STANDSTILL AND FORBEARANCE AGREEMENT
THIS STANDSTILL AND FORBEARANCE AGREEMENT (the "Standstill Agreement")
is made as of the 1st day of July, 1999 by and among PNC BANK, NATIONAL
ASSOCIATION, as agent for the Banks (the "Agent"), PARTY CITY CORPORATION, a
corporation of the State of Delaware ("Borrower"), PARTY CITY MICHIGAN, INC., a
corporation of the State of Delaware ("Guarantor") and PNC BANK, NATIONAL
ASSOCIATION, ("PNC"), THE CHASE MANHATTAN BANK ("Chase"), NATIONAL CITY BANK OF
PENNSYLVANIA ("National City"), FLEET BANK, N.A. ("Fleet") and LASALLE BANK,
N.A. ("LaSalle") (collectively PNC, Chase, National City, Fleet and LaSalle,
including their successors and assigns, the "Banks").
W I T N E S S E T H
WHEREAS, the Banks, Agent, Borrower and Guarantor entered into a
Credit Agreement dated April 24, 1998, as amended as of June 26, 1998 (the
"Credit Agreement"), pursuant to which the Banks agreed to make advances to
Borrower on a revolving basis up to Sixty Million ($60,000,000) Dollars under
the terms and conditions set forth in the Credit Agreement (as hereinafter
defined); and
WHEREAS, the Borrower has granted a lien to the Agent for the benefit
of the Banks in substantially all of its business assets as more particularly
set forth in the Credit Agreement and that certain Security Agreement dated
April 24, 1998; and
WHEREAS, the Borrower, Banks, Agent and Guarantor entered into a
Waiver and Consent Agreement dated March 29, 1999 as amended by the Amendment to
Waiver and Consent Agreement dated as of April, 1999 (collectively the "Waiver
Agreement"); and
WHEREAS, in order to induce the Banks and the Agent to enter into the
Credit Agreement with the Borrower, the Guarantor executed a Guaranty and
Suretyship Agreement dated April 24, 1998 (the "Guaranty") and to secure the
Guaranty, Guarantor executed a certain Security Agreement ("Subsidiary") dated
April 24, 1998 (the "Guarantor Security Agreement") wherein the Guarantor has
granted a lien to the Agent for the benefit of the Bank in substantially all of
its business assets as more particularly set forth in the Guarantor Security
Agreement; and
WHEREAS, the Borrower is in default under the terms of the Credit
Agreement and the Waiver Agreement has expired; and
WHEREAS, the Borrower and Guarantor have represented to the Banks and
the Agent that the Borrower is seeking to recapitalize itself through the sale
of some its retail stores and/or the obtaining of additional equity through
investors and thereby infuse approximately FORTY MILLION DOLLARS ($40,000,000)
into the Borrower's operations, a portion of which shall be used to repay the
obligations of Borrower to the Banks; and
WHEREAS, Borrower and Guarantor have requested that the Banks and
Agent agree to forbear from exercising their rights and remedies under the
Credit Agreement from the
date hereof until the earlier of (a) June 30, 2000 or (b) the occurrence of an
Event of Default (as hereinafter defined); and
WHEREAS, the Borrower is indebted to its Trade Vendors (as hereinafter
defined) in the sum of approximately $47,000,000; and
WHEREAS, the Trade Vendors have, contemporaneously herewith and as a
condition to the Banks and the Agent entering into this Standstill Agreement,
agreed to a Standstill and Forbearance Agreement with the Borrower and an
Intercreditor Agreement with the Banks and the Agent;
WHEREAS, the Banks and Agent, in reliance on the representations of
the Borrower and Guarantor regarding the recapitalization of Borrower and
repayment of the obligations owed to the Banks and other matters referred to
herein, are willing to enter into this Standstill Agreement under the terms and
conditions hereinafter set forth.
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and Ten Dollars and other good and valuable
consideration the receipt of which is hereby acknowledged, it is agreed as
follows:
AGREEMENT
1. Definitions.
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a. The term "Agent" shall mean PNC Bank, National Association as
agent for all of the Banks.
b. The term "Asset Purchase Agreement" shall mean the agreement or
agreements pursuant to which the Borrower enters into any Store Sale.
c. The term "Banks" shall have the meaning set /forth in the
preamble to this Standstill Agreement.
d. The term "Borrower" shall have the meaning set forth in the
preamble to this Standstill Agreement.
e. The term "Commitments" shall have the meaning ascribed to it in
the Credit Agreement.
f. The term "Credit Agreement" shall mean the $60,000,000 Revolving
Credit Facility Credit Agreement by and among Borrower, the Banks and the Agent
dated as of April 24, 1998, the Security Agreement, the Revolving Credit Notes
and all other related documents executed in furtherance thereof or related
thereto, as same may have been heretofore or may hereafter be amended, modified,
changed, supplemented or restated, including but not limited to the Waiver
Agreement.
g. The term "Eligible Inventory" shall mean and include Inventory
as shown on the books of Borrower in accordance with generally accepted
accounting principles
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and valued at the lower of cost or market value, which is not, in the reasonable
opinion of the Agent and the Required Banks, obsolete, slow moving or
unmerchantable, based on such considerations as Agent or the Required Banks may
from time to time deem appropriate including, without limitation, whether the
Inventory is subject to a perfected, first priority security interest in favor
of Agent and whether the Inventory conforms to all standards imposed by any
governmental agency, division or department thereof which has regulatory
authority over such goods or the use or sale thereof. For the purposes of this
Standstill Agreement, Borrower's seasonal pack-away inventory (to the extent
otherwise eligible as stated above) shall be Eligible Inventory.
h. The term "Existing Trade Debt" shall mean the unsecured debt
owedby the Borrower to its Trade Vendors as of July 15, 1999 in the approximate
sum of $47,000,000, as listed on Schedule 1.h. annexed hereto and made a part
hereof.
i. The term "Event of Default" shall have the meaning as ascribed
to it in paragraph 8 hereof.
j. The term "Existing Defaults" shall mean those defaults presently
existing under the terms of the Credit Agreement as set forth in Schedule 1.j.
hereof.
k. The term "Forbearance Period" shall mean that period during
which the Agent and the Banks shall forbear in exercising their rights and
remedies under the Credit Agreement and which shall be from the date hereof
until the earlier of (a) June 30, 2000 or (b) the occurrence of an Event of
Default.
l. The term "Guarantor" shall mean Party City Michigan, Inc., a
corporation of the State of Delaware.
m. The term "Intercreditor Agreement" shall mean the agreement
entered into by and among the Seasonal Trade Creditors, the Seasonal Trade
Agent, the Investor Agent, the Investors, the Agent and the Banks
contemporaneously herewith.
n. The term "Inventory" shall have the meaning ascribed to it in
the Security Agreement (Parent) dated April 24, 1998 between the Borrower and
the Agent, which shall include but not be limited to all of Borrower's now owned
or hereafteracquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in such Borrower's business or used in selling or furnishing such
goods, merchandise and other personal property, and all documents of title or
other documents representing them.
o. The term "Investment" shall mean debt financing in the Borrower
by the Investors in the sum of not less than $30,000,000.
p. The term "Investment Obligations" shall mean all obligations of
the Borrower under the documents delivered in connection with the Investment.
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q. The term "Investor Agent" shall mean Enhanced Retail Funding,
LLC.
r. The term "Investors" shall mean, collectively, the purchasers of
the Notes pursuant to the Securities Purchase Agreement with the Borrower dated
as of August __, 1999.
s. The term "Investor/Banks Shared Lien" shall mean the lien
granted by Borrower to the Agent and the Investor Agent in the Borrower's
Collateral other than Inventory which is to be shared pro-rata by the Agent and
the Investor Agent in accordance with the terms of the Intercreditor Agreement.
t. The term "Loan" or "Loans" shall mean the indebtedness of the
Borrower and the Guarantor to the Banks pursuant to the Credit Agreement.
u. The term "Maximum Commitment" shall mean the amount of Revolving
Loans the Banks are committed to make under the Credit Agreement as modified by
Section 5 hereof.
v. The term "Net Proceeds" shall have the meaning set forth in
paragraph 5.e. hereof.
w. The term "Obligation" or "Obligations" shall have the meaning
set forth in the Credit Agreement.
x. The term "Seasonal Trade Agent" shall mean Xxxx Associates, Inc.
y. The term "Seasonal Trade Creditors" shall mean vendors which
supply Borrower with primarily Halloween, Thanksgiving and/or Christmas/New
Year's Inventory, as set forth on Schedule 1.y. annexed hereto and made a part
hereof.
z. The term "Shared Liens" shall mean the liens granted by Borrower
to the Agent, the Investor and the Seasonal Trade Agent in the Borrower's
Inventory which are to be shared pro-rata by the Agent, the Investor and the
Seasonal Trade Agent in accordance with the terms of the Intercreditor
Agreement, and each of such liens shall be referred to as a "Shared Lien".
aa. The term "Standstill Agreement" shall mean this Standstill and
Forbearance Agreement.
bb. The term "Store Sale" or Store Sales" shall mean the sale of
any retail store or the assets or substantially all of the assets of any retail
store now or hereafter owned by Borrower.
cc. The term "Termination Event" shall mean any event which causes
the Forbearance Period to end.
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dd. The term "Trade Agreement" shall mean the standstill agreement
to be entered into by and among certain Trade Vendors, the Seasonal Trade
Creditors and the Borrower containing terms and conditions in form and substance
acceptable to the Agent and the Banks contemporaneously herewith.
ee. The term "Trade Vendors" shall mean the Borrower's unsecured
suppliers of Inventory, trade goods and services to the Borrower.
ff. The term "Waiver Agreement" shall mean the Waiver and Consent
Agreement dated March 29, 1999 as amended by the Amendment to Waiver and Consent
Agreement dated as of April, 1999.
2. Incorporation of Recitals. The recitals set forth above are
incorporated herein by reference, made a part hereof, and acknowledged by the
Borrower and the Guarantor to be true and correct as of the date hereof.
3. Acknowledgment of Indebtedness. Borrower and Guarantor acknowledge
that:
(a) As of July 1, 1999, there is outstanding the principal amount
of Fifty Eight Million Five Hundred Fifty Thousand Dollars ($58,550,000)
together with accrued and to accrue interest, costs and expenses (including the
Agent's and each Bank's in-house and outside legal fees).
(b) Such sums are due to the Banks without any defense, offset,
recoupment, or counterclaim whatsoever.
4. Obligations and Defaults Under Credit Agreement. The Borrower and
Guarantor each represent, warrant and acknowledge to the Banks and the Agent the
following with respect to the actions of the Banks and the Agent as a result of
the defaults by the Borrower and the Guarantor:
(a) The Banks and the Agent have fully and completely performed as
required under the Credit Agreement and the Waiver Agreement and have satisfied
all obligations they have or had to the Borrower and the Guarantor under the
Credit Agreement, the Waiver Agreement or otherwise. The Borrower and Guarantor
acknowledge and agree that except as provided for in the Standstill Agreement
the Banks and the Agent have no obligation to advance any additional funds under
the Credit Agreement or otherwise, to or at the request of the Borrower.
(b) The Borrower and the Guarantor and each of them have absolutely
no claim against nor right of setoff against the Banks or the Agent.
(c) The Borrower and Guarantor acknowledge: (i) the Existing
Defaults; (ii) that there is no defense to any of the Existing Defaults; (iii)
that the Agent, on behalf of the Banks, today could rightfully exercise all
rights, remedies and privileges of enforcement against each of the Borrower and
the Guarantor by virtue of the Existing Defaults, all without defense or setoff
of any kind; (iv) that by not exercising the rights, remedies and
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privileges available to the Banks and the Agent the Banks and the Agent are not
waiving and have not waived any of their rights to do so and (v) by entering
into this Standstill Agreement the Banks and the Agent are not establishing a
course of conduct nor a pattern of operation nor an implicit understanding they
may or will ever further revise or modify any term or condition of the Credit
Agreement or this Standstill Agreement.
5. Terms of Forbearance and Standstill. During the Forbearance Period
and so long as no Event of Default or Termination Event occurs, the Banks and
Agent agree to forbear from exercising any remedies available to them under the
Credit Agreement or taking any legal or other action available to them, at law
or in equity, as a result of the occurrence of the Existing Defaults; provided:
a. The Commitments shall be permanently reduced as follows:
(i) On or before July 15, 1999 to the sum of not more than
$56,000,000;
(ii) On or before July 31, 1999 to the sum of not more than
$54,000,000;
(iii) On or before closing of the Investment, but no later than
August 17, 1999 to the sum of not more than $50,000,000;
(iv) On or before September 30, 1999 to the sum of not more
than $40,000,000;
(v) On or before October 15, 1999 to the sum of not more than
$35,000,000; and then
(vi) On or before October 30, 1999, to the sum of not more
than $15,000,000.
Each of the foregoing reductions in the Commitments shall be accompanied or
preceded by a permanent repayment of the Obligations down to an aggregate
outstanding amount, as of the date of each such reduction, of not more than the
Commitments as so reduced.
Anything herein to the contrary notwithstanding, to the extent
Borrower shall have Loans outstanding which in the aggregate on any day total
less than the Maximum Commitment, Borrower may reborrow at any time up to the
amount of the Maximum Commitment, except that the provisions of paragraphs
5.b.(ii), and 5.b.(iii) shall also apply to any such right to reborrow on such
day.
b. If each of the foregoing reductions, and corresponding repayment
of Obligations, has occurred as and when provided above, and if no Event of
Default or Termination Event has occurred on and after October 30, 1999, the
Borrower shall be permitted to reborrow, repay and reborrow under the Credit
Agreement from October 30, 1999 to June 30, 2000 under the following terms and
conditions:
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(i) The maximum aggregate amount available for borrowing on
any day shall be limited as follows:
(A) For the period from October 30, 1999 to December 15,
1999 to the lesser of (x) $15,000,000 or (y) an
amount equal to Eligible Inventory minus the
outstanding amount of the Shared Lien multiplied by
40% on such day;
(B) For the period from December 16, 1999 to January 15,
2000, to the lesser of (x) $15,000,000 or (y) an
amount equal of Eligible Inventory minus the
outstanding amount of the Shared Lien multiplied by
40% on such day, provided, however, during two
consecutive weeks (the "Clean-UpPeriod") occurring
within the period from December 16, 1999 to January
15, 2000, the outstanding amount of the Obligations
shall not exceed $5,000,000; and
(C) During the Period from January 15, 2000 to June 30,
2000, to the lesser of (x) $15,000,000 or (y) an
amount equal to Eligible Inventory minus the
outstanding amount of the Shared Lien multiplied by
40% on such day.
In addition, if at any time during any of the foregoing periods the aggregate
amount of Obligations exceeds the borrowing limits set forth above, the Borrower
shall immediately repay the Obligations in an amount equal to such excess.
(ii) All of the conditions precedent to additional
borrowing set forth herein or in the Credit Agreement
shall continue to apply to each additional borrowing
provided for hereunder except that, as an additional such
condition precedent, no Event of Default (or event or
condition which with notice, lapse of time or both, will
become an Event of Default) or Termination Event shall
have occurred at the time any such additional borrowing
is requested or made (and so long as no such events have
occurred, continued existence of the Existing Defaults
shall be disregarded).
(iii) In addition to the rights and remedies otherwise
contained herein and in the Credit Agreement, if an Event
of Default or a Termination Event shall occur, the Agent
may, and shall upon the request of the Required Banks (as
defined in the Credit Agreement), by written notice to
the Borrower,
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terminate the Borrower's ability to borrow pursuant to
the above provisions.
c. Borrower shall continue to pay interest to the Agent on the
first day of each month as follows:
(i) Until the Obligations due under the Credit Agreement are
permanently reduced to Thirty Five Million Five Hundred
Thousand Dollars ($35,500,000), interest on the
outstanding principal balance of the Loan shall be
calculated at the rate of the PNC Base Rate plus 200
basis points per annum; and then
(ii) Until the permanent reduction of the Obligations due
under the Credit Agreement to Fifteen Million Dollars
($15,000,000), interest on the outstanding principal
balance of the Loan shall be calculated at the rate of
the PNC Base Rate plus 150 basis points per annum; and
then
(iii) Upon the permanent reduction of the Obligations due under
the Credit Agreement to less than Fifteen Million Dollars
($15,000,000), interest on the outstanding principal
balance of the Loan shall be calculated at the rate of
the PNC Base Rate plus 100 basis points per annum.
d. Borrower shall diligently and in good faith continuously work
toward bringing to closing between 12 and 20 Store Sales. All such Store Sales
shall be conditioned upon the Borrower obtaining the prior written consent of
the Agent for each such sale.
e. One hundred percent (100%) of the Net Proceeds of each Store
Sale shall be paid to the Agent notwithstanding the terms of the Intercreditor
Agreement. To the extent that the application of the Net Proceeds to the
Borrower's Obligations to the Banks results in the unpaid portion of the
Obligations being less than the Maximum Commitments, then, in that event, the
Borrower shall have the right to borrow, repay and reborrow up to the amount of
the Maximum Commitments then available at the time of each such borrowing
request in accordance with Section 5.b. hereof, provided however, twenty five
(25%) percent of the Net Proceeds shall be retained by the Banks and shall not
be available for reborrowing until after September 30, 1999, notwithstanding
such reborrowing might otherwise be permitted under Section 5.b. above.
For the purposes of this Standstill Agreement the term "Net Proceeds"
shall mean: (i) the gross sales price of each Store Sale less (x) expenses
directly attributable to such sale (including reasonable legal fees), (y)
capital gains taxesattributable to each sale, if any; and (ii) the New Trade
Credit (defined in the Intercreditor Agreement), incurred in the purchase of
Inventory included in the Store Sale and repaid from the proceeds thereof.
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f. Subject to Borrower's right to reborrow as herein provided, in
addition to all other sums to be paid to the Agent, the Borrower shall pay the
gross amount of all Franchise Fees and Royalties received from Franchisees of
Borrower to the Agent. All such fees and royalties shall be shall be deposited
to the lock box account referred to in Section 5.j. below hereof
g. At all times during the term of this Standstill Agreement the
ratio of the Banks' Pro-Rata Share multiplied by the amount of the Eligible
Inventory (including Eligible Inventory ordered and for which payment has been
made in full or to the extent necessary to obtain delivery) plus cash collateral
to the aggregate outstanding amount of the Obligations, shall not at any time be
less than 1. 11 to 1. For the purposes of the foregoing calculation, the term
"Banks' Pro-Rata Share" shall mean at any time the percentage of which the
aggregate outstanding amount of the Obligations at such time bears to the
aggregate outstanding amount of all indebtedness, obligations or other
liabilities (whether owing to the Banks, the Seasonal Trade Creditors, the
Investors or otherwise) secured in whole or in part, by Inventory at such time.
h. All Asset Purchase Agreements shall be in form and substance
satisfactory to Agent and shall be assignable and shall be assigned to the Agent
for the benefit of the Banks as further security for the Borrower's Obligations
to the Banks. To this end Borrower hereby sells, assigns and transfers to Agent,
for the benefit of the Banks, all of Borrower's right, title and interest in and
to each of the Asset Purchase Agreements and the proceeds thereof, now or
hereafter entered into by Borrower including but not limited to those set forth
in Schedule 5.h. hereof. Anything herein to the contrary notwithstanding,
neither the Agent nor any of the Banks shall, by acceptance of this assignment,
undertake to fulfill on behalf of the Borrower, any of the obligations of
Borrower imposed under the terms of any of the Asset Purchase Agreements.
Borrower hereby irrevocably constitutes and appoints the Agent as
Borrower's true and lawful attorney, with power of substitution, to ask, demand
and receive, and to take all lawful means for the recovery of money due or to
become due under the Asset Purchase Agreements and on payment, to acknowledge
satisfaction or discharge of any obligation under the Asset Purchase Agreements.
i. Borrower and not less than that number of Trade Vendors holding
not less than $30,000,000 in Existing Trade Debt shall have executed the Trade
Agreement, and not less than75% of the Seasonal Trade Creditors shall have
executed and delivered both the Trade Agreement and the Intercreditor Agreement
and at all times during the term of this Standstill Agreement, the Borrower, the
Trade Vendors and the Seasonal Trade Creditors who executed the Trade Agreement
and/or the Intercreditor Agreement (as applicable) shall continue to be in
substantial compliance with the terms of the Trade Agreement and the
Intercreditor Agreement.
j. At all times during the term hereof Borrower shall maintain its
concentration accounts at Agent and shall continue to deposit all sums into such
accounts in the same manner as shall be consistent with the current practice of
the parties. In addition, the Borrower shall cause to be opened and maintained,
at all times there is any Obligation owed by the Borrower to the Banks, a lock
box and a Blocked Account. All Franchise Fees and Royalties
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due to the Borrower from its Franchisees shall be delivered to the lock box and
shall thereafter be deposited into the Blocked Account for the benefit of the
Banks or if any such Franchise Fee or Royalty is received by the Borrower,
Borrower shall deliver same to Agent in kind. Agent shall collect the funds so
deposited weekly and shall distribute same to the Banks in repayment of the
principal of Borrower's Obligations in accordance with the terms of the Credit
Agreement.
k. Beginning November 10, 1999 and monthly thereafter the Borrower
shall within 10 days of the end of the previous month deliver to the Agent cycle
counts of its Inventory at not less than eight (8) of the stores owned by the
Borrower conducted by an independent party acceptable to the Agent. The stores
at which Inventory shall be counted each month shall be determined by the Agent.
Agent shall notify the Borrower of the stores at which cycle counts are to be
taken on or before the 15th day of the month prior to which the cycle counts are
to be taken.
l. Beginning September 15, until the Obligations have been Paid in
Full, Borrower shall deliver to the Agent within 45 days after the end of each
fiscal quarter and 15 days after the end of each month which is not the end of a
fiscal quarter the following information as of the last day of the previous
month:
(i) all cash on hand including but not limited to cash in
banks, cash in process and cash at store locations;
(ii) a certificate of all Inventory by location and the value
thereof determined at the lower of cost or market and
specifically identifying that which is "pack-away"
seasonal Inventory;
(iii) sales by store for the prior month;
(iv) cash receipts from all sources and disbursements; and
(v) the status of the Inventory Coverage Ratio referred to in
paragraph 5.g. above (and defined in the Intecreditor
Agreement) and the basic of the calculation thereof in
such detail and form as shall be satisfactory to the
Agent.
In addition to the above, within 45 days after the end of each
fiscal quarter, Borrower shall deliver to the Agent Borrower's balance sheet as
at the end of the prior month and its statements of cash flows for the period
beginning on the first day of Borrower's fiscal year and ended on the date of
such period and, on a cumulative basis, its income and surplus statement, all in
reasonable detail, all prepared in accordance with generally accepted accounting
principles as practiced in the United States of America and all certified as
accurate by Borrower's Chief Financial Officer or other officer acceptable to
the Agent.
On or before September 30, 1999 the Borrower shall deliver to the
Agent its financial statements for the period through July 3, 1999 including,
but not limited to, statements of income and stockholders equity and cash flow
from the date after the last audited financial statement of Borrower to July 3,
1999 and the balance sheet as at the end of such period, all prepared in
accordance with generally accepted accounting principles in effect in the United
States of America applied on a basis consistent with prior practices, and in
reasonable
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detail and reported upon without qualification, except on a going concern basis
by an independent certified public accounting firm selected by Borrower and
satisfactory to the Agent. The accounting firm of Deloitte and Touche is
currently satisfactory to the Agent.
Within 90 days after the end of each fiscal year of Borrower,
Borrower shall furnish to the Agent its financial statements, including, but not
limited to, statements of income and stockholders equity and cash flow from the
beginning of the current fiscal year to the end of such fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in accordance with
generally accepted accounting principles in effect in the United States of
America applied on a basis consistent with prior practices, and in reasonable
detail and reported upon without qualification by an independent certified
public accounting firm selected by Borrower and satisfactory to the Agent
m. Immediately upon execution of each Asset Purchase Agreement
Borrower shall deliver same to the Agent, together with an assignment of same in
form and substance satisfactory to the Agent.
n. Borrower shall provide the Agent, from time to time, with such
information as shall be requested concerning any potential investor or
investment of equity into Borrower, including but not limited to the names of
prospective investors, the amount to be invested, the form in which the
investment is to be made, the terms of the investment and such other information
concerning the potential investor or investment as the Agent shall reasonably
request.
o. This Standstill Agreement shall not constitute and shall not be
construed or interpreted to constitute a waiver of any Existing Default or any
default hereafter occurring under the Credit Agreement. All other rights of the
Agent or the Banks contained in the Credit Agreement shall remain in full force
and effect to the extent that there remains any Obligation of the Borrower owed
to the Banks. Upon the occurrence of an Event of Default or a Termination Event,
the Agent and the Banks shall be entitled to exercise all rights and remedies
available to them under the Credit Agreement or at law or in equity or
otherwise. All periods of limitation specified by statute and all defenses of
laches or waiver as to any default existing on the date of this Standstill
Agreement or arising during the Forbearance Period will be tolled and otherwise
suspended.
p. The Borrower shall pay to the Banks a Forbearance Fee in the sum
of Five Hundred Eighty Thousand Dollars ($580,000) as follows:
(i) 50% on execution of this Standstill Agreement; and
(ii) 50% on November 15, 1999.
q. In addition to all other security granted to the Agent as
collateral for Party City's Obligations to the Banks, Party City, without
limiting Agent's rights in any other collateral granted to the Agent and not in
lieu thereof, hereby grants, assigns and pledges to Agent for the benefit of the
Banks and to each Bank a continuing security interest in and to all deposit
accounts and money of Party City whether now or hereafter existing at the Agent
or any Bank and hereby recognizes the setoff rights of Agent or any Bank in any
deposit accounts
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or other money now in or coming into the Agent's or any Bank's possession
with respect to the Obligations.
It is the intention of the parties hereto that the Borrower shall,
on and after November 16, 1999 maintain on hand no more than $10,000,000 of
available cash for working capital. To this end, on and after November 16, 1999,
on Wednesday of each week, Borrower shall pay over to the Agent all cash on hand
in excess of such sum and/or the Agent shall sweep all accounts of Borrower at
Agent for such purpose. All excess funds shall be applied on account of the
Borrower's Obligations to the Banks subject to Borrower's right to reborrow same
as provided for in Sections 5.a. and 5.b. hereof.
6. Permitted Liens.
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a. Upon the execution by not less than 75% the Seasonal Trade
Creditors of the Intercreditor Agreement and the Trade Agreement, the Banks and
the Agent hereby consent to Borrower granting a Shared Lien to the Seasonal
Trade Agent for the benefit of the Seasonal Trade Creditors in an amount which
shall not exceed a sum equal to the total of credit extended to Borrower by the
Seasonal Trade Creditors from the Effective Date of the Trade Agreement (as
defined therein) to January 15, 2000 less any payments of any kind, including
but not limited to credits, set-offs, claims of recoupment, reclamation of goods
or proceeds of Inventory, whether in cash or otherwise, made or taken by
Seasonal Trade Creditors to whom a lien has been granted at any time in
compliance with the Intercreditor Agreement.
b. The Banks and Agent understand that the Borrower has negotiated
with the Investor to obtain the Investment. Upon (i) delivery by the Investor of
the sum of $30,000,000 to Borrower on terms and conditions which are
satisfactory to the Banks and the Agent in their sole discretion and (ii) the
execution by the Investor Agent, the Investors, the Seasonal Trade Agent, the
Banks and the Agent of the Intercreditor Agreement, the Banks and the Agent
hereby consent to Borrower granting (x) the Shared Lien and (y) the
Investor/Banks Shared Lien, to the Investor Agent in an amount not to exceed the
sum of $15,000,000 for the sole purpose of securing such portion of the
Investment Obligations; provided, however, that distributions to the Investor
Agent on account of the Shared Lien shall be made only as provided for under the
terms of the Intercreditor Agreement.
c. In addition to the Shared Lien and the Investor/Banks Shared
Lien, upon (i) delivery by the Investors of the sum of $30,000,000 to Borrower
on terms and conditions which are satisfactory to the Agent and the Banks in
their sole discretion and (ii) the execution by the Investor Agent of
Intercreditor Agreement in form and substance satisfactory to the Banks and the
Agent, the Banks and the Agent on written notice of their acceptance of the
terms and conditions of the Investment and the Intercreditor Agreement, consent
to Borrower and Guarantor granting a lien upon the Collateral and the
Guarantor's assets to the Investor Agent for the sole purpose of securing the
Investment Obligations; provided, however, anything herein to the contrary
notwithstanding the liens granted by the Borrower and Guarantor to the Investor
Agent under this Section 6.c. shall be fully junior in priority and payment to
the lien of the Banks and the Shared Liens at all times that there shall be any
Obligations owed to the Banks or any New Trade Credit (as defined in the
Intercreditor Agreement) owed to the Seasonal Trade Creditors.
12
7. Covenants, Representations and Warranties. Each of Borrower and
Guarantor covenants, represents and warrants that:
a. Borrower and Guarantor are each corporations, duly organized,
validly existing and in good standing in their states of incorporation.
b. Each of Borrower and Guarantor has the requisite power and
authority to own its properties and assets and to carry on that business that is
now being conducted.
c. Each of Borrower and Guarantor are fully authorized and
permitted to enter this Standstill Agreement and to perform the terms hereof,
none of which conflicts with any provision of any law, rule or regulation
applicable to Borrower or Guarantor.
d. This Standstill Agreement is a valid and binding legal
obligation of Borrower and Guarantor and is enforceable in accordance with its
terms.
e. The agreements of the Banks contained herein (i) do not in any
respect relieve Borrower or Guarantor from their respective obligations to
comply with each and every term, agreement and condition applicable to it under
its agreements with the Banks and the Agent and (ii) shall not be construed in
any respect to prohibit or limit the exercise of any remedies that are or may
become available to the Banks or the Agent, otherwise than as expressly provided
for herein; and
f. The agreements of the Banks hereunder shall not in any respect
prevent the Obligations of Borrower or Guarantor under the Credit Agreement,
Guaranty or related documents from being and becoming due and payable in full to
such extent as may be provided in any such agreement.
g. Except as provided in the Trade Agreement, Borrower shall not
pay any Existing Trade Debt prior to January 15, 2000; provided, however,
Borrower shall be permitted to make up to $5,200,000 in aggregate payments to
the Convenience Class Claimants (sometimes hereinafter, individually the
"Claimant") upon the following terms and conditions:
(i) No such payment to any Claimant shall exceed the lesser
of (x) the amount of the Existing Trade Debt owed to such
Claimant, or (y) $100,000; and
(ii) Each such payment shall effect a full and final
satisfaction of the Existing Trade Debt claim of such
Claimant.
For the purposes of this Standstill Agreement the term "Convenience Class
Claimants" shall mean holders of Existing Trade Debt willing to settle their
claims for not more than $100,000.
8. Events of Default. The occurrence or existence of any one or more
of the following events or conditions, whatever the reason therefore and whether
voluntary, involuntary or effected by operation of law, shall constitute an
"Event of Default" under this Standstill Agreement:
13
a. The failure of the Borrower to make any payment (including, but
not limited to, principal, interest, costs and expenses, including reasonable
legal fees) to the Banks or the Agent when and as required by the Credit
Agreement or this Standstill Agreement.
b. Borrower or Guarantor are in default under or shall fail to
perform, observe or comply with any covenant, agreement or term contained in the
Credit Agreement or in this Standstill Agreement, or the occurrence of any other
Event of Default, except the Existing Defaults.
c. The occurrence of any event or condition which constitutes a
breach, default or "event of default" under the Trade Agreement, or the
Intercreditor Agreement (or any agreement entered into with the Investors in
connection with their Investment), or a termination of the Trade Agreement or
the Intercreditor Agreement (or the agreement with the Investors in connection
with the Investment).
d. Borrower or Guarantor shall commence a voluntary proceeding, or
if an involuntary proceeding shall be commenced against them (or either of them)
which is not discharged within sixty (60) days of filing, seeking liquidation,
reorganization, or other relief with respect to either of them or their debts
under any bankruptcy, insolvency, or other similar law now or hereafter in
effect or seeking the appointment of a receiver, trustee, liquidator, custodian
or other similar official of them or either of them or a substantial part of
their property.
e. Borrower
(i) fails to timely pay and satisfy when due any and all
valid claims of Trade Vendors expressly permitted by the
Trade Agreement; or
(ii) fails to timely pay and satisfy when due any and all
valid taxes, levies or charges by a state, federal or
municipal governmental agency or authority.
f. Entry of final judgment, no longer subject to Judicial review,
against Borrower or Guarantor in an amount in excess of $5,000,000 in the
aggregate or the issuance of a levy or execution to realize upon any property of
Borrower or Guarantor.
g. Failure of Borrower to fully close and fund the Investment on or
before August 16, 1999 on terms and conditions satisfactory to the Banks and the
Agent.
h. The payment to any Trade Vendor or Seasonal Trade Creditor on
account of Existing Trade Debt which is not expressly permitted by this
Agreement, the Trade Agreement or the Intercreditor Agreement or at any time
when an Event of Default or a Termination Event shall exist.
i. The prepayment or defeasance of any principal to any Investor or
on account of the Investment at any time prior to the Obligations to the Banks
being paid in full.
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9. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when received, if delivered in person, by facsimile with confirmation
of receipt, or by registered or certified mail, postage prepaid, return receipt
requested, or by overnight delivery to the respective parties as follows:
If to the Agent:
---------------
To the Banks, in care of the Bank Agent:
PNC Bank, National Association, As Agent
One PNC Plaza
000 0xx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxx, XX, 0000
Attn.: Xxxxxx X. XxXxxx, SVP
(Fax): 412) 000-0000
And a copy to:
Xxxxx X. Xxxxxxx, Esq.
Pitney Xxxxxx Xxxx & Xxxxx
X.X. Xxx 0000 (xxxx)
Xxxxxxxxxx, XX 00000-0000
000 Xxxxxx Xxxxx (xxxxxxxx)
Xxxxxxx Xxxx, XX 00000
(Fax) (000) 000-0000
If to the Banks:
PNC Bank, National Association
One PNC Plaza
000 0xx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn.: Xxxxxx X. XxXxxx, SVP
(Fax): (000) 000-0000
The Chase Manhattan Bank
380 Madison Avenue, 9th fl
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx, VP
(Fax): (000) 000-0000
15
National City Bank of Pennsylvania
00 Xxxxxxx Xx.
Xxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxxxxxxx, VP
Special Assets Dept.
(Fax): (000) 000-0000
Fleet Bank
000 Xxxx Xx.
XX XX X00X
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, SVP
(Fax): (000) 000-0000
LaSalle Bank
000 Xxxxx XxXxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxx, SVP
(Fax): (000) 000-0000
If to Party City Corporation or Party City Michigan, Inc.:
Party City Corporation
000 Xxxxxxx Xxx
Xxxxxxxx, XX 00000
(Fax): (000) 000-0000
And a copy to:
Xxxxxxx Xxxxxxxx, Esq.
St. Xxxx & Xxxxx, L.L.C.
Xxx Xxxx Xxxxx Xxxx
Xxxxxx, XX 00000-0000
(Fax): (000) 000-0000
or to such other address as any such person may have furnished to the others in
writing in accordance herewith, except that notices of changes of address shall
only be effective upon receipt.
10. Ratification; Release of Banks. For good and valuable
consideration, the receipt of which is hereby acknowledged, including the
agreements and accommodations of the Agent and the Banks set forth in this
Standstill Agreement, Borrower and Guarantor, for themselves and their present
and former officers, directors, partners, shareholders, affiliates,
beneficiaries, agents and employees, personal representatives, successors, and
assigns, do hereby unconditionally and irrevocably release, quit and forever
discharge the Agent and the Banks and their predecessors in interest, their
present and former officers, directors, partners, shareholders, affiliates,
beneficiaries, asset managers, subasset managers, agents, attorneys and
employees, personal representatives, successors, and assigns, of and from any
and all liabilities, claims,
16
demands, actions, and causes of action (including without limitation any claim
based upon usury), whether known or unknown, contingent or matured, and whether
arising pursuant to statute, contract, tort, or equity, now existing or that may
hereafter arise with respect to acts, omissions or events occurring prior to the
date hereof, arising out of or in any way connected with, directly or
indirectly, the Loan or the Credit Agreement. No matter released herein has been
previously assigned or transferred to any other person or entity.
11. Costs, Fees and Expenses. Upon demand, Borrower shall pay or
reimburse the Agent and the Banks for any fees and expenses that may be payable
or incurred in connection with the existing Events of Default, the
administration of the Credit Agreement and the Loan, this Standstill Agreement
and/or which may be due under or pursuant to the Credit Agreement and all its
reasonable and customary out-of-pocket costs and expenses incurred in connection
with such defaults or the Credit Agreement and the preparation, negotiation and
execution of this Standstill Agreement, including, without limitation, the
reasonable fees and disbursements of their attorneys. This provision is in
addition to and not in lieu or limitation of any obligations of the Borrower and
Guarantor for payment of fees, costs and expenses contained in the Credit
Agreement.
12. Counterparts and Facsimile. This Standstill Agreement may be
executed in any number of counterparts each of which, when so executed and
delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument. This Standstill Agreement may be
executed and transmitted by facsimile signature and shall be effective and
binding upon execution and transmission of same.
13. Waiver of Jury Trial. ALL PARTIES TO THIS STANDSTILL AGREEMENT,
UPON ADVICE OF THEIR RESPECTIVE ATTORNEYS OR ADVISORS, HEREBY KNOWINGLY,
INTENTIONALLY, VOLUNTARILY, EXPRESSLY AND MUTUALLY WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (A) ARISING UNDER THIS
STANDSTILL AGREEMENT OR THE CREDIT AGREEMENT EVIDENCING THE LOAN, OR (B) IN ANY
WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF
THEM WITH RESPECT TO THIS STANDSTILL AGREEMENT OR THE CREDIT AGREEMENT, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, OR (C) IN ANY LITIGATION BETWEEN THE
PARTIES IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE, AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT EACH SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND ANY PARTY TO THIS STANDSTILL AGREEMENT
MAY FILE THIS ORIGINAL STANDSTILL AGREEMENT OR A COPY THEREOF WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO A TRIAL BY JURY.
14. No Waiver. Neither this Standstill Agreement nor the forbearance
and other agreements contained herein shall be deemed a waiver of any rights and
remedies available to the Agent and the Banks pursuant to the terms of the
Credit Agreement or any default or Event
17
of Default existing thereunder except as specifically set forth herein. For all
other purposes the Credit Agreement remains in full force and effect as if this
Standstill Agreement had not been executed.
15. Further Assurances. Each party hereto shall sign such other
documents and do such other acts as necessary or desirable to carry out this
Standstill Agreement before and after the Termination Date.
16. Amendments. This Standstill Agreement may not be amended,
modified, altered, or changed except in a signed writing by the parties hereto.
17. Governing Law. This Standstill Agreement shall be governed by the
laws of the State of New Jersey and the United States of America, without regard
to their conflict of laws or principles.
18. Definitions. Any capitalized term not otherwise defined herein
shall have the same meaning as ascribed to such term in the Credit Agreement
unless the context clearly requires otherwise.
19. Severability. The provisions of this Standstill Agreement are
severable. If any provision of the Standstill Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such invalidity or
unenforceability shall not in any manner affect the validity or enforceability
of such provision in any other jurisdiction or any other provision of the
Standstill Agreement in any jurisdiction.
20. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Borrower, Agent, each Bank, all future holders of the
Obligations and their respective successors and assigns, except that Borrower
may not assign, delegate or transfer any of its rights or obligations under this
Standstill Agreement without the prior written consent of the Agent.
[SIGNATURE PAGES FOLLOW]
18
IN WITNESS WHEREOF, the parties hereto have executed this Standstill
Agreement on the date first indicated above and have set their hands and seals
or caused these presents to be signed by their proper corporate officers and
sealed with their seals.
PNC BANK, NATIONAL ASSOCIATION
As Agent
By:/s/ Xxxxxxx X. Xxxxxx 8/16/99
------------------------- --------------------------
Name: Xxxxxxx X. Xxxxxx Dated:
Title: Senior Vice President
PARTY CITY CORPORATION
By:/s/ Xxxx X. Xxxxxxxxx 8/16/99
------------------------ --------------------------
Name: Xxxx X. Xxxxxxxxx Dated:
Title:
PARTY CITY MICHIGAN, INC.
By:/s/ Xxxx X. Xxxxxxxxx 8/16/99
------------------------ --------------------------
Name: Xxxx X. Xxxxxxxxx Dated:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:/s/ Xxxxxxx X. Xxxxxx 8/16/99
------------------------- --------------------------
Name: Xxxxxxx X. Xxxxxx Dated:
Title: Senior Vice President
THE CHASE MANHATTAN BANK
By:/s/ Xxxxxxx X. Xxxxx 8/13/99
------------------------- --------------------------
Name: Xxxxxxx X. Xxxxx Dated:
Title: Vice President
00
XXXXXXXX XXXX XXXX XX XXXXXXXXXXXX
By:/s/ Xxxxxxx X. Xxxxxxxxx 8/13/99
------------------------- --------------------------
Name: Xxxxxxx X. Xxxxxxxxx Dated:
Title: Vice President
FLEET BANK, N.A.
By:/s/ Xxxxxx X. Xxxxxxxxx 8/13/99
------------------------- --------------------------
Name: Xxxxxx X. Xxxxxxxxx Dated:
Title: Senior Vice President
LASALLE BANK, N.A.
By:/s/ Xxxxx Xxxxxxxx 8/16/99
------------------------- --------------------------
Name: Xxxxx Xxxxxxxx Dated:
Title: Group Senior Vice
President
20
