EXHIBIT 10.31
March 21, 2007
TAVEX ALGODONERA, X.X.
XXXXXX 17 MADRID 28004
RE: PAYMENT AND SECURITY RELEASE
Dear Sirs:
This letter (this "LETTER") sets forth the terms of an agreement by and
among: (a) Xxxxxxxx, S.A. de C.V. ("SOLTICIO"), Inmobiliaria Xxxxxxx, X.X. de
C.V. ("INMOBILIARIA"), and Xxxxxxxx y Xxxxxx Textiles, S.A. de C.V. ("ACOTEX"
and together with Solticio and Inmobiliaria, the "SELLERS"); (b) Tarrant
Luxembourg S.a.r.l. ("TAG LUX"); and (c) Tavex Algodonera, S.A. ("TAVEX"),
pursuant to which: (i) TAG LUX, on the one hand, and the Sellers, on the other
hand, will release the other from any and all obligations arising from or in
connection with the agreements and other obligations described on SCHEDULE A
(the "RELEASED AGREEMENTS"); and (ii) TAG LUX will terminate and release all
liens, mortgages, pledges, and other security interests (the "LIENS") on the
real property and personal property described on SCHEDULE B (the "COLLATERAL"),
which Collateral secures the payment by the Sellers of certain indebtedness and
obligations owing to TAG LUX by the Sellers, all of which indebtedness and
obligations (all indebtedness and obligations, the payment and satisfaction of
which is secured by the Collateral, is collectively referred to herein as the
"OBLIGATIONS") would be extinguished upon receipt of the Payoff Amount and the
delivery of the Notes provided for herein.
All references made in this Letter to TAG LUX with respect to the
execution of documents and obligations to release the Collateral and the
Obligations shall be understood to be made to TAG LUX or any of its affiliates
(including Tarrant Mexico, S. de X.X. de C.V) that are registered in the
relevant registries (including public registries of property) or are otherwise
the beneficiaries thereof. In case it appears that TAG LUX is not the
beneficiary of the Obligations and/or the Liens or the Collateral, TAG LUX shall
cause its relevant affiliate to execute, deliver and perform the obligations and
duties in connection with the release of the Collateral and the Obligations as
set forth herein.
This Letter sets forth the terms and conditions upon which, in case
Tavex so determines in its sole discretion and without any obligation to do so,
Tavex will have the irrevocable right and option during the Exclusivity Period
(as defined below) to cause the release and discharge of the Liens on the
Collateral by paying certain amounts to TAG LUX. By countersigning this Letter,
Tavex does not assume any of the Obligations or in any way become bound to
comply with or pay any of the Obligations, either directly or indirectly as a
guarantor or otherwise.
The parties hereto further agree as follows:
1. EXCLUSIVITY; GOOD FAITH.
(a) Each of the Sellers hereby confirms that, for 120 (ONE HUNDRED AND
TWENTY) calendar days commencing from the date hereof, or such later date as may
be agreed by the parties hereto and Tavex (the "EXCLUSIVITY PERIOD"), each of
the Sellers will: (i) work with Tavex in respect of the payment of the
Obligations and the other transactions referred to herein; and (ii) not enter
into any agreement with
any person other than Tavex with respect to the payment and/or assignment of the
Obligations and the transactions contemplated hereunder.
(b) TAG LUX hereby confirms that, for the Exclusivity Period, or such
later date as may be agreed by the parties hereto and Tavex, TAG LUX will: (i)
work with Tavex in respect of the payment of the Obligations and the other
transactions referred to herein; and (ii) not enter into any agreement with any
person other than Tavex with respect to the payment and/or assignment of the
Obligations and the transactions contemplated hereunder, if such agreement would
adversely affect the exercise by Tavex of its rights under this Agreement
(including, without limitation, the exercise by Tavex of the Option as provided
in Section 2 below, the release of the Collateral and the termination of the
Obligations). Notwithstanding the foregoing, TAG XXX xxx enter into discussions,
negotiations and dealings with any person other than Tavex, and may enter into
an agreement with any such person in respect of payment and/or assignment of the
Obligations, so long as such actions and agreements are subject to, and do not
interfere with, Tavex's rights under this Agreement. During the Exclusivity
Period, TAG LUX shall not initiate any proceedings towards the enforcement
and/or acceleration of the Obligations, but may take whatever actions TAG LUX
deems necessary or desirable to preserve its rights in respect of the Collateral
and the Obligations.
2. OPTION. At any time prior to expiration of the Exclusivity Period,
Tavex shall have the right and option (the "OPTION"), but not the obligation,
which Option may be exercised by Tavex in its sole discretion by delivering
notice (whether by personal delivery, courier service, certified mail,
electronic means or facsimile) to TAG LUX to the domicile indicated next to TAG
XXX's signature hereunder, to cause the release and discharge of the Liens on
the Collateral by paying to TAG LUX an amount of U.S. $20'000,000.00 (TWENTY
MILLION U.S. DOLLARS) (the "PAYOFF AMOUNT"), as follows:
(a) CASH PAYMENT. U.S. $2'500,000.00 (TWO MILLION FIVE HUNDRED
THOUSAND U.S. DOLLARS) in cash (the "CASH PAYMENT"), which
Cash Payment shall be made by Tavex to TAG LUX on the same day
that Tavex exercises the Option; and
(b) PROMISSORY NOTES (THE "NOTES").
(i) U.S. $2'500,000.00 (TWO MILLION FIVE HUNDRED THOUSAND
U.S. DOLLARS) in principal amount of an UNSECURED
promissory note made by Tavex in favor of TAG LUX,
which Note shall be: [a] in the Form of EXHIBIT A
attached hereto; [b] mature six months after the Cash
Payment date; [c] delivered by Tavex to TAG LUX on
the same day that Tavex exercises the Option; [d]
NEGOTIABLE; and [e] subject to the side letter
agreement providing for acceleration of obligations
and cross-default (the "SIDE LETTER") in the Form of
EXHIBIT B attached hereto terms;
(ii) U.S. $1'000,000.00 (ONE MILLION U.S. DOLLARS) in
principal amount of an UNSECURED promissory note made
by Tavex in favor of TAG LUX, which Note shall be:
[a] in the Form of EXHIBIT A attached hereto; [b]
mature twelve months after the Cash Payment date; [c]
delivered by Tavex to TAG LUX on the same day that
Tavex exercises the Option; [d] NEGOTIABLE; and [e]
subject to the Side Letter;
(iii) U.S. $2'000,000.00 (TWO MILLION U.S. DOLLARS) in
principal amount of an UNSECURED promissory note made
by Tavex in favor of TAG LUX, which Note shall be:
[a] in the Form of EXHIBIT C attached hereto; [b]
mature twelve months after the Cash Payment date; [c]
delivered by Tavex to TAG LUX on the same
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day that Tavex exercises the Option; [d]
NON-NEGOTIABLE AND SUBJECT TO OFFSET AS PROVIDED IN
PARAGRAPH 4; and [e] subject to the Side Letter;
(iv) U.S. $3'000,000.00 (THREE MILLION U.S. DOLLARS) in
principal amount of an UNSECURED promissory note made
by Tavex in favor of TAG LUX, which Note shall be:
[a] in the Form of EXHIBIT C attached hereto; [b]
mature eighteen months after the Cash Payment date;
[c] delivered by Tavex to TAG LUX on the same day
that Tavex exercises the Option; [d] NON-NEGOTIABLE
AND SUBJECT TO OFFSET AS PROVIDED IN PARAGRAPH 4; and
[e] subject to the Side Letter;
(v) U.S. $4'500,000.00 (FOUR MILLION FIVE HUNDRED
THOUSAND U.S. DOLLARS) in principal amount of an
SECURED promissory note made by Tavex in favor of TAG
LUX, which Note shall be: [a] in the Form of EXHIBIT
D attached hereto; [b] mature twenty four months
after the Cash Payment date; [c] delivered by Tavex
to TAG LUX on the same day that Tavex exercises the
Option; [d] NEGOTIABLE; and [e] subject to the Side
Letter; and
(vi) U.S. $4'500,000.00 (FOUR MILLION FIVE HUNDRED
THOUSAND U.S. DOLLARS) in principal amount of an
SECURED promissory note made by Tavex in favor of TAG
LUX, which Note shall be: [a] in the Form of EXHIBIT
D attached hereto; [b] mature thirty months after the
Cash Payment date; [c] delivered by Tavex to TAG LUX
on the same day that Tavex exercises the Option; [d]
NEGOTIABLE; and [e] subject to the Side Letter; and
On the date Tavex exercises the Option, Tavex shall deliver the Side
Letter contemporaneously with its delivery of the Notes. The secured notes shall
be guaranteed by a bank or other financial institution reasonably acceptable to
TAG LUX and in terms reasonably acceptable to TAG LUX.
If Tavex exercises the Option, TAG LUX shall accept the payments
referred to above from Tavex. Upon receipt of the cash payment and Notes and
other deliveries mentioned in PARAGRAPH 2, all Liens on the Collateral and the
Obligations shall forever terminate, and TAG LUX shall execute on such date such
documents (including public deeds granted before a notary public) and take such
further actions on or after such date as reasonably requested by Tavex or the
Sellers to provide for the full release and discharge of the Liens. Xxxxx agrees
to pay all filing fees and other costs incurred in connection with the release
of the Liens.
If Tavex defaults in payment of the Notes, TAG XXX xxx pursue all
remedies that it may have at law or in equity against Tavex in respect of the
Notes. For the avoidance of doubt, each of the Parties hereto acknowledges and
agrees that the obligations of Tavex are expressly limited to the terms and
conditions of the Notes, should Tavex in its sole discretion, decide to exercise
the Option, and not the Obligations.
TAG LUX and the Sellers hereby covenant for the benefit of Tavex to
perform any and all actions and to enter into such agreements and/or other
instruments (including public deeds granted before a notary public) as are
deemed reasonably necessary and/or convenient by Tavex in order to give full
effect to said release and discharge (including with respect to any mortgages or
pledges held by TAG LUX). Furthermore, the parties hereto agree to act at all
times on a good faith basis and to diligently perform their respective duties
and obligations hereunder.
3. RELEASED AGREEMENTS. If Tavex exercises the Option and pays the Payoff
Amount, then, effective upon such exercise and without any further action by the
parties, the Released Agreements (to
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the extent in effect on the date hereof) shall terminate, and TAG LUX, on the
one hand, and the Sellers, on the other hand, are fully released and discharged
by the other from any further obligations under the Released Agreements.
4. FABRIC COMMITMENT. If Tavex exercises the Option and pays the Payoff
Amount, TAG LUX hereby agrees to purchase from Tavex denim fabric made in the
plants owned (directly or indirectly) by Tavex and which are acquired from the
Sellers amounting to 2'000,000 (TWO MILLION) linear yards at a price of $2.50
per yard. All such fabric shall be purchased by TAG LUX as follows: (I)
1'000,000 (ONE MILLION) linear yards during the twelve months following exercise
of the Option; and (ii) (I) 1'000,000 (ONE MILLION) linear yards during the
period from twelve to twenty-four months following exercise of the Option. Sales
will be FOB and payment terms for the fabric will be 120 (ONE HUNDRED AND
TWENTY) calendar days from FOB. All such fabric shall be of oe/ring or similar
quality, and shall be subject to TAG LUX's inspection and acceptance prior to
shipment (which may not be unreasonably withheld). Tavex shall have the right to
offset any payments on the Notes that are subject to offset under PARAGRAPH 2
hereof against any payments outstanding from the purchase commitment made by TAG
LUX in this paragraph.
5. CONFIDENTIALITY. Except to the extent required by law or in connection
with any legal proceeding, and except for confidential disclosure to lenders and
professional advisors, the Sellers and TAG LUX and its affiliates will not
disclose to any person any nonpublic information in connection with the
transactions contemplated in this Letter. Tavex agrees that Tarrant Apparel
Group, an affiliate of TAG LUX, will disclose its entering into this Letter and
the material terms hereof in a public filing with the United States Securities
and Exchange Commission (the "SEC") within four business days after the date
hereof, and thereafter may file this Letter and the Notes, and otherwise
disclosure the terms of this Letter and the Notes, in Tarrant's periodic filings
with the SEC; provided however, that, prior to making any disclosure other than
the initial disclosure made within four business days, Tarrant Apparel Group
(and any other affiliate of TAG LUX) shall give prior notice to Tavex of any of
such disclosures with at least three business days prior to making said
disclosure.
6. EXPENSES. Except as otherwise provided herein, each of the Sellers, TAG
XXX, and Tavex shall bear their own costs and expenses in connection with the
transactions contemplated hereunder.
7. INDEMNITY. (a) Each of the Sellers shall indemnify and hold harmless
Tavex, including its affiliates and subsidiaries, its respective employees,
advisors and agents (the "INDEMNIFIED PARTIES"), against any and all actions,
claims, suits, demands, losses, costs, damages and proceedings, including
reasonable and documented attorneys' fees and court costs ("CLAIMS"), arising
out of or in connection with the breach or default by the Sellers in the
performance of any of the Sellers' obligations contained in this Letter. Each of
the persons to be indemnified hereunder that is not a party to this Letter shall
be a third party beneficiary hereof.
(b) TAG LUX shall indemnify and hold harmless the Indemnified Parties
against any and all Claims arising out of or in connection with the breach or
default by TAG LUX in the performance of any of its obligations contained in
this Letter other than the TAG LUX's obligations in Paragraph 4 hereof. Each of
the persons to be indemnified hereunder that is not a party to this Letter shall
be a third party beneficiary hereof.
8. ASSIGNMENT, AMENDMENT; MISCELLANEOUS. This Letter shall not be
assignable by any party hereto without the prior written consent of the other
parties, and this Letter may not be amended, waived or modified except by an
instrument in writing signed by the Sellers, TAG LUX and Tavex. This Letter may
be executed in any number of counterparts, each of which, taken together, shall
constitute one agreement.
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Delivery of an executed signature page of this Letter by facsimile transmission
shall be as effective as delivery of a manually-executed counterpart of this
Letter.
9. GOVERNING LAW. This Letter shall be construed, and the obligations,
rights and remedies of the parties hereunder shall be determined in accordance
with the applicable laws in Madrid, Spain.
10. EXPIRATION; SURVIVAL OF CERTAIN OBLIGATIONS. If Tavex does not exercise
the Option and pay the Payoff Amount prior to expiration of the Exclusivity
Period, then this Letter, and the parties' rights and obligations hereunder,
shall terminate AB INITIO; PROVIDED that the provisions contained in PARAGRAPHS
5 through 10 of this Letter shall remain in full force, notwithstanding the
termination of this Letter.
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If you are in agreement with the terms of this Letter, please indicate
your acceptance thereof by signing in the appropriate space below and returning
one fully-executed counterpart hereof to each of the Sellers and TAG LUX at your
earliest convenience.
Very truly yours,
SOLTICIO, S.A. DE .C.V.
INMOBILIARIA XXXXXXX, X.X. DE C.V.
ACABADOS Y XXXXXX TEXTILES, S.A. DE C.V.
By: /S/ XXXXX XXXXX XXXXX
------------------------------------
Name: Xxxxx Xxxxx Xxxxx
Title: General Manager
TARRANT LUXEMBOURG S.A.R.L
By: /S/ XXXXXXX XXXXX
------------------------------------
Name: Xxxxxxx Xxxxx
Title: Category A Manager
By: /S/ X. XXXXXXXX
------------------------------------
Name: X. Xxxxxxxx
Title: Category B Manager
Address to deliver Notices to TAG LUX:
c/o Tarrant Apparel Group
0000 Xxxx Xxxxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
(000) 000-0000 facsimile
Attn: Chief Financial Officer
Agreed and accepted
TAVEX ALGODONERA, S.A.
By: /s/ Xxxxxxx Xxxxxx
------------------------
Name: Xxxxxxx Xxxxxx
Title: CEO
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SCHEDULE A
RELEASED AGREEMENTS
(i) Termination Agreement dated August 13, 2004, executed by Tarrant
Mexico, S. de X.X. de C.V. ("TAG Mexico"), Inmobiliaria and Acotex.
(ii) Purchase Commitment Agreement dated November 30, 2004, executed TAG
Mexico and Acotex.
(iii) Agreement for Purchase of Assets, dated August 13, 2004, executed by
TAG Mexico, Solticio and Acotex.
(iv) Amendment No. 1 to Agreement for Purchase of Assets, dated October 29,
2004, executed by TAG Mexico, Xxxxxxxx and Acotex.
(v) Certain promissory notes dated November 30, 2004, evidencing
obligations on behalf of the Sellers in favor of TAG Mexico, as
follows:
(a) Ten promissory notes subscribed by Construcciones Solticio,
S.A. de C.V., in favor of TAG Mexico, each one for the amount
of U.S. $863,165.48 (in connection with real property in
Puebla), with maturity dates of December 31, 2005 through
December 31, 2014.
(b) Ten promissory notes subscribed by Xxxxxxxx y Xxxxxx Textiles,
S.A. de C.V., in favor of TAG Mexico, each one for the amount
of U.S. $4,136,834.52 (in connection with machinery and
equipment in Puebla and Tlaxcala), with maturity dates of
December 31, 2005 through December 31, 2014.
(vi) Any and all security agreements in connection with the Obligations,
including without limitation, any mortgage and pledge agreements for
the benefit of TAG Mexico granted over certain assets owned by the
Sellers and which Tavex intends to acquire.
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SCHEDULE B
LIENS
(i) All machinery and equipment owned by the Sellers and that has been
granted as security interest to TAG LUX (either by means of a pledge,
mortgage, deposit or otherwise), including that related to the
production of denim fabric, and including all books records and manuals
in connection with such machinery and equipment, as well as all
licenses and permits that are necessary for the use thereof;
(ii) The industrial facilities, land lots and constructions located at land
lots 5, 6, 7 and 15 of Calle "C", Manzana 6, Parque Industrial, at the
State Puebla, Mexico;
(iii) The industrial facilities, land lots and constructions located at land
lot 1 A.B.C. S/N, of Fraccionamiento San Diego Xocoycan, at the
Municipality of Ixtacuictla, State of Tlaxcala, C.P. 90700, Mexico; and
(iv) In general, any other asset (including any real property) owned by the
Sellers and that has been granted as security interest to TAG Mexico
(either by means of a pledge, mortgage, deposit or otherwise).
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