.S.
Legal Tender at the office of the Trustee set forth in Section 12.2 of the
Indenture.
10. Representations and Warranties; Covenants. (a) Each
Guarantor hereby represents and warrants that the representations and warranties
set forth in Section 6 of the MRA as they relate to such Guarantor or the
Restructuring Documents (as defined in the MRA) or the Security Documents to
which such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Trustee and each Holder shall be
entitled to rely on each of them as if they were fully set forth herein,
provided that each reference in each such representation and warranty to the
Company's knowledge shall, for the purposes of this paragraph (a), be deemed to
be a reference to such Guarantor's knowledge.
<PAGE>
7
(b) Each Guarantor hereby covenants and agrees with the
Trustee and each Holder that, from and after the date of this Guarantee until
the Obligations are paid in full, such Guarantor shall take, or shall refrain
from taking, as the case may be, all actions that are necessary to be taken or
not taken so that no violation of any provision, covenant or agreement contained
in Article IV of the Indenture, and so that no Default or Event of Default, is
caused by any act or failure to act of such Guarantor or any of its
Subsidiaries.
11. Authority of Trustee. Each Guarantor acknowledges that the
rights and responsibilities of the Trustee under this Guarantee with respect to
any action taken by the Trustee or the exercise or non-exercise by the Trustee
of any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Guarantee shall, as between the
Trustee and the Holders, be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Trustee and such Guarantor, the Trustee shall be conclusively
presumed to be acting as Trustee for the Holders with full and valid authority
so to act or refrain from acting, and no Guarantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.
12. Notices. All notices, requests and demands pursuant hereto
shall be made in accordance with subsection 12.2 of the Indenture, provided,
that any such notice, request or demand to or upon any Guarantor shall be
addressed to such Guarantor at the notice address set forth under its signature
below.
13. Counterparts. This Guarantee may be executed by one or
more of the Guarantors on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the counterparts of this Guarantee signed by all the
Guarantors shall be lodged with the Trustee.
14. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Integration. This Guarantee represents the agreement of
each Guarantor with respect to the subject matter hereof and there are no
promises or representations by the Trustee or any Holder relative to the subject
matter hereof not reflected herein.
16. Amendments in Writing; No Waiver; Cumulative Remedies;
Successors and Assigns. None of the terms or provisions of this Guarantee may be
waived, amended, supplemented or otherwise modified except by a written
instrument executed by the affected Guarantor(s) and the Trustee in accordance
with Article IX of the Indenture. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of the
Trustee and the Holders and their respective successors and assigns, except that
no Guarantor may assign, transfer or delegate any of its rights or obligations
under this Guarantee without the prior written consent of the Trustee.
<PAGE>
8
17. Section Headings. The section headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
18. Successors and Assigns. This Guarantee shall be binding
upon the successors and assigns of each Guarantor and shall inure to the benefit
of the Trustee and the Holders and their successors and assigns.
19. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
20. Termination. This Guarantee shall remain in full force and
effect and be binding upon each Guarantor and the successors and assigns
thereof, and shall inure to the benefit of the Trustee and the Holders, and
their respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of each Guarantor under this Guarantee shall
have been satisfied by payment in full. At the request and expense of the
Company, a Guarantor shall be released from its obligations hereunder in the
event that all the capital stock of such Guarantor shall be sold, transferred or
otherwise disposed of in accordance with the terms of the Indenture and the Bank
Credit Agreement; provided that the Company shall have delivered to the Trustee,
at least ten (10) Business Days prior to the date of the proposed release, a
written request for release identifying the relevant Guarantor and the terms of
the sale or other disposition in reasonable detail, including the price thereof
and any expenses in connection therewith, together with a certification by the
Company stating that such transaction is in compliance with the Indenture and
the Bank Credit Agreement.
21. Subordination. Each of the Guarantors and the Trustee (for
itself in that capacity and on behalf of the Holders) acknowledge that all
liabilities and obligations of the Guarantors provided, confirmed and/or
reaffirmed pursuant to this Guarantee are subordinated in right of payment to
the Senior Indebtedness pursuant to, and the rights and remedies of the Trustee
hereunder, are subject to the terms and provisions of, the Subordination
Agreement.
22. Submission To Jurisdiction; Waivers. Each Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee, the Indenture and the Security Documents
to which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of the
State of New York, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
<PAGE>
9
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, at its
address set forth under its signature below;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this Section 21 any special, exemplary, punitive or consequential damages.
23. WAIVERS OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTEE THE INDENTURE OR ANY SECURITY DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
24. Incorporation of Certain Indenture Provisions. All
provisions of Article VII of the Indenture shall be construed as extending to
and including all of the rights, duties and obligations imposed upon the Trustee
under this Guarantee as fully and for all purposes as if said Article VII were
contained in this Guarantee.
<PAGE>
10
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
CLIPPER MIST, INC.
By:
---------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
LONDON FOG SPORTSWEAR, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
MATTHEW MANUFACTURING CO., INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
11
PACIFIC TRAIL, INC.
By:
-----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
PTI HOLDING CORP.
By:
-----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
PTI TOP COMPANY, INC.
By:
-----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
12
STAR SPORTSWEAR MANUFACTURING
CORP.
By:
-----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
THE MOUNGER CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
THE SCRANTON OUTLET CORPORATION
By:
-----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
13
WASHINGTON HOLDING COMPANY
By:
-----------------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
EXHIBIT G
AMENDED AND RESTATED SUBSIDIARY PATENT
AND TRADEMARK SECURITY AGREEMENT
AMENDED AND RESTATED SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT,
dated as of February 27, 1998, made by each of the corporations signatories
hereto (the "Pledgors"), in favor of IBJ Schroder Bank & Trust Company, as
trustee (in such capacity, the "Trustee") for the Holders under, and as defined
in, the Indenture, dated as of even date herewith (as amended, supplemented or
otherwise modified from time to time, the "Indenture") between London Fog
Industries, Inc., a Delaware corporation (the "Company"), and the Trustee.
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, dated as of May 20, 1994 (as
amended, supplemented or otherwise modified prior to May 31, 1995, the "Original
Credit Agreement"), among the Company, The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent (in such capacity, the "Original Agent") for the
several banks and other financial institutions from time to time parties thereto
(the "Original Lenders") and the Original Lenders, the Original Lenders made
certain loans and other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the Original
Credit Agreement, the Pledgors executed and delivered to the Original Agent, for
the benefit of the Original Lenders, the Subsidiary Patent and Trademark
Security Agreement, dated as of May 20, 1994 (as amended, supplemented or
otherwise modified prior to May 31, 1995, the "Original Patent and Trademark
Security Agreement"), pursuant to which the Pledgors pledged to the Original
Agent, for the benefit of the Original Lenders, the Collateral (as defined in
the Original Patent and Trademark Security Agreement) as collateral security for
the Obligations (as defined in the Original Patent and Trademark Security
Agreement);
WHEREAS, the Company, the Original Agent and the Original Lenders agreed to
restructure the obligations of the Company under the Original Credit Agreement
by means of, among other things, the execution and delivery of the Master
Restructuring Agreement, dated as of May 31, 1995 (as heretofore amended,
supplemented or otherwise modified, the "Existing MRA"), among the Company, the
Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of the Existing
MRA, the Company executed and delivered (a) the Term Loan Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise modified, the
"Term Loan Agreement"), among the Company, The Chase Manhattan Bank (formerly
known as Chemical
<PAGE>
2
Bank), as agent (in such capacity, the "Term Loan Agent") for the several banks
and other financial institutions from time to time parties thereto (the "Term
Loan Lenders") and the Term Loan Lenders and (b) the Note Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise, the "Note
Agreement" and, together with the Term Loan Agreement, collectively, the
"Existing Agreements"), among the Company, The Chase Manhattan Bank (formerly
known as Chemical Bank), as agent (in such capacity and also in its capacity as
the Term Loan Agent, the "Agent") for the several banks and other financial
institutions from time to time parties thereto (the "Note Lenders" and, together
with the Term Loan Lenders, collectively, the "Lenders") and the Note Lenders,
pursuant to which the Lenders made certain loans to the Company;
WHEREAS, in connection with the execution and delivery of the Existing MRA
and the Existing Agreements, the Pledgors executed and delivered to the Agent,
for the benefit of the Lenders, Amendment No. 1 to the Subsidiary Patent and
Trademark Security Agreement, dated as of May 31, 1995 (the Original Patent and
Trademark Security Agreement as amended, supplemented or otherwise modified by
such Amendment No. 1, the "Existing Patent and Trademark Security Agreement"),
pursuant to which the Pledgors granted to the Agent, for the benefit of the
Lenders, a security interest in all the Collateral (as defined in the Existing
Patent and Trademark Security Agreement) as collateral security for the
Obligations (as defined in the Existing Patent and Trademark Security
Agreement);
WHEREAS, the Company, the Agent and the Lenders have agreed to restructure
the obligations of the Company under the Existing Agreements by means of, among
other things, the execution and delivery of the Indenture and the Master
Restructuring Agreement, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "MRA"), among the
Company, the Agent and the Lenders, among others; and
WHEREAS, it is a condition precedent to the effectiveness of the MRA and
the obligation of the Agent and the Lenders to consummate the restructuring
contemplated thereby, that, among other things, the Pledgors shall have executed
and delivered this Agreement to the Trustee, for the benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and to induce the Agent
and the Lenders to restructure the obligations of the Company under the Existing
Agreements and to induce the Trustee to enter into the Indenture, the Pledgors
hereby agree with the Trustee, for the benefit of the Holders, that the Existing
Patent and Trademark Security Agreement shall be and hereby is amended and
restated in its entirety as follows:
1. Defined Terms. (a) Unless otherwise defined herein, capitalized terms defined
in the Indenture are used herein as defined therein. The following terms shall
have the following meanings:
<PAGE>
3
"Agreement": this Amended and Restated Subsidiary Patent and Trademark
Security Agreement, as the same may be amended, supplemented, waived or
otherwise modified from time to time.
"Code": the Uniform Commercial Code as from time to time in effect in
the State of New York.
"Collateral": as defined in Section 2 of this Agreement.
"General Intangibles": as defined in Section 9-106 of the Code,
including, without limitation, all Patents and Trademarks now or hereafter
owned by any Pledgor to the extent such Patents and Trademarks would be
included in General Intangibles under the Code.
"Patent Licenses": all license agreements with any other Person in
connection with any of the Patents or such other Person's patents, whether
the relevant Pledgor is a licensor or a licensee under any such license
agreement, including, without limitation, the license agreements listed on
Schedule 1 attached hereto and made a part hereof, subject, in each case,
to the terms of such license agreements, and the right to prepare for sale,
sell and advertise for sale, all Inventory (as defined in the Subsidiary
Security Agreement) now or hereafter covered by such licenses.
"Patents": all patents, patent applications and patentable inventions,
including, without limitation, all patents and patent applications
identified in Schedule 1 attached hereto and made a part hereof, and
including without limitation (a) all inventions and improvements described
and claimed therein, and patentable inventions, (b) the right to sue or
otherwise recover for any and all past, present and future infringements
and misappropriations thereof, (c) all income, royalties, damages and other
payments now and hereafter due and/or payable with respect thereto
(including, without limitation, payments under all licenses entered into in
connection therewith, and damages and payments for past or future
infringements thereof), and (d) all rights corresponding thereto and all
reissues, divisions, continuations, continuations-in-part, substitutes,
renewals, and extensions thereof, all improvements thereon, and all other
rights of any kind whatsoever of any Pledgor accruing thereunder or
pertaining thereto (Patents and Patent Licenses being, collectively, the
"Patent Collateral").
"Secured Obligations": as defined in the Subsidiary Security
Agreement.
"Trademark Licenses": all license agreements with any other Person in
connection with any of the Trademarks or such other Person's names or
trademarks, whether the relevant Pledgor is a licensor or a licensee under
any such license agreement, including, without limitation, the license
agreements listed on Schedule 2 attached hereto and made a part hereof,
subject, in each case, to the terms of such license agreements, and the
right to prepare for sale, sell and advertise for sale, all Inventory (as
defined in the Subsidiary Security Agreement) now or hereafter covered by
such licenses.
<PAGE>
4
"Trademarks": all trademarks, service marks, trade names, trade dress
or other indicia of trade origin, trademark and service mark registrations,
and applications for trademark or service mark registrations, and any
renewals thereof, including, without limitation, each registration and
application identified in Schedule 2 attached hereto and made a part
hereof, and including without limitation (a) the right to sue or otherwise
recover for any and all past, present and future infringements and
misappropriations thereof, (b) all income, royalties, damages and other
payments now and hereafter due and/or payable with respect thereto
(including, without limitation, payments under all licenses entered into in
connection therewith, and damages and payments for past or future
infringements thereof), and (c) all rights corresponding thereto and all
other rights of any kind whatsoever of any Pledgor accruing thereunder or
pertaining thereto, together in each case with the goodwill of the business
connected with the use of, and symbolized by, each such trademark, service
mark, trade name, trade dress or other indicia of trade origin (Trademarks
and Trademark Licenses being, collectively, the "Trademark Collateral").
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Grant of Security Interest. Each of the Pledgors hereby confirms and
reaffirms its grant of a security interest in the Collateral (as defined in the
Existing Patent and Trademark Security Agreement) pursuant to the Existing
Patent and Trademark Security Agreement, which security interest is hereby
amended and restated to be solely in favor of the Trustee, for the ratable
benefit of the Holders, and shall secure only the Obligations, and which
Existing Patent and Trademark Security Agreement is replaced hereby. As
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the Secured
Obligations each Pledgor hereby assigns, pledges and grants to the Trustee, for
the ratable benefit of the Holders, a security interest in all of the following
property now owned or at any time hereafter acquired by such Pledgor or in which
such Pledgor now has or at any time in the future may acquire any right, title
or interest (collectively, the "Collateral"):
(a) all Patents;
(b) all Patent Licenses;
(c) all Trademarks;
(d) all Trademark Licenses;
<PAGE>
5
(e) all General Intangibles connected with the use of or symbolized by
the Patents and Trademarks; and
(f) to the extent not otherwise included, all Proceeds and products of
any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
3. Pledgors Remain Liable; Limitations on Trustee's and Holders'
Obligations. Anything herein to the contrary notwithstanding, (a) each Pledgor
shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Trustee of any of the rights hereunder shall
not release any Pledgor from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) neither the Trustee
nor any Holder shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Trustee or any Holder be obligated to perform any of the obligations or duties
of any Pledgor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
4. Trustee's Appointment as Attorney-in-Fact.
(a) Powers. Each Pledgor hereby irrevocably constitutes and appoints the
Trustee and any officer or Trustee thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of such Pledgor and in the name of such Pledgor or in its
own name, from time to time in the Trustee's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, such Pledgor hereby gives the Trustee the power
and right, on behalf of such Pledgor, without notice to or assent by such
Pledgor, to do the following:
(i) to execute and deliver any and all agreements, instruments,
documents, and papers as the Trustee may reasonably request to evidence the
Trustee's and the Holders' security interest in any of the Collateral;
(ii) in the name of such Pledgor or its own name, or otherwise, to
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
General Intangible (to the extent that any of the foregoing constitute
Collateral) or with respect to any other Collateral and to file any claim
or to take any other action or institute any proceeding in any court of law
or equity or otherwise deemed appropriate by the Trustee for the purpose of
collecting any and all such moneys due under any such General Intangible or
with respect to any such other Collateral whenever payable;
(iii) to pay or discharge Liens placed on the Collateral, other than
Liens permitted under this Agreement or Permitted Liens; and
<PAGE>
6
(iv) (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Trustee or as the Trustee shall direct; (B) to
ask for, or demand, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any of the Collateral; (C) to sign and indorse
any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications,
notices and other documents in connection with any of the Collateral; (D)
to commence and prosecute any applications, suits, actions or proceedings
at law or in equity in any court of competent jurisdiction or in the United
States Patent and Trademark Office to collect the Collateral or any thereof
and to enforce any other right in respect of any Collateral; (E) to defend
any suit, action or proceeding brought against such Pledgor with respect to
any of the Collateral; (F) to settle, compromise or adjust any suit, action
or proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Trustee may deem appropriate;
(G) subject to any pre-existing rights or licenses, to assign any Trademark
constituting Collateral (along with the goodwill of the business to which
any such Trademark pertains), for such term or terms, on such conditions,
and in such manner, as the Trustee shall in its sole discretion determine;
and (H) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Trustee were the absolute owner thereof for all
purposes, and to do, at the Trustee's option and such Pledgor's expense, at
any time, or from time to time, all acts and things which the Trustee deems
necessary to protect, preserve or realize upon the Collateral and the
Trustee's and the Holders' Liens thereon and to effect the intent of this
Agreement, all as fully and effectively as such Pledgor might do.
Each Pledgor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until payment in full of the Securities and
the other Secured Obligations then due and owing.
(b) Other Powers. Each Pledgor also authorizes the Trustee to execute, in
connection with any sale provided for in Section 7 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
(c) No Duty on the Part of Trustee or Holders. The powers conferred on the
Trustee and the Holders hereunder are solely to protect the Trustee's and the
Holders' interests in the Collateral and shall not impose any duty upon the
Trustee or any Holder to exercise any such powers. The Trustee and the Holders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to any Pledgor for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
5. Performance by Trustee of Pledgors' Secured Obligations. If any Pledgor
fails to perform or comply with any of its agreements contained herein and the
Trustee, as provided for by the terms of this Agreement, shall itself perform or
comply, or otherwise cause
<PAGE>
7
performance or compliance, with such agreement, the reasonable expenses of the
Trustee incurred in connection with such performance or compliance, together
with interest thereon at a rate per annum equal to 12%, shall be payable by any
such Pledgor to the Trustee on demand and shall constitute Secured Obligations
secured hereby.
6. Proceeds. It is agreed that if an Event of Default shall occur and be
continuing, (a) all Proceeds of any Collateral received by any Pledgor
consisting of cash, checks and other near-cash items shall be held by such
Pledgor in trust for the Trustee and the Holders, segregated from other funds of
such Pledgor, and at the request of the Trustee shall, forthwith upon receipt by
such Pledgor, be turned over to the Trustee in the exact form received by such
Pledgor (duly indorsed by such Pledgor to the Trustee, if required by the
Trustee), and (b) any and all such Proceeds received by the Trustee (whether
from such Pledgor or otherwise) may, in the sole discretion of the Trustee, be
held by the Trustee, for the ratable benefit of the Holders, as collateral
security for the Secured Obligations (whether matured or unmatured), and/or then
or at any time thereafter may be applied by the Trustee against, the Secured
Obligations then due and owing. Any balance of such Proceeds remaining after the
payment in full of the Securities and the other Secured Obligations then due and
owing shall be paid over to such Pledgor or to whomsoever may be lawfully
entitled to receive the same.
7. Remedies. If an Event of Default shall occur and be continuing, the
Trustee, on behalf of the Holders, may exercise all rights and remedies of a
secured party under the Code, and, to the extent permitted by law, all other
rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations. Without limiting the generality of the foregoing, the Trustee,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Pledgor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances, to the extent permitted by law, forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any exchange, broker's board or office of the Trustee or any Holder or elsewhere
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Trustee or any Holder shall have the right, to the
extent permitted by law, upon any such sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
any Pledgor, which right or equity is hereby waived or released. Each Pledgor
further agrees, at the Trustee's request, upon the occurrence and during the
continuance of an Event of Default, to assemble the Collateral and make it
available to the Trustee at places which the Trustee shall reasonably select,
whether at such Pledgor's premises or elsewhere. In the event of any sale,
assignment, or other disposition of any of the Collateral, the goodwill of the
business connected with and symbolized by any Trademark Collateral subject to
such disposition shall be included, and the Pledgor thereof shall supply to the
Trustee or its designee such Pledgor's know-how and expertise relating to the
Collateral subject to such disposition, and such Pledgor's notebooks, studies,
reports, records, documents and things embodying the same or relating to the
inventions,
<PAGE>
8
processes or ideas covered by, and to the manufacture of any products under or
in connection with, the Collateral subject to such disposition, and such
Pledgor's customer's lists, studies and surveys and other records and documents
relating to the distribution, marketing, advertising and sale of products
relating to the Collateral subject to such disposition. The Trustee shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Trustee
and the Holders hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Secured
Obligations then due and owing, and only after such application and after the
payment by the Trustee of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Trustee
account for the surplus, if any, to such Pledgor. To the extent permitted by
applicable law, each Pledgor waives all claims, damages and demands it may
acquire against the Trustee or any Holder arising out of the repossession,
retention or sale of the Collateral, other than any such claims, damages and
demands that may arise from the gross negligence or willful misconduct of any of
them. If any notice of a proposed sale or other disposition of Collateral shall
be required by law, such notice shall be deemed reasonable and proper if given
at least ten (10) days before such sale or other disposition. Each Pledgor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the then outstanding
Secured Obligations, including the reasonable fees and disbursements of any
attorneys employed by the Trustee or any Holder to collect such deficiency.
8. Limitation on Duties Regarding Preservation of Collateral. The Trustee's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Trustee deals with similar
property for its own account. None of the Trustee, any Holder, nor any of their
respective directors, officers, employees or trustees shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of any Pledgor or any other Person.
9. Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are powers coupled with an interest and
are irrevocable until payment in full of the Securities and the other Secured
Obligations then due and owing.
10. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11. Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
<PAGE>
9
12. No Waiver; Cumulative Remedies. None of the Trustee nor any Holder
shall by any act (except pursuant to Section 13 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Trustee or any Holder, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Trustee or any Holder of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which the
Trustee or such Holder would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
13. Amendments in Writing; Successors and Assigns. None of the terms or
provisions of this Agreement may be waived, amended, supplemented or otherwise
modified except in accordance with Article IX of the Indenture. This Agreement
shall be binding upon the successors and assigns of the Pledgors and shall inure
to the benefit of the Trustee and the Holders and their respective successors
and assigns, except that no Pledgor may assign, transfer or delegate any of its
rights or obligations under this Agreement without the prior written consent of
the Trustee.
14. Notices. All notices, requests and demands pursuant hereto shall be
made in accordance with Section 12 of the Subsidiary Guarantee.
15. Authority of Trustee. Each Pledgor acknowledges that the rights and
responsibilities of the Trustee under this Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as among the Trustee
and the Holders, be governed by the Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Trustee and each Pledgor, the Trustee shall be conclusively presumed to be
acting as Trustee for the Holders with full and valid authority so to act or
refrain from acting, and such Pledgor shall not be under any obligation to make
any inquiry respecting such authority.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
17. Release of Collateral and Termination. (a) At such time as the payment
in full of the Securities and the other Secured Obligations then due and owing
shall have occurred, the Collateral shall be released from the Liens created
hereby, and this Agreement and all obligations (other than those expressly
stated to survive such termination) of the Trustee and each Pledgor hereunder
shall terminate, all without delivery of any instrument or performance of any
act by any party, and all rights to the Collateral shall revert to such Pledgor
unless such reversion would be inconsistent with the Subordination Agreement.
Upon request of any
<PAGE>
10
Pledgor following any such termination, the Trustee shall deliver (at the sole
cost and expense of such Pledgor) to such Pledgor any Collateral held by the
Trustee hereunder, and execute and deliver (at the sole cost and expense of such
Pledgor) to such Pledgor such documents as such Pledgor shall reasonably request
to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by the Pledgor in a transaction permitted by the Indenture and the
Bank Credit Agreement, then the Trustee shall execute and deliver to such
Pledgor (at the sole cost and expense of such Pledgor) all releases or other
documents reasonably necessary or desirable for the release of the Liens created
hereby on such Collateral.
18. Subordination. Each of the Pledgors and the Trustee (for itself in that
capacity and on behalf of the Holders) acknowledge that the security interests
in the Collateral granted, confirmed and/or reaffirmed pursuant to this
Agreement or otherwise held by the Trustee or any Holder are subordinated in
priority to the security interests in the Collateral held by the holder of the
Senior Indebtedness as provided in, and the rights (including the right to
payment) and remedies of the Trustee hereunder and of the Holders are
subordinated and subject to the terms and provisions of, the Subordination
Agreement.
19. Inconsistent Provisions. In the event of any inconsistency or conflict
between the provisions of this Agreement and the provisions of the Subsidiary
Security Agreement, the provisions of the Subsidiary Security Agreement shall
govern.
20. Counterparts. This Agreement may be executed by the parties hereto in
any number of separate counterparts, and all of said counterparts taken together
shall be deemed, to constitute one and the same instrument.
21. Incorporation of Certain Indenture Provisions. All provisions of
Article VII of the Indenture shall be construed as extending to and including
all of the rights, duties and obligations imposed upon the Trustee under this
Agreement as fully and for all purposes as if said Article VII were contained in
this Agreement.
<PAGE>
11
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
CLIPPER MIST, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
LONDON FOG SPORTSWEAR, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
MATTHEW MANUFACTURING CO., INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
PACIFIC TRAIL, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
PTI HOLDING CORP.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
12
PTI TOP COMPANY, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
STAR SPORTSWEAR MANUFACTURING
CORP.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
THE MOUNGER CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
THE SCRANTON OUTLET CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
WASHINGTON HOLDING COMPANY
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
Schedule 1
PATENTS AND PATENT LICENSES
<PAGE>
Schedule 2
TRADEMARKS AND TRADEMARK LICENSES
<PAGE>
EXHIBIT H
AMENDED AND RESTATED SUBSIDIARY PLEDGE AGREEMENT
AMENDED AND RESTATED SUBSIDIARY PLEDGE AGREEMENT, dated as of February 27,
1998, made by each of the corporations signatories hereto (the "Pledgors"), in
favor of IBJ Schroder Bank & Trust Company, as trustee (in such capacity, the
"Trustee") for the Holders under, and as defined in, the Indenture, dated as of
even date herewith (as amended, supplemented or otherwise modified from time to
time, the "Indenture"), between London Fog Industries, Inc., a Delaware
corporation (the "Company"), and the Trustee.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of May 20, 1994 (as
amended, supplemented or otherwise modified prior to May 31, 1995, the "Original
Credit Agreement"), among the Company, The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent (in such capacity, the "Original Agent") for the
several banks and other financial institutions from time to time parties thereto
(the "Original Lenders") and the Original Lenders, the Original Lenders made
certain loans and other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the Original
Credit Agreement, the Pledgors executed and delivered to the Original Agent, for
the benefit of the Original Lenders, the Subsidiary Pledge Agreement, dated as
of May 20, 1994 (as amended, supplemented or otherwise modified prior to May 31,
1995, the "Original Pledge Agreement"), pursuant to which the Pledgors pledged
to the Original Agent, for the benefit of the Original Lenders, the Collateral
(as defined in the Original Pledge Agreement) as collateral security for the
Obligations (as defined in the Original Pledge Agreement);
WHEREAS, the Company, the Original Agent and the Original Lenders agreed to
restructure the obligations of the Company under the Original Credit Agreement
by means of, among other things, the execution and delivery of the Master
Restructuring Agreement, dated as of May 31, 1995 (as heretofore amended,
supplemented or otherwise modified, the "Existing MRA"), among the Company, the
Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of the Existing
MRA, the Company executed and delivered (a) the Term Loan Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise modified, the
"Term Loan Agreement"), among London Fog Industries, Inc., a Delaware
Corporation (the "Company"), The
<PAGE>
2
Chase Manhattan Bank (formerly known as Chemical Bank), as agent (in such
capacity, the "Term Loan Agent") for the several banks and other financial
institutions from time to time parties thereto (the "Term Loan Lenders") and the
Term Loan Lenders and (b) the Note Agreement, dated as of May 31, 1995 (as
heretofore amended, supplemented or otherwise modified, the "Note Agreement"
and, together with the Term Loan Agreement, collectively, the "Existing
Agreements"), among the Company, The Chase Manhattan Bank (formerly known as
Chemical Bank), as agent (in such capacity and also in its capacity as the Term
Loan Agent, the "Agent") for the several banks and other financial institutions
from time to time parties thereto (the "Note Lenders" and, together with the
Term Loan Lenders, collectively, the "Lenders") and the Note Lenders, pursuant
to which the Lenders made certain loans to the Company;
WHEREAS, in connection with the execution and delivery of the Existing MRA
and the Existing Agreements, the Pledgors executed and delivered to the Agent,
for the benefit of the Lenders, Amendment No. 1 to the Subsidiary Pledge
Agreement, dated as of May 31, 1995 (the Original Pledge Agreement as amended,
supplemented or otherwise modified by such Amendment No. 1, the "Existing Pledge
Agreement"), pursuant to which the Pledgors pledged to the Agent, for the
benefit of the Lenders, the Collateral (as defined in the Existing Pledge
Agreement) as collateral security for the Obligations (as defined in the
Existing Pledge Agreement);
WHEREAS, the Company, the Agent and the Lenders have agreed to restructure
the obligations of the Company under the Existing Agreements by means of, among
other things, the execution and delivery of the Indenture and the Master
Restructuring Agreement, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "MRA"), among the
Company, the Agent and the Lenders, among others;
WHEREAS, it is a condition precedent to the effectiveness of the MRA and
the obligation of the Agent and the Lenders to consummate the restructuring
contemplated thereby, that, among other things, the Pledgors guarantee payment
and performance of the Company's obligations under the Indenture;
WHEREAS, in satisfaction of such condition, the Pledgors have entered into
an Amended and Restated Subsidiary Guarantee of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "Guarantee") for the
benefit of the Trustee and the Holders; and
WHEREAS, it is a further condition precedent to the effectiveness of the
MRA and the obligation of the Agent and the Lenders to consummate the
restructuring contemplated thereby, that, among other things, the Pledgors shall
have executed and delivered this Agreement to secure the payment and performance
of the Pledgors' obligations under the Guarantee to the Trustee, for the benefit
of the Holders.
<PAGE>
3
NOW, THEREFORE, in consideration of the premises and to induce the Agent
and the Lenders to restructure the obligations of the Company under the Existing
Agreements and to induce the Trustee to enter into the Indenture, the Pledgors
hereby agree with the Trustee, for the benefit of the Holders, that the Existing
Pledge Agreement shall be and hereby is amended and restated in it entirety as
follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the
Indenture and used herein shall have the meanings given to them in the
Indenture.
(b) The following terms shall have the following meanings:
"Agreement": this Amended and Restated Subsidiary Pledge Agreement, as
the same may be amended, modified or otherwise supplemented from time to
time.
"Code": the Uniform Commercial Code from time to time in effect in the
State of New York.
"Collateral": the Pledged Securities and all Proceeds.
"Collateral Account": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Trustee, subject to
withdrawal by the Trustee for the account of the Holders only as provided
in Section.
"Foreign Subsidiary": any Subsidiary of the Company organized under
the laws of any jurisdiction outside the United States of America.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Intercompany Note": promissory notes evidencing intercompany loans
made by (a) the Company in favor of any of its Subsidiaries, (b) any
Subsidiary of the Company in favor of the Company or (c) any Subsidiary of
the Company in favor of any other Subsidiary of the Company.
"Issuers": the collective reference to the companies identified on
Schedule 1 attached hereto as the issuers of the Pledged Stock and the
Pledged Notes; individually, each an "Issuer."
"Pledged Notes": all Intercompany Notes at any time issued to any
Pledgor and all other promissory notes issued to or held by any Pledgor
(other than promissory notes issued in connection with extensions of trade
credit by any Pledgor in the ordinary course of business).
<PAGE>
4
"Pledged Securities": all of the Pledged Stock and Pledged Notes.
"Pledged Stock": the shares of capital stock listed on Schedule 1
hereto, together with all stock certificates, options or rights of any
nature whatsoever that may be issued or granted by each Issuer to any
Pledgor while this Agreement is in effect; provided that in no event shall
more than 65% of the issued and outstanding shares of capital stock of any
Foreign Subsidiary be Pledged Stock.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1)
of the Uniform Commercial Code in effect in the State of New York on the
date hereof and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Securities, collections thereon
or distributions with respect thereto.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Secured Obligations": as defined in the Subsidiary Security
Agreement.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section references are to
this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Pledge; Grant of Security Interest. Each of the Pledgors hereby confirms
and reaffirms its grant of a security interest in the Collateral (as defined in
the Existing Pledge Agreement) pursuant to the Existing Pledge Agreement, which
security interest is hereby amended and restated to be solely in favor of the
Trustee, for the ratable benefit of the Holders, and shall secure only the
Obligations, and which Existing Pledge Agreement is replaced hereby. The
Pledgors hereby deliver to the Trustee, for the ratable benefit of the Holders,
all the Pledged Securities and hereby grant to the Trustee, for the ratable
benefit of the Holders, a security interest in the Collateral, prior and
superior in right to any other Person other than the holders of the Senior
Indebtedness as set forth in the Subordination Agreement and the Bank Credit
Agreement, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Secured Obligations.
3. Stock Powers and Endorsements. Concurrently with the delivery to the
Trustee of each certificate representing one or more shares of Pledged Stock to
the Trustee, the
<PAGE>
5
relevant Pledgor shall deliver an undated stock power covering such certificate,
duly executed in blank by such Pledgor with, if the Trustee so requests,
signature guaranteed. All Pledged Notes, when delivered, shall be duly endorsed
in blank.
4. Representations and Warranties. Each Pledgor represents and warrants
that:
(a) The shares of Pledged Stock constitute all the issued and outstanding
shares of all classes of the capital stock of each Issuer.
(b) All the shares of the Pledged Stock have been duly and validly issued
and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and binding
obligation of the obligor with respect thereto, enforceable in accordance with
its terms, except to the extent that the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws generally
affecting creditors' rights and by equitable principles (regardless of whether
enforcement is sought in equity or at law).
(d) Each Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Securities pledged by it, free of any and all
Liens or options in favor of, or claims of, any other Person, except the
security interest created by this Agreement and the Bank Credit Agreement.
(e) Upon delivery to the Trustee of the stock certificates and instruments
evidencing the Pledged Securities, the security interest created by this
Agreement will constitute a valid security interest in the Collateral, prior and
superior in right to any other Person other than the holders of the Senior
Indebtedness as set forth in the Subordination Agreement and the Bank Credit
Agreement, enforceable in accordance with its terms against all creditors of
such Pledgor and any Persons purporting to purchase any Collateral from such
Pledgor.
5. Covenants. Each Pledgor covenants and agrees with the Trustee and the
Holders that, from and after the date of this Agreement until this Agreement is
terminated and the security interests created hereby are released:
(a) If such Pledgor shall, as a result of its ownership of its Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof,
such Pledgor shall accept the same as the agent of the Trustee and the Holders,
hold the same in trust for the Trustee and the Holders and deliver the same
forthwith to the Trustee in the exact form received, duly indorsed by such
Pledgor to the Trustee, if required, together with an undated stock power
covering such
<PAGE>
6
certificate duly executed in blank by such Pledgor and with, if the Trustee so
requests, signature guaranteed, to be held by the Trustee, subject to the terms
hereof, as additional collateral security for the Secured Obligations. Any sums
paid upon or in respect of the Pledged Securities upon the liquidation or
dissolution of any Issuer shall be paid over to the Trustee, to be held by it
hereunder as additional collateral security for the Secured Obligations, and in
case any distribution of capital shall be made on or in respect of the Pledged
Securities or any property shall be distributed upon or with respect to the
Pledged Securities pursuant to the recapitalization or reclassification of the
capital of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Trustee, to be held by it hereunder as
additional collateral security for the Secured Obligations. If any sums of money
or property so paid or distributed in respect of the Pledged Securities shall be
received by any Pledgor, such Pledgor shall, until such money or property is
paid or delivered to the Trustee, hold such money or property in trust for the
Holders, segregated from other funds of such Pledgor, as additional collateral
security for the Secured Obligations.
(b) Without the prior written consent of the Trustee, none of the Pledgors
will (i) vote to enable, or take any other action to permit, any Issuer to issue
any stock or other equity securities of any nature or to issue any other
securities convertible into or granting the right to purchase or exchange for
any stock or other equity securities of any nature of any Issuer, (ii) sell,
assign, transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Collateral, (iii) create, incur or permit to exist any Lien or
option in favor of, or any claim of any Person with respect to, any of the
Collateral, or any interest therein, except for the security interests created
by this Agreement and the Bank Credit Agreement or (iv) enter into any agreement
or undertaking restricting the right or ability of any Pledgor or the Trustee to
sell, assign or transfer any of the Collateral.
(c) Each Pledgor shall maintain the security interest created by this
Agreement as a perfected security interest in the Collateral, prior and superior
in right to any other Person other than the holders of the Senior Indebtedness
as set forth in the Subordination Agreement and the Bank Credit Agreement, and
shall defend such security interest against claims and demands of all Persons
whomsoever. At any time and from time to time, upon the written request of the
Trustee to any Pledgor, and at the sole expense of any such Pledgor, such
Pledgor will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Trustee may reasonably request
for the purposes of obtaining or preserving the full benefits of this Agreement
and of the rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument or
chattel paper shall be immediately delivered to the Trustee, duly endorsed in a
manner satisfactory to the Trustee, to be held as Collateral pursuant to this
Agreement.
(d) Each Pledgor shall pay, and save the Trustee and the Holders harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to
<PAGE>
7
any of the Collateral or in connection with any of the transactions contemplated
by this Agreement.
6. Cash Dividends; Voting Rights. Unless an Event of Default shall have
occurred and be continuing and the Trustee shall have given notice to any
Pledgor of the Trustee's intent to exercise its corresponding rights pursuant to
Section below, such Pledgor shall be permitted to receive all cash dividends in
respect of the Pledged Stock and all payments in respect of the Pledged Notes,
in each case (a) paid in the normal course of business of each Issuer and (b)
consistent with past practice, to the extent permitted by the Indenture, and to
exercise all voting and corporate rights with respect to the Pledged Securities;
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which, in the Trustee's reasonable judgment, would impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of this Agreement, the Indenture or any Security Document.
7. Rights of the Holders and the Trustee. (a) All money Proceeds received
by the Trustee hereunder shall be held by the Trustee for the benefit of the
Holders in a Collateral Account. All Proceeds while held by the Trustee in a
Collateral Account (or by any Pledgor in trust for the Trustee and the Holders)
shall continue to be held as collateral security for all the Secured Obligations
and shall not constitute payment thereof until applied as provided in
subsection.
(b) If an Event of Default shall occur and be continuing and the Trustee
shall give notice of its intent to exercise such rights to any Pledgor, (i) the
Trustee shall have the right to receive any and all cash dividends or other
amounts paid in respect of the Pledged Securities pledged by such Pledgor
hereunder and make application thereof to the Secured Obligations in such order
as the Trustee may determine, and (ii) all shares of the Pledged Securities
shall be registered in the name of the Trustee or its nominee, and the Trustee
or its nominee may thereafter exercise (A) all voting, corporate and other
rights pertaining to such shares of the Pledged Securities at any meeting of
shareholders of any Issuer or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Securities as if it were the absolute
owner thereof (including, without limitation, the right to exchange at its
discretion any and all of the Pledged Securities upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any Issuer, or upon the exercise by any such Pledgor or the Trustee
of any right, privilege or option pertaining to such shares of the Pledged
Securities, and in connection therewith, the right to deposit and deliver any
and all of the Pledged Securities with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as
the Trustee may determine), all without liability except to account for property
actually received by it, but the Trustee shall have no duty to any such Pledgor
to exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
<PAGE>
8
8. Remedies. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Trustee's election, the Trustee may apply all or
any part of Proceeds held in any Collateral Account in payment of the Secured
Obligations in such order as the Trustee may elect.
(b) If an Event of Default shall occur and be continuing, the Trustee, on
behalf of the Holders, may exercise, in addition to all other rights and
remedies granted in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Trustee, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Pledgor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, in the over-the-counter
market, at any exchange, broker's board or office of the Trustee or any Holder
or elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Trustee or any Holder shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in any Pledgor,
which right or equity is hereby waived and released. The Trustee shall apply any
Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Trustee and the Holders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Trustee, to the payment in whole or in part of
the Secured Obligations, in such order as the Trustee may elect, and only after
such application and after the payment by the Trustee of any other amount
required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Trustee account for the surplus, if any, to
any Pledgor. To the extent permitted by applicable law, each Pledgor waives all
claims, damages and demands it may acquire against the Trustee or any Holder
arising out of the exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least ten (10) days
before such sale or other disposition.
(c) Each Pledgor waives and agrees not to assert any rights or privileges
which it may acquire under Section 9-112 of the Code. Each Pledgor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Trustee or any Holder to collect
such deficiency.
<PAGE>
9
9. Registration Rights; Private Sales. (a) If the Trustee shall determine
to exercise its right to sell any or all of the Pledged Stock pursuant to
Section hereof, and if in the opinion of the Trustee it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the relevant Pledgors
will cause each relevant Issuer thereof (i) to execute and deliver, and cause
the directors and officers of such Issuer to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Trustee, necessary or advisable to register the
Pledged Stock, or that portion thereof to be sold, under the provisions of the
Securities Act, (ii) to use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of one
year from the date of the first public offering of the Pledged Stock, or that
portion thereof to be sold, and (iii) to make all amendments thereto and/or to
the related prospectus which, in the opinion of the Trustee, are necessary or
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Commission applicable thereto. Each Pledgor agrees
to cause each relevant Issuer to comply with the provisions of the securities or
"Blue Sky" laws of any and all jurisdictions which the Trustee shall designate
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) which will satisfy the provisions
of subsection 11(a) of the Securities Act.
(b) Each Pledgor recognizes that the Trustee may be unable to effect a
public sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Trustee shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the Issuer thereof to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(c) Each Pledgor further agrees to use its best efforts to do or cause to
be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section 9 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Pledgor further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Trustee and the Holders, that
the Trustee and the Holders have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained in this
Section shall be specifically enforceable against each Pledgor, and each Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred under the Indenture.
<PAGE>
10
10. Irrevocable Authorization and Instruction to the Issuers. Each Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Trustee in writing that (a) states that an Event of
Default has occurred and (b) is otherwise in accordance with the terms of this
Agreement, without any other or further instructions from such Pledgor, and such
Pledgor agrees that each Issuer shall be fully protected in so complying.
11. No Subrogation. Notwithstanding anything to the contrary in this
Agreement, each Pledgor hereby irrevocably waives all rights which may have
risen in connection with such Pledgor to be subrogated to any of the rights
(whether contractual, under Title 11 of the United States Code, including
Section 509 thereof, under common law or otherwise) of the Trustee or the
Holders against the Company or against any collateral security or guarantee or
right of offset held by the Trustee or the Holders for the payment of the
Secured Obligations. Each Pledgor hereby further irrevocably waives all
contractual, common law, statutory or other rights of reimbursement,
contribution, exoneration or indemnity (or any similar right) from or against
the Company or any other Person which may have arisen in connection with this
Agreement. So long as the Secured Obligations remain outstanding, if any amount
shall be paid or on behalf of the Company to any Pledgor on account of any of
the rights waived in this Section, such amount shall be held by such Pledgor in
trust, segregated from other funds of such Pledgor, and shall, forthwith upon
receipt by such Pledgor, be turned over to the Trustee for the ratable benefit
of the Holders in the exact form received by such Pledgor (duly indorsed by such
Pledgor to the Trustee, if required), to be applied against the Secured
Obligations, whether matured or unmatured, in such order as the Trustee may
determine. The provisions of this Section shall survive the term of this
Agreement and the payment in full of the Secured Obligations.
12. Amendments, etc. with respect to the Secured Obligations; Waiver of
Rights. Each Pledgor shall remain obligated hereunder, and the Collateral shall
remain subject to the security interests granted hereby, notwithstanding that,
without any reservation of rights against any Pledgor, and without notice to or
further assent by any Pledgor, any demand for payment of any of the Secured
Obligations made by the Trustee may be rescinded by the Trustee and any of the
Secured Obligations continued, and the Secured Obligations, or the liability of
the Company or any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered, or released by the Trustee, and
the Indenture, the Security Documents and any other documents executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or part, in accordance with Article IX of the Indenture,
and any guarantee, right of offset or other collateral security at any time held
by the Trustee for the payment of the Secured Obligations may be sold,
exchanged, waived, surrendered or released. Neither the Trustee nor any Holder
shall have any obligation to protect, secure, perfect or insure any other Lien
at any time held by it as security for the Secured Obligations or any property
subject thereto. Each Pledgor waives any and all notice of the creation,
renewal, extension or accrual of any of the Secured Obligations and notice of or
proof of reliance by the Trustee or any Holder upon this
<PAGE>
11
Agreement; the Secured Obligations, and any of them, shall be deemed
conclusively to have been created, contracted or incurred in reliance upon this
Agreement; and all dealings between the Company and each Pledgor, on the one
hand, and the Trustee and the Holders, on the other, likewise shall be
conclusively presumed to have been had or consummated in reliance upon this
Agreement. Each Pledgor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Company or such
Pledgor with respect to the Secured Obligations. When pursuing its rights and
remedies hereunder against any Pledgor, the Trustee and any Holder may, but
shall be under no obligation to, pursue such rights and remedies as it may have
against the Company or any other Person or against any collateral security or
guarantee for the Secured Obligations or any right of offset with respect
thereto, and any failure by the Trustee or any Holder to pursue such other
rights or remedies or to collect any payments from the Company or any such other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Company or any such
other Person or of any such collateral security, guarantee or right of offset,
shall not relieve any such Pledgor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of the Trustee or any Holder against any such Pledgor or the
Collateral.
13. Trustee's Appointment as Attorney-in-Fact. (a) Each Pledgor hereby
irrevocably constitutes and appoints the Trustee and any officer or agent of the
Trustee, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Pledgor and in the name of such Pledgor or in the Trustee's own
name, from time to time in the Trustee's discretion, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, including, without
limitation, any financing statements, endorsements, assignments or other
instruments of transfer.
(b) Each Pledgor hereby ratifies all that said attorneys shall lawfully do
or cause to be done pursuant to the power of attorney granted in subsection .
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
14. Duty of Trustee. The Trustee's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the same
manner as the Trustee deals with similar securities and property for its own
account, except that the Trustee shall have no obligation to invest funds held
in any Collateral Account and may hold the same as demand deposits. Neither the
Trustee, any Holder nor any of their respective directors, officers, employees
or agents shall be liable for failure to demand, collect or realize upon any of
the Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise
<PAGE>
12
dispose of any Collateral upon the request of any Pledgor or any other Person or
to take any other action whatsoever with regard to the Collateral or any part
thereof.
15. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, each Pledgor authorizes the Trustee to file financing statements with
respect to the Collateral without the signature of such Pledgor in such form and
in such filing offices as the Trustee reasonably determines appropriate to
perfect the security interests of the Trustee under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
16. Authority of Trustee. Each Pledgor acknowledges that the rights and
responsibilities of the Trustee under this Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between the
Trustee and the Holders, be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Trustee and such Pledgor, the Trustee shall be conclusively
presumed to be acting as agent for the Holders with full and valid authority so
to act or refrain from acting, and neither any such Pledgor nor any Issuer shall
be under any obligation, or entitlement, to make any inquiry respecting such
authority.
17. Notices. All notices, requests and demands pursuant hereto shall be
made in accordance with Section 12 of the Subsidiary Guarantee.
18. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
19. Integration. This Agreement represents the agreement of each Pledgor
with respect to the subject matter hereof and there are no promises or
representations by the Trustee or any Holder relative to the subject matter
hereof not reflected herein.
20. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except in accordance with Article IX of the Indenture. This
Agreement shall be binding upon the successors and assigns of each of the
Pledgors and shall inure to the benefit of the Trustee and the Holders and their
respective successors and assigns, except that no Pledgor may assign, transfer
or delegate any of its rights or obligations under this Agreement without the
prior written consent of the Trustee.
<PAGE>
13
21. Section Headings. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
22. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of the
Trustee and the Holders and their successors and assigns.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
24. Release of Collateral and Termination. (a) At such time the payment in
full of the Securities and other Secured Obligations then due and owing shall
have occurred, the Collateral shall be released from the Liens created hereby,
and this Agreement and all obligations (other than those expressly stated to
survive such termination) of the Trustee and each Pledgor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to each such Pledgor
unless reversion would be inconsistent with the Subordination Agreement. Upon
request of any Pledgor following any such termination, the Trustee shall deliver
(at the sole cost and expense of such Pledgor) to such Pledgor any Collateral
held by the Trustee hereunder, and execute and deliver (at the sole cost and
expense of such Pledgor) to such Pledgor such documents as such Pledgor shall
reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Pledgor in a transaction permitted by the Indenture and the
Bank Credit Agreement, then the Trustee shall execute and deliver to such
Pledgor (at the sole cost and expense of such Pledgor) all releases or other
documents reasonably necessary or desirable for the release of the Liens created
hereby on such Collateral.
25. Subordination. Each of the Pledgors and the Trustee (for itself in that
capacity and on behalf of the Holders) acknowledge that the security interests
in the Collateral granted, confirmed and/or reaffirmed pursuant to this
Agreement or otherwise held by the Trustee or any Holder are subordinated in
priority to the security interests in the Collateral held by the holder of the
Senior Indebtedness as provided in, and the rights (including the right to
payment) and remedies of the Trustee hereunder and of the Holders are
subordinated and subject to the terms and provisions of, the Subordination
Agreement.
26. Counterparts. This Agreement may be executed by the parties hereto in
any number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
<PAGE>
14
27. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
28. Incorporation of Certain Indenture Provisions. All provisions of
Article VII of the Indenture shall be construed as extending to and including
all of the rights, duties and obligations imposed upon the Trustee under this
Agreement as fully and for all purposes as if said Article VII were contained in
this Agreement.
<PAGE>
15
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
CLIPPER MIST, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
LONDON FOG SPORTSWEAR, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
MATTHEW MANUFACTURING CO., INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
PACIFIC TRAIL, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
PTI HOLDING CORP.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
16
PTI TOP COMPANY, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
STAR SPORTSWEAR MANUFACTURING
CORP.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
THE MOUNGER CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
THE SCRANTON OUTLET CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
WASHINGTON HOLDING COMPANY
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned hereby acknowledges receipt of a copy of the
Amended and Restated Subsidiary Pledge Agreement, dated as of February 27, 1998
(the "Pledge Agreement"), made by each of the corporations signatories thereto
in favor of IBJ Schroder Bank & Trust Company, as trustee (in such capacity, the
"Trustee") for the Holders (as defined in the Pledge Agreement). Each of the
undersigned agrees for the benefit of the Trustee and the Holders as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Trustee promptly in writing of the
occurrence of any of the events described in subsection of the Pledge
Agreement.
3. The terms of subsections 9(a) and of the Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be
required of it under or pursuant to or arising out of Section of the Pledge
Agreement.
PACIFIC TRAIL, INC.
By:
-----------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
2
PTI HOLDING CORP.
By:
-----------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
THE MOUNGER CORPORATION
By:
-----------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
WASHINGTON HOLDING COMPANY
By:
-----------------------
Name: Stuart B. Fisher
Title: Secretary
Address for Notices:
1332 Londontown Boulevard
Eldersburg, MD 21784
Fax: (410) 549-6448
<PAGE>
Schedule 1
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
Class Stock Certificate
Issuer of Stock* No. No. of Shares
- ----------------------------------------- -------------------- ------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- ----------
* Stock is assumed to be common stock unless otherwise indicated.
<PAGE>
EXHIBIT I
AMENDED AND RESTATED SUBSIDIARY SECURITY AGREEMENT
AMENDED AND RESTATED SUBSIDIARY SECURITY AGREEMENT, dated as of February
27, 1998, made by each of the corporations signatories hereto (the "Pledgors"),
in favor of IBJ Schroder Bank & Trust Company, as trustee (in such capacity, the
"Trustee") for the Holders under, and as defined in, the Indenture, dated as of
even date herewith (as amended, supplemented or otherwise modified from time to
time, the "Indenture"), between London Fog Industries, Inc., a Delaware
corporation (the "Company"), and the Trustee.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of May 20, 1994 (as
amended, supplemented or otherwise modified prior to May 31, 1995, the "Original
Credit Agreement"), among the Company, The Chase Manhattan Bank (formerly known
as Chemical Bank), as agent (in such capacity, the "Original Agent") for the
several banks and other financial institutions from time to time parties thereto
(the "Original Lenders") and the Original Lenders, the Original Lenders made
certain loans and other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the Original
Credit Agreement, the Pledgors executed and delivered to the Original Agent, for
the benefit of the Original Lenders, the Subsidiary Security Agreement, dated as
of May 20, 1994 (as amended, supplemented or otherwise modified prior to May 31,
1995, the "Original Security Agreement"), pursuant to which the Pledgors pledged
to the Original Agent, for the benefit of the Original Lenders, all of the
Collateral (as defined in the Original Security Agreement) as collateral
security for the Obligations (as defined in the Original Security Agreement);
WHEREAS, the Company, the Original Agent and the Original Lenders agreed to
restructure the obligations of the Company under the Original Credit Agreement
by means of, among other things, the execution and delivery of the Master
Restructuring Agreement, dated as of May 31, 1995 (as heretofore amended,
supplemented or otherwise modified, the "Existing MRA"), among the Company, the
Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of the Existing
MRA, the Company executed and delivered (a) the Term Loan Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise modified from
time to time, the "Term Loan Agreement"), among the Company, The Chase Manhattan
Bank (formerly known as Chemical Bank), as agent (in such capacity, the "Term
Loan Agent") for the several banks and
<PAGE>
2
other financial institutions from time to time parties thereto (the "Term Loan
Lenders") and the Term Loan Lenders and (b) the Note Agreement, dated as of May
31, 1995 (as heretofore amended, supplemented or otherwise modified from time to
time, the "Note Agreement" and, together with the Term Loan Agreement,
collectively, the "Existing Agreements"), among the Company, The Chase Manhattan
Bank (formerly known as Chemical Bank), as agent (in such capacity and also in
its capacity as the Term Loan Agent, the "Agent") for the several banks and
other financial institutions from time to time parties thereto (the "Note
Lenders" and, together with the Term Loan Lenders, collectively, the "Lenders")
and the Note Lenders, pursuant to which the Lenders made certain loans to the
Company;
WHEREAS, in connection with the execution and delivery of the Existing MRA
and the Existing Agreements, the Pledgors executed and delivered to the Agent,
for the benefit of the Lenders, Amendment No. 1 to the Subsidiary Security
Agreement, dated as of May 31, 1995 (the Original Security Agreement as amended,
supplemented or otherwise modified by such Amendment No. 1, the "Existing
Security Agreement"), pursuant to which the Pledgors granted to the Agent, for
the benefit of the Lenders, a security interest in all the Collateral (as
defined in the Existing Security Agreement) as collateral security for the
Obligations (as defined in the Existing Security Agreement);
WHEREAS, the Company, the Agent and the Lenders have agreed to restructure
the obligations of the Company under the Existing Agreements by means of, among
other things, the execution and delivery of the Indenture and the Master
Restructuring Agreement, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "MRA"), among the
Company, the Agent and the Lenders, among others;
WHEREAS, it is a condition precedent to the effectiveness of the MRA and
the obligation of the Agent and the Lenders to consummate the restructuring
contemplated thereby, that, among other things, the Pledgors guarantee payment
and performance of the Company's obligations under the Indenture;
WHEREAS, in satisfaction of such condition, the Pledgors have entered into
an Amended and Restated Subsidiary Guarantee of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "Guarantee") for the
benefit of the Trustee and the Holders; and
WHEREAS, it is a further condition precedent to the effectiveness of the
MRA and the obligation of the Agent and the Lenders to consummate the
restructuring contemplated thereby, that, among other things, the Pledgors shall
have executed and delivered this Agreement to secure the payment and performance
of the Pledgors' obligations under the Guarantee to the Trustee, for the benefit
of the Holders.
NOW, THEREFORE, in consideration of the premises and to induce the Trustee
and the Holders to restructure the obligations of the Company under the Existing
Agreements and to induce the Trustee to enter into the Indenture, the Pledgors
hereby agree with the Trustee,
<PAGE>
3
for the benefit of the Holders, that the Existing Security Agreement shall be
and hereby is amended and restated in its entirety as follows:
1. Defined Terms.
1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the
Indenture and used herein shall have the meanings given to them in the Indenture
and the following terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, General
Intangibles, Instruments, Inventory, Investment Property and Proceeds.
(b) The following terms shall have the following meanings:
"Agreement": this Amended and Restated Subsidiary Security Agreement, as
the same may be amended, modified or otherwise supplemented from time to time.
"Code": the Uniform Commercial Code as from time to time in effect in the
State of New York.
"Collateral": as defined in Section hereof.
"Collateral Account": any collateral account established by the Trustee as
provided in subsection or subsection hereof.
"Contracts": with respect to any Pledgor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which such
Pledgor is a party or under which such Pledgor has any right, title or interest
or to which such Pledgor or any property of such Pledgor is subject, as the same
may from time to time be amended, supplemented or otherwise modified, including,
without limitation, (a) all rights of such Pledgor to receive moneys due and to
become due to it thereunder or in connection therewith, (b) all rights of such
Pledgor to damages arising out of, or for, breach or default in respect thereof
and (c) all rights of such Pledgor to perform and to exercise all remedies
thereunder, in each case to the extent the grant by such Pledgor of a security
interest pursuant to this Agreement in its right, title and interest in such
contract, agreement, instrument or indenture is not prohibited by such contract,
agreement, instrument or indenture without the consent of any other party
thereto, would not give any other party to such contract, agreement, instrument
or indenture the right to terminate its obligations thereunder, or is permitted
with consent if all necessary consents to such grant of a security interest have
been obtained from the other parties thereto (it being understood that the
foregoing shall not be deemed to obligate such Pledgor to obtain such consents);
provided, that the foregoing limitation shall not affect, limit, restrict or
impair the grant by such Pledgor of a security interest pursuant to this
Agreement in any Account or any money or other amounts due or to become due
under any such contract, agreement, instrument or indenture.
<PAGE>
4
"Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Obligations": as defined in the Subsidiary Guarantee.
"Patent Licenses": all license agreements with any other Person in
connection with any of the Patents or such other Person's patents, whether the
relevant Pledgor is a licensor or a licensee under any such license agreement,
including, without limitation, the license agreements listed on Schedule 1
attached hereto and made a part hereof, subject, in each case, to the terms of
such license agreements, and the right to prepare for sale, sell and advertise
for sale, all Inventory now or hereafter covered by such licenses.
"Patents": all patents, patent applications and patentable inventions,
including, without limitation, all patents and patent applications identified in
Schedule 1 attached hereto and made a part hereof, and including, without
limitation, (a) all inventions and improvements described and claimed therein,
and patentable inventions, (b) the right to sue or otherwise recover for any and
all past, present and future infringements and misappropriations thereof, (c)
all income, royalties, damages and other payments now and hereafter due and/or
payable with respect thereto (including, without limitation, payments under all
licenses entered into in connection therewith, and damages and payments for past
or future infringements thereof) and (d) all rights corresponding thereto and
all reissues, divisions, continuations, continuations-in- part, substitutes,
renewals, and extensions thereof, all improvements thereon, and all other rights
of any kind whatsoever of any Pledgor accruing thereunder or pertaining thereto
(Patents and Patent Licenses being, collectively, the "Patent Collateral").
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Secured Obligations": the collective reference to (a) the Obligations and
(b) all obligations and liabilities of a Pledgor which may arise in connection
with this Agreement, the Indenture, the Guarantees, the Security Documents, the
MRA or any other Restructuring Document (as defined in the MRA) to which such
Pledgor is a party, whether on account of reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Trustee or to the Holders that are
required to be paid by such Pledgor pursuant to the terms of this Agreement, the
Indenture, the
<PAGE>
5
Guarantees, the Security Documents, the MRA or any other Restructuring Document
(as defined in the MRA)).
"Trademark License": all license agreements with any other Person in
connection with any of the Trademarks or such other Person's names or
trademarks, whether the relevant Pledgor is a licensor or a licensee under any
such license agreement, including, without limitation, the license agreements
listed on Schedule 2 attached hereto and made a part hereof, subject, in each
case, to the terms of such license agreements, and the right to prepare for
sale, sell and advertise for sale, all Inventory now or hereafter covered by
such licenses.
"Trademarks": all trademarks, service marks, trade names, trade dress or
other indicia of trade origin, trademark and service mark registrations, and
applications for trademark or service mark registrations, and any renewals
thereof, including, without limitation, each registration and application
identified in Schedule 2 attached hereto and made a part hereof, and including,
without limitation, (a) the right to sue or otherwise recover for any and all
past, present and future infringements and misappropriations thereof, (b) all
income, royalties, damages and other payments now and hereafter due and/or
payable with respect thereto (including, without limitation, payments under all
licenses entered into in connection therewith, and damages and payments for past
or future infringements thereof) and (c) all rights corresponding thereto and
all other rights of any kind whatsoever of any Pledgor accruing thereunder or
pertaining thereto, together in each case with the goodwill of the business
connected with the use of, and symbolized by, each such trademark, service mark,
trade name, trade dress or other indicia of trade origin (Trademarks and
Trademark Licenses being, collectively, the "Trademark Collateral").
1.2 Other Definitional Provisions. (a) The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and section and Section references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Grant of Security Interest. Each of the Pledgors hereby confirms and
reaffirms its grant of a security interest in the Collateral (as defined in the
Existing Security Agreement) pursuant to the Existing Security Agreement, which
security interest is hereby amended and restated to be solely in favor of the
Trustee, for the ratable benefit of the Holders, and shall secure only the
Obligations, and which Existing Security Agreement is replaced hereby. As
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the Secured
Obligations, each Pledgor hereby grants to the Trustee for the ratable benefit
of the Holders a security interest in all of the following property now owned or
at any time hereafter acquired by such Pledgor or in which such Pledgor now has
or at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"):
<PAGE>
6
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Documents;
(e) all Equipment;
(f) all General Intangibles;
(g) all Instruments;
(h) all Inventory;
(i) all Investment Property;
(j) all Patent Licenses;
(k) all Patents;
(l) all Trademark Licenses;
(m) all Trademarks;
(n) all books and records pertaining to the Collateral; and
(o) to the extent not otherwise included, all Proceeds and products of any
and all of the foregoing and all collateral security and guarantees given by any
Person with respect to any of the foregoing.
3. Representations and Warranties. Each Pledgor hereby represents and
warrants that:
3.1 Power and Authority. Such Pledgor has the corporate power and authority
and the legal right to execute and deliver, to perform its obligations under,
and to grant the security interest in the Collateral pursuant to, this Agreement
and has taken all necessary corporate action to authorize its execution,
delivery and performance of, and grant of the security interest in the
Collateral pursuant to, this Agreement.
3.2 Title; No Other Liens. Except for the security interest granted to the
Trustee for the ratable benefit of the Holders pursuant to this Agreement and
the Liens existing on the Issue Date (the "Existing Liens"), such Pledgor owns
each item of the Collateral free and clear of
<PAGE>
7
any and all Liens or claims of others. No security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as have
been filed in favor of the Trustee for the ratable benefit of the Holders
pursuant to this Agreement, or as have been filed or recorded in connection with
Existing Liens.
3.3 Enforceable Obligation; Perfected, Security Interests. This Agreement
constitutes a legal, valid and binding obligation of such Pledgor, enforceable
in accordance with its terms, and the security interests granted pursuant to
this Agreement (a) upon completion of the filings and other actions specified on
Schedule 3 attached hereto will constitute perfected security interests on the
Collateral in favor of the Trustee, for the ratable benefit of the Holders, (b)
are prior to all other Liens on the Collateral in existence on the date hereof
except for the Existing Liens and (c) are enforceable as such against (i) all
creditors of and purchasers from such Pledgor (except purchasers of Inventory in
the ordinary course of business) and (ii) any Person having any interest in the
real property where any of the Equipment is located, except in each case as
enforceability is affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
3.4 No Violation. The execution, delivery and performance of this Agreement
will not violate any provision of any Requirement of Law or Contractual
Obligation of such Pledgor and will not result in the creation or imposition of
any Lien on any of the properties or revenues of such Pledgor pursuant to any
Requirement of Law or Contractual Obligation of such Pledgor, except the
security interests created hereby.
3.5 No Consents Required. No consent or authorization of, filing with, or
other act by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any stockholder or
creditor of such Pledgor), is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement, except
consents obtained in connection with or pursuant to the Indenture, the MRA, the
Bank Credit Agreement and the Subordination Agreement and in full force and
effect.
3.6 No Litigation. No litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the knowledge of such
Pledgor, threatened by or against such Pledgor or against any of its properties
or revenues with respect to this Agreement or any of the transactions
contemplated hereby.
3.7 Inventory and Equipment. The Inventory and the Equipment are kept at
the locations listed on Schedule 4 hereto.
3.8 Chief Executive Office. The chief executive office and chief place of
business of each of the Pledgors is located at the addresses set forth on
Schedule 5 hereto.
<PAGE>
8
3.9 Farm Products. None of the Collateral constitutes, or is the Proceeds
of, Farm Products.
4. Covenants. Each Pledgor covenants and agrees with the Trustee and the
Holders that, from and after the date of this Agreement until this Agreement is
terminated and the security interests created hereby are released:
4.1 Delivery of Instruments and Chattel Paper. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Trustee, duly indorsed in a manner satisfactory to
the Trustee, to be held as Collateral pursuant to this Agreement.
4.2 Maintenance of Property. Such Pledgor will keep the Equipment and
Inventory in good working order and condition.
4.3 Inspection of Property; Books and Records; Discussions. Such Pledgor
will keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to the Collateral. Such Pledgor will
permit representatives of the Trustee to visit and inspect any of such Pledgor's
properties where any of the Collateral or any of such Pledgor's books and
records relating to the Collateral are located and to inspect the Collateral and
to examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
condition and operation of the Collateral with officers and employees of such
Pledgor and with its independent certified public accountants.
4.4 Marking of Records. Such Pledgor will mark its books and records
pertaining to the Collateral to evidence this Agreement and the security
interests created hereby.
4.5 Maintenance of Insurance. (a) Such Pledgor will maintain, with
financially sound and reputable companies, insurance policies (i) insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Trustee and (ii) insuring
such Pledgor and the Trustee, for the benefit of the Holders, against liability
for personal injury and property damage relating to such Inventory and
Equipment, such policies to be in such form and amounts and having such coverage
as may be reasonably satisfactory to the Trustee, with losses payable to such
Pledgor and the Trustee, for the benefit of the Holders, as their respective
interests may appear.
(b) All such insurance shall (i) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be effective
until at least 30 days after receipt by the Trustee of written notice thereof,
(ii) name the Trustee, for the benefit of the Holders, as insured parties and
(iii) be reasonably satisfactory in all other respects to the Trustee.
<PAGE>
9
(c) Such Pledgor shall deliver to the Trustee a report of a reputable
insurance broker with respect to such insurance during the month of January in
each calendar year and such supplemental reports with respect thereto as the
Trustee may from time to time reasonably request.
4.6 Payment of Secured Obligations. Such Pledgor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of such Pledgor and
such proceedings do not involve any material danger of the sale, forfeiture or
loss of any of the Collateral or any interest therein.
4.7 Maintenance of Perfected Security Interest; Further Documentation. (a)
Such Pledgor shall maintain the security interest created by this Agreement as a
perfected security interest subject only to Permitted Liens and shall defend
such security interest against claims and demands of all Persons whomsoever.
(b) At any time and from time to time, upon the written request of the
Trustee, and at the sole expense of such Pledgor, such Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further action as the Trustee may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the security interests created hereby.
4.8 Changes in Locations, Name, etc. Such Pledgor will not, except upon
thirty (30) days' prior written notice to the Trustee and delivery to the
Trustee of (x) a written supplement to Schedule 4 showing the additional
location or locations at which Inventory or Equipment shall be kept, and (y) all
additional executed financing statements and other documents reasonably
requested by the Trustee to maintain the validity, perfection and priority of
the security interests provided for herein:
(a) permit any of the Inventory or Equipment to be kept at a location other
than those listed on Schedule 4 hereto; or
(b) change the location of its chief executive office and chief place of
business from that specified in subsection hereof;
(c) change its name, identity or corporate structure to such an extent that
any financing statement filed by the Trustee in connection with this Agreement
would become seriously misleading.
<PAGE>
10
4.9 Further Identification of Collateral. Such Pledgor will furnish to the
Trustee from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Trustee may reasonably request, all in reasonable detail.
4.10 Notices. Such Pledgor will advise the Trustee promptly, in reasonable
detail, at its address set forth in the Indenture of:
(a) any Lien (other than security interests created hereby or the Existing
Liens) on, or claim asserted against, any of the Collateral; and
(b) the occurrence of any other event which could reasonably be expected to
have a material adverse effect on the aggregate value of the Collateral or on
the security interests created hereby.
4.11 Compliance with Laws. Such Pledgor will comply in all material
respects with all Requirements of Law applicable to the Collateral or any part
thereof, except to the extent that failure to so comply would not be reasonably
expected to materially adversely affect, in the aggregate, the rights of the
Trustee or the Holders hereunder, the priority of their Liens on the Collateral
or the value of the Collateral.
4.12 Indemnification. Such Pledgor agrees to pay, and to save the Trustee
and the Holders harmless from, any and all liabilities, costs and expenses
(including, without limitation, legal fees and expenses) (a) with respect to, or
resulting from any delay in paying, any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral, (b) with respect to, or resulting from, any delay in complying with
any Requirement of Law applicable to any of the Collateral and (c) in connection
with any of the transactions contemplated by this Agreement.
5. Provisions Relating to Accounts.
5.1 Pledgors Remains Liable under Accounts. Anything herein to the contrary
notwithstanding, each Pledgor shall remain liable under each of the Accounts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise to each such Account. Neither the Trustee nor any Holder shall have
any obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Trustee or any Holder of any payment relating to such Account pursuant hereto,
nor shall the Trustee or any Holder be obligated in any manner to perform any of
the obligations of any Pledgor under or pursuant to any Account (or any
agreement giving rise thereto), to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any agreement
giving rise thereto), to present or file any claim, to take any action to
enforce any performance or
<PAGE>
11
to collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
5.2 Analysis of Accounts. The Trustee shall have the right to make test
verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and the Pledgors shall furnish all such
assistance and information as the Trustee may require in connection with such
test verifications. At any time and from time to time, upon the Trustee's
request and at the expense of any such Pledgor, such Pledgor shall cause
independent public accountants or others satisfactory to the Trustee to furnish
to the Trustee reports showing reconciliations, aging and test verifications of,
and trial balances for, the Accounts. The Trustee in its own name or in the name
of others may communicate with account debtors on the Accounts to verify with
them to the Trustee's satisfaction the existence, amount and terms of any
Accounts.
5.3 Collections on Accounts. (a) The Trustee hereby authorizes the Pledgors
to collect the Accounts, subject to the Trustee's direction and control, and at
any time when an Event of Default shall have occurred and be continuing the
Trustee may curtail or terminate said authority, any payments of Accounts, when
collected by each such Pledgor, (i) shall be forthwith (and, in any event,
within two Business Days) deposited by such Pledgor in the exact form received,
duly indorsed by such Pledgor to the Trustee if required, in a Collateral
Account maintained under the sole dominion and control of the Trustee, subject
to withdrawal by the Trustee for the account of the Holders only as provided in
subsection hereof, and (ii) until so turned over, shall be held by such Pledgor
in trust for the Trustee and the Holders, segregated from other funds of such
Pledgor.
(b) Each such deposit of Proceeds of Accounts shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.
(c) At the Trustee's request, the Pledgors shall deliver to the Trustee all
original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts, including, without limitation, all
original orders, invoices and shipping receipts.
5.4 Representations and Warranties. (a) No amount payable to any Pledgor
under or in connection with any Account is evidenced by any Instrument or
Chattel Paper which has not been delivered to the Trustee.
(b) The place where each Pledgor keeps its records concerning the Accounts
is at its address set forth on Schedule 5 hereto.
(c) None of the obligors on any Accounts is a Governmental Authority.
5.5 Covenants. (a) The amount represented by any Pledgor to the Trustee
from time to time as owing by each account debtor or by all account debtors in
respect of the Accounts will at such time be correct in all material respects.
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12
(b) No Pledgor will amend, modify, terminate or waive any agreement giving
rise to an Account in any manner which could reasonably be expected to
materially adversely affect the value of such Account as Collateral.
(c) No Pledgor will fail to exercise promptly and diligently each and every
material right which it may have under each agreement giving rise to an Account
(other than any right of termination).
(d) No Pledgor will fail to deliver to the Trustee a copy of each material
demand, notice or document received by it relating in any way to any agreement
giving rise to an Account.
(e) Other than in the ordinary course of business as generally conducted by
each Pledgor over a period of time, no Pledgor will grant any extension of the
time of payment of any of the Accounts, compromise, compound or settle the same
for less than the full amount thereof, release, wholly or partially, any Person
liable for the payment thereof, or allow any credit or discount whatsoever
thereon.
(f) No Pledgor will remove its books and records from the location
specified in subsection hereof.
(g) In any suit, proceeding or action brought by the Trustee under any
Account for any sum owing thereunder, or to enforce any provisions of any
Contract, each Pledgor will save, indemnify and keep the Trustee harmless from
and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of the
account debtor thereunder, arising out of a breach by such Pledgor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or its
successors from such Pledgor.
6. Provisions Relating to Contracts.
6.1 Pledgors Remain Liable under Contracts. Anything herein to the contrary
notwithstanding, each Pledgor shall remain liable under each of the Contracts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with and pursuant to the terms and
provisions of each Contract. Neither the Trustee nor any Holder shall have any
obligation or liability under any Contract by reason of or arising out of this
Agreement or the receipt by the Trustee or any such Holder of any payment
relating to such Contract pursuant hereto, nor shall the Trustee or any Holder
be obligated in any manner to perform any of the obligations of any Pledgor
under or pursuant to any Contract, to make any payment, to make any inquiry as
to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Contract, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
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6.2 Communication With Contracting Parties. The Trustee in its own name or
in the name of others may communicate with parties to the Contracts to verify
with them to the Trustee's satisfaction the existence, amount and terms of any
Contracts.
6.3 Indemnity. In any suit, proceeding or action brought by the Trustee
under any Contract for any sum owing thereunder, or to enforce any provisions of
any Contract, each Pledgor will save, indemnify and keep the Trustee harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of the
obligor thereunder, arising out of a breach by any such Pledgor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such obligor or its successors
from such Pledgor.
7. Provisions Relating to Patents and Trademarks.
7.1 Representations and Warranties. (a) Except for the Liens granted to the
Trustee for the ratable benefit of the Holders pursuant to this Agreement and
Permitted Liens, each respective Pledgor is (or, in the case of after-acquired
Collateral, will be) the sole, legal and beneficial owner of the entire right,
title and interest in and to the Patents set forth opposite its name on Schedule
1 hereto and the Trademarks set forth opposite its name in Schedule 2 hereto
free and clear of any and all Liens. No security agreement, financing statement
or other public notice similar in effect with respect to all or any part of the
Collateral is on file or of record in any public office (including, without
limitation, the United States Patent and Trademark Office), except such as may
have been filed in favor of the Trustee, for the ratable benefit of the Holders,
pursuant to this Agreement or Permitted Liens.
(b) No consent of any party (other than the respective Pledgors) to any
Patent License or Trademark License constituting Collateral is required, or
purports to be required, to be obtained by or on behalf of any Pledgor in
connection with the execution, delivery and performance of this Agreement that
has not been obtained. Each Patent License and Trademark License constituting
Collateral is in full force and effect and constitutes a valid and legally
enforceable obligation of the relevant Pledgor and (to the knowledge of Pledgor)
each other party thereto except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditor's rights generally
and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law) and except to the extent the failure of any
such Patent License or Trademark License constituting Collateral to be in full
force and effect or valid or legally enforceable would not be reasonably
expected, in the aggregate, to have a material adverse effect on the value of
the Collateral. No consent or authorization of, filing with or other act by or
in respect of any Governmental Authority is required in connection with the
execution, delivery, performance, validity or enforceability of any of the
Patent Licenses or Trademark Licenses constituting Collateral by any party
thereto other than those which have been duly obtained, made or performed and
are in full force and effect and those the failure of which to make or obtain
would not be reasonably expected, in the aggregate, to have a material adverse
effect on the value of the Collateral. Neither the respective Pledgor nor (to
the knowledge of such Pledgor) any other party to any Patent License or
Trademark License
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14
constituting Collateral is in default in the performance or observance of any of
the terms thereof, except for such defaults as would not reasonably be expected,
in the aggregate, to have a material adverse effect on the value of the
Collateral. The right, title and interest of each respective Pledgor in, to and
under each Patent License and Trademark License constituting Collateral are not
subject to any defense, offset, counterclaim or claim which would be reasonably
expected, either individually or in the aggregate, to have a material adverse
effect on the value of the Collateral.
(c) Set forth in Schedule 1 and Schedule 2 is a complete and accurate list
of all of the Patents and Trademarks owned by each Pledgor as of the date
hereof. Each Pledgor has made all necessary filings and recordations to protect
and maintain its interest in the Patents and Trademarks set forth in Schedule 1
and Schedule 2, including, without limitation, all necessary filings and
recordings, and payments of all maintenance fees, in the United States Patent
and Trademark Office.
(d) As of the date hereof, each Patent and patent application of each
respective Pledgor set forth in Schedule 1 is subsisting and has not been
adjudged invalid, unpatentable or unenforceable, in whole or in part, and, to
the best of such Pledgor's knowledge, is valid, patentable and enforceable. As
of the date hereof, each of the Patent Licenses set forth in Schedule 1 is
validly subsisting and has not been adjudged invalid or unenforceable, in whole
or in part, and, to the best of such Pledgor's knowledge, is valid and
enforceable. As of the date hereof, each Pledgor has notified the Trustee in
writing of all uses of any item of Patent Collateral material to such Pledgor's
business of which such Pledgor is aware which could reasonably be expected to
lead to such item becoming invalid or unenforceable.
(e) As of the date hereof, each trademark registration and trademark
application of each respective Pledgor set forth in Schedule 2 is subsisting as
of the date hereof and has not been adjudged invalid, unregisterable or
unenforceable, in whole or in part, and, to the best of such Pledgor's
knowledge, is valid, registrable and enforceable. As of the date hereof, each of
the Trademark Licenses set forth in Schedule 2 is validly subsisting and has not
been adjudged invalid or unenforceable, in whole or in part, and, to the best of
such Pledgor's knowledge, is valid and enforceable. As of the date hereof, set
forth below each Pledgor's name on Schedule 2 are all uses of any item of
Trademark Collateral material to each such Pledgor's business of which such
Pledgor is aware which could reasonably be expected to lead to such item
becoming invalid or unenforceable, including unauthorized uses by third parties
and uses which were not supported by the goodwill of the business connected with
such Collateral.
(f) As of the date hereof, no Pledgor has made a previous assignment, sale,
transfer or agreement constituting a present or future assignment, sale,
transfer or encumbrance of any of the Collateral, except with respect to
exclusive licenses granted in the ordinary course of business or as permitted by
this Agreement, the Indenture, the Security Documents or the Bank Credit
Agreement. As of the date hereof, no Pledgor has granted any license, shop
right, release, covenant not to sue, or non-assertion assurance to any Person
with respect to any part of the Collateral except in the ordinary course of
business.
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15
(g) Each Pledgor has marked its products with the trademark registration
symbol (R), the numbers of all appropriate patents, the common law trademark
symbol (TM), or the designation "patent pending," as the case may be, to the
extent that it is reasonably and commercially practicable.
(h) Except for the Patent Licenses and Trademark Licenses listed in
Schedule 1 and Schedule 2 hereto, no Pledgor has knowledge of the existence of
any material right or any material claim (other than as provided by this
Agreement, the Indenture, the Security Documents or the Bank Credit Agreement)
that is likely to be made under or against any item of Collateral contained on
Schedule 1 and Schedule 2.
(i) No material claim has been made and is continuing or, to the best of
any Pledgor's knowledge, threatened that the use by such Pledgor of any item of
Collateral is invalid or unenforceable or that the use by such Pledgor of any
Collateral does or may violate the rights of any Person. To the best of the
relevant Pledgor's knowledge, there is currently no material infringement or
unauthorized use of any item of Collateral contained on Schedule 1 and Schedule
2.
7.2 Covenants. Each Pledgor covenants and agrees with the Trustee and the
Holders that, from and after the date of this Agreement until the payment in
full of the Securities and the other Secured Obligations then due and owing:
(a) At any time and from time to time, upon the written request of the
Trustee or such Pledgor, as the case may be, and at the sole expense of such
Pledgor, such Pledgor or the Trustee, as the case may be, will promptly and duly
execute and deliver such further instruments and documents and take such further
action as the Trustee or such Pledgor may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. Each Pledgor also
hereby authorizes the Trustee to file any such financing or continuation
statement without the signature of such Pledgor to the extent permitted by
applicable law. A carbon, photostatic or other reproduction of this Agreement
shall be sufficient as a financing statement for filing in any jurisdiction. The
Trustee agrees to notify such Pledgor and such Pledgor agrees to notify the
Trustee of any financing or continuation statement filed by it pursuant to this
subsection 7.2(a), provided that any failure to give any such notice shall not
affect the validity or effectiveness of any such filing.
(b) Such Pledgor agrees to pay, and to save the Trustee and the Holders
harmless from, any and all liabilities and reasonable costs and expenses
(including, without limitation, reasonable legal fees and expenses) (i) with
respect to, or resulting from, any delay by such Pledgor in complying with any
material Requirement of Law applicable to any of the Collateral, or (ii) in
connection with any of the transactions contemplated by this Agreement, provided
that such indemnity shall not, as to the Trustee or any Holder, be available to
the extent that such liabilities, costs and expenses resulted from the gross
negligence or willful misconduct of the
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16
Trustee or any Holder. In any suit, proceeding or action brought by the Trustee
or any Holder under any of the Collateral for any sum owing thereunder, or to
enforce any of the Collateral, such Pledgor will save, indemnify and keep the
Trustee and such Holder harmless from and against all expense, loss or damage
suffered by reason of any defense or counterclaim raised in any such suit,
proceeding or action.
(c) Such Pledgor will keep and maintain at its own cost and expense
reasonably satisfactory and complete records of the Collateral, and shall mark
such records to evidence this Agreement and the Liens and the security interests
created hereby. For the Trustee's and the Holders' further security, the
Trustee, for the ratable benefit of the Holders, shall have a security interest
in all of such Pledgor's books and records pertaining to the Collateral, and
such Pledgor shall permit the Trustee or its representatives to review such
books and records upon reasonable advance notice during normal business hours at
the location where such books and records are kept and at the reasonable request
of the Trustee.
(d) Upon reasonable advance notice to such Pledgor and at reasonable
intervals, or at any time and from time to time after the occurrence and during
the continuance of an Event of Default and the Trustee and its representatives
shall have reasonable access during normal business hours to all the books,
correspondence and records of such Pledgor, and the Trustee and its
representatives may examine the same, and to the extent reasonable take extracts
therefrom and make photocopies thereof, and such Pledgor agrees to render to the
Trustee, at such Pledgor's reasonable cost and expense, such clerical and other
assistance as may be reasonable requested with regard thereto.
(e) Such Pledgor will comply in all material respects with all Requirements
of Law applicable to the Collateral or any part thereof, except to the extent
that the failure to so comply would not be reasonably expected to materially
adversely affect in the aggregate the Trustee's or the Holders' rights
hereunder, the priority of their Liens on the Collateral or the value of the
Collateral.
(f) Such Pledgor will furnish to the Trustee from time to time such
statements and schedules further identifying and describing the Collateral, and
such other reports in connection with the Collateral, as the Trustee may
reasonably request, all in reasonable detail.
(g) Such Pledgor agrees that, should it obtain an ownership interest in any
Patent Collateral or Trademark Collateral, which is not now a part of the
Collateral, (i) the provisions of Section 2 shall automatically apply thereto,
(ii) any such Patent Collateral and Trademark Collateral shall automatically
become part of the Collateral, and (iii) with respect to any ownership interest
in any Patent Collateral or Trademark Collateral that such Pledgor should obtain
which such Pledgor reasonably deems is material to its business, it shall give
notice thereof to the Trustee in writing, in reasonable detail, at its address
set forth in the Indenture within thirty (30) business days after acquiring such
ownership interest. Such Pledgor authorizes the Trustee to modify this Agreement
by amending Schedule 1 and Schedule 2 (and will cooperate reasonably with the
Trustee in effecting any such amendment) to include on Schedule
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17
1 any Patent or Patent License and on Schedule 2 any Trademark and Trademark
License of which it receives notice under this Section.
(h) Such Pledgor agrees to take all necessary steps, including, without
limitation, in the United States Patent and Trademark Office or in any court, to
(i) maintain each Patent and each Patent License identified on Schedule 1
hereto, and (ii) pursue each patent application, now or hereafter identified in
Schedule 1 hereto, including, without limitation, the filing of divisional,
continuation, continuation-in-part and substitute applications, the filing of
applications for reissue, renewal or extensions, the payment of maintenance
fees, and the participation in interference, reexamination, opposition,
infringement and misappropriation proceedings, except, in each case in which
such Pledgor has reasonably determined that any of the foregoing is not of
material economic value to it. Such Pledgor agrees to take corresponding steps
with respect to each new or acquired patent, patent application, or any rights
obtained under any Patent License, in each case, which it is now or later
becomes entitled, except in each case in which such Pledgor has reasonably
determined that any of the foregoing is not of material economic value to it.
Any expenses incurred in connection with such activities shall be borne by such
Pledgor.
(i) Such Pledgor agrees to take all necessary steps, including, without
limitation, in the United States Patent and Trademark Office or in any court, to
(i) maintain each trademark registration and each Trademark License identified
on Schedule 2 hereto, and (ii) pursue each trademark application now or
hereafter identified in Schedule 2 hereto, including, without limitation, the
filing of responses to office actions issued by the United States Patent and
Trademark Office, the filing of applications for renewal, the filing of
affidavits under Sections 8 and 15 of the United States Trademark Act, and the
participation in opposition, cancellation, infringement and misappropriation
proceedings, except, in each case in which such Pledgor has reasonably
determined that any of the foregoing is not of material economic value to it.
Such Pledgor agrees to take corresponding steps with respect to each new or
acquired trademark registration, trademark application or any rights obtained
under any Trademark License, in each case, which it is now or later becomes
entitled, except in each case in which such Pledgor has reasonably determined
that any of the foregoing is not of material economic value to it. Any expenses
incurred in connection with such activities shall be borne by such Pledgor.
(j) Such Pledgor shall not abandon any trademark registration, patent or
any pending trademark or patent application, without the written consent of the
Trustee, unless such Pledgor shall have previously determined that such use or
the pursuit or maintenance of such trademark registration, patent or pending
trademark or patent application is not of material economic value to it, in
which case, such Pledgor will, at least annually, give notice of any such
abandonment to the Trustee in writing, in reasonable detail, at its address set
forth in the Indenture.
(k) In the event that such Pledgor becomes aware that any item of the
Collateral which such Pledgor has reasonably determined to be material to its
business is infringed or misappropriated by a third party, such Pledgor shall
notify the Trustee promptly and in writing, in reasonable detail, at its address
set forth in the Indenture, and shall take such actions as such
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18
Pledgor or the Trustee deems reasonably appropriate under the circumstances to
protect such Collateral, including, without limitation, suing for infringement
or misappropriation and for an injunction against such infringement or
misappropriation. Any expense incurred in connection with such activities shall
be borne by such Pledgor. Such Pledgor will advise the Trustee promptly and in
writing, in reasonable detail, at its address set forth in the Indenture, of any
adverse determination or the institution of any proceeding (including, without
limitation, the institution of any proceeding in the United States Patent and
Trademark Office or any court) regarding any item of the Collateral which has a
material adverse effect on (a) the business, operations, property, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries taken
as a whole or (b) the validity or enforceability of this Agreement, any of the
other Security Documents or the Indenture or the rights or remedies of the
Trustee or the Holders hereunder or thereunder.
(l) Such Pledgor shall mark its products with the trademark registration
symbol (R), the numbers of all appropriate patents, the common law trademark
symbol (TM), or the designation "patent pending," as the case may be, to the
extent that it is reasonably and commercially practicable.
(m) Such Pledgor will not create, incur or permit to exist, will defend the
Collateral against, and will take such other action as is reasonably necessary
to remove, any Lien or material adverse claim on or to any of the Collateral,
other than non-exclusive licenses granted in the ordinary course of business,
the Liens created by this Agreement and Permitted Liens, and will defend the
right, title and interest of the Trustee and the Holders in and to any of the
Collateral against the claims and demands of all Persons whomsoever.
(n) Without the prior written consent of the Trustee, such Pledgor will not
sell, assign, transfer, exchange or otherwise dispose of, or grant any option
with respect to, the Collateral, or attempt, offer or contract to do so, except
with respect to non-exclusive licenses in the ordinary course of business or as
expressly permitted by the Indenture and the Security Documents or as permitted
under the Bank Credit Agreement.
(o) Such Pledgor will advise the Trustee promptly, in reasonable detail, at
its address set forth in the Indenture, (i) of any Lien (other than Liens
created hereby or Permitted Liens) on, or material adverse claim asserted
against, Patents or Trademarks and (ii) of the occurrence of any other event
which would reasonably be expected in the aggregate to have a material adverse
effect on the aggregate value of the Collateral or the Liens created hereunder.
8. Remedies.
8.1 Notice to Account Debtors and Contract Parties. Upon the request of the
Trustee at any time after the occurrence and during the continuance of an Event
of Default, each Pledgor shall notify account debtors on the Accounts and
parties to the Contracts that the Accounts and the Contracts have been assigned
to the Trustee for the ratable benefit of the Holders and that payments in
respect thereof shall be made directly to the Trustee.
1
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8.2 Proceeds to be Turned Over To Trustee. In addition to the rights of the
Trustee and the Holders specified in subsection hereof with respect to payments
of Accounts, if an Event of Default shall occur and be continuing, all Proceeds
received by each Pledgor consisting of cash, checks and other near-cash items
shall be held by such Pledgor in trust for the Trustee and the Holders,
segregated from other funds of such Pledgor, and shall, forthwith upon receipt
by such Pledgor, be turned over to the Trustee in the exact form received by
such Pledgor (duly indorsed by such Pledgor to the Trustee, if required) and
held by the Trustee in a Collateral Account maintained under the sole dominion
and control of the Trustee. All Proceeds while held by the Trustee in a
Collateral Account (or by such Pledgor in trust for the Trustee and the Holders)
shall continue to be held as collateral security for all the Secured Obligations
and shall not constitute payment thereof until applied as provided in subsection
hereof.
8.3 Application of Proceeds. At such intervals as may be agreed upon by
each respective Pledgor and the Trustee, or, if an Event of Default shall have
occurred and be continuing, at any time at the Trustee's election, the Trustee
may apply all or any part of Proceeds held in any Collateral Account in payment
of the Secured Obligations in such order as the Trustee may elect, and any part
of such funds which the Trustee elects not so to apply and deems not required as
collateral security for the Secured Obligations shall be paid over from time to
time by the Trustee to such Pledgor or to whomsoever may be lawfully entitled to
receive the same. Any balance of such Proceeds remaining after the Secured
Obligations shall have been paid in full shall be paid over to such Pledgor or
to whomsoever may be lawfully entitled to receive the same.
8.4 Code Remedies. If an Event of Default shall occur and be continuing,
the Trustee, on behalf of the Holders may exercise, in addition to all other
rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Trustee, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon any
Pledgor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Trustee or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Trustee or any Holder shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in any
Pledgor, which right or equity is hereby waived or released. Each Pledgor
further agrees, at the Trustee's request, to assemble the Collateral and make it
available to the Trustee at places which the Trustee shall reasonably select,
whether at such Pledgor's premises or elsewhere. The Trustee shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or
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20
sale, after deducting all reasonable costs and expenses of every kind incurred
therein or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Trustee and the Holders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Secured Obligations, in
such order as the Trustee may elect, and only after such application and after
the payment by the Trustee of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Trustee
account for the surplus, if any, to any Pledgor. To the extent permitted by
applicable law, each Pledgor waives all claims, damages and demands it may
acquire against the Trustee or any Holder arising out of the exercise by them of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least ten (10) days before such sale or other disposition.
8.5 Waiver; Deficiency. Each Pledgor waives and agrees not to assert any
rights or privileges which it may acquire under Section 9-112 of the Code. Each
Pledgor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Secured
Obligations and the fees and disbursements of any attorneys employed by the
Trustee or any Holder to collect such deficiency.
9. Trustee's Appointment as Attorney-in-Fact; Trustee's Performance of
Pledgors' Secured Obligations.
9.1 Powers. Each Pledgor hereby irrevocably constitutes and appoints the
Trustee and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of such Pledgor and in the name of such Pledgor or in its
own name, from time to time in the Trustee's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, each Pledgor hereby gives the Trustee the power
and right, on behalf of such Pledgor, without notice to or assent by such
Pledgor, to do the following:
(a) in the case of any Account, at any time when the authority of such
Pledgor to collect the Accounts has been curtailed or terminated pursuant to
subsection 5.3(a) hereof, or in the case of any other Collateral, at any time
when any Event of Default shall have occurred and is continuing, in the name of
such Pledgor or its own name, or otherwise, to take possession of and indorse
and collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any Account, Instrument, General Intangible or
Contract or with respect to any other Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Trustee for the purpose of collecting any and all such
moneys due under any Account, Instrument, General Intangible or Contract or with
respect to any other Collateral whenever payable;
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21
(b) in the case of any Patents or Trademarks, to execute and deliver any
and all agreements, instruments, documents, and papers as the Trustee may
request to evidence the Trustee's and the Holders' security interest in any
Patent or Trademark and the goodwill and general intangibles of such Pledgor
relating thereto or represented thereby;
(c) to pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral, to effect any repairs or any insurance called for by the
terms of this Agreement and to pay all or any part of the premiums therefor and
the costs thereof;
(d) to execute, in connection with the sale provided for in subsection
hereof, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(e) upon the occurrence and during the continuance of any Event of Default,
(i) to direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Trustee or as the Trustee shall direct; (ii) to ask or demand for, collect,
receive payment of and receipt for, any and all moneys, claims and other amounts
due or to become due at any time in respect of or arising out of any Collateral;
(iii) to sign and indorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (iv) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of any
Collateral; (v) to defend any suit, action or proceeding brought against such
Pledgor with respect to any Collateral; (vi) to settle, compromise or adjust any
such suit, action or proceeding and, in connection therewith, to give such
discharges or releases as the Trustee may deem appropriate; (vii) to assign any
Patent or Trademark (along with the goodwill of the business to which any such
Patent or Trademark pertains), throughout the world for such term or terms, on
such conditions, and in such manner, as the Trustee shall in its sole discretion
determine; and (viii) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Trustee were the absolute owner thereof for all
purposes, and to do, at the Trustee's option and such Pledgor's expense, at any
time, or from time to time, all acts and things which the Trustee deems
necessary to protect, preserve or realize upon the Collateral and the Trustee's
and the Holders' security interests therein and to effect the intent of this
Agreement, all as fully and effectively as such Pledgor might do.
9.2 Performance by Trustee of Pledgors' Secured Obligations. If any Pledgor
fails to perform or comply with any of its agreements contained herein, the
Trustee, at its option, but without any obligation so to do, may perform or
comply, or otherwise cause performance or compliance, with such agreement.
9.3 Pledgors' Reimbursement Obligation. The expenses of the Trustee
incurred in connection with actions undertaken as provided in this Section 9,
together with interest
<PAGE>
22
thereon at a rate per annum equal to 12% from the date of payment by the Trustee
to the date reimbursed by the relevant Pledgor, shall be payable by such Pledgor
to the Trustee on demand.
9.4 Ratification; Power Coupled With An Interest. Each Pledgor hereby
ratifies all that said attorneys shall lawfully do or cause to be done by virtue
hereof. All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated
and the security interests created hereby are released.
10. Duty of Trustee. The Trustee's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the same
manner as the Trustee deals with similar property for its own account. Neither
the Trustee, any Holder nor any of their respective directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
any Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on the
Trustee and the Holders hereunder are solely to protect the Trustee's and the
Holders' interests in the Collateral and shall not impose any duty upon the
Trustee or any Holder to exercise any such powers. The Trustee and the Holders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to any Pledgor for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
11. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, each Pledgor authorizes the Trustee to file financing statements with
respect to the Collateral without the signature of such Pledgor in such form and
in such filing offices as the Trustee reasonably determines appropriate to
perfect the security interests of the Trustee under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
12. Authority of Trustee. Each Pledgor acknowledges that the rights and
responsibilities of the Trustee under this Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between the
Trustee and the Holders, be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Trustee and such Pledgor, the Trustee shall be conclusively
presumed to be acting as trustee for the Holders with full and valid authority
so to act or refrain from acting, and such Pledgor shall be under no obligation,
or entitlement, to make any inquiry respecting such authority.
13. Notices. All notices, requests and demands pursuant hereto shall be
made in accordance with Section 12 of the Guarantee.
<PAGE>
23
14. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15. Amendments in Writing; No Waiver; Cumulative Remedies. None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except in accordance with Article IX of the Indenture. This
Agreement shall be binding upon the successors and assigns of each Pledgor and
shall inure to the benefit of the Trustee and the Holders and their respective
successors and assigns, except that no Pledgor may assign, transfer or delegate
any of its rights or obligations under this Agreement without the prior written
consent of the Trustee.
15.1 Remedies Cumulative. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
16. Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
17. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of the
Trustee and the Holders and their successors and assigns.
18. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
19. Release of Collateral and Termination. (a) At such time as the payment
in full of the Securities and the other Secured Obligations then due and owing
shall have occurred, the Collateral shall be released from the Liens created
hereby, and this Agreement and all obligations (other than those expressly
stated to survive such termination) of the Trustee and each Pledgor hereunder
shall terminate, all without delivery of any instrument or performance of any
act by any party, and all rights to the Collateral shall revert to each such
Pledgor unless such reversion would be inconsistent with the Subordination
Agreement. Upon request of any Pledgor following any such termination, the
Trustee shall deliver (at the sole cost and expense of such Pledgor) any
Collateral held by the Trustee hereunder, and execute and deliver (at the sole
cost and expense of such Pledgor) to such Pledgor such documents as such Pledgor
shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Pledgor in a transaction permitted by the Indenture or the
Bank Credit Agreement, then the Trustee shall execute and deliver to such
Pledgor (at the sole cost and expense of such
<PAGE>
24
Pledgor) all releases or other documents reasonably necessary or desirable for
the release of the Liens created hereby on such Collateral.
20. Subordination. Each of the Pledgors and the Trustee (for itself in that
capacity and on behalf of the Holders) acknowledge that the security interests
in the Collateral granted, confirmed and/or reaffirmed pursuant to this
Agreement or otherwise held by the Trustee or any Holder are subordinated in
priority to the security interests in the Collateral held by the holder of the
Senior Indebtedness as provided in, and the rights (including the right to
payment) and remedies of the Trustee hereunder and of the Holders are
subordinated and subject to the terms and provisions of, the Subordination
Agreement.
21. Incorporation of Certain Indenture Provisions. All provisions of
Article VII of the Indenture shall be construed as extending to and including
all of the rights, duties and obligations imposed upon the Trustee under this
Agreement as fully and for all purposes as if said Article VII were contained in
this Agreement.
<PAGE>
25
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
CLIPPER MIST, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
LONDON FOG SPORTSWEAR, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
MATTHEW MANUFACTURING CO., INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
PACIFIC TRAIL, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
PTI HOLDING CORP.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
26
PTI TOP COMPANY, INC.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
STAR SPORTSWEAR MANUFACTURING
CORP.
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
THE MOUNGER CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
THE SCRANTON OUTLET CORPORATION
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
WASHINGTON HOLDING COMPANY
By:
----------------------------
Name: Stuart B. Fisher
Title: Secretary
<PAGE>
Schedule 1
PATENTS AND PATENT LICENSES
<PAGE>
Schedule 2
TRADEMARKS AND TRADEMARK LICENSES
<PAGE>
Schedule 3
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
COMPANY JURISDICTION
Clipper Mist, Inc. Department of Assessments and
Taxation, MARYLAND
Clerk of the Circuit Court, CARROLL
COUNTY, Maryland
Secretary of State, WASHINGTON
London Fog Sportswear, Inc. Department of Assessments and
Taxation, MARYLAND
Clerk of the Circuit Court, CARROLL
COUNTY, Maryland
Secretary of State, WASHINGTON
Matthew Manufacturing Co., Inc. Department of Assessments and
Taxation, MARYLAND
Clerk of the Circuit Court, CARROLL
COUNTY, Maryland
Secretary of State, WASHINGTON
Pacific Trail, Inc. Secretary of State, NEW YORK
City Registrar, NEW YORK COUNTY,
New York
Secretary of State, WASHINGTON
PTI Holding Corp. Secretary of State, WASHINGTON
PTI Top Company, Inc. Secretary of State, ILLINOIS
<PAGE>
2
COMPANY JURISDICTION
Secretary of State, WASHINGTON
Star Sportswear Manufacturing Corp. Clerk of the Superior Court,
WILKES COUNTY, Georgia
Department of Assessments and
Taxation, MARYLAND
Clerk of the Circuit Court, CARROLL
COUNTY, Maryland
Secretary of State, WASHINGTON
The Mounger Corporation Secretary of State, WASHINGTON
The Scranton Outlet Corporation Secretary of State, ALABAMA
Secretary of State, ARIZONA
Secretary of State, COLORADO
Clerk, LARIMER COUNTY, Colorado
Secretary of State, DELAWARE
Secretary of State, FLORIDA
Clerk of DADE COUNTY, Florida
Clerk of LEE COUNTY, Florida
Clerk of INDIAN RIVER COUNTY,
Florida
Secretary of State, IDAHO
Clerk of ADA COUNTY, Idaho
Secretary of State, INDIANA
Clerk STEUBEN COUNTY, Indiana
Clerk of JACKSON COUNTY, Indiana
<PAGE>
3
COMPANY JURISDICTION
Secretary of State, IOWA
Secretary of State, KANSAS
Secretary of State, KENTUCKY
County Court Clerk, HART COUNTY,
Kentucky
County Court Clerk, LYON COUNTY,
Kentucky
County Court Clerk, PULASKI
COUNTY, Kentucky
Secretary of State, LOUISIANA
Clerk of Court, ASCENSION PARISH,
Louisiana
Secretary of State, MAINE
Secretary of State, MICHIGAN
Secretary of State, MISSOURI
Recorder of Deeds, CAMDEN
COUNTY, Missouri
Recorder of Deeds, SCOTT COUNTY,
Missouri
Recorder of Deeds, TANEY COUNTY,
Missouri
Secretary of State, NEBRASKA
Secretary of State, NEVADA
Secretary of State, NEW
HAMPSHIRE
Clerk of Town, CONWAY, New
Hampshire
<PAGE>
4
COMPANY JURISDICTION
Clerk of Town, LACONIA, New
Hampshire
Clerk of Town, LINCOLN, New
Hampshire
Clerk of Town, NORTH CONWAY,
New Hampshire
Clerk of the Town, TILTON, New
Hampshire
Secretary of State, NEW JERSEY
County Clerk, HUDSON, New Jersey
Secretary of State, NEW MEXICO
Secretary of State, NORTH CAROLINA
Register of Deeds, ALAMANCE
COUNTY, North Carolina
Register of Deeds, BUNCOMBE
COUNTY, North Carolina
Register of Deeds, DARE COUNTY,
North Carolina
Register of Deeds, JOHNSTON
COUNTY, North Carolina
Register of Deeds, WATAUGA
COUNTY, North Carolina
County Clerk of OKLAHOMA
COUNTY, Oklahoma
Secretary of State, OREGON
Secretary of State, PENNSYLVANIA
County Prothonotary, BERKS
COUNTY, Pennsylvania
<PAGE>
5
COMPANY JURISDICTION
County Prothonotary, CLINTON
COUNTY, Pennsylvania
County Prothonotary, LACAWANA
COUNTY, Pennsylvania
County Prothonotary, LANCASTER
COUNTY, Pennsylvania
County Prothonotary, MONROE
COUNTY, Pennsylvania
Secretary of State, SOUTH CAROLINA
Secretary of State, UTAH
Secretary of State, VERMONT
Clerk of the Town, BENNINGTON,
Vermont
Secretary of State, WASHINGTON
Secretary of State, WEST VIRGINIA
Secretary of State, WISCONSIN
Secretary of State, WYOMING
County Clerk, TETON COUNTY,
Wyoming
Washington Holding Company Clerk of the Superior Court,
WILKES COUNTY, Georgia
Secretary of State, WASHINGTON
<PAGE>
6
Patent and Trademark Filings
UCC filings and filing of the Borrower Patent and Trademark Security Agreement
with the United States Patent and Trademark Office.
Other Actions
None.
<PAGE>
Schedule 4
INVENTORY AND EQUIPMENT
Item Location
<PAGE>
Schedule 5
ADDRESSES OF PLEDGORS
Pacific Trail, Inc.
1700 Westlake Avenue, North
Suite 200
Seattle, WA 98109
For all others:
1332 Londontown Boulevard
Eldersburg, MD 21784
<PAGE>
EXHIBIT J
FORM OF
TRANSFEREE LETTER OF REPRESENTATION
London Fog Industries, Inc.
c/o IBJ Schroder Bank & Trust Company, Trustee
One State Street
New York, New York 10004
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $ in
principal amount of the 10% Senior Subordinated Notes due 2003 (the "Notes") of
London Fog Industries, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of the
new beneficial owner as follows:
Name:
--------------------
Address:
------------------
Taxpayer ID Number:
----------------
The undersigned represents and warrants to you that:
1. It is an institutional "accredited investor" (as defined in
rule 501(a)(1), (2), (3) and (7) under the Securities Act of 1933, as amended
(the "Securities Act")), purchasing for its own account or for the account of
such an institutional "accredited investor" at least $250,000 principal amount
of the Notes, and it is acquiring the Notes not with a view to, or for offer or
sale in connection with, any distribution in violation of the Securities Act. It
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in the Notes and
invest in or purchase securities similar to the Notes in the normal course of
its business. It and any accounts for which it is acting are each able to bear
the economic risk of its investment.
2. It understands that the Notes have not been registered under
the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. It agrees on its own behalf and on behalf
of any investor account for which it is purchasing the Notes to offer, sell or
otherwise transfer such Notes prior to the date which is two years after the
later of the date of original issue and the last date on which the Company or
any affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the Company,
(b) pursuant to a registration statement which has
<PAGE>
2
been declared effective under the Securities Act, (c) in a transaction complying
with the requirements of Rule 144A under the Securities Act to a person it
reasonably believes is a qualified institutional buyer under Rule 144A (a "QIB")
that purchases for its own account or for the account of a QIB and to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d)
pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) and (7)
under the Securities Act that is purchasing for its own account or for the
account of such an institutional "accredited investor," in each case in a
minimum principal amount of Notes of $250,000, or (f) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of its property or the property of such investor account or accounts
be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (e) above
prior to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
Company and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) and (7) under the Securities Act and that it is acquiring
such Notes for investment purposes and not for distribution in violation of the
Securities Act. Each transferee acknowledges that the Company and the Trustee
reserve the right prior to the offer, sale or other transfer prior to the Resale
Restriction Termination Date of the Notes pursuant to clause (d), (e) or (f)
above to require the delivery of an opinion of counsel, certifications or other
information satisfactory to the Company and the Trustee.
TRANSFEREE:
------------------
BY:
--------------------------
<PAGE>
EXHIBIT K
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT (this "Agreement"), dated as
of February 27, 1998, is by and between CONGRESS FINANCIAL CORPORATION, a
California corporation ("Senior Lender", as hereinafter further defined), and
IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, not in its
individual capacity, but only as Trustee under the Subordinated Note Indenture
(as hereinafter defined) and the Subordinated Security Documents (as hereinafter
defined) (the "Subordinated Note Trustee").
W I T N E S S E T H:
WHEREAS, London Fog Industries, Inc., a Delaware corporation ("LFI", as
hereinafter further defined) has or is about to enter into the Subordinated Note
Indenture pursuant to which LFI is issuing the Subordinated Notes (as
hereinafter defined), which Subordinated Notes are secured by certain assets and
properties of LFI and certain of its subsidiaries; and
WHEREAS, Senior Lender has entered into certain financing arrangements with
LFI and its subsidiaries, pursuant to which Senior Lender has agreed, upon
certain terms and conditions, to make loans and provide other financial
accommodations to LFI and certain of its subsidiaries secured by certain assets
and properties of LFI and its subsidiaries; and
WHEREAS, the parties desire to enter into this Agreement to (i) confirm the
relative priority of the security interests of Senior Lender, on the one hand,
and the Subordinated Note Trustee, for itself and the ratable benefit of the
holders of the Subordinated Obligations (as hereinafter defined), on the other
hand, in the assets and properties of LFI and its subsidiaries, (ii) provide for
the orderly sharing between the Senior Lender, on the one hand, and the
Subordinated Note Trustee, for itself and the ratable benefit of the holders of
the Subordinated Obligations, on the other hand, in accordance with such
priorities, of proceeds of such assets and properties upon any foreclosure
thereon or other disposition thereof, and (iii) agree upon the terms of the
subordination in favor of Senior Lender of the obligations of LFI and its
subsidiaries to the Subordinated Note Trustee and the holders of the
Subordinated Obligations, and related matters;
NOW THEREFORE, in consideration of the mutual benefits accruing hereunder
to the Senior Lender, the Subordinated Note Trustee and the other holders of the
Subordinated Obligations (as hereinafter defined) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
<PAGE>
1. Certain Definitions.
(a) The following terms shall have the following meanings:
"Blockage Notice": a written notice from the Senior Lender under the
W/C Facility Agreement to the Borrower, a copy of which is sent to the
Subordinated Note Trustee, that a Non- Payment Event of Default has occurred and
is continuing.
"Blockage Period": any period commencing on the date a Blockage Notice
is given and ending on the earlier to occur of:
(a) the date when the Event of Default that was the basis for
such notice has been cured or waived in a writing signed by Senior
Lender; and
(b) one hundred eighty (180) days after the date such Blockage
Notice is given, unless, prior to the expiration of such one hundred
eighty (180) day period, Senior Lender commences and thereafter takes
reasonable steps to continue a Senior Liquidation, in which case, the
date upon which all Senior Obligations have been indefeasibly paid and
satisfied and the Senior Loan Documents have all been terminated.
"Borrower": individually and collectively, LFI, Pacific Trail, Inc., a
Washington corporation, and The Scranton Outlet Corporation, a Delaware
corporation, and their successors and assigns, including, without limitation, a
receiver, trustee or debtor-in-possession on behalf of any such person or any
such successor or assign.
"Business Day": shall have the meaning set forth in the Subordinated
Note Indenture.
"Collateral": the collective reference to any and all property from
time to time subject to security interests to secure payment or performance of
the Senior Obligations or the Subordinated Obligations or the Trustee's Fees and
Expenses.
"Event of Default": an Event of Default under the W/C Facility
Agreement; provided that any requirement for the giving of notice, the lapse of
time, or both, or any other conditions, has been satisfied.
"Excess Availability": as defined in the W/C Facility Agreement as in
effect on the date hereof, it being agreed and acknowledged that certain of the
components of the calculation of Excess Availability pursuant to such definition
are subject to determination by Senior Lender according to, among other things,
discretionary criteria or formulas subject to change from time to time.
-2-
<PAGE>
"Excess Availability Test": as to any payment that is otherwise a
Permitted Payment, the requirement that, for the period of thirty (30)
consecutive days immediately preceding the earlier of the date of such payment
or the date monies are deposited with the Subordinated Note Trustee for such
payment, and after giving effect to such payment or, if earlier, the deposit of
monies with the Subordinated Note Trustee for such payment, the Borrower shall
have Excess Availability in an aggregate amount of not less than $5,000,000.
"Insolvency Event": (a) any of the entities comprising the Borrower or
any of their Subsidiaries commences any case, proceeding or other action (i)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, conservatorship or relief of
debtors, seeking to have an order for relief entered with respect to it, or (ii)
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (iii) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for it or
for all or any substantial part of its assets, or any of the entities comprising
the Borrower or any of their Subsidiaries makes a general assignment for the
benefit of its creditors; or (b) there is commenced against any of the entities
comprising the Borrower or any of their Subsidiaries any case, proceeding or
other action of a nature referred to in clause (a) above, which (i) results in
the entry of an order for relief or any such adjudication or appointment, or
(ii) remains undismissed, undischarged or unbonded for a period of sixty (60)
days; or (c) there is commenced against any of the entities comprising the
Borrower or any of their Subsidiaries any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal for any period of thirty (30)
days following the entry thereof; or (d) any of the entities comprising the
Borrower or any of their Subsidiaries takes any action in furtherance of, or
indicates its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (a), (b) or (c) above.
"LFI": London Fog Industries, Inc., a Delaware corporation, as
successor corporation of the merger of LFI Merger Corp. with and into London Fog
Industries Inc., and its successors and assigns.
"1998 Master Restructuring Agreement": the Master Restructuring
Agreement, dated as of the date hereof, among LFI, certain of LFI's
subsidiaries, the "Agent" and "Lenders" under the "Old Debt Agreements" (as such
quoted terms are defined therein), and certain members of senior management of
LFI, as the
-3-
<PAGE>
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
"Non-Payment Event of Default": any state of facts or event (other
than a Payment Event of Default or an Insolvency Event) the existence or
occurrence of which entitles the Senior Lender to accelerate the maturity of any
of the Senior Obligations and which has not been waived or cured in a writing
signed by Senior Lender.
"Payment Event of Default": any default in the payment of any or all
of the Senior Obligations (whether upon maturity, mandatory prepayment,
acceleration or otherwise), or any default arising from a failure to reduce
direct borrowings and/or provide cash collateral for contingent obligations in
respect of letters of credit under the W/C Facility Agreement in the amounts
required pursuant to any clean-up provision, in each case beyond any applicable
grace period with respect thereto and which has not been waived or cured in a
writing signed by Senior Lender.
"Permitted Payments": as defined in Section 2(b)(ii) hereof.
"Person" or "person": any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability partnership, limited liability company, business trust,
unincorporated association, joint stock company, trust, joint venture, or other
entity or any government or any agency or instrumentality or political
subdivision thereof.
"Security Interest" or "security interest": any mortgage, deed of
trust, pledge, hypothecation, assignment, deposit arrangement, right of set-off,
security interest, encumbrance (including, but not limited to, easements, rights
of way and the like), lien (statutory or other), security agreement or transfer
intended as security, including, without limitation, any conditional sale or
other title retention agreement, the interest of a lessor under a capital lease
or any financing lease having substantially the same economic effect as any of
the foregoing.
"Senior Guarantees": the collective reference to the guarantees that
from time to time support payment or performance of all or any portion of the
Senior Obligations, including, without limitation, the guarantees made by PTI
Holding Corp., PTI Top Company, Inc., Star Sportswear Manufacturing Corp.,
Matthew Manufacturing Co., Inc., Washington Holding Company, Clipper Mist, Inc.,
The Mounger Corporation and London Fog Sportswear, Inc.
-4-
<PAGE>
"Senior Guarantors": the persons executing and delivering the Senior
Guarantees, and their successors and assigns.
"Senior Lender": the collective reference to the holder or holders
from time to time of Senior Obligations.
"Senior Liquidation": the conduct by Senior Lender of enforcement
actions or remedies following acceleration of the Senior Loans, or the conduct
by Senior Lender of any other plan or program for the sale or other realization
upon the Collateral with a view to the full collection and payment and
satisfaction of the Senior Loans, whether or not Senior Lender makes any Senior
Loans from time to time during the conduct of any of the foregoing.
"Senior Loan Documents": the collective reference to the W/C Facility
Agreement, the other Senior Security Documents, the Senior Notes, the Senior
Guarantees and all other documents or instruments that from time to time
evidence all or any portion of the Senior Obligations or secure or support
payment or performance thereof.
"Senior Loans": the loans, letters of credit, banker's acceptances and
other financial accommodations made or provided to or for the account of the
Borrower pursuant to the W/C Facility Agreement or any other Senior Loan
Document.
"Senior Notes": the promissory notes of the Borrower (if any)
outstanding from time to time under the W/C Facility Agreement.
"Senior Obligations": the collective reference to the unpaid principal
of and interest on the Senior Loans and all other existing and future
obligations and liabilities of the Borrower or any guarantors to the Senior
Lender which arise under, out of, or in connection with, the W/C Facility
Agreement, the other Senior Security Documents, the Senior Notes, the Senior
Guarantees, this Agreement, or any other Senior Loan Document (including,
without limitation, the interest and fees accruing at the then-applicable rates
provided in the W/C Facility Agreement after an Event of Default under or the
maturity of the Senior Loans and interest and fees accruing at the
then-applicable rates provided in the W/C Facility Agreement after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any of the entities comprising
the Borrower or any guarantor, whether or not a claim for post-filing or
post-petition interest or fees is allowed or allowable in such proceeding in
whole or in part), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, in each case whether on
account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of
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counsel to the Senior Lender that are required to be paid by the Borrower or
Senior Guarantors pursuant to the terms of the Senior Loan Documents or are
incurred or payable under or in connection with this Agreement).
"Senior Security Documents": the collective reference to the W/C
Facility Agreement and all other documents and instruments, now existing or
hereafter arising, which create or purport to create a security interest in
property to secure payment or performance of all or any portion of the Senior
Obligations.
"Specified Payment": as defined in Section 2(b)(ii) hereof.
"Subordinated Debt Documents": the collective reference to the 1998
Master Restructuring Agreement, the Subordinated Note Indenture, the
Subordinated Notes, the Subordinated Security Documents, the Subordinated
Guarantees, and all other documents or instruments that from time to time
evidence the Subordinated Obligations or secure or support payment or
performance thereof.
"Subordinated Debtholders": the holders from time to time of the
Subordinated Obligations, other than the Subordinated Note Trustee acting in its
capacity as Trustee and Collateral Agent under the Subordinated Note Indenture
and Subordinated Security Documents.
"Subordinated Guarantees": the collective reference to the guarantees
that from time to time support payment or performance of the Subordinated Notes.
"Subordinated Guarantors": Star Sportswear Manufacturing Corp.,
Washington Holding Company, The Scranton Outlet Corporation, PTI Top Company,
Inc., Clipper Mist, Inc., PTI Holding Corp., London Fog Sportswear, Inc., The
Mounger Corporation, Matthew Manufacturing Co., Inc. and Pacific Trail, Inc.
"Subordinated Note Indenture": the Indenture, dated as of the date
hereof, between LFI and the Subordinated Note Trustee with respect to the
Subordinated Notes.
"Subordinated Notes": the collective reference to the 10% Subordinated
Notes due 2003 issued by LFI pursuant to the Subordinated Note Indenture, as the
"Temporary Notes" or as the "Initial Notes" in the aggregate original principal
amount of $100,000,000, and any "Exchange Notes" issued in respect of such notes
as defined and provided in the Subordinated Note Indenture as in effect on the
date hereof, as the foregoing may be amended, supplemented, renewed, extended,
exchanged, restated or replaced.
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"Subordinated Note Trustee": shall mean IBJ Schroder Bank & Trust
Company, a New York banking corporation, as Trustee for the benefit of the
holders of the Subordinated Notes, and any successor or replacement Trustee
and/or collateral agent appointed pursuant to the terms and conditions of the
Subordinated Note Indenture or any of the Subordinated Security Agreements.
"Subordinated Obligations": the collective reference to the unpaid
principal of and interest on the Subordinated Notes and all other obligations
and liabilities of LFI and any guarantors to the Subordinated Note Trustee
and/or the holders of the Subordinated Notes, and/or any of their successors and
assigns (including, without limitation, interest accruing at the then-applicable
rate provided in the Subordinated Note Indenture after the maturity of the
Subordinated Notes and interest accruing at the then-applicable rate provided in
the Subordinated Note Indenture after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower or any guarantor, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, whether arising under, out of, or in connection
with, the Subordinated Note Indenture, the Subordinated Notes, this Agreement,
any other Subordinated Debt Document, or otherwise, in each case whether related
to a debt or any equity interest or other claim, right or interest, and whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
claims for breach or damages, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel (including the allocated fees
and expenses of in-house counsel) to the Subordinated Note Trustee or the
holders of the Subordinated Notes that are required to be paid by LFI or any
guarantor pursuant to the terms of the Subordinated Debt Documents, or are
incurred or payable under or in connection with this or any other Subordinated
Debt Document); provided, however, that the Subordinated Obligations shall not
include the annual administrative fees and expenses of the Subordinated Note
Trustee in an aggregate amount not to exceed $50,000, payable in any fiscal year
of LFI (the "Trustee's Fees and Expenses").
"Subordinated Security Documents": the collective reference to all
documents and instruments, now existing or hereafter arising, which purport to
create a security interest in property to secure payment or performance of the
Subordinated Obligations or the Trustee's Fees and Expenses.
"Subsidiary" or "subsidiary": any corporation, association or
organization, active or inactive, as to which more than fifty (50%) percent of
the outstanding voting stock or shares or interests shall now or hereafter be
owned or
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controlled, directly or indirectly, by a Person, any subsidiary of a Person, or
any subsidiary of such subsidiary.
"W/C Facility Agreement": the Loan and Security Agreement, dated as of
May 15, 1997, among Congress Financial Corporation and the entities comprising
the Borrower, as amended through the date hereof and as the same may hereafter
be amended, modified, supplemented, renewed, restated, refinanced or replaced.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. All terms
defined in the Uniform Commercial Code as in effect in the State of New York,
unless otherwise defined herein, shall have the meanings set forth therein.
2. Subordination.
(a) The Borrower, the Subordinated Guarantors and the Subordinated
Note Trustee, for itself and on behalf of each existing and future Subordinated
Debtholder, agree that the Subordinated Obligations are expressly "subordinate
and junior in right of payment" (as that phrase is defined in Section 2(b)) to
all Senior Obligations.
(b) "subordinate and junior in right of payment" means that:
(i) no part of the Subordinated Obligations shall have any claim
to the assets of the Borrower or any Senior Guarantor on a parity with
or prior to the claim of the Senior Obligations (subject to the
provisions contained in Section 2(b)(ii) below); and
(ii) unless and until the Senior Obligations have been
indefeasibly paid and satisfied in full and all obligations of Senior
Lender to provide further financing under the Senior Loan Documents
have been terminated or all such obligations have expired in
accordance with their terms, without the express prior written consent
of the Senior Lender thereunder, the Subordinated Trustee will not,
and no Subordinated Debtholder will take, demand or receive from any
person that is a Borrower or Senior Guarantor, and no person that is a
Borrower or a Senior Guarantor will make, give or permit, directly or
indirectly, by set-off, redemption, purchase or in any other manner,
any payment of or security for the whole or any part of the
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Subordinated Obligations, including, without limitation, any letter of
credit or similar credit support facility to support payment of the
Subordinated Obligations; provided, however, that at any time, except
during a Blockage Period or when a Payment Event of Default or
Insolvency Event has occurred and is continuing, LFI and any
Subordinated Guarantor may make, and the holders of the Subordinated
Notes may receive scheduled semi-annual payments on March 1 and
September 1 in each year commencing September 1, 1998, on account of
interest on the Subordinated Notes at the pre-default rate set forth
in the Subordinated Notes as in effect on the date hereof
("Subordinated Interest"), in each case in accordance with the terms
of the Subordinated Note Indenture as in effect on the date hereof
(each such payment, a "Specified Payment"), plus any Postponed
Payments (as defined below) when due; provided, further that, except
as limited by Section 2(c) below, the Excess Availability Test is
satisfied with respect to each such payment otherwise permitted to be
made hereunder (such permitted payments satisfying the applicable
conditions hereof, the "Permitted Payments").
(c) If any Specified Payment is not a Permitted Payment by virtue of
the failure to meet the Excess Availability Test hereunder with respect thereto,
then the due date of such Specified Payment (a "Postponed Payment") shall be
automatically postponed one month at a time to the first day of the month
following the original due date for such Specified Payment upon which all the
conditions to payment of such Postponed Payment contained in each of the
provisos to Section 2(b)(ii) hereof are satisfied; provided, however, that if
the original due date of any Specified Payment is postponed twice solely by
reason of the failure to meet the Excess Availability Test with respect thereto,
the Excess Availability Test shall not be applicable to such Specified Payment
or to any other Specified Payments or Postponed Payments becoming due on or
after the first day of the second month next following the original due date of
such Specified Payment, except, that, after all Specified Payments and Postponed
Payments due on or prior to the first day of a given month have been paid, the
Excess Availability Test shall again become applicable for subsequent Specified
Payments and Postponed Payments as provided in Section 2(b)(ii), subject to the
reapplication of this Section 2(c).
(d) Upon the termination of any Blockage Period or if any Payment
Event of Default or Insolvency Event has been cured or waived in a writing
signed by Senior Lender, the rights of the holders of the Subordinated Notes and
of the Subordinated Note Trustee to receive payments as provided in Section
2(b)(ii) shall be reinstated, and LFI and the Subordinated Guarantors may resume
making such Permitted Payments to such Subordinated Debtholders or to the
Subordinated Note Trustee on their behalf, subject to
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the subsequent application or re-application of the provisions of this Section 2
in accordance with its terms.
(e) No more than one Blockage Notice may be given within any
consecutive 365-day period.
(f) Notwithstanding the provisions of this Section 2 or any other
provision of this Agreement:
(i) the Subordinated Note Trustee shall not at any time be
charged with knowledge of the existence of any facts (other than an
Insolvency Event involving a case under the U.S. Bankruptcy Code by or
against LFI) which would prohibit the making of any Specified Payment
to or by the Subordinated Note Trustee, unless and until the
Subordinated Note Trustee shall have received written notice thereof;
(ii) except if a Blockage Period is in effect, or an Insolvency
Event has occurred of which the Subordinated Note Trustee has received
written notice (if such notice is required under clause (i) of this
Section), the parties agree that unless, on or before 1:30 p.m., New
York City time, on the first Business Day prior to the date on which
any monies deposited with the Subordinated Note Trustee shall be
payable as a Specified Payment (such notice to be supplemented by
telephonic notice to the Corporate Trust Department of the
Subordinated Note Trustee on or before 1:30 p.m., New York City time,
if such notice is given on such first prior Business Day), the
Subordinated Note Trustee has received written notice of a Payment
Event of Default or other written notice that such Specified Payment
is not a Permitted Payment by reason of the provisions of this
Agreement, then the Subordinated Note Trustee shall have full power
and authority to apply such monies to the Specified Payment, and shall
not be affected as to such Specified Payment by any notice to the
contrary which may be received by it after such time on such date,
without, however, limiting any rights that the Senior Lender may have
to recover any such Specified Payment from the Subordinated
Debtholders in accordance with the provisions of this Agreement; and
(iii) all monies required to be deposited with the Subordinated
Note Trustee for purposes of making Permitted Payments shall be
deposited no earlier than one (1) Business Day prior to the due date,
unless Senior Lender shall otherwise consent in writing.
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3. Additional Provisions Concerning Subordination.
(a) The Subordinated Note Trustee, for itself and on behalf of the
existing and future Subordinated Debtholders, the Borrower and the Subordinated
Guarantors agree in favor of Senior Lender that, upon the occurrence of any
Insolvency Event:
(i) all Senior Obligations shall be indefeasibly paid and
satisfied in full before any direct or indirect payment or
distribution is made with respect to the Subordinated Obligations; and
(ii) any direct or indirect payment or distribution of assets of
the Borrower or any Subordinated Guarantor, whether in cash, property
or securities, to which any Subordinated Debtholder or the
Subordinated Note Trustee would be entitled except for the provisions
hereof (including by way of the sale or other disposition of any
Collateral), shall be paid or delivered by the Borrower or such
Subordinated Guarantor, or any receiver, trustee in bankruptcy,
liquidating trustee, disbursing agent or other Person making such
payment or distribution, directly to the Senior Lender, to the extent
necessary to indefeasibly pay and satisfy in full all Senior
Obligations (including the provision of cash collateral for all
contingent Senior Obligations), before any payment or distribution
shall be made to any Subordinated Debtholder or the Subordinated Note
Trustee.
(b) If any direct or indirect payment or distribution, whether
consisting of money, property or securities, be collected or received by any
Subordinated Debtholder or the Subordinated Note Trustee in respect of the
Subordinated Obligations (including by way of the sale or other disposition of
Collateral held by or on behalf of Subordinated Debtholders), except payments
permitted to be made at the time of payment as provided in Section 2(b) or, only
as to Subordinated Note Trustee, if payment is made as permitted in Section
2(f), then the Subordinated Note Trustee or any Subordinated Debtholder so
collecting or receiving any of the foregoing shall forthwith deliver the same to
the Senior Lender, in the form received, duly indorsed to the Senior Lender, if
required, to be applied to the payment or prepayment of the Senior Obligations
and to provide cash collateral for any contingent Senior Obligations until the
Senior Obligations are paid and satisfied in full and all of the Senior Loan
Documents have been terminated. Until so delivered, such payment or distribution
shall be held by the Subordinated Note Trustee or any holder of the Subordinated
Notes as the case may be, as the property of the Senior Lender, segregated from
other funds and property held by the Subordinated Note Trustee or any such
Subordinated Debtholder, as the case may be.
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(c) In order to enable the Senior Lender to enforce its rights under
this Section 3, but only to the extent any Subordinated Debtholder or the
Subordinated Note Trustee fails to take or to take in a timely fashion or before
the loss of any right becomes imminent, any of the following actions, or takes
or is about to take any such action in a manner inconsistent with the provisions
hereof, and provided Senior Lender gives such prior written notice to the
Subordinated Note Trustee as is practicable without jeopardizing the rights and
interests of Senior Lender, Senior Lender is hereby irrevocably authorized and
empowered (in its own name or as assignee of the Subordinated Note Trustee or
any such Subordinated Debtholder), but shall have no obligation to, enforce
claims comprising any of the Subordinated Obligations by proof of debt, proof of
claim, suit or otherwise and take generally any action which Subordinated Note
Trustee or any such Subordinated Debtholder might otherwise be entitled to take,
as Senior Lender may deem necessary or advisable for the enforcement of its
rights or interests hereunder.
(d) To the extent necessary for the Senior Lender to realize the
benefits of the subordination of the Subordinated Obligations provided for
herein (including the right to receive any payment and distributions which might
otherwise be payable or deliverable in respect of the Subordinated Obligations
in any proceeding described in this Section 3 or otherwise), the Subordinated
Note Trustee shall execute and deliver to Senior Lender, and shall on behalf of
each Subordinated Debtholder deliver to Senior Lender, such instruments or
documents (together with such assignments or endorsements as Senior Lender shall
deem necessary), as may be reasonably requested by Senior Lender.
(e) No specific legend, further assignment or endorsement or delivery
of notes, guarantees or instruments shall be necessary to subject any
Subordinated Obligations to the subordination thereof contained in this
Agreement.
4. Rights in Collateral; Standstill.
(a) Notwithstanding anything to the contrary contained in the W/C
Facility Agreement, any Senior Security Document, any other Senior Loan Document
or any Subordinated Security Document or other Subordinated Debt Document and
irrespective of:
(i) the time, order or method of attachment or perfection of the
security interests created by any Senior Security Document or any
Subordinated Security Document or the non-perfection or any lapse in
perfection thereof,
(ii) the time or order of filing or recording financing
statements or other documents filed or recorded to perfect security
interests in any Collateral,
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(iii) anything contained in any filing or agreement to which any
Senior Lender or any Subordinated Debtholder or the Subordinated Note
Trustee now or hereafter may be a party, and
(iv) the rules for determining priority under the Uniform
Commercial Code or any other law governing the relative priorities of
secured creditors,
any security interest in any Collateral pursuant to any Senior Security Document
has and shall have priority, to the extent of any unpaid Senior Obligations at
any time and from time to time outstanding, over any security interest in such
Collateral pursuant to any Subordinated Security Document.
(b) Any monetary proceeds realized, or monetary proceeds received in
respect of property or securities realized, upon the sale, disposition or other
realization upon all or any part of the Collateral after Senior Lender has
commenced a Senior Liquidation, shall be applied in the following order:
First, to the payment in full of all costs and expenses
(including, without limitation, attorneys' fees and disbursements)
paid or incurred by Senior Lender in connection with such realization
on the Collateral or the protection of rights and interests therein;
Second, to the payment and satisfaction in full of all Senior
Obligations in such order as the Senior Lender may elect in its sole
discretion, including, as and to the extent Senior Lender so requires,
the cash collateralization of undrawn letters of credit and all other
contingent Senior Obligations, subject in all events to Senior
Lender's determination whether to relend or otherwise make available
to Borrower during such Senior Liquidation any such amounts so applied
in payment of any Senior Obligations;
Third, to the payment in full, in accordance with Subordinated
Note Indenture, of all Subordinated Obligations and Trustee's Fees and
Expenses then due and which are secured by such Collateral or as a
court of competent jurisdiction may direct; and
Fourth, to pay to the Borrower, the Senior Guarantors or
Subordinated Guarantors (as the case may be) or their representatives
or as a court of competent jurisdiction may direct, any surplus then
remaining.
(c) The priorities of security interests provided in this Section 4
shall not be altered or otherwise affected by any amendment, modification,
supplement, extension, renewal, restatement or refinancing of either the Senior
Obligations or
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the Subordinated Obligations, nor by any action or inaction which Senior Lender
may take or fail to take in respect of the Collateral.
(d) The Subordinated Note Trustee, for itself and on behalf of each
Subordinated Debtholder, agrees that neither it nor any Subordinated Debtholder
will contest the validity or enforceability of the Senior Obligations or the
validity, perfection, priority or enforceability of the security interests held
by Senior Lender upon the Collateral and that as between Senior Lender, on the
one hand, and Subordinated Note Trustee and Subordinated Debtholders, on the
other hand, the terms of this Agreement shall govern even if part or all of the
Senior Obligations or the security interests securing payment and performance
thereof are avoided, disallowed, set aside or otherwise invalidated in any
judicial proceeding or otherwise. Senior Lender agrees that it will not contest
the validity or, subject to the terms hereof, enforceability of the Subordinated
Obligations or the validity, perfection, or, subject to the terms hereof, the
priority or enforceability of security interests held by the Subordinated Note
Trustee, for itself and the ratable benefit of the Subordinated Debtholders, and
that, as between Senior Lender, on the one hand, and the Subordinated Note
Trustee and Subordinated Debtholders, on the other hand, the terms of this
Agreement shall govern even if part or all of the Subordinated Obligations or
the security interests securing payment and performance thereof are avoided,
disallowed, set aside or otherwise invalidated in any judicial proceeding or
otherwise.
(e) Senior Lender shall have the exclusive right to manage, perform
and enforce the terms of the Senior Loan Documents with respect to the
Collateral, to exercise and enforce all privileges and rights thereunder
according to its discretion and the exercise of its business judgment,
including, without limitation, the exclusive right to take or retake control or
possession of the Collateral and to hold, prepare for sale, process, sell,
lease, dispose of, or liquidate the Collateral.
(f) Notwithstanding anything to the contrary contained in any of the
Senior Loan Documents or Subordinated Debt Documents, only Senior Lender shall
have the right to restrict or permit, or approve or disapprove, the sale,
transfer or other disposition of Collateral. The Subordinated Note Trustee, for
itself and on behalf of each Subordinated Debtholder, shall, immediately upon
the request of Senior Lender, release or otherwise terminate its and their
security interests in the Collateral to the extent such Collateral is sold or
otherwise disposed of either by Senior Lender, its agents, or by Borrower or any
Senior Guarantor with the consent of Senior Lender; and Subordinated Note
Trustee, for itself and on behalf of each Subordinated Debtholder, shall, as
soon as practicable, execute and deliver such release documents as Senior Lender
may reasonably require in connection therewith.
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(g) Notwithstanding any rights or remedies available under any of the
Subordinated Debt Documents, applicable law or otherwise, except as provided in
Section 4(h) below, neither the Subordinated Note Trustee nor any Subordinated
Debtholder shall, directly or indirectly, (i) seek to collect from Borrower or
any Senior Guarantor (including, without limitation, from or by way of any
Collateral or proceeds thereof) any of the Subordinated Obligations or exercise
any of its rights or remedies upon a default or event of default under the
Subordinated Debt Documents or otherwise, other than acceleration upon not less
than ten (10) days prior written notice to Senior Lender, or (ii) seek to
foreclose or realize upon (judicially or non-judicially) its lien on any
Collateral or assert any claims or interests therein (including, without
limitation, by setoff or notification of account debtors), or (iii) commence any
action or proceeding against Borrower or any Senior Guarantor or its properties
under the U.S. Bankruptcy Code or any state insolvency law or similar present or
future statute, law or regulation or any proceedings for voluntary liquidation,
dissolution or other winding up of any of them or their businesses, or the
appointment of any trustee, receiver or liquidator for any of them or any part
of any of their properties or any assignment for the benefit of creditors or any
marshalling of assets of any of them, or (iv) take any other action against
Borrower or any Senior Guarantor or the Collateral.
(h) If any Permitted Payment is not made when due under the
Subordinated Debt Documents as in effect on the date hereof, or if any other
event of default not involving the failure to pay money when due occurs under
the Subordinated Debt Documents as in effect on the date hereof and is not cured
within the applicable grace or cure period thereunder and is continuing, then,
upon not less than thirty (30) days prior written notice from Subordinated Note
Trustee to Senior Lender, provided and so long as (x) no Payment Event of
Default or Insolvency Event exists or has occurred and is continuing and (y) no
Blockage Period is in effect, the Subordinated Note Trustee and, to the extent
permitted in the Subordinated Debt Documents, the Subordinated Debtholders, may,
subject to the provisions of the Subordinated Debt Documents, enforce their
rights to payment of the Subordinated Obligations by way of suit for collection
of a money debt against LFI or any Subordinated Guarantors and may continue such
enforcement to judgment and execution thereon, subject, however, to (i)
immediate cessation of such enforcement efforts upon the commencement of a
Blockage Period, or the occurrence of a Payment Event of Default, or the
occurrence of an Insolvency Event or if the Senior Lender at any time commences
and thereafter takes reasonable steps to continue a Senior Liquidation, and (ii)
in the absence of the commencement or such reasonable steps to continue a Senior
Liquidation, the turnover to Senior Lender of all amounts collected and
recovered by Subordinated Note Trustee or any Subordinated Debtholder upon such
permitted enforcement for application by Senior Lender to payment or prepayment
of the Senior Obligations, in such order
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and manner as Senior Lender shall determine, until the Senior Obligations are
fully and indefeasibly paid and satisfied and all obligations of Senior Lender
to provide further financing under the Senior Loan Documents have been
terminated or all such obligations have expired according to their terms.
(i) In no event shall Senior Lender be required to take any action or
refrain from taking any action in connection with the Senior Loan Documents or
transactions thereunder based upon any term or provision of the Subordinated
Debt Documents, and in no event shall Senior Lender have or incur any liability
to any Subordinated Debtholder or Subordinated Note Trustee by reason of any
failure by LFI or any Subordinated Guarantor to pay or perform any of its
obligations, liabilities or indebtedness to Subordinated Debtholders or
Subordinated Note Trustee whether or not such failure is known to Senior Lender
or is directly or indirectly the result of actions taken or not taken by Senior
Lender in connection with the Senior Loan Documents or transactions thereunder.
5. No Subrogation. Notwithstanding any claim for subrogation that the
Subordinated Note Trustee or Subordinated Debtholders may otherwise have under
applicable law, neither the Subordinated Note Trustee nor any of the
Subordinated Debtholders shall be subrogated to the rights of the Senior Lender
to receive payments or distributions of assets of LFI or any subsidiary in
respect of the Senior Obligations until the Senior Obligations shall be
indefeasibly paid and satisfied in full and the Senior Loan Documents have been
terminated. For the purposes of such subrogation, payments or distributions to
the Senior Lender of any money, property or securities to which the Subordinated
Note Trustee or any Subordinated Debtholder would be entitled except for the
provisions of this Agreement shall be deemed, as between LFI or any subsidiary
and its creditors other than the Senior Lender and Subordinated Note Trustee or
such Subordinated Debtholder, to be a payment by LFI or such subsidiary (as
applicable) to or on account of Subordinated Obligations, it being understood
that the provisions of this Agreement are, and are intended solely, for the
purpose of defining the relative rights of the Subordinated Note Trustee and
Subordinated Debtholders, on the one hand, and the Senior Lender, on the other
hand.
6. Consents of Subordinated Note Trustee and Subordinated Debtholders.
(a) Subordinated Note Trustee, for itself and on behalf of each
Subordinated Debtholder, agrees and consents that, without the necessity of any
reservation of rights against Subordinated Note Trustee or any Subordinated
Debtholder, and without notice to or further assent by Subordinated Note Trustee
or any Subordinated Debtholder:
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(i) any demand for payment of any Senior Obligations made by
Senior Lender may be rescinded in whole or in part by the Senior
Lender, and the amount applied in payment of any Senior Obligation may
be relent and the Senior Obligations, or the liability of the Borrower
or any guarantor or any other party upon or for any part thereof, or
any collateral security or guarantee therefor or right of offset with
respect thereto, or any obligation or liability of the Borrower or any
other party under the W/C Facility Agreement or any other agreement,
may, from time to time, in whole or in part, be renewed, extended,
modified, accelerated, compromised, waived, surrendered, or released
by the Senior Lender;
(ii) the W/C Facility Agreement, the other Senior Security
Documents, the Senior Notes, the Senior Guarantees, and any other
Senior Loan Document may be amended, modified, supplemented or
terminated, in whole or in part, in accordance with the terms of such
agreements from time to time;
(iii) any Collateral may be sold, exchanged, waived, surrendered
or released by Senior Lender or, with Senior Lender's prior written
consent, by Borrower or any Senior Guarantor;
in each case all without notice to or further assent by any Subordinated
Debtholder or Subordinated Note Trustee, each of whom will remain bound under
this Agreement, and all without impairing, abridging, releasing or affecting the
subordination and other provisions provided for herein.
(b) The Subordinated Note Trustee, for itself and on behalf of each
Subordinated Debtholder, waives any and all notice of the creation, renewal,
extension or accrual of any of the Senior Obligations and notice of or proof of
reliance by the Senior Lender upon this Agreement. The Senior Obligations, and
all of them, shall be deemed conclusively to have been created, contracted or
incurred in reliance upon this Agreement, and all dealings between the Borrower,
the Senior Guarantors and the Senior Lender shall be deemed to have been
consummated in reliance upon this Agreement. The Subordinated Note Trustee, for
itself and on behalf of each Subordinated Debtholder, acknowledges and agrees
that the Senior Lender has relied upon the subordination and other provisions
provided for herein in entering into certain amendments to the W/C Facility
Agreement and in making Senior Loans available to the Borrower thereunder. The
Subordinated Note Trustee, for itself and on behalf of each Subordinated
Debtholder, waives notice of or proof of reliance on this Agreement and protest,
demand for payment and notice of default.
-17-
<PAGE>
7. Representations.
(a) The Subordinated Note Trustee represents and warrants to Senior
Lender that the execution, delivery and performance of this Agreement by the
Subordinated Note Trustee is within its powers in its capacity as Trustee for
the Subordinated Debtholders, and has been duly directed pursuant to the
Subordinated Note Indenture.
(b) Senior Lender hereby represents and warrants to the Subordinated
Note Trustee that the execution, delivery and performance of this Agreement by
Senior Lender is within its powers and has been duly authorized by Senior
Lender.
8. Further Assurances. The Borrower and the Subordinated Note Trustee, for
itself and on behalf of each Subordinated Debtholder, at Borrower's expense and
at any time from time to time, upon the written request of the Senior Lender,
will promptly and duly execute and deliver such further instruments and
documents (including amendments to their financing statements filed against
Borrower or any Senior Guarantor stating that the rights of the Subordinated
Note Trustee and Subordinated Debtholders are subject to the terms hereof) and
take such further actions as the Senior Lender may reasonably request for the
purposes of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted.
9. Provisions Define Relative Rights. This Agreement is intended solely for
the purpose of defining the relative rights of the Senior Lender, on the one
hand, and the Subordinated Note Trustee and Subordinated Debtholders, on the
other, and no other Person shall have any right, benefit or other interest under
or by virtue of this Agreement.
10. Powers Coupled With An Interest. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until the Senior Obligations are indefeasibly paid and satisfied in
full and the Senior Loan Documents are terminated.
11. Notices. To be effective, all notices, requests and demands to or upon
any Subordinated Debtholder or the Subordinated Note Trustee, for itself and/or
on behalf of any Subordinated Debtholder, shall be in writing (or by fax or
other similar electronic means of communicating a writing) and shall be deemed
to have been duly given or made (i) when delivered by hand, or (ii) if given by
certified mail, return receipt requested, then, upon receipt by the addressee,
or (iii) if by fax or similar electronic means of communicating a writing, when
such notice is sent and receipt has been confirmed, addressed as follows:
-18-
<PAGE>
If to the
Senior Lender: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Andrew W. Robin
Fax: (212) 545-4283
If to the Subordinated
Note Trustee or to IBJ Schroder Bank and Trust Company
any Subordinated One State Street
Debtholder (in care of New York, New York
the Subordinated Note Attention: Corporate Trust
Trustee) Administration
Fax: (212 858-2952
The Senior Lender and the Subordinated Note Trustee may change their addresses
and transmission numbers for notices by notice in the manner provided in this
Section.
12. Amendments in Writing.
(a) None of the terms or provisions of this Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Senior Lender and by the Subordinated Note Trustee upon the
authorization of the holders of the requisite percentage (if any) of the
Subordinated Notes then outstanding, as set forth in the Subordinated Note
Indenture.
(b) No failure to exercise, nor any delay in exercising, on the part
of the Senior Lender, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
13. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the internal laws of the State of New York,
without giving effect to principles of conflicts of law.
14. Successors and Assigns.
(a) This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of each of
Senior Lender, the Subordinated Debtholders and the Subordinated Note Trustee,
and their respective successors, participants and assigns.
(b) Senior Lender acknowledges that each Subordinated Debtholder has
the right to sell, assign, grant participations,
-19-
<PAGE>
transfer or negotiate all or any part of, or any interest in, the Subordinated
Obligations held by it; provided that (and Subordinated Note Trustee, on behalf
of each Subordinated Debtholder hereby agrees that) each such buyer, assignee,
participant, transferee or endorsee shall, by acceptance of such part of or
interest in the Subordination Obligations, be bound by the obligations and
liabilities hereunder of the Subordinated Debtholder from whom it acquired its
interest and by the other terms hereof, in each case, as between Senior Lender
and the Subordinated Note Trustee, on behalf of the transferor Subordinated
Debtholder, without thereby releasing the transferor Subordinated Debtholder for
purposes hereof with respect to events occurring prior to the transfer of such
interest.
(c) Senior Lender reserves the right to grant participations in, or
otherwise sell, assign, transfer or negotiate all or any part of, or any
interest in, the Senior Obligations and the Collateral securing same; provided,
that, Subordinated Debtholders and Subordinated Note Trustee shall not be
obligated to give any notices to or otherwise in any manner deal directly with
any participant in the Senior Obligations and no participant shall be entitled
to any rights or benefits under this Agreement except through Senior Lender.
(d) In connection with any assignment or transfer of any or all of the
Senior Obligations, or any or all rights of Senior Lender in the property of
Borrower or Senior Guarantors (other than pursuant to a participation),
Subordinated Note Trustee, for itself and on behalf of the Subordinated
Debtholders, agrees to execute and deliver an agreement containing terms
substantially identical to those contained herein in favor of any such assignee
or transferee and, in addition, will execute and deliver an agreement containing
terms substantially identical to those contained herein in favor of any third
person who succeeds to, refinances or replaces any or all of Senior Lender's
financing of Borrower, whether such successor financing, refinancing or
replacement occurs by transfer, assignment, "takeout" or any other means or
vehicle. No failure or refusal by Subordinated Note Trustee to execute or
deliver any such agreement shall limit or impair the rights of any holder of
Senior Obligations, including any such holder who succeeds to, refinances or
replaces any or all Senior Obligations, whether by transfer, assignment,
"take-out" or any other means or vehicle.
15. Bankruptcy.
This Agreement shall be applicable both before and after the filing of
any petition under the U.S. Bankruptcy Code by or against any entity comprising
the Borrower or any Senior Guarantor and all converted or succeeding cases in
respect thereof, and all references herein to Borrower or any Senior Guarantor
shall be deemed to apply to a trustee for any of the entities comprising
Borrower or a Senior Guarantor and such entity as debtor-in-possession. The
relative rights of Senior
-20-
<PAGE>
Lender, on the one hand, and Subordinated Note Trustee and Subordinated
Debtholders, on the other hand, to repayment of the Senior Obligations and the
Subordinated Obligations, respectively, and in or to any distributions from or
in respect of Borrower or any Senior Guarantor or any Collateral or proceeds of
Collateral, shall continue after the filing thereof on the same basis as prior
to the date of the petition. Nothing in this Section 14 shall constitute a
consent by the Subordinated Note Trustee or any Subordinated Debtholder to the
use of cash collateral by Borrower or any Subordinated Guarantor in any case
involving Borrower or any Subordinated Guarantor under the U.S. Bankruptcy Code
or a consent by the Subordinated Note Trustee or any Subordinated Debtholder to
any debtor-in-possession financing sought by Borrower or any Subordinated
Guarantor in any such case, nor shall anything in this Section 15 limit Senior
Lender's rights to consent or object to the use of cash collateral by Borrower
or any Senior Guarantor or to provide or oppose debtor- in-possession financing
to Borrower or any Senior Guarantor in any such case.
16. Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties
hereto hereby irrevocably consents to the non-exclusive jurisdiction of the
Supreme Court of the State of New York for the County of New York and of the
United States District Court for the Southern District of New York and waives
trial by jury in any action or proceeding with respect to this Agreement or any
matter arising herefrom or relating hereto.
17. Complete Agreement. This written Agreement is intended by the parties
as a final expression of their agreement and is intended as a complete statement
of the terms and conditions of their agreement with respect to the subject
matter hereof; provided, that the rights of Senior Lender hereunder shall be
supplementary to, and not in any manner limit or impair, or be limited or
impaired by, the rights of Senior Lender as the holder of "Senior Indebtedness"
as defined in and as provided under the Subordinated Note Indenture as in effect
on the date hereof; and provided, further, that in no event shall any provision
of the Subordinated Debt Documents limit, qualify or modify any provision of
this Agreement.
18. Disclosures; Non-Reliance. Subordinated Note Trustee and each
Subordinated Debtholder has the means to be, and shall, to the extent they deem
it appropriate to do so, but without any obligation to do so, in the future,
remain fully informed as to the financial condition and other affairs of
Borrower and Senior Guarantors and Senior Lender shall not have any obligation
or duty to disclose any such information to Subordinated Note Trustee or any
Subordinated Debtholder. Except as expressly set forth in this Agreement, the
parties hereto have not otherwise made to each other nor do they hereby make to
each other any warranties, express or implied, nor do they assume any liability
to each other.
-21-
<PAGE>
19. Subordinated Note Trustee. Pursuant to the Subordinated Debt Documents,
each of the Subordinated Debtholders has appointed Subordinated Note Trustee to
act as agent on behalf of the Subordinated Debtholders for all purposes in
connection with this Agreement, and Subordinated Note Trustee hereby confirms
and agrees that it has agreed to so act on behalf of Subordinated Debtholders as
provided therein and herein. Notwithstanding any provisions of the Subordinated
Debt Documents to the contrary, as between Senior Lender, on the one hand, and
Subordinated Debtholders and Subordinated Note Trustee, on the other hand,
Senior Lender shall not be required to inquire as to or verify the authority or
power of the Subordinated Note Trustee to act on behalf of the Subordinated
Debtholders, and Senior Lender may, without inquiry and without notice to any of
the Subordinated Debtholders, rely upon any act taken or notice given or any
document executed by Subordinated Note Trustee with respect to the matters
covered hereby as the act, notice or document of the Subordinated Debtholders
who shall be bound thereby (without prejudice, however, to any rights or
obligations of the Subordinated Debtholders and the Subordinated Note Trustee
inter se). The Subordinated Note Trustee shall not owe any fiduciary duty to the
Senior Lender.
20. Term. This Agreement is a continuing agreement and shall remain in full
force and effect until the indefeasible payment and satisfaction in full of all
Senior Obligations and the termination or the expiration in accordance with
their terms of all obligations of Senior Lender to provide further financing
under the Senior Loan Documents.
21. Prior Intercreditor and Subordination Agreement. As among Senior
Lender, the Subordinated Lenders that are parties to the "Old Debt Agreements"
(as defined in the 1998 Master Restructuring Agreement) and the Subordinated
Note Trustee, for itself and on behalf of the Subordinated Debtholders, the
terms and provisions of this Agreement shall amend and restate the terms and
provisions of the Intercreditor and Subordination Agreement, dated as of May 15,
1997, among Senior Lender, the Subordinated Lenders parties thereto and The
Chase Manhattan Bank, as agent for the Subordinated Lenders, as acknowledged and
agreed to by LFI and certain of its subsidiaries (the "Prior Subordination
Agreement"); provided, however, that (i) to the extent any of the "Subordinated
Obligations" (as defined in the Prior Subordination Agreement) are not either
exchanged for Subordinated Obligations (as defined herein) or satisfied pursuant
to the 1998 Master Restructuring Agreement, or if any of the "Subordinated
Obligations" so exchanged or satisfied are revived or reinstated for any reason,
then the Prior Subordination Agreement shall, to that extent, remain in effect
or be revived or reinstated, as the case may be, and (ii) to the extent any of
the "Subordinated Security Documents" or any "security interests" in favor of or
held by the "Subordinated Agent" or any "Subordinated Lender" in the
"Collateral" (as such quoted terms are defined in the Prior Subordination
Agreement)
-22-
<PAGE>
are not fully and effectively amended and restated so as to be limited to the
Subordinated Security Documents and security interests in the Collateral held by
the Subordinated Note Trustee for the benefit of the Subordinated Debtholders
(each as defined herein), or are not for any reason subject to the subordination
and other terms and provisions in favor of Senior Lender hereunder, then the
Prior Subordination Agreement shall, to the extent required to give effect to
such subordination and other terms and provisions, remain in effect or be
revived or reinstated, as the case may be.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original with the same force and effect
as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
CONGRESS FINANCIAL CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
IBJ SCHRODER BANK & TRUST
COMPANY, not in its
individual capacity, but
solely as Subordinated Note
Trustee, and on behalf of
each of the Subordinated
Debtholders
By:
---------------------------
Name:
-------------------------
Title:
------------------------
-23-
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT
Each of the undersigned hereby acknowledges the foregoing Intercreditor and
Subordination Agreement (the "Agreement"). By its signature below, each of the
undersigned agrees that it will, together with its successors and assigns, be
bound by the provisions of the Agreement.
Each of the undersigned further acknowledges and agrees that: (i) although
it may sign this Acknowledgment and Agreement it is not a party to the Agreement
and does not and will not receive any right, benefit, priority or interest under
or because of the existence of the Agreement, (ii) in the event of a breach by
any of the undersigned of any of the terms and provisions contained in the
foregoing Agreement, such a breach shall constitute an "Event of Default" as
defined in and under the W/C Facility Agreement and (iii) it will execute and
deliver such additional documents and take such additional action as may be
necessary or desirable in the opinion of Senior Lender or Subordinated Note
Trustee to effectuate the provisions and purposes of the foregoing Agreement.
LONDON FOG INDUSTRIES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
PACIFIC TRAIL, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
THE SCRANTON OUTLET CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
-24-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
PTI HOLDING CORP.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
PTI TOP COMPANY, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
STAR SPORTSWEAR MANUFACTURING CORP.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
MATTHEW MANUFACTURING CO., INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
WASHINGTON HOLDING COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
-25-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
CLIPPER MIST, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
THE MOUNGER CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
LONDON FOG SPORTSWEAR, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-26-
<PAGE>
EXHIBIT L
ASSIGNMENT OF SECURITY INTERESTS
ASSIGNMENT OF SECURITY INTERESTS (this "Assignment"), dated as of February
27, 1998, by and between THE CHASE MANHATTAN BANK (formerly known as Chemical
Bank), a New York banking corporation, as agent for the Lenders referred to
below (in such capacity, the "Agent") under the Existing Agreements referred to
below and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, not
in its individual capacity, but solely as trustee under the Indenture referred
to below (in such capacity, the "Trustee").
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, dated as of May 20, 1994 (as
amended, supplemented or otherwise modified prior to May 31, 1995, the "Original
Credit Agreement"), among London Fog Industries, Inc., a Delaware corporation
(the "Company"), The Chase Manhattan Bank (formerly known as Chemical Bank), as
agent (in such capacity, the "Original Agent") for the several banks and other
financial institutions from time to time parties thereto (the "Original
Lenders") and the Original Lenders, the Original Lenders made certain loans and
other extensions of credit to the Company;
WHEREAS, in connection with the execution and delivery of the Original
Credit Agreement, and to secure the obligations of the Company thereunder, the
Company and its subsidiaries granted to the Original Agent security interests in
substantially all of the assets of the Company and its subsidiaries;
WHEREAS, the Company, the Original Agent and the Original Lenders agreed to
restructure the obligations of the Company under the Original Credit Agreement
by means of, among other things, the execution and delivery of the Master
Restructuring Agreement, dated as of May 31, 1995 (as heretofore amended,
supplemented or otherwise modified, the "Existing MRA"), among the Company, the
Original Agent and the Original Lenders, among others;
WHEREAS, in connection with the execution and the delivery of the Existing
MRA, the Company executed and delivered (a) the Term Loan Agreement, dated as of
May 31, 1995 (as heretofore amended, supplemented or otherwise modified, the
"Term Loan Agreement"), among the Company, The Chase Manhattan Bank (formerly
known as Chemical Bank), as agent (in such capacity, the "Term Loan Agent") for
the several banks and other financial institutions from time to time parties
thereto (the "Term Loan Lenders") and the Term Loan Lenders and (b) the Note
Agreement, dated as of May 31, 1995 (as heretofore amended, supplemented or
otherwise modified, the "Note Agreement" and, together with the Term Loan
Agreement, collectively, the "Existing Agreements"), among the Company, The
Chase Manhattan Bank (formerly known as Chemical Bank), as agent (in such
capacity and also in its capacity as the Term Loan Agent, the "Agent") for the
several banks and other financial institutions from time to time parties thereto
(the "Note Lenders" and, together with the Term Loan Lenders, collectively, the
"Lenders") and the Note Lenders, pursuant to which the Lenders made certain
loans to the Company;
<PAGE>
2
WHEREAS, in connection with the execution and delivery of the Existing MRA
and the Existing Agreements, the security interests granted by the Company and
its subsidiaries to secure the obligations of the Company under the Original
Credit Agreement continued in favor of the Agent, as successor to the Original
Agent, for the benefit of the Lenders under the Existing Agreements;
WHEREAS, the Company, the Agent and the Lenders have agreed to restructure
the obligations of the Company under the Existing Agreements by means of, among
other things, the execution and delivery of the Indenture, dated as of even date
herewith (as amended, supplemented or otherwise modified from time to time, the
"Indenture"; capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Indenture), between the Company and the
Trustee and the Master Restructuring Agreement, dated as of even date herewith
(as amended, supplemented or otherwise modified from time to time, the "MRA"),
among the Company, the Agent and the Lenders, among others;
WHEREAS, in connection with the restructuring of the obligations of the
Company under the Existing Agreements, concurrently herewith, the Company will
issue secured subordinated notes under the Indenture which notes will be secured
by the grant by the Company and its subsidiaries of security interests in
substantially all of the assets of the Company and its subsidiaries pursuant to
the Security Documents; and
WHEREAS, the parties hereto agree that the security interests granted in
connection with the Existing Agreements shall now continue in favor of the
Trustee, for the benefit of the Holders, to secure the obligations of the
Company and its subsidiaries under the Indenture and the Guarantees.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Assignment. The Agent hereby assigns, without representation or
warranty, express or implied (other than the representation that the Agent has
not previously taken any action intended to assign its interests therein), and
without recourse to the Agent, all of its right, title and interest under the
Security Documents (as defined in the Existing Agreements) (including, without
limitation, all liens, security interests, pledges and assignments set forth
therein) to the Trustee, together with any successors thereto.
2. Counterparts. This Assignment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
3. Governing Law. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of
the day and year first above written.
THE CHASE MANHATTAN BANK, as Agent
By:
Charles O. Freedgood
Vice President
IBJ SCHRODER BANK & TRUST COMPANY,
not in its individual capacity, but solely as Trustee
By:
Stephen J. Giurlando
Assistant Vice President
<PAGE>
EXHIBIT M
CONGRESS FINANCIAL CORPORATION
1133 Avenue of the Americas
New York, New York 10036
February 27, 1998
IBJ Schroder Bank & Trust Company,
as Trustee
One State Street
New York, New York 10004
Attention: Mr. W. Lance Wickel
Re: Acknowledgement of Bailment for Stock
Gentlemen:
Reference is made to (a) the Intercreditor and Subordination Agreement,
dated as of the date hereof (as amended, supplemented or otherwise modified from
time to time, the "Intercreditor Agreement"), by and between Congress Financial
Corporation ("Congress") and IBJ Schroder Bank & Trust Company, as Trustee (the
"Trustee") under the Indenture, dated as of the date hereof, between London Fog
Industries, Inc. ("LFI") and the Trustee in connection with the issuance of the
10% Senior Subordinated Notes due 2003 of LFI (the "Subordinated Notes"); (b)
the Amended and Restated Company Pledge Agreement, dated as of the date hereof,
as amended, supplemented or otherwise modified from time to time, by LFI in
favor of the Trustee for the ratable benefit of the Subordinated Debtholders;
and (c) the Pledge and Security Agreement, dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time, the "Congress
Pledge Agreement"), by LFI in favor of Congress. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in the
Intercreditor Agreement.
LFI has pledged to the Trustee, for the ratable benefit of the holders of
the Subordinated Notes, sixty-five percent (65%) of the issued and outstanding
shares of capital stock of London Fog Raincoats Limited evidenced by the
certificate(s) described on Exhibit A hereto (together with the proceeds
thereof, and all income, profits and distributions thereon, the "Pledged
Stock").
LFI has also pledged the Pledged Stock to Congress as set forth in the
Congress Pledge Agreement. The Pledged Stock is part of the Collateral under the
Intercreditor Agreement.
Congress and the Trustee hereby agree that:
1. Congress has agreed to act as bailee for the Trustee to hold
physical custody of the certificates evidencing the Pledged Stock solely for
purposes of the perfection of the pledge to the Trustee of the Pledged Stock;
provided that such pledge by LFI in favor of the Trustee is and shall remain, in
all
<PAGE>
respects, subject and subordinate to the pledge thereof by LFI in favor of
Congress, as set forth in the Intercreditor Agreement.
2. Except as may be otherwise ordered by a court of competent
jurisdiction, Congress agrees to deliver to the Trustee the certificates
evidencing the Pledged Stock after the indefeasible payment and satisfaction in
full of the Senior Obligations and all obligations of Congress to provide
further financing under the Senior Loan Documents have been terminated or all
such obligations have expired in accordance with their terms, except to the
extent Congress has theretofore exercised its rights as senior pledgee with
respect to the Pledged Stock or such stock is sold or otherwise disposed of by
Congress or by LFI (with Congress' consent), in accordance with the
Intercreditor Agreement.
3. Except with respect to Congress' obligation to deliver the
certificates evidencing the Pledged Stock as set forth in paragraph 2 above and,
if applicable, to apply proceeds in respect of any sale or disposition of the
Pledged Stock in accordance with Section 4(b) of the Intercreditor Agreement,
(a) Congress shall have no duty or liability to protect or preserve any rights
pertaining to the Pledged Stock and (b) the Trustee, for itself and on behalf of
the Subordinated Debtholders, hereby waives, and releases Congress from, all
claims and liabilities arising pursuant to Congress' role as bailee for the
Agent with respect to the certificates evidencing the Pledged Stock.
This agreement may be signed in counterparts. The undersigned have caused
this agreement to be executed and delivered by their duly authorized officers.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:
---------------------------
Title:
------------------------
READ AND AGREED TO:
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
By:
---------------------------
Title:
------------------------
CONSENTED TO:
LONDON FOG INDUSTRIES, INC.
By:
---------------------------
Title:
------------------------
-2-
<PAGE>
EXHIBIT A
OF
ACKNOWLEDGEMENT OF BAILMENT FOR STOCK
No. of
Issuer Certificate No. Shares
London Fog Raincoats Limited 4 4,615
-3-
1998 STOCK OPTION PLAN
OF
LONDON FOG INDUSTRIES, INC.
1. Purpose. The purpose of this 1998 Stock Option Plan is to
advance the interests of the Company and its stockholders by providing the
persons listed on Schedule A and other key management employees of the Company,
upon whose judgment, initiative and efforts the successful conduct of the
Company's business largely depends, with an additional incentive to continue
their efforts on behalf of the Company, thereby attracting, retaining and
rewarding people of experience and ability.
2. Definitions. When used in this Plan, unless the context
otherwise requires:
(a) "Committee" shall mean the Stock Option Committee, as
described in Section 3.
(b) "Company" shall mean London Fog Industries, Inc., a
Delaware corporation.
(c) "Fair Market Value" on a specified date shall mean (x)
the last sales price reported for the Shares on the last trading day immediately
preceding the applicable date (i) as reported on the principal national
securities exchange on which the Shares are primarily traded, or (ii) if the
Shares are not traded on a national securities exchange, as quoted on an
automated quotation system or quotation service sponsored by The Nasdaq Stock
Market ("Nasdaq") or (y) if the Shares are not traded on a national securities
exchange or quoted on Nasdaq, but are publicly traded, the average of the last
reported bid and ask prices on the last trading day immediately preceding the
applicable date, or (z) if the Shares are not publicly traded, the Fair Market
Value of the Shares as established by the Committee using any reasonable method
of valuation and at such intervals, not less often than every six months, as the
Committee shall determine.
(d) "Options" shall mean the stock options issued pursuant
to this Plan.
<PAGE>
(e) "Plan" shall mean this 1998 Stock Option Plan of the
Company, as such Plan from time to time may be amended.
(f) "Share" shall mean a share of common stock of the
Company, par value $.01.
3. Administration of the Plan. The Plan shall be administered
by a Committee of three members consisting of the Chief Executive Officer of the
Company and two other members of the Board of Directors of the Company
designated by the Board (who shall be members of the Compensation Committee of
the Board if there is such a Committee). Each member of the Committee shall hold
office until his successor is designated as a member of the Committee. Any
vacancy in the Committee may be filled by a resolution adopted by a majority of
the remaining members of the Committee. Any member of the Committee may be
removed at any time, with or without cause, by resolution adopted by a majority
of the remaining members of the Committee. A member of the Committee may resign
from the Committee at any time by giving written notice to the Chairman or
Secretary of the Company and, unless otherwise specified therein, such
resignation shall take effect upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective. The Committee shall
establish such rules and procedures as it considers necessary or advisable to
administer the Plan and shall make such determinations and interpretations and
take such action in connection with the Plan and any Options granted pursuant to
the Plan as it considers necessary or advisable.
4. Participants. Except as hereinafter provided, the class of
persons who are potential recipients of Options to be granted under this Plan
consists of the persons listed on Schedule A and other key management employees
of the Company or a subsidiary of the Company as determined by the Committee.
The persons to whom Options are granted under this Plan and the number of Shares
subject to each Option shall be determined by the Committee in its sole
discretion, subject, however, to the terms and conditions of this Plan. Options
may be granted to employees who are also officers and/or directors of the
Company or a subsidiary.
2
<PAGE>
5. Shares; Warrants. The Committee may, but shall not be
required to, grant, in accordance with this Plan, Options to purchase Shares for
an aggregate of up to 2,000,000 Shares (subject to adjustment as provided in
Section 12), which may be either treasury Shares or authorized but unissued
Shares. If an Option shall expire or terminate for any reason without having
been exercised in full, then the Committee may grant Options with respect to any
unpurchased Shares.
Simultaneously with the grant of any Option granted pursuant
to the Plan, the Company shall issue to the holder of the Option a Management
Anti-Dilution Warrant in the form of Exhibit A to purchase a number of Shares,
rounded to the nearest whole number, equal to .0418995 times the number of
Shares subject to the Option. If any Option does not become exercisable or
terminates in whole or in part in accordance with its terms, the Warrant shall
expire proportionately.
6. Grant of Options. The form, terms and conditions of each
Option shall be determined from time to time by the Committee and shall be set
forth in writing in an agreement (the "Option Agreement") signed by the Option
holder and on behalf of the Company by the Chairman, President or a Vice
President of the Company.
7. Exercise Price for Options. The exercise price per share of
the Shares to be purchased pursuant to any Option shall be 25% of the Fair
Market Value of a share of the Company's Common Stock at the time the Option is
granted.
8. Duration of Options and Rights. The duration of any Option
granted under this Plan shall be ten years from the date upon which the Option
is granted.
9. Option Holder Not a Stockholder. An Option holder shall not
be deemed to be the holder of, or to have any of the rights of a stockholder
with respect to, any Shares subject to that Option unless and until the Option
shall have been exercised pursuant to the terms thereof, the Company shall have
issued and delivered Shares to the Option holder, and the holder's name shall
have been entered as a stockholder of record on the books of the Company.
3
<PAGE>
Thereupon, the holder shall have full voting, dividend and other ownership
rights with respect to those Shares.
10. Non-transferability of Options. Options may be exercised
or surrendered during the holder's lifetime only by the holder thereof, and all
rights thereunder shall be non-transferable and non-assignable by the holder
thereof (or his personal representative), other than by will or the laws of
descent and distribution.
11. Exercise of Options. Except as otherwise provided herein,
an Option, after the grant thereof, shall be exercisable by the holder at such
times as may be fixed by the Committee at the time the Option is granted and
specified in the Stock Option Agreement.
An Option shall be exercised by the delivery to the Secretary
or another officer of the Company designated for the purpose of receiving the
same of a written notice of exercise duly signed by the Option holder (or the
legal representative of an incompetent Option holder or the representative of
the estate or the heirs of a deceased Option holder), followed within five
business days by delivery of the Option certificate and either (a) cash or a
certified or bank check payable to the order of the Company if the holder has
received payment pursuant to the Company's Deferred Compensation Plan, or (b) if
the holder has not received such payment, a promissory note in the form of
Exhibit A. No Option may be granted pursuant to this Plan or exercised at any
time when that Option, or the granting or exercise thereof, may result in the
violation of any law or governmental order or regulation.
Within three business days after exercise of and payment for
an Option, the Company shall cause to be delivered to the person entitled
thereto a certificate for the Shares purchased pursuant to the exercise of the
Option. If the Option shall have been exercised with respect to fewer than all
of the Shares subject to the Option, the Company shall also cause to be
delivered to the persons entitled thereto a new Option certificate, in
replacement of the Option certificate surrendered at the time of the exercise of
the Option, indicating the number of Shares with respect to which the Option
remains available for exercise, or the original Option certificate shall be
endorsed to give effect to the partial exercise thereof.
4
<PAGE>
12. Adjustment of Shares. If, at any time during the term of
this Plan, there shall be declared and paid a stock dividend upon the Shares or
if the Shares shall be split up, converted, exchanged, reclassified, or in any
way substituted for, the number of Shares then subject to the outstanding
Options shall be proportionally adjusted as provided in the Stock Option
Agreement evidencing such Options and the number of Shares referred to in
Section 5 for which Options may be granted shall be adjusted to reflect such
stock dividend, split-up, conversion, exchange, reclassification or
substitution.
If there is any other change in the Company's common stock,
including recapitalization, reorganization, exchange of shares, offering of
subscription rights, or a merger or consolidation in which the Company is the
surviving corporation, such adjustment, if any, shall be made in the Shares then
subject to this Option as the Board of Directors may in good faith consider
equitable. The Board's failure to provide for an adjustment prior to the
effective date of the action shall be conclusive evidence that no adjustment is
required.
If the Company shall issue shares of Common Stock to all
holders at a price per share less than the then current market price per share
of Common Stock or shall issue rights or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the then current market price per share of Common
Stock or shall issue securities convertible into or exchangeable for Common
Stock at a price per share less than the then current market price per share of
Common Stock, or if the Company shall distribute to all holders of its Common
Stock evidences of its indebtedness or other assets (excluding any cash
dividends in the ordinary course of business paid out of the earnings of the
Company during the last four full fiscal quarters of the Company ending prior to
the payment date for the dividend), then in each such case the price per share
at which this Option may thereafter be exercisable and the number of Shares
issuable upon exercise of this Option shall be adjusted as provided in the Stock
Option Agreement evidencing each Option.
The Committee shall have the power, in the event of a
transaction that constitutes a Change of Control pursuant to clause (B) of the
definition of Change of Control in the Stock Option Agreements to be issued
pursuant to this Plan, to amend all outstanding Options to permit the exercise
of all such Options prior to the effectiveness of any such transaction and to
terminate such Options as of such effectiveness. If the Committee, in its
discretion, shall exercise that power, all Options then outstanding and subject
to such requirement shall be deemed to have been amended to
5
<PAGE>
permit the exercise thereof in whole or in part by the holder at any time prior
to the effectiveness of such transaction and these Options shall be deemed to
terminate upon such effectiveness.
13. No Right to Continued Service. Nothing contained herein or
in any Option shall be construed to confer on any holder any right to continue
in the service of the Company or any subsidiary or derogate from any right of
the Company or any subsidiary to terminate, retire, request the resignation of
or discharge such holder, at any time, with or without cause.
14. Issuance of Shares and Compliance with Securities Laws.
Before issuing and delivering any Shares upon the exercise of an Option, the
Company may: (i) require the holder to give satisfactory assurances that the
Shares will not be transferred in violation of applicable securities laws; and
(ii) restrict the transferability of the Shares in the absence of an effective
registration statement covering the Shares and require a legend to that effect
be endorsed on the certificate representing the Shares. As soon as practicable
after the date hereof, the Company shall file a Registration Statement on Form
S-8 registering the Shares to be issued pursuant to this Plan with the
Securities and Exchange Commission under the Securities Act of 1933, and
covering the reoffer and resale of Shares by holders of Options who may be
deemed to be affiliates of the Company. The Company will cause such Registration
Statement to become effective as soon as practicable after filing and to remain
effective until all of the Options issued under this Plan have been exercised
(or terminated) and all Shares acquired by holders of Options who may be deemed
to be affiliates of the Company may be freely sold under Rule 144 under the
Securities Act of 1933.
15. Income Tax Withholding. If the Company or a subsidiary
shall be required to withhold any amounts by reason of any federal, state or
local tax rules or regulations in respect of the issuance of Shares pursuant to
the exercise of an Option, the holder shall make available to the Company or the
subsidiary sufficient funds to meet the withholding requirements and the Company
or the subsidiary shall be entitled to take and authorize any steps it deems
advisable in order to have such funds made available to the Company or the
subsidiary out of any funds or property due or to become due to the holder. If a
holder elects and if the Company consents in its sole discretion to such
election, any such taxes may be paid by delivering Shares acquired upon exercise
of the Options (valued at fair market value as defined herein).
6
<PAGE>
16. Administration and Amendment of this Plan. The Committee
may at any time withdraw or from time to time amend this Plan as it relates to
the terms and conditions of any Options not theretofore granted, and the
Committee with the consent of each adversely affected holder of any Option may
at any time withdraw or from time to time amend this Plan as it relates to the
terms and conditions of any outstanding Option.
The Committee may authorize and establish such rules,
regulations and revisions thereof, not inconsistent with the provisions of this
Plan, as it may deem advisable to make this Plan and any Options effective or
provide for their administration, and may take such other action with regard to
this Plan and any Options as it shall deem desirable to effectuate their
purposes.
17. Term of Plan. No Option shall be granted pursuant to this
Plan on or after the fifth anniversary of the date this Plan is adopted, but
Options granted prior to such fifth anniversary may be exercised at any time
within 10 years from the date of grant and the terms and conditions of this Plan
shall continue to apply to those Options.
18. Arbitration. Any dispute or controversy arising under or
in connection with this Plan shall be settled exclusively by arbitration to be
held in the City of New York before a single arbitrator in accordance with the
rules of the American Arbitration Association then in effect. If the holder of
the Option prevails in the arbitration, in whole or in substantial part as
determined by the arbitrator, the Company shall bear the fee and expenses of the
American Arbitration Association and the cost of any transcript and shall
reimburse the holder for the reasonable fees and disbursements of counsel to the
holder in the arbitration. Judgment may be entered on the arbitrators' award in
any court having jurisdiction, and the parties consent to the jurisdiction of
the New York courts for that purpose. Any process or other papers under this
provision may be served outside New York State by registered mail, return
receipt requested, or by personal service, provided a reasonable time for
appearance or response is allowed.
7
LONDON FOG INDUSTRIES, INC.
STOCK OPTION AGREEMENT
----------------------
FEBRUARY 27, 1998
London Fog Industries, Inc., a Delaware corporation with
offices at 8 West 40th Street, New York, New York (the "Company"), hereby grants
to ______________, with an address at ________________________________________
(the "Optionee"), an option under the Company's 1998 Stock Option Plan (a copy
of which is attached to this agreement) to purchase up to _____ shares of the
Company's common stock, par value $.01 per share, at the price of $2.00 per
share, on the terms and conditions set forth in this agreement and in the Plan.
1. Exercise of Option.
(a) The Optionee may exercise this option with
respect to _______ shares on and after the date hereof, with respect to an
additional ______ shares on and after the first anniversary of the date hereof,
and with respect to an additional _______ shares on and after the second
anniversary of the date hereof; provided, however, that this option shall become
exercisable in full upon the death or Permanent Disability of the Optionee, the
termination of the employment or services of the Optionee with the Company by
the Company without Cause, or a Change in Control of the Company. As used in
this Stock Option Agreement, (i) Permanent Disability means the inability as a
result of a physical or mental illness or injury to perform substantially all of
the duties or services for a continuous period of 360 days or more, (ii) Cause
means the willful refusal of the Optionee substantially to perform the
Optionee's duties or services for the Company (other than as a result of
physical or mental illness or injury), the commission by the Optionee of a
felony involving moral turpitude, or willful action by the Optionee involving
malfeasance or gross misconduct in connection with his employment or services,
and (iii) a Change in Control will be
<PAGE>
deemed to have occurred: (A) upon any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(other than any holder on the date hereof of the Company's 10% Senior
Subordinated Notes due 2003, any holder of options granted under the Company's
1998 Stock Option Plan, or the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock of the Company),
becoming the owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities; (B) upon the
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person (other than those covered by the exceptions in (i) above)
acquires more than 50% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control of the Company;
(C) if the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of 80% or
more of the Company's assets other than such a sale to a person or persons who
beneficially own, directly or indirectly, at least 50% or more of the combined
voting power of the outstanding voting securities of the Company at the time of
the sale; or (D) if the Company or a person or "group" of related persons
purchases any shares of the Company's Common Stock pursuant to a tender offer
pursuant to Section 14 of the Securities Exchange Act (provided this option
shall become exercisable only to the extent shares issued upon exercise of this
option are tendered in such tender offer). If the employment or services of the
Optionee terminates for any reason other than the death or Permanent Disability
of the Optionee
<PAGE>
or termination of the employment or services of the Optionee with the Company by
the Company without Cause, then this option shall be exercisable with respect
only to shares for which this option is exercisable at the time of termination
of the Optionee's employment or services, and this option shall terminate with
respect to any shares for which this option is not then exercisable. This option
shall expire on, and may not be exercised after, the tenth anniversary of the
date of this agreement (the "Termination Date").
(b) This option may be exercised only by the delivery
to the Secretary or another designated officer of the Company, prior to the
Termination Date, of a written notice of exercise duly signed by the Optionee
(or the legal representative of the Optionee or his estate or his heirs)
specifying the number of shares for which the option is being exercised. Within
five business days after such notice, the Optionee shall deliver payment of the
exercise price by either (i) delivery of a certified or bank check payable to
the Company if the holder has received payment pursuant to the Company's
Deferred Compensation Plan, or (ii) if the holder has not received such payment,
delivery of a promissory note in the form of Exhibit A.
(c) This option may be exercised for a minimum of 100
shares of the Company's Common Stock (or the remainder of the shares subject to
this option, if less).
2. Anti-Dilution Provisions.
(a) If there is any stock dividend, stock split or
combination of shares of the Company's common stock, the number and amount of
shares then subject to this option shall be proportionately and appropriately
adjusted; no change shall be made in the aggregate purchase price to be paid for
all shares subject to this option, but the aggregate purchase price shall be
allocated among all shares subject to this option after giving effect to the
adjustment.
(b) If there is any other change in the Company's
common stock, including recapitalization, reorganization, exchange of shares,
offering of subscription rights, or, subject to section 2(g), a merger or
consolidation in which the Company is the surviving corporation, such
adjustment, if any, shall be made in the shares then subject to this option and
the exercise price per share as the Company's
<PAGE>
Board of Directors may in good faith determine to be equitable, with no change
in the aggregate purchase price to be paid for all shares subject to this
option, and notice thereof given to the Optionee. The Board's failure to provide
for an adjustment prior to the effective date of the action shall be conclusive
evidence that no adjustment is required.
(c) If the Company shall issue shares of Common Stock
to all holders of its Common Stock at a price per share less than the current
market price per share of Common Stock (determined as provided in section 2(f))
or shall issue rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a price per share
less than the current market price per share of Common Stock or shall issue
securities convertible into or exchangeable for Common Stock at a price per
share less than the current market price per share of Common Stock, the price
per share at which this option may thereafter be exercised shall be adjusted by
dividing the price per share for which this option was theretofore exercisable
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding on the date of issuance plus the number of additional shares
of Common Stock issued or offered for subscription or purchase or issuable upon
conversion or exchange of such securities, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of issuance plus
the number of shares which the aggregate purchase price of the total number of
shares so issued or for which such rights or warrants are issued or the
aggregate purchase price for the convertible or exchangeable securities offered
would purchase at such current market price.
(d) If the Company shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends in the ordinary course of business paid out of earnings of the Company
during the last four full fiscal quarters of the Company ending prior to the
payment date for the dividend) or rights or warrants to subscribe for Common
Stock (excluding those referred to in section 2(c)), then in each such case the
price per share at which this option may thereafter be exercisable shall be
adjusted by dividing the price per share for which this option was theretofore
exercisable by a fraction, of which the numerator shall be the current market
<PAGE>
price per share of Common Stock on the date of such distribution, and of which
the denominator shall be such current market price per share of the Common
Stock, less the then fair market value (as determined in good faith by the Board
of Directors of the Company) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or warrants
applicable to one share of the Common Stock.
(e) Upon any adjustment of the exercise price of this
option pursuant to paragraph 2(c) or (d) above, the holder of this option shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the number of Shares
for which this option was exercisable immediately prior to such adjustment by
the fraction determined pursuant to paragraph 2(c) or (d), as the case may be.
(f) For the purpose of any computation under section
2(c) or (d), the current market price per share of Common Stock shall be
determined as follows: If the Common Stock is publicly traded, the current
market price per share of Common Stock at any date shall be deemed to be the
average of the daily closing prices for the thirty consecutive business days
commencing forty-five business days before the day in question. The closing
price for each day shall be (i) if the Common Stock is listed or admitted to
trading on a national securities exchange, the last reported sales price on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading (which shall be the national securities exchange on which
the greatest number of shares of the Common Stock has been traded during such 30
consecutive business days), or (ii) if the Common Stock is not listed or
admitted to trading on any such exchange, the average of the highest bid and
lowest asked prices as reported by the National Quotations Bureau, Incorporated
or a similar organization selected from time to time by the Company for the
purpose. If the Common Stock is not publicly traded, the current market price
shall be determined in good faith by the Board of Directors of the Company and
notice thereof given to the Optionee.
(g) In the event of a transaction described in
paragraph (iii) or (iv) of the definition of Change of Control in section 1(a)
of this Plan, at the Company's election either (i) the Company shall cause
provision to be made for the continuance of this option after that event, or for
the substitution for this option of an option covering
<PAGE>
the number and class of securities the Optionee would have been entitled to
receive in the merger or consolidation or upon the sale if the Optionee had been
the holder of record of a number of shares of the Company's common stock equal
to the number of shares covered by the then unexercised portion of this option,
or (ii) the Company shall give to the Optionee written notice of its election
not to cause such provision to be made and this option shall become exercisable
in full (or, at the election of the Optionee, in part) at any time during a
period of 20 days to be designated by the Company, ending not more than 10 days
prior to the effective date of the merger, consolidation or sale, in which case
this option shall not be exercisable to any extent after the expiration of that
20 day period. In no event, however, shall this option be exercisable after the
Termination Date.
(h) The Company may engage a firm of independent
certified public accountants of recognized standing, which may be the Company's
regular auditors, to make any computation required under this section 2 and a
certificate of that firm showing the required adjustment shall be conclusive and
binding on the parties. If the Optionee disagrees with any computation by the
Board of Directors pursuant to this section 2 by notice given to the Company
within 30 days after the notice from the Company thereof, the Company shall
cause its auditors to make such computation, and that firm's determination of
the computation shall be conclusive and binding on the parties.
(i) If at any time:
(a) the Company shall propose to declare any
cash dividend upon its Common Stock;
(b) the Company shall propose to declare or
make any dividend or other distribution to the holders of its Common Stock,
whether in cash, property or other securities;
(c) the Company shall propose to effect any
reorganization or reclassification of the capital stock of the Company or any
consolidation or merger of the Company with or into another corporation or any
sale, lease or conveyance of all or substantially all of the assets of the
Company; or
<PAGE>
(d) the Company shall propose to effect a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the holder of this option at the
address of such holder as shown on the books of the Company, (i) at least 30
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend or distribution or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, at least 30 days' written notice of the date when the
same shall take place.
3. Registration Statement. The Shares issuable on exercise of
this option shall be included in a Registration Statement on Form S-8 filed or
to be filed by the Company registering all of the Shares to be issued pursuant
to the Plan with the Securities and Exchange Commission under the Securities Act
of 1933, and covering the reoffer and resale of Shares by holders of options
granted under the Plan who may be deemed to be affiliates of the Company. The
Company will cause such Registration Statement to become effective as soon as
practicable after filing and to remain effective until all options held by the
Optionee have been exercised (or terminated), and if the Optionee may be deemed
to be an affiliate of the Company, until all Shares acquired upon exercise of
this option may be freely sold under Rule 144 under the Securities Act of 1933.
4. Non-Transferability. This option may not be transferred by
the Optionee other than by will or by the laws of descent and distribution, and
during the lifetime of the Optionee is exercisable only by him (or his legal
representative).
5. Certain Rights not Conferred by Option.
<PAGE>
(a) Nothing in this agreement or in the Plan shall
(i) give the Optionee any right to continue in the employ of the Company or any
subsidiary or interfere in any way with the right of the Company or any
subsidiary to terminate the Optionee's employment at any time, (ii) limit the
right of the Company's board of directors to manage the Company's business and
affairs (including the authorization of the issuance of additional shares and
the determination of the nature and amount of liabilities and obligations
incurred by the Company or its subsidiaries) without regard for the effect of
any action upon the Optionee or upon the value of the shares subject to, or
acquired upon exercise of, this option, or (iii) give the Optionee any claim
against the Company or any of its officers or directors with respect to any
action or omission relating to the Company's business or affairs, whether or not
that action or omission affects the value of the shares subject to, or acquired
upon exercise of, this option.
(b) The Optionee shall not, by virtue of holding this
option, be entitled to any rights of a stockholder in the Company. The Optionee
shall not be considered a record holder of any shares purchased upon exercise of
the option until the date on which he is actually recorded as a holder of the
shares upon the Company's stock records.
6. Expenses. The Company shall pay all fees and expenses
necessarily incurred by the Company in connection with the issuance and
registration of the Company's shares pursuant to this option. If the Company
shall be required to withhold any amounts by reason of any federal, state or
local tax rules or regulations in respect of the issuance of shares pursuant to
the exercise of this option, the Optionee shall make available to the Company
sufficient funds to meet the withholding requirements and the Company shall be
entitled to take and authorize any steps it deems advisable in order to have
those funds made available to the Company out of any funds or property due or to
become due to the Optionee.
7. Acceptance of Provisions of Plan. The Optionee agrees to,
and shall be bound by, all of the terms and conditions of the Plan.
<PAGE>
8. No Right to Continued Service. Nothing contained in this
Option Agreement or in any option shall be construed to confer on the Optionee
any right to continue in the service of the Company or any subsidiary or
derogate from any right of the Company or any subsidiary to terminate, retire,
request the resignation of or discharge the Optionee, at any time, with or
without cause.
9. Notices. Any notice or other communication under this
agreement shall be in writing and shall be considered given when delivered
personally or three days after being mailed by registered or certified mail,
return receipt requested, to the parties at their respective addresses set forth
above (or at such address as a party may specify by notice to the other).
10. Complete Agreement; Amendment. This agreement and the Plan
contain a complete statement of all of the arrangements between the parties with
respect to their subject matter, and this agreement cannot be changed or
terminated orally.
11. Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed in New York.
12. Arbitration. Any dispute or controversy arising under or
in connection with this agreement shall be settled exclusively by arbitration to
be held in the city of New York before a single arbitrator in accordance with
the rules of the American Arbitration Association then in effect. In addition,
if the Optionee prevails in the arbitration, in whole or in substantial part as
determined by the arbitrator, the Company shall pay the fee and expenses of the
American Arbitration Association and the cost of any transcript and shall
reimburse the Optionee for the reasonable fees and disbursements of counsel to
the Optionee in the arbitration. Judgment may be entered on the arbitrators'
award in any court having jurisdiction, and the parties consent to the
jurisdiction of the New York courts for that purpose. Any process or other
papers under this provision may
<PAGE>
be served outside New York State by registered mail, return receipt requested,
or by personal service, provided a reasonable time for appearance or response is
allowed.
13. Headings. The headings in this agreement are solely for
convenience of reference and shall not affect its interpretation.
LONDON FOG INDUSTRIES, INC.
By:
-------------------------------
AGREED:
- -------------------------------
LONDON FOG INDUSTRIES, INC.
STOCK OPTION AGREEMENT
----------------------
FEBRUARY 27, 1998
London Fog Industries, Inc., a Delaware corporation with
offices at 8 West 40th Street, New York, New York (the "Company"), hereby grants
to Robert Gregory, Jr. with an address at 4 Columns Farm, 2125 Highway 14 East,
Landrum, SC 29356 (the "Optionee"), an option under the Company's 1998 Stock
Option Plan (a copy of which is attached to this agreement) to purchase up to
666,666 shares of the Company's common stock, par value $.01 per share, at the
price of $2.00 per share, on the terms and conditions set forth in this
agreement and in the Plan.
1. Exercise of Option.
(a) The Optionee may exercise this option with
respect to 133,333.20 shares on and after the date hereof and with respect to an
additional 133,333.20 shares on each of the first four anniversaries of the date
hereof; provided, however, that this option shall become exercisable in full
upon the death or Permanent Disability of the Optionee, the termination of the
employment or services of the Optionee with the Company by the Company without
Cause or termination by the Executive for Good Reason as defined in his
Employment Agreement with the Company, or a Change in Control of the Company. As
used in this Stock Option Agreement, (i) Permanent Disability means the
inability as a result of a physical or mental illness or injury to perform
substantially all of the duties or services for a continuous period of 360 days
or more, (ii) Cause means the willful refusal of the Optionee substantially to
perform the Optionee's duties or services for the Company (other than as a
result of physical or mental illness or injury), or illegal conduct or gross
misconduct by the Optionee that is willful and results in material and
demonstrable damage to the business or reputation of the Company, and (iii) a
Change in Control will
<PAGE>
be deemed to have occurred: (A) upon any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") (other than any holder on the date hereof of the Company's 10% Senior
Subordinated Notes due 2003, any holder of options granted under the Company's
1998 Stock Option Plan, or the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock of the Company),
becoming the owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50%of the
combined voting power of the Company's then outstanding securities; (B) upon the
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person (other than those covered by the exceptions in (i) above)
acquires more than 50% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control of the Company;
(C) if the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of 80% or
more of the Company's assets other than such a sale to a person or persons who
beneficially own, directly or indirectly, at least 50% or more of the combined
voting power of the outstanding voting securities of the Company at the time of
the sale; or (D) if the Company or a person or "group" of related persons
purchases any shares of the Company's Common Stock pursuant to a tender offer
pursuant to Section 14 of the Securities Exchange Act (provided this option
shall become exercisable only to the extent shares issued upon exercise of this
option are tendered in such tender offer). If the employment or services of the
Optionee terminates for any reason other than the death or Permanent Disability
of the Optionee
2
<PAGE>
or termination of the employment or services of the Optionee with the Company by
the Company without Cause or termination by the Optionee for Good Reason as
defined in his Employment Agreement with the Company, then this option shall be
exercisable with respect only to shares for which this option is exercisable at
the time of termination of the Optionee's employment or services, and this
option shall terminate with respect to any shares for which this option is not
then exercisable. This option shall expire on, and may not be exercised after,
the tenth anniversary of the date of this agreement (the "Termination Date").
(b) This option may be exercised only by the delivery
to the Secretary or another designated officer of the Company, prior to the
Termination Date, of a written notice of exercise duly signed by the Optionee
(or the legal representative of the Optionee or his estate or his heirs)
specifying the number of shares for which the option is being exercised. Within
five business days after such notice, the Optionee shall deliver payment of the
exercise price by either (i) delivery of a certified or bank check payable to
the Company if the holder has received payment pursuant to the Company's
Deferred Compensation Plan, or (ii) if the holder has not received such payment,
delivery of a promissory note in the form of Exhibit A.
(c) This option may be exercised for a minimum of 100
shares of the Company's Common Stock.
2. Anti-Dilution Provisions.
(a) If there is any stock dividend, stock split or
combination of shares of the Company's common stock, the number and amount of
shares then subject to this option shall be proportionately and appropriately
adjusted; no change shall be made in the aggregate purchase price to be paid for
all shares subject to this option, but the aggregate purchase price shall be
allocated among all shares subject to this option after giving effect to the
adjustment.
(b) If there is any other change in the Company's
common stock, including recapitalization, reorganization, exchange of shares,
offering of subscription rights, or, subject to section 2(g), a merger or
consolidation in which the Company is the surviving corporation, such
adjustment, if any, shall be made in the shares then subject to this option and
the exercise price per share as the Company's
3
<PAGE>
Board of Directors may in good faith determine to be equitable, with no change
in the aggregate purchase price to be paid for all shares subject to this
option, and notice thereof given to the Optionee. The Board's failure to provide
for an adjustment prior to the effective date of the action shall be conclusive
evidence that no adjustment is required.
(c) If the Company shall issue shares of Common Stock
to all holders of its Common Stock at a price per share less than the current
market price per share of Common Stock (determined as provided in section 2(f))
or shall issue rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a price per share
less than the current market price per share of Common Stock or shall issue
securities convertible into or exchangeable for Common Stock at a price per
share less than the current market price per share of Common Stock, the price
per share at which this option may thereafter be exercised shall be adjusted by
dividing the price per share for which this option was theretofore exercisable
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding on the date of issuance plus the number of additional shares
of Common Stock issued or offered for subscription or purchase or issuable upon
conversion or exchange of such securities, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of issuance plus
the number of shares which the aggregate purchase price of the total number of
shares so issued or for which such rights or warrants are issued or the
aggregate purchase price for the convertible or exchangeable securities offered
would purchase at such current market price.
(d) If the Company shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends in the ordinary course of business paid out of earnings of the Company
during the last four full fiscal quarters of the Company ending prior to the
payment date for the dividend) or rights or warrants to subscribe for Common
Stock (excluding those referred to in section 2(c)), then in each such case the
price per share at which this option may thereafter be exercisable shall be
adjusted by dividing the price per share for which this option was theretofore
exercisable by a fraction, of which the numerator shall be the current market
price per share of Common Stock on the date of such distribution, and of which
the denominator shall be such current market
4
<PAGE>
price per share of the Common Stock, less the then fair market value (as
determined in good faith by the Board of Directors of the Company) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights or warrants applicable to one share of the Common Stock.
(e) Upon any adjustment of the exercise price of this
option pursuant to paragraph 2(c) or (d) above, the holder of this option shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the number of Shares
for which this option was exercisable immediately prior to such adjustment by
the fraction determined pursuant to paragraph 2(c) or (d), as the case may be.
(f) For the purpose of any computation under section
2(c) or (d), the current market price per share of Common Stock shall be
determined as follows: If the Common Stock is publicly traded, the current
market price per share of Common Stock at any date shall be deemed to be the
average of the daily closing prices for the thirty consecutive business days
commencing forty-five business days before the day in question. The closing
price for each day shall be (i) if the Common Stock is listed or admitted to
trading on a national securities exchange, the last reported sales price on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading (which shall be the national securities exchange on which
the greatest number of shares of the Common Stock has been traded during such 30
consecutive business days), or (ii) if the Common Stock is not listed or
admitted to trading on any such exchange, the average of the highest bid and
lowest asked prices as reported by the National Quotations Bureau, Incorporated
or a similar organization selected from time to time by the Company for the
purpose. If the Common Stock is not publicly traded, the current market price
shall be determined in good faith by the Board of Directors of the Company and
notice thereof given to the Optionee.
(g) In the event of a transaction described in
paragraph (iii) or (iv) of the definition of Change of Control in section 1(a)
of this Plan, at the Company's election either (i) the Company shall cause
provision to be made for the continuance of this option after that event, or for
the substitution for this option of an option covering
5
<PAGE>
the number and class of securities the Optionee would have been entitled to
receive in the merger or consolidation or upon the sale if the Optionee had been
the holder of record of a number of shares of the Company's common stock equal
to the number of shares covered by the then unexercised portion of this option,
or (ii) the Company shall give to the Optionee written notice of its election
not to cause such provision to be made and this option shall become exercisable
in full (or, at the election of the Optionee, in part) at any time during a
period of 20 days to be designated by the Company, ending not more than 10 days
prior to the effective date of the merger, consolidation or sale, in which case
this option shall not be exercisable to any extent after the expiration of that
20 day period. In no event, however, shall this option be exercisable after the
Termination Date.
(h) The Company may engage a firm of independent
certified public accountants of recognized standing, which may be the Company's
regular auditors, to make any computation required under this section 2 and a
certificate of that firm showing the required adjustment shall be conclusive and
binding on the parties. If the Optionee disagrees with any computation by the
Board of Directors pursuant to this section 2 by notice given to the Company
within 30 days after the notice from the Company thereof, the Company shall
cause its auditors to make such computation, and that firm's determination of
the computation shall be conclusive and binding on the parties.
(i) If at any time:
(a) the Company shall propose to declare any cash
dividend upon its Common Stock;
(b) the Company shall propose to declare or make
any dividend or other distribution to the holders of its Common Stock, whether
in cash, property or other securities;
(c) the Company shall propose to effect any
reorganization or reclassification of the capital stock of the Company or any
consolidation or merger of the Company with or into another corporation or any
sale, lease or conveyance of all or substantially all of the assets of the
Company; or
6
<PAGE>
(d) the Company shall propose to effect a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the holder of this option at the
address of such holder as shown on the books of the Company, (i) at least 30
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend or distribution or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, at least 30 days' written notice of the date when the
same shall take place.
3. Registration Statement. The Shares issuable on exercise of
this option shall be included in a Registration Statement on Form S-8 filed or
to be filed by the Company registering all of the Shares to be issued pursuant
to the Plan with the Securities and Exchange Commission under the Securities Act
of 1933, and covering the reoffer and resale of Shares by holders of options
granted under the Plan who may be deemed to be affiliates of the Company. The
Company will cause such Registration Statement to become effective as soon as
practicable after filing and to remain effective until all options held by the
Optionee have been exercised (or terminated), and if the Optionee may be deemed
to be an affiliate of the Company, until all Shares acquired upon exercise of
this option may be freely sold under Rule 144 under the Securities Act of 1933.
4. Non-Transferability. This option may not be transferred by
the Optionee other than by will or by the laws of descent and distribution, and
during the lifetime of the Optionee is exercisable only by him (or his legal
representative).
5. Certain Rights not Conferred by Option.
7
<PAGE>
(a) Nothing in this agreement or in the Plan shall
(i) give the Optionee any right to continue in the employ of the Company or any
subsidiary or interfere in any way with the right of the Company or any
subsidiary to terminate the Optionee's employment at any time, (ii) limit the
right of the Company's board of directors to manage the Company's business and
affairs (including the authorization of the issuance of additional shares and
the determination of the nature and amount of liabilities and obligations
incurred by the Company or its subsidiaries) without regard for the effect of
any action upon the Optionee or upon the value of the shares subject to, or
acquired upon exercise of, this option, or (iii) give the Optionee any claim
against the Company or any of its officers or directors with respect to any
action or omission relating to the Company's business or affairs, whether or not
that action or omission affects the value of the shares subject to, or acquired
upon exercise of, this option.
(b) The Optionee shall not, by virtue of holding this
option, be entitled to any rights of a stockholder in the Company. The Optionee
shall not be considered a record holder of any shares purchased upon exercise of
the option until the date on which he is actually recorded as a holder of the
shares upon the Company's stock records.
6. Expenses. The Company shall pay all fees and expenses
necessarily incurred by the Company in connection with the issuance and
registration of the Company's shares pursuant to this option. If the Company
shall be required to withhold any amounts by reason of any federal, state or
local tax rules or regulations in respect of the issuance of shares pursuant to
the exercise of this option, the Optionee shall make available to the Company
sufficient funds to meet the withholding requirements and the Company shall be
entitled to take and authorize any steps it deems advisable in order to have
those funds made available to the Company out of any funds or property due or to
become due to the Optionee.
7. Acceptance of Provisions of Plan. The Optionee agrees to,
and shall be bound by, all of the terms and conditions of the Plan.
8
<PAGE>
8. No Right to Continued Service. Nothing contained in this
Option Agreement or in any option shall be construed to confer on the Optionee
any right to continue in the service of the Company or any subsidiary or
derogate from any right of the Company or any subsidiary to terminate, retire,
request the resignation of or discharge the Optionee, at any time, with or
without cause.
9. Notices. Any notice or other communication under this
agreement shall be in writing and shall be considered given when delivered
personally or three days after being mailed by registered or certified mail,
return receipt requested, to the parties at their respective addresses set forth
above (or at such address as a party may specify by notice to the other).
10. Complete Agreement; Amendment. This agreement and the Plan
contain a complete statement of all of the arrangements between the parties with
respect to their subject matter, and this agreement cannot be changed or
terminated orally.
11. Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed in New York.
12. Arbitration. Any dispute or controversy arising under or
in connection with this agreement shall be settled exclusively by arbitration to
be held in the city of New York before a single arbitrator in accordance with
the rules of the American Arbitration Association then in effect. In addition,
if the Optionee prevails in the arbitration, in whole or in substantial part as
determined by the arbitrator, the Company shall pay the fee and expenses of the
American Arbitration Association and the cost of any transcript and shall
reimburse the Optionee for the reasonable fees and disbursements of counsel to
the Optionee in the arbitration. Judgment may be entered on the arbitrators'
award in any court having jurisdiction, and the parties consent to the
jurisdiction of the New York courts for that purpose. Any process or other
papers under this provision
9
<PAGE>
may be served outside New York State by registered mail, return receipt
requested, or by personal service, provided a reasonable time for appearance or
response is allowed.
13. Headings. The headings in this agreement are solely for
convenience of reference and shall not affect its interpretation.
LONDON FOG INDUSTRIES, INC.
By:
-------------------------------------
AGREED:
- -------------------------------
10
LONDON FOG INDUSTRIES, INC.
STOCK OPTION AGREEMENT
----------------------
FEBRUARY 27, 1998
London Fog Industries, Inc., a Delaware corporation with
offices at 8 West 40th Street, New York, New York (the "Company"), hereby grants
to C. William Crain, with an address at 10 Nutmeg Drive, Greenwich, CT 06831
(the "Optionee"), an option under the Company's 1998 Stock Option Plan (a copy
of which is attached to this agreement) to purchase up to 333,333 shares of the
Company's common stock, par value $.01 per share, at the price of $2.00 per
share, on the terms and conditions set forth in this agreement and in the Plan.
1. Exercise of Option.
(a) The Optionee may exercise this option with respect to
66,666.60 shares on and after the date hereof and with respect to an additional
66,666.60 shares on each of the first four anniversaries of the date hereof;
provided, however, that this option shall become exercisable in full upon the
death or Permanent Disability of the Optionee, the termination of the employment
or services of the Optionee with the Company by the Company without Cause or
termination by the Executive for Good Reason as defined in his Employment
Agreement with the Company, or a Change in Control of the Company. As used in
this Stock Option Agreement, (i) Permanent Disability means the inability as a
result of a physical or mental illness or injury to perform substantially all of
the duties or services for a continuous period of 360 days or more, (ii) Cause
means the willful refusal of the Optionee substantially to perform the
Optionee's duties or services for the Company (other than as a result of
physical or mental illness or injury), or illegal conduct or gross misconduct by
the Optionee that is willful and results in material and demonstrable damage to
the business or reputation of the Company, and (iii) a Change in Control will
<PAGE>
be deemed to have occurred: (A) upon any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") (other than any holder on the date hereof of the Company's 10% Senior
Subordinated Notes due 2003, any holder of options granted under the Company's
1998 Stock Option Plan, or the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock of the Company),
becoming the owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50%of the
combined voting power of the Company's then outstanding securities; (B) upon the
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person (other than those covered by the exceptions in (i) above)
acquires more than 50% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control of the Company;
(C) if the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of 80% or
more of the Company's assets other than such a sale to a person or persons who
beneficially own, directly or indirectly, at least 50% or more of the combined
voting power of the outstanding voting securities of the Company at the time of
the sale; or (D) if the Company or a person or "group" of related persons
purchases any shares of the Company's Common Stock pursuant to a tender offer
pursuant to Section 14 of the Securities Exchange Act (provided this option
shall become exercisable only to the extent shares issued upon exercise of this
option are tendered in such tender offer). If the employment or services of the
Optionee terminates for any reason other than the death or Permanent Disability
of the Optionee
2
<PAGE>
or termination of the employment or services of the Optionee with the Company by
the Company without Cause or termination by the Optionee for Good Reason as
defined in his Employment Agreement with the Company, then this option shall be
exercisable with respect only to shares for which this option is exercisable at
the time of termination of the Optionee's employment or services, and this
option shall terminate with respect to any shares for which this option is not
then exercisable. This option shall expire on, and may not be exercised after,
the tenth anniversary of the date of this agreement (the "Termination Date").
(b) This option may be exercised only by the delivery to the
Secretary or another designated officer of the Company, prior to the Termination
Date, of a written notice of exercise duly signed by the Optionee (or the legal
representative of the Optionee or his estate or his heirs) specifying the number
of shares for which the option is being exercised. Within five business days
after such notice, the Optionee shall deliver payment of the exercise price by
either (i) delivery of a certified or bank check payable to the Company if the
holder has received payment pursuant to the Company's Deferred Compensation
Plan, or (ii) if the holder has not received such payment, delivery of a
promissory note in the form of Exhibit A.
(c) This option may be exercised for a minimum of 100 shares
of the Company's Common Stock.
2. Anti-Dilution Provisions.
(a) If there is any stock dividend, stock split or combination
of shares of the Company's common stock, the number and amount of shares then
subject to this option shall be proportionately and appropriately adjusted; no
change shall be made in the aggregate purchase price to be paid for all shares
subject to this option, but the aggregate purchase price shall be allocated
among all shares subject to this option after giving effect to the adjustment.
(b) If there is any other change in the Company's common
stock, including recapitalization, reorganization, exchange of shares, offering
of subscription rights, or, subject to section 2(g), a merger or consolidation
in which the Company is the surviving corporation, such adjustment, if any,
shall be made in the shares then subject to this option and the exercise price
per share as the Company's
3
<PAGE>
Board of Directors may in good faith determine to be equitable, with no change
in the aggregate purchase price to be paid for all shares subject to this
option, and notice thereof given to the Optionee. The Board's failure to provide
for an adjustment prior to the effective date of the action shall be conclusive
evidence that no adjustment is required.
(c) If the Company shall issue shares of Common Stock to all
holders of its Common Stock at a price per share less than the current market
price per share of Common Stock (determined as provided in section 2(f)) or
shall issue rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock at a price per share less
than the current market price per share of Common Stock or shall issue
securities convertible into or exchangeable for Common Stock at a price per
share less than the current market price per share of Common Stock, the price
per share at which this option may thereafter be exercised shall be adjusted by
dividing the price per share for which this option was theretofore exercisable
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding on the date of issuance plus the number of additional shares
of Common Stock issued or offered for subscription or purchase or issuable upon
conversion or exchange of such securities, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of issuance plus
the number of shares which the aggregate purchase price of the total number of
shares so issued or for which such rights or warrants are issued or the
aggregate purchase price for the convertible or exchangeable securities offered
would purchase at such current market price.
(d) If the Company shall distribute to all holders of its
Common Stock evidences of its indebtedness or assets (excluding cash dividends
in the ordinary course of business paid out of earnings of the Company during
the last four full fiscal quarters of the Company ending prior to the payment
date for the dividend) or rights or warrants to subscribe for Common Stock
(excluding those referred to in section 2(c)), then in each such case the price
per share at which this option may thereafter be exercisable shall be adjusted
by dividing the price per share for which this option was theretofore
exercisable by a fraction, of which the numerator shall be the current market
price per share of Common Stock on the date of such distribution, and of which
the denominator shall be such current market
4
<PAGE>
price per share of the Common Stock, less the then fair market value (as
determined in good faith by the Board of Directors of the Company) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights or warrants applicable to one share of the Common Stock.
(e) Upon any adjustment of the exercise price of this option
pursuant to paragraph 2(c) or (d) above, the holder of this option shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the number of Shares
for which this option was exercisable immediately prior to such adjustment by
the fraction determined pursuant to paragraph 2(c) or (d), as the case may be.
(f) For the purpose of any computation under section 2(c) or
(d), the current market price per share of Common Stock shall be determined as
follows: If the Common Stock is publicly traded, the current market price per
share of Common Stock at any date shall be deemed to be the average of the daily
closing prices for the thirty consecutive business days commencing forty-five
business days before the day in question. The closing price for each day shall
be (i) if the Common Stock is listed or admitted to trading on a national
securities exchange, the last reported sales price on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
(which shall be the national securities exchange on which the greatest number of
shares of the Common Stock has been traded during such 30 consecutive business
days), or (ii) if the Common Stock is not listed or admitted to trading on any
such exchange, the average of the highest bid and lowest asked prices as
reported by the National Quotations Bureau, Incorporated or a similar
organization selected from time to time by the Company for the purpose. If the
Common Stock is not publicly traded, the current market price shall be
determined in good faith by the Board of Directors of the Company and notice
thereof given to the Optionee.
(g) In the event of a transaction described in paragraph (iii)
or (iv) of the definition of Change of Control in section 1(a) of this Plan, at
the Company's election either (i) the Company shall cause provision to be made
for the continuance of this option after that event, or for the substitution for
this option of an option covering
5
<PAGE>
the number and class of securities the Optionee would have been entitled to
receive in the merger or consolidation or upon the sale if the Optionee had been
the holder of record of a number of shares of the Company's common stock equal
to the number of shares covered by the then unexercised portion of this option,
or (ii) the Company shall give to the Optionee written notice of its election
not to cause such provision to be made and this option shall become exercisable
in full (or, at the election of the Optionee, in part) at any time during a
period of 20 days to be designated by the Company, ending not more than 10 days
prior to the effective date of the merger, consolidation or sale, in which case
this option shall not be exercisable to any extent after the expiration of that
20 day period. In no event, however, shall this option be exercisable after the
Termination Date.
(h) The Company may engage a firm of independent certified
public accountants of recognized standing, which may be the Company's regular
auditors, to make any computation required under this section 2 and a
certificate of that firm showing the required adjustment shall be conclusive and
binding on the parties. If the Optionee disagrees with any computation by the
Board of Directors pursuant to this section 2 by notice given to the Company
within 30 days after the notice from the Company thereof, the Company shall
cause its auditors to make such computation, and that firm's determination of
the computation shall be conclusive and binding on the parties.
(i) If at any time:
(a) the Company shall propose to declare any cash dividend
upon its Common Stock;
(b) the Company shall propose to declare or make any
dividend or other distribution to the holders of its Common Stock, whether in
cash, property or other securities;
(c) the Company shall propose to effect any reorganization
or reclassification of the capital stock of the Company or any consolidation or
merger of the Company with or into another corporation or any sale, lease or
conveyance of all or substantially all of the assets of the Company; or
6
<PAGE>
(d) the Company shall propose to effect a voluntary or
involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the holder of this option at the
address of such holder as shown on the books of the Company, (i) at least 30
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend or distribution or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, at least 30 days' written notice of the date when the
same shall take place.
3. Registration Statement. The Shares issuable on exercise of
this option shall be included in a Registration Statement on Form S-8 filed or
to be filed by the Company registering all of the Shares to be issued pursuant
to the Plan with the Securities and Exchange Commission under the Securities Act
of 1933, and covering the reoffer and resale of Shares by holders of options
granted under the Plan who may be deemed to be affiliates of the Company. The
Company will cause such Registration Statement to become effective as soon as
practicable after filing and to remain effective until all options held by the
Optionee have been exercised (or terminated), and if the Optionee may be deemed
to be an affiliate of the Company, until all Shares acquired upon exercise of
this option may be freely sold under Rule 144 under the Securities Act of 1933.
4. Non-Transferability. This option may not be transferred by
the Optionee other than by will or by the laws of descent and distribution, and
during the lifetime of the Optionee is exercisable only by him (or his legal
representative).
5. Certain Rights not Conferred by Option.
7
<PAGE>
(a) Nothing in this agreement or in the Plan shall (i)
give the Optionee any right to continue in the employ of the Company or any
subsidiary or interfere in any way with the right of the Company or any
subsidiary to terminate the Optionee's employment at any time, (ii) limit the
right of the Company's board of directors to manage the Company's business and
affairs (including the authorization of the issuance of additional shares and
the determination of the nature and amount of liabilities and obligations
incurred by the Company or its subsidiaries) without regard for the effect of
any action upon the Optionee or upon the value of the shares subject to, or
acquired upon exercise of, this option, or (iii) give the Optionee any claim
against the Company or any of its officers or directors with respect to any
action or omission relating to the Company's business or affairs, whether or not
that action or omission affects the value of the shares subject to, or acquired
upon exercise of, this option.
(b) The Optionee shall not, by virtue of holding this
option, be entitled to any rights of a stockholder in the Company. The Optionee
shall not be considered a record holder of any shares purchased upon exercise of
the option until the date on which he is actually recorded as a holder of the
shares upon the Company's stock records.
6. Expenses. The Company shall pay all fees and expenses
necessarily incurred by the Company in connection with the issuance and
registration of the Company's shares pursuant to this option. If the Company
shall be required to withhold any amounts by reason of any federal, state or
local tax rules or regulations in respect of the issuance of shares pursuant to
the exercise of this option, the Optionee shall make available to the Company
sufficient funds to meet the withholding requirements and the Company shall be
entitled to take and authorize any steps it deems advisable in order to have
those funds made available to the Company out of any funds or property due or to
become due to the Optionee.
7. Acceptance of Provisions of Plan. The Optionee agrees to,
and shall be bound by, all of the terms and conditions of the Plan.
8
<PAGE>
8. No Right to Continued Service. Nothing contained in this
Option Agreement or in any option shall be construed to confer on the Optionee
any right to continue in the service of the Company or any subsidiary or
derogate from any right of the Company or any subsidiary to terminate, retire,
request the resignation of or discharge the Optionee, at any time, with or
without cause.
9. Notices. Any notice or other communication under this
agreement shall be in writing and shall be considered given when delivered
personally or three days after being mailed by registered or certified mail,
return receipt requested, to the parties at their respective addresses set forth
above (or at such address as a party may specify by notice to the other).
10. Complete Agreement; Amendment. This agreement and the Plan
contain a complete statement of all of the arrangements between the parties with
respect to their subject matter, and this agreement cannot be changed or
terminated orally.
11. Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed in New York.
12. Arbitration. Any dispute or controversy arising under or
in connection with this agreement shall be settled exclusively by arbitration to
be held in the city of New York before a single arbitrator in accordance with
the rules of the American Arbitration Association then in effect. In addition,
if the Optionee prevails in the arbitration, in whole or in substantial part as
determined by the arbitrator, the Company shall pay the fee and expenses of the
American Arbitration Association and the cost of any transcript and shall
reimburse the Optionee for the reasonable fees and disbursements of counsel to
the Optionee in the arbitration. Judgment may be entered on the arbitrators'
award in any court having jurisdiction, and the parties consent to the
jurisdiction of the New York courts for that purpose. Any process or other
papers under
9
<PAGE>
this provision may be served outside New York State by registered mail, return
receipt requested, or by personal service, provided a reasonable time for
appearance or response is allowed.
13. Headings. The headings in this agreement are solely for
convenience of reference and shall not affect its interpretation.
LONDON FOG INDUSTRIES, INC.
By:
------------------------------------
AGREED:
- ---------------------------------------
10
DEFERRED COMPENSATION PLAN
The following are the terms of the deferred compensation plan
(the "Plan") of London Fog Industries, Inc. (the "Company").
1. PARTICIPATION.
The participants (the "Participants") in the Plan shall be
each person who receives options pursuant to the Company's 1998 Stock Option
Plan (the "Stock Option Plan").
2. AMOUNT OF BENEFIT.
On the date of any grant of options to a Participant pursuant
to the Stock Option Plan, the Company shall credit (via a non-cash bookkeeping
entry) to an account in the name of the Participant (through a bookkeeping
entry) an amount (the "Initial Amount") equal to the aggregate exercise price of
the options granted to that Participant under the Stock Option Plan. The Initial
Amount shall accrue interest at the rate of interest on 10-year Treasury Notes
as reported in The Wall Street Journal, compounded annually. The initial rate of
interest shall be determined on the date that the options are granted and the
rate shall be reset on each anniversary thereof.
3. PAYMENT OF BENEFIT UPON EXERCISE.
Upon any exercise of options granted to a Participant under
the Stock Option Plan which exercise occurs while the Participant is employed by
or providing services to the Company or its subsidiaries, unless the Participant
elects not to then receive payment hereunder and to pay the exercise price for
the options with a promissory note, the Participant shall be paid, within three
business days thereafter, by certified or bank check, an amount equal to the
Initial Amount with respect to the exercise price of those options, and any
interest accrued thereon shall be forfeited.
4. PAYMENT OF BENEFIT WITH RESPECT TO UNEXERCISED OPTIONS IN TEN YEARS.
If on the tenth anniversary of the date of grant of any
options to a Participant under the Stock Option Plan, the Participant has not
exercised all of the options granted to him and has been continuously employed
by or continuously providing services to the Company or its subsidiaries during
the ten-year period, then the Company shall pay to the Participant an amount
equal to the portion of the Initial Amount that is equal to the aggregate
exercise price of the unexercised options plus all accrued interest thereon. If,
pursuant to section 3, a Participant elects not to then receive payment
hereunder and to pay the exercise price for any options with a promissory note,
then, on the tenth anniversary of the date of grant of those options to the
Participant, the Company shall pay to the Participant an amount equal to the
portion of the Initial Amount that is equal to the aggregate exercise price of
those options plus accrued interest
<PAGE>
thereon, provided, however, that the amount of such accrued interest shall not
exceed the amount of interest on the promissory note delivered upon exercise of
the options.
5. PAYMENT OF BENEFIT WITH RESPECT TO EXERCISED OPTIONS IN TEN YEARS.
Subject to section 6, if a Participant's employment by or
services to the Company or its subsidiaries terminates prior to the exercise of
all of the options granted to the Participant under the Stock Option Plan, and
if the Participant subsequently exercises any options (the "Former Management
Options") and pursuant to the terms of the Stock Option Plan is required to pay
the exercise price for those Former Management Options by delivery of a
Promissory Note (the "Option Note"), then, except as provided in section 6, on
the tenth anniversary of the date of grant of the exercised options the Company
shall pay to the Participant an amount equal to the portion of the Initial
Amount that is equal to the aggregate exercise price of the Former Management
Options plus accrued interest thereon, provided, however, that the amount of
such accrued interest shall not exceed the amount of interest on the Option
Note, and any additional accrued interest on the Initial Amount shall be
forfeited. A Participant shall have no right of offset or right of recoupment
under applicable bankruptcy law with respect to such payment if the Participant
is required to make payment on the Option Note at a time when the Company is in
bankruptcy.
6. PAYMENT ON SPECIFIED DATE FOR PARTICIPANTS NO LONGER EMPLOYED BY OR
PROVIDING SERVICES TO THE COMPANY.
Notwithstanding anything to the contrary in section 5, at the
time a person becomes a Participant in this Plan, the Participant may elect, by
notice to the Company, to receive the portion of the Initial Amount that is
equal to the aggregate exercise price of any options that remain unexercised at
the time his employment by or services to the Company and its subsidiaries
terminates, plus accrued interest thereon to the extent required to repay the
Option Note as provided in section 5, on a date specified in the election (the
"Specified Date"), provided that the Participant will only receive such payment
if (a) his employment by or services to the Company or its subsidiaries
terminates prior to the Specified Date, and (b) he has exercised the options no
later than 75 days prior to the Specified Date. If such a Participant's options
are not exercised within the time period specified in clause (b) above, the
Participant will forfeit the right to receive any payments under this Plan. Any
designation of a Specified Date may be changed at any time thereafter, provided
that no change will be effective if made within 12 months of the date of
termination of employment or services.
7. FORFEITURE OF BENEFITS WITH RESPECT TO UNEXERCISED OPTIONS.
If a Participant's employment by or services to the Company or
its subsidiary terminates prior to the tenth anniversary of the date any options
were granted to the Participant under the Stock Option Plan and if on such tenth
anniversary the Participant has not exercised all of his options, the
Participant shall forfeit the portion of the Initial Amount that is equal to the
aggregate exercise price of the unexercised options and all accrued interest
thereon.
2
<PAGE>
8. CONSTRUCTION OF PLAN.
(a) The Plan is "unfunded" and benefits payable hereunder shall be paid
by the Company out of its general assets. The Participant shall not have any
interest in any specific asset of the Company as a result of this Plan. Nothing
contained in this Plan and no action taken pursuant to the provisions of this
Plan shall create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and the Participant or any other person. Any
funds which may be invested under the provisions of this Plan shall continue for
all purposes to be part of the general funds of the Company and no person other
than the Company shall by virtue of the provisions of this Plan have any
interest in such funds. To the extent that any person acquires a right to
receive payments from the Company under this Plan, such right shall be no
greater than the right of any unsecured general creditor of the Company. The
obligations to the Participant hereunder shall be that of the Company and no
other entity shall have any obligations to him.
(b) All expenses incurred by the Company in administering the Plan
shall be paid by the Company.
9. LIMITATION OF RIGHTS.
Nothing contained herein shall be construed as conferring upon
the Participant the right to continue in the employ of the Company as an
executive or in any other capacity or to interfere with the Company's right to
discharge him at any time for any reason whatsoever.
10. PAYMENT NOT SALARY.
No amount payable under this Plan shall be deemed salary or
other compensation to the Participant for the purposes of computing benefits to
which he may be entitled under any pension plan or other arrangement of the
Company for the benefit of its employees.
11. SEVERABILITY.
In case any provision of this Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the remaining
parts hereof, but this Plan shall be construed and enforced as if such illegal
or invalid provision never existed.
12. WITHHOLDING.
All payments under this Plan shall be subject to the
withholding of such amounts relating to federal, state or local taxes,
including, without limitation, taxes imposed pursuant to the Federal Insurance
Contribution Act (FICA) and the Federal Unemployment Tax Act (FUTA), as the
Company may reasonably determine it should withhold based on applicable law or
regulations. If a Participant elects and if the Company consents in its sole
discretion to such election, any such taxes may be paid by delivering shares of
the Company's Common Stock acquired upon exercise of options under the Stock
Option Plan (valued at fair market value as defined in the Plan).
3
<PAGE>
13. ASSIGNMENT.
This Plan shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and the Participant and his heirs,
executors, administrators and legal representatives. The Participant may not
assign any of his rights under this Plan to any person other than by will or by
the laws of descent and distribution.
14. NON-ALIENATION OF BENEFITS.
The benefits payable under this Plan shall not be subject to
alienation, transfer, assignment, garnishment, execution or levy of any kind,
and any attempt to cause any benefits to be so subjected shall not be
recognized.
15. GOVERNING LAW.
This Plan shall be governed by the laws of the State of New
York.
16. AMENDMENT OR TERMINATION OF PLAN.
This Plan may be amended or withdrawn by the Stock Option
Committee with respect to any amounts not yet credited under this Plan, and the
Committee with the consent of each adversely affected Participant may at any
time amend this Plan as it relates to the terms and conditions of any amounts
previously credited under this Plan.
17. NON-EXCLUSIVITY.
The adoption of the Plan by the Company shall not be construed
as creating any limitations on the power of the Company to adopt such other
supplemental retirement income arrangements as it deems desirable, and such
arrangements may be either generally applicable or limited in application.
18. GENDER AND NUMBER.
Wherever used in this Plan, the masculine shall be deemed to
include the feminine and the singular shall be deemed to include the plural,
unless the context clearly indicates otherwise.
19. HEADINGS AND CAPTIONS.
The headings and captions herein are provided for reference
and convenience only. They shall not be considered part of the Plan and shall
not be employed in the construction of the Plan.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed this 27th day of February, 1998.
LONDON FOG INDUSTRIES, INC.
By:
--------------------------------
5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR SUCH LAWS AND RULES AND
REGULATIONS THEREUNDER.
MANAGEMENT ANTI-DILUTION WARRANT
TO PURCHASE SHARES OF COMMON
STOCK OF LONDON FOG INDUSTRIES, INC.
This certifies that ___________ (the "Holder"), for value
received, is entitled to purchase from London Fog Industries, Inc., a Delaware
corporation (the "Company"), _______________________ (____) fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share
(the "Stock"), at a price of $15.72 per share (the "Stock Purchase Price") at
any time or from time to time during the exercise period set forth in Section 1,
upon surrender to the Company at its principal office at 8 West 40th Street, New
York, New York 10018 (or at such other location as the Company may advise Holder
in writing) of this Warrant with the Form of Subscription attached hereto duly
filled in and signed and upon payment by cash, certified or bank check or wire
transfer of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
This Warrant is exercisable at the option of Holder at any time or from time to
time on or after the first date on which any Warrants (the "Merger Warrants")
issued pursuant to the Merger Agreement dated as of February 27, 1998 between
the Company and LFI Merger Corp. are exercised and not later than 5:00 p.m. (New
York time) on the Expiration Date (as defined below) for all or a portion of the
shares of Stock which may be purchased hereunder. "Expiration Date" means the
earlier of (i) the later of February 28, 2005 and seven days after receipt by
the Holder of the Exercise Notice referred to below, or (ii) the occurrence of
an event which causes termination of this Warrant under clause (d) of Section
3.4. The Company shall give the Holder prompt notice (the "Exercise Notice") of
the exercise of any of the Merger Warrants. Notwithstanding the foregoing, this
Warrant shall only be exercisable with respect to the same percentage of the
aggregate shares subject to this Warrant as the percentage of the aggregate
shares subject to the Stock Option Agreement between the Company and the Holder
dated the date hereof which are
<PAGE>
then exercisable or have previously been exercised under the terms of the Stock
Option Agreement.
The Company agrees that the shares of Stock purchased under
this Warrant shall be and are deemed to be issued to Holder as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares. Subject to the
provisions of Section 2, certificates for the shares of Stock so purchased,
together with any other securities or property to which Holder is entitled upon
such exercise, shall be delivered to Holder by the Company's transfer agent at
the Company's expense within a reasonable time (but in no event more than three
business days) after the rights represented by this Warrant have been exercised.
Each stock certificate so delivered shall be in such denominations of Stock as
may be requested by Holder and shall be registered in the name of Holder or such
other name as shall be designated by Holder, subject to the limitations
contained in Section 2. If, upon exercise of this Warrant, fewer than all of the
shares of Stock evidenced by this Warrant are purchased prior to the Expiration
Date, one or more new warrants substantially in the form of, and on the terms
in, this Warrant will be issued for the remaining number of shares of Stock not
purchased upon exercise of this Warrant.
2. Shares to be Fully Paid: Reservation of Shares. The Company
covenants and agrees that all shares of Stock which may be issued upon the
exercise of the rights represented by this Warrant (the "Warrant Shares") will,
upon issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any stockholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued Stock for such exercise. The Company will take all such
action as may be necessary to assure that such shares of Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange, automated quotation system or
quotation service upon which the Stock may be listed.
3. Adjustment of Stock Purchase Price; Number of Shares. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3; provided, however,
that if a certain event shall cause the Stock Purchase Price to be adjusted to a
price less than the par value of the Stock, the Company prior to such event
shall decrease the par value of the Stock so that the Stock Purchase Price shall
not be less than the par value of the Stock following the occurrence of such
event. Upon each adjustment of the Stock Purchase Price, the holder of this
Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying the
Stock Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
<PAGE>
3.1 Subdivision or Combination of Stock. In case the
Company shall at any time subdivide its outstanding shares of Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and the number of shares
issuable upon exercise of this Warrant shall be proportionately increased.
Conversely, in case the outstanding shares of Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased and the
number of shares issuable upon exercise of this Warrant shall be proportionately
reduced.
3.2 Stock Dividend. In case the Company shall at any
time declare or pay a dividend upon its Stock payable in shares of Stock, the
Stock Purchase Price in effect immediately prior to such dividend shall be
proportionately reduced and the number of shares issuable upon exercise of this
Warrant shall be proportionately increased.
3.3 Notice of Adjustment. Upon any adjustment of the
Stock Purchase Price or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant, the Company shall give written
notice thereof, by first class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as shown on the
books of the Company. The notice shall be signed by the Company's Secretary or
another designated officer and shall state the effective date of the adjustment
and the Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
3.4 Other Notices. If at any time:
(a) the Company shall propose to declare any cash
dividend upon its Stock;
(b) the Company shall propose to declare or make any
dividend or other distribution to the holders of its Stock, whether in cash,
property or other securities;
(c) the Company shall propose to effect any
reorganization or reclassification of the capital stock of the Company or any
consolidation or merger of the Company with or into another corporation or any
sale, lease or conveyance of all or substantially all of the assets of the
Company; or
(d) the Company shall propose to effect a voluntary
or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company, (i) at least 30
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend or distribution or for
determining rights to vote in respect of any such reorganization,
reclassification,
<PAGE>
consolidation, merger, sale, lease, conveyance, dissolution, liquidation or
winding-up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, lease, conveyance, dissolution, liquidation or
winding-up, at least 30 days' written notice of the date when the same shall
take place. Upon the occurrence of an event described in clause (c), the holder
of this Warrant shall be entitled thereafter to receive upon exercise of this
Warrant the kind and amount of shares of stock or other securities or assets
which the holder would have been entitled to receive after the occurrence of
such event had this Warrant been exercised immediately prior to such event; and
in any such case, appropriate provision shall be made with respect to the rights
and interests of the holder to the end that the provisions of this Warrant
(including, without limitation, provisions with respect to changes in and
adjustments of the Stock Purchase Price and the number of shares purchasable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, or other securities or assets,
thereafter deliverable upon the exercise of this Warrant. The Company will not
effect any of the transactions described in clause (c) above unless, prior to
the consummation thereof, each person (other than the Company) that may be
required to deliver any cash, stock, securities or other assets upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (x)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of any such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant) and (y) the obligation to deliver to such
holder such cash, stock, securities or other assets as such holder may be
entitled to receive in accordance with the provisions of this Section 3. Upon
the occurrence of an event described in clause (d), this Warrant shall
terminate. The provisions of this Section 3.6 shall similarly apply to
successive transactions.
4. Issue Tax. The issuance of certificates for shares of Stock
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
5. No Voting Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of the Company
or any other matters or any rights whatsoever as a stockholder of the Company.
No provisions hereof, in the absence of affirmative action by the Holder to
purchase shares of Stock, and no mere enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of such Holder
for the Stock Purchase Price or as a stockholder of the Company whether such
liability is asserted by the Company or by its creditors.
<PAGE>
6. Restrictions on Transferability of Securities; Compliance
With Securities Act.
6.1 Restrictions on Transferability. The Warrant and
the Warrant Shares (collectively, the "Securities"), shall not be transferable
in the absence of registration under the Act or an exemption therefrom under
such Act.
6.2 Restrictive Legend. Each certificate representing
the Securities or any other securities issued in respect of the Securities upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR SUCH
LAWS AND RULES AND REGULATIONS THEREUNDER.
If, at the time of exercise, the Shares are registered
pursuant to the Registrant Rights Agreement referred to in Section 7, the legend
shall be modified accordingly.
6.3 Effect of Transfer. Subject to the provisions of
Section 6.1 hereof, the Holder may transfer all or any portion of this Warrant
by surrendering this Warrant to the Company together with a completed assignment
in the form attached hereto as Exhibit B. Upon such surrender, the Company shall
deliver a new Warrant or Warrants to the person or persons entitled thereto and,
if applicable, shall deliver to the Holder a new Warrant evidencing the right of
the Holder to purchase the balance of the Warrant Shares subject to purchase
hereunder. The term "Holder" as used herein shall include any transferee to whom
this Warrant has been transferred in accordance with this Section 6.3.
7. Registration Procedures. The Warrant Shares constitute
"Registrable Securities" as defined in Section 1 of the Registration Rights
Agreement, dated as of February 27, 1998, and shall be entitled to registration
rights in accordance with such Agreement.
8. Income Tax Withholding. If the Company or a subsidiary
shall be required to withhold any amounts by reason of any federal, state or
local tax rules or regulations in respect of the exercise of this Warrant, the
holder shall make available to the Company or the subsidiary sufficient funds to
meet the withholding requirements and the Company or the subsidiary shall be
entitled to take and authorize any steps it deems advisable in order to have
such funds made available to the Company or the subsidiary out of any funds or
property due or to become due to the Holder. If the Holder elects and if the
Company consents in its sole
<PAGE>
discretion to such election, any such taxes may be paid by delivering Warrant
Shares acquired upon exercise of this Warrant (valued at fair market value as
defined in the Stock Option Agreement referred to in section 1).
9. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
10. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
personally delivered or shall be sent by certified or registered mail, postage
prepaid, to each such Holder at its address as shown on the books of the Company
or to the Company at the address indicated therefor in the first paragraph of
this Warrant. Any notice given by personal delivery shall be deemed given upon
receipt, and any notice given by certified or registered mail shall be deemed
given five days after registration or certification thereof, as the case may be.
11. Descriptive Headings and Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of New York, without giving
effect to rules governing conflicts of law.
12. Lost Warrants or Stock Certificates. The Company
represents and warrants to, and agrees with, the Holder that upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of any Warrant or stock certificate and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity, or in the case of any
such mutilation, upon surrender and cancellation of such Warrant or stock
certificate, the Company at its expense will make and deliver a new Warrant or
stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
13. Fractional Shares. No fractional shares shall be issued
upon exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the Holder entitled to such fraction a sum in cash equal
to such fraction multiplied by the market price of the Stock,
<PAGE>
which shall be, on any date, the closing price for the Stock or the closing bid
if no sales were reported on the domestic securities exchange or automated
quotation system or quotation service which is the principal market for the
stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer, thereunto duly authorized this 27th day of February,
1998.
LONDON FOG INDUSTRIES, INC.
By:
------------------------------
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To: ___________________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _____________________ (_______) shares of
Common Stock, par value $.__ per share (the "Stock"), of London Fog Industries,
Inc. (the "Company") and herewith makes payment of _____________________________
Dollars ($__________) therefor and requests that the certificates for such
shares be issued in the name of, and delivered to,
___________________________________
_____________________________________________________________, whose address is
____________________________________________.
The undersigned represents, unless the exercise of this
Warrant has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), that the undersigned is acquiring such Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (except for any resale pursuant to a Registration Statement
under the Securities Act).
DATED:
-----------------
------------------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant)
------------------------------------------------
------------------------------------------------
(Address)
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ____________________________ hereby sells,
assigns, and transfers unto ___________________________ a Warrant to Purchase
____________ shares of Common Stock, par value $.__ per share, of London Fog
Industries, Inc. (the "Company"), together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint ___________ attorney
to transfer such Warrant on the books of the Company, with full power of
substitution.
Dated:
------------------------
Signature
------------------
NOTICE
This signature on the foregoing Assignment must correspond to
the name as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR SUCH LAWS AND RULES AND
REGULATIONS THEREUNDER.
WARRANT TO PURCHASE SHARES OF COMMON
STOCK OF LONDON FOG INDUSTRIES, INC.
This certifies that _________________ (the "Holder"), for
value received, is entitled to purchase from London Fog Industries, Inc., a
Delaware corporation (the "Company"), ___________ (_____) fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share
(the "Stock"), at a price of $15.72 per share (the "Stock Purchase Price") at
any time or from time to time on or after the date hereof but not later than
5:00 p.m. (New York time) on the Expiration Date (as defined below), upon
surrender to the Company at its principal office at 8 West 40th Street, New
York, New York 10018(or at such other location as the Company may advise Holder
in writing) of this Warrant with the Form of Subscription attached hereto duly
filled in and signed and upon payment by cash, certified or bank check or wire
transfer of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
"Expiration Date" means the earlier of (i) February 27, 2005, or (ii) the
occurrence of an event which causes termination of this Warrant under clause (d)
of Section 3.4. This Warrant is issued pursuant to the Merger Agreement, dated
as of February 27, 1998, between the Company and LFI Merger Corp.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
This Warrant is exercisable at the option of Holder at any time or from time to
time on or after the date hereof but not later than the Expiration Date for all
or a portion of the shares of Stock which may be purchased hereunder. The
Company agrees that the shares of Stock purchased under this Warrant shall be
and are deemed to be issued to Holder as the record owner of such shares as of
the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares. Subject to the provisions of
Section 2, certificates for the shares of Stock so purchased, together with any
other securities or property to which Holder is entitled upon such exercise,
shall be delivered to Holder by the Company's transfer agent at the Company's
expense within a reasonable time (but in no event more than three business days)
after the rights
<PAGE>
represented by this Warrant have been exercised. Each stock certificate so
delivered shall be in such denominations of Stock as may be requested by Holder
and shall be registered in the name of Holder or such other name as shall be
designated by Holder, subject to the limitations contained in Section 2. If,
upon exercise of this Warrant, fewer than all of the shares of Stock evidenced
by this Warrant are purchased prior to the Expiration Date, one or more new
warrants substantially in the form of, and on the terms in, this Warrant will be
issued for the remaining number of shares of Stock not purchased upon exercise
of this Warrant.
2. Shares to be Fully Paid: Reservation of Shares. The Company
covenants and agrees that all shares of Stock which may be issued upon the
exercise of the rights represented by this Warrant (the "Warrant Shares") will,
upon issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any stockholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued Stock for such exercise. The Company will take all such
action as may be necessary to assure that such shares of Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange, automated quotation system or
quotation service upon which the Stock may be listed.
3. Adjustment of Stock Purchase Price; Number of Shares. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3; provided, however,
that if a certain event shall cause the Stock Purchase Price to be adjusted to a
price less than the par value of the Stock, the Company prior to such event
shall decrease the par value of the Stock so that the Stock Purchase Price shall
not be less than the par value of the Stock following the occurrence of such
event. Upon each adjustment of the Stock Purchase Price, the holder of this
Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying the
Stock Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
3.1 Subdivision or Combination of Stock. In case the
Company shall at any time subdivide its outstanding shares of Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and the number of shares
issuable upon exercise of this Warrant shall be proportionately increased.
Conversely, in case the outstanding shares of Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased and the
number of shares issuable upon exercise of this Warrant shall be proportionately
reduced.
<PAGE>
3.2 Stock Dividend. In case the Company shall at any
time declare or pay a dividend upon its Stock payable in shares of Stock, the
Stock Purchase Price in effect immediately prior to such dividend shall be
proportionately reduced and the number of shares issuable upon exercise of this
Warrant shall be proportionately increased.
3.3 Notice of Adjustment. Upon any adjustment of the
Stock Purchase Price or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant, the Company shall give written
notice thereof, by first class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as shown on the
books of the Company. The notice shall be signed by the Company's Secretary or
another designated officer and shall state the effective date of the adjustment
and the Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
3.4 Other Notices. If at any time:
(a) the Company shall propose to declare any cash
dividend upon its Stock;
(b) the Company shall propose to declare or make any
dividend or other distribution to the holders of its Stock, whether in cash,
property or other securities;
(c) the Company shall propose to effect any
reorganization or reclassification of the capital stock of the Company or any
consolidation or merger of the Company with or into another corporation or any
sale, lease or conveyance of all or substantially all of the assets of the
Company; or
(d) the Company shall propose to effect a voluntary
or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company, (i) at least 30
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend or distribution or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding-up, at least 30 days' written notice of the date when the
same shall take place. Upon the occurrence of an event described in clause (c),
the holder of this Warrant shall be entitled thereafter to receive upon exercise
of this Warrant the kind and amount of shares of stock or other securities or
assets which the holder would have been entitled to receive after the occurrence
of such event had this Warrant been exercised immediately prior to such event;
and in any such case, appropriate provision shall be made with respect to the
rights and interests of the holder to the end that the provisions of this
Warrant
<PAGE>
(including, without limitation, provisions with respect to changes in and
adjustments of the Stock Purchase Price and the number of shares purchasable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, or other securities or assets,
thereafter deliverable upon the exercise of this Warrant. The Company will not
effect any of the transactions described in clause (c) above unless, prior to
the consummation thereof, each person (other than the Company) that may be
required to deliver any cash, stock, securities or other assets upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (x)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of any such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant) and (y) the obligation to deliver to such
holder such cash, stock, securities or other assets as such holder may be
entitled to receive in accordance with the provisions of this Section 3. Upon
the occurrence of an event described in clause (d), this Warrant shall
terminate. The provisions of this Section 3.6 shall similarly apply to
successive transactions.
4. Issue Tax. The issuance of certificates for shares of Stock
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
5. No Voting Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of the Company
or any other matters or any rights whatsoever as a stockholder of the Company.
No provisions hereof, in the absence of affirmative action by the Holder to
purchase shares of Stock, and no mere enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of such Holder
for the Stock Purchase Price or as a stockholder of the Company whether such
liability is asserted by the Company or by its creditors.
6. Restrictions on Transferability of Securities; Compliance
With Securities Act.
6.1 Restrictions on Transferability. The Warrant and
the Warrant Shares (collectively, the "Securities"), shall not be transferable
in the absence of registration under the Act or an exemption therefrom under
such Act.
6.2 Restrictive Legend. Each certificate representing
the Securities or any other securities issued in respect of the Securities upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR SUCH
LAWS AND RULES AND REGULATIONS THEREUNDER.
If, at the time of exercise, the Shares are registered
pursuant to the Registrant Rights Agreement referred to in Section 7, the legend
shall be modified accordingly.
6.3 Effect of Transfer. Subject to the provisions of
Section 6.1 hereof, the Holder may transfer all or any portion of this Warrant
by surrendering this Warrant to the Company together with a completed assignment
in the form attached hereto as Exhibit B. Upon such surrender, the Company shall
deliver a new Warrant or Warrants to the person or persons entitled thereto and,
if applicable, shall deliver to the Holder a new Warrant evidencing the right of
the Holder to purchase the balance of the Warrant Shares subject to purchase
hereunder. The term "Holder" as used herein shall include any transferee to whom
this Warrant has been transferred in accordance with this Section 6.3.
7. Registration Procedures. The Warrant Shares constitute
"Registrable Securities" as defined in Section 1 of the Registration Rights
Agreement, dated as of February 27, 1998, and shall be entitled to registration
rights in accordance with such Agreement.
8. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
9. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
personally delivered or shall be sent by certified or registered mail, postage
prepaid, to each such Holder at its address as shown on the books of the Company
or to the Company at the address indicated therefor in the first paragraph of
this Warrant. Any notice given by personal delivery shall be deemed given upon
receipt, and any notice given by certified or registered mail shall be deemed
given five days after registration or certification thereof, as the case may be.
10. Descriptive Headings and Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of New York, without giving
effect to rules governing conflicts of law.
11. Lost Warrants or Stock Certificates. The Company
represents and warrants to, and agrees with, the Holder that upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of any Warrant or stock certificate and,
<PAGE>
in the case of any such loss, theft or destruction, upon receipt of an
indemnity, or in the case of any such mutilation, upon surrender and
cancellation of such Warrant or stock certificate, the Company at its expense
will make and deliver a new Warrant or stock certificate, of like tenor, in lieu
of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
12. Fractional Shares. No fractional shares shall be issued
upon exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the Holder entitled to such fraction a sum in cash equal
to such fraction multiplied by the market price of the Stock, which shall be, on
any date, the closing price for the Stock or the closing bid if no sales were
reported on the domestic securities exchange or automated quotation system or
quotation service which is the principal market for the stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer, thereunto duly authorized this 27th day of February,
1998.
LONDON FOG INDUSTRIES, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To:
-------------------------------
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _____________________ (_______) shares of
Common Stock, par value $.__ per share (the "Stock"), of London Fog Industries,
Inc. (the "Company") and herewith makes payment of _____________________________
Dollars ($__________) therefor and requests that the certificates for such
shares be issued in the name of, and delivered to,
__________________________________
_____________________________________________________________, whose address is
____________________________________________.
The undersigned represents, unless the exercise of this
Warrant has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), that the undersigned is acquiring such Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (except for any resale pursuant to a Registration Statement
under the Securities Act).
DATED:
---------------
----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
----------------------------------------
----------------------------------------
(Address)
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ____________________________ hereby sells,
assigns, and transfers unto ___________________________ a Warrant to Purchase
____________ shares of Common Stock, par value $.__ per share, of London Fog
Industries, Inc. (the "Company"), together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint ___________ attorney
to transfer such Warrant on the books of the Company, with full power of
substitution.
Dated:
------------------------
Signature
------------------
NOTICE
This signature on the foregoing Assignment must correspond to
the name as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
Agreement of Lease, made as of this 4th day of May, 1994, between 40th
Associates, a New York Limited Partnership having an address at 110 East 59th
Street, New York, New York 10022 party of the first part, hereinafter referred
to as OWNER, and/or LANDLORD, and LONDON FOG CORPORATION, a Delaware Corporation
with offices located at 1332 Londontown Boulevard, Eldersburg, Maryland
21784-5399 party of the second part, hereinafter referred to as Tenant,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the entire 18th, 19th, 20th, 21st and Penthouse Floors (the "demised
premises" or "Demised Premises") (See ARTICLE 62)
in the building known as 8 West 40th Street (the "Building") in the Borough of
Manhattan, City of New York, for a term of Fifteen (15) Years ("Term") (or until
the Term shall sooner cease or expire pursuant to the terms of this lease or
pursuant to law) to commence on October 1, 1994 (the "Commencement Date") and to
end on September 30, 2009 (the "Expiration Date") at the fixed annual rent (the
"Base Rent") of: See ARTICLE 43
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless
this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs distributees, executors,
administrators, legal representatives, successors and assigns, hereby convenant
as follows:
RENT OCCUPANCY: 1. Tenant shall pay the rent as above and as hereinafter
provided. 2. Tenant shall use and occupy demised premises for Executive and
General Offices and Showrooms, and for no other purpose.
TENANT ALTERATIONS: 3. Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written consent. Subject to the
prior written consent of Owner, which consent shall not be unreasonably withheld
or delayed, and to the provisions of this article, Tenant at Tenant's expense,
may make alterations, installations, additions or improvements which are
nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner which consent shall not be
unreasonably withheld or delayed. Tenant shall, before making any alterations,
additions, installations or improvements, at its expense, obtain all permits,
approvals and certificates required by any governmental or quasi-governmental
bodies and (upon completion) certificates of final approval thereof and shall
deliver promptly duplicates of all such permits, approvals and certificates to
Owner and Tenant agrees to carry and will cause Tenant's contractors and
sub-contractors to carry such workman's compensation, general liability,
personal and property damage insurance as Owner may reasonably require. If any
mechanic's lien is filed against the demised premises, or the building of which
the same forms a part, for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this article, the same
shall be discharged by Tenant within thirty days after notice thereof, at
Tenant's expense, by filing the bond requried by law. All fixtures and all
paneling, partitions, railings and like installations, installed in the premises
at any time, either by Tenant or by Owner in Tenant's behalf, shall, upon
installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises. Nothing in this Article shall be
construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises, Tenant shall immediately and at its expense, repair nad
restore the premises to the condition existing prior to installation and repair
any damage to the demised premises or the building due to such removal. All
property premitted to be removed, by Tenant at the end of the term remaining in
the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at Tenant's expense.
MAINTENANCE and REPAIRS 4. Tenant shall, throughout the term of this lease, take
good care of the demised premises and fixtures and appurtenances therein. Tenant
shall be responsible for all damage or injury to the demised premises or any
other part of the building and the systems and equipment thereof, whether
requiring structural or nonstructural repairs caused by or resulting from
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
subtenants, agents, employees, invitees or licensees, or
<PAGE>
which arise out of any work, labor, service or equipment done for or supplied to
Tenant or any subtenant or arising out of the installation, use or operation of
the propety or equipment of Tenant or any subtenant. Tenant shall also repair
all damage to the building and the demised premises caused by the moving of
Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at
Tenant's expense, all repairs in and to the demised premises for which Tenant is
responsible, using only the contractor for the trade or trades in question,
selected from a list of at least four contractors per trade submitted by Owner.
Any other repairs in or to the building or the facilities and systems thereof
for which Tenant is responsible shall be performed by Owner at the Tenant's
reasonable expense. Owner shall maintain in good working order and repair the
exterior and the structural portions of the building, including the structural
portions of its demised premises, and the public portions of the building
interior and the building plumbing, electrical, heating and ventilating systems
(to the extent such systems presently exist) serving the demised premises.
Tenant agrees to give prompt notice of any defective condition in the premises
for which Owner may be responsible hereunder. There shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from Owner or
others making repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the fixtures,
appurtenances or equipment thereof. Owner agrees to perform any repair required
pursuant to this Article with reasonable efforts to the extent practicable to
minimize interference with Tenant's business, provided Owner shall not thereby
be required to incur any additional expense for overtime labor, or otherwise. It
is specifically agreed that Tenant shall not be entitled to any setoff or
reduction of rent by reason of any failure of Owner to comply with the covenants
of this or any other article of this Lease. Tenant agrees that Tenant's sole
remedy at law in such instance wil be by way of an action for damages for breach
of contract. The provisions of this Article 4 shall not apply in the case of
fire or other casualty which are dealt with in Article 9 hereof
WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the Labor Law or any other applicable law or of the Rules of
the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS of LAW, FIRE INSURANCE, FLOOR LOADS: 6. Prior to the commencement
of the lease term, if Tenant is then in possession, and at all times thereafter,
Tenant, at Tenant's sole cost and expense, shall promptly comply after notice
from Owner with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, Insurance
Services office, or any similar body which shall impose any violation, order or
duty upon Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's manner of use (but not Tenant's mere use) thereof,
(including Tenant's permitted use) or, with respect to the building if arising
out of Tenant's
<PAGE>
manner of use (but not Tenant's mere use) of the premises or the building
(including the use permitted under the lease). Nothing herein shall require
Tenant to make structural repairs or alterations unless Tenant has, by its
manner of actual use of the demised premises or method of operation therein,
violated any such laws, ordinances, orders, rules, regulations or requirements
with respect thereto. Tenant may, after securing Owner to Owner's reasonable
satisfaction against all damages, interest, penalties and expenses, including,
but not limited to, reasonable attorney's fees, by cash deposit or by surety
bond in an amount and in a company reasonably satisfactory to Owner, contest and
appeal any such laws, ordinances, orders, rules, regulations or requirements
provided same is done with all reasonable promptness and provided such appeal
shall not subject Owner to prosecution for a criminal offense or constitute a
default under any lease or mortgage under which Owner may be obligated, or cause
the demised premises or any part thereof to be condemned or vacated. Tenant
shall not do or permit any act or thing to be done in or to the demised premises
which is contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner with respect to the demised premises or the building of which
the demised premises form a part, or which shall or might subject Owner to any
liability or responsibility to any person or for property damage. Tenant shall
not keep anything in the demised premises except as now or hereafter permitted
by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating
Organization or other authority having jurisdiction, and then only in such
manner and such quantity so as not to increase the rate for fire insurance
applicable to the building, nor use the premises in a manner which will increase
the insurance rate for the building or any property located therein over that in
effect or the dates possession of any portion of the demised premises is given
to Tenant. Tenant shall pay all costs, expenses, fines penalties, or damages,
which may be imposed upon Owner by reason of Tenant's failure to comply with the
provisions of this article and if by reason of such failure the fire insurance
rate shall, at the beginning of this lease or at any time thereafter, be higher
than it otherwise would be, then Tenant shall reimburse Owner, as additional
rent hereunder, for that portion of all fire insurance premiums thereafter paid
by Owner which shall have been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable to
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, heavy business machines and mechanical
equipment. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's reasonable judgment, to
absorb and prevent vibration, noise and annoyance.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request. Owner
agrees that it shall promptly obtain and submit to Tenant a non-disturbance
agreement for the benefit of the Tenant from the holders of any mortgages
presently affecting the demised premises or hereafter created during the Term.
Such non-disturbance agreement shall be in form and content then used by such
holder, but shall provide, among other things, that so long as Tenant is not in
default in the payment of rent or any other covenant or condition of this lease,
(i) its right as Tenant hereunder shall not be affected or terminated, (ii) its
possession of the demised premises shall not be disturbed, (iii) no action or
proceedings shall be commenced to remove or evict Tenant, and (iv) this lease
shall continue in full force and effect notwithstanding the foreclosure of the
mortgage prior to the expiration or termination of this lease. Owner shall pay
all costs and expenses incurred by Owner in connection with such non-disturbance
agreement. The inability of the Owner to obtain such non-disturbance agreement
shall not be deemed a default of Owner's obligations under this lease or impose
any claim in favor of Tenant against Owner by reason thereof or affect the
validity of this lease; provided, however, that this lease shall not be
subordinate to any mortgage unless and until such non-disturbance agreement is
obtained from the holder of any mortgage and submitted to Tenant.
With respect to the existing Mortgage currently held by The Dime Savings Bank of
New York, FSB (the "Dime"), in the event such non-disturbance agreement is not
received from Dime within sixty (60) days from Lease execution, Tenant shall
have the right to terminate and end this Lease (and the term hereby created is
limited accordingly), by giving written notice to Landlord at the address
designated in this Lease, sent by registered or certified mail, return receipt
requested, and, upon the expiration of the time fixed in such notice, this Lease
and the term hereby granted and all the rights of Landlord, shall terminate and
come to an end without any other or further notice or act on the part of the
Tenant, with the same force and effect as though the day fixed in said notice
were the expiration of the original term of the instant Lease herein.
Property--Loss, Damage, Reimbursement, Indemnity: 8. Owner or its agents shall
not be liable for any damage to property of Tenant or of others entrusted to
employees of the building, nor for loss of or damage to any property of Tenant
by theft or otherwise, nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or due to the
negligence or wilful act of Owner, its contractors, agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about said building or caused by operations
in construction of any private, public or quasi public work.
If at any time any windows of the demised premises are temporarily closed or
darkened due to requirements of law, Owner shall not be liable for any damage
Tenant may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement or diminution of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. Tenant shall
indemnify and save harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorneys fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees of any covenant or condition of this lease, or
the carelessness, negligence or wilful act of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are partially
damaged or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Owner and the rent, until
such repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable for
the conduct of Tenant's business by fire or other casualty, then the rent shall
be proportionately paid up to the time of the casualty and thenceforth shall
cease until the
<PAGE>
date when the premises shall have been repaired and restored by Owner, subject
to Owner's right to elect not to restore the same as hereinafter provided. (d)
If the demised premises are rendered wholly unusable or (whether or not the
demised premises are damaged in whole or in part) if the building shall be so
damaged that Owner shall decide to demolish it or to rebuild it, then, in any of
such events, Owner or Tenant may elect to terminate this lease by written notice
to the other party given within sixty (60) days after such fire or casualty,
specifying a date for the expiration of the lease, which date shall not be more
than thirty (30) days after the giving of such notice. If this lease shall not
be terminated pursuant to the foregoing provisions of this Article 9, then
within sixty (60) days after the date when all or more than 30% of the demised
premises are rendered unusable by Tenant for the ordinary conduct of its
business due to a fire or other casualty, Owner shall deliver to Tenant a
certification from a licensed architect or reputable contractor selected by
Owner setting forth an estimate as to the time after such fire or other casualty
reasonably required to repair the damage caused thereby. If the period set forth
in any such estimate exceeds one (1) year, Tenant may elect to terminate this
lease by notice to Owner given not later than thirty (30) days following
Tenant's receipt of such estimate, time being of the essence with respect to
such notice. If Tenant shall not have had the right to terminate this lease due
to the estimated time for completion being not greater than one (1) year and
Owner fails to complete the restoration within such one (1) year period (subject
to the delay provisions of this Article 9), then Tenant shall have the right to
terminate this lease by notice to Owner given not later than thirty (30) days
following the expiration of such one (1) year period, time being of the essence
with respect to such notice. If the demised premises are damaged by fire or
other casualty during the last eighteen (18) months of the term of the lease,
and such damage will require more than sixty (60) days to repair, Landlord or
Tenant may terminate this lease by notice to the other party given not later
than thirty (30) days following the occurrence of the fire or other casualty.
Upon the date specified in any notice of termination given by Owner or Tenant
pursuant to this Article 9 the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
owing shall be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be promptly
returned to Tenant. Unless the party shall serve a termination notice as
provided for herein, Owner shall make the repairs and restorations under the
conditions of (b) and (c) hereof, with all reasonable expedition, subject to
delays due to adjustment of insurance claims, labor troubles and causes beyond
Owner's control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall resume fifteen days after
written notice from Owner that the premises are substantially ready for Tenant's
occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery against the
other or any claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent, that such
waiver can be obtained only by the payment of additional premiums, then the
party benefitting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
EMINENT DOMAIN: 10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease and assigns to
Owner, Tenant's entire interest in any such award. Anything in this Article 10
to the contrary notwithstanding, Tenant shall have the right to make a separate
claim in any such eminent domain proceeding for its property and moving
expenses, provided that Tenant's claim shall not impair the ability of Owner to
make its claim or reduce the amount of Owner's reward.
ASSIGNMENT, MORTGAGE, ETC.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate Tenant shall be
deemed an assignment. If this lease be assigned, or if the demised premises or
any part thereof be underlet or occupied by anybody other than Tenant, Owner
may, after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in no wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
ELECTRIC CURRENT: 12. Tenant covenants and agrees that at all times its use of
electric current shall not exceed the capacity of existing feeders to the
building or the risers or wiring installation and Tenant may not use any
electrical equipment which, in Owner's opinion, rasonably exercised, will
overload such installations or interfere with the use thereof by other tenants
of the building. The change at any time of the character of electric service
shall in no wise make Owner liable or responsible to Tenant, for any loss,
damages or expenses which Tenant may sustain unless caused by Owner's or its
agents', employees', or contractors' negligence or wilful act.
ACCESS TO PREMISES 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times upon advance notice to Tenant (which need not be
written) the same and to make such repairs, replacements and improvements as
Owner may deem necessary and reasonably desirable to the demised premises or to
any other portion of the building or which Owner may elect to perform. Tenant
shall permit Owner to use and maintain and replace pipes and conduits in and
through the demised premises and to erect new pipes and conduits therein
provided they are concealed within the walls, floor, or ceiling. Owner may,
during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Owner agrees to use reasonable efforts to the extent
practicable to minimize interference with Tenant's business in connection with
any work performed pursuant to Articles 13 and 20; provided Owner shall not
thereby be required to incur any additional expense for overtime labor or
otherwise. Owner agrees, at its expense, to repair and restore the demised
premises subsequent to conducting any work therein to the condition existing
prior thereto. Throughout the term hereof Owner shall have the right to enter
the demised premises at reasonable hours for the purpose of showing the
<PAGE>
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the premises,
after notice (except in an emergency when no notice shall be required), Owner or
Owner's agents may enter the same whenever such entry may be necessary or
permissible by master key or forcibly and provided reasonable care is exercised
to safeguard Tenant's property, such entry shall not render Owner or its agents
liable therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all of
Tenant's propety therefrom Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder.
VAULT, VAULT SPACE, AREA: 14. No Vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, not shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
OCCUPANCY: 15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Owner covenants that the uses of the demised
premises are permitted pursuant to Article 2 hereof. Tenant has inspected the
premises and accepts them as is, subject to the riders annexed hereto with
respect to Owner's work, if any. In any event, Owner makes no representation as
to the condition of the premises and Tenant agrees to accept the same subject to
violations, whether or not of record.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as the debtor which case shall not
have been dismissed within sixty (60) days after the commencement thereof; or
(2) the making by Tenant of an assignment or any other arrangement for the
benefit of creditors under any state statute. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of court,
shall thereafter be entitled to possession of the premises demised but shall
forthwith quit and surrender the premises. If this lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be applicable
only to the party then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of six (6%) percent per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease or if the demised premises become vacant or deserted; or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other than
Tenant; or if this lease be rejected under Section 235 of Title 11 of the U.S.
Code (bankruptcy code); or if Tenant shall fail to take possession of the
premises within sixty (60) days after the commencement of the term of this
lease, then, in any one or more of such events, upon Owner serving a written
five (5) days' notice in the case of any monetary default and twenty (20) days'
notice in the case of any non monetary default days notice upon Tenant
specifying the nature of said default and upon the expiration of said five (5)
or twenty (20) days, as the case may be, if Tenant shall have failed to comply
with or remedy such default, or if the said default or omission complained of
shall be of a nature that the same cannot be completely cured or remedied within
said twenty (20) day period, and if Tenant shall not have diligently commenced
curing such default within such twenty (20) day period, and shall not thereafter
with reasonable diligence and in good faith, proceed to remedy or cure such
default, then Owner may serve a written five (5) days' notice of cancellation of
this lease upon Tenant, and upon the expiration of said five (5) days this lease
and the term thereunder shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
<PAGE>
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid, then and in any of such events Owner may
without further notice, re-enter the demised premises and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises and remove their effects and hold the premise
as if this lease had not been made, and Tenant hereby waives the service of
notice of this lease had not been made, and Tenant hereby waives the service of
notice of intention to re-enter or to institute legal proceedings to that end.
If Tenant shall make default hereunder prior to the date fixed as the
commencement of any renewal or extension of this lease, Owner may cancel and
terminate such renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION: 18. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a)
the rent shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, (b) Owner may re-let the premises or any part or
parts thereof, either in the name of Owner or otherwise, for a term or terms,
which may at Owner's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and may grant
concessions or free rent or charge a higher rental than that in this lease,
and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of the rents
collected on account of the lease or leases of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term of this lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Owner may incur in connection with re-letting, such as
reasonable legal expenses, attorneys' fees, brokerage, advertising and for
keeping the demised premises in good order or for preparing the same for
re-letting. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent day specified in this lease and any suit brought to collect
the amount of the deficiency, for any month shall not prejudice in any way the
rights of Owner to collect the deficiency for any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owner's option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Owner, in Owner's
reasonable judgment, considers advisable and necessary for the purpose of
re-letting the demised premises, and the making of such alterations, repairs,
replacements, and/or decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid Owner shall in no event be liable
in any way whatsoever for failure to re-let the demised premises, or in the
event that the demised premises are re-let, for failure to collect the rent
thereof under such re-letting, and in no event shall Tenant be entitled to
receive any excess, if any, of such net rents collected over the sums payable by
Tenant to Owner hereunder. In the event of a breach or threatened breach by
Tenant of any of the covenants or provisions hereof, Owner shall have the right
of injunction and the right to invoke any remedy allowed at law or in equity as
if re-entry, summary proceedings and other remedies were not herein provided
for. Mention in this lease of any particular remedy, shall not preclude Owner
from any other remedy, in law or in equity. Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future laws in
the event of Tenant being evicted or dispossessed for any cause, or in the event
of Owner obtaining possession of demised premises, by reason of the violation by
Tenant of any of the covenants and conditions of this lease, or otherwise.
FEES AND EXPENSES 19. If Tenant shall default after notice and applicable grace
period in the observance or performance of any term or covenant on Tenant's part
to be observed or performed under or by virtue of any of the terms or provisions
in any article of this lease, then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. If Owner, in connection with the
foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to attorney's fees, in instituting,
prosecuting or defending any action or proceeding, then, to the extent that
Owner prevails thereunder, Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within five (5) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT: 20. Owner shall have the right at any time
without the same constituting an eviction and without incurring liability to
Tenant therefor to change the arrangement and/or location of public entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets or other
public parts of the building (provided that, at all times, Tenant shall have
reasonable access to the demised premises) and to change the name, number or
designation by which the building may be known. There shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from Owner or
other Tenants making any repairs in the building or any such alterations,
additions and improvements. Owner agrees to use reasonable efforts to the extent
practicable to minimize interference with Tenant's business in connection with
any work performed pursuant to Articles 13 and 20; provided Owner shall not
thereby be required to incur any additional expense for overtime labor or
otherwise. Owner agrees, at its expense, to repair and restore the demised
premises subsequent to conducting any work therein to the condition existing
prior thereto. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of such controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem necessary
for the security of the building and its occupants.
NO REPRESENTATIONS BY OWNER: 21. Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical condition of the
building, the land upon which
<PAGE>
tion or any other matter or thing affecting or related to the premises except as
herein expressly set forth and no rights, easements or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the demised premises and is
thoroughly acquainted with their condition and agrees to take the same "as is"
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects and reasonable matters not
ascertainable after due diligence. All understandings and agreements heretofore
made between the parties hereto are merged in this contract, which alone fully
and completely expresses the agreement between Owner and Tenant and any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of it in whole or in part, unless such
exectory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
END OF TERM: 22. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If the
last day of the term of this Lease or any renewal thereof, falls on Sunday, this
lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at noon on the preceding business day.
QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed. Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured or for any other reason, Owner shall not be
subject to any liability for failure to give possession on said date and the
validity of the lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this lease, but the rent
payable hereunder shall be abated (provided Tenant is not responsible for
Owner's inability to obtain possession) until after Owner shall have given
Tenant written notice that the premises are substantially ready for Tenant's
occupancy. If permission is given to Tenant to enter into the possession of the
demised premises or to occupy premises other than the demised premises prior to
the date specified as the commencement of the term of this lease, Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease, except as to the
covenant to pay rent. The provisions of this article are intended to constitute
"an express provision to the contrary" within the meaning of Section 223-a of
the New York Real Property Law.
NO WAIVER: 25. The failure of Owner or Tenant to seek redress for violation of,
or to insist upon the strict performance of any covenant or condition of this
lease or of any of the Rules or Regulations, set forth or hereafter adopted by
Owner, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent with knowledge of the breach of any
covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by either party
unless such waiver be in writing signed by the other party. No payment by Tenant
or receipt by Owner of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent, nor
shall any endorsement or statement of any check or any letter accompanying any
check or payment as rent be deemed an accord and satisfaction, and Owner may
accept such check or payment without prejudice to Owner's right to recover the
balance of such rent or pursue any other remedy in this lease provided. No act
or thing done by Owner or Owner's agents during the term hereby demised shall be
deemed an acceptance of a surrender of said premises, and no agreement to accept
such surrender shall be valid unless in writing signed by Owner. No employee of
Owner or Owner's agent shall have any power to accept the keys of said premises
prior to the termination of the lease and the delivery of keys to any such agent
or employee shall not operate as a termination of the lease or surrender of the
premises.
WAIVER OF TRIAL BY JURY: 26. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding including a counterclaim
under Article 4 except for any compulsory counterclaim.
<PAGE>
INABILITY TO PERFORM: 27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of the Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under this
lease or to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repair,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Owner is prevented or delayed from so
doing by reason of strike or labor troubles or any cause whatsoever including,
but not limited to, government preemption in connection with a National
Emergency or by reason of any rule, order or regulation of any department or
subdivision thereof of any government agency or by reason of the conditions of
supply and demand which have been or are affected by war or other emergency.
Owner shall exercise reasonable efforts to eliminate such inability, delay or
prevention and to minimize its effect on Tenant's business.
BILLS AND NOTICES: 28. Except as otherwise in this lease provided, a bill,
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant or left at any of the
aforesaid premises addressed to Tenant, and the time of the rendition of such
bill or statement and of the giving of such notice or communication shall be
deemed to be the time when the same is delivered to Tenant, mailed, or left at
the premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
SERVICES PROVIDED BY OWNERS 29. As long as Tenant is not in default under any of
the covenants of this lease, Owner shall provide: (a) necessary elevator
facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m.
to 1 p.m. and have one elevator subject to call at all other times; (b) heat to
the demised premises when and as required by law, on business days from 8 a.m.
to 6 p.m.; (c) water for ordinary lavatory purposes and for Tenant's pantry but
if Tenant uses or consumes water for any other purposes or in unusual quantities
(of which fact Owner shall be the sole judge), Owner may install a water meter
at Tenant's reasonable expense which Tenant shall thereafter maintain at
Tenant's expense in good working order and repair to register such water
consumption and Tenant shall pay for water consumed as shown on said meter as
additional rent as and when bills are rendered; (d) cleaning service for the
demised premises on business days at Owner's expense provided that the same are
kept in order by Tenant. (f) Owner reserves the right to stop services of the
heating, elevators, plumbing, air-conditioning, power systems or cleaning or
other services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the
reasonable judgment of Owner for as long as may be reasonably required by reason
thereof. If the building of which the demised premises are a part supplies
manually-operated elevator service, Owner at any time may substitute
automatic-control elevator service and upon ten days' written notice to Tenant,
proceed with alterations necessary therefor without in any wise affecting this
lease or the obligation of Tenant hereunder. The same shall be done with a
minimum of inconvenience to Tenant and Owner shall pursue the alteration with
due diligence.
CAPTIONS: 30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
DEFINITIONS: 31. The term "office", or "offices", wherever used in this lease,
shall not be construed to mean premises used as a store or stores, for the sale
or display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 29
hereof), Sundays and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
<PAGE>
FOOTNOTES TO THE LEASE BETWEEN 40TH ASSOCIATES, as Landlord, and LONDON FOG
CORPORATION, as Tenant dated May 4th, 1994
================================================================================
1. which consent shall not be unreasonably withheld or delayed,
2. which approval shall not be unreasonably withheld or delayed.
3. reasonably
4. after notice thereof,
4a. four
4b. reasonable
5. Owner agrees to perform any repair required pursuant to this Article 4 with
reasonable efforts to the extent practicable to minimize interference with
Tenant's business, provided Owner shall not thereby be required to incur
any additional expense for overtime labor, or otherwise.
5a. after notice from Owner
5b. (but not Tenant's mere use)
6. actual
6a. reasonable
6b. reasonably
7. on the dates possession of any portion of the demised premises is given to
Tenant.
7a. heavy
7b reasonable
8. Owner agrees that it shall promptly obtain and submit to Tenant a
non-disturbance agreement for the benefit of the Tenant from the holders of
any mortgages presently affecting the demised premises or hereafter created
during the Term. Such non-disturbance agreement shall be in form and
content then used by such holder, but shall provide, among other things,
that so long as Tenant is not in default in the payment of rent or any
other covenant or condition of this lease, (i) its right as Tenant
hereunder shall not be affected or terminated, (ii) its possession of the
demised premises shall not be disturbed, (iii) no action or proceedings
shall be commenced to remove or evict Tenant, and (iv) this lease shall
continue in full force and effect notwithstanding the foreclosure of the
mortgage prior to the expiration or termination of this lease. Owner shall
pay all costs and expenses incurred by Owner in connection with such
non-disturbance agreement. The inability of the Owner to obtain such
non-disturbance agreement shall not be deemed a default of Owner's
obligations under this lease or impose any claim in favor of Tenant against
Owner by reason thereof or affect the validity of this lease; provided,
however, that this lease shall not be subordinate to any mortgage unless
and until such non-disturbance agreement is obtained from the holder of any
mortgage and submitted to Tenant.
- i -
<PAGE>
With respect to the existing Mortgage currently held by The Dime Savings
Bank of New York, FSB (the "Dime"), in the event such non-disturbance
agreement is not received from Dime within sixty (60) days from Lease
execution, Tenant shall have the right to terminate and end this Lease (and
the term hereby created is limited accordingly), by giving written notice
to Landlord at the address designated in this Lease, sent by registered or
certified mail, return receipt requested, and, upon the expiration of the
time fixed in such notice, this Lease and the term hereby granted and all
the rights of Landlord, shall terminate and come to an end without any
other or further notice or act on the part of the Tenant, with the same
force and effect as though the day fixed in said notice were the expiration
of the original term of the instant Lease herein.
9. or wilful act
9a. or
9b. due to requirements of law
10. contractors,
11. wilful act
12. for the conduct of Tenant's business
12a. or Tenant
12b. the other party
13. sixty (60)
14. thirty (30)
15. If this lease shall not be terminated pursuant to the foregoing provisions
of this Article 9, then within sixty (60) days after the date when all or
more than 30% of the demised premises are rendered unusable by Tenant for
the ordinary conduct of its business due to a fire or other casualty, Owner
shall deliver to Tenant a certification from a licensed architect or
reputable contractor selected by Owner setting forth an estimate as to the
time after such fire or other casualty reasonably required to repair the
damage caused thereby. If the period set forth in any such estimate exceeds
one (1) year, Tenant may elect to terminate this lease by notice to Owner
given not later than thirty (30) days following Tenant's receipt of such
estimate, time being of the essence with respect to such notice. If Tenant
shall not have had the right to terminate this lease due to the estimated
time for completion being not greater than one (1) year and Owner fails to
complete the restoration within such one (1) year period (subject to the
delay provisions of this Article 9), then Tenant shall have the right to
terminate this lease by notice to Owner given not later than thirty (30)
days following the expiration of such one (1) year period, time being of
the essence with respect to such notice. If the demised premises are
damaged by fire or other casualty during the last eighteen (18) months of
the term of the lease, and such damage will require more than sixty (60)
days to repair, Landlord or Tenant may terminate this lease by notice to
the other party given not later than thirty (30) days following the
occurrence of the fire or other casualty.
16. any notice of termination given by Owner or Tenant pursuant to this Article
9
- ii -
<PAGE>
16a promptly
17. either party
18. fifteen
19. Anything in this Article 10 to the contrary notwithstanding, Tenant shall
have the right to make a separate claim in any such eminent domain
proceeding for its property and moving expenses, provided that Tenant's
claim shall not impair the ability of Owner to make its claim or reduce the
amount of Owner's reward.
20. unless caused by Owner's or its agents', employees' or contractors'
negligence or wilful act
21. upon advance notice to Tenant (which need not be written)
22. Owner agrees to use reasonable efforts to the extent practicable to
minimize interference with Tenant's business in connection with any work
performed pursuant to Articles 13 and 20; provided Owner shall not thereby
be required to incur any additional expense for overtime labor or
otherwise. Owner agrees, at its expense, to repair and restore the demised
premises subsequent to conducting any work therein to the condition
existing prior thereto.
23. after notice (except in an emergency, when no notice shall be required),
23a. Owner covenants that the uses of the demised premises are permitted
pursuant to Article 2 hereof.
24. which case shall not have been dismissed within sixty (60) days after the
commencement thereof;
25. six (6%) percent
25a. sixty (60)
26. five (5) days' notice in the case of any monetary default and twenty (20)
days' notice in case of any non-monetary default
27. five (5) or twenty (20) days, as the case may be,
28. twenty (20)
29. five (5)
30. further
31. reasonable
32. after notice and applicable grace period
33. to the extent that Owner prevails thereunder,
33a. (provided that, at all times, Tenant shall have reasonable access to the
demised premises)
34. and seasonable matters not ascertainable after due diligence
35. or Tenant
35a. either party
35b. the other party
- iii -
<PAGE>
36. except for any compulsory counterclaim.
36a. Owner shall exercise reasonable efforts to eliminate such inability, delay
or prevention and to minimize its effect on Tenant's business.
36b. and for Tenant's pantry
36c. reasonable
37. to Tenant at least thirty (30) days prior to the proposed implementation
date thereof.
38. twenty (20)
- iv -
<PAGE>
RIDER TO LEASE between 40TH ASSOCIATES, Landlord, and LONDON FOG CORPORATION,
Tenant, dated as of the 4th day of May, 1994
Re: 8 West 40th Street
New York, New York
18th, 19th, 20th, 21st
and Penthouse Floors
================================================================================
If and to the extent that any of the provisions of this Rider conflict or are
otherwise inconsistent with any of the printed provisions of this lease, whether
or not such inconsistency is expressly noted in this Rider, the provisions of
this Rider shall prevail.
37. Definitions
The following terms contained in this Article 37 shall have the meanings
hereinafter set forth as such terms are used throughout this lease, including
the exhibits, schedules and riders hereto (if any):
(A) "Base Tax Year" shall mean the Real Estate Taxes, as finally
determined for the calendar year 1995 (to wit, the average of the Real
Estate Taxes, as finally determined for the fiscal years July 1, 1994
through June 30, 1995 and July 1, 1995 through June 30, 1996).
(B) "Tenant's Proportionate Share" shall mean 22.52%, subject to
adjustment if additional space is leased to Tenant.
(C) "Base Operating Expenses" shall mean the Operating Expenses incurred
for 1995.
(D) "Operational Year" shall mean each calendar year during the Term
commencing with 1995.
(E) "Operational Year Operating Expenses" shall mean the Operating
Expenses incurred during the applicable Operational Year.
(F) "Electric Factor" initially shall mean $60,000.00 per annum, subject
to adjustment in accordance with the terms of Article 42.
(G) "Net Rent" shall mean (i) $624,000 per annum from October 1, 1994
through September 30 1997; (ii) $696,000 per annum from October 1,
1997 through September 30, 2001; (iii) $768,000 per annum from October
1, 2001 through September 30, 2004; and the annual sum set forth in
Article 45 from October 1, 2004 through September 30, 2009.
(H) "Base Electric Date" shall mean April 1, 1994.
(I) "Rent Commencement Date" shall mean April 1, 1995.
38. Rental Payments
(A) All payments other than Base Rent to be made by Tenant pursuant to this
lease shall be deemed additional rent and, in the event of any non-payment
thereof, Landlord shall have all rights and remedies provided for herein or by
law for non-payment of rent.
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Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
(B) All payments of Base Rent and additional rent to be made by Tenant
pursuant to this Lease shall be made by checks drawn upon a bank located in New
York City which is a member of the New York Clearing House Association or any
other bank, provided the checks of such bank are required to clear within the
same time periods as banks which are members of the New York Clearing House
Association or any successor thereto.
(C) If Landlord receives from Tenant any payment less than the sum of the
Base Rent and additional rent then due and owing pursuant to this lease, Tenant
hereby waives its right, if any, to designate the items to which such payment
shall be applied and agrees that Landlord, in its sole discretion, may apply
such payment in whole or in part to any Base Rent, any additional rent or to any
combination thereof then due and payable hereunder.
(D) Unless Landlord shall otherwise expressly agree in writing, acceptance
of Base Rent or additional rent from anyone other than Tenant shall not relieve
Tenant of any of its obligations under this lease, including the obligation to
pay Base Rent and additional rent, and Landlord shall have the right at any
time, upon notice to Tenant, to require Tenant to pay the Base Rent and
additional rent payable hereunder directly to Landlord (provided that Landlord
shall not be entitled to double payment of any Base Rent or additional rent).
Furthermore, such acceptance of Base Rent or additional rent shall not be deemed
to constitute Landlord's consent to an assignment of this lease or a subletting
or other occupancy of the demised premises by anyone other than Tenant, nor a
waiver of any of Landlord's rights or Tenant's obligations under this lease.
(E) Landlord's failure to timely bill all or any portion of any amount
payable pursuant to this lease for any period during the Term shall neither
constitute a waiver of Landlord's right to ultimately collect such amount or to
bill Tenant at any subsequent time retroactively for the entire amount so
unbilled, which previously unbilled amount shall be payable within thirty (30)
days after being so billed. Notwithstanding the foregoing, Landlord's failure to
bill Tenant for any amount payable pursuant to this Lease for a period in excess
of two (2) years shall constitute a waiver by Landlord of its right to collect
such amounts, provided Landlord received bills or other proof of the items of
which Tenant is being billed at least two (2) years prior to any such Tenant
billing.
39. Tax Escalation
(A) For purposes hereof:
(1) "Real Estate Taxes" shall mean all the real estate taxes and
assessments imposed by any governmental authority having jurisdiction upon the
Building and land upon which it is located ("Land") or any tax or assessment
hereafter imposed in whole or in part in substitution for such real estate taxes
and/or assessments.
(2) "Base Year Taxes" shall mean the Real Estate Taxes as finally
determined for the Base Tax Year.
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Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
(3) "Subsequent Tax Year" shall mean any tax fiscal year commencing
after the expiration of the Base Tax Year, except that Tenant shall be required
to pay any increase in Real Estate Taxes under this Article 39 commencing as of
July 1, 1995.
(B) If the Real Estate Taxes for any Subsequent Tax Year during the Term
exceed the Base Year Taxes (as initially imposed, if not finally determined
when a payment is due pursuant to Section (C)), Tenant shall pay Landlord
Tenant's Proportionate Share of such excess within fifteen (15) days after
Landlord shall furnish to Tenant a statement setting forth the amount thereby
due and payable by Tenant. If Real Estate Taxes are payable by Landlord to the
applicable taxing authority in installments, then Landlord shall bill Tenant for
Tenant's Proportionate Share of the Real Estate Taxes in corresponding
installments, such that Tenant's payment is due not more than five (5) days
prior to the date when Landlord is obligated to pay the Real Estate Taxes to the
applicable taxing authority. If the actual amount of Real Estate Taxes are not
known to Landlord as of the date of Landlord's statement, then Landlord may
nevertheless bill Tenant for such installment on the basis of a good faith
estimate, in which event Tenant shall pay the amount so estimated within fifteen
(15) days after receipt of such bill, subject to prompt refund by Landlord, or
payment by Tenant, upon a supplemental billing by Landlord once the amount
actually owed by Tenant is determined. Together with its first bill for Real
Estate Taxes for any Subsequent Tax Year, Landlord shall provide Tenant with a
copy of the current New York City tax bill for the Land and Building which was
used in the preparation of the settlement or other reasonable proof thereof.
Together with its first bill for Real Estate Taxes, Landlord shall also provide
Tenant with copies of the New York City tax bills for the Land and Building for
the Base Year Taxes or other reasonable proof of the Base Year.
(C) If the Base Year Taxes ultimately are less than the Real Estate Taxes
initially imposed upon the Land and the Building for the Base Tax Year, Tenant
shall pay Landlord, promptly upon demand, any additional amount thereby payable
pursuant to Section (B) for all applicable Subsequent Tax Years.
(D) If Landlord receives any refund of Real Estate Taxes for any Subsequent
Tax Year for which Tenant has made a payment pursuant hereto, Landlord shall
(after deducting from such refund all reasonable expenses incurred in connection
therewith) pay Tenant, Tenant's Proportionate Share of the net refund. If
Landlord succeeds in reducing any assessed valuation for the Land and the
Building prior to the billing of Real Estate Taxes for any Subsequent Tax Year,
Tenant shall pay Landlord Tenant's Proportionate Share of the reasonable
expenses so incurred by Landlord. Landlord shall bring a certiorari proceeding
for each Subsequent Tax Year in order to attempt to reduce the assessed
valuation of the Land and the Building for such year, unless Landlord, has
reasonable cause not to bring a certiorari proceeding for any Subsequent Year.
(E) If any Subsequent Tax Year is only partially within the Term, all
payments pursuant hereto shall be appropriately prorated, based on the portion
of the Subsequent Tax Year which is within the Term. Except as otherwise
provided herein: (1) Tenant's obligation to make the payments required by
Sections (B),
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
(C) and (D) shall survive the Expiration Date or any sooner termination of this
lease; and (2) Landlord's obligation to make the payments required by Section
(D) shall survive the Expiration Date or any sooner termination of this lease.
(F) Where a "transition assessment" is imposed by the City .of New York for
any tax (fiscal) year, then the phrases "assessed valuation" and "assessments"
shall mean the transition or actual assessment, whichever is lower, for that tax
(fiscal) year.
40. Expense Escalation
(A) For all purposes of this lease "Operating Expenses" shall mean all
expenses incurred by Landlord, on an accrual basis, for the operation, cleaning
and maintenance of the Building and its plazas, sidewalks and curbs
(collectively, "Landlord's Property"), including all expenses incurred as a
result of Landlord's compliance with any of its obligations hereunder, and shall
include the following items (without limitation and without duplication):
(i) salaries, wages, medical, surgical and general welfare benefits
(including group life and medical insurance) and pension payments, payroll
taxes, workmen's compensation, union benefits paid by employer, unemployment
insurance, social security and other similar taxes of or with respect to
employees of Landlord and/or independent contractors engaged in operation and
maintenance;
(ii) payments made to independent contractors for maintenance,
cleaning and/or operation;
(iii) the cost of uniforms, including dry cleaning thereof, for
employees;
(iv) the cost of all gas, steam, heat, ventilation, air conditioning
and water (including sewer rental) for public areas of the Building, together
with any taxes thereon;
(v) the cost of all rent, casualty, war risk (if obtainable),
liability, excess liability, property damage, indemnification, plate glass,
multi-risk and other insurance covering Landlord and/or all or any portion of
Landlord's Property;
(vi) the cost of all supplies (including cleaning supplies), tools,
materials and equipment;
(vii) the cost of all charges to Landlord for electricity consumed for
the public areas of the Building and Building systems and equipment, together
with any taxes thereon;
(viii) repairs or replacements of non-capital items made by Landlord,
at its expense;
(ix) straight line depreciation or amortization (including interest at
the rate of two (2%) percent in excess of the "prime rate" or "base rate" of
Citibank, N .A . at the time such expenditure is made) of any expenditure for a
capital improvement which results in a reduction of Operating Expenses but only
to the extent of such reduction;
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
(x) management fees customarily charged for similar office buildings
in the Grand Central area of midtown Manhattan;
(xi) vault, sales, use and frontage taxes;
(xii) dues and fees for trade and industry associations relating to
Land1ord's Property;
(xiii) Building and home-office (reasonably allocable to the Building
in accordance with generally acceptable accounting principles) administrative
costs for bookkeeping and telephone;
(xiv) attorney's fees and fees paid to other professionals for
services rendered in connection with the maintenance and/or operation of
Landlord's Property;
(xv) any and all expenses incurred by Landlord in connection with
compliance with any law, rule, order, ordinance, regulation or requirement of
any governmental authority having or asserting jurisdiction or any order, rule,
requirement or regulation of any utility company, insurer of Landlord or the
Board of Fire Underwriters (or successor organization); and
(xvi) any and all other expenses incurred by Landlord for operation
and maintenance of Landlord's Property which are customary for similar buildings
in New York City.
(B) For purposes of this Lease, the term "Operating Expenses" shall not
include:
(i) expenses related to leasing space in the Building (including the
cost of tenant improvements, leasing commissions, legal fees and advertising and
promotional expenses);
(ii) fees and disbursements of attorneys, accountants and other
consultants incurred for the collection of tenant accounts, the negotiation of
leases, disputes between Landlord and tenants or occupants of the Building or
disputes with brokers with respect to brokerage commissions;
(iii) the cost of electricity and other utilities and services
furnished directly to the Demised Premises or to other space leased or available
for lease in the Building;
(iv) the cost of repairs or replacements incurred by reason of fire or
other casualty or condemnation;
(v) expenditures for refinancing and for mortgage debt service;
(vi) Real Estate Taxes;
(vii) costs and expenses otherwise includable in Operating Expenses,
to the extent that Landlord is reimbursed from other sources for such costs and
expenses;
(viii) salaries, fringe benefits and bonuses for executives above the
grade of building manager;
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Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
(ix) costs incurred with respect to removal or encapsulation of
asbestos and other hazardous materials;
(x) costs incurred in the transfer or disposition of all or any part
of the Building or any interest herein;
(xi) fees or expenditures paid by Landlord to any affiliate of
Landlord to the extent that such payment exceeds the amount which would have
been payable in the absence of such a relationship;
(xii) basic rent, additional rent and other charges payable by
Landlord under any lease or sublease to or assumed by Landlord;
(xiii) arbitration expenses unrelated to the operation, cleaning and
maintenance of the Building or in connection with leasing space, determining
rentals or resolving disputes with tenants; and
(xiv) costs and expenses incurred in relocating tenants within the
Building.
(C) In determining the amount of the Base Operating Expenses or the
Operating Expenses for any Operational Year, if less than ninety-five (95%)
percent of the rentable area of the Building shall have been occupied by tenants
at any time during any such year, the Base Operating Expenses or the Operating
Expenses for any such Operating Year shall be adjusted to an amount equal to the
like expenses which would normally be expected to be incurred had the occupancy
of the Building been ninety-five (95%) percent throughout the applicable year.
All such adjustments shall be made by Landlord in a reasonable and consistent
manner and a copy of Landlord's calculation shall be provided to Tenant upon
written request.
(D) If Landlord is not furnishing any particular work or service (the cost
of which if performed by Landlord would constitute an Operating Expenses) to a
tenant who has undertaken to perform such work or service in lieu of the
performance thereof by Landlord, the Operational Year Operating Expenses for
each Operational Year during which such situation shall occur shall be increased
by an amount equal to the additional Operating Expense which reasonably would
have been incurred during such period by Landlord if it had at its own expense,
furnished such service or services to such tenant. All such increases shall be
computed by Landlord in a reasonable and consistent manner and a copy of
Landlord's calculation shall be provided to Tenant.
(E) In any Operational Year in which Operational Year Operating Expenses
exceed Base Operating Expenses, Tenant shall pay to Landlord Tenant's
Proportionate Share of such excess.
(F) During or after the first Operational Year, Landlord shall forward
Tenant an itemized statement prepared by Landlord's accountants ("Statement") of
the Base Operating Expenses. Thereafter, during each succeeding Operational Year
during the Term, Landlord shall forward to Tenant a Statement of the Operational
Year Operating Expenses for the prior Operational Year and
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
a computation of the amount payable by Tenant pursuant to this Article for such
Operational Year.
(G) With each installment of Base Rent payable during the Operational Year
1996, Tenant shall pay Landlord the monthly sum of $750.00 on account of the
amount due pursuant to this Article for such Operational Year.
With each installment of Base Rent payable during the Term during and
after the Operational Year 1997, Tenant shall pay to Landlord on account of the
amount payable pursuant to this Article for the then Operational Year:
(a) until Landlord forwards the applicable Statement for the preceding
Operational Year, the amount of the monthly payment due during December of such
Operational Year; and
(b) after Landlord forwards the applicable Statement for the preceding
Operational Year, one-twelfth (1/12th) of 105% of the amount payable pursuant to
this Article for such preceding Operational Year.
(H) Once Landlord forwards the applicable Statement for the preceding
Operational Year, Landlord and/or Tenant, as the case may be, promptly shall
make appropriate payment to the other (without interest) of any amount overpaid
by Tenant or owing to Landlord for such Operational Year based on the amount due
pursuant to such Statement and amounts theretofore paid by Tenant for such
preceding Operational Year.
(I) The parties' obligation to make any payment pursuant to this Article
shall survive the Expiration Date or any sooner termination of this lease and
shall be appropriately prorated for any Operational year which is only partially
within the Term.
(J) Each Statement given by Landlord pursuant to Section (E) shall be
binding upon Tenant unless, within 180 days after its receipt of such Statement,
Tenant notifies Landlord of its disagreement therewith, specifying the portion
thereof with which Tenant disagrees. Pending resolution of such dispute, Tenant
shall, without prejudice to its rights, pay all amounts determined by Landlord
to be due, subject to prompt refund by Landlord (without interest) upon any
contrary determination.
(K) Tenant shall have the right, during the regular business hours of
Landlord, on not less than five (5) days' notice, to examine the Landlord's
books and records with respect to any Operating Expenses designated in
accordance with the terms hereof, provided such examination is commenced within
180 days of such notice and completed within 240 days of rendition of Landlord's
statements.
41. Name of Building
At such time as this Lease is executed by Landlord and delivered to Tenant
and continuing so long as Tenant occupies at least 18,500 square feet in the
Building, the Building shall be known as "The London Fog Building" and Tenant
shall be permitted to install, at Tenant's expense, a non-illuminating
identification
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plaque at the Building entrance containing Tenant's name, subject to Landlord's
prior written approval as to type, nature of appearance and location, which
approval shall not be unreasonably withheld or delayed ("Tenant's Name Period").
At all other times during the Term other than Tenant's Name Period, Landlord
shall have the sole right to designate and change the name of the Building. In
the event Landlord grants any such consent, said installation and the
maintenance thereof throughout the Term of this Lease, shall be borne at
Tenant's sole cost and expense as otherwise set forth in the instant Lease
herein. Approval or disapproval by Landlord shall be given within ten (10) days
after written request by Tenant.
It shall be Tenant's obligation to comply, at Tenant's sole cost and
expense, with all the laws, orders, rules and regulations of governmental
authorities having jurisdiction thereof in connection with the installation and
maintenance of such plaque.
In the event Landlord or Landlord's representative shall deem it necessary
to remove such plaque in order to paint or to make any repairs, alterations or
improvements in or upon the Building or any part thereof, Landlord shall have
the right to do so, provided same be removed and promptly reinstalled when the
painting, repairs, alterations or improvements have been completed, at
Landlord's expense.
Tenant shall, at all times, keep the plaque in a neat and orderly condition
and in such a manner as Landlord may reasonably approve.
42. Electricity
(A) As an incident to this lease and as part of the Base Rent payable
hereunder, Landlord shall furnish to Tenant, through transmission facilities
installed by it in the Building, alternating electric current to be used by the
Tenant in, or in connection with, the lighting fixtures and electrical
receptacles installed in the demised premises. Landlord shall not be liable in
any way to Tenant for any failure or defect in supply or character of electric
current furnished to the demised premises, except where such failure or defect
is attributable to the act or omission of Landlord. Landlord shall furnish and
install all lighting tubes, ballasts, lamps and bulbs used in the demised
premises and Tenant shall pay, promptly upon demand, Landlord's reasonable
charges therefor. Tenant shall use said electric current for lighting and,
insofar as applicable laws and insurance regulations permit, for operation of
such equipment as is normally used in connection with the operation of a
business office.
(B) At all times during the term of this Lease, Landlord shall make
available eleven (11) watts (connected load) of electrical energy per rentable
square foot of the Demised Premises or the applicable Expansion Space, as the
case may be to the Demised Premises (including any Expansion Space) to
accommodate Tenant's Initial Installation. Tenant's use of electric current in
the demised premises shall not at any time exceed the capacity of any of the
electrical conductors and equipment in or otherwise serving the demised
premises. Tenant shall not make or perform, or
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permit the making or performing of, any alterations to wiring installations or
other electrical facilities in or serving the demised premises or any
substantial additions to the business machines, office equipment or other
appliances which it initially uses in the demised premises which utilize
electrical energy without the prior written consent of Landlord in each
instance, which consent shall not be unreasonably withheld or delayed. Should
Landlord grant any such consent, all additional risers or other equipment
required therefor, if any, shall be installed by Landlord and the reasonable
cost thereof shall be paid by Tenant promptly upon demand. As a condition to
granting any such consent, Landlord may require that Tenant agree to an increase
in the Electric Factor (and the Base Rent) payable hereunder by an amount which
will reflect the additional electricity to be used by Tenant for its additional
business machines, office equipment or other appliances. If Landlord and Tenant
cannot agree thereon, such amount shall be determined by a reputable independent
electrical engineer or consultant, to be selected and paid by Landlord . The
findings of the consultant or engineer in all such instances shall be conclusive
upon the parties. When the amount of such increase is so determined, the parties
shall execute and exchange an agreement supplementary hereto to reflect the
increase in the amount of the Electric Factor (and the Base Rent) payable
hereunder, effective from the date such additional electricity is used by
Tenant, but such increase shall be effective from such date even if such
supplementary agreement is not executed.
(C) Landlord or Tenant may, at any time, retain a reputable independent
electrical engineer or consultant, mutually selected and paid by Landlord and
Tenant to make a survey of the electrical wiring and power load to determine
what the value would be to Tenant if it were purchasing electricity directly
from the utility company at Landlord's rate schedule. If the Electric Factor
(and the Base Rent) then payable hereunder does not fairly reflect such value as
determined by the consultant or engineer, the Electric Factor (and the Base
Rent) shall be increased or decreased (but not below $2.50 per rentable square
foot) by a sufficient amount such that the same shall fairly reflect such value.
The findings of the consultant or engineer in all such instances shall be
conclusive upon the parties. When the amount of such value is so determined, the
parties shall execute and exchange an agreement supplementary hereto to reflect
any appropriate increase or decrease in the amount of the Electric Factor (and
the Base Rent) payable hereunder, effective from the date of such survey.
(D) If any tax is imposed upon Landlord in connection with the furnishing
of electric current to Tenant by any Federal, State or Local Government
subdivision or authority, Tenant shall pay Landlord an amount equal to such tax,
where permitted by law.
(E) If, subsequent to the Base Electric Date, the public utility rate
schedule or any portion of the charge for the supply of electric current to the
Building is increased, or decreased or such rate schedule is superseded by
another rate schedule, the Electric Factor (and the Base Rent) shall be
increased or decreased by the percentage of increase or decrease in Landlord's
cost for purchasing electricity for the Building provided, however, that in no
event shall the Electric Factor be reduced to less than the amount set forth in
Article 37, as such amount may be increased from time to time as a result of the
addition of space to the
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premises initially demised by this lease. If Landlord and Tenant cannot agree
thereon, the amount of such adjustment shall be determined by a reputable
independent electrical engineer or consultant, to be selected and paid by
Landlord . The findings of the consultant or engineer, in all such instances,
shall be conclusive upon the parties. Whenever the amount of any such adjustment
is so determined, the parties shall execute and exchange an agreement
supplementary hereto to reflect such adjustment in the amount of the Electric
Factor (and the Base Rent) payable hereunder, effective from the effective date
of such increase, decrease or change in such rate schedule or charge, but such
adjustment shall be effective from such date whether or not a supplementary
agreement is executed.
(F) Anything in this Article to the contrary notwithstanding, if Tenant
disputes any determination made by Landlord's electrical consultant or engineer
("Landlord's Electrical Consultant"), Tenant may challenge such determination
only (but not any prior determination of Landlord's Consultant), within one
hundred twenty (120) days after receipt thereof (time being of the essence), by
submitting a different computation of the percentage of increase or decrease, if
made pursuant to subsection (B) or (E), or by submitting a contrary survey, if
made pursuant to subsection (C), made by Tenant's reputable independent
electrical engineer or consultant ("Tenant's Electrical Consultant"), which
shall be paid by Tenant. If Landlord's Electrical Consultant and Tenant's
Electrical Consultant agree on a determination, such agreement shall be
conclusive upon the parties. If Landlord's Electrical Consultant and Tenant's
Electrical Consultant cannot agree, they shall select a third reputable
independent electrical engineer or consultant to be paid equally by both
parties, to make a binding determination with respect to such dispute. If
Landlord's Electrical Consultant and Tenant's Electrical Consultant cannot agree
upon a third electrical engineer or consultant, within thirty (30) days, upon
the application of either party the same shall be selected by the Presiding
Judge of the Appellate Division of the Supreme Court of the State of New York,
First Department. No delay in the resolution of any such dispute shall affect
the effective date of any such determination.
(G) In no event shall the Base Rent be less than the Net Rent.
(H) Landlord reserves the right to discontinue furnishing electric current
to Tenant in the demised premises at any time upon not less than thirty (30)
days' written notice to Tenant (or such longer period as Tenant reasonably
requires to arrange for direct electrical service from the public utility
company furnishing electric current to the Building), provided that Landlord
also discontinues furnishing electric current to substantially all other
similarly situated tenants in the Building. In addition, Tenant shall have the
right, at any time upon not less than thirty (30) days prior written notice to
Landlord, to arrange to obtain electric current directly from the public utility
company furnishing electric current to the Building. If either party exercises
such right of termination, this lease shall continue in full force and effect
and shall not be affected thereby, except that, from and after the effective
date of such termination, Landlord shall not be obligated to furnish electric
current to Tenant and the Base Rent payable hereunder shall be reduced to and
become the Net Rent. If
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such electric service is so discontinued, Tenant shall arrange to obtain
electric current directly from the public utility company furnishing electric
current to the Building. Such electric current may be furnished to Tenant by
means of the then existing Building system feeders, risers and wiring to the
extent that the same are available, suitable and safe for such purposes. All
meters and additional panel boards, feeders, risers, wiring and other conductors
and equipment which may be required to obtain electric current directly from
such public utility company shall be installed and maintained by Tenant, at its
expense.
(I) Tenant shall pay to Landlord a sum equal to one-twelfth (1/12th) of the
Electric Factor (the "Interim Electric Charge") on or after the later to occur
of July 1, 1994 or the date Tenant commences construction in the Demised
Premises ("Electrical Commencement Date") and on the first day of each calendar
month thereafter until the Rent Commencement Date, as additional rent
representing the charge for electricity consumed within the demised premises for
such period. If the Electrical Commencement Date occurs on a date other than the
first day of a calendar month, the Interim Electric Charge for such month shall
be an amount equal to such portion of the Interim Electric Charge as the number
of days from and including the Commencement Date bears to the total number of
days in such calendar month.
43. Restrictions on Use
(A) Anything in Article 2 to the contrary notwithstanding, Tenant shall not
use or permit all or any part of the demised premises to be used for the: (1)
storage for purpose of sale of any alcoholic beverage in the demised premises;
(2) storage for retail sale of any product or material in the demised premises;
(3) conduct of a manufacturing, printing or electronic data processing business,
except that Tenant may operate business office reproducing equipment, electronic
data processing equipment and other business machines for Tenant's own
requirements (but shall not permit the use of any such equipment by or for the
benefit of any party other than Tenant); (4) rendition of any health or related
services, conduct of a school or conduct of any business which results in the
presence of the general public in the demised premises; (5) conduct of the
business of an employment agency or executive search firm; (6) conduct of any
public auction, gathering, meeting or exhibition; (7) conduct of a stock
brokerage office or business; and (8) occupancy of a foreign, United States,
state, municipal or other governmental or quasi-governmental body, agency or
department or any authority or other entity which is affiliated therewith or
controlled thereby.
(B) Tenant shall not use or permit all or any part of the demised premises
to be used so as to impair the Building's character or dignity or impose any
unreasonable additional burden upon Landlord in its operation.
(C) Tenant shall not obtain or accept for use in the demised premises ice,
drinking water, food, beverage, towel, barbering, boot blacking, floor
polishing, lighting maintenance, cleaning or other similar services from any
party not theretofore approved by the Landlord (which party's charges shall not
be
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excessive). Such services shall be furnished only at such hours, in such places
within the demised premises and .pursuant to such regulations a Landlord
reasonably prescribes. Nothing contained in the foregoing shall prevent Tenant
or its employees from bringing into the Building for consumption therein food or
beverages purchased outside the Building.
44. Assignment, Etc.
Supplementing Article 11:
(A) Tenant shall neither: (i) publicly advertise to assign, sublet or
permit the occupancy of all or any part of the demised premises at a rental rate
less than the rental rate at which Landlord is then offering to lease comparable
space in the Building (provided that such rental may be indicated in flyers
circulated to the brokerage community); or (ii) assign this lease to or sublet
to or permit the occupancy of all or any part of the demised premises by any
other party which is then a tenant, subtenant, licensee or occupant of any space
in the Building or which has negotiated with Landlord for space in the Building
within the two (2) month period preceding the date of Landlord's receipt of
Tenant's Notice pursuant to Section (B).
(B) If Tenant wishes to assign this lease (a transfer of more than a fifty
(50%) percent beneficial interest in Tenant, whether such transfer occurs at one
time, or in a series of related transactions, and whether of stock, partnership
interest or otherwise, by any party in interest being deemed an assignment of
this lease, except where such transfers occur through trades on a recognized
stock exchange or on the "over-the-counter" market), sublet all or any part of
the demised premises or permit the demised premises to be occupied by any other
party, Tenant shall first notify Landlord ("Tenant's Notice"), specifying the
name of the proposed assignee, sublessee or occupant, the name of and character
of its business, the terms of the proposed assignment, sublease or occupancy
(including, without limitation, the commencement and expiration dates thereof)
and current information as to the financial responsibility and standing of the
proposed assignee, sublease or occupant and shall provide Landlord with such
other information as it reasonably requests. If only a portion of the demised
premises (not constituting an entire floor of the Building) is to be so sublet
or occupied, Tenant's Notice shall be accompanied by a reasonably accurate floor
plan, indicating such portion. The portion of the demised premises to which such
proposed assignment, sublease or occupancy is to be applicable is hereinafter
referred to as the "Space"
(C) In the event Tenant desires to assign its lease or sublet all of the
demised premises for the entire balance of the term of the Lease, Landlord may,
within twenty (20) days after its receipt of Tenant's Notice, by notice to
Tenant ("Landlord's Notice"), require Tenant to (i) sublease the demised
premises to Landlord or its nominee, on the terms set forth in Section (D), or
(ii) terminate this lease as of the proposed commencement date for such
assignment, sublease or occupancy. If Tenant desires to sublet all of the
demised premises for less than the entire balance of the term of the Lease or if
Tenant desires to sublet a portion of the demised premises or if Landlord fails
to exercise the
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options set forth in this Section (C), Landlord shall not unreasonably withhold
its consent to the proposed assignment, sublease or occupancy, but such consent
shall be deemed of no effect if such assignment, sublease or occupancy is not
consummated substantially upon the terms set forth in Tenant's Notice and within
sixty (60) days after such consent is given.
(D) If Landlord requires Tenant to execute a sublease ("Sublease") pursuant
to clause (C) (i), the Sublease shall be upon the terms set forth in Tenant's
Notice, except for such terms thereof as are inapplicable and except that: (i)
the subtenant under the Sublease shall have the unrestricted right to assign the
Sublease or any interest therein, to further sublet all or any part of the
demised premises and/or to make any alterations, decorations, additions or
improvements in and to the demised premises (all or any part of which may be
removed, at Landlord's option, at any time, provided Landlord repairs all damage
caused by such removal); (ii) the Sublease shall provide that the termination of
this lease by merger is not thereby intended; and (iii) at the expiration of the
Sublease, the demised premises shall be returned to Tenant as then existing (and
Tenant, in turn, shall have the right to return the demised premises to Landlord
as then existing). Landlord shall hold Tenant harmless from any claims, etc.
relating to the demised premises during the term of the sublease; also, Landlord
shall include Tenant as an additional insured under its insurance policies
covering the demised premises during the term of the sublease.
(E) Anything herein to the contrary notwithstanding, Tenant may not assign
this Lease or sublet all or any part of the demised premises prior to the
expiration of the first year of the Term.
(F) No assignment of this lease shall be effective unless and until Tenant
delivers to Landlord duplicate originals of the instrument of assignment
(wherein the assignee assumes the performance of Tenant's obligations under this
lease) and any accompanying documents.
(G) In the event of any such assignment, Landlord and the assignee may
modify this lease in any manner, without notice to Tenant or Tenant's prior
consent, without thereby terminating Tenant's liability for the performance of
its obligations under this lease, except that any such modification which, in
any way, increases any of such obligations shall not, to the extent of such
increase only, be binding upon Tenant.
(H) No sublease of all or any part of the demised premises (except a
Sublease) shall be effective unless and until Tenant delivers to Landlord
duplicate originals of the instrument of sublease (containing the provision
required by Section (I)) and any accompanying documents. Any such sublease shall
be subject and subordinate to this lease.
(I) Any such sublease shall contain substantially the following provisions:
(i) "In the event of a default under any underlying lease of all or
any portion of the premises demised hereby which results in the termination of
such lease, the
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subtenant hereunder shall, at the option of the lessor under any such lease
("Underlying Lessor"), attorn to and recognize the Underlying Lessor as landlord
hereunder and shall, promptly upon the Underlying Lessor's request, execute and
deliver all instruments necessary or appropriate to confirm such attornment and
recognition. Notwithstanding such attornment and recognition, the Underlying
Lessor shall not (i) be liable for any previous act or omission of the landlord
under this sublease, (ii) be subject to any offset, not expressly provided for
in this sublease, which shall have accrued to the subtenant hereunder against
said landlord, or (iii) be bound by any modification of this sublease or by any
prepayment of more than one month's rent, unless such modification or prepayment
shall have been previously approved in writing by the Underlying Lessor. The
subtenant hereunder hereby waives all rights under any present or future law to
elect, by reason of the termination of such underlying lease, to terminate this
sublease or surrender possession of the premises demised hereby."
(ii) "This sublease may not be assigned or the premises demised
hereunder further sublet, in whole or in part, without the prior written consent
of the Underlying Lessor."
(J) Landlord's consent to any assignment or sublease shall neither release
Tenant from its liability for the performance of Tenant's obligations hereunder
during the balance of the Term nor constitute its consent to any (i) further
assignment of this lease or of any permitted sublease or (ii)further sublease of
all or any portion of the premises demised hereunder or under any permitted
sublease, but such consent shall not be unreasonably delayed or withheld
provided that the proposed further assignment or further sublease satisfies all
of the requirements therefor set forth in this Lease. If a sublease to which
Landlord has consented is assigned or all or any portion of the premises demised
thereunder is sublet without the consent of Landlord in each instance obtained,
Tenant shall immediately terminate such sublease, or arrange for the termination
thereof, and proceed expeditiously to have the occupant thereunder dispossessed.
(K) Tenant shall pay to Landlord, promptly upon demand therefor, all
reasonable out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) incurred by Landlord in connection
with any assignment of this lease or sublease of all or any part of the demised
premises.
(L) If Landlord shall give its consent to any assignment of this lease or
to any sublease or if Tenant shall otherwise enter into any assignment or
sublease permitted hereunder, Tenant shall, in consideration therefor, pay to
Landlord, as and when payable to Tenant:
(i) in the case of an assignment, fifty (50%) percent of all sums and
other considerations paid to Tenant by the assignee for or by reason of such
assignment (including, but not limited to, sums paid for the sale of Tenant's
leasehold improvements, after deduction of all reasonable and customary expenses
incurred by Tenant in connection with the assignment, including, without
limitation, advertising expenses, brokerage commissions and legal fees and
disbursements); and
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(ii) in the case of a sublease, fifty (50%) percent of the amount, if
any, by which (1) any rents, additional charges or other consideration payable
under the sublease to Tenant by the subtenant (including, but not limited to,
sums paid for the sale or rental of Tenant's leasehold improvements, after
deduction of (a) all reasonable and customary expenses incurred by Tenant in
connection with the sublease, including, without limitation, advertising
expenses, brokerage commissions and legal fees and disbursements and (b) the
cost of any rent concessions and construction allowances granted to the
subtenant) exceeds (2) the Base Rent and additional rent accruing during the
term of the sublease in respect of the Space (at the rate per square foot
payable by Tenant hereunder) pursuant to the terms of this lease.
(M) Assignment to an Affiliate with Assumption
Notwithstanding the provisions contained in Articles 11 and this Article 44
herein, and provided Tenant is not in default under the terms and provisions of
the Lease, Tenant shall have the right to assign this Lease or sublet the
Demised Premises to any corporation into or with which Tenant may be merged or
consolidated or to any corporation which shall be an affiliate, subsidiary,
parent or successor of Tenant or of a corporation into or with which Tenant may
be merged or consolidated or to a partnership, the majority interest of which
shall be owned by stockholders of Tenant or of any such corporation. For the
purpose of this Article "subsidiary" or "affiliate" or a "successor" of Tenant
shall mean the following:
(a) An "affiliate" shall mean any corporation which, directly or
indirectly, controls or is controlled by or is under common control with Tenant.
For this purpose, "control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such corporation, whether through the ownership or voting securities or by
contract or otherwise;
(b) A "subsidiary" shall mean any corporation not less than 50% of whose
outstanding stock shall, at the time, be owned directly or indirectly by Tenant;
(c) A "successor" of Tenant shall mean:
(i) a corporation in which or with which Tenant, its corporate
successors or assigns, is merged or consolidated, in accordance with applicable
statutory provisions for merger or consolidation of corporations, provided that
by operation of law or by effective provisions contained in the instruments of
merger or consolidation, the liabilities of the corporations participating in
such merger or consolidation are assumed by the corporation surviving such
merger or created by such consolidation, or
(ii) a corporation acquiring this Lease and the term hereby demised
and a substantial portion of the property and assets of Tenant, its corporate
successors or assigns,or
(iii) any corporate successor to a successor corporation becoming such
by either of the methods described in (i) or (ii), provided that on the
completion of such merger, consolidation, acquisition or assumption, the
successor shall have a net
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worth no less than Tenant's net worth immediately prior to such merger,
consolidation, acquisition or assumption.
Acquisition by Tenant, its corporate successors or assigns, of a substantial
portion of the assets, together with the assumption of all or substantially all
the obligations and liabilities of any corporation, shall be deemed a merger of
such corporation into Tenant for purpose of this Article.
45. Base Rent and Possession
(A) The basic annual rental (Base Rent) due and payable under this Lease as
provided on page 1 of the sleeve herein shall be as follows:
(a) for the period commencing October 1, 1994 through and including
September 30, 1997 at an annual rental rate of Six Hundred Eighty-four
Thousand and 00/100 ($684,000.00) Dollars;
(b) for the period commencing October 1, 1997 through and including
September 30, 2001 at an annual rental rate of Seven Hundred Fifty-six
Thousand and 00/100 ($756,000.00) Dollars; and
(c) for the period commencing October 1, 2001 through and including
September 30, 2004 at an annual rental rate of Eight Hundred Twenty-eight
Thousand and 00/100 ($828,000.00) Dollars.
(B) For the period commencing October 1, 2004 through and including
September 30, 2009, the Base Rent shall be at the annual rental rate equivalent
to ninety (90%) percent of the annual fair market rentable value, which fair
market rental value shall be agreed upon by the parties by on or before April 1,
2004 or failure of the parties to so agree, then such fair market value shall be
determined by arbitration as hereinafter set forth.
(C) For the purposes of this Article, the annual fair market rental value
of the Demised Premises shall be deemed to be the rental which a third party who
wished to lease the Demised Premises for its own use and occupancy (highest and
best use as Executive Offices and Showrooms) would pay the Owner of the Building
of which the Demised Premises form a part, and which the Owner would accept,
taking into consideration the following factors among others: (a) that Tenant
will not receive any "free-rent", construction allowance or other rent
concessions; (b) that Tenant will be required to pay, during the term of the
Lease, its proportionate share of Real Estate Taxes and other escalations on the
basis of the base years set forth in Paragraph (E) below and as otherwise set
forth in this Lease and to perform the other obligations of Tenant under this
Lease; (c) that a reduced brokerage commission will be payable in connection
with the Lease transaction; (d) that Tenant shall not incur any moving or
equipment relocation expenses by reason of its leasing the Demised Premises
during the extended period involved herein; (e) that Landlord will be able to
rent the demised premises without incurring the usual expenses of locating a new
tenant and without any "down time" (i.e., time between the expiration of the old
lease
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and the start of the new lease); and (f) in no event, however, shall the annual
Base Rent and additional rental due and payable under this Lease during the
period October 1, 2004 through September 30, 2009, be less than the annual Base
Rent and additional rent due and payable hereunder for the annual period ending
on September 30, 2004, regardless of whether the annual fair market rental is
determined by agreement between the parties or by arbitration. .
(D) In the event that the parties are unable to agree on the fair market
rental value by no later than April 1, 2004, either Landlord or Tenant may
initiate the arbitration procedure specified in Article 61 below, by giving
written notice to that effect and designating its arbitrator. Landlord and
Tenant agree to cooperate so that any final determination by arbitration can be
made expeditiously. When the fair market rental value of the Demised Premises is
to be determined by agreement or arbitration in the circumstances described in
this Article, such fair market rental value of the Demised Premises shall be as
of October 1, 2004. In the event that a final determination of the fair market
rental value has not been made or agreed upon on or before October 1, 2004,
Tenant shall continue to pay its Base Rent and additional rent in the amount
then in effect on September 30, 2004. Thereafter, once the fair market rental
value is determined, Tenant shall pay to Landlord, within fifteen (15) days of
its receipt of a statement therefor from Landlord, all amounts for the period
from October 1, 2004 to the date of determination which would have been paid by
Tenant, as Base Rent and additional rent, in excess of the Base Rent and
additional rent actually paid by Tenant, if such fair market rental value, as
finally determined, had been agreed upon or determined as of October 1, 2004.
(E) Once the fair market rental value is determined, either by agreement
between the parties or by arbitration as set forth above, Tenant shall
thereafter continue to pay the escalations as set forth in Articles 39 and 40
and elsewhere in the instant Lease herein, except that the Taxes for the Base
Year referred to in Article 39(A) (3) shall mean the Real Estate Taxes, as
finally determined, for the fiscal years beginning July 1, 2004 and ending June
30, 2005 and July 1, 2005 through June 30, 2006, and the Base Operating Expenses
referred to in Article 37(C) shall mean the Operating Expenses incurred for the
calendar year 2005.
(F) Notwithstanding the provisions of subparagraph (A) (a) above, Tenant
shall be permitted to occupy the Demised Premises at such time as this Lease is
executed and exchanged between Landlord and Tenant. At such time as Tenant
occupies the Demised Premises for any reason whatsoever, Tenant shall otherwise
comply with all the other terms and provisions of this Lease, except as
otherwise set forth in this Articles 45 and 64 and elsewhere in this Lease,
provided however, that Tenant's obligation to commence paying monthly Base Rent
shall not commence until the Rent Commencement Date.
46. Broker
Landlord and Tenant each represent that it has dealt with no broker in
connection with the negotiations for the execution of
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this Lease, except JULIEN J. STUDLEY, INC. and JACK RESNICK & SONS, INC.
Landlord and Tenant each represent that it has dealt only with the
aforementioned brokers in connection with this Lease and Landlord shall pay the
Brokers' commission therefor pursuant to separate agreement. Each party shall
indemnify the other party against any liability and expense (including
reasonable attorney's fees) for any other claims for brokerage commission or
finder's fee based on alleged actions of such party or its agents or
representatives. Landlord's and Tenant's liability hereunder shall survive any
expiration or termination of this Lease.
47. Building Directory
(A) Landlord shall, upon Tenant's request, list on the Building's directory
("Directory") the names of the Tenant, any assignee or subtenant or any other
party occupying any part of the demised premises pursuant hereto and their
officers or employees, provided the number of Directory lines so provided by
Landlord does not exceed Tenant's Proportionate Share of the Directory's
capacity.
(B) The listing of any party's name other than Tenant's shall neither grant
such party any right or interest in this lease and/or the demised premises nor
constitute Landlord's consent to any assignment or sublease to or occupancy by
such party. Such listing may be terminated by Landlord at any time, without
prior notice. The initial listing(s) in the Directory shall be provided by
Landlord without charge to Tenant. Thereafter, Tenant shall pay Landlord's
standard fee (which shall be reasonable) for any work performed in connection
with any additions, deletions or changes to the Directory.
48. Exculpatory Clause
(A) Anything herein to the contrary notwithstanding, the liability of
Landlord and the partners of Landlord for negligence, failure to perform lease
obligations or otherwise under or in connection with this lease shall be limited
to their respective interests in the Land and Building. Tenant shall neither
seek to enforce nor enforce any judgment or other remedy against any other asset
of Landlord, any partner of Landlord or any party that holds any interest in
Landlord.
(B) In any claim made by Tenant against Landlord alleging that Landlord has
acted unreasonably where Landlord had an obligation to act reasonably, Tenant's
sole and exclusive recourse against landlord shall be an action seeking specific
performance of Landlord's obligations under this lease.
49. Submission to Jurisdiction, Etc.
(A) This lease shall be deemed to have been made in New York County, New
York, and shall be construed in accordance with the laws of the State of New
York. All actions or proceedings relating, directly or indirectly, to this lease
shall be litigated
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only in courts located within the County of New York. Landlord, Tenant, any
guarantor of the performance of Tenant's obligations hereunder ("Guarantor") and
their successors and assigns hereby subject themselves to the jurisdiction of
any state or federal court located within such county, waive the personal
service of any process upon them in any action or proceeding therein and consent
that such process be served by certified or registered mail, return receipt
requested, directed to the Landlord or Tenant and/or any successor at its
address hereinabove set forth, to Guarantor and any successor at the address set
forth in the instrument of guaranty and to any assignee at the address set forth
in the instrument of assignment. Such service shall be deemed made two days
after such process is so mailed.
(B) Whenever any default by Tenant beyond any applicable notice and cure
period causes Landlord to incur attorneys' fees and/or any other costs or
expenses, Tenant agrees that it shall pay and/or reimburse Landlord for such
reasonable fees, costs or expenses within ten (10) days after being billed
therefor.
(C) If any monies owing by Tenant under this lease are paid more than
fifteen (15) days after the date such monies are payable pursuant to the
provisions of this lease, Tenant shall pay Landlord interest thereon, at nine
(9%) percent per annum, for the period from the date such monies were payable to
the date such monies are paid.
(D) The submission of this lease to Tenant shall not constitute an offer by
Landlord to execute and exchange a lease with Tenant and is made subject to
Landlord's acceptance, execution and delivery thereof.
50. Modifications Requested by Mortgagee
(A) If any prospective mortgagee of the Land, Building or any leasehold
interest therein requires, as a condition precedent to issuing its loan, the
modification of this lease in such manner as does not lessen Tenant's rights or
increase its obligations hereunder except to a de minimis extent, Tenant shall
not unreasonably delay or withhold its consent to such modification and shall
execute and deliver such confirming documents therefor as such mortgagee
requires.
(B) In the event of the enforcement by Mortgagee of any of its remedies
provided for by law or under the Mortgage, Tenant agrees that, on the request of
Mortgagee or any person succeeding to the interest of Landlord as a result of
such enforcement, to automatically become the tenant of any such successor in
interest without any change in the terms or other provisions of this lease;
provided, however, that any such successor in interest shall not be (i) bound by
any payment of rent or additional rent for more than one month in advance; (ii)
bound by any amendment or modification of this lease entered into subsequent to
such party becoming a Mortgagee or successor in interest, made without the
consent of Mortgagee or such successor in interest; (iii) liable for any act or
omission of any prior landlord; or (iv) subject to any offset or defenses which
Tenant may have against any prior landlord. Upon the request by any such
successor in interest, Tenant agrees to
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execute and deliver an instrument or instruments confirming such attornment.
51. "As Is"
Supplementing Article 21 the demised premises shall be leased to Tenant in
their "as is" condition on the date hereof, reasonable wear and tear excepted,
and Landlord shall not be required to perform any work to prepare the demised
premises for Tenant's occupancy other than as set forth in Article 65 below. The
taking of possession of the demised premises by Tenant shall be conclusive
evidence as against Tenant that, at the time such possession was so taken, the
demised premises were in good and satisfactory condition except (a) as notified
by Tenant to Landlord within thirty (30) days of its taking of possession of the
demised premises or (b) latent structural defects or defects which cannot then
be determined due to the season of the year.
52. Insurance
During the Term Tenant shall pay for and keep in force general liability
policies in standard form protecting against any and all liability occasioned by
accident or occurrence, subject to customary exclusions, such policies to be
written by recognized and well-rated insurance companies authorized to transact
business in the State of New York. The minimum limits of liability shall be a
combined single limit with respect to each occurrence in an amount of not less
than $5,000,000 for injury (or death) and damage to property. If at any time
during the Term it appears that public liability or property damage limits in
the City of New York for premises similarly situated, due regard being given to
the use and occupancy thereof, are higher than the foregoing limits, then, at
the written request of Landlord, Tenant shall increase the foregoing limits
accordingly. Landlord shall be named as an additional insured in the aforesaid
insurance policies and the policies shall provide that Landlord shall be
afforded thirty days prior notice of cancellation of said insurance. Tenant
shall deliver certificates of insurance evidencing such policies. All premiums
and charges for the aforesaid insurance shall be paid by Tenant and if Tenant
shall fail to make such payment when due, Landlord may make it and the amount
thereof shall be repaid to Landlord by Tenant on demand and the amount thereof
may, at the option of Landlord, be added to and become a part of the additional
rent payable hereunder. Tenant shall not violate or permit to be violated any
condition of any of said policies and Tenant shall perform and satisfy the
requirements of the companies writing such policies.
53. Bankruptcy
Without limiting any of the provisions of Articles 16, 17 or 18 hereof, if
pursuant to the Bankruptcy Code, as the same may be amended, Tenant is permitted
to assign this lease in disregard of the obligations contained in Articles 11
and 44 hereof, Tenant agrees that adequate assurance of future performance by
the assignee permitted under such Code shall mean the deposit of cash security
with Landlord in an amount equal to the sum of one year's Base Rent then
reserved hereunder, plus an amount equal to all
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additional rent payable under this lease for the calendar year preceding the
year in which such assignment is intended to become effective, which deposit
shall be held by Landlord, without interest, for the balance of the Term as
security for the full and faithful performance of all of the obligations under
this lease on the part of Tenant yet to be performed. If Tenant receives or is
to receive any valuable consideration for such an assignment of this lease, such
consideration, after deducting therefrom (A) the brokerage commissions, if any,
and other expenses reasonably incurred by Tenant for such assignment and (B) any
portion of such consideration reasonably designated by the assignee as paid for
the purchase of Tenant's property in the demised premises, shall be and become
the sole and exclusive property of Landlord and shall be paid over to Landlord
directly by such assignee. In addition, adequate assurance shall mean that any
such assignee of this lease shall have a net worth, exclusive of good will,
equal to at least fifteen (15) times the aggregate of the Base Rent reserved
hereunder, plus all additional rent for the preceding calendar year as
aforesaid.
54. Local Law 5
Supplementing Article 6,
(A) All work performed or installations made by Tenant (or by Landlord at
Tenant's request and expense) in and to the demised premises shall be done in a
fashion such that the demised premises and the Building shall be in compliance
with the requirements of Local Law 5 of 1973 of The City of New York, as then in
effect ("Local Law 5"). The foregoing shall include, without limitation, (i)
compliance with the compartmentalization requirements of Local Law 5, (ii)
relocation of existing fire detection devices, alarm signals and/or
communication devices necessitated by the alteration of the demised premises,
and (iii) installation of such additional fire control or detection devices as
may be required by applicable governmental or quasi-governmental rules,
regulations or requirements (including, without limitation, any requirements of
the New York Board of Fire Underwriters) as a result of Tenant's manner of use
of the demised premises. In addition, Tenant shall cause the demised premises to
be connected to the Building Class "E" system and arrange to have the demised
premises and Tenant added to the "Class E" computer.
(B) Landlord shall not be responsible for any damage to Tenant's fire
control or detection devices (except for damage caused by Landlord) nor shall
Landlord have any responsibility for the maintenance or replacement thereof.
Tenant shall indemnify Landlord from and against all loss, damage, cost,
liability or expense (including, without limitation, reasonable attorneys' fees
and disbursements, but not including special or consequential damages) suffered
or incurred by Landlord by reason of the installation and/or operation of any
such devices.
(C) All work and installations required to be undertaken by Tenant pursuant
to this Article shall be performed at Tenant's sole cost and expense and in
accordance with plans and specifications and by contractors previously approved
by Landlord, which approval shall not be unreasonably withheld or delayed.
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(D) The fact that Landlord shall have heretofore consented to any
installations or alterations made by Tenant in the demised premises shall not
relieve Tenant of its obligations pursuant to this Article with respect to such
installations or alterations.
55. Tenant's Alterations
(A) Tenant shall not make or perform, or permit the making or performance
of, any alterations, installations, improvements, additions or other physical
changes (except decorative changes) in or about the demised premises
(collectively, "Alterations") without Landlord's prior consent. Landlord agrees
not to unreasonably withhold its consent to any Alterations which are
nonstructural or for the staircases between Tenant's floors, or which do not
affect the Building's systems and facilities proposed to be made by Tenant to
adapt the demised premises for those business purposes permitted by Article 2
hereof, provided that such Alterations, do not affect any part of the Building
other than the demised premises or for the staircases between Tenant's floors,
do not adversely affect any service required to be furnished by Landlord to
Tenant or to any other tenant or occupant of the Building and do not reduce the
value or utility of the Building. Except as otherwise provided herein, all
Alterations(including the staircases and bathrooms located on Tenant's floors)
shall be done at Tenant's expense and at such times and in such manner as
Landlord may from time to time reasonably designate pursuant to the conditions
for Alterations prescribed by Landlord for the Building and shall comply with
all laws, ordinances, orders, rules and regulations of each and every department
and bureau of the City and State of New York and of the United States of
America, and any other lawful authority asserting jurisdiction in the premises,
including, but not limited to, compliance with the Americans With Disabilities.
Act of 1990, as same may be amended from time to time ("ADA") and shall
reimburse Landlord for any reasonable expenses incurred on account of the
failure by Tenant to comply with any such requirements and promptly after
completion of any work Tenant shall obtain and furnish to Landlord all required
sign-offs, and any reasonable expenses so incurred by Landlord as aforesaid
shall be deemed additional rent under this Lease and due and payable by Tenant
to Landlord on the first day of the month immediately following the payment and
request of the same by Landlord.
Except as set forth above, it shall be Landlord's responsibility to
comply with ADA as same relates to access to the Building and the common areas
of the Building.
Prior to making any Alterations, Tenant (i) shall submit to Landlord
detailed plans and specifications (including layout, architectural, mechanical
and structural drawings) for each proposed Alteration and shall not commence any
such Alteration without first obtaining Landlord's approval of such plans and
specifications, (ii) shall, at its expense, obtain all permits, approvals and
certificates required by any governmental or quasi- governmental bodies, and
(iii) shall furnish to Landlord duplicate original policies of worker's
compensation insurance (covering all persons to be employed by Tenant, and
Tenant's contractors and subcontractors in connection with such Alteration) and
comprehensive public liability (including property damage coverage)
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insurance in such form, with such companies, for such periods and in such
amounts as Landlord may reasonably require, naming Landlord and its agents as
additional insureds. Upon completion of such Alteration, Tenant, at Tenant's
expense, shall obtain certificates of final approval of such Alteration required
by any governmental or quasi-governmental bodies and shall furnish Landlord with
copies thereof and shall, within thirty (30) days of such completion, deliver a
set of final "as built" drawings to Landlord reflecting the Alteration. All
Alterations shall be made and performed in accordance with the Rules and
Regulations; all materials and equipment to be incorporated in the demised
premises as a result of all Alterations shall be new and first quality; no such
materials or equipment shall be subject to any lien, encumbrance, chattel
mortgage, title retention or security agreement. Tenant shall not, at any time
prior to or during the Term, directly or indirectly employ, or permit the
employment of, any contractor, mechanic or laborer in the demised premises,
whether in connection with any Alteration or otherwise, if, in Landlord's sole
discretion, such employment will interfere or cause any conflict with other
contractors, mechanics or laborers engaged in the construction, maintenance or
operation of the Building by Landlord, Tenant or others. In the event of any
such interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately. Notwithstanding anything contained herein to the
contrary, Landlord's approval to Tenant's plans and specifications shall be
deemed granted if Landlord fails to respond within seven (7) business days after
submission of complete plans and specifications, provided that along with such
complete submission for approval, Tenant notifies Landlord, in writing, using
bold lettering that Landlord's failure to respond within seven (7) business days
will be deemed approval of the submitted plans and specifications.
(B) No approval of any plans or specifications by Landlord or consent by
Landlord allowing Tenant to make any Alterations or any inspection of
Alterations made by or for Landlord shall in any way be deemed to be an
agreement by Landlord that the contemplated Alterations comply with any legal
requirements or insurance requirements or the certificate of occupancy for the
Building nor shall it be deemed to be a waiver by Landlord of the compliance by
Tenant of any provision of this lease.
(C) Tenant shall promptly reimburse Landlord for all reasonable
out-of-pocket fees, costs and expenses including, but not limited to, those of
attorneys, architects and engineers, incurred by Landlord in connection with
inspecting the Alterations, including Tenant's inter-floor staircases, to
determine whether the same are being or have been performed in accordance with
the approved plans and specifications therefor and with all legal requirements
and insurance requirements, provided, however, such amount shall not exceed
$1,000 if such Alterations consist of non-structural improvements and the
staircases.
56. Estoppel Certificate
Either party shall, at any time, and from time to time, upon at least
fifteen (15) days' prior notice from the other party, shall execute, acknowledge
and deliver to the requesting party,
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and/or to any other person, firm or corporation specified by Landlord or Tenant
("Recipient"), a statement prepared by the Recipient or requesting party
certifying that this lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect
modified and stating the modifications), stating the dates to which the Base
Rent and additional rent have been paid, stating whether or not there exists any
defaults by Landlord or Tenant under this lease and, if so, specifying each such
default and any other matters reasonably requested by Landlord, Tenant or the
Recipient.
57. Holdover
In the event Tenant shall hold over for more than sixty (60) days after the
expiration of the Term, the parties hereby agree that Tenant's occupancy of the
demised premises after the expiration of the Term shall be upon all of the terms
set forth in this lease, except Tenant shall pay as use and occupancy charge for
the holdover period an amount equal to the higher of (A) an amount equal to one
and one-half (1-1/2) times the sum of (i) the pro rata Base Rent payable by
Tenant during the last year of the Term and (ii) all monthly installments of
additional rent payable by Tenant pursuant to the terms of this lease that would
have been billable monthly by Landlord had the Term not expired; or (B) an
amount equal to the then market rental value for the demised premises as shall
be established by Landlord giving notice to Tenant of Landlord's good faith
estimate of such market rental value (such estimate to be subject to challenge
by Tenant and in such event, if the parties are unable to agree thereon, the
then market rental value for the demised premises shall be established by
arbitration).
58. Conditional Limitation
In the event that twice in any twelve (12) month period (A) a default of
the kind set forth in Section 17(1) shall have occurred or (B) Tenant shall have
defaulted in the payment of Base Rent or additional rent, or any part of either,
and Landlord shall have commenced a summary proceeding to dispossess Tenant in
each such instance, then, notwithstanding that such defaults may have been cured
at any time after the commencement of such summary proceeding, any further
default by Tenant within such twelve (12) month period shall be deemed to be a
violation of a substantial obligation of this lease by Tenant and Landlord may
serve a written three (3) day notice of cancellation of this lease upon Tenant
and, upon the expiration of said three (3) days, this lease and the Term shall
end and expire as fully and completely as if the expiration of such three (3)
day period were the day herein definitely fixed for the end and expiration of
this lease and the Term and Tenant shall then quit and surrender the demised
premises to Landlord, but Tenant shall remain liable as elsewhere provided in
this Lease.
59. Limitation on Rent
If on the Commencement Date, or at any time during the Term, the Base Rent
or additional rent reserved in this lease is not fully collectible by reason of
any Federal, State, County or
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City law, proclamation, order or regulation, or direction of as public officer
or body pursuant to law (collectively, "Law"), Tenant agrees to take such steps
as Landlord may request to permit Landlord to collect the maximum rents which
may be legally permissible from time to time during the continuance of such
legal rent restriction (but not in excess of the amounts reserved therefor under
this lease). Upon the termination of such legal rent restriction, Tenant shall
pay to landlord, to the extent permitted by Law, an amount equal to the
additional Base Rent and additional rent which would have been payable by Tenant
to Landlord under this Lease during the period such legal rent restriction was
in effect had such legal rent restriction not been in effect.
60. Acceptance of Keys
If Landlord or Landlord's managing or rental agent accepts from Tenant one
or more keys to the demised premises in order to assist Tenant in showing the
demised premises for subletting or other disposition or for the performance of
work therein for Tenant or for any other purpose, the acceptance of such key or
keys shall not constitute an acceptance of a surrender of the demised premises
nor a waiver of any of Landlord's rights or Tenant obligations under this lease
including, without limitation, the provisions relating to assignment and
subletting and the condition of the demised premises.
61. Arbitration
(A) In each case in which arbitration is provided for in the Lease, such
arbitration shall be conducted as provided in this Article 61. The party
desiring such arbitration shall give written notice to that effect to the other
party, specifying in said notice the name and address of the person designated
to act as arbitrator on its behalf, which arbitrator shall have the
qualifications described in the last sentence of this Article 61. Within ten
(10) days after the service of such notice, the other party shall give written
notice to the first party specifying the name and address of the person
designated to act as arbitrator on its behalf, which arbitrator shall have the
qualifications described in the last sentence of this Article 61. If the second
party fails to so notify the first party of the appointment of its arbitrator,
as aforesaid, within or by the time above specified, then appointment of the
second arbitrator shall be made in the same manner as hereinafter provided for
appointment of a third arbitrator in a case where neither the two arbitrators
nor the parties are able to agree upon appointment of a third arbitrator. The
arbitrators so chosen shall meet within ten (10) days after the second
arbitrator is appointed and if, within fifteen (15) days after the second
arbitrator is appointed, such two arbitrators shall not agree upon the question
in dispute, each shall make a written determination of the issue being
arbitrated and they shall themselves appoint a third arbitrator who shall be a
competent and impartial person, which arbitrator shall have the qualifications
described in the last sentence of this Article 61; and in the event of their
being unable to agree upon such appointment within ten (10) days after the time
aforesaid, the third arbitrator shall be selected by the parties themselves if
they can agree thereon within a further period of fifteen (15) days. If the
parties do not so agree, then
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either party, on behalf of both, may apply to the American Arbitration
Association in New York County or its successor for appointment of such third
arbitrator, and the other party shall not raise any question as to the
Association's full power and jurisdiction to entertain the application and make
the appointment. Such third arbitrator shall select the determination of the one
of the initial arbitrators which he considers most correct. The decision of the
third arbitrator so chosen shall be given within a period of thirty (30) days
after the appointment of such third arbitrator. A decision in which any two
arbitrators so appointed and acting hereunder concur or the determination of the
third arbitrator shall in all cases be binding and conclusive upon the parties.
Each party shall pay the fees and expenses of the one of the two original
arbitrators appointed by such party, or in whose stead as above provided, such
arbitrator was appointed, and the fees and expenses of the third arbitrator, if
any, shall be borne equally by both parties. In the case of any arbitration
provided for in this Lease each arbitrator selected shall be engaged in leasing,
owning, operating and/or selling commercial office space in the Borough of
Manhattan, either as a Landlord, managing agent, broker or a consultant, and
shall have been continuously so engaged for at least five (5) years prior to his
or her selection.
(B) Whenever Tenant alleges that Landlord has acted unreasonably with
respect to a matter where arbitration is provided for, Tenant may send a notice
to Landlord ("Hearing Notice"), specifying the matter with respect to which it
alleges that Landlord has acted unreasonably ("Dispute") and electing to have
the dispute resolved by an informal hearing ("Hearing") upon and subject to the
terms and conditions hereinafter set forth:
(a) The Hearing shall be held at the offices of an individual mutually
selected by Landlord and Tenant within five (5) days after receipt of the
Hearing Notice or, if the parties cannot so agree on such individual, then such
selection shall be made by the then President of the Bar Association of the City
of New York, or its successor, or if no such successor, or if such selection is
not made within ten (10) days of a request therefor, then by the American
Arbitration Association ("Hearing officer");
(b) The Hearing shall be held on the date specified in the Hearing Notice
(which shall be no less than seven (7) nor more than ten (10) days after the
selection of the Hearing officer ) and pursuant to substantive and procedural
rules to be established by the Hearing officer;
(c) The determination by the Hearing officer shall be conclusive upon the
parties and shall be made within seven (7) days after the Hearing is completed
whether or not a judgment of such determination shall be entered in any court;
and
(d) If Landlord is determined to have acted properly, Tenant shall pay the
fees of the Hearing Officer. If Landlord is determined to have acted improperly,
Landlord shall pay such fees.
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62. Definitions of "Landlord" and "Owner"
The terms "Owner" and "Landlord", whenever used in this lease (including,
without limitation, in Article 31), shall have the same meaning.
63. Landlord's Contribution
(A) Tenant shall submit to Landlord complete and detailed architectural,
mechanical and engineering plans and specifications showing the alterations and
improvements required by Tenant to the demised premises to prepare the same for
Tenant's occupancy ("Tenant's Initial Installation") consistent with the
provisions of Article 55. Tenant shall provide Landlord with a copy of the final
contract with the general contractor (or, if Tenant is performing Tenant's
Initial Installation without a general contractor, then a copy of all contracts
relating to Tenant's Initial Installation), which contract(s) shall be certified
by Tenant and the general contractor (or contractors) as being true and
complete.
(B) Subject to the terms and conditions set forth below, Landlord shall
reimburse Tenant up to a maximum amount of One Million Two Hundred Ten Thousand
and 00/100 ($1,210,000.00) Dollars ("Landlord's Contribution") for costs
incurred by Tenant in connection with Tenant's Initial Installation (inclusive
of architectural, engineering, legal and other consulting fees, moving expenses,
permit fees and interest). Landlord shall disburse from time to time, but not
more often than once in any thirty (30) day period, within ten (10) business
days of receipt of each Tenant's request, that portion of Landlord's
Contribution equal to ninety percent (90%) of the amount set forth in Tenant's
requisition, provided, however, that no advance shall be made if and so long as
Tenant shall be in default under this lease beyond any applicable notice and
cure period. No advance shall be made until receipt of a request therefor from
Tenant and the submission by Tenant of the following:
(i) A certificate signed by Tenant and Tenant's architect dated not
more than fifteen (15) days prior to such request setting forth (a) the sum then
justly due to contractors, subcontractors, materialmen, engineers, architects
and other persons who have rendered services or furnished materials in
connection with Tenant's Initial Installation, (b) a brief description of such
services and materials and the amounts paid or to be paid from such requisition
to each of such persons in respect thereof, (c) that the work described in the
certificate has been completed substantially in accordance with the Final Plans,
(d) that there has not been filed with respect to the demised premises or the
Building or any part thereof or any improvements thereon, any vendor's,
mechanic's, laborer's, materialmen's or other like liens arising out of Tenant's
Initial Installation which has not been discharged of record or which Tenant is
proceeding with diligence to have discharged of record, and (e) that Tenant has
complied with all of the conditions set forth in Articles 3, 54 and 55 of this
lease, including the requirement that Tenant comply with all applicable
governmental and quasi-governmental laws, rules and regulations; and
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8 West 40th Street
(ii) Partial lien waivers, paid receipts or such other proof of
payment as Landlord shall reasonably require for all work done and material
supplied prior to the current requisition. Upon the substantial completion of
Tenant's Initial Installation, Landlord shall, upon receipt of all of the
foregoing, disburse to Tenant the amount, if any, equal to the amount by which
ninety percent (90%) of the portion of Landlord's Contribution for which Tenant
has submitted payment requests exceeds the amount of Landlord's Contribution
theretofore disbursed. Landlord shall disburse the remaining ten percent (10%)
balance of the portion of Landlord's Contribution for which Tenant has submitted
payment requests upon receipt of all of the foregoing plus (w) final "as built"
plans of the demised premises showing Tenant's Initial Installation, (x)
delivery of Building Department filing documents, permits, approvals and
Building and Fire Department signoffs, (y) delivery of lien waivers by the
general contractor and all major subcontractors involved with the installation,
and (z) the completion of an inspection by Landlord confirming that the work set
forth in the Final Plans has been completed, which Landlord agrees to conduct
within three (3) business days after Tenant's request. Notwithstanding the
foregoing, Tenant's right to collect Landlord's Contribution shall exist only
with respect to work performed by Tenant during the first twelve (12) months of
the Term subject to delays beyond Tenant's control; to the extent not utilized
within such period, Landlord's Contribution shall be deemed waived by Tenant and
Landlord shall be under no further obligation to make any further payments to
Tenant for Landlord's Contribution or otherwise with respect to Tenant's Initial
Installation.
(C) Notwithstanding anything to the contrary contained in this Article 63,
Tenant may defer the 19th Floor portion of Tenant's Initial Installation until
Landlord shall have delivered the possession of the entire 19th Floor to Tenant,
and Tenant shall be entitled to receive all disbursements of Landlord's
Contribution, including the final ten (10%) percent of Landlord's Contribution,
even though the 19th Floor portion of Tenant's Initial Installation shall not be
complete on the date of Tenant's request therefor. In the event that Tenant does
not otherwise expend an amount sufficient to receive the entire amount of
Landlord's Contribution, Tenant shall be entitled to apply the remaining balance
of Landlord's Contribution to the 19th Floor portion of Tenant's Initial
Installation and any request for disbursement in connection therewith may be
made within twelve (12) months after the date on which Landlord has delivered
possession of the entire 19th Floor to Tenant, subject to delays beyond Tenant's
control.
64. Delivery of the 19th Floor Premises
(A) Notwithstanding the reference on Page 1 of the sleeve of the Lease to
the 19th Floor premises as being part of the Demised Premises, Tenant has been
advised, and is fully aware, that the 19th Floor is currently leased to other
tenants, as follows:
1. Consumer Graphic Resources (New York), Inc. (3,450 rentable
square feet); lease expiration date May 31, 1994
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
2. Residential Capital Corp. (1,100 rentable square feet); lease
expiration date June 30, 1995
3. Richard L. Purnick (950 rentable square feet); lease expiration
date April 30, 1996
(B) Landlord agrees not to renew or extend any of the above captioned
leases and to exercise its best efforts to obtain vacant, broom-clean and
unencumbered possession of each such applicable space as soon as possible after
the date of this Lease and deliver each unit to Tenant as same becomes
available. Landlord agrees that, promptly after the date of this Lease, it will
attempt to relocate Residential Capital Corp. and Richard L. Purnick within the
Building by offering them attractive rents and/or other incentives. In the event
that any of the present 19th Floor tenants fails to vacate its space immediately
upon the expiration date of its lease (as set forth above), Landlord shall
promptly commence holdover proceedings against such tenant(s) and diligently
prosecute such proceedings until it obtains vacant, broom-clean and unencumbered
possession of such space(s). Landlord shall not consent to any stay or extension
of any time in any eviction proceeding(s) it may bring against any such
tenant(s), without the prior written consent of Tenant, which consent Tenant
agrees not to unreasonably withhold, condition or delay.
(i) In the event Landlord is unable to deliver any portion of the 19th
Floor premises to Tenant by July 1, 1994, at the request of Tenant,
Landlord agrees to make available to Tenant temporary space ("Temporary
Space") in the Building of approximately similar size of each unit which
Landlord is unable to deliver possession of, for Tenant's use. Tenant shall
pay to Landlord for any such Temporary Space rent at the rate of $12.50 per
rentable square foot, including electricity, commencing ninety (90) days
after actual possession of each such Temporary Space by Tenant, payable on
the 1st day of each month. Each such Temporary Space shall be delivered to
Tenant in its then "AS IS" condition and Landlord shall not be required to
perform any work in connection therewith.
(ii) Tenant agrees to, and shall, surrender such Temporary Space to
Landlord at such time as Landlord obtains possession of the applicable
space on the 19th Floor, demolishes same and completes removal of ACM in
said applicable space on the 19th Floor in accordance with the provisions
of Article 65. After completion of such work, Landlord shall promptly
deliver possession of the applicable space to Tenant.
(iii) In the event Landlord is unable to deliver possession of any
portion of the 19th Floor premises on or before July 1, 1994, the Base Rent
applicable to the 19th Floor premises shall be reduced at the rate of
$28.50 per rentable square foot and additional rent in the form of Taxes
and Operating Expenses shall be abated, applicable to such portion of the
19th Floor space which Landlord has not been able to deliver possession of
to Tenant. The Commencement Date for each space shall be
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
four (4) months from the date possession for each such space is delivered
to Tenant (the "19th Floor Commencement Date") and the Base Rent shall be
increased at the same rate as the reduction referred to above as of the
applicable 19th Floor Commencement Date, except that the Rent Commencement
Date of each applicable 19th Floor Premises shall commence six (6) months
after each applicable 19th Floor Commencement Date.
(iv) Anything herein to the contrary notwithstanding, provided this
lease shall be in full force and effect and Tenant shall not be in default
of any material provision hereunder beyond any applicable notice and grace
period, the Base Rent attributable to the 19th Floor shall abate from the
Commencement Date through the date that is one day prior to the Rent
Commencement Date, subject to the provisions of subparagraph (B) (iii)
above.
65. Landlord's Work
(A) Landlord agrees, within fifteen (15) days after the execution and
delivery of this Lease to commence to demolish the Demised Premises and complete
same and remove all asbestos-containing material ("ACM") therefrom within twenty
(20) days thereafter, at Landlord's sole cost and expense and deliver to Tenant
the required New York City DEP Form ACP5 in connection with Tenant's Initial
Installation in the Demised Premises, executed by a New York City Certified
Asbestos Investigator, certifying, with respect to the Demised Premises, either
(i) the "surfaces of relevant structure(s) affected by an alteration are free of
any known asbestos-containing material ('ACM')", i.e., material containing
greater than 1% asbestos by weight or (ii) "cumulative surfaces of relevant
structure(s) affected by an alteration contain 10 square feet or less and 25
linear feet or less of friable ACM or of normally nonfriable ACM that alteration
may make friable" (neither (i) nor (ii) above shall be deemed to include floor
tile or asbestos (ACM) enclosed behind plaster or similar type construction at
columns and core areas not impacted by Tenant's construction), so as to enable
Tenant to obtain its Building Department permit for Tenant's Initial
Installation.
(B) If, at any time Tenant discovers ACM materials or products, which would
cause the certification described above to be untrue (unless installed by
Tenant), Landlord will cause same to be promptly removed, at Landlord's expense.
Landlord's sole obligation shall be to remove and dispose of such ACM as set
forth above and to provide (i) any necessary fireproofing as required by law at
the time of such removal, with reasonable diligence and (ii) the certificate
referred to above. Such removal may be performed simultaneously with Tenant's
Initial Installation.
66. Expansion Space Option(s)
(A) Provided this Lease is then in full force and effect, Tenant shall have
the right to lease from Landlord up to four (4) additional full floors,
consisting of (i) any two (2) contiguous floors as designated by Landlord of
floors 11, 12 and 14, plus (ii) either the 16th and/or 17th floors
(collectively, the
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
"Expansion Space"), provided Tenant notifies Landlord of its option with respect
to each Expansion Space, in writing, by registered or certified mail, return
receipt requested, addressed to Landlord at its offices hereinbefore set forth,
time being of the essence, by no later than July 31, 1994. Any such notice shall
be deemed irrevocable.
(B) Landlord has advised Tenant that the 11th, 12th and 14th floors are
currently under lease to other tenants in the Building, whose leases, by their
terms, expire on July 31, 1994.
(C) In addition, portions of the 16th and 17th floor premises are currently
occupied by the following Tenants:
I. 16th Floor Premises:
a. Classic Travel Service, Inc. (1,285 rentable square feet); lease
expiration date 12/31/94;
b. Mahandra Sheth (465 rentable square feet); lease expiration date
12/31/94;
c. 1,090 vacant rentable square feet facing the 40th Street side of
the Building;
d. A.W.B., Ltd. (2,660 rentable square feet covering the rear half
of the floor); lease expiration date 12/31/97.
II. 17th Floor Premises:
a. Overnite Transportation Company (2,495 rentable square feet in
the front portion of the floor); lease expiration date 3/31/95;
b. Brittany Fabrics, Inc. (940 rentable square feet covering the
middle portion of the floor); lease expiration date 5/31/94, with
one (1) option to extend through May 31, 1996;
c. Initial Funding Corp. (2,065 rentable square feet covering the
rear portion of the floor); lease expiration date 8/31/2000.
(D) Provided Tenant has timely exercised its option to lease the applicable
floors referred to in subparagraph (A) above, Landlord agrees to take reasonable
efforts to obtain vacant, broom-clean and unencumbered possession of each such
applicable space effective after the applicable lease expiration date(s) and
deliver each unit to Tenant as same becomes available. In the event that the
tenant of any such space fails to vacate its space immediately upon the
expiration of its lease, Landlord shall promptly commence holdover proceedings
against such tenant(s) and diligently prosecute such proceedings until it
obtains vacant, broom-clean and unencumbered possession of such space(s). Upon
obtaining possession of any such space, Landlord shall promptly demolish same
and deliver to Tenant the ACP Certificates in accordance with the provisions of
Article 65. Landlord shall not consent to any stay or extension of any time in
any eviction proceeding it may bring against any such tenant(s), without the
prior written consent of
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
Tenant, which consent Tenant agrees not to unreasonably withhold, condition or
delay.
67. Base Rent Commencement Date, Etc. With Respect to Expansion Space
(A) Landlord agree's to deliver possession of each applicable Expansion
Space to Tenant promptly after (i) Landlord obtains possession of such Expansion
Space from the then existing tenant(s) and (ii) Landlord demolishes such space,
removes all ACM therefrom and delivers to Tenant the applicable ACP5
Certificate referred to in Article 65.
The Commencement Date of each such applicable Expansion Space shall
commence four (4) months after delivery of possession to Tenant and the Rent
Commencement Date of each such Expansion Space shall commence six (6) months
after each applicable Commencement Date.
Except as set forth above, each such Expansion Space shall be
delivered to Tenant, vacant, unencumbered, broom-clean and otherwise in their
then "as is" condition.
(B) If, as and when each Expansion Space shall become part of the Demised
Premises, the Base Rent and additional rent per annum then in effect under this
Lease shall be increased as to such Expansion Space as of the respective Rent
Commencement Dates and the Base Rent step up dates of each Expansion Space shall
be at the same rate per rentable square foot and the same dates as is then being
charged for the 18th, 19th, 20th, 21st and Penthouse floors, but reduced by the
sum of One ($1.00) Dollar per annum per rentable square foot applicable to each
floor of Expansion Space or portion thereof, and shall also include the same
Base Years and the additional allocable Proportionate Share(s) for purposes of
Articles 39 and 40, and the additional allocable Electric Factor.
By way of example: If Tenant timely and validly exercises its option
to lease the entire 16th Floor Premises effective as of January 1, 1995, the
annual Base Rent for the 16th Floor Premises shall be as follows: (a) for the
period from January 1, 1995 through and including September 30, 1997 at an
annual rate of $151,250.00, (b) for the period from October 1, 1997 through and
including September 30, 2001 at an annual rate of $167,750.00 and (c) for the
period October 1, 2001 through and including September 30, 2004 at an annual
rate of $184,250. The Base Year for Real Estate Taxes and for Operating Expenses
shall be calendar year 1995.
The parties agree that each floor of Expansion Space (i) contains
5,500 rentable square feet, and (ii) has a Proportionate Share of 5.16% and an
Electrical Factor of $13,750.
(C) Such leasing shall otherwise be on the same terms and conditions as
contained in this Lease for the remainder of the Lease Term herein, except that
Tenant shall be allowed a work allowance in the sum of Forty ($40.00) Dollars
per rentable square feet for each such rentable square foot of Expansion Space
that becomes part of the Demised Premises, same to be payable to Tenant
<PAGE>
Re: 18th, 19th, 20th, 21st
and Penthouse Floors
8 West 40th Street
by Landlord in accordance with the terms and provisions of Article 64.
68. Execution of Expansion Space Documents
If Tenant exercises its option to lease any such Expansion Space referred
to in this Lease, then, Landlord and Tenant shall execute and exchange
amendment(s) to this Lease confirming the inclusion of such space in the Demised
Premises and the consequent changes in Base Rent and additional rent which are
provided above, within thirty (30) days after same are submitted by Landlord
("Landlord's Notice"), in form reasonably acceptable to Landlord and Tenant for
such applicable space(s). Failure of Tenant to execute any such documents shall
not affect Tenant's obligations hereunder, including Tenant's obligation to pay
the Base Rent and additional rent applicable to each such Expansion Space as
herein set forth.
69. Stoppage or Suspension of Building Services
If (i) any services to be provided to the Demised Premises are not provided
(x) for five (5) consecutive Business Days because of a failure of Building
systems or any other Building condition due to events arising or causes
originating within the Building (and not due to the Tenant's acts, omissions or
negligence) or (y) for ten (10) consecutive Business Days because of a failure
of Building systems due to events arising or causes originating outside of the
Building, and (ii) the Demised Premises or any portion thereof are rendered
untenantable thereby, then Base Rent and additional rent shall be abated in
proportion to the rentable area rendered untenantable from and after the day
following such fifth or tenth Business Day, as the case may be, until such
service is restored. For the purposes of this Article 69, if forty (40%) percent
of the Demised Premises is rendered untenantable by virtue of the causes
referred to in this Article 69 and the Tenant ceases to occupy the entire
Demised Premises, then the entire Demised Premises shall be deemed to be
untenantable and the Rent shall abate. If the entire Demised Premises is
rendered untenantable by virtue of any of the causes referred to in this Article
69 for one hundred eighty (180) consecutive days, the Tenant may terminate this
Lease upon thirty (30) days prior written notice given within thirty (30) days
after the expiration of such 180-day period.
<PAGE>
Adjacent Excavation - Shoring 32. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
Rules And Regulations 33. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given to Tenant at least thirty
(30) days prior to the proposed implementation date thereof. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within twenty (20) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
Estoppel Certification 35. Tenant, at any time, and from time to time, upon at
lease 10 days' prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, a
statement certifying that this Lease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as modified and stating the modifications,) stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
Successors And Assigns: 36. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
SEE RIDER ANNEXED HERETO AND MADE A PART HEREOF.
<PAGE>
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
40th ASSOCIATES, Landlord
BY: 8 W. 40th CORP.,
General Partner
-------------------------------
Witness For Owner:
BY: /s/ SCOTT RESNICK
- ---------------------------------- -------------------------------
SCOTT RESNICK, V.P.
LONDON FOG CORPORATION, Tenant
Witness For Tenant:
BY: /s/ ARNOLD P. COHEN
- ---------------------------------- -------------------------------
ARNOLD P. COHEN, CHAIRMAN
ACKOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of
On this ____ day of _______________, 19__, before me presonally came
__________________________ to me known, who being by me duly sworn, did depose
and say that he resides in _____________________________________ that he is the
__________________ of ______________________ the corporation described in and
which executed the foregoing instrument, as OWNER: that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
- --------------------------------------------------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of
On this __________ day of ________________, 19__, before me personally came
_______________________________ to me known and known to me to be the individual
___________________________ decribed in and who, as OWNER, executed the
foregoing instrument and acknowledged to me that ___________________ he executed
the same.
- --------------------------------------------------------------------------------
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this ____ day of _______________, 19__, before me presonally came
__________________________, to me known, who being by me duly sworn, did depose
and say that he resides in _____________________________________ that he is the
__________________ of ______________________ the corporation described in and
which executed the foregoing instrument, as TENANT; that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
- --------------------------------------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this __________ day of ________________, 19__, before me personally came
_______________________________ to me known and known to me to be the individual
___________________________ decribed in and who, as TENANT, executed the
foregoing instrument and acknowledged to me that ___________________ he executed
the same.
- --------------------------------------------------------------------------------
<PAGE>
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
Owner making the within lease with Tenant, the undersigned guarantees to Owner.
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of non-payment, non-performance, or non-observance,
or proof, or notice, or demand, whereby to charge the undersigned therefor, all
of which the undersigned hereby expressly waives and expressly agrees that the
validity of this agreement and the obligations of the guarantor hereunder shall
in no wise be terminated, affected or impaired by reason of the assertion by
Owner against Tenant of any of the rights or remedies reserved to Owner pursuant
to the provisions of the within lease. The undersigned further covenants and
agrees that the guaranty shall remain and continue in full force and effect as
to any renewal, modification or extension of this lease and during any period
when Tenant is occupying the premises as a "statutory tenant." As a further
inducement to Owner to make this lease and in consideration thereof, Owner and
the undersigned covenant and agree that in any action or proceeding brought by
either Owner or the undersigned against the other on any matters whatsoever
arising out of, under, or by virtue of the terms of this lease or of this
guarantee that Owner and the undersigned shall and do hereby waive trial by
jury.
Dated 19
------------------ ----
Guarantor
--------------------------
Witness
----------------------------
Guarantor's Residence
Business Address
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this day of , 19 , before me
personally came to me known and known to
me to be the individual described in, and who executed the foregoing Guaranty
and acknowledged to me that he executed the same.
------------------------------
Notary
<PAGE>
IMPORTANT PLEASE READ
RULES AND REGULATIONS ATTACHED
TO AND MADE A PART OF
THIS LEASE IN ACCORDANCE
WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibles, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same in visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability, and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of comment or other similar adhesive material being expressly
prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building between the
hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all
persons who do not present a pass to the building signed by Owner. Owner will
furnish passes to persons for whom any Tenant requests same in writing. Each
Tenant shall be responsible for all persons for whom he requests such pass and
shall be liable to Owner for all acts of such persons.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
13. If the building contains central air conditioning and ventilation,
Tenant agrees to keep all windows closed at all times and to abide by all rules
and regulations issued by the Owner with respect to such services. If Tenant
requires air conditioning or ventilation after the usual hours, Tenant shall
give notice in writing to the building superintendent prior to 3:00 P.M. in the
case of services required on week days, and prior to 3:00 P.M. on the day prior
in the case of after hours service required on weekends or on holidays.
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the building without Owner's prior
written consent. If such safe, machinery, equipment, bulky matter or fixtures
requires special handing, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
40TH ASSOCIATES
110 East 59th Street o New York. New York 10022 o (212) 421-1300
August 11, 1994
London Fog Corporation
1332 London Town Boulevard
Eldersberg, Maryland 21784-5399
Re: Lease dated May 4, 1994 ("Lease")
between 40th Associates ("Landlord") and
London Fog, Corporation ("Tenant")
18th, 19th, 20th, 21st & Penthouse Floors
("Demised Premises")
8 West 40th Street, New York, NY ("Building")
and Leasing of 11th, 12th and 15th Floors
Gentlemen:
IT IS HEREBY AGREED by and between the parties hereto as follows:
1. Tenant has timely exercised its option to lease the 11th and 12th Floors
in the Building in accordance with the provisions of Article 66 of the above
captioned Lease and that such 11th and 12th Floor Premises shall be deemed
incorporated into the Demised Premises in accordance with the terms and
provisions of Articles 66 and 67 of the Lease.
IT IS HEREBY FURTHER AGREED by and between the parties hereto that the
above captioned Lease shall be deemed amended as follows:
2. (a) Reference in Article 66 of the Lease to the 16th and/or 17th floors
shall be deemed deleted and of no further force and effect.
(b) In lieu thereof, the parties agree that the 15th floor ("15th
Floor Premises") shall be deemed incorporated into the Demised Premises as an
Expansion Space as if Tenant had timely exercised its option to lease the 15th
Floor Premises and said 15th Floor Premises were originally incorporated into
Article 66 of the Lease in lieu of the 16th and/or 17th floors. All of the terms
and provisions set forth in Articles 66 and 67 of the Lease, including, but not
limited to the same rate of Base Rent, additional rent, Base Rent step up dates
and amounts, rentable square feet, Proportionate Share and Electric Factor to be
allocated to the 15th Floor Premises and any other applicable
<PAGE>
London Fog Corporation
August 11 , 1994
Page # 2
provisions of the Lease relating thereto shall apply to the 15th Floor Premises.
(c) Article 66(C) of the Lease shall be changed to read as follows:
"In addition, portions of the 15th Floor Premises are currently
occupied by the following tenants:
"(i) Katsu Kawasaki, Inc. (4,630 rentable square feet); lease expiration
date 12/31/96;
"(ii)Accommodations, Inc. (870 rentable square feet); lease expiration
date 12/31/96."
(d) Landlord agrees not to renew or extend any of the above captioned
leases and to exercise its best efforts to obtain vacant, broom-clean and
unencumbered possession of each such applicable space as soon as possible after
the date of this Lease Amendment Agreement ("Agreement") and deliver each unit
to Tenant as same becomes available. Landlord agrees that, promptly after the
date of this Agreement, it will attempt to either relocate Katsu Kawasaki, Inc.
and Accommodations, Inc. within the Building by offering them attractive rents
and/or other incentives or, in the alternative, to cancel and terminate their
leases. In the event any of the present 15th Floor tenants fail to vacate their
respective space(s) immediately upon the expiration date of their lease(s) (as
set forth above), Landlord shall promptly commence holdover proceedings against
such tenant(s) and diligently prosecute such proceedings until it obtains
vacant, broom-clean and unencumbered possession of such space(s). Landlord shall
not consent to any stay or extension of any time in any eviction proceeding(s)
it may bring against any such tenant(s), without the prior written consent of
Tenant, which consent Tenant agrees not to unreasonably withhold, condition or
delay.
(i) In the event Landlord is unable to deliver any portion of the 15th
Floor Premises to Tenant by January31, 1995, at the request of Tenant,
Landlord agrees to make available to Tenant temporary space ("Temporary
Space") in the Building, of approximately similar size to each unit which
Landlord is unable to deliver possession of,
<PAGE>
London Fog Corporation
August 11, 1994
Page #3
for Tenant's use, provided Tenant notifies Landlord by the later of
January31, 1995 or within fifteen (15) days after Landlord notifies Tenant
of its failure to obtain possession from either or both of the existing
15th Floor tenants, of its intention to take such Temporary Space. Tenant
shall pay to Landlord for any such Temporary Space, rent at the rate of
$12.50 per rentable square foot, including electricity, commencing ninety
(90) days after actual possession of each such Temporary Space by Tenant,
payable on the 1st day of each month. Each such Temporary Space shall be
delivered to Tenant in its then "AS IS" condition and Landlord shall not be
required to perform any work in connection therewith.
(ii) Tenant agrees to, and shall, surrender such Temporary Space to
Landlord at such time as Landlord obtains possession of the applicable
space on the 15th Floor, demolishes same and completes removal of ACM in
said applicable space on the 15th Floor in accordance with the provisions
of Article 65 of the Lease. After completion of such work, Landlord shall
promptly deliver possession of said applicable space to Tenant.
(e) There shall deemed deleted from Article 66(D) of the Lease, the
first two (2) lines thereof.
(f) Reference to "(See ARTICLE 62") in the first Witnesseth clause on
Page 1 of the sleeve of the Lease shall be changed to read "(See ARTICLE 64").
(g) Reference on the second and third lines of the second paragraph of
Article 67(B) to the 16th Floor Premises shall be changed to read the 15th Floor
Premises.
3. Landlord agrees that Tenant shall be permitted, at its sole cost and
expense, to have a lobby director or starter, with an identifying uniform,
subject to complying with the Building's union requirements and Landlord's
reasonable regulations.
4. Tenant shall be permitted signage on the south lobby wall in the
Building, subject to Landlord's prior written approval.
<PAGE>
London Fog Corporation
August 11, 1994
Page #4
5. Tenant represents that it has dealt with no broker in connection with
the negotiations for the execution of this Agreement other than Julien J.
Studley, Inc. and Landlord agrees to pay said Broker its commission pursuant to
separate agreement.
6. This Agreement shall not be binding upon the parties unless and until it
has been executed by both parties.
7. Except as set forth above, all of the other terms and provisions set
forth in the above captioned Lease shall continue to remain in full force and
effect.
40TH ASSOCIATES, Landlord
By: 8 W. 40th Corp.,
Genera1 Partner
By: /s/
-----------------------
THE FOREGOING IS CONSENTED AND AGREED TO
LONDON FOG CORPORATION,
By:/s/
--------------------------------
Name:
Title: President
Date: 8-11-94
ASSIGNMENT AND ASSUMPTION OF LEASE
The parties agree as follows:
Date: As Of May 31, 1995
Parties: Assignor: London Fog Corporation
Address: 8 West 40Th Street
New York, NY 10018
Assignee: London Fog Industries, Inc.
1332 Londontown Boulevard, Eldersburg, Maryland 21784
If there are more than one Assignor or Assignee, the words "Assignor"
and "Assignee" shall include them.
Assigned:
lease The Lease which is assigned herein is indentified as follows:
Landlord 40Th Associates
Tenant London Fog Corporation
Date May 4, 1994 Premises: Floors 11,12,15,18,19,20,21 And
* As Amended Mezzanine at 8 West 40Th Street
New York, NY 10018
Consideration: Assignor has received One ($1.00) dollars and other good and
valuable consideration for this Assignment.
Assignment: Assignor assigns to the Assignee all the Assignor's right, title
and interest in a) the Lease and b) the security deposit, if any,
stated in the Lease.
Assumption: Assignee agrees to pay the rent promptly and perform all of the
terms of the Lease as of the date of this Assignment. Assignee
assumes full responsibility for the Lease as if Assignee signed
the Lease originally as Tenant.
Indemnity: Assignee agrees to indemnify and hold Assignor harmless from any
legal actions, damages and expenses including legal fees that the
Assignor may incur arising out of the Lease.
Benefit to
landlord: Assignee agrees that the obligations assumed shall benefit the
landlord named in the Lease as well as the Assignor.
Assignor's
statements: Assignor states that Assignor has the right to assign this Lease
and that the premises are free and clear of any judgements,
executions, liens, taxes and assessments.
Assignee's
statement: Assignee states that Assignee has read the Lease and has received
the original or an exact copy of the Lease.
Successors: This assignment is binding on all parties who lawfully succeed to
the rights or take the place of the Assignor or Assignee.
Margin
Headings: The margin headings are for convenience only.
Signatures: The Assignor and Assignee have signed this Assignment as of the
date at the top of the first page.
ASSIGNOR
London Fog Corporation
By:/s/ C. William Crain, President
---------------------------------
Witness ASSIGNEE
/s/ London Fog Industries, Inc.
- ---------------------------------- By:/s/ C. William Crain, President
Secretary ---------------------------------
<PAGE>
STATE OF
COUNTY OF
On the day of 19 , before me personally came
to me known to be the individual described in and who executed the foregoing
instrument, and acknowledged that executed the same.
STATE OF NEW YORK
COUNTY OF NEW YORK
On the 6th day of July 1995 , before me personally came C. William Crain to me
known who, being by me duly sworn, did depose and say that he resides at No. 10
Nutmeg Drive, Greenwich, CT; that he is the President and COO of London Fog
Corporation and London Fog Industries, the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the board of directors of said corporation, and that he
signed his name thereto by like order.
/s/ RICHARD I. JANVEY
---------------------
RICHARD I. JANVEY
NOTARY PUBLIC, State of New York
NO. 31-4650223
Qualified in New York County
Commission Expires August 31, 1995
STATE OF NEW YORK
COUNTY OF NEW YORK
On the 6th day of July 1995 , before me personally came Stuart B. Fisher the
subscribing witness to the foregoing instrument, with whom I am personally
acquainted, who, being by me duly sworn, did depose and say that he resides at
No. 285 Riverside Drive, New York, NY; that he knows C. William Crain to be the
individual described in and who executed the foregoing instrument; that he, said
subscribing witness, was present and saw execute the same; and that he, said
witness, at the same time subscribed his name as witness thereto.
/s/ RICHARD I. JANVEY
---------------------
RICHARD I. JANVEY
NOTARY PUBLIC, State of New York
NO. 31-4650223
Qualified in New York County
Commission Expires August 31, 1995
OFFICE BUILDING LEASE
TABLE OF CONTENTS
PAGE
----
Article 1 LEASE OF PREMISES 3
Article 2 DEFINITIONS 3
Article 3 EXHIBITS AND ADDENDA 4
Article 4 DELIVERY OF POSSESSION 4
Article 5 RENT 5
Article 6 INTEREST AND LATE CHARGE 6
Article 7 SECURITY DEPOSIT 6
Article 8 TENANT'S USE OF THE PREMISES 6
Article 9 SERVICES AND UTILITIES 6
Article 10 CONDITION OF THE PREMISES 7
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE 7
Article 12 ALTERATIONS AND ADDITIONS 8
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY 9
Article 14 RULES AND REGULATIONS 9
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD 9
Article 16 ASSIGNMENT AND SUBLETTING 10
Article 17 HOLDING OVER 11
Article 18 SURRENDER OF PREMISES 1l
Article 19 DESTRUCTION OR DAMAGE 11
Article 20 EMINENT DOMAIN 12
Article 21 INDEMNIFICATION 12
Article 22 TENANT'S INSURANCE 13
Article 23 WAIVER OF SUBROGATION 14
Article 24 SUBORDINATION AND ATTORNMENT 14
Article 25 TENANANT ESTOPPEL CERTIFICATES 14
<PAGE>
ARTICLE 26 TRANSFER OF LANDLORD'S INTEREST 14
Article 27 DEFAULT 15
Article 28 BROKERAGE FEES 16
Article 29 NOTICES 17
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS 17
Article 31 RELOCATION OF PREMISES 17
Article 32 QUIET ENJOYMENT 17
Article 33 OBSERVANCE OF LAW 17
Article 34 FORCE MAJEURE' 17
Article 35 CURING TENANTS DEFAULT 18
Article 36 SIGN CONTROL 18
Article 37 HAZARDOUS WASTE 18
Article 38 MISCELLANEOUS 19
Article 39 OPTION TO EXTEND LEASE TERM 20
ACKNOWLEDGMENT OF LESSOR 22
ACKNOWLEDGMENT OF LESSEE (CORPORATE) 23
EXHIBIT A - FLOOR PLAN OF PREMISES 24
EXHIBIT B - LEGAL DESCRIPTION 25
EXHIBIT C - WORK LETTER 26
EXHIBIT D - RULES AND REGULATIONS 30
2
<PAGE>
OFFICE BUILDING LEASE
This Lease between The Bartell Drug Company ("Landlord"), and Pacific Trail,
Inc. ("Tenant") is dated August 23, 1994
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 2.1. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees to use the Common Areas (as defined at
Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent: $ 329,657.51 per year
b. Base Year: The calendar year of 1995
c. Brokers:
Landlord's: Chiles & Company, Inc./Donoghue & Associates
Tenant's: Cushman and Wakefield
d. Commencement Date: March 1, 1995
e. Common Areas: the building lobbies, common corridors and hallways, common
area restrooms and parking areas, stairways, elevators and other generally
understood public or common areas. Landlord shall have the right to
regulate or restrict the use of the Common Areas.
f. Expense Stop: S NONE (No Pass Through Expenses)
g. Expiration Date: 2/29/2000, unless otherwise sooner terminated or extended.
h. Index (section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, Seattle Washington
Average, Subgroup "All Items"
i. Landlord's Mailing Address:
(Rent Remittance) The Bartell Drug Company
4727 Denver Avenue South
Seattle, WA 98134
(All other Correspondence
and Documentation) Chiles & Company, Inc.
70l Fifth Avenue
670l Columbia Seafirst Center
Seattle, WA 98104
3
<PAGE>
TENANT'S MAILING ADDRESS: COPY TO:
Mike Green Mark Goldstone, Esq., General Counsel
Pacific Trail, Inc.- London Fog Industries
1310 Mercer Street 1332 Londontown Boulevard
Seattle, WA 98109 Eldersburg, MD 21784-2395
j. Monthly Installments of Base Rent: $27,471.46 per month for first 12 months
(one month free rent credited at the twelfth month)
k. Parking: Tenant shall be permitted to park up to 35 cars, $40/uncovered,
$50/covered-rental for one year only, and market rate thereafter-on a
non-exclusive basis in the area(s) designated by Landlord for parking.
Tenant shall abide by any and all parking regulations and rules established
from time to time by Landlord or Landlord's parking operator.
1. Premises: That portion of the Building containing approximately 17,563
square feet of Rentable Area, shown by diagonal lines on Exhibit "A,"
located on the 1st & 2nd floor(s) of the Building and known as Suite 200
and Suite 100.
m. Project: The building of which the Premises are a great part (the
"Building") and any other buildings or improvement on the real property
(the "Property'), excluding marina, located at 1700 Westlake Avenue North -
Seattle, WA and further described as Exhibit "B". The Project is known as
THE LAKE UNION BUILDING.
n. Rentable Area: As to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
o. Security Deposit (Article 7): $ WAIVED
p. State: The State of Washington.
q. Tenant's Adjustment Date (Section 5.2): The first day of the calendar month
following the Commencement Date plus 12 months.
r. Tenant's Use Clause (Article 8): General office space, design,
administration, and sample apparel making.
s. Term: The Period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease.
a. Exhibit "A" - Floor Plan showing the Premises.
b. Exhibit "B" - Legal Description.
c. Exhibit "C' - Work Letter.
d. Exhibit "D"- Rules and Regulations.
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall
4
<PAGE>
be deemed to occur on the date Landlord completes Landlord's Work as defined in
Exhibit "C." If Landlord permits Tenant to enter into possession of the Premises
before the Commencement Date, such possession shall be subject to the provisions
of this Lease, including, without limitation, the payment of Rent.
5. RENT
5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Tenant shall pay Landlord the first month's Base Rent when Tenant executes
the Lease.
5.2 ADJUSTED BASE RENT.
a. The Base Rent (and the corresponding Monthly Installment of Base Rent) set
forth at Section 2a shall be adjusted annually (the "Adjustment Date"),
commencing on Tenant's Adjustment Date. Adjustments, if any, shall be based
upon increases (if any) in the index, and shall not exceed 5% for any
annual adjustment. The index in publication three (3) months before the
Commencement Date shall be the "Base Index." The index in publication three
(3) months before each Adjustment Date shall be the "Comparison Index." As
of each Adjustment Date, the Base Rent payable during the ensuing
twelve-month period shall be determined by increasing the Base Rent by a
percentage equal to or less than the Comparison Index for the preceding
Adjustment Date (or the Base Index) the Base Rent for the ensuing
twelve-month period shall remain the amount of the Base Rent payable during
the preceding twelve-month period. When the Base Rent payable as of each
Adjustment Date is determined, Landlord shall promptly give Tenant written
notice of such adjusted Base Rent and the manner in which it was computed.
The Base Rent as so adjusted from time to time shall be the "Base Rent" for
all purposes under this Lease.
b. If at any Adjustment Date the index no longer exists in the form described
in this Lease, Landlord may substitute any substantially equivalent
official index published by the Bureau of Labor Statistics or its
successor. Landlord shall use any appropriate conversion factors to
accomplish such substitution. The substitute index shall then become the
"index" hereunder.
5.3 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord (other than base rent) under this Lease shall be deemed
additional rent (which, together with the Base Rent is sometimes referred
to as the "Rent"). The Rent shall be paid to The Bartell Drug Company (or
other person) and at such place, as Landlord may from time to time
designate in writing, without any prior demand therefore and without
deduction or offset, in lawful money of the United States of America.
5.4 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any government restrictions on such Rent or
payment, then the Rent or payment due during the period of such
restrictions shall be the maximum amount allowable under those
restrictions. Upon termination of the restrictions, Landlord shall, to the
extent it is legally permitted, recover from the Tenant the difference
between the amounts received during the period of the restrictions and the
amounts Landlord would have received had there been no restrictions.
5.5 Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand
for any and all taxes payable by Landlord (other than net income taxes)
which are not otherwise reimbursable under this Lease, whether or not now
customary or within the contemplation of the parties, where such taxes are
upon, measured by or reasonably attributable to (a) the cost or value of
Tenant's equipment, furniture, fixtures and other personal property located
in the Premises, or the cost or value of any leasehold improvements made in
or to the Premises by or for Tenant, other than Building Standard Work made
by Landlord, regardless of whether title to such improvements performed
after initial occupancy is held by Tenant or Landlord; (b)the gross or net
Rent payable under this Lease, including, without limitation, any rental or
gross receipts tax levied by any taxing authority 'with respect to the
receipt of the Rent hereunder; (c) the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of
the Premises or any portion thereof; or (d) this transaction or any
document to which Tenant is a party creating or transferring an interest or
an estate in the Premises. If it becomes unlawful for Tenant to reimburse
Landlord for any costs as required under this Lease, the Base Rent shall be
revised to net Landlord the same net Rent after imposition of any tax or
other charge upon Landlord as would have been payable to Landlord but for
the reimbursement being unlawful.
5
<PAGE>
6. INTEREST AND LATE CHARGES
If Tenant fails to pay when due Rent or other amounts or charges which Tenant is
obligated to pay under the terms of this Lease, the unpaid amounts shall bear
interest at the maximum rate then allowed by law. Tenant acknowledges that the
late payment of any Monthly Installment of Base Rent will cause Landlord to lose
the use of that money and incur costs and expenses not contemplated under this
Lease, including without limitation, administrative and collection costs and
processing and accounting expenses, the exact amount of which is extremely
difficult to ascertain. Therefore, in addition to interest, if any such
installment is not received by, Landlord within ten (10) days from the date it
is due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of
such installment. Landlord and Tenant agree that this late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any
interest or late charge shall not constitute a waiver of Tenant's default with
respect to such nonpayment by Tenant nor prevent Landlord from exercising any
other rights or remedies available to Landlord under this Lease.
7. SECURITY DEPOSIT. (Paragraph deleted)
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for purposes of general office space,
administration, design and apparel sample making. Tenant shall not use or occupy
the Premises in violation of law or any covenant, condition or restriction
affecting the Building or Project or the certificate of occupancy issued for the
Building or Project, and shall, upon notice from Landlord, immediately
discontinue any use of the Premises which is declared by any governmental
authority having jurisdiction to be a violation of law or of occupancy. Tenant,
at Tenant's own cost and expense, shall comply with all laws, ordinances,
regulations, rules and/or any directions of any governmental agencies or
authorities having jurisdiction which shall, by reason of the nature of Tenant's
use or occupancy of the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or its use or occupation. A judgment of any court of
competent jurisdiction or the admission by Tenant in any action or proceeding
against Tenant that Tenant has violated any such laws, ordinances, regulations,
rules and/or any directions of any governmental agencies or authorities having
jurisdiction which shall, by reason of the nature of Tenant's use or occupancy
of the Premises, impose any duty upon Tenant or Landlord with respect to the
Premises or its use or occupation. A judgment of any court of competent
jurisdiction or the admission by Tenant in any action or proceeding against
Tenant that Tenant has violated any such laws, ordinances, regulations, rules
and/or directions in the use of the Premises shall be deemed to be a conclusive
determination of that fact as between Landlord and Tenant. Tenant shall not do
or permit to be done anything which will invalidate or increase the cost of any
fire, extended coverage or other insurance policy covering the Building or
Project and/or property located therein, and shall comply with all rules,
orders, regulations, requirements and recommendations of the Insurance Services
Office or any other organization performing a similar function. Tenant shall
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditions ("HVAC") as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefore on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the Rent
be abated by reason of (i) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
(ii) failure to furnish or delay in furnishing any such services where such
failure or delay is caused by accident or any condition or event beyond the
reasonable control of Landlord, or by the making of necessary repairs or
improvements to the Premises, Building or Project, or (iii) the limitation,
curtailment or rationing of, or restrictions on, use of water, electricity, gas
or any other
6
<PAGE>
form of energy serving the Premises, Building or Project. Landlord shall not be
liable under any circumstances for a loss of or injury to property or business,
however occurring, through or in connection with or incidental to failure to
furnish any such services. If Tenant uses heat generating machines or equipment
in the Premises which affect the temperature otherwise maintained by HVAC
system, Landlord reserves the right to install supplementary air conditioning
units in the Premises and the cost thereof, including the cost of installation,
operation and maintenance thereof shall be paid by Tenant to Landlord upon
demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data processing
machines, punch card machines, or machines using in excess of 120 volts, which
consumes more electricity than is usually furnished or supplied for the use of
premises as general office space as determined by Landlord. Tenant shall not
connect any apparatus with electric current except through existing electrical
outlets in the Premises. Tenant shall not consume water or electric current in
excess of that usually furnished or supplied for the use of premises as defined
in paragraph 8(as determined by Landlord), without first procuring the written
consent of Landlord, which Landlord may refuse, and in the event of consent,
landlord may have installed a water meter or electrical current meter in the
Promises to measure the amount of water or electric current consumed. The cost
of any such meter and of its installation, maintenance and repair shall be paid
for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately measured, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
additional expense incurred by Landlord in keeping account of the utilities so
consumed. Tenant shall be responsible for the maintenance and repair of any such
meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory conditions, except for such matters as to which Tenant gave
Landlord notice on or before the Commencement Date. No promise of Landlord to
alter, remodel, repair or Improve the Premises, the Building or the Project and
no representation, express or implied, respecting any matter or thing relating
to the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations.
Landlord shall perform Landlord's Work to the Premises as described in
Exhibit "C." Landlord shall maintain in good order, condition, and repair
the Building and all other portions of the Premises not the obligation of
Tenant or of any other tenant in the Building.
b Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described in
working drawings such as cables, telephone installation,
wiring(non-electrical) and the like.
(2) Tenant at Tenant's sole expense shall, except for services furnished
by Landlord pursuant to Article 9 hereof, maintain the Premises in
good order, condition and repair, including the interior surfaces of
the ceilings, walls and floors, all doors, all interior windows, all
plumbing, pipes and fixtures, electrical wiring, switches and
fixtures, Building Standard furnishings and special items and
equipment installed by or at the expense of Tenant.
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(3) Tenant shall be responsible for all repairs and alterations in and to
the Premises, Building and Project and the facilities and systems
thereof, the need for which arises out of (i) Tenant's use or
occupancy of the Premises, (ii) the installation, removal, use or
operation of Tenant's Property (as defined in Article 13) in the
Premises, (iii) the moving of Tenant's Property into or out of the
Building, or (iv) the act, omission, misuse or negligence of Tenant,
its agents, contractors employees or invitees.
(4) If Tenant fails to maintain the Premises in good order, conditions and
repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion,
then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform
such work. Any amount so expended by Landlord shall be paid by Tenant
promptly after demand with interest at the prime commercial rate then
being charged by Bank of America NT&SA plus 2 percent (2%) per annum,
from the date of such work, but not to exceed the maximum rate then
allowed by law. Landlord shall have no liability to Tenant for any
damage, inconvenience, or interference with the use of the Premises by
Tenant as a result for performing any such work.
c. Compliance With Law. Landlord and Tenant shall each do all acts required to
comply with all applicable laws, ordinances, and rules of any public
authority relating to their respective maintenance obligations as set forth
herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now
or hereafter in effect which would otherwise afford the Tenant the right to
make repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition and
repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor of
the Premises which exceeds the load per square foot which such floor was
designed to carry, as determined by Landlord or Landlord's structural
engineer. The cost of any such determination made by Landlord's structural
engineer shall be paid for by Tenant upon demand. Tenant shall not install
Business machines or mechanical equipment which cause noise or vibration to
such a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall have
no liability to Tenant nor shall Tenant's obligations under this Lease be
reduced or abated in any manner whatsoever by reason of any inconvenience,
annoyance, interruption or injury to business arising from Landlord's
making any repairs or changes which Landlord is required or permitted by
this Lease or by any other tenant's lease or required by law to make in or
to any portion of the Project, Building or the Premises.
g Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage to
the Premises, including any structural damage, resulting from Tenant's use
or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord.
Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or
improvement shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work shall
be diligently prosecuted to completion. Landlord may, at Landlord's option,
require that any such work be performed by landlord's contractor, in which
case
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the cost of such work shall be paid for before commencement of the work.
Tenant shall pay to landlord upon completion of any such work by Landlord's
contractor, the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and keep
Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by any
person performing work or furnishing materials or supplies for Tenant or
any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed, Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary, for
the proper protection of Landlord's interest in the Premises, Building or
the Project, and Landlord shall have the right to enter the Premises and
post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount
equal to at least one and one-half (l 1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
material men's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section 12a,
all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and maybe removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b. Antique apparel display boxes shall remain the exclusive property of
tenant.
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property) shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed, Tenant shall promptly repair any damage to
the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street address
of the Building or Project;
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b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant, to
inspect the Premises, and to show the Premises to any prospective purchaser
or mortgagee of the Project, or to any assignee of any mortgage on the
Project, or to others having an interest in the Project or Landlord, and
during the last six months of the Term, to show the Premises to prospective
tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in any emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign or
hypothecate this Lease or any interest herein or sublet the Premises or any
part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of
law without the written consent of Landlord.
b. If at any time, or from time to time, during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant may
assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions:
(l) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in the
notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or sublessee
shall take possession of the Premises until an executed counterpart of
such assignment or sublease has been delivered to Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however dominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) any real estate brokerage commissions
or fees payable in connection with such assignment or subletting,
shall be paid to Landlord as additional rent under this Lease without
affecting or reducing any other obligations of Tenant hereunder.
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c. Not withstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the Rent
and to perform all other obligations to be performed by Tenant hereunder.
The acceptance of Rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such assignee, subtenant or
successor.
e. If Tenant assigns the Lease or sublets the Premises or requests the consent
of Landlord to any assignment or subletting or if Tenant requests the
consent of Landlord for any act that Tenant proposes to do, the Tenant
shall, upon demand, pay Landlord any attorneys' fees reasonably incurred by
Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred twenty-five percent (125%) of the
Monthly Installments of Base Rent payable by Tenant at the expiration of the
Term or other amount agreed to by the parties. Such monthly rent shall be
payable in advance on or before the first day of each month. If either party
desires to terminate such month to month tenancy, it shall give the other party
not less than thirty (30) days advance written notice of the date of
termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration
Date, in broom-clean condition and in as good condition as when Tenant took
possession, except for (i) reasonable wear and tear, (ii) loss by fire or
other casualty and (iii) loss by condemnation. Tenant shall, on Landlord's
request, remove Tenant's Property on or before the Expiration Date and
promptly repair all damage to the Premises or Building caused by such
removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and at Landlord's option, title shall pass
to Landlord under this Lease as by a bill of sale. If Landlord elects to
remove all or any part of such Tenant's Property; the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal shall be paid by Tenant. On the Expiration Date, Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements or other
casualty, Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion, be
completed within (90) ninety days. If Landlord determines that repairs can
be completed within ninety (90) days, this Lease shall remain in full force
and effect, except that if such damage is not the result of the negligence
or willful misconduct of Tenant or Tenants agents, employees, contractors,
licensees or invitees, the Rent shall be abated to the extent Tenant's use
of the Premises is impaired, commencing with the date of damage and
continuing unti1 completion of the repairs required of Landlord under
Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of the
Building necessary for Tenant's occupancy cannot be completed within
ninety (90)days, Landlord may elect, upon notice to Tenant given
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within thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this Lease shall continue in full force
and effect, but the Base Rent shall be partially abated as provided in
Section 19a. If Landlord does not so elect to make such repairs, this Lease
shall terminate as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord may elect upon notice to Tenant
given within thirty (30) days after the date of such fire or other
casualty, to repair such damage, in which event this Lease shall continue
in full force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not elect to make such repairs,
this Lease shall terminate as of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any
repair or restoration of any portion of the Premises, Building or Project
as a result of any damage from fire or other casualty.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by condemnation
or in any other manner for any public or quasi-public purpose, this Lease
shall terminate as of the date of such taking, and Rent shall be prorated
to such date. If less than the whole of the Building or Premises is so
taken, this Lease shall be unaffected by such taking, provided that (i)
Tenant shall have the right to terminate this Lease by notice to Landlord
given within ninety (90) days after the date of such taking if twenty
percent (20%) or more of the Premises is taken and the remaining area of
the Premises is not reasonably sufficient for Tenant to continue operation
of its business, and (ii) Landlord shall have the right to terminate this
Lease by notice to Tenant given within ninety (90) days after the date of
such taking. If either Landlord or Tenant so elects to Terminate this
Lease, the Lease shall terminate on the thirtieth (30th) day after either
such notice. The Rent shall be prorated to the date of termination. If this
Lease continues in force upon such partial taking, the Base Rent and
Tenant's Proportionate Share shall be equitably adjusted according to the
remaining Rentable Area of the Premises and Project.
b. In the event of any taking, partial or whole, all of the proceeds of any
award, judgment or settlement payable by the condemning authority shall be
the exclusive property of Landlord, and Tenant hereby assigns to Landlord
all of its right, title and interest in any award, judgment or settlement
from the condemning authority. Tenant, however, shall have the right, to
the extent that Landlord's award is not reduced or prejudiced, to claim
from the condemning authority (but not from Landlord) such compensation as
may be recoverable by Tenant in its own right for relocation expenses and
damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result in a
termination of this Lease, Landlord shall restore the remaining portion of
the Premises as nearly as practicable to its condition prior to the
condemnation or taking, but only to the extent of Building Standard Work.
Tenant shall be responsible at its sole cost and expense for the repair,
restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or dam age to property of Tenant
or any other person, or for any injury to or death of any person, arising
out of: (l) Tenant's use and occupancy of the Premises, or any work,
activity or other things allowed or suffered by Tenant to be done in, on or
about the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this lease; or (3) any grossly negligent or otherwise
tortious act or omission of Tenant, its agents, employees, invitees or
contractors. Tenant shall at Tenant's expense, and by counsel satisfactory
to Landlord, defend Landlord in any action or proceeding arising from any
such claim and shall indemnify Landlord against all costs, attorneys' fees,
expert witness fees and any other expenses incurred in such action or
proceeding. As a material part of the consideration for Landlord's
execution of this Lease,
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Tenant hereby assumes all risk of damage or injury to any person or
property in, on or about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be sustained by
the person or property of Tenant, its employees, invitees or customers, or
any other person in or about the Premises, caused by or resulting from
fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, whether such damage or injury results
from conditions arising upon the Premises or upon other portions of the
Building or Project or from other sources. Landlord shall not be liable for
any damages arising from any act or omission of any other tenant of the
Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued by
responsible insurance companies acceptable to Landlord and Landlord's
lender and qualified to do business in the State. Each policy shall name
Landlord, and at Landlord's request any mortgagee of Landlord, as an
additional insured, as their respective interests may appear. Each policy
shall contain (i) a cross-liability endorsement, (ii) a provisions that
such policy and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord and that
any coverage carried by Landlord shall be excess insurance, and (iii) a
waiver by the insurer of any right of subrogation against Landlord, its
agents, employees and representatives, which arises or might arise by
reason of any payment under such policy or by reason of any act or omission
of Landlord, its agents, employees or representatives. A copy of each paid
up policy (authenticated by the insurer) or certificate of the insurer
evidencing the existence and amount of each insurance policy required
hereunder shall be delivered to Landlord before the date Tenant is first
given the right of possession of the Premises, and thereafter within thirty
(30) days after any demand by Landlord therefore. Landlord may, at any time
and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancelable
except after twenty (20) days written notice to Landlord and Landlord's
lender. Tenant shall furnish Landlord with renewals or "binders" of any
such policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance,
Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge the Tenant the premiums together with a
twenty-five percent (25%) handling charge, payable upon demand. Tenant
shall have the right to provide such insurance coverage pursuant to blanket
policies obtained by the Tenant, provided such blanket policies expressly
afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant
as required by this Lease.
b. Beginning in the date Tenant is given access to the Premises for any
purpose and continuing until the expiration of the Term. Tenant shall
procure, pay for and maintain in effect policies of casualty insurance
covering (i) all Leasehold Improvements (including any alterations,
additions or improvements as may be made by Tenant pursuant to the
provisions of Article 12 hereof), and (ii) trade fixtures, merchandise and
other personal property from time to time in, on or about the premises, in
the amount not less than one hundred percent (l00%) of their actual
replacement cost from time to time, providing protection against any peril
included within the classification "Fire and Extended Coverage" together
with insurance against sprinkler damage, vandalism and malicious mischief.
The proceeds of such insurance shall be used for the repair or replacement
of the property so insured. Upon termination of this lease following a
casualty as set forth herein, the proceeds under (i) shall be paid to
Landlord, and the proceeds under (ii) above shall be paid to Tenant.
c. Beginning in the date Tenant is given access to the Premises for any
purpose and continuing until the expiration of the Term. Tenant shall
procure, pay for and maintain in effect workers' compensation insurance as
required by law and comprehensive public liability and property damage
insurance with respect to the construction of improvements on the Premises,
the use, operation or condition of the Premises and the operation of Tenant
in, on or about the Premises, providing personal injury and broad from
property damage coverage for not less than One Million Dollars
($1,000.000.00) combined single limit for bodily injury, death and property
damage liability.
Tenant shall deposit the policy or policies of such required insurance or
certificates thereof with Landlord prior to the Commencement Date, which
policies shall name Landlord and Landlord's designee (Chiles &
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Company, Inc.) as additional named insured and shall also contain a
provision stating that such policy or policies shall not be canceled or
materially altered except after thirty (30) days written notice to
Landlord.
d. Not less than every three(3) years during the Term, Landlord and Tenant
shall mutually agree to increases in all Tenant's insurance policy limits
for all insurance carried by Tenant as set forth in this Article. In the
event Landlord and Tenant cannot mutually agree upon the amounts of said
increases, then Tenant agrees that all insurance policy Limits as set forth
in this Article shall be adjusted for increases in the cost of living in
the same manner as is set forth in Section 5.2 hereof for the adjustment of
the Base Rent
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder, or if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are not incurred defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer, Landlord shall be relieved of any and all further liability
with respect thereto.
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27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be
paid by Tenant under this Lease three times during this lease, and
such failure continues for ten (10) days after such payment is due and
payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure
continues for thirty (30) days after written notice thereof from
Landlord to Tenant; or
d. If a writ of attachment or execution is levied on this Lease or any of
Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with
its creditors; or
f. If Tenant files a voluntary petition for relief or if a petition
against Tenant in a proceeding under the federal bankruptcy laws or
other insolvency laws is filed and not withdrawn or dismissed within
forty-five (45) days thereafter, or if under the provisions of any law
providing for reorganization or winding up of corporations, any court
of competent jurisdiction assumes jurisdiction, custody or control of
Tenant or any substantial part of its property and such jurisdiction,
custody or control remains in force unrelinquished, unstayed or
unterminated for a period of forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the
Premises or Tenant's Property (or has the authority to do so) for the
purpose of enforcing a lien against the Premises or Tenant's Property;
or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d
through g above.
27.2 Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord
shall have the right, at Landlord's option, without further notice or
demand of any kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and re-enter the Premises and take possession thereof, and Tenant
shall have no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, re-enter and occupy the Premises for
the account of Tenant, and collect any unpaid Rent or other charges
which have or thereafter become due and payable; or
c. Re-enter the premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to
possession of the Premises.
If Landlord re-enters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth, to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the reletting which is applied against the Rent due hereunder is less than
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the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent received from the
reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which
had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of the rental loss that Tenant proves could
be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses (including attorneys fees),
incurred by Landlord in (a) retaking possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the
Premises for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises, including broker's
commissions.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default
cannot reasonably be cured within thirty (30) days, if Landlord fails to
commence to cure within that thirty (30) day period, then Landlord shall be
liable to Tenant for any damages sustained by Tenant as a result of
Landlord's breach; provided, however, it is expressly understood and agreed
that if Tenant obtains a money judgment against Landlord resulting from any
default or other claim arising under this Lease, that judgment shall be
satisfied only out of the rents, issues, profits, and other income actually
received on account of Landlord's right, title and interest in the
Premises, Building or Project, and no other real personal or mixed property
of Landlord (or of any of the partners which comprise Landlord, if any)
wherever situated, shall be subject to levy to satisfy such judgment. If,
after notice to Landlord of default, Landlord (or any first mortgagee or
first deed of trust beneficiary of Landlord) fails to cure the default as
provided herein, then Tenant shall have the right to cure that default at
Landlord's expense. Tenant shall not have the right to terminate this Lease
or to withhold, reduce or offset any amount against any payments of Rent or
any other charges due and payable under this Lease except as otherwise
specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except Chiles &
Company, Cushman and Wakefield, and Donoghue and Associates. Tenant shall
indemnify and hold Landlord harmless from any cost, expense or liability
(including costs of suit and
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reasonable attorneys' fees) for any compensation, commission or fees claimed by
any other real estate broker or agent in connection with this Lease or its
negotiation by reason of any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if
to Tenant, to Tenant's Mailing Address; provided however, notices to Tenant
shall be deemed duly served or given if delivered or mailed to Tenant at the
Premises. Landlord and Tenant may from time to time by notice to the other
designate another place for receipt of future notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. RELOCATION OF PREMISES. (Paragraph deleted)
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
maybe subordinate.
33. OBSERVANCE OF LAW,
Tenants shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of rite insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
It shall be the Landlord's responsibility to maintain compliance with the
Americans With Disabilities Act on the exterior of the leased space, including
all common areas. The inside of Tenant's leased property shall be Tenant's
responsibility to fully comply with the provisions of the Americans With
Disabilities Act.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefore, acts of God, governmental
restrictions or regulations or controls, judicial order, enemy or hostile
government actions, civil commotion, fire or other casualty or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
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35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant shall
pay Landlord all costs of such performance promptly upon receipt of a bill
therefore.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect, or inscribe any sign, projection, awning,
signal or advertisement of any kind to any Part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord. Tenant has the right to a monument sign on the
grounds near the entrance door, as well as interior signage and interior apparel
display cases visible from the second floor lobby.
37. HAZARDOUS WASTE.
Tenant shall not transport, use, store, maintain, generate, manufacture, handle,
dispose, release, or discharge any "Hazardous Material" (as defined below) upon
or about the Property, or permit Tenant's employees, agents, contractors and
other occupants of the Premises to engage in such activities upon or about the
Property. However, the foregoing provisions shall not prohibit the
transportation to and from, and use, storage, maintenance and handling within,
the Premises of substances customarily used in offices (or such other business
or activity expressly permitted to be undertaken in the Premises: (a) such
substances shall be used and maintained only in such quantities as are
reasonably necessary for such permitted use of the Premises, strictly in
accordance with applicable law and the manufacturers' instructions therefore,
(b) such substances shall not be disposed of, released or discharged on the
Property, and shall be transported to and from the premises in compliance with
all applicable Laws, and as Landlord shall reasonably require, (c) if any
applicable Law of Landlord's trash removal contractor requires that any such
substances be disposed of separately from ordinary trash, Tenant shall make
arrangements at Tenant's expense for such disposal directly with a qualified and
licensed disposal company at a lawful disposal site (subject to scheduling and
approval by Landlord), and qualified and licensed disposal company at a lawful
disposal site (subject to scheduling and approval by Landlord), and shall ensure
that disposal occurs frequently enough to prevent unnecessary storage of such
substances in the Premises, and (d) any remaining such substances shall be
completely, properly and lawfully removed from the Property upon expiration or
earlier termination of this Lease.
Tenant shall promptly notify Landlord of: (i) any enforcement, cleanup or other
regulatory action taken or threatened by any governmental or regulatory
authority with respect to the presence of any Hazardous Material on the Premises
of the migration thereof from or to other property, (ii) any demand claims made
or threatened by any Party against Tenant or the Premises relating to any loss
or injury resulting from any Hazardous Material, (iii) any release, discharge or
non routine, improper or lawful disposal or transportation of any Hazardous
Material on or from the Premises, and (iv) any matters where Tenant is required
by Law to give a notice to any governmental or regulatory authority respecting
any Hazardous Material on the Premises. Landlord shall have the right (but not
the obligation) to join and participate as a party in legal proceedings or
actions affecting the Premises initiated in connection with any environmental,
health or safety Law. At such times as Landlord may reasonably request, Tenant
shall provide Landlord with a written list identifying any Hazardous Material
then used, stored, or maintained upon the Premises, the use and approximate
quantity of each such material, a copy of any material safety data sheet
("MSDS") issued by the manufacturer therefore, written information concerning
the removal, transportation and disposal of the same, and such other information
as Landlord may reasonably require or as may be required by Law. The term
"Hazardous Material" for purposed hereof shall mean any chemical, substance,
material or waste or component thereof by any federal, state or local governing
body having jurisdiction, or which would trigger any employee or community
"right-to-know" requirements adopted by any such body, or for which any such
body has adopted any requirements for the preparation or distribution of an
MSDS.
If any Hazardous Material is released, discharged or disposed of by Tenant or
any other occupant of the Premises, or their employees, agents or contractors,
on or about the Property in violation of the foregoing provisions, Tenant shall
immediately, properly and in compliance with applicable Laws clean up and remove
the Hazardous Material from the Property and any other affected property and
clean or replace any affected personal property (whether or not owned by
Landlord), at Tenant's expense. Such clean up and removal work shall be subject
to Landlord's prior written approval (except in emergencies) and shall include,
without limitation, any testing, investigation, and the
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preparation and implementation of any remedial action plan required by any
governmental body having jurisdiction or reasonably required by Landlord. If
Tenant shall fail to comply with the provisions of this Article within five (5)
days after written notice by Landlord, or such shorter time as may be required
by Law or in order to minimize any hazard to Persons or property, Landlord may
(but shall not be obligated to) arrange for such compliance directly or as
Tenant's agent through contractors or other parties selected by Landlord, at
Tenant's expense (without limiting Landlord's other remedies under this Lease or
applicable Law). If any Hazardous Material is released, discharged or disposed
of on or about the Property and such release, discharge or disposal is not
caused by Tenant or other occupant of the Premises, or their employees, agents
or contractors, such release, discharge or disposal shall be deemed casualty
damage under Article 19 to the extent that the Premises or common areas serving
the Premises are affected thereby; in such case, Landlord and Tenant shall have
the obligations and rights respecting such casualty damage provided under
Article 19.
38. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this
Lease shall be deemed to be other than on account of the earliest due Rent,
nor shall any endorsement or statement on any check or letter accompanying
any check or payment as Rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's
right to recover the provision contained in the addendum shall control,
unless otherwise provided in the addendum balance of the Rent or pursue any
other remedy provided for in this Lease. In connection with the foregoing,
Landlord shall have the absolute right in its sole discretion to apply any
payment received from Tenant to any account or other payment of Tenant then
not current and due or delinquent.
b. Addenda. If any provisions contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in
the addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses,
including reasonable attorneys' fees, incurred on account of such action or
proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning
of this Lease. All references to Article and Section numbers refer to
Articles and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord nor Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by
the lender on Landlord's interest, so long as these changes do not alter
the basic business terms of this Lease or otherwise materially diminish any
rights or materially increase any obligations of the party from whom
consent to such charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State of Washington
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim
against Landlord for money damages by reason of any refusal, withholding or
delaying by Landlord of any consent, approval or statement of satisfaction,
and in such event, Tenant's only remedies therefore shall be an action for
specific performance, injunction or declaratory judgment to enforce any
right to such consent, etc.
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation,
and that this Lease is binding on Tenant in accordance with its terms.
Tenant shall, at Landlord's request, deliver a certified copy of a
resolution of its board of directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
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j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any
interest of Tenant in the Premises or any other premises within the
Building or Project. Execution of this Lease by Tenant and its return to
Landlord shall not be binding on Landlord notwithstanding any time
interval, until Landlord has in fact signed and delivered this Lease to
Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall
promptly furnish Landlord, from time to time, upon Landlord's written
request, with financial statements reflecting Tenants current financial
condition. Tenant represents and warrants that all financial statements,
records and information furnished by Tenant to Landlord in connection with
this Lease are true, correct and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default
served by Tenant on Landlord. If Landlord fails to cure such default within
the time provided for in this Lease, such mortgagee or beneficiary shall
have an additional ten (10) days to cure such default; provided that if
such default cannot reasonably be cured within that ten (l0) day period,
then such mortgagee or beneficiary, shall have such additional time to cure
the default as is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease,
and no prior agreement or understanding pertaining to any such matter shall
be effective for any purpose. No provisions of this Lease may be amended or
added to except by an agreement in writing signed by the parties or their
respective successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute
and acknowledge a "short form" memorandum of this Lease for recording
purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity
of any other provisions, and any provisions so determined to be invalid
shall, to the extent possible, be construed to accomplish its intended
effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the
parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
39. OPTION TO EXTEND LEASE TERM.
Grant of Options
Landlord hereby grants to Tenant one option (the "Option") to extend the
Lease Term for additional term of five years (the "Extension)", on the same
terms and conditions as set forth in the Lease, but at an increased rent as
negotiated. The Option shall be exercised only by written notice delivered
to Landlord at least one hundred twenty (120) days before the expiration of
the Lease Term. If Tenant fails to deliver Landlord written notice of the
exercise of an Option within the prescribed time period, such Option shall
lapse, and there shall be no further right to extend the Lease Term. The
Option shall be exercisable by Tenant on the express conditions that (a) at
the time of the exercise, and at all times prior to the commencement of
such Extension, Tenant shall not be in default under any of the provisions
of this Lease and (b) Tenant has not been ten (10) or more days late in the
payment of rent more than a total of three (3) times during the Lease Term
.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
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No act or conduct of landlord, including, without limitation, the acceptance of
keys to the Premises shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
LANDLORD TENANT
THE BARTELL DRUG COMPANY PACIFIC TRAIL, INC./LONDON FOG INDUSTRIES
By: By:/s/ William D. Richins
--------------------------- -------------------------
Title: Title:EVP & CFO
------------------------ ----------------------
By:
-------------------------
Title:
----------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by Chiles & Company as to
the legal sufficiency or tax consequences of this document or the transaction to
which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
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ACKNOWLEDGMENT OF LESSOR
STATE OF WASHINGTON )
) SS.
COUNTY OF KING )
On this ____________________ day of _____________________________ ,19__ ,
before the undersigned, a Notary Public in and for the State of Washington,
personally appeared
____________________________________________________________________________ to
me known to be the __________________________ and _______________________ of the
corporation that executed the within and foregoing lease, and acknowledged the
said instrument to be the free and voluntary act and deed of said corporation,
for the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument and that the seal affixed is the corporate
seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
-------------------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at________________
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ACKNOWLEDGMENT OF LESSEE
(Corporate)
STATE OF CONNECTICUT )
) ss.
COUNTY OF FAIRFIELD )
On this 30 day of Sept. ,1994, before me personally appeared William D.
Richins and to me known to be the Exec. V.P. & CFO and respectively, of the
corporation that executed the within and foregoing lease, and acknowledged the
said instrument to be the free and voluntary act and deed of said corporation,
for the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument and that the seal affixed is the corporate
seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year first above written.
/s/
-------------------------------------
NOTARY PUBLIC in and for the State of
Connecticut, residing at Darien Fairfield County.
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EXHIBIT A
Floor Plan of Premises
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[GRAPHIC OMMITTED]
<PAGE>
[GRAPHIC OMMITTED]
<PAGE>
EXHIBIT B
Legal Description
The Property, situated in the City of Seattle, County of King, State of
Washington, is located at 1700 Westlake Avenue North, and further described as
LAKE UNION SHORE LANDS ADDITION; LOT 1 THRU 10 BLOCK 92
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EXHIBIT C
Work Letter
This workletter is dated August 23, 1994 between The Bartell Drug Company as
Lessor and Pacific Trail, Inc. as Lessee.
A. This workletter is attached to and forms a part of the certain office lease
date August 23, 1994, pursuant to which landlord had leased to tenant office
space in the building to be known as Lake Union Building.
B. Landlord desires to make improvements to the premises, and tenant desires to
have landlord make them, prior to occupancy, upon the terms and conditions
contained in this workletter.
1. Definitions. In this workletter, some defined terms are used. They are:
(a) Tenant's representative: Gary Hansen
(b) Landlord's representative: Lyn Saucier
(c) Turnkey improvements will be provided pursuant to preliminary
space plan by Ken Slater of Marvin Stein & Associates dated August 8, 1994.
(d) Programming information has been provided by architect regarding
business manner of operation, number and size of rooms, special
requirements, functional requirements, anticipated growth and the like.
(e) Programming information provided is considered final.
(f) Final space plan: a drawing of the premises clearly showing the
layout and relationship of all departments and offices, depicting
partitions, door locations, types of electrical and data and telephone
outlets, and delineation of furniture and equipment. The final space plan
has been preceded by preliminary space plans.
(g) Preliminary estimates of construction costs have been received and
serve as the basis for the negotiated rental rate.
(h) Working drawings: construction documents detailing the
improvements and conforming to codes, complete in form and content and
containing sufficient information and detail to allow for competitive
bidding or negotiated pricing by contractors selected and engaged by
landlord.
(s) Construction schedule: a schedule depicting the relative time
frames for various activities related to the construction of the
improvements in the premises.
(j) Tenant improvement cost proposal: a final estimate of costs of the
improvements that are depicted on the working drawings, including all
architectural, engineering, contractor, and any other costs, and clearly
indicating the cost, if any, that is to be paid by tenant pursuant to
paragraph 7.
(k) Maximum approved cost: $600,000
(l) Improvements:
(1) The development of space plans and working drawings, including
supportin engineering studies (that is, structural design or analysis,
lighting or acoustical evaluations, or others as, determined by landlord's
architect).
(2) All construction work necessary to augment the base building,
creating the details and partitioning shown on the space plan. The work
will create finished ceilings, walls, and floor surfaces, as well as
complete HVAC, lighting, electrical, and fire protection systems.
(m) Cost of the improvements: the cost includes, but is not limited
to, the following:
(1) All architectural and engineering fees and expenses.
(2) All contractor and construction manager costs and fees.
(3) All permits and taxes.
(n) Change order: any change, modification, or addition to the final
space plan or working drawings after tenant has approved the same.
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(o) Base building is in place and ready for demolition and new
improvements.
(p) Building standard: component elements utilized in the design and
construction of the improvements that have been pre-selected by the
landlord to ensure uniformity of quality, function, and appearance
throughout the building. These elements include, but are not limited to,
ceiling systems, doors, hardware, walls, unspecified floor coverings,
window coverings, light fixtures, and HVAC components.
2 . Representative. Landlord appoints landlord's representative to act for
landlord in all matters associated with this workletter. Tenant appoints
tenant's representative to act for tenant in all matters associated with this
workletter. All inquiries, requests, instructions, authorization, and other
communications with respect to the matters covered by this workletter will be
made to landlord's representative or tenant's representative, as the case may
be. Tenant will not make any inquiries of or request to, and will not give any
instructions or authorizations to, any employee or agent of landlord, including
without limitation landlord's architect, engineers, and contractors, or any of
their agents or employees, with regard to matters associated with this
workletter. Either party may change its representative under this workletter at
any time by providing 3 days' prior written notice to the other party.
3. Project Design and Construction. All work will be performed by designers and
contractors selected and engaged by landlord.
4. Cost Responsibilities.
(a) Landlord: Landlord will pay up to the amount of $600,000 for the
cost of improvements. The conservative preliminary estimate is $575,000.
Should total cost of tenant improvements fall below $573,000, landlord
shall give tenant a dollar for dollar credit for free rent is available to
tenant to be applied to the first months rent (or successive months rent)
if tenant spends $573,000 or less for tenant improvements.
(b) Tenant:: Tenant will pay for:
(1)Tenant-initiated changes to the final space plan or working
drawings after tenant's approval.
(2) Tenant-initiated change orders, modifications, or additions to the
improvements after tenant's approval of the working drawings.
(3) All costs in excess of the $600,000 that are not included in (1)
or (2).
5. Landlord's Approval. Landlord, in its sole discretion, may withhold the
approval of any final space plan, working drawings, or change order that:
(a) Exceeds or adversely affects the structural integrity of the
building, or any part of the heating, ventilating, air conditioning,
plumbing, mechanical, electrical, communication, or other systems of the
building;
(b) Is not approved by the holder of any mortgage or deed of trust
encumbering the building at the time the work is proposed;
(c) Would not be approved by a prudent owner of property similar to
the building;
(d) Violates any agreement that affects the building or binds
landlord;
(e) Landlord reasonably believes will increase the cost of operation
or maintenance of any of the systems of the building;
(f) Landlord reasonably believes will reduce the market value of the
premises or the building at the end of the term;
(g) Does not conform to applicable building code or is not approved by
any governmental, quasi-governmental, or utility authority with
jurisdiction over the premises; or
(h) Does not conform to the building standard.
6. Schedule of Improvement Activities
(a) After tenant's final approval of a preliminary space plan (which
will then be the "final space plan"), landlord will promptly cause to be
prepared an estimate of construction costs. If the estimated construction
cost is less than the tenant finish allowance, the estimated construction
cost will be deemed approved without a required response from tenant. If
the estimated construction cost is more than the tenant finish allowance
landlord will so notify tenant in writing and tenant will establish the
maximum approved cost by either:
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(1) Agreeing in writing to pay the amount by which the estimated
construction cost exceeds the tenant finish allowance or;
(2) Agreeing to have the space plan revised by landlord's architect in
order to assure that the estimated construction cost is either:
(A) No more than the tenant finish allowance; or
(B) Exceeds the tenant finish allowance by an amount that the
tenant agrees to pay pursuant to (1)
Tenant will give immediate attention to establishing the maximum approved
cost and respond to landlord within 2 business days. Upon tenant's timely
fulfillment of its obligations in either clause (1) or clause (2), the
maximum approved cost will be established.
(b) Upon establishment of the maximum approved cost, landlord will
cause to be prepared and delivered to tenant the working drawings, the
construction schedule, and the tenant cost proposal for the improvements in
accordance with the final space plan. If the tenant cost proposal is less
than the maximum approved cost, the landlord will take steps necessary to
commence construction of the improvements to the premises. If the tenant
cost proposal is more than the maximum approved cost, landlord will so
notify tenant in writing and tenant will (1) agree in writing to pay the
amount by which the tenant cost proposal exceeds the maximum approved cost
or (2) request landlord to revise the working drawings in order to assure
that the tenant cost proposal is no more than the maximum approved cost.
Tenant will give its immediate attention to the tenant cost proposal
approval process and to respond to landlord within 3 business days after
submissions.
(c) Following approval of the working drawings, and tenant cost
proposal, by landlord and tenant, landlord will cause application to be
made to the appropriate governmental authorities for necessary approvals
and building permits. Upon receipt of the necessary approvals and permits,
landlord will begin construction of the improvements, subject to the rights
of tenant in possession or upon vacation of premises by tenant in
possession.
7. Payment by Tenant: The amount payable by tenant for tenant improvements above
$600,000 will be billed periodically, as the work proceeds, and tenant agrees to
pay each such invoice within 15 business days following its delivery.
8. Change Orders. Tenant may authorize changes to the improvements during
construction only by written instructions to landlord's representative, on a
form approved by landlord. All such changes will be subject to landlord's prior
written approval in accordance with paragraph 5. Prior to commencing any change,
landlord will prepare and deliver to tenant, for tenant's approval, a change
order setting forth the total cost of such change, which will include associated
architectural, engineering, construction contractor's costs and fees, completion
schedule changes, and the cost of landlord's overhead. If tenant fails to
approve such change order within 5 business days after delivery by landlord,
tenant will be deemed to have withdrawn the proposed change and landlord will
not proceed to perform the change. Upon landlord's receipt of tenant's approval,
landlord will proceed with the change.
9. Completion and Commencement Date. Tenant's obligation for payment of rent
pursuant to the lease will commence on date of possession, however, the
commencement date and the date for the payment of rent may be delayed on a
day-by-day basis for each day the substantial completion of the improvements
are delayed by landlord or its contractors or agents. The payment of rent will
not be delayed by a delay of substantial completion due to tenant. The following
are some examples of delays that will not affect the commencement date and the
date of which rent is to commence under the lease:
(a) Late submissions of programming information;
(b) Change orders requested by tenant;
(c) Delays in obtaining non-building standard construction materials
requested by tenant;
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(d) Tenant's failure to approve timely any item requiring tenant's
approval; and
(e) Delays by tenant according to paragraph 6, in accordance of
Article 2(d) in the lease.
In the event that substantial completion of the improvements is delayed by
landlord, its contractors, or agents, the commencement date will be the
date of substantial completion of the improvements, subject only to the
completion of landlord's punchlist items(that is, those items which do not
materially interfere with tenant's use and enjoyment of the premises).
Landlord and tenant will confirm the commencement date in accordance with
Article 2(d) of the lease.
10. Condition of the Premises
(a) Prior to the commencement date, tenant will conduct a walk-through
inspection of the premises with landlord and prepare a punch-list of items
needing additional work by landlord. Other than the items specified in the
punch-list and latent defects (as defined below), by taking possession of
the premises, tenant will be deemed to have accepted the premises in their
condition on the date of delivery of possession and to have acknowledged
that landlord has installed the improvements as required by this workletter
and that there are no items needing additional work or repair. The
punch-list will not include any damage to the premises caused by tenant's
move-in or early access, if permitted. Damage caused by tenant will be
repaired or corrected by landlord at tenant's expense. Tenant acknowledges
that neither landlord nor its agents or employees have made any
representation or warranties as to the suitability or fitness of the
premises for the conduct of tenant's business or for any other purpose, nor
has landlord or its agents or employees agreed to undertake any alterations
or construct any tenant improvements to the premises except as expressly
provided in this lease and this workletter. If tenant fails to submit a
punch-list to landlord prior to the commencement date, it will be deemed
that there are no items needing additional work or repair. Landlord's
contractor will complete all reasonable punch-list items within 30 days
after the walk-through inspection or as soon as practicable after such
walk-through.
(b) A "latent defect" is a defect in the condition of the premises,
caused by landlord's failure to construct the improvements in a good and
workmanlike manner and in accordance with the working drawings, which would
not ordinarily be observed during a walk-through inspection. If tenant
notifies landlord of a latent defect within one year following the
commencement date, then landlord, at its expense, will repair the latent
defect as soon as practicable. Except as set forth in this paragraph 10,
landlord will have no obligation or liability to tenant for latent defects.
11. Adjustments upon Completion. As soon as practicable, upon completion of the
improvements in accordance with this work-letter, landlord will notify
tenant of the rentable area of the premises, the rentable area of the
building, monthly rent, and tenant's share, if such information, was not
previously determinable by landlord. Tenant, within 10 days of landlord's
written request, will execute a certificate confirming such information.
12. Early Occupancy
(a) If, prior to the commencement date of the lease, improvements are
completed to tenant's satisfaction or by mutual agreement, tenant may
occupy the space and pay rent and modify the commencement date of the
lease. If tenant elects early occupancy for a portion of the space, tenant
agrees to pay pro-rata share of the rent.
LANDLORD: TENANT:
/s/ William D. Richins
- ------------------------------ ------------------------------
(For London Fog Industries)
9/23/94
- ------------------------------ ------------------------------
DATE DATE
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EXHIBIT D
RULES AND REGULATIONS
1. Landlord may from time to time adopt appropriate system(s) and procedures
for the security and/or safety of the building, any person occupying,
using, or entering the building, or any equipment, finishing, or contents
of the building, and tenant will comply with landlord's reasonable
requirements relative to such system s and procedures.
2. The sidewalks, halls, passages, exits, entrances, elevators, and stairways
of the building will not be obstructed by any tenants or used by any of
them for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, elevators, and
stairways are not for the general public, and landlord will in all cases
retain the right to control and prevent access to such halls, passages,
exits, entrances, elevators, and stairways of all persons whose presence in
the judgment of landlord would be prejudicial to the safety of the building
and its tenants, provided that nothing contained in these rules and
regulations will be construed to prevent such access to persons with whom
any tenant normally deals in the ordinary course of its business, unless
such persons are engaged in illegal activities. No tenant and no employee
or invitee of any tenant will go upon the roof of the building. No tenant
will be permitted to place or install any object (including without
limitation radio and television antennas, loudspeakers, sound amplifiers,
microwave dishes, solar devices or similar devices) on the exterior of the
building or on the roof of the building.
3. No sign, placard, picture, name, advertisement, or written notice visible
from the exterior of tenant's premises will be inscribed, painted, affixed,
or otherwise displayed by tenant on any part of the building or the
premises without the prior written consent of landlord. Landlord will adopt
and furnish to tenant general guidelines relating to signs inside the
building on the office floors. Tenant agrees to conform to such guidelines.
All approved signs or lettering on doors will be printed, painted, affixed,
or inscribed at the expense of the tenant by a person approved by landlord.
Other than draperies expressly permitted by landlord and building standard
mini-blinds, material visible from the outside the building will not be
permitted. In the event of the violation of this rule by tenant, landlord
may remove the violating items without any liability, and may charge the
expense incurred by such removal to the tenant or tenants violating this
rule.
4. No cooking will be done or permitted by any tenant on the premises, except
in areas of the premises which are specially constructed for cooking and
except that the use by the tenant of microwave ovens and Underwriters'
Laboratory approved equipment for brewing coffee, tea, hot chocolate, and
similar beverages will be permitted, provided that such use is in
accordance with all applicable federal, state, and city laws, codes,
ordinances, rules, and regulations.
5. No tenant will employ any person or persons other than the cleaning service
of landlord for the purpose of cleaning the premises, unless otherwise
agreed to by landlord in writing. Except with the written consent of
landlord, no person or persons other than those approved by landlord will
be permitted to enter the building for the purpose of cleaning it. No
tenant will cause any unnecessary labor by reason of such tenant's
carelessness or indifference in the preservation of good order and
cleanliness. Should tenant's actions result in any increased expense for
any required cleaning, landlord reserves the right to assesss tenant for
such expenses.
6. The toilet rooms, toilets, urinals, wash bowls and other plumbing fixtures
will not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other foreign substances
will be thrown in such plumbing fixtures. All damages resulting from any
misuse of the fixtures will be borne by the tenant who, or whose servants,
employees, agents, visitors, or licensees, caused the same.
7. No tenant will in any way deface any part of the premises or the building
of which they form a part. In those portions of the premises where carpet
has been provided directly or indirectly by landlord, tenant will
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at its own expense install and maintain pads to protect the carpet under
all furniture having caster other than carpet casters.
8. No tenant will alter, change, replace, or rekey any lock or install a new
lock on any door of the premises. Landlord, its agents, or employees will
retain a pass (master) key to all door locks on the premises. Any new door
locks required by tenant or any change in keying of existing locks will be
installed or changed by landlord following tenant's written request to
landlord and will be at tenant's expense. All new locks and rekeyed locks
will remain operable by landlord's pass (master) key. Landlord will furnish
each tenant, free of charge, with two (2) keys to each door lock on the
premises and two (2) building/access cards. Landlord will have the right to
collect a reasonable charge for additional keys and cards requested by any
tenant. Each tenant, upon termination of its tenancy, will deliver to
landlord all keys and access cards for the premises and building that have
been furnished to such tenant.
9. The elevator designated for freight by landlord will be available for use
by all tenants in the building during the hours and pursuant to such
procedures as landlord may determine from time to time. The moving company
must be a locally recognized professional mover, whose primary business is
the performing of relocation services, and must be bonded and fully
insured. A certificate or other verification of such insurance must be
received and approved by landlord prior to the start of any moving
operations. Insurance must be sufficient, in landlord's sole opinion, to
cover all personal liability, theft or damage to the project, including but
not limited to floor coverings, doors, walls, elevators, stairs, foliage,
and landscaping. Special care. must be taken to prevent damage to foliage
and landscaping during adverse weather. All moving operations will be
conducted at such times and in such a manner as landlord will direct, and
all moving will take place during non-business hours unless landlord agrees
in writing otherwise. Tenant will be responsible for the provision of
building security during all moving operations, and will be liable for all
losses and damages sustained by any party as a result of the failure to
supply adequate security. Landlord will have the right to prescribe the
weight, size, and position of all equipment, materials, furniture, or other
property brought into the building. Heavy objects will, if considered
necessary by landlord, stand on wood strips of such thickness as is
necessary to properly distribute the weight. Landlord will not be
responsible for loss of or damage to any such property from any cause, and
all damage done to the building by moving or maintaining such property will
be repaired at the expense of tenant. Landlord reserves the right to
inspect all such property to be brought into the building and to exclude
from the building all such property which violates any of these rules and
regulations or the lease of which these rules and regulations are a part.
Supplies, goods, materials, packages, furniture, and all other items of
every kind delivered to or taken from the premises will be delivered or
removed through the entrance and route designated by landlord, and landlord
will not be responsible for the loss or damage of any such property unless
such loss or damage results from the negligence of landlord, its agents, or
employees.
10. No tenant will use or keep in the premises or the building any kerosene,
gasoline, or inflammable or combustible or explosive fluid or material or
chemical substance other than limited quantities of such materials or
substances reasonably necessary for the operation or maintenance of office
equipment or limited quantities of cleaning fluids and solvents required in
tenant's normal operations in the premises. Without landlord's prior
written approval, no tenant will use any method of heating or air
conditioning other than that supplied by landlord. No tenant will use or
keep or permit to be used or kept any foul or noxious gas or substance in
the premises.
11. Landlord will have the right, exercisable upon written notice and without
liability to any tenant, to change the name and street address of the
building.
12. Landlord will have the right to prohibit any advertising by tenant
mentioning the building that, in landlord's reasonable opinion, tends to
impair the reputation of the building or its desirability as a building for
offices, and upon written notice from landlord, tenant will refrain from or
discontinue such advertising.
13. Tenant will not bring any animals (except "Seeing Eye' dogs) or birds into
the building, and will not permit bicycles or other vehicles inside or on
the sidewalks outside the building except in areas designated from time to
time by landlord for such purposes
14. All persons entering or leaving the building between the hours of 6pm and
7am Monday through Friday, and at all hours on Saturday, Sundays, and
holidays will comply with such off-hour regulations as landlord
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may establish and modify from time to time. Landlord reserves the right to
limit reasonably or restrict access to the building during such time
periods.
15. Each tenant will store all its trash and garbage within its premises. No
material will be placed in the trash boxes or receptacles if such material
is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage without
being in violation of any law or ordinance governing such disposal. All
garbage and refuse disposal will be made only through entryways and
elevators provided for such purposes and at such times as landlord
designates. Removal of any furniture or furnishings, large equipment,
packing crates, packing materials, and boxes will be the responsibility of
each tenant and such items may not be disposed of in the building trash
receptacles nor will they be removed by the building's janitorial service,
except at landlord's sole option and at the tenant's expense. No furniture,
appliance, equipment, or flammable products of any type may be disposed of
in the building trash receptacles.
16. Canvassing, peddling, soliciting, and distributing handbills or any other
written materials in the building are prohibited, and each tenant will
cooperate to prevent the same.
17. The requirements of the tenants will be attended to only upon application
by written, personal, or telephone notice at the office of the property
manager of landlord. Property manager may not do anything outside of their
regular duties unless under special instructions from landlord.
18. A directory of the building will be provided for the display of the name
and location of tenants. Any additional name(s) that tenant desires to
place in such directory must first be approved by landlord, and if so
approved, tenant will pay to landlord a charge, set by landlord, for each
such additional name. All entries on the building directory display will
conform to standards and style set by landlord in its sole discretion.
Space on any exterior signage will be provided in landlord's sole
discretion. No tenant will have any right to the use of any exterior sign.
19. Tenant will see that the doors of the premises are closed and locked and
that all water faucets, water apparatus, and utilities are shut off before
tenant or tenant's employees leave the premises, so as to prevent waste or
damage, and for any default or carelessness in this regard tenant will make
good all injuries sustained by other tenants or occupants of the building
or landlord. On multiple-tenancy floors, all tenants will keep the doors to
the building corridors closed at all times except for ingress and egress.
20. Tenant will not conduct itself in any manner that is inconsistent with the
character of the building as a first quality building or that will impair
the comfort and convenience of the tenants in the building.
21. Neither landlord nor any operator of the parking areas within the project,
as the same are designated and modified by landlord, in its sole
discretion, from time to time (the "parking areas") will be liable for loss
of or damage to any vehicle or any contents of such vehicle or accessories
to any such vehicle, or any property left in any of the parking areas,
resulting from fire, theft, vandalism, accident, conduct of other users of
the parking areas and other persons, or any other casualty or cause.
Further, tenant understands and agrees that: (a) landlord will not be
obligated to provide any traffic control, security protection or operator
for the parking areas; (b) tenant uses the parking areas at its own risk;
and (c) landlord will not be liable for personal injury or death, or theft,
loss of, or damage to property. Tenant waives and releases landlord from
any and all liability arising out of the use of the parking areas by
tenant, its employees, agents, invitees, and visitors, whether brought by
any of such persons or any other person.
22. Tenant (including tenant's employees, agents, invitees, and visitors) will
use the parking spaces solely for the purpose of parking passenger model
cars, small vans, and small trucks and will comply in all respects with any
rules and regulations that may be promulgated by landlord from time to time
with respect to the parking areas. The parking areas may be used by tenant,
its agents, or employees, for occasional overnight parking of vehicles.
Tenant will ensure that any vehicle parked in any of the parking spaces
will be kept in proper repair and will not leak excessive amounts of oil or
grease or any amount of gasoline. If any of the parking spaces are at any
time used (a) for any purpose other than parking as provided above; (b) in
any way or manner reasonably objectionable to landlord; or (c) by tenant
after default by tenant under the lease, landlord, in addition to any other
rights otherwise available to landlord, may consider such default an event
of default under the lease.
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23. Tenant's right to use the parking areas will be in common with other
tenants of the project and with other parties permitted by landlord to use
the parking areas. Landlord reserves the right to assign and reassign, from
time to time, particular parking spaces for use by persons selected by
landlord, provided that tenant's rights under the lease are preserved.
Landlord will not be liable to tenant for any unavailability of tenant's
designated spaces, if any, nor will any unavailability entitle tenant to
any refund, deduction, or allowance. Tenant will not park in any space
designated as: RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME
PARKING (or similar designation).
24. If the Parking areas are damaged or destroyed, or if the use of the parking
areas is limited or prohibited by any governmental authority, or the use or
operation of the parking areas is limited or prevented by strikes or other
labor difficulties or other causes beyond landlord's control, tenant's
inability to use the parking spaces will not subject landlord or any
operator of the parking areas to any liability to tenant and will not
relieve tenant of any of its obligations under the lease and lease will
remain in full force and effect.
25. Tenant has no right to assign or sublicense any of its rights in the
parking spaces, except as part of a permitted assignment or sublease of the
lease; however tenant may allocate the parking spaces among its employees
or contractors.
26. No act or thing done or omitted to be done by landlord or landlord's agent
during the term of the lease in connection with the enforcement of these
rules and regulations will constitute an eviction by landlord of any tenant
nor will it be deemed an acceptance of surrender of the premises by any
tenant, and no agreement to accept such termination or surrender will be
valid unless in a writing signed by landlord. The delivery of keys to any
employee or agent of landlord will not operate as a termination of the
lease or a surrender of the premises unless such delivery of keys is done
in connection with a written instrument executed by landlord approving the
termination or surrender.
27. In these rules and regulations, tenant includes the employees, agents,
invitees, and licensees of tenant and others permitted by tenant to use or
occupy the premises.
28. Landlord may waive anyone or more of these rules and regulations for the
benefit of any particular tenant or tenants, but no such waiver by landlord
will be construed as a waiver of such rules and regulations in favor of any
other tenant or tenants, nor prevent landlord from enforcing any such rules
and regulations against any or all of the tenants of the building after
such waiver.
29. These rules and regulations are in addition to, and will not be construed
to modify or amend, in whole or in part, the terms, covenants, agreements,
and conditions of the lease.
30. Tenant shall keep landlord advised of the current telephone numbers of
tenants' employees who may be contacted in an emergency; i.e.. fire,
break-in, vandalism, etc..
31. Tenant will not smoke or permit its employee or invitees to smoke in the
building.
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February 21, 1995
Mr. Gary Hansen
Pacific Trail, Inc.
1310 Mercer Street
Seattle. WA 98109
RE: The Lake Union Building
Pacific Trail Lease Commencement/T.I. Cost
Dear Gary:
This letter is attached to and made a part of that certain office "Lease" and
"Work Letter" dated August 23, 1994, pursuant to which Landlord ("The Bartell
Drug Company") has leased to Tenant ("Pacific Trail. Inc.") office space in The
Lake Union Building.
AMENDMENT TO LEASE AGREEMENT
Lease Commencement Date and Lease Expiration Date
Landlord as a result of unforeseen delays relating to tenant improvements herein
agrees to change the "Commencement of Rent" date from March 1, 1995, to April 1,
1995, and further agrees to add one (1) month to the term of the agreement from
February 29, 2000, to March 31, 2000.
It is understood that rent commencement shall not be subject to "possession" or
completion of tenant improvements, unless possession delayed solely by fault of
landlord or landlords contractors.
Also, please let this letter serve as a technical notification, pursuant to the
"Lease" and "Work Letter" dated August 23, 1994, relating to paragraph six (6).
page twenty-seven (27) entitled "Schedule of Improvement Activities." that the
cost is more than the tenant finish allowance provided by Landlord.
Tenant herein agrees to pay any amounts that exceed the maximum Landlord tenant
finish allowance of $ 600.000.00. pursuant to terms described herein: provided,
however, in no case shall tenant be required to pay more that the sum of
$183.890.50 (tenant cost as of 2/21/95-see attached), unless tenant signs change
orders for additional work.
The total estimated cost of the improvements (as of this writing - per attached
recapitulation) is $783.890.50 of which the Landlords participation
approximates seventy-seventy percent (77%) and Tenants participation
approximates twenty-three percent (23%). Should the total cost change, the
pro-rata shares of the Landlord and Tenant will be adjusted for payment
purposes, until the $600.000.00 maximum has been paid by the Landlord.
Upon the $600.000.00 maximum being paid, the Tenant will be responsible for any
additional amounts as defined in the "Work Letter." subject to the foregoing
limitations.
Paragraph seven (7). page twenty-eight (28)" Payment by Tenant"
Beginning Feb. 28. 1995, and each month end thereafter until paid in full,
Landlord will bill Tenant based on Tenants pro-rata share of tenant improvement
cost, as of that date. Tenant agrees to promptly pay such invoices pursuant to
paragraph seven (7) of the "Work Letter." The first invoice will include tenants
share of the approximate amounts already paid by Landlord as of this writing.
<PAGE>
Mr. Gary Hansen
February 17. 1995
Page Two
It is understood that all change orders and requests for payments shall be
directed to Ms Cindy Marks, for review and approval.
London Fog Industries
1332 Londontown Boulevard
Eldersburg, Maryland 21784
Telephone: 410 549-8111
Fax: 410 549-8026
All term and conditions of that certain "Lease" and 'Work Letter' dated August
23, 1994, not expressly changed herein remain in full force and effect.
If this meets with your approval, please sign in the space provided below, and
return two signed copies to me for Landlords signature. Upon full execution, I
will return one copy to you.
Sincerely,
CHILES & COMPANY, INC.
Lyn Saucier
Property Manager
Attachment
cc: Ms. Cindy Marks - London Fog Industries
Mr. Smart Fisher - London Fog Industries
LANDLORD TENANT
By /s/ Jean L. Barber By /s/ C. William Crain
----------------------------- ------------------------------
The Bartell Drug Company/ Pacific Trail, Inc.
G. Henbart Company
Date 2/27/95 Date 2/22/95
----------------------------------- ----------------------------
LEASE ADDENDUM
(Additional Space/Lease Extension)
This addendum is to the lease dated August 23, 1994, by and between The Bartell
Drug Company, "Landlord," and Pacific Trail, Inc. "Tenant." All terms and
conditions of this lease apply to the addition of 4,389 rentable square feet
located in the Northeast corner of floor one.
1. Additional Space:
Suite 100 (Northeast corner)
Outline of space Attached as Exhibit "A"
2. Size:
4,389 rentable square feet;
includes a 10% load factor
3. Term:
Five (5) Years
4. Lease Commencement:
October 1, 1998 (subject to the completion or substantial completion of
tenant improvements)
5. Lease Expiration:
September 30, 2003 (or 60 months after the Commencement Date)
6. Rental Rate Additional Space:
The rental rate shall be the fully serviced rate charged Tenant by Landlord
per Rentable Square Foot (RSF), as defined by the Building Owners and
Managers Association International.
Initial Term - The rental rate shall be as follows:
RATE ANNUAL RATE PER RSF
$ 7,040.69 $19.25
On each anniversary of the Lease Commencement Date ("The Adjustment Date"),
for the additional 4,389 rentable square feet, the Rent shall be adjusted
by multiplying the current Rent by a CPI Ratio, wherein the numerator is
the applicable "Current CPI Index" and the denominator is the "Base CPI
Index" provided, however, that the CPI Ratio shall not be less than one.
Adjustments (if any) shall be based upon increases (if any) in the index,
and shall not exceed 5% for any annual adjustment. The CPI index in
PUBLICATION THREE (3) MONTHS BEFORE THE COMMENCEMENT DATE SHALL BE THE
"BASE INDEX." THE CPI INDEX IN PUBLICATION THREE (3) MONTHS BEFORE EACH
ADJUSTMENT DATE SHALL BE THE "COMPARISON Index." The CPI index shall be the
Consumer Price Index for All Urban Consumers issued by the United States
Department of Labor, or the most similar index available should this index
no longer be published.
<PAGE>
Lease Addendum - Pacific Trail
Page 2
July 6, 1998
7. Tenant Improvements - Additional Space:
Landlord shall provide "turnkey" improvements based on a mutually
acceptable space plan. Landlord shall make any necessary wall, window or
ceiling repairs required prior to Tenant's occupancy. In addition, Landlord
shall clean up any loose asbestos in the premises and if necessary, do any
other asbestos abatement work required by law, prior to Tenant's occupancy.
8. Tenant Improvements - Suite 200:
After April 1, 2000 and at Tenant's request, Landlord shall paint and
re-carpet suite 200 as required. Painting and carpet replacement (subject
to availability) shall commence within sixty (60) days of Tenant's request.
9. Space Planning:
Landlord's architect shall provide reasonable space planning at Landlord's
sole cost and expense.
10. Parking:
Parking shall be available at the rate of 2 stalls per l,000 square feet
leased (4,389 RSF = eight (8) spaces). The initial parking charge shall be
$75.00 per month for covered spaces and $65.00 per month for uncovered
parking spaces. The parking charge is subject to rate increases (pursuant
to current market rates) during the lease term.
Subject to availability, additional parking may be available on a
month-to-month basis. Month-to-month parking spaces may be rescinded by the
Landlord at any time during the lease term, by giving the Tenant thirty
(30) days notice prior to rescinding such month-to-month parking spaces. If
at the commencement of a lease the Tenant elects not to rent the eight (8)
parking spaces allotted to them, or if during the lease term any of the
eight (8) parking spaces are returned to the Landlord, reassignment of such
spaces will be subject to availability, and may be reassigned on a
month-to-month-basis. Landlord reserves the right to relocate parking
spaces during the lease term. If relocation becomes necessary, Landlord
will put forth effort to ensure that all newly assigned parking spaces will
be on the same parking level as the previously assigned parking spaces.
11. Lease Cancellation - Suite 712
Upon full execution of a Lease Addendum between the Lake Union Building LLC
and Pacific Trail, Inc., for 4,389 rentable square feet of suite 100, the
Lake Union Building LLC shall release Pacific Trail, Inc. from it's
Agreement executed March 2, 1998, for suite 712.
12. Suite 200 Lease Term Extension
The Landlord shall agree to extend the lease term of the Lease dated August
21, 1994, between The Bartell Drug Company, "Landlord" and Pacific Trail,
Inc., "Tenant." The extension term shall be three (3) years and six (6)
months, commencing April 1, 2000,
<PAGE>
Lease Addendum - Pacific Trail
Page 3
July 6, 1998
ending September 30, 2003.
13. Rental Rate Suite 200 and Northwest corner of floor one - Extension Period
The rental rate shall be the fully serviced rate charged Tenant by Landlord
per Rentable Square Foot (RSF), as defined by the Building Owners and
Managers Association International
The rental rate effective April 1, 2000 shall be as follows:
$ 32,930.63 per month $ 22.50 per RSF
On each anniversary of the Lease Commencement Date ("The Adjustment Date"),
for the initial 17,563 rentable square feet, the Rent shall be adjusted by
multiplying the current Rent by a CPI Ratio, wherein the numerator is the
applicable "Current CPI Index" and the denominator is the "Base CPI Index"
provided, however, that the CPI Ratio shall not be less then one.
Adjustments (if any) shall be based upon increases (if any) in the index,
and shall not exceed 5% for any annual adjustment. The CPI index in
publication three (3) months before the Commencement Date of the Extension
Period (January 2000) shall be the "Base Index." The CPI index in
publication three (3) months before each Adjustment Date shall be the
"Comparison Index." The CPI index shall be the Consumer Price Index for All
Urban Consumers issued by the United States Department of Labor, or the
most similar index available should this index no longer be published.
14. Asbestos:
The following building materials were found to be asbestos-containing
throughout The Lake Union Building:
Spray-applies fireproofing and overspray: located above the suspended
ceilings and throughout the building and in the parking structure (15-25%
chrysotile asbestos, friable and in good condition, debris exist on
suspended ceiling throughout).
Hard pipe fitting insulation on fiberglass insulated pipes: located above
ceiling, behind wall, and in fan rooms: friable and in good condition.
Tenant acknowledges receipt of "Asbestos Notification" delivered May 8,
1998. Tenant understands the responsibilities of building tenants regarding
performing work in their leased premises.
Through September 30, 2003, Landlord shall pay up to $5,000.00 pet year for
any spot abatement, pre-cleaning, air monitoring or other asbestos related
work required due to Tenant's need for work above the ceiling, or Tenant's
need for work that involves entering or demolition of walls within the
leased premises.
The $5,000.00 limit per year applies to all space occupied by Tenant and
does not include any work required by the Landlord to comply with any law,
statute, ordinance, or governmental rule, regulation or requirement.
<PAGE>
Lease Addendum - Pacific Trail
Page 4
July 6, 1998
Any asbestos spot abatement, pre-cleaning, air monitoring or other asbestos
related work required, as part of the Landlord's work in preparing the
additional space shall not be included in the $5,000.00 limit stated above.
15. Option To Lease Southeast corner of floor one (balance of suite 100):
Landlord shall provide Tenant a "Right Of First Opportunity," for the
Southeast corner of floor one. The "Right Of First Opportunity" shall be
exercised by written notice to Landlord within ten (10) business days of
Tenant's receipt of notice from Landlord that the space is available. If
tenant fails to deliver written notice to Landlord within ten (10) business
days of receipt of notice from Landlord, such "Right Of First Opportunity"
shall lapse, and there shall be no further "Right Of First Opportunity."
In the event of any conflict between the terms of this Addendum and the Lease,
the terms of this Addendum shall prevail.
LANDLORD TENANT
Lake Union Building LLC Pacific Trail, Inc.
BY: BY:
-------------------------- -----------------------------
ITS: ITS:
------------------------- ----------------------------
DATE: DATE:
------------------------ ---------------------------
<PAGE>
Lease Addendum- Pacific Trail
Page 5
June 30,1998
ACKNOWLEDGMENT OF LANDLORD
STATE OF WASHINGTON )
) SS.
COUNTY OF KING )
On this ______________________ day of ________________________________ ,19
________ , before the undersigned, a Notary Public in and for the State of
Washington, personally appeared _____________________________ and
_______________________ to me known to be the ______________________________ and
__________________________ of the corporation that executed the within and
foregoing Lease Addendum, and acknowledged the said instrument to be the free
and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned, and on oath stated that they were authorized to execute said
instrument and that the seal affixed is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
----------------------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at ________________
<PAGE>
Lease Addendum - Pacific Trail
Page 6
June 30, 1998
ACKNOWLEDGMENT OF TENANT
(Corporate)
STATE OF _______________ )
) SS.
COUNTY OF ______________ )
On this _________________ day of __________________ ,19 _______ , before
the undersigned, a Notary Public in and for the State of________________ ,
personally appeared __________________________________ and
____________________________ to me known to be the ____________
_____________________ and ______________________________ of the corporation that
executed the within and foregoing Lease Addendum, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument and that the seal affixed is the corporate
seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
----------------------------------------
NOTARY PUBLIC in and for the State of
____________________________________,
residing at____________
<PAGE>
[GRAPHIC OMITTED]
THE LAKE UNION BUILDING - FIRST FLOOR PLAN
1700 WESTLAKE AVENUE NORTH
DEED OF TRUST AND SECURITY AGREEMENT
THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Deed of Trust"), made this
27th day of December, 1989, by LONDONTOWN CORPORATION, a Delaware corporation
having an office at Londontown Boulevard, Eldersburg, Maryland 21784
("Borrower"), to DANIEL L. WIENEKE and JACK N. ZEMIL, as Trustees ("Trustees"),
for the benefit of METLIFE CAPITAL CREDIT CORPORATION, a Delaware corporation
having an office at Ten Stamford Forum, Stamford, Connecticut 06904 ("Lender").
WITNESSETH:
WHEREAS, pursuant to the Loan Commitment dated October 16, 1989, between
Borrower and Lender, Lender has agreed to loan to Borrower the maximum principal
amount of up to $14,000,000.00 (the "Loan") the repayment of which is to be
secured by the execution and delivery of this Deed of Trust; and
WHEREAS, to evidence the terms of repayment of the Loan with interest,
Borrower has duly executed and delivered a deed of trust note of even date
herewith in the principal amount of $14,000,000.00 (the "Note"); and
WHEREAS, this Deed of Trust was executed and delivered to secure: (i) the
repayment of the Note and the monies advanced by Lender and evidenced by the
Note, with interest thereon in accordance with the terms and conditions of the
Note and this Deed of Trust, and (ii) the performance of covenants, agreements
and conditions contained in any and all other documents which Borrower has
executed and delivered or may hereafter execute and deliver to Lender in
connection with the Loan, to evidence or secure any such sums advanced under any
of the foregoing documents and including, without limitation, the Assignment of
Leases and Rents and the Financing Statements, each of even date herewith which
secure the payment and performance of all of the foregoing (which documents, as
same may be modified or amended from time to time, are hereafter collectively
referred to as the "Loan Documents"); and
WHEREAS, all things necessary to make the Note a valid and binding
obligation of Borrower, and to make this Deed of Trust a valid and binding
instrument to secure the payment of the Note in accordance with its terms, have
been duly performed and the execution and delivery of the Note and this Deed of
Trust by Borrower have been duly authorized; and
WHEREAS, Borrower is the fee simple owner of the Property (as hereinafter
defined).
NOW, THEREFORE, THIS DEED OF TRUST WITNESSETH:
THAT, in consideration of the premises and of the acceptance by the
Trustees of the trusts hereby created; and of the Loan, and the acceptance of
the Note by Lender, and of the sum of $1.00 in hand paid by Trustees, at or
before the ensealing and delivery of these presents, the receipt and sufficiency
of which is hereby acknowledged, and in order to secure the payment of the
principal of, and the interest and premiums, if any, on the Note, the payment of
all other and further sums due or which may become due
<PAGE>
under the Note or the other Loan Documents, including future advances, if any,
and the performance of the covenants, agreements, and provisions contained
herein and in the other Loan Documents, Borrower has executed and delivered
these presents and has irrevocably bargained, sold, granted, conveyed, assigned,
transferred and set over, and by these presents does hereby irrevocably bargain,
sell, grant, convey, assign, transfer and set over unto Trustees and their and
each of their successors and assigns in trust with power of sale and the right
of entry and possession, forever, all of its fee simple interest in the land,
more particularly described in Exhibit A attached hereto and made a part hereof
(the "Land"), and any buildings and improvements (including but not limited to
site work, utilities conduits owned by Borrower, paving and landscaping), now or
hereafter located thereon (the "Improvements") (the Land and the Improvements
are together hereinafter referred to as the "Property").
TOGETHER WITH:
(a) all and singular the rights, alleys, ways, waters, tenements,
hereditaments, easements, appurtenances, riparian rights, advantages, accessions
and privileges, whether public or private, now or hereafter belonging or
appertaining to the Property or any part thereof, including, without limitation,
all right, title and interest of Borrower, if any, in and to all streets, roads
and public places, opened or proposed, whether presently owned or after-acquired
and also all the estate, property, claim, right, title or interest now owned or
hereafter acquired by Borrower in or to the Property and/or Collateral (as
hereinafter defined) or any part thereof;
(b) all fixtures, fittings, furnishings, appliances, apparatus, equipment,
and machinery, and all articles of personal property of every kind and nature
whatsoever now or hereafter located in or upon any interest or estate in land
herein conveyed or any part thereof and used or usable in connection with any
present or future operation of the Property and now owned or hereafter acquired
by Borrower including, without limiting the generality of the foregoing, all
screens, storm windows and doors, floor coverings, shrubbery, plants, boilers,
tanks, machinery, wall racking and rail systems, conveyor systems, wiring,
furnaces, radiators, blinds and all heating, lighting and flood lighting,
plumbing, power, water, refrigerating, gas, electric, ventilating, air
conditioning, fire protection, sprinkler, maintenance and incinerating systems
and equipment, elevators and escalators and including all equipment now or
hereafter installed and used in the operation of the Property and all building
material, supplies and equipment now or hereafter delivered to the Property and
now or hereafter installed therein; and all renewals or replacements thereof or
articles in substitution thereof; and all proceeds and profits thereof; it being
understood and agreed that, all of the estate, right, title and interest of
Borrower in and to all property of any nature whatsoever now or hereafter
situated on the Property and essential to the utilization and operation of the
Property, to the extent permitted by law, shall be deemed to be fixtures and an
accession to the freehold and a part of the realty as between the parties
hereto, and shall be deemed to be a portion of the security for the indebtedness
herein mentioned and secured by this Deed of Trust; provided, however, that
notwithstanding the provisions of this subsection (b), furniture, equipment,
machinery and personal property (including all replacements thereof) owned by
lessees of
-2-
<PAGE>
Borrower, if any, shall not be deemed to be subject to the lien of this Deed of
Trust and the security interest created hereunder. If the lien of this Deed of
Trust on any fixtures or personal property be subject to a lease agreement,
conditional sale agreement or chattel mortgage covering such property, then in
the event of any Default hereunder all the rights, title and interest of
Borrower in and to any and all deposits made thereon or therefor are hereby
assigned to Trustees, together with the benefit of any payments now or hereafter
made thereon. There is also transferred, set over and assigned by Borrower to
Trustees, their successors and assigns, all leases and use agreements of
machinery, equipment and other personal property of Borrower in the categories
hereinabove set forth, under which Borrower is the lessee of, or entitled to
use, such items, and Borrower agrees to execute and deliver to Trustees or
Lender specific separate assignments to Trustees or Lender of such leases and
agreements when requested by Trustees or Lender; but nothing herein shall
obligate Trustees or Lender to perform any obligations of Borrower under such
leases or agreements unless they so choose, which obligations Borrower hereby
covenants and agrees to punctually perform. The items set forth in this
Paragraph (b) and in Paragraphs (c), (d), (e), (f) and (g) hereof are sometimes
hereinafter separately referred to as "Collateral";
(c) all right, title and interest of Borrower in and to all rents, incomes,
profits, security deposits, contract rights, plans and specifications, rights in
action with respect to the Property, general intangibles and benefits under any
and all leases or tenancies now existing or hereafter created on or for the
Property or any part thereof with the right to receive and apply the same to
said indebtedness;
(d) all right, title and interest of Borrower in and to all judgments,
awards of damages and settlements hereafter made as a result of or in lieu of
any taking of the Property or any part thereof or interest therein under the
power of eminent domain, or for any damage (whether caused by such taking or
otherwise) to the Property or any part thereof or interest therein, including
any award for change of grade of streets;
(e) all proceeds of casualty, rent or business interruption insurance
policies covering the Property or the Collateral or both;
(f) all proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or liquidated claims; and
(g) all licenses and permits from any governmental authority necessary for
or reasonably appropriate to the use and operation of the Property. To the
extent any individuals or corporations other than Borrower are licensees or
permittees under any such licenses or permits, Borrower agrees to use reasonable
efforts in good faith to cause each such individual or corporation to execute an
assignment of such license or permit to Trustees in form and content reasonably
satisfactory to Lender and to file such assignment with the appropriate
governmental agency. Borrower further agrees that it will not allow any
substitution or change in the licensees or permittees under any such license or
permit without the prior written consent of Trustees and Lender, such consent
not to be unreasonably withheld or delayed if such substitution or change in
licensees or permittees is to a subsidiary or affiliate of the Borrower.
- 3 -
<PAGE>
TO HAVE AND TO HOLD the Property and Collateral and all other interests
described above unto Trustees, the survivors and the survivor of them and their
or his successor or successors in the trust, in fee simple.
BUT IN TRUST, NEVERTHELESS to secure to Lender and to Trustees for the
benefit of Lender (a) the payment of all sums of money secured hereby, including
all sums of principal and interest due or to become due under the Note, all
other moneys now or hereafter advanced or expended by Trustees or Lender as
provided for herein or in any other of the Loan Documents and all costs,
expenses, commissions, and reasonable attorney's fees now or hereafter
chargeable to, or incurred by, or disbursed by Trustees, Lender or Borrower as
provided for herein, or in any other of the Loan Documents, or by applicable
law, and (b) the performance of, observance of and compliance with, by Borrower,
all of the terms, covenants, conditions, stipulations and agreements contained
herein or in any of the Loan Documents.
PROVIDED, HOWEVER, that until the occurrence of an Event of Default (as
hereinafter defined) hereunder or under any of the other Loan Documents, and
subject to any provisions hereof or the Assignment of Leases and Rents to the
contrary, Borrower shall have the sole right to remain in peaceful possession of
the Property, and to collect, receive and retain the rents, revenues, profits,
proceeds, income and royalties therefrom.
PROVIDED FURTHER, HOWEVER, that if Borrower shall pay or cause to be paid
to Lender the principal and interest to become due thereupon at the time and in
the manner stipulated in the Note, and shall pay or cause to be paid all other
sums payable hereunder and under the other Loan Documents and all indebtedness
hereby secured, then, in such case, the estate, right, title and interest of
Trustees and Lender in the Property shall cease, determine and become void, and
upon proof being given to the reasonable satisfaction of Lender that the Note,
together with interest thereon have been paid or satisfied, and upon payment of
all fees, costs, charges, expenses and liabilities chargeable or incurred or to
be incurred by Trustees or Lender under the Loan Documents, and of any other
sums as provided thereunder or hereunder, Trustees shall, upon receipt of the
written request of Lender cancel, release and discharge this Deed of Trust and
cause same to be cancelled and marked satisfied of record.
AND THIS DEED OF TRUST FURTHER WITNESSETH, that Borrower, for itself, its
successors and assigns, has covenanted and agreed and does hereby covenant and
agree with Trustees, and their and each of their successor or successors in the
trust, and each of their assigns, and Lender as follows:
ARTICLE I
Borrower's Covenants
Borrower covenants and agrees with Trustees and Lender that:
1.01 Title.
-4-
<PAGE>
(a) Borrower warrants that at the time of the execution and delivery
of this Deed of Trust: (i) Borrower is the owner of the fee simple title to the
Property and is lawfully seized and possessed of such interest in the Property
subject to no liens, charges or encumbrances other than the exceptions to title
in Schedule B of Title Commitment No. LTC 14982, issued by Transamerica Title
Insurance Company, originally dated November 20, 1989, and redated effective as
of the date hereof; (ii) this Deed of Trust is and shall remain a valid and
enforceable first lien on Borrower's fee simple interest in the Property,
subject only to those exceptions to title in Schedule B of Title Commitment No.
LTC 14982, issued by Transamerica Title Insurance Company, originally dated
November 20, 1989, and redated effective as of the date hereof; and (iii)
Borrower and Borrower's successors and assigns shall warrant specially and
defend the same forever against the lawful claims and demands of all persons
whomsoever claiming by, through or under Borrower.
(b) Borrower has and shall maintain title to the Collateral including
any additions or replacements thereto free of all security interests, liens and
encumbrances, other than as disclosed to and accepted by Lender in writing, and
has good right to subject the Collateral to the security interest hereunder.
(c) Borrower shall, at the cost of Borrower, and without expense to
Lender, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, deeds of trust, assignments, notices of assignments, transfers and
assurances as Lender shall from time to time reasonably require, for the better
assuring, conveying, assigning, transferring and confirming unto Trustees or
Lender the Property and rights hereby conveyed or assigned or intended now or
hereafter so to be, or which Borrower may be or may hereafter become bound to
convey or assign to Trustees or Lender, or for carrying out the intention of
facilitating the performance of the terms of this Deed of Trust and, within
fifteen (15) days after demand, shall execute and deliver, one or more financing
statements, chattel mortgages or comparable security instruments, to evidence
more effectively the lien hereof upon the Collateral or the Property.
(d) Borrower forthwith upon the execution and delivery of this Deed of
Trust, and thereafter from time to time as reasonably required by Lender, shall
cause this Deed of Trust and any security instrument creating a lien or
evidencing the lien hereof upon the Collateral and each instrument of further
assurance to be filed, registered or recorded in such manner and in such places
as may be required by any present or future law in order to publish notice of
and fully to protect the lien hereof upon, and the interest of Trustees or
Lender in, the Property and the Collateral.
(e) Borrower shall pay all filing, registration or recording fees, and
all reasonable expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust supplemental hereto, any
security instrument with respect to the Collateral, and any instrument of
further assurance, and all federal, state, county and municipal stamp taxes and
other taxes, duties, imposts, assessments and charges arising out of or in
connection with the execution and delivery of the Note, this Deed of Trust, any
deed of trust supplemental hereto, any security instrument with respect to the
Collateral or any instrument of further assurance whether imposed at the
-5-
<PAGE>
time of executing the Note or imposed at any time prior to the Note being paid
and satisfied in full. In the event of the passage after the date of this Deed
of Trust of any law changing in any way the laws for the taxation of deeds of
trust or debts secured by deeds of trust, or the manner of collection of any
such taxation so as to affect this Deed of Trust, Lender may give thirty (30)
days written notice to Borrower requiring the payment of the indebtedness
secured hereby. If such notice be given, the indebtedness secured hereby shall
become due and payable at the expiration of said thirty (30) days; provided,
however, that such requirement of payment shall be ineffective if Borrower is
permitted by law to pay the whole of such tax in addition to all other payments
required hereunder, without any penalty or charge thereby accruing to Lender,
and if Borrower in fact pays such tax prior to the date upon which payment is
required by such notice.
(f) Subject to the right of Borrower to contest such laws, as set
forth in Paragraph 1.04 hereof, Borrower shall comply with all present and
future regulations, rules, ordinances, statutes, orders and decrees of any
governmental authority or court applicable to Borrower, to the Property, to the
Collateral or any part thereof or to the use or operation thereof.
1.02 Payment of Note and Escrow Account.
(a) Borrower shall promptly and punctually pay all installments of
principal and interest, and all other sums to become due under the Note and the
other Loan Documents, in the manner provided in the Note, this Deed of Trust and
the other Loan Documents.
(b) After the occurrence of an Event of Default as defined in Section
2.01 herein, by Borrower under the Note or any of the other Loan Documents, and
upon Lender's demand, Borrower shall pay to Lender together with and in addition
to the monthly payments of principal and interest payable under the terms of the
Note secured hereby, on the first day of each month, until the Note is fully
paid, a sum equal to: (i) the annual taxes, levies, charges, fees and special
assessments due on the Property covered by this Deed of Trust; and (ii) the
annual premiums for the insurance policies as may be required under Paragraph
1.05 hereof, Borrower agreeing to deliver promptly to Lender all bills and
notices thereof, less all sums already paid therefor, divided by the number of
months remaining before thirty (30) days prior to the date when such premiums,
taxes, levies, charges, fees and special assessments, as the case may be, will
become delinquent, such sums to be held by Lender to pay said premiums, taxes
and special assessments. If the amounts to be paid for the taxes, levies,
charges, fees and special assessments are not ascertainable at the time any
deposit is required to be made, the deposit shall be made on the basis of the
amounts of such payments for the prior year as adjusted for known or reasonably
anticipated increases in such taxes, charges and premiums, and upon the amounts
of such payments being fixed for the then current year, Borrower, upon notice
from Lender, shall deposit any deficiency with Lender. Such payments,
hereinafter referred to as "Reserves," may be held without any allowance of
interest or dividend to Borrower and need not be kept separate and apart from
other escrow funds of Lender. All payments mentioned in this paragraph and all
payments to be made under the Note secured hereby shall be added together and
the aggregate amount thereof shall be paid by Borrower each month in a single
payment to be applied by
- 6 -
<PAGE>
Lender to the payment of the following items in the order set forth:(i) taxes,
levies, charges, fees, special assessments, fire and other hazard insurance
premiums; (ii) interest on the Note secured hereby; and (iii) amortization of
the principal of said Note.
(c) The arrangement provided for in Paragraph 1.02(b) is solely for
the added protection of Lender and entails no responsibility on Lender's part
beyond the provision of notice to Borrower to make such payments to Lender and
the allowance of due credit, without interest, for the sums actually received by
it. Upon assignment of this Deed of Trust by Lender, any funds on hand pursuant
to this Article 1 shall be turned over to the assignee, and any responsibility
of the assignor with respect thereto shall terminate upon the making of such
payment to such assignee.
(d) If the total of the Reserves, described in Paragraph 1.02(b)
hereof, shall exceed the amount of payments actually applied by Lender as set
forth in Paragraph 1.02(b), such excess may be credited by Lender on subsequent
payments to be made by Borrower or, at the option of Lender, refunded to
Borrower or its successors in interest as may appear on the records of Lender,
except to the extent that it may not do so under Title 12 of the Commercial Law
Article of the Annotated Code of Maryland (1975 Replacement Volume and 1980 Cum.
Supp.). If, however, the Reserves shall not be sufficient to pay the sums
required when the same shall become due and payable, Borrower upon notice from
Lender shall immediately deposit with Lender the full amount of any such
deficiency. If there is an Event of Default under this Deed of Trust or any of
the other Loan Documents, Lender may, but shall not be required to apply, at any
time, the balance then remaining in the funds accumulated under Paragraph
1.02(b) hereof, less such sums as will become due and payable during the
pendency of the proceedings, against the amounts due and payable under the Note,
or under any other of the Loan Documents, except to the extent that it may not
do so under Title 12 of the Commercial Law Article of the Annotated Code of
Maryland (1975 Replacement Volume and 1980 Cum. Supp.).
1.03 Maintenance, Repair and Inspection. Borrower shall keep the Property
and Collateral in good operating order, repair and condition and shall not
commit or permit any waste thereof. Borrower shall, in accordance with all
applicable building codes and regulations, make all repairs, replacements,
renewals, additions and improvements and complete and restore promptly and in
good workmanlike manner any building or improvements which may be constructed,
damaged, or destroyed thereon, and pay when due all costs incurred therefor.
Borrower shall not remove from the Property or demolish any of the Collateral,
nor demolish or materially alter such Property or Collateral, except as
permitted in accordance with Sections 1.11 and 1.16 herein, without the prior
written consent of Lender, such consent not to be unreasonably withheld or
delayed. Borrower shall permit Trustees or Lender or their agents the
opportunity to inspect the Property, including the interior of any structures,
at any reasonable times, as often as may be reasonably requested by Lender or
Trustees, and upon reasonable prior notice to Borrower. Lender and Trustees
shall observe Borrower's safety requirements during the conduct of such
inspections.
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1.04 Compliance with Laws. Borrower shall comply with all laws, ordinances,
regulations, permits, covenants, conditions, orders, decrees, and restrictions
of any governmental boards, agencies, authorities or commissions affecting
Borrower, the Property, the Collateral or the operation or use of the Property
or Collateral, and shall pay all fees or charges of any kind in connection
therewith. Borrower shall promptly after receipt thereof report to Lender all
notices of violations of any laws, ordinances, regulations, permits, covenants
and restrictions. Borrower shall have the right to postpone such compliance to
contest in good faith the validity or applicability to Borrower, the Property,
the Collateral or the uses thereof, of such laws, ordinances, regulations,
orders and restrictions, so long as Borrower notifies Lender in writing of its
intention to contest the validity or applicability of such laws, the validity or
applicability thereof is being contested in good faith and the security of the
Lender's lien on the Property and the Collateral shall not be impaired in the
event such contest shall be unsuccessful. If compliance with such contested
matter is required as a condition of the conduct of such contest or because the
Property shall be in imminent danger of being forfeited or subject to any
additional liens, Borrower shall comply with all requirements during the
pendency of such contest. In any event, Borrower may pay to such governmental
boards, agencies, authorities or commissions any amounts hereunder under
protest, and if recovered, retain any refund of all or any part thereof after
payment to Lender of any reasonable costs or expenses, including reasonable
attorney's fees, incurred by Lender for its participation, voluntarily or
involuntarily, in such contest.
1.05 Insurance.
(a) Borrower shall at all times keep all buildings and improvements
now or hereafter situated on or constituting said Property and all Collateral,
to the extent insurable, insured against loss or damage by fire and other
hazards including, without limitation, flood insurance (if the Property is
located in a special flood or mudslide hazard area), vandalism, malicious
mischief, sprinkler leakage and water damage, and boiler and machinery coverage
whenever in the reasonable opinion of Lender such protection is necessary in an
amount equal to ninety percent (90%) of the replacement value of all buildings
and improvements constituting the Property (excluding excavations, foundations
and footings), based upon the insurer's agreed value without co-insurance, with
a demolition cost endorsement. Borrower shall provide insurance against loss or
damage by fire or other hazard, including without limitation, loss by burglary,
theft or mysterious disappearance on all on-site uninstalled and in transit
building materials and supplies, and all fixtures, furniture, equipment and
machinery to be constructed or installed on the Property in the amounts set
forth on Schedule 1 attached hereto and made a part hereof. Borrower shall also
provide general public liability insurance, naming the Lender as an additional
insured, with limits for personal injury and death of $2,000,000 in the
aggregate and such limits for property damage as Lender may reasonably require.
During any construction, repair or restoration, Borrower shall obtain and keep
in effect a standard builder's risk casualty insurance policy
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in All Risk Builders 100% Completed Value Non-Reporting Form with extended
coverage including vandalism and malicious mischief, naming the Lender as loss
payee, in an amount equal to 100% of the value of such Improvements when
completed.
(b) Borrower shall maintain business interruption insurance in an
amount reasonably required by, and in all respects reasonably satisfactory to,
Lender. The business interruption insurance shall provide that in the event that
the Property, or any portion thereof, shall be damaged or destroyed by fire and
any other casualty, then the proceeds of this insurance shall be paid to Lender
in an amount equal to the aggregate amount of the payments of interest,
principal, and all other sums required to be paid by Borrower under the Note and
the other Loan Documents during the period (the "Debt Service") that Borrower's
business is deemed to have been interrupted because of the fire or other
casualty. If the proceeds of the business interruption insurance exceed the Debt
Service due to Lender during the period of interruption, Borrower shall be
entitled to retain the excess insurance proceeds, provided that Borrower has
paid the Debt Service to Lender. Nothing set forth in this Paragraph 1.05 shall
be construed so as to relieve Borrower from its obligation to make full payment
of the Debt Service if the amount of insurance proceeds paid to Borrower on
account of the fire or other casualty shall be less than the amount of the Debt
Service.
(c) All policies of insurance to be furnished hereunder shall be in
forms, companies and amounts reasonably satisfactory to Lender showing Lender as
a loss payee or an additional named insured and with standard mortgagee clauses
attached to all policies in favor of and in form reasonably satisfactory to
Lender, including a provision requiring that the coverage evidenced thereby
shall not be surrendered, terminated or modified without thirty (30) days' prior
written notice to Lender, and copies of all such policies shall be furnished to
Lender promptly upon request. As of the date hereof, Lender has approved the
forms, companies and amounts of insurance maintained by Borrower, which forms,
companies and amounts may be subject to periodic review and modification or
revision as Lender may reasonably require, but not more than once in every
twelve (12) month period. Borrower shall pay when due any and all premiums on
all such insurance, deliver certificates of insurance to evidence all policies
on or prior to the date hereof, to Lender, and, in the case of insurance about
to expire, shall deliver certificates of insurance to evidence all renewal
policies not less than thirty (30) days prior to their respective dates of
expiration.
(d) Borrower shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Lender is included thereon under a standard mortgagee clause
acceptable to Lender. Borrower shall promptly notify Lender whenever any such
separate insurance is taken out and shall promptly deliver to Lender
certificates of insurance to evidence the policy or policies of such insurance.
In the event of a foreclosure or other transfer of title to the Property in lieu
of foreclosure, or by purchase at the foreclosure sale, all interest in any
insurance policies in force shall pass to Lender, transferee or purchaser, as
the case may be.
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1.06 Casualty. Borrower shall promptly notify Lender of any loss resulting
from casualty, whether covered by insurance or not. So long as there shall be no
Event of Default existing, in case of loss or damage by fire or other casualty,
Borrower is authorized to settle and adjust any claim for a casualty loss of
less than all or substantially all of the then current value of tile
Improvements, including the Collateral, on any of the parcels of real estate
comprising the Property (hereinafter called a "Partial Loss"). In case of a
casualty loss of all or substantially all of the then current value of the
Improvements, including the Collateral, on any of the parcels of real estate
comprising the Property (hereinafter called a " Total Loss"), Borrower is
authorized to settle and adjust any claim under insurance policies insuring
against such risks only after first obtaining Lender's written consent with
respect to the amount to be paid in regard to such loss, such consent not to be
unreasonably withheld or delayed.
In case of all losses, Lender is authorized to collect and give
receipt for any such insurance money. So long as there is no existing Event of
Default, Lender shall provide to Borrower all insurance proceeds received by
Lender whether with respect to a Partial Loss or a Total Loss for the rebuilding
or restoration of the damaged Improvements on the Property, including the
Collateral, in accordance with the procedure set forth in this Section 1.06,
except that, to the extent such insurance proceeds shall be less than Five
Hundred Thousand Dollars ($500,000.00), such amount, up to Five Hundred Thousand
Dollars ($500,000.00), shall be paid directly to and held by Borrower for such
rebuilding or restoration. In the event of a Total Loss, after reimbursing
Borrower for the cost of the rebuilding or restoration of the Improvements on
the Property or the Collateral in accordance with this Section 1.06, Lender may,
at its option, with notice thereof to Borrower, apply the remaining amounts of
any insurance proceeds received in reduction of the indebtedness secured hereby.
In any case in which the insurance proceeds shall be in excess of $500,000 and
Lender is holding such excess sums for reimbursement to Borrower for restoration
or rebuilding, the following procedure shall apply:
1. Borrower shall not commence any reconstruction or repair having a
cost in excess of Five Hundred Thousand Dollars ($500,000.00) (except temporary
repairs, including without limitation fencing, as required to make the Property
safe) without first obtaining Lender's approval of plans and specifications for
such repair or reconstruction. Such approval shall not be unreasonably withheld
or delayed, so long as the improvements are being restored to substantially the
same condition as they were in immediately prior to the casualty. All reasonable
costs incurred by Lender in reviewing such plans and specifications shall be
paid by Borrower to Lender within thirty (30) days following demand. Such costs
shall be paid to Lender out of insurance proceeds available for rebuilding or
restoration of the Improvements on the Property, but only to the extent that the
insurance proceeds are sufficient to complete such rebuilding or restoration. In
the event that the insurance proceeds are not sufficient to pay the costs of
restoration and Lender's costs, Borrower shall pay Lender's costs from other
funds available to it. Lender's failure to approve or disapprove Borrower's
plans and specifications within thirty (30) days after submission of same to
Lender shall be deemed an approval of such plans.
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2. (a) The balance of the net insurance proceeds received by Lender
shall be applied by Lender to pay or reimburse Borrower for the payment of the
remaining costs of the restoration, repairs, demolition, replacement, rebuilding
or alterations (including without limitation any temporary repairs) (all of
which temporary and permanent repairs, replacements, rebuilding or alterations
are herein collectively referred to as the "restoration"), and shall be paid out
from time to time as such restoration progresses upon the written request of
Borrower which shall be accompanied by the following:
(i) A certificate, dated not more than thirty (30) days prior to
such request, setting forth the following:
(A) that the sum then requested either has been paid or is
properly due to the contractors, subcontractors, materialmen, engineers,
architects or other persons who have rendered services or furnished materials
for the restoration therein specified, the names and addresses of such persons,
a brief description of such services and materials, the several amounts so paid
or due to each of said persons in respect thereof, that no part of such
expenditure has been or is being made the basis, in any previous or then pending
request, for the withdrawal of net insurance proceeds or has been made out of
the net insurance proceeds and that sum then requested does not exceed the value
of the services and materials described in the certificate;
(B) that the cost, as estimated by the general contractor,
architect and/or engineer referred to in Paragraph 1.06(2)(b), as the persons
signing the certificate, of the restoration required to be done subsequent to
the date of the certificate in order to complete the same does not exceed the
net insurance proceeds, plus any amount deposited with Lender by Borrower to
defray such cost and remaining in the hands of Lender after payment of the sum
requested in the certificate; and
(ii) a title company or official search, or other evidence
satisfactory to Lender, showing that there have not been filed with respect to
the Property any vendor's, contractor's, mechanic's, laborer's or materialman's
statutory or similar lien which has not been bonded or otherwise discharged of
record, except those which will be discharged upon payment of the sum requested
in such certificate.
(b) The certificate required by Paragraph 1.06(2)(a)(i) above shall be
signed by the general contractor, architect and/or engineer in charge of the
restoration who shall be selected by Borrower and approved by Lender, such
approval not to be unreasonably withheld or delayed, and who shall be licensed
to practice his profession in the State of Maryland.
(c) Upon compliance with the foregoing provisions of this Paragraph
1.06, Lender shall, out of the net insurance proceeds received by Lender, pay or
cause to be paid to Borrower or the person(s) named (pursuant to Paragraph
1.06(2)(a)(i)(A)) in such certificate, the respective amounts stated therein to
have been paid or to be due to them, as tile case may be.
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(d) If the net insurance proceeds, at the time available for the
purpose, shall be insufficient to pay the entire cost of restoration, Borrower
shall pay the deficiency and provide Lender with evidence, reasonably
satisfactory to Lender prior to commencement of the restoration, of the
availability of funds to pay any such deficiency. If all or any part of the net
insurance proceeds are not used for restoration in accordance with the
foregoing, such amount not used for restoration shall be retained and applied by
Lender toward payment of the sums secured by this Deed of Trust (either
interest, principal or both or other sums secured hereby) as Lender may
determine. In the event that Lender receives and retains insurance monies for
damage by fire or other hazards to the Property, the lien of this Deed of Trust
shall be reduced only by an amount equal to the amount of such insurance monies
received and retained by Lender and applied in reduction of the sums secured by
this Deed of Trust. In no event shall any prepayment charge apply to any such
application of insurance monies to reduction of the sums so secured.
(e) The term "net insurance proceeds" shall mean insurance money paid
to Lender on account of damage or destruction of or to all or any part of the
Property or Collateral under the policies of insurance provided for in this Deed
of Trust, less the reasonable costs incurred in connection with the adjustment
of the loss and collection thereof, including reasonable attorneys' fees.
(f) To the extent Lender makes the balance of such net insurance
proceeds available for restoration of the Property, none of the net insurance
proceeds received by Lender shall be deemed to be paid on account of the
indebtedness secured hereby.
1.07 Condemnation. Promptly upon obtaining knowledge of the threat of the
institution or the institution of any proceeding for the condemnation of the
Property, the Collateral, or any portion of either, Borrower shall notify Lender
of the pendency thereof. In accordance with the terms of this Section, Lender
may, at its option, commence, appear in and prosecute, in its own name, any
action or proceeding, or make any compromise or settlement in connection with
such condemnation, taken under the power of eminent domain or sale in lieu
thereof. Notwithstanding the foregoing, so long as there shall be no Event of
Default, Borrower is authorized to make any compromise or settlement in
connection with a condemnation in which the proceeds of such award (or
settlement) shall be less than all or substantially all of the then current
value of the parcel of Property condemned, including the Collateral thereon,
(hereinafter called a "Partial Condemnation Loss"). In case of a condemnation in
which the proceeds of such award or settlement shall be equal to all or
substantially all of the then current value of the parcel of Property condemned,
including the Collateral thereon, (hereinafter called a "Total Condemnation
Loss"), Borrower is authorized to settle and adjust any such condemnation.
In case of all condemnation awards or settlements, Lender is
authorized to collect and give receipt for any such award or settlement money.
Except in case of a Total Condemnation Loss, so long as there is no existing
Event of Default, Lender shall provide to Borrower all proceeds of such award or
settlement, less any expenses incurred by Lender in collecting
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such award or settlement, received by Lender from a Partial Condemnation Loss
for the rebuilding or restoration of damaged improvements on the Property,
including the Collateral, in accordance with the procedure set forth in
Paragraph 1.06 hereof, except that, to the extent such condemnation proceeds are
less than Twenty-Five Thousand Dollars ($25,000.00), such amount, up to
Twenty-Five Thousand Dollars ($25,000.00), shall be made available directly to
Borrower without request. In the event of a Total Condemnation Loss, Lender may,
at its option, with notice thereof to Borrower, either (i) apply the amounts
received in reduction of the indebtedness secured hereby or (ii) hold such suns,
without any allowance of interest and without obligation to see the sum so
applied and used, to reimburse Borrower for the cost of rebuilding or
restoration of the improvements on the Property, including the Collateral. In
any case in which Lender is holding such sums for reimbursement to Borrower, the
procedure set forth in Paragraph 1.06 shall apply.
1.08 Liens and Encumbrances. At all times Borrower (i) will keep the
Property and Collateral free from all liens, mortgages, security interests,
encumbrances and claims of every kind and nature, except as permitted by
subclause (iii) herein, (ii) will not permit any lien, mortgage, security
interest, encumbrance or claim to accrue or remain on the Property and/or
Collateral or any part thereof which may be superior to the lien or security
interest of this Deed of Trust, and (iii) will not, without first obtaining the
written consent of the Lender permit any lien, mortgage, security interest,
encumbrance or claim to accrue or remain on the Property and/or Collateral or
any part thereof which may be inferior or junior to the lien or security
interest of this Deed of Trust other than the second lien in favor of General
Electric Capital Corporation, or its successors or assigns ("GECC"), and other
mechanics' or materialmen's liens in an aggregate amount less than Three Hundred
Thousand Dollars ($300,000.00). Borrower shall not permit any mechanics' or
materialmen's liens in the amount of Three Hundred Thousand Dollars
($300,000.00) or more in the aggregate to remain on the Property for more than
thirty (30) days after Borrower obtains actual knowledge thereof. Borrower shall
pay or bond off or otherwise cause to be removed of record all such liens
exceeding Three Hundred Thousand Dollars ($300,000.00) in the aggregate within
thirty (30) days after Borrower obtains actual knowledge thereof. Borrower shall
immediately give Lender notice of any default in any permitted junior or
subordinated lien, mortgage, security interest or encumbrance on the Property
and/or Collateral and notice of any foreclosure or threat of foreclosure of any
permitted junior or subordinated lien, mortgage, security interest or
encumbrance. Lender agrees that it shall not unreasonably withhold or delay its
consent to Borrower's request to encumber the Property with easements,
rights-of-way, or similar access agreements deemed necessary by Borrower for the
further development of the Property or any portion thereof, unless Lender
believes that the permitted encumbering of the said Property would be reasonably
anticipated to have a materially adverse effect on the Property or the Lender's
security in the Collateral.
1.09 Taxes and Assessments. Borrower shall pay in full before any penalty
or interest attaches (and under protest in the manner provided by statute for
any taxes which Borrower desires to contest), all general taxes and assessments,
special taxes, special assessments, personal property taxes, water charges,
sewer service charges, and all other charges or fees against
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the Property and/or the Collateral or any part thereof or upon the rents,
issues, income or profits thereof, regardless of the form of the levy and shall
furnish to Lender within ten (10) days after receipt of Lender's request either
official receipts or copies of cancelled checks evidencing the complete payment
thereof, such form of evidence to be selected by Borrower. Borrower shall have
the right to contest in good faith the levy or assessment of any such tax,
assessment, fee or charge against the Property, the Collateral or the rents,
issues, income or profits thereof so long as Borrower notifies Lender in writing
of its intention to contest the validity of such tax or charge, the validity
thereof is being contested in good faith, and Borrower deposits or causes to be
deposited with Lender, if Lender so requests, an amount (in cash, by letter of
credit, certificate of deposit, treasury bond or treasury note or other deposit
reasonably acceptable to Lender in its sole discretion) deemed reasonably
sufficient by Lender to make such tax payment if the contest is unsuccessful.
Such deposited amount shall be returned to Borrower upon the full payment or
other discharge of such tax payment. Provided, however, if payment is required
during the pendency of such protest, Borrower shall make full payment of such
taxes or charges during the pendency of such protest. If Borrower makes any such
payment under protest and recovers a refund of all or any part thereof, Borrower
shall be entitled to retain such refund after payment to Lender of any
reasonable costs or expenses including reasonable attorney's fees incurred by
Lender for its participation, voluntarily or involuntarily, in such tax contest.
1.10 Indemnification.
(a) Borrower shall appear in and defend any suit, action or proceeding
that might in any way and in the reasonable judgment of Lender affect the value
of the Property or Collateral or the rights and powers of Trustees or Lender, if
Borrower is a party to such suit, action or proceeding. Borrower will protect,
indemnify and save harmless Trustees and Lender from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against Trustees or Lender by
reason of (i) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Property or the adjoining sidewalks,
curbs, streets or ways unless caused by the negligence or willfull misconduct of
Trustees, Lender or their agents; (ii) any use, nonuse or condition of any of
the Property or the adjoining sidewalks, curbs, streets or ways or Collateral;
(iii) any failure on the part of Borrower to perform or comply with any of the
terms of this Deed of Trust, or any of the other Loan Documents or the Leases
(as hereinafter defined), or (iv) performance of any labor or services or the
furnishing of any materials or other property in respect of any portion of the
Property or Collateral. Borrower shall promptly reimburse Lender within ten (10)
days after demand for any reasonable legal expenses incurred by it in connection
with advice sought by Lender after the occurrence of a Default by Borrower
hereunder or under any of the other Loan Documents, during the term of the Note.
(b) In case any action, suit or proceeding is brought against Trustees
or Lender by reason of any such occurrence, if Borrower is not a party to such
action, suit or proceeding Lender shall have the right at -14- 50596 94
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Borrower's expense to resist and defend against such action, suit or proceeding
by counsel designated by Lender and approved by Borrower and Trustees, which
approval will not be unreasonably withheld or delayed. Borrower shall, at all
times, indemnify, hold harmless and, on demand, reimburse Lender for any and all
loss, damage, expense or cost, including the cost of evidence of title and
reasonable attorneys' fees, arising out of or incurred in connection with any
such suit, action or proceeding, and the sum of such expenditures shall be
secured by this Deed of Trust and shall be due and payable ten (10) days after
demand. If Borrower has not paid to Lender within ten (10) days of demand any
sums expended by Lender to which this indemnity applies, thereafter such sums
shall bear interest at the default rate provided in the Note and secured hereby.
The obligations of Borrower under this Paragraph 1.10 shall not survive any
termination or satisfaction of this Deed of Trust unless such obligations
pertain to those items set forth in Section 4.02 herein for which Borrower has
recourse liability.
1.11 Sale of Property.
(a) (i) In order to induce Lender to make the Loan, Borrower agrees
that if the Property or any part thereof or interest therein is sold, assigned,
transferred, or otherwise conveyed, mortgaged, pledged, placed in trust to
secure a debt or otherwise alienated by Borrower, except to General Electric
Capital Corporation and as permitted under Section 1.08 herein, including
without limitation a lease of all or substantially all of the Property, by
ground lease or otherwise, whether voluntarily or involuntarily or by operation
of law, without first obtaining the written approval of Lender, Lender, at its
option, may declare the Note secured hereby and all other obligations hereunder
and under the Loan Documents to be forthwith due and payable. For purposes of
this Paragraph 1.11, any change in the legal or equitable title of the Property
or in the beneficial ownership of the Property, whether or not of record,
whether or not for consideration, and whether or not such sale or transfer shall
be to direct or indirect affiliates of the Borrower, who shall assume all of the
Borrower's obligations under this Deed of Trust and all of the other Loan
Documents, shall be deemed a sale or transfer of an interest in the Property. In
the event of such proposed transfer, the Borrower shall provide Lender with
written notice of such transfer not less than thirty (30) days prior to its
proposed occurrence. Notwithstanding the foregoing, at any time and from time to
time, any sales or transfers of all or any portion of the stock of Borrower,
whether voluntarily, involuntarily, or by operation of law, shall be permitted
without first obtaining the written approval of Lender, and shall not be deemed
a sale or transfer of an interest in the Property.
(ii) In connection herewith, the financial stability, managerial
and operational ability of Borrower are a substantial and material consideration
to Lender in its agreement to make the Loan to Borrower. The transfer of an
interest in the Property or change in the entity operating the Property which
results in a material change in the composition of the management of Borrower
may significantly or materially alter or reduce Lender's security for the
indebtedness secured hereby. For the purposes of this Section, "management" is
defined as the executive officer group and the officer group. "Material changes
in the composition of the management" of the Borrower shall not be deemed to
include changes occurring in the ordinary course of Borrower's business,
including, without limitation, retirement,
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death and normal employee attrition. Therefore, any sale or transfer of an
interest in the Property to a third party not a direct or indirect affiliate of
the Borrower which results in a material change in the composition of the
management of the Borrower prior to the third anniversary of the date hereof
shall require Lender's prior written consent, to be made in its sole
determination through the exercise of its reasonable business judgment. In the
event that Lender consents to a transfer of the Property subject to the lien of
this Deed of Trust, Borrower shall not be required to pay to Lender any transfer
fee.
(b) In the event ownership of the Property, or any part thereof,
becomes vested in a person or persons other than Borrower, without first
obtaining the written approval of Lender, Lender may, without notice to
Borrower, waive Such default and deal with such successor or successors in
interest with reference to this Deed of Trust and the Note and the Loan
Documents in the same manner as with Borrower, without in any way releasing,
discharging or otherwise affecting the liability of Borrower hereunder or under
the Note or the other Loan Documents. No sale of the Property, no forbearance on
the part of Lender, no extension of the time for the payment of the Loan or any
change in the terms thereof consented to by Lender shall in any way whatsoever
operate to release, discharge, modify, change or affect the original liability
of Borrower herein, either in whole or in part. Any deed or assignment conveying
the Property or any part thereof, shall provide that the grantee thereunder
assumes or takes title subject to all of the grantor's obligations under this
Deed of Trust, the Note and all other Loan Documents. In the event such deed or
assignment shall not contain such assumption or an agreement to take title
subject thereto, the grantee under such deed or assignment conveying the
Property shall nevertheless be deemed to have agreed to take title subject to
all of these obligations by acquiring the Property or such portion thereof
subject to this Deed of Trust.
(c) Borrower shall not voluntarily, involuntarily or by operation of
law sell, assign, transfer or otherwise dispose of the Collateral or any
interest therein, except in connection with any permitted transfer of the
Property, and shall not otherwise do or permit anything to be done or occur that
may impair the Collateral as security hereunder; except so long as this Deed of
Trust and the other Loan Documents are not in default after provision of
applicable notice and beyond any applicable grace period, Borrower shall be
permitted to sell or otherwise dispose of the Collateral when obsolete, worn
out, inadequate, unserviceable or unnecessary for use in the operation of the
Property in the conduct of the business of Borrower, provided that within a
reasonable period after such disposal, any such Collateral shall be replaced or
substituted with other Collateral at least equal in value or utility to the
initial value or utility of that disposed of (unless technological advances have
made such replacements or substitutions with or for prior equivalents
unnecessary) and in such a manner so that the Collateral shall be subject to the
security interest created hereby and so that the security interest of Lender
hereunder shall be the first priority security interest in the Collateral. In
the event the Collateral is sold in connection with the sale of the Property,
Borrower shall require, as a condition of the sale, that the buyer specifically
agree to assume or agree to
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take title to the Collateral subject to Borrower's obligations as to the
security interest herein granted, and to execute whatever agreements and filings
are deemed reasonably necessary by Lender to maintain its perfected security
interest in the Collateral.
(d) In the event of any name change by Borrower, and/or in the event
of a change in the Borrower's corporate structure that renders the Financing
Statement seriously misleading, Borrower shall, within thirty (30) days
thereafter, file a new financing statement, pursuant to Section 9-402(7) of the
Maryland Uniform Commercial Code.
1.12 Advances.
(a) If Borrower shall fail (i) to make any payment or to perform any
of the conditions or covenants herein contained or contained in any of the other
Loan Documents or (ii) to pay any charge, fee or invoice for materials, supplies
or services which failure has resulted in any mechanics' or materialmens' lien
to be filed against the Property which has not been discharged by Borrower in
accordance with the requirements of Section 1.08 hereunder, Trustees or Lender
may, but without obligation to do so and without notice to Borrower, at any time
thereafter make advances to perform same on its behalf, and all sums so advanced
shall be secured by this Deed of Trust. Borrower shall repay within ten (10)
days after demand all sums so advanced on its behalf with interest at the
default rate provided for in the Note. No advance, action or payment by Lender
hereunder shall relieve Borrower from any Event of Default (as hereafter
defined).
(b) Trustees or Lender may, without any obligation so to do, after and
during a Default, make advances to or on behalf of Borrower or expend any sums
for the benefit of the Property or Collateral or otherwise to protect or
maintain the value or integrity of security provided by this Deed of Trust, as
Lender shall, in its sole discretion, determine, and all sums so advanced or
expended shall be within ten (10) days after demand repayable by Borrower and
shall bear interest at the default rate under the Note until paid, and any such
sums or sums so advanced or expended, with interest as aforesaid, shall become
part of the indebtedness hereby secured.
(c) Any sum or sums for which Borrower shall become obligated to pay
or repay to Lender or Trustees hereunder or under the other Loan Documents and
as to which terms for payment or repayment and accrual and payment of interest
thereon are not otherwise specifically provided, shall be within ten (10) days
after demand payable by Borrower and shall bear interest at the default rate
until paid, and any such sums or sums, with interest as aforesaid, shall become
part of the indebtedness hereby secured.
1.13 Time. Borrower agrees that time is of the essence hereof in connection
with all obligations of the Borrower herein and in the Note and all of the other
Loan Documents, including without limitation during any applicable grace or cure
periods.
1.14 Estoppel Certificates. Either Borrower or Lender, within fifteen (15)
days after written request by the other, shall furnish a duly acknowledged
written statement setting forth the amount of the debt secured by
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this Deed of Trust, the interest and other charges thereon then due and payable,
the date to which interest has been paid, and whether or not, to the knowledge
of the party delivering the certificate, the other party is in Default under the
Note or this Deed of Trust or any of the other Loan Documents and whether any
event has occurred which, with the giving of notice or passage of time, or both,
would constitute such a Default, and if so, specifying each such Default or
event. GECC shall have the right to obtain an estoppel certificate from Lender
in the same form and within the same time periods in which an estoppel
certificate is to be provided to Borrower hereunder. The requesting party or its
designee to whom such a certificate is delivered shall be entitled to rely
thereon.
1.15 Management and Business Records of Borrower. Borrower shall keep books
of record and account in which full, true and correct entries in accordance with
sound accounting practices shall be made of all dealings or transactions with
respect to the Property and Collateral and shall permit Lender, its accountants,
auditors, attorneys and advisors to inspect and examine these records and books
and all supporting vouchers and data and to make copies and extracts therefrom
or thereof at all reasonable times upon reasonable advance notice to Borrower
and as often as may be reasonably requested by Lender (but in no event more than
two (2) times in any one (1) fiscal year) at the offices of Borrower, or at the
office of such other person or entity keeping and maintaining such books and
records, or at some other location as may be mutually agreed upon. Lender shall,
and shall cause its accountants, auditors, attorneys and advisors to hold in
strict confidence all information contained in such books and records and
examined by them.
1.16 Additions to Property and Security. Borrower will not construct any
improvements or make any alterations to the real estate comprising the Property
if the cost of such improvements or alterations on that occasion exceeds the
greater of $25,000 or in the aggregate ten percent (10%) of the insurable value
set forth on Schedule 1 attached hereto and made a part hereof without first
obtaining the written consent of Lender, which consent shall not be unreasonably
withheld or delayed in the event such additions or alterations do not materially
change the current use of the Property or the Collateral as security for the
Loan to Borrower. All right, title and interest of Borrower in and to all
extensions, improvements, betterments, renewals, substitutes and replacements
of, and all additions and appurtenances to, the Property and/or Collateral,
hereafter acquired by or released to Borrower or constructed, assembled or
placed by Borrower on the Property, and all conversions of the security
constituted thereby, immediately upon such acquisition, release, construction,
assembling, placement or conversion, as the case may be, and in each such case,
without any further deed of trust, conveyance, assignment or other act by
Borrower, shall become subject to the lien of this Deed of Trust as fully and
completely, and with the same effect, as though now owned by Borrower and
specifically described in the granting clauses hereof.
1.17 Subrogation. The beneficiary of this Deed of Trust and the Trustees,
as additional security, are hereby subrogated to the lien or liens and to the
rights of the owners and holders thereof of each and every mortgage, lien or
other encumbrance on the Property, or any part thereof, or any claim or demand,
whether or not same are paid or satisfied, in whole or in
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part, out of the proceeds of the Loan to the extent Lender or Trustees have paid
such sums to the owners or holders of any junior lien or encumbrance and the
respective liens of said mortgages, liens and other encumbrances and claims and
demands shall pass to and be held by Trustees as additional security for the
indebtedness to Lender to the same extent that they would have been preserved
and would have been passed to and been held by Lender had they each been duly
and regularly assigned, transferred, set over and delivered to Lender by
separate deed of assignment, notwithstanding the fact the same may be or may
have been satisfied and cancelled of record; provided, however, this Paragraph
shall not be deemed or construed to obligate Lender to pay or discharge the
same.
1.18 Covenants with Respect to any Lease.
(a) Borrower shall not hereafter enter into any lease with respect to
the Property or any portion thereof, now
existing or hereafter made (referred to as a "Lease" or collectively as
"Leases") without first obtaining the written consent of Lender.
(b) Borrower shall, as and when required thereunder, perform and
observe all of the terms, covenants and conditions required to be performed and
observed by Borrower as lessor under any Lease, within the periods (inclusive of
grace periods) provided in any such Lease, and will do all things reasonably
necessary and required on behalf of the lessor thereunder to preserve and keep
any such Lease free from default and to preserve and to keep unimpaired its
rights under any such Lease.
(c) Borrower shall not accept prepayments more than thirty (30) days
prior to the due date of any installments of rents to become due and payable
under any such Leases or tenancies, except prepayments in the nature of security
for the performance of the terms, covenants and conditions required to be
performed or observed by the lessees thereunder, or consent to an assignment or
subletting thereof, in whole or in part, without first obtaining the Lender's
written consent, such consent not to be unreasonably withheld or delayed. Any
assignment or subletting of then existing Leases shall be made pursuant to
written assignments or subleases which shall satisfy all of the conditions set
forth in Section 1.19 herein and shall be, in all other respects, reasonably
satisfactory to Lender.
(d) Borrower shall not hereafter release, surrender or terminate any
Lease nor will Borrower modify any Lease, including, without limitation,
modifying the term of any Lease, the rentals payable thereunder or alter the
provisions of any Lease relating to renewals or grace periods, without first
obtaining the written consent of Lender. Any modifications of then existing
Leases shall be made pursuant to written Leases and shall be, in all respects,
reasonably satisfactory to Lender.
(e) Borrower shall not enter into any additional Leases, nor renew any
then existing Leases, without first obtaining the written consent of Lender. Any
subsequent leasing of the Property and any renewals of then existing Leases
shall be made pursuant to written Leases which shall be, in all respects,
reasonably satisfactory to Lender.
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<PAGE>
(f) Borrower shall promptly send to Lender after receipt by Borrower a
copy of any notice from any lessee under any Lease noting or claiming any
default by Borrower in the performance or observance of any of the terms,
covenants or conditions on the part of Borrower to be performed or observed
under any Lease.
(g) If Borrower fails to make any payment required to be made under
any Lease as and when required, or fails to perform or observe any other term,
covenant, agreement or obligation required to be performed or observed by
Borrower under any Lease, Lender shall have the right, at its option, and upon
prior written notice to Borrower, to make any such payment or to perform any
other act or take such action as may be appropriate to cause such other term,
covenant, agreement or obligation to be performed or observed on behalf of
Borrower to the end that Borrower's rights under any Lease be kept unimpaired
and free from default. Subject to the reasonable provisions of any such Lease,
Borrower shall permit Lender to enter the Property with reasonable notice and to
do anything therein or thereto which Lender shall deem reasonably necessary or
prudent in furtherance of the foregoing.
(h) Borrower agrees that any and all Leases shall be subordinate in
all respects to the lien of this Deed of Trust.
(i) In each Lease of the Property or any portion thereof, Borrower
shall (A) prohibit each lessee from engaging in any activity on the Property
which will result in any environmental contamination to the Property, and (B)
require each lessee to (i) promptly notify Lender and Borrower in writing upon
each lessee's acquiring knowledge of the presence of any "hazardous waste" or
"hazardous substance," as those terms are defined in Section 1.22 herein, on the
Property or of any "hazardous materials contamination" (hereinafter defined)
with a complete description thereof; (ii) promptly comply with any laws
requiring the removal, treatment or disposal of such hazardous substances,
hazardous wastes and hazardous materials contamination and to provide Lender and
Borrower with satisfactory evidence of such compliance; (iii) provide Lender and
Borrower within thirty (30) days after a demand by either, with a bond, letter
of credit or similar financial assurance evidencing to the demanding party's
satisfaction that the necessary funds are available to pay the cost of removing,
treating and disposing of such hazardous substances or hazardous wastes and
discharging any lien which may be established on the Property as a result
thereof; and(iv) defend, indemnify and hold harmless Lender and the Trustees
from any and all claims which may now or in the future (whether before or after
the release of this Deed of Trust) be asserted as a result of the presence of
any hazardous substances or wastes on the Property or any hazardous materials
contamination as a result of or arising out of any such lessee's activities or
occupation of the Property, except to the extent any of the same are the result
of the Lender's and/or the Trustees' gross negligence or willful and intentional
misconduct. "Hazardous materials contamination" means the contamination (whether
presently existing or occurring after the date of this Deed of Trust) of the
improvements, facilities, soil, ground water, air or other elements on, or off,
the Property by hazardous substances or wastes, as defined in Section 1.22
herein, or the contamination of the buildings, facilities, soil, ground water,
air or other elements on, or off, any other property as a result of such
hazardous substances or wastes at any time
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(whether before or after the date of this Deed of Trust) emanating from the
Property. Provided however, that neither Borrower nor Borrower's lessees shall
be liable to Lender hereunder for the presence of hazardous substances or wastes
which are discharged after Lender, or any successful bidder in foreclosure,
takes title to the Property.
1.19 Assignment of Leases and Rents.
(a) Borrower hereby conveys, transfers, grants and assigns unto Lender
all the rights, interest and privileges which Borrower may or shall have in any
Lease now existing or hereafter made affecting the Property or any part thereof,
as such Lease may from time to time hereafter be, modified, extended and
renewed, together with all rents, income, security deposits and profits due or
to become due thereunder. Lender grants to Borrower a license to collect all
such rents, income, security deposits and profits, to be held in trust for
Lender, with Borrower having the right to retain all such rents, income,
security deposits, and profits as its sole property so long as there is no
existing Event of Default. Each month, upon Borrower's compliance with the Note,
this Deed of Trust and the other Loan Documents, Borrower may retain such rents,
income, security deposits and profits as were collected that month and held in
trust for Lender. If in any month, Borrower fails to meet the obligations
imposed by the Note, this Deed of Trust and the other Loan Documents, said
license to Borrower shall be automatically and immediately revoked, and no
notice of revocation is required. Any rents collected by Borrower more than one
month in advance, and any other sums (in the form of rent, additional rent or
otherwise) collected by Borrower from lessees of the Property for use in payment
of future obligations relating to the Property hereby are deemed to be, and
shall be, held by Borrower in trust for the benefit of Lender, with Borrower
having the right to retain all such rents, income, security deposits and profits
as its sole property so long as there is no existing Event of Default.
(b) Borrower agrees, within fifteen (15) days after request of Lender,
to execute and deliver to Lender such assignments of Lease and rents applicable
to the Property as Lender may from time to time reasonably request while this
Deed of Trust and the debt secured hereby are outstanding. So long as there is
no existing Event of Default, Lender agrees that it will not seek to effect any
lien to which Borrower may be entitled upon the personal property and trade
fixtures of Borrower's lessees. So long as there is no existing Event of
Default, Lender further agrees that upon receipt of written requests from any of
Borrower's lessees, Lender shall agree to waive its right to distrain against
the personal property and trade fixtures of Borrower's lessees. So long as there
is no existing Event of Default, Lender also agrees that upon receipt of an
estoppel certificate from any of Borrower's lessees indicating that there are no
existing defaults under such lessee's Lease, Lender shall promptly thereafter
execute non-disturbance agreements, in customary form, reasonably satisfactory
to Lender, Borrower and such lessee(s), with respect to use, possession and
enjoyment of the premises occupied by such of Borrower's lessees. Such
non-disturbance agreements shall include provisions to the effect that such
lessee(s) shall not be named as a party to any action to foreclose this Deed of
Trust or in any proceeding to sell the Property or any part thereof pursuant to
power of sale and that such lessee's possession shall not be disturbed, provided
that at the time any such
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action or proceeding is commenced such lessee(s) shall not be in default beyond
any applicable period of notice and/or grace period provided in such lessee's
Lease.
(c) Neither Lender nor Trustees shall be obligated to perform or
discharge any obligation or duty to be performed or discharged by Borrower under
any Lease, and Borrower hereby agrees to indemnify Lender and Trustees for, and
to save them harmless from, any and all liability arising from any of the Leases
or from this assignment, and this assignment shall not place responsibility for
the control, care, management or repair of the Property upon Lender, or
Trustees, or make Lender or Trustees responsible or liable for any negligence in
the management, operation, upkeep, repair or control of the Property resulting
in loss or injury or death to any lessee, licensee, employee, or stranger,
except to the extent the same shall be the result of Lender's or Trustees' gross
negligence or willful and intentional misconduct. Borrower hereby covenants and
agrees that it shall at all times promptly and faithfully perform, or cause to
be performed, all of the covenants, conditions and agreements contained in any
Lease of the Property hereafter existing, on the part of the lessor thereunder
to be kept and performed. In accordance with the provisions of Section 1.10
hereof, Borrower will, at its sole cost and expense, use its best efforts to
enforce or secure, or cause to be enforced or secured, the performance of each
and every obligation and undertaking of the respective lessees under any Lease
of the Property, or any portion thereof, and will appear in and defend, at its
sole cost and expense, any action, suit or proceeding to which it is a party
arising under or in any manner connected with such Lease or the obligations and
undertakings of any lessee thereunder. In the event that any action, suit or
proceeding is brought against Trustees or Lender arising under or in any manner
connected with such Lease or the obligations and undertakings of any Lessee
thereunder and the Borrower is not a party to such action, suit or proceeding,
Lender shall have the right, at Borrower's expense, to resist and defend such
action, suit or proceeding by counsel designated by Lender and approved by
Borrower and Trustees, which approval will not be unreasonably withheld or
delayed.
(d) Borrower shall furnish to Lender, within fifteen (15) days after a
request by Lender to do so, a written statement containing the names of all
lessees or occupants of the Property, the term of their respective Lease or
tenancy, the space(s) occupied and the monthly fixed rentals required to be paid
and, if not previously furnished to Lender, complete copies certified as true
and correct by Borrower of each such Lease.
(e) Borrower hereby authorizes Lender to give notice in writing of
this assignment at any time to any lessee under any Lease of all or a part of
the Property. Any payment of rent by any lessee pursuant to such notice shall
constitute a full discharge of the lessee's rent obligation under its Lease to
the extent of such payment.
1.20 Restrictive Re-Zoning. Borrower agrees not to initiate consent or
enter into any private restrictive covenant or agreement, easement, zoning
ordinance or other public or private restrictions that would limit, prohibit, or
in any manner restrict the uses which may be made of any of the parcels of real
property comprising the Property.
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<PAGE>
1.21 Financial Statements. In addition to, or as part of, any financial
information that Borrower may be required to provide to Lender, Borrower will
provide to Lender annually, at the Borrower's cost and expense, a financial
statement in reasonable detail, in as many copies (but not in excess of six (6)
copies) and in form and content as will be reasonably satisfactory to Lender.
The financial statements will include information which pertains to the
Improvements, and will include but not be limited to a balance sheet and income
and expense statement. The financial statements will be provided to Lender
within one hundred twenty (120) days after the end of the Borrower's fiscal
year. Any and all annual financial statements, balance sheets, and income and
expense statements shall be prepared by an independent certified public
accountant and certified to be true and correct by the Borrower. In addition,
the Borrower shall provide Lender quarterly interim financial statements in Form
10Q format, within ninety (90) days after the end of each calendar quarter.
1.22 Hazardous Materials. The following terms shall have the meanings
provided herein: (a) any "hazardous waste'" as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to time, and
regulations promulgated thereunder; (b) "hazardous substance," as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, and regulations promulgated thereunder ("CERCLA");
(c) "oil, petroleum products, and their by-products" as defined by the Maryland
Environmental Code Ann. ss 4-411(a)(3), as amended from time to time; (d)
"hazardous substance" as defined by the Maryland Environmental Code Ann., Title
7, subtitle 2, as amended from time to time, and regulations promulgated
thereunder; and (e) any other hazardous substance or waste, the presence of
which on the Property is prohibited or regulated by any law similar to those set
forth in this Paragraph (all of such laws and regulations being hereinafter
called "Environmental Laws").
Borrower shall keep the Property free of Hazardous Substances in
quantities that would pose a threat to public health or to the environment or
that would necessitate a "response action", as that term is defined in CERCLA,
and shall not be used to generate, manufacture, refine, transport, treat, store,
handle, dispose of, transfer, produce or process Hazardous Substances in
quantities that would pose a threat to public health or to the environment or
that would necessitate a "response action", as that term is defined in CERCLA.
Borrower shall not cause or permit the installation of Hazardous Substances in,
on, over or under the Property in quantities that would pose a threat to public
health or to the environment or that would necessitate a "response action", as
that term is defined in CERCLA, or a Release (as defined in Environmental Laws)
of Hazardous Substances onto or from the Property in quantities that would pose
a threat to public health or to the environment or that would necessitate a
"response action", as that term is defined in CERCLA, or knowingly suffer the
presence of Hazardous Substances in, on, over or under the Property in
quantities that would pose a threat to public health or to the environment or
that would necessitate a "response action," as that term is defined in CERCLA.
Borrower shall comply with, and use its best efforts to ensure compliance by all
lessees of the Property or any portion thereof with, all applicable
Environmental Laws relating to or affecting the Property, and Borrower shall
keep the Property free and clear of any liens imposed pursuant to any applicable
Environmental Laws, all
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Borrower's sole cost and expense. Borrower has obtained and will at all times
continue to obtain and/or maintain all licenses, permits and/or other
governmental or regulatory actions necessary to comply with all applicable
Environmental Laws (hereinafter called the "Permits") and Borrower is and will
continue to be and at all times remain in full compliance with the terms and
provisions of the Permits. To the best knowledge of Borrower, the Property has
not had any environmental notice or lien filed thereon. Borrower shall not
knowingly acquire any real property upon which an environmental notice or lien
has been filed, the existence of which would adversely affect the Property.
Borrower shall promptly, following receipt thereof, give Lender written notice
in the event that Borrower receives any notice from any governmental agency,
entity, or any other party with regard to Hazardous Substances on, from or
affecting the Property, promptly following receipt of such notice, and
thereafter Borrower shall conduct and complete all investigations, studies,
sampling, and testing, and all remedial, removal, and other actions necessary to
clean up and remove all Hazardous Substances on, from or affecting the Property
in accordance with all applicable Environmental Laws.
Borrower hereby indemnifies Lender and agrees to hold Lender harmless
from and against any and all liens, demands, defenses, suits, proceedings,
disbursements, liabilities, losses, litigation, damages, judgments, obligations,
penalties, injuries, costs, expenses (including, without limitation, reasonable
attorneys' fees and reasonable experts' fees actually incurred) and claims of
any and every kind whatsoever paid, incurred, suffered by, or asserted against
Lender and/or the Property for, with respect to, or as a result of: (i) the
presence in, on, over or under, or the escape, seepage, leakage, spillage,
discharge, emission or Release (as defined in the Environmental Laws) on or
from, the Property of any Hazardous Substances regardless of quantity and
regardless of whether or not caused by or within the control of Borrower; (ii)
the violation of any Environmental Laws relating to or affecting the Property or
Borrower, whether or not caused by or within the control of Borrower; (iii) tile
failure by Borrower to comply fully with the terms and provisions of this
Paragraph 1.22; or (iv) any warranty or representation made by Borrower in this
Paragraph 1.22 is or becomes false or untrue in any material respect. Tile
obligations and liabilities of Borrower under this Paragraph 1.22 shall survive
the exercise of power of sale under or foreclosure of this Deed of Trust, the
delivery of a deed in lieu of foreclosure, the cancellation or release of record
of this Deed of Trust, and/or the payment and cancellation of the Note; however,
such indemnity shall not apply to any Hazardous Substances which escape, seep,
leak, spill, discharge, emit or release on or from the Property after Lender or
any successful bidder in foreclosure takes title to the Property (including
without limitation a deed in lieu of foreclosure) or following the passage of
title to the Property to a third party by sale, transfer, conveyance or
assignment approved by Lender, unless such escape, spill, leak, seepage,
discharge, emission or release occurred as a result of the acts or omissions of
Borrower before the passage of title.
In the event Borrower (i) does not commence to cure any failure to
comply with this Paragraph 1.22, within thirty (30) days after written notice of
such failure, subject to Unavoidable Delays (as hereinafter defined), or (ii)
does not diligently pursue, subject to Unavoidable Delays
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(as hereinafter defined), such cure to completion following commencement of such
cure, or (iii) does not complete the cure within the cure period permitted under
the applicable law, rule, regulation or order, then, after written notice to
Borrower, Lender may either declare a Default under the terms of this Deed of
Trust or cause the Property to be freed from the Hazardous Substances and the
cost of the removal shall become a portion of the obligations secured hereby and
shall become due and payable on demand and with interest thereon at the Default
Rate (as defined in the Note). Borrower shall give to Lender, its agents and its
employees access to the Property and hereby specifically grants to Lender a
license, effective upon expiration of the applicable cure period, to remove the
Hazardous Substances. "Unavoidable Delays" means delays due to strikes,
lockouts, work stoppages, labor jurisdictional disputes, defaults by
contractors, acts of God, inability to obtain labor or materials due to
governmental preemptions or restrictions, enemy action, riot or other civil
commotion, fire, casualty or other causes (whether similar or dissimilar) beyond
the reasonable control of Borrower (other than Borrower's inability to pay),
including, without limitation, condemnation and eminent domain.
In the event any investigation or monitoring of site conditions or any
clean-up, containment, restoration, removal or other remedial work
(collectively, the "Remedial Work") is required under any applicable federal,
state or local law or regulation, by any judicial order, or by any governmental
entity, or in order to comply with any agreement entered into because of, or in
connection with, any occurrence or event described in this Paragraph 1.22,
Borrower shall perform or cause to be performed the Remedial Work in compliance
with such law, regulation, order or agreement. All Remedial Work shall be
performed by one or more contractors, selected by Borrower and approved in
advance in writing by Lender, such approval not to be unreasonably withheld or
delayed, and under the supervision of a consulting engineer, selected by
Borrower and approved in advance in writing by Lender, such approval not to be
unreasonably withheld or delayed. All costs and expenses of such Remedial Work
shall be paid by Borrower including, without limitation, the charges of such
contractor(s) and/or the consulting engineer, and Lender's reasonable attorneys'
fees, architects' and/or consultants' fees and costs incurred in connection with
monitoring or review of such Remedial Work. In the event Borrower shall fail to
timely commence, or cause to be commenced, subject to Unavoidable Delays, or
fail to diligently prosecute to completion, subject to Unavoidable Delays, such
Remedial Work, Lender may, but shall not be required to, cause such Remedial
Work to be performed, and all costs and expenses thereof, or incurred in
connection therewith, shall be reimbursed to Lender in accordance with the terms
hereof.
1.23 Special-Covenant. Borrower shall promptly notify Lender of any action
taken by the grantor of a Deed recorded in Book 1122, Page 944 in the Land
Records of Carroll County, Maryland to cancel and extinguish the use of the 50
foot wide right-of-way running along a portion of the southwesterly boundary of
the Property, for the purpose of ingress, egress and regress to and from
Maryland Route 32. Borrower shall provide such documents, instruments or
agreements as Lender deems reasonably necessary to subject any alternate
right-of-way providing similar access to said Maryland Route 32 to the lien,
operation and effect of this Deed of Trust. After first obtaining Lender's
written consent, such consent not to be unreasonably
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<PAGE>
withheld or delayed, to the alternate right-of-way, if any, to be provided by
the grantor of such deed, Lender will acknowledge of record, the extinguishment
of said original right-of-way. If any portion of the 50 foot wide right-of-way
referred to herein that has not been previously conveyed to the County
Commissioners of Carroll County, Maryland shall hereafter be so conveyed to
create direct access to and from the Property to a public street or road leading
to or adjoining Maryland Route 32, Lender will not require Borrower to provide
an alternate right-of-way to and from the Property to said Maryland Route 32.
ARTICLE II
Default
2.01 Defaults. Each of the following shall be deemed to be a Default
hereunder:
(a) failure to make any payment required to be paid under the Note,
this Deed of Trust or any other Loan Document within ten (10) days after receipt
by Borrower of notice from Lender that such payment is due and unpaid, in
accordance with the terms of the Note, this Deed of Trust, or any other Loan
Document; or
(b) failure to perform any of the other terms, covenants and
conditions in the Note, this Deed of Trust or any other Loan Document which
failure shall remain uncured for thirty (30) days following Borrower's receipt
of written notice thereof from Lender to Borrower, unless such failure is not
reasonably susceptible to cure within the thirty (30) day period, in which case
a Default shall not be deemed to have occurred if Borrower has reasonably and in
good faith commenced and diligently pursued action to cure such failure; or
(c) material breach, as reasonably determined by Lender, of any
warranties or representations contained in this Deed of Trust or any of the
other Loan Documents; or
(d) other than as permitted in Section 1.11 herein, the vesting of
legal or equitable title to the Property in anyone other than Borrower without
the consent of Lender; or
(e) default continuing after applicable notice and beyond any
applicable grace periods and acceleration of, or institution of foreclosure,
eviction, and/or other proceedings to enforce, any junior deed of trust,
mortgage or any security interest or other lien or encumbrance of any kind upon
the Property, the Collateral or any portion thereof; or
(f) failure to duly and promptly perform, comply with or observe the
terms, covenants, conditions and agreements set forth in Paragraph 1.05 (with
respect to Insurance); or
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(g) if Borrower creates, incurs or suffers to exist any lien, pledge,
mortgage or other encumbrance or attachment of any kind on the Property or the
Collateral, except as permitted by this Deed of Trust or the Loan Documents; or
(h) a Default occurs and continues after provision of applicable
notice and beyond any applicable grace periods under any of the other Loan
Documents; or
(i) should Borrower or any successors and assigns of Borrower,
including without limitation, the then-current owners of the Property;
(i) file a voluntary petition in bankruptcy or for an arrangement
or reorganization pursuant to the Federal Bankruptcy Act or any similar law,
state or federal, whether now or hereafter existing (hereinafter referred to as
a "Bankruptcy Proceeding");
(ii) file any answer admitting insolvency or inability to pay its
debts;
(iii) fail to obtain a vacation or stay of any involuntary
Bankruptcy Proceeding within sixty (60) days, as hereinafter provided;
(iv) be adjudicated a bankrupt, or declared insolvent, or suffer
an order for relief in any Bankruptcy Proceeding;
(v) commence any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization, or relief of debtors or seek to have a trustee, custodian, or
receiver appointed for or have any court take jurisdiction of its property, or
the major part thereof, in any involuntary proceeding for the purpose of
reorganization, arrangement, dissolution, or liquidation, if such trustee,
custodian or receiver shall not be discharged or such jurisdiction relinquished,
vacated or stayed on appeal or otherwise within sixty (60) days;
(vi) make an assignment or execute a deed of trust for the
benefit of its creditors;
(vii) generally not pay its debts or admit in writing its
inability to pay its debts generally as they become due; or
(viii) consent to an appointment of a trustee, custodian or
receiver of all of its property or the major part thereof; or
(ix) have an order for relief under any title of the United
States Bankruptcy Code entered against it; or
(j) if Borrower dissolves or terminates or permits its
dissolution or termination and the Property and the Collateral are transferred
in such dissolution or termination to persons or entities other than the present
affiliates or owners of the Borrower or permitted transferees under Section 1.11
herein.
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2.02 Events of Default. Until the permitted junior lien to GECC is
satisfied, discharged or otherwise terminated, the Defaults set forth above
shall not be deemed to be Events of Default until the following occurs, at which
time the Defaults shall be deemed to be Events of Default:
(a) A Default under Section 2.01(a) herein which remains uncured for
thirty (30) days following receipt by GECC of written notice thereof from
Lender; or
(b) any other Default under Sections 2.01(b) through 2.01(j) inclusive
which remains uncured for sixty (60) days following receipt by GECC of written
notice thereof from Lender.
GECC shall have the right to cure any Default described in Section 2.01 herein,
and Lender shall accept performance and/or payment by GECC to the same extent as
if paid or performed by Borrower. When the permitted junior lien to GECC is
satisfied, discharged or otherwise terminated, the occurrence of any of the
Defaults set forth above in Section 2.01 shall be deemed to an Event of Default.
2.03 Remedies.
(a) Upon and after any such Event of Default, Lender may declare the
entire principal of the Note then outstanding (if not then due and payable), and
all accrued and unpaid interest thereon, and all other obligations of Borrower
hereunder and under the other Loan Documents due and payable immediately.
(b) Upon and after any such Event of Default, Trustees or Lender
personally, or by agents or attorneys, may enter into and upon all or any part
of the Property, and each and every part thereof, and may exclude Borrower, its
agents and servants or any one claiming by, through or under Borrower wholly
therefrom; and having and holding the same, may use, operate, manage and control
the Property and conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers; and upon
every such entry, Trustees or Lender at the expense of Borrower and/or the
Property from time to time, either by purchase, repairs or construction, may
maintain and restore the Property, whereof it shall become possessed as
aforesaid, may complete the construction of any improvements and in the course
of such completion may make such changes in the contemplated improvements as it
may deem desirable and may insure the same; and likewise, from time to time, at
the expense of Borrower and/or the Property, Trustees or Lender may make all
necessary or proper repairs, renewals and replacements and such useful
alterations, additions, betterments and improvements thereto and thereon as to
them may deem advisable; and in every such case Trustees or Lender shall have
the right to manage and operate the Property and to carry on the business
thereof and exercise all rights and powers of Borrower with respect thereto
either in the name of Lender or otherwise as they shall deem best; and Trustees
or Lender shall be entitled to collect and receive all earnings, revenues,
rents, issues, profits and income of the Property and every part thereof, all of
which shall for all purposes constitute property of Borrower; and after
deducting the expenses of conducting the business thereof and of all
maintenance, repairs, renewals, replacements, alterations,
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additions, betterments and improvements and amounts necessary to pay for taxes,
assessments, insurance and other proper charges upon the Property or any part
thereof, as well as just and reasonable compensation for the services of
Trustees or Lender and for all attorneys, agents and other employees by it or
them properly engaged and employed, Lender shall apply the monies arising as
aforesaid, to the payment of the principal of the Note and the interest thereon,
when and as the same shall become due and payable and to the payment of any
other sums required to be paid by Borrower under the Note, this Deed of Trust
and the other Loan Documents in such priority as Lender in its sole discretion
shall determine. In the event of such entry, Borrower, for itself and anyone
claiming by, through, or under Borrower, covenants that it shall not seek to
regain possession and control of the Property nor attempt to oust Trustees or
Lender from possession and control of the Property or seek redress for such
entry by the claim of any tortious conduct.
(c) Upon and after any such Event of Default, Trustees and Lender
shall have all of the remedies of a Secured Party under the Uniform Commercial
Code of the State of Maryland, including, without limitation, the right and
power to sell, or otherwise dispose of, the Collateral, or any part thereof, and
for that purpose may take immediate and exclusive possession of the Collateral,
or any part thereof, and with or without judicial process, enter upon any
Property on which the Collateral, or any part thereof, may be situated and
remove the same therefrom without being deemed guilty of trespass and without
liability for damages thereby occasioned; or, at Lender's option, Borrower shall
assemble the Collateral and make it available to Trustees or Lender at the place
and at the time designated in the demand.
(d) Upon and after any such Event of Default, Trustees or Lender shall
be entitled to hold, maintain, preserve and prepare the Collateral for sale.
Trustees or Lender, without removal, may render the Collateral unusable and
dispose of the Collateral on the Property. To the extent permitted by law,
Borrower expressly waives any notice of sale or other disposition of the
Collateral and any other right or remedy of Trustees or Lender existing after
default hereunder. To the extent any such notice is required and cannot be
waived, Borrower agrees that such notice shall be deemed reasonable and shall
fully satisfy any requirement for giving of said notice if such notice is
mailed, postage prepaid, to Borrower at the above address at least five (5) days
before the time of the sale or other disposition.
(e) Upon and after any such Event of Default, Trustees may, and upon
the written request of Lender shall, with or without entry, personally or by
their agents or attorneys, insofar as applicable:
(i) take possession of and sell all of Borrower's estate, right,
title and interest in the Property and right of redemption thereof, at one or
more sales as an entity or in parcels, and at such time and place and after such
notice thereof as may be required or permitted by law at public auction to the
highest bidder for cash, in lawful money of the United States, payable at the
time of sale; and such sale may be made subject to any Lease of all or a part of
the Property which Trustees elect and so advertise in accordance with Section
7-105(f) of the Real Property Article of the Annotated Code of Maryland or any
substitution or replacements thereto, and Borrower
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hereby authorizes and empowers Trustees to take possession and sell (or in the
case of any default of any purchaser to resell) the Property as aforesaid. This
power of sale shall not be exhausted in the event any proceeding is dismissed
before all the indebtedness hereby secured and all other charges, costs,
interests and expenses due under the Loan Documents are paid in full;
(ii) proceed by suit or suits at law or in equity or by any other
appropriate remedy to protect and enforce the rights of Lender whether for the
specific performance of any covenant or agreement contained herein, or in aid of
the execution of any power herein granted, or to foreclose the Deed of Trust, or
to sell, as an entirety or in several parcels, the Property or Collateral under
the judgment or decree of a court or courts of competent jurisdiction, or
otherwise. Borrower, in accordance with Section 7-105 of the Real Property
Article of the Annotated Code of Maryland and applicable provisions of the
Maryland Rules of Procedure, or of any other general or local laws or rules or
regulations of the State of Maryland relating to mortgages and deeds of trust,
including any amendments thereof or supplements thereto which do not materially
change or impair the remedy, does hereby declare and assent to the passage of a
decree to sell the Property by the equity court having jurisdiction for the sale
thereof and the trustees appointed by such decree of court shall have, subject
to the terms of the decree of court, the same authority and power to sell on the
terms and conditions herein set forth, and for such purposes the word "Trustees"
shall be deemed to include the trustees so appointed. This assent to decree
shall not be exhausted in the event any proceeding is dismissed before all the
indebtedness hereby secured and all other charges, costs, interests and expenses
due under the Loan Documents are paid in full;
(iii) as a matter of right, without notice to Borrower, without
regard to the adequacy of the security and whether incidental to a proposed sale
of the Property and Collateral, or otherwise, seek the immediate appointment of
a receiver of the Property and Collateral and of the earnings, revenues, rents,
issues, profits and other income thereof and therefrom, with all such powers as
the court or courts making the appointment shall confer, and the earnings,
revenues, rents, issues and profits and other income thereof or therefrom are
hereby assigned to Trustees as additional security under this Deed of Trust; or
(iv) take such steps to protect and enforce their rights whether
by action, suit or proceeding in equity or at law for the specific performance
of any covenant, condition or agreement in the Note, this Deed of Trust or the
other Loan Documents, or in aid of the execution of any power herein or therein
granted, or for any foreclosure hereunder, or for the enforcement of any other
appropriate legal or equitable remedy as Lender shall elect.
(f) Borrower, in connection with the exercise of any remedy herein
granted to Trustees and/or Lender, does hereby agree that Trustees or Lender may
exercise their rights pursuant to any assignment of licenses or permits to cause
the transfer of any licenses or permits included within the definition of
Collateral herein, and to the extent there are any individuals or corporations
or partnerships other than Borrower who are licensees or permittees under any
such licenses or permits, Borrower shall cause each such
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individual, corporation or partnership specifically to assent to the passage of
a decree for transfer of their licenses or permits and to evidence their assent
by written instrument satisfactory to Lender.
(g) Trustees may adjourn from time to time any sale by them to be made
under or by virtue of this Deed of Trust by announcement at the time and place
appointed for a sale or for the adjourned sale or sales; and, except as
otherwise provided by any applicable provision of law, Trustees may, without
further notice or publication, make the sale at the time and place to which the
same shall be so adjourned.
(h) Upon the completion of any sale or sales made by Trustees under or
by virtue of this Paragraph, Trustees shall execute and deliver to the accepted
purchaser or purchasers a good and sufficient instrument, or good and sufficient
instruments, conveying, assigning and transferring all estate, right, title and
interest in and to the property and rights sold, but without any covenant or
warranty, express or implied. The recitals in the instrument of any matters or
facts shall be conclusive proof of-the truthfulness thereof. Any sale or sales
made under or by virtue of this Paragraph whether made under the power of sale
herein granted or under or by virtue of judicial proceedings or of a judgment or
decree of foreclosure and sale, shall operate to divest all the estate, right,
title, interest, claim and demand whatsoever, whether at law or in equity, of
Borrower in and to the properties and rights so sold, and shall be a perpetual
bar both at law and in equity against Borrower and against any and all persons
claiming or who may claim the same, or any part thereof from, through or under
Borrower.
(i) In the event of any sale made under or by virtue of this
Paragraph, whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, the entire principal of, and interest on, the Note, if not previously due
and payable, and all other sums required to be paid by Borrower pursuant to the
Note, this Deed of Trust and the other Loan Documents, immediately thereupon
shall become due and payable, anything in the Note, this Deed of Trust or the
other Loan Documents to the contrary notwithstanding.
(j) Immediately upon the first insertion of the advertisement of the
sale of the Property, or any part thereof, under this Deed of Trust, there shall
be and become due and owing by Borrower to the person or persons inserting said
advertisement or notice, all expenses incident to the sale, and a commission on
the total amount of the indebtedness hereby secured equal to one-half (1/2) of
the percentage allowed as commissions to trustees making sales under order or
decrees in similar circumstances in Baltimore, Maryland, and such person or
persons shall not be required to receive the principal and interest only of the
indebtedness hereby secured in satisfaction thereof, but said sale may be
proceeded with unless, prior to the day appointed therefor, tender is made of
said principal, interest, expenses, costs and commissions.
(k) The purchase money, proceeds or avails of any sale made under or
by virtue of this Paragraph, together with any other sums which then may be held
by Trustees or Lender under this Deed of Trust, whether under the provisions of
this Paragraph or otherwise shall be applied as follows:
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FIRST: To the payment of the costs and expenses of sale including
reasonable compensation to Trustees, their agents and counsel, and of all
expenses, liabilities and advances made or incurred by Trustees or Lender under
this Deed of Trust or any of the other Loan Documents together with interest at
the default rate specified in the Note on all advances made by Lender and all
taxes or assessments, except any taxes, assessments or other charges subject to
which the Property shall have been sold.
SECOND: To the payment of the whole amount then due, owing or
unpaid upon the Note for principal and interest, with interest on the unpaid
principal at the rate specified in the Note from and after the happening of any
Event of Default described above from the due date of any such payment of
principal until the same is paid.
THIRD: To the payment of any other sums required to be paid by
Borrower pursuant to any provisions of this Deed of Trust, the Note or the other
Loan Documents.
FOURTH: To the payment of the surplus, if any, to whomsoever may
be lawfully entitled to receive the same.
(1) Upon any sale made under or by virtue of this Paragraph, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Lender may bid
for and acquire the Property, the Collateral, or any part thereof, and in lieu
of paying cash therefor may make settlement for the purchase price by crediting
upon the indebtedness of Borrower secured by this Deed of Trust the net sales
price after deducting therefrom the expenses of the sale and the cost of the
action and any other sums which Lender is authorized to deduct under this Deed
of Trust. Lender upon so acquiring the Property, the Collateral, or any part
thereof, shall be entitled to hold, lease, rent, operate, manage and sell the
same in any manner provided by applicable laws.
(m) Borrower agrees, to the extent that it may lawfully so agree, that
in the case of Default on its part, as aforesaid, neither Borrower nor anyone
claiming through or under it shall, or will, set up, seek or claim to take
advantage of any appointment of receiver, valuation, stay or extension laws now
or hereafter in force in the locality where the Property may be situated, in
order to prevent or hinder the enforcement of foreclosure of this Deed of Trust,
or the absolute sale of the Property and/or Collateral, or final or absolute
putting into possession thereof, immediately after such sale, of the purchaser
thereof, and Borrower, for itself and all who claim through or under it hereby
waives, to the fullest extent that it may lawfully do so, the benefit of all
laws and any and all right to have the estates comprised in the security
intended to be created hereby marshalled upon any foreclosure of the lien hereof
and agrees that Trustees or any court having jurisdiction to foreclose such lien
may sell the Property and Collateral as an entirety.
(n) Each right, power and remedy of Lender or Trustees as provided for
in this Deed of Trust or in any of the other Loan Documents, shall be cumulative
and concurrent and shall be in addition to every other
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right, power or remedy provided for in this Deed of Trust or in any of the other
Loan Documents, and the exercise or beginning of the exercise by Lender or
Trustees of any one or more of such rights, powers or remedies shall not
preclude the simultaneous or later exercise by Lender or Trustees of any or all
such other rights, powers or remedies.
ARTICLE III
Duties, Rights and Obligations of Trustees
3.01 Acceptance of Trust. Trustees accept this trust when this Deed of
Trust, duly executed and acknowledged, becomes a public record as provided by
law but only in accordance with the terms and conditions hereof. Trustees are
not obligated to notify any party hereto of a pending sale under any other deed
of trust or of any action or proceeding in which Borrower, Lender or Trustees
shall be a party unless Trustees bring such action. Trustees shall not be
obligated to perform any act required of them hereunder unless the performance
of such act is requested in writing and Trustees are indemnified against loss,
cost, liability and expense.
3.02 Liability of Trustees. Trustees shall be protected in acting upon any
notice, request, consent, demand, statement, note or other paper or document
believed by them to be genuine and to have been signed by the party or parties
purporting to sign the same. Trustees shall not be liable for any error of
judgment, nor for any act done or step taken or omitted, nor for any mistakes of
law or fact, nor for anything which Trustees may do or refrain from doing in
good faith, nor generally shall Trustees have any accountability hereunder
except for willful misconduct or gross negligence. Trustees may at any time
consult with counsel, and any opinion of counsel (an opinion in writing signed
by counsel who shall be satisfactory to Trustees) shall be full and complete
authorization and protection in respect of any action taken or suffered or not
taken by Trustees in accordance with such opinion of counsel. The recitals and
statements contained herein and in the Note shall be taken as recitals and
statements of Borrower, and Trustees assume no responsibility for the
correctness of the same. Trustees make no representations as to the validity,
legality or sufficiency of this Deed of Trust, or the legality, genuineness or
sufficiency of the Note issued hereunder, the security hereby or thereby
afforded, the title of Borrower to the Property and the Collateral or the
descriptions thereof, or the filing or recording of this Deed of Trust or any
other document. Trustees shall not be accountable or under any duty or
responsibility to serve as registrar of the Note, to see to the accounting for
any payments by Borrower under the Note, or to see to the use or application by
Borrower of the proceeds of the Note.
3.03 Powers of Trustees. From time to time upon written request of Lender
and presentation of this Deed of Trust for endorsement, and without affecting
the personal liability of any person for payment of any indebtedness or
performance of the obligations secured hereby, Trustees may, without liability
therefor and without notice: reconvey all or any part of the Property or
Collateral; consent to the making of any map or plat thereof; join in granting
any easement thereon; join in any declaration of covenants and restrictions; or
join in any extension agreement or any agreement
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subordinating the lien or charge hereof. Trustees or Lender may from time to
time apply in any court of competent jurisdiction for aid and direction in the
execution of the trusts hereunder and the enforcement of the rights and remedies
available hereunder, and Trustees or Lender may obtain orders or decrees
directing or confirming or approving acts in the execution of said trusts and
the enforcement of said remedies. Trustees may act hereunder jointly, or either
Trustee may act separately, and each Trustee shall have full power to exercise
all powers and discretions herein granted to Trustees without the joinder of the
other Trustee or Trustees; and Trustees or Trustee may sell and convey the
Property or Collateral as herein provided although Trustees, or either of them,
have been, may now be or may hereafter be attorneys or agents of Lender, in
respect of any matter or business whatsoever.
3.04 Payment of Trustee Costs and Indemnification. Borrower shall pay all
costs, charges and expenses, including reasonable attorneys' fees, which Lender
and/or Trustees may incur in collecting any sum hereby secured or in enforcing
any of the rights of Lender hereunder or in protecting the security of the
Lender whether by suit or otherwise If one or more of the Events of Default
shall happen, and, with or without such default, upon the taking of any actions
required or authorized hereunder, Borrower shall pay to Trustees, on demand, all
reasonable costs, charges, fees and disbursements of Trustees chargeable to or
incurred in or about the administration and execution of the trusts hereby
created and the performance of their powers and duties hereunder, including
reasonable attorneys' fees. Borrower indemnifies Trustees and Lender against all
losses, claims, demands, and liabilities which they may incur, suffer, or
sustain in the execution of the trusts created hereunder or in the performance
of any act required or permitted hereunder or by law, except those arising out
of the willful and intentional misconduct or gross negligence of Trustees or the
willful and intentional misconduct or gross negligence of Lender.
3.05 Substitution of Trustees. From time to time, by a Deed of Appointment
signed and acknowledged by Lender and filed for record in the Office of the
Clerk of the Circuit Court for the jurisdiction in which the Property is
situated, Lender may appoint another trustee or trustees to act in the place and
stead of Trustees or either of them or any successor to either of them. Such
Deed of Appointment shall refer to this Deed of Trust and set forth the date,
book and page of its recordation. The recordation of such Deed of Appointment
shall discharge Trustees herein named and shall appoint the new trustee or
trustees as the trustee or trustees hereunder with the same effect as if
originally named Trustees herein. A writing recorded pursuant to the provisions
of this Paragraph shall be conclusive proof of the proper substitution of such
new trustees.
ARTICLE IV
General Provisions
4.01 Partial Release. Without affecting the liability of anyone for the
payment of any indebtedness herein mentioned and without affecting the lien or
priority hereof upon any property not released, Lender may, without notice,
release any person so liable, extend the maturity or modify the terms
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of any such obligation, or grant other indulgences, release or reconvey or cause
to be released or reconveyed at any time all or any part of the Property or
Collateral, take or release any other security or make compositions or other
arrangements with debtors. Lender may also accept additional security, either
concurrently herewith or hereafter, and sell same or otherwise realize thereon
either before, concurrently with or after sale hereunder.
4.02 Non-Waiver.
(a) By accepting payment of any sum secured hereby after its due date
or later performance of any covenant or obligation secured hereby, Lender shall
not waive its right against any person obligated directly or indirectly
hereunder or on any indebtedness hereby secured, either to require prompt
payment when due of all other sums so secured or to declare a Default (after
provision of any applicable notice and the expiration of any applicable grace or
cure periods) for failure to make such prompt payment or performance of any such
covenant or obligation. No exercise of any right or remedy by Trustees or Lender
hereunder shall constitute a waiver of any other right or remedy herein
contained or provided by law.
(b) No delay or omission of Trustees or Lender in the exercise of any
right, power or remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of any Default or
acquiescence therein.
(c) Receipt of rents, awards, and any other monies or evidences
thereof pursuant to the provisions of this Deed of Trust and any disposition of
the same by Trustees or Lender shall not constitute a waiver of the power of
sale or right of foreclosure by Trustees or Lender in the event of a Default or
failure of performance by Borrower of any covenant or agreement contained herein
or in any of the other Loan Documents.
4.03 Protection of Security. Should Borrower fail to make any payment or to
perform any covenant as herein provided (after provision of any applicable
notice and/or passage of any applicable cure period), Lender (but without
obligation so to do and without notice to or demand upon Borrower and without
releasing Borrower from any obligation hereof) may: make or perform the same in
such manner and to such extent as Lender may deem necessary to protect the
security hereof, Lender being authorized to enter upon the Property for such
purposes; commence, appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Lender; pay, purchase,
contest, or compromise any encumbrance, charge or lien which in the judgment of
Lender is prior or superior hereto and, in exercising any such power, incur any
liability and expend whatever amounts in its reasonable discretion it may deem
necessary therefor, including cost of evidence of title and reasonable
attorneys' fees. Any expenditures in connection herewith shall constitute part
of the indebtedness secured by this Deed of Trust and shall bear interest at the
default rate specified in the Note.
4.04 Rules of Construction. When the identity of the parties hereto or
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular includes the plural. The headings of
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each Paragraph and Article are for information and convenience only and do not
limit or construe the contents of any provision hereof.
4.05 Severability. If fulfillment of any provision hereof or any
transaction related hereto or to the Note, at the time performance of such
provisions shall be due, shall be invalid under applicable law, then, without
any further action, the obligation to be fulfilled shall be reduced to the limit
of such validity; and if any clause or provision herein contained, other than
the provisions requiring Borrower to pay interest, principal, principal and
interest, or any other of the indebtedness secured by this Deed of Trust,
operates or would prospectively operate to invalidate this Deed of Trust in
whole or in part, then such clause or provision only shall be void, as though
not herein contained, and the remainder of this Deed of Trust shall remain
operative and in full force and effect. If such clause or provision which
requires Borrower to pay interest, principal, principal and interest or any
other of the indebtedness secured by this Deed of Trust shall be deemed void
after an Event of Default, or shall be determined to be invalid or void in any
action, suit or proceeding initiated by or on behalf- of Borrower, then at the
option of Lender, the entire unpaid principal balance due under the Note, with
all unpaid interest accrued thereon and all other unpaid indebtedness secured by
this Deed of Trust shall become due and payable.
4.06 Successors in Interest. This Deed of Trust applies to, inures to the
benefit of, and is binding not only on the parties hereto, but on their heirs,
personal representatives, successors and assigns. The term "Lender" shall mean
the holder and owner, including pledgees, of the Note secured hereby, whether or
not named as Lender herein.
4.07 Notices.
(a) Ail notices to be given pursuant to this Deed of Trust shall be in
writing and shall be deemed to have been duly given or served on the date on
which personally delivered, with signed receipt, or three (3) days after the
same shall have been deposited with the United States mail, mailed postage
prepaid, certified or registered mail, return receipt requested. All notices
shall be addressed as follows: if to Lender at Ten Stamford Forum, P.O. Box 601,
Stamford, Connecticut 06904, Attention: Daniel L. Wieneke, Esquire, with a copy
to Jack N. Zemil, Esquire, Weinberg and Green, 100 South Charles Street,
Baltimore, Maryland 21201; and if to Borrower at Londontown Boulevard,
Eldersburg, Maryland 21784, Attention: Mark Lieberman, with a copy to Kaye,
Scholer, Fierman, Hays & Handler, 425 Park Avenue, New York, New York 10022,
Attention: Susan B. Rahm, Esquire, or to such other address as a party shall
request in writing.
(b) Lender shall provide to GECC, its successors or assigns, written
notice of the Defaults by Borrower under Section 2.01 herein which require
written notice be given to Borrower, within ten (10) days after
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providing any such required notices to the Borrower. Such notice shall be
provided to GECC in accordance with Section 4.07(a) herein, at the following
address:
General Electric Credit Corporation
292 Long Ridge Road
Stamford, Connecticut 06902
Attention: Region Operations Manager
with a copy to:
General Electric Capital Corporation
292 Long Ridge Road
Stamford, Connecticut 06902
Attention: Corporate Finance Services
Division Legal Counsel
4.08 Modifications. This Deed of Trust may not be amended or modified nor
shall any waiver of any provision hereof be effective except by an instrument in
writing and signed by the party against whom enforcement of any waiver,
amendment, modification or discharge is sought.
4.09 Governing Law. This Deed of Trust shall be construed according to and
governed by the laws of the State of Maryland, without regard to principles of
conflict of law.
4.10 Security Agreement. Borrower agrees that this Deed of Trust shall
constitute a security agreement under the Uniform Commercial Code as the same is
in force in the State of Maryland, and hereby grants to Trustees and Lender a
security interest in all property to which Article 9 of said Uniform Commercial
Code is applicable and which is described in the granting clauses hereof and the
proceeds (cash and noncash) thereof. With respect to such Collateral, Lender
shall have all the rights and remedies of a secured party under said Uniform
Commercial Code.
4.11 Borrower's Warranty of Authority and Capacity. Borrower represents and
warrants that (a) it is a corporation organized and in good standing under the
laws of the State of Delaware, (b) the execution and delivery of, and the
carrying out of the transactions contemplated by the Note, this Deed of Trust,
and the other Loan Documents, and the performance and observance of the terms,
covenants, agreements and provisions of the Note, this Deed of Trust and the
other Loan Documents will not conflict with or result in a breach of the terms
or provisions of any existing law or existing rule, regulation or order of any
court or governmental body, or with any agreement to which Borrower is a party,
and (c) the Note, this Deed of Trust, and the other Loan Documents constitute
the valid and legally binding obligations of Borrower, and are fully enforceable
against Borrower in accordance with their respective terms.
4.13 Commercial Loan. Borrower hereby warrants, represents, covenants and
agrees that the Loan is being transacted solely for the purpose
- 37 -
<PAGE>
of carrying on or acquiring a business or commercial enterprise and that the
same constitutes a commercial loan within the meaning of ss. 12-101(c) and
12-103(e) of the Commercial Law Article of the Annotated Code of Maryland.
IN WITNESS WHEREOF, this Deed of Trust and Security Agreement has been
properly executed and sealed by Borrower on the day and year first written
above.
WITNESS/ATTEST: LONDONTOWN CORPORATION, a Delaware
Corporation
/s/ By: /s/ Zachary C.Goldman (SEAL)
- --------------------------------- ---------------------------
Assistant Secretary Zachary C.Goldman Vice President
and Chief Financial officer
STATE OF MD; City of Baltimore, to wit:
I HEREBY CERTIFY that on this 27th day of December, 1989, before me, the
subscriber, a Notary Public for the State aforesaid, personally appeared Zachary
C. Goldman, who acknowledged himself to be the Vice-President and Chief
Financial Officer of Londontown Corporation, a Delaware corporation, known to me
(or satisfactorily proven) to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the same for the purposes
therein contained as the duly authorized vice president of said corporation by
signing on behalf of the corporation as Vice-President and Chief Financial
Officer.
IN WITNESS WHEREOF, I have hereunto set my hand and Notarial Seal.
My Commission expires:
July 1, 1990 /s/ Giovanna M. Young
- ---------------------------------- -----------------------------------------
Notary Public
THIS IS TO CERTIFY that the within instrument was prepared by or under the
supervision of the undersigned, an attorney duly admitted to practice before the
Court of Appeals of Maryland.
/s/ Karen S. Koening
-----------------------------------
Karen S. Koening ,Attorney
- 38 -
<PAGE>
SCHEDULE 1
Insurance
Property Amount
Office and Warehouse/Distribution Facility $14, 000, 000.00
- 39 -
<PAGE>
EXHIBIT A
DESCRIPTION OF REAL PROPERTY
BEING A 35.733 ACRE TRACT AT LONDONTOWN BOULEVARD,
EAST OF MARYLAND ROUTE 32, ELDERSBURG, CARROLL COUNTY, MARYLAND
---------------------------------------------------------------
BEGINNING on the northeast side of the 50 foot wide right-of-way at the
westernmost corner of parcel "A" containing 29.44 acres of land and shown on the
plat titled "Londontown Manufacturing Company" as recorded among the Land
Records of Carroll County in plat book 14 page 71, running thence binding on the
west and north outlines of said parcel "A" six courses (1) North 51 degrees 00
minutes 00 seconds East 279.58 feet, (2) North 22 degrees 00 minutes 00 seconds
East 997.85 feet, (3) South 46 degrees 55 minutes 54 seconds East 785.00 feet,
(4) South 75 degrees 05 minutes 24 seconds East 692.44 feet, (5) South 15
degrees 53 minutes 44 seconds West 702.42 feet,(6) South 76 degrees 22 minutes
37 seconds West 734.39 feet to the northeast side of said 50 foot wide
right-of-way, thence binding thereon and binding also on the southwest outlines
of said parcel "A" four courses (7) North 60 degrees 44 minutes 21 seconds West
13.88 feet (8) Northwesterly by a curve to the left with a radius of 850.00
feet, the arc distance of 207.19 feet,(9) Northwesterly by a curve to the right
with a radius of 1934.77 feet the arc distance of 800.38 feet and (10) North 51
degrees 00 minutes 00 seconds West 22.00 feet to the place of beginning.
TOGETHER WITH the right and privilege to the use, in common with others
entitled thereto, of such portion of a 50-foot-wide right-of-way running along a
portion of the southwesterly boundary of parcel "A" described hereunder, and
continuing along the southwesterly boundary of parcel "C", as shown on the
aforementioned plat, to Maryland Route 32, for the purpose of ingress, egress
- 40 -
<PAGE>
and regress to and from the parcels of land described hereunder and Maryland
Route 32, as set forth in and subject to the terms, conditions and reservations
regarding the same in the Deed dated November 26, 1988 from INTERCO INCORPORATED
to INTERCO SUBSIDIARY, INC. and recorded among the Land Records of Carroll
County, Maryland at Book 1122 Page 944, saving and excepting that portion of the
50 foot right-of-way conveyed to County Commissioners of Carroll County on
January 31, 1977 by that certain Deed recorded among the Land Records of Carroll
County, Maryland at Book 654 Page 119.
BEING THE SAME parcels of land granted and conveyed in the Deed from
INTERCO INCORPORATED to INTERCO SUBSIDIARY, INC., dated November 26, 1988 and
recorded among the Land Records of Carroll County, Maryland at Book 1122, Page
944 and the Deed from INTERCO SUBSIDIARY, INC. to LONDONTOWN CORPORATION, dated
November 26, 1988 and recorded among the Land Records of Carroll County,
Maryland at Book 1122, Page 947.
CONTAINING 35.733 acres of land.
- 41 -
ASSIGNMENT OF LEASES AND RENTS
THIS ASSIGNMENT OF LEASES AND RENTS (the "Assignment") is made this 27th
day of December, 1989, by LONDONTOWN CORPORATION, a Delaware corporation,
("Assignor"), to METLIFE CAPITAL CREDIT CORPORATION, a Delaware corporation
("Assignee").
WITNESSETH
FOR VALUE RECEIVED, Assignor does hereby SELL, ASSIGN, TRANSFER, SET OVER
and DELIVER unto Assignee, its successors and assigns, and grant to Assignee,
its successors and assigns all of Assignor's interest in any and all leases,
present or future, (all present leases being identified on Exhibit B attached
hereto and incorporated herein by reference), written or oral, and all
agreements for use or occupancy of any portion of the buildings and improvements
now or hereafter on the real property situate and lying in Carroll County,
Maryland, respectively and more particularly described on Exhibit A attached
hereto and incorporated herein by this reference (hereinafter collectively
referred to as the "Property").
TOGETHER with any and all extensions and renewals thereof and any and all
further leases, lettings or agreements (including subleases thereof and
tenancies following attornment) upon or covering use or occupancy of all or any
part of the Property (all such leases, agreements, subleases and tenancies
heretofore mentioned are hereinafter collectively referred to as "Leases").
TOGETHER with any and all guarantees of any tenant's performance under any
of the Leases.
TOGETHER with the immediate and continuing right to collect and receive all
of the rents, income, receipts, revenues, issues and profits now due or which
may become due or to which Assignor may now or shall hereafter (including the
period of redemption, if any) become entitled or may demand or claim, arising or
issuing from or out of the Leases or from or out of the Property or any part
thereof, including but not by way of limitation: (a) minimum rents, additional
rents, percentage rents, parking maintenance, tax and insurance contributions,
deficiency rents and liquidated damages following default, the premium payable
by any tenant upon the exercise of any cancellation privilege originally
provided in any of the Leases, and any rights and claims of any kind which
Assignor may have against any tenant under the Leases or any subtenants or
occupants of the Property, all proceeds payable under any policy of insurance
covering loss of rents resulting from untenantability caused by damage or
destruction to the Property (sometimes hereinafter collectively referred to as
"Rents"); (b) payment for loss or damage, and rebate, refund or return of any
premium, now or hereafter paid or payable under any policy of insurance covering
the whole or any part of the said Property (sometimes hereinafter referred to as
"Losses or Rebates"); (c) any sum or sums now due or hereafter to become due by
reason of any taking of the whole or any part of the Property for public
purposes, by right of eminent domain or otherwise, or by reason of any claim now
or hereafter
<PAGE>
existing against any and all parties whomsoever for compensation for real or
alleged harm or damage done to or in connection with the Property (sometimes
hereinafter referred to as "Damages"); and (d) any abatement, rebate, refund or
return, whether now or hereafter payable, of the whole or any part of any tax,
assessment or other charge levied or assessed upon the whole or any part of the
Property whether heretofore or hereafter levied or assessed or that hereafter is
paid (sometimes hereinafter referred to as "Abatements").
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns
forever, or for such shorter period as hereinafter may be indicated.
The following covenants and agreements shall control the rights of Assignor
and Assignee with respect to the Leases:
1. Upon or at any time after and during a Default (as that term is defined
in the Deed of Trust and Security Agreement of even date herewith from Assignor
to Jack N. Zemil and Daniel L. Wieneke, Trustees for the benefit of Assignee
[the "Deed of Trust"]), Assignor irrevocably constitutes and appoints Assignee,
as its lawful attorney in its name and stead:
(a) to collect any and all of the Rents, Losses or Rebates, Damages
and/or Abatements;
(b) to use such measures, legal or equitable, as in its reasonable
discretion may be deemed necessary or appropriate to enforce the payment of the
Rents, Losses or Rebates, Damages, Abatements and/or any security given in
connection therewith;
(c) to secure and maintain the use and/or possession of the Property
and/or any part thereof;
(d) to fill any and all vacancies and to rent, lease and/or let the
Property and/or any part thereof at its reasonable discretion;
(e) to order, purchase, cancel, modify, amend and/or in any and all
ways control and deal with any and all policies of insurance of any and all
kinds now or hereafter on or in connection with the whole or any part of the
Property at its reasonable discretion and to adjust any loss or damage
thereunder and/or to bring suit at law or in equity therefor and to execute
and/or render any and all instruments deemed by Assignee to be necessary or
appropriate in connection therewith;
(f) to adjust, bring suit at law or in equity for, settle or otherwise
deal with any taking of any or all of the Property for public purposes as
aforsaid or any claim for real or alleged harm or damage as aforesaid and to
execute and/or render any and all instruments deemed by Assignee to be necessary
or appropriate in connection therewith;
(g) to adjust, settle or otherwise deal with any Abatements and to
execute and/or render any and all instruments deemed by Assignee to be necessary
or appropriate in connection therewith;
- 2 -
<PAGE>
(h) to use and apply Rents, Losses or Rebates, Damages and/or
Abatements to the payment of any taxes, assessments and charges of any nature
whatsoever that may be levied or assessed in connection with the Property, to
the payment of premiums on such policies of insurance on or in connection with
the whole or any part of the Property as may be deemed advisable by Assignee, to
the payment of any and all indebtedness, liability or interest of the Assignor
and/or those secured by the Loan Documents (as hereinafter defined), whether now
existing or hereafter to exist, to the payment of all expenses in the care and
management of the Property, including such repairs, alterations, additions
and/or improvements to the Property or any part thereof, as may be deemed
necessary or advisable by Assignee, to the payment of reasonable attorneys'
fees, court costs, labor, charges and/or expenses incurred in connection with
any and all things which Assignee may do or cause to be done by virtue hereof,
and to the payment of such interest on the indebtedness or on any of the
foregoing, if any, as may be deemed necessary or advisable by Assignee; and
(i) to make contracts for the care and management of the whole or any
part of the Property in such form and providing for such compensation as may be
deemed advisable by Assignee, and for the performance or execution of any or all
of these presents, to constitute, appoint, authorize and in its place and stead
put and substitute one attorney or attorneys, and to do, execute, perform and
finish for Assignor and in Assignor's name all and singular those things which
shall be necessary or advisable or which Assignor's said attorney or its
substitute or substitutes shall deem necessary or advisable in and about, for,
concerning these presents or the Property as thoroughly, amply and fully as
Assignor could do concerning the same, being personally present, and whatsoever
Assignor's said attorney, or its substitute or substitutes shall do or cause to
be done in, about or concerning these presents or the Property or any part of
any of them Assignor hereby ratifies and confirms; and also hereby granting to
Assignee full power and authority to exercise at any and all times each and
every right, privilege and power herein granted, without notice to Assignor.
2. Assignor warrants and represents to Assignee that all Leases are valid
and enforceable; that no rent reserved in the Leases has been paid more than
thirty (30) days in advance or assigned (except to General Electric Capital
Corporation); that, to its knowledge, no tenant thereunder is in default of the
terms thereof; that all Leases shall have been approved by Assignee prior to
execution by Assignor; that it will not modify, alter, amend, terminate, cancel
or accept a surrender of any of the Leases prior to the end of the term thereof,
without first obtaining the written consent of Assignee, such consent not to be
unreasonably withheld or delayed; and that no request will be made of any tenant
to pay any rents, and no rents will be accepted other than security deposits,
more than thirty (30) days in advance of the dates upon which such rents become
due and payable under the terms of the Leases, it being agreed between Assignor
and the tenants under the Leases that rents shall be paid as provided in the
Leases and not otherwise, and in no event for more than one month in advance.
Assignor shall observe and perform all obligations imposed upon landlord under
said leases and shall not do or suffer to be done anything to impair the
security thereof.
- 3 -
<PAGE>
3. Notwithstanding any provision hereof, Assignee grants to Assignor (a) a
license to collect all rents under the Leases, such rent to be held in trust for
Assignee, and (b) a license to manage the Property under the Leases and to
otherwise undertake those actions set forth in Sections l(a) through (i) above
to the extent permitted and subject to any limiations therein contained or set
forth in any of the other Loan Documents. Each month, upon Assignor's compliance
with all of its obligations required under a certain Deed of Trust Note, and a
Deed of Trust and Security Agreement of even date herewith (as those terms are
defined in the Deed of Trust and Security Agreement, and other documents of even
date herewith which evidence and secure a loan from Assignee to Assignor in the
amount of $14,000,000.00 (hereinafter the "Loan Documents"), Assignor may retain
such rents as were collected that mouth and held in trust for Assignee. If in
any month, there is a Default (as defined in the Deed of Trust) by Assignor
under the terms of any of the Loan Documents, said license granted to Assignor
will be automatically and immediately revoked. No notification of revocation is
required.
4. Upon revocation of said license, Assignee, its successors and assigns,
shall promptly notify all lessees under the Leases that Assignee will forthwith
collect all rents directly and not through its licensee. Assignee, its
successors and assigns, may enter upon the Property and take possession thereof,
and may do every act and thing that such Assignor or any subsequent owner of
Property might or could do.
5. Upon payment of all indebtedness secured by the Loan Documents, this
Assignment shall be null and void, and Assignee agrees to execute instruments,
in form reasonably satisfactory to Assignor, which shall reassign the Leases to
Assignor.
6. Assignor, as a condition of the license granted by Assignee, shall be
responsible for the control, care and management of the Property and shall carry
out all of the terms and conditions of the Leases. Assignee shall not be
responsible for any waste committed or permitted on the Property by any tenant
nor shall Assignee be liable by reason of any dangerous or defective condition
on or about the Property, except if such condition is caused by the willful and
intentional misconduct and gross negligence of Assignee. Assignor shall and does
hereby agree to indemnify and to hold Assignee harmless of and from any and all
liability, loss or damage which is made or might incur under any of the Leases
or under or by reason of this Assignment and of and from any and all claims and
demands whatsoever which may be asserted against it by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants or agreements contained in the Leases except if such condition
is caused by the willful and intentional misconduct and gross negligence of
Assignee; should Assignee incur any such liability, loss or damage under any of
the Leases or under or by reason of this Assignment, or in the defense of any
such claims or demands, the amount thereof, including costs, expenses and
reasonable attorneys' fees, shall be secured hereby, and Assignor shall
reimburse Assignee therefor within seven (7) days of demand.
7. Assignee shall not in any way be responsible for failure to do any or
all of the things for which rights, interest, power and/or authority are herein
granted to it; and Assignee shall be liable for only such monies as
- 4 -
<PAGE>
it actually receives under the terms hereof, provided, however, that failure Of
Assignee to do any of the things or exercise any of the rights, interest, powers
and/or authorities hereunder shall not be construed to be a waiver of any of the
rights, interests, powers or authorities hereby assigned and granted to
Assignee.
8. Assignor will assign and transfer to Assignee any and all further leases
upon all or any part of Property and will execute and deliver upon the request
of Assignee any and all instruments from time to time reasonably requested by
Assignee to carry these presents into effect or to accomplish any other purpose
deemed by Assignee to be necessary or appropriate in connection with this
Assignment or the Loan Documents. So long as there is no existing Default (as
defined in the Deed of Trust), Assignee agrees that it will not seek to effect
any lien to which Assignor may be entitled upon the personal property and trade
fixtures of any of Assignor's lessees, and upon the receipt of a written request
from any of Assignor's lessees, Assignee shall agree to waive its right to
distrain against the personal property and trade fixtures of Assignor's lessees.
9. These presents shall in no way operate to prevent Assignee from pursuing
any remedy which it now or hereafter may have because of any present or future
breach of the terms or conditions of the Loan Documents or any extension
thereof.
10. Assignor shall, within thirty (30) days after execution of this
Assignment, notify all present tenants, and agrees to notify all future tenants,
that Assignor collects and receives all rents under authority of a license
granted to it by Assignee and that, if any tenant receives notice from Assignee
that Assignor's license to collect and receive rents has been revoked, such
tenant shall, upon receipt of said notice and from that time forward, pay all
unpaid rent directly to Assignee or as instructed by Assignee.
11. The terms, covenants, conditions and warranties contained herein and
the powers granted hereby shall run with the land, shall inure to the benefit of
and bind all parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns, and all
lessees, subtenants and assigns of same, and all occupants and subsequent owners
of the Property, and all subsequent holders of the Loan Documents.
12. This Assignment is to construed and enforced according to, and governed
by, the laws of the State of Maryland.
13. Assignor agrees that Assignee may exercise any and all of its rights
hereunder through the trustees under the Deed of Trust for the Property, and
Assignor hereby confirms to said trustees and their successors, that they shall
have the same rights and interest as Assignee in the event of Assignee's
direction that said trustees act hereunder.
- 5 -
<PAGE>
IN WITNESS WHEREOF, this Assignment of Leases and Rents has been properly
executed and sealed by Assignor on the day and year first written above.
WITNESS/ATTEST: LONDONTOWN CORPORATION, a Delaware
corporation
/s/ By: /s/ Zachary C.Goldman (SEAL)
- --------------------------------- ---------------------------
Assistant Secretary Zachary C.Goldman Vice President
and Chief Financial officer
- 6 -
<PAGE>
EXHIBIT A
DESCRIPTION OF REAL PROPERTY
BEING A 35.733 ACRE TRACT AT LONDONTOWN BOULEVARD,
EAST OF MARYLAND ROUTE 32, ELDERSBURG, CARROLL COUNTY, MARYLAND
---------------------------------------------------------------
BEGINNING on the northeast side of the 50 foot wide right-of-way at the
westernmost corner of parcel "A" containing 29.44 acres of land and shown on the
plat titled "Londontown Manufacturing Company" as recorded among the Land
Records of Carroll County in plat book 14 page 71, running thence binding on the
west and north outlines of said parcel "A" six courses (1) North 51 degrees 00
minutes 00 seconds East 279.58 feet, (2) North 22 degrees 00 minutes 00 seconds
East 997.85 feet, (3) South 46 degrees 55 minutes 54 seconds East 785.00 feet,
(4) South 75 degrees 05 minutes 24 seconds East 692.44 feet, (5) South 15
degrees 53 minutes 44 seconds West 702.42 feet, (6) South 76 degrees 22 minutes
37 seconds West 734.39 feet to the northeast side of said 50 foot wide
right-of-way, thence binding thereon and binding also on the southwest outlines
of said parcel "A" four courses (7) North 60 degrees 44 minutes 21 seconds West
13.88 feet (8) Northwesterly by a curve to the left with a radius of 850.00
feet, the arc distance of 207.19 feet, (9) Northwesterly by a curve to the right
with a radius of 1934.77 feet the arc distance of 800.38 feet and (10) North 51
degrees 00 minutes 00 seconds West 22.00 feet to the place of beginning.
TOGETHER WITH the right and privilege to the use, in common with others
entitled thereto, of such portion of a 50-foot-wide right-of-way running along a
portion of the southwesterly boundary of parcel "A" described hereunder, and
continuing along the southwesterly boundary of parcel "C", as shown on the
aforementioned plat, to Maryland Route 32, for the purpose of ingress, egress
- 7 -
<PAGE>
and regress to and from the parcels of land described hereunder and Maryland
Route 32, as set forth in and subject to the terms, conditions and reservations
regarding the same in the Deed dated November 26, 1988 from INTERCO INCORPORATED
to INTERCO SUBSIDIARY, INC. and recorded among the Land Records of Carroll
County, Maryland at Book 1122 Page 944, saving and excepting that portion of the
50 foot right-of-way conveyed to County Commissioners of Carroll County on
January 31, 1977 by that certain Deed recorded among the Land Records of Carroll
County, Maryland at Book 654 Page 119.
BEING THE SAME parcels of land granted and conveyed in the Deed from
INTERCO INCORPORATED to INTERCO SUBSIDIARY, INC., dated November 26, 1988 and
recorded among the Land Records of Carroll County, Maryland at Book 1122, Page
944 and the Deed from INTERCO SUBSIDIARY, INC. to LONDONTOWN CORPORATION, dated
November 26, 1988 and recorded among the Land Records of Carroll County,
Maryland at Book 1122, Page 947.
CONTAINING 35.733 acres of land.
- 8 -
<PAGE>
EXHIBIT B
LIST OF ALL LEASES
1. NO currently existing leases.
- 9 -
DEED OF TRUST NOTE
$14,000,000.00 Baltimore, Maryland
December 27, 1989
FOR VALUE RECEIVED, LONDONTOWN CORPORATION, a Delaware corporation, (the
"Borrower"), promises to pay to the order of METLIFE CAPITAL CREDIT CORPORATION,
a Delaware corporation (the "Lender"), the principal sum of FOURTEEN MILLION
DOLLARS AND NO CENTS ($14,000,000.00) (the "Principal Loan Amount") with
interest thereon at the rate hereinafter set forth (the "Loan"). The repayment
of interest and principal of the Principal Loan Amount shall be as follows:
(1) (a) Beginning on the the date hereof, interest will be due on the
unpaid Principal Loan Amount at the rate of ten and one-quarter percent (10.25%)
per annum (the "Interest Rate").
(b) All interest will be calculated on the basis of a 360-day year
factor applied to actual days elapsed.
(2) Interest on the unpaid Principal Loan Amount will be payable, in
arrears, commencing with interest only for the partial month in which the date
hereof occurs, on the first day of the first full month after the date hereof,
and continuing thereafter on the first day of each month until the entire unpaid
Principal Loan Amount and all accrued and unpaid interest thereon is paid in
full.
(3) Principal and interest thereon as described above will be paid in one
hundred thirteen (113) substantially equal consecutive monthly installments as
set forth on Schedule 1 attached hereto and made a part hereof, in the amount
needed to repay the Principal Loan Amount in full on the twentieth anniversary
of the date hereof. Such monthly payments of principal and interest will begin
on the first day of the second full month after the date hereof, and will
continue on the first day of each and every month thereafter until the Loan
matures. The Loan will mature and the outstanding Principal Loan Amount, all
accrued and unpaid interest thereon, and any other sums due and payable in
connection therewith (the "Balloon Payment"), unless paid in its entirety at an
earlier date, will be due and payable on the first day of that month which is
one hundred fourteen (114) months after the month in which the first payment of
principal and interest occurs (the "Maturity Date").
(4) If any portion of the Principal Loan Amount and/or interest thereon
remains unpaid after the Maturity Date such portion of the Principal Loan Amount
and all unpaid interest will bear interest from the Maturity Date until such
amount due is paid in full, at the rate of two percent (2%) per annum over the
Interest Rate.
<PAGE>
(5) If the Borrower fails to make one or more required payments of
principal and/or interest, as provided above, within ten (10) days after the
date such payment is due, the Borrower will pay to the Lender a late charge
equal to four percent (4%)of said-unpaid amount in order to defray the increased
cost involved in handling such delinquent payments. Any such charges shall be
payable on demand.
(6) Any installment or other part payment made by or on behalf of the
Borrower hereof will be applied first, to late payment charges due under
paragraph (5) above; second, to interest accrued and payable at the stated rate
and the penalty rate stated in paragraph (4) above, if applicable; and third, to
the unpaid Principal Loan Amount hereof, in the inverse order of the maturity of
the principal payments.
(7) The Principal Loan amount may be prepaid, in whole, but not in part, on
any regularly scheduled principal and interest payment date occurring on or
after the third anniversary of the date hereof,, upon not less than thirty (30)
days prior written notice to the Lender, but only in accordance with the terms
and conditions of this paragraph (7). Any such optional prepayment will be
accompanied by payment of accrued and unpaid interest on the Principal Loan
Amount up to (but not including) the date of prepayment, and by payment to the
Lender of a prepayment premium, if any, determined as follows:
The prepayment premium shall be determined by (i) calculating the
decrease, if any, expressed in basis points, in the current weekly average
yield of ten (10) year United States Treasury Notes, as published in
Federal Reserve Statistical Release H.15 (519) from the date of this Note
to the prepayment date, (ii) dividing the difference, if any, by 10,000,
(iii) multiplying the result by the outstanding Principal Loan Amount to be
prepaid, (iv) multiplying the result in (iii) by the number of years
remaining from the prepayment date to the Maturity Date, and (v)
discounting the calculated result to the present value of such amounts
utilizing a discount factor of 10.25% per annum. Expressed as a formula,
the calculation would be made as follows:
(Basis Point decrease in the index/10,000) x outstanding Principal
Loan Amount equals the prepayment premium for each remaining year. Discount
the prepayment premium for each year at 10.25% per annum for number of
years remaining from the prepayment date to the Maturity Date.
For example, if the prepayment premium for each remaining year from
the prepayment date to the Maturity Date is $50,000.00 and seven (7) years
are remaining from the prepayment date to the Maturity Date, the discounted
prepayment premium would be $241,430.27.
- 2 -
<PAGE>
(8) Notwithstanding anything to the contrary, the prepayment premium (as
determined in accordance with paragraph (7) above but not exceeding $200,000.00)
shall be due in the event that the Loan is accelerated as a result of: (i) a
sale, transfer or conveyance, of any interest in the Property (as defined in the
Deed of Trust) to a third party not directly or indirectly owned or affiliated
with the Borrower, or (ii) a change in the ownership of the Borrower, whether by
sale or acquisition, which results in a material change in the composition of
the management of the Borrower, occurring prior to the third anniversary of the
date hereof. For the purposes of this paragraph, "management" shall mean the
Borrower's executive officer group and the officer group. A "material change in
the composition of the management" shall not be deemed to include changes in
management of the Borrower occurring in the ordinary course of the Borrower's
business including, without limitation, retirement, death and normal employee
attrition. Any such prepayment shall not delay, postpone, abate or recast the
balance of the unpaid Principal Loan Amount, and the monthly payments thereunder
shall continue in the same amount and in the same order as set forth on Schedule
1.
All payments of principal, interest, late fees and premiums, if any, will
be made during regular business hours at the principal office of the holder of
this Note located at Ten Stamford Forum, Stamford, Connecticut 06904, or at such
other place as the Lender shall designate in writing, and will be made by check
(subject to collection), draft (subject to collection), or other instrument as
may be approved from time to time by the holder hereof or may be paid in coin or
currency of the United States of America which at the time of such payment is
legal tender for the payment of public or private debts. Any payment by check or
draft will be subject to the condition that any receipt issued therefor will be
ineffective unless the amount due is actually collected by the Lender.
This Note is secured inter alia by the first Deed of Trust and Security
Agreement of even date herewith by and between Borrower, Daniel L. Wieneke and
Jack N. Zemil, Trustees, and Lender covering certain property and premises
situate and lying in Carroll County, Maryland (the "Deed of Trust"). The terms,
covenants, conditions, provisions, stipulations, and agreements contained in the
Deed of Trust are hereby made a part hereof to the same extent and with the same
effect as if fully set forth herein; and, without limiting the foregoing,
reference is hereby made to the Deed of Trust for a description of the property
conveyed thereunder, the definition of certain terms, the nature and extent of
the security and the rights of the Lender in respect of such security. This Note
is also secured by an Assignment of Leases and Rents of even date herewith made
by the Borrower to the Lender with respect to the property granted and conveyed
under the Deed of Trust.
If the Borrower defaults in the payment when due of any installment of
interest and/or principal, or any and all other payments due hereunder,
including, without limitation, late charges as herein provided, or in the
performance of any of the terms, agreements, covenants or conditions contained
in the Deed of Trust or any other instrument given to secure the payment hereof
(all of which are hereinafter referred to as the "Loan Documents"), upon the
giving of any applicable notice and expiration of any applicable cure period
contained in the Loan Documents then, or at any time thereafter, the
- 3 -
<PAGE>
entire principal of this Note, irrespective of the Maturity Date specified
herein, together with the then accrued and unpaid interest thereon, may, at the
Lender's election, become immediately due and payable.
Time is of the essence of this Note in connection with all of the
obligations of Borrower including without limitation during any applicable grace
or cure periods.
The rights or remedies of the Lender as provided in this Note, the Deed of
Trust and the other Loan Documents will be cumulative and concurrent and may be
pursued singly, successively, or together against the Borrower, the property or
security held by the Lender for the payment hereof or otherwise at the sole
discretion of the Lender. The failure to exercise any such right or remedy will
in no event be construed as a waiver or release of said rights or remedies or of
the right to exercise them at any later time.
Except as may be otherwise expressly provided in this Note or in any of the
other Loan Documents, the Borrower and all endorsers hereof severally waive
diligence, presentment, protest and demand, and also notice of protest, of
demand, of nonpayment, of dishonor and of maturity and consent that the time of
payments or any part thereof may be extended by the Lender and that the real or
collateral security or any part thereof may be released by the Lender, without
in anywise modifying, altering, releasing, affecting or limiting their
respective liability or the lien of the Deed of Trust (except to the extent so
released).
The Borrower agrees to be jointly and severally liable with any endorsers,
sureties, accommodation parties hereof and all other persons liable or to become
liable on this Note for the payment of all costs of collection, including
reasonable attorneys' fees and all other costs of suit, in case the unpaid
Principal Loan Amount, or any payment of interest only or principal and interest
thereon, is not paid when due, and if the same remains unpaid for ten (10) days
after written notice to Borrower, or for the foreclosure of the Deed of Trust or
other Loan Documents, and whether through courts of original jurisdiction, as
well as in courts of appellate jurisdiction, or through a Bankruptcy Court or
other legal proceedings.
The Borrower hereby waives trial by jury in any action or proceeding to
which the Borrower and the Lender may be parties, arising out of or in any way
pertaining to (a) this Note, (b) any other Loan Documents, or (c) the property
securing the Deed of Trust other than personal injury actions or proceedings. It
is agreed and understood that this waiver constitutes a waiver of trial by jury
of all claims against all parties to such actions or proceedings, including
claims against parties who are not parties to this Note.
This waiver is knowingly, willfully and voluntarily made by the Borrower,
and the Borrower hereby represents that no representations of fact or opinion
have been made by any individual to induce this waiver of trial by jury or to in
any way modify or nullify its effect.
In case any provision (or any part of any provision) contained in this Note
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability will not
- 4 -
<PAGE>
affect any other provision (or remaining part of the affected provision) of this
Note, but this Note will be construed as if such invalid, illegal or
unenforceable provision (or part thereof), had never been contained herein, but
only to the extent it is invalid, illegal or unenforceable.
This Note may not be amended, modified or terminated orally, but only by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification or termination is sought.
Whenever used herein, the words "Borrower" and "Lender" will be deemed to
include their respective heirs, personal representatives, executors, successors
and assigns.
This Note will be construed according to and governed by the laws of the
State of Maryland without regard to principles of conflict of laws.
The Borrower hereby acknowledges that the loan evidenced by this Note is a
Commercial Loan within the meanings of Sections 12-101(c) and 12-103(e) of the
Commercial Law Article of the Annotated Code of Maryland (1975 edition, as
amended).
IN WITNESS WHEREOF, this Note has been properly executed and sealed by the
Borrower on the day and year first written above.
WITNESS/ATTEST: BORROWER:
LONDONTOWN CORPORATION,
a Delaware corporation
/s/ By:/s/ Zachary C. Goldman (SEAL)
- ---------------------------------- --------------------------------
Assistant Secretary Zachary C. Goldman, Vice President and
Chief Financial Officer
The within Deed of Trust Note is secured by a first lien Deed of Trust on
property located in Carroll County, Maryland, by and among Borrower, Daniel L.
Wieneke and Jack N. Zemil, Trustees, and Lender.
I HEREBY CERTIFY that the within Deed of Trust Note is the Deed of Trust
Note described in the Deed of Trust, such Deed of Trust and the within Deed of
Trust Note having been executed in my presence.
/s/ Giovanna M. Young
---------------------------------
Notary Public
My Commission Expires:
July 1, 1990
- --------------------------
- 5 -
<PAGE>
AMORTIZATION SCHEDULE
LONDONTOWN CORPORATION
PAYMENT INTEREST PRINCIPAL BALANCE IRR CALCULATION
------- -------- --------- ------- ---------------
0 14,000,000.00 (14,000,000.00)
1 137,430.07 119,583.33 17,846.74 13,982,153.26 137,430.07
2 137,430.07 119,430.89 17,999.18 13,964,154.09 137,430.07
3 137,430.07 119,277.15 18,152.92 13,946,001.17 137,430.07
4 137,430.07 119,122.09 18,307.98 13,927,693.19 137,430.07
5 137,430.07 118,965.71 18,464.36 13,909,228.83 137,430.07
6 137,430.07 118,808.00 18,622.07 13,890,606.76 137,430.07
7 137,430.07 118,648.93 18,781.14 13,871,825.62 137,430.07
8 137,430.07 118,488.51 18,941.56 13,852,884.06 137,430.07
9 137,430.07 118,326.72 19,103.35 13,833,780.71 137,430.07
10 137,430.07 118,163.54 19,266.53 13,814,514.18 137,430.07
11 137,430.07 117,998.98 19,431.09 13,795,083.09 137,430.07
12 137,430.07 117,833.00 19,597.07 13,775,486.02 137,430.07
13 137,430.07 117,665.61 19,764.46 13,755,721.56 137,430.07
14 137,430.07 117,496.79 19,933.28 13,735,788.28 137,430.07
15 137,430.07 117,326.52 20,103.55 13,715,684.73 137,430.07
16 137,430.07 117,154.81 20,275.26 13,695,409.47 137,430.07
17 137,430.07 116,981.62 20,448.45 13,674,961.02 137,430.07
18 137,430.07 116,806.96 20,623.11 13,654,337.91 137,430.07
19 137,430.07 116,630.80 20,799.27 13,633,538.64 137,430.07
20 137,430.07 116,453.14 20,976.93 13,612,561.72 137,430.07
21 137,430.07 116,273.96 21,156.11 13,591,405.61 137,430.07
22 137,430.07 116,093.26 21,336.81 13,570,068.80 137,430.07
23 137,430.07 115,911.00 21,519.07 13,548,549.73 137,430.07
24 137,430.07 115,727.20 21,702.87 13,526,846.86 137,430.07
25 137,430.07 115,541.82 21,888.25 13,504,958.60 137,430.07
26 137,430.07 115,354.85 22,075.22 13,482,883.39 137,430.07
27 137,430.07 115.166.30 22,263.77 13,460,619.61 137,430.07
28 137,430.07 114,976.13 22,453.94 13,438,165.67 137,430.07
29 137,430.07 114,784.33 22,645.74 13,415,519.93 137,430.07
30 137,430.07 114,590.90 22,839.17 13,392,680.76 137,430.07
31 137,430.07 114,395.81 23,034.26 13,369.646.51 137,430.07
32 137,430.07 114,199.06 23,231.01 13,346,415.50 137,430.07
33 137,430.07 114,000.63 23,429.44 13,322,986.06 137,430.07
34 137,430.07 113,800.51 23,629.56 13,299,356.50 137,430.07
35 137,430.07 113,598.67 23,831.40 13,275,525.10 137,430.07
36 137,430.07 113,395.11 24,034.96 13,251,490.14 137,430.07
37 137,430.07 113,189.81 24,240.26 13,277,249.88 137,430.07
38 137,430.07 112,982.76 24,447.31 13,202,802.57 137,430.07
39 137,430.07 112,773.94 24,656.13 13,178,146.44 137,430.07
40 137,430.07 112,563.33 24,866.74 13,153,279.70 137,430.07
41 137,430.07 112,350.93 25,079.14 13,128,200.56 137,430.07
42 137,430.07 112,136.71 25,293.36 13,102,907.21 137,430.07
43 137,430.07 111,920.67 25,509.40 13,077,397.80 137,430.07
44 137,430.07 111,702.77 25,727.30 13,051,670.50 137,430.07
45 137,430.07 111,483.02 25,947.05 13,025,723.45 137,430.07
<PAGE>
46 137,430.07 111,261.39 26,168.68 12,999,554.77 137,430.07
47 137,430.07 111,037.86 26,392.21 12,973,162.57 137,430.07
48 137,430.07 110,812.43 26,617.64 12,946,544.93 137,430.07
49 137,430.07 110,585.07 26,845.00 12,919,699.93 137,430.07
50 137,430.07 110,355.77 27,074.30 12,892,625.63 137,430.07
51 137,430.07 110,124.51 27,305.56 12,865,320.07 137,430.07
52 137,430.07 109,891.28 27,538.79 12,837,781.27 137,430.07
53 137,430.07 109,656.05 27,774.02 12,810,007.25 137,430.07
54 137,430.07 109,418.81 28,011.26 12,781,995.99 137,430.07
55 137,430.07 109,179.55 28,250.52 12,753,745.47 137,430.07
56 137,430.07 108,938.24 28,491.83 12,725,253.6 137,430.07
57 137,430.07 108,694.87 28,735.20 12,696,518.45 137,430.07
58 137,430.07 108,449.43 28,980.64 12,667,537.81 137,430.07
59 137,430.07 108,201.89 29,228.18 12,638,309.62 137,430.07
60 137,430.07 107,952.23 29,477.84 12,608,831.78 137,430.07
61 137,430.07 107,700.44 29,729.63 12,579,102.15 137,430.07
62 137,430.07 107,446.50 29,983.57 12,549,118.58 137,430.07
63 137,430.07 107,190.39 30,239.68 12,518,878.90 137,430.07
64 137,430.07 106,932.09 30,497.98 12,488,380.92 137,430.07
65 137,430.07 106,671.59 30,758.48 12,457,622.43 137,430.07
66 137,430.07 106,408.86 31,021.21 12,426,601.22 137,430.07
67 137,430.07 106,143.89 31,286.18 12,395,315.04 137,430.07
68 137,430.07 105,876.65 31,553.42 12,363,761.62 137,430.07
69 137,430.07 105,607.13 31,822.94 12,331,938.68 137,430.07
70 137,430.07 105,335.31 32,094.76 12,299,843.92 137,430.07
71 137,430.07 105,061.17 32,368.90 12,267,475.01 137,430.07
72 137,430.07 104,784.68 32,645.39 12,234,829.62 137,430.07
73 137,430.07 104,505.84 32,924.23 12,201,905.39 137,430.07
74 137,430.07 104,224.61 33,205.46 12,168,699.93 137,430.07
75 137,430.07 103,940.98 33,489.09 12,135,210.84 137,430.07
76 137,430.07 103,654.93 33,775.14 12,101,435.69 137,430.07
77 137,430.07 103,366.43 34,063.64 12,067,372.05 137,430.07
78 137,430.07 103,075.47 34,354.60 12,033,017.45 137,430.07
79 137,430.07 102,782.02 34,648.05 11,998,369.41 137,430.07
80 137,430.07 102,486.07 34,944.00 11,963,425.41 137,430.07
81 137,430.07 102,187.59 35,242.48 11,928,182.93 137,430.07
82 137,430.07 101,886.56 35,543.51 11,892,639.42 137,430.07
83 137,430.07 101,582.96 35,847.11 11,856,792.32 137,430.07
84 137,430.07 101,276.77 36,153.30 11,820,639.01 137,430.07
85 137,430.07 100,967.96 36,462.11 11,784,176.90 137,430.07
86 137,430.07 100,656.51 36,773.56 11,747,403.34 137,430.07
87 137,430.07 100,342.40 37,087.67 11,710,315.68 137.430.07
88 137,430.07 100,025.61 37,404.46 11,672,911.22 137.430.07
89 137,430.07 99,706.12 37,723.95 11,635,187.27 137.430.07
90 137,430.07 99,383.89 38,046.18 11,597,141.09 137,430.07
91 137,430.07 99,058.91 38,371.16 11,558,769.93 137,430.07
92 137,430.07 98,731.16 38,698.91 11,520,071.02 137.430.07
93 137,430.07 98,400.61 39,029.46 11,481,041.56 137,430.07
94 137,430.07 98,067.23 39,362.84 11,441,678.72 137.430.07
95 137,430.07 97,731.01 39,699.06 11,401,979.65 137,430.07
96 137,430.07 97,391.91 40,038.16 11,361,941.49 137,430.07
97 137,430.07 97,049.92 40,380.15 11,321,561.34 137,430.07
98 137,430.07 96,705.00 40,725.07 11,280,836.27 137,430.07
<PAGE>
99 137,430.07 96,357.14 41,072.93 11,239,763.35 137,430.07
100 137,430.07 96,006.31 41,423.75 11,198,339.59 137,430.07
101 137,430.07 95,652.48 41,777.59 11,156,562.00 137,430.07
102 137,430.07 95,295.63 42,134.44 11,114,427.57 137,430.07
103 137,430.07 94,935.74 42,494.33 11,071,933.23 137,430.07
104 137,430.07 94,572.76 42,857.31 11,029,075.92 137,430.07
105 137,430.07 94,206.69 43,223.38 10,985,852.54 137,430.07
106 137,430.07 93,837.49 43,592.58 10,942,259.96 137,430.07
107 137,430.07 93,465.14 43,964.93 10,898,295.03 137,430.07
108 137,430.07 93,089.60 44,340.47 10,853,954.57 137,430.07
109 137,430.07 92,710.86 44,719.21 10,809,235.36 137,430.07
110 137,430.07 92,328.89 45,101.18 10,764,134.17 137,430.07
111 137,430.07 91,943.65 45,486.42 10,718,647.75 137,430.07
112 137,430.07 91,555.12 45,874.95 10,672,772.79 137,430.07
113 137,430.07 91,163.27 46,266.80 10,626,505.99 137,430.07
114 10,717,273.26 90,768.07 10,626,505.19 0.80 10,717,273.26
10.25
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
------------------------------------------------
SECOND AMENDED AND RESTATED AGREEMENT by and among London Fog
Industries, Inc., a Delaware corporation (the "Company"), and Robert E. Gregory,
Jr. (the "Executive"), dated as of the 27th day of February, 1998.
W I T N E S S E T H:
WHEREAS, the Executive is Chairman and Chief Executive Officer
of the Company;
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interests of the Company and its
shareholders to continue to employ the Executive as Chairman and Chief Executive
Officer of the Company;
WHEREAS, the Executive desires to continue to serve in such
capacities;
WHEREAS, the Executive has completed his targeted assignment
under his amended and restated employment agreement with the Company (the
"Original Employment Agreement") as to the turnaround of the Company; and
WHEREAS, the Company desires the Executive to continue
employment with the Company pursuant to this Agreement in order to achieve
certain other goals for the Company, but beyond the expiration of his Original
Employment Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company shall continue to employ the
Executive, and the Executive shall continue to serve the Company, on the terms
and conditions set forth in this Agreement, for the period (the "Employment
Period") commencing on the date
<PAGE>
hereof, and unless terminated earlier as provided in Section 5, terminating on
February 28, 2002 (the "Employment Period").
2. Position and Duties. (a) During the Employment Period, the
Executive shall serve as Chairman and Chief Executive Officer of the Company and
shall perform such duties as are commensurate with such positions as such duties
may be assigned to him by the Board; it being understood that after the date
hereof, such duties shall be consistent with the duties and responsibilities
performed on and prior to the date hereof.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote his full business activi ties to the business and affairs of the Company.
It shall not be considered a violation of the foregoing for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures or fulfill speaking engagements, and (C) make and manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
3. Compensation. (a) Annual Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base Salary")
at the rate of $1,389,150 per annum payable in accordance with the Company's
normal payroll practices in effect from time to time. The then Annual Base
Salary shall be increased by 5% (or such greater amount as the Board may
determine) on December 30, 1998 and on each anniversary thereof during the
Employment Period. Once increased, Annual Base Salary shall not be decreased.
The Annual Base Salary, as increased, shall be deemed to be the new Annual Base
Salary.
(b) Bonus. For each fiscal year or portion thereof during the
Employment Period commencing on or after February 28, 1999, the Executive shall
be eligible to receive a cash bonus in an amount to be determined by the Board
(or a sub-committee thereof) based on
-2-
<PAGE>
the results of operations of the Company and the Executive's performance during
that fiscal year (the "Bonus").
(c) Equity Enhancement Performance Program. The Executive
shall receive for each full fiscal year or portion of a fiscal year prior to
February 28, 1999 (regardless of whether such date is the end of a fiscal year
of the Company) during the Employment Period, a bonus payment equal to 6% of the
Company's Consolidated EBITA (as defined in the Amended and Restated Credit
Agreement among the Company, the Several Lenders and Chemical Bank dated as of
May 31, 1995, without regard to any amendments thereto after the date hereof)
prorated for any portion of a fiscal year (the "Equity Bonus Payment"). Each
Equity Bonus Payment shall be paid in a single cash lump sum no later than 30
days after the audited financial statements for such fiscal year are complete,
but in no event later than 180 days after the Company's fiscal year end, unless
the Executive elects in writing, before the beginning of the fiscal year for
which the Equity Bonus Payment is to be awarded, to defer receipt of the Equity
Bonus Payment on such terms as agreed by the Executive and the Company.
(d) Other Benefits. During the Employment Period, the
Executive shall be entitled to participate in all welfare benefit, savings and
retirement plans and programs of the Company to the same extent as other
executives of the Company, as well as in the special deferred compensation
arrangement created for senior management.
(e) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in carrying out the Executive's duties under this
Agreement, provided that the Executive complies with the applicable policies,
practices and procedures of the Company.
(f) Vacation. During the Employment Period, the Executive
shall be entitled to four weeks annual paid vacation to be taken in accordance
with Company policies.
-3-
<PAGE>
4. Common Equity. Simultaneous with execution of this
Agreement, the Company shall grant the Executive a stock option to purchase
666,666 shares of common stock of the Company in accordance with the Company's
1998 Stock Option Plan and the draft stock option agreement annexed as Exhibit A
hereto, as well as certain warrants to purchase common stock of the Company.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that (i) the Executive has been unable,
for a period of 90 consecutive business days, to perform the Executive's
material duties under this Agreement, as a result of physical or mental illness
or injury, and (ii) a physician selected by the Company or its insurers, and
reasonably acceptable to the Executive or the Executive's legal representative,
has determined that the Executive's incapacity is total and permanent. A
termination of the Executive's employment by the Company for Disability shall be
communicated to the Executive by written notice, and shall be effective on the
tenth day after receipt of such notice by the Executive (the "Disability
Effective Date") , unless the Executive returns to substantially full-time
performance of the Executive's duties before the Disability Effective Date.
(b) By the Company. (i) The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
"Cause" means:
A. the willful refusal of the Executive substantially
to perform the Executive's duties under this Agreement (other
than as a result of physical or mental illness or injury); or
B. illegal conduct or gross misconduct by the
Executive that is willful and results in material and
demonstrable damage to the business or reputation of the
Company.
-4-
<PAGE>
(ii) Termination for Cause pursuant to Clause A above shall be
effective upon the fifth business day following delivery to the Executive of a
notice that the Board has determined that the Executive has engaged in conduct
specified by Clause A above (which notice shall describe such conduct in
reasonable detail), unless the Executive has cured the conduct prior to such
time; provided that the Executive shall only have one such cure opportunity in
any twelve month period. Termination for Cause pursuant to Clause B above shall
be effective on the fifth business day following delivery to the Executive of a
notice that the Board has determined that the Executive has engaged in conduct
specified by Clause B (which notice shall describe such conduct in reasonable
detail). In any dispute as to whether the determination of the Board was
correct, the issue shall be a de novo determination of whether Cause existed and
not a deter mination of whether the Board was arbitrary and capricious in
finding that it existed.
(c) Good Reason. (i) The Executive may terminate employment
for Good Reason or without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties
inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement, or any other action by the Company that
results in a diminution in the Executive's position,
authority, title, duties or responsibilities, other than an
isolated and insubstantial action that is not taken in bad
faith and that, if such isolated and insubstantial event is
curable, is cured within a reasonable period after notice;
B. any failure by the Company to comply with any
provision of this Agreement, other than an isolated and
insubstantial failure that is not taken in bad faith and that,
if such isolated and insubstantial event is curable, is cured
within a reasonable period after notice;
C. any purported termination of the Executive's
employment by the Company for a reason or in a manner not
expressly permitted by this Agreement; or
D. the occurrence of a Change in Control at the
Company (as defined in Section 5(e) below).
-5-
<PAGE>
Any good faith determination of "Good Reason" made by the Executive shall be
conclusive, provided that the Executive gives notice to the Company of such
determination within 45 days (in the case of an event described in Clause D of
the definition of "Good Reason" above) or 90 days (in the case of any other
event described in the definition of "Good Reason" above) of an event which
constitutes Good Reason. Any failure to give such notice on a timely basis as
specified above shall constitute a waiver of the right to treat such event as
Good Reason under this Agreement.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth in reasonable
detail the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be effective on
the later of (i) the fifteenth business day following the date on which the
notice is given or (ii) a later date set forth in such notice (which date shall
in no event be later than 30 days after the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination specifying a date of effectiveness not later than the
tenth business day after the date such notice is given.
(d) Date of Termination. The "Date of Termination" means the
date of the Executive's death, the Disability Effective Date, the date on which
the termination of the Executive's employment by the Company for Cause or by the
Executive with or without Good Reason is effective, as the case may be, or the
date specified in a notice advising the Executive that his employment is being
terminated without Cause (which date shall not be later than 30 days after such
notice).
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(e) A "Change in Control" of the Company shall be deemed to
have occurred:
(i) upon any "person" as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other
than any holder on the date hereof of the Company's 10% Senior Subordinated
Notes due 2003, any holder of options granted under the Company's 1998 Stock
Option Plan, or the Company, any trustee or other fiduciary holding securities
under any employee benefit plan of the Company, or any company owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of the common stock of the Company), becoming the
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities;
(ii) upon the merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; provided, however,
that a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person (other than those covered by
the exceptions in (i) above) acquires more than 50% of the combined voting power
of the Company's then outstanding securities shall not constitute a Change in
Control of the Company; or
(iii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of 80% or more of the Company's assets other than such a sale to
a person or persons who beneficially own, directly or indirectly, at least 50%
or more of the combined voting power of the outstanding voting securities of the
Company at the time of the sale.
6. Obligations of the Company upon Termination. (a) Other than
for Cause, Death or Disability; Good Reason. If, during the Employment Period,
(1) the Company terminates the Executive's employment other than for Cause,
death or Disability, or (2) the Executive terminates his employment for Good
Reason, then the Executive shall receive the amounts described in subparagraphs
(i) and (ii) below at the times specified therein and the Company shall continue
the benefits described in subparagraph (iii) below until the earlier of (A)
February 28, 2002, or (B) two years after the Date of Termination. The payments
provided pursuant to this paragraph (a) of Section 6 are intended as severance
payments for a termination
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of the Executive's employment by the Company other than for Cause or Disability
or for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and exclusive
remedy therefor.
(i) In the events described in Section 6(a) above, there shall
be paid to the Executive his accrued but unpaid cash compensation (the "Accrued
Obligations"), which shall equal the sum of (1) any portion of the Executive's
Annual Base Salary through the Date of Termination that has not yet been paid;
(2) any unpaid Bonus and/or unpaid (and undeferred) Equity Bonus Payments for
fiscal years completed prior to the Date of Termination; and (3) any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) that has not yet been paid and any expenses not
previously reimbursed by the Company. The amounts due under this subparagraph
(i) shall be paid in a lump sum within 30 days of the Date of Termination.
(ii) In the events described in Section 6(a) above, the
Company shall pay to the Executive (1) a lump sum, within 10 days of the Date of
Termination, equal to two times the sum of his then current Annual Base Salary
and the highest annual Bonus paid to him for either of the prior two completed
fiscal years of the Company; and (2) a Bonus, or if the Date of Termination is
prior to March 1, 1999, an Equity Bonus Payment, for the fiscal year during
which the Date of Termination occurs (paid in a lump sum when such payment would
otherwise be paid) based on actual achievement of performance goals or
Consolidated EBITA, as applicable, for such fiscal year and pro-rated to reflect
the portion of the fiscal year during which the Executive was employed by the
Company. In addition, in such event all outstanding options and equity interests
shall immediately vest and, if options, shall remain exercisable for the
remainder of their stated term.
(iii) The benefits to be continued as described above are
health and welfare benefits to the Executive and/or the Executive's family at
least as favorable (and with the same tax consequences to the Executive) as
those that would have been provided to them under
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paragraph (d) of Section 3 of this Agreement if the Executive's employment had
continued until the second anniversary of the Date of Termination; provided,
however, that during any period when the Executive and/or his family is eligible
to receive such benefits under another employer- provided plan, the benefits
provided by the Company under this subparagraph may be made secondary to those
provided under such other plan.
(b) Death or Disability. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company shall pay the Executive or the Executive's estate
or legal representative, as applicable (1) any Accrued Obligations as provided
in Section 6(a)(i); and (2) a Bonus or, if the Date of Termination is prior to
March 1, 1999, an Equity Bonus Payment, for the fiscal year during which the
Date of Termination occurs (paid in a lump sum when such payment made otherwise
be paid) based on actual achievement of performance goals or Consolidated EBITA,
as applicable, for such fiscal year and pro-rated to reflect the portion of the
fiscal year during which the Executive was employed by the Company. In addition,
in such event all outstanding options and equity interests shall immediately
vest and, if options, shall remain exercisable for the remainder of their stated
term. The Company shall have no further obligations under this Agreement other
than pursuant to Sections 13 and 14 hereof.
(c) Cause; Other than for Good Reason. If the Executive's
employment is terminated by the Company for Cause during the Employment Period,
or if the Executive terminates his employment other than for Good Reason, the
Company shall pay the Executive any Accrued Obligations and unreimbursed
expenses through the Date of Termination, to the extent not yet paid. The
Company shall have no further obligations under this Agreement other than
pursuant to Sections 13 and 14 hereof.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies for which the Executive may qualify,
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nor shall anything in this Agreement limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its affiliated companies. Vested benefits and other amounts that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliated companies on or after the Date of Termination shall be payable in
accordance with such plan, policy, practice, program, contract or agreement, as
the case may be, except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under, this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others. The Executive shall not be obligated to seek other
employment or to take action by way of mitigation of the amounts payable to the
Executive under the provisions of this Agreement, and no amounts received by the
Executive from sub sequent employment shall offset amounts payable to the
Executive hereunder.
9. Noncompetition; Confidentiality; Work Product.
(a) During the Employment Period and for one year thereafter
the Executive shall not, in any capacity, engage or participate in, or become
employed by or render advisory, consulting or other services to or in connection
with, or make any financial investment (whether in the form of equity or debt)
or own any direct or indirect interest in, any Competitive Business (as defined
below); provided, that nothing in this Section 9(a) shall prevent the Executive
from making any investment in up to one percent of the total outstanding equity
of any company whose stock is listed on an established securities market and
whose annual sales exceed $150 million. "Competitive Business" means a company,
other than Starter, whose outerwear and/or rainwear sales for the fiscal year
ended immediately prior to the Executive's commencing work are more than 37.5%
of that company's total sales for such fiscal year.
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<PAGE>
(b) If any restriction set forth with regard to competition is
found by any court of competent jurisdiction, or an arbitrator, to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be interpreted
to extend over the maximum period of time, range of activities or geographic
area as to which it may be enforceable.
(c) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all information, knowledge or data relating to the
Company or any of its affiliated companies and their respective businesses that
the Executive obtains during the Executive's employment by the Company or any of
its affiliated companies and that is not public knowledge (other than as a
result of the Executive's violation of this Section 9(c)) or is otherwise
learned from third parties ("Confidential Information"). The Executive shall not
communicate, divulge or disseminate Confidential Information at any time during
or after the Executive's employment with the Company, except (i) as may be
necessary and appropriate in carrying out his duties under this Agreement, (ii)
with the prior written consent of the Company, or (iii) as otherwise required by
law or legal process.
(d) Any intellectual property, including without limitation
trade secrets, know-how, trademarks, trade names, and copyrighted material,
developed by the Executive while employed by the Company shall be the exclusive
property of the Company. Upon termination of the Executive's employment for any
reason, the Executive shall immediately surrender to the Company all letters,
papers, documents, instruments, records, books, products, and any other material
owned by the Company.
(e) In the event of a breach or potential breach of this
Section 9, the Executive acknowledges that the Company and its affiliates will
be caused irreparable injury and that money damages may not be an adequate
remedy and agrees that the Company and its affiliates shall be entitled to
injunctive or other equitable relief (in addition to its other remedies at law)
to have the provisions of this Section 9 enforced.
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10. Arbitration; Attorneys' Fees. Except with regard to
injunctive and equitable relief provided in Section 9, all claims by the Company
or the Executive under this Agreement shall be subject to arbitration in New
York City under the rules of the American Arbitration Association. The decision
of the arbitrators shall be final and binding as between the parties and may be
entered in any court having jurisdiction over the parties. The Company shall
reimburse the Executive for all costs and expenses, including without limitation
attorneys' fees, that the Executive may reasonably incur in connection with any
contest between the Company and the Executive of the validity or enforceability
of, or liability under, any provision of this Agreement, provided that the
Executive obtains more than a de minimis portion of the relief he sought in such
contest. The Company shall reimburse the Executive for the reasonable fees of
one law firm retained by the Executive to assist in the negotiation of this
Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and permitted assigns. This
Agreement may not be assigned by the Company except by operation of law through
a merger or consolidation or in connection with a sale of assets constituting
90% or more of the assets of the Company.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
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12. Miscellaneous. (a) This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
--------------------
Robert E. Gregory, Jr.
2125 Highway 14 East
Landrum, South Carolina 29356
If to the Company:
------------------
London Fog Industries, Inc.
8 West 40th Street
New York, New York 10018
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such
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<PAGE>
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) Neither the Executive's nor the Company's failure to
insist upon strict compliance with any provision of, or to assert any right
under, this Agreement (including, without limitation, the right of the Executive
to terminate employment for Good Reason pursuant to paragraph (c) of Section 5
of this Agreement shall be deemed to be a waiver of such provision or right or
of any other provision of or right under this Agreement), except as specified in
the last sentence of Section 5(c)(i).
(f) The Executive and the Company acknowledge that this
Agreement supersedes: (i) the amended and restated employment agreement dated as
of May 31, 1995 by and among the Executive, the Company and London Fog
Corporation, and (ii) any other agreement between them concerning the subject
matter hereof.
13. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
payable or distributed or distributable pursuant to the terms of this Agreement,
but determined without regard to any additional payments required under this
Section 13 (a "Payment"), would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), then the Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by the Executive of
all income taxes and Excise Tax imposed
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upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all
determinations required to be made under this Section 13, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") and which shall be
reasonably acceptable to the Company, which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 13, shall be paid by the Company to the
Executive within ten days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 13(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred, together with the
amount of any interest and penalties imposed as a result thereof, and any such
amounts shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the
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Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such repre sentation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 13(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the
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Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount; and
further provided that at any time when the Company fails to pay any material
amount that it is obligated to pay under this Section 13(c) within 30 days after
such amount becomes due (except to the extent the Company is contesting its
obligation to pay such amount in good faith), the Executive rather than the
Company shall thereafter have control over such proceeding and may make all
determinations (provided that the foregoing shall not relieve the Company of its
liability under this Section 13.) Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 13(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 13(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 13(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
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14. Insurance and Indemnity. During the Employment Period, the
Company shall maintain in effect (i) directors' and officers' liability
insurance in an amount no less than in effect as of the date hereof, and (ii) to
the maximum extent permitted by law, indemnification provisions in favor of the
Executive no less favorable than those contained in the Company's certificate of
incorporation and bylaws as in effect as of December 30, 1994.
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IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization of its Board of Directors,
the Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
---------------------------------------
Robert E. Gregory, Jr.
LONDON FOG INDUSTRIES, INC.
By
------------------------------------
Name:
Title:
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Exhibit A
---------
[Stock Option Agreement]
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
SECOND AMENDED AND RESTATED AGREEMENT by and among London Fog
Industries, Inc., a Delaware corporation (the "Company"), and C. William Crain
(the "Executive"), dated as of the 27th day of February, 1998.
W I T N E S S E T H:
WHEREAS, the Executive is President and Chief Operating
Officer of the Company;
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interests of the Company and its
shareholders to continue to employ the Executive as President and Chief
Operating Officer of the Company; and
WHEREAS, the Executive desires to continue to serve in such
capacities.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company shall continue to employ the
Executive, and the Executive shall continue to serve the Company, on the terms
and conditions set forth in this Agreement, for the period (the "Employment
Period") commencing on the date hereof, and unless terminated earlier as
provided in Section 5, terminating on February 28, 2002 (the "Employment
Period").
2. Position and Duties. (a) During the Employment Period, the
Executive shall serve as President and Chief Operating Officer of the Company
and shall perform such duties as are commensurate with such positions as such
duties may be assigned to him by the Board or by the Chief Executive Officer of
the Company; it being understood that after the date
<PAGE>
hereof, such duties shall be consistent with the duties and responsibilities
performed on and prior to the date hereof.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote his full business activities to the business and affairs of the Company.
It shall not be considered a violation of the foregoing for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures or fulfill speaking engagements, and (C) make and manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
3. Compensation. (a) Annual Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base Salary")
at the rate of $781,396.88 per annum payable in accordance with the Company's
normal payroll practices in effect from time to time. The then Annual Base
Salary shall be increased by 5% (or such greater amount as the Board may
determine) on December 30, 1998 and on each anniversary thereof during the
Employment Period. Once increased, Annual Base Salary shall not be decreased.
The Annual Base Salary, as increased, shall be deemed to be the new Annual Base
Salary.
(b) Bonus. For each fiscal year or portion thereof during the
Employment Period commencing on or after February 28, 1999, the Executive shall
be eligible to receive a cash bonus in an amount to be determined by the Board
(or a sub-committee thereof) based on the results of operations of the Company
and the Executive's performance during the fiscal year (the "Bonus").
(c) Equity Enhancement Performance Program. The Executive
shall receive for each full fiscal year or portion of a fiscal year prior to
February 28, 1999 (regardless of whether such date is the end of a fiscal year
of the Company) during the Employment Period, a bonus payment equal to 4% of the
Company's Consolidated EBITA (as defined in the Amended
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and Restated Credit Agreement among the Company, the Several Lenders and
Chemical Bank dated as of May 31, 1995, without regard to any amendments thereto
after the date hereof) prorated for any portion of a fiscal year (the "Equity
Bonus Payment"). Each Equity Bonus Payment shall be paid in a single cash lump
sum no later than 30 days after the audited financial statements for such fiscal
year are complete, but in no event later than 180 days after the Company's
fiscal year end, unless the Executive elects in writing, before the beginning of
the fiscal year for which the Equity Bonus Payment is to be awarded, to defer
receipt of the Equity Bonus Payment on such terms as agreed by the Executive and
the Company.
(d) Other Benefits. During the Employment Period, the
Executive shall be entitled to participate in all welfare benefit, savings and
retirement plans and programs of the Company to the same extent as other
executives of the Company, as well as in the special deferred compensation
arrangement created for senior management.
(e) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in carrying out the Executive's duties under this
Agreement, provided that the Executive complies with the applicable policies,
practices and procedures of the Company.
(f) Vacation. During the Employment Period, the Executive
shall be entitled to four weeks annual paid vacation to be taken in accordance
with Company policies.
4. Common Equity. Simultaneous with execution of this
Agreement, the Company shall grant the Executive a stock option to purchase
333,333 shares of common stock of the Company in accordance with the Company's
1998 Stock Option Plan and the draft stock option agreement annexed as Exhibit A
hereto, as well as certain warrants to purchase common stock of the Company.
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5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that (i) the Executive has been unable,
for a period of 90 consecutive business days, to perform the Executive's
material duties under this Agreement, as a result of physical or mental illness
or injury, and (ii) a physician selected by the Company or its insurers, and
reasonably acceptable to the Executive or the Executive's legal representative,
has determined that the Executive's incapacity is total and permanent. A
termination of the Executive's employment by the Company for Disability shall be
communicated to the Executive by written notice, and shall be effective on the
tenth day after receipt of such notice by the Executive (the "Disability
Effective Date") , unless the Executive returns to substantially full-time
performance of the Executive's duties before the Disability Effective Date.
(b) By the Company. (i) The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
"Cause" means:
A. the willful refusal of the Executive substantially
to perform the Executive's duties under this Agreement (other
than as a result of physical or mental illness or injury); or
B. illegal conduct or gross misconduct by the
Executive that is willful and results in material and
demonstrable damage to the business or reputation of the
Company.
(ii) Termination for Cause pursuant to Clause A above shall be
effective upon the fifth business day following delivery to the Executive of a
notice that the Board has determined that the Executive has engaged in conduct
specified by Clause A above (which notice shall describe such conduct in
reasonable detail), unless the Executive has cured the conduct prior to such
time; provided that the Executive shall only have one such cure opportunity in
any twelve month period. Termination for Cause pursuant to Clause B above shall
be effective on
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the fifth business day following delivery to the Executive of a notice that the
Board has determined that the Executive has engaged in conduct specified by
Clause B (which notice shall describe such conduct in reasonable detail). In any
dispute as to whether the determination of the Board was correct, the issue
shall be a de novo determination of whether Cause existed and not a
determination of whether the Board was arbitrary and capricious in finding that
it existed.
(c) Good Reason. (i) The Executive may terminate employment
for Good Reason or without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties
inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement, or any other action by the Company that
results in a diminution in the Executive's position,
authority, title, duties or responsibilities, other than an
isolated and insubstantial action that is not taken in bad
faith and that, if such isolated and insubstantial event is
curable, is cured within a reasonable period after notice;
B. any failure by the Company to comply with any
provision of this Agreement, other than an isolated and
insubstantial failure that is not taken in bad faith and that,
if such isolated and insubstantial event is curable, is cured
within a reasonable period after notice;
C. any purported termination of the Executive's
employment by the Company for a reason or in a manner not
expressly permitted by this Agreement;
D. the occurrence of a Change in Control at the
Company (as defined in Section 5(e) below).
E. the Company shall have terminated the employment
of Robert E. Gregory, Jr. without Cause or Robert E. Gregory,
Jr. shall have terminated his employment with Good Reason.
Any good faith determination of "Good Reason" made by the Executive shall be
conclusive, provided that the Executive gives notice to the Company of such
determination within 45 days (in the case of an event described in Clause D of
the definition of "Good Reason" above) or 90 days (in the case of any other
event described in the definition of "Good Reason" above) of an event which
constitutes Good Reason. Any failure to give such notice on a timely basis as
-5-
<PAGE>
specified above shall constitute a waiver of the right to treat such event as
Good Reason under this Agreement.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth in reasonable
detail the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be effective on
the later of (i) the fifteenth business day following the date on which the
notice is given or (ii) a later date set forth in such notice (which date shall
in no event be later than 30 days after the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination specifying a date of effectiveness not later than the
tenth business day after the date such notice is given.
(d) Date of Termination. The "Date of Termination" means the
date of the Executive's death, the Disability Effective Date, the date on which
the termination of the Executive's employment by the Company for Cause or by the
Executive with or without Good Reason is effective, as the case may be, or the
date specified in a notice advising the Executive that his employment is being
terminated without Cause (which date shall not be later than 30 days after such
notice).
(e) A "Change in Control" of the Company shall be deemed to
have occurred:
(i) upon any "person" as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other
than any holder on the date hereof of the Company's 10% Senior Subordinated
Notes due 2003, any holder of options granted under the Company's 1998 Stock
Option Plan, the Company, any trustee or other fiduciary holding
-6-
<PAGE>
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock of the Company),
becoming the owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities;
(ii) upon the merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; provided, however,
that a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person (other than those covered by
the exceptions in (i) above) acquires more than 50% of the combined voting power
of the Company's then outstanding securities shall not constitute a Change in
Control of the Company; or
(iii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of 80% or more of the Company's assets other than such a sale to
a person or persons who beneficially own, directly or indirectly, at least 50%
or more of the combined voting power of the outstanding voting securities of the
Company at the time of the sale.
6. Obligations of the Company upon Termination. (a) Other than
for Cause, Death or Disability; Good Reason. If, during the Employment Period,
(1) the Company terminates the Executive's employment other than for Cause,
death or Disability, or (2) the Executive terminates his employment for Good
Reason, then the Executive shall receive the amounts described in subparagraphs
(i) and (ii) below at the times specified therein and the Company shall continue
the benefits described in subparagraph (iii) below until the earlier of (A)
February 28, 2002, or (B) two years after the Date of Termination. The payments
provided pursuant to this paragraph (a) of Section 6 are intended as severance
payments for a termination of the Executive's employment by the Company other
than for Cause or Disability or for the actions of the Company leading to a
termination of the Executive's employment by the Executive for Good Reason, and
shall be the sole and exclusive remedy therefor.
-7-
<PAGE>
(i) In the events described in Section 6(a) above, there shall
be paid to the Executive his accrued but unpaid cash compensation (the "Accrued
Obligations"), which shall equal the sum of (1) any portion of the Executive's
Annual Base Salary through the Date of Termination that has not yet been paid;
(2) any unpaid Bonus and/or unpaid (and undeferred) Equity Bonus Payments for
fiscal years completed prior to the Date of Termination; and (3) any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) that has not yet been paid and any expenses not
previously reimbursed by the Company. The amounts due under this subparagraph
(i) shall be paid in a lump sum within 30 days of the Date of Termination.
(ii) In the events described in Section 6(a) above, the
Company shall pay to the Executive (1) a lump sum, within 10 days of the Date of
Termination, equal to two times the sum of his then current Annual Base Salary
and the highest annual Bonus paid to him for either of the prior two completed
fiscal years of the Company; and (2) a Bonus, or if the Date of Termination is
prior to March 1, 1999, an Equity Bonus Payment, for the fiscal year during
which the Date of Termination occurs (paid in a lump sum when such payment would
otherwise be paid) based on actual achievement of performance goals or
Consolidated EBITA, as applicable, for such fiscal year and pro-rated to reflect
the portion of the fiscal year during which the Executive was employed by the
Company. In addition, in such event all outstanding options and equity interests
shall immediately vest and, if options, shall remain exercisable for the
remainder of their stated term.
(iii) The benefits to be continued as described above are
health and welfare benefits to the Executive and/or the Executive's family at
least as favorable (and with the same tax consequences to the Executive) as
those that would have been provided to them under paragraph (d) of Section 3 of
this Agreement if the Executive's employment had continued until the second
anniversary of the Date of Termination; provided, however, that during any
period when the Executive and/or his family is eligible to receive such benefits
under another employer-
-8-
<PAGE>
provided plan, the benefits provided by the Company under this subparagraph may
be made secondary to those provided under such other plan.
(b) Death or Disability. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company shall pay the Executive or the Executive's estate
or legal representative, as applicable (1) any Accrued Obligations as provided
in Section 6(a)(i); and (2) a Bonus or, if the Date of Termination is prior to
March 1, 1999, an Equity Bonus Payment, for the fiscal year during which the
Date of Termination occurs (paid in a lump sum when such payment made otherwise
be paid) based on actual achievement of performance goals or Consolidated EBITA,
as applicable, for such fiscal year and pro-rated to reflect the portion of the
fiscal year during which the Executive was employed by the Company. In addition,
in such event all outstanding options and equity interests shall immediately
vest and, if options, shall remain exercisable for the remainder of their stated
term. The Company shall have no further obligations under this Agreement other
than pursuant to Sections 13 and 14 hereof.
(c) Cause; Other than for Good Reason. If the Executive's
employment is terminated by the Company for Cause during the Employment Period,
or if the Executive terminates his employment other than for Good Reason, the
Company shall pay the Executive any Accrued Obligations and unreimbursed
expenses through the Date of Termination, to the extent not yet paid. The
Company shall have no further obligations under this Agreement other than
pursuant to Sections 13 and 14 hereof.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies for which the Executive may qualify, nor shall anything in this
Agreement limit or otherwise affect such rights as the Executive may have under
any contract or agreement with the Company or any of its affiliated companies.
Vested benefits and other amounts that the Executive is otherwise entitled to
receive under any
-9-
<PAGE>
plan, policy, practice or program of, or any contract or agreement with, the
Company or any of its affiliated companies on or after the Date of Termination
shall be payable in accordance with such plan, policy, practice, program,
contract or agreement, as the case may be, except as explicitly modified by this
Agreement.
8. Full Settlement. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under, this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others. The Executive shall not be obligated to seek other
employment or to take action by way of mitigation of the amounts payable to the
Executive under the provisions of this Agreement, and no amounts received by the
Executive from subsequent employment shall offset amounts payable to the
Executive hereunder.
9. Noncompetition; Confidentiality; Work Product.
(a) During the Employment Period and for one year thereafter
the Executive shall not, in any capacity, engage or participate in, or become
employed by or render advisory, consulting or other services to or in connection
with, or make any financial investment (whether in the form of equity or debt)
or own any direct or indirect interest in, any Competitive Business (as defined
below); provided, that nothing in this Section 9(a) shall prevent the Executive
from making any investment in up to one percent of the total outstanding equity
of any company whose stock is listed on an established securities market and
whose annual sales exceed $150 million. "Competitive Business" means a company,
other than Starter, whose outerwear and/or rainwear sales for the fiscal year
ended immediately prior to the Executive's commencing work are more than 37.5%
of that company's total sales for such fiscal year.
(b) If any restriction set forth with regard to competition is
found by any court of competent jurisdiction, or an arbitrator, to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be
-10-
<PAGE>
interpreted to extend over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
(c) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all information, knowledge or data relating to the
Company or any of its affiliated companies and their respective businesses that
the Executive obtains during the Executive's employment by the Company or any of
its affiliated companies and that is not public knowledge (other than as a
result of the Executive's violation of this Section 9(c)) or is otherwise
learned from third parties ("Confidential Information"). The Executive shall not
communicate, divulge or disseminate Confidential Information at any time during
or after the Executive's employment with the Company, except (i) as may be
necessary and appropriate in carrying out his duties under this Agreement, (ii)
with the prior written consent of the Company, or (iii) as otherwise required by
law or legal process.
(d) Any intellectual property, including without limitation
trade secrets, know-how, trademarks, trade names, and copyrighted material,
developed by the Executive while employed by the Company shall be the exclusive
property of the Company. Upon termination of the Executive's employment for any
reason, the Executive shall immediately surrender to the Company all letters,
papers, documents, instruments, records, books, products, and any other material
owned by the Company.
(e) In the event of a breach or potential breach of this
Section 9, the Executive acknowledges that the Company and its affiliates will
be caused irreparable injury and that money damages may not be an adequate
remedy and agrees that the Company and its affiliates shall be entitled to
injunctive or other equitable relief (in addition to its other remedies at law)
to have the provisions of this Section 9 enforced.
10. Arbitration; Attorneys' Fees. Except with regard to
injunctive and equitable relief provided in Section 9, all claims by the Company
or the Executive under this
-11-
<PAGE>
Agreement shall be subject to arbitration in New York City under the rules of
the American Arbitration Association. The decision of the arbitrators shall be
final and binding as between the parties and may be entered in any court having
jurisdiction over the parties. The Company shall reimburse the Executive for all
costs and expenses, including without limitation attorneys' fees, that the
Executive may reasonably incur in connection with any contest between the
Company and the Executive of the validity or enforceability of, or liability
under, any provision of this Agreement, provided that the Executive obtains more
than a de minimis portion of the relief he sought in such contest. The Company
shall reimburse the Executive for the reasonable fees of one law firm retained
by the Executive to assist in the negotiation of this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and permitted assigns. This
Agreement may not be assigned by the Company except by operation of law through
a merger or consolidation or in connection with a sale of assets constituting
90% or more of the assets of the Company.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
-12-
<PAGE>
12. Miscellaneous. (a) This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
--------------------
C. William Crain
10 Nutmeg Drive
Greenwich, Connecticut 06831
If to the Company:
------------------
London Fog Industries, Inc.
8 West 40th Street
New York, New York 10018
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such
-13-
<PAGE>
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) Neither the Executive's nor the Company's failure to
insist upon strict compliance with any provision of, or to assert any right
under, this Agreement (including, without limitation, the right of the Executive
to terminate employment for Good Reason pursuant to paragraph (c) of Section 5
of this Agreement shall be deemed to be a waiver of such provision or right or
of any other provision of or right under this Agreement), except as specified in
the last sentence of Section 5(c)(i).
(f) The Executive and the Company acknowledge that this
Agreement supersedes: (i) the amended and restated employment agreement dated as
of May 31, 1995 by and among the Executive, the Company and London Fog
Corporation, and (ii) any other agreement between them concerning the subject
matter hereof.
13. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
payable or distributed or distributable pursuant to the terms of this Agreement,
but determined without regard to any additional payments required under this
Section 13 (a "Payment"), would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), then the Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by the Executive of
all income taxes and Excise Tax imposed
-14-
<PAGE>
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all
determinations required to be made under this Section 13, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") and which shall be
reasonably acceptable to the Company, which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 13, shall be paid by the Company to the
Executive within ten days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 13(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred, together with the
amount of any interest and penalties imposed as a result thereof, and any such
amounts shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the
-15-
<PAGE>
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 13(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the
-16-
<PAGE>
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount; and
further provided that at any time when the Company fails to pay any material
amount that it is obligated to pay under this Section 13(c) within 30 days after
such amount becomes due (except to the extent the Company is contesting its
obligation to pay such amount in good faith), the Executive rather than the
Company shall thereafter have control over such proceeding and may make all
determinations (provided that the foregoing shall not relieve the Company of its
liability under this Section 13.) Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 13(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 13(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 13(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
-17-
<PAGE>
14. Insurance and Indemnity. During the Employment Period, the
Company shall maintain in effect (i) directors' and officers' liability
insurance in an amount no less than in effect as of the date hereof, and (ii) to
the maximum extent permitted by law, indemnification provisions in favor of the
Executive no less favorable than those contained in the Company's certificate of
incorporation and bylaws as in effect as of December 30, 1994.
-18-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization of its Board of Directors,
the Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
----------------------------
C. William Crain
LONDON FOG INDUSTRIES, INC.
By
------------------------
Name:
Title:
-19-
<PAGE>
Exhibit A
---------
[Stock Option Agreement]
EXHIBIT 12.1
LONDON FOG INDUSTRIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
FEBRUARY 26, FEBRUARY 25, FEBRUARY 24, FEBRUARY 22, FEBRUARY 28,
1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income (loss) before extraordinary
items and cumulative effect of
accounting change ........................ $ (42,383) $ (212,051) $ (34,583) $ (1,796) $ (11,028)
Add back- ................................
Fixed Charges ........................... 28,657 34,291 21,816 17,340 20,192
--------- ---------- --------- -------- ---------
Total earnings ........................ $ (13,726) $ (177,760) $ (12,767) $ 15,544 $ 9,164
========= ========== ========= ======== =========
FIXED CHARGES
Interest Expense .......................... $ 24,625 $ 29,620 $ 17,249 $ 13,073 $ 14,959
Interest factor in rental expense ......... 4,032 4,671 4,567 4,267 5,233
--------- ---------- --------- -------- ---------
Total fixed charges ................... $ 28,657 $ 34,291 $ 21,816 $ 17,340 $ 20,192
========= ========== ========= ======== =========
Coverage Deficiency ................... $ (42,383) $ (212,051) $ (34,583) $ (1,796) $ (11,028)
========= ========== ========= ======== =========
<CAPTION>
FOURTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 31, MAY 30,
1997 1998
------------- ------------
<S> <C> <C>
EARNINGS
Income (loss) before extraordinary
items and cumulative effect of
accounting change ........................ $ (12,445) $ (13,191)
Add back- ................................
Fixed Charges ........................... 5,363 2,883
--------- ---------
Total earnings ........................ $ (7,082) $ (10,308)
========= =========
FIXED CHARGES
Interest Expense .......................... $ 4,044 $ 1,460
Interest factor in rental expense ......... 1,319 1,423
--------- ---------
Total fixed charges ................... $ 5,363 $ 2,883
========= =========
Coverage Deficiency ................... $ (12,445) $ (13,191)
========= =========
</TABLE>
Exhibit 21.1
List of Subsidiaries
Name of Jurisdiction of
Subsidiary Incorporation
---------- -------------
Clipper Mist, Inc. Maryland
London Fog Sportswear, Delaware
Inc.
Matthew Manufacturing Maryland
Co., Inc.
Pacific Trail, Inc. Washington
PTI Holding Corp. Nevada
PTI Top Company, Inc. Nevada
Star Sportswear Delaware
Manufacturing Corp.
The Mounger Corporation Washington
The Scranton Outlet Delaware
Corporation
London Fog Raincoats United Kingdom
Limited
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
Prospectus.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
August 27, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1998
<PERIOD-START> MAR-01-1998 MAR-01-1998
<PERIOD-END> FEB-28-1998 MAY-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 566,000 2,714,000
<SECURITIES> 0 0
<RECEIVABLES> 30,168,000 5,675,000
<ALLOWANCES> 1,237,000 1,248,000
<INVENTORY> 69,729,000 124,829,000
<CURRENT-ASSETS> 106,114,000 139,623,000
<PP&E> 52,363,000 52,675,000
<DEPRECIATION> 16,016,000 17,974,000
<TOTAL-ASSETS> 215,091,000 246,232,000
<CURRENT-LIABILITIES> 57,114,000 101,890,000
<BONDS> 161,322,000 161,200,000
0 0
0 0
<COMMON> 80,000 80,000
<OTHER-SE> (4,669,000) (17,481,000)
<TOTAL-LIABILITY-AND-EQUITY> 215,091,000 246,232,000
<SALES> 335,621,000 36,627,000
<TOTAL-REVENUES> 339,676,000 37,487,000
<CGS> 227,405,000 22,753,000
<TOTAL-COSTS> 98,499,000 21,754,000
<OTHER-EXPENSES> 27,060,000 6,171,000
<LOSS-PROVISION> (490,000) 29,000
<INTEREST-EXPENSE> 14,664,000 1,455,000
<INCOME-PRETAX> (11,028,000) (13,191,000)
<INCOME-TAX> (5,932,000) 51,000
<INCOME-CONTINUING> (5,096,000) (13,242,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 160,855,000 0
<CHANGES> 0 0
<NET-INCOME> 155,759,000 (13,242,000)
<EPS-PRIMARY> 15.99 (1.66)
<EPS-DILUTED> 15.99 (1.66)
</TABLE>
