EXHIBIT 10.13
COMPOSITION AGREEMENT
AGREEMENT, made this 31st day of December, 1997, between X.
Xxxxxxxxx & Son, Inc., a Delaware corporation, 0000 Xxxxx Xxxxxx,
Xxxxxxxx, Xxx Xxxx 00000 (hereinafter the "Debtor") and the
Unofficial Creditors' Committee of the Debtor, the members of which
are set forth on Exhibit "A" annexed hereto, c/o Xxxxxx Xxxxxx of
JLM Couture, its chairman (hereinafter the "Committee").
W I T N E S S E T H:
WHEREAS, the Debtor is engaged in the business of the
manufacture and sale, at retail, of bridal gowns, bridal-wear and
related accessories, and
WHEREAS, the Debtor has negotiated a plan with the Committee
to repay its unsecured trade and service obligations outstanding as
of December 31, 1997 (the "Claims") on an out-of-court basis, and
WHEREAS, the Debtor and the Committee agree that an out-of-
court resolution of claims against the Debtor is in everyone's best
interests for a number of reasons, including the administrative
cost and expense attendant to a court proceeding and the speed with
which distributions can be made in an out-of-court proceeding, and
WHEREAS, each of the members of the Committee have reviewed
and consented to the terms of the repayment plan as set forth in
this Agreement.
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
ARTICLE I
OPERATION OF THE DEBTOR'S
BUSINESS; REPAYMENT OF CLAIMS
1.1 Operation Of Business. The Debtor may continue to incur
debts and pay its current obligations incurred subsequent to
December 31, 1997 in the ordinary course of business.
1.2 The Claims. The Claims shall be divided into 2 classes,
and treated as follows:
(a) Class I, consisting of creditors holding claims
equal to $5,000 or less shall be paid 75% of the Allowed Amount (as
defined in paragraph 7.1 hereof) of such claims, in cash, on the
Effective Date (as defined herein); and
(b) Class II, consisting of creditors holding claims in
excess of $5,000, shall be paid 100% of the Allowed Amount of such
claims, without interest, in semi-annual installments over 3 years,
as follows:
Instal
l-ment
Payment Date
%
Install-
ment
Payment Date
%
1
Effective Date
15%
5
24 months after
Effective Date
10%
2
6 months after
Effective Date
7.5%
6
30 months after
Effective Date
25%
3
12 months after
Effective Date
7.5%
7
36 months after
Effective Date
25%
4
18 months after
Effective Date
10%
(c) Creditors holding claims in excess of $5,000 may, at
their option on the acceptance form (the "Acceptance") in the form
annexed hereto as Exhibit "B", reduce their claims to $5,000 and be
treated as a Class I claim; and
(d) Payment under this Article I shall be in full
satisfaction, release, discharge and waiver of the Claims against
the Debtor.
1.3 Special Provisions For Certain Vendors. (a) Class II
Vendors
accepting this Agreement shall be entitled to receive a payment of
12-1/2% of the amount of each invoice (excluding shipping charges)
for merchandise shipped or services rendered after the Effective
Date (the "Add-Ons") paid at the time the invoice is paid, provided
all shipments are made on a credit, non-COD, basis under the
following terms:
(i) From and after the Effective Date through the
date of payment of the 2nd Installment,
vendors shall ship goods on credit in exchange
for the Company's payment of such invoice on
the Friday of the week the merchandise is
received or services rendered.
(ii) From and after the date the 2nd Installment is
paid, vendors shall ship merchandise payable
30 days after receipt of goods or rendition of
services.
vendors are not required to, but may in their sole discretion, from
time to time, in such credit limits as each vendor deems
appropriate, participate in the Add-On program, to the extent of
the credit granted.
(b) All Add-Ons shall be credited against the next semi-
annual payment due under the Agreement. On the Payment Date of
each Installment, vendors shall be entitled to retain and/or be
paid, as the case may be, the greater of:
(i) the total of the Add-Ons received during a
semi-annual period; or
(ii) the Installment then due, less the Add-Ons
received during such semi-annual period.
(c) Add-Ons received during a semi-annual period in
excess of the installment due at the end of such period shall be
credited against the last payments due under this Agreement. In no
event shall any vendor receive more than 100% of its Claim.
ARTICLE II
ACCEPTANCE BY CREDITORS; THE EFFECTIVE DATE
2.1 Promptly upon the execution and delivery of this
Agreement by the parties hereto, the Debtor shall serve upon all
holders of Claims a copy of this Agreement, the Committee's letter
recommending acceptance of the terms hereof, and the Acceptance.
2.2 The Agreement shall be effective upon the Debtor's
receipt of Acceptances from not less than 85% in the amount of the
Claims in each Class (the "Effective Date"). This Agreement shall
terminate on January 31, 1998 (the "Deadline"), unless the
necessary Acceptances have been received by that date. If the
necessary acceptances have not been received by the Debtor on or
before the Deadline, the Debtor may, at its option, by written
notice to the Committee, extend the Deadline or waive the
percentage requirement.
2.3 By its execution and delivery of an Acceptance to the
Debtor, each creditor agrees that:
(a) the amount of claim set forth in such Acceptance is
the total amount of the Debtor's obligation to such creditor as of
December 31, 1997;
(b) so long as no Event of Default (as defined herein)
has occurred and is continuing, such creditor shall accept all
payments made hereunder in satisfaction of Debtor's obligation to
such creditor and shall not commence any proceeding against Debtor
with respect to any such obligation;
(c) payment under Article I hereof shall be in full
satisfaction, release, discharge and waiver of all claims against
the Debtor;
(d) in the event the Debtor becomes the subject of a
proceeding under Chapter 11 of the Bankruptcy Code, prior to the
Effective Date, the Debtor may use the Acceptances as acceptances
of a plan of reorganization that contains the same payment and
other terms all substantially in conformance with the terms of this
Agreement, provided, only, that (i) such plan is confirmed within
sixty (60) days of the date the chapter 11 case is filed, (ii) all
material terms of this Agreement are not delayed or impaired for
more than such sixty (60) day period, and (iii) the amount due GB
Capital, except for $2.8 million, remains subordinated to the
claims of creditors who execute this Agreement and/or execute and
deliver Acceptances.
ARTICLE III
DEBTOR'S COVENANTS
Until such time as the Debtor's obligations under this
Agreement have been discharged in full, the Debtor agrees that it
will:
3.1 Maintain in full force and effect insurance policies with
reasonable and reputable insurance companies or associations on its
property and against such risks as are customarily maintained by
customers engaged in similar business and owning similar property,
including, without limitation, fire, workers compensation, and
employee fidelity insurance, and furnish to the Committee, upon
request, reasonable information as to the amounts and types of
insurance so maintained.
3.2 Preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation,
and qualify and remain qualified as a foreign corporation in each
jurisdiction which such qualification is necessary for the
operation of its business or the ownership of its property.
3.3 Comply in all material respects with the requirements of
all applicable laws, rules, regulations and orders (the "Law") of
any governmental authority relating to the business of the Debtor,
provided, however, that nothing herein contained shall require
compliance with the Law so long as said Law is being contested in
good faith and where applicable in appropriate proceedings.
3.4 Keep true, complete and accurate records and books of
account in accordance with generally accepted accounting principles
to the extent applicable.
3.5 Issue to the members of the Committee a copy of semi-
annual, unaudited, internal financial statements, within sixty (60)
days after the end of each semi-annual period commencing with the
period ended June 30, 1998, together with a statement setting forth
the payments made to each creditor pursuant to paragraph 1.2(b)
hereof.
3.6 Make no prepayment of any Claim, except as provided in
paragraph 1.3 hereof, unless such prepayment is made to all holders
of Claims. Notwithstanding the foregoing sentence, the Debtor may,
subject to the Committee's prior written consent, make such
payments with respect to the Claims as may be necessary or required
in the continued operation of its business.
3.7 Inform the Creditors' Committee of any lawsuits commenced
against the Company.
3.8 Create no liens in excess of $10,000 upon any of its
assets, exclusive of purchase money security interests, without the
written consent of the Creditors' Committee, except pursuant to
Section 5.5 of this Agreement.
ARTICLE IV
EVENTS OF DEFAULT; REMEDIES
4.1 The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement:
(a) Failure of the Debtor to make any payment due to
creditors pursuant to the terms of this Agreement, including but
not limited to payments under paragraphs 1.2 and 1.3 of Article I
of this Agreement; and
(b) Failure of the Debtor to perform or observe any
other material provision of this Agreement, which failure remains
uncured for a period of ten (10) days after notice of such failure
shall have been furnished to the Debtor by the Committee.
4.2 Upon the occurrence of an Event of Default, which is not
cured following the expiration of the applicable notice and cure
periods, the Committee may exercise any and all legal and equitable
rights and remedies permitted by law and all Claims shall be
accelerated and immediately due and payable.
ARTICLE V
GE CAPITAL CORP.
5.1 Xxxxxx Xxxxxxxx Capital, LLC ("GB Capital") is the holder
of a secured claim against the Debtor in the amount of $7.981
million (the "GB Capital Debt"), secured by liens and security
interests in all of the assets of the Debtor as well as a pledge of
the Debtor's stock.
5.2 Subject to satisfactory completion of each of the
provisions of the Agreement required on behalf of the holders of
Claims, i.e., receipt by the Debtor of sufficient Acceptances, GB
Capital does hereby agree to subordinate the GB Capital Debt in
excess of $2.8 million (the "GB Capital Unsubordinated Debt") to
the Claims of creditors executing this Agreement or that deliver
the Acceptances. So long as there is no default under this
Agreement, the GB Capital Unsubordinated Debt shall be due and
payable on December 31, 2000 (the "Maturity Date"); shall accrue
interest at the rate of prime plus 1% per annum, with principal and
accrued and unpaid interest due and payable on the maturity date;
one half of such interest shall be paid monthly, with the balance
to be deferred and payable on the maturity date. The obligations
to GB Capital in respect of the GB Capital Unsubordinated Debt
shall be secured by all of the Company's assets. Upon a default
under this Agreement the GB Capital Debt shall be accelerated and
immediately due and payable, shall be secured by all of the assets
of the Debtor, and the subordination provisions hereof shall
immediately terminate and shall be of no further force and effect.
5.3 In the event the Effective Date does not occur or the
Debtor becomes subject to a proceeding under any extended pursuant
to Section 2.2 of this Agreement, the amount due GB Capital shall
be reinstated to the sum of $7.981 million, plus any deferred or
unpaid interest or other charges all of which shall become
immediately due and payable, subject to Section 2.3(d) of this
Agreement.
5.4 GB Capital's agreement to subordinate a portion of its
claim to the amount of the GB Capital Unsubordinated Debt is
without prejudice to all other rights of GB Capital and shall not
be used by any holder of a Claim or other third party in any
proceeding commenced against GB Capital to affect the amount,
validity or enforceability of any amounts due to GB Capital.
5.5 GB Capital may, at its option, advance additional sums to
the Debtor from and after December 16, 1997 (the "New Advances").
All New Advances shall bear interest at the rate of prime plus one
(1%) percent, shall be secured by liens and security interests in
all of the assets of the Debtor and may incur reasonable fees,
expenses and other charges (collectively, the "Charges") payable to
GB Capital by the Debtor. The New Advances and the Charges shall
be repaid on a current basis under such terms and conditions as may
be reasonably agreed to between GB Capital and the Debtor.
5.6 By its execution of this Agreement GB Capital agrees to
the provisions of this Article V, including its Agreement to retain
any rights to recovery under section 547 (preference claims) of the
Bankruptcy Code of any payments to holders of Claims under this
Agreement, in the event a petition under any provision of the
United States Code is filed by or against the Debtor and, in the
event it receives the proceeds of preference claims, to remit to
the payors the full amounts any of such payors may have paid.
5.7 Except as specifically set forth in this Agreement,
nothing herein contained shall limit or otherwise affect the rights
of GB Capital under the GB Capital Note.
ARTICLE VI
INSIDER CLAIMS
6.1 For purposes of this Agreement:
(a) the "Xxxxxxxxx Family" shall mean Xxxx Xxxxxxxxx,
Xxxxx Xxxxxxxxx and their heirs and assigns.
(b) "Insider Claims" shall mean the claims of the
Xxxxxxxxx Family in the agreed amount of $1 million.
6.2 The Insider Claims are contractually subordinate to the
GB Capital Debt.
6.3 The Debtor has negotiated a resolution of the Insider
Claims with the Xxxxxxxxx Family, pursuant to which the Xxxxxxxxx
Family has agreed to accept as payment in full of the Insider
Claims the sum of $125,000, paid $25,000 down, with the balance
payable in forty equal monthly installments without interest. The
Xxxxxxxxx Family has agreed to make themselves available to consult
with and offer advice to the Debtor during the period the
Schachters receive payments.
ARTICLE VII
ALLOWED CLAIMS; DISPUTED CLAIMS
7.1 An Acceptance received from a creditor that asserts an
amount due that is consistent with the amount set forth in the
Debtor's books and records shall be an "Allowed Amount". Creditors
may contact the Debtor by fax at (000) 000-0000 to
discuss/determine the amount which the Debtor's records reflects is
due.
7.2 An acceptance received from a creditor that asserts an
amount due greater than the amount set forth in the Debtor's books
and records shall be a "Disputed Claim".
7.3 On the Effective Date, the distribution with respect to
a Disputed claim shall be equal to fifteen (15%) of the undisputed
amount of said Disputed Claim. No further distributions shall be
made with respect to the Disputed Claim until it becomes an Allowed
Amount. At such time as a Disputed Claim becomes an Allowed
Amount, the holder of said Claim shall be paid all Installments
theretofore paid to all creditors holding Claims in an Allowed
Amount.
7.4 In the event the Debtor and any particular claimant are
unable to resolve a discrepancy between (a) the Debtor's books and
records and (b) the invoice amount asserted by said claimant,
excluding interest, finance charges or penalties, but after
reflecting discounts taken by the Debtor, the dispute shall be
submitted for resolution to the American Arbitration Association.
The cost for the arbitration shall be borne equally between the
claimant the Debtor.
ARTICLE VIII
COMMITTEE
8.1 All the parties hereto who execute and deliver an
Acceptance designate and appoint those persons whose names appear
on Schedule "A" as the Creditors' Committee to act for and on
behalf of the creditors, with power, authority and right to perform
the obligations and the duties provided for in this Agreement to be
performed by the Creditor's Committee.
8.2 Every creditor whose representative is now a member of
the Creditors' Committee may, from time to time, replace such
individual by another person by its designation in writing
delivered to Creditors' Committee with a copy to Debtor and its
Counsel, Xxxxxxx Xxxxx & Associates. In the event a member of the
Creditors' Committee is no longer a creditor, by reason of payment,
settlement, or assignment of its claim, such creditor shall be
deemed to have resigned from the Creditors' Committee. In such
event, the Committee may select a new vendor to serve on the
Creditors' Committee from the Debtor's list of larger creditors
that hold a Claim.
8.3 The Creditors' Committee shall act by majority vote.
8.4 The members of the Creditors' Committee shall serve
without compensation.
8.5 Xxxxxx Xxxxxx of JLM Couture shall serve as Chairman. In
the event of the death, disability or resignation of the Chairman,
the Creditors' Committee shall elect a replacement Chairman to
serve.
8.6 The Creditors' Committee shall have the power and right
to act on behalf of the accepting creditors, including but not
limited to the right to postpone the time of payment of any of the
distributions provided for in this Agreement, in whole or in part
for one or more periods, not exceeding thirty (30) days for each
such period. No postponement shall be granted if more than two (2)
payments are currently overdue. Any such postponement shall be
binding on the creditors which have executed and delivered
Acceptances to this Agreement. Any consent to a postponement must
be in writing signed by the Chairman.
8.7 Neither the Creditors' Committee, its members nor any of
their agents or representatives, nor the firms by whom they are
employed (hereinafter referred to as "Members"), shall be liable
for the acts, default or misconduct of any Member or the Creditors'
Committee, nor shall any Member be liable for anything but his own
willful misconduct or fraud; and the Creditors' Committee and the
Members shall not be answerable or liable for the act, default,
misconduct or fraud of any agent or any other persons employed by
or acting for or on behalf of the Creditors' Committee.
8.8 Any waiver of any of the terms and conditions of this
Agreement by the Creditors' Committee shall not be considered a
waiver of any of the other terms and conditions of this Agreement.
8.9 The Creditors' Committee may consult with counsel,
accountants and agents (collectively, the "Committee's
Professionals") and any opinion of such consultants shall be full
protection and justification to the Creditors' Committee, and the
Members, for anything done or omitted or suffered to be done in
accordance with said opinion. The Debtor shall be responsible for
the payment of the reasonable fees and expenses of the Committee's
Professionals. The Creditors' Committee and the Members shall not
be required to give any bond for the faithful performance of its or
their duties hereunder.
8.10 The Creditors' Committee shall act by a majority of the
Members, with or without formal meetings. Any action by a majority
of the Creditors' Committee shall be final and binding as though it
had been the action of the entire Creditors' Committee. Written or
telegraphic notice of any meeting shall be given to all Members at
least two (2) days prior to any formal or informal meeting unless,
in the opinion of counsel to the Creditors' Committee, an emergency
exists, in which event, an immediate meeting may be called by
counsel to the Creditors' Committee on telephonic notice. Each
Member of the Creditors' Committee shall have the right to act by
properly designated proxy who shall be either another
representative of the Member or another Member of the Creditors'
Committee or its counsel.
ARTICLE IX
MISCELLANEOUS
9.1 Each of the creditors accepting this Agreement agrees
that during the period until this Agreement becomes effective
and/or while the Debtor has not defaulted in any of its obligations
imposed by this Agreement, it will not, except subject to the
provisions hereof, institute any action, proceeding or arbitration,
against the Debtor, or levy any execution, attachment or other
process against the property of the Debtor for or by reason of any
indebtedness now owing to such creditor by the Debtor, nor file, or
join in the filing of a Petition in Bankruptcy against the Debtor
or in any proceeding under the Bankruptcy Code, or any other
proceeding having as its object, the appointment of any receiver or
trustee for the Debtor or the Debtor's property, and will
discontinue without prejudice any pending action, proceeding or
arbitration against the Debtor, unless necessary to resolve the
amount of a disputed claim.
9.2 Each creditor reserves any and all of its rights and/or
remedies to enforce any security, right and/or liens, if any, other
than those obtained or which may be obtained by judicial
proceedings. Each creditor likewise reserves any and all of its
rights, if any, which it may have in and to any property of the
Debtor, including but not limited to merchandise billed and held
(whether paid for or not), in the creditor's possession, or in the
possession of any of the creditor's parent, subsidiary, affiliate,
principal or agent of the creditor, on account of such goods.
9.3 Nothing herein contained shall be deemed to discharge or
release any claims, rights and/or remedies that any of the
creditors may have now or hereafter has against any guarantor,
surety or other party who may now or hereafter be liable, or have
responsibility to any of them, and nothing herein contained shall
discharge or affect any liens, security interests, or rights or
remedies as pledgee, mortgagee, or creditor in possession, which
any creditor has or may hereafter have against the property of the
Debtor, and each such right and remedy is hereby expressly reserved
by the creditors, excepts as may herein be modified.
9.4 Each creditor accepting the offer contained in this
Agreement, in consideration of the payments referred to, agrees to
accept the Debtor's offer to settle the Claims against the Debtor,
and agrees to be bound by the terms of this Agreement.
9.5 All modifications, amendments or changes to this
Agreement shall be required to be in writing.
9.6 Any notice required to be provided for under the
Agreement shall be in writing and sent by certified mail, return
receipt requested, facsimile transmission (provided the sender's
copy contains an electronic verification that such transmission was
successfully completed to the proper facsimile number), or
overnight courier, addressed as follows:
To the Debtor: X. Xxxxxxxxx & Son, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx Xxxx
Tel: 718/000-0000 Ext. 229
Fax: 718/000-0000
with a copy to: Xxxxxxx Xxxxx & Associates
000 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxx, Esq.
Tel: 212/000-0000
Fax: 212/000-0000
To the Creditors' Xxxxxx Xxxxxx
Committee x/x XXX Couture
its Chairman: 000 X. 00xx Xx., 0xx Xx.
Xxx Xxxx, XX 00000
Tel: 212/000-0000
Fax: 212/000-0000
with a copy to: Angel & Xxxxxxx, P.C.
Attn: Xxxxx Xxxxxxx, Esq.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Tel: 212/000-0000
Fax: 212/000-0000
9.7 Any party may change the address at which it receives
notices by giving notice to other parties in the manner set forth
herein.
9.8 Any payment required under the Agreement shall be deemed
to have been made on the day when such payment is mailed.
9.9 This agreement contains the entire Agreement of the
parties hereto, supersedes all prior understandings and commitments
and shall be binding upon an inure to the benefits of the parties'
respective assigns, heirs and successors in interest.
9.10 This Agreement shall be interpreted under the laws of
the State of New York.
9.11 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereunto have set their
hands and seals the day and year first above written.
GB Capital, LLC X. XXXXXXXXX & SON, INC.
Consents to the provisions
set forth in Article V of By:_______________________
this Agreement Xxxxxx Xxxx, President
By:_______________________ XXXXXX XXXXXX, INC.
By:_______________________
Amsale Xxxxxx
XXXXXXXX, INC.
By:_______________________
Xxxxxxxx Xxxxxxxxx
DIAMOND BRIDAL COLLECTIONS, LTD.
By:_______________________
Xxxx Xxxxxxx
XXX XXXXXXX
By:_______________________
Xxxxxx Xxxxxx
XXXXXXXX
By:_______________________
Xxxxxxxx Xxxxxxx
MILADY BRIDAL'S, INC.
d/b/a EVE OF MILADY
By:_______________________
Xxx Xxxxxx
A&M XXXXXXXXX, INC.
d/b/a DESSY CREATIONS
By:_______________________
Xxxx Dessy
ACCEPTANCE FORM
The undersigned ("Claimant"), an unsecured creditor of X.
Xxxxxxxxx & Son, Inc. (the "Debtor"), in the amount set forth
below, hereby accepts and consents to the provisions of the
Agreement dated as of December 31, 1997 (the "Agreement"), in full
and final settlement, satisfaction, release and discharge of its
claim against the Debtor, and Claimant shall continue to be bound
by the Agreement, provided, only, that it receives the payments in
accordance with the Agreement and the Debtor and Claimant comply
with the provisions thereof.
[] Option. By its check xxxx in the block to the left of
this paragraph, the undersigned creditor agrees to reduce
its claim to $5,000 for treatment as a Class I creditor
under the Agreement.
Dated: _____________, 1998 ______________________________
Company Name
Claim
Amount: $__________________ ______________________________
Name:
Title:
WP51\HJELM\COMP-AGR.J09
