Exhibit 10.19
SECURITY, PLEDGE AND GUARANTY AGREEMENT
This SECURITY, PLEDGE AND GUARANTY AGREEMENT (this "AGREEMENT") is
entered into as of May 1, 2001 by and among: (i) L.S. Holding, Inc., a U.S.
Virgin Islands corporation (the "BORROWER"), Little Switzerland, Inc., a
Delaware corporation ("PARENT") and L.S. Wholesale, Inc., a Massachusetts
corporation (each a "GUARANTOR"; collectively, the "GUARANTORS"; and
collectively with the Borrower, the "BORROWER PARTIES"), on the one hand, and
(ii) Xxxxxxx and Company, a New York corporation (the "LENDER"), on the other
hand.
RECITALS
A. The Borrower, Guarantors and the Lender have entered into a Loan
Agreement dated as of May 1, 2001 (as it may hereafter be amended or otherwise
modified from time to time, the "LOAN AGREEMENT").
B. The Borrower is a direct wholly-owned subsidiary of Parent.
C. L.S. Wholesale, Inc. is a direct wholly-owned subsidiary of Parent.
D. It is a condition precedent to the making of Advances by the Lender
under the Loan Agreement that the Borrower Parties shall have executed and
delivered this Agreement and taken the action contemplated hereby.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lender to make Advances under the Loan Agreement, the Lender and the
Borrower Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Loan Agreement.
"AGREEMENT" has the meaning ascribed to that term in the Header.
"BORROWER" has the meaning ascribed to that term in the Header.
"BORROWER PARTIES" has the meaning ascribed to that term in the Header.
"CHASE" means The Chase Manhattan Bank, N.A.
"CHASE LOAN AGREEMENTS" means (i) the Loan Agreement, dated May 1,
2001, by and among L.S. Wholesale, Inc., the Parent and Chase, providing for a
revolving credit facility in an aggregate principal amount of $700,000, (ii) the
Loan Agreement, dated May 1, 2001, by and among L.S. Holding, Inc., the Parent,
L.S. Wholesale, Inc. and Chase, providing for a revolving credit facility in
an aggregate principal amount of $2,950,000, and (iii) the Loan Agreement,
dated May 1, 2001, by and among L.S. Holding (USA), Inc., the Parent, L.S.
Wholesale, Inc. and Chase, providing for a revolving credit facility in an
aggregate principal amount of $100,000.
"CODE" has the meaning ascribed to that term in Section 2.11(a).
"COLLATERAL" has the meaning ascribed to that term in Section 2.01(a).
"DEBT" has the meaning ascribed to that term in Section 3.05(a).
"FINANCIAL STATEMENTS" has the meaning ascribed to that term in Section
4.01(g).
"GUARANTORS" has the meaning ascribed to that term in the Header.
"IMPLEMENTING AGREEMENTS" has the meaning ascribed to that term in
Section 2.01(b).
"INVENTORY" has the meaning ascribed to that term in Section
2.01(a)(i).
"ISSUER" has the meaning ascribed to that term in Section 2.01(a)(v).
"LENDER" has the meaning ascribed to that term in the Header.
"LOAN AGREEMENT" has the meaning ascribed to that term in the Recitals.
"OBLIGATIONS" has the meaning ascribed to that term in Section 2.02.
"PARENT" means Little Switzerland, Inc., a Delaware corporation.
"PLEDGED STOCK" has the meaning ascribed to that term in Section
2.01(a)(iv).
"RECEIVABLES" has the meaning ascribed to that term in Section
2.01(a)(ii).
"SUBSIDIARY" means each corporation, partnership, limited liability
company and other entity with respect to which a Borrower Party (i) beneficially
owns, directly or indirectly, 10% or more of the outstanding stock or other
equity interests, (ii) otherwise controls, directly or indirectly, because of
factors or relationships other than the percentage of equity interests owned or
(iii) is required to account for its ownership under the equity method. For
avoidance of doubt, "Subsidiary" shall include L.S. Holdings, Inc., a U.S.
Virgin Islands corporation, and its respective Subsidiaries.
"SUBORDINATION AGREEMENT" means the Subordination Agreement, dated May
1, 2001, by and among the Borrower, certain affiliates of the Borrower, the
Lender and Chase.
"TRANSACTIONS" has the meaning ascribed to that term in Section
4.01(b).
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ARTICLE 2
SECURITY AND PLEDGE
SECTION 2.01. PLEDGE, ASSIGNMENT AND GRANT OF SECURITY. (a) The
Borrower Parties hereby grant, assign and pledge a security interest in and lien
on all of their right, title and interest in and to the following, whether now
owned or hereafter acquired (the "COLLATERAL"):
(i) all inventory in all of its forms, wherever located, now or
hereafter existing including, but not limited to, goods in which the
Borrower Parties have an interest in mass or a joint or other interest
or right of any kind and goods which are returned to the Borrower
Parties, and all accessions thereto and products thereof and documents
therefor (any and all such inventory, accessions, products and
documents being the "INVENTORY");
(ii) all accounts, contract rights, chattel paper, instruments,
deposit accounts, general intangibles and other obligations of any kind
of the Borrower Parties, now or hereafter existing, whether or not
arising out of or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing in and
to all security agreements, leases, and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles or
obligations (any and all such accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles and obligations
being the "RECEIVABLES");
(iii) all or a portion of the issued and outstanding capital stock
owned by the Borrower Parties issued by the Borrower Parties and
certain Subsidiaries, as set forth on Schedule II hereto, and all of
the capital stock of any additional Subsidiary organized within the
U.S. Virgin Islands and 65% of the capital stock of any additional
Subsidiary organized outside the U.S. Virgin Islands of any of the
Borrower Parties organized or acquired after the date hereof and all
stock dividends granted thereon (the "PLEDGED STOCK;" each issuer of
Pledged Stock is referred to herein as an "ISSUER");
(iv) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of
the types described in clauses (i) - (iii) of this Section 2.01(a))
and, to the extent not otherwise included, all (A) payments under
insurance, or any indemnity, warranty or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing
Collateral, (B) cash and (C) all dividends, distributions, option or
rights granted on Pledged Stock, whether in addition to, in
substitution of, as a conversion of, or in exchange for such Pledged
Stock, and any sums paid upon or in respect of the Pledged Stock upon
the liquidation or dissolution of any Issuer.
Notwithstanding anything in this Section 2.01(a) to the contrary, the grant,
assignment and pledge of a security interest by the Borrower Parties hereunder
of all of their respective right, title and interest in and to the Collateral is
subject, pursuant to the terms and conditions of the
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Subordination Agreement, to the prior lien on the Collateral in favor of Chase
as security for the credit facilities provided by Chase pursuant to the Chase
Loan Agreements.
(b) The Borrower Parties hereby covenant and agree to execute and
deliver in favor of the Lender such documents (the "IMPLEMENTING AGREEMENTS") as
the Lender shall reasonably determine from time to time are necessary to
perfect, grant, assign and pledge a security interest in and lien on all of the
Borrower Parties' right, title and interest in and to the Collateral, subject,
pursuant to the terms and conditions of the Subordination Agreement, only to the
prior lien on the Collateral in favor of Chase as security for the credit
facilities provided by Chase pursuant to the Chase Loan Agreements.
SECTION 2.02. SECURITY FOR OBLIGATIONS. This Agreement and the
Implementing Agreements shall secure the payment of all obligations of the
Borrower now or hereafter existing under the Loan Agreement and the Note,
whether for principal, interest, fees, expenses or otherwise, and all
obligations of the Borrower now or hereafter existing under this Agreement (all
such obligations of the Borrower being the "OBLIGATIONS"). Without limiting the
generality of the foregoing, this Agreement and the Implementing Agreements
shall secure the payment of all amounts which constitute part of the Obligations
and would be owed by the Borrower to the Lender under the Loan Agreement and the
Note but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization, insolvency or similar proceeding
involving the Borrower.
SECTION 2.03. THE BORROWER PARTIES REMAIN LIABLE. Anything herein to
the contrary notwithstanding: (a) each Borrower Party shall remain liable under
the contracts and agreements to which it is a party included in the Collateral
to the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if the Loan Documents had not been executed
(subject to any limitations on such performance contained in the Loan
Documents); (b) the exercise by the Lender of any of the rights hereunder shall
not release the Borrower Parties from any of their duties or obligations under
the contracts and agreements included in the Collateral; and (c) the Lender
shall not have any obligation or liability under the contracts and agreements
included in the Collateral by reason of the Loan Documents, nor shall the Lender
be obligated to perform any of the obligations or duties of the Borrower Parties
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 2.04. FURTHER ASSURANCES. (a) The Borrower Parties agree that
from time to time, at their expense, they shall promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary, or that the Lender may reasonably request, in order to consummate the
Transactions, perfect and protect any pledge, assignment or security interest
granted or purported to be granted under this Agreement or to enable the Lender
to exercise and enforce its rights and remedies hereunder or under the
Implementing Agreements with respect to any Collateral. Without limiting the
generality of the foregoing, the Borrower Parties will: (i) if any Collateral
shall be evidenced by a promissory note or other instrument, deliver and pledge
to the Lender hereunder such note or instrument duly indorsed and accompanied by
duly executed instruments of transfer or assignment, including delivery of stock
certificates representing any shares of the Pledged Stock and an undated stock
power covering each such certificate, duly executed in blank by the pertinent
Borrower Party, all in form and substance reasonably satisfactory to the Lender;
and (ii) execute
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and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary, or as the Lender may
reasonably request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereunder or under the
Implementing Agreements.
(b) The Borrower Parties hereby authorize the Lender to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of any of the Borrower
Parties where permitted by law. A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(c) The Borrower Parties will furnish to the Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.
SECTION 2.05. AS TO INVENTORY. The Borrower Parties shall keep the
Inventory (other than Inventory sold in the ordinary course of business) at the
places set forth on Schedule I hereto or, upon 30 days' prior written notice to
the Lender, at such other places in a jurisdiction where all action required by
Section 2.04 shall have been taken with respect to the Inventory. The Borrower
Parties shall pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Inventory, except to the
extent that any of the foregoing are being contested by any of the Borrower
Parties and no lien is imposed on the Inventory.
SECTION 2.06. AS TO PLEDGED STOCK. (a) The Borrower Parties covenant
and agree that, from and after the date of this Agreement until this Agreement
is terminated and the security interests created hereby are released and subject
to the Subordination Agreement:
(i) If a Borrower Party shall, as a result of its ownership of the
Pledged Stock or otherwise, become entitled to receive or shall receive
any capital stock (including, without limitation, any stock dividend or
a distribution in connection with any reclassification, increase or
reduction of capital or any certificate issued in connection with any
reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any shares of
the Pledged Stock, or otherwise in respect thereof, the pertinent
Borrower Party shall accept certificates representing the same as the
agent of the Lender, hold the same in trust for the Lender and deliver
the same forthwith to the Lender in the exact form received duly
endorsed by the pertinent Borrower Party to the Lender, together with
an undated stock power covering such certificate duly executed in blank
by the pertinent Borrower Party to be held by the Lender, subject to
the terms hereof, as additional Collateral. Any sums paid upon or in
respect of the Pledged Stock upon the liquidation or dissolution of any
Issuer shall be paid over to the Lender to be held by it hereunder as
additional Collateral, and in case any distribution of capital shall be
made on or in respect of the Pledged Stock or any property shall be
distributed upon or with respect to the Pledged Stock pursuant to the
recapitalization or reclassification of the capital of any Issuer or
pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Lender to be held by it hereunder as
additional Collateral. If any
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sums of money or property so paid or distributed in respect of the
Pledged Stock shall be received by a Borrower Party, it shall, until
such money or property is paid or delivered to the Lender, hold such
money or property in trust for the Lender, segregated from other funds
of such Borrower Party, as additional Collateral.
(ii) Without the prior written consent of the Lender, the Borrower
Parties will not vote to enable, or take any other action to permit,
any Issuer to issue any capital stock or other equity securities of any
nature or to issue any other securities convertible into or granting
the right to purchase or exchange for any capital stock or other equity
securities of any nature of any Issuer.
(b) Unless an Event of Default shall have occurred and is continuing
and the Lender shall have given notice to the Borrower Parties of the Lender's
intent to exercise its rights pursuant to this Section 2.06(b), the Borrower
Parties shall be permitted to receive all cash dividends paid in the normal
course of business of the Issuers and consistent with past practice in respect
of the Pledged Stock and, except as set forth in Section 2.06(a)(ii), to
exercise all voting and corporate rights with respect to the Pledged Stock;
PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or
other action taken which would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Loan
Documents. If an Event of Default shall occur and is continuing and the Lender
has given notice to the Borrower Parties of its intent to exercise its rights
pursuant to this Section 2.06(b), and subject, pursuant to the terms and
conditions of the Subordination Agreement, to the prior rights of Chase: (i) the
Lender shall have the right to receive any and all cash dividends or other
payments paid in respect of the Pledged Stock and apply all or any part thereof
against the Obligations or any part thereof and (ii) any or all shares of the
Pledged Stock shall be registered in the name of the Lender or its nominee, and
the Lender or its nominee may thereafter exercise (A) all voting, corporate and
other rights pertaining to such Pledged Stock at any meeting of shareholders of
any Issuer or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
Pledged Stock as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of any Issuer, or upon the
exercise by any Borrower Party or the Lender of any right, privilege or option
pertaining to such Pledged Stock, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Stock with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Lender may determine), all without liability except to
account for property actually received by it, but the Lender shall have no duty
to the Borrower Parties to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
(c) The Borrower Parties hereby acknowledge and agree that the Lender
may exercise its right to sell any or all of the Pledged Stock pursuant to
Section 2.06(b) hereof in one or more private sales thereof to a restricted
group of purchasers which will be obliged to agree, among other things, to
acquire such securities for their own account for investment and not with a view
to the distribution or resale thereof. The Borrower Parties further acknowledge
and agree that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale
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shall be deemed to have been made in a commercially reasonable manner. The
Lender shall be under no obligation to delay a sale of any of the Pledged
Stock for the period of time necessary to permit the Issuer thereof to register
such securities for public sale under the Securities Act of 1933, as amended, or
under applicable state securities laws, even if such Issuer would agree to do
so. The Borrower Parties agree to use their best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 2.06(c) valid and
binding and in compliance with any and all other Applicable Law.
(d) The Borrower Parties further agree that a breach of any of the
covenants contained in this Section 2.06 will cause irreparable injury to the
Lender, that the Lender have no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section
2.06 shall be specifically enforceable against the Borrower Parties, and the
Borrower Parties hereby waive and agree not to assert any defenses against an
action for specific performance of such covenants, except for a defense that no
Event of Default has occurred.
(e) The Borrower Parties hereby authorize and instruct each Issuer of
any Pledged Stock pledged by the Borrower Parties hereunder to (i) comply with
any instruction received by it from the Lender in writing that (A) states that
an Event of Default has occurred and is continuing and (B) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from the Borrower Parties, and the Borrower Parties agree that each
Issuer shall be fully protected in so complying, and (ii) upon an Event of
Default, unless otherwise expressly permitted hereby, pay any dividends or other
payments with respect to the Pledged Stock directly to the Lender. Concurrently
with the delivery of any Pledged Stock hereunder, the Issuer of such Pledged
Stock shall deliver to the Lender an Acknowledgement and Consent, in the form
attached hereto as Annex A, certifying, among other things, that it will be
bound by the terms of this Agreement and will comply with such terms insofar as
such terms are applicable to it.
SECTION 2.07. PLACE OF PERFECTION; RECORDS; COLLECTION. (a) The
Borrower shall keep its chief place of business and chief executive office and
the office where it keeps its and other Borrower Parties' records concerning the
Receivables and the Pledged Stock at the address specified in Section 5.02 or,
upon 30 days' prior written notice to the Lender, at any other locations in a
jurisdiction where all actions required by Section 2.04 shall have been taken
with respect to the Receivables and the Pledged Stock. The Borrower will hold
and preserve such records and will permit representatives of the Lender at any
time during normal business hours to inspect and make abstracts from such
records, provided that so long as no Event of Default shall have occurred or be
continuing, no more than one such visit per calendar year shall be at the
expense of the Borrower Parties.
(b) Except as otherwise provided in this Section 2.07(b), the Borrower
Parties shall continue to collect, at their own expense, all amounts due or to
become due them under the Receivables and/or to adjust, settle or compromise the
amount thereof. In connection with such collections, the Borrower Parties may
take (and, following the occurrence and during the continuance of an Event of
Default at the Lender's direction, shall take) such action as the Borrower
Parties or the Lender may deem necessary or advisable to enforce collection of
the
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Receivables; PROVIDED, HOWEVER, that the Lender shall have the right following
the occurrence and during the continuance of an Event of Default, upon
10 days' written notice to the Borrower Parties of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such Receivables to the Lender and to direct such account debtors or obligors
to make payment of all amounts due or to become due to the Borrower Parties
thereunder directly to the Lender and, upon such notification and at the expense
of the Borrower Parties, to enforce collection of any such Receivables, and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Borrower might have done. After receipt by the
Borrower of the notice from the Lender referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including instruments)
received by the Borrower Parties in respect of the Receivables shall be received
in trust for the benefit of the Lender hereunder, shall be segregated from other
funds of the Borrower Parties and shall be forthwith paid over to the Lender in
the same form as so received (with any necessary indorsement) to be held as cash
collateral and either (A) released to the Borrower Parties so long as no Event
of Default shall have occurred and be continuing or (B) if any Event of Default
shall have occurred and be continuing, applied as provided by Section 2.11(b),
and (ii) the Borrower Parties shall not adjust, settle or compromise the amount
or payment of any Receivable, release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon.
SECTION 2.08. TRANSFERS AND OTHER LIENS. The Borrower Parties shall not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, except as permitted in
accordance with the Loan Agreement, or (ii) create or permit to exist any lien,
security interest, option or other charge or encumbrance upon or with respect to
any of the Collateral, except for the security interests under the Chase Loan
Agreements or the Implementing Agreements or as otherwise permitted in
accordance with the Loan Documents.
SECTION 2.09. LENDER APPOINTED ATTORNEY-IN-FACT. Each Borrower Party
hereby irrevocably appoints the Lender its attorney-in-fact, with full authority
in the place and stead of such Borrower Party and in the name of such Borrower
Party or otherwise, from time to time in the Lender's discretion, to take any
action and to execute any instrument which the Lender may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask, demand, collect, xxx for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(b) to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper, in connection therewith, and
(c) to file any claims or take any action or institute any proceedings
which the Lender may deem necessary for the collection of any of the Collateral
or otherwise to enforce the rights of the Lender with respect to any of the
Collateral.
Notwithstanding anything herein to the contrary, unless an Event of Default
shall exist and be continuing, the Lender shall not exercise any of the rights
set forth in this Section 2.09.
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SECTION 2.10. LENDER MAY PERFORM. If any Borrower Party fails to
perform any agreement contained herein, the Lender may, upon notice to the
applicable Borrower Party, itself perform, or cause performance of, such
agreement, and the expenses incurred in connection therewith shall be payable by
such Borrower Party.
SECTION 2.11. REMEDIES. If any Event of Default shall have occurred and
be continuing, subject to the prior rights of Chase under the Subordination
Agreement:
(a) The Lender may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein, in the Loan Agreement, the
Implementing Agreements or otherwise available to it at law or in equity, all
the rights and remedies of a secured party on default under the Uniform
Commercial Code in effect in the State of New York at that time (the "CODE")
(whether or not the Code applies to the affected Collateral), and also may (i)
require the Borrower Parties to, and the Borrower Parties hereby agree that they
will, at their expense and upon request of the Lender, forthwith, assemble all
or part of the Collateral as directed by the Lender and make it available to the
Lender at a place to be designated by the Lender which is reasonably convenient
to both parties and (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Lender's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Lender may deem commercially
reasonable. The Borrower Parties agree that, to the extent notice of sale shall
be required by law, at least ten days' notice to the Borrower Parties of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Lender shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Lender may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(b) Any cash held by the Lender as Collateral and all cash proceeds
received by the Lender in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of the
Lender, be held by the Lender as collateral for, and/or then or at any time
thereafter be applied in whole or in part by the Lender against all or any part
of the Obligations in such order as the Lender shall elect. Any surplus of such
cash or cash proceeds held by the Lender and remaining after payment in full of
all the Obligations shall be paid over to the Borrower Parties or to whomsoever
may be lawfully entitled to receive such surplus.
(c) The Lender may exercise any and all rights and remedies of the
Borrower Parties under or in respect of the Collateral.
(d) All payments received by the Borrower Parties under or in
connection with any of the Collateral shall be received in trust for the benefit
of the Lender, shall be segregated from other funds of the Borrower Parties.
SECTION 2.12. CONTINUING SECURITY INTEREST. This Agreement shall create
a continuing security interest in the Collateral and shall remain in full force
and effect until the later of (x) the payment in full of the Obligations and all
other amounts payable under this Agreement and (y) the expiration or termination
of the Commitment. Upon the later of the
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payment in full of the Obligations and all other amounts payable under this
Agreement and the expiration or termination of the Commitment, the security
interest granted hereunder shall terminate and all rights to the Collateral
shall revert to the Borrower Parties.
ARTICLE 3
GUARANTY
SECTION 3.01. GUARANTY. (a) The Guarantors hereby, jointly and
severally, unconditionally irrevocably guaranty the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all Obligations and
agree to pay any and all expenses (including reasonable counsel fees and
expenses) incurred by the Lender in enforcing any rights under this Agreement.
Without limiting the generality of the foregoing, the Guarantors' liability
shall extend to all amounts which constitute part of the Obligations and would
be owed by the Borrower under the Loan Agreement and the Note but for the fact
that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower.
(b) The Guarantors jointly and severally guaranty that the Obligations
will be paid strictly in accordance with the terms of the Loan Agreement and the
Note, regardless of any law, regulation or order now or hereafter in effect in
any jurisdiction affecting any of such terms or the rights of the Lender with
respect thereto. The obligations of the Guarantors under this Article 3 are
independent of the obligations of the Borrower under the Loan Agreement and the
Note, and a separate action or actions may be brought and prosecuted against the
Guarantors to enforce this Article 3 irrespective of whether any action is
brought against the Borrower or whether the Borrower is joined in any such
action or actions. The liability of the Guarantors under this Article 3 shall be
absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Loan Agreement,
the Note or any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to departure from the Loan
Agreement or the Note, including, without limitation, any increase in
the Obligations resulting from the extension of additional credit to
the Borrower or any of its Subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the
Obligations;
(iv) any manner of application of collateral, or proceeds thereof,
to all or any of the Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Obligations or any
other assets of any of the Borrower Parties;
(v) any change, restructuring or termination of the corporate
structure or existence of any of the Borrower Parties;
10
(vi) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any of the Borrower Parties;
or
(vii) any bankruptcy, reorganization or similar proceeding
commenced by or against any of the Borrower Parties.
This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Lender upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
SECTION 3.02. WAIVER. The Guarantors hereby waive promptness,
diligence, rights of set-off, presentment, protest, notice of acceptance and any
other notice with respect to any of the Obligations and this Article 3 and any
requirement that the Lender protect, secure, perfect or insure any security
interest or lien or any property subject thereto or exhaust any right or take
any action against the Guarantors or any other person or entity or any
Collateral.
SECTION 3.03. SUBROGATION. The Guarantors will not exercise any rights
which they may acquire by way of subrogation under this Article 3, by any
payment made hereunder or otherwise, until all the Obligations and all other
amounts payable under this Guaranty shall have been paid in full and the
Commitment shall have expired or terminated. If any amount shall be paid to the
Guarantors on account of such subrogation rights at any time prior to the later
of (x) the payment in full of the Obligations and all other amounts payable
under this Article 3 and (y) the expiration or termination of the Commitment,
such amount shall be held in trust for the benefit of the Lender and shall
forthwith be paid to the Lender to be credited and applied upon the Obligations,
whether matured or unmatured, in accordance with the terms of the Loan Agreement
or to be held by the Lender as Collateral for any Obligations thereafter
existing. If (i) the Guarantors shall make payment to the Lender of all or any
part of the Obligations, (ii) all the Obligations and all other amounts payable
under this Guaranty shall be paid in full and (iii) the Commitment shall have
expired or terminated, the Lender will, at the Guarantors' request, execute and
deliver to the Guarantors appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
the Guarantors of an interest in the Obligations resulting from such payment by
the Guarantors.
SECTION 3.04. AFFIRMATIVE COVENANTS. The Guarantors covenant and agree
that, so long as any part of the Obligations shall remain unpaid or the Lender
shall have any Commitment, the Guarantors will, unless the Lender shall
otherwise consent in writing:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of their
Subsidiaries to comply, in all material respects with all Applicable Law, such
compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property except to the extent contested in good faith.
(b) REPORTING REQUIREMENTS. Furnish to the Lender:
(i) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the
Parent, the unaudited
11
consolidated balance sheet of the Parent and the Subsidiaries and
the related unaudited consolidated statements of income and cash flows
of the Parent and the Subsidiaries for the 3-month period then ended
for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, certified by the chief financial
officer of the Parent;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Parent, a copy of the annual report for
such year for the Parent and its Subsidiaries, containing the audited
consolidated balance sheet of the Parent and the Subsidiaries as of
each fiscal year end, and the related audited consolidated statements
of income and cash flows of the Parent and the Subsidiaries for the
fiscal year then ended, certified by PricewaterhouseCoopers LLP or
other independent public accountants reasonably acceptable to the
Lender with no qualifications as to the scope of the audit;
(iii) as soon as possible and in any event within five days after
the occurrence of each Event of Default known to a Borrower Party and
each event which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default, continuing on the date of such
statement, a statement of the chief financial officer or chief
executive officer of the Borrower Party setting forth details of such
Event of Default or event and the action which the Borrower Party has
taken and proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof, copies of all
reports which any of the Borrower Parties sends to any of its security
holders, and copies of all reports and registration statements which
the Parent files with the SEC or any national securities exchange;
(v) promptly after the filing or receiving thereof, copies of all
reports and notices which any of the Borrower Parties files under ERISA
with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or which any of the
Borrower Parties receives from such entity;
(vi) promptly after the commencement thereof, notice of all
actions, suits and proceedings before any Government Authority, or
arbitrations affecting the Borrower Parties which, if determined
adversely to the Borrower Parties and their Subsidiaries could
reasonably be expected to have a Material Adverse Effect on the
Borrower Parties or their Subsidiaries; and
(vii) such other information respecting the condition or
operations, financial or otherwise, of any of the Borrower Parties as
the Lender may from time to time reasonably request.
(c) MAINTENANCE OF CORPORATION AND PROPERTIES. The Borrower Parties
shall, and shall cause their Subsidiaries, to preserve and maintain their
respective corporate existence and good standing in their respective
jurisdiction of organization and in every other jurisdiction in which such
qualification is required, unless the failure to qualify would not have a
Material
12
Adverse Effect on such respective corporation, and maintain all of their
respective properties and assets in good working order and condition, ordinary
wear and tear excepted.
SECTION 3.05. NEGATIVE COVENANTS. The Borrower Parties covenant and
agree that, so long as any part of the Obligations shall remain unpaid or the
Lender shall have any Commitment, each of the Borrower Parties will not, and
shall cause their Subsidiaries to not, without the written consent of the
Lender:
(a) LIENS. Create or suffer to exist, or permit any of its Subsidiaries
to create or suffer to exist, any lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement, upon or with respect
to any of its properties, whether now owned or hereafter acquired, or assign, or
permit any of its Subsidiaries to assign, any right to receive income, in each
case to secure or provide for the payment of any Debt of any Person or entity,
other than (i) the liens created hereunder; (ii) liens securing the credit
facilities provided by Chase pursuant to the Chase Loan Agreements; (iii) liens
existing on the date hereof as described on Schedule 3.05(a) hereto; (iv)
purchase money liens or purchase money security interests upon or in any
property acquired or held by any of the Borrower Parties and their Subsidiaries
in the ordinary course of business to secure the purchase price of such property
or to secure indebtedness incurred solely for the purpose of financing the
acquisition of such property, (v) liens or security interests existing on such
property at the time of its acquisition (other than any such lien or security
interest created in contemplation of such acquisition), PROVIDED that the
aggregate principal amount of the indebtedness secured by the liens or security
interests referred to in clauses (iii), (iv) and (v) above shall not exceed an
amount not inconsistent with the Company's business plan as approved by its
Board of Directors from time to time. "DEBT" means (i) indebtedness for borrowed
money, (ii) obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations to pay the deferred purchase price of property or
services, (iv) obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases, (v) obligations under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clause (i)
through (iv) above, and (vi) liabilities in respect of unfunded vested benefits
under plans covered by Title IV of ERISA.
(b) INDEBTEDNESS. The Borrower Parties shall not directly or indirectly
create, incur, assume, guarantee, or otherwise become or remain liable with
respect to any Debt other than the Advances, indebtedness existing as of the
date hereof as described on Schedule 3.05(b) hereto, capitalized leases
obligations in an amount not to exceed $250,000 per annum at any time
outstanding, and indebtedness to Chase for up to an aggregate principal amount
of $3,750,000 pursuant to the Chase Loan Agreements, if any.
SECTION 3.06. CONTINUING GUARANTY; ASSIGNMENTS UNDER LOAN AGREEMENT.
This Article 3 provides for a continuing guaranty and shall (i) remain in full
force and effect until the later of (x) the payment in full of the Obligations
and all other amounts payable under this Article 3 and (y) the expiration or
termination of the Commitment, (ii) be binding upon the Guarantors, their
successors and assigns, and (iii) inure to the benefit of, and be enforceable
by, the Lender and its successors, transferees and assigns. Without limiting the
generality of the
13
foregoing clause (iii), the Lender may assign or otherwise transfer all or any
portion of its rights and obligations under the Loan Agreement (including,
without limitation, all or any portion of its Commitment, the Advances and the
Note) to any other person or entity, and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to the
Lender by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER PARTIES.
The Borrower Parties jointly and severally represent and warrant to the Lender
as follows:
(a) ORGANIZATION AND GOOD STANDING. Each of the Borrower Parties and
its Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Each Borrower Party and its
Subsidiaries is qualified to do business and is in good standing in each
jurisdiction in which the ownership of property or the conduct of business
requires each to be so qualified, except where the lack of such qualification
would not reasonably be expected to have a Material Adverse Effect.
(b) CONFLICTS, DEFAULTS. The execution and delivery of this Agreement
and the other agreements and instruments contemplated hereby by the Borrower
Parties do not, and the performance of the Borrower Parties' obligations
hereunder and thereunder and the consummation by the Borrower Parties of the
transactions contemplated hereby (the "TRANSACTIONS") will not: (i) violate,
conflict with or constitute a breach or default under the certificate of
incorporation or bylaws or equivalent organizational document of any Borrower
Party; (ii) require any authorization, approval, consent, registration,
declaration or filing with, from or to any Governmental Authority; (iii) violate
any Applicable Law; (iv) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of any Borrower Party
or their Subsidiaries (other than as contemplated hereby); or (v) after giving
effect to the satisfaction of the condition set forth in Section 2.1(f) of the
Loan Agreement, conflict with or result in a breach of, create an event of
default (or event that, with the giving of notice or lapse of time or both,
would constitute an event of default) under, or give any third party the right
to terminate, cancel or accelerate any obligation under, any contract,
agreement, note, bond, guarantee, deed of trust, loan agreement, mortgage,
license, lease, indenture, instrument, order, arbitration award, judgment or
decree to which any Borrower Party is a party or by which any Borrower Party is
bound. There is no pending or, to the Knowledge of the Borrower Parties,
threatened action, suit, claim, proceeding, inquiry or investigation before or
by any Governmental Authority against or affecting any Borrower Party or their
Subsidiaries, involving or seeking to restrain or prevent the consummation of
the Transactions.
(c) CORPORATE POWER AND AUTHORIZATION. The Borrower Parties have all
requisite and legal corporate power to execute and deliver this Agreement and to
carry out and perform their other obligations under this Agreement and the
Transactions. All corporate action on the part of the Borrower Parties and their
directors necessary for the performance of their obligations under this
Agreement have been taken. This Agreement is a legal, valid and binding
obligation of the Borrower Parties, enforceable in accordance with its terms.
The Transactions
14
do not require the consent of the stockholders of the Borrower Parties. The
Borrower Parties have provided their stockholders with any notice of the
Transactions required by Applicable Law. Each of the Borrower Parties has,
independently and without reliance upon the Lender and based on documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.
(d) APPROVALS AND CONSENTS. Except as set forth on Schedule 3.01(d), no
license or other authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority or other Person is required (i) for the
pledge of the Collateral pursuant to this Agreement, for the grant of the
assignment, lien and security interest granted hereby or for the execution,
delivery or performance of this Agreement and the Transactions, (ii) for the
perfection or maintenance of the pledge, assignment and security interest
created thereby (other than filings contemplated hereby) or (iii) for the
exercise of the remedies in respect of the Collateral pursuant to this Agreement
(other than a sale of any Pledged Stock which may have to be registered under
the Securities Act of 1933, as amended, and other applicable securities laws).
There are no conditions precedent to the effectiveness of this Agreement that
have not been satisfied or waived.
(e) LIEN AND SECURITY IN THE COLLATERAL.
(i) All of the Inventory is located at the places specified in
Schedule I hereto. The chief place of business and chief executive office
of the Borrower and the office where the records concerning the
Collateral, including current statements regarding Receivables, the stock
ledger recording the Pledged Stock, the originals of all chattel paper
that evidence Receivables and the original stock certificates representing
the Pledged Stock, is located at the address specified in Section 5.02.
(ii) The Borrower Parties are the legal and beneficial owner of the
Collateral, free and clear of any lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Agreement and the prior lien on the Collateral in favor of Chase as
security for the credit facilities provided by Chase pursuant to the Chase
Loan Agreements. The Borrower Parties have exclusive possession and
control of the Inventory and the stock certificates representing the
Pledged Stock. No effective financing statement or other document similar
in effect covering all or any part of the Collateral is on file in any
recording office (other than those in favor of Chase as security for the
credit facilities provided by Chase pursuant to the Chase Loan
Agreements). The Borrower Parties own and operate under the trade name
"Little Switzerland" and variations thereof. None of the Receivables is
evidenced by a promissory note or other instrument.
(iii) Upon delivery to the Lender of the stock certificates
evidencing the Pledged Stock and the taking of any further actions as
contemplated in Section 2.05 with respect to the Collateral, the security
interest created by this Agreement will constitute a valid, perfected
security interest in the Collateral securing the payment of the
Obligations, enforceable in accordance with the terms of this Agreement
and the Loan Agreement against all creditors of the Borrower Parties and
any Persons purporting to purchase any of the Collateral from the Borrower
Parties, except (i) as affected by
15
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and
fair dealing and (ii) the prior lien on the Collateral in favor of Chase
as security for the credit facilities provided by Chase pursuant to the
Chase Loan Agreements.
(f) THE PLEDGED STOCK.
(i) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the capital stock of each Issuer.
There are no outstanding options, warrants or other rights to purchase any
shares of capital stock of any Issuer.
(ii) All the shares of the Pledged Stock are, and all other Pledged
Stock in which the Borrower Parties shall hereafter grant a security
interest pursuant to this Agreement will be, duly and validly issued,
fully paid and non-assessable. An appropriate notation has been placed on
the stock ledger or other books and records of each Issuer of the Pledged
Stock (and, in the case of Pledged Stock hereafter acquired by the
Borrower Parties, will be so placed on the stock ledger or other books and
records of the Issuer of such stock pledged hereunder) in order to reflect
the pledge in favor of the Lender securing the payment of the Obligations.
(g) FINANCIAL STATEMENTS. The financial statements of the Borrower
Parties (collectively, the "FINANCIAL STATEMENTS") have been provided to the
Lender. The Financial Statements: (i) have been prepared in accordance with the
books and records of the Borrower Parties; (ii) have been prepared in all
material respects in accordance with GAAP; (iii) reflect and provide adequate
reserves and disclosures in respect of all liabilities of the Borrower Parties,
including all contingent liabilities; and (iv) present fairly the financial
position of the Borrower Parties at such dates and the results of operations and
cash flows of the Borrower Parties for the periods then ended. The Borrower
Parties: (i) keep books, records and accounts that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of assets; and
(ii) maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP
to maintain accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorizations and (D) the
recorded accountability for assets and inventory is compared with existing
assets and inventory at reasonable intervals and appropriate action is taken
with respect to any differences.
(h) COMPLIANCE WITH LAW. Each Borrower Party and its Subsidiaries is in
compliance in all material respects with all Applicable Law. No Borrower Party
has received any notification of any asserted present or past failure to comply
with Applicable Law.
(i) ABSENCE OF UNDISCLOSED LIABILITIES. None of the Borrower Parties or
their Subsidiaries has any indebtedness or liability, whether accrued, fixed or
contingent, whether or not required by GAAP to be disclosed on the Financial
Statements, other than (a) liabilities
16
reflected in the Financial Statements, (b) liabilities, none of which
individually or in the aggregate is material to the assets, properties, business
or business prospects any of the Borrower Parties or their Subsidiaries, and (c)
liabilities incurred in the ordinary course of business of each of the Borrower
Parties or their Subsidiaries (consistent with past practice in terms of both
frequency and amount) subsequent to February 24, 2001.
(j) LITIGATION. Except as set forth on Schedule 4.01(j), there is no
pending or, to the Knowledge of the Borrower Parties, threatened litigation,
action, suit, proceeding, arbitration, claim, investigation or administrative
proceeding, by or before any Governmental Authority or dispute resolution panel,
involving or affecting any of the Borrower Parties or their Subsidiaries, or the
assets, properties or business of any of the Borrower Parties or their
Subsidiaries, or relating to or involving the transactions contemplated by the
Loan Documents. No litigation, action, suit, proceeding, arbitration, claim,
investigation or administrative proceeding, whether or not set forth on Schedule
4.01(j), reasonably could be expected to have a Material Adverse Effect or to
result in the imposition of a lien, security interest or other encumbrance on
any of the assets of any of the Borrower Parties or their Subsidiaries. None of
the Borrower Parties or their Subsidiaries has received any opinion or
memorandum or legal advice or notice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage that may be
material to its assets, properties, business or business prospects. None of the
Borrower Parties or their Subsidiaries is in default with respect to any
material order, writ, injunction or decree known to or served upon any of the
Borrower Parties or their Subsidiaries. Except as set forth on Schedule 4.01(j),
there is no pending action or suit brought by any of the Borrower Parties or
their Subsidiaries against others.
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. INDEMNITY AND EXPENSES. (a) The Borrower Parties agree to
jointly and severally indemnify the Lender from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except for those claims, losses and liabilities attributable to
the willful misconduct or bad faith of Lender.
(b) The Borrower Parties will upon demand pay to the Lender the amount
of any and all reasonable expenses, including the reasonable fees and expenses
of its counsel and of any experts and Lenders, which the Lender may incur in
connection with (i) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral, (ii) the
exercise or enforcement of any of the rights of the Lender hereunder or under
the Implementing Agreements or (iii) the failure by the Borrower Parties to
perform or observe any of the provisions hereof or thereof.
SECTION 5.02. NOTICES. All notices, requests and other communications
under this Agreement will be in writing and will be deemed to have been duly
given if delivered personally, or sent by either certified or registered mail,
return receipt requested, postage prepaid, by overnight courier guaranteeing
next day delivery or by telecopier (with telephonic or machine confirmation by
the sender), addressed as follows:
17
(a) If to the Borrower Parties:
c/o Little Switzerland, Inc.
161-B Crown Bay
X.X. Xxx 000
Xx. Xxxxxx, X.X. Xxxxxx Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxxxxxxx@xxxxxxxxxxxxxxxxx.xxx
With a copy to:
Xxxx X. Xxxxxxx, Esq.
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxxxxxx@xxxxxxxxx.xxx
or at such other address or telecopy number as the Borrower may have advised
the Lender in writing; and
(b) If to the Lender:
Xxxxxxx & Co.
000 Xxxxxxx Xxxxxx, Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxx@xxxxxxx.xxx
With a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxx@xxxxxxxxxx.xxx
or at such other address or telecopy number as the Lender may have advised the
Borrower Parties in writing. All such notices, requests and other communications
shall be deemed to have been received on the date of delivery thereof (if
delivered by hand), on the third day after the
18
mailing thereof (if mailed), on the next day after the sending thereof (if by
overnight courier) and when receipt is confirmed as provided above (if
telecopied).
SECTION 5.03. WAIVERS AND AMENDMENTS. No amendment or waiver of any
provision of this Agreement, nor consent to any departure therefrom, will be
effective unless the same shall be in writing and signed by an officer of each
party hereto, and then such waiver or consent will be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of a party hereto to exercise, and no delay in exercising, any right
hereunder will operate as a waiver thereof; nor will any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies provided in this Agreement are
cumulative and, unless otherwise expressly provided herein, not exclusive of any
remedies provided by law.
SECTION 5.04. BINDING EFFECT. This Agreement will be binding upon and
inure to the benefit of the parties and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns. No
party may assign his or its rights hereunder or any interest herein without the
prior written consent of the other parties and such attempted assignment shall
be void and without effect, provided however, that the Lender may assign, to one
or more of its Affiliates, all or any part of, or any interest in, the Lender's
rights and benefits hereunder. To the extent of such assignment, such assignee
will have the same rights and benefits against the other parties as it would
have had if it were a named party hereunder. No party will be released of any of
its obligations under this Agreement by virtue of such assignment.
(SECTION 5.05 INTENTIONALLY OMITTED)
SECTION 5.06. GOVERNING LAW. THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREBY THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO, AND ANY
DISPUTES OR CONTROVERSIES ARISING THEREFROM SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS THAT WOULD PROVIDE FOR THE
APPLICATION OF ANY OTHER LAW.
SECTION 5.07. CAPTIONS. The captions, headings and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit or
amplify the provisions hereof.
SECTION 5.08. ENTIRETY. This Agreement contains the entire agreement
and understanding between the parties with respect to the matters addressed
herein and supersedes all prior representations, inducements, promises or
agreements, oral or otherwise, which are not embodied herein.
SECTION 5.09. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original for all purposes and all
of which will be deemed collectively to be one agreement. Execution may be
effected by delivery of facsimiles of signature pages, followed by delivery of
originals of such pages.
SECTION 5.10. THIRD PARTY BENEFICIARIES. Nothing contained herein,
express or implied, is intended to confer upon any person or entity other than
the parties and their heirs, executors, administrators, personal
representatives, successors and permitted assigns any rights
19
or remedies under or by reason of this Agreement, except as otherwise expressly
provided in this Agreement.
IN WITNESS WHEREOF, the Borrower Parties and the Lender have caused
this Agreement to be duly executed and delivered by the officer of each
thereunto duly authorized as of the date first above written.
------------------------------------------
LENDER:
Xxxxxxx and Company, a New York
corporation
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice President General Counsel and Secretary
------------------------------------------
------------------------------------------
BORROWER:
L.S. Holding, Inc., a U.S. Virgin
Islands corporation
By: /s/ Xxxxxx X. Xxxxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: President
------------------------------------------
------------------------------------------
GUARANTORS:
Little Switzerland, Inc., a Delaware
corporation
By: /s/ Xxxxxx X. Xxxxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: President
L.S. Wholesale, Inc., a Massachusetts
corporation
By: /s/ Xxxxxx X. Xxxxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: President
------------------------------------------
21
SCHEDULE I
LOCATIONS OF INVENTORY
SCHEDULE II
DESCRIPTION OF PLEDGED STOCK
ANNEX A
FORM OF ACKNOWLEDGEMENT AND CONSENT
[Date]
The undersigned hereby acknowledges receipt of a copy of the Security,
Pledge And Guaranty Agreement (the "AGREEMENT") dated as of May 1, 2001, by and
among [Borrower Parties] and Xxxxxxx and Company, a New York corporation (the
"LENDER"). The undersigned agrees for the benefit of the Lender as follows:
1. The undersigned will be bound by the terms of the Agreement and will
comply with such terms insofar as such terms are applicable to the undersigned.
2. The undersigned will notify the Lender promptly in writing of the
occurrence of any of the events described in Section 2.06(a) of the Agreement.
3. The terms of Section 2.06(b) of the Agreement shall apply to it,
MUTATIS MUTANDIS, with respect to all actions that may be required of it under
or pursuant to or arising out of such Section of the Agreement.
[NAME OF ISSUER]
By:________________________
Name:
Title:
Reference is made to that certain Security, Pledge and Guaranty Agreement dated
as of May 1, 2001 by and among (i) L.S. Holding, Inc., L.S. Wholesale, Inc.
and Little Switzerland, Inc., on the one hand, and (ii) Xxxxxxx and Company, on
the other hand (the "Agreement"). Capitalized terms used herein shall have the
meaning ascribed thereto in the Agreement.
SCHEDULE I
INVENTORY LOCATIONS
L.S. Holding, Inc.
Center Theater Building
Dronningens Xxxx,
St. Xxxxxx, Virgin Islands
Little Switzerland, Inc.
#4 Dronningens Xxxx,
St. Xxxxxx, Virgin Islands
L.S. Holding, Inc.
#4 Dronningens Xxxx,
St. Xxxxxx, Virgin Islands
L.S. Holding, Inc.
#00 Xxxxxxxxxxx Xxxx,
Xx. Xxxxxx, Virgin Islands
L.S. Holding, Inc. d/b/a Little Switzerland
#48 AB Xxxxx Xxxx
Kings Quarter
St. Xxxxxx, Virgin Islands
L.S. Holding, Inc. d/b/a Little Switzerland
Bay D, Shop Building II
Havensight Mall
St. Xxxxxx, Virgin Islands
L.S. Holding, Inc.
236 and 000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxx
L.S. Holding, Inc.
Xxxx 0 & 0, Xxxxx 00
Xxxxxxx, Xxxxxx
L.S. Holding, Inc.
Xxxxxxxxxxxx 00
Xxxxxxxxxx, Xxxxx
L.S. Holding, Inc.
Wyndham Aruba Beach Resort and Casino
00 X.X. Xxxxx Xxxxxxxxx
Xxxx Xxxxx, Xxxxx
2
L.S. Holding, Inc.
Xxx Xxx Xxxxxxxx, Xxxxxxxxxxxx 00
Xxxxx, Xxxxxxx
L.S. Holding, Inc.
000 Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxx 00000
3
SCHEDULE II
DESCRIPTION OF PLEDGED STOCK
CLASS OF JURISDICTION OF NUMBER OF
ISSUER STOCK ORGANIZATION SHARES
------ -------- --------------- ---------
L.S. Wholesale, Inc. Common Massachusetts 1,000
L.S. Holding Common Alaska 65
(USA), Inc.
L.S. Holding, Inc. Common U.S. Virgin Islands 100
L.S. Holding Common Aruba 156
(Aruba), N.V.
L.S. Holding Common Curacao 13
(Curacao), N.V.
World Gift Imports Common Barbados 34,395
(Barbados) Limited.
World Gift Common St. Maarten 130
Imports, N.V.
Motres et Bijoux Common Xx. Xxxxxx 000
X.X.X.X.
Xxxxxx Xxxxxxxxxxx Common Antigua 6,500
Limited
L.S. (Cayman) Limited Common Xxxxxx Xxxxxxx 00
Xxxxxx Xxxxxxxxxxx Common British Virgin Islands 65
(B.V.I.) Limited
4
SCHEDULE 3.05(B)
INDEBTEDNESS
Liens in favor of The Chase Manhattan Bank ("Chase") and The Bank of Nova Scotia
("BNS"); provided, however, that the liens of Chase will be released as provided
in (i) Section 6 of that certain Loan Agreement by and among L.S. Wholesale,
Inc., as Borrower, Little Switzerland, as Guarantor, and Chase, (ii) Section 6
of that certain Loan Agreement by and among L.S. Holding, Inc., as Borrower,
Little Switzerland, as Guarantor, and Chase and (iii) Section 6 of that certain
Loan Agreement by and among L.S. Holding (USA), Inc., as Borrower, Little
Switzerland, as Guarantor, and Chase, when payment is made to Chase pursuant to
Section 2.02 of the Stock Purchase Agreement, dated as of May 1, 2001, by and
between Little Switzerland, Inc. ("Little Switzerland") and Xxxxxxx & Co.
International, Inc. (the "Purchase Agreement") and the liens of BNS will be
released in full when payment is made to BNS pursuant to Section 2.02 of the
Purchase Agreement. (The existing liens in favor of Chase and BNS and the
provisions setting forth the terms under which such liens will be released, and
the extent of such releases, are hereinafter referred to as the "Existing
Secured Liens and Partial Release Thereof.")
BARBADOS RESTRUCTURING
o Little Switzerland completed restructuring its business in Barbados in
March 2001.
o In November 2000, World Gift Imports (Barbados) LTD. entered into the
following agreements in restructuring its Barbados business.
Agreement: Share Purchase Agreement ("SPA")
Parties: World Gift Imports (Barbados) LTD.
Diamonds International Limited ("DI")
L.S. Holdings, Inc. ("LSH")
Date: November 14, 2000
Remaining
Conditions: Foreign Exchange Control Permission
Amendment of Articles of Incorporation
Re-classification of 52,916 LSH shares to Class A
Common
Terms: Sale to DI of 23,774 Common Shares at a price of
$300,000
Sale to DI of 31,302 Preferred Shares at a price
of $300,000
Agreement: Sale of Debt and Security Agreement ("SDSA")
Parties: L.S. Wholesale, Inc. ("LSW")
Almod Diamonds Ltd. ("Almod")
World Gift Imports (Barbados) LTD.
Date: November 14, 2000
Remaining
Conditions: All remaining conditions in SPA
Subscription of shares by DI
Terms: Sale, assignment and transfer of $2.0 million in
LSW debt,
payable, without interest, on or before 12/31/03; first
priority lien on $2.0 million of inventory; any cash
sent to LSW requires equivalent pay-down on loan; can
operate only under name Little Switzerland in Barbados
Agreement: Unanimous Shareholder Agreement
5
Parties: LSH
DI
World Gift Imports (Barbados) LTD.
Date: November 7, 2000
Remaining
Conditions: All remaining conditions in SPA
Terms: Same terms in SPA
Same terms as in SDSA
Profit sharing of 50% of EBITDA of $1.5 million
by 12/31/05
a. Can include tax loss benefits in excess
of $.7m
b. Limits on head office allocations
Preferred convertible to Common if:
a. Subscription of shares by DI not
completed by 12/31/03
b. Profit sharing is not paid by 12/31/05
Preferred shares are redeemable along with all
Common upon:
a. Subscription of shares by DI being
fully paid.
b. Profit sharing being fully paid.
DI to provide Little Switzerland with a customs
bond
Agreement: Management Agreement (For Bridgetown Port Store)
("MA")
Parties: World Gift Imports (Barbados) LTD.
DI
Date: November 7, 2000
Remaining
Conditions: None
Terms: Little Switzerland has given full right of
operation indefinitely to DI of its Port store,
and all profits associated with this store.
Agreement: Trademark License Agreement
Parties: L.S. Wholesale, Inc.
DI
Date: November 14, 2000
Agreement: Authority to Hold Funds on Deposit
Parties: Little Switzerland, Inc.
Bank of Nova Scotia
Date: April 19, 2001
Terms: Agreement to hold the equivalent of US $150,000
as security until release of the bond in the
amount of BBD $500,000 by the Barbados Customs
Department
Such restructuring contemplated by the above-referenced agreements is
hereinafter referred to as the Barbados Restructuring. The brief summary
descriptions of the terms of the above-referenced agreements are qualified in
their entirety by reference to the above-referenced agreements.
STANDSTILL AGREEMENT
Xxxxxx Xxxxxx 0000, Xxxxxx Xxxxxxxxxxx entered into three extensions of its
Standstill Agreement with the lenders under its credit facility. The standstill
agreement, as amended (the "Standstill Agreement"), was effective through
December 31, 2000, pursuant to which Little Switzerland's
6
lenders agreed that they would not make any additional borrowings available to
Little Switzerland and thereby freeze Little Switzerland's line of credit at
$8.8 million in outstanding cash borrowings and approximately $2.6 million in
contingent stand-by letters of credit. However, pursuant to the Standstill
Agreement, the lenders agreed to refrain from exercising any remedies arising
from existing defaults during the term of the Standstill Agreement so long as
Little Switzerland, among other things, (i) paid interest on the outstanding
borrowings and letters of credit, together with related fees and expenses, (ii)
maintained a certain inventory to outstanding total debt coverage ratio, (iii)
reduced the Barbados letters of credit (of which a portion have been released),
(iv) continued to achieve its planned EBITDA projections and (v) continued
discussions with lenders and equity investors with the goal of refinancing its
existing debt to the banks.
Prior to Xxxxxxxx 00, 0000, Xxxxxx Xxxxxxxxxxx initiated discussions with its
lenders to obtain an additional extension of the Standstill Agreement, however,
the documentation has not been completed because it is anticipated that the
Standstill Agreement will no longer be necessary upon consummation of the
Transaction. Outstanding borrowings against the secured credit facilities
totaled $8.8 million and $10.2 million as of February 24, 2001. Outstanding
stand-by letters of credit against these credit facilities totaled $2.6 million
as of February 24, 2001. In March 2001, the stand-by letters of credit were
reduced to approximately $0.4 million as a result of the replacement of these
amounts with an insurance bond that resulted from the Barbados Restructuring.
7
SCHEDULE 4.01(D)
APPROVALS AND CONSENTS
None.
8
SCHEDULE 4.01(J)
LITIGATION
o CLASS ACTION LAWSUIT
On March 22, 1999, a class action complaint was filed in the United
States District Court for the District of Delaware (Civil Action No.
99-176) against Little Switzerland, certain of its former officers and
directors, DRHC and Xxxxxxx X.X. Xxxxx. The complaint alleges that such
defendants violated federal securities laws by failing to disclose that
DRHC's financing commitment to purchase Little Switzerland's shares
expired on April 30, 1998 before Little Switzerland's stockholders were
scheduled to vote to approve the proposed merger between Little
Switzerland and DRHC at the May 8, 1998 special meeting of stockholders
(the "Financing Disclosure Allegations"). The plaintiffs are seeking
monetary damages, including, without limitation, reasonable expenses in
connection with this action. The plaintiffs amended their complaint on
November 10, 1999 and Little Switzerland filed a motion to dismiss the
plaintiff's amended complaint on December 7, 1999. On January 28, 2000,
the plaintiffs filed their opposition to the motion to dismiss. In March
2001, the District Court, among other things, granted Little
Switzerland's motion to dismiss with respect to certain allegations in
the amended complaint that the defendants violated federal securities
laws by failing to disclose the status of Little Switzerland's
relationship with a particular watch vendor; however, the District Court
denied the motion to dismiss with respect to the Financing Disclosure
Allegations. In addition, the District Court dismissed the claims against
defendants DRHC and Xxxxxxx X.X. Xxxxx. Little Switzerland has entered
into discussions to settle this action. However, there can be no
assurance that these discussions will result in a settlement of this
action, or that any settlement will be on terms favorable to Little
Switzerland.
o NXP
On Xxxxxxxx 00, 0000, Xxxxxx Xxxxxxxxxxx and NXP-Jewels Corporation
("NXP") entered into a settlement agreement and mutual general release
from the litigation arising between Little Switzerland and NXP with
respect to their general obligations under a letter of intent to sell
Little Switzerland's Barbados operations to NXP. Little Switzerland, as
part of the settlement, agreed to refund a $100,000 deposit currently
held in escrow and make a $5,000 settlement payment. Both the $100,000
escrow deposit and the $5,000 settlement payment by Little Switzerland
were paid to NXP in March 2001.
o LABOR MATTERS
Name: Xxxxxx, Xxxxxxxx
Position: Former DVP Human Resources - St. Xxxxxx
Action: Charge of defamation relating to e-mail messages that
she alleges originated from Little Switzerland
employees.
Name: Loopstock, Xxxxxxxxx
Position: Service Clerk/Admin. Clerk - Aruba
Action: Improper Re-alignment of functions.
Name: Xxxxx, Xxxxxxx
9
Position: Former Vice President Merchandising - St Xxxxxx
Action: Xx. Xxxxx claims Wrongful Discharge.
Xx. Xxxxx was terminated for cause pursuant to Section
5(b)(iv) of his employment contract as a result of conduct
that was considered to be either gross negligence or willful
misconduct on his part.
Name: Punjabi, Xxxxxx Xxxxxxx
Position: Sales Associate - Philipsburg, St. Maarten
Action: Mr. Punjabi brought charges against Little
Switzerland in regards to the calculation of his vacation
pay. He had been paid based on his base salary, not on his
base salary plus commission.
Status: On March 20, 2001, a court ruled in Mr. Punjabi's
favor ordering a payment of Nafl 25,072.00 (approx.
$14,000 US), plus interest and legal fees. Little
Switzerland is considering appealing this decision.
Name: Xxxxx, Xxxxxx
Position: Operations Manager - Curacao
Action: Wrongful Discharge.
Status: The court ruled that her responsibilities were not
made clear to her prior to the new manager being
hired. Xx. Xxxxx had until March 23, 2001 to decide
between a monetary award of Afl's $10,000.00
($5,555.55 US) or returning to work. Xx. Xxxxx has
some physical ailments that prevent her from climbing
stairs and feels that Little Switzerland should make
accommodations for her prior to returning (an
elevator and a bathroom on the street level). The
court has yet to make a ruling in this regard.
Name: Xxxxxxxxx, Xxxx
Position: Former Assistant Watch Buyer
Action: On or about Xxxxx 0, 0000, Xxxxxx Xxxxxxxxxxx
received a letter from the Virgin Islands Department
of Labor notifying Little Switzerland that a Charge
of Discrimination has been filed by Xxxx Xxxxxxxxx, a
former employee of Little Switzerland. The letter
states that an officer of the Virgin Islands
Department of Labor will contact Little Switzerland
for more information and requests that Little
Switzerland respond in writing to the charges within
15 days.
o AMERICANS WITH DISABILITIES ACT
The Americans with Disabilities Act Ad Hoc Advocacy Committee filed an action
against several retail entities including L.S. Holding, Inc. relating to
reconstruction of entrances and restroom facilities and construction of access
ramps to make them suitable for the physically disabled. A proposed program of
construction was initially reviewed and agreed by all parties; however,
plaintiffs now insist that ramps be built at Little Switzerland's Emancipation
Garden location.
o EMPLOYEE DEFALCATION
On March 11, 1998, the Company filed a civil action in the Territorial Court of
the Virgin Islands (Civil Action No. 98-229) against Xxxxxxxx Xxxxxx, a former
employee of the Company, Xxxxx Xxxxxx and Bon Voyage Travel, Inc. The Company
alleges that such parties were involved in the employee defalcation that
management believes occurred during the Company's fiscal year ended
10
May 31, 1997. The Company is seeking a preliminary injunction and damages
against the former employee and the other parties allegedly involved in the
theft against the Company. On January 19, 1999, the defendant, Xxxxx Xxxxxx,
filed a petition for Bankruptcy (Chapter 7) in the United States Bankruptcy
Court, District of St. Xxxxxx. A Notice of Appearance was filed on February 2,
1999 on behalf of the Company. A trustee was appointed, but due to a conflict of
interest, he has withdrawn from the case. Xxxx Paieonsky was appointed as
trustee in this matter at the meeting of the creditors held on May 20, 1999.
11
