THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE PROPOSED TRANSACTION DOES
NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR STATE SECURITIES
LAWS, OR UNLESS THE PROPOSED TRANSACTION IS REGISTERED OR QUALIFIED AS REQUIRED.
This instrument and the rights and obligations evidenced hereby are subordinate
in the manner and to the extent set forth in that certain Subordination and
Intercreditor Agreement (as amended, supplemented or otherwise modified from
time to time, the "Subordination Agreement") dated as of January 6, 2002, among
KBB Retail Assets Corp. (fka F.A.O. Xxxxxxx) ("KBB"), Quality Fulfillment
Services, Inc. ("QFS"), The Right Start, Inc. (the "Parent"), Toy Soldier, Inc.
(collectively with Parent, the "Obligors") and Xxxxx Fargo Retail Finance, LLC
(the "Senior Lender"), to the indebtedness (including interest) owed by the
Obligors pursuant to that certain Loan and Security Agreement dated as of
January 23, 2001, between the Obligors and the Senior Lender, as such Loan and
Security Agreement has been and hereafter may be amended, supplemented or
otherwise modified from time to time (the "Xxxxx Loan Agreement") and to
indebtedness refinancing the indebtedness under that agreement as contemplated
by the Subordination Agreement; and each holder of this instrument, by its
acceptance hereof, irrevocably agrees to be bound by the provisions of the
Subordination Agreement.
TOY SOLDIER, INC.
SUBORDINATED NOTE DUE JANUARY 6, 2005
$1,500,000 Calabasas, California
Note No. Chicago -1 January 6, 2002
FOR VALUE RECEIVED, the undersigned, Toy Soldier, Inc., a Delaware
corporation (the "Company"), promises to pay to KBB RETAIL ASSETS CORP., or
registered assigns (the "Holder"), the principal sum of ONE MILLION FIVE HUNDRED
THOUSAND DOLLARS, as such principal sum may be reduced through prepayments, plus
any accrued and unpaid interest thereon as provided for herein (or so much of
such aggregate amount as shall not have been prepaid) on the Maturity Date as
defined in the following sentence. "Maturity Date" shall mean the earlier of the
date that the Company is required (i) to sell the "Chicago Inventory" (as that
term is defined in that certain Interim Operating Agreement dated as of January
6, 2002 by and among the Company, Parent, Royal Vendex KBB N.V. ("Vendex") and
KBB (the "Agreement" capitalized terms used in this Note without definition
shall have the meanings ascribed to such terms in the Agreement)) to Holder
pursuant to Section 7.2 of the Agreement (such sale, a "Chicago Inventory Sale")
or (ii) to transfer principal balances from this Note to the Subordinated Notes
(as defined in the Purchase Agreement) under Section 7.1 of the Agreement (such
transfer a "Principal Balance Transfer"). This Note is being issued as payment
under the terms of the Agreement. Payments are to be made to the address of the
registered holder of this Note as set forth on the records of the Company (A) in
lawful money of the United States of America, at any time or, (B)(1) in the case
of repayment of principal on the Maturity Date, (a) if a Chicago Inventory Sale
is required by the Agreement, by a Chicago Inventory Sale which shall reduce the
outstanding principal balance hereof by the Cost of the Chicago Inventory or (b)
if a Principal Balance Transfer is required by the Agreement and the
Subordinated Notes are outstanding, by a Principal Balance Transfer which shall
reduce the outstanding principal amount hereof by the actual dollar increase in
the principal amount of the outstanding Subordinated Notes and (2) in the case
of interest payments, by offset of expenses reimbursable by KBB under the
Agreement, in each case, as contemplated by the Agreement (all such payments
made under subsection (B) of the preceding sentence, "Non-Cash Payments");
provided that, any balance remaining unpaid after application of any such
Non-Cash Payments to the principal balance of this Note shall be paid in lawful
money of the United States of America pursuant to subsection (A). The Company
promises to pay interest on the principal amount of this Note, in cash or
through Non-Cash Payments, semi-annually on each June 1 and December 1,
commencing June 1, 2002 (each such date an "Interest Payment Date"), at a rate
of 8% per annum, to the holder of record of this Note on the Company's records
(the "Holder") at the close of business on the date that is 10 business days
prior to such Interest Payment Date (the "Record Date").
Interest on the unpaid principal amount of this Note will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance hereof. Interest will be computed on the basis
of a 360-day year consisting of twelve 30-day months and will be paid
semi-annually. The Company shall pay principal of and interest on this Note in
such coin or currency of the United States of America as at the time of payment
shall be legal tender (unless paid through a Non-Cash Payment). The Company may,
however, pay principal of or interest on this Note by wire transfer of federal
funds, or interest on this Note by its check payable in such legal tender.
This Note is the subordinated note totaling $1,500,000 in aggregate
principal amount issued as payment under the Agreement (the "Note"). This Note
is guaranteed by the Parent pursuant to a guaranty of even date herewith. If the
Company shall (i) fail to pay principal or interest when due, (ii) fail
generally to pay its debts as they mature, (iii) have any complaint,
application, or petition filed by or against it initiating any matter in which
the Company is or may be granted any relief from the its debts pursuant to Title
11, U.S.C., as amended from time to time, or any other insolvency statute or
procedure or make a general assignment for the benefit of its creditors (a
"Bankruptcy Event"), (iv) experience or suffer to exist an "Event of Default"
(as defined in the Xxxxx Loan Agreement) which Event of Default (as defined in
the Xxxxx Loan Agreement) is continuing and has not been waived within ten days
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after written notice thereof to the Company, or (v) fail to comply with any
other provision of this Note or the Agreement which failure shall continue for
five days after written notice thereof from the Holder (each of (i) through (v)
above, an "Event of Default"), the aggregate outstanding amount of this Note,
including any accrued and unpaid interest, shall be immediately due and payable,
and in addition thereto, and not in substitution therefor, the Holder shall be
entitled to exercise any one or more of the rights and remedies provided by law.
Failure to exercise any right or remedy under this Note or available under
applicable law shall not constitute a waiver of such option or such other
remedies or of the right to exercise any of the same in the event of any
subsequent Event of Default. The Company and all makers, sureties, guarantors,
endorsers and other persons assuming obligations pursuant to this Note hereby
waive presentment, protest, demand, notice of dishonor and all other notices and
all defenses and pleas on the grounds of any extension or extension of the time
of payments or the due dates hereof, in whole or in part, before or after
maturity, with or without notice. No renewal or extension of this Note, no
release of any obligor and no delay in enforcement of this Note or in exercising
any right or power hereunder shall affect the liability of any obligor
hereunder.
1. Ranking. This instrument and the rights and obligations evidenced hereby
are subordinate in the manner and to the extent set forth in the Subordination
Agreement to the indebtedness (including interest) owed by the Company pursuant
to the Xxxxx Loan Agreement and to indebtedness refinancing the indebtedness
under the Xxxxx Loan Agreement (the "Xxxxx Indebtedness") as contemplated by the
Subordination Agreement, and to any other secured indebtedness of the Company
for borrowed money permitted by the Xxxxx Loan Agreement, and each Holder of
this Note, by acceptance hereof, agrees to be bound by the provisions of the
Subordination Agreement. In the event that any provisions of this Note are
deemed to conflict with the Subordination Agreement, the provisions of the
Subordination Agreement shall govern.
2. Covenants.
2.1 Payment of Note. The Company shall pay the principal of and interest on
this Note on the dates and in the manner provided herein. Principal and interest
shall be considered paid on the date due if the Company shall have delivered
such amounts to the address of the Holder on its books and records or to such
other address or by wire transfer instruction set forth in writing and delivered
to the Company, in each case in accordance with the notice provisions of this
Note.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any bankruptcy law) on (i)
overdue principal at the rate borne by this Note compounded semiannually and
(ii) overdue installments of interest at the same rate, compounded semiannually.
2.2 Corporate Existence. Except as set forth in this Section 2.2, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence in accordance with its
organizational documents, rights (charter and statutory), licenses and
franchises; provided however, that the Company shall not be required to preserve
3
any such right, license or franchise, if the Board of Directors of the Company
shall determine in good faith, which determination shall be evidenced by a board
resolution, that the preservation thereof is no longer desirable in the conduct
of the business of the Company and that the loss thereof is not adverse in any
material respect to the Holder. Notwithstanding the other provisions of this
Note, the Company shall be permitted to merge with or into any other entity if
(a) the continuing corporation upon completion of the merger shall be a
wholly-owned subsidiary of the Parent or (b) the merger is with and into a
wholly-owned subsidiary of the Company; provided such merger is effected for the
purposes of reincorporating the Company in another state or (c) the merger is
with and into Parent; and, in each case, the surviving corporation of such
merger expressly assumes the performance of the obligations of the Company under
this Note.
2.3 Taxes. The Company shall pay prior to delinquency, all taxes,
assessments and governmental levies, except as contested in good faith and by
appropriate proceedings or in cases in which such failure to pay would not have
a material adverse effect on the Company or other rights of the holder of this
Note.
2.4 Investment Company Act. The Company shall not become an investment
company subject to registration under the Investment Company Act of 1940, as
amended.
2.5 Transactions with Related Persons. The Company shall not directly or
indirectly, conduct any business or enter into any contract, agreement, loan,
advance, guarantee, understanding or other transaction or series of related
transactions pursuant to which the Company shall receive or render value
exceeding $750,000, with any Related Person (as defined in that certain Purchase
Agreement dated November 19,2001 among Vendex, KBB, QFS, Company and Parent (the
"Purchase Agreement")) of the Company (a "Related Person Transaction") unless
(i) the terms of such Related Person Transaction are (A) set forth in writing
and (B) no less favorable to the Company than those that would have been
obtained in an arms length transaction with an unrelated third party.
2.6 Restriction on Layering Debt and Issuing Disqualified Stock. The
Company shall not (a) incur any indebtedness that is subordinate or junior in
right of payment to the Xxxxx Indebtedness and senior in any respect (including
by virtue of being secured in any manner) in right of payment to this Note or
(b) issue any class of capital stock that is mandatorily redeemable prior to the
final maturity date of this Note. Notwithstanding the foregoing, Company shall
be permitted to incur indebtedness that is secured by a lien (including purchase
money indebtedness) to the extent permitted under the Xxxxx Loan Agreement and
to enter into leases that may be capitalized in accordance with GAAP and, to the
extent that any such incurrence is permitted by the Xxxxx Loan Agreement, and
any lien granted in connection therewith on any Inventory (as defined in the
Purchase Agreement) located at or attributable to the Chicago Store is
subordinated to the liens securing this Note, such incurrence or entrance into
leases shall not be deemed a violation of this Section 2.6.
4
2.7 Usury. The Company agrees (to the extent it may lawfully do so) that it
will not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or a
portion of the principal of or interest on this Note as contemplated in this
Note, wherever enacted, now or at any time later in force, or that may
materially affect the covenants or the performance of this Note in any manner
inconsistent with its provisions. The Company expressly waives all benefit or
advantage of any such law, and will not hinder, delay or impede the execution of
any power granted to the Holder, but will suffer and permit the execution of
every such power as though no such law had been enacted. If a court of competent
jurisdiction prescribes that the Company may not waive its rights to take the
benefit or advantage of any stay or extension law or any usury law or other law
in accordance with the prior sentence, then the obligation to pay interest on
the Note shall be reduced to the maximum legal limit under applicable law
governing the interest payable in connection with the Note, and any amount of
interest paid by the Company that is deemed illegal shall be deemed to have been
a prepayment of principal (without penalty or premium) on this Note.
2.8 Reports. Unless such reports are readily accessible by the public,
electronically and without cost, the Company shall deliver copies of all
quarterly and annual financial reports and of the information, documents, and
other reports (or copies of such portions of any of the foregoing as the
Securities and Exchange Commission (the "Commission") may by rules and
regulations prescribe) that the Company is required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC Reports") to the
Holder. If the Company is not subject to the requirements of Section 13(a) or
15(d) of the Exchange Act or shall cease to be required by the Commission to
file SEC Reports pursuant to the Exchange Act, the Company shall nevertheless
continue to cause SEC Reports, comparable to those that it would be required to
file pursuant to Section 13(a) or 15(d) of the Exchange Act if it were subject
to the requirements of either such section, to be delivered to the Holder within
the same time periods as would have applied (including under the preceding
sentence) had the Company been subject to the requirements of Section 13(a) or
15(d) of the Exchange Act.
2.9 Restricted Payments. The Company shall not directly or indirectly
purchase, redeem, retire or otherwise acquire for value any indebtedness of the
Company for borrowed money or evidenced by notes, debentures, bonds or other
similar instruments that is subordinate (whether by agreement or otherwise) in
right of payment to the Note, except at final maturity or in accordance with the
mandatory redemption or repayment provisions set forth in the original
documentation governing such indebtedness.
2.10 Asset Sales. The Company shall not, whether in a single transaction or
a series of related transactions occurring within any twelve-month period, sell,
lease, convey, dispose or otherwise transfer any Inventory (as defined in the
Purchase Agreement) located at or attributable to the Chicago Store (including
by way of a sale and leaseback transaction), other than sales, leases,
conveyances, dispositions or other transfers in the ordinary course of business,
if the Inventory:
5
(x) has a Fair Market Value in excess of $100,000 or
(y) is sold or otherwise disposed of for net proceeds in excess of $100,000
(each of the foregoing, an "Asset Sale"), unless, in each case:
(a) no Event of Default exists or would occur as a result of the
Asset Sale;
(b) the Company receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets sold or otherwise disposed
of; and
(c) 100% of the consideration therefor received by the Company is in the
form of cash.
3. Transfer; Registration; Replacement; Prepayment.
3.1 Transfer; Registration; Replacement . Upon surrender of this Note for
registration of transfer or assignment, duly endorsed, or accompanied by a
written instrument of transfer or assignment duly executed, by the registered
Holder hereof or such Holder's attorney duly authorized in writing, a new Note
for a like principal amount shall be issued to, and, at the option of the
Holder, registered in the name of, the transferee or assignee. The Company may
deem and treat the person in whose name this Note is registered as the Holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
3.2 Prepayment Triggered by Asset Sale. In the event that the Company shall
receive net cash proceeds from an Asset Sale ("Asset Sale Proceeds"), the
Company shall prepay an aggregate principal amount of the Note, which, after
addition of any accrued and unpaid interest thereon to the date of prepayment,
is equal to the amount of the Asset Sale Proceeds not more than 30 calendar days
after such receipt.
(a) Notice to Holder. If any event occurs that requires the Company to
prepay all or a portion of this Note, the Company shall send notice of such
event to the Holder not less than 10 days prior to the date such prepayment is
required at such Holder's address of record by first class mail, postage
prepaid. Such notice will identify the aggregate principal amount of this Note
to be prepaid and the prepayment date and state that, provided the prepayment
amount is timely paid, the aggregate principal amount of this Note to be prepaid
shall cease to accrue interest from and after the prepayment date.
(b) Effect of Notice. Once notice of prepayment is mailed, that portion of
the principal amount of this Note to be prepaid shall become due and payable on
the prepayment date and, provided the prepayment amount is timely paid, the
aggregate principal amount of this Note to be prepaid shall cease to accrue
interest from and after the prepayment date.
6
(c) Application of Prepayment. Any prepayment of this Note shall be applied
first to pay any accrued and unpaid interest on this Note to the date of
prepayment (after giving effect to any offset of such unpaid interest against
expenses reimbursable by KBB under the Agreement) and thereafter to the
remaining principal balance of this Note.
4. Miscellaneous.
4.1 Organization and Authority. The Company represents and warrants that
the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all necessary power to
issue and perform its obligations under this Note.
4.2 Authorization. The Company represents and warrants that the execution
and delivery of this Note, and the performance of the terms hereof, have been
duly authorized by all necessary corporate action on the part of the Company and
will not conflict with or result in a breach of the certificate of incorporation
or bylaws of the Company. The Company represents and warrants that this Note
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms except as limited by bankruptcy and
insolvency laws and other laws affecting the rights of creditors generally.
4.3 Definitions.
(a) " Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended (or any successor act), and the rules and regulations promulgated
thereunder.
4.4 Notices. All notices to be given under this Note shall be in writing
and shall be given either personally, by reputable private delivery service, by
regular first-class mail or certified mail return receipt requested, by fax, or
email, addressed to the parties at the addresses shown below, or at any other
address designated in writing by one party to the other party. All notices shall
be deemed to have been given upon delivery in the case of notices personally
delivered, or at the expiration of two business days following delivery to the
private delivery service, or three business days following the deposit thereof
in the United States mail, with postage prepaid or on the first business day of
receipt in the case of notices sent by fax or email.
If to Holder: At its address set forth on the records of the Company which,
until changed as set forth herein shall be:
x/x Xxxxx Xxxxxx XXX X.X.
Xx Xxxxxxx 0, XX-0000
Postbus 7997, 1008, AD
Amsterdam, The Netherlands
Attention: Xxxxxx Xxxxx/Xxxx ter Hark
7
Tel: 00.00.0000.000
Fax: 00.00.0000.000
Email: xxxx.xxx.xxxx@xxxxxxxxx.xx
with required copy to (which, in and
of itself, shall not constitute
notice):
Kronish Xxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxxxxxxxx@xxxxxxx.xxx
If to Company to:
Toy Soldier, Inc.
00000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Legal
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxxxxx@xxxxxxxxxx.xxx
with required copy to (which, in and
of itself, shall not constitute
notice):
Fulbright & Xxxxxxxx L.L.P.
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx Xxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxx@xxxxxxxxx.xxx
4.5 Amendment; Successors and Assigns. This Note may not be modified or
amended, nor may any rights hereunder be waived, except in a writing signed by
the party against whom enforcement of the modification, amendment or waiver is
sought. This Note shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. The Company's
obligations under this Note may not be assigned or transferred by the Company
without the prior written consent of the registered Holder hereof or thereof,
except in connection with a merger permitted by Section 2.2. This Note may not
be assigned by the initial Holder prior to termination of the Operating
Agreement.
8
4.6 Governing Law. This Note shall be governed by, and shall be construed
and enforced in accordance with, the internal laws of the State of New York,
without regard to conflicts of laws principles.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on its behalf as of the date first hereinabove set forth.
TOY SOLDIER, INC.
By: /s/ Xxxxx X. Xxxxx
Xxxxx X. Xxxxx
President and Chief Executive Officer
