CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of the 28th day of May, 1999, by and
among XXXXX HOLDINGS, INC., a Delaware corporation having an office and place of
business at 0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 00, Xxxx, Xxxxxxxx 00000 (hereinafter
called "Lender"), and AZUREL LTD., a Delaware corporation, having its principal
office and place of business at 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
(hereinafter called "Borrower").
1. AMOUNT AND TERMS OF CREDIT. Subject to all of the terms and
conditions of this Agreement, Lender agrees to lend to Borrower and Borrower
agrees to borrow from Lender an aggregate principal amount of One Million
Dollars ($1,000,000.00) ("Loan").
The Loan shall be evidenced by a Credit Note in the amount of
$1,000,000.00, in the form of EXHIBIT A hereto (the "Credit Note"). Lender shall
record all advances under the Credit Note and all payments made by or on behalf
of Borrower on account thereof. Any payment on the Loan shall be credited first
to payment of late fees, if any, then to accrued and unpaid interest and the
balance, if any, to principal.
The proceeds of the Loan shall be used for general corporate purposes.
1.1 INTEREST. The outstanding principal balance of the Credit
Note shall bear interest at eight (8%) percent per annum, with default interest
charged on any amounts in default as provided in the Credit Note.
1.2 TERM. The term of the Loan is two years, commencing on May
28, 1999.
1.3 ADDITIONAL CONSIDERATION. As additional consideration for
Lender's agreement to make the Loan, Borrower has granted to Lender a warrant to
purchase 300,000 shares of Borrower's Common Stock, $.01 par value, in the form
of EXHIBIT B (the "Warrants"), the shares of Common Stock underlying such
Warrants being subject to the terms of a Registration Rights Agreement in the
form of EXHIBIT C (the "Registration Rights Agreement").
2. DEFINITIONS. The following terms shall have the following meanings
in this Agreement:
2.1 ACCOUNTING TERMS. All accounting terms not specifically
defined in this Agreement shall be construed in accordance with generally
accepted accounting principles as applied in the United States.
2.2 MATERIAL ADVERSE EFFECT. A Material adverse Effect is a
material adverse impact on the results of operations, liquidity, or future
business prospects of the Borrower.
3. COLLATERAL. The obligations of Borrower to the Lender pursuant to
this Agreement and the Credit Note shall be secured as follows:
3.1 PLEDGE SECURITY AGREEMENT. A first perfected security
interest pursuant to the Pledge Security Agreement in 670 shares of the Common
Stock of each of Private Label Cosmetics, Inc. and Fashion Laboratories, Inc.
(collectively "PLC") in the form of EXHIBIT D hereto (the "Security Agreement").
4. CONDITIONS OF LENDING. Lender shall have no obligation to make any
advances of the Loan, except upon fulfillment of each of the following
conditions:
4.1 As of the date of this Agreement, the representations and
warranties of Borrower set forth in Section 5 of this Agreement shall be true
and correct in all material respects.
4.2 No Event of Default specified in Section 8 hereof, and no
event which with notice or lapse of time or both would become such an event of
default shall have occurred and be continuing.
5. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower makes the
following representations and warranties to Lender which shall be deemed to be
continuing representations and warranties so long as any indebtedness of
Borrower to Lender arising hereunder remains unpaid:
5.1 Borrower is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which incorporated.
5.2 Borrower has the requisite corporate powers to transact
the business in which it is engaged and is duly licensed or qualified and in
good standing in each jurisdiction in which the conduct of its business requires
such license or qualification, except where the failure to be so licensed or
qualified could not reasonably be expected to have a material adverse effect on
the business, operations or condition (financial or otherwise) of the Borrower
("Material Adverse Effect").
5.3 Borrower has full power and authority to borrow hereunder
and to execute, deliver and perform this Agreement, the Credit Note, the
Warrants, the Registration
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Rights Agreement and the Security Agreement, all of which have been duly
authorized by all proper and necessary corporate action.
5.4 This Agreement constitutes, and the Credit Note and the
Security Agreement when executed and delivered pursuant hereto will constitute
the legal, valid and binding obligations of Borrower enforceable in accordance
with their respective terms, except to the extent that enforcement of any such
obligations may be limited by bankruptcy, insolvency, reorganization or similar
laws of general application affecting the rights and remedies of creditors
generally.
5.5 No consent, approval or authorization of, or registration,
declaration or filing with, any governmental body or authority or any other
party is required in connection with the valid execution, delivery or
performance of this Agreement, the Credit Note, the Warrants, the Registration
Rights Agreement or Security Agreement or in connection with any other
transactions contemplated hereby.
5.6 As of the date of this Agreement, there are no material
actions, suits, or proceedings pending or, to the knowledge of Borrower,
threatened against Borrower.
5.7 Borrower is not in violation of any term of (i) any
charter, by-law, mortgage, indenture, indebtedness or other material instrument
or agreement, or (ii) of any order, writ, judgment, injunction, decree or
demand, or (iii) of any statute, rule or regulation, or the rules of the Nasdaq
Stock Market, Inc., which violation could reasonably be expected to have a
Material Adverse Effect; and the execution and delivery of this Agreement, the
Credit Note, the Warrants, the Registration Rights Agreement and the Security
Agreement and the performance of each is and will be in compliance with all of
the foregoing terms and will not result in any such violation.
5.8 Borrower is not the subject of any pending, or threatened,
litigation before any court or administrative tribunal, or the subject of any
inquiry from the Nasdaq Office of Listing Investigations, which litigation,
threatened litigation or inquiry could reasonably be expected to have a Material
Adverse Effect if it were to result in a decision adverse to the Borrower.
5.9 Borrower has duly filed all tax returns required to be
filed in any jurisdiction, including, without limitation, all Federal income tax
returns and have duly paid all taxes shown as being due thereon, except taxes
that are being contested in good faith by appropriate proceedings. All other
taxes, assessments and governmental charges on Borrower's assets and income
which are due and payable have been paid.
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5.10 Borrower has good and marketable title to all of its
assets subject, as of the Closing Date, to no lien, pledge, assignment, security
interest or other encumbrances except as set forth on Exhibit "E" attached
hereto.
5.11 No proceeds of the loans will be used to acquire any
security in any transaction which is subject to Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended. Borrower is not an "investment
company" or a company "controlled" by an "investment company" (within the
meaning of the Investment Company Act of 1940, as amended).
5.12 Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System). No proceeds of the loans will be used to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
6. AFFIRMATIVE COVENANTS. During the term of this Agreement and so long
as the Credit Note shall remain unpaid:
6.1 Borrower will furnish to Lender within forty-five (45)
days after the end of each fiscal quarter, and within one hundred twenty (120)
days after the end of each fiscal year, unaudited and audited, respectively,
consolidated financial statements of Borrower at and as of the end of each such
period, all in such detail as Lender may reasonably request, certified by either
the chief executive officer or the chief financial officer of Borrower.
6.2 Borrower shall also permit Lender to periodically inspect
and review Borrower's books and records, at reasonable times and upon reasonable
notice. Such inspections shall be at the Lender's expense.
6.3 Borrower will promptly inform Lender of the commencement
of any action, suit, counterclaim or proceeding against Borrower, or any of
Borrower's Subsidiaries involving (i) a claim in excess of One Hundred Fifty
Thousand Dollars ($150,000.00), unless such claim is fully covered by insurance.
6.4 Borrower will promptly pay all of its material taxes,
assessments and other governmental charges prior to the date on which all
penalties are attached thereto, establish adequate reserves for the payment of
taxes and assessments and make all required withholding and other tax deposits
unless the validity thereof is being contested in good faith or the failure to
do so could not reasonably be expected to result in a Material Adverse Effect.
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6.5 Lender shall have the right to designate one person to be
appointed to the Borrower's Board of Directors, which designee shall also be
nominated for election to Borrower's Board of Directors at any stockholders
meetings at which directors are elected; PROVIDED, that such Lender designee
shall serve on the Compensation and Stock Option Committees of Borrower's Board
of Directors.
7. NEGATIVE COVENANTS. During the term of this Agreement and so long as
the Credit Note shall remain unpaid:
7.1 Borrower will not mortgage, pledge or otherwise encumber
or suffer to be encumbered any of its assets without the prior written consent
of Lender, except for liens granted to Lender or liens incurred in the ordinary
course of Borrower's business in connection with regular commercial transactions
usual and customary in Borrower's industry, and except for existing liens and
replacements, substitutions or extensions thereof which secure the same or
lesser amounts.
7.2 Borrower will not convey, lease or sell all or any
substantial portion of its property, assets or business to any other party,
except the sale of inventory in the ordinary course of business, if, after
giving effect to such transaction, the stated value of assets on Borrower's
balance sheet, exclusive of good will, shall be less than two-thirds of the
stated value of assets on Borrower's balance sheet, exclusive of good will,
immediately before such transaction.
7.3 Borrower will not guarantee, endorse or otherwise become
contingently liable for the debts or other obligations of any other person or
entity other than in the ordinary course of business consistent with past
business practice.
7.4 Borrower will not loan to, invest in or otherwise make
advances to any other person or entity, except for (a) intercompany loans to its
wholly-owned PLC or any of its other wholly-owned subsidiaries, (b) the
Borrower's equity investments in subsidiaries, (c) loans to employees consistent
with past business practices and (d) loans, investments or advances for any
other purpose which do not exceed $50,000 in aggregate principal amount
outstanding at any time.
7.5 Borrower will not pay dividends.
7.6 Lender shall have a right of first refusal, for a period
of fifteen (15) days after receipt of written notice from Borrower, to purchase
any debt or equity securities of Borrower on the same terms and conditions as
any bona fide third party.
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8. EVENTS OF DEFAULT. At any time that the Credit Note is unpaid, the
occurrence of any one or more of the following events shall constitute an Event
of Default:
8.1 Nonpayment, within ten (10) days after the due date
therefor, of any part of principal of or interest on the Credit Note; or
8.2 The making of a general assignment by Borrower for the benefit of
creditors, or the institution by Borrower of any bankruptcy, reorganization,
arrangement or other type of insolvency case or proceeding under the United
States Bankruptcy Code or any other federal or state law, or of any formal or
informal proceeding for the dissolution or liquidation of, settlement of claims
or winding up of affairs of Borrower; or
8.3 The appointment of a receiver or trustee for Borrower or
for any assets of Borrower or the institution against Borrower of any
bankruptcy, reorganization, or insolvency proceeding under any federal or state
law or any proceeding for the liquidation or winding up of the affairs of
Borrower if Borrower shall fail to have such appointment vacated, or such
proceeding dismissed, within sixty (60) days after it is made or instituted; or
8.4 If the subject matter of any certificate, statement,
representation, warranty or audit heretofore or hereafter furnished by or on
behalf of Borrower to Lender (including, without limitation, the representations
and warranties contained herein) shall prove to be untrue or misleading in any
material respect or to have omitted any substantial contingent or unliquidated
liability or claim against Borrower; or
8.5 The occurrence of any event of default under the terms of
this Agreement, the Warrants, the Security Agreement, the Credit Note, or the
Registration Rights Agreement, or under the terms of any other loan agreement,
note, indenture or mortgage having a principal amount in any case of $100,000 or
more, or under any other agreement evidencing or securing other indebtedness of
Borrower to Lender, which default has not been cured or waived within any
applicable grace or notice period.
8.6 (1) If PLC shall at any time issue additional shares of
its capital stock, or securities exercisable for or convertible into its capital
stock, without the consent of Lender.
(2) If on or before October 1, 2000, all outstanding common
shares of each of the companies constituting PLC Capital Stock which on the date
of this Agreement have not yet been released from the Escrow created under that
certain Escrow Agreement by and among Xxxxxxx X. Xxxxxxx, Borrower and the
escrow agent, dated as of August 26, 1996, and delivered
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to Lender under the terms of the Security Agreement, are not also delivered to
Lender and held as collateral under the terms of the Security Agreement.
9. RIGHTS OF LENDER ON DEFAULT. Upon the occurrence of any of the
Events of Default enumerated in Section 8 hereof, the obligations of the Lender
under this Agreement may be immediately terminated, and all indebtedness
evidenced by the Credit Note shall immediately become due and payable, at the
option of the Lender. Borrower agrees that the rights and remedies herein are
cumulative, and not exclusive, and that Lender shall have in addition any rights
or remedies which it would otherwise have at law, including rights of offset.
10. EXPENSES. Borrower shall reimburse Lender promptly for all costs
and expenses, including reasonable counsel fees, of Lender incident to the
enforcement of any provision of this Agreement, the Credit Note, the Security
Agreement, the Warrants, the Registration Rights Agreement, and any other
documents furnished pursuant to this Agreement. In addition, simultaneously with
the funding of the Loan by Lender, Borrower shall pay the fees and expenses of
Lender's counsel incurred in connection with the negotiation and preparation of
the Agreement, the Credit Note, the Warrants, the Security Agreement and the
Registration Rights Agreement, up to a maximum of $30,000.
11. MISCELLANEOUS.
11.1 Any notice or demand to be given hereunder or any notice
or demand on the Credit Note, the Warrants, the Registration Rights Agreement,
the Security Agreement, or any other document delivered pursuant to this
Agreement shall be duly given if mailed by registered or certified mail to each
of the parties below and shall be effective on the date of mailing:
To Lender At: Xxxxx Holdings, Inc.
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 00
Xxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx, President
To Borrower: Azurel Ltd.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx, Chairman
11.2 This Agreement, any and all other documents executed in
connection with this Agreement, and the acts and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
State of New York.
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11.3 BORROWER, BY EXECUTING THIS AGREEMENT OR ANY OTHER
DOCUMENT PROVIDED FOR BY THIS AGREEMENT, WAIVES ITS RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY STATUTE OR OTHERWISE, IN ANY
WAY RELATED TO THIS AGREEMENT OR ANY DOCUMENT PROVIDED FOR BY THIS AGREEMENT AND
CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR
FEDERAL COURT IN NEW YORK COUNTY, NEW YORK WITH RESPECT TO ANY ACTION TO
INTERPRET OR ENFORCE THIS AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
LENDER TO EXTEND CREDIT TO BORROWER AND NO WAIVER OR LIMITATION OF LENDER'S
RIGHTS UNDER THIS SECTION SHALL BE EFFECTIVE UNLESS IN WRITING AND MANUALLY
SIGNED ON LENDER'S BEHALF.
Borrower acknowledges that the above paragraph has been expressly
bargained for by Lender and that, but for Borrower's agreement thereto, Lender
would not extend the loans to Borrower for the term and interest rate provided
in the promissory note described herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
BORROWER:
AZUREL, LTD.
Signature: /S/ XXXXXX XXXXXX
Name: XXXXXX XXXXXX
Date:____________________
LENDER:
XXXXX HOLDINGS, INC.
Signature: /S/ XXXXXXXXX XXXXXXXX
Name: XXXXXXXXX XXXXXXXX
Date:______________________
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EXHIBITS
A Credit Note [See Exhibit 10.2]
B Warrant [See Exhibit 10.6]
C Registration Rights Agreement [See Exhibit 10.8]
D Pledge Security Agreement [See Exhibit 10.5]
