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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 30, 1997
DIPLOMAT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-22432 13-3727399
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
25 KAY FRIES DRIVE
STONY POINT, NY 10980
(Address of principal executive offices, including zip code)
(914) 786-5552
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 30, 1997, the registrant, Diplomat Corporation (the "Company"),
through a wholly-owned subsidiary, Brownstone Holdings, Inc. ("BHI"), completed
the purchase of substantially all of the remaining assets of Jean Grayson's
Brownstone Studio, Inc. ("Brownstone Studio") and Wilroy, Inc. ("Wilroy"), which
are under common control, (Brownstone Studio and Wilroy are collectively
referred to herein as "Brownstone") for total consideration of the assumption of
approximately $5,250,000 secured debt, the grant of 200,000 stock options, and
the issuance of 17,500 shares of the Company's common stock pursuant to an Asset
Purchase Agreement (the "Purchase Agreement") with Brownstone, as amended at the
Bankruptcy Court hearing described below. The consideration paid was determined
on the basis of arm's-length negotiations between the parties.
Brownstone Studio was engaged in the business of selling upscale women's
apparel and accessories through a mail order catalogue and through a single
outlet store located in Secaucus, New Jersey. Wilroy has been the supplier of
approximately half of Brownstone Studio's merchandise. On February 26, 1997,
Brownstone filed voluntary petitions for relief under Chapter 11 of the United
States bankruptcy laws. Prior to consummating the sale of Brownstone's assets,
the sale was approved by the Bankruptcy Court at a hearing on October 24, 1997.
Under the Purchase Agreement, BHI acquired substantially all of the assets
of Brownstone, including the inventory, tradenames and customer lists. BHI did
not assume the lease of Brownstone's facilities. The inventory and other
tangible assets acquired were relocated to other facilities. The Company
anticipates hiring less than 10% of the approximately 250 persons employed by
Brownstone prior to the bankruptcy filing. Further, as has been its practice,
the Company will continue to acquire its merchandise from external sources and
not from Wilroy.
As consideration for the assets, BHI assumed secured debts owed to Congress
Financial Corporation in the approximate amount of $5,250,000, which includes
approximately $2,000,000 junior participation purchased from Congress by Robert
M. Rubin, the Company's Chairman, and Jay M. Kaplowitz, a principal of the
Company's outside law firm. The Company also granted to Brownstone options to
acquire 200,000 shares of the Company's common stock exercisable at $3.9375 per
share. The holders' right to exercise the options expires October 29, 2000. The
Company also issued 17,500 shares of common stock to a third party creditor of
Brownstone.
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ITEM 7. EXHIBITS
99.1 Asset Purchase Agreement dated as of September 24, 1997 by and among
Diplomat Corporation and Jean Grayson's Brownstone Studio, Inc. and Wilroy
Inc.
99.2 Bill of Sale provided by Jean Grayson's Brownstone Studio, Inc. and Wilroy,
Inc.
99.3 Assignment and Assumption Agreement dated October 30, 1997 between
Brownstone Holdings, Inc., Jean Grayson's Brownstone Studio, Inc. and
Wilroy, Inc.
99.4 Loan and Security Agreement by and among Congress Financial Corporation and
Jean Grayson's Brownstone Studio, Inc. dated February 28, 1997, as amended
September 17, 1997.
99.5 Junior Participation Agreement between Congress Financial Corporation,
Robert M. Rubin and Jay M. Kaplowitz dated September 17, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 13, 1997
DIPLOMAT CORPORATION
By: /s/ JONATHAN ROSENBERG
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Jonathan Rosenberg
President
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INDEX TO EXHIBITS
NO. DESCRIPTION
99.1 Asset Purchase Agreement dated as of September 24, 1997 by and among
Diplomat Corporation and Jean Grayson's Brownstone Studio, Inc. and
Wilroy Inc.
99.2 Bill of Sale provided by Jean Grayson's Brownstone Studio, Inc. and
Wilroy, Inc.
99.3 Assignment and Assumption Agreement dated October 30, 1997 between
Brownstone Holdings, Inc., Jean Grayson's Brownstone Studio, Inc. and
Wilroy, Inc.
99.4 Loan and Security Agreement by and among Congress Financial Corporation
and Jean Grayson's Brownstone Studio, Inc. dated February 28, 1997, as
amended September 17, 1997.
99.5 Junior Participation Agreement between Congress Financial Corporation,
Robert M. Rubin and Jay M. Kaplowitz dated September 17, 1997.
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made this 24th day of
September, 1997 by and among Diplomat Corporation, a Delaware Corporation with
its principal place of business at 25 Kay Fries Drive, Stony Point, New York
("Diplomat"), Lew Magram, Inc., a Delaware corporation with a place of business
at 414 Alfred Avenue, Teaneck, New Jersey ("Magram"), or an assignee or designee
of either Diplomat or Magram (Diplomat, Lew Magram or the assignee or designee
are referred to herein as "Purchaser"); Jean Grayson's Brownstone Studio, Inc.,
a New York Corporation with its principal place of business at 1111 Seacaucus
Road, Seacaucus, New Jersey 07094 ("Brownstone") and Wilroy, Inc., a 1111
Seacaucus Road, Seacaucus, New Jersey 07094 ("Wilroy") (Brownstone and Wilroy
are collectively referred to as "Sellers" or "Company").
RECITALS
WHEREAS, Sellers have filed for Chapter 11 bankruptcy protection, and are
currently subject to the bankruptcy court's jurisdiction, in the Southern
District of New York, Case Nos. 97 B 41214 (JLG) and 97 B 41215 (JLG) ("Seller's
Bankruptcy"); and
WHEREAS, Purchaser will, upon the closing of the transactions contemplated
hereby and subject to Bankruptcy Court approval, acquire those assets of Sellers
set forth on Schedule 1(a)(i) hereto, which assets constitute substantially all
of the Assets of Sellers; and
WHEREAS, the Sellers desire to sell, transfer and assign to Purchaser and
the Purchaser desires to purchase from Sellers those assets of Sellers set forth
on Schedule 1(a)(i) hereto, which assets constitute substantially all of the
Assets (as such term is hereinafter defined) of the Sellers.
NOW THEREFORE, in consideration of the mutual promises herein contained and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Acquisition of Assets
(a) Assets to be Acquired. At the Closing and upon the terms and
subject to the conditions of this Agreement and upon the representations,
warranties and covenants herein made, Sellers agrees to sell, assign,
transfer, convey and deliver to Purchaser, and Purchaser agrees to purchase
from Sellers, those assets of the Company set forth on Schedule 1(a)(i)
Hereto ("Assets")free and clear of all liens, pledges, security interests,
options, claims, charges and encumbrances of any kind whatsoever, together
with all rights now and hereafter attaching thereto, except with respect to
those liens set forth in Section 1(b) hereof. Specifically excluded from
such purchase and sale are, without limitation, those
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assets particularly set forth on Schedule 1(a)(ii) attached hereto.
(b) Purchase Price. Upon the terms and subject to the conditions set
forth in this Agreement, subject to the representations, warranties and
covenants made herein, and in exchange for the Assets, Purchaser hereby
agrees to the following:
(i) to assume irrevocably all indebtedness and obligations owed by
Seller to Congress Financial Corporation ("Congress"), including
any amounts advanced pursuant to a certain junior participation
agreement dated September __, 1997 by and among Congress, Robert
M. Rubin and Jay M. Kaplowitz ("Bid"); and
(ii) to issue and transfer to Sellers, on the Closing Date, an option
to purchase an aggregate of 200,000 shares of Diplomat
Corporation's ("Diplomat") Common Stock, exercisable at any time
for a period of three years from the date of issuance of such
option at an exercise price equal to the closing price of
Diplomat's common stock as listed on the Nasdaq SmallCap Market
on the business day immediately preceding the Closing Date, such
options being exercisable on an all or none basis ("Option
Payment"), as more fully set forth in the form of option
agreement attached hereto at Exhibit 1(b)(ii).
The Bid and the Option Payment are collectively referred to herein as the
"Purchase Price").
(c) Assumption of Liabilities. Other than the liabilities being
assumed as part of the Purchase Price, and those set forth on Schedule
1(c) hereto, Purchaser will not assume any of Sellers' other
liabilities, provided however, Purchaser does agree to assume all
liabilities of Sellers which result from commitments made subsequent
to the implementation of a certain management agreement dated
September 17, 1997 by and between Purchaser and Sellers.
(d) Closing. The closing of the Acquisition of the Assets (the
"Closing") will take place at the Offices of Purchaser's Counsel
within ten (10) days of entry of an order of the Bankruptcy Court
approving this Agreement in form and substance, such order being
reasonably satisfactory to Purchaser and not the subject of a stay
pending appeal, but in no event later than November 30, 1997 unless
extended in the sole discretion of the Purchaser. The Closing will be
subject to the conditions herein discussed in Section 5 hereof.
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(e) Delivery of the Assets and Payments.
(i) At the Closing Sellers shall cancel indicia of ownership on
their behalf of the Assets by assigning in the name Purchaser, or its
designee(s), the Assets set forth in Exhibit 1(a)(i). Sellers shall
also provide Purchaser, in form reasonably satisfactory to the
Purchaser, such deeds, bills of sale, endorsements, assignments,
receipts and other instruments as shall be sufficient to vest in the
Purchaser good and marketable title to the Assets, free and clear of
all liens, claims and encumbrances.
(ii) Sellers will be responsible for, and will pay, any and all
applicable sales taxes, transfer taxes and similar charges arising in
connection with the transactions contemplated by this Agreement.
2. Representations and Warranties of the Company. The Company represents
and warrants to Purchaser, which representations and warranties shall survive
the Closing, that:
(a) Organization, Standing, etc. of the Company. Each Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New York and has full corporate power and authority to
conduct its business as presently conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by
this Agreement. Each Seller is duly qualified to do business as a foreign
corporation doing business in the States of New Jersey,
_______________________. There are no other jurisdictions in which the
conduct of its business or its ownership or leasing of property requires
that the Company qualify as a foreign corporation. Neither Seller has
subsidiaries and neither owns any shares of capital stock of any other
corporation.
(b) Authority for Agreement; Conflict with Authority. The execution,
delivery, and performance of this Agreement by each Seller has been duly
authorized by all necessary corporate action, and this Agreement
constitutes a valid and binding obligation of the Company enforceable
against it in accordance, with its terms. The execution and carrying out of
the transactions contemplated by this Agreement and compliance with its
provisions by each Seller will not violate any provision of law and will
not conflict with or result in any breach of any of the terms, conditions,
or provisions of, or constitute a default under, its Certificate of
Incorporation or its By-Laws or, in any material respect, any indenture,
lease, loan agreement or other instrument to which either Seller is a party
or by which it or any of its properties are bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company, and subject
only to the consent of Congress.
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(c) Governmental Consent, etc. Other than the need for an order from
the Bankruptcy Court approving this Agreement and the transaction
contemplated hereby, no consent, approval, order or authorization of, or
registration, qualification, designation, declaration, or filing with, any
governmental authority is required on the part of the Company in connection
with the execution and delivery of this Agreement, or the consummation of
the other transactions contemplated by this Agreement.
(d) Title to Properties; Liens. Except for liens granted to secure
indebtedness owed by Sellers to Congress, the Company has good title to, or
a valid and current leasehold interest in, the properties and assets
reflected in the Schedules hereto, and such properties and assets are free
and clear of all liens, security interests, charges and encumbrances,
except (i) as disclosed on the Financial Statement, (ii) liens for current
taxes not yet due and payable, and (iii) such imperfections of title or
zoning restrictions, easements or encumbrances, if any, as do not
materially interfere with the present use of such property or assets.
(e) Compliance with Other Instruments. Except with respect to
indebtedness owed by Sellers to Congress, neither Seller is in violation of
any term or provisions of its Certificate of Incorporation or By-Laws, or
of any material term of any instrument, loan agreement, agreement,
judgment, decree, order, statute, rule or regulation applicable to the
Company.
(f) Labor Relations. The Company has certain pension, retirement or
similar plan or obligations, none of which are being assumed by the
Purchaser. The Company is a party to a collective bargaining agreement with
Local 23-25, UNITE, regarding terms and conditions of employment for
certain Company employees. Prior to sale, the Company shall make reasonable
efforts to secure from Local 23-25, UNITE, an agreement terminating the
collective bargaining agreement. The Company has no actual knowledge of any
current organization efforts by among or regarding any Company employees
not within the UNITE bargaining unit. The Company has no actual knowledge
of any material failure to comply with all applicable laws, including, but
not limited to, ERISA, and regulations relating to employment matters
including, but not limited to, those relating to wages, hours,
discrimination and payment of social security and similar laws.
(g) Tax Returns and Payment. All of the tax returns and reports of the
Company required by law to be filed have been duly and accurately filed and
all taxes shown due thereon have been paid and all payroll tax withholdings
have been timely deposited. There are in effect no waivers of the
applicable statute of limitations for federal, state or local taxes for any
period. The Company agrees to indemnify and save the Purchaser
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harmless and to promptly pay to the Purchaser or reimburse the Purchaser
for all losses, liabilities or obligations incurred by Purchaser resulting
from tax liabilities of the Company No deficiency assessment or proposed
adjustment of the Company's federal, state and local taxes is pending, and
the Company has no knowledge of any proposed liability for any tax to be
imposed upon its properties or assets, for which there is not an adequate
reserve reflected in the Financial Statement.
(h) Patents, Trademarks. Attached at Schedule 2(h) is a list of all of
the Company's patents, trademarks and copyrights. The Company has good
title to all of its material patents, trademarks, copyrights, trade names
and trade secrets, or adequate licenses and rights to use patents,
trademarks, copyrights, trade names and trade secrets of others necessary
to the conduct of its business. The business of the Company is being
carried on without known conflicts with patents, licenses, trademarks,
copyrights, trade names and trade secrets of others and to the best of the
Company's knowledge, no other persons are conducting their businesses in
conflict with patents, licenses, trademarks, copyrights, trade names and
trade secrets used by the Company.
(i) Environmental Matters. To the best knowledge of the Company (i)
the Company has obtained all permits and licenses which are required in
connection with its business under all applicable laws and regulations
relating to pollution or protection of the environment (the "Environmental
Laws") and is in compliance therewith; (ii) the Company has at all times
conducted its business in material compliance with all Environmental Laws
and the Company has not received any written or oral notice of any past,
present or future events, conditions or circumstances, which would
interfere with or prevent compliance or continued compliance with any
Environmental Laws or which would form the basis of any claim, demand or
investigation, based on or related to the Company's business or other
activities; (iii) to the Company's knowledge there is no civil, criminal or
administrative action or proceeding pending or threatened against the
Company, relating in any way to any Environmental Laws; (iv) there do not
exist, and at no time since the Company acquired any premises owned, leased
or used by it (the "Subject Premises"), have there existed any conditions
which would require remediation by the Company under any Environmental
Laws; (v) there are no underground storage tanks located on the Subject
Premises and (vi) the Company has at all times during its ownership or
occupation of the Subject Premises disposed of all wastes, hazardous or
otherwise, generated by the use of the Subject Premises in accordance with
Environmental Laws.
(j) Compliance with Laws and Regulations. The Company has complied in
all material respects with all laws and regulations applicable to the
conduct of its business.
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(k) Insurance. The Company has in full force and effect insurance
policies of the types and in amounts appropriate to be carried by business
entities operating businesses similar to that of the Company.
(l) Product Liability Claims. There are no pending or threatened
product liability claims by customers or any third parties of the Company
with respect to the business or operations of the Company, any products now
or previously manufactured and/or sold by the Company, nor does there exist
a basis therefor.
(m) Full Disclosure. The representations and warranties of the Company
contained in this Agreement do not contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading.
(n) Powers of Attorney. Except as specified in Schedule 2(n), there
are no powers of attorney, limited powers of attorney, proxies or
discretionary accounts in place which entitle any employee, independent
contractor or the third party to deal with any account of the Company or
which would bind the Company in any other way.
(o) Documents Furnished. Before the Closing, Sellers will have
delivered to Purchaser or given Purchaser access to all documents which are
set forth on Schedule 2(o), including but not limited to:
(a) access to insurance policies in force under which the Company
is insured;
(b) access to all permits and licenses held by the Company or by
any of the officers and directors of the Company with respect to the
business of the Company;
(c) delivery of all audits, reviews and correspondence referring
to management's accounting policies and practices between the Company
and its independent accountants;
(d) access to all compensation and employment agreements and any
other material agreement between the Company and any employee,
independent contractor, head hunter or any other third party, as well
as any agreement entered into by the Sellers pertaining in any respect
to the Company;
Company shall make available subsequent to the Closing hereof for review by
Purchaser or Purchaser's representatives, all other books, records and
documents of the Company which Purchaser reasonably requests.
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(p) Bank Accounts. Schedule 2(p) sets forth the names and locations of
all banks, depositories and other financial institutions in which the
Company has an account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto.
3. Representations and Warranties of Purchaser. The Purchaser represents
and warrants to the Company, which representations and warranties shall survive
the Closing, that:
(a) Organization, Standing, etc, of the Purchaser. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
conduct its business as presently conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by
this Agreement.
(b) Authority for Agreement. The execution, delivery, and performance
of this Agreement by the Purchaser has been duly authorized by all
necessary corporate action, and this Agreement constitutes a valid and
binding obligation of the Purchaser enforceable against it in accordance
with its terms. The execution and carrying out of the transactions
contemplated by this Agreement and compliance its with provisions by the
Purchaser will not violate any provision of law and will not conflict with
or result in any breach of any of the terms, conditions, or provisions of,
or constitute a default under, its Certificate of Incorporation or its
By-Laws or, in any material respect, any indenture, lease, loan agreement,
agreement, or other instrument to which the Purchaser is a party or by
which it or any of its properties are bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Purchaser.
(c) Commission Reports. Diplomat has made all required filings of
reports and forms with the Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act") since _________. All such reports and
forms (as amended, in the case of any thereof which were amended after
filing) were prepared in all material respects in accordance with the
requirements of the Exchange Act and the rules and regulations thereunder.
As of their respective dates (or as of the date last amended, in the case
of any thereof which were amended after filing), none or such reports or
forms contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent corrected by a subsequently
filed amendment or other report, form or document. The audited consolidated
financial statements and unaudited interim financial statements and
schedules of Diplomat (as amended, if applicable) contained in such public
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reports (or incorporated therein by reference) were prepared in accordance
with generally accepted accounting principles applied on a consistent
basis, except as noted therein, and fairly presented in all material
respects the consolidated financial condition and results of operations of
Diplomat and its consolidated subsidiaries as at the respective dates
thereof and for the periods indicated therein, subject in the case of
interim unaudited financial statements to normal year-end audit
adjustments.
4. Covenants
(a) Access to Records and Properties of the Company.
(1) Between the date of this Agreement and the Closing, Sellers
shall give to Purchaser and its agents and representatives, including
but not limited to its accountants, attorneys and consultants, such
access to the premises, books and records of the Company, and to cause
the officers and employees of the Company to furnish such financial
and operating data and other information with respect to the Company,
as Purchaser shall from time to time reasonably request in a manner so
as not to interfere with the ordinary course of business of the
Company.
(2) In the event the sale and purchase hereunder shall not be
consummated, Sellers and Purchaser shall treat as confidential all
documents, materials and other information which they shall have
obtained regarding the Sellers or Purchaser during the course of the
negotiations leading to the transaction contemplated hereby, the
investigation of the Sellers or Purchaser, and the preparation of this
Agreements, and shall return all copies of non-public documents and
materials which have been furnished in connection therewith. However,
nothing contained herein shall prohibit Sellers or Purchaser from:
(i) using such documents, materials and other information in
connection with any action or proceeding brought or any claim
asserted by Sellers or Purchaser in respect of any breach of any
representation, warranty or covenant made pursuant to this
Agreement; or
(ii) supplying or filing such documents, material or other
information (1) to federal, state or local government, agency or
authority to the extent required in connection with the obtaining
of any other consent, waiver, amendment, modification, approval,
authorization, permit or license which may be necessary to
effectuate this Agreement and to consummate the transactions
contemplated hereby or (2) to the extent required under legal
process by subpoena or other court order.
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(b) Operation of the Company Prior to Closing. From the date hereof
and until the earlier of (i) the Closing, and (ii) the implementation of a
management agreement by and among Purchaser, Brownstone and Wilroy, except
as otherwise expressly contemplated by this agreement or to the extent that
Purchaser shall otherwise expressly consent in writing, the Company shall
operate its business as presently operated and solely in the ordinary
course, and, consistent with such operation, the Sellers:
1. shall not effect any amendment to the Company's Certificate or
Articles of Incorporation or Bylaws;
2. shall not change the Company's corporate name or permit the
use thereof by any other person;
3. except for matters expressly permitted under this Agreement,
shall not pay or agree to pay to any employee, officer, or director of
the Company, compensation that is in excess of the current
compensation level of such employee, officer, or director, except for
annual increases in the ordinary course of business consistent with
prior practices and consistent with bonus and commission policies in
effect on the date of this Agreement;
4. shall not merge or consolidate the Sellers with any other
corporation, association, partnership, joint venture or other entity
or allow it to acquire or agree to acquire any corporation,
association, partnership, joint venture, or other entity;
5. shall not sell, transfer, pledge or otherwise dispose of any
assets of the Company, except in the ordinary course of business
consistent with prior practices;
6. shall not create, incur, assume, or guarantee any indebtedness
for money borrowed by the Company, any other corporation or any
individual except in the ordinary course of business, or create or
suffer to exist any mortgage, lien, or other encumbrance on any of its
properties or assets, real or personal, except those in existence on
the date hereof;
7. shall not make any capital expenditure, or series of related
capital expenditures, in excess of $20,000 not previously approved by
Purchaser;
8. except as set forth herein, shall not declare or pay any
dividends on or make any distributions of any kind with respect to any
of the Company's capital stock;
9. shall maintain the facilities, Assets, and properties of the
Company in good operating repair, order, and condition, reasonable
wear and tear excepted, and to notify
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Purchaser immediately upon any loss of, damage to, or destruction of
any of the assets of the Company;
10. shall maintain in full force and effect with respect to the
assets, employees and business of the Company, all present insurance
coverage of the types and in the amounts as are in effect as of the
date of this Agreement and to apply the proceeds received under any
such insurance policy or as a result of any loss or destruction of or
damage to any assets of the Company, to the repair or replacement of
such assets;
11. shall use its reasonable best efforts to preserve the present
employees, reputation and business organization of the Company, and
the relationship of the Company with its customers and others having
business dealings with it;
12. shall not permit the issuance of any additional shares of the
capital stock of the Company or take any action affecting the
capitalization of the Company;
13. shall refrain from taking any action, and not suffer to exist
any event or occurrence, which would render any representation and
warranty contained herein inaccurate in all material respects at any
time between the date hereof and the Closing, including as of the
Closing, and to promptly advise Purchaser of any breach of any
representation and warranty, covenant, condition or obligation of
Sellers hereunder;
14. shall comply with and not be in default or violation under
any law, regulation, decree or order applicable to the business,
operations or assets of the Company; and
15. shall not enter into any contract or arrangement which
obligates the Company to expend more than $10,000.
(c) Consents and Notices. Promptly after the date hereof, Sellers and
Purchaser shall use their best commercially reasonable efforts to obtain
all necessary or desirable consents and notices to effectuate this
Agreement and to consummate the transactions contemplated hereby in
accordance with the terms hereof, or to continue in effect and to assure
that the Sellers and Purchaser shall continue to be entitled to all of the
benefits of the all contracts to which Sellers are a party and access to
the bank accounts of the Sellers, and shall give all notices to third
parties required to be given by the Sellers in contemplation and as a
result of the transactions contemplated by this Agreement. Sellers shall
promptly advise the Purchaser of any difficulties encountered by the
Sellers in obtaining any such consents, waivers, approvals and
authorization.
(d) Commercially Reasonable Covenant to Satisfy
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Conditions. Sellers shall use commercially reasonable efforts to cause the
obligations contained in Section 5 to be satisfied to the extent that the
satisfaction of such conditions is in the control of the Company; however,
the foregoing shall not constitute a limitation upon the covenants and
obligations of Sellers and Purchaser otherwise expressly set forth in this
Agreement.
(e) Restriction on Transfer. From the date hereof until Closing,
Sellers shall not without the written consent of Purchaser sell, assign,
pledge, donate, transfer or otherwise dispose of any shares of the capital
stock of the Company or permit any shares of the capital stock of the
Company to be sold, assigned, pledged, donated, transferred or otherwise
disposed of or enter into any agreement in which the Sellers agrees to take
such action.
5. Conditions to Closing.
(a) Conditions Precedent to Purchaser's Obligations on the Closing
Date. The obligations of the Purchaser on the Closing Date as provided in
Section 1(a) shall be subject to the satisfaction on or prior to the
Closing Date of the following conditions precedent, any one or more of
which may be waived by the Purchaser:
(1) Representations and Warranties. The representations and
warranties by the Company in Section 2 hereof shall be true and
accurate on and as of the Closing.
(2) Performance. The Company shall have performed and complied
with all agreements and conditions contained herein or in other
ancillary documents incident to the transactions contemplated by this
Agreement required to be performed or complied with by it prior to or
at the Closing.
(3) Consents, Etc, The Company shall have obtained the approval
of the Bankruptcy Court, as evidenced by an order satisfactory in form
and substance to Purchaser, which is not subject to a stay pending
appeal or writ of certiorari, which approves the terms of this
Agreement, as well as all other permits, consents and authorizations
that shall be necessary, desirable or required lawfully to consummate
this Agreement.
(4) Compliance Certificate. The Company shall have delivered to
the Purchaser or its representative at the Closing an Officer's
Certificate to the effect that the representations and warranties of
the Company continue to be true and accurate on the Closing, and that
all conditions specified herein have been fulfilled.
(5) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions con-
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templated by this Agreement and all documents and instruments incident
to such transactions shall be satisfactory in substance and form to
the Purchaser and its counsel, and the Purchaser and its counsel shall
have received all such counterpart originals (or certified or other
copies) of such documents as they may reasonably request.
(6) Material Changes; Due Diligence. Since the date of this
Agreement, except as to changes, occurrences, conditions or
developments, the magnitude and aspects of which have been
specifically disclosed to the Purchaser prior to the date hereof,
there shall not have been any material adverse change in the business,
assets, operations or prospects of the Company (as determined by the
Purchaser in its sole discretion).
(b) Conditions Precedent to Company's Obligations. The obligations of
the Company on the Closing Date as provided in Section 1(a) shall be
subject to the satisfaction, on or prior to the Closing Date, of the
following conditions precedent, any one or more of which may be waived by
the Company.
(1) Representations and Warranties. The representations and
warranties by the Purchaser in Section 3 hereof shall be true and
accurate on and as of the Closing Date.
(2) Performance. The Purchaser shall have performed and complied
with all agreements and conditions contained herein or in other
ancillary documents incident to the transactions contemplated by this
Agreement required to be performed or complied with by it prior to or
at the Purchaser.
(3) Compliance Certificate. The Purchaser shall have delivered to
the Company at the Closing an Officer's Certificate to the effect that
the representations and warranties of the Purchaser continue to be
true and accurate on the Closing Date, and that all conditions
specified in Sections 5(b)(1) and (2), inclusive, have been fulfilled.
6. Indemnification.
(a) Indemnification by the Sellers. The Sellers ("Indemnitors")
jointly and severally hereby agree to indemnify and hold harmless Purchaser
against all losses, liabilities, costs, damages and expenses, including
reasonable attorneys fees, incurred by Purchaser resulting from, arising
out of, or connected with:
(1) any damage or deficiency resulting from the material breach
of any representation or warranty under Section 2 in this Agreement or
any instrument furnished to Purchaser hereunder, any material
misrepresentation or omission, material breach of warranty, material
nonfulfillment of any agreement on the
12
<PAGE>
part of the Indemnitors under this Agreement or from any
misrepresentation in or omission from any certificate, document or
other instrument furnished or to be furnished to Purchaser hereunder;
(2) all undisclosed liabilities of the Company of any nature,
whether accrued, absolute, contingent or otherwise, existing at the
Closing;
(3) the material nonfulfillment of any covenant made by the
Indemnitors or the Company in this Agreement or in any instrument
furnished by the Indemnitors or the Company to Purchaser or in
connection with the Closing; and
(4) all actions, suits, proceedings, demands, assessments,
judgments, costs, including attorneys fees, and expenses incident to
any of the foregoing.
(b) Claims. If it shall be determined in accordance with Section 6(a)
that any of the Indemnitors are required to indemnify the Purchaser for any
claim, judgment and expenses, including attorneys fees, relating to any
litigation by a court of competent jurisdiction or as a result of a
settlement approved by the Purchaser, the amount of such indemnification
shall be paid by the Indemnitors, jointly and severally, from time to time,
on demand, for any amounts as to which the indemnity relates. In the event
of a determination of the amount of any indemnification pursuant to this
Section, the Purchaser shall give the Indemnitors written notice of the
existence of any claim and shall give the Indemnitors written notice of the
amount of loss or damage relating to any such claim within a reasonable
period of time so as not to prejudice the Indemnitors' rights. The
Purchaser shall give the Indemnitors notice before settling any claim in
whole or in part, and the Indemnitors shall have the right to participate
in the defense of any such claim at their own expense.
7. Miscellaneous.
(a) Expenses. Each party shall bear its own costs, including attorneys
fees, involved in the negotiating of this Agreement and consummation of the
transactions contemplated hereby.
(b) Survival of Agreements. All agreements, covenants, representations
and warranties contained herein or made in writing in connection with the
transactions contemplated hereby shall survive the execution and delivery
of this Agreement.
(c) Notices. All notices, requests, consents and other communications
herein shall be in writing and shall be mailed by first class certified
mail, postage prepaid, return receipt requested or personally delivered, in
each case addressed:
13
<PAGE>
if to Magram:
Lew Magram Ltd.
414 Alfred Avenue
Teaneck, New Jersey 07666
Attn: Warren H. Golden
With a copy to:
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP
101 East 52nd Street
New York, New York 10022
Attn: Wesley C. Fredericks, Jr., Esq.
If to Brownstone/Wilroy:
Jean Grayson's Brownstone Studio, Inc
1111 Seacaucus Road
Seacaucus, New Jersey 07094
Attn: President
With a copy to:
Reid & Priest, LLP
40 East 57th Street
New York, New York 10019
Attn: Marc E. Richards, Esq.
and
Baer Marks& Upham, LLP
805 Third Avenue
New York, New York 10022
Attn: Larry D. Henin, Esq.
or, in any such case, at such other address or addresses as shall have been
furnished in writing to the other parties hereto in accordance with the
provisions of this Section 7(c). For purposes of computing the time periods
set forth in this Agreement, the date of mailing shall be deemed to be the
delivery date.
(d) Modifications; Waiver. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in
writing, except that any provision of this Agreement may be amended and the
observance of any such provision may be waived (either generally or in a
particular instance and either retroactively or prospectively) with (but
only with) the written consent of the parties to be charged.
14
<PAGE>
(e) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated hereby,
and supersedes all negotiations, agreements, representations, warranties
and commitments, whether in writing or oral, prior to the date hereof.
(f) Successors and Assigns. All of the terms of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the
respective successor and assigns of the parties hereto.
(g) Remedies at Law or in Equity. If any party shall default in any of
its respective obligations under this Agreement following ten (10) business
days' notice thereof and such default shall be continuing or if any
representation or warranty of the respective parties made in this agreement
or in any certificate, report or other instrument delivered under or
pursuant to any term hereof shall be untrue or misleading when taken as a
whole in any material respect as of the date of this Agreement or as of the
Closing Date or as of the date it was made, furnished or delivered, the
other party may proceed to protect and enforce its rights by suit in equity
or action at law, whether for the specific performance of any term
contained in this Agreement or for an injunction against the breach of any
such term or in furtherance of the exercise of any power granted in this
Agreement, or to enforce any other legal or equitable right of such party
or to take any one or more of such actions, but only as to matters which
have not been waived or consented to by the other parties in accordance
with Section 8(d). In the event the non-breaching party brings such an
action against the breaching party, the prevailing party in such dispute
shall be entitled to recover from the other party all fees, costs and
expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
(h) Remedies Cumulative: Waiver. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to
any other remedy referred to above or otherwise available at law or in
equity. No express or implied waiver of any default shall be a waiver of
any future or subsequent default. The failure or delay in exercising any
rights granted a party hereunder shall not constitute a waiver of any such
right and any single or partial exercise of any particular right shall not
exhaust the same or constitute a waiver of any other right provided herein.
(i) Exhibits and Documentation. All Exhibits and Schedules annexed
hereto and all documentation specifically referred to herein, are
incorporated in and made a part of this Agreement as if set forth herein.
Any matter disclosed on any such documentation
15
<PAGE>
or Exhibit or Schedule hereto shall be deemed also to have been disclosed
on any other applicable documentation referred to herein, as the case may
be.
(j) Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
(k) Events of Termination. Anything herein or elsewhere to contrary
notwithstanding, this Agreement may be terminated by written notice of
termination at any time before the purchase of the Assets (i) by mutual
written consent of the parties; or (ii) by written notice by Purchaser to
Sellers if on the Closing Date the representations and warranties of
Sellers are determined to be incorrect, inaccurate or misleading in any
material respect as determined by Purchaser.
(l) Governing Law and Severability. This Agreement shall be governed
by the laws of the State of New York, without regard to its conflict of
laws principles. If any provision of this Agreement or any application
thereof is held to be unenforceable, the remainder of the Agreement and any
application of such provision shall not be affected thereby and to the
extent permitted by law, there shall be substituted for the provisions held
unenforceable, provisions which shall, as nearly as possible have the same
economic effect as the provisions held unenforceable.
(m) Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
LEW MAGRAM, INC.
By:__/s/_______________________
JEAN GRAYSON'S BROWNSTONE, INC.
By:__/s/______________________
WILROY, INC.
By:__/s/______________________
17
<PAGE>
BILL OF SALE
This Bill of Sale is provided pursuant to that certain Asset Purchase
Agreement (the "Purchase Agreement") dated as of September 24, 1997, between
Jean Grayson's Brownstone Studio, Inc., a New York corporation ("Brownstone")
and Wilroy, Inc, a New York corporation (Brownstone and Wilroy collectively
referred to herein as "Sellers") and Brownstone Holdings, Inc., a Delaware
corporation ("Buyer").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Sellers hereby agree as follow:
1. Capitalized terms used herein but not defined herein shall have the
meanings assigned such terms in the Purchase Agreement.
2. Sellers hereby sell, transfer, convey, assign and deliver to Buyer,
as assignee of Lew Magram, Ltd., to and for the benefit of Buyer and its
successors and assigns, to have and to hold all and singular to its own use
forever, all right, title and interest in and to all of the assets of
Sellers, including, but not limited to, the assets identified in the
Purchase Agreement ("Transferred Assets").
3. Sellers hereby covenant and agree to execute and deliver to Buyer
such instruments of sale, transfer, conveyance, assignment and delivery,
and such consents, assurances, powers of attorney and other instruments as
may be reasonably requested by Buyer or its counsel in order to vest in
Buyer all right, title and interest of Sellers in and to the Transferred
Assets.
4. Notwithstanding any other provision of this Bill of Sale to the
contrary, nothing contained in this Bill of Sale shall in any way
supersede, modify, replace, amend, change, rescind, waive, exceed, expand,
enlarge or in any way affect the provisions, including the warranties,
covenants, agreements, conditions, representations or, in general any of
the rights and remedies, and any of the obligations and indemnifications of
Sellers set forth in the Purchase Agreement nor shall this Bill of Sale
expand or enlarge any remedies under the Purchase Agreement including
without limitation any limits on indemnification specified therein. This
Bill of Sale is intended only to effect the transfer of certain property to
be transferred pursuant to the Purchase Agreement.
5. Sellers hereby constitute and appoint Buyer and its successors and
assigns as the attorney-in-fact of each Seller, with full power of
substitution, to institute and prosecute, in the name of either Seller or
Buyer, but on behalf of and for the benefit of Buyer, and at the expense of
Buyer, all proceedings which Buyer may deem desirable to collect, assert or
enforce any claim, right or title of any kind in or to the Assets and to
defend and compromise
<PAGE>
any and all actions, suits or proceedings in connection with such Assets.
Sellers agree that the foregoing powers are coupled with an interest and
are and shall be irrevocable by Sellers in any manner or for any reason
(including the dissolution of either Seller).
6. Sellers agree that, at any time and from time to time after the
delivery hereof, it will, upon the reasonable request, take all appropriate
actions and execute and deliver all appropriate documents, instruments and
conveyances of any kind which may be necessary to carry out the provisions
of this Bill of Sale.
7. This Bill of Sale shall be governed by and construed in accordance
with the internal laws of the State of New York.
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
By: /S/
----------------------------
Name:
Title:
WILROY, INC.
By: /S/
----------------------------
Name:
Title:
2
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of October 30, 1997, between
BROWNSTONE HOLDINGS, INC., a Delaware corporation ("Buyer"), JEAN GRAYSON'S
BROWNSTONE STUDIO, INC., a New York corporation ("Brownstone") and WILROY, INC.,
a corporation ("Wilroy") (Brownstone and Wilroy are collectively referred to
herein as "Sellers").
Buyer and Sellers are parties to an Asset Purchase Agreement dated as of
September 24, 1997 (the "Purchase Agreement"). It is a condition precedent to
Buyer's and Sellers' obligations under the Purchase Agreement that Buyer and
Sellers execute and deliver this Assignment and Assumption Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Buyer and Sellers hereby agree as
follows:
1. Capitalized terms used herein but not defined herein shall have the
meanings assigned such terms in the Purchase Agreement.
2. Buyer, as assignee of Lew Magram, Ltd., hereby assumes all
indebtedness and obligations owed by Sellers to Congress Financial
Corporation ("Congress"), including any amounts advanced pursuant to a
certain participation agreement dated September 17, 1997, by and among
Congress, Robert M. Rubin, and Jay M. Kaplowitz (the "Assumed
Liabilities").
3. Other than the Assumed Liabilities, Buyer will not assume any of
Sellers' other liabilities, provided however, Buyer does agree to assume
all liabilities of Sellers which result from commitments made subsequent to
the implementation of the Management Agreement dated September 17, 1997 by
and among Lew Magram, Ltd., and Sellers.
4. From time to time after the date hereof, each of Buyer and Sellers
will execute and deliver to the other such instruments as may be reasonably
requested by Buyer or its counsel or Sellers or their counsel, as the case
may be, in order to carry out the purpose and intent of this Assignment and
Assumption Agreement and the Purchase Agreement.
5. Notwithstanding any other provision of this Assignment and
Assumption Agreement to the contrary, nothing contained in this Assignment
and Assumption Agreement shall in any way supersede, modify, replace,
amend, change, rescind, waive, exceed, expand, enlarge or in any way affect
the provisions, including the warranties, covenants, agreements,
conditions,
<PAGE>
representations or, in general any of the rights and remedies, and any of
the obligations and indemnifications of Buyer or Seller set forth in the
Purchase Agreement nor shall this Assignment and Assumption Agreement
expand or enlarge any remedies under the Purchase Agreement including
without limitation any limits on indemnification specified therein. This
Assignment and Assumption Agreement is intended only to effect the transfer
of certain liabilities assumed pursuant to the Purchase Agreement and shall
be governed entirely in accordance with the terms and conditions of the
Purchase Agreement.
6. This Assignment and Assumption Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, Buyer and Seller have caused this Assignment and
Assumption Agreement to be executed and delivered on the date and year first
written above.
BROWNSTONE HOLDINGS, INC.
By: /S/
-----------------------------------
Name:
Its:
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
By: /S/
-----------------------------------
Name:
Its:
WILROY, INC.
By: /S/
-----------------------------------
Name:
Its:
2
<PAGE>
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION,
as Lender
and
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.,
Debtor and Debtor-in-Possession,
as Borrower
Dated: February 28, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
SECTION 1. DEFINITIONS................................................................... 1
SECTION 2. CREDIT FACILITIES............................................................. 6
2.1 Revolving Loans.............................................................. 6
2.2 Letter of Credit Accommodations.............................................. 6
2.3 Availability Reserves........................................................ 8
2.4 Administrative Priority...................................................... 8
SECTION 3. INTEREST AND FEES............................................................. 9
3.1 Interest..................................................................... 9
3.2 Closing Fee.................................................................. 9
3.3 Servicing Fee................................................................ 9
3.4 Unused Line Fee.............................................................. 9
SECTION 4. CONDITIONS PRECEDENT.......................................................... 10
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations.... 10
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations........ 11
SECTION 5. GRANT OF SECURITY INTEREST.................................................... 12
SECTION 6. COLLECTION AND ADMINISTRATION................................................. 13
6.1 Borrower's Loan Account...................................................... 13
6.2 Statements................................................................... 13
6.3 Collection of Accounts....................................................... 14
6.4 Payments..................................................................... 14
6.5 Authorization to Make Loans.................................................. 15
6.6 Use of Proceeds.............................................................. 15
6.7 Tradestyles.................................................................. 15
SECTION 7. COLLATERAL REPORTING AND COVENANTS............................................ 16
7.1 Collateral Reporting......................................................... 16
7.2 Accounts Covenants........................................................... 16
7.3 Inventory Covenants.......................................................... 18
7.4 Equipment Covenants.......................................................... 18
7.5 Power of Attorney............................................................ 19
7.6 Right to Cure................................................................ 19
7.7 Access to Premises........................................................... 19
SECTION 8. REPRESENTATIONS AND WARRANTIES................................................ 20
8.1 Corporate Existence, Power and Authority; Subsidiaries....................... 20
8.2 Financial Statements; No Material Adverse Change............................. 20
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
8.3 Chief Executive Office; Collateral Locations................................. 20
8.4 Priority of Liens; Title to Properties....................................... 21
8.5 Tax Returns.................................................................. 21
8.6 Litigation................................................................... 21
8.7 Compliance with Other Agreements and Applicable Laws......................... 21
8.8 ERISA........................................................................ 21
8.9 Accuracy and Completeness of Information..................................... 22
8.10 Survival of Warranties; Cumulative.......................................... 22
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS............................................ 22
9.1 Maintenance of Existence..................................................... 22
9.2 New Collateral Locations..................................................... 22
9.3 Compliance with Laws, Regulations, Etc....................................... 22
9.4 Payment of Taxes and Claims.................................................. 22
9.5 Insurance.................................................................... 23
9.6 Financial Statements and Other Information................................... 23
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc...................... 24
9.8 Encumbrances................................................................. 25
9.9 Indebtedness................................................................. 25
9.10 Loans, Investments, Guarantees, Etc......................................... 25
9.11 Dividends and Redemptions................................................... 26
9.12 Transactions with Affiliates................................................ 26
9.13 [Intentionally Deleted]..................................................... 26
9.14 Adjusted Net Worth.......................................................... 26
9.15 Costs and Expenses.......................................................... 26
9.16 Further Assurances.......................................................... 27
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................................... 27
10.1 Events of Default........................................................... 27
10.2 Remedies.................................................................... 29
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW ............................................. 31
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver...... 31
11.2 Waiver of Notices.......................................................... 32
11.3 Amendments and Waivers..................................................... 32
11.4 Waiver of Counterclaims.................................................... 32
11.5 Indemnification............................................................ 32
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS............................................. 33
12.1 Term....................................................................... 33
12.2 Notices.................................................................... 34
12.3 Partial Invalidity......................................................... 34
12.4 Successors................................................................. 34
12.5 Entire Agreement........................................................... 34
</TABLE>
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 1.8 Budget
Schedule 8.4 Existing Liens
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated February 28, 1997 is entered into by
and between CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender")
and JEAN GRAYSON'S BROWNSTONE STUDIO, INC., a New York corporation and a debtor
and debtor-in-possession in Case No. 97-B-41214, United States Bankruptcy Court
for the Southern District of New York, under Chapter 11 of Title 11 of the
United States Code ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; 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. All references to
Borrower 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. An Event of Default shall exist or
continue or be continuing until such Event of Default is waived in accordance
with Section 11.3. 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 all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, whether or not earned by performance,
and whether arising before or after the commencement of the
<PAGE>
Case, and including, without limitation, all amounts payable by any charge,
credit, or debit card issuer or charge, credit, or debit card processor in
respect of charge, credit, or debit card sales.
1.2 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: the difference between: the aggregate net book value of all assets of
such Person and its subsidiaries, calculating the book value of inventory for
this purpose on a first-in-first-out basis, after deducting from such book
values all appropriate reserves in accordance with GAAP (including all reserves
for doubtful receivables, obsolescence, depreciation and amortization) and the
aggregate amount of the indebtedness and other liabilities of such Person and
its subsidiaries (including tax and other proper accruals) plus indebtedness of
such Person and its subsidiaries which is subordinated in right of payment to
the full and final payment of all of the Obligations on terms and conditions
acceptable to Lender.
1.3 "Administrative Expense Priorities" shall mean, with respect to
administrative expenses payable by Borrower in connection with the Case, the
following order of priority:
first, (i) amounts payable pursuant to 28 U.S.C. Section 1930 (a)(6),
(ii) allowed fees and expenses of attorneys, accountants and other
professionals retained in the Case pursuant to Sections 327 and 1103
of the Bankruptcy Code and (iii) administrative expenses of the kind
specified in Section 503(b) of the Bankruptcy Code incurred in the
ordinary course of Borrowers's business, including, without
limitation, compensation and reimbursement of expenses for
professional persons allowed and payable under Sections 330 and 331 of
the Bankruptcy Code; in each case accrued from and after the date of
the filing of the petition initiating the Case; provided, that the
aggregate cumulative amount entitled to priority under this clause
first, including without limitation, amounts authorized by the
Bankruptcy Court and paid during the case on or prior to such
determination of priority, shall not exceed $200,000;
second, all Obligations; and
third, all other allowed administrative expenses.
1.4 "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 Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, 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, business or prospects of 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 Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) in
2
<PAGE>
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.
1.5 "Bankruptcy Code" shall mean Title 11 of the United States Code, ss.ss.
101 et seq., as the same may be in effect from time to time.
1.6 "Bankruptcy Court" shall mean the United States Bankruptcy Court for
the Southern District of New York.
1.7 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.8 "Budget" shall mean the budget in the form of Schedule 1.8 hereto and
each subsequent budget delivered to and approved by Lender pursuant to and in
accordance with Section 9.6(e) hereof.
1.9 "Case" shall mean Borrower's and Wilroy, Inc.'s cases in the Bankruptcy
Court under Chapter 11 of the Bankruptcy Code.
1.10 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.11 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of Borrower which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) raw materials or work-in-process; (b) components
which are not part of finished goods; (c) spare parts for equipment; (d)
packaging and shipping materials; (e)supplies used or consumed in Borrower's
business; (f) Inventory at premises other than those owned or leased and
controlled by Borrower and acceptable to Lender; (g) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (h) bill and hold goods; (i) Inventory consisting
either of goods appropriate for the then current season that are not included in
the then current catalogue or goods appropriate for another season that were not
included in the most recent catalogue for such season; (j) Inventory which is
not subject to the first priority, valid and perfected security interest of
Lender; (k) damaged and/or defective Inventory; and (l) Inventory purchased or
sold on consignment. 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.
1.12 "Equipment" shall mean all of 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, and whether acquired before or after the commencement of the Case.
1.13 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.14 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the amount of the
Revolving Loans available to Borrower as of such time based on the applicable
lending formulas multiplied by the Value of Eligible Inventory, as
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determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder and (ii) the Maximum Credit,
minus (b) the amount of all then outstanding and unpaid Obligations.
1.15 "Final Order" shall mean the order of the Bankruptcy Court, in form
and substance satisfactory to Lender and its counsel, entered after a final
hearing under Bankruptcy Rule 4001(c)(2) authorizing and approving the Financing
Agreements and the Transactions contemplated thereby, and which is no longer
subject to appeal.
1.16 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by 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.
1.17 "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 Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.14 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.
1.18 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.19 "Interim Order" shall mean the order of the Bankruptcy Court
contemplated by Section 4.1(a) hereof.
1.20 "Inventory" shall mean all of 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, and whether
acquired before or after the commencement of the Case.
1.21 "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 Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
1.22 "Loans" shall mean the Revolving Loans.
1.23 "Maximum Credit" shall mean the amount equal to the lesser of (a)
$5,500,000 or (b) the maximum outstanding principal amount of Loans permitted to
be made by Lender to Borrower under the Order.
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1.24 "Obligations" shall mean any and all Revolving Loans and Letter of
Credit Accommodations, and all other obligations, liabilities and indebtedness
of every kind, nature and description owing by Borrower 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 Borrower under the 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
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.
1.25 "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 Borrower.
1.26 "Order" shall mean the Interim Order until the Final Order is entered,
and thereafter shall mean the Final Order.
1.27 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.28 "Person" or "person" shall mean 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),
business trust, unincorporated association, limited liability company, joint
stock corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.29 "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.
1.30 "Records" shall mean all of 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 Borrower with respect to the
foregoing maintained with or by any other person), and whether acquired before
or after the commencement of the Case.
1.31 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.32 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of cost computed on a first-in-first-out basis
in accordance with GAAP or market value.
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SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) the lesser of (A) eighty (80%) percent of the orderly
liquidation value of Eligible Inventory (as determined by Lender in
good faith) or (B) sixty (60%) percent of the Value of Eligible
Inventory, other, in each case, than Inventory located at or being
offered for sale through Borrower's outlet store, plus
(ii) twenty (20%) percent of the Value of Eligible Inventory
located at or being offered for sale through Borrower's outlet store,
less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower, reduce the lending formula(s)
with respect to Eligible Inventory to the extent that Lender determines
that: (i) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (ii) the liquidation value of
the Eligible Inventory, or any category thereof, has decreased, or (iii)
the nature and quality of the Inventory has deteriorated. In determining
whether to reduce the lending formula(s), Lender may consider events,
conditions, contingencies or risks which are also considered in determining
Eligible Inventory or in establishing Availability Reserves.
(c) 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 any
component 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 sublimits for Letter of Credit Accommodations set
forth in Section 2.2(c), 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 Borrower 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.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein, at
the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrower 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 Revolving
Loans to Borrower pursuant to this Section 2.
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(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrower
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. 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 Borrower to pay such fee shall survive the termination or
non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations,
the Revolving Loans available to Borrower (subject to the Maximum Credit
and any Availability Reserves) are equal to or greater than: if the
proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of fifty (50%) percent of the cost of such
Eligible Inventory, plus freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon
arrival and for delivery to one of Borrower's locations for Eligible
Inventory within the United States of America and if the proposed Letter of
Credit Accommodation is for any other purpose, 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 Accommodation, the amount of
Revolving Loans which might otherwise be available to Borrower shall be
reduced by the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii).
(d) Except in Lender's discretion, (i) the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations
made or incurred by Lender in connection therewith, shall not at any time
exceed $1,500,000 and (ii) the amount of all outstanding Letter of Credit
Accommodations for the purpose of purchasing Eligible Inventory and all
other commitments and obligations made or incurred by Lender in connection
therewith shall not at any time exceed: (A) the Maximum Credit; minus (B)
the amount of the then outstanding Revolving Loans. At any time an Event of
Default exists or has occurred and is continuing, upon Lender's request,
Borrower 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, the Revolving Loans otherwise
available to Borrower shall not be reduced as provided in Section 2.2(c) to
the extent of such cash collateral.
(e) Borrower 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. Borrower assumes 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 Borrower's agent. Borrower assumes
all risks for, and agrees to pay, all foreign, Federal, State and local
taxes, duties and levies relating to any goods subject to any Letter of
Credit Accommodations or any documents, drafts or acceptances thereunder.
Borrower hereby releases and holds Lender harmless from and against any
acts, waivers, errors, delays or omissions, whether caused by Borrower, by
any issuer or correspondent or otherwise with respect to or relating to any
Letter of Credit
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Accommodation. The provisions of this Section 2.2(e) shall survive the
payment of Obligations and the termination or non-renewal of this
Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower 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. Borrower 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 Borrower. Lender shall have the sole and exclusive right
and authority to, and Borrower 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 Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by 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 Borrower 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 Credit Accommodation, shall be deemed to have
been undertaken by Borrower to Lender and to apply in all respects to
Borrower.
2.3 Availability Reserves.
(a) All Revolving Loans otherwise available to Borrower 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.
(b) In addition to and not in limitation of other Availability
Reserves established from time to time, Lender is establishing the
following special Availability Reserves: (i) a special Availability Reserve
of $150,000 shall be instituted as of April 1, 1997 and shall remain in
effect until May 1, 1997 at which time such Availability Reserve shall be
increased to $300,000 and remain in effect until June 1, 1997 at which time
such Availability Reserve shall be increased to $500,000 and remain in
effect at all times thereafter, unless and until Lender, in its sole
discretion, determines that such Availability Reserve be modified or
terminated (it being understood that Lender may continue such Availability
Reserve without modification until the Termination Date); (ii) a special
Availability Reserve, which shall apply at all times during which Lender
determines that the aggregate Value of that
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Inventory consisting of "piece goods" is less than $500,000, equal to the
amount by which $500,000 exceeds such aggregate value; and (iii) a special
Availability Reserve in the amount of all administrative expenses having
payment priority over the Obligations to the extent so indicated in the
definition of Administrative Expense Priorities.
2.4 Administrative Priority. Borrower hereby agrees that the obligations
shall constitute allowed administrative expenses in the Case, having priority
over all other administrative expenses and unsecured claims against Borrower now
existing or hereafter arising, of any kind or nature whatsoever, including,
without limitation, all administrative expenses of the kind specified in
Sections 503(b) and 507(b) of the Bankruptcy Code, subject, as to priority of
payment, only to expenses having payment priority over the Obligations to the
extent so indicated in the definition of Administrative Expense Priorities.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations at the rate of two (2%) percent
per annum in excess of the Prime Rate, except that Borrower shall pay to
Lender interest, at Lender's option, without notice, at the rate of five
(5%) percent per annum in excess of the Prime Rate: on the non-contingent
Obligations for the period from and after the date of termination or
non-renewal hereof, or the date of the occurrence of an Event of Default,
and for so long as such Event of Default is continuing as determined by
Lender and until such time as Lender has received full and final payment of
all such Obligations (notwithstanding entry of any judgment against
Borrower) and on the Revolving Loans at any time outstanding in excess of
the amounts available to 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). All interest
accruing hereunder on and after the occurrence of any of the events
referred to in Sections 3.1(a)(i) or 3.1(a)(ii) above shall be payable on
demand.
(b) Interest shall be payable by Borrower 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 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 Borrower
to Lender exceed the maximum amount or the rate permitted under any
applicable law or regulation, and if any 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.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the amount
of $68,750 which shall be fully earned as of and payable on the date hereof.
3.3 Servicing Fee. Borrower shall pay to Lender annually a servicing fee in
an amount equal to $25,000 in respect of Lender's services for each twelve-month
period (or part thereof) while this
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Agreement remains in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be fully earned as of and payable in advance on
the date hereof and on the anniversary of the date hereof.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
fee equal at a rate equal to one-half (0.5%) percent per annum calculated upon
the amount by which the lesser of $4,700,000 or the Maximum Credit exceeds the
average daily principal balance of the outstanding Revolving Loans and Letter of
Credit Accommodations during the immediately preceding month (or part thereof)
while this Agreement is in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be payable on the first day of each
month in arrears.
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 a certified copy of the Interim Order,
entered by the Bankruptcy Court after a hearing under Bankruptcy Rule
4001(c)(2) authorizing and approving the Financing Agreements and the
transactions contemplated thereby on an interim basis pending a hearing on
the Final Order, which Interim Order shall be in form and substance
satisfactory to Lender and its counsel. The Interim Order shall have not
been vacated, reversed, modified, or amended. No appeal from the Interim
Order shall be pending.
(b) Lender shall have received evidence, including, without
limitation, lien and judgment search results with respect to the Borrower
and Wilroy, Inc. in all applicable jurisdictions, 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, in the other Financing Agreements or in the Order.
(c) 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;
(d) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair
the ability of 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;
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(e) 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 Revolving Loans available to Borrower, the results
of which shall be satisfactory to Lender, not more than three (3) business
days prior to the date hereof;
(f) 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: (i)
acknowledgements by lessors, mortgagees 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; (ii) an agreement from each charge, credit, or debit card
issuer and charge, credit, or debt card sale processor with respect to each
charge, credit and debit card now accepted by Borrower, in which Borrower
notifies such person of Lender's security interest in the amounts due from
such Person to Borrower and irrevocably instructs such Person to pay such
amounts directly to the Blocked Account, and in which such Person waives
any security interest in such amounts; (iii) an agreement from each Person
in possession or control of Borrower's mailing or customer lists, or any
electronic or other medium of storage thereof, in which such person agrees
to deliver such list or storage medium to Lender at Lender's request; (iv)
an agreement with each Person who, on behalf of Borrower, licenses or rents
Borrower's mailing or customer lists to third parties, or collects the
proceeds from such licenses or rentals, in which such Person agrees to pay
all amounts due to Borrower in respect of such collections directly to the
Blocked Account and, upon Lender's request when an Event of Default has
occurred and is continuing, to comply with Lender's instructions with
respect to all such licenses and rentals; and (v) an acknowledgment and
agreement from Borrower's previous lender that should such lender come into
possession of any property of Borrower or any proceeds thereof, such
property and proceeds shall be forthwith turned over to Lender.
(g) 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;
(h) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements, the Case, and such other matters as Lender may
request;
(i) Lender shall have received, in form and substance satisfactory to
Lender, a Guarantee of the Obligations duly executed by Wilroy, Inc. and a
General Security Agreement duly executed by Wilroy, Inc. in which such
Person grants Lender a security interest in all of its personal property to
secure its Guarantee;
(j) the Excess Availability as determined by Lender, as of the date
hereof, shall be not less than $1,000,000 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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(k) the other Financing Agreements, including, without limitation,
agreements establishing the Blocked Account, and all instruments and
documents hereunder and thereunder shall have been duly executed and
delivered to Lender, in form and substance satisfactory to Lender; and
(l) Lender shall have received, in form and substance satisfactory to
Lender, Borrower's agreement to satisfy, within such time period(s)
acceptable to Lender, to Lender's satisfaction, any and all conditions
precedent set forth in this Section 4.1 which have not been satisfied as of
the date hereof and the date of Lender making the initial Loan or providing
the initial Letter of Credit Accommodations and which Lender is willing in
its sole discretion to allow Borrower to satisfy on a later date, and
Borrower acknowledges and agrees that satisfaction of such conditions is
not being waived by 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 Borrower, 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. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, 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, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
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
and mailing lists and all proceeds from the license or rental thereof, licenses,
whether as licensor or licensee, choses in action and other claims and existing
and future leasehold interests in equipment, real estate and fixtures), chattel
paper, documents, instruments, letters of credit, bankers' acceptances and
guaranties; in each case, whether arising or acquired before or after the
commencement of the Case;
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5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of 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 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, rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, Accounts
or other Collateral, including, without limitation, returned, repossessed and
reclaimed goods, and deposits by and property of account debtors or other
persons securing the obligations of account debtors; and all recoveries received
or available to Borrower pursuant to Section 542, 543, 544, 545, 547, 548, 549,
550, or 553 of the Bankruptcy Code; in each case, whether arising or acquired
before or after the commencement of the Case;
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.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded all Loans, Letter of Credit
Accommodations, and other Obligations and the Collateral, all payments made by
or on behalf of Borrower and 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 Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower 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 Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
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6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are
acceptable to Lender into which Borrower shall promptly deposit and direct
its account debtors to directly remit all payments on Accounts and all
payments constituting proceeds of Inventory or other Collateral (including,
without limitation, proceeds of cash sales of Inventory) in the identical
form in which such payments are made, whether by cash, check or other
manner. 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 to
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"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and
collected by Lender, whether on the Accounts or as proceeds of Inventory or
other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations two (2) business days following the date of
receipt of immediately available funds by Lender in the Payment Account.
For purposes of calculating the amount of the Revolving Loans available to
Borrower such payments will be applied (conditional upon final collection)
to the Obligations on the business day of receipt by Lender in the Payment
Account, if such payments are received within sufficient time (in
accordance with Lender's usual and customary practices as in effect from
time to time) to credit Borrower's loan account on such day, and if not,
then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender,
receive, as the property of Lender, any monies, checks, notes, drafts 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. In no event shall the same be commingled
with Borrower's own funds. Borrower agrees 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 Borrower 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 Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's
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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 Borrower. Borrower 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 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. Borrower
shall be liable to pay to Lender, and 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 Borrower 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 City 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,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the Loans
provided by Lender to Borrower hereunder only for: (a) payments to each of the
persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and set forth in the Budget and (b) 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 Borrower pursuant
to the provisions hereof shall be used by Borrower only in the amounts and for
the specific operating, working capital and other proper corporate purposes of
Borrower set forth in the Budget and not otherwise 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.
6.7 Tradestyles. Borrower has indicated that in the conduct of its business
it may use the names "Brownstone Studio" or "Brownstone Studio, Inc." (each such
name a "Style") on letterhead, invoices and other materials and that Borrower
may receive payments made to or to the order of the Style. Borrower hereby
warrants and represents to Lender and covenants as follows:
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(a) Any and all payments made to Borrower which are or may be made in
the name of any Style are and will be owned exclusively by Borrower and
shall constitute Accounts. All sales and services which may be construed to
have been billed under the name of any Style shall be represented by
Accounts in which Lender has a security interest pursuant to the terms of
this Agreement. All reports, schedules, and confirmations of Accounts
delivered by Borrower to Lender whether in Borrower's name or in the name
of any Style, shall show Borrower as the owner.
(b) All rights conferred upon Lender hereunder and all warranties
given by Borrower hereunder shall apply with equal force to any payment
made or Account billed as hereinabove stated.
(c) Without in any way limiting the generality of the foregoing,
Lender's right to endorse Borrower's name on checks or other forms of
remittance received whenever such endorsement is required to effectuate
collection is hereby extended to include the right on Lender's part to
endorse the Style or words of similar import upon any such check or other
form of remittance.
(d) Borrower shall give prior written notice to Lender whenever
Borrower adopts any additional name which may be used in Borrower's
business in the same manner as a Style. Each such additional name shall
constitute a Style to the same extent as if originally listed above.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the following
documents in a form satisfactory to Lender: (a) on a daily or other regular
basis as required by Lender, a report of sales, credits and collections and a
report of Inventory by location; (b) on a weekly basis or more frequently as
Lender may request, inventory reports by category; (c) on a monthly basis or
more frequently as Lender may request, (i) perpetual inventory reports and (ii)
agings of accounts payable; (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, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower; (e) agings of accounts
receivable on a weekly basis or more frequently as Lender may request; (f) on a
weekly or other regular basis as required by Lender, a report of amounts paid by
and due from charge, credit, and debit card issuers and sale processors,
including a reconciliation of reserves, holdbacks, and chargebacks; and (g) such
other reports as to the Collateral as Lender shall request from time to time. If
any of Borrower's records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent,
Borrower hereby irrevocably authorizes 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) Borrower shall notify Lender promptly of: (i) any material delay
in Borrower's ability to fulfill a substantial portion of customer orders;
(ii) the assertion of any material claims,
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offsets, defenses or counterclaims by any charge, credit, or debit card
issuer or processor with respect to any amounts payable by such issuer or
processor in connection with the Accounts, or (iii) the imposition by any
charge or credit card issuer or processor of any holdback or reserve or any
reduction in the percentage of the face amount of a sale paid to Borrower.
No credit, discount, allowance or extension or agreement with any customer
or with respect to any Account shall be granted without Lender's consent,
except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long
as no Event of Default exists or has occurred and is continuing, Borrower
shall settle, adjust or compromise any claim, offset, counterclaim or
dispute with any customer or with respect to any Account. 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 or grant any credits, discounts or
allowances.
(b) Borrower shall promptly report to Lender any returns of Inventory
if, as a result thereof, the aggregate original sales price of all goods
returned during the preceding seven-day period is in excess of $5,000. In
the event any customer returns Inventory, Borrower shall segregate such
returned Inventory according to whether or not it is resalable and shall
not report as Eligible Inventory any returned goods that Borrower intends
to return to the supplier or manufacturer or to dispose of in any manner
other than retail sale in the ordinary course of business.
(c) With respect to each Account and each sale of Inventory: the
amounts shown on any schedule thereof delivered to Lender shall be true and
complete, no payments shall be made thereon except payments immediately
delivered to Lender pursuant to the terms of this Agreement, no credit,
discount, allowance or extension or agreement for any of the foregoing
shall be granted 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 Borrower's business in accordance with
practices and policies previously disclosed to Lender, there shall be no
setoffs, deductions, contrast, defenses, counterclaims or disputes existing
or asserted with respect thereto except as reported to Lender in accordance
with the terms of this Agreement, and 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 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.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time
acquire immediately upon Borrower's receipt thereof, except as Lender may
otherwise agree.
(f) Whenever, after the date hereof, Borrower accepts any charge,
credit or debit card not accepted on the date hereof or changes or adds any
Person through which charge, credit or debit card sales are processed,
Borrower shall obtain from the card issuer or processor an agreement of the
type described in Section 4.1(f)(ii), in form and substance satisfactory to
Lender. Lender may, at any
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time or times that an Event of Default exists or has occurred and is
continuing, 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 party or parties in any way
liable for payment thereof without affecting any of the Obligations,
demand, collect or enforce payment of any Accounts or such 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 take
whatever other action Lender may deem necessary or desirable for the
protection of its interests.
7.3 Inventory Covenants. With respect to the Inventory: (a) 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, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year in conjunction with its
audited financial statements for such year required to be delivered to Lender
pursuant to Section 9.6(a), 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) Borrower
shall not 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 Borrower's business and except to move Inventory directly
from one location set forth or permitted herein to another such location; (d)
upon Lender's request, Borrower shall, at its expense, no more than twice in any
calendar year, and as of dates acceptable to Lender, but at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender appraisals as to the Inventory 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; (e)
Borrower 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); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall keep the
Inventory in good and marketable condition; (h) Borrower shall not, without
prior written notice to Lender, acquire or accept any Inventory on consignment
or approval; and (i) Borrower shall send Lender a copy of each catalogue,
advertisement, or other sales material sent by Borrower to any customers, not
later than the time that it is sent to such customers.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrower shall, at its 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)
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower 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 Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not 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
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course of the business of 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 Borrower in the
ordinary course of business; (f) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (g) Borrower assumes all responsibility
and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, and in
a manner consistent with the intents and purposes of this Agreement and the
other Financing Agreements, 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 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
Borrower's name on any proof of claim in bankruptcy or other similar document
against a person obligated on an Account or other Collateral, (viii) notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by Lender, and open and dispose of all mail addressed to
Borrower, and (ix) do all acts and things which are necessary, in Lender's
determination, to fulfill 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 Borrower's mail is deposited, (iii) endorse 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 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 Collateral, (v) sign Borrower's name on any verification of Accounts and
notices thereof to any person obligated thereon and (vi) execute in Borrower's
name and file any UCC financing statements or amendments thereto. 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 order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against 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 Borrower's
account therefor, such amounts to be repayable by 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
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.
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7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower 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 Borrower's books
and records, including, without limitation, the Records, and (b) Borrower 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 Borrower's 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
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. 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 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 Borrower's corporate powers, have been duly authorized and, after
giving effect to the Order, are not in contravention of law or the terms of
Borrower's certificate of incorporation, by-laws, or other organizational
documentation, or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower or its property are bound. After giving effect to the
Order, this Agreement and the other Financing Agreements constitute legal, valid
and binding obligations of Borrower enforceable in accordance with their
respective terms. Borrower does 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 Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower 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 Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
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
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the Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of 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. 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. 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 (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. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except (i) certain taxes with respect to periods prior to the
commencement of the Case as set forth on Schedule 8.5 and (ii) taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to 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.
8.6 Litigation. Except as set forth on the Information Certificate, there
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge threatened, against or affecting Borrower, its assets or
business and there is no action, suit, proceeding or claim by any Person
pending, or to the best of Borrower's knowledge threatened, against Borrower or
its assets or goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against Borrower would result in
any material adverse change in the assets, business or prospects of Borrower or
would impair the ability of 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. Borrower is not
in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound (except for defaults or violations which have resulted from (i) the filing
or continuation of the Case, provided that any payments required to be made by
Borrower as a result thereof are currently stayed under applicable provisions of
the Bankruptcy Code or (ii) any rejection by Borrower of any such agreement,
contract, instrument, lease, or commitment pursuant to or in accordance with the
Bankruptcy Code and as approved or confirmed by the Bankruptcy Court in the
Case) and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
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8.8 ERISA. Borrower does not maintain any employee benefit plan that is
subject to Title IV of the Employee Retirement Income Security Act of 1974, as
amended, or to the minimum fundings standards of Section 412 of the Internal
Revenue Code of 1986, as amended.
8.9 Accuracy and Completeness of Information. All information furnished by
or on behalf of 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 Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.10 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
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. 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 the business as presently or proposed to be
conducted. 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 Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within the
continental United States provided Borrower (a) gives Lender thirty (30) days
prior written notice of the intended opening of any such new location and
executes and (b) 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, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all times,
comply in all material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly observe all requirements
of any Federal, State or local governmental authority applicable to it.
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9.4 Payment of Taxes and Claims. 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 (i) the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower or (ii) which became due prior to the filing of the
petition initiating the Case, provided that collection and enforcement of
payment of, and the enforcement of any rights relating to, such taxes are stayed
pursuant to the Bankruptcy Code and no proceeding has been initiated in the Case
seeking relief from such stay and the Bankruptcy Court has not ordered payment
of such taxes and, in the case of taxes described in either of preceding clause
(i) or (ii), with respect to which adequate reserves have been set aside on its
books. Borrower shall be liable for any tax or penalties imposed on Lender as a
result of the financing arrangements provided for herein and Borrower agrees to
indemnify and hold Lender harmless with respect to the foregoing, and to repay
to Lender on demand the amount thereof, and until paid by Borrower such amount
shall be added and deemed part of the Loans, provided, that, nothing contained
herein shall be construed to require 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. 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.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. 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 Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower 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 Borrower 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 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) 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 Borrower and its
subsidiaries (if any) in accordance with GAAP and Borrower 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,
and, if Borrower has any subsidiaries, unaudited consolidating financial
statements (including in each case balance sheets, statements of income and
loss
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and statements of shareholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of the operations of
Borrower and its 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 and, if Borrower has any
subsidiaries, audited consolidating financial statements of Borrower and
its subsidiaries (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 Borrower and its subsidiaries as of the end of and for such fiscal year,
together with the opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by
Borrower 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 Borrower and its
subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details of
any (i) loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in
Borrower's business, properties, assets, goodwill or condition, financial
or otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and
Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, 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
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby
irrevocably authorizes and directs all accountants or auditors to deliver
to Lender, at Borrower's expense, copies of the financial statements of
Borrower and any reports or management letters prepared by such accountants
or auditors on behalf of Borrower and to disclose to Lender such
information as they may have regarding the business of 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 Borrower to
Lender in writing.
(e) Not later than 60 days prior to the end of the period covered by
the Budget then in effect, Borrower shall deliver to Lender a budget of its
cash receipts and disbursements for the next succeeding twelve-month period
for review and approval by Lender.
(f) Borrower shall furnish to Lender a copy of each report or other
submission of information made to the United States Trustee or the Official
Committee of Unsecured Creditors, contemporaneously with sending such
report or submission to such recipient.
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(g) To the extent not already required to send a copy thereof to
Lender, Borrower shall send to Lender a copy of each pleading, motion,
application, judicial information, financial information, or other document
filed with the Bankruptcy Court by Borrower.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower shall
not, 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 sales of Inventory in the ordinary course of business) or (c)
form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve, or (e)
agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not 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 Borrower and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Borrower's 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 Borrower, 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 its books; (d)
purchase money security interests in Equipment (including capital leases) not to
exceed $50,000 in the aggregate at any time outstanding so long as such security
interests and mortgages do not apply to any property of Borrower other than the
Equipment so acquired, and the indebtedness secured thereby does not exceed the
cost of the Equipment so acquired, as the case may be; and (e) the security
interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower,
and with respect to which adequate reserves have been set aside on its books;
(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; and (d) obligations or indebtedness set forth
on the Information Certificate and not repaid with the initial proceeds of the
Loans; provided, that, (i) Borrower may only make regularly scheduled payments
of principal 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) 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) Borrower shall furnish to Lender all notices or demands in
connection with such indebtedness either received by
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Borrower or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, 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 the 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, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments and (c) the guarantees set forth in the
Information Certificate.
9.11 Dividends and Redemptions. Borrower shall not, directly or indirectly,
declare or pay any dividends on account of any shares of class of capital stock
of 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.
9.12 Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person.
9.13 [Intentionally Deleted.]
9.14 Adjusted Net Worth. Borrower shall, at all times, maintain Adjusted
Net Worth of not less than negative $1,800,000.
9.15 Costs and Expenses. Borrower 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, 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, but not limited to: (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) costs and expenses
and fees for title insurance and other insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections, appraisal fees and
search fees; (c) costs and expenses of remitting loan proceeds, collecting
checks and other
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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, without
limitation, 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 Borrower's 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.
9.16 Further Assurances. At the request of Lender at any time and from time
to time, Borrower shall, at its 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 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
Borrower 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, 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) 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 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;
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(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) except as set forth on the Information Certificate, any judgment
for the payment of money is rendered against Borrower or any Obligor in
excess of $25,000 in any one case or in excess of $25,000 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 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 Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) any Obligor (other than Borrower) becomes insolvent (however
defined or evidenced), makes an assignment for the benefit of creditors,
makes or sends notice of a bulk transfer or calls a meeting of its
creditors or principal creditors;
(g) except for the Case, 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
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 Borrower or any such 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) except for the Case, 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 Borrower or
any Obligor or for all or any part of its property;
(i) any default by Borrower (other than a default that existed prior
to the commencement of the Case or which is based upon the commencement of
the Case) or any Obligor under any 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, in any case in
an amount in excess of $25,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by
Borrower (other than a default that existed prior to the commencement of
the Case or which is based upon the commencement of the Case) 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;
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(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of Borrower or any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against 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 Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof;
(m) there shall be an event of default under any of the other
Financing Agreements;
(n) Borrower or any Obligor shall fail to comply or shall default in
the performance of any term of the Order;
(o) the Bankruptcy Court shall enter an order appointing a trustee, an
examiner with enlarged powers, or any other fiduciary for Borrower or any
Obligor or any property of Borrower's or an Obligor's estate;
(p) the Bankruptcy Court or any other court with jurisdiction in the
matter shall enter an order modifying, reversing, revoking, staying,
rescinding, vacating, or amending the Order or any of the Financing
Agreements, without Lender's express written consent (and no such consent
shall be implied from any other action, inaction, or acquiescence of
Lender) or Borrower or any Obligor shall make a motion or application to do
so (except at Lender's request);
(q) any Person shall file a plan of reorganization in the Case which
does not provide for the full and final repayment of all Obligations upon
the confirmation of such plan, unless Lender has joined in or consented to
such plan in writing;
(r) any motion or application is filed in the Case which seeks
approval for or allowance of any claim, lien, or security interest ranking
equal or senior in priority to the claims, liens, and security interests of
Lender under the Order or Financing Agreements, or any such equal or prior
claim, lien, or security interest shall be established in any manner,
except, in either case, as expressly permitted under the Order or the
Financing Agreements;
(s) except for expiration or termination in accordance with the Order
or the terms of the Financing Agreements, any of the Financing Agreements,
or any lien or security interest of Lender created thereunder, shall cease
for any reason to be in full force and effect or to have the priority
provided in the Order, or any motion or application shall be filed or
adversary proceeding commenced in the case to challenge the validity,
enforceability, perfection, or priority of any of the Financing Agreements
or any of such liens and security interests;
(t) the automatic stay under Section 362 of the Bankruptcy Code as to
Borrower or any Obligor and its estate shall be modified or vacated for any
secured claim or claims to the extent that as a result thereof enforcement
of such claim against property of Borrower or any Obligor would be
permitted;
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(u) the Bankruptcy Court enters an order dismissing the Case or
converting the Case to a case under Chapter 7 of the Bankruptcy Code;
(v) any appeal shall be taken from the Interim Order; or
(w) the Bankruptcy Court shall not have entered the Final Order on or
before March __, 1997 [30 days after entry of Interim Order].
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 the
Order, 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 Borrower or any Obligor,
or any further order of the Bankruptcy Court, except as such notice or
consent is expressly provided for hereunder, in the Order, or required by
applicable law. All rights, remedies and powers granted to Lender
hereunder, under the Order, 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 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 Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time
or times, proceed directly against 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 Borrower, at
Borrower's 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 Borrower, which right or equity of redemption is
hereby expressly waived and released by 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, five (5) days
prior notice by Lender to Borrower designating the time and place of any
public sale
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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
and Borrower 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, Borrower waives the posting of any bond which might
otherwise be required.
(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. 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 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 Revolving Loans and Letter of
Credit Accommodations available to Borrower 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 Borrower.
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) To the extent not inconsistent with the jurisdiction of the
Bankruptcy Court in the Case, Borrower and Lender irrevocably consent and
submit to the non-exclusive jurisdiction of the Supreme Court of the State
of New York, for New York County, and the United States District Court for
the Southern District of New York and waive 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 the Order
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 Order 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 Borrower or its property in the courts of any
other jurisdiction which Lender deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) 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)
31
<PAGE>
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 Borrower in any other manner provided under the rules of any
such courts. Within thirty (30) days after such service, Borrower shall
appear in answer to such process, failing which Borrower shall be deemed in
default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE ORDER 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 ORDER OR THE TRANSACTIONS RELATED HERETO OR THERETO IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH 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 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 Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by 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 or court order binding on Lender, that the
losses were the result of acts or omissions 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.
11.2 Waiver of Notices. 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 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 Borrower which Lender may elect to give shall entitle Borrower
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. 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
32
<PAGE>
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. 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. Borrower 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 the Order,
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 (provided, that Borrower shall not be liable for
such indemnification with respect to any loss that is determined by a final and
non-appealable judgment or court order binding on Lender to have resulted from
Lender's gross negligence or wilful misconduct). 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, Borrower shall pay
the maximum portion which it is permitted to pay under applicable law to Lender
in satisfaction of indemnified 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, unless sooner terminated pursuant to the
terms hereof, for a term ending on the earlier of: (i) the date which is
eighteen months after the date hereof or (ii) the effective date of the
Bankruptcy Court order confirming a plan of reorganization in the Case (the
"Termination Date"). Upon the Termination Date, Borrower 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 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 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 Borrower for such purpose. Interest
shall be due until and including the next business day, if the amounts so
paid by Borrower to the bank account designated by Lender are received in
such bank account later than 12:00 noon, New York City time.
33
<PAGE>
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge 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 the
Order 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 other than upon the
effective date of the order confirming a plan of reorganization in the Case
or upon the conversion of the Case to a case under Chapter 7 of the
Bankruptcy Code, in view of the impracticality and extreme difficulty 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,
Borrower agrees to pay to Lender, upon the effective date of such
termination, an early termination fee in the amount equal to two percent
(2%) of the Maximum Credit. Such early termination fee shall be presumed to
be the amount of damages sustained by Lender as a result of such early
termination and Borrower agrees that it is reasonable under the
circumstances currently existing. The early termination fee provided for in
this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other 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.
12.3 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.
12.4 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, Borrower and their respective
successors and assigns, except that Borrower may not assign its 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 Borrower, 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 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.
34
<PAGE>
12.5 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, the Order, and any instruments or documents
delivered or to be delivered in connection herewith or therewith, together with
the Order, represent 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.
35
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
================================================================================
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION JEAN GRAYSON'S BROWNSTONE
STUDIO, INC.
By:_/s/_________________________ Debtor and Debtor-in-Possession
Title:___________________________ By:__/s/________________________
Address: Title:___________________________
1133 Avenue of the Americas Chief Executive Office:
New York, New York 10036
685 Third Avenue
New York, New York 10017
and
1111 Secaucus Road
Secaucus, New Jersey 07094
================================================================================
<PAGE>
CONGRESS FINANCIAL CORPORATION
1133 Avenue of the Americas
New York, New York 10036
September 17, 1997
Jean Grayson's Brownstone Studio, Inc.
685 Third Avenue
New York, New York 10017
Re: Amendment of Loan and Security Agreement
Ladies and Gentlemen:
We refer to the Loan and Security Agreement dated February 28, 1997 between
Congress Financial Corporation ("Lender") and Jean Grayson's Brownstone Studio,
Inc., a New York corporation as debtor and debtor-in-possession in Case No.
97-B-41214, United States Bankruptcy Court for the Southern District of New
York, under Chapter 11 of Title 11 of the United States Code ("Borrower"), as
the same may be amended from time to time (the "Loan Agreement"). Unless
otherwise defined in this letter, all capitalized terms used in this letter have
the same meanings as set forth in the Loan Agreement.
Borrower has requested Lender to amend certain provisions in the Loan
Agreement as set forth herein. Lender is willing to make such amendments, but
only on the terms and conditions set forth in this letter.
Accordingly, Borrower hereby agrees with Lender as follows:
1. Amendments to Loan Agreement. Upon the satisfaction of the conditions
set forth in Paragraph 2 of this letter, the Loan Agreement is amended hereby as
follows:
(a) Section 1 of the Loan Agreement is amended by adding the following
defined term in the appropriate alphabetical order:
"Participation Agreement" shall mean that certain Junior Participation
Agreement dated September 17, 1997 by and between Lender, Robert M.
Rubin and Jay M. Kaplowitz, in form and substance satisfactory to
Lender.
<PAGE>
Jean Grayson's Brownstone
Studio, Inc. -2- September 17, 1997
(b) Section 2.1(a) of the Loan Agreement is amended in its entirety to
read as follows:
"(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) the lesser of (A) eighty (80%) percent of the orderly
liquidation value of Eligible Inventory (as determined by Lender in
good faith) or (B) sixty (60%) percent of the Value of Eligible
Inventory, other, in each case, than Inventory located at or being
offered for sale through Borrower's outlet store, plus
(ii) twenty (20%) percent of the Value of Eligible Inventory
located at or being offered for sale through Borrower's outlet store,
plus
(iii) one hundred (100%) percent of the outstanding amount of the
Participants' Interest (as defined in the Participation Agreement), so
long as (A) the Participation Agreement continues in full and force
and effect and (B) the order of the Bankruptcy Court approving the
amendment to this Agreement that added this clause (iii) has not been
modified or vacated and no appeal has been taken therefrom, less
(iv) any Availability Reserves."
(c) Section 9.15 of the Loan Agreement is amended by deleting the word
"and" before subsection (h) of such section and adding the following to the
end of such section:
"; and (i) the fees and disbursements of counsel (including legal
assistants) and other out-of-pocket expenses of the participants under
the Participation Agreement in connection with any of the foregoing".
2. Conditions Precedent. In addition to the relevant conditions set forth
in Section 4 of the Loan Agreement, Lender's obligation to make amendments to
the Loan Agreement is subject to the fulfillment, to the satisfaction of Lender
and its counsel, of each of the following conditions:
(a) Borrower shall have executed and delivered this letter to Lender;
<PAGE>
Jean Grayson's Brownstone
Studio, Inc. -3- September 17, 1997
(b) Wilroy, Inc. ("Guarantor") shall have executed and delivered to
Lender its acknowledgment to this letter that its guarantee shall continue
to be in full force and effect on the date hereof;
(c) Lender and its counsel shall have received evidence to their
satisfaction that the Bankruptcy Court has entered an order authorizing and
approving this amendment to the Loan Agreement and that no appeal has been
taken therefrom; and
(d) On and as of the date such other conditions are satisfied, no
Event of Default, and no event or condition which with notice or passage of
time or both would constitute an Event of Default, has occurred and is
continuing or would result from the extension of the term of the Loan
Agreement or the amendments contemplated hereby.
3. No Other Modification. Except as expressly set forth herein, the
Financing Agreements are not amended or otherwise affected in any way by this
letter and continue in full force and effect.
4. No Waiver of Compliance. By entering into this letter, Lender has not
and shall not be deemed to have (a) waived any Event of Default now existing or
which may occur at any time hereafter or (b) limited any of Lender's rights and
remedies with respect to any Event of Default or (c) except as otherwise
expressly set forth herein, limited Lender's right to require Borrower to comply
strictly with each term and condition of the Financing Agreements.
5. This Letter a Financing Agreement. This letter constitutes one of the
Financing Agreements and is subject to all of the provisions of the Loan
Agreement applicable to the Financing Agreements.
6. Fees and Expenses. Borrower confirms that, under the Loan Agreement, it
shall pay Lender's attorneys' fees and expenses incurred in connection with this
letter and the transactions contemplated hereby.
7. Ratification. (a) Except as expressly set forth herein, the Loan
Agreement and the other Financing Agreements are not modified hereby and each
shall remain in full force and effect in accordance with the respective
provisions thereof on the date hereof, and the Loan Agreement and the other
Financing Agreements are each in all respects ratified and affirmed. Lender's
agreement herein shall not be construed to require Lender to increase
<PAGE>
Jean Grayson's Brownstone
Studio, Inc. -4- September 17, 1997
the credit facility or make any other amendments on any other occasion,
regardless of the similarity of circumstances.
(b) Borrower confirms and agrees that the principal of, accrued
interest on, and other charges now or hereafter payable in connection with
the Loans, including, without limitation, those made after giving effect to
the amendments in this letter, constitute Obligations for all purposes of
the Financing Agreements, secured by all of the Collateral to the same
extent as any of the other Obligations incurred prior to or after the date
hereof.
(c) Guarantor hereby (i) acknowledges notice of the terms and
conditions of this letter, (ii) confirms and agrees that the Guaranteed
Obligations under and as defined in the Guarantee dated February 28, 1997
(the "Guarantee"), includes all Borrowers' Obligations for or in respect of
the principal of, accrued interest in, and other charges now or hereafter
payable in connection with the Loans, including, without limitation, those
made or continuing after giving effect to the amendments in this letter,
and (iii) confirms that, after giving effect to this letter and to the
making of the amendments to the Loan Agreement provided herein, the
Guarantee is its valid and binding obligation, enforceable against it in
accordance with its terms, without defenses, offsets, or counterclaims, and
continues in full force and effect.
8. Representations and Warranties. Without limiting any other provision of
this letter, and as an inducement to Lender to enter into this letter, Borrower
hereby: (a) represents, warrants and agrees that the Loan Agreement and the
other Financing Agreements are its valid and binding obligations enforceable
against it in accordance with their terms, without the right to interpose any
claims, deductions, offsets or counterclaims of any nature (other than
compulsory counterclaims); and (b) represents and warrants that:
(i) each of the representations and warranties of Borrower set forth in
the Loan Agreement and the other Financing Agreements is true and
correct in all material respects, as of the date hereof; and
(ii) after giving effect to this letter, no Event of Default, or event or
condition which with notice or the passage of time or both would
become an Event of Default, has occurred and is continuing.
9. Governing Law. This letter shall be construed in accordance with and be
governed by the laws (without giving effect to the conflicts of laws principles)
of the State of New York.
<PAGE>
Jean Grayson's Brownstone
Studio, Inc. -5- September 17, 1997
10. Counterparts. This letter may be executed in one or more counterparts,
and by Lender and each other party hereto in separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
Jean Grayson's Brownstone
Studio, Inc. -6- September 17, 1997
Please indicate Borrower's agreement to the terms of this letter by
countersigning it in the space provided below and returning it to Lender.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/
-------------------------------
Name:
Title:
Accepted and Agreed:
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
Debtor and Debtor-in-Possession
By: /s/
----------------------------------
Name:
Title:
<PAGE>
Jean Grayson's Brownstone
Studio, Inc. -7- September 17, 1997
Accepted and Agreed for purposes of Paragraph 7(c) only:
WILROY, INC.
Debtor and Debtor-in-Possession
By: /s/
-------------------------------
Name:
Title:
<PAGE>
JUNIOR PARTICIPATION AGREEMENT
(Fixed Dollar Amount)
JUNIOR PARTICIPATION AGREEMENT dated September 17, 1997 by and between
CONGRESS FINANCIAL CORPORATION, a California corporation, with its principal
place of business at 1133 Avenue of the Americas, New York, New York 10036
("Congress"), and ROBERT M. RUBIN, an individual residing at 6060 Kings Gate
Circle, Delray Beach, Florida 33486 and JAY M. KAPLOWITZ, an individual residing
at 101 East 52nd Street, New York, New York 10022 (individually, a
"Participant", and, collectively, the "Participants").
W I T N E S S E T H:
WHEREAS, Congress and Jean Grayson's Brownstone Studio, Inc., a New York
corporation as debtor and debtor-in-possession in Case No. 97-B-41214, United
States Bankruptcy Court for the Southern District of New York, under Chapter 11
of Title 11 of the United States Code (the "Borrower"), have entered into a Loan
and Security Agreement dated February 28, 1997 (the "Loan Agreement");
WHEREAS, pursuant to the Loan Agreement, and to an order of the Bankruptcy
Court authorizing and approving the transactions under the Loan Agreement,
Congress has made and may hereafter make loans, advances, and other extensions
of credit to the Borrower, secured by security interests in and liens on the
Collateral (as hereinafter defined); and
WHEREAS, the Participants wish to acquire from Congress, upon the terms and
conditions hereinafter set forth, a subordinated participation of up to
$2,000,000 in the unpaid Advances (as hereinafter defined), the Collateral, and
Congress's rights under the Loan Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises herein contained, the parties hereto agree as follows:
Section
1. Definitions
The following definitions shall have the following meanings when used
herein:
<PAGE>
1.1 "Advances" means all loans, advances, guaranties, extensions of credit,
and other financial accommodations made or to be made by Congress to or on
behalf of the Borrower pursuant to the Financing Agreements, and all other items
(other than interest or other compensation) chargeable to the Borrower's loan
account or owed by the Borrower to Congress pursuant to the Financing Agreements
or the Financing Order.
1.2 "Collections" means all monies received by Congress from the Borrower
or other sources as principal or interest on account of the Advances or as
proceeds of the Collateral.
1.3 "Collateral" has the meaning given to such term in the Financing
Agreements.
1.4 "Default" means an Event of Default under and as defined in the Loan
Agreements or the Financing Order.
1.5 "Financing Agreements" means, collectively, the Loan Agreement and all
notes, guarantees, security agreements, and other agreements, documents and
instruments now or at any time hereafter executed or delivered in connection
with the Loan Agreement by Borrower, or any other person obligated in any way
with respect to the Obligations or which owns property securing the Obligations,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated, or replaced.
1.6 "Financing Order" means, collectively, (a) the Final Order authorizing
and approving the transactions under the Financing Agreements, entered by the
Bankruptcy Court on March 14, 1997 and (b) the Modification Order.
1.7 "In Liquidation" means Congress has demanded payment of the Advances or
has declared the Advances to be immediately due and payable upon a Default, or
that Congress has decided to cease making or to restrict Advances and to
administer the Borrower's loan account so as to achieve full repayment of the
Advances through the orderly collection and liquidation of the Collateral.
1.8 "Modification Order" means the Order entered by the Bankruptcy Court on
the date hereof, authorizing and approving certain amendments to the Loan
Agreement in connection with the Participation.
1.9 "Obligations" has the meaning given to such term in the Loan Agreement.
1.10 "Participants' Interest" means, at any particular time, an amount
equal to: (a) the aggregate cumulative amount of the Participants' payments to
Congress pursuant to Section 2.1 hereof; minus (b) the aggregate amount of all
sums at such time which have been repaid to either Participant by Congress in
accordance with this Agreement (other than the
2
<PAGE>
compensation provided for in Section 4.1 hereof) and not returned pursuant to
Section 4.8, 4.9, or 6.1 hereof.
1.11 "Participation" means the Participants' fixed dollar amount
subordinated participation hereunder in the outstanding Advances, the Collateral
and Congress's rights under the Financing Agreements and Financing Order.
1.12 "Prime Rate" means the rate from time to time publicly announced by as
CoreStates Bank, N.A., Philadelphia, Pennsylvania as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.13 "Other Definitions" Other terms used herein as defined terms and not
defined elsewhere in this Agreement shall have the same respective meanings as
in the Financing Agreements and the Financing Order.
Section 2. Purchase and Sale of Participation
2.1 Congress hereby agrees to sell to the Participants jointly, and the
Participants hereby agree to purchase from Congress jointly, the Participation,
on the terms and conditions of this Agreement. The initial amount of the
Participation purchased on the date hereof is $455,000, and Participants have
herewith paid such sum to Congress. From to time hereafter, not more frequently
than weekly, and upon not less than one business days' prior telephonic notice,
Participants may purchase from Congress, and Congress shall sell to
Participants, additional amounts of the Participation upon payment to Congress
of the purchase price therefor in immediately available funds.
2.2 The Participation shall at all times be subject and subordinate to
Congress's share of and interest in the Advances, the Collateral, the
Collections, and the rights under the Financing Agreements and the Financing
Order.
2.3 Each Participant acknowledges that Congress has provided the
Participants with copies of all of the Financing Agreements and the Financing
Order and with such financial and other information pertaining to the Borrower
as either Participant requested in order to make an independent, informed
judgment with respect to the purchase of the Participation. Each Participant
also acknowledges that he is familiar with the Borrower's business, assets, and
financial condition. Each Participant acknowledges that Congress has not made
and does not make any statements, representations or warranties, express or
implied, as to the Borrower's financial condition, the ability of the Borrower
to repay the Advances or perform any of its obligations under the Financing
Agreements and the Financing Order, or with respect to the validity,
enforceability, collectibility, priority or perfection of the Financing
Agreements and the Financing Order and the transactions thereunder or the
Collateral, or the accuracy of any information about the Borrower provided to
the Participants, and that each Participant is fully familiar with and has made
his own analysis of all the details thereof. Each Participant represents and
warrants that he has exercised his own independent credit judgment
3
<PAGE>
before entering into this Participation Agreement and purchasing the
Participation and that, in doing so, he did not rely on any statement of
Congress. Each Participant will, at all times in the future, his its own
investigation and evaluation of the operations, business, property, and
condition (financial or otherwise) of the Borrower and his own appraisal of the
Borrower's creditworthiness. Each Participant further acknowledges that he was
represented by legal counsel in connection with his negotiation, execution and
delivery of this Agreement.
Section 3. Administration.
3.1 All of the transactions under the Financing Agreements and the
Financing Order will be conducted in Congress's name, and all Collateral and
Collections will be held by Congress in its sole name. Congress agrees that it
will keep a record of all the Advances and the Collateral and of the status of
the Borrower's loan account, appropriately marked so as to show the interest of
the Participants therein; and that it will, in the recording of the Collateral
on its books, appropriately disclose the interest of the Participants therein.
3.2 Congress agrees that, subject to the Borrower's satisfaction of the
terms and conditions for Advances set forth in the Financing Agreements,
Congress will make available to the Borrower Advances in the entire amount of
Participants' Interest from time to time.
3.3 Congress shall transmit to each Participant, within 15 days after the
end of each month, or at such other times as may be mutually agreed upon, a
statement of the loan account with the Borrower for such month, summarizing the
Advances made during such month, the principal and interest payments received,
and the payments, if any, made by Congress to the Participants hereunder during
such month.
3.4 Each Participant hereby agrees that Congress shall have the right to
carry out the provisions of the Financing Agreements and the Financing Order
with the Borrower, and to exercise all rights and privileges accruing to it by
reason of the provisions thereof, and to enforce its rights thereunder for the
joint benefit of Congress and the Participants, according to Congress's
discretion and the exercise of its business judgment, in accordance with its
normal operating procedures. Without limiting the generality of the foregoing,
each Participant acknowledges and agrees that, except as expressly provided to
the contrary in Sections 3.2 and 3.5:
(a) Congress has complete discretion with respect to the making of
Advances and the amount thereof, including without limitation, the right to
make advances in excess of any limitations set forth in the Financing
Agreements and the right to continue to make Advances when the Borrower's
loan account is In Liquidation;
(b) Congress may, without either Participant's consent, make all
decisions pertaining to the enforcement of the terms of the Advances,
including,
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without limitation, declaring defaults, making demand for payment of the
Advances, and determining the order and manner of enforcing the security
interests in the Collateral; without limiting the generality of the
foregoing, neither Participant shall have any right to consent to, or to
object to any terms of, any disposition of Collateral approved by Congress
and authorized by order of the Bankruptcy Court in Borrower's case; and
(c) Congress may, without either Participant's consent, modify, amend
or supplement, or waive provisions of, the Financing Agreements or the
Financing Order in any respect, to the same extent as if no Participation
had been sold to the Participants.
3.5 Notwithstanding Section 3.4 to the contrary, until the Participants'
Interest has been reduced to zero, Congress will not take any of the following
actions without the Participants' consent:
(a) agree to release any Collateral from Congress's security interests
and liens except (i) Inventory sold in the ordinary course of business,
(ii) other Collateral sold or disposed of pursuant to authorization granted
by the Bankruptcy Court after notice and hearing, and where the proceeds of
such sale or other disposition are applied to the payment of the
Obligations, or (iii) in connection with a sale or other disposition upon
enforcement of Congress's security interests and liens when the Borrower's
account is in Liquidation; or
(b) agree to subordinate the priority of Congress's security interests
or liens or priority administrative claim for the Obligations (except as
already subordinated at the date hereof).
3.6 Except as expressly set forth herein, Congress shall not be liable to
either Participant for any action taken or omitted in connection with any
transaction covered by the Financing Agreements or the Financing Order.
3.7 Nothing herein contained shall confer upon either Congress or either
Participant any proprietary interest in, or subject either of them to any
liability for or in respect of, the business, assets, profits, losses or
obligations of the other, except only as to the transactions with the Borrower
to the extent of the Participation. The relationship between the Participants
and Congress shall be that of a purchaser and seller of a property interest and
not a creditor-debtor relationship or joint venture. Congress shall owe the
Participants no duty except as expressly set forth herein. Congress shall not be
deemed to be the trustee of or a fiduciary for either Participant in connection
with any matter contemplated hereby.
Section 4. Payments; Expenses
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4.1 Except as provided below, Congress will pay to the Participants jointly
each month compensation equivalent to interest on the Participants' Interest,
out of and only to the extent of the amounts actually received by Congress as
interest on the Advances during such month at a rate per annum equal to the
Prime Rate minus three and one-half percent (3-1/2%). Such compensation shall be
calculated on the same basis on which interest is calculated on the Advances.
Notwithstanding the foregoing, if the Borrower's loan account with Congress is
In Liquidation, then all payments of the Participants' compensation under this
section shall be suspended until Congress has received payment in full of all
Extraordinary Expenses and Congress's share of the outstanding Advances and the
accrued interest thereon.
4.2 Except as provided in Section 4.1 above, Congress shall retain in full
all fees, charges, and compensation paid by the Borrower pursuant to the
Financing Agreements and the Financing Order.
4.3 The Participants shall not be entitled to the repayment of
Participants' Interest except as provided in Section 4.4 of this Agreement.
Congress does not assume, and shall not have any personal liability to either
Participant for, the repayment of any part of the Participants' Interest or any
compensation thereon, and any losses arising from or with respect to the
Participants' Interest or the compensation thereon shall be borne by the
Participants.
4.4 Upon the expiration or earlier termination of the Financing Agreements,
or when the Borrower's account is In Liquidation, Congress shall pay to the
Participants jointly all Collections received by Congress, if any, after the
payment in full to Congress of the Extraordinary Expenses and Congress's share
of and interest in the Advances and accrued interest thereon, until the
Participants' Interest and Participant Expenses (as hereinafter defined) shall
have been repaid in full. At Congress's election in its sole discretion,
Congress may make such payments by turning over such Collections to the
Participants in the form received.
4.5 Each Participant acknowledges that during the term of the Financing
Agreements and when the Borrower's account is not In Liquidation, the
outstanding Advances may be less than the Participants' Interest. Congress shall
not be required to make any payment in reduction of the Participants' Interest
while either such circumstance exists.
4.6 Congress shall bear the ordinary general and administrative overhead
costs and expenses of managing and servicing the transactions under the
Financing Agreements. Extraordinary Expenses (as hereinafter defined) shall be
borne by Congress and the Participants pro rata, in accordance with their
respective participations in the Advances, provided, however, that except as
expressly set forth below with respect to Claims or in Section 5.1, the
Participants' share of Extraordinary Expenses shall be paid out of Collections,
and the Participants shall not be required to pay their share out of other
funds. Extraordinary Expenses shall not include any Participant Expenses (as
hereinafter defined). "Extraordinary Expenses" shall consist of: (a) additional
Advances, if any, made when the Borrower's loan account in Liquidation; and (b)
attorneys' fees and disbursements, court costs, the fees of an
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outside agency, and all other out-of-pocket costs and expenses incurred by
Congress (i) in connection with the enforcement of any rights and remedies
against the Borrower or any guarantors or with regard to any Collateral, or (ii)
for the protection and preservation of any Collateral (including, without
limitation, in connection with or related to paying insurance premiums,
discharging liens, paying taxes, and complying with environmental laws) or (iii)
in defending any action or opposing any claim asserted at any time by the
Borrower or any stockholder, guarantor, receiver, or trustee in bankruptcy or
any other party against either Congress or the Participants because of any
alleged claim of usury, ultra vires act, or invalidity, or any alleged
preferential or fraudulent transfer, or any other claim in connection with the
transactions under the Financing Agreements and the Financing Order or the
Collateral (any action or claim described to in this clause (iii) being referred
to herein as a "Claim"). The Participants shall reimburse jointly and severally
Congress on demand its proportionate share of all amounts paid by Congress on
account of any Claim, which payment may be made by Congress, in its sole
discretion, in settlement, compromise or otherwise. "Participant Expenses" shall
mean attorneys' fees and disbursements and all other out-of-pocket costs and
expenses incurred by either Participant in connection with the negotiation of
this Agreement or otherwise in connection with the Participation and which,
under the Financing Agreements, constitute part of the Obligations. Congress
may, in its sole discretion, apply Collections to reimburse itself and the
Participants (if and to the extent that Participants have reimbursed Congress as
provided hereunder) for Extraordinary Expenses actually expended, and may
reserve such portion of the Collections as it may deem necessary to cover such
Extraordinary Expenses which have accrued or are foreseeable.
4.7 The Participants shall not, and shall not permit any of their
respective affiliates to, exercise any right of banker's lien, set-off, or
counterclaim against the Borrower or its assets except to the extent that, under
applicable law or agreement, the proceeds thereof are permitted to be turned
over to Congress as Collections. All proceeds from any such exercise of such
right shall be promptly paid to Congress in the form received and shall
constitute Collections for all purposes hereof.
4.8 Any payment by Congress to either Participant in respect of
Collections, other than in connection with a charge to the Borrower's loan
account, is subject to the final collection of the item or instrument by which
such Collections were paid to Congress. If any such item or instrument is
returned uncollected or unpaid for any reason, then each Participant, on
Congress's request, shall jointly and severally repay to Congress the amount of
such item or instrument received by either Participant or, if Congress so
elects, Congress may deduct such amount from any subsequent payment of
Collections to be made to Participants. The provisions of this Section shall
survive the repayment of Participants' Interest and the termination of this
Agreement.
4.9 Notwithstanding any provision of this Agreement to the contrary, if
Congress shall be required (pursuant to a judgment, final decree or other order
of by reason of any compromise or settlement agreed to by Congress in its
discretion) to repay or return any Collections, because Congress's receipt of
such Collections constituted a preference, a
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fraudulent conveyance, or usury, or for any other reason, then each Participant
shall jointly and severally pay to Congress the amount of any such Collections
that were received by either Participant, together with the Participants'
proportionate share (determined on the basis of the proportion of such
Collections received in the aggregate by the Participants) of all interest and
costs assessed against or incurred by Congress in connection therewith. The
provisions of this Section shall survive the repayment of Participants' Interest
and the termination of this Agreement.
4.10 Any payment by Congress to either Participant in respect of the
Participation shall be made as directed by Robert M. Rubin from time to time.
Congress shall have no responsibility to determine, as between the Participants,
which Participant is entitled to received such payment or any portion thereof or
to see to the receipt by either Participant of his share thereof, and the
payment by Congress to such account of any amount due from Congress to either
Participant hereunder shall discharge Congress from all obligations and
liabilities of Congress hereunder with respect to such amount.
Section 5. Liability and Indemnity
5.1 Except as otherwise expressly provided in this Agreement, Congress
shall not itself, nor shall its directors, managers, officers, employees, or
agents, be liable or responsible, directly or indirectly, to either Participant
for any action taken, or omitted to be taken, by Congress, or for the
consequences of any oversight or error of judgment on its or their part, unless
taking, or omitting to take, such action on the part of Congress, or such
oversight or error in judgment on the part of Congress or its directors,
managers, officers, employees, or agents, constitutes willful misconduct and is
the proximate cause of actual loss sustained by such Participant. In the absence
of willful misconduct by or on behalf of Congress, each Participant hereby
jointly and severally indemnifies ratably Congress (to the extent not reimbursed
by the Borrower) from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including legal
fees and costs) or disbursements of any kind of nature whatsoever ("Losses")
which may be imposed on, incurred by or asserted against Congress by or to third
parties in any way relating to or arising out of this Participation Agreement,
the Financing Agreements and the Financing Order and the transactions
thereunder, the Collections, the Advances, or the Collateral, or any action
taken or omitted by Congress under or pursuant to this Participation Agreement,
the Financing Agreements and the Financing Order or the transactions thereunder,
the Collections, the Advances, or the Collateral. The provisions of this Section
shall survive the repayment of the Participants' Interest and the termination of
this Agreement.
Section 6. Term and Termination
6.1 This Agreement is a continuing agreement and cannot be terminated by
either Participant. Notwithstanding the foregoing, Congress may in its
discretion terminate or reduce the Participation at any time by repaying to the
Participants the full amount of the Participants' Interest or the amount by
which Congress elects to reduce the Participants'
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Interest. If, when the Borrower's account is In Liquidation, Congress has
received payment in full of all Extraordinary Expenses and Congress's share of
the Advances and all accrued interest thereon, then Congress shall have the
option, but not the obligation, to assign to the Participants (without recourse,
representation, or warranty of any kind) all of Congress's remaining rights and
interest in the Advances, the Financing Agreements, the Financing Order, and the
Collateral, which shall be deemed full repayment to the Participants of the
Participation; provided, however, that if Congress is required to repay or
return any Collections as contemplated by Section 4.6 hereof that were applied
to Extraordinary Expenses or to Congress's share of the Advances and interest
thereon, the foregoing assignment shall be deemed rescinded until such time as
Congress has received final repayment of the amounts to which such repaid or
returned Collections had been applied, and the Participants shall promptly and
jointly and severally pay to Congress the amount of all Collections received in
the aggregate in the aggregate by Participants prior to such recission, up to
the amount of the Collections repaid or returned by Congress. Upon such
assignment, Congress shall have no further liability to the Participants
hereunder.
Section 7. General
7.1 All notices, requests, and consents provided for herein shall be in
writing and mailed to the respective parties at the addresses first set forth
above, or at such other addresses as either of them shall have specified to the
other in writing.
7.2 This Agreement: (a) shall be binding upon and inure to the benefit of
the parties hereunder and their respective legal representatives, successors and
permitted assigns; (b) shall be governed, construed and interpreted in all
respects in accordance with the laws of the State of New York (without regard to
the conflicts of laws principles of such state); and (c) may not be modified,
amended, terminated or otherwise changed orally or by any course of dealing or
in any manner except by an agreement in writing signed by the duly authorized
officer of the party to be charged. Neither Participant shall sell, pledge,
assign, subparticipate, or otherwise transfer all or any part of the
Participation without Congress's prior written consent, except to Diplomat
Corporation or Lew Magram Ltd. Congress may assign or grant other participations
in all or any part of the Advances and the related rights under the Financing
Agreements and in and to the Collateral without either Participant's prior
consent.
7.3 Each of Congress and the Participants hereby expressly submits and
consents in advance to the jurisdiction of the Supreme Court of the State of New
York in the County of New York and the United Stated District Court for the
Southern District of New York in any action or proceeding commenced by the other
in either such court with reference to any claim or dispute between the parties
pertaining directly or indirectly to this Agreement or to any matter arising
therefrom, and each of the parties agrees that venue will be proper in such
courts on such matters and waives any objection based on forum non conveniens.
Each of the parties hereby waives the right to trial by jury in any such action
or proceeding, and waives personal service of any summons, complaint, writ,
process and/or papers, which
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instead may be made by registered or certified mail addressed to the party to be
served at the address to which notices are to be sent pursuant to paragraph 7.1
hereof.
7.4 This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same agreement.
IN WITNESS WHEREOF, Congress and the Participants have executed this
Agreement this 17th day of September, 1997.
CONGRESS FINANCIAL CORPORATION
By: /s/
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Name:
Title:
/s/
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Robert M. Rubin
/s/
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Jay M. Kaplowitz
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