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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 2, 1997
INTERNATIONAL CUTLERY, LTD.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-26874 13-3796781
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
Number)
127 WEST 25TH STREET, NEW YORK, NEW YORK 10001
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 924-7300
N/A
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(Former Name or Former Address, if Changed Since Last Report)
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Item 1. Changes in Control of Registrant
A. On October 2, 1997, Joel J. Silver, Chairman of the Board of
Directors and President of International Cutlery, Ltd. (the "Company"),
exercised certain conversion rights under the $250,000 8% Convertible
Promissory Note due May 1, 2000 (the "Note"). The Note was issued to Mr.
Silver as consideration for relinquishing a $250,000 line of credit from Mr.
Silver to the Company payable upon thirty days' notice of demand. The Company
received the line of credit from Mr. Silver in April 1997 to meet the
Company's working capital needs.
The Note provided that Mr. Silver may convert the Note into the
Company's Common Stock at a 50% discount to the market price of the Common
Stock. Upon exercising the conversion right, Mr. Silver received 6,250,000
shares of Common Stock which he gifted to Esther S. Silver, his wife
(3,125,000 shares), Caryn N. Silver, his daughter and an officer and director
of the Company (1,562,500 shares), and Lawrence N. Silver, his son and an
officer and director of the Company (1,562,500 shares). Joel J. Silver
however has voting control over the 6,250,000 shares under agreements with
each of the aforementioned individuals. Joel J. Silver is beneficial owner of
68% of the outstanding Common Stock of the Company. No interest or principal
remains due on the Note. The Company does not anticipate any change in its
management as a result of the change in control.
B. On October 6, 1997, the Company issued a Senior Secured Convertible
Promissory Note (the "Sharp Note") to Sharp of Florida, Inc. ("Sharp") for a
line of credit of up to $1.3 million. The Sharp Note is secured by the assets
of the Company and a pledge of the shares of Common Stock beneficially owned
by Joel J. Silver, Esther S. Silver, Caryn N. Silver and Lawrence N. Silver
(the "Silvers"). The Sharp Note bears interest at 7% per annum. Interest is
due in quarterly installments and the principal amount is due on July 31,
2001. The Sharp Note contains a conversion feature whereby Sharp may convert
the principal amount due on the Sharp Note so that the Company will issue
such number of shares of the Company's Common Stock equal to 60% of the
outstanding shares of the Company's Common Stock on a fully diluted basis,
excluding the Class A Common Stock Purchase Warrants and the Class B Common
Stock Purchase Warrants (collectively the "Public Warrants"). If shares of
the Company's Common Stock are issued upon exercise of the Public Warrants
after conversion of the Sharp Note, the Silvers have agreed to transfer shares
owned by them to Sharp so that Sharp will own 60% of the Company's outstanding
Common Stock.
As a result of the issuance of shares described in (A) above, the
exercise price per share and the number of shares issuable upon exercise of
the Public Warrants shall be adjusted as provided in the Warrant Agreement.
Item 7 Exhibits
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The following exhibits are filed herewith:
10.1 Senior Secured Convertible Promissory Note dated October 6, 1997
issued by International Cutlery, Ltd. to Sharp of Florida, Inc.
10.2 Stock Pledge Agreement dated October 6, 1997, between International
Cutlery, Ltd., Joel J. Silver, Esther S. Silver, Caryn N. Silver,
Lawrence N. Silver and Sharp of Florida, Inc.
10.3 Security Agreement dated October 6, 1997, between International
Cutlery, Ltd. and Sharp of Florida, Inc.
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.
INTERNATIONAL CUTLERY, LTD.
By: /s/ Joel J. Silver
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Joel J. Silver,
President and Chairman of the Board
Dated: October 17, 1997
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Exhibit Index
10.1 Senior Secured Convertible Promissory Note dated October 6, 1997
issued by International Cutlery, Ltd. to Sharp of Florida, Inc.
10.2 Stock Pledge Agreement dated October 6, 1997, between International
Cutlery, Ltd., Joel J. Silver, Esther S. Silver, Caryn N. Silver,
Lawrence N. Silver and Sharp of Florida, Inc.
10.3 Security Agreement dated October 6, 1997, between International
Cutlery, Ltd. and Sharp of Florida, Inc.
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EXHIBIT 10.1
THIS PROMISSORY NOTE AND THE SHARES ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND NEITHER THIS NOTE, SUCH SHARES, NOR ANY INTEREST THEREIN
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) THE DEBTOR RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE OR SUCH SHARES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
DEBTOR, THAT THIS NOTE OR SUCH SHARES MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
$1,300,000.00 Dated: October 6, 1997
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL CUTLERY, LTD., a
Delaware corporation ("Debtor"), promises to pay to the order of Sharp of
Florida, Inc., a New York corporation ("Creditor"), at 3 Southwest 129th Avenue,
Pembroke Pines, Florida 33027, or at such other place or places as the holder of
this Promissory Note ("Note") from time to time may designate in writing the
principal sum of One Million Three Hundred Thousand and 00/100 Dollars
($1,300,000.00) (the "Debt"), on the Maturity Date (as defined below), and to
pay interest on the unpaid principal balance hereof at the rate of 7% per annum
(calculated on the basis of a 360-day year constituting of twelve 30-day months)
on the last day of each October, January, April and July of each year commencing
October 31, 1997 and on the Maturity Date (each such date being an "Interest
Payment Date") all as hereinafter further provided.
In no event shall any interest to be paid hereunder exceed the maximum rate
permitted by law. In any such event, this note shall automatically be deemed
amended to permit interest charges at an amount equal to, but no greater than,
the maximum rate permitted by law.
1. PAYMENTS.
(a) PRINCIPAL. The principal amount of the Debt shall be paid on
July 31, 2001 (the "Maturity Date"), on which date the entire
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outstanding principal balance of the Debt, and all other sums owing
hereunder, together with any unpaid interest accrued thereon, shall be due
and payable in full.
(b) INTEREST.
(i) Interest on this Note shall accrue from the date of each
advance hereunder (of which $600,000 has been advanced through and
including the date of this Note) to but excluding the next Interest
Payment Date and shall be payable in arrears on each Interest Payment
Date thereafter.
(ii) If any Interest Payment Date or the Maturity Date should
fall on a day that is not a Business Day (as defined below), the
payment due on such Interest Payment Date or Maturity Date will be
made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date or the Maturity Date,
as the case may be. "Business Day" means any day which is not a
Saturday or Sunday and is not a day on which banking institutions are
generally authorized or obligated to close in the City of New York,
New York.
(c) Debtor may, at its option upon 30 days' prior written notice to
creditor, prepay all, but not less than all, of the principal of this Note,
without payment of any premium or penalty. All payments on this Note shall
be applied first to accrued interest hereon and the balance to the payment
of principal hereof.
(d) Payments of principal and interest on this Note shall be made by
check sent to Creditor's address set forth above or to such other address
as Creditor may designate for such purpose from time to time by written
notice to the Debtor, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
(e) The obligation to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, setoff,
counterclaim, rescission, recoupment or adjustment whatsoever. Debtor
hereby expressly waives demand and presentment for payment, notice of
nonpayment, notice of dishonor, protest, notice of protest, bringing of
suit and diligence in taking any action to collect any amount called for
hereunder, and shall be directly and primarily liable for the payment of
all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission with respect to the collection of any
amount called for hereunder.
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2. SENIOR STATUS OF DEBT; COLLATERAL. Debtor agrees that the Debt and
all rights of Creditor under this Note and the Security Agreement (as defined
herein), including, without limitation, the right to payment of principal and
interest, shall be senior in all respects to any indebtedness or obligations of
Debtor, whether now or hereafter due, except as set forth in Schedule 3(l)
hereto. The Debt is secured by certain collateral (the "Collateral") described
in that certain Security Agreement (the "Security Agreement') by and between
Debtor and Creditor of even date herewith. This Note and the Security Agreement
are sometimes collectively referred to herein as the "Loan Documents."
3. REPRESENTATIONS AND WARRANTIES. In order to induce Creditor to accept
this Note, Debtor represents and warrants as follows:
(a) DUE INCORPORATION, ETC. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all requisite corporate power and authority under such
laws to own or lease and operate its properties and to carry on its business as
now conducted and as proposed to be conducted. Debtor is duly qualified or
licensed to do business as a foreign corporation in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed, except to the extent that the
failure to so qualify or be in good standing would not have a material adverse
effect on the business, operations, properties, prospects or condition
(financial or otherwise) of Debtor.
(b) AUTHORITY, EXECUTION, DELIVERY AND ENFORCEABILITY. Debtor has
full corporate power and authority to enter into, deliver and perform its
obligations under the Loan Documents and to consummate the transactions
contemplated hereunder, and has taken all necessary corporate action to
authorize the same. The Loan Documents constitute the legal, valid and binding
obligations of Debtor, enforceable against Debtor in accordance with their
terms.
(c) NO CONFLICTS. Neither the execution and delivery by Debtor of
the Loan Documents nor the performance by Debtor of its obligations thereunder,
nor the consummation by Debtor of the transactions contemplated thereby, will
(i) conflict with the certificate of incorporation or by-laws of Debtor or (ii)
except as set forth on Schedule 3(c), conflict with or result in a breach of, or
constitute a default under, or result in the creation or imposition of any lien
(other than the liens created pursuant to the Security Agreement) upon any of
Debtor's property or assets under (A) any lease, indenture, mortgage, deed of
trust or other loan instrument or agreement to which Debtor may be bound or to
which any of Debtor's property or assets may be subject or (B) any applicable
law, rule, regulation, judgment, order or decree of any governmental,
administrative or judicial authority or regulatory body having jurisdiction over
Debtor or any of Debtor's properties or assets.
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(d) NO CONSENTS. No order, license, consent, authorization or
approval of, or exemption by, or notice to or registration with, any federal,
state, municipal or other foreign or domestic governmental department,
commission, board, bureau, agency or other foreign or domestic governmental,
administrative or judicial authority or regulatory body, and no filing,
recording, publication or registration of any kind, is necessary in connection
with the execution, delivery and performance by Debtor of the Loan Documents or
the transactions contemplated thereby.
(e) FINANCIAL STATEMENTS.
(i) The audited financial statements of Debtor for the fiscal
years ended April 29, 1995 and April 27, 1996 and April 26, 1997, together
with the notes to such financial statements, copies of which have been
furnished to Creditor (the "Financial Statements"), fairly present the
financial condition and results of operations of Debtor for the periods
ended on such dates, all in accordance with GAAP (except, in the case of
the unaudited Financial Statements, for the omission of footnotes and
customary year-end adjustments).
(ii) The financial books and records, and the books of account,
stock records and other records of Debtor are complete and correct and have
been maintained in accordance with reasonable business practices.
(f) NO MATERIAL ADVERSE CHANGE. Except as set forth on Schedule
3(f), there has been no material adverse change in the business, operations,
properties, prospects or condition (financial or otherwise) of Debtor since
April 26, 1997.
(g) LITIGATION. Except as set forth on Schedule 3(g), there are no
pending or, to the knowledge of Debtor, threatened actions or proceedings
affecting Debtor, or any of its properties or assets that in the aggregate could
reasonably be expected to (i) materially adversely affect the business,
operations, properties, prospects or condition (financial or otherwise) of
Debtor, (ii) prohibit the performance by Debtor of its obligations hereunder or
(iii) affect the legality, validity, enforceability or binding nature of the
Loan Documents.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Debtor has no material
liabilities or obligations of any nature (whether accrued, absolute or
contingent), including but not limited to liabilities for taxes, that are
required to be disclosed under GAAP and are not reflected on, or reserved
against in, the Financial Statements except (a) as described in Schedule 3(h) or
(b) for liabilities
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or obligations incurred since April 26, 1997 in the ordinary course of business
and consistent with past practice.
(i) CONTRACTS; NO DEFAULT. Debtor is not in default in any manner,
under any lease, agreement or other instrument, that has any reasonable
likelihood of having a material adverse effect on Debtor's properties, assets,
operations, condition (financial or otherwise) or prospects, or the performance,
observance or fulfillment of any of the obligations, covenants, or conditions
contained in any lease, agreement or instrument (including the Loan Documents)
to which Debtor is a party.
(j) TAXES. Except as set forth on Schedule 3(j), Debtor has filed
all United States Federal income tax returns and all state tax returns which are
required to be filed by it and has paid all taxes due pursuant to such returns
or pursuant to any assessment received by Debtor, except such taxes which are
being contested in good faith and for which Debtor has made all necessary
reserves. The charges, accruals, and reserves on the books of Debtor in respect
of taxes and other governmental charges are adequate in the opinion of Debtor.
No tax lien has been filed, and to the knowledge of Debtor, no claim is being
asserted with respect to any such tax, assessment or other charge.
(k) LEGAL COMPLIANCE. Except as set forth on Schedule 3(k), Debtor
is in compliance with all applicable laws, rules, regulations and orders of, and
all applicable restrictions imposed by, all governmental authorities or bodies
in respect of the conduct of its business and the ownership or leasing of its
property, except such noncompliance as would not, in the aggregate, have any
reasonable likelihood of having a material adverse effect on Debtor's business,
properties, assets, operations, condition (financial or otherwise) or prospects.
(l) NO EXISTING LIENS. Except as set forth in Schedule 3(l) hereto,
the Collateral is free and clear of any liens, security interests or other
encumbrances other than those contemplated under the Loan Documents and includes
all tangible and intangible assets used by Debtor in the conduct of its
business. Except is set forth in Schedule 3(l) hereto, the Security Agreement
creates a valid, first priority lien upon and security interest in the
Collateral.
(m) ACCURACY AND COMPLETENESS OF INFORMATION. To the best of
Debtor's knowledge, all information, reports and other papers and data with
respect to the Debtor furnished to Creditor were, at the time the same were
furnished, complete and correct in all material respects, or have been
subsequently supplemented by other information, reports or other papers or data,
to the extent necessary to give creditor a true and accurate knowledge of the
subject matter thereof in all material respects. No fact is known to Debtor
which materially and adversely affects or in the future may (so far as Debtor
can reasonably foresee) materially and adversely affect the business, assets or
liabilities, financial
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condition, results of operations or business prospects of the Debtor which has
not been set forth in the Financial Statements or in such written information,
reports, papers and data or otherwise disclosed in writing to Creditor prior to
the date hereof. No document furnished or statement made in writing to the
Creditor by the Debtor in connection with the negotiation, preparation or
execution of the Loan Documents contains any untrue statement of a material
fact, or omits to state any such material fact necessary in order to make the
statements contained therein not misleading, in either case which has not been
corrected, supplemented or remedied by subsequent documents furnished or
statements made in writing to Creditor.
4. COVENANTS
4.1 AFFIRMATIVE COVENANTS OF DEBTOR.
For so long as any part of the Debt remains outstanding, Debtor
covenants and agrees with the Creditor as follows:
(a) ACCOUNTING SYSTEM. Debtor shall maintain its financial records
in accordance with GAAP.
(b) PERIODIC REPORTS. Debtor shall provide:
(i) within ninety (90) days after the end of each fiscal
year of Debtor a balance sheet of Debtor as of the end of such fiscal year
and the related statements of operations, shareholders' equity and cash
flows for the fiscal year then ended, prepared in accordance with GAAP and
certified by a firm of independent public accountants of recognized
standing;
(ii) within thirty (30) days after the end of each month in
each fiscal year (other than the last month in each fiscal year) a balance
sheet of Debtor and the related statements of operations, shareholders'
equity and cash flows, unaudited but prepared in accordance with GAAP
(except for the omission of footnotes and customary year-end adjustments)
and certified by the Chief Financial Officer of Debtor, such balance sheet
to be as of the end of such month and such statements of operations and
shareholders' equity to be for such month and for the period from the
beginning of the fiscal year to the end of such month, in each case with
comparative statements for the prior fiscal year;
(iii) promptly following receipt by Debtor, each audit
response letter, accountant's management letter and other written report
submitted to Debtor by its independent public accountants or counsel in
connection with an annual or interim audit of the books of Debtor;
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(iv) promptly after the commencement thereof, notice of all
actions, suits, claims, proceedings, investigations and inquiries that
could materially adversely affect Debtor;
(v) promptly upon sending, making available or filing the
same, all press releases, reports, notices and financial statements that
Debtor sends or makes available to its stockholders or directors or files
with the Securities and Exchange Commission; and
(vi) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations,
property or affairs of Debtor as Creditor reasonably may request.
(c) CERTIFICATES OF COMPLIANCE. Within forty-five (45) days of the
end of each fiscal quarter and within ninety (90) days of the end of each year,
and concurrent with any request by Debtor for an advance of funds hereunder,
Debtor shall furnish to Creditor a certificate of the Chief Executive Officer or
the Chief Financial Officer of Debtor stating that, to such officer's best
knowledge, Debtor is not in default (with or without notice or lapse of time or
both) under any material agreements or obligations, including the Loan
Documents, nor has Debtor breached in any material respect any such agreements
or obligations, or if any such default or breach exists, specifying in detail
the nature and period of existence thereof and what actions Debtor has taken and
proposes to take with respect thereto. Debtor covenants that promptly after the
occurrence of any default (with or without notice or lapse of time or both) by
Debtor under, or breach of, the Loan Documents or any other material agreement
or obligation, it shall deliver to Creditor a certificate of an officer of
Debtor specifying in detail the nature and period of existence thereof and what
actions Debtor has taken and proposes to take with respect thereto.
(d) OTHER REPORTS AND INSPECTION. Debtor shall, upon reasonable
prior notice, make available to Creditor or its representatives or designees all
properties, assets, books of accounts, corporate records, leases and contracts
of Debtor reasonably requested by Creditor, and any other material reasonably
requested by Creditor, for inspection and shall use its best efforts to make
available to Creditor, the directors, officers, employees, customers, and
independent accountants and vendors of Debtor for interviews at reasonable times
to verify all information furnished and otherwise to become familiar with Debtor
and its business, operations, properties and assets.
(e) INSURANCE. Debtor shall maintain valid policies of workers'
compensation, fire and casualty, liability and other forms of insurance with
financially sound and reputable insurers in such amounts, with such deductibles
and against such risks and losses as are reasonable for the business
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and assets of Debtor and Debtor shall maintain such other insurance as may be
required by law. The activities and operations of Debtor shall be conducted in
a manner so as to conform in all material respects to all applicable provisions
of such insurance policies.
(f) BUSINESS AND PROPERTIES. Debtor shall obtain, preserve, renew
and keep in full force and effect all authorizations, licenses, permits,
easements, variances, consents, certificates, approvals and orders and all other
rights, copyrights, trademarks, trade names and other authorizations from
governmental authorities utilized by Debtor which shall be necessary in any
material respect to the conduct of its business (collectively, the "Company
Permits"), unless such Company Permits are not in full force and effect and such
is contested diligently and in good faith by Debtor. Debtor shall preserve all
property material to the conduct of its business and keep such property in good
repair, working order and condition and from time to time make, or cause to be
made, all needful and proper repairs, renewals, additions, improvements and
replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times.
(g) MATERIAL CHANGES. Debtor shall promptly notify Creditor of (i)
any material adverse effect involving Debtor, and (ii) any material lawsuit,
claim, proceeding or investigation pending or, to the best knowledge of Debtor,
threatened, or any material judgment, order or decree involving Debtor.
(h) COMPLIANCE WITH APPLICABLE LAWS. Debtor shall comply in all
material respects with all applicable statutes, laws, ordinances, rules and
regulations of any governmental authority (whether now in effect or hereafter
enacted) and any filing requirements relating thereto. Such obligation shall
include complying in all material respects with the applicable provisions of
ERISA and filing in a timely manner (within any applicable extension periods)
all returns, reports, and forms required to be filed under the Internal Revenue
Code or under applicable state, local or foreign laws relating to taxes and
timely paying in full all taxes required to be paid in respect of the periods
covered by such returns, reports and forms, except to the extent such statutes,
laws, ordinances, rules, regulations or filing requirements are being contested
diligently and in good faith by Debtor (or, in the case of taxes, adequate
reserves for payment thereof have been set up and if Debtor receives an
assessment for additional taxes from any taxing authority, such taxes are being
contested diligently and in good faith). Debtor shall do all things necessary
to preserve, renew and keep in full force and effect and in good standing its
corporate existence and authority necessary to continue its business.
(i) TANGIBLE NET WORTH. At all times during the term of this Note,
Debtor shall maintain a positive Tangible Net Worth (as defined in Section 17
hereof).
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4.2 NEGATIVE COVENANTS OF DEBTOR.
For so long as any part of the Debt remains outstanding, Debtor
covenants and agrees with the Creditor as follows:
(a) LIQUIDATION. Debtor shall not voluntarily dissolve, liquidate or
wind up or carry out any partial liquidation or cause any such dissolution,
partial or complete liquidation, winding up or similar transaction involving
Debtor without the prior written consent of Creditor.
(b) PURCHASE OF CAPITAL STOCK. Debtor shall not purchase, redeem or
otherwise acquire for value any capital stock or any other security, or any
warrants, options or rights to acquire same, of Debtor or enter into any
agreement, understanding or arrangement with respect to the foregoing without
the prior written consent of Creditor.
(c) AMENDMENTS. Debtor shall not amend, repeal or change any of
the provisions of the Certificate of Incorporation or By-Laws of Debtor in any
manner adverse to Creditor without the prior written consent of Creditor.
(d) LINE OF BUSINESS. Debtor shall not enter into any line of
business that is not related to the operation of retail cutlery stores and
kiosks without the prior written consent of Creditor.
(e) TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Note or approved in writing by Creditor, Debtor shall not
enter into any transaction (including, without limitation, the payment of any
salary or other compensation or the grant of any stock options or warrants or
other rights to purchase capital stock of Debtor) with any director, officer,
employee or holder of more than 5% of the outstanding capital stock of any class
or series of capital stock of Debtor, or any member of the family of any such
person, or any corporation, partnership, trust or other entity in which any such
person, or member of the family of any such person, is a director, officer,
trustee, partner or holder of more than 5% of the outstanding capital stock
thereof, except for (A) transactions on customary terms related to such person's
employment or (B) bona-fide arms length transactions.
(f) INCURRENCE OF INDEBTEDNESS. Debtor shall not incur any
Indebtedness without the prior written consent of Creditor.
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(g) INVESTMENTS, LOANS AND ADVANCES. Debtor shall not make any
advances or loans to, or investments (by way of transfers of property,
contributions to capital, acquisitions of stock, securities or evidences of
indebtedness or otherwise), in any other Person (as defined in Section 17)
without the prior written consent of Creditor, except that Debtor may acquire
and hold (i) securities issued or directly and fully guaranteed or insured by
the government of the United States or any agency or instrumentality thereof
having maturities of not more than three (3) months from the date of
acquisition, (ii) time deposits and certificates of deposit of any domestic
commercial bank having capital and surplus in excess of $500,000,000 (an
"Eligible Institution") and having maturities of not more than three (3) months
from the date of acquisition, (iii) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(i) and (ii) above, entered into with an Eligible Institution, and (iv)
commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Corporation or P-1 or the equivalent thereof by Moody's Investors Service, Inc.,
and maturing within three (3) months from the date of acquisition.
(h) DIVIDENDS, PREPAYMENTS, ETC. Debtor shall not directly or
indirectly (i) declare, pay or make any dividend or other distribution on any
shares of its capital stock or (ii) redeem, repurchase or otherwise acquire for
value, prior to its scheduled maturity (without regard to any right Debtor may
have to extend the maturity date), Indebtedness of Debtor.
(i) LIENS. Except for Liens created by the Loan Documents, Debtor
shall not create, incur, assume or suffer to exist, any Lien of any kind upon or
with respect to any of its properties or assets whether now owned or hereafter
acquired.
(j) LIMITATION ON DISPOSAL OF ASSETS. Debtor shall not convey, sell,
lease, assign, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, receivables and leasehold interests)
whether now owned or hereafter acquired, except in the ordinary course of
business and consistent with past practices.
5. EVENTS OF DEFAULT. The entire unpaid principal balance of the Debt,
together with all unpaid interest accrued thereon and all other sums owing under
this Note, shall at the option of Creditor become immediately due and payable
without notice or demand upon the occurrence of any one or more of the following
events ("Events of Default"), regardless of the cause thereof and whether within
or beyond the control of Debtor:
(a) The failure of Debtor to pay any sum when due under this Note;
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(b) If any representation, warranty, affidavit, report, certificate
or statement made or delivered to Creditor by Debtor or on Debtor's behalf from
time to time in connection with the Debt (whether or not included in the Loan
Documents) shall prove false, incorrect or misleading in any material respect;
(c) The failure of Debtor to observe or perform any covenant or
agreement under the Loan Documents and such failure is not remedied or waived
within fifteen (15) business days after receipt by Debtor of notice by Creditor
of such failure;
(d) The cessation or liquidation of Debtor's business;
(e) If Debtor shall default in the payment of, or if any default or
event of default shall occur under, any indebtedness for borrowed money over One
Hundred Thousand Dollars ($100,000.00) (whether direct or contingent and whether
matured or accelerated), currently in effect or hereinafter created, to any
Person whomsoever;
(f) The express repudiation by Debtor of any of its obligations under
the Loan Documents, or any of them, or any written declaration by Debtor of its
intention not to perform any such obligations as and when the same become due;
(g) The issuance of any levy, attachment, charging order, garnishment
or other process against all or any substantial part of Debtor's property;
(h) If the Debtor shall (i) apply for or consent to the appointment
of a receiver, trustee in bankruptcy, or liquidator for itself or any of its
property; (ii) admit in writing its inability to pay its debts as they mature or
generally fail to pay such debts as they mature; (iii) make a general assignment
for the benefit of creditors; (iv) be adjudicated a bankrupt or insolvent; (v)
file a voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors, or seeking to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute or submit an answer admitting an act of bankruptcy
alleged in a petition filed against it in any proceeding under any such law; or
(vi) take any corporate action for the purpose of effecting any of the
foregoing;
(i) If an order, judgment or decree shall be entered against Debtor
without its application, approval or consent, by any court of competent
jurisdiction, approving a petition seeking the reorganization of Debtor or
appointing a receiver, trustee or liquidator of Debtor or of all or a
substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for a period of 45 consecutive days from the
date of entry thereof;
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(j) If Debtor shall have concealed, transferred, removed, or
permitted to be concealed or transferred or removed, any part of its property
with intent to hinder, delay or defraud any of its creditors; or if Debtor shall
have made or suffered a transfer of any of its property which may be invalid
under any bankruptcy, fraudulent conveyance, preference or similar law; or if
Debtor shall have made any transfer of its property to or for the benefit of any
creditor at a time when other creditors similarly situated have not been paid;
or
(k) If any governmental authority (or any person acting or purporting
to act under governmental authority) shall take any action to condemn, assume
custody or control of, seize or appropriate all or any substantial part of
Debtor's property or assets.
6. RIGHTS AND REMEDIES OF CREDITOR. Creditor shall be entitled to pursue
any and all rights and remedies provided by applicable law (including, the New
York Uniform Commercial Code) and/or under the terms of the Loan Documents or
any other agreement or instrument, all of which shall be cumulative and may be
exercised successively or concurrently. Creditor's delay in exercising or
failure to exercise any rights or remedies to which Creditor may be entitled if
any Event of Default occurs shall not constitute a waiver of any of Creditor's
rights or remedies with respect to that or any subsequent Event of Default,
whether of the same or a different nature, nor shall any single or partial
exercise of any right or remedy by Creditor preclude any other or further
exercise of that or any other right or remedy. No waiver of any right or remedy
by Creditor shall be effective unless made in writing and signed by Creditor,
nor shall any waiver on one occasion apply to any future occasion, but shall be
effective only with respect to the specific occasion addressed in that signed
writing.
7. DEFAULT RATE OF INTEREST. At Creditor's sole option the entire unpaid
principal balance of the Debt shall bear interest until paid at the "Default
Rate" (as herein defined) from and after the occurrence and during the
continuation of any Event of Default, regardless of whether Creditor also elects
to accelerate the maturity of the Debt; provided, however, that after judgment
all such sums shall bear interest at the greater of the Default Rate or the rate
prescribed by applicable law for judgments. At Creditor's sole option, all
interest which accrues at the Default Rate shall be due and payable on
Creditor's demand from time to time. The Default Rate shall equal the lesser of
(i) twenty five percent (25%) per annum or (ii) the maximum interest rate
permitted by applicable law, if any.
8. CONVERSION.
8.1 Creditor shall have the right (the "Conversion Right"), on the
Maturity Date or earlier prepayment date, on the terms set forth in this Section
8
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to convert all, but not less than all, of the outstanding principal balance of
this Note into a number of shares of Debtor's common stock (the "Common Stock")
as shall, at the time of and giving effect to such conversion, equal 60% of the
fully-diluted number of shares of Common Stock outstanding (after giving effect
to the exercise of all outstanding options, warrants and other rights to
purchase or acquire shares of Common Stock, but giving effect only to shares
actually purchased, prior to such conversion, pursuant to the exercise of
Debtor's presently outstanding Class A and Class B Redeemable Common Stock
Purchase Warrants). Concurrently herewith, Joel J. Silver, Esther S. Silver,
Caryn N. Silver and Lawrence N. Silver (collectively, the "Silvers") have
entered into a Pledge Agreement which provides that in the event the Conversion
Right is exercised prior to the exercise in full of all presently outstanding
Class A and Class B Redeemable Common Stock Purchase Warrants, the Silvers,
jointly and severally agree that they will, in the aggregate, immediately upon
any subsequent exercise of 1% or more of such Warrants, transfer to Creditor
such number of shares of Common Stock owned by them, or any of them, as may be
necessary to constitute Creditor the owner of 60% of the number of shares of
Common Stock outstanding after each such subsequent exercise of such Warrants.
8.2 To exercise the Conversion Right, Creditor, on or before the Maturity
Date or earlier prepayment date, shall deliver to Debtor, at its office at 127
West 25th Street, New York, New York 10011, or at such other place as is
designated in writing by Debtor, a notice (the "Conversion Notice") stating that
Creditor is exercising the Conversion Right and the name or names in which
Creditor wishes the certificates for shares of Common Stock to be issued. The
Conversion Notice, once given, shall be irrevocable.
8.3 Upon exercise of the Conversion Right, Creditor shall be deemed to be
the holder of record of the shares of Common Stock issuable upon such exercise
(the "Conversion Shares"), notwithstanding that the transfer books of Debtor
shall then be closed or certificates representing such Conversion Shares shall
not then have been actually delivered to Creditor. As soon as practicable after
exercise of the Conversion Right, Debtor shall issue and deliver to Creditor a
certificate or certificates for the Conversion Shares issuable upon the exercise
registered in the name of Creditor or its designees; provided that the Debtor,
by notice given to Creditor promptly after receipt of the Conversion Notice, may
require Creditor, as a condition to the delivery of such certificate or
certificates, to surrender this Note to Debtor. In the event the Conversion
Right is exercised, all accrued and unpaid interest up to the date of conversion
shall be paid on such date.
8.4 The issuance of any shares upon the exercise of the Conversion Right,
and the delivery of certificates representing such shares, shall be made without
charge to Creditor for any tax (other than income taxes, if any) or other charge
in respect of such issuance. Debtor shall not, however, be required to pay
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any tax which may be payable in respect of any transfer involved in the issue
and delivery of any certificate in the name other than that of Creditor and
Debtor shall not be required to issue or deliver any such certificate unless and
until the person or persons requesting the issue thereof shall have paid to
Debtor the amount of such tax or shall have established to the satisfaction of
Debtor that such tax has been paid.
8.5 Creditor shall not have, solely on account of its Conversion Right,
any rights of a stockholder of Debtor, either at law or in equity, or any right
to any notice of meetings of stockholders or of any other proceedings of Debtor
except as provided in this Note.
8.6 Debtor shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Conversion Right, such number of shares of Common Stock as
shall, from time to time be sufficient for the exercise of the Conversion Right
in full. Debtor covenants that all shares of Common Stock issuable upon
exercise of the Conversion Right shall be validly issued, fully paid,
nonassessable, and free of preemptive rights.
9. ADVANCE OF FUNDS; CONDITIONS TO FUNDING.
9.1 CONDITIONS PRECEDENT. As conditions precedent to the making of
advances hereunder, Debtor shall satisfy the following conditions to Creditor's
satisfaction (any of which may be waived or deferred upon written consent of
Creditor):
(a) Debtor shall have performed and complied in all material respects
with all of the covenants, agreements, obligations and conditions required in
the Loan Documents;
(b) Creditor shall have received an opinion of Debtor's counsel in
form and substance and as to such matters as Creditor shall reasonably require;
(c) Debtor's representations and warranties made unto Creditor
concurrently herewith continue to be true as of the date of each advance
hereunder; and
(d) Creditor shall have received a Certificate of Compliance as
provided in Section 4.1(c) hereof.
9.2 ADVANCE OF FUNDS. All advances made by Creditor hereunder shall be
made payable to Debtor. Subject to the conditions precedent set forth in
Section 9.1 herein, Debtor may draw down, as and when necessary and consistent
with (and provided Debtor has met) the cash flow projections furnished to
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Creditor by Debtor, advances from Creditor up to the aggregate principal amount
of this Note.
10. WAIVER AND CONSENT. To the fullest extent permitted by law, Debtor
hereby: (a) waives demand (except as expressly provided herein), presentment,
protest, notice of dishonor, suit against or joinder of any other person, and
all other requirements necessary to charge or hold Debtor liable with respect to
the Debt; (b) waives any right to immunity from any such action or proceeding
and waives any immunity or exemption of any property, wherever located, from
garnishment, levy, execution, seizure or attachment prior to or in execution of
judgment, or sale under execution or other process for the collection of loans;
(c) waives any right to interpose any set-off or counterclaim or to plead any
statute of limitations as a defense in any such action or proceeding, and waives
all statutory provisions and requirements for the benefit of Debtor, now or
hereafter in force; (d) submits to the jurisdiction of the state and federal
courts in the state of New York for purposes of any such action or proceeding;
and (e) agrees that the venue of any such action or proceeding may be laid in
New York County, New York and waives any claim that the same is an inconvenient
forum. No provision of this Note shall limit Creditor's right to serve legal
process in any manner permitted by law or to bring any such action or proceeding
in any other competent jurisdiction. Until Creditor receives all sums due under
this Note in immediately available funds, Debtor shall not be released from
liability with respect to the Debt unless Creditor expressly releases Debtor in
a writing signed by Creditor.
11. COSTS, INDEMNITIES AND EXPENSES. Debtor agrees to pay all filing fees
and similar charges and all costs reasonably incurred by Creditor in collecting
or securing or attempting to collect or secure the Debt, including attorneys'
fees, whether or not involving litigation and/or appellate, administrative or
bankruptcy proceedings. Debtor agrees to pay any documentary stamp taxes which
may now or hereafter apply to the Loan Documents or any payment made in respect
of this Debt, and the Debtor agrees to indemnify and hold Creditor harmless from
and against any liability, costs, attorneys' fees, penalties, interest or
expenses relating to any such taxes, as and when the same may be incurred.
12. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
All of the representations, warranties, covenants and agreements of Debtor
contained in the Loan Documents shall survive until the Debt, and all interest
and other sums owed hereunder, shall have been paid in full; provided, however,
that all agreements and covenants provided in the Loan Documents shall survive
the payment of the Debt and continue to bind Debtor until such covenants and
agreements have been observed and performed in full.
13. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
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14. INDEMNIFICATION. Debtor agrees to indemnify Creditor and hold
Creditor harmless from and against any and all liabilities, loss, damage, costs
and expenses of any kind (including, without limitation, the reasonable fees and
disbursements of counsel for Creditor and time charges and disbursements of
attorneys who may be employees of Creditor in connection with any investigative,
administrative or judicial proceeding, whether or not Creditor is a party
thereto) which may be imposed on, incurred by or asserted against creditor by
third parties relating to or arising out of the Loan Documents; provided,
however, that Debtor shall have no obligation to Creditor hereunder with respect
to such liabilities, loss, damage, costs and expenses arising from the gross
negligence or willful misconduct of Creditor as determined by a court of
competent jurisdiction.
15. SEVERABILITY. Any provision of this Note which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction only, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
16. INTERPRETATION. The term "Creditor" shall be deemed to include any
subsequent holder(s) of this Note. Whenever used in this Note, words in the
singular include the plural, words in the plural include the singular, and
pronouns of any gender include the other gender, all as may be appropriate.
Captions and paragraph headings in this Note are for convenience of reference
only and shall not affect its interpretation.
17. DEFINITIONS. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the financial statements
referred to in Section 3 and all financial data submitted pursuant to this Note
shall be prepared in accordance with such principles. As used in this note, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "CAPITAL LEASE OBLIGATION" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
real or personal property that is required to be classified and accounted for as
a capital lease obligation under GAAP, and, for the purposes of this Note, the
amount of such obligation at any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.
(b) "GAAP" shall mean generally accepted accounting principles
consistently applied.
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(c) "GUARANTEED DEBT" of any Person means without duplication of
amounts, all Indebtedness of any other Person of the type referred to in clause
(i), (ii), (iii) or (iv) of the definition of Indebtedness guaranteed directly
or indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, (iii) to supply funds to the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a creditor
against loss.
(d) "INDEBTEDNESS" of any Person means (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services other than a trade payable or other current liability arising in the
ordinary course of business (including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
issued under letter of credit facilities, obligations accepted under bank
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any capital stock of such Person, or any warrants, rights or options to acquire
such capital stock, now or hereafter outstanding), (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (iv)
all Capital Lease Obligations, but not operating lease obligations, of such
Person, (v) all indebtedness of any Person referred to in clause (i), (ii),
(iii) or (iv) above secured by (or for which the holder of such indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such indebtedness, (vi) all capital stock which is redeemable
mandatorily or at the option of the holder, (vii) all Guaranteed Debt, and
(viii) any amendment, supplement, modification, deferral, renewal, extension or
refunding of any liability of the types referred to in clauses (i) though (viii)
above.
(e) "LIEN" means any lien, charge, claim, mortgage, security
interest, preferential arrangement or other encumbrance of any kind.
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(f) "NET WORTH" shall mean, at a particular date, all amounts which
would be included under shareholders' equity on Debtor's balance sheet
determined in accordance with GAAP as at such date.
(g) "PERSON" shall mean an individual, a partnership, a corporation,
a limited liability company, a business trust, a joint stock company, a trust,
an unincorporated association, a joint venture, a governmental or regulatory
body, authority or agency or other entity of whatever nature.
(h) "TANGIBLE NET WORTH" shall mean an amount equal to net worth
MINUS the aggregate amount of all assets of Debtor as may properly be classified
as intangible assets in accordance with GAAP.
18. MISCELLANEOUS. Time shall be of the essence with respect to the terms
of this Note. This Note cannot be changed or modified orally. Except as
otherwise required by law or by the provisions of this Note, payments received
by Creditor hereunder shall be applied first against expenses and indemnities,
next against interest accrued on the Debt, and next in reduction of the
outstanding principal balance of the debt, except that during the continuance
hereunder of any Event of Default, Creditor may apply such payments in any order
of priority determined by Creditor in its exclusive judgment. Except as
otherwise required by the provisions of this Note, any notice required to be
given to Debtor shall be deemed sufficient if made personally or by telecopier,
or if mailed, postage prepaid, return receipt requested, to Debtor's address as
hereinabove set forth. Creditor may grant participation in all or any portion
of the Debt, and/or may transfer or assign this Note or any of Creditor's rights
hereunder in whole or in part to any Person whomsoever and may act on behalf of
or as the agent of any such Person in enforcing this Note. To the extent of
such transfer or assignment, such transferee or assignee shall have all the
rights of Creditor hereunder and Creditor shall be thereafter relieved from any
liability with respect to any portion of the Debt so assigned or transferred.
All of the terms of this Note shall inure to the benefit of Creditor and its
successors and assigns and shall be binding upon Debtor and its successors and
assigns.
19. EXECUTION. This Note is signed, sealed and delivered as of the date
first written above.
DEBTOR AND CREDITOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, OR ANY COURSE
OF CONDUCT, COURSE OF
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DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF DEBTOR AND
CREDITOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR CREDITOR TO ACCEPT THIS
NOTE.
DEBTOR:
INTERNATIONAL CUTLERY, LTD.
By: /s/ JOEL J. SILVER
-----------------------------
Joel J. Silver
Chairman and Chief Executive Officer
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EXHIBIT 10.2
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT (this "Agreement"), dated the 6th day of October,
1997, by and between JOEL J. SILVER ("J. Silver"), ESTHER S. SILVER ("E.
Silver"), CARYN N. SILVER ("C. Silver"), LAWRENCE N. SILVER ("L. Silver"),
having offices c/o International Cutlery, Ltd. 127 West 25th Street, New York,
New York 10011, and SHARP OF FLORIDA, INC., a New York corporation, having
offices at 3 Southwest 129th Avenue, Pembroke Pines, Florida 33027 (the
"Pledgee"). J. Silver, E. Silver, C. Silver and L. Silver are hereinafter
sometimes individually referred to as a "Pledgor" and collectively as the
"Pledgors").
W I T N E S S E T H:
WHEREAS, concurrently herewith, the Pledgee has provided to International
Cutlery, Ltd., a Delaware corporation (the "Debtor"), a $1,300,000 loan (the
"Loan") which is evidenced by Debtors 7% $1,300,000 senior secured convertible
promissory note due July 31, 2001 (the "Note"); and
WHEREAS, the Debtor has agreed to secure its obligations under the Note by
granting the Pledgee a first priority lien and security interest on
substantially all of the assets and properties of Debtor pursuant to the terms
and conditions of a security agreement, also dated of even date herewith (the
"Security Agreement"); and
WHEREAS, in order (a) to further secure the obligations of the Debtor under
the Note, and (b) to insure that the Pledgee shall have the right to convert the
Note into sixty (60%) percent of the "Fully-Diluted Debtor Equity" (as
hereinafter defined), the Pledgors have agreed, pursuant to this Agreement, to
pledge to the Pledgee all, and not less than all, of the shares of Common Stock
of the Debtor owned of record and beneficially by the Pledgors; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. DEFINITIONS.
In addition to those terms defined elsewhere in this Agreement, the
following terms shall have the following meanings wherever used in this
Agreement:
(a) "Common Stock" shall mean the shares of Common Stock of the
Debtor, $0.01 par value per share.
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(b) "Dilutive Securities" shall mean any options, warrants, notes,
debentures, preferred stock, subscriptions, rights, or other securities of the
Debtor, whether now existing or hereafter authorized, which are exercisable or
convertible into shares of Common Stock of the Debtor, except that with respect
to the presently outstanding Class A and/or Class B Redeemable Common Stock
Purchase Warrants of Debtor ("Warrants"), such term shall include only shares of
Common Stock issued upon exercise of such Warrants prior to conversion of the
Note.
(c) "Event of Default" shall mean and be limited to the occurrence
and continuance of an "Event of Default" under Section 5 of the Note.
(d) "Fully-Diluted Debtor Equity" shall mean the outstanding Common
Stock of the Debtor on a fully-diluted basis, after giving effect to the
exercise of Dilutive Securities or the conversion of all Dilutive Securities.
(e) "Noteholder" shall mean the Pledgee or any subsequent holder of
Note from time to time.
(f) "Obligations" shall collectively (i) mean the right of the
Noteholder to convert the Note into not less than sixty (60%) percent of the
Fully-Diluted Debtor Equity, and (ii) have the same meaning as the term "Loan
Obligations" as defined in the Security Agreement.
(g) "Satisfaction Date" shall mean that date on which all of the
Obligations have been paid or performed in full.
(h) "Shares" shall mean, collectively, the 6,926,692 shares of Common
Stock of the Debtor being delivered and pledged to the Pledgees concurrently
with the execution and delivery of this Agreement, and shall further include any
and all securities which may hereafter be issued upon or in respect of such
capital stock (whether in the form or by way of dividends, distributions,
recapitalizations or otherwise).
(i) "Debtor" shall mean International Cutlery, Ltd., a Delaware
corporation.
2. PLEDGE OF THE SHARES.
(a) As security for the due and timely payment of the Obligations,
the Pledgors hereby pledge to the Pledgee, and grants to the Pledgee a first
priority lien and security interest in, all of the Shares (as same are
constituted from time to time) until the Satisfaction Date.
(b) In furtherance of the pledge hereunder, the Pledgors are,
concurrently herewith, delivering to the Pledgee the certificates representing
all, and not less than all, of the Shares, each accompanied by appropriate
undated stock powers duly endorsed in blank by the Pledgor who is the record
owner of such Shares.
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3. TRANSFER OF SHARES TO PLEDGEE TO PRESERVE FULLY-DILUTED DEBTOR EQUITY.
In the event that at any time or from time to time subsequent to the
full conversion by Pledgee of its Note into shares of Common Stock of the
Debtor, there shall continue to remain issued and outstanding any Warrants, on
any one or more occasions that the holders of such Warrants shall be entitled
receive additional shares of Debtor's Common Stock by reason of the exercise of
any such Warrants, the Pledgee shall have the corresponding right, without prior
notice or approval of the Pledgors, to transfer into the name of the Pledgee or
any nominee of the Pledgee, such additional number of shares of the Common Stock
of the Debtor as shall, when added to the number of shares of Debtor's Common
Stock issued to the Pledgee upon the full conversion of the Note into Debtor's
Common Stock, continue to represent sixty (60%) percent of the issued and
outstanding Fully Diluted Debtor Equity, after giving effect to the issuance of
any shares of Debtor Common Stock upon such exercise of Warrants.
4. RETENTION OF THE SHARES.
(a) Except as otherwise provided herein, the Pledgee shall have no
obligation with respect to the Shares or any other property held or received by
the Pledgee hereunder, except to use reasonable care in the custody and
preservation thereof, to the extent required by law.
(b) The Pledgee shall hold the Shares and any other property held or
received by the Pledgee hereunder in the form in which same are delivered
herewith, unless and until there shall occur and be continuing an Event of
Default, or until the Satisfaction Date.
5. RIGHTS OF THE PLEDGORS.
Throughout the term of this Agreement, so long as no Event of Default
has occurred and is continuing, the Pledgors shall have the right to vote the
Shares in all Debtor corporate matters, except as to matters or in a manner
inconsistent with the terms of the Securities Purchase Agreement or this
Agreement.
6. EVENT OF DEFAULT; POWER OF ATTORNEY.
(a) Upon the occurrence and during the continuance of any Event of
Default the Pledgee shall have the right (provided that the Pledgee has given
five (5) days' prior written notice of the subject Event of Default to the
Pledgor) to (i) vote the Shares in all Debtor corporate matters, (ii) receive
all dividends and distributions paid or declared in respect of the Shares
(subject to application thereof in the manner and priorities set forth in
Section 7(b) below), (iii) transfer all or any portion of the Shares (as
determined by the Pledgee in its discretion) on the books of the Debtor to and
in the name of the Pledgee or such other Person or Persons as the Pledgee may
designate in furtherance of any sale or other realization of value thereon, (iv)
effect any sale, transfer or disposition of all or any portion of the Shares and
in furtherance thereof, take possession of and endorse any and all checks,
drafts, bills of exchange, money orders or other documents and instruments
received on account of the Shares, (v) collect,
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sue for and give acquittance for any money due on account of any of the
foregoing, and (vi) take any and all other action contemplated by this
Agreement, or as otherwise permitted by law, or as the Pledgee may reasonably
deem necessary or appropriate, in order to accomplish the purposes of this
Agreement.
(b) In furtherance of the foregoing powers of the Pledgee, the
Pledgors hereby authorize and appoint the Pledgee, with full powers of
substitution, as the true and lawful attorney-in-fact of the Pledgors, in their
name, place and stead, to take any and all such action as the Pledgee, in its
sole discretion, may deem necessary or appropriate in furtherance of the
exercise of the aforesaid powers. Such power of attorney shall be coupled with
an interest, and shall be irrevocable until the Satisfaction Date.
(c) The foregoing rights and powers granted to the Pledgee, and the
foregoing power of attorney, shall be fully binding upon any Person who shall
acquire any beneficial interest in any of the Shares (other than a purchaser in
foreclosure from the Pledgee).
7. FORECLOSURE; SALE OF SHARES.
(a) Without limitation of Section 5 above, in the event that the
Pledgee shall make any sale or other disposition of any or all of the Shares
during the continuance of an Event of Default, the Pledgee may also:
(i) offer and sell all or any portion of the Shares by
means of a private placement restricting the offer or sale to a limited number
of prospective purchasers who meet such suitability standards as the Pledgee and
its counsel may deem appropriate, and who may be required to represent that they
are purchasing Shares for investment and not with a view to distribution;
(ii) purchase all or any portion of the Shares for the
Pledgee's own account at a price not less than the highest BONA FIDE offer
received therefor, which if effected in a manner in compliance with applicable
law, shall be deemed to be a commercially reasonable disposition of the subject
Shares; and
(iii) sell any or all of the Shares upon credit or for future
delivery, without being in any way liable for failure of the purchaser to pay
for the subject Shares.
(b) Any and all net proceeds of any sale or other disposition of any
Shares shall be applied (i) first, to the reasonable costs and expenses of the
sale or other disposition, (ii) next, to the Pledgee, for application to the
Note, and (iii) next, to the Pledgors or as may otherwise be directed by a court
of competent jurisdiction.
(c) Upon any sale or any of the Shares in accordance with this
Agreement, the Pledgee shall have the right to assign, transfer and deliver the
subject Shares to the purchaser(s) thereof, and each such purchaser shall be
entitled to hold such Shares absolutely free from any
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right or claim of the Pledgors and/or any other Person claiming any beneficial
interest in the Shares, including any equity of redemption (which right and all
other such rights are hereby waived by the Pledgors to the fullest extent
permitted by law).
8. COVENANTS, REPRESENTATIONS AND WARRANTIES.
In connection with the transactions contemplated by this Agreement, and
knowing that the Pledgee is and shall be relying hereon, each of the Pledgors
hereby severally (and not jointly and severally) covenants, represents and
warrants that:
(a) the Shares have been duly and validly issued, are fully paid and
non-assessable, and are owned by the Pledgors free and clear of any and all
restrictions, pledges, liens, encumbrances or other security interests of any
kind, save and except for the pledge to the Pledgee pursuant to this Agreement;
(b) there are and will be no options, warrants or other rights
created by the Pledgors in respect of the sale, transfer or other disposition of
any of the Shares, and the Pledgors has the absolute right to pledge the Shares
hereunder without the necessity of any consent of any Person;
(c) neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance with or
performance of this Agreement by the Pledgors, conflicts with or will result in
the breach or violation of or a default under the terms, conditions or
provisions of (i) any mortgage, security agreement, indenture, evidence of
indebtedness, loan or financing agreement, or other agreement or instrument to
which the Pledgors is a party or by which the Pledgors is bound, or (ii) any
provision of law, any order of any court or administrative agency, or any rule
or regulation applicable to the Pledgors;
(d) this Agreement has been duly executed and delivered by the
Pledgors, and constitutes the legal, valid and binding obligation of each of the
Pledgors, enforceable against the Pledgors in accordance with its terms;
(e) there are no actions, suits or proceedings pending or threatened
against or affecting the Pledgors that involve or relate to the Shares;
(f) the Pledgors shall not, at any time prior to the release of the
lien on the Shares in accordance with this Agreement, (i) sell, transfer or
convey any interest in any of the Shares, or (ii) suffer or permit any other
pledge, lien or encumbrance to be created upon or granted with respect to any of
the Shares;
(g) in the event that and at such time as there shall be distributed
or delivered any additional Shares within the definition thereof under paragraph
1(e) above, the Pledgors shall take such action as may be necessary in order
that such additional Shares, together with appropriate undated stock powers duly
endorsed in blank by the Pledgors, are promptly delivered to the Pledgee to be
held in pledge hereunder; and
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(h) from time to time hereafter, the Pledgors shall take any and all
such further action, and shall execute and deliver any and all such further
documents and/or instruments, as the Pledgee may request in order to accomplish
the purposes of this Agreement, in order to enable the Pledgee to exercise any
of its rights hereunder, and/or in order to secure more fully the Pledgee's
interest in the Shares.
9. RETURN OF THE SHARES.
Except to the extent that any of the Shares shall have been foreclosed upon
in accordance with this Agreement, the Pledgee shall release its lien hereunder
and return the Shares to and in the name of the Pledgors at the Satisfaction
Date.
10. PLEDGEE'S STANDARD OF CARE.
The Pledgee shall not incur any liability for any action taken by it,
except to the extent that same constitutes gross negligence or willful
misconduct by the Pledgee or its agents. The Pledgee shall be entitled to rely
upon and assume to be accurate all notices and advice given to the Pledgee
hereunder (absent specific knowledge to the contrary) and to rely upon any
document and/or signature believed by it in good faith to be genuine and
rendered by an authorized representative of the subject person. The Pledgee
shall look solely to the Pledgors (or, if available, to proceeds from the sale
or disposition of Shares in accordance herewith) for reimbursement of any
reasonable costs and expenses which the Pledgee may incur in acting hereunder.
The Pledgee may, notwithstanding its status as such hereunder, act as counsel
for any interested party (including any Noteholder); and the Pledgee may resign
at any time, provided that such resignation shall not become effective until a
substitute pledgee is appointed by mutual agreement of the Pledgors and the
Requisite Holders, and the Pledgee has delivered to its successor all
certificates, documents and/or funds then held by it thereunder.
11. MISCELLANEOUS.
(a) Any notices or consents required or permitted under this
Agreement shall be in writing and shall be deemed given when personally
delivered, when sent by recognized overnight courier service with all charges
prepaid or billed to the account of the sender, or when mailed by certified
mail, return receipt requested, with all charges prepaid, in each instance
addressed to the party being notified at his or its address first set forth
above. Either party may change its address for notices by means of written
notice given in accordance herewith, provided that same shall not be deemed to
have been given until actual receipt by the party being notified.
(b) The laws of the State of New York shall govern the construction
and enforcement of this Agreement and the rights and remedies of the parties
hereto. The parties hereby consent to the jurisdiction of all courts sitting in
the State of New York in connection with any action or proceeding under or
relating to this Agreement, and waive trial by jury in any such action or
proceeding.
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(c) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The Pledgors shall not, however, assign any of its rights or
obligations hereunder without the prior written consent of the Pledgee. Except
as otherwise referred to herein, this Agreement, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between the parties
relating to the specific subject matter hereof.
(d) Neither any course of dealing between the Pledgors and the
Pledgee nor any failure to exercise, or any delay in exercising, on the part of
the Pledgee, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege operate as a waiver of any other exercise of such right, power or
privilege or any other right, power or privilege.
(e) No change, amendment, modification, waiver, assignment of rights
or obligations, cancellation or discharge hereof, or of any part hereof, shall
be valid unless the Requisite Holders shall have consented thereto in writing.
(f) The captions and paragraph headings in this Agreement are for
convenience of reference only, and shall not in any way define, limit or
describe the construction, terms or provisions of this Agreement.
(g) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
[the balance of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the date first set forth above.
PLEDGORS:
/s/
-------------------------------
JOEL J. SILVER
/s/
-------------------------------
ESTHER S. SILVER
/s/
-------------------------------
CARYN N. SILVER
/s/
-------------------------------
LAWRENCE N. SILVER
[PLEDGEE]
SHARP OF FLORIDA, INC.
BY: /s/
---------------------------
ACCEPTED AND AGREED TO
BY THE DEBTOR:
INTERNATIONAL CUTLERY, LTD.
BY: /s/
------------------------------
PRESIDENT
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EXHIBIT 10.3
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), made this 6th day of October
1997, by and between INTERNATIONAL CUTLERY, LTD., a Delaware corporation (the
"Debtor"), having offices at 127 West 25th Street, New York, New York 10011, and
SHARP OF FLORIDA, INC., a New York corporation (the "Secured Party"), having
offices at 3 Southwest 129th Avenue, Pembroke Pines, Florida 33027.
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery hereof, the
Secured Party has provided the Debtor with a $1,300,000 loan (the "Loan"), and
the Debtor has evidenced such Loan by delivering to the Secured Party the
Debtors 7% $1,300,000 senior secured convertible promissory note, due July 31,
2001, payable to the order of Secured Party and dated of even date herewith (the
"Note"); and
WHEREAS, in order to induce the Secured Party to make the Loan evidenced
by the Note, the Debtor has agreed to grant to the Secured Party a first
priority lien and security interest in substantially all of the Debtor's assets
and properties, pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. DEFINITIONS.
(a) All terms used herein which are defined in Article 1 or Article
9 of the Uniform Commercial Code (the "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 the Secured Party and the Debtor pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective heirs, executors, administrators, personal
representatives, successors and permitted 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.
(b) In addition to those capitalized terms defined elsewhere in this
Agreement, the following terms shall have the following respective meanings
wherever used in this Agreement:
"Accounts" shall mean all present and future rights of the Debtor to
payment for goods sold or leased, for services rendered, or for loans or other
financial accommodations extended,
<PAGE>
whether or not evidenced by instruments or chattel paper, and whether or not
earned by performance.
"Collateral" shall have the meaning set forth in Section 2 below.
"Equipment" shall mean all of the Debtor'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.
"Event of Default" shall have the meaning ascribed thereto in Section 5
of the Note.
"Indebtedness" shall have the meaning ascribed thereto in the Note.
"Inventory" shall mean all of the Debtor'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.
"Loan Obligations" shall mean the collective reference to (a) all
principal, interest, collection costs, expenses and other amounts owing or
payable from time to time under the Note, (b) any additional or further amounts
which, pursuant to the Note, the Pledge Agreement and/or this Agreement, may be
deemed part of and/or added to the Loan Obligations, and (c) any other
Indebtedness not contemplated by clauses (a) or (b) above which may hereafter be
owed by the Debtor to the Secured Party; in each case, whether arising before or
after the commencement of any case with respect to the Debtor under the United
States Bankruptcy Code or any similar statute (including, without limitation,
the payment of interest and other amounts which would accrue and become due but
for the commencement of such case).
"Person" or "person" shall have the meaning ascribed thereto in the
Note.
"Records" shall mean all of the Debtor'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 the Debtor with respect to the
foregoing maintained with or by any other Person).
"Security Interests" shall mean the liens and security interests granted
by the Debtor to the Secured Party, and all rights and remedies in respect
thereof, pursuant to this Agreement.
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SECTION 2. THE SECURITY INTERESTS.
In order to secure the due and punctual payment and performance of all
Loan Obligations owing to the Secured Party from time to time, the Debtor hereby
grants to the Secured Party a continuing lien and security interest in, and
hereby assigns to the Secured Party as collateral security, the following
described property and interests of the Debtor, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
(a) all Accounts;
(b) all present and future contract rights, general
intangibles (including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks (excluding trademarks listed on Schedule 3(l)
of the Note, which trademarks, with the exception of "Cutlery World," are not
currently being used by Debtor), service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee (to the
extent that the granting of the Secured Party's lien and security interest
therein will not cause a termination of such licenses or result in the loss of
the benefits of such licenses to the Debtor), chooses in action and other claims
and existing and future leasehold interests in equipment, real estate and
fixtures, those intangibles set forth in SCHEDULE 1 annexed hereto, and the
right to sue for infringement and/or unauthorized use of any intangibles),
chattel paper, documents, instruments, letters of credit, bankers' acceptances
and guaranties;
(c) all present and future monies, securities, credit
balances, deposits, deposit accounts and other property of the Debtor now or
hereafter held or received by or in transit to the Secured Party or its
affiliates or at any other depository or other institution from or for the
account of the Secured Party, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts and other Collateral, including, without limitation, (i) rights and
remedies under or relating to guaranties, contracts of suretyship, letters of
credit and credit and other insurance related to the Collateral, (ii) rights of
stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (iii) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
(d) all Inventory;
(e) all Equipment;
(f) all interests of every kind and description held
or possessed by Debtor in any real property or improvements to real property,
including, without limitation, all fee ownership and/or leasehold interests (to
the extent not prohibited by or requiring consent under Debtor's leases) in real
property or improvements thereto;
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(g) all Records; and
(f) 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 3. FILING; FURTHER ASSURANCES.
The Debtor will, at its expense, execute, deliver, file and record (in
such manner and form as the Secured Party shall require), or permit the Secured
Party to file and record, (a) all financing statements, (b) all carbon,
photographic or other reproductions of financing statements or this Agreement
(which shall be sufficient as a financing statement hereunder), (c) all
endorsements to title to any vehicles or other Collateral as may be required in
order to perfect the Security Interests therein, and (d) all specific
assignments or other papers (including, without limitation, specific assignments
in respect of patents, patent applications, trademarks, trademark applications,
copyrights and copyright applications) that may be necessary or desirable, or
that the Secured Party may request, in order to create, preserve, perfect or
validate any Security Interest or to enable the Secured Party to exercise and
enforce its rights hereunder with respect to any of the Collateral. The Debtor
hereby appoints the Secured Party as the Debtor's attorney-in-fact to execute
and file, in the name and on behalf of the Debtor, such additional financing
statements as the Secured Party may request. In addition, in the event and to
the extent that any of Collateral consists of or is represented by instruments
or other evidences of ownership such as would require physical possession of
same in order to perfect the Security Interests therein, the Debtor will
promptly, at its expense, deliver same to the Secured Party, with any necessary
endorsements thereon.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE DEBTOR.
The Debtor hereby represents and warrants as follows:
(a) That the Debtor is the valid and lawful owner of all of the
Collateral, free from any and all adverse liens, security interests or
encumbrances.
(b) That the Debtor has full right, power and authority to
grant to the Secured Party the Security Interests pursuant to the terms of this
Agreement, and that the Security Interests do not conflict with any rights of
any other persons or any commitments of the Debtor to any other persons.
(c) That no financing statement covering any of the Collateral
is on file in any public office, other than (i) financing statements in respect
of any indebtedness which is being repaid out of the proceeds of the Loan (which
financing statements are being terminated and released simultaneously with the
funding of the Loan to the Debtor), and (ii) financing statements filed pursuant
to this Agreement.
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(d) That all additional information, representations and
warranties contained in EXHIBIT A annexed hereto and made a part hereof are
true, accurate and complete on the date hereof.
SECTION 5. COVENANTS OF THE DEBTOR.
The Debtor hereby covenants and agrees as follows:
(a) That the Debtor will defend the Collateral and the
Security Interests against all claims and demands of all persons at any time
claiming any adverse interest therein or thereagainst.
(b) That the Debtor will give written notice thereof to the
Secured Party at least thirty (30) days prior to (i) any change in the location
of the principal office of the Debtor or the office where the Debtor maintains
its books and records pertaining to the Accounts and/or any other Collateral,
(ii) any change in any of the information contained in EXHIBIT A annexed hereto,
and (iii) the movement or location of any Collateral to or at any address other
than as set forth in said EXHIBIT A.
(c) That the Debtor will promptly pay any and all taxes,
assessments and governmental charges upon the Collateral prior to the date that
penalties may attach thereto or same become a lien on any of the Collateral,
except to the extent that such taxes, assessments and charges shall be contested
by the Debtor in good faith and through appropriate proceedings.
(d) That the Debtor will immediately notify the Secured Party
of any event causing a material loss or diminution in the value of the
Collateral, and the amount (or the Debtor's best estimate of the amount) of such
loss or diminution.
(e) That the Debtor will at all times have and maintain
insurance with respect to all insurable Collateral in amounts and of types as
are customarily maintained by other companies of comparable size and type of
business, each of which insurance policies shall name the Secured Party as a
loss payee as its interests may appear. All policies of insurance shall provide
for a minimum of thirty (30) days' written notice to the Secured Party prior to
any cancellation, modification or non-renewal thereof. The Debtor shall, on the
date hereof and from time to time upon request hereafter, furnish the Secured
Party with certificates or other evidence satisfactory to the Secured Party of
compliance with the foregoing insurance provisions and the payment of all
required insurance premiums.
(f) That the Debtor will keep all of the Collateral free from
any and all adverse liens, security interests or encumbrances and in good order
and repair, reasonable wear and tear excepted, and will not waste or destroy the
Collateral or any part thereof.
(g) That the Debtor will not use any of the Collateral in
violation of any applicable law.
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SECTION 6. RECORDS RELATING TO COLLATERAL.
The Debtor will keep and maintain complete and accurate records
concerning the Collateral, including the Accounts and all chattel paper included
in the Accounts, at its principal executive office as set forth in EXHIBIT A
annexed hereto, or at such other place(s) of business as the Secured Party may
approve in writing. The Debtor will (a) faithfully hold and preserve such
records and chattel paper, (b) permit representatives of the Secured Party, at
any time during normal business hours, upon reasonable notice, and without undue
material disruption of the Debtor's business, to examine and inspect the
Collateral and to make copies and abstracts of such records and chattel paper,
and (c) furnish to the Secured Party such information and reports regarding the
Collateral as the Secured Party may from time to time reasonably request.
SECTION 7. COLLECTIONS WITH RESPECT TO ACCOUNTS.
The Debtor will, at its expense:
(a) endeavor to collect or cause to be collected from customers
and other Persons indebted on Accounts, as and when due, any and all amounts,
including interest, owing under or on account of each Account.
(b) take or cause to be taken such appropriate action to
repossess goods, the sale of which gave rise to any Account, or to enforce any
rights or liens under Accounts, as the Debtor or the Secured Party may deem
proper, and in the name of the Debtor or the Secured Party, as the Secured Party
may deem proper; PROVIDED, that (i) the Debtor will use its best judgment to
protect the interests of the Secured Party, and (ii) the Debtor shall not be
required under this Section 7 to take any action which would be contrary to any
applicable law. The Debtor shall, at the request of the Secured Party following
the occurrence and during the continuance of an Event of Default, notify the
account debtors of the Security Interests of the Secured Party in any of the
Accounts, and the Secured Party may itself at any such time so notify account
debtors. The Secured Party shall have full power at any time after such notice
to collect, compromise, endorse, sell or otherwise deal with any or all
outstanding Accounts or the proceeds thereof in the name of either the Secured
Party or the Debtor. In the event that, after notice to any account debtors
directing payments to the Secured Party, the Debtor receives any payment(s) on
any Account(s), such payment(s) shall be held by the Debtor in trust for the
Secured Party and immediately turned over to the Secured Party as aforesaid, for
application in accordance with Section 11 below.
SECTION 8. GENERAL AUTHORITY.
(a) In the event that the Secured Party shall at any time be
required to take action to defend the Security Interests, or the Debtor shall
fail to satisfy its obligations under Section 5(c) or 5(e) hereof, then the
Secured Party shall have the right, but shall not be obligated, to take such
steps and make such payments as may be required in order to effect compliance,
and the Secured Party shall have the right either to demand and receive
immediate reimbursement
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from the Debtor for all costs and expenses incurred by the Secured Party in
connection therewith, and/or to add such costs and expenses to the Loan
Obligations.
(b) The Debtor hereby irrevocably appoints the Secured Party
the true and lawful attorney for the Debtor, with full power of substitution, in
the name of the Debtor, the Secured Party or otherwise, for the sole use and
benefit of the Secured Party, but at the Debtor's expense, to the extent
permitted by law to exercise, at any time and from time to time during the
continuance of an Event of Default, any or all of the following powers with
respect to any or all of the Collateral (which powers shall be in addition and
supplemental to any powers, rights and remedies of the Secured Party described
herein):
(i) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due upon or by virtue
thereof; and
(ii) to receive, take, endorse, assign and deliver any
and all checks, notes, drafts, documents and other negotiable and non-negotiable
instruments and chattel paper taken or received by the Secured Party in
connection therewith; and
(iii) to settle, compromise, discharge, extend, compound,
prosecute or defend any action or proceeding with respect thereto; and
(iv) to sell, transfer, assign or otherwise deal in or
with same, or the proceeds or avails thereof, or the related goods securing the
Accounts, as fully and effectually as if the Secured Party were the absolute
owner thereof; and
(v) to extend the time of payment of any or all thereof
and to make any allowance and other adjustments with reference thereto; and
(vi) to discharge any taxes, liens, security interests or
other encumbrances at any time placed thereon.
Anything hereinabove contained to the contrary notwithstanding, the Secured
Party shall give the Debtor not less than ten (10) days' prior written notice of
the time and place of any sale or other intended disposition of any of the
Collateral, except any Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market. The
Secured Party and the Debtor hereby agree that such notice constitutes
"reasonable notification" within the meaning of Section 9-504(3) of the Code.
SECTION 9. REMEDIES UPON EVENT OF DEFAULT.
If any Event of Default shall have occurred and be continuing, the
Secured Party may exercise all of the rights and remedies of a secured party
under the Code (whether or not the Code is in effect in the jurisdiction where
such rights and remedies are exercised) and, in addition, the Secured Party may,
without being required to give any notice, except as herein provided or as may
be required by mandatory provisions of law, (a) apply the cash, if any, then
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held by it as Collateral in the manner specified in Section 11 hereof, and (b)
if there shall be no such cash or if such cash shall be insufficient to pay all
of the Loan Obligations in full, sell the Collateral, or any part thereof, at
public or private sale or at any broker's board or on any securities exchange,
for cash, upon credit or for future delivery, and at such price or prices as the
Secured Party may deem satisfactory. The Secured Party may require the Debtor to
assemble all or any part of the Collateral and make it available to the Secured
Party at a place to be designated by the Secured Party. Any holder of a Loan
Obligation may be the purchaser of any or all of the Collateral so sold at any
public sale (or, if the Collateral is of a type customarily sold on a recognized
market or is of a type which is the subject of widely distributed standard price
quotations, at any private sale) and thereafter hold same, absolutely free from
any right or claim of whatsoever kind. The Secured Party is authorized, at any
such sale, if it reasonably deems same to be advisable, to restrict the
prospective bidders or purchasers of any of the Collateral which could be
subject to federal or state securities laws to persons who will represent and
agree that they are purchasing for their own account for investment and not with
a view to the distribution or sale of any of such Collateral; and the Debtor
hereby acknowledges that such restriction may result in a lower price being
obtained for the subject Collateral, and the Debtor hereby waives any claim
arising therefrom. Upon any such sale, the Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold absolutely,
free from any claim or right of whatsoever kind, including any equity or right
of redemption of the Debtor. To the extent permitted by law, the Debtor hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any rule of law or statute now existing or hereafter adopted, and
waives any requirement for the marshalling of any Collateral. The Secured Party
shall give the Debtor not less than ten (10) days' prior written notice of its
intention to make any such public or private sale or sales at a broker's board
or on a securities exchange. Such notice, in case of a public sale, shall state
the time and place fixed for such sale, and in case of sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or the portion thereof
being sold, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Secured Party may fix in the notice of such
sale. At any such sale, the Collateral may be sold in one lot as an entirety or
in separate parcels, as the Secured Party may determine. The Secured Party shall
not be obligated to make such sale pursuant to any such notice. The Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Secured Party until the selling price is paid by the purchaser
thereof, but the Secured Party shall not incur any liability in the case of the
failure of such purchaser to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may again be sold upon like notice.
The Secured Party, instead of exercising the power of sale herein conferred upon
it, may proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
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SECTION 10. RIGHT OF SECURED PARTY TO USE AND OPERATE COLLATERAL.
Upon the occurrence and during the continuance of any Event of Default,
to the extent permitted by law, the Secured Party shall have the right and
power, with or without legal process, to enter upon any or all of the Debtor's
premises, to take possession of all or any part of the Collateral, and to
exclude the Debtor and all persons claiming under the Debtor wholly or partly
therefrom, and thereafter to sell same in accordance herewith and/or hold,
store, and/or use, operate, manage and control the same. Upon any such taking of
possession, the Secured Party may, from time to time, at the expense of the
Debtor, make all such repairs, replacements, alterations, additions and
improvements to the Collateral as the Secured Party may deem proper. In such
case, the Secured Party shall have the right to manage and control the
Collateral and to carry on the business and to exercise all rights and powers of
the Debtor in respect thereof as the Secured Party shall deem proper, including
the right to enter into any and all such agreements with respect to the leasing
and/or operation of the Collateral or any part thereof as the Secured Party may
see fit; and the Secured Party shall be entitled to collect and receive all
rents, issues, profits, fees, revenues and other income of the same and every
part thereof. Such rents, issues, profits, fees, revenues and other income shall
be applied to pay the expenses of holding and operating the Collateral and of
conducting the business thereof, and of all maintenance, repairs, replacements,
alterations, additions and improvements, and to make all payments which the
Secured Party may be required or may elect to make, if any, for taxes,
assessments, insurance and other charges upon the Collateral or any part
thereof, and all other payments which the Secured Party may be required or
authorized to make under any provision of this Agreement (including legal costs
and reasonable attorneys' fees). The remainder of such rents, issues, profits,
fees, revenues and other income shall be applied in accordance with Section 11
below, and, unless otherwise provided or required by law or by a court of
competent jurisdiction, any surplus shall be paid over to the Debtor.
SECTION 11. APPLICATION OF COLLATERAL AND PROCEEDS.
The proceeds of any sale of, or other realization upon, all or any part
of the Collateral shall be applied in the following order of priorities:
(a) first, to pay the expenses of such sale or other
realization, and all expenses, liabilities and advances incurred or made by or
on behalf of the Secured Party in connection therewith, and any other
unreimbursed expenses for which the Secured Party is to be reimbursed pursuant
to Section 12 hereof;
(b) second, to the payment of the Loan Obligations then
outstanding in such order or manner as the Secured Party, in its sole
discretion, shall determine; and
(c) finally, to pay to the Debtor, or its successors or
assigns, or as a court of competent jurisdiction may direct, any surplus then
remaining from such proceeds.
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SECTION 12. EXPENSES; SECURED PARTY'S LIEN.
The Debtor will, forthwith upon demand, pay to the Secured Party:
(a) the amount of any taxes or other charges which the
Secured Party may have been required to pay by reason of the Security Interests
(including any applicable transfer taxes) or to free any of the Collateral from
any lien thereon; and
(b) the amount of any and all reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of its counsel and of
any agents not regularly in its employ, which the Secured Party may incur in
connection with (i) the collection, sale or other disposition of any of the
Collateral, (ii) the exercise by the Secured Party of any of the powers
conferred upon it hereunder, and/or (iii) any default on the Debtor's part
hereunder.
SECTION 13. TERMINATION OF SECURITY INTERESTS; RELEASE OF COLLATERAL.
Upon the indefeasible payment in full of all Loan Obligations, the
Security Interests shall terminate and all rights in the Collateral shall revert
to the Debtor. Upon any such termination of the Security Interests or release of
Collateral, the Secured Party will, at the Debtor's expense, execute and deliver
to the Debtor such documents as the Debtor shall reasonably request to evidence
the termination of the Security Interests or the release of such Collateral, as
the case may be.
SECTION 14. RIGHT OF SET-OFF.
In furtherance and not in limitation of any provisions herein contained,
the Debtor hereby agrees that any and all deposits or other sums at any time due
from the Secured Party to the Debtor shall at all times constitute security for
the Obligations, and the Secured Party may exercise any right of set-off against
such deposits or other sums as may accrue or exist hereunder and/or under
applicable law.
SECTION 15. NOTICES.
All notices, demands and other communications hereunder shall be given
or made to the subject party at its address and/or telecopier number as set
forth in below or at such other address and/or telecopier number as the
addressee may hereafter specify for the purpose by means of written notice to
the other party hereto. Such notices and other communications will be
effectively given only if and when given in writing and personally delivered,
when sent by facsimile transmission to a party's designated facsimile number,
one (1) day after being sent by Federal Express or other recognized overnight
courier service with all charges prepaid or billed to the account of the sender,
or three (3) days after being mailed by first class mail with all postage
prepaid.
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Secured Party: Sharp of Florida, Inc.
3 Southwest 129th Avenue
Pembroke Pines, Florida 33027
Attn: Ira D. Kaplan
Telecopier No. (954) 433-3999
Debtor: International Cutlery, Ltd.
127 West 25th Street
New York, New York 10011
Attn: Joel J. Silver
Telecopier No. (212) 627-5952
SECTION 16. WAIVERS; NON-EXCLUSIVE REMEDIES.
No failure on the part of the Secured Party to exercise, and no delay in
exercising, and no course of dealing with respect to, any right, power or remedy
under this Agreement shall operate as a waiver thereof; nor shall any single or
partial exercise by the Secured Party of any right, power or remedy under this
Agreement preclude any exercise of any other right, power or remedy. The
remedies in this Agreement are cumulative and are not exclusive of any other
remedies provided by law, in equity or otherwise.
SECTION 17. CHANGES IN WRITING.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally but only by a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought.
SECTION 18. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) This Agreement shall (irrespective of where it is
executed, delivered and/or performed) be governed by and construed in accordance
with the laws of the State of New York (without giving effect to principles of
conflicts of law), except as otherwise required by mandatory provisions of law
and except to the extent that remedies provided by the laws of any State other
than New York are governed by the laws of said State.
(b) The Debtor hereby consents to the jurisdiction of all
courts sitting in the State of New York, and of all courts from which an appeal
therefrom may be taken, with respect to any action or proceeding relating to
this Agreement or any related transactions. THE DEBTOR HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING, AND CONSENTS THAT THE SECURED
PARTY MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE DEBTOR WITH RESPECT TO JURISDICTION AND THE WAIVER OF THE
RIGHT TO TRIAL BY JURY.
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SECTION 19. SEVERABILITY.
If any provision hereof is held invalid or unenforceable in any
jurisdiction, such provision shall (for purposes of enforcement in such
jurisdiction only) be reduced in scope and effect to the extent necessary to
render same enforceable, and the other provisions hereof shall remain in full
force and effect in such jurisdiction and shall be liberally construed in favor
of the Secured Party.
SECTION 20. HEADINGS.
The captions and Section headings in this Agreement are for convenience
of reference only, and shall not limit or otherwise affect the meaning or
interpretation of any provision hereof.
SECTION 21. ASSIGNMENT.
This Agreement may not be assigned by the Debtor without the Secured
Party's prior written consent, but shall otherwise be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first set forth above.
SECURED PARTY:
SHARP OF FLORIDA, INC.
By: /s/
--------------------------------
DEBTOR:
INTERNATIONAL CUTLERY, LTD.
By: /s/
--------------------------------
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