PLAN SUPPORT AGREEMENT
EXECUTION
COPY
This PLAN
SUPPORT AGREEMENT (together with the Term Sheet (as defined below), the
“Agreement”), dated as of July 18, 2010, is
made by and among Xxxxxxxx Convertibles, Inc., a Delaware corporation,
(“Xxxxxxxx” or the “Company”, which term, for the avoidance of
doubt, includes the debtor in possession following the filing of the Petitions
(as defined below)), and Haining Mengnu Group Co. Ltd (“Mengnu”) (the time and date when this
Agreement has been executed by each of Xxxxxxxx and Mengnu being hereinafter
referred to as the “date of this Agreement” or the “date hereof”).
WHEREAS, the Company and Mengnu have
engaged in negotiations with the objective of reaching an agreement for a
Restructuring (as defined below) of the Company;
WHEREAS, the Company now desires to
implement a financial restructuring (the “Restructuring”) of the Company and its
subsidiaries (together, the “Xxxxxxxx Companies”) consistent with the terms and
conditions set forth in the term sheet ( the “Term Sheet”) attached hereto as Exhibit A;
WHEREAS, in order to implement the
Restructuring, the Company has agreed, on the terms and conditions set forth in
this Agreement, to use its best reasonable efforts to consummate the
Restructuring through a plan of reorganization (“Plan of Reorganization” or
“Reorganization Plan”), the requisite acceptances of which shall be solicited
following commencement of voluntary cases (“Chapter 11 Cases”) by the Xxxxxxxx Companies under
chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as
amended, the “Bankruptcy Code”) in the United States Bankruptcy
Court for the Southern District of New York (the “Bankruptcy Court”);
WHEREAS, Mengnu is prepared to
commit, on the terms and subject to the conditions of this Agreement and to the
extent legally permissible, to, if and when solicited in accordance with
applicable bankruptcy law, vote to accept the Plan of Reorganization and support
its confirmation;
NOW THEREFORE, in consideration of
the premises and the mutual covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Company and Mengnu hereby agree as follows:
1. Term Sheet. The principal terms and conditions
of the Restructuring are set forth in the Term Sheet and shall be incorporated
by Xxxxxxxx in the Reorganization Plan.
2. Condition Precedent.
It is a
condition precedent to the effectiveness of this Agreement that voluntary
petitions (“the Petitions”) are filed with the Bankruptcy Court and the Chapter
11 Cases are commenced no later than 9:00 p.m. (NY Time) on July 18, 2012,
unless previously extended by Mengnu in writing (the time and date of filing of
the Petitions being hereinafter called the “Petition Date”). If this condition
is not satisfied, this Agreement shall be void and of no effect.
3. Means for Effectuating the
Restructuring. The Company shall seek to effectuate the Restructuring through the
commencement of the voluntary Chapter 11 Cases and the confirmation and
consummation of the Plan of Reorganization in accordance with this Agreement.
4. Preparation of Restructuring
Documents.
The Company shall, in
consultation with Mengnu, prepare all of the documents (collectively, the
“Chapter 11
Documents”, which shall include without limitation each of the documents
referred to in paragraph 4 b)(i) through (iv) below), necessary for the
Xxxxxxxx Companies to commence the Chapter 11 Cases and obtain
confirmation and consummation of the Reorganization Plan, all of which
shall be submitted to Mengnu and
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its
counsel in draft form as soon as practicable but in any event not later
than 5:00 p.m. on the second business day prior to filing with the
Bankruptcy Court (or such earlier date as shall be specified below or such
later date as Mengnu shall consent to in writing), for its review and
comment, shall be satisfactory to Mengnu in form and substance and shall
not be submitted to or filed with the Bankruptcy Court unless Mengnu shall
have advised Xxxxxxxx (orally or in writing) that it does not object
thereto. In aid of the foregoing, Xxxxxxxx
shall:
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i Prepare and file with the
Bankruptcy Court no later than 5:00 p.m. on the first business day
following the Petition Date first day motions, which motions shall include
a critical vendor motion (“Mengnu Critical Vendor Motion”) in respect of
Mengnu providing for the grant to Mengnu of a purchase money security
interest in inventory acquired by the Xxxxxxxx Companies from Mengnu after
the filing of the Petitions and all proceeds thereof, the payment to
Mengnu of $400,000 per week for application to pre-petition indebtedness
owed to Mengnu in accordance with the terms and provisions thereof and
having other terms and conditions as specified in the Term Sheet, which
are not inconsistent with the terms and conditions in the Term Sheet and
which is otherwise in form and substance satisfactory to
Mengnu;
ii Prepare and file with the
Bankruptcy Court statements of financial affairs and required schedules
under chapter 11 of the Bankruptcy Code for the Xxxxxxxx Companies no
later than twenty (20) days following the Petition Date (complete draft to
be provided Mengnu and its counsel no later than three days prior to
filing); and
iii
Prepare and file with the Bankruptcy Court no later than thirty (30) days
following the Petition Date a disclosure statement (the “Disclosure
Statement”) relating to a Plan of Reorganization that incorporates the terms
and conditions of the Term Sheet and is not inconsistent with the Term
Sheet and is otherwise in form and substance satisfactory to Mengnu and
complies with Sections 1122, 1123 and 1124 of the Bankruptcy Code,
including customary exhibits, and which disclosure statement complies with
section 1125 of the Bankruptcy Code (complete draft including Plan of
Reorganization and all exhibits to be provided Mengnu and its counsel not
less than 10 days prior to filing).
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5. Company Undertakings.
The Company
hereby agrees to use reasonable efforts and do all other things reasonably
necessary to effectuate and consummate the Restructuring and obtain confirmation
of and consummate the Plan of Reorganization as expeditiously as possible. The
Company hereby agrees that none of the Xxxxxxxx Companies will take any action
that conflicts with or is inconsistent with this Agreement or that would
interfere with or adversely affect its ability to consummate the Plan of
Reorganization as contemplated hereby.
6. Agreement to Support Company
Restructuring. For so long as this Agreement remains in effect, and subject to the
satisfaction of each of the conditions precedent to Mengnu’s obligations set
forth in Section 7 below, Mengnu agrees to (i) use reasonable efforts to support
approval of the Plan of Reorganization; (ii) not to take any action that it
knows will interfere in any material respect with the approval of the Plan of
Reorganization by the Bankruptcy Court; and (iii) provide the Company with
information about Mengnu that, based upon written advice of counsel, the Company
reasonably believes is required to be included in the Disclosure Statement to
the extent legally permissible for Mengnu and which would not cause Mengnu to
breach any confidentiality agreement or understanding heretofore entered into in
the ordinary course of business; in each case referred to in any of clauses (i),
(ii) or (iii) above so long as the Company’s Plan of Reorganization and
Disclosure Statement do not conflict with and meet all requirements and
conditions relating thereto as set forth in this Agreement and are not
inconsistent with the Term Sheet.
7. Conditions to Mengnu’s
Obligations. It
shall be a condition precedent to Mengnu’s obligations to perform or observe any
term, provision or condition of this Agreement to be performed or observed by it
at any time, including without limitation, it obligations in Section 6 hereof,
that none of the following events, occurrences or conditions ( each a “Mengnu
Condition”) shall exist, whatever the reason therefor and whether or not
occurring as a result of action or inaction by any of the Xxxxxxxx Companies, by
operation of law, or otherwise:
2
i Any representation or warranty
made by the Company to Mengnu in this Agreement or any information in any
document prepared by the Company or any of the other Xxxxxxxx Companies
and provided to Mengnu shall be false or misleading in any material
respect when made or provided;
ii Any of the following
milestones (“Milestones”) shall not be achieved within the time specified
below:
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(aa) Obtain an interim order
of the Bankruptcy Court granting the Mengnu Critical Vendor Motion in form
and substance satisfactory to Mengnu with such changes, if any, as are
satisfactory to Mengnu not later than five business days following the
Petition Date;
(bb) Obtain a final order of
the Bankruptcy Court granting the Mengnu Critical Vendor Motion, with such
changes, if any, as are satisfactory to Mengnu not later than the
thirtieth day immediately following the Petition Date;
(cc) Obtain an order of the
Bankruptcy Court approving the Disclosure Statement, with such changes, if
any as are satisfactory to Mengnu, not later than seventy five (75) days
immediately following the Petition Date; and
(dd) Obtain an order (the
“Confirmation Order”) of the Bankruptcy Court confirming a Plan of
Reorganization in the form attached to the Disclosure Statement approved
by the Bankruptcy Court, with such changes, if any, as are approved by
Mengnu, no later than one hundred thirty(130) days following the Petition
Date
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iii.
On the effective date (“Effective Date”) of the Plan of Reorganization
there shall be any appeal of the Confirmation Order other than any such
appeal which Mengnu determines in its sole discretion does not materially
interfere with consummation of the Plan of Reorganization and if
successful would not materially adversely affect the interests of Mengnu
upon consummation of the Plan of Reorganization or thereafter.
iv.
The Bankruptcy Court shall have terminated Jennifer’s exclusive period to
file the a plan of reorganization or such exclusivity period shall have
lapsed;
v.
Any preference recovery action against Mengnu shall have been successfully
prosecuted at any time prior to the Effective Date;
vi.
The Company at any time shall fail to make any payment required to be made
by it in accordance with the Mengnu Critical Vendor Motion or shall
terminate Mengnu’s status as a critical vendor for any reason other than
Mengnu’s default in honoring the production and shipping schedule agreed
to by the parties from time to time;
vii
At any time prior to the Effective Date, the Company or any other of the
Xxxxxxxx Companies shall file any motion or take any other action to
challenge any proof of claim submitted by Mengnu for an aggregate amount
of pre-petition indebtedness (before giving effect to any payments
received by Mengnu in accordance with the critical vendor motion
applicable to Mengnu)
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of not
in excess of $17,000,000 or any objection to any such proof of claim
submitted by Mengnu is allowed;
viii Any of the Xxxxxxxx
Companies shall, after the filing with the Bankruptcy Court of the
Disclosure Statement, propose any amendment or modification thereto which,
in Mengnu’s opinion, is material and to which Mengnu objects and such
amendment or modification is not withdrawn within five days after notice
thereof from Mengnu to Xxxxxxxx;
ix
Any of the Chapter 11 Documents, including, without limitation, the Plan
of Reorganization, shall contain any term or condition (aa) different from
the terms and conditions set forth in the Term Sheet, (bb) inconsistent
with the Term Sheet , (cc) which Mengnu believes, or has reason to
believe, could adversely affect Mengnu’s interests upon consummation of
the Plan of Reorganization or thereafter or (dd) which in Mengnu’s opinion
is otherwise material and to which Mengnu objects by notice to the Company
and, in the case of the condition specified in this subclause (dd), such
term or provision is not changed in a manner in form and substance
satisfactory to Mengnu within five days after receipt by the Company of
such notice;
x
At any time on or prior to the Effective Date there shall have been issued
or remain in force any order, decree, or ruling by any court or
governmental body having jurisdiction restraining or enjoining the
consummation of or declaring or rendering illegal the Restructuring or any
of the transactions contemplated by this Agreement;
xi
The Company shall propose, consent to, support, acquiesce or participate
in the formulation of any out-of-court restructuring, any chapter 7 or
chapter 11 plan of reorganization or liquidation or any other such similar
reorganization or liquidation (whether foreign or domestic) other than the
Restructuring as described in the Term Sheet and other than as agreed to
by Mengnu;
xii
At any time after the date of this Agreement and prior to the Effective
Date, (i) any event or occurrence or condition shall happen or occur,
whatever the reason therefor and whether happening or existing by
operation of law or otherwise, not disclosed in writing to Mengnu by
Xxxxxxxx prior to the date hereof that Mengnu reasonably believes has had,
has or could reasonably be expected to have a Material Adverse Effect
(“Material Adverse Effect” means any change, event, occurrence, effect, or
state of facts that, individually, or aggregated with other such matters,
is materially adverse to the business, assets (including intangible
assets), properties, condition (financial or other), or results of
operations or prospects of the Xxxxxxxx Companies taken as a whole, but
excluding actions, events, occurrences, effects or conditions that result
by operation of law from the filing of a case under chapter 11 of the
Bankruptcy Code) or (ii) there shall be or have been, in the reasonable
opinion of Mengnu, any material adverse change or development involving a
prospective material adverse change in the business, properties, assets
(tangible and intangible), condition (financial or other), results of
operations or prospects of the Xxxxxxxx Companies taken as a whole from
that which exists on the date of this Agreement other than any such
arising solely by operation of law as a result of the filing of the
Petitions;
xiii
If any of the pleadings filed by the debtor with the Bankruptcy Court or
the final forms of the documents prepared in connection with or related to
the Restructuring (including, without limitation, any
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stockholders' agreement, any certificate of incorporation, any
bylaws, any document concerning the corporate governance of any of the
Xxxxxxxx Companies upon the consummation of the Reorganization Plan or any
document concerning the rights of Company shareholders or debtholders upon
the consummation of the Reorganization Plan) necessary for the
implementation of the Restructuring shall not be in form and substance
satisfactory to Mengnu;
xiv A trustee or examiner with
enlarged powers shall have been appointed under section 1104 or 105 of the
Bankruptcy Code for service in the Chapter 11 Cases;
xv Any of the Chapter 11 Cases
shall be converted to a case under chapter 7 of the Bankruptcy Code:
xvi The Confirmation Order
shall not contain any condition to Confirmation proposed by Mengnu to
Xxxxxxxx that is not inconsistent with the Term Sheet;
xvii Any of the Xxxxxxxx
Companies shall, at any time following the date of this Agreement and
prior to the Effective Date, directly or indirectly, (aa) engage in, agree
to or consummate any transaction (other than the Restructuring) other than
in the ordinary course of business and on an arms' length basis, or (bb)
incur any liability other than in the ordinary course of business and on
an arms' length basis, and, if between unaffiliated parties, also on
market terms;
xviii At any time after the
date of this Agreement and prior to the Effective Date, any of the
Xxxxxxxx Companies shall fail to (aa) maintain its corporate existence in
good standing under the laws of Delaware or other jurisdiction in which it
is organized, (bb) maintain its qualification to do business in each
jurisdiction where it is presently qualified to do business except for
jurisdictions in which Xxxxxxxx has ceased or plans to cease operations as
set forth in the description of Jennifer’s proposed store closing program
( the “Store Closing Program”) set forth in the initial Store Closing
Program Report (as defined in clause xxiii below) or such other
jurisdictions where Xxxxxxxx later proposes to cease operations and to
which Mengnu does not object after reasonable notice and receipt of an
accompanying analysis from Xxxxxxxx of such proposal or (cc) qualify to do
business in any other jurisdictions where the nature of the business done
by it makes such qualification necessary;
xix At any time after the date
of this Agreement and prior to the Effective Date, any of the Xxxxxxxx
Companies shall, directly or indirectly: (aa) issue, sell, pledge, dispose
of, or encumber any additional shares of, or any options, warrants,
conversion privileges or rights of any kind to acquire any shares of, any
of its equity interests; (bb) amend or propose to amend its respective
articles of incorporation, by-laws or comparable organizational documents;
(cc) split, combine, or reclassify any outstanding shares of its capital
stock or other equity interests, or declare, set aside, or pay any
dividend or other distribution payable in cash, stock, property, or
otherwise with respect to any of its equity interests; (dd) redeem,
purchase, or acquire or offer to acquire any of its equity interests; (ee)
acquire, transfer, or sell (by merger, exchange, consolidation,
acquisition of stock or assets, or otherwise) any interest in or any
indebtedness of any corporation, partnership, joint venture, or other
business organization or division, or, other than in the ordinary course
of
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business
or as contemplated pursuant to the Store Closing Program and to which
Mengnu does not object after reasonable notice from Xxxxxxxx , any assets;
(ff) merge with or into or consolidate with any corporation or other
person other than, in the case of Xxxxxxxx Companies other than Xxxxxxxx,
a merger or consolidation with or into another Xxxxxxxx Company or in the
case of Xxxxxxxx a merger with another Xxxxxxxx Company in which Xxxxxxxx
is the surviving corporation; or (gg) engage in or agree to engage in or
consummate or agree to consummate any transaction or agreement other than
in the ordinary course of business and consistent with past practice or as
is necessary to effect the Store Closing Program or the Lease
Renegotiation Program ( as defined in clause xxiii below) or to consummate
the Plan of Reorganization and to which, in all cases, Mengnu does not
object after reasonable notice from Xxxxxxxx;
xx At any time after the date
of this Agreement and prior to the Effective Date, any of the Xxxxxxxx
Companies shall create, incur, assume or suffer to exist any lien, charge,
security interest or other encumbrance (“Lien”) on any of its properties
or assets now owned or hereafter acquired other than (i) warehousemen’s,
carriers, workmen’s and similar liens arising in the ordinary course of
business and not delinquent, (ii) taxes, assessment and other governmental
charges arising in the ordinary course of business and not delinquent,
(iii) pledges or deposits arising under workmen’s compensation or similar
laws, (iv) statutory liens and other similar liens arising in the ordinary
course of business that do not secure the payment of borrowed money and
(v) Liens in favor of Mengnu;
xxi
At any time after the date of this Agreement and prior to the Effective
Date, the Xxxxxxxx Companies taken together shall have created, incurred,
assumed or suffered to exist indebtedness for borrowed money that
aggregates in excess of $25,000;
xxii
Xxxxxxxx shall have failed to prepare and submit to Mengnu’s financial
advisor no later than 5:00 pm on July 16, 2010, a monthly operating
budget, for the period August – December 2010 (the “Budget”) in form and
substance satisfactory to Mengnu and that is consistent with the weekly
cash flow and monthly fiscal year 2011 projections provided to Mengnu’s
financial advisor on or about June 23, 2010 as updated on a basis
acceptable to Mengnu;
xxiii
Xxxxxxxx shall have failed to prepare and submit to Mengnu and its
financial advisor, (aa) monthly within twenty-seven (27) days following
the end of each of Jennifer’s fiscal monthly periods, commencing with the
first fiscal monthly period ending following the date of this Agreement a
financial statement report for the monthly fiscal period just ended and
for the cumulative periods to date commencing with (x) the start of fiscal
year 2010 and (y) with the July 2010 fiscal month, reflecting accurately
the items and amounts recorded in the Company’s books and records and in
form and substance satisfactory to Mengnu and including EBITDA and
comparisons to the Budget and to the comparable periods of the prior
fiscal year ; (bb) on the first business day of every second week
beginning with the first week following the date of this agreement a cash
flow forecast in form and substance satisfactory to Mengnu and including
the actual closing cash balance for the last business day of each of the
two weeks immediately preceding the forecast period for the thirteen week
period beginning with the week in which the forecast is required to be
delivered (each a “Cash Flow Forecast”); (cc) weekly on the first business
day of each week commencing with the first week
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following the date of this Agreement a report of the Company’s
consolidated cash balance as of the close of business on the last business
day of the immediately preceding week; (dd) not later than 5:00 p.m. on
July 21, 2010, and monthly thereafter within five (5) days following the
end of each of Jennifer’s fiscal monthly periods, commencing with the
first fiscal monthly period ending following the date of this Agreement a
report (the “Store Closing Program Report”) showing all stores and
distribution centers closed or proposed to be closed by any of the
Xxxxxxxx Companies, the status of going out of business sales or other
comparable closing activity at such stores including projected receipts
and disbursements, actual receipts and disbursements,, and such other
information with respect thereto as Mengnu shall have reasonably
requested, all in reasonable detail and otherwise in form and substance
satisfactory to Mengnu; and (ee) not later than 5:00 p.m. on July 21,
2010, and monthly thereafter within five (5) days following the end of
each of Jennifer’s fiscal monthly periods, commencing with the first
fiscal monthly period ending following the date of this Agreement, a
report (the “Lease Renegotiation Program Report”) showing all stores and
distribution centers and office locations proposed to be maintained by the
Xxxxxxxx Companies upon exit from bankruptcy or under consideration for
closing but for which a final determination has yet to be made and the
status of lease renegotiations with landlords with such stores and
distribution centers, including target back and forward rent reductions,
and actual back and forward rent reductions (the “Lease Renegotiation
Program”), and such other information with respect thereto as Mengnu shall
have reasonably requested, all in reasonable detail and otherwise in form
and substance satisfactory to Mengnu;
xxiv At any time after the
date of this Agreement and prior to the Effective Date, (aa) the Company’s
consolidated EBITDA for the cumulative period commencing fiscal August
2010 is less than 80% of the comparable amount in the Company’s Budget,
(bb) on a consolidated basis the Company shall have incurred expenses or
expenditures in the cumulative period commencing with fiscal August 2010
that, in respect of any line item other than Cost of Goods Sold, volume
related home delivery expenses, commission based employee compensation, or
other expenses or expenditures directly resulting from sales, exceeds ten
percent (10%) of the amount budgeted therefor in the Budget or that in the
aggregate exceeds five percent (5%) of the total amount of expenses and
expenditures budgeted in such Budget, (cc) any of the Xxxxxxxx Companies
shall make any payment on account of prepetition indebtedness (other than
to Mengnu or to Ashley Homestores, Ltd.) or which is inconsistent with the
most recent Budget provided to Mengnu without the prior written consent of
Mengnu, or (dd) the Company’s consolidated freely available cash balance
shall be less than $2.0 million;
xxv
The pro forma balance sheet included in the Disclosure Statement approved
by the Bankruptcy Court, or any amendment or supplement thereto, shall
show the consolidated freely available cash balance of the Xxxxxxxx
Companies as of the date of consummation of the Plan of Reorganization to
be less than $2.0 million;
xxvi
Xxxxxxxx shall fail to provide Mengnu with notice from time to time of the
proposed terms of any agreement with any liquidator for the disposition of
inventory of any of Jennifer’s stores or distribution centers being closed
or the proposed terms of any agreement with any lease renegotiation
advisor for the renegotiation of leases, in each case sufficiently in
advance of Jennifer’s entering into any such agreement to enable Mengnu’s
advisors to
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comment
thereon and discuss the same with Jennifer’s management and advisors, or
any such agreement shall be entered into to which Mengnu shall have timely
and reasonably objected;
xxvii (aa) the Disclosure
Statement, or any amendment or supplement thereto, or the Plan of
Reorganization approved pursuant to the Confirmation Order provides for
the payment upon consummation of the Plan of Reorganization or at any time
thereafter of (x) administrative expenses allowed in accordance with
Section 503(a)(2) of the Bankruptcy Code (other than expenses arising from
the purchase of inventory or customer deposits) such that, on a pro forma
basis after giving effect thereto as if all such expenses were paid on the
Effective Date, the Company’s consolidated free cash balance on the next
day following the Effective Date would be less than $2.0 million; or (y)
any allowed claims entitled to priority under Section 507 of the
Bankruptcy Code other than claims entitled to priority under Section
507(a)(4) or Section 507(a)(7) of the Bankruptcy Code or (bb) or at any
time prior to the issuance of the Confirmation Order or thereafter prior
to the Effective Date, after consultation with Xxxxxxxx, Mengnu reasonably
believes that on the Effective Date there will actually be any such
administrative expenses or that there will be any such
claims;
xxviii
Ten days prior to the date set for the hearing on confirmation of the Plan
of Reorganization (“Confirmation Hearing Date”) pursuant to Section 1128
of the Bankruptcy Code Xxxx Xxxxx and Xxxxxxxx shall have failed to agree
to modify his employment agreement with Xxxxxxxx on terms and conditions
and otherwise in form and substance satisfactory to Mengnu and entered
into an amendment to such employment agreement as so modified with
Xxxxxxxx; or the Bankruptcy Court shall not have approved such
modifications or Xxxxxxxx shall not have assumed such employment agreement
as so modified at or prior to the time of issuance of the Confirmation
Order;
xxix
Ten days prior to the Confirmation Hearing Date Xxxxxx Xxxxxxxxxx and
Xxxxxxxx shall have failed to agree to modify his employment agreement
with Xxxxxxxx on terms and conditions and otherwise in form and substance
satisfactory to Mengnu and entered into an amendment to such employment
agreement as so modified with Xxxxxxxx; or the Bankruptcy Court shall not
have approved such modifications or Xxxxxxxx shall not have assumed such
employment agreement as so modified at or prior to the time of issuance of
the Confirmation Order;
xxx
At any time after the date of this Agreement and prior to the Effective
Date, Xxxxxxxx change the rate of compensation or terms of compensation
(including, without limitation, terms providing for fringe benefits or
termination benefits) of, or entered into any new contractual arrangements
(other than new contractual arrangements with Xxxx Xxxxx or Xxxxxx
Xxxxxxxxxx in accordance with the immediately preceding clause xxviii or
clause xxix of this Section 7, as applicable) with, or provide or agree to
provide any new or additional employee benefits to, the employees (“Key
Employees”) shown on the organization chart on page 8 of the Management
Presentation dated June 2010 presented to Mengnu’s advisors by TM Capital
without the prior written consent of Mengnu; or proposed any new
employment contracts (other than in respect of Xxxx Xxxxx or Xxxxxx
Xxxxxxxxxx as aforesaid) or any new incentive compensation or other
employee benefit plans, contracts or arrangements for any of the Key
Employees either as part of the Plan of Reorganization or otherwise
without the prior written consent of Mengnu;
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xxxi Ten days prior to the
date of the hearing on the confirmation of the Plan of Reorganization, the
termination date of Jennifer’s credit card processing agreement with
Xxxxxxx Bank/Renaissance shall not have been extended by Xxxxxxx
Bank/Renaissance to a date no earlier than thirteen months immediately
following the date specified in the Disclosure Statement, or any amendment
or supplement thereto, as the date proposed for confirmation of the Plan
of Reorganization or Xxxxxxxx and Xxxxxxx Bank/Renaissance shall have
failed to make such other changes thereto as regards the right to reserve
and to withhold monies reserved and as to other matters as Mengnu shall
reasonably request unless prior to that time Xxxxxxxx shall have obtained
a binding agreement commitment from a new credit card processor in form
and substance satisfactory to Mengnu to process credit card sales drafts
with a stated expiry date no earlier than thirteen months immediately
following such proposed date for confirmation of the Plan;
xxxii
At any time after the date of this Agreement and prior to the Effective
Date, any of the Xxxxxxxx Companies shall assume or reject any store lease
or a material contract or close any store or modify or amend the terms of
or waive compliance with the terms of any store lease or material contract
or enter into any new store lease or material contract unless Mengnu has
been given reasonable notice in writing of such proposed action and has
not reasonably objected thereto prior to the time such action is taken;
xxxiii
At any time after the date of this Agreement and prior to the Effective
Date, Xxxxxxxx shall fail to timely file any report or other information
required to be filed by it under the Securities Exchange Act of 1934 , as
amended (“Exchange Act”) or any such report or other information so filed
shall contain an untrue statement of material fact or omit to state a
material fact necessary to be stated therein to make the statements made,
in light of the circumstances under which they were made, not misleading
or otherwise not be in compliance in any material respect with the
applicable requirements of the Exchange Act or the rules and regulations
of the Securities and Exchange Commission (“SEC”) under the Exchange Act;
xxxiv
At any time after the date of this Agreement and prior to the Effective
Date, any of the Xxxxxxxx Companies shall fail to keep proper books of
account in compliance with the applicable rules and regulations under the
Exchange Act or fail to make full and correct entries of all its financial
transactions and assets and liabilities;
xxxv
At any time after the date of this Agreement and prior to the Effective
Date, any of the Xxxxxxxx Companies shall fail to be in compliance in all
material respects with all laws, rules and regulations and orders of any
court, arbitrator or other tribunal having jurisdiction applicable to it
or any of its properties;
xxxvi
At any time after the date of this Agreement and prior to the Effective
Date, (aa) any of the Xxxxxxxx Companies receives notice of or obtains any
knowledge of any governmental or third party notices, complaints,
investigations, hearings, orders, decrees or judgments (or communications
indicating that any of the foregoing may be contemplated or threatened)
concerning any actions, events , occurrences or conditions which could
reasonably be anticipated to (x) have a Material Adverse Effect or (y)
prevent or delay the timely consummation of the Restructuring, or (bb)
Xxxxxxxx shall fail as promptly as reasonably practicable, and in any
event within two (2) business days after receiving such notice or
obtaining such knowledge to
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notify
Mengnu in writing and provide a statement of the facts with respect
thereto to Mengnu;
xxxvii At any time after the
date of this Agreement and prior to the Effective Date, any of the
Xxxxxxxx Companies shall, at any time during normal business hours, fails
to (x) permit Mengnu and its representatives (including without limitation
its financial and legal advisors, auditors, appraisers and any other
consultants engaged by Mengnu) to visit its corporate offices and any of
its store locations or other properties to examine and make copies of and
extracts from the books, records, accounts and files of any of the
Xxxxxxxx Companies and discuss the same with the officers and employees of
any of the Xxxxxxxx Companies; or (y) provide to Mengnu and its
representatives any information reasonably requested by Mengnu in writing,
including, without limitation, any information requested in writing by
Mengnu prior to the date of this Agreement and not theretofore
provided;
xxxviii
Xxxxxxxx fails to observe or perform any obligations or condition to be
performed or observed by it in accordance with any order of the Bankruptcy
Court that has become final or which has not been stayed on appeal;
xxxix
At any time Mengnu believes, or has reason to believe, that the milestone
specified in Section 7 ii (dd) cannot, or could not reasonably be expected
to, be achieved within the time period specified and, after advising
Xxxxxxxx to such effect and providing Xxxxxxxx with not less than five (5)
days’ opportunity to consult with and discuss the same with Mengnu, Mengnu
so notifies Xxxxxxxx; or
xl
Any subsidiary of
Xxxxxxxx not included in the Petitions as a debtor filing a voluntary case
under chapter 11 of the Bankruptcy Code shall not have been substantively
consolidated with Xxxxxxxx and procedurally consolidated in the Chapter 11
Cases prior to or pursuant to the issuance of the Confirmation Order
unless Mengnu shall expressly agree that such subsidiary need not be
substantively and procedurally so consolidated."
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If any Mengnu Condition shall exist
at any time prior to the Effective Date, Mengnu may in its discretion do any one
or more of the following: (i) suspend performance of any obligation or
observance of any condition to be performed or observed by it hereunder at any
time; (ii) by notice in writing to Xxxxxxxx declared this Agreement to be
terminated, whereupon neither Mengnu nor Xxxxxxxx shall have any further
obligation hereunder and this Agreement shall from and after the giving of such
notice be and become void and of no further force or effect; or (iii) if Mengnu
has voted for the Plan of Reorganization but it has not been consummated,
rescind its vote on the Plan of Reorganization (which vote shall thereupon be
null and void and have no further force or effect). Mengnu may exercise such
rights singly or cumulatively and the single or partial exercise of any such
right shall not prevent Mengnu from exercising any one or more of such rights at
any later time. Such rights shall be in addition to any other rights or remedies
Mengnu may have at law, in equity or otherwise.
8. Representations and Warranties;
Hearing on Relief from Stay. The Company represents and warrants
to and agrees with Mengnu that (i) Xxxxxxxx and each of the other Xxxxxxxx
Companies is duly organized, validly existing, and is in good standing under the
laws of the jurisdiction of its formation, (ii) Jennifer’s Form 10-K for its
fiscal year ended August 29, 2009, as amended, its Form 10-Q for its fiscal
quarter ended February 28, 2009, its Form 8-K dated February 19, 2010 and its
Schedule 14A in respect of its annual meeting of stockholder held February 9,
2010, in each case filed with the SEC, complied in all material respects with
the applicable requirements of the Exchange Act and the rules and regulations of
the SEC thereunder and none of such documents, when so filed, contained an
untrue statement of material fact or omitted to state any material fact
10
required to be
stated therein or necessary to make the statements made, in light of the
circumstances under which they were made, not misleading; (iii) its execution,
delivery, and performance of this Agreement are within the power and authority
of Xxxxxxxx and have been duly authorized by Xxxxxxxx and no other approval or
authorization is required, (iv) this Agreement has been duly executed and
delivered by it and constitutes its legal, valid, and binding obligation,
enforceable in accordance with the terms hereof, subject to bankruptcy,
insolvency, fraudulent conveyance, and similar laws affecting the rights or
remedies of creditors generally, and (v) none of the execution and delivery of
this Agreement or compliance with the terms and provisions hereof by Xxxxxxxx
will violate, conflict with, or result in a breach of, its certificate of
incorporation or bylaws or other constitutive document, any applicable law or
regulation, any order, writ, injunction, or decree of any court or governmental
authority or agency, or any agreement or instrument to which it is a party or by
which it is bound or to which it is subject.
Mengnu represents and warrants that
(i) it is validly existing as a corporation in good standing under the laws of
the People’s Republic of China and has all the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder
and (ii) assuming this Agreement has been duly executed by Xxxxxxxx and
constitutes the valid and legally binding obligation of Xxxxxxxx, this Agreement
constitutes the valid and legally binding obligation of Mengnu.
Xxxxxxxx on behalf of itself and
each of the other Xxxxxxxx Companies hereby consents to any application by
Mengnu for a hearing on any motion to obtain relief from the stay under Section
362 of the Bankruptcy Code upon no more than five days’ notice.
9. Governing Law; Jurisdiction.
This Agreement
shall be governed by and construed in accordance with the internal laws of the
state of New York, without regard to any conflicts of law provisions which would
require the application of the law of any other jurisdiction. By its execution
and delivery of this agreement, each of the parties hereby irrevocably and
unconditionally agrees for itself that any legal action, suit, or proceeding
against it with respect to any matter under or arising out of or in connection
with this Agreement or for recognition or enforcement of any judgment rendered
in any such action, suit, or proceeding, shall be brought in the United States
District Court for the Southern District of New York, and, by execution and
delivery of this Agreement, each of the parties hereby irrevocably accepts and
submits itself to the exclusive jurisdiction of such court, in any action, suit
or proceeding to enforce any of the terms or provisions of this Agreement,
unconditionally, with respect to any such action, suit, or proceeding and agrees
that service of process in connection therewith shall be effective if made by
first class mail, postage prepaid and, if mailed to Mengnu, with the highest
priority and most expeditious delivery available for delivery overseas, and
shall not contest the form of manner of such service. Notwithstanding the
foregoing consent to New York jurisdiction, upon the commencement of the Chapter
11 Cases, the parties agree that the Bankruptcy Court shall have exclusive
jurisdiction of all matters arising out of or in connection with Mengnu’s and
Jennifer’s obligations under this Agreement and that the parties shall not seek
to enforce this Agreement in any other court so long as the Bankruptcy Court
retains jurisdiction of the Chapter 11 Cases.
10. Specific Performance.
It is understood
and agreed by the parties to this Agreement that money damages would not be a
sufficient remedy for any breach of this Agreement by any party, and each
non-breaching party shall be entitled to seek specific performance and
injunctive or other equitable relief as a remedy of any such breach, including,
without limitation, an order of the Bankruptcy Court requiring any party to
comply promptly with any of its obligations hereunder.
11. Reservation of Rights.
This Agreement
is part of a proposed settlement of disputes between the parties hereto. Except
as expressly provided in this Agreement, nothing herein is intended to, or does,
in any manner waive, limit, impair or restrict the ability of the Company or
Mengnu to protect and preserve its rights, remedies and interests, or its full
participation in any bankruptcy case filed by the Company. If the transactions
contemplated herein or in the Plan of Reorganization are not consummated, or if
this Agreement is terminated, the parties hereto fully reserve any and all of
their rights. Pursuant to Rule 408 of the Federal Rules of Evidence and any
applicable state rules of evidence, this Agreement shall not be admitted into
evidence in any proceeding other than a proceeding to enforce its terms.
12. Headings. The headings of the Sections and
Subsections of this Agreement are inserted for convenience only and shall not
affect the interpretation hereof.
11
13. Successors and Assigns.
This Agreement
is intended to bind and inure to the benefit of the parties and their respective
successors, assigns, heirs, executors, administrators and
representatives.
14. Notices. Notices given under this agreement
shall be given by, if to the Company, by first class mail, postage prepaid,
return receipt requested, or, if to Mengnu, by Federal Express priority
international delivery, or if to either party by e-mail through the internet, as
follows:
If to
the Company:
Xxxxxxxx
Convertibles, Inc.
000 Xxxxxxxxx Xxxx Xxxxx Xxxxxxxx, XX 00000 Attn: Xxxxxx Xxxxxxxxxx Xxxx Xxxxx e-mail: xxxxxxxxx@xxx.xxx AND xxx00@xxx.xxx with a copy to
Xxxxxx
Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park Avenue Tower 00 Xxxx
00xx
Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000 Attn: Xxxxxxx Xxx, Esq. Xxxxxxxx Xxxxxxxx, Esq. e-mail xxxx@xxxxxxxxx.xxx AND jnaditch@xxxxxxxxx@xxxxxxxxx.xxx If to
Mengnu:
Mengnu
Group
000 Xxxxxxxxx Xxxx Economic Development Zone Haining Zhejiang, 31440 Attn: Xxxxxx Xxx e-mail: xxxxxxxxx@xxxxxx.xxx with a copy to
Xxxxxxxx
X. Xxxxx, III
000 Xxxx Xxxxxx Xxxxx 0000 Xxx Xxxx, Xxx Xxxx 00000 e-mail: xxxxxxx@xxxxx.xxx -and-
Xxxxx
Xxxxx
King & Wood 000 Xxxxxxx Xxxxxx 00x Xxxxx Xxx Xxxx, Xxx Xxxx 00000 e-mail: xxxxxxxxxx@xxxxxxxxxxx.xxx |
12
-and-
Xxxxxx
LLP
000 Xxxxxxx Xxxxxx, 00xx Xxxxx Xxx Xxxx, XX 00000 Attn: Xxxxxx X. Xxxxxx, Esq. e-mail: xxxxxxx@xxxxxxxxx.xxx |
15. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same Agreement. This Agreement may be
executed and delivered by hand, facsimile, or by electronic mail in portable
document format.
16. Amendments and Waivers.
This Agreement
may not be modified, amended, or supplemented except in writing signed by the
party against which enforcement of such modification, amendment or waiver is
sought.
17. No Third Party Beneficiaries.
Unless expressly
stated herein, this Agreement shall be solely for the benefit of the parties
hereto and no other person or entity is intended as a beneficiary hereof.
18.. No Solicitation. This Agreement is not and shall not
be deemed to be a solicitation for votes in favor of the Reorganization Plan in
the Chapter 11 Cases in contravention of section 1125 of the Bankruptcy Code.
Mengnu's vote with respect to the Plan of Reorganization will not be solicited
until Mengnu has received the Plan of Reorganization and Disclosure Statement,
in each case as approved by the Bankruptcy Court. Each party hereto acknowledges
that it has been represented by counsel in connection with this Agreement and
the transactions contemplated hereby.
19. Severability. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
13
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed and delivered by its duly authorized
officer as of the date first above written.
XXXXXXXX CONVERTIBLES, INC.
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By: |
/s/
Xxxxxx X. Xxxxxxxxxx
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||
Name: |
Xxxxxx
X. Xxxxxxxxxx
|
||
Title: |
Chairman/CEO
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HAINING MENGNU GROUP CO.
LTD
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By: |
/s/
YaoXiang Yue
|
||
Name: |
YaoXiang
Yue
|
||
Title: |
Chairman
of the Board
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14