Exhibit 10.5
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of the 1st day of May, 2001, by and among
L.S. WHOLESALE, INC., a Massachusetts corporation, whose mailing address and
principal place of business is 161-B Crown Bay, St. Xxxxxx, U.S. Virgin Islands
00802 (the "Borrower" or "L.S. Wholesale"), LITTLE SWITZERLAND, INC., a Delaware
corporation, whose mailing address and principal place of business is 161-B
Crown Bay, St. Xxxxxx, U.S. Virgin Islands 00802 ("Little Switzerland" or the
"Guarantor"), and THE CHASE MANHATTAN BANK, a commercial banking institution
having a mailing address of X.X. Xxx 000000, Xx. Xxxxxx, X.X. Xxxxxx Xxxxxxx
00000 (the "Lender").
WHEREAS, the Borrower is a direct wholly-owned subsidiary of Little
Switzerland;
WHEREAS, the Borrower is indebted to the Lender (the "Original
Indebtedness") pursuant to the terms of: (a) (i) a loan agreement dated February
24, 1996, between the Lender and the Borrower, Little Switzerland and L.S.
Holding, and (ii) the promissory note or notes and other evidences of
indebtedness referenced therein or issued pursuant thereto (collectively, the
"Term Loan Documents"); and (b) (i) a letter agreement dated January 7, 1999,
between the Lender and the Borrower as amended by letter agreement dated March
3, 1999, and (ii) the promissory note or notes and other evidences of
indebtedness referenced therein or issued pursuant thereto (collectively, the
"Line of Credit Documents," and together with the Term Loan Documents, the
"Original Loan Documents");
WHEREAS, the payment of the Original Indebtedness is guaranteed by the
Guarantor pursuant to a Guaranty (Unlimited Amount) dated September 22, 1997
executed by Guarantor;
WHEREAS, the Lender, Bank of Nova Scotia ("BNS"), the Borrower, the
Guarantor and certain affiliates of the Borrower are parties to a Forbearance
Agreement dated May 7, 1999, as thereafter amended, providing for the
forbearance of collection of the Original Indebtedness and other outstanding
indebtedness to the Lender and BNS (collectively, the "Forbearance Agreement");
WHEREAS, the Lender, BNS, the Borrower, the Guarantor and certain
affiliates of the Borrower are parties to a Letter Agreement dated April 7,
2000, as thereafter amended, and a Letter Agreement dated July 28, 2000, as
thereafter amended, providing for further forbearance of collection of the
Original Indebtedness and other outstanding indebtedness to the Lender and BNS
(collectively, the "Letter Agreements," and, together with the Forbearance
Agreement, the
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"Forbearance Documents");
WHEREAS, to further secure the Borrower's indebtedness to the Lender and
BNS and in consideration for the forbearance provided under the Forbearance
Documents, certain security interests have been granted to the Lender and BNS
pursuant to the following agreements: (a) Security Agreement dated May 7, 1999
(the "1999 Security Agreement"); (b) First Priority Leasehold Mortgage dated
April 14, 2000 and filed with the Office of the Recorder of Deeds for the
District of St. Xxxxxx and St. Xxxx (the "Recorder") on May 8, 2000 as Document
No. 2000002138 (the "Mortgage"); and (c) Assignment of Lease dated April 14,
2000 and filed with the Recorder on May 8, 2000 as Document No. 2000002139 (the
"Assignment");
WHEREAS, Guarantor acknowledges that Guarantor will benefit from the
Lender's continuing extension of the Facility (as hereinafter defined in
SUBSECTION 2.1) to the Borrower pursuant to the terms hereof;
WHEREAS, all indebtedness outstanding to BNS, including without limitation
all principal, interest, letters of credit, letters of guaranty, charges,
attorneys' fees, costs, and any other amounts outstanding to BNS, shall have
been paid in full prior to execution of this Agreement;
WHEREAS, BNS has executed a Receipt and Release of even date herewith
evidencing receipt of all indebtedness outstanding to BNS and its release, or
agreement to release, all collateral security held as security for such
indebtedness, except as specifically set forth therein;
WHEREAS, the Borrower has requested that a portion of the Original
Indebtedness continue, but be separately borrowed as follows: (a) indebtedness
of Borrower under a revolving credit facility in the amount of $700,000, (b)
indebtedness of L.S. Holding, Inc., a U.S. Virgin Islands corporation ("L.S.
Holding"), under a revolving credit facility in the amount of $2,950,000, and
(c) indebtedness of L.S. Holding (USA), Inc., an Alaska corporation, ("L.S.
USA") under a revolving credit facility in the amount of $100,000, which the
Lender is willing to accommodate subject to the terms and conditions of this
Agreement with respect to the indebtedness of Borrower, and subject to the terms
and conditions of two separate loan agreements with respect to the indebtedness
of L.S. Holding and L.S. USA (collectively, the "Related Loan Agreements");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which is
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hereby acknowledged, the parties hereto agree as follows:
1. REPRESENTATIONS. As an inducement to the Lender to enter into this
Agreement and to lend under the terms hereof, the Borrower and the Guarantor
jointly and severally represent, covenant and warrant to the Lender that:
1.1 RECITALS. The foregoing recitals are acknowledged as true and
correct and are incorporated herein by this reference.
1.2 CORPORATE EXISTENCE, GOOD STANDING AND POWER. Each of the Borrower,
the Guarantor and their Subsidiaries (as defined in SUBSECTION 3.3) is a
corporation or other formally recognized entity duly organized, validly existing
and in good standing under the laws of the state, territory or other
jurisdiction of organization (other than L.S. Holding (Aruba), N.V., which is
awaiting issuance of a business license following the updating of its directors
(the "Aruba License")), and is qualified to do business and is in good standing
in each jurisdiction in which it is so required, except where the lack of such
qualification would not reasonably be expected to have a material adverse effect
on the business, properties, prospects, financial condition or results of
operations of the Borrower, the Guarantor and their respective Subsidiaries,
taken as a whole (hereinafter referred to as a "Material Adverse Effect"). Each
of the Borrower and the Guarantor has the requisite corporate power to make this
Agreement and to perform the obligations of such entity provided for herein.
1.3 CORPORATE AUTHORITY. The making and performance by the Borrower and
Guarantor of this Agreement have been duly authorized by all necessary corporate
action and will not violate any provision of law or of their respective Articles
of Incorporation or Bylaws or result in the breach of, or constitute a default
under, or, except as hereinafter provided, result in a default under or the
creation of any lien, charge or encumbrance upon any property or assets of the
Borrower or Guarantor pursuant to any indenture or loan or credit agreement, or
other agreement or instrument to which Borrower or any Guarantor is a party or
by which either or their property may be bound or affected.
1.4 FINANCIAL CONDITION. The unaudited consolidated balance sheet of
Little Switzerland and its Subsidiaries as of February 27, 2001 (the "Balance
Sheet Date") and the related unaudited consolidated statements of income and
cash flows of Little Switzerland and the
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Subsidiaries for the nine-month period then ended (collectively, the "Financial
Statements") heretofore furnished to the Lender, are complete and correct in all
material respects and fairly present the financial condition of the Borrower and
Guarantor and the results of operations for the period(s) specified therein. To
the best of the Borrower's and Guarantor's knowledge and belief, neither the
Borrower nor any Guarantor has contingent obligations, liabilities for taxes, or
unusual forward or long term commitments, except as herein specifically
mentioned on SCHEDULE 1.4, not disclosed by, or reserved against, in said
financial statements, and, at the present time, there are no material unrealized
or anticipated losses from any unfavorable commitments of the Borrower or
Guarantor. Said financial statements have been prepared in accordance with
generally accepted accounting principles and practices consistently maintained
by the Borrower and Guarantor throughout the period involved. Since the Balance
Sheet Date, there have been no material adverse changes in the financial
condition of the Borrower or Guarantor from that set forth in the Financial
Statements.
1.5 LITIGATION. Except as provided in SCHEDULE 1.5 attached hereto and
made a part hereof, there are no suits or proceedings pending, or, to the
knowledge of the Borrower or Guarantor, threatened, against or affecting the
Borrower, any Guarantor or any of the Subsidiaries (as defined in SUBSECTION
3.3), which, if adversely determined, would have a Material Adverse Effect.
Except as provided in SCHEDULE 1.5, There are no proceedings by or before any
governmental commission, bureau or other administrative agency pending, or to
the knowledge of the Borrower or Guarantor threatened, against the Borrower, any
Guarantor or any of the Subsidiaries.
1.6 TITLES; LIENS. The Borrower and Guarantor have exclusive good and
marketable title to each of the fixed properties and assets reflected in the
Financial Statements free and clear of all mortgages, liens and encumbrances,
except (a) liens, if any, for current taxes, assessments and governmental
charges not delinquent or whose validity is being contested at the time in good
faith and by appropriate proceedings, and covenants, restrictions, rights,
easements, liens, encumbrances and minor irregularities in title which do not
and will not interfere with the occupation, use and enjoyment of such properties
and assets in the normal course of business as presently conducted or planned or
materially impair the value of such properties and assets for the purpose of
such business, (b) mortgages, liens and encumbrances in favor of the Lender, (c)
mortgages, liens and encumbrances in favor of Xxxxxxx & Co. ("Tiffany's), all of
which are
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subordinate to the mortgages, liens and encumbrances in favor of the Lender; and
(d) mortgages, liens and encumbrances in favor of other third parties notice of
which the Lender has been provided in writing and which have been approved in
writing by the Lender.
1.7 GOVERNMENTAL LICENSES AND PERMITS. The Borrower and Guarantor
possess all licenses and permits necessary for the operation of their businesses
in all jurisdictions in which they are located and are engaging in business
without substantial known conflict with the rights of others, except for those
licenses and permits the failure of which to possess would not cause a Material
Adverse Effect.
1.8 ENVIRONMENTAL COMPLIANCE. The Borrower has duly complied with, and
Borrower's and Guarantor's business operations and property, including but not
limited to the Mortgaged Property (as defined in SUBSECTION 3.1), are, and shall
continue to be, in compliance with the provisions of all federal, state and
territorial environmental, health, and safety laws, codes and ordinances, and
all rules and regulations promulgated thereunder, except where the failure to so
comply would not cause a Material Adverse Effect. The Borrower and Guarantor
have been issued and will maintain all material federal, state and territorial
permits, licenses, certificates, and approvals relating to environmental, health
and safety matters. Neither the Borrower nor any Guarantor has received any
notice of, or has any actual knowledge of, facts that could reasonably be
expected to constitute any violation of any federal or territorial
environmental, health, or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder with respect to the Mortgaged Property or the
Borrower's or Guarantor's business operations or property. There has been no
written complaint, order, directive, claim, citation, or notice by any
governmental authority or any person or entity with respect to environmental,
health or safety matters affecting the Borrower, Guarantor, the Mortgaged
Property or Borrower's or Guarantor's business operations or other property.
Neither the Borrower nor any Guarantor has any indebtedness, known obligation or
liability, absolute or contingent, matured or not matured, with respect to the
storage, treatment, cleanup, or disposal of any solid wastes, hazardous wastes,
or other toxic or hazardous substances (including without limitation any such
indebtedness, obligation or liability with respect to any current regulation,
law or statute regarding such storage, treatment, cleanup, or disposal), which
has not been previously disclosed to the Lender in writing.
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1.9 ENFORCEABILITY. This Agreement, the Note (as hereinafter defined in
SUBSECTION 2.4), and the Security Instruments (as hereinafter defined in SECTION
3) are the legal, valid and binding obligations of the Borrower and the
Guarantor, enforceable against the Borrower or the Guarantor, as the case may
be, in accordance with their respective terms.
1.10 USE OF PROCEEDS. The proceeds of the Facility shall be used for
those purposes specifically set forth in SUBSECTION 2.5 and no part of the
proceeds shall be used directly or indirectly for any other purpose.
2. THE LOAN.
2.1 AMOUNT OF THE LOAN. The Lender agrees, on the terms and conditions
of this Agreement, to provide to the Borrower a revolving line of credit not to
exceed the principal sum of $700,000 (the "Facility") payable as hereinafter
provided. All or part of the Facility may be advanced and funded on the date
hereof as a partial credit against the Original Indebtedness. Upon such advance
of all or part of the Facility, any default or event of default in respect of
the Original Indebtedness, if any, shall be deemed irrevocably waived. As a
revolving line of credit, provided that the Facility and Borrower's right to
draw thereunder shall not have expired or been terminated, any principal sums
previously advanced by the Lender that shall have been repaid by the Borrower
may subsequently be redrawn by the Borrower subject to the terms of this
Agreement. Any subsequent advance under the Facility shall be evidenced by a
draw request executed by the Borrower and delivered to and approved by the
Lender; provided, that the aggregate sums advanced and outstanding under the
Facility shall not exceed the maximum principal amount thereof.
2.2 REPAYMENT. If not earlier repaid or terminated pursuant to this
Agreement, the Borrower shall repay the entire outstanding principal balance of
the Facility, together with all accrued and unpaid interest, charges and other
fees thereon, in full on June 1, 2002 (the "Maturity Date"). All payments
received from the Borrower shall be applied by the Lender first to late charges,
if any, second to accrued interest and the remainder to the outstanding
principal balance of the Facility. Prepayment is permitted at any time in whole
or in part without penalty, fee or premium.
2.3 INTEREST. The principal sum outstanding under the Facility shall
bear interest at a variable rate per annum equal to LIBOR (as defined in the
Note) plus three percent (3.0%), calculated daily on a three hundred sixty (360)
day basis for the actual number of days occurring in
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the period for which such interest is payable. Notwithstanding the foregoing,
during any period in which an Event of Default (as hereinafter defined) has
occurred and is continuing, the Facility shall accrue interest at a variable
rate per annum equal to LIBOR plus six percent (6.0%). Interest accrued at the
rate hereinabove specified shall be due and payable on the first day of each
month following the date hereof.
2.4 THE NOTE. The Facility shall be evidenced by a Revolving Credit
Note in the amount of the Facility dated the date hereof, due and payable to the
order of the Lender as herein and therein provided (the "Note").
2.5 PURPOSE. The purpose of the Facility is to extend a portion of the
Original Indebtedness; provided, however, that subsequent advances under the
Facility may be made for purposes of working capital.
3. SECURITY. Repayment of the Facility and the Borrower's and Guarantor's
other obligations hereunder shall be secured pursuant to the terms of the
following agreements and instruments satisfactory in form and substance to the
Lender and its counsel (collectively, the "Security Instruments"):
3.1 MODIFICATION OF MORTGAGE AND ASSIGNMENT OF LEASE. The Borrower and
Lender shall have executed and delivered the Modification and Acknowledgment of
Continuation of the Mortgage and Assignment, which shall acknowledge the
continuation of the Mortgage and Assignment as security for the Facility with
respect to the property described therein (the "Mortgaged Property").
3.2 GUARANTY. The Guarantor shall have executed and delivered to the
Lender an unconditional and unlimited Guaranty guaranteeing the performance of
the Borrower and Guarantor of all of their obligations under this Agreement, the
Note and the other Security Instruments.
3.3 STOCK PLEDGE. Borrower and Little Switzerland (collectively, the
"Pledgors") shall pledge or cause to be pledged 65% of the issued and
outstanding stock or equivalent equity interest (the "Pledged Stock") of all
Subsidiaries (as defined below) of the Pledgors by execution of the Stock Pledge
Agreement of even date herewith (the "Pledge Agreement"). The term
"Subsidiaries" means each corporation or other formally organized entity with
respect to which a
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Pledgor beneficially owns, directly or indirectly, a controlling interest, and
shall specifically include, but not be limited to, the Borrower, L.S. Holding,
L.S. USA, World Gift Imports, N.V., a Netherlands Antilles corporation, Montres
et Bijoux, S.A.R.L., a St. Xxxxxx company, L.S. Holding (Aruba), N.V., an Aruba
company, and L.S. Holding (Curacao), N.V., a Curacao corporation. The
Subsidiaries other than L.S. Wholesale and L.S. USA shall be collectively
referred to as the "Foreign Subsidiaries." Notwithstanding the foregoing, World
Gift Imports (Barbados) Limited, a Barbados company, shall not be included in
the term "Subsidiaries" and no ownership interest in such entity shall be
pledged, and the Pledged Stock shall include 100% of Little Switzerland's equity
interest in Borrower.
3.4 SECURITY AGREEMENT. The Borrower and Guarantor shall have executed
and delivered a Security Agreement, which agreement shall continue the first
priority security interest of the Lender as security for the Facility in all
right, title and interest of the Borrower and Guarantor in and to all inventory,
general intangibles arising therefrom and all products and proceeds thereof
located in the U.S. Virgin Islands, Alaska and elsewhere in the United States
(collectively, the "Collateral").
4. CONDITIONS PRECEDENT TO CLOSING. The Lender shall close and fully fund
the Facility, subject to the fulfillment to the satisfaction of the Lender of
the following conditions and all other applicable terms of this Agreement:
4.1 INTENTIONALLY OMITTED.
4.2 DOCUMENTS. The Lender shall have received fully executed originals
of the Agreement, the Note, the Security Instruments, the Related Loan Documents
and all documents referenced therein.
4.3 CURRENT INDEBTEDNESS TO THE LENDER AND BNS. The Original
Indebtedness and all outstanding indebtedness owed to BNS shall be paid in full.
4.4 ACQUISITION BY TIFFANY'S. The acquisition by Tiffany's of not less
than 44% of the issued and outstanding corporate shares of Little Switzerland
resulting in additional paid-in capital of not less than $7,000,000.00 into
Little Switzerland (the "Tiffany's Stock Purchase").
4.5 COLLATERAL AND MORTGAGED PROPERTY VALUES. The minimum aggregate net
book
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value of the Collateral located in the U.S. Virgin Islands, together with the
current appraised value of the Mortgaged Property, shall equal not less than
$2.5 million; provided, however, that, the Mortgaged Property shall at no time
constitute more than $1 million of such aggregate value.
4.6 WARRANTS. Little Switzerland shall issue to the Lender stock
warrants for 50,000 shares of stock in Little Switzerland in the form of EXHIBIT
A attached hereto (the "Warrant"). Little Switzerland shall use its best efforts
to register the shares covered by the stock warrants to the Lender when any
other registration occurs, subject to the current preexisting registration
rights of other shareholders shown on SCHEDULE 4.6 attached hereto and made a
part hereof, and if the shares have not been registered by the expiration date
of the stock warrants, then the right to exercise the stock warrants shall
continue until 5:00 p.m. (United States Eastern Time) on the 30th day following
the date on which such registration shall become effective. Lender hereby agrees
that, during the period of ninety (90) days following the effective date of a
registration statement of Little Switzerland filed under the Securities Act in
connection with an underwritten offering, it shall not, to the extent requested
by Little Switzerland or its underwriter, sell or otherwise transfer or dispose
of any Common Stock (or the Warrant) held by it, except Common Stock included in
such registration. All reasonable and customary costs and expenses of SEC
registration and compliance shall be Little Switzerland's sole responsibility.
4.7 LIEN AND JUDGMENT SEARCHES. The Lender shall have received
satisfactory results of UCC and lien searches in Alaska and the U.S. Virgin
Islands for all names and trade names of the Borrower and Guarantor, which also
shall confirm the Lender's first priority security interest in the Collateral.
4.8 EXPENSES. The Borrower and Guarantor shall reimburse the Lender for
(i) all expenses incurred by the Lender in connection with this Agreement,
including reasonable attorneys' fees, and (ii) any outstanding costs and
expenses related to the Forbearance Documents, the Mortgage, the Assignment, the
1999 Security Agreement, and any other document or transaction by and among the
parties hereto.
4.9 PROOF OF CORPORATE ACTION; REPRESENTATIONS AND WARRANTIES. The
Lender shall have received for each of the Borrower and the Guarantor
Secretary's Certificates certifying as to
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the officers, directors, ownership (except as to Little Switzerland) and trade
names of each such corporation. The Lender shall have received for each of the
Borrower and the Guarantor certified copies of all corporate action taken to
authorize the execution and delivery of this Agreement, the Note and the
Security Instruments and the agreements made thereunder, Certificates of Good
Standing, certified Articles of Incorporation and Bylaws, current business
licenses, and such other papers and documents as the Lender shall reasonably
request. The Lender also shall have received for each of the Borrower and the
Guarantor a statement executed by the President and attested by the Secretary of
such entity certifying that each of the representations and warranties set forth
in SECTION 1 of this Agreement is true and correct.
4.10 TIFFANY'S LOAN; SUBORDINATION AGREEMENT. Tiffany's shall have
extended, and the L.S. Wholesale, L.S. Holding and L.S. USA, respectively, shall
have accepted the following revolving line of credit facilities: a $475,000.00
revolving line of credit to L.S. Wholesale, a $1,950,000.00 revolving line of
credit facility to L.S. Holding, and a $75,000.00 revolving line of credit to
L.S. USA, each such facility accruing interest at a variable rate not greater
than LIBOR plus three percent (3%) per annum (collectively, the "Tiffany's
Loan"). The Tiffany's Loan shall be fully drawn prior to the closing and funding
of the Facility, and shall be fully subordinated to the Facility with respect to
payments. Any security interest of Tiffany's in the Collateral, the Mortgaged
Property or the Pledged Stock shall be fully subordinated to the security
interest of the Lender therein. Tiffany's, the Lender, L.S. Wholesale, L.S.
Holding and L.S. USA shall execute a subordination agreement subordinating the
Tiffany's Loan to the Facility substantially in the form attached hereto and
made a part hereof as EXHIBIT B (the "Subordination Agreement").
4.11 FINANCIAL CONDITION. The financial condition of Borrower and
Guarantor shall not have adversely changed in any material respect and the
Borrower shall not have provided the Lender with any false or misleading
information or signature at any time in connection with the Facility.
4.12 INSURANCE. The Lender shall have received evidence reasonably
satisfactory to the Lender of the following insurance coverage procured through
agencies licensed to do business in the jurisdiction in which the Borrower and
Guarantor are located, which agencies shall be
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financially sound, reputable and reasonably satisfactory to the Lender:
(a) Standard Multi-Peril ("SMP") insurance coverage with respect to the
leasehold improvements comprising the Mortgaged Property, providing for payment
to the Lender as mortgagee/loss payee against loss or damage by fire,
earthquake, windstorm and all other risks now embraced by the so-called broad
form extended coverage endorsement, in amounts not less than the full insurable
value of such leasehold improvements.
(b) SMP insurance coverage with respect to the Collateral, providing
for payment to the Lender as secured party/loss payee against loss or damage by
fire, earthquake, windstorm, and all other risks now embraced by the so-called
broad form extended coverage endorsement, in amounts not less than the full
insurable value of such Collateral.
(c) Appropriate workers' compensation insurance covering any and all
employees of Borrower and Guarantor.
(d) If it is determined from the FEMA Flood Hazard Certification that
the Mortgaged Property or any Collateral is located in a designated flood
prone area, Federal Flood Insurance naming the Lender as mortgagee / secured
party / loss payee up to the maximum amount available covering the Mortgaged
Property or such Collateral.
(e) Such other insurance with respect to the Borrower, the Guarantor,
the Mortgaged Property and the Collateral in such amounts and against such
insurable hazards as the Lender from time to time may reasonably require.
(f) The foregoing insurance policies shall provide that they may not be
canceled, or the amount(s) of coverage provided reduced, for any reason until
not less than thirty (30) days written notice shall have been give to the Lender
of the insurance company's intention to cancel or reduce the amount(s) of
coverage provided under such policy or policies, during which time the Borrower
shall replace said policy or policies with new, substitute or successor policies
to comply with the requirements of this SUBSECTION 4.12.
4.13 FACILITY FEE. The Lender shall have received from the Borrower a
facility fee in the amount of $16,333.33.
4.14 TAXES. The Lender shall have received such evidence as it may
reasonably require that all applicable taxes, assessments and other governmental
charges levied and assessed
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against the Borrower, the Guarantor, the Mortgaged Property or the Collateral,
due or past due, have been duly satisfied, except to the extent the same is
being contested diligently and in good faith by Borrower and/or the Guarantor.
The Lender shall have received a Certificate of Real Property Tax Status from
the Treasury Division, of the Department of Finance of the Government of the
U.S. Virgin Islands, showing that there are no property taxes owed on the
Mortgaged Property, together with copies of the paid real property tax receipts
for 1995, 1996, 1997, 1998 and any other year reasonably required by the Lender.
4.15 APPROVAL BY LENDER'S COUNSEL. All legal matters incident to the
transactions hereby contemplated shall be reasonably satisfactory to counsel for
the Lender.
4.16 OPINION OF COUNSEL FOR BORROWER AND GUARANTOR. The Lender shall
have received from counsel for the Borrower and Guarantor one or more favorable
opinion letters dated the same date hereof addressed to the Lender and
substantially in the form attached hereto and made a part hereof as EXHIBIT C
and as to such other matters as the Lender may reasonably request.
4.17 TRADE NAME. The Borrower and Guarantor shall have furnished
certified copies of the registration of trade names for all trade names used or
registered by the Borrower and Guarantor to the extent possible, and the
Secretary of each of the Borrower and Guarantor shall certify as to each trade
name used by such entity.
4.18 BNS RELEASES. BNS shall have executed and delivered releases of
its interests in the Security Instruments and such other documentation as shall
be reasonably required by the Lender to evidence the full payment of Borrower's
obligations to BNS.
5. FUTURE ADVANCES. Subject to the Borrower's satisfaction of the
following conditions and other applicable terms of this Agreement, the Borrower
may request advances of any amounts available under the Facility and the Lender
shall make such advances:
5.1 REPRESENTATIONS; NO DEFAULT. The Lender shall have received a
statement of the authorized officer of each of the Borrower and the Guarantor
dated the date of the advance certifying that (a) the representations and
warranties contained in SECTION 1 of this Agreement are true and correct as of
such date; (b) no Event of Default has occurred and is continuing; and (c) no
event has occurred that would constitute an Event of Default but for the passage
of time or a requirement of notice, or both.
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5.2 OTHER REQUIRED APPROVALS / CONSENTS. The Lender shall have received
such other documentation, certificates, authorizations, approvals, consents and
information as the Lender may reasonably request.
5.3 TIME AND AMOUNT. Subject to such conditions precedent and other
requirements, the Lender shall make advances upon not less than three (3)
business days prior written request from the Borrower to the Lender, not more
frequently than weekly, and in amounts not less than $100,000. The Lender shall
have no obligation to make a requested advance unless and until the Borrower and
Guarantor have complied to the reasonable satisfaction of the Lender and its
counsel with all applicable terms and conditions of this Agreement, the Note and
the Security Instruments.
6. RELEASE OF FOREIGN SECURITY / DOCUMENTATION FOR STOCK PLEDGE. Within
thirty (30) days of the execution of this Agreement, the Borrower and Guarantor
shall deliver to the Lender (a) the original share certificates representing all
of the Pledged Stock, together with stock powers executed in blank, and/or such
other documentation as is required in the jurisdiction in which such Pledged
Stock is issued, and (b) such other documentation as may be required under the
Pledge Agreement or reasonably required by the Lender to evidence and perfect
the Lender's security interest in the Pledged Stock. In exchange for the
perfection of the security interest effected at such time of delivery of the
Pledged Stock in compliance with this Agreement and the Pledge Agreement, Lender
shall release any and all security interests in inventory and other property
located outside of the United States and the U.S. Virgin Islands and agrees to
execute such documents and take such actions as is reasonably requested by the
Borrower or Guarantor to effect and evidence such release.
7. AFFIRMATIVE COVENANTS. The Borrower and the Guarantor agree that so
long as credit shall remain available hereunder and until payment in full of the
Facility, unless the Lender shall otherwise consent in writing, they will:
7.1 APPLICATION OF LOAN PROCEEDS. Apply, and allow the Lender to apply
on behalf of the Borrower, the proceeds of the Facility only for the specific
purposes agreed to herein.
7.2 VALUE OF COLLATERAL AND MORTGAGED PROPERTY. Maintain the minimum
LOAN AGREEMENT
PAGE 14
aggregate net book value of the Collateral, together with the appraised value of
the Mortgaged Property, at an amount equal to not less than $2.5 million;
provided, however, that, the Mortgaged Property shall at no time constitute
greater than $1 million of such aggregate value.
7.3 FURNISH STATEMENTS AND OTHER DOCUMENTS. Furnish, or cause to be
furnished, to the Lender, (a) within thirty (30) days of the end of each month,
the monthly unaudited financial statements of the Borrower and Guarantor; (b)
within forty-five (45) days of the end of each of the first three quarters of
each fiscal year, unaudited quarterly financial statements of the Borrower and
Guarantor; (c) within ninety (90) days after the end of each fiscal year of the
Borrower and the Guarantor, audited consolidated financial statements of the
Borrower and Guarantor for such year, prepared by an independent accountant
reasonably acceptable to the Lender, (d) upon filing with the U.S. Internal
Revenue Service or the V.I. Bureau of Internal Revenue or other taxing
authority, but in no event later than one hundred twenty (120) days following
the end of the fiscal year of the Borrower and Guarantor, unless the filing
thereof has been properly extended, the income tax returns of the Borrower and
the Guarantor, (e) upon filing, copies of all quarterly, annual and other
filings filed with the U.S. Securities and Exchange Commission, (f) upon the
approval of Little Switzerland's board of directors, but in no event later than
thirty (30) days prior to the end of the current fiscal year, the approved and
authorized business plan for Little Switzerland for the following fiscal year,
and (g) such further information, documentation and filings regarding the
business affairs and financial condition of the Borrower and the Guarantor as
may be reasonably requested by the Lender, which shall be prepared in such form
and manner and by such persons as are reasonably acceptable to the Lender.
7.4 INVENTORY REPORTS. The Borrower shall deliver a report on or before
the 15th day of each calendar month certifying as to the amount, type and value
of the Collateral as of the end of the preceding calendar month, including
reasonable detail of inventory by store location, type, amount and book value.
7.5 PAYMENT OF TAXES AND OTHER CHARGES. Pay and discharge or cause to
be paid and discharged (a) all taxes, assessments and governmental charges or
liens imposed upon Borrower, Guarantor or upon any property belonging
thereto, prior to the date on which penalties attach thereto, including real
property taxes on the Mortgaged Property, and (b) all lawful claims and
amounts
LOAN AGREEMENT
PAGE 15
which, if unpaid, might become a lien or charge upon the Mortgaged Property, the
Collateral, the Pledged Stock or other property of the Borrower or Guarantor,
and submit evidence thereof to the Lender upon request; provided, however, that
the Borrower and Guarantor shall not be required to pay any such tax,
assessment, charge, amounts, levy or claim the payment of which is being
contested in good faith and by proper judicial or administrative proceedings.
7.6 INSPECTION AND MAINTENANCE. Allow the Lender or its duly authorized
representatives to inspect the Mortgaged Property and the Collateral and the
books, records, assets, property, and operations of the Borrower and the
Guarantor at any reasonable time on reasonable notice and maintain said books,
records, assets, property and operations of the Borrower and the Guarantor to
the reasonable satisfaction of the Lender.
7.7 NOTICE OF LITIGATION. Promptly give notice in writing to the
Lender of all litigation and of all proceedings by or before any governmental
regulatory agency, against or affecting the Borrower and/or any Guarantor, where
the amount involved is in excess of $100,000.00 or which, if adversely
determined, would otherwise have a Material Adverse Effect.
7.8 INSURANCE. Maintain, or cause to be maintained, the insurance
specified in SUBSECTION 4.12 .
7.9 ENVIRONMENTAL COMPLIANCE. Be and remain in compliance with the
provisions of all federal, state, and local environmental, health and safety
laws, codes and ordinances, and all rules and regulations issued thereunder,
except where the failure to so comply would not result in a Material Adverse
Effect; notify the Lender immediately of any notice of a material hazardous
discharge or environmental complaint received from any governmental agency or
any other party; notify the Lender immediately of any material hazardous
discharge from or affecting the Mortgaged Property or the Borrower's or
Guarantor's other property; immediately contain and remove the same, in
compliance with all applicable laws; promptly pay any fine or penalty assessed
in connection therewith; and at the Lender's request, and at the Borrower's
expense, provide a report of a qualified environmental engineer, satisfactory in
scope, form, and content to the Lender, and such other and further assurances
reasonably satisfactory to the Lender that the condition has been corrected.
7.10 TIFFANY'S LOAN AND SHAREHOLDER LOANS. Subordinate the Tiffany's
Loan and all existing loans and/or advances from any shareholder of Borrower or
Guarantor and all future
LOAN AGREEMENT
PAGE 16
shareholders' loans and/or advances to the Facility.
7.11 LICENSES. Obtain and promptly renew from time to time all material
consents, licenses, approvals, permits, registrations and authorizations as may
be required under any applicable law or regulation for the Mortgaged Property,
the Collateral, the Pledged Stock, the Borrower's business operations, the
Guarantor's business operations and the making, performance, validity and
enforceability of the Security Instruments.
8. NEGATIVE COVENANTS. The Borrower and the Guarantor agree that so long
as credit shall remain available hereunder and until payment in full of the
Facility, and all other credit advanced by the Lender to the Borrower hereunder,
without the prior written consent of the Lender, the Borrower and the Guarantor
will not:
8.1 LIMITATION OF LIENS. Mortgage, pledge, hypothecate, assign,
transfer, suffer to exist, or voluntarily or involuntarily subject to any lien
or encumbrance to secure any indebtedness, any interest in or any part of the
Mortgaged Property, the Collateral or the Pledged Stock, now owned or hereafter
acquired; excluding, however, from the operation of this covenant (a) liens,
mortgages or encumbrances in favor of the Lender; (b) liens, mortgages or
encumbrances in favor of Tiffany's and subordinate to the liens, mortgages and
encumbrances of the Lender; (c) liens for taxes, assessments and other
governmental charges or levies not yet due or as to which the period of grace
(not to exceed thirty (30) days), if any, related thereto has not expired or
which are being contested diligently and in good faith by appropriate
proceedings; (d) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, (i) which are not overdue for a period of more
than ninety (90) days or (ii) which are being contested diligently and in good
faith by appropriate proceedings; (e) liens consisting of deposits or pledges
made in the ordinary course of business in connection with, or to secure payment
of, obligations under workers' compensation, unemployment insurance or similar
legislation; (f) liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of real
property, which in the aggregate are not substantial in amount and which do not,
in any case, detract from the value of such property or impair the use thereof
in the ordinary conduct of business; and (g) existing liens described on
SCHEDULE 8.1, if any, and the continuance or renewal of any such liens in
connection
LOAN AGREEMENT
PAGE 17
with any refinancing, renewals or extensions of the debt secured thereby.
8.2 DISPOSITION OF ASSETS. Lend, sell, lease, transfer or otherwise
dispose of any of the Mortgaged Property, the Collateral or the Pledged Stock,
whether now owned or hereafter acquired, except in the ordinary and regular
course of the Borrower's and Guarantor's business and except that the Borrower
and the Guarantor may dispose of obsolete, outmoded and outdated equipment,
furniture and fixtures, which have been replaced by appropriate substitutes.
9. EXPENSES. The Borrower agrees to pay all reasonable expenses (including
reasonable legal expenses and attorneys' fees) payable in connection with the
execution and delivery of this Agreement, the Note and the Security Instruments
or payable in connection with any prior negotiation and/or documentation of
transactions between the Lender and the Borrower or Guarantor, as well as all
expenses (including reasonable legal expenses and attorneys' fees) of every kind
incidental to the collection of the Facility or enforcement of this Agreement,
the Note or the Security Instruments; and the Borrower and Guarantor shall
indemnify the Lender against all reasonable claims for such fees, charges and
commissions arising in connection with the transaction contemplated by this
Agreement, excluding any gross negligence or willful misconduct by the Lender or
its representatives or agents acting in the course and scope of this Agreement.
10. EVENTS OF DEFAULT. If any one of the following (each an "Event of
Default") shall occur:
10.1 if any representation or warranty made to the Lender by the
Borrower, the Guarantor or any Subsidiary of the Borrower or Guarantor in this
Agreement, the Security Instruments, the Related Loan Agreements or the
Subordination Agreement or in connection with the Facility proves to have been
incorrect in any material respect as of the date hereof or as of the date on
which it is made, or any statement, certificate or data heretofore or hereafter
furnished to the Lender by the Borrower, the Guarantor or any Subsidiary of the
Borrower or Guarantor to the Lender in connection with the application for the
Facility or in the administration of this Agreement proves to have been
incorrect in any material respect as of the date when the facts therein set
forth were stated or certified; or
10.2 if the Borrower, the Guarantor or any Subsidiary of the Borrower
or Guarantor fails to perform or comply with any covenant or agreement in this
Agreement, the Security
LOAN AGREEMENT
PAGE 18
Instruments, the Related Loan Agreements or the Subordination Agreement (other
than failure to timely pay indebtedness to the Lender governed by SUBSECTION
10.3 below), which failure shall remain unremedied for thirty (30) days after
written notice from the Lender to the Borrower thereof; or
10.3 if the Borrower fails to pay principal of or interest on the
Note, or any other indebtedness, which term shall be construed to mean any
obligation or liability for borrowed money, owing by the Borrower to the Lender
now existing or hereafter incurred, for ten (10) days after the same shall be
due, without further notice or opportunity to cure; or
10.4 if any Security Instrument shall cease to be a valid and perfected
security interest, except that the Stock Pledge may be unperfected for thirty
(30) days following the date hereof; or
10.5 if an event of default shall have occurred under any document
executed in connection with the Tiffany's Loan or the Tiffany's Stock Purchase;
or
10.6 if an event of default shall have occurred under any Related Loan
Agreement or any note or documents referenced therein or executed in connection
therewith; or
10.7 if the Mortgaged Property, the Collateral, the Pledged Stock or
any part or interest thereof or therein be transferred (other than in the
ordinary course of Borrower's and Guarantor's business) or encumbered in any way
without the consent of the Lender, whether by operation of law or otherwise; or
10.8 if the Lender or the Lender's representative not be permitted, at
all reasonable times and upon reasonable prior notice, to enter upon the
Mortgaged Property or the business or other premises at which the Collateral is
located, to inspect the same; or
10.9 a judgment for the payment of money in excess of $100,000 shall be
rendered against the Borrower or the Guarantor and any such judgment shall
remain unsatisfied and in effect for any period of sixty (60) consecutive days
without a stay of execution; or
10.10 the Borrower or the Guarantor shall (i) apply for or consent to
the appointment of a receiver, trustee or liquidator of the Borrower or the
Guarantor or of all or a substantial part of the assets of the Borrower or the
Guarantor, (ii) be unable, or admit in writing, the inability to pay debts as
they mature, (iii) make a general assignment for the benefit of creditors; (iv)
be adjudicated
LOAN AGREEMENT
PAGE 19
a bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization or an arrangement with creditors or
to take advantage of any insolvency law or an answer admitting the material
allegations of a petition filed against the Borrower or the Guarantor in any
bankruptcy, reorganization or insolvency law or an answer admitting the material
allegations of a petition filed against the Borrower or the Guarantor in any
bankruptcy proceeding, reorganization or insolvency proceeding, or corporate
action shall be taken by the Borrower or the Guarantor for the purpose of
effecting any of the foregoing; or
10.11 an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or the Guarantor, by any court
of competent jurisdiction, approving a petition seeking reorganization of the
Borrower or the Guarantor or appointing a receiver, trustee or liquidator of the
Borrower or the Guarantor or of all or a substantial part of the assets of the
Borrower or the Guarantor, and such order, judgment or decree shall continue
unstayed and in effect for any period of one hundred eighty (180) consecutive
days;
THEN, the Lender may by written notice to the Borrower (i) immediately
terminate the Facility and the obligations of the Lender hereunder, and (ii)
declare the principal of and interest accrued on the Note, and all other
liabilities of the Borrower to the Lender to be forthwith due and payable,
whereupon the same shall become forthwith due and payable.
11. NO WAIVER; REMEDIES CUMULATIVE. No failure to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
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 herein
provided are cumulative and are not exclusive of any remedies provided by law.
12. ENTIRE AGREEMENT. The Borrower and Guarantor understand and agree that
this Agreement, along with the Note, Security Instruments and other documents
executed simultaneously herewith, constitute the entire agreement of the parties
with respect to the subject matter hereof, and supersede any and all prior
agreements, written or oral, among the parties concerning the subject matter
hereof.
13. AMENDMENT TO LOAN AGREEMENT. This Loan Agreement may not be changed
orally, but only by an agreement in writing signed by all parties to this Loan
Agreement.
LOAN AGREEMENT
PAGE 20
14. 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.
15. WAIVER OF RIGHT TO TRIAL BY JURY. THE BORROWER AND THE GUARANTOR
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY
HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON, ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR THE SECURITY
INSTRUMENTS, AND/OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS BY ANY PARTY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER'S PERFORMANCE UNDER THIS AGREEMENT. FURTHER, THE
BORROWER AND THE GUARANTOR HEREBY CERTIFY THAT NO REPRESENTATIVE OR AGENT OF THE
LENDER, NOR THE LENDER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE
LENDER, NOR THE LENDER'S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR
MODIFY THIS PROVISION.
16. INTENTIONALLY OMITTED.
17. EXERCISE OF REMEDIES. THE BORROWER AND THE GUARANTOR FURTHER AGREE TO
THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW THAT UPON THE OCCURRENCE OF
ANY EVENT OF DEFAULT, THE BORROWER AND THE GUARANTOR SHALL TAKE, OR CAUSE TO BE
TAKEN, ANY AND ALL ACTIONS NECESSARY: (I) TO PERMIT THE LENDER TO PROCEED WITH
ANY AND ALL ENFORCEMENT ACTIONS UNDER THIS AGREEMENT AND THE SECURITY
INSTRUMENTS, AND (II) TO PERMIT THE LENDER TO INITIATE AND/OR PROCEED WITH ANY
AND ALL FORECLOSURES ON (WHETHER JUDICIAL OR NON-JUDICIAL),
LOAN AGREEMENT
PAGE 21
AND REALIZATION OF, ANY AND ALL OF THE COLLATERAL, THE MORTGAGED PROPERTY, THE
PLEDGED STOCK AND ANY OTHER PROPERTY HELD AS SECURITY FOR THE OBLIGATIONS OF THE
BORROWER AND THE GUARANTOR.
18. RECEIVER. If an Event of Default shall have occurred and be
continuing, the Lender shall, as a matter of right, to the extent permitted by
applicable law, be entitled to the appointment of a receiver for all or any part
of the Mortgaged Property, the Collateral and the Pledged Stock, whether such
receivership be incidental to a proposed sale of the Mortgaged Property, the
Collateral and/or the Pledged Stock or otherwise, and the Borrower and Guarantor
hereby consent to the appointment of such a receiver and shall not oppose any
such appointment.
19. MISCELLANEOUS.
19.1 ACCOUNTING TERMS. Any accounting term used herein shall, unless
the context otherwise specifies, be defined as most commonly defined in
accordance with generally accepted accounting principles.
19.2 NOTICE. Any notice required herein shall be deemed to have been
properly served if sent by United States first class registered or certified
mail, postage prepaid, return receipt requested, addressed as follows (or to
such other address as such party shall have furnished to the other party in
writing), if to the Lender:
THE CHASE MANHATTAN BANK
000 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxx Xxxxx, Managing Director
with a copy to:
The Chase Manhattan Bank
P.O. Box 309600
St. Xxxxxx, U.S. Virgin Islands 00803
Attn: Xxxxxx Xxxxxxx
with a copy to:
George H.T. Xxxxxx
Xxxxxx, Topper and Feuerzeig
X.X. Xxx 000
LOAN AGREEMENT
PAGE 00
Xx. Xxxxxx, X.X. Xxxxxx Xxxxxxx 00000
and if to the Borrower or any Guarantor:
L.S. WHOLESALE, INC.
000-X Xxxxx Xxx
Xx. Xxxxxx, X.X. Xxxxxx Xxxxxxx 00000
Attn: Xxxxxxx Xxxxxx
with a copy to:
Xxxx X. Xxxxxxx, Esq.
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
19.3 CONSTRUCTION. This Agreement shall be construed in accordance
with the laws of the United States Virgin Islands.
19.4 OUTSTANDING BNS BOND. Lender, Borrower and Guarantor acknowledge
that the obligations of the Borrower, Guarantor and Subsidiaries in respect of
that certain bond issued by BNS in the amount of BBD $500,000 remain outstanding
and are secured by, and subject to the terms of, that certain Authority To Hold
Funds on Deposit dated May 2, 2001; provided, however, that the Lender and
Guarantor shall cause the full release of such bond by the appropriate
governmental authority within ninety (90) days of execution of this Agreement.
LOAN AGREEMENT
PAGE 23
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
day and year first above written.
L.S. WHOLESALE, INC., Borrower
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------------
Xxxxxxx X. Xxxxxx, Senior Vice President
(SEAL)
Attest: /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx, Secretary
LITTLE SWITZERLAND, INC., Guarantor
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------------
Xxxxxxx X. Xxxxxx, Senior Vice President
(SEAL)
Attest: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Xxxxxxx X. Xxxxxx, Secretary
THE CHASE MANHATTAN BANK, Lender
By: /s/ Xxxxx Xxxxx
---------------------------------
Xxxxx Xxxxx, Managing Director
SCHEDULE 1.4
CONTINGENT OBLIGATIONS, ETC.
SCHEDULE 1.5
LITIGATION
SCHEDULE 4.6
CURRENT REGISTRATION RIGHTS
SCHEDULE 8.1
EXISTING LIENS
EXHIBIT A
FORM OF WARRANT
EXHIBIT B
SUBORDINATION AGREEMENT
EXHIBIT C
FORM OF OPINION LETTER
Reference is made to that certain Loan Agreement dated as of May 1, 2001 by
and among L.S. Wholesale, Inc. , as Borrower, Little Switzerland, Inc.
("Little Switzerland"), as Guarantor, and The Chase Manhattan Bank
("Chase"), as Lender (the "Agreement"). Capitalized terms used herein shall
have the meaning ascribed thereto in the Agreement.
SCHEDULE 1.4
FINANCIAL CONDITION
Federal tax filings for February 15, 2001 for L.S. Holding, Inc., L.S.
Wholesale, Inc., Little Switzerland, and L.S. Holding (USA), Inc. have been
delayed past the extension date.
Chase and The Bank of Nova Scotia ("BNS") debt secured by foreign collateral has
created a Section 956 investment.
Little Switzerland is a party to a profit sharing and utilization of Tax NOL's
agreement. See the Barbados Restructuring on Schedule 8.1 below.
SCHEDULE 1.5
LITIGATION
1. 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, Inc. ("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.
2. 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.
3. 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
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
Status: 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.
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.
4. 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.
5. 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 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.
SCHEDULE 8.1
EXISTING LIENS
All assets are subject to liens in favor of Chase and 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
and Xxxxxxx & Co. International (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.")
The St. Xxxxxx Xxxxx Bay Facility is subject to a ground lease between L.S.
Wholesale. Inc. and the Port Authority dated 7/17/89, extended by agreement
dated 12/2/99 and 3/25/99.
The St. Xxxxxx Xxxxx Bay Facility is subject to the Existing Secured Liens
and Partial Release Thereof.
BARBADOS RESTRUCTURING
Little Switzerland completed restructuring its business in Barbados in March
2001.
In November 2000, World Gift Imports (Barbados) LTD. entered into the
following agreements in restructuring its Barbados business.
1. 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
2. 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
3. Agreement: Unanimous Shareholder Agreement
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
4. 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.
5. Agreement: Trademark License Agreement
Parties: L.S. Wholesale, Inc.
DI
Date: November 14, 2000
6. Agreement: Authority to Hold Funds on Deposit
Parties: Little Switzerland, Inc.
Bank of Nova Scotia
Date: April 19, 2001
Agreement to hold the equivalent of US $150,000 as
Terms: 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.
