Exhibit 10.16
LOAN AGREEMENT
This LOAN AGREEMENT (this "AGREEMENT") is entered into as of May 1,
2001 by and among: (i) L.S. Holding, Inc., a U.S. Virgin Islands corporation
(the "BORROWER"), Little Switzerland, Inc., a Delaware corporation (the
"PARENT") and L.S. Wholesale, Inc., a Massachusetts corporation (each a
"GUARANTOR"; collectively, the "GUARANTORS"; and collectively with the
Borrower, the "BORROWER PARTIES"), on the one hand, and (ii) Xxxxxxx and
Company, a New York corporation (the "LENDER"), on the other hand.
RECITALS
A. The Borrower is a direct wholly-owned subsidiary of the Parent.
B. L.S. Wholesale, Inc. is a direct wholly-owned subsidiary of the
Parent.
C. The Lender is willing to make Advances (as defined herein), and
the Borrower wishes to receive and repay Advances, all as more fully set
forth herein.
D. The Borrower Parties and the Lender will enter into a Security, Pledge
and Guaranty Agreement (the "SECURITY, PLEDGE AND GUARANTY AGREEMENT" and
collectively with this Agreement, the Subordination Agreement and the Note, the
"LOAN DOCUMENTS") with respect to the Advances.
E. Certain affiliates of the Borrower Parties and the Lender are entering
into a Loan Agreement and a Security, Pledge and Guaranty Agreement of even date
herewith (collectively, the "AFFILIATE LOAN DOCUMENTS").
NOW, THEREFORE, in consideration of these premises and the mutual
consideration set forth herein, the Lender and the Borrower Parties hereby agree
as follows:
ARTICLE I
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 1.1 DEFINITIONS. The following terms have the following
meanings for purposes of this Agreement:
"ADVANCES" has the meaning ascribed to that term in Section 1.2.
"AFFILIATE" means, as to a Person, any other Person that, directly
or indirectly, through one or more intermediaries controls, is controlled
by or is under common control with the first-mentioned Person.
"AFFILIATE LOAN DOCUMENTS" has the meaning ascribed to that term in
the Recitals.
"AGREEMENT" has the meaning ascribed to that term in the Header.
"APPLICABLE LAW" means with respect to any Person, any
international, national, regional, federal, state or local treaty,
statute, law, ordinance, rule, administrative action, regulation, order,
writ, injunction, judgment, directive, decree or other requirement of any
Governmental Authority, and any requirements imposed by common law or case
law, applicable to such Person or any of its Affiliates or any of their
respective properties, assets, officers, directors, employees, consultants
or agents (in connection with their activities on behalf of such Person or
one of its Affiliates).
"BNS" means The Bank of Nova Scotia.
"BORROWER" has the meaning ascribed to that term in the Header.
"BORROWER PARTIES" has the meaning ascribed to that term in the
Header.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other
day on which banks in New York, New York are authorized or obligated to
close.
"CHASE" means The Chase Manhattan Bank, N.A.
"CHASE LOAN AGREEMENTS" means (i) the Loan Agreement, dated May 1,
2001, by and among L.S. Wholesale, Inc., the Parent and Chase, providing
for a revolving credit facility in an aggregate principal amount of
$700,000, (ii) the Loan Agreement, dated May 1, 2001, by and among L.S.
Holding, Inc., the Parent, L.S. Wholesale, Inc. and Chase, providing for a
revolving credit facility in an aggregate principal amount of $2,950,000,
and (iii) the Loan Agreement, dated May 1, 2001, by and among L.S. Holding
(USA), Inc., the Parent, L.S. Wholesale, Inc. and Chase, providing for a
revolving credit facility in an aggregate principal amount of $100,000.
"COMMITMENT" means One Million Nine Hundred Fifty Thousand
Dollars ($1,950,000.00).
"DEBT" has the meaning ascribed to that term in Section 4.2(a).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"EVENT OF DEFAULT" has the meaning ascribed to that term in Section
5.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FINANCIAL STATEMENTS" has the meaning ascribed to that term in
Section 3.1(d).
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"GAAP" means U.S. generally accepted accounting principles.
"GOVERNMENTAL AUTHORITY" has the meaning ascribed to that term in
Section 3.1(h).
"GOVERNMENTAL CONSENT" has the meaning ascribed to that term in
Section 3.1(h).
"GUARANTORS" has the meaning ascribed to that term in the Header.
"KNOWLEDGE" means actual knowledge after reasonable inquiry.
"LENDER" has the meaning ascribed to that term in the Header.
"LOAN DOCUMENTS" have the meaning ascribed to that term in the
Recitals.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, properties, prospects, financial condition or results of
operations of the Borrower and the Subsidiaries, taken as a whole.
"NOTE" has the meaning ascribed to that term in Section 1.4.
"PARENT" means Little Switzerland, Inc., a Delaware corporation.
"PARENT SECURITIES FILINGS" has the meaning ascribed to that term in
Section 3.1(g).
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or
other legal entity.
"SEC" means the U.S. Securities and Exchange Commission (or any
successor thereto).
"SECURITY, PLEDGE AND GUARANTY AGREEMENT" has the meaning ascribed
to that term in the Recitals.
"SUBSIDIARY" means each corporation, partnership, limited liability
company and other entity with respect to which a Borrower Party (i)
beneficially owns, directly or indirectly, 10% or more of the outstanding
stock or other equity interests, (ii) otherwise controls, directly or
indirectly, because of factors or relationships other than the percentage
of equity interests owned or (iii) is required to account for its
ownership under the equity method. For avoidance of doubt, "Subsidiary"
shall include L.S. Holdings, Inc., a U.S. Virgin Islands corporation, and
its respective Subsidiaries.
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"SUBORDINATION AGREEMENT" means the Subordination Agreement, dated
May 1, 2001, by and among the Borrower, certain affiliates of the
Borrower, the Lender and Chase.
"TERMINATION DATE" has the meaning ascribed to that term in Section
1.2.
"TRANSACTIONS" has the meaning ascribed to that term in Section
3.1(b).
SECTION 1.2 THE ADVANCES. The Lender agrees, on the terms and
conditions hereinafter set forth, to make advances (the "ADVANCES") to the
Borrower from time to time on any Business Day during the period from the date
hereof until April 30, 2006 (such date, or the earlier date of termination of
the Commitment pursuant to Section 5.1, being the "TERMINATION DATE") in an
aggregate amount not to exceed at any time outstanding the Commitment. Each
Advance shall be in an amount not less than $200,000 or an integral multiple of
$200,000 in excess thereof. Within the limits of the Commitment, the Borrower
may borrow and prepay pursuant to Section 1.6, but may not reborrow such prepaid
amounts.
SECTION 1.3 MAKING THE ADVANCES. (a) Each Advance shall be made on
notice, given not later than 11:00 A.M. (New York City time) on the third
Business Day prior to the date of the proposed Advance, by the Borrower to the
Lender, specifying the date and amount thereof and wire instructions for
delivery thereof. Not later than 11:00 A.M. (New York City time) on the date of
such Advance and upon fulfillment of the applicable conditions set forth in
Article II, the Lender will make such Advance available to the Borrower in same
day funds pursuant to the wire instructions so provided.
(b) Each notice from the Borrower to the Lender requesting an
Advance shall be irrevocable and binding on the Borrower. The Borrower shall
indemnify the Lender against any loss, cost or expense incurred by the Lender as
a result of any failure to fulfill on or before the date specified in such
notice for such Advance the applicable conditions set forth in Article II,
including any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
by the Lender to fund the Advance when the Advance, as a result of such failure,
is not made on such date.
SECTION 1.4 REPAYMENT. The Borrower shall repay the aggregate unpaid
principal amount of all Advances in accordance with a promissory note of the
Borrower, in the form of Exhibit A hereto (the "NOTE"), evidencing the
indebtedness resulting from such Advances and delivered to the Lender pursuant
to Article II.
SECTION 1.5 INTEREST. The Borrower shall pay interest on the unpaid
principal amount of each Advance from the date of such Advance until such
principal amount shall be paid in full as set forth in the Note.
SECTION 1.6 OPTIONAL PREPAYMENTS. The Borrower may, upon at least
two Business Days' notice to the Lender stating the proposed date and principal
amount of the prepayment, and if such notice is given the Borrower shall, prepay
the outstanding principal amount of the Advances in whole or in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid, PROVIDED, HOWEVER, that each partial prepayment
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shall be in an aggregate principal amount not less than $250,000. There shall be
no prepayment penalty, fee or premium.
SECTION 1.7 PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make
each payment under any Loan Document not later than 2:00 p.m. (New York City
time) on the day when due in U.S. dollars to the Lender at its address referred
to in Section 7.1 in same day funds pursuant to wire instructions provided by
the Lender upon request.
(b) All computations of interest shall be made by the Lender on the
basis of a year of 360 days for the actual number of days occurring in the
period for which such interest is payable. Determination by the Lender of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(c) Whenever any payment under any Loan Document shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest; provided, however, if such
extension would cause payment of interest on or principal to be made in the next
following calendar month, such payment shall be made on the Business Day next
preceding the due date.
(d) All payments under any Loan Document shall be made without
withholding and, to the extent that Applicable Law requires such withholding,
such payment shall be increased in order that the net amount received by Lender
after making such withholding shall be equal to the amount otherwise required to
be paid to Lender under the applicable Loan Document.
ARTICLE II
CONDITIONS OF LENDING
SECTION 2.1 CONDITION PRECEDENT TO INITIAL ADVANCE. The obligation
of the Lender to make its initial Advance is subject to the condition precedent
that the Lender shall have received on or before the day of such Advance the
following, each dated such day, in form and substance satisfactory to the
Lender:
(a) The Note.
(b) The Security, Pledge and Guaranty Agreement.
(c) Certified copies of the resolutions of the Board of Directors of
each Borrower Party approving each Loan Document to which it is a party,
and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to each such Loan Document.
(d) A certificate of the Secretary or an Assistant Secretary of each
Borrower Party certifying the names and true signatures of the officers of
such Borrower Party
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authorized to sign each Loan Document to which it is a party and the other
documents to be delivered hereunder.
(e) A favorable opinion of Proskauer Rose LLP, counsel for the
Borrower Parties, as to such other matters as the Lender may reasonably
request.
(f) Evidence satisfactory to the Lender that there are no amounts
owed by any of the Borrower Parties to BNS, or, if any amount is so owed,
appropriate documentation (including pay-off letters, lien releases and
receipts) to demonstrate that a sufficient portion of such initial Advance
will be, contemporaneous with such Initial Advance, paid directly to BNS
so that any such balance outstanding prior to the initial Advance is paid
in full.
(g) Evidence satisfactory to the Lender that there are no amounts
owed by the Borrower Parties to Chase, other than a maximum aggregate
principal amount of $3,750,000 pursuant to the Chase Loan Agreements
(including pay-off letters, lien releases and receipts).
(h) The Subordination Agreement.
(i) Evidence of the completion of all recordings and filings of or
with respect to the Borrower that the Lender may deem necessary or desirable in
order to perfect the security interests created by the Security, Pledge and
Guaranty Agreement.
(j) The Affiliate Loan Documents.
(k) Such other approvals, opinions or documents as the Lender may
reasonably request.
SECTION 2.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of
the Lender to make each Advance (including the initial Advance) shall be subject
to the following further conditions precedent:
(a) On the date of such Advance the following statements shall be
true and the Lender shall have received a certificate signed by a duly
authorized officer of each Borrower Party (as to each Loan Document to which it
is a party), dated the date of such Advance, stating that:
(i) The representations and warranties contained in Section
3.1 of this Agreement and in Section 4.01 of the Security, Pledge and
Guaranty Agreement are correct on and as of the date of such Advance,
before and after giving effect to such Advance and to the application of
the proceeds therefrom, as though made on and as of such date, and
(ii) No event has occurred and is continuing, or would result
from such Advance or from the application of the proceeds therefrom, which
constitutes an Event of Default (as defined in Section 5.1 hereof) or
would constitute an Event of Default but for the requirement that notice
be given or time elapse or both.
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(b) Receipt by the Lender of such other approvals, opinions or
documents as the Lender may reasonably request.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE BORROWER PARTIES.
The Borrower Parties jointly and severally represent and warrant as follows:
(a) ORGANIZATION AND GOOD STANDING. Each of the Borrower Parties and
its Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Each Borrower Party and its
Subsidiaries is qualified to do business and is in good standing in each
jurisdiction in which the ownership of property or the conduct of business
requires each to be so qualified, except where the lack of such qualification
would not reasonably be expected to have a Material Adverse Effect.
(b) CONFLICTS, DEFAULTS. The execution and delivery of this
Agreement and the other agreements and instruments contemplated hereby by the
Borrower Parties do not, and the performance of the Borrower Parties'
obligations hereunder and thereunder and the consummation by the Borrower
Parties of the transactions contemplated hereby (the "TRANSACTIONS") will not:
(i) violate, conflict with or constitute a breach or default under the
certificate of incorporation or bylaws or equivalent organizational document of
any Borrower Party; (ii) require any authorization, approval, consent,
registration, declaration or filing with (other than a report on Form 8-K and a
filing of a Form D), from or to any Governmental Authority; (iii) violate any
Applicable Law; (iv) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of any Borrower Party
or their Subsidiaries (other than as contemplated hereby); or (v) after giving
effect to the satisfaction of the condition set forth in Section 2.1(f),
conflict with or result in a breach of, create an event of default (or event
that, with the giving of notice or lapse of time or both, would constitute an
event of default) under, or give any third party the right to terminate, cancel
or accelerate any obligation under, any contract, agreement, note, bond,
guarantee, deed of trust, loan agreement, mortgage, license, lease, indenture,
instrument, order, arbitration award, judgment or decree to which any Borrower
Party is a party or by which any Borrower Party is bound. There is no pending
or, to the Knowledge of the Borrower Parties, threatened action, suit, claim,
proceeding, inquiry or investigation before or by any Governmental Authority
against or affecting any Borrower Party or their Subsidiaries, involving or
seeking to restrain or prevent the consummation of the Transactions.
(c) CORPORATE POWER AND AUTHORIZATION. The Borrower Parties have all
requisite and legal corporate power to execute and deliver this Agreement and to
carry out and perform their other obligations under this Agreement and the
Transactions. All corporate action on the part of the Borrower Parties and their
directors necessary for the performance of their obligations under this
Agreement have been taken. This Agreement is a legal, valid and binding
obligation of the Borrower Parties, enforceable in accordance with its terms.
The Transactions do not require the consent of the stockholders of the Borrower
Parties. The Borrower Parties
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have provided their stockholders with any notice of the Transactions required by
Applicable Law. Each of the Borrower Parties has, independently and without
reliance upon the Lender and based on documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement.
(d) FINANCIAL STATEMENTS.
(i) The Borrower has provided the Lender with the following
financial statements of the Parent and its Subsidiaries (collectively, the
"FINANCIAL STATEMENTS"):
(A) the audited consolidated balance sheet of the Parent and
its Subsidiaries as of May 27, 2000, and the related audited
consolidated statements of income and cash flows of the Parent and
its Subsidiaries for the fiscal year then ended, and
(B) the unaudited consolidated balance sheet of the Parent and
its Subsidiaries as of February 27, 2001, and the related unaudited
consolidated statements of income and cash flows of the Parent and
its Subsidiaries for the 9-month period then ended.
(ii) The Financial Statements: (A) have been prepared in all
material respects in accordance with the books and records of the Parent
and its Subsidiaries; (B) have been prepared in accordance with GAAP; (C)
reflect and provide adequate reserves and disclosures in respect of all
liabilities of the Parent and its Subsidiaries, including all contingent
liabilities; and (D) present fairly the consolidated financial position of
the Parent and its Subsidiaries at such dates and the results of
operations and cash flows of the Parent and its Subsidiaries for the
periods then ended.
(iii) Each of the Parent and its Subsidiaries: (A) keeps
books, records and accounts that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of assets; and (B)
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (1) transactions are executed in accordance with
management's general or specific authorization, (2) transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP to maintain accountability for assets, (3) access to
assets is permitted only in accordance with management's general or
specific authorizations and (4) the recorded accountability for assets and
inventory is compared with existing assets and inventory at reasonable
intervals and appropriate action is taken with respect to any differences.
(e) COMPLIANCE WITH LAW. The Borrower Parties and their Subsidiaries
are in compliance in all material respects with all Applicable Law; PROVIDED,
HOWEVER, that this Section 3.1(e) does not apply to the requirements of the
Exchange Act to the extent that compliance with the Exchange Act is covered by
Section 3.1(g) hereof.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. None of the Borrower Parties
or their Subsidiaries has any indebtedness or liability, whether accrued, fixed
or contingent, whether or not required by GAAP to be disclosed on the Financial
Statements, other than (a) liabilities reflected in the Financial Statements,
(b) liabilities, none of which individually or in the
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aggregate is material to the assets, properties, business or business prospects
any of the Borrower Parties or their Subsidiaries, and (c) liabilities incurred
in the ordinary course of business of each of the Borrower Parties or their
Subsidiaries (consistent with past practice in terms of both frequency and
amount) subsequent to February 24, 2001.
(g) SECURITIES FILINGS. The Parent has made available to the Lender
true and complete copies of (a) its Annual Reports on Form 10-K, as amended for
each of the last three fiscal years as filed with the SEC, (b) its proxy
statements relating to all of the meetings of stockholders (whether annual or
special) of the Parent since January 1, 1998 as filed with the SEC, (c) its
Quarterly Report on Form 10-Q for the quarterly periods ended August 27, 2000,
November 29, 2000 and February 24, 2001 as filed with the SEC, and (d) all other
reports, statements and registration statements and amendments thereto filed by
the Parent with the SEC since May 27, 2000. The reports and statements set forth
in clauses (a) through (d) are collectively referred to herein as the "PARENT
SECURITIES FILINGS"). As of their respective dates, or as of the date of the
last amendment thereof, if amended after filing, each of the Parent Securities
Filings was prepared in all respects in accordance with the requirements of the
Exchange Act, as the case may be, and none of the Parent Securities Filings
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
(h) GOVERNMENTAL APPROVALS. No material consent, approval, waiver or
authorization of, notice to or declaration of filing with (each, a "GOVERNMENTAL
CONSENT") any nation or government, any state or other political subdivision
thereof or any entity, authority or body exercising executive, legislative,
judicial or regulatory functions of or pertaining to government, including any
governmental or regulatory authority, agency, department, board, commission or
instrumentality, any court or tribunal (each, a "GOVERNMENTAL AUTHORITY"), on
the part of the Borrower or any subsidiary is required in connection with the
execution of this Agreement and the consummation of the Transactions.
(i) LITIGATION. Except as set forth on Schedule 3.1(i), there is no
pending or, to the Knowledge of the Borrower Parties, threatened litigation,
action, suit, proceeding, arbitration, claim, investigation or administrative
proceeding, by or before any Governmental Authority or dispute resolution panel,
involving or affecting any of the Borrower Parties or their Subsidiaries, or the
assets, properties or business of any of the Borrower Parties or their
Subsidiaries, or relating to or involving the transactions contemplated by the
Loan Documents. No litigation, action, suit, proceeding, arbitration, claim,
investigation or administrative proceeding, whether or not set forth on Schedule
3.1(i), reasonably could be expected to have a Material Adverse Effect or to
result in the imposition of a lien, security interest or other encumbrance on
any of the assets of any of the Borrower Parties or their Subsidiaries. None of
the Borrower Parties or their Subsidiaries has received any opinion or
memorandum or legal advice or notice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage that may be
material to its assets, properties, business or business prospects. None of the
Borrower Parties or their Subsidiaries is in default with respect to any
material order, writ, injunction or decree known to or served upon any of the
Borrower Parties or their Subsidiaries. Except as set forth on Schedule 3.1(i),
there is no pending action or suit brought by any of the Borrower Parties or
their Subsidiaries against others.
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(j) USE OF PROCEEDS. No proceeds of any Advance will be used to
acquire any equity security of a class which is registered pursuant to Section
12 of the Exchange Act. The Borrower Parties and their Subsidiaries are not
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations T, U and X of the
Federal Reserve Board, as amended from time to time), and no proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.
ARTICLE IV
COVENANTS OF THE BORROWER
SECTION 4.1 AFFIRMATIVE COVENANTS. So long as the Note shall remain
unpaid or the Lender shall have any Commitment hereunder, each of the Borrower
Parties will, unless the Lender shall otherwise consent in writing:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all Applicable Law, such
compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property except to the extent contested in good faith.
(b) REPORTING REQUIREMENTS. Furnish to the Lender:
(i) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of
the Parent, the unaudited consolidated balance sheet of the Parent
and its Subsidiaries and the related unaudited consolidated
statements of income and cash flows of the Parent and its
Subsidiaries for the 3-month period then ended for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter, certified by the chief financial officer of
the Parent;
(ii) as soon as available and in any event within 90 days
after the end of each fiscal year of the Parent, a copy of the
annual report for such year for the Parent and its Subsidiaries,
containing the audited consolidated balance sheet of the Parent and
its Subsidiaries as of each fiscal year end, and the related audited
consolidated statements of income and cash flows of the Parent and
its Subsidiaries for the fiscal year then ended, certified by
PricewaterhouseCoopers LLP or other independent public accountants
reasonably acceptable to the Lender with no qualifications as to the
scope of the audit;
(iii) as soon as possible and in any event within five days
after the occurrence of each Event of Default known to a Borrower
Party and each event which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default, continuing on
the date of such statement, a statement of the chief financial
officer or chief executive officer of such Borrower Party setting
forth details of such Event of Default or event and the action which
such Borrower Party has taken and proposes to take with respect
thereto;
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(iv) promptly after the sending or filing thereof, copies of
all reports which any of the Borrower Parties sends to any of its
security holders, and copies of all reports and registration
statements which the Parent files with the SEC or any national
securities exchange;
(v) promptly after the filing or receiving thereof, copies of
all reports and notices which any of the Borrower Parties files
under ERISA with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation or the U.S. Department of Labor or which any of
the Borrower Parties receives from such entity;
(vi) promptly after the commencement thereof, notice of all
actions, suits and proceedings before any Government Authority, or
arbitrations affecting the Borrower Parties which, if determined
adversely to the Borrower Parties and their Subsidiaries could
reasonably be expected to have a Material Adverse Effect on the
Borrower Parties or their Subsidiaries; and
(vii) such other information respecting the condition or
operations, financial or otherwise, of any of the Borrower Parties
as the Lender may from time to time reasonably request.
(c) USE OF PROCEEDS. The proceeds of the Advances shall be used by
the Borrower Parties only for repayment of indebtedness for borrowed money and
for working capital purposes. No part of the proceeds of the Advances shall be
used directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any margin stock or maintaining or extending
credit to others for such purpose or for any other purpose that otherwise
violates Regulations T, U and X of the Federal Reserve Board, as amended from
time to time.
(d) MAINTENANCE OF CORPORATION AND PROPERTIES. The Borrower Parties
shall, and shall cause their Subsidiaries, to preserve and maintain their
respective corporate existence and good standing in their respective
jurisdiction of incorporation and in every other jurisdiction in which such
qualification is required, unless the failure to qualify would not have a
Material Adverse Effect on such respective corporation, and maintain all of
their respective properties and assets in good working order and condition,
ordinary wear excepted.
SECTION 4.2 NEGATIVE COVENANTS. So long as the Note shall remain
unpaid or the Lender shall have any Commitment hereunder, each of the Borrower
Parties will not, and shall cause their Subsidiaries to not, without the written
consent of the Lender:
(a) LIENS. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any lien, security interest or other
charge or encumbrance, or any other type of preferential arrangement, upon or
with respect to any of its properties, whether now owned or hereafter acquired,
or assign, or permit any of its Subsidiaries to assign, any right to receive
income, in each case to secure or provide for the payment of any Debt of any
Person or entity, other than (i) liens securing the Advances; (ii) liens
securing the credit facilities provided by Chase pursuant to the Chase Loan
Agreements; (iii) liens existing on the date hereof as described
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on Schedule 4.2(a) hereto; (iv) purchase money liens or purchase money security
interests upon or in any property acquired or held by any of the Borrower
Parties and their Subsidiaries in the ordinary course of business to secure the
purchase price of such property or to secure indebtedness incurred solely for
the purpose of financing the acquisition of such property, (v) liens or security
interests existing on such property at the time of its acquisition (other than
any such lien or security interest created in contemplation of such
acquisition), PROVIDED that the aggregate principal amount of the indebtedness
secured by the liens or security interests referred to in clauses (iii), (iv)
and (v) above shall not exceed an amount not inconsistent with the Company's
business plan as approved by its Board of Directors from time to time. "DEBT"
means (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds,
debentures, notes or other similar instruments, (iii) obligations to pay the
deferred purchase price of property or services, (iv) obligations as lessee
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, (v) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clause (i) through (iv) above, and (vi) liabilities in
respect of unfunded vested benefits under plans covered by Title IV of ERISA.
(b) INDEBTEDNESS. (i) Directly or indirectly create, incur, assume,
guarantee, or otherwise become or remain liable with respect to any Debt except:
(A) the Advances, indebtedness existing as of the date hereof
as described on Schedule 4.2(b) hereto and capitalized leases obligations
in an amount not to exceed $250,000 per annum at any time outstanding; and
(B) indebtedness in an aggregate principal amount not to
exceed $3,750,000 pursuant to the Chase Loan Agreements.
(c) GUARANTY. Assume, guaranty, endorse or otherwise be or become
directly or contingently responsible or liable to assure the creditors of any
third party against loss, for the obligations of any Person (other than (i) one
or more of the Borrower's Subsidiaries or (ii) endorsements of instruments for
collection in the ordinary course of business), including an agreement to
purchase any obligation, stock, assets, goods or services or to supply or
advance any funds, assets, goods or services or an agreement to maintain or
cause any such person to maintain a minimum working capital or net worth.
(d) SALES OF ASSETS. Sell, lease, assign, transfer, abandon, or
otherwise dispose of, directly or indirectly, whether voluntary or involuntary,
any of its now owned or hereafter acquired assets, including without limitation
inventory, capital stock and receivables, except (i) inventory disposed of in
the ordinary course of business consistent with past practice, (ii) obsolete,
outmoded or worn-out machinery, equipment, furniture or fixtures or (iii) leases
or subleases granted by the Borrower Parties to third persons which such leases
or subleases do not interfere in any material respect with the business of the
Borrower Parties and their Subsidiaries.
(e) MERGERS. Merge or consolidate with, or sell, assign, lease or
otherwise dispose of (in one transaction or in a series of related transactions)
all or substantially all of its
12
assets (whether now owned or hereafter acquired) to any Person (other than
another Borrower Party), or acquire all or substantially all of the assets of
the business of any Person (other than another Borrower Party), or enter into
any agreement to do any of the foregoing.
(f) OFFICER/EMPLOYEE DISTRIBUTIONS. Except as occurs in the ordinary
course of business consistent with past practice, grant or pay any extraordinary
distributions, including bonuses or extraordinary salary increases; or make
loans or other forms of cash payments to employees or officers or directors; or,
make any payments of principal or interest on any shareholder loans existing on
its books (except as set forth on Schedule 4.2(f)); or give any preferential
treatment, directly or indirectly, to any officer, director or employee.
(g) DIVIDENDS. Declare or pay any dividend or make any distribution
upon its capital stock (preferred or common), or purchase or retire, or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets or loans to its stockholders,
whether in cash, assets or obligations, or allocate or otherwise set aside any
sum for the payment of any dividend or distribution by reduction of capital or
otherwise in respect of any shares of its capital stock.
(h) CAPITAL EXPENDITURES. Purchase any assets, vehicles or equipment
or make any other capital expenditures in excess of $75,000 per annum, except in
the ordinary course of business consistent with past practice.
(i) TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate (other than another Borrower
Party), except in the ordinary course of and pursuant to the reasonable
requirements of its business and upon fair and reasonable terms.
(j) STOCK. Change the number of authorized shares, voting rights of
shares, class of shares, engage in any "split-ups", revisions, reclassifications
or other like change of its stock.
(k) CHANGE IN OWNERSHIP. Cause, permit or suffer the transfer of its
shares to an entity which, following such transfer, then holds a majority of its
shares or cause, permit or suffer any change of control whatsoever, without the
prior written consent of the Lender. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
(l) BUSINESS. Change the general character of its business as
conducted as of the date hereof or engage in any type of business not reasonably
related to its business as normally conducted, or change its corporate name.
13
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest on,
the Note when the same becomes due and payable (after giving effect to
applicable grace periods, if any); or
(b) Any representation or warranty made by any Borrower Party (or
any of its officers) under or in connection with any Loan Document shall
prove to have been incorrect in any material respect when made; or
(c) Any Borrower Party shall fail to perform or observe any term,
covenant or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for 10 days
after written notice thereof shall have been given to such Borrower Party
by the Lender; or
(d) Any Borrower Party or any of its Affiliates shall fail to pay
any principal of or premium or interest on any Debt (including the
indebtedness to Chase pursuant to the Chase Loan Agreements and
indebtedness to the Lender pursuant to the Affiliate Loan Documents, but
excluding Debt hereunder as evidenced by the Note) of such Borrower Party
or such subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument relating to
such Debt; or any other event shall occur or condition shall exist under
any agreement or instrument relating to any such Debt and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Debt; or any such Debt
shall be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; or
(e) Any Borrower Party or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against any Borrower Party or any of its Subsidiaries seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, custodian
or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of 30 days, or any of the actions
sought in such proceeding (including, without limitation, the entry of
14
an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of
its property) shall occur; or any Borrower Party or any of its
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$75,000 shall be rendered against any Borrower Party or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 10 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(g) Any provision of the Security, Pledge and Guaranty Agreement
after delivery thereof pursuant to Section 2.01 shall for any reason cease
to be valid and binding on any Borrower Party, or a Borrower Party shall
so state in writing; or
(h) The Security, Pledge and Guaranty Agreement after delivery
thereof pursuant to Section 2.01 shall for any reason (other than pursuant
to the terms thereof) cease to create a valid and perfected security
interest in any of the collateral purported to be covered thereby;
then, and in any such event, the Lender (1) may, by notice to the Borrower,
declare its obligation to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (2) may, by notice to the Borrower, declare the
Note, all interest thereon and all other amounts payable under this Agreement to
be forthwith due and payable, whereupon the Note, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest, or further notice of any kind, all of which are hereby
expressly waived by the Borrower Parties; provided, however, that in the event
of an actual or deemed entry of an order for relief with respect to any of the
Borrower Parties under the Federal Bankruptcy Code, (A) the obligation of the
Lender to make Advances shall automatically be terminated and (B) the Advances,
the Note, all such interest and all such amounts shall automatically become and
be due and payable, without presentment, demand, protest or any notice of any
kind, all of which are hereby expressly waived by the Borrower.
ARTICLE VI
SUBORDINATION
SECTION 6.1 SUBORDINATION OF ADVANCES. The Advances are subordinated
to the credit facilities provided by Chase pursuant to the Chase Loan Agreements
as set forth herein, in the Security, Pledge and Guarantee Agreement and in the
Subordination Agreement. Except as set forth in the Subordination Agreement, no
payment of principal or interest will be made with respect to the Advances.
SECTION 6.2 SECURITY FOR THE ADVANCES. As set forth in the Security,
Pledge and Guaranty Agreement, the Advances are secured, subject to the rights
of Chase pursuant to the Subordination Agreement, by a security interest in the
Collateral (as defined in the Security, Pledge and Guaranty Agreement) in favor
of the Lender.
15
SECTION 6.3 APPLICATION OF COLLATERAL PROCEEDS. All proceeds from
the sale of other disposition of Collateral shall be applied as provided by the
terms of the Security, Pledge and Guaranty Agreement, the Subordination
Agreement and Section 4.1(c) above.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NOTICES. All notices, requests and other communications under this
Agreement will be in writing and will be deemed to have been duly given if
delivered personally, or sent by either certified or registered mail, return
receipt requested, postage prepaid, by overnight courier guaranteeing next day
delivery or by telecopier (with telephonic or machine confirmation by the
sender), addressed as follows:
(a) If to the Borrower Parties:
Little Switzerland, Inc.
161-B Crown Bay
X.X. Xxx 000
Xx. Xxxxxx, X.X. Xxxxxx Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxxxxxxx@xxxxxxxxxxxxxxxxx.xxx
With a copy to:
Xxxx X. Xxxxxxx, Esq.
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxxx@xxxxxxxxx.xxx
or at such other address or telecopy number as the Borrower may have advised
the Lender in writing; and
16
(b) If to the Lender:
Xxxxxxx & Co.
000 Xxxxxxx Xxxxxx, Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxx@xxxxxxx.xxx
With a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxx@xxxxxxxxxx.xxx
or at such other address or telecopy number as the Lender may have advised the
Borrower in writing. All such notices, requests and other communications shall
be deemed to have been received on the date of delivery thereof (if delivered by
hand), on the third day after the mailing thereof (if mailed), on the next day
after the sending thereof (if by overnight courier) and when receipt is
confirmed as provided above (if telecopied).
SECTION 7.2 WAIVERS AND AMENDMENTS. No amendment or waiver of any
provision of this Agreement, nor consent to any departure therefrom, will be
effective unless the same shall be in writing and signed by an officer of each
party hereto, and then such waiver or consent will be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of a party hereto to exercise, and no delay in exercising, any right
hereunder will operate as a waiver thereof; nor will any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies provided in this Agreement are
cumulative and, unless otherwise expressly provided herein, not exclusive of any
remedies provided by law.
SECTION 7.3 BINDING EFFECT. This Agreement will be binding upon and
inure to the benefit of the parties and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns. No
party may assign his or its rights hereunder or any interest herein without the
prior written consent of the other parties and such attempted assignment shall
be void and without effect, provided however, that the Lender may assign, to one
or more of its Affiliates, all or any part of, or any interest in, the Lender's
rights and benefits hereunder. To the extent of such assignment, such assignee
will have the same rights and benefits against the other parties as it would
have had if it were a named party hereunder. No party will be released of any of
its obligations under this Agreement by virtue of such assignment.
17
SECTION 7.4 EXHIBITS AND SCHEDULES. The Exhibits and Schedules
attached hereto or referred to herein are incorporated herein and made a part
hereof for all purposes. As used herein, the expression "this Agreement"
includes such Exhibits and Schedules.
SECTION 7.5 GOVERNING LAW. THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREBY THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO, AND ANY
DISPUTES OR CONTROVERSIES ARISING THEREFROM SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS THAT WOULD PROVIDE FOR THE
APPLICATION OF ANY OTHER LAW.
SECTION 7.6 CAPTIONS. The captions, headings and arrangements used
in this Agreement are for convenience only and do not in any way affect, limit
or amplify the provisions hereof.
SECTION 7.7 ENTIRETY. This Agreement contains the entire agreement
and understanding between the parties with respect to the matters addressed
herein and supersedes all prior representations, inducements, promises or
agreements, oral or otherwise, which are not embodied herein.
SECTION 7.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original for all purposes and all
of which will be deemed collectively to be one agreement. Execution may be
effected by delivery of facsimiles of signature pages, followed by delivery of
originals of such pages.
SECTION 7.9 THIRD PARTY BENEFICIARIES. Nothing contained herein,
express or implied, is intended to confer upon any Person or entity other than
the parties and their heirs, executors, administrators, personal
representatives, successors and permitted assigns any rights or remedies under
or by reason of this Agreement, except as otherwise expressly provided in this
Agreement.
SECTION 7.10 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 3.1(d).
SECTION 7.11 COSTS, EXPENSES AND TAXES. The Borrower agrees to pay
on demand all costs and expenses, if any (including reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of the Loan Documents and the other documents to
be delivered under the Loan Documents, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 7.11.
18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
------------------------------------------
LENDER:
Xxxxxxx and Company, a New York
corporation
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice President General Counsel and Secretary
------------------------------------------
BORROWER:
L.S. Holding, Inc., a U.S. Virgin
Islands corporation
By: /s/ Xxxxxx X. Xxxxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: President
------------------------------------------
GUARANTORS:
Little Switzerland, Inc., a Delaware
corporation
By: /s/ Xxxxxx X. Xxxxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: President
L.S. Wholesale, Inc., a Massachusetts
corporation
By: /s/ Xxxxxx X. Xxxxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: President
------------------------------------------
19
EXHIBIT A
PROMISSORY NOTE
$------------ Dated: May 1, 2001
New York, New York
FOR VALUE RECEIVED, the undersigned, ----------------- (the
"BORROWER"), hereby unconditionally promises to pay to the order of Xxxxxxx and
Company, a New York corporation (the "LENDER"), the principal amount of
----------------- Dollars ($----------) (or, if less, the aggregate principal
amount of all Advances made by the Lender to the Borrower pursuant to the Loan
Agreement (the "LOAN AGREEMENT") among the Borrower, certain of its affiliates
and the Lender), in lawful money of the United States of America in immediately
available funds on April 30, 2006 (or, if earlier, the Termination Date as
defined in the Loan Agreement).
The Borrower promises to pay interest on the principal amount hereof
from time to time outstanding, in like funds, at a rate per annum compounded
annually during the time that this Promissory Note is outstanding until such
principal is paid in full equal to a fluctuating interest rate determined in
advance of each interest payment period as hereinafter provided and equal at all
times to three percent (3%) per annum above LIBOR (the "INTEREST RATE"). "LIBOR"
means the rate per annum (rounded upwards if necessary to the nearest 1/16 of
1%) quoted by the British Bankers' Association for the offering to leading banks
in the London Interbank market of Dollar deposits in immediately available funds
and in an amount comparable to the principal amount outstanding hereunder. LIBOR
shall be determined in advance of each interest payment period as of
approximately 11:00 A.M. London time on each date which is two Business Days
prior to the start of such interest payment period and such determination shall
govern throughout such interest payment period. LIBOR shall be determined by
reference to Bloomberg LP on page BBAM. Interest payment periods shall commence
on February 1 and August 1 of each calendar year. All accrued and unpaid
interest hereunder shall be due and payable as of January 31st and July 31st of
each calendar year until the principal and all accrued interest are paid in
full. All computations of interest based on the Interest Rate shall be made by
the Lender on the basis of a year of 360 days for the actual number of days
occurring in the period for which such interest is payable. Determination by the
Lender of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
Both principal and interest are payable in lawful money of the
United States of America to the Lender at 000 Xxxxxxx Xxxxxx, Xxxxxx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000 in same day funds on the Termination Date. Each Advance
made by the Lender to the Borrower and the maturity thereof, and all payments
made on account of the principal amount thereof, shall be recorded by the Lender
and, prior to any transfer hereof, endorsed on the grid attached hereto which is
a part of this Promissory Note.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the fullest extent permitted by law, on any overdue interest
and on any overdue amount under
any instrument now or hereinafter evidencing or securing the indebtedness
evidenced hereby, at a rate equal to the Interest Rate plus 3% per annum, from
the date such principal or interest was due to the date or payment in full.
If any payment under this Promissory Note is not made when due,
whether at maturity or by acceleration, the Borrower shall pay all costs of
collection (including reasonable attorneys' fees) whether or not suit is filed
hereon, on the Loan Documents (as defined in the Loan Agreement) or otherwise,
and all expenses incurred in connection with the protection or realization of
any collateral.
This Promissory Note is the Note referred to in, and is entitled to
the benefits of, the Loan Agreement and Security, Pledge and Guaranty Agreement
referred to therein and entered into pursuant thereto. The Loan Agreement, among
other things, (i) provides for the making of Advances by the Lender to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Advance being evidenced by this Promissory
Note, and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
The Borrower hereby waives (to the extent permitted by law)
diligence, presentment, demand, protest and notice of any kind whatsoever except
as expressly required herein. The non-exercise by the Lender of any of its
rights hereunder or under the Security, Pledge and Guaranty Agreement in any
particular instance shall not constitute a waiver thereof in that or any
subsequent instance. The Borrower shall at all times have the right to proceed
against any portion of the security held therefor in such order and in such
manner as the Borrower may select, without waiving any rights with respect to
any other security. No delay or omission on the part of the Borrower in
exercising any right hereunder or under the Security, Pledge and Guaranty
Agreement or other agreement shall operate as a waiver of such right or of any
other right under this Promissory Note.
This Promissory Note, the transactions contemplated hereby the
rights and obligations of the parties hereto, and any disputes or controversies
arising therefrom shall be governed by and construed and enforced in accordance
with the laws of the State of New York, without regard to its principles of
conflict of laws that would provide for the application of any other law.
BORROWER:
-------------------------
By:
-----------------------------------
Name:
Title:
2
ADVANCES AND PAYMENTS OF PRINCIPAL
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Amount of Unpaid
Amount Principal Principal Notation
Date of Advance Paid or Prepaid Balance Made By
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Reference is made to that certain Loan Agreement dated as of May 1, 2001 by
and among (i) L.S. Holding, Inc. and Little Switzerland, Inc., on the one
hand and (ii) Xxxxxxx and Company, on the other hand (the "Agreement").
Capitalized terms used herein shall have the meaning ascribed thereto in the
Agreement.
SCHEDULE 3.1(i)
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
Switzerland in regards to the calculation of his vacation
pay. He had been paid based on his base salary, not on his
base salary plus commission.
Status: On March 20, 2001, a court ruled in Mr. Punjabi's
favor ordering a payment of Nafl 25,072.00 (approx.
$14,000 US), plus interest and legal fees. Little
Switzerland is considering appealing this decision.
Name: Xxxxx, Xxxxxx
Position: Operations Manager - Curacao
Action: Wrongful Discharge.
Status: The court ruled that her responsibilities were not
made clear to her prior to the new manager being
hired. Xx. Xxxxx had until March 23, 2001 to decide
between a monetary award of Afl's $10,000.00
($5,555.55 US) or returning to work. Xx. Xxxxx has
some physical ailments that prevent her from climbing
stairs and feels that Little Switzerland should make
accommodations for her prior to returning (an
elevator and a bathroom on the street level). The
court has yet to make a ruling in this regard.
Name: Xxxxxxxxx, Xxxx
Position: Former Assistant Watch Buyer
Action: On or about Xxxxx 0, 0000, Xxxxxx Xxxxxxxxxxx
received a letter from the Virgin Islands Department
of Labor notifying Little Switzerland that a Charge
of Discrimination has been filed by Xxxx Xxxxxxxxx, a
former employee of Little Switzerland. The letter
states that an officer of the Virgin Islands
Department of Labor will contact Little Switzerland
for more information and requests that Little
Switzerland respond in writing to the charges within
15 days.
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 4.2(a)
LIENS
All assets are subject to liens in favor of The Chase Manhattan Bank ("Chase")
and The Bank of Novia Scotia ("BNS"); provided, however, that the liens of Chase
will be released as provided in (i) Section 6 of that certain Loan Agreement by
and among L.S. Wholesale, Inc., as Borrower, Little Switzerland, as Guarantor,
and Chase, (ii) Section 6 of that certain Loan Agreement by and among L.S.
Holding, Inc., as Borrower, Little Switzerland, as Guarantor, and Chase and
(iii) Section 6 of that certain Loan Agreement by and among L.S. Holding (USA),
Inc., as Borrower, Little Switzerland, as Guarantor, and Chase, when payment is
made to Chase pursuant to Section 2.02 of the Stock Purchase Agreement dated as
of May 1, 2001 by and between Little Switzerland 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 the Company 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
Terms: Agreement to hold the equivalent of US $150,000 as
security until release of the bond in the amount of
BBD $500,000 by the Barbados Customs Department
Such restructuring contemplated by the above-referenced agreements is
hereinafter referred to as the Barbados Restructuring. The brief summary
descriptions of the terms of the above-referenced agreements are qualified in
their entirety by reference to the above-referenced agreements.
SCHEDULE 4.2(b)
INDEBTEDNESS
See the Barbados Restructuring on Schedule 4.2(a).
SCHEDULE 4.2(f)
OFFICER/EMPLOYEE DISTRIBUTIONS
1. Outstanding Option Agreements
EXPIRES
NAME PLAN GRANT DATE PRICE IN 2001
---- ---- ----- ---- ----- -------
Xxxxx Xxxxxx 1991 2,000 03-Jun-91 $10.00 03-Jun-01
Xxxxxxxx Xxxxxxxx 1991 2,000 03-Jun-91 $10.00 03-Jun-01
Xxxxxxxx Xxx Xxxx 1991 1,500 03-Jun-91 $10.00 03-Jun-01
Xxxxx Xxxxx 1991 1,500 03-Jun-91 $10.00 03-Jun-01
Xxxx Xxxxxx 1991 1,500 03-Jun-91 $10.00 03-Jun-01
Xxxxxx Xxxxxxxx 1991 1,500 03-Jun-91 $10.00 03-Jun-01
Xxxxx Xxxxx 1991 500 03-Jun-91 $10.00 03-Jun-01
Xxxxxxxx Xxxxx 1991 500 03-Jun-91 $10.00 03-Jun-01
Nina Tackling 1991 500 03-Jun-91 $10.00 03-Jun-01
Xxxxx Xxxxx 1991 500 03-Jun-91 $10.00 03-Jun-01
Xxxxxxxx X. Xxxxxxx 1991 500 03-Jun-91 $10.00 03-Jun-01
Xxxxx Xxxxxx 1991 500 03-Jun-91 $10.00 03-Jun-01
Xxxxxxx Xxxxxx 1991 500 03-Jun-91 $10.00 03-Jun-01
Xxxxxxx X. Xxxxxx 1991 10,000 25-Jul-91 $12.00 25-Jul-01
Xxxxxx Xxxxxxx 1991 1,500 15-Jan-92 $15.63 -
Xxxxx Xxxxxx 1991 2,000 06-Nov-92 $12.75 -
Xxxxxxxx Xxxxxxxx 1991 2,000 06-Nov-92 $12.75 -
Xxx Xxxxxxx 1991 15,000 Dec-00 $0.75 -
Xxxxx XxXxxxx 1991 15,000 Dec-00 $0.75 -
Xxxxx Xxxxxxx 1991 10,000 Oct-00 $0.78 -
Xxxxxxx Xxxxx 1991 5,000 Dec-00 $0.76 -
Xxxxxxx Xxxxxx 1991 15,000 Nov-00 $0.78 -
Xxxxxxx Xxxxxx 1991 50,000 03-Jun-99 $0.66 -
Xxxxxxx Xxxxx 1991 16,000 20-Sep-99 $0.56 -
Xxxxxxx Xxxxxx 1991 50,000 21-Dec-99 $0.66 -
Xxxxxx Xxxxxxxxxxx 1991 150,000 17-Jan-00 $0.78 -
Xxxxxxx Xxxxxx 1991 150,000 17-Jan-00 $0.78 -
Xxxxxx Xxxxxxxxxxx 1991 50,000 21-Dec-99 $0.66 -
Xxxxxxx X. Xxxxxx 1992 5,000 13-Oct-92 $12.75 -
Xxxxxxx X. Xxxxxx 1992 3,000 31-May-93 $10.00 -
Xxxxxxx X. Xxxxxx 1992 3,000 31-May-95 $4.75 -
Xxxxxxx X. Xxxxxx 1992 3,000 31-May-96 $5.88 -
Xxxxxxx X. Xxxxxx 1992 3,000 31-May-97 $5.75 -
Xxxxxxx X. Xxxxxx 1992 3,000 31-May-98 $5.56 -
Xxxxx XxXxxxxx 1992 3,000 29-May-99 $0.84 -
Xxxx Xxxxxx 1992 3,000 27-May-00 $0.53 -
Xxxxxxx Xxxxxxxx 1992 3,000 27-May-00 $0.53 -
Xxxxx XxXxxxxx 1992 3,000 27-May-00 $0.53 -
EXPIRES
NAME PLAN GRANT DATE PRICE IN 2001
---- ---- ----- ---- ----- -------
Xxxxxxx X. Xxxxxx 1992 3,000 27-May-00 $0.53 -
C. Xxxxxxx Xxxxx * 150,000 01-Sep-98 $2.25 07-Apr-01
Xxxxxx Xxxxxxxxxxx * 350,000 01-Jun-99 $0.44 -
Xxxxxxx Xxxxxx * 50,000 14-Feb-00 $0.97 -
Xxxxxx Xxxxxx * 25,000 14-Feb-00 $0.97 -
Xxxx Xxxxxx * 25,000 14-Feb-00 $0.97 -
Xxxx Xxxxxxxxx * 25,000 03-Apr-00 $1.12 -
Xxxxxx Xxxxxxxxxxx 2000 100,000 17-Jul-00 $0.59 -
JEWELCOR 2000 100,000 17-Jul-00 $0.59 -
Xxxxxxx Xxxxxx 2000 100,000 17-Jul-00 $0.59 -
Xxxxxxx Xxxxx 2000 34,000 17-Jul-00 $0.59 -
Xxxxx Xxxxx 2000 25,000 17-Jul-00 $0.59 -
Xxxxxxx Xxxxxxxx 2000 25,000 17-Jul-00 $0.59 -
Xxxxxxx Xxxxxx 2000 25,000 17-Jul-00 $0.59 -
Xxxxxxx X. Xxxxxx 2000 25,000 17-Jul-00 $0.59 -
Xxxxx XxXxxxxx 2000 25,000 17-Jul-00 $0.59 -
Xxxx Xxxxxx 2000 25,000 17-Jul-00 $0.59 -
Xxxxxxxx Xxxxxx Xxxxxxx 2000 10,000 17-Jul-00 $0.59 -
Xxxxxxx Xxxxxx 2000 10,000 17-Jul-00 $0.59 -
Xxxxxxx Xxxxxxxx 2000 100,000 15-Feb-01 $1.00 -
Xxxxxxx X. Xxxxxx 2000 25,000 15-Feb-01 $1.00 -
Xxxxx XxXxxxxx 2000 25,000 15-Feb-01 $1.00 -
Xxxx Xxxxxx 2000 25,000 15-Feb-01 $1.00 -
1,894,000 173,500
2. Base changes in excess of $25,000 since Annual Balance Sheet
Date:
1. Name: Xxxxxx Xxxxxxxxxxx
Position: CEO
Change in Base: $100,000
Other: Final payment towards $125,000 signing fee
2. Name: Xxxxxxx Xxxxxx
Position: CFO
Change in Base: $50,000
Change in Bonus percentage: 12.5%
3. Name: STORE MANAGERS
Change in Bonus Structure:
o New plan implemented February 2001. A corporate, monthly
and individual performance component with a special
discretionary bonus. The Company is managing to a
minimum of 1999 performance.
o Plan monitored and increased monthly to maintain morale
and cover shortfalls.
o See Exhibit 4.2(f).
EXHIBIT 4.2(f)
CUMULATIVE SUMMARY
PERFORMANCE AND STAY BONUSES
1998 1999 2000 2,001
Fiscal 98 Pmnt 1 Pmnt 2 Fiscal 2001
BONUS
BONUS NOV. 1999 MAY 2000 TOTAL SWISS BUCKS AUG. 2000 POTENTIAL
----- --------- -------------- ----------- --------- ---------
Xxxxx, Xxxxx 3,060 1,500 1,500 3,000 750 - 3,800
Xxxxxx, Xxxxxx 14,400 5,000 5,000 10,000 1,750 10,000 19,200
Xxxxxx, Xxxx 0 - - - 500 - 4,350
Xxxxxxxxxxx, Xxxxxx 0 - - - - 150,000 225,000
Xxxxxx-Xxxxxxx,
Xxxxxxxx 5,652 5,000 5,000 10,000 - 15,000 15,000
Xxxxxxx, Xxxxxx 0 750
Clausdel, Xxxxx 0 - - - - - 18,750
Xxxxxxxxx, Xxxx 0 - - - 1,250 - 13,200
Xxxxxx, Xxxx 0 - 1,000 - 10,000
XxXxxxxxx, Xxxxxxx 2,363 1,500 1,500 3,000 700 - 5,460
XxxXxxxxx, Xxxxxx 1,387 1,500 1,500 3,000 750 - 7,500
Xxxxxx, Xxxx 0 - - - - - 4,000
Xxxxx, Xxxxxxx 0 - - - - 20,000 31,250
Xxxxx, Xxxxxxx 0 - - - 1,000 6,750
Xxxxxx, Xxxxxxx 0 - - - - 50,000 75,000
XxXxxxx, Xxxxx 0 - - - - - 11,250
Xxxxx, Xxxx 0 - - - - - 6,250
Xxxxx, Xxxxx 0 2,000 2,000 4,000 - 15,000 21,000
Xxxxxxxx, Xxxxxxxx 6,431 2,500 2,500 5,000 1,000 - 8,625
Xxxxxx, Xxxxxx 0 - - - 1,500 - 15,000
Xxxxxx, Xxxxxxx 0 - - - - 20,000 31,250
Plunket, April 0 - - - - - 3,300
Xxxxx, Xxxxx 0 - - Store 1,250 Store 9,750
Xxxxx, Xxxxxxx 0 750 Store
Xxxxx, Xxxxxxxxxx 8,775 2,500 2,500 5,000 1,500 - 10,500
Xxxxxx, Xxxxx 1,460 1,500 1,500 3,000 750 - 3,800
Xxxxxxxx-Xxxx,
Xxxxxx 0 - - - - 6,750
43,528 23,000 23,000 46,000 15,200 280,000 566,735
NO LONGER WITH COMPANY OR CONSULTANT
Xxxxxxxx, Xxxxxxx 25,950 5,000 5,000 10,000 0 0 0
Xxxxx Xxxxx 11,250 5,000 5,000 10,000 0 0 0
Xxxxx, Xxxxxxx 5,000 5,000 10,000 0 0 0
37,200 15,000 15,000 30,000 0 0 0
