Exhibit 10.18
SECURITY, PLEDGE AND GUARANTY AGREEMENT
This SECURITY, PLEDGE AND GUARANTY AGREEMENT (this "AGREEMENT") is
entered into as of May 1, 2001 by and among: (i) L.S. Holding (USA), Inc., an
Alaska corporation (the "BORROWER"), Little Switzerland, Inc., a Delaware
corporation (the "PARENT" and a "GUARANTOR") and L.S. Wholesale, Inc., a
Massachusetts corporation (also a "GUARANTOR"; and collectively with the
Borrower and Parent, 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, Guarantor and the Lender have entered into a Loan
Agreement dated as of May 1, 2001 (as it may hereafter be amended or otherwise
modified from time to time, the "LOAN AGREEMENT").
B. Borrower is an indirect wholly-owned subsidiary of the Parent.
C. L.S. Wholesale, Inc. is a direct wholly-owned subsidiary of the
Parent.
D. It is a condition precedent to the making of Advances by the
Lender under the Loan Agreement that the Borrower Parties shall have executed
and delivered this Agreement and taken the action contemplated hereby.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to make Advances under the Loan Agreement, the Lender and the
Borrower Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Loan Agreement.
"AGREEMENT" has the meaning ascribed to that term in the Header.
"BORROWER" has the meaning ascribed to that term in the Header.
"BORROWER PARTIES" has the meaning ascribed to that term in the
Header.
"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.
"CODE" has the meaning ascribed to that term in Section 2.11(a).
"COLLATERAL" has the meaning ascribed to that term in Section
2.01(a).
"DEBT" has the meaning ascribed to that term in Section 3.05(a).
"FINANCIAL STATEMENTS" has the meaning ascribed to that term in
Section 4.01(g).
"GUARANTORS" has the meaning ascribed to that term in the Header.
"IMPLEMENTING AGREEMENTS" has the meaning ascribed to that term in
Section 2.01(b).
"INVENTORY" has the meaning ascribed to that term in Section
2.01(a)(i).
"ISSUER" has the meaning ascribed to that term in Section
2.01(a)(v).
"LENDER" has the meaning ascribed to that term in the Header.
"LOAN AGREEMENT" has the meaning ascribed to that term in the
Recitals.
"OBLIGATIONS" has the meaning ascribed to that term in Section 2.02.
"PARENT" means Little Switzerland, Inc., a Delaware corporation.
"PLEDGED STOCK" has the meaning ascribed to that term in Section
2.01(a)(iv).
"RECEIVABLES" has the meaning ascribed to that term in Section
2.01(a)(ii).
"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.
"SUBORDINATION AGREEMENT" means the Subordination Agreement, dated
May 1, 2001, by and among the Borrower, certain affiliates of the
Borrower, the Lender and Chase.
"TRANSACTIONS" has the meaning ascribed to that term in Section
4.01(b).
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ARTICLE 2
SECURITY AND PLEDGE
SECTION 2.01. PLEDGE, ASSIGNMENT AND GRANT OF SECURITY. (a) The
Borrower Parties hereby grant, assign and pledge a security interest in and lien
on all of their right, title and interest in and to the following, whether now
owned or hereafter acquired (the "COLLATERAL"):
(i) all inventory in all of its forms, wherever located, now
or hereafter existing including, but not limited to, goods in which the
Borrower Parties have an interest in mass or a joint or other interest or
right of any kind and goods which are returned to the Borrower Parties,
and all accessions thereto and products thereof and documents therefor
(any and all such inventory, accessions, products and documents being the
"INVENTORY");
(ii) all accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles and other obligations
of any kind of the Borrower Parties, now or hereafter existing, whether or
not arising out of or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing in and to
all security agreements, leases, and other contracts securing or otherwise
relating to any such accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles or obligations (any and
all such accounts, contract rights, chattel paper, instruments, deposit
accounts, general intangibles and obligations being the "RECEIVABLES");
(iii) all or a portion of the issued and outstanding capital
stock owned by the Borrower Parties issued by the Borrower Parties and
certain Subsidiaries, as set forth on Schedule II hereto, and all of the
capital stock of any additional Subsidiary organized within the U.S. and
65% of the capital stock of any additional Subsidiary organized outside
the U.S. of any of the Borrower Parties organized or acquired after the
date hereof and all stock dividends granted thereon (the "PLEDGED STOCK;"
each issuer of Pledged Stock is referred to herein as an "ISSUER");
(iv) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the
types described in clauses (i) - (iii) of this Section 2.01(a)) and, to
the extent not otherwise included, all (A) payments under insurance, or
any indemnity, warranty or guaranty, payable by reason of loss or damage
to or otherwise with respect to any of the foregoing Collateral, (B) cash
and (C) all dividends, distributions, option or rights granted on Pledged
Stock, whether in addition to, in substitution of, as a conversion of, or
in exchange for such Pledged Stock, and any sums paid upon or in respect
of the Pledged Stock upon the liquidation or dissolution of any Issuer.
Notwithstanding anything in this Section 2.01(a) to the contrary, the grant,
assignment and pledge of a security interest by the Borrower Parties hereunder
of all of their respective right, title and interest in and to the Collateral is
subject, pursuant to the terms and conditions of the
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Subordination Agreement, to the prior lien on the Collateral in favor of Chase
as security for the credit facilities provided by Chase pursuant to the Chase
Loan Agreements.
(b) The Borrower Parties hereby covenant and agree to execute and
deliver in favor of the Lender such documents (the "IMPLEMENTING AGREEMENTS") as
the Lender shall reasonably determine from time to time are necessary to
perfect, grant, assign and pledge a security interest in and lien on all of the
Borrower Parties' right, title and interest in and to the Collateral, subject,
pursuant to the terms and conditions of the Subordination Agreement, only to the
prior lien on the Collateral in favor of Chase as security for the credit
facilities provided by Chase pursuant to the Chase Loan Agreements.
SECTION 2.02. SECURITY FOR OBLIGATIONS. This Agreement and the
Implementing Agreements shall secure the payment of all obligations of the
Borrower now or hereafter existing under the Loan Agreement and the Note,
whether for principal, interest, fees, expenses or otherwise, and all
obligations of the Borrower now or hereafter existing under this Agreement (all
such obligations of the Borrower being the "OBLIGATIONS"). Without limiting the
generality of the foregoing, this Agreement and the Implementing Agreements
shall secure the payment of all amounts which constitute part of the Obligations
and would be owed by the Borrower to the Lender under the Loan Agreement and the
Note but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization, insolvency or similar proceeding
involving the Borrower.
SECTION 2.03. THE BORROWER PARTIES REMAIN LIABLE. Anything herein to
the contrary notwithstanding: (a) each Borrower Party shall remain liable under
the contracts and agreements to which it is a party included in the Collateral
to the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if the Loan Documents had not been executed
(subject to any limitations on such performance contained in the Loan
Documents); (b) the exercise by the Lender of any of the rights hereunder shall
not release the Borrower Parties from any of their duties or obligations under
the contracts and agreements included in the Collateral; and (c) the Lender
shall not have any obligation or liability under the contracts and agreements
included in the Collateral by reason of the Loan Documents, nor shall the Lender
be obligated to perform any of the obligations or duties of the Borrower Parties
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 2.04. FURTHER ASSURANCES. (a) The Borrower Parties agree
that from time to time, at their expense, they shall promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary, or that the Lender may reasonably request, in order to
consummate the Transactions, perfect and protect any pledge, assignment or
security interest granted or purported to be granted under this Agreement or to
enable the Lender to exercise and enforce its rights and remedies hereunder or
under the Implementing Agreements with respect to any Collateral. Without
limiting the generality of the foregoing, the Borrower Parties will: (i) if any
Collateral shall be evidenced by a promissory note or other instrument, deliver
and pledge to the Lender hereunder such note or instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, including
delivery of stock certificates representing any shares of the Pledged Stock and
an undated stock power covering each such certificate, duly executed in blank by
the pertinent Borrower Party, all in form and substance reasonably satisfactory
to the Lender; and (ii) execute
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and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary, or as the Lender may
reasonably request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereunder or under the
Implementing Agreements.
(b) The Borrower Parties hereby authorize the Lender to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of any of the Borrower
Parties where permitted by law. A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(c) The Borrower Parties will furnish to the Lender from time to
time statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.
SECTION 2.05. AS TO INVENTORY. The Borrower Parties shall keep the
Inventory (other than Inventory sold in the ordinary course of business) at the
places set forth on Schedule I hereto or, upon 30 days' prior written notice to
the Lender, at such other places in a jurisdiction where all action required by
Section 2.04 shall have been taken with respect to the Inventory. The Borrower
Parties shall pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Inventory, except to the
extent that any of the foregoing are being contested by any of the Borrower
Parties and no lien is imposed on the Inventory.
SECTION 2.06. AS TO PLEDGED STOCK. (a) The Borrower Parties covenant
and agree that, from and after the date of this Agreement until this Agreement
is terminated and the security interests created hereby are released and subject
to the Subordination Agreement:
(i) If a Borrower Party shall, as a result of its ownership of
the Pledged Stock or otherwise, become entitled to receive or shall
receive any capital stock (including, without limitation, any stock
dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect thereof, the pertinent Borrower
Party shall accept certificates representing the same as the agent of the
Lender, hold the same in trust for the Lender and deliver the same
forthwith to the Lender in the exact form received duly endorsed by the
pertinent Borrower Party to the Lender, together with an undated stock
power covering such certificate duly executed in blank by the pertinent
Borrower Party to be held by the Lender, subject to the terms hereof, as
additional Collateral. Any sums paid upon or in respect of the Pledged
Stock upon the liquidation or dissolution of any Issuer shall be paid over
to the Lender to be held by it hereunder as additional Collateral, and in
case any distribution of capital shall be made on or in respect of the
Pledged Stock or any property shall be distributed upon or with respect to
the Pledged Stock pursuant to the recapitalization or reclassification of
the capital of any Issuer or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Lender to be held by it
hereunder as additional Collateral. If any
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sums of money or property so paid or distributed in respect of the Pledged
Stock shall be received by a Borrower Party, it shall, until such money or
property is paid or delivered to the Lender, hold such money or property
in trust for the Lender, segregated from other funds of such Borrower
Party, as additional Collateral.
(ii) Without the prior written consent of the Lender, the
Borrower Parties will not vote to enable, or take any other action to
permit, any Issuer to issue any capital stock or other equity securities
of any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any capital stock or other
equity securities of any nature of any Issuer.
(b) Unless an Event of Default shall have occurred and is continuing
and the Lender shall have given notice to the Borrower Parties of the Lender's
intent to exercise its rights pursuant to this Section 2.06(b), the Borrower
Parties shall be permitted to receive all cash dividends paid in the normal
course of business of the Issuers and consistent with past practice in respect
of the Pledged Stock and, except as set forth in Section 2.06(a)(ii), to
exercise all voting and corporate rights with respect to the Pledged Stock;
PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or
other action taken which would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Loan
Documents. If an Event of Default shall occur and is continuing and the Lender
has given notice to the Borrower Parties of its intent to exercise its rights
pursuant to this Section 2.06(b), and subject, pursuant to the terms and
conditions of the Subordination Agreement, to the prior rights of Chase: (i) the
Lender shall have the right to receive any and all cash dividends or other
payments paid in respect of the Pledged Stock and apply all or any part thereof
against the Obligations or any part thereof and (ii) any or all shares of the
Pledged Stock shall be registered in the name of the Lender or its nominee, and
the Lender or its nominee may thereafter exercise (A) all voting, corporate and
other rights pertaining to such Pledged Stock at any meeting of shareholders of
any Issuer or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
Pledged Stock as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of any Issuer, or upon the
exercise by any Borrower Party or the Lender of any right, privilege or option
pertaining to such Pledged Stock, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Stock with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Lender may determine), all without liability except to
account for property actually received by it, but the Lender shall have no duty
to the Borrower Parties to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
(c) The Borrower Parties hereby acknowledge and agree that the
Lender may exercise its right to sell any or all of the Pledged Stock pursuant
to Section 2.06(b) hereof in one or more private sales thereof to a restricted
group of purchasers which will be obliged to agree, among other things, to
acquire such securities for their own account for investment and not with a view
to the distribution or resale thereof. The Borrower Parties further acknowledge
and agree that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale
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shall be deemed to have been made in a commercially reasonable manner. The
Lender shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act of 1933, as amended, or
under applicable state securities laws, even if such Issuer would agree to do
so. The Borrower Parties agree to use their best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 2.06(c) valid and
binding and in compliance with any and all other Applicable Law.
(d) The Borrower Parties further agree that a breach of any of the
covenants contained in this Section 2.06 will cause irreparable injury to the
Lender, that the Lender have no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section
2.06 shall be specifically enforceable against the Borrower Parties, and the
Borrower Parties hereby waive and agree not to assert any defenses against an
action for specific performance of such covenants, except for a defense that no
Event of Default has occurred.
(e) The Borrower Parties hereby authorize and instruct each Issuer
of any Pledged Stock pledged by the Borrower Parties hereunder to (i) comply
with any instruction received by it from the Lender in writing that (A) states
that an Event of Default has occurred and is continuing and (B) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from the Borrower Parties, and the Borrower Parties agree that each
Issuer shall be fully protected in so complying, and (ii) upon an Event of
Default, unless otherwise expressly permitted hereby, pay any dividends or other
payments with respect to the Pledged Stock directly to the Lender. Concurrently
with the delivery of any Pledged Stock hereunder, the Issuer of such Pledged
Stock shall deliver to the Lender an Acknowledgement and Consent, in the form
attached hereto as Annex A, certifying, among other things, that it will be
bound by the terms of this Agreement and will comply with such terms insofar as
such terms are applicable to it.
SECTION 2.07. PLACE OF PERFECTION; RECORDS; COLLECTION. (a) The
Borrower shall keep its chief place of business and chief executive office and
the office where it keeps its and other Borrower Parties' records concerning the
Receivables and the Pledged Stock at the address specified in Section 5.02 or,
upon 30 days' prior written notice to the Lender, at any other locations in a
jurisdiction where all actions required by Section 2.04 shall have been taken
with respect to the Receivables and the Pledged Stock. The Borrower will hold
and preserve such records and will permit representatives of the Lender at any
time during normal business hours to inspect and make abstracts from such
records, provided that so long as no Event of Default shall have occurred or be
continuing, no more than one such visit per calendar year shall be at the
expense of the Borrower Parties.
(b) Except as otherwise provided in this Section 2.07(b), the
Borrower Parties shall continue to collect, at their own expense, all amounts
due or to become due them under the Receivables and/or to adjust, settle or
compromise the amount thereof. In connection with such collections, the Borrower
Parties may take (and, following the occurrence and during the continuance of an
Event of Default at the Lender's direction, shall take) such action as the
Borrower Parties or the Lender may deem necessary or advisable to enforce
collection of the
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Receivables; PROVIDED, HOWEVER, that the Lender shall have the right following
the occurrence and during the continuance of an Event of Default, upon 10 days'
written notice to the Borrower Parties of its intention to do so, to notify the
account debtors or obligors under any Receivables of the assignment of such
Receivables to the Lender and to direct such account debtors or obligors to make
payment of all amounts due or to become due to the Borrower Parties thereunder
directly to the Lender and, upon such notification and at the expense of the
Borrower Parties, to enforce collection of any such Receivables, and to adjust,
settle or compromise the amount or payment thereof, in the same manner and to
the same extent as the Borrower might have done. After receipt by the Borrower
of the notice from the Lender referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Borrower Parties in respect of the Receivables shall be received in trust for
the benefit of the Lender hereunder, shall be segregated from other funds of the
Borrower Parties and shall be forthwith paid over to the Lender in the same form
as so received (with any necessary indorsement) to be held as cash collateral
and either (A) released to the Borrower Parties so long as no Event of Default
shall have occurred and be continuing or (B) if any Event of Default shall have
occurred and be continuing, applied as provided by Section 2.11(b), and (ii) the
Borrower Parties shall not adjust, settle or compromise the amount or payment of
any Receivable, release wholly or partly any account debtor or obligor thereof,
or allow any credit or discount thereon.
SECTION 2.08. TRANSFERS AND OTHER LIENS. The Borrower Parties shall
not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of,
or grant any option with respect to, any of the Collateral, except as permitted
in accordance with the Loan Agreement, or (ii) create or permit to exist any
lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the security interests under the
Chase Loan Agreements or the Implementing Agreements or as otherwise permitted
in accordance with the Loan Documents.
SECTION 2.09. LENDER APPOINTED ATTORNEY-IN-FACT. Each Borrower Party
hereby irrevocably appoints the Lender its attorney-in-fact, with full authority
in the place and stead of such Borrower Party and in the name of such Borrower
Party or otherwise, from time to time in the Lender's discretion, to take any
action and to execute any instrument which the Lender may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask, demand, collect, xxx for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(b) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith, and
(c) to file any claims or take any action or institute any
proceedings which the Lender may deem necessary for the collection of any of the
Collateral or otherwise to enforce the rights of the Lender with respect to any
of the Collateral.
Notwithstanding anything herein to the contrary, unless an Event of Default
shall exist and be continuing, the Lender shall not exercise any of the rights
set forth in this Section 2.09.
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SECTION 2.10. LENDER MAY PERFORM. If any Borrower Party fails to
perform any agreement contained herein, the Lender may, upon notice to the
applicable Borrower Party, itself perform, or cause performance of, such
agreement, and the expenses incurred in connection therewith shall be payable by
such Borrower Party.
SECTION 2.11. REMEDIES. If any Event of Default shall have occurred
and be continuing, subject to the prior rights of Chase under the Subordination
Agreement:
(a) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein, in the Loan
Agreement, the Implementing Agreements or otherwise available to it at law or in
equity, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of New York at that time (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require the Borrower Parties to, and the Borrower Parties hereby agree
that they will, at their expense and upon request of the Lender, forthwith,
assemble all or part of the Collateral as directed by the Lender and make it
available to the Lender at a place to be designated by the Lender which is
reasonably convenient to both parties and (ii) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Lender's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the Lender
may deem commercially reasonable. The Borrower Parties agree that, to the extent
notice of sale shall be required by law, at least ten days' notice to the
Borrower Parties of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Lender shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Lender may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Lender as Collateral and all cash proceeds
received by the Lender in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of the
Lender, be held by the Lender as collateral for, and/or then or at any time
thereafter be applied in whole or in part by the Lender against all or any part
of the Obligations in such order as the Lender shall elect. Any surplus of such
cash or cash proceeds held by the Lender and remaining after payment in full of
all the Obligations shall be paid over to the Borrower Parties or to whomsoever
may be lawfully entitled to receive such surplus.
(c) The Lender may exercise any and all rights and remedies of the
Borrower Parties under or in respect of the Collateral.
(d) All payments received by the Borrower Parties under or in
connection with any of the Collateral shall be received in trust for the benefit
of the Lender, shall be segregated from other funds of the Borrower Parties.
SECTION 2.12. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall remain in full
force and effect until the later of (x) the payment in full of the Obligations
and all other amounts payable under this Agreement and (y) the expiration or
termination of the Commitment. Upon the later of the
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payment in full of the Obligations and all other amounts payable under this
Agreement and the expiration or termination of the Commitment, the security
interest granted hereunder shall terminate and all rights to the Collateral
shall revert to the Borrower Parties.
ARTICLE 3
GUARANTY
SECTION 3.01. GUARANTY. (a) The Guarantors hereby, jointly and
severally, unconditionally irrevocably guaranty the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all Obligations and
agree to pay any and all expenses (including reasonable counsel fees and
expenses) incurred by the Lender in enforcing any rights under this Agreement.
Without limiting the generality of the foregoing, the Guarantors' liability
shall extend to all amounts which constitute part of the Obligations and would
be owed by the Borrower under the Loan Agreement and the Note but for the fact
that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower.
(b) The Guarantors jointly and severally guaranty that the
Obligations will be paid strictly in accordance with the terms of the Loan
Agreement and the Note, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Lender with respect thereto. The obligations of the Guarantors
under this Article 3 are independent of the obligations of the Borrower under
the Loan Agreement and the Note, and a separate action or actions may be brought
and prosecuted against the Guarantors to enforce this Article 3 irrespective of
whether any action is brought against the Borrower or whether the Borrower is
joined in any such action or actions. The liability of the Guarantors under this
Article 3 shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Loan
Agreement, the Note or any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to departure from the Loan Agreement
or the Note, including, without limitation, any increase in the
Obligations resulting from the extension of additional credit to the
Borrower or any of its Subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Obligations;
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Obligations or any
other assets of any of the Borrower Parties;
(v) any change, restructuring or termination of the corporate
structure or existence of any of the Borrower Parties;
10
(vi) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any of the Borrower Parties; or
(vii) any bankruptcy, reorganization or similar proceeding
commenced by or against any of the Borrower Parties.
This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Obligations is
rescinded or must otherwise be returned by the Lender upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment had not been made.
SECTION 3.02. WAIVER. The Guarantors hereby waive promptness,
diligence, rights of set-off, presentment, protest, notice of acceptance and any
other notice with respect to any of the Obligations and this Article 3 and any
requirement that the Lender protect, secure, perfect or insure any security
interest or lien or any property subject thereto or exhaust any right or take
any action against the Guarantors or any other person or entity or any
Collateral.
SECTION 3.03. SUBROGATION. The Guarantors will not exercise any
rights which they may acquire by way of subrogation under this Article 3, by any
payment made hereunder or otherwise, until all the Obligations and all other
amounts payable under this Guaranty shall have been paid in full and the
Commitment shall have expired or terminated. If any amount shall be paid to the
Guarantors on account of such subrogation rights at any time prior to the later
of (x) the payment in full of the Obligations and all other amounts payable
under this Article 3 and (y) the expiration or termination of the Commitment,
such amount shall be held in trust for the benefit of the Lender and shall
forthwith be paid to the Lender to be credited and applied upon the Obligations,
whether matured or unmatured, in accordance with the terms of the Loan Agreement
or to be held by the Lender as Collateral for any Obligations thereafter
existing. If (i) the Guarantors shall make payment to the Lender of all or any
part of the Obligations, (ii) all the Obligations and all other amounts payable
under this Guaranty shall be paid in full and (iii) the Commitment shall have
expired or terminated, the Lender will, at the Guarantors' request, execute and
deliver to the Guarantors appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
the Guarantors of an interest in the Obligations resulting from such payment by
the Guarantors.
SECTION 3.04. AFFIRMATIVE COVENANTS. The Guarantors covenant and
agree that, so long as any part of the Obligations shall remain unpaid or the
Lender shall have any Commitment, the Guarantors will, unless the Lender shall
otherwise consent in writing:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of their
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
11
consolidated balance sheet of the Parent and the Subsidiaries and the
related unaudited consolidated statements of income and cash flows of the
Parent and the 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 the Subsidiaries as
of each fiscal year end, and the related audited consolidated statements
of income and cash flows of the Parent and the 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 the Borrower Party setting forth details of such Event of
Default or event and the action which the Borrower Party has taken and
proposes to take with respect thereto;
(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) 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 organization and in every other jurisdiction in which such
qualification is required, unless the failure to qualify would not have a
Material
12
Adverse Effect on such respective corporation, and maintain all of their
respective properties and assets in good working order and condition, ordinary
wear and tear excepted.
SECTION 3.05. NEGATIVE COVENANTS. The Borrower Parties covenant and
agree that, so long as any part of the Obligations shall remain unpaid or the
Lender shall have any Commitment, 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) the liens created hereunder; (ii) liens
securing the credit facilities provided by Chase pursuant to the Chase Loan
Agreements; (iii) liens existing on the date hereof as described on Schedule
3.05(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. The Borrower Parties shall not directly or
indirectly create, incur, assume, guarantee, or otherwise become or remain
liable with respect to any Debt other than the Advances, indebtedness existing
as of the date hereof as described on Schedule 3.05(b) hereto, capitalized
leases obligations in an amount not to exceed $250,000 per annum at any time
outstanding, and indebtedness to Chase for up to an aggregate principal amount
of $3,750,000 pursuant to the Chase Loan Agreements, if any.
SECTION 3.06. CONTINUING GUARANTY; ASSIGNMENTS UNDER LOAN AGREEMENT.
This Article 3 provides for a continuing guaranty and shall (i) remain in full
force and effect until the later of (x) the payment in full of the Obligations
and all other amounts payable under this Article 3 and (y) the expiration or
termination of the Commitment, (ii) be binding upon the Guarantors, their
successors and assigns, and (iii) inure to the benefit of, and be enforceable
by, the Lender and its successors, transferees and assigns. Without limiting the
generality of the
13
foregoing clause (iii), the Lender may assign or otherwise transfer all or any
portion of its rights and obligations under the Loan Agreement (including,
without limitation, all or any portion of its Commitment, the Advances and the
Note) to any other person or entity, and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to the
Lender by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
PARTIES. The Borrower Parties jointly and severally represent and warrant to the
Lender 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, 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) of the Loan Agreement, 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
14
do not require the consent of the stockholders of the Borrower Parties. The
Borrower Parties 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) APPROVALS AND CONSENTS. Except as set forth on Schedule 3.01(d),
no license or other authorization, approval or other action by, and no notice to
or filing with, any Governmental Authority or other Person is required (i) for
the pledge of the Collateral pursuant to this Agreement, for the grant of the
assignment, lien and security interest granted hereby or for the execution,
delivery or performance of this Agreement and the Transactions, (ii) for the
perfection or maintenance of the pledge, assignment and security interest
created thereby (other than filings contemplated hereby) or (iii) for the
exercise of the remedies in respect of the Collateral pursuant to this Agreement
(other than a sale of any Pledged Stock which may have to be registered under
the Securities Act of 1933, as amended, and other applicable securities laws).
There are no conditions precedent to the effectiveness of this Agreement that
have not been satisfied or waived.
(e) LIEN AND SECURITY IN THE COLLATERAL.
(i) All of the Inventory is located at the places specified in
Schedule I hereto. The chief place of business and chief executive office
of the Borrower and the office where the records concerning the
Collateral, including current statements regarding Receivables, the stock
ledger recording the Pledged Stock, the originals of all chattel paper
that evidence Receivables and the original stock certificates representing
the Pledged Stock, is located at the address specified in Section 5.02.
(ii) The Borrower Parties are the legal and beneficial owner
of the Collateral, free and clear of any lien, security interest, option
or other charge or encumbrance except for the security interest created by
this Agreement and the prior lien on the Collateral in favor of Chase as
security for the credit facilities provided by Chase pursuant to the Chase
Loan Agreements. The Borrower Parties have exclusive possession and
control of the Inventory and the stock certificates representing the
Pledged Stock. No effective financing statement or other document similar
in effect covering all or any part of the Collateral is on file in any
recording office (other than those in favor of Chase as security for the
credit facilities provided by Chase pursuant to the Chase Loan
Agreements). The Borrower Parties own and operate under the trade name
"Little Switzerland" and variations thereof. None of the Receivables is
evidenced by a promissory note or other instrument.
(iii) Upon delivery to the Lender of the stock certificates
evidencing the Pledged Stock and the taking of any further actions as
contemplated in Section 2.05 with respect to the Collateral, the security
interest created by this Agreement will constitute a valid, perfected
security interest in the Collateral securing the payment of the
Obligations, enforceable in accordance with the terms of this Agreement
and the Loan Agreement against all creditors of the Borrower Parties and
any Persons purporting to purchase any of the Collateral from the Borrower
Parties, except (i) as affected by
15
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and
fair dealing and (ii) the prior lien on the Collateral in favor of Chase
as security for the credit facilities provided by Chase pursuant to the
Chase Loan Agreements.
(f) THE PLEDGED STOCK.
(i) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the capital stock of each Issuer.
There are no outstanding options, warrants or other rights to purchase any
shares of capital stock of any Issuer.
(ii) All the shares of the Pledged Stock are, and all other
Pledged Stock in which the Borrower Parties shall hereafter grant a
security interest pursuant to this Agreement will be, duly and validly
issued, fully paid and non-assessable. An appropriate notation has been
placed on the stock ledger or other books and records of each Issuer of
the Pledged Stock (and, in the case of Pledged Stock hereafter acquired by
the Borrower Parties, will be so placed on the stock ledger or other books
and records of the Issuer of such stock pledged hereunder) in order to
reflect the pledge in favor of the Lender securing the payment of the
Obligations.
(g) FINANCIAL STATEMENTS. The financial statements of the Borrower
Parties (collectively, the "FINANCIAL STATEMENTS") have been provided to the
Lender. The Financial Statements: (i) have been prepared in accordance with the
books and records of the Borrower Parties; (ii) have been prepared in all
material respects in accordance with GAAP; (iii) reflect and provide adequate
reserves and disclosures in respect of all liabilities of the Borrower Parties,
including all contingent liabilities; and (iv) present fairly the financial
position of the Borrower Parties at such dates and the results of operations and
cash flows of the Borrower Parties for the periods then ended. The Borrower
Parties: (i) keep books, records and accounts that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of assets; and
(ii) maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP
to maintain accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorizations and (D) 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.
(h) COMPLIANCE WITH LAW. Each Borrower Party and its Subsidiaries is
in compliance in all material respects with all Applicable Law. No Borrower
Party has received any notification of any asserted present or past failure to
comply with Applicable Law.
(i) 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
16
reflected in the Financial Statements, (b) liabilities, none of which
individually or in the 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.
(j) LITIGATION. Except as set forth on Schedule 4.01(j), 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
4.01(j), 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 4.01(j),
there is no pending action or suit brought by any of the Borrower Parties or
their Subsidiaries against others.
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. INDEMNITY AND EXPENSES. (a) The Borrower Parties agree
to jointly and severally indemnify the Lender from and against any and all
claims, losses and liabilities (including reasonable attorneys' fees) growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except for those claims, losses and liabilities
attributable to the willful misconduct or bad faith of Lender.
(b) The Borrower Parties will upon demand pay to the Lender the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and Lenders, which the Lender may
incur in connection with (i) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon, any of the Collateral,
(ii) the exercise or enforcement of any of the rights of the Lender hereunder or
under the Implementing Agreements or (iii) the failure by the Borrower Parties
to perform or observe any of the provisions hereof or thereof.
SECTION 5.02. 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:
17
(a) If to the Borrower Parties:
c/o 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
(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 Parties 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
18
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 5.03. 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 5.04. 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.
(SECTION 5.05 INTENTIONALLY OMITTED)
SECTION 5.06. 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 5.07. 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 5.08. 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 5.09. 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 5.10. 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
19
or remedies under or by reason of this Agreement, except as otherwise expressly
provided in this Agreement.
20
IN WITNESS WHEREOF, the Borrower Parties and the Lender have caused
this Agreement to be duly executed and delivered by the officer of each
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 President
------------------------------------------
BORROWER:
L.S. Holding (USA), Inc., an Alaska
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
------------------------------------------
21
SCHEDULE I
LOCATIONS OF INVENTORY
SCHEDULE II
DESCRIPTION OF PLEDGED STOCK
ANNEX A
FORM OF ACKNOWLEDGEMENT AND CONSENT
[Date]
The undersigned hereby acknowledges receipt of a copy of the
Security, Pledge And Guaranty Agreement (the "AGREEMENT") dated as of May 1,
2001, by and among [Borrower Parties] and Xxxxxxx and Company, a New York
corporation (the "LENDER"). The undersigned agrees for the benefit of the Lender
as follows:
1. The undersigned will be bound by the terms of the Agreement and
will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Lender promptly in writing of the
occurrence of any of the events described in Section 2.06(a) of the Agreement.
3. The terms of Section 2.06(b) of the Agreement shall apply to it,
MUTATIS MUTANDIS, with respect to all actions that may be required of it under
or pursuant to or arising out of such Section of the Agreement.
[NAME OF ISSUER]
By:
--------------------------------
Name:
Title:
Reference is made to that certain Security, Pledge and Guaranty Agreement
dated as of May 1, 2001 by and (i) L.S. Holding (USA), Inc., Little
Switzerland, Inc. and L.S. Wholesale, 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 I
INVENTORY LOCATIONS
L.S. Wholesale, Inc.
Parcel 000-X Xxxxx Xxx
Xx. Xxxxxx, Xxxxxx Xxxxxxx
Xxxxxx Xxxxxxxxxxx, Inc.
#4 Dronningens Xxxx,
St. Xxxxxx, Virgin Islands
L.S. Holding (USA), Inc.
Xxxx Xxxxx & Xxxxx, Xxxxx 00
Xxxxxxx, Xxxxxx
0
SCHEDULE II
DESCRIPTION OF PLEDGED STOCK
ISSUER CLASS OF STOCK JURISDICTION OF ORGANIZATION NUMBER OF SHARES
------ -------------- ---------------------------- ----------------
L.S. Wholesale, Inc. Common Massachusetts 1,000
L.S. Holding,Inc. Common U.S. Virgin Islands 65
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SCHEDULE 3.05(B)
INDEBTEDNESS
Liens in favor of The Chase Manhattan Bank ("Chase") and The Bank of Nova 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, Inc. ("Little Switzerland") and Xxxxxxx & Co.
International, Inc. (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.")
BARBADOS RESTRUCTURING
o Little Switzerland completed restructuring its business in Barbados in
March 2001.
o In November 2000, World Gift Imports (Barbados) LTD. entered into the
following agreements in restructuring its Barbados business.
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
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
Agreement: Unanimous Shareholder Agreement
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Parties: LSH
DI
World Gift Imports (Barbados) LTD.
Date: November 7, 2000
Remaining
Conditions: All remaining conditions in SPA
Terms: Same terms in SPA
Same terms as in SDSA
Profit sharing of 50% of EBITDA of $1.5 million
by 12/31/05
a. Can include tax loss benefits in excess
of $.7m
b. Limits on head office allocations
Preferred convertible to Common if:
a. Subscription of shares by DI not
completed by 12/31/03
b. Profit sharing is not paid by 12/31/05
Preferred shares are redeemable along with all
Common upon:
a. Subscription of shares by DI being
fully paid.
b. Profit sharing being fully paid.
DI to provide Little Switzerland with a customs
bond
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.
Agreement: Trademark License Agreement
Parties: L.S. Wholesale, Inc.
DI
Date: November 14, 2000
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.
STANDSTILL AGREEMENT
Xxxxxx Xxxxxx 0000, Xxxxxx Xxxxxxxxxxx entered into three extensions of its
Standstill Agreement with the lenders under its credit facility. The standstill
agreement, as amended (the "Standstill Agreement"), was effective through
December 31, 2000, pursuant to which Little Switzerland's
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lenders agreed that they would not make any additional borrowings available to
Little Switzerland and thereby freeze Little Switzerland's line of credit at
$8.8 million in outstanding cash borrowings and approximately $2.6 million in
contingent stand-by letters of credit. However, pursuant to the Standstill
Agreement, the lenders agreed to refrain from exercising any remedies arising
from existing defaults during the term of the Standstill Agreement so long as
Little Switzerland, among other things, (i) paid interest on the outstanding
borrowings and letters of credit, together with related fees and expenses, (ii)
maintained a certain inventory to outstanding total debt coverage ratio, (iii)
reduced the Barbados letters of credit (of which a portion have been released),
(iv) continued to achieve its planned EBITDA projections and (v) continued
discussions with lenders and equity investors with the goal of refinancing its
existing debt to the banks.
Prior to Xxxxxxxx 00, 0000, Xxxxxx Xxxxxxxxxxx initiated discussions with its
lenders to obtain an additional extension of the Standstill Agreement, however,
the documentation has not been completed because it is anticipated that the
Standstill Agreement will no longer be necessary upon consummation of the
Transaction. Outstanding borrowings against the secured credit facilities
totaled $8.8 million and $10.2 million as of February 24, 2001. Outstanding
stand-by letters of credit against these credit facilities totaled $2.6 million
as of February 24, 2001. In March 2001, the stand-by letters of credit were
reduced to approximately $0.4 million as a result of the replacement of these
amounts with an insurance bond that resulted from the Barbados Restructuring.
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SCHEDULE 4.01(D)
APPROVALS AND CONSENTS
None.
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SCHEDULE 4.01(J)
LITIGATION
o 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, 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.
o 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.
o 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
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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.
o 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.
o 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
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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.
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