Contract
Exhibit 10.116
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY
FOREIGN JURISDICTION. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE
WITH APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN APPLICABLE EXEMPTION FROM SUCH
REQUIREMENTS.
THIS NOTE IS SUBJECT TO THE TERMS OF AN INTERCREDITOR AGREEMENT (THE “INTERCREDITOR
AGREEMENT”) DATED AS OF DECEMBER 23, 2008 BETWEEN HOLDER (DEFINED BELOW) AND XXXXX FARGO
BANK, NATIONAL ASSOCIATION (“SENIOR LENDER”), ACTING THROUGH ITS XXXXX FARGO
BUSINESS CREDIT OPERATING DIVISION, WHICH INTERCREDITOR AGREEMENT IS INCORPORATED HEREIN BY
REFERENCE. NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY IN THIS NOTE, (I) NO PAYMENT ON
ACCOUNT OF PRINCIPAL, INTEREST, FEES OR OTHER AMOUNTS SHALL BECOME DUE OR BE PAID EXCEPT IN
ACCORDANCE WITH THE TERMS OF THE INTERCREDITOR AGREEMENT, AND (II) ANY SECURITY INTEREST,
LIEN, PLEDGE OR ENCUMBRANCE GRANTED TO HOLDER SHALL BE SUBORDINATE TO THE SECURITY INTEREST,
LIEN, PLEDGE OR ENCUMBRANCE GRANTED TO SENIOR LENDER AND SHALL BE ENFORCEABLE ONLY IN
ACCORDANCE WITH THE TERMS OF THE INTERCREDITOR AGREEMENT.
THE XXXX COMPANIES, INC.
Secured Promissory Note
Secured Promissory Note
FOR VALUE RECEIVED, the undersigned, THE XXXX COMPANIES, INC., a Delaware corporation (the
“Company”), hereby promises to pay to Xxxx Xxxxxx and Company, Inc., or registered assigns
(in either case, the “Holder”), (i) the principal amount of U.S. $19,000,000, payable on
December 23, 2013 (the “Maturity Date”), (ii) interest at a rate of 6% per year on the
unpaid principal of this Note, compounded annually, payable on the Maturity Date, and (iii) in the
case of (i) and (ii), interest at a rate of 7% per year on overdue principal and, to the extent
legally enforceable, overdue interest. Interest shall be calculated on the basis of a 360 day year
consisting of 12 30-day months. If the Company fails to pay any royalties pursuant to the License
Agreement, dated December 23, 2008, between the Company and RB Trademark Holdco, LLC, a Delaware
limited liability company, the rate of interest on this Note shall be increased to 7% per annum for
so long as any such royalties remain unpaid.
The Holder is entitled to the benefits of a Guaranty, dated as of December 23, 2008 (as
amended, restated, supplemented or otherwise modified from time to time, the “Guaranty”)
with respect to the obligations under this Note executed by The Encore Group, Inc., Xxxx Xxxxxx
U.S. Gift, Inc., Xxxx Xxxxxx and Company Investments, Inc., Xxxx Xxxxxx and Company Properties,
Inc., and Russplus, Inc. (each individually a “Guarantor” and collectively, the
“Guarantors”) and such Guaranty shall be secured by liens on the assets of each of such
Guarantors pursuant to security agreements entered into between each of such Guarantors and the
Holder. The Company’s obligations under this Note are further secured pursuant the Security
Agreement (as defined in clause XV below) as further set forth below.
All payments of principal and interest shall be made on the date(s) required pursuant to this
Note in lawful money of the United States of America and shall be made by wire transfer of
immediately available funds to an account designated by the Holder or at the principal office of
the Holder or such other place as may be designated in writing by the Holder to the Company.
The Company may, without premium or penalty, at any time and from time to time, upon three
business days prior written notice to the Holder, prepay all or any integral multiple of $1,000,000
of the outstanding principal balance due under this Note, provided that each such prepayment is
accompanied by all accrued but unpaid interest on this Note calculated to the date of such
prepayment.
On or before April 30 in each year, the Company shall prepay the Note in an amount equal to
the excess, if any, of (x) the maximum amount available to be borrowed under the Credit and
Security Agreement, dated as of December 23, 2008 (calculated in the manner set forth in the
Intercreditor Agreement so long as such Intercreditor Agreement is in effect), among the Company
and the other borrowers named therein and Senior Lender (as amended, restated, refinanced,
supplemented or otherwise modified from time to time, any such indebtedness thereunder, the
“Senior Indebtedness”) during April of that year over (y) $10,000,000; any such prepayment
shall be applied first to the payment of accrued but unpaid interest on this Note and the balance,
if any, to principal of this Note. Concurrently with any such prepayment, or on or before April 30
of each year in which there is no such prepayment, the Company shall deliver to the Holder a
certificate of its chief financial officer setting forth the calculation of the amount, if any, to be prepaid in reasonable
detail.
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This Note has been duly authorized and issued pursuant to a Purchase Agreement, dated as of
December 23, 2008 (as the same may be amended or otherwise modified from time to time, the
“Purchase Agreement”), between the Holder and the Company.
For the purposes of this Note, the term “Subsidiary” shall mean any corporation or other
entity of which securities or other interests having the power to elect a majority of that
corporation’s or other entity’s board of directors or similar governing body, or otherwise having
the power to direct the business and policies of that corporation or other entity (other than
securities or other interests having such power only upon the happening of a contingency that has
not occurred) are held by the Company or one or more of its Subsidiaries.
I. Subordination. The Holder agrees that payments of all indebtedness hereunder shall
to the extent and manner set forth in the Intercreditor Agreement be subordinate and junior in
right of payment to the payment of the Senior Indebtedness of Senior Lender.
II. Effect of Subordination. Subject to the rights, if any, of the Senior Lender under
this Section II to receive cash, securities or other properties otherwise payable or deliverable to
the Holder of this Note as set forth in the Intercreditor Agreement, nothing contained in this
Section II shall impair, as between the Company and the Holder, the obligation of the Company,
subject to the terms and conditions hereof, to pay to the Holder the principal hereof and interest
hereon as and when the same become due and payable, or shall prevent the Holder of this Note, upon
default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by
applicable law.
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III. Events of Default.
The entire unpaid principal amount of this Note, together with all accrued interest thereon,
shall, at the option of the Holder exercised by written notice to the Company, or automatically and
without any such notice in the case of (E) or (F) below forthwith become and be due and payable if
any one or more of the following events of default (each, an “Event of Default”) shall have
occurred (for any reason whatsoever and whether such happening shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any administrative or governmental
body) and be continuing beyond the expiration of any applicable cure period:
A. if default shall be made in the due and punctual payment of the principal of, or any
interest on, this Note when and as the same shall become due and payable, whether at maturity, by
acceleration or otherwise;
B. if default shall be made in the performance or observance of the provisions of this Note or
of any provision of the Security Agreement, and if such default is solely with respect to delivery
of financial information is not cured within twenty (20) days;
C. if any Guarantor defaults in the performance or observance of the covenants contained in
the Guaranty or any security agreement entered into by any Guarantor to secure its obligations
pursuant to the Guaranty; and, provided it is a non-monetary default, such default is not cured
within ten (10) days;
D. if the Company or any Guarantor (i) fails to make any payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of that
certain Amended and Restated Subordinated Promissory Note of even date made by The Encore Group,
Inc. in the original principal amount of $500,000 payable to Xxxxxxxx X. Xxxxx (the “Xxxxx
Note”), any Senior Indebtedness or other indebtedness for borrowed money in the outstanding
principal amount that exceeds individually or in the aggregate $100,000, or (ii) fails to observe
or perform any other agreement or condition relating to any such indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the
effect of which default or other event is to cause the holder or holders or the beneficiary or
beneficiaries of such indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries), with the giving of notice if required, such indebtedness to be
demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or
otherwise), or an offer to repurchase, prepay, defease or redeem such indebtedness to be made,
prior to its stated maturity, or cash collateral in respect thereof to be demanded;
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E. if:
1. an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the Company or any Guarantor
or their respective debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or for the whole or a substantial part of its assets,
2. the Company or any Guarantor shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition
described in clause (i) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the Company or any Guarantor
or for the whole or a substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any action for the purpose of effecting any of the
foregoing; or
3. any court of competent jurisdiction shall assume custody or control of the Company or any
Guarantor or of the whole or any substantial part of its assets and such custody or control shall
not be terminated or stayed within 60 days from the date of assumption of such custody or control;
F. if a court of competent jurisdiction shall enter an order, judgment or decree appointing a
receiver of the Company or any Guarantor or of the whole or any substantial part of its assets, or
approving a petition filed against it seeking reorganization or arrangement of the Company or any
Guarantor under the Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any State, district or territory thereof, without consent as contemplated by
(E)(2) above;
G. if the Company or any Guarantor shall sell substantially all of its assets, the
stockholders of the Company or such Guarantor owning collectively on the date of issuance hereof a
majority of the Company’s or such Guarantor’s, as applicable capital stock shall sell to one or
more third parties more than 50% of the Company’s or such Guarantor’s, as applicable, outstanding
capital stock or the Company or such Guarantor shall consummate a merger or consolidation
subsequent to which the stockholders of the Company or such Guarantor, as applicable, prior to such
transaction do not own at least 50% of the equity interests of the surviving entity thereof, unless
in any such case, concurrently therewith, the outstanding amount of principal, accrued but unpaid
interest and any and all other amounts payable under this Note are repaid in full in cash;
H. upon the consummation of the Company’s or any Subsidiary’s or Guarantor’s initial public
offering of its capital stock;
I. any Guarantor repudiates or purports to revoke the Guarantor’s Guaranty, or fails to
perform any obligation under such Guaranty or any other Guarantor ceases to exist for any reason;
or
J. the Security Agreement shall for any reason fail or cease to create a valid and perfected
lien in favor of the Holder on any collateral purported to be covered thereby.
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IV. Remedies. In case any one or more of the Events of Default specified above shall
have occurred and be continuing, the Holder may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted in this Note, or
the holder of this Note may proceed to enforce the payment of all sums due upon this Note or to
enforce any other legal or equitable right of the holder of this Note (including exercising rights
under the Guaranty or the Security Agreement). No remedy herein conferred upon the holder hereof
is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or hereafter existing at law
or in equity or by statute or otherwise.
V. Attorneys’ Fees. If the indebtedness represented by this Note or any part thereof
is collected in bankruptcy, receivership or other judicial proceedings or if this Note is placed in
the hands of attorneys for collection after default, the Company agrees to pay, in addition to the
principal and interest payable hereunder, reasonable attorneys’ fees and costs incurred by the
Holder.
VI. Notices. Any notice, other communication or payment required or permitted
hereunder shall be in writing and shall be deemed to have been given upon delivery to the address
provided pursuant to the Purchase Agreement.
VII. Financial Information. For so long as indebtedness under this Note is
outstanding, the Holder shall have the right to receive such financial statements and financial
information of and concerning the Company and the Subsidiaries as Holder may from time to time
reasonably request. The Company shall deliver Holder copies of any financial information supplied
to any holder of Senior Indebtedness at the time such information is provided to such other
parties.
VIII. Restricted Payments. For so long as any indebtedness under this Note is
outstanding, the Company shall not, and shall not permit any of its Subsidiaries to, declare, make
or pay any dividends (in cash, property or obligations) on, or other payments or distributions on
account of, or the setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any class of capital stock
of the Company or any Subsidiary, except that wholly-owned Subsidiaries may declare, make or pay
dividends to the Company or another wholly-owned Subsidiary of the Company.
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IX. Limitation on Transactions with Affiliates. For so long as any indebtedness under
this Note is outstanding, the Company shall not, and shall not permit any of its Subsidiaries to,
enter into or permit to exist any transaction (including, without limitation, the purchase, sale,
lease or exchange of any property, the rendering of any service, or a merger or consolidation),
with any Affiliate (as defined in the Purchase Agreement) of the Company or any Subsidiary (an
“Affiliate Transaction”) unless such Affiliate Transaction is in the ordinary course of the
business of the Company and its Subsidiaries and is on fair and reasonable terms that are not less
favorable to Company and its Subsidiaries than those that would be obtainable at the time in an
arm’s-length transaction with a person who is not such an Affiliate. In the event that Company or
any Subsidiary proposes to enter into any Affiliate Transaction and Holder does not believe such
Affiliate Transaction is an arm’s-length transaction then Company shall be permitted to retain an
industry expert acceptable to the Holder (at Company’s sole expense), and if such expert concludes
in writing that such Affiliated Transaction is an arms-length transaction then Company may proceed
with such transaction without Holder’s further consent.
X. Limitations on Compensation. Until such time as the Retained IP (as defined in the
Purchase Agreement) is purchased by Company and paid for in full, (X) the total individual cash
compensation (directly or indirectly), and any reimbursements or benefits thereunder, of Xxxxxxx
Xxxx or Xxxxxxxx X. Xxxxx as set forth in each of their respective employment agreements in effect
on the date hereof (which may not be amended or modified without the prior consent of Holder) shall
not be increased without the prior written consent of the Holder. For purposes of this Section X,
total compensation includes all forms of compensation, including, but not limited to, base salary,
commissions, bonuses, incentive compensation, non-customary relocation or other expenses, and/or
fees for service in affiliated or related companies (other than with respect to the Affiliate
Transactions listed on Schedule 4.19 of the Purchase Agreement). In the event that Company
requests an increase above the any amount permitted by this Section 10 and the Holder rejects any
such request, Company shall be permitted to retain a compensation consultant acceptable to the
Holder (at Company’s sole expense), and such consultant’s final conclusion shall be binding on
Company and Holder; provided, that consultant shall not have the ability to decrease any such
salary below the amounts set forth in the respective employment agreements of Xxxxxxx Xxxx and
Xxxxxxxx X. Xxxxx.
XI. Xxxxx Note. Company shall not permit the principal amount of the Xxxxx Note to be
increased without the prior written consent of Xxxxxx.
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XII. Assignment. The Holder may assign, transfer, pledge or grant a security interest
in its rights in whole or in part under this Note to any person with the prior written consent of
the Company, which shall not be unreasonably withheld
or delayed (it would not be unreasonable for the Company to withhold its consent to a transfer
of this Note to a direct competitor of the Company’s gift business). In order to facilitate such
an assignment of this Note, the Holder may request that the Note be reissued in different
denominations to its transferee(s) and in connection with any such request, shall surrender this
Note to the Company for reissuance or cancellation, as applicable. The Company shall, at its
expense, promptly execute and deliver one or more new Notes of like tenor payable to the order of
the Holder’s transferee(s). This Note may not be assigned by the Company without the prior written
consent of the Holder.
XIII. Financial and Business Information.
A. For so long as any obligations under this Note remain outstanding, the Company will deliver
to the Holder, as soon as practicable after the end of each of the first three fiscal quarters of
the Company, and in any event within 30 days thereafter, one copy of an unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the close of such quarter, and the related
unaudited consolidated statements of income and changes in financial position of the Company for
such quarter and, in the case of the second and third quarters, for the portion of the fiscal year
ending with such quarter, setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year. Such financial statements shall be prepared by
the Company in accordance with GAAP and accompanied by the certification of the Company’s chief
executive officer or chief financial officer that such financial statements are complete and
correct and present fairly the consolidated financial position, results of operations and changes
in financial position of the Company and its Subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be.
B. For so long as any obligations under this Note remain outstanding, the Company will deliver
to the Holder as soon as practicable after the end of each fiscal year of the Company, and in any
event within 90 days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and its Subsidiaries
as at the end of such year, and
(ii) audited consolidated statements of income, retained earnings and changes
in financial position of the Company and its Subsidiaries for such year;
setting forth in each case in comparative form the figures for the corresponding periods in the
previous fiscal year; all prepared in accordance with GAAP, and which audited financial statements
shall be accompanied by an opinion thereon of the independent certified public accountants
regularly retained by the Company, or
any other firm of independent certified public accountants of recognized national standing selected
by the Company.
C. Promptly after learning of any default in connection with the Senior Indebtedness or the
Xxxxx Note, the Company shall provide written notice of such default to the Holder (including an
explanation of the default and the circumstances surrounding such default), together with such
other information as the Holder shall request.
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XIV. Set-off. This Note is subject to set-off in accordance with the provisions of
Section 11.11 of the Purchase Agreement.
XV. Waivers; Governing Law; Jurisdiction. The Company hereby waives presentment,
demand for performance, notice of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of the Holder in exercising any right hereunder shall operate as a
waiver of such right or any other right. This Note is being delivered in and shall be construed in
accordance with the laws of the State of New York, without regard to the conflicts of laws
provisions thereof. Any action or proceeding arising out of or relating to this Note may be brought
in the courts of the State of New York, or, if it has or can acquire jurisdiction, in the United
States District Court for the Southern District of New York, and the Company irrevocably submits to
the jurisdiction of each such court in any such action or proceeding, waives any objection it may
now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the
action or proceeding shall be heard and determined only in any such court and agrees not to bring
any action or proceeding arising out of or relating to this Note in any other court. Process in
any action or proceeding referred to in the first sentence of this Section may be served on any
party anywhere in the world.
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XVI. Amendment. Any term of this Note may be amended only with the written consent of
the Company and the Holder. Any such amendment shall be binding upon each future holder of this
Note, and the Company.
XVII. Security for Obligations. The obligations of the Company pursuant to this Note
are secured by a Security Agreement, dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the “Security Agreement”). Reference
is hereby made to the Security Agreement for a description of the assets in which a security
interest has been granted, the nature and extent of the security, the obligations secured by the
Security Agreement, the entities granting a lien and security interest on their assets, the terms
and conditions upon which the security interest was granted and the rights of the Holder in respect
thereof.
| THE XXXX COMPANIES, INC. |
||||
| By: | /s/ Xxxxxxx Xxxx | |||
| Name: | Xxxxxxx Xxxx | |||
| Title: | President | |||
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