Document:

Exhibit 10.1

 

EXECUTION VERSION

 

 

SENIOR SECURED SUPER-PRIORITY DEBTOR-IN-POSSESSION

CREDIT AND GUARANTY AGREEMENT

 

 

dated as of January 11, 2011

 

 

among

 

 

CALIFORNIA COASTAL COMMUNITIES, INC.,

 

 

CERTAIN OF ITS SUBSIDIARIES,

as Guarantors,

 

 

VARIOUS LENDERS,

 

 

and

 

 

WILMINGTON TRUST FSB

as Administrative Agent and Collateral Agent

 

 

 

$15,000,000 
 Senior Secured Super-Priority Debtor-In-Possession

Credit Facility

 

 

 

TABLE OF CONTENTS

 

	
 
  	
 
  	
Page
  
	
 
  	
 
  	
 
  
	
SECTION 1.
  	
DEFINITIONS AND INTERPRETATION
  	
2
  
	
1.1.
  	
Definitions
  	
2
  
	
1.2.
  	
Accounting Terms
  	
22
  
	
1.3.
  	
Interpretation
  	
23
  
	
 
  	
 
  	
 
  
	
SECTION 2.
  	
TERM LOANS
  	
23
  
	
2.1.
  	
Term Loans
  	
23
  
	
2.2.
  	
Pro Rata Shares
  	
24
  
	
2.3.
  	
Use of Proceeds
  	
24
  
	
2.4.
  	
Evidence of Debt; Register; Lenders’ Books and Records; Term Loan Notes
  	
24
  
	
2.5.
  	
Interest on Term Loans
  	
25
  
	
2.6.
  	
[Reserved.]
  	
25
  
	
2.7.
  	
Default Interest
  	
26
  
	
2.8.
  	
Premiums, Consideration and Fees
  	
26
  
	
2.9.
  	
Scheduled Payments
  	
26
  
	
2.10.
  	
Voluntary Prepayments
  	
26
  
	
2.11.
  	
Mandatory Prepayments
  	
27
  
	
2.12.
  	
Application of Prepayments
  	
28
  
	
2.13.
  	
General Provisions Regarding Payments
  	
28
  
	
2.14.
  	
Ratable Sharing
  	
29
  
	
2.15.
  	
Making or Maintaining Eurodollar Rate Loans
  	
30
  
	
2.16.
  	
Increased Costs; Capital Adequacy
  	
31
  
	
2.17.
  	
Taxes; Withholding
  	
32
  
	
2.18.
  	
Obligation to Mitigate
  	
35
  
	
2.19.
  	
Insolvency Defaulting Lenders
  	
35
  
	
2.20.
  	
Removal or Replacement of a Lender
  	
35
  
	
2.21.
  	
Super Priority Nature of Obligations and Lenders’ Liens
  	
36
  
	
2.22.
  	
Payment of Obligations
  	
37
  
	
2.23.
  	
No Discharge; Survival of Claims
  	
37
  
	
2.24.
  	
Release
  	
37
  
	
2.25.
  	
Waiver of any Priming Rights and Non-Consensual Use of Cash Collateral
  	
38
  
	
 
  	
 
  	
 
  
	
SECTION 3.
  	
CONDITIONS PRECEDENT
  	
38
  
	
3.1.
  	
Conditions to Closing Date
  	
38
  
	
3.2.
  	
Conditions to Final Loan Date
  	
39
  
	
3.3.
  	
Conditions to Exit Facility Option
  	
40
  
	
 
  	
 
  	
 
  
	
SECTION 4.
  	
REPRESENTATIONS AND WARRANTIES
  	
43
  
	
4.1.
  	
Corporate Authority, Enforceability and Ownership
  	
43
  
	
4.2.
  	
Governmental Approvals
  	
44
  
	
4.3.
  	
Chief Executive Office
  	
44
  
	
4.4.
  	
Fiscal Year
  	
44
  
	
4.5.
  	
Regulations T, U and X
  	
44
  
	
4.6.
  	
Investment Company Act
  	
44
  
	
4.7.
  	
Reportable Transaction
  	
44
  
	
4.8.
  	
Tax Status
  	
45
  
	
4.9.
  	
Brokers
  	
45
  

 

 

	
4.10.
  	
Material Contracts
  	
45
  
	
4.11.
  	
Other Indebtedness
  	
45
  
	
4.12.
  	
Litigation
  	
45
  
	
4.13.
  	
Insurance
  	
45
  
	
4.14.
  	
Compliance with Other Instruments, Laws
  	
46
  
	
4.15.
  	
Certain Transactions
  	
46
  
	
4.16.
  	
Franchises, Intellectual Property
  	
46
  
	
4.17.
  	
Title to Properties
  	
46
  
	
4.18.
  	
Property Status and Condition
  	
46
  
	
4.19.
  	
Options to Acquire; Restrictions on Development
  	
47
  
	
4.20.
  	
Restrictions
  	
47
  
	
4.21.
  	
Compliance of Projects with Law
  	
47
  
	
4.22.
  	
Environmental Compliance
  	
47
  
	
4.23.
  	
Credit Documents
  	
48
  
	
4.24.
  	
No Default or Event of Default
  	
49
  
	
 
  	
 
  	
 
  
	
SECTION 5.
  	
AFFIRMATIVE COVENANTS
  	
49
  
	
5.1.
  	
Reports, Notices and Other Information
  	
49
  
	
5.2.
  	
Existence
  	
51
  
	
5.3.
  	
Payment of Taxes and Claims
  	
51
  
	
5.4.
  	
Maintenance of Properties
  	
51
  
	
5.5.
  	
Insurance
  	
52
  
	
5.6.
  	
Books and Records; Inspections
  	
53
  
	
5.7.
  	
Compliance with Laws
  	
53
  
	
5.8.
  	
Environmental
  	
53
  
	
5.9.
  	
Subsidiaries
  	
55
  
	
5.10.
  	
Further Assurances
  	
55
  
	
5.11.
  	
Cash Management
  	
55
  
	
5.12.
  	
Plan Support Agreement
  	
55
  
	
5.13.
  	
Plan of Reorganization
  	
56
  
	
5.14.
  	
Consultants
  	
56
  
	
5.15.
  	
Adverse Motions
  	
56
  
	
5.16.
  	
Post-Closing Matters
  	
56
  
	
 
  	
 
  	
 
  
	
SECTION 6.
  	
NEGATIVE COVENANTS
  	
56
  
	
6.1.
  	
Indebtedness
  	
56
  
	
6.2.
  	
Liens
  	
57
  
	
6.3.
  	
No Further Negative Pledges
  	
59
  
	
6.4.
  	
Restricted Junior Payments
  	
59
  
	
6.5.
  	
Restrictions on Subsidiary Distributions
  	
59
  
	
6.6.
  	
Investments
  	
59
  
	
6.7.
  	
Fundamental Changes; Disposition of Assets; Acquisitions
  	
60
  
	
6.8.
  	
Disposal of Subsidiary Interests
  	
61
  
	
6.9.
  	
Sales and Lease-Backs
  	
61
  
	
6.10.
  	
Transactions with Shareholders and Affiliates
  	
61
  
	
6.11.
  	
Conduct of Business
  	
61
  
	
6.12.
  	
Amendments or Waivers of Organizational Documents, Pre-Petition Credit Agreements
  	
61
  
	
6.13.
  	
Fiscal Year
  	
62
  
	
6.14.
  	
Chapter 11 Claims
  	
62
  
	
6.15.
  	
Critical Vendor and Other Payments
  	
62
  

 

ii

 

	
6.16.
  	
Employee Benefit Plans
  	
62
  
	
 
  	
 
  	
 
  
	
SECTION 7.
  	
GUARANTY
  	
62
  
	
7.1.
  	
Guaranty of the Obligations
  	
62
  
	
7.2.
  	
Contribution by Guarantors
  	
62
  
	
7.3.
  	
Payment by Guarantors
  	
63
  
	
7.4.
  	
Liability of Guarantors Absolute
  	
63
  
	
7.5.
  	
Waivers by Guarantors
  	
65
  
	
7.6.
  	
Guarantors’ Rights of Subrogation, Contribution
  	
65
  
	
7.7.
  	
Subordination of Other Obligations
  	
66
  
	
7.8.
  	
Continuing Guaranty
  	
66
  
	
7.9.
  	
Authority of Guarantors or Borrower
  	
66
  
	
7.10.
  	
Financial Condition of Borrower
  	
66
  
	
7.11.
  	
Discharge of Guaranty Upon Sale of Guarantor
  	
66
  
	
 
  	
 
  	
 
  
	
SECTION 8.
  	
EVENTS OF DEFAULT
  	
66
  
	
8.1.
  	
Events of Default
  	
66
  
	
 
  	
 
  	
 
  
	
SECTION 9.
  	
AGENTS
  	
71
  
	
9.1.
  	
Appointment of Agents
  	
71
  
	
9.2.
  	
Powers and Duties
  	
71
  
	
9.3.
  	
General Immunity
  	
71
  
	
9.4.
  	
Agents Entitled to Act as Lender
  	
72
  
	
9.5.
  	
Lenders’ Representations, Warranties and Acknowledgment
  	
73
  
	
9.6.
  	
Right to Indemnity
  	
73
  
	
9.7.
  	
Successor Administrative Agent and Collateral Agent
  	
73
  
	
9.8.
  	
Collateral Documents and Guaranty
  	
75
  
	
9.9.
  	
Withholding Taxes
  	
76
  
	
 
  	
 
  	
 
  
	
SECTION 10.
  	
MISCELLANEOUS
  	
76
  
	
10.1.
  	
Notices
  	
76
  
	
10.2.
  	
Expenses
  	
77
  
	
10.3.
  	
Indemnity
  	
78
  
	
10.4.
  	
Set-Off
  	
78
  
	
10.5.
  	
Amendments and Waivers
  	
79
  
	
10.6.
  	
Successors and Assigns; Participations
  	
80
  
	
10.7.
  	
Independence of Covenants
  	
82
  
	
10.8.
  	
Survival of Representations, Warranties and Agreements
  	
83
  
	
10.9.
  	
No Waiver; Remedies Cumulative
  	
83
  
	
10.10.
  	
Marshalling; Payments Set Aside
  	
83
  
	
10.11.
  	
Severability
  	
83
  
	
10.12.
  	
Obligations Several; Independent Nature of Lenders’ Rights
  	
83
  
	
10.13.
  	
Headings
  	
83
  
	
10.14.
  	
APPLICABLE LAW
  	
84
  
	
10.15.
  	
CONSENT TO JURISDICTION
  	
84
  
	
10.16.
  	
WAIVER OF JURY TRIAL
  	
84
  
	
10.17.
  	
Confidentiality
  	
85
  
	
10.18.
  	
Usury Savings Clause
  	
85
  
	
10.19.
  	
Counterparts
  	
86
  
	
10.20.
  	
Effectiveness; Entire Agreement
  	
86
  
	
10.21.
  	
PATRIOT Act
  	
86
  

 

iii

 

	
10.22.
  	
Electronic Execution of Assignments
  	
86
  
	
10.23.
  	
No Fiduciary Duty
  	
87
  
	
10.24.
  	
Parties Including Trustees; Bankruptcy Court Proceedings
  	
87
  
	
10.25.
  	
Conflict Between this Agreement and the Orders
  	
87
  

 

iv

 

	
APPENDICES:
  	
A
  	
Commitments
  	
 
  
	
 
  	
B
  	
Notice Addresses
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
SCHEDULES:
  	
2.8
  	
Back-Stop Lenders
  	
 
  
	
 
  	
4.1
  	
Jurisdictions of Organization
  	
 
  
	
 
  	
4.8
  	
Taxes
  	
 
  
	
 
  	
4.12
  	
Litigation
  	
 
  
	
 
  	
4.13
  	
Insurance Policies
  	
 
  
	
 
  	
4.17
  	
Real Estate Assets
  	
 
  
	
 
  	
4.21
  	
Exceptions to Entitlements and Permits
  	
 
  
	
 
  	
4.22
  	
Environmental Liabilities / Releases
  	
 
  
	
 
  	
5.16
  	
Post-Closing Matters
  	
 
  
	
 
  	
6.1
  	
Certain Indebtedness
  	
 
  
	
 
  	
6.2
  	
Certain Liens
  	
 
  
	
 
  	
6.3
  	
Certain Negative Pledges
  	
 
  
	
 
  	
6.5
  	
Certain Restrictions on Subsidiary Distributions
  	
 
  
	
 
  	
6.6
  	
Certain Investments
  	
 
  
	
 
  	
6.10
  	
Certain Affiliate Transactions
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
EXHIBITS:
  	
A
  	
Funding Notice
  	
 
  
	
 
  	
B
  	
Term Loan Note
  	
 
  
	
 
  	
C
  	
Compliance Certificate
  	
 
  
	
 
  	
D
  	
Assignment Agreement
  	
 
  
	
 
  	
E
  	
Certificate re Non-Bank Status
  	
 
  
	
 
  	
F
  	
Counterpart Agreement
  	
 
  
	
 
  	
G
  	
Initial Approved Budget
  	
 
  
	
 
  	
H
  	
Variance Report
  	
 
  
	
 
  	
I
  	
Interim Order
  	
 
  
	
 
  	
J
  	
Plan Support Agreement
  	
 
  
	
 
  	
K
  	
Pledge and Security Agreement
  	
 
  
	
 
  	
L
  	
Mortgage
  	
 
  
	
 
  	
M
  	
Cash Collateral Account Control Agreement
  	
 
  

 

v

 

SENIOR SECURED SUPER-PRIORITY DEBTOR-IN-POSSESSION

CREDIT AND GUARANTY AGREEMENT

 

This SENIOR SECURED SUPER-PRIORITY DEBTOR-IN-POSSESSION  CREDIT AND GUARANTY AGREEMENT, dated as of January 11, 2011, is entered into by and among CALIFORNIA COASTAL COMMUNITIES, INC., a Delaware corporation (“Borrower”), CERTAIN OF ITS SUBSIDIARIES, as Guarantors, the Lenders party hereto from time to time,  WILMINGTON TRUST FSB, as Administrative Agent (together with its successors and permitted assigns in such capacity, “Administrative Agent”) and as Collateral Agent (together with its successors and permitted assigns in such capacity, “Collateral Agent”).

 

RECITALS:

 

WHEREAS, capitalized terms used in these recitals shall have the respective meanings set forth for such terms in Section 1.1 hereof;

 

WHEREAS, on October 27, 2009 (the “Petition Date”), Borrower and certain of Borrower’s existing Domestic Subsidiaries commenced Chapter 11 Cases, which were administratively consolidated as Chapter 11 Case No. 09-21712-TA (each, a “Chapter 11 Case” and, collectively, the “Chapter 11 Cases”), by filing separate voluntary petitions for reorganization under the Bankruptcy Code with the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”). Borrower and its Domestic Subsidiaries continue to operate their businesses and manage their properties as debtors and debtors-in-possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code;

 

WHEREAS, prior to the Petition Date, Borrower obtained (i) a senior secured revolving credit facility in an aggregate amount of $100,000,000 pursuant to that certain Senior Secured Revolving Credit Agreement, dated as of September 15, 2006 (as amended, restated, supplemented or otherwise modified from time to time, the “Pre-Petition Revolving Credit Agreement”), among Borrower, certain of its Subsidiaries, Wilmington Trust FSB (as successor to KeyBank National Association), as agent (in such capacity, the “Pre-Petition Revolving Agent”), certain lenders (in such capacity, the “Pre-Petition Revolving Lenders”) and certain other parties thereto and (ii) a senior secured term loan facility in an aggregate amount of $125,000,000 pursuant to that certain Senior Secured Term Loan Agreement, dated as of September 15, 2006 (as amended, restated, supplemented or otherwise modified from time to time, the “Pre-Petition Term Loan Agreement” and, together with the Pre-Petition Revolving Credit Agreement, the “Pre-Petition Credit Agreements”), among Borrower, certain of its Subsidiaries, Wilmington Trust FSB (as successor to KeyBank National Association), as agent (in such capacity, the “Pre-Petition Term Agent” and, together with the Pre-Petition Revolving Agent, the “Pre-Petition Agents”), certain lenders (in such capacity, the “Pre-Petition Term Lenders” and, together with the Pre-Petition Revolving Lenders, the “Pre-Petition Lenders”) and certain other parties thereto;

 

WHEREAS, the Lenders have agreed to provide a senior secured super-priority term loan facility to Borrower that is convertible as provided herein into a secured exit facility upon the satisfaction (or waiver) of certain conditions, consisting of $15,000,000 aggregate principal amount of term loans;

 

WHEREAS, the proceeds of the Term Loans will be used (i) to pay transaction costs, fees and expenses incurred in connection with the transactions contemplated under this Agreement and the other Credit Documents and (ii) to provide working capital for Borrower and its Subsidiaries in accordance with Section 2.3 hereof;

 

 

WHEREAS, Borrower has agreed to secure all of its Obligations by granting to Collateral Agent, for the benefit of the Secured Parties, First Priority Liens on substantially all of its assets, including a pledge of all of the Equity Interests of each of its Domestic Subsidiaries, subject to the terms of the Interim Order and the Final Order;

 

WHEREAS, Guarantors have agreed to guarantee the obligations of Borrower hereunder and to secure their respective Obligations by granting to Collateral Agent, for the benefit of the Secured Parties, First Priority Liens on substantially all of their respective assets, including a pledge of all of the Equity Interests of each of their respective Domestic Subsidiaries, subject to the terms of the Interim Order and the Final Order; and

 

WHEREAS, the Lenders have agreed to grant an option to Borrower to cause the DIP Facility to be converted into the Exit Facility on the effective date of the Plan of Reorganization subject to certain terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:

 

SECTION 1.                         DEFINITIONS AND INTERPRETATION

 

1.1.                            Definitions.  The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:

 

“Adjusted Eurodollar Rate” means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (and rounding upward to the next whole multiple of 1/100 of 1%) (i) (A) the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate which appears on the page of the Bloomberg Screen which displays an average British Bankers Association Interest Settlement Rate (such page currently being LIBOR01 page) for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (B) in the event the rate referenced in the preceding clause (A) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service which displays an average British Bankers Association Interest Settlement Rate for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (C) in the event the rates referenced in the preceding clauses (A) and (B) are not available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in the London interbank market by Bank of America, N.A. or an Affiliate thereof for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the aggregate outstanding Term Loans with maturities comparable to such period, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, by (ii) an amount equal to (x) one minus (y) the Applicable Reserve Requirement; provided, however, that notwithstanding the foregoing, the Adjusted Eurodollar Rate shall at no time be less than 2.5% per annum.

 

“Administrative Agent” as defined in the preamble hereto.

 

2

 

“Adverse Proceeding” means any action, suit, proceeding, hearing (in each case, whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Borrower or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of Borrower or any of its Subsidiaries, threatened against or affecting Borrower or any of its Subsidiaries, or any property of Borrower or any of its Subsidiaries, with respect to which the claims at issue are in excess of $500,000, either individually or in the aggregate.

 

“Affected Lender” as defined in Section 2.15(b).

 

“Affected Loans” as defined in Section 2.15(b).

 

“Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.

 

“Agent” means each of (a) Administrative Agent, (b) Collateral Agent and (c) any other Person appointed under the Credit Documents to serve in an agent or similar capacity.

 

“Agent Affiliates”  as defined in Section 10.1(b).

 

“Aggregate Amounts Due” as defined in Section 2.14.

 

“Aggregate Payments” as defined in Section 7.2.

 

“Agreement” means this Senior Secured Super-Priority Debtor-in-Possession Credit and Guaranty Agreement, dated as of January 11, 2011, as it may be amended, restated, supplemented or otherwise modified from time to time.

 

“Applicable Margin”  means (i) in the case of any Term Loan that is a Base Rate Loan, a rate equal to 6.50% per annum or (ii) in the case of any Term Loan that is a Eurodollar Rate Loan, a rate equal to 7.50%.

 

“Applicable Reserve Requirement” means, at any time, for any Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against “Eurocurrency liabilities” (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors or other applicable banking regulator.  Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable Adjusted Eurodollar Rate or any other interest rate of a Term Loan is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on Eurodollar Rate Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.

 

3

 

“Approved Budget” means the Initial Approved Budget, as it may be amended, supplement or otherwise modified with the consent of Administrative Agent.

 

“Approved Electronic Communications” means any notice, demand, communication, information, document or other material that any Credit Party provides to Administrative Agent pursuant to any Credit Document or the transactions contemplated therein which is distributed to Agents or the Lenders by means of electronic communications pursuant to Section 10.1(b).

 

“Asset Sale” means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, exclusive license (as licensor or sublicensor), transfer or other disposition to, or any exchange of property with, any Person (other than Borrower or any Guarantor), in one transaction or a series of transactions, of all or any part of Borrower’s or any of its Subsidiaries’ businesses, assets or properties of any kind, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, created, leased or licensed, including the Equity Interests of any of Borrower’s Subsidiaries, other than the disposition of Cash and Cash Equivalents in the ordinary course of business. For the avoidance of doubt, a grant or pledge by any Credit Party of a security interest in such Credit Party’s assets shall not constitute an Asset Sale.

 

“Assignment Agreement” means an Assignment and Assumption Agreement substantially in the form of Exhibit D, with such amendments or modifications as may be approved by Administrative Agent.

 

“Assignment Effective Date”  as defined in Section 10.6(b).

 

“Assumed Exit Terms” means the following terms to be incorporated into the Exit Facility Documentation:

 

(i)                                   an interest rate margin no less than the interest rate margin contained in the section entitled “New First Lien Facility” in the Term Sheet for Proposed Chapter 11 Plan, attached as Exhibit A to the Plan Support Agreement (the “Plan Term Sheet”);

 

(ii)                              an amortization provision consistent with the amortization provision in the section entitled “New First Lien Facility” in the Plan Term Sheet;

 

(iii)                             a maturity date no longer than two years after the Exit Facility Conversion Date;

 

(iv)                          to the extent that prepayment premiums and fees are contemplated, such prepayment premiums and fees are offered to the Lenders on a non-discriminatory basis;

 

(v)                             a ratable sharing of payments provision consistent with Section 2.14 of this Agreement;

 

(vi)                            a first priority lien on the collateral contemplated by the Plan Term Sheet (subject to any prior liens permitted in the Exit Facility Documentation);

 

(vii)                         an affected Lender consent provision similar to Section 10.5(b) of this Agreement, excluding the additional time periods set forth therein; and

 

(viii)                      no provision which expressly relates to a single Lender but not any other Lender or which materially and adversely impacts a single Lender but not the other Lenders generally (other than customary yield protection and indemnity provisions).

 

4

 

“Authorized Officer” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president, vice president (or the equivalent thereof), chief financial officer or treasurer of such Person; provided that the secretary or assistant secretary of such Person shall have delivered an incumbency certificate to Administrative Agent as to the authority of such Authorized Officer.

 

“Back-Stop Lenders” means the Lenders set forth on Schedule 2.8.

 

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as applicable to the Chapter 11 Cases, as amended from time to time, and any applicable successor statute.

 

“Bankruptcy Court” as defined in the recitals hereto.

 

“Base Rate” means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1%.  Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively; provided, however, that notwithstanding the foregoing, the Base Rate shall at no time be less than 3.5% per annum.  On any day that Base Rate Loans are outstanding, in no event shall the Base Rate be less than the sum of (i) the Adjusted Eurodollar Rate (after giving effect to any Adjusted Eurodollar Rate “floor”) that would be payable on such day for a Eurodollar Rate Loan with a one-month interest period plus (ii) the difference between the Applicable Margin for Eurodollar Rate Loans and the Applicable Margin for Base Rate Loans.

 

“Base Rate Loan” means a Term Loan bearing interest at a rate determined by reference to the Base Rate.

 

“Beneficiary” means each Agent and each Lender.

 

“Board of Governors” means the Board of Governors of the United States Federal Reserve System, or any successor thereto.

 

“Borrower” as defined in the preamble hereto.

 

“Borrowing Date” means, in the case of the Interim Loans, the Closing Date and, in the case of the Final Loans, the Final Loan Date.

 

“Brightwater Project” means the 356 unit planned residential community located in Huntington Beach, California which constitutes one or more Units of Owned Land together with any other improvements constructed or under construction thereon.

 

“Budget Period” means each four-week period set forth in the Approved Budget commencing with the four-week period ending December 27, 2010.

 

“Business Day” means (i) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, the term “Business Day” means any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market.

 

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“Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person, including without limitation the Model Home Lease.

 

“Cash” means money, currency or a credit balance in any demand or Deposit Account.

 

“Cash Collateral” as defined in the Interim Order or the Final Order, as then in effect.

 

“Cash Collateral Account” as defined in the Interim Order or the Final Order, as then in effect.

 

“Cash Collateral Account Control Agreement” means an Account Control Agreement substantially in the form of Exhibit M or otherwise on terms and conditions satisfactory to Administrative Agent in its sole discretion, as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof.

 

“Cash Equivalents” means, as at any date of determination, any of the following: (i) marketable securities (A) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (B) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (iii) commercial paper maturing no more than six months from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (iv) certificates of deposit or bankers’ acceptances (or, in the case of Foreign Subsidiaries, the foreign equivalent thereof) maturing within six months after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (A) is at least “adequately capitalized” (as defined in the regulations of its primary federal banking regulatory) and (B) has Tier 1 capital (as defined in such regulations) of not less than $500,000,000; and (v) shares of any money market mutual fund that (A) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (B) has net assets of not less than $3,000,000,000, and (C) has the highest rating obtainable from either S&P or Moody’s.

 

“Cash Management Order” means  that certain Final Order Approving (I) Continued Use Of Existing Centralized Cash Management System; And (II) Continued Use Of Existing (A) Bank Accounts And (B) Business Forms, entered by the Bankruptcy Court on March 3, 2010 [Docket No. 173] and any subsequent orders with respect thereto issued by the Bankruptcy Court, whichever is then in effect.

 

“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act, as amended from time to time, and any applicable successor statute.

 

“Certificate re Non-Bank Status” means a certificate substantially in the form of Exhibit E.

 

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“Chapter 11 Case” and “Chapter 11 Cases” as defined in the recitals hereto.

 

“Claim” has the meaning specified in Section 101(5) of the Bankruptcy Code.

 

“Closing Date” means the date on which the Interim Loans are made.

 

“Collateral” means, collectively, all of the real, personal and mixed property (including Equity Interests) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations.

 

“Collateral Agent”  as defined in the preamble hereto.

 

“Collateral Documents” means the Pledge and Security Agreement, each Mortgage, the Cash Collateral Account Control Agreement, the Interim Order or the Final Order, whichever is then in effect, and all other instruments, documents and agreements requested by Administrative Agent and delivered by or on behalf or at the request of any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to, or perfect in favor of, Collateral Agent, for the benefit of the Secured Parties, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations.

 

“Commitment” means the commitment of a Lender to make or otherwise fund a Term Loan, and “Commitments” means such commitments of all Lenders in the aggregate.  The amount of each Lender’s Commitment is set forth on Appendix A or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof.  The aggregate amount of the Commitments as of the Closing Date is $15,000,000.

 

“Commitment Termination Date” means the earlier of (i) the Final Loan Date and (ii) the Maturity Date.

 

“Compliance Certificate” means a Compliance Certificate substantially in the form of Exhibit C.

 

“Confirmation Order” means an order of the Bankruptcy Court, in form and substance satisfactory to Administrative Agent and Requisite Lenders in all respects, confirming the Plan of Reorganization and approving the solicitation procedures related to the Plan of Reorganization.

 

“Consultant” as defined in Section 5.14.

 

“Contractual Obligation” means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.

 

“Contributing Guarantors” as defined in Section 7.2.

 

“Conversion Consideration” as defined in Section 2.8(b).

 

“Counterpart Agreement” means a Counterpart Agreement substantially in the form of Exhibit F delivered by a Credit Party pursuant to Section 5.9.

 

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“Credit Document” means any of this Agreement, the Term Loan Notes, if any, the Collateral Documents and all other documents, certificates, instruments or agreements executed and delivered by or on behalf or at the request of a Credit Party for the benefit of any Agent or any Lender in connection herewith on or after the date hereof.

 

“Credit Party” means any of Borrower and Guarantors.

 

“Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.

 

“Default Period” means, with respect to any Insolvency Defaulting Lender, the period commencing on the date such Lender became an Insolvency Defaulting Lender and ending on the earliest of the following dates: (i) the date on which all the Obligations are declared or become immediately due and payable and (ii) the date that such Insolvency Defaulting Lender ceases to hold any portion of the Term Loans.

 

“Deposit Account” means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.

 

“DIP Facility” means the credit facilities provided by the Lenders pursuant to this Agreement.

 

“Disclosure Statement” means, with respect to the Plan of Reorganization, a related disclosure statement in form and substance satisfactory to Administrative Agent and Requisite Lenders in all respects, together with any amendments, supplements or other modifications thereto reasonably acceptable to Administrative Agent and Requisite Lenders.

 

“Disqualified Equity Interests” means any Equity Interest which, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (i) matures or is mandatorily redeemable (other than solely for Equity Interests which are not otherwise Disqualified Equity Interests), pursuant to a sinking fund obligation or otherwise, (ii) is redeemable at the option of the holder thereof (other than solely for Equity Interests which are not otherwise Disqualified Equity Interests), in whole or in part, (iii) provides for scheduled payments or dividends in Cash, or (iv) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is 91 days after the Maturity Date.

 

“Dollars” and the sign “$” mean the lawful money of the United States of America.

 

“Domestic Subsidiary” means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.

 

“Eligible Assignee” means any Person other than a natural Person that is (i) a Lender, an Affiliate of any Lender or a Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), or (ii) a commercial bank, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act) and which extends credit or buys loans in the ordinary course of business; provided that neither any Credit Party nor any Affiliate thereof shall be an Eligible Assignee.

 

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“Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA that is sponsored, maintained or contributed to by, or required to be contributed to by, Borrower, any of its Subsidiaries or, solely with respect to any Employee Benefit Plan covered under Title IV of ERISA, any of their respective ERISA Affiliates.

 

“Entitlement” means any license, permit, zoning designation and other right granted by any applicable governmental authority that is required for the construction of the Horizontal Improvements and the development of Lots and construction of Homes in connection with any Project or Other Project, including, without limitation, the following (together with all governmental prerequisites thereto): (i) a vesting tentative map for the Land which authorizes residential uses has been approved by the applicable local authority or governmental body responsible for recording such plats in the county or city where such Project or Other Project is situated, and (ii) Borrower or Guarantor has obtained site plan approval for such Project or Other Project by the applicable division of such local authority or governmental body responsible for approving such site plan where such Project or Other Project is situated.  For purposes of Section 4.21, the foregoing definition shall not apply to those certain seven lots located on the northeastern corner of the Brightwater Project laying outside of Borrower’s tentative tract map and which are awaiting approval from the City of Huntington Beach.

 

“Environment” means ambient air, indoor air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources or as otherwise defined in any Environmental Law.

 

“Environmental Claim” means any notice of violation, claim, action, suit, proceeding, demand, abatement order or other legally binding order or directive (conditional or otherwise) by any Governmental Authority or any other Person arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material (including any actual or alleged presence, Release or exposure related thereto) or any actual or alleged Environmental Liability; or (iii) in connection with any actual or alleged damage, injury, threat or harm to human health and safety, natural resources or the Environment arising from any Hazardous Material or related to any Environmental Law.

 

“Environmental Engineer” means a firm of independent professional engineers or other scientists generally recognized as expert in the detection, analysis and remediation of Hazardous Materials and related environmental matters, such firm being reasonably acceptable to Administrative Agent.

 

“Environmental Law” means any and all foreign, domestic, federal, state or local laws, statutes, ordinances, codes, orders, rules, regulations, judgments, decrees, directives, legally binding judicial and administrative orders, common law (at law or in equity) or any other requirements of Governmental Authorities, in each case having the force or effect of law, imposing liability or standards of conduct relating to (i) environmental matters, including pollution, preservation, remediation or the protection of the environment or natural resources, or the emission of greenhouse gases; (ii) the generation, use, treatment, storage, transportation or disposal of, or exposure to, Hazardous Materials; or (iii) occupational safety and health or the protection of human, plant or animal health or welfare from environmental hazards.

 

“Environmental Liabilities”  means any direct, indirect, pending or threatened liability, claim, loss, damage, punitive damage, consequential damage, criminal liability, fine, penalty, interest, cost, expense, deficiency, obligation or responsibility, whether known or unknown, arising under or relating to any Environmental Laws, or Remedial Actions, or any Release or threatened Release of, or exposure to, Hazardous Materials, including costs and liabilities for any Remedial Action, personal injury, property damage, natural resource damages, court costs, and fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies.

 

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“Equity Interests” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.

 

“ERISA Affiliate” means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member.  Any former ERISA Affiliate of Borrower or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Borrower or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Borrower or such Subsidiary and with respect to liabilities arising after such period for which Borrower or such Subsidiary could be liable under the Internal Revenue Code or ERISA.

 

“Eurodollar Rate Loan” means a Term Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate.

 

“Event of Default” means each of the conditions or events set forth in Section 8.1.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any applicable successor statute.

 

“Existing Indebtedness” means all Indebtedness and other obligations (other than contingent obligations) outstanding under the Pre-Petition Credit Agreements.

 

“Exit Credit Parties” as defined in Section 3.3.

 

“Exit Facility” means the credit facilities provided by the Lenders upon exercise of the Exit Facility Option pursuant to Section 3.3.

 

“Exit Facility  Conversion Date” means the first date on which the Plan of Reorganization becomes effective, the Exit Facility Option has been exercised and the conditions to the effectiveness of the Exit Facility as set forth in Section 3.3 are satisfied.

 

“Exit Facility Documentation” as defined in Section 3.3.

 

“Exit Facility Option” as defined in Section 3.3.

 

“Fair Share” as defined in Section 7.2.

 

“Fair Share Contribution Amount” as defined in Section 7.2.

 

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“Federal Funds Effective Rate” means, for any day, the rate per annum (expressed as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (i) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate charged to Administrative Agent on such day on such transactions as determined by Administrative Agent.

 

“Final Loan” means a Term Loan made on the Final Loan Date.  The aggregate amount of the Final Loans shall not exceed $10,000,000.

 

“Final Loan Date” means the date on which the Final Loans are made.

 

“Final Order” means an order (substantially in the form of the Interim Order with only such modifications as are satisfactory in form and substance to Administrative Agent) of the Bankruptcy Court pursuant to Section 364 of the Bankruptcy Code duly entered in the Chapter 11 Cases, approving, on a final basis this Agreement and the other Credit Documents, as to which no stay has been entered and which has not been reversed, vacated or overturned, and which has not been amended, supplemented or otherwise modified in any respect adverse to the Lenders without the prior written consent of Administrative Agent and from which no appeal or motion to reconsider has been timely filed or, if timely filed, such appeal or motion to reconsider has been dismissed or denied unless Administrative Agent waives such requirement in writing.

 

“Financial Officer Certification” means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer, chief executive officer or chief restructuring officer of Borrower that such financial statements fairly present, in all material respects, the financial condition of Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.

 

“First Priority” means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is senior to all other Liens with respect to all Collateral and such Collateral is not subject to any junior Liens other than Permitted Liens.

 

“Fiscal Quarter” means a fiscal quarter of any Fiscal Year.

 

“Fiscal Year” means the fiscal year of Borrower and its Subsidiaries ending on December 31 of each calendar year.

 

“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

 

“Funding Guarantor” as defined in Section 7.2.

 

“Funding Notice” means a notice substantially in the form of Exhibit A.

 

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“GAAP” means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof.

 

“Governmental Authority” means any foreign, federal, state, provincial, local, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity, officer or examiner exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.

 

“Governmental Authorization” means any permit, license, authorization, plan, directive, certification, registration, approval, consent order or consent decree of or from any Governmental Authority.

 

“Grantor” as defined in the Pledge and Security Agreement.

 

“Guaranteed Obligations”  as defined in Section 7.1.

 

“Guarantor” means each Domestic Subsidiary of Borrower that is a debtor-in-possession in the Chapter 11 Cases.

 

“Guaranty” means the guaranty of each Guarantor set forth in Section 7.

 

“Hazardous Materials” means any chemical, pollutant, radioactive material or waste, contaminant, waste, material or substance which is prohibited, limited or regulated by any Environmental Law.

 

“Highest Lawful Rate” means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow.

 

“Home”  means a for sale attached or detached single family dwelling, whether a conventional home constructed on a separate fee simple absolute lot, a condominium, a townhome or as part of a planned unit development. This definition shall not include any housing developed for rental purposes.

 

“Home Sale” means any Asset Sale of any Home, Lot or related real or personal property located at the Brightwater Project in the ordinary course of business and in accordance with the Sale Order.

 

“Homeowners Association” means any association formed with respect to a Project for the governance of a Project or Other Project eventually by third-party homeowners, and for the ownership of common areas or amenities of a Project or Other Project.

 

“Horizontal Improvements” means utilities, including water and sewer, curbs, gutters, stormwater detention structures and dedicated roadways built in relation to Homes and/or Lots, and in material compliance with and permitted under applicable governmental laws and regulations all constructed within easements or rights-of-way dedicated or granted to the applicable governmental authority, utility company or Homeowners Association or created or reserved pursuant to a declaration of easements or similar instrument.

 

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“Housing Purchase Contract” means any legal, valid, binding and enforceable written agreement in substantially such form as has been approved in writing by Administrative Agent for the sale of individual Homes to any bona fide unaffiliated purchaser entered into by Borrower or any Guarantor in the ordinary course of its business, with customary terms and conditions and that provides for a cash down payment of not less than the lesser of (i) 3.0% of the purchase price or (ii) such smaller percentage as prevailing for that product type customary in the market where the Unit is located.  Such contract shall contain no contingencies other than those that are customary in the market for which the Homes are located, including, without limitation, contingencies pertaining to the completion and inspection of the Home, purchaser’s financing, condition of title or the sale of the purchaser’s existing home (unless terminable at the request of Borrower within 72 hours of request), or as otherwise permitted in writing by Administrative Agent.  At no time shall there exist more than 40 Housing Purchase Contracts that contain a contingency for the sale of a purchaser’s existing home.

 

“Increased-Cost Lender” as defined in Section 2.20.

 

“Indebtedness”  means, as applied to any Person, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services, including any earn-out obligations (excluding any such obligations incurred under ERISA), which purchase price is (A) due more than six months from the date of incurrence of the obligation in respect thereof or (B) evidenced by a note or similar written instrument; (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; (vi) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) Disqualified Equity Interests; (viii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another; (ix) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the indebtedness of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof; (x) any liability of such Person for an obligation of another through any agreement (contingent or otherwise) (A) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (B) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (A) or (B) of this clause (x), the primary purpose or intent thereof is as described in clause (ix) above; and (xi) all obligations of such Person in respect of any exchange traded or over the counter derivative transaction, including under any Interest Rate Agreement, in each case, whether entered into for hedging or speculative purposes or otherwise.

 

“Indemnified Liabilities” means, collectively, any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other Remedial Action required under Environmental Law or otherwise reasonably necessary to remove, remediate, clean up or abate, or otherwise related to the presence or Release of, any Hazardous Materials), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for 

 

13

 

Indemnitees in connection with any investigative, administrative or judicial proceeding or hearing commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any costs, fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect, special or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including the Lenders’ agreement to make the Term Loans or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)) or (ii) any fee letter or work fee delivered by any Agent or any Lender to Borrower with respect to the transactions contemplated by this Agreement.

 

“Indemnitee” as defined in Section 10.3.

 

“Information” as defined in Section 9.3(a).

 

“Initial Approved Budget”  as defined in Section 3.1(h).

 

“Insolvency Defaulting Lender” means any Lender who (i) has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent, (ii) becomes the subject of an insolvency, bankruptcy, dissolution, liquidation or reorganization proceeding, or (iii) becomes the subject of an appointment of a receiver, intervenor or conservator under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; provided that a Lender shall not be an Insolvency Defaulting Lender solely by virtue of the ownership or acquisition by a Governmental Authority or an instrumentality thereof of any Equity Interest in such Lender or a parent company thereof.

 

“Intellectual Property” as defined in the Pledge and Security Agreement.

 

“Interest Payment Date” means (a) with respect to any Base Rate Loan, the last day of each calendar month and (b) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Eurodollar Rate Loan.

 

“Interest Period” means, in connection with a Eurodollar Rate Loan, an interest period of one-month, (i) initially, commencing on the applicable Borrowing Date and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided that (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) of this definition, end on the last Business Day of a calendar month; and (c) no Interest Period with respect to any portion of the Term Loans shall extend beyond the Maturity Date.

 

“Interest Rate Agreement” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure associated with Borrower’s and its Subsidiaries’ operations and not for speculative purposes.

 

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“Interest Rate Determination Date” means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period.

 

“Interim Loan” means a Term Loan made on the Closing Date.  The aggregate amount of the Interim Loans shall not exceed $5,000,000.

 

“Interim Order” an order (substantially in the form of Exhibit I with only such modifications as are satisfactory in form and substance to Administrative Agent) of the Bankruptcy Court pursuant to Section 364 of the Bankruptcy Code duly entered in the Chapter 11 Cases, approving on an interim basis this Agreement and the other Credit Documents, as to which no stay has been entered and which has not been reversed, vacated or overturned, and which has not been amended, supplemented or otherwise modified in any respect adverse to the Lenders without the prior written consent of Administrative Agent and from which no appeal or motion to reconsider has been timely filed or, if timely filed, such appeal or motion to reconsider has been dismissed or denied unless Administrative Agent waives such requirement in writing and, in any case, neither the making of the Term Loans nor the performance by the Credit Parties of their respective obligations under the Credit Documents shall be the subject of a presently effective stay pending appeal.

 

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended from time to time, and any applicable successor statute.

 

“Investment” means (i) any direct or indirect purchase or other acquisition by Borrower or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than a Guarantor); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Borrower from any Person (other than Borrower or any Guarantor Subsidiary), of any Equity Interests of such Person; (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contributions by Borrower or any of its Subsidiaries to any other Person (other than Borrower or any Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business; and (iv) all investments consisting of any exchange traded or over the counter derivative transaction, including any Interest Rate Agreement, whether entered into for hedging or speculative purposes or otherwise.  The amount of any Investment of the type described in clauses (i), (ii) and (iii) shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.

 

“Investment Company Act” means the Investment Company Act of 1940, as amended from time to time, and any applicable successor statute.

 

“Joint Venture” means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.

 

“Lancaster Account” means that certain deposit account in the name of HHI Lancaster I, LLC that contains the remaining proceeds from the sale approved by the Lancaster Sale Order.

 

“Lancaster Sale Order” means that certain Order Authorizing (I) The Sale Of Certain Real Property Free And Clear Of Liens, Claims, And Encumbrances; (II) The Assumption And Assignment Of Executory Contracts; And (III) Granting Related Relief, entered by the Bankruptcy Court on December 17, 2009 [Docket No. 103].

 

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“Land”  means real property, together with all of the tenements, hereditaments, easements, rights-of-way, rights, privileges and appurtenances thereunto belonging or in any way pertaining thereto, all reversions, remainders, and all of the estate, right, title, interest, claim and demand whatsoever of any Person therein and in the streets, alleys, vaults and ways adjacent thereto, all rights to the use of common drive entries, all rights pursuant to any reciprocal easement agreement or trackage agreement, all strips and gores within or adjoining such property, all the air space and right to use the air space above such property, all transferable development rights arising therefrom or transferred thereto, and all drainage, mineral, water, oil and gas rights with respect to such property, either at law or in equity, if any, in possession or expectancy, now or hereafter acquired.

 

“Lender” means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.

 

“Lien” means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease or license in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.

 

“Lot”  means a single family residential lot located or to be located within any Project.

 

“Material Adverse Deviation” means, as of any date of determination, an adverse deviation of more than the Permitted Deviation from (i) the amount of aggregate disbursements set forth for any Budget Period in a line item of the Approved Budget or (ii) the amount of aggregate disbursements set forth for any Budget Period under the Approved Budget.

 

“Material Adverse Effect” means a material adverse effect on and/or material adverse developments with respect to (i) the business, operations, properties, assets or financial condition of the Projects or of Borrower and its Subsidiaries, taken as a whole; (ii) the ability of the Credit Parties, taken as a whole, to fully and timely perform their Obligations; (iii) the legality, validity, binding effect or enforceability against a Credit Party of a Credit Document to which it is a party; or (iv) the rights, remedies and benefits available to, or conferred upon, any Agent, any Lender or any Secured Party under any Credit Document.

 

“Material Contract” means each of (i) the Model Home Lease and (ii) any performance bond issued with respect to or on behalf of Borrower or any of its Subsidiaries outstanding from time to time.

 

“Maturity Date” means the earliest to occur of (i) March 7, 2011, (ii) the date that is 30 days after the date of entry of the Interim Order if the Final Order has not been entered by such date, (iii) the date the Bankruptcy Court orders the conversion of the bankruptcy case of any of the Credit Parties to a Chapter 7 liquidation or the dismissal of the bankruptcy case of any Credit Party, (iv) the sale of all or substantially all of the Credit Parties’ assets and (v) the effective date of a confirmed plan of reorganization other than the Plan of Reorganization.

 

“Model Home Lease” means that certain Lease of Model Homes, dated as of December 31, 2008, between Signal Landmark and Brightwater Models, LLC.

 

“Monthly Operating Report” means any monthly operating report filed by any Credit Party in the Chapter 11 Cases.

 

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“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

 

“Mortgage” means, with respect to each Real Estate Asset as reasonably required by either Agent, the Deed of Trust and Assignment of Rents to be executed by the applicable Credit Party substantially in the form of Exhibit L, as it may be amended, restated, supplemented or otherwise modified from time to time.

 

“NAIC” means The National Association of Insurance Commissioners, and any successor thereto.

 

“Net Asset Sale Proceeds” means, with respect to any Asset Sale, an amount equal to: (i) any Cash payments or proceeds (including (x) any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable (including by way of milestone payment) or otherwise, but only as and when so received and (y) any dividend or other distribution received by a Credit Party in connection with a sale or disposition by a Joint Venture) received by Borrower or any of its Subsidiaries from such Asset Sale, minus (ii) any bona fide direct costs incurred in connection with such Asset Sale, including (A) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (B) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Term Loans) that is secured by a Lien senior to the Liens securing the DIP Facility or a Lien on assets not constituting Collateral and (C) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Borrower or any of its Subsidiaries in connection with such Asset Sale; provided that upon release of any such reserve, the amount released shall be considered Net Asset Sale Proceeds.

 

“Net Insurance/Condemnation Proceeds” means an amount equal to (i) any Cash payments or proceeds received by Borrower or any of its Subsidiaries (A) under any casualty insurance policy in respect of a covered loss thereunder or (B) as a result of the taking of any assets of Borrower or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii) (A) any actual and reasonable costs incurred by Borrower or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Borrower or such Subsidiary in respect thereof, and (B) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(B) of this definition, including income taxes payable as a result of any gain recognized in connection therewith.

 

“Non-Consenting Lender” as defined in Section 2.20.

 

“Non-Public Information” means information which has not been disseminated in a manner making it available to investors generally, within the meaning of Regulation FD.

 

“Non-U.S. Lender” as defined in Section 2.17(c).

 

“Obligations” means all obligations of every nature of each Credit Party, including obligations from time to time owed to Agents (including former Agents), the Lenders or any of them under any Credit Document, whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), fees, expenses, indemnification or otherwise.

 

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“Obligee Guarantor” as defined in Section 7.7.

 

“Organizational Documents” means (i) with respect to any corporation or company, its certificate, memorandum or articles of incorporation, organization or association, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate or declaration of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended.  In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.

 

“Other Project” means any other planned residential community which constitutes one or more Lots or parcels together with any Homes, Lots or other improvements constructed or under construction thereon located within a discrete single family residential development on which a Subsidiary of Borrower (i) may develop or has developed Lots for the construction of Homes to be sold to individual buyers, (ii) will construct or has constructed Homes, or (iii) will develop or has developed Lots for sales of Lots in bulk to other developers.

 

“Other Taxes” means any and all present or future stamp or documentary Taxes or any other excise or property Taxes, charges or similar levies (and interest, fines, penalties and additions related thereto) arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Credit Document.

 

“Owned Land” means any Project (including a Qualified Project) and each Other Project.

 

“PATRIOT Act”  means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), as amended from time to time, and any applicable successor statute.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

 

“Permitted Deviation” means, with respect to any disbursement line item of the Approved Budget for any Budget Period, 10.0% and, with respect to the aggregate disbursements under the Approved Budget for any Budget Period, 5.0%; provided that any amounts not used in any Budget Period for a particular disbursement line item shall roll forward and be included in the amounts budgeted for the following Budget Period only for such disbursement line item.

 

“Permitted Liens” means each of the Liens permitted pursuant to Section 6.2.

 

“Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.

 

“Petition Date” as defined in the recitals hereto.

 

“Plan of Reorganization” means a Chapter 11 plan of reorganization in the Chapter 11 Cases, together with all exhibits, schedules, annexes, supplements and other attachments thereto, in each case, consistent with the terms of the Plan Support Agreement and containing such other terms that are satisfactory to Administrative Agent and Requisite Lenders in all respects.

 

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“Plan Support Agreement” means a Plan Support Agreement substantially in the form of Exhibit J, together with all exhibits, supplements, annexes, schedules and any other attachments thereto, in each case as amended, restated, supplemented or otherwise modified from time to time pursuant to the terms of the Plan Support Agreement.

 

“Platform” as defined in Section 5.1(k).

 

“Pledge and Security Agreement” means the Pledge and Security Agreement to be executed by Borrower and each Guarantor substantially in the form of Exhibit K, as it may be amended, restated, supplemented or otherwise modified from time to time.

 

“Post-Petition” means the time period beginning immediately upon the filing of the Chapter 11 Cases.

 

“Prepayment Date” as defined in Section 2.12(b).

 

“Pre-Petition” means the time period prior to the filing of the Chapter 11 Cases.

 

“Pre-Petition  Agents” as defined in the recitals hereto.

 

“Pre-Petition  Credit Agreements” as defined in the recitals hereto.

 

“Pre-Petition  Lenders” as defined in the recitals hereto.

 

“Pre-Petition  Revolving Agent” as defined in the recitals hereto.

 

“Pre-Petition  Revolving  Credit Agreement” as defined in the recitals hereto.

 

“Pre-Petition  Revolving Lenders” as defined in the recitals hereto.

 

“Pre-Petition  Term Agent” as defined in the recitals hereto.

 

“Pre-Petition  Term Lenders” as defined in the recitals hereto.

 

“Pre-Petition  Term Loan Agreement” as defined in the recitals hereto.

 

“Prime Rate” means the rate of interest quoted in the print edition of The Wall Street Journal, Money Rates Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks), as in effect from time to time.  The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer.  Agent or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.

 

“Principal Office” means, for Administrative Agent, such Person’s “Principal Office” as set forth on Appendix B, or such other office or office of a third party or sub-agent, as appropriate, as such Person may from time to time designate in writing to Borrower, Administrative Agent and each Lender.

 

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“Project” means the Brightwater Project together with any Other Projects classified as Qualified Projects from time to time.

 

“Pro Rata Share” means, with respect to all payments, computations and other matters relating to the Term Loan of any Lender, the percentage obtained by dividing (x) the Term Loan Exposure of that Lender by (y) the aggregate Term Loan Exposure of all Lenders.

 

“Public Lenders” means any Lenders that do not wish to receive material non-public information with respect to Borrower, its Subsidiaries or their securities.

 

“Qualified Project” means the Brightwater Project and any Other Project which the Lenders may approve as a Qualified Project in their sole and complete discretion.

 

“Real Estate Asset” means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by a Person in any real property.

 

“Register” as defined in Section 2.4(b).

 

“Regulation D” means Regulation D of the Board of Governors, as in effect from time to time.

 

“Regulation FD” means Regulation FD as promulgated by the Securities and Exchange Commission under the Securities Act and the Exchange Act, as in effect from time to time.

 

“Regulation T” means Regulation T of the Board of Governors, as in effect from time to time.

 

“Regulation U” means Regulation U of the Board of Governors, as in effect from time to time.

 

“Regulation X” means Regulation X of the Board of Governors, as in effect from time to time.

 

“Related Fund” means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

 

“Release” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the Environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the migration of any Hazardous Material through the air, soil, surface water or groundwater.

 

“Released Parties” as defined in Section 2.24.

 

“Releasing Parties” as defined in Section 2.24.

 

“Remedial Action”   means (a) any “response” as such term is defined in CERCLA, and (b) all other actions required pursuant to any Environmental Law or by any Governmental Authority, voluntarily undertaken or otherwise reasonably necessary to (i) clean up, investigate, sample, evaluate, monitor, remediate, remove, correct, contain, treat, abate or in any other way address any Hazardous Material, (ii) prevent the Release or threat of Release, or minimize the further Release or migration, of any Hazardous Material, or (iii) perform studies and investigations in connection with, or as a precondition to, or to determine the necessity of the activities described in, clauses (i) or (ii) above.

 

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“Replacement Lender” as defined in Section 2.20.

 

“Requisite Lenders” means one or more Lenders having or holding Term Loan Exposure representing more than 60% of the aggregate Term Loan Exposure of all Lenders; for purposes of this definition, the amount of Term Loan Exposure shall be determined by excluding all Term Loan Exposure held or beneficially owned by any Credit Party or Affiliate thereof.

 

“Restricted Junior Payment” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Borrower or any of its Subsidiaries (or any direct or indirect parent of Borrower) now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Borrower or any of its Subsidiaries (or any direct or indirect parent thereof) now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Borrower or any of its Subsidiaries (or any direct or indirect parent of Borrower) now or hereafter outstanding; (iv) any management or similar fees payable to any equityholders; and (v) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Indebtedness other than the Obligations and the obligations under the Pre-Petition Credit Agreements.

 

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

 

“Sale Order” means that certain Twelfth Interim Order (A) Authorizing The Debtors To Sell Homes Free And Clear Of Liens, Claims, Encumbrances And Other Interests; (B) Continuing Customer Programs; And (C) Establishing Procedures For The Resolution And Payment Of Operational Lien Claims, entered by the Bankruptcy Court on September 8, 2010 [Docket No. 433] and any subsequent orders with respect thereto issued by the Bankruptcy Court, whichever is then in effect.

 

“Secured Parties” as defined in the Pledge and Security Agreement.

 

“Securities” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time, and any applicable successor statute.

 

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the 

 

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management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided that in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a “qualifying share” of the former Person shall be deemed to be outstanding.

 

“Tax” means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that “Tax on the overall net income” of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person’s applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).

 

“Terminated Lender” as defined in Section 2.20.

 

“Term Loan” means a Term Loan made by a Lender to Borrower pursuant to Section 2.1(a).

 

“Term Loan Exposure” means, with respect to any Lender, as of any date of determination, the sum of (i) the outstanding principal amount of the Term Loans of such Lender and (ii) the unfunded portion of such Lender’s Commitment.

 

“Term Loan Note” means a promissory note substantially in the form of Exhibit B, as it may be amended, restated, supplemented or otherwise modified from time to time.

 

“UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.

 

“Unit” means any Lot or Home.

 

“U.S. Lender” as defined in Section 2.17(c).

 

“Variance Report” as  defined in Section 5.1(c).

 

“Vested” means, as to any permit, license, zoning ordinance or rights thereunder, grant of rights under an order of development of regional impact, or any other governmental entitlement, the status wherein such governmental right has been granted in accordance with all applicable governmental regulations, and all appeal periods have expired with respect to such grant or issuance.

 

“Waivable Prepayment” as defined in Section 2.12(b).

 

1.2.                            Accounting Terms

 

(a)                                  Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP.  Financial information required to be delivered by Borrower to the Lenders hereunder shall be prepared in accordance with GAAP as in effect at the time of such preparation.  Subject to the foregoing, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the audited financial statements of Borrower and its Subsidiaries for the Fiscal Year ended December 31, 2009.

 

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(b)                                 If at any time any change in GAAP would affect the computation of any requirement set forth in this Agreement and either Borrower or Requisite Lenders shall so request, Administrative Agent and Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of Requisite Lenders); provided that, until so amended, such requirement shall continue to be computed in accordance with GAAP, as applicable, prior to such change therein.

 

1.3.                            Interpretation.   Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference.  References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word “include” or “including”, when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.  The terms lease and license shall include sub-lease and sub-license, as applicable.

 

SECTION 2.                         TERM LOANS

 

2.1.                            Term Loans.

 

(a)                                  Commitments.  Subject to the terms and conditions hereof, each Lender severally agrees to make, on the applicable Borrowing Date, a Term Loan to Borrower in an amount not to exceed such Lender’s Commitment.  Borrower may make only two borrowings under the Commitments that shall be, in the case of the Interim Loans, on the Closing Date and in an aggregate amount not to exceed $5,000,000 and, in the case of the Final Loans, on the Final Loan Date and in an aggregate amount not to exceed $10,000,000.  Any amount borrowed under this Section 2.1 and subsequently repaid or prepaid may not be reborrowed.  Subject to Sections 2.13(a) and 2.14, all amounts owed hereunder with respect to the Term Loans shall be paid in full no later than the Maturity Date.  Each Lender’s Commitment shall terminate immediately and without further action on the Commitment Termination Date after giving effect to the funding of such Lender’s Commitment on such date.

 

(b)                                 Borrowing Mechanics for Term Loans.

 

(i)                                     Borrower shall deliver to Administrative Agent a fully executed Funding Notice no later than three Business Days prior to each Borrowing Date or such shorter period of time acceptable to Administrative Agent.  Promptly upon receipt by Administrative Agent of such Funding Notice, Administrative Agent shall notify each Lender of the proposed borrowing.

 

(ii)                                  Each Lender shall make its Term Loan available to Administrative Agent not later than 11:00 a.m. (New York City time) on each Borrowing Date, by wire transfer of same day funds in Dollars, at the Principal Office designated by Administrative Agent.  Upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of the Term Loans available to Borrower on such Borrowing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Term Loans received by Administrative Agent from Lenders to be credited to the Cash Collateral Account.

 

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2.2.                            Pro Rata Shares.  All Term Loans shall be made by the Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Term Loan requested hereunder nor shall any Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender’s obligation to make a Term Loan requested hereunder. In the event a Lender does not make its Pro Rata Share of a Term Loan available to Administrative Agent as otherwise required under the Agreement, Administrative Agent shall not have any obligation to make such corresponding amount of funds available to Borrower unless and until Administrative Agent receives such funds from a Lender.  Nothing in this Section 2.2 shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrower may have against any Lender as a result of any default by such Lender hereunder.

 

2.3.                            Use of Proceeds.  The proceeds of the Term Loans shall be applied by Borrower on each Borrowing Date to provide working capital for Borrower and its Subsidiaries in accordance with the Approved Budget.  No portion of the proceeds of the Term Loans shall be used in any manner that causes or might cause the borrowing of the Term Loans or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors or any other regulation thereof or to violate the Exchange Act.  Borrower and its Subsidiaries shall not use the proceeds of the Term Loans (i) for any purpose that is prohibited under the Bankruptcy Code or by the Interim Order or the Final Order, whichever is then in effect, or (ii) to commence or prosecute or join in any action against any Agent or Lender seeking (x) to avoid, subordinate or recharacterize the Obligations or any of the Collateral Agent’s Liens, (y) any monetary, injunctive or other affirmative relief against any Agent or Lender or the Collateral in connection with the Credit Documents, or (z) to prevent or restrict the exercise by any Agent or Lender of any of their respective rights or remedies under the Credit Documents.

 

2.4.                            Evidence of Debt; Register; Lenders’ Books and Records; Term Loan Notes.

 

(a)                                  Lenders’ Evidence of Debt.  Each Lender shall maintain on its internal records an account or accounts evidencing the Obligations of Borrower to such Lender, including the amounts of the Term Loans made by it and each repayment and prepayment in respect thereof.  Any such recordation shall be conclusive and binding on Borrower, absent manifest error; provided that the failure to make any such recordation, or any error in such recordation, shall not affect Borrower’s Obligations in respect of any applicable Term Loans; provided, further, that in the event of any inconsistency between the Register and any Lender’s records, the recordations in the Register shall govern.

 

(b)                                 Register.  Administrative Agent (or its agent or sub-agent appointed by it) shall maintain at its Principal Office a register for the recordation of the names and addresses of the Lenders and the Term Loans of each Lender from time to time (the “Register”).  The Register shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.  Administrative Agent shall record, or shall cause to be recorded, in the Register the Term Loans in accordance with the provisions of Section 10.6, and each repayment or prepayment in respect of the principal amount of the Term Loans, and any such recordation shall be conclusive and binding on Borrower and each Lender, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect Borrower’s Obligations in respect of any Term Loan.  Borrower hereby designates Administrative Agent to serve as Borrower’s agent solely for purposes of maintaining the Register as provided in this Section 2.4, and Borrower hereby agrees that, to the extent Administrative Agent serves in such capacity, Administrative Agent and its officers, directors, employees, agents, sub-agents and affiliates shall constitute “Indemnitees”.

 

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(c)                                  Term Loan Notes.  If so requested by any Lender by written notice to Borrower (with a copy to Administrative Agent) at least two Business Days prior to a Borrowing Date or at any time thereafter, Borrower shall execute and deliver to such Lender (or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) on such Borrowing Date (or, if such notice is delivered after such Borrowing Date, promptly after Borrower’s receipt of such notice) a Term Loan Note or Term Loan Notes to evidence such Lender’s Term Loan, payable to such Lender or its registered assigns.

 

2.5.                            Interest on Term Loans.

 

(a)                                  Except as otherwise set forth herein, each Term Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:

 

(i)                                     if a Base Rate Loan, at the Base Rate plus the Applicable Margin; or

 

(ii)                                  if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus the Applicable Margin.

 

(b)                                 All Term Loans shall be Eurodollar Rate Loans (i) except during the period commencing on the day on which the last Interest Period expires through the Maturity Date, during which period the Term Loans shall be Base Rate Loans, and (ii) unless otherwise converted to Base Rate Loans pursuant to Section 2.7 or Section 2.15.

 

(c)                                  As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower and each Lender.

 

(d)                                 Interest payable pursuant to Section 2.5(a) shall be computed (i) in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues.  In computing interest on any Term Loan, the date of the making of such Term Loan or the first day of an Interest Period applicable to such Term Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Term Loan or the expiration date of an Interest Period applicable to such Term Loan, as the case may be, shall be excluded; provided that if a Term Loan is repaid on the same day on which it is made, one day’s interest shall be paid on that Term Loan.

 

(e)                                  Except as otherwise set forth herein, interest on each Term Loan (i) shall accrue on a daily basis and shall be payable in arrears on each Interest Payment Date with respect to interest accrued on and to each such payment date; (ii) shall accrue on a daily basis and shall be payable in arrears upon any prepayment of that Term Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) shall accrue on a daily basis and shall be payable in arrears on the Maturity Date.

 

2.6.                            [Reserved.]

 

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2.7.                            Default Interest.  Upon the occurrence and during the continuance of an Event of Default, and without further notice, motion or application to, hearing before, or order from the Bankruptcy Court, the principal amount of all Term Loans outstanding and, to the extent permitted by applicable law, any interest payments on the Term Loans or any fees or other amounts owed hereunder, shall thereafter bear interest (including Post-Petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is 2.0% per annum in excess of the interest rate otherwise payable hereunder with respect to the applicable Term Loans (or, in the case of any such fees and other amounts, at a rate which is 2.0% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans.  Payment or acceptance of the increased rates of interest provided for in this Section 2.7 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.

 

2.8.                            Premiums, Consideration and Fees.

 

(a)                                  Borrower agrees to pay on the applicable Borrowing Date for each Term Loan, as compensation for the funding of such Term Loan, (i) to each Lender funding such Term Loan a closing put premium in an amount equal to 2.5% of the principal amount of such Term Loan funded by such Lender, payable to such Lender from the proceeds of its Term Loan as and when funded on such Borrowing Date and (ii) to the Back-Stop Lenders a back-stop put premium in an amount equal to 2.5% of the aggregate principal amount of the Term Loans funded on such Borrowing Date, payable to the Back-Stop Lenders pro rata, based on the proportion that each Back-Stop Lender’s Commitment bears to the Commitments of all Back-Stop Lenders, from the proceeds of the Term Loans as and when funded on such Borrowing Date.  Such premiums will be in all respects fully earned, due and payable on the applicable Borrowing Date and non-refundable and non-creditable thereafter.

 

(b)                                 Borrower agrees to pay on the Exit Facility Conversion Date, as compensation for the funding of the loans under the Exit Facility (the “Exit Facility Loans”), to the Lenders consideration for such conversion in an amount equal to 2.0% of the aggregate principal amount of such Exit Facility Loans (the “Conversion Consideration”), payable to the Lenders in accordance with their respective Pro Rata Share.  Such Conversion Consideration will be in all respects fully earned, due and payable on the Exit Facility Conversion Date and non-refundable and non-creditable thereafter.

 

(c)                                  In addition to any of the foregoing premiums and consideration, Borrower agrees to pay to Agents such other costs, expenses and fees in the amounts and at the times separately agreed upon.

 

2.9.                            Scheduled Payments.  The principal amount of the outstanding Term Loans, together with all other amounts owed hereunder with respect thereto, shall be repaid in full no later than the Maturity Date.

 

2.10.                     Voluntary Prepayments.

 

(a)                                  Any time and from time to time without payment of any prepayment premium or penalty except as provided in Section 2.15:

 

(i)                                     with respect to Base Rate Loans, Borrower may prepay any such Term Loans on any Business Day in whole or in part, in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000,000 in excess of that amount; and

 

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(ii)                                  with respect to Eurodollar Rate Loans, Borrower may prepay any such Term Loans on any Business Day in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000,000 in excess of that amount;

 

provided that in each case on the date of such proposed prepayment all amounts outstanding under the Pre-Petition Credit Agreements shall have been contemporaneously paid in full.

 

(b)                                 All such prepayments shall be made:

 

(i)                                     upon not less than one Business Day’s prior written or telephonic notice in the case of Base Rate Loans; and

 

(ii)                                  upon not less than three Business Days’ prior written or telephonic notice in the case of Eurodollar Rate Loans;

 

in each case given to Administrative Agent by 1:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed by delivery of written notice thereof to Administrative Agent (and Administrative Agent will promptly transmit such original notice by telefacsimile or telephone to each Lender).  Upon the giving of any such notice, the principal amount of the Term Loans specified in such notice shall become due and payable on the prepayment date specified therein.  Any such voluntary prepayment shall be applied as specified in Section 2.12.

 

2.11.                     Mandatory Prepayments.

 

(a)                                  Asset Sales.  No later than the first Business Day following the date of receipt by Borrower or any of its Subsidiaries of any Net Asset Sale Proceeds, Borrower shall prepay the Term Loans as set forth in Section 2.12 in an aggregate amount equal to such Net Asset Sale Proceeds; provided that no prepayment or reduction shall be required pursuant to this Section 2.11(a) in respect of any Net Asset Sale Proceeds received with respect to any Home Sale so long as (i) no Default or Event of Default has occurred and is continuing at the time of receipt of such Net Asset Sale Proceeds and (ii) such Net Asset Sale Proceeds shall be used solely to fund disbursements in accordance with the Approved Budget, the Interim Order and the Final Order and, pending application of such Net Asset Sale Proceeds for such purposes, shall be maintained in the Cash Collateral Account; provided, further, that if at any time the amount in the Cash Collateral Account exceeds $20,000,000 for any period of five consecutive Business Days, then Borrower shall prepay the Term Loans as set forth in Section 2.12 on the last Business Day of such period in an aggregate amount equal to such excess.

 

(b)                                 Insurance/Condemnation Proceeds.  No later than the first Business Day following the date of receipt by Borrower or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds, Borrower shall prepay the Term Loans as set forth in Section 2.12 in an aggregate amount equal to such Net Insurance/Condemnation Proceeds.

 

(c)                                  Issuance of Equity Securities.  On the date of receipt by Borrower of any Cash proceeds from a capital contribution to, or the issuance of any Equity Interests of, Borrower or any of its Subsidiaries, Borrower shall prepay the Term Loans as set forth in Section 2.12 in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.

 

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(d)                                 Issuance of Debt.  On the first Business Day following receipt by Borrower or any of its Subsidiaries of any Cash proceeds from the incurrence of any Indebtedness of Borrower or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Section 6.1), Borrower shall prepay the Term Loans as set forth in Section 2.12 in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.

 

(e)                                  Prepayment Certificate.  Concurrently with any prepayment of the Term Loans pursuant to Sections 2.11(a) through 2.11(d), Borrower shall deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds.  In the event that Borrower shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Borrower shall promptly make an additional prepayment of the Term Loans in an amount equal to such excess, and Borrower shall concurrently therewith deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the derivation of such excess.

 

2.12.                     Application of Prepayments.

 

(a)                                  Any prepayment of the Term Loans shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Borrower pursuant to Section 2.15(c).

 

(b)                                 Anything contained herein to the contrary notwithstanding, in the event Borrower is required to make any mandatory prepayment (a “Waivable Prepayment”) of the Term Loans, not less than three Business Days prior to the date (the “Prepayment Date”) on which Borrower is required to make such Waivable Prepayment, Borrower shall notify Administrative Agent of the amount of such prepayment, and Administrative Agent will promptly thereafter notify each Lender of the amount of such Lender’s Pro Rata Share of such Waivable Prepayment and such Lender’s option to refuse such amount.  Each such Lender may exercise such option by giving written notice to Borrower and Administrative Agent of its election to do so on or before the first Business Day prior to the Prepayment Date (it being understood that any Lender which does not notify Borrower and Administrative Agent of its election to exercise such option on or before the first Business Day prior to the Prepayment Date shall be deemed to have elected, as of such date, not to exercise such option).  On the Prepayment Date, Borrower shall pay to Administrative Agent the amount of the Waivable Prepayment, which amount shall be applied (i) in an amount equal to that portion of the Waivable Prepayment payable to those Lenders that have elected not to exercise such option, to prepay the Term Loans of such Lenders, and (ii) to the extent of any excess, to Borrower for working capital in accordance with the Approved Budget.

 

2.13.                     General Provisions Regarding Payments.

 

(a)                                  All payments by Borrower of principal, interest, fees and other Obligations shall be made in Dollars in same day funds, without defense, recoupment, set-off or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 1:00 p.m. (New York City time) on the date due at the Principal Office of Administrative Agent for the account of Lenders; for purposes of computing interest and fees, funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Borrower on the next succeeding Business Day.

 

(b)                                 All payments in respect of the principal amount of any Term Loan shall be accompanied by payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Term Loan on a date when interest is due and payable with respect to such Term Loan) shall be applied to the payment of interest then due and payable before application to principal.

 

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(c)                                  Subject to rights of recoupment and setoff that Administrative Agent has pursuant to Section 9.6, Administrative Agent (or its agent or sub-agent appointed by it) shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender’s applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including all fees payable with respect thereto, to the extent received by Administrative Agent.

 

(d)                                 Notwithstanding the foregoing provisions hereof, if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter.

 

(e)                                  Whenever any payment to be made hereunder with respect to any Term Loan shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day.

 

(f)                                    Administrative Agent shall deem any payment by or on behalf of Borrower hereunder that is not made in same day funds prior to 1:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day.  Administrative Agent shall give prompt telephonic notice to Borrower and each applicable Lender (confirmed in writing) if any payment is non-conforming.  Any non-conforming payment may constitute or become a Default or an Event of Default in accordance with the terms of Section 8.1(a).  Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.7 from the date such amount was due and payable until the date such amount is paid in full.

 

(g)                                 If an Event of Default shall have occurred and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.1, all payments or proceeds received by Agents in respect of any of the Obligations shall be applied in accordance with the application arrangements described in Section 9.2 of the Pledge and Security Agreement.

 

2.14.                     Ratable Sharing. Except as otherwise provided herein, the Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Term Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off, consolidation or banker’s lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, including with respect to the Chapter 11 Cases, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the “Aggregate Amounts Due” to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization 

 

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of Borrower or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest.  Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker’s lien, consolidation, set-off or counterclaim with respect to any and all monies owing by Borrower to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.  The provisions of this Section 2.14 shall not be construed to apply to (x) any payment made by Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by any Lender as consideration for the assignment or sale of a participation in any of its Term Loans or other Obligations owed to it.

 

2.15.                     Making or Maintaining Eurodollar Rate Loans

 

(a)                                  Inability to Determine Applicable Interest Rate.  In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Eurodollar Rate Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Borrower and each Lender of such determination, whereupon no Term Loans may be made as Eurodollar Rate Loans until such time as Administrative Agent notifies Borrower and the Lenders that the circumstances giving rise to such notice no longer exist.

 

(b)                                 Illegality or Impracticability of Eurodollar Rate Loans.  In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an “Affected Lender” and it shall on that day give notice (by e-mail or by telephone confirmed in writing) to Borrower and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender).  If Administrative Agent receives a notice from (x) any Lender pursuant to clause (i) of the preceding sentence or (y) a notice from Lenders constituting Requisite Lenders pursuant to clause (ii) of the preceding sentence, then (1) the obligation of the Lenders (or, in the case of any notice pursuant to clause (i) of the preceding sentence, such Lender) to make Term Loans as Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by each Affected Lender, (2) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Borrower pursuant to a Funding Notice, the Lenders (or in the case of any notice pursuant to clause (i) of the preceding sentence, such Lender) shall make such Term Loan as a Base Rate Loan, (3) the Lenders’ (or in the case of any notice pursuant to clause (i) of the preceding sentence, such Lender’s) obligations to maintain their respective outstanding Eurodollar Rate Loans (the “Affected Loans”) shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination.

 

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(c)                                  Compensation for Breakage or Non-Commencement of Interest Periods. Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid or payable by such Lender to Lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender may sustain (i) if for any reason (other than a default by such Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing; (ii) if any prepayment or other principal payment of, or any conversion of, any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Eurodollar Rate Loan; or (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Borrower.

 

(d)                                 Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to or for the account of any of its branch offices or the office of an Affiliate of such Lender.

 

(e)                                  Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this Section 2.15 and under Section 2.16 shall be made as though such Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, that each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.15 and under Section 2.16.

 

2.16.                     Increased Costs; Capital Adequacy.

 

(a)                                  Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.17 (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law) (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Term Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Borrower shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the 

 

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form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder.  Such Lender shall deliver to Borrower (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.16(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error.

 

(b)                                 Capital Adequacy Adjustment. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender’s Term Loans, or other obligations hereunder with respect to the Term Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Borrower from such Lender of the statement referred to in the next sentence, Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction.  Such Lender shall deliver to Borrower (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.16(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error.

 

2.17.                     Taxes; Withholding.

 

(a)                                  Payments to Be Free and Clear. All sums payable by or on behalf of any Credit Party hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Credit Party or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment.

 

(b)                                 Withholding of Taxes. If any Credit Party or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Credit Party to Administrative Agent or any Lender under any of the Credit Documents, (i) Borrower shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Borrower becomes aware of it; (ii) Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Credit Party) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (iii) the sum payable by such Credit Party in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within 30 days after paying any sum from which it is required by law to make any deduction or 

 

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withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (ii) above to pay, Borrower shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that (x) no such additional amount shall be required to be paid to any Lender (other than a Lender that becomes a Lender pursuant to Section 2.20) under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender; (y) such additional amounts shall be payable to a Lender to the extent such Lender’s assignor was entitled to receive such additional amounts; and (z) no such additional amount shall be required to be paid to any Lender that fails to comply with any applicable certification, documentation, information or other reporting or information solicitation requirements concerning the nationality, residence, identity, ownership or connection with the United States of any Person having a direct or indirect interest in a Term Loan Note (or any similar or related requirements under applicable law), if compliance with any such requirement is a precondition to relief or exemption from such tax, assessment or other governmental charge under the provisions of the Foreign Tax Compliance Act of 2009, S. 1934 and H.R. 3933, 111th Congress, as such proposed legislation may ultimately be enacted into law (or under substantially similar provisions under other legislation).

 

(c)                                  Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for United States federal income tax purposes (a “Non-U.S. Lender”) shall deliver to Administrative Agent for transmission to Borrower, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Borrower or Administrative Agent (each in the reasonable exercise of its discretion), (i) two original copies of Internal Revenue Service Form W-8BEN, W-8ECI and/or W-8IMY (or, in each case, any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Borrower to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (ii) if such Lender is not a “bank” or other Person described in Section 881(c)(3) of the Internal Revenue Code, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8BEN (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Borrower to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Credit Documents.  Each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for United States federal income tax purposes (a “U.S. Lender”) and is not an exempt recipient within the meaning of Treasury Regulation Section 1.6049-4(c) shall deliver to Administrative Agent and Borrower on or prior to the Closing Date (or, if later, on or prior to the date on which such Lender becomes a party to this Agreement) two original copies of Internal Revenue Service Form W-9 (or any successor form), properly completed and duly executed by such Lender, certifying that such U.S. Lender is entitled to an exemption from United States backup withholding tax, or otherwise prove that it is entitled to such an exemption. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.17(c) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in 

 

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time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to Administrative Agent for transmission to Borrower two new original copies of Internal Revenue Service Form W-8BEN, W-8ECI and/or W-8IMY (or, in each case, any successor form), or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8BEN (or any successor form), as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Borrower to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Credit Documents, or notify Administrative Agent and Borrower of its inability to deliver any such forms, certificates or other evidence.  Borrower shall not be required to pay any additional amount to any Non-U.S. Lender under Section 2.17(b)(iii) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the first sentence of this Section 2.17(c), or (2) to notify Administrative Agent and Borrower of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided that if such Lender shall have satisfied the requirements of the first sentence of this Section 2.17(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of Section 2.17(c) shall relieve Borrower of its obligation to pay any additional amounts pursuant to Section 2.17(b)(iii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein.

 

(d)                                 Refunds. If Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has paid additional amounts pursuant to this Section 2.17, it shall pay over such refund to Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by Borrower under this Section 2.17 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses of Administrative Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that Borrower, upon the request of Administrative Agent or such Lender, agrees to repay the amount paid over to Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Administrative Agent or such Lender in the event Administrative Agent or such Lender is required to repay such refund to such Governmental Authority.  This Section 2.17(d) shall not be construed to require Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to Borrower or any other Person.

 

(e)                                  Other Taxes. Without limiting the provisions of Section 2.17(b), Borrower shall timely pay all Other Taxes to the relevant Governmental Authorities in accordance with applicable law and shall deliver to Administrative Agent official receipts or other evidence of such payment reasonably satisfactory to Administrative Agent in respect of any Other Taxes payable hereunder promptly after payment of such Other Taxes.

 

(f)                                    Indemnification for Taxes. Borrower shall indemnify Administrative Agent and any Lender for the full amount of Taxes for which additional amounts are required to be paid pursuant to Section 2.17(b) and Other Taxes, in each case arising in connection with payments made under this Agreement or any other Credit Document (including any such Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.17) paid by Administrative Agent or such Lender or any of their respective Affiliates and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  Such payment shall be due within 30 days of such Credit Party’s receipt of such certificate.

 

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2.18.                     Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Term Loans becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.15, 2.16 or 2.17, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Term Loans, including any Affected Loans, through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.15, 2.16 or 2.17 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, funding or maintaining of such Term Loans through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Term Loans or the interests of such Lender; provided that such Lender will not be obligated to utilize such other office pursuant to this Section 2.18 unless Borrower agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other office as described above.  A certificate as to the amount of any such expenses payable by Borrower pursuant to this Section 2.18 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Borrower (with a copy to Administrative Agent) shall be conclusive absent manifest error.

 

2.19.                     Insolvency Defaulting Lenders. Anything contained herein to the contrary notwithstanding, in the event that any Lender becomes an Insolvency Defaulting Lender, then during any Default Period with respect to such Insolvency Defaulting Lender, such Insolvency Defaulting Lender shall be deemed not to be a “Lender” for purposes of any amendment, waiver or consent with respect to any provision of the Credit Documents that requires the approval of Requisite Lenders.  During any Default Period with respect to an Insolvency Defaulting Lender, any amounts that would otherwise be payable to such Insolvency Defaulting Lender under the Credit Documents (including, without limitation, voluntary and mandatory prepayments and fees) may, in lieu of being distributed to such Insolvency Defaulting Lender, at the written direction of Borrower to Administrative Agent, be retained by Administrative Agent to collateralize indemnification and reimbursement obligations of such Insolvency Defaulting Lender in an amount reasonably determined by Administrative Agent. Performance by Borrower of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Lender becoming an Insolvency Defaulting Lender or the operation of this Section 2.19; provided that nothing in this Section 2.19 shall be construed to limit any rights and remedies which Borrower may have against such Insolvency Defaulting Lender.  The rights and remedies against an Insolvency Defaulting Lender under this Section 2.19 are in addition to other rights and remedies which Borrower may have against such Insolvency Defaulting Lender as a result of it becoming an Insolvency Defaulting Lender and which Administrative Agent or any Lender may have against such Insolvency Defaulting Lender with respect thereto. Administrative Agent shall not be required to ascertain or inquire as to the existence of any Insolvency Defaulting Lender.

 

2.20.                     Removal or Replacement of a Lender.  Anything contained herein to the contrary notwithstanding, in the event that (a) (i) any Lender (an “Increased-Cost Lender”) shall give notice to Borrower that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.15, 2.16 or 2.17, (ii) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after Borrower’s request for such withdrawal; or (b) (i) any Lender shall become an Insolvency Defaulting Lender, (ii) the Default Period for such Insolvency Defaulting Lender shall remain in effect, and (iii) such Insolvency Defaulting Lender shall fail to cure the default as a result of which it has become an Insolvency Defaulting Lender within five Business Days after Borrower’s request that it cure such default; or (c) in connection with any 

 

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proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.5 or any other Credit Document, the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each, a “Non-Consenting Lender”) whose consent is required shall not have been obtained after written request therefor; then, with respect to each such Increased-Cost Lender, Insolvency Defaulting Lender or Non-Consenting Lender (the “Terminated Lender”), any of Borrower, Administrative Agent or Requisite Lenders (or their designee) may, by giving written notice to Administrative Agent, Borrower and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Term Loans, if any, in full to one or more Eligible Assignees (each a “Replacement Lender”) in accordance with the provisions of Section 10.6 and Borrower shall pay the fees, if any, payable thereunder in connection with any such assignment from a Terminated Lender; provided that (1) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Term Loans of the Terminated Lender and (B) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.8; (2) on the date of such assignment, Borrower shall pay any amounts payable to such Terminated Lender pursuant to Section 2.15, 2.16 or 2.17 or otherwise as if it were a prepayment; and (3) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender.  Upon the prepayment of all amounts owing to any Terminated Lender, if any, such Terminated Lender shall, without further action by any Person and notwithstanding anything in Section 10.6 or the Credit Documents to the contrary, no longer constitute a “Lender” for purposes hereof nor have any rights hereunder, and neither Borrower, Administrative Agent nor the Lenders shall have any obligation to recognize such Terminated Lender as a Lender hereunder for any purpose.  Each Lender agrees that if any of Borrower, Administrative Agent or Requisite Lenders exercises its option hereunder to cause an assignment by such Lender as a Terminated Lender, such Lender shall, promptly after receipt of written notice of such election, execute and deliver all documentation requested by such Person to evidence such assignment; provided that the execution of such documentation shall not be a condition to such assignment becoming effective.  In the event that a Lender does not comply with the requirements of the immediately preceding sentence  within one Business Day after receipt of such notice, each Lender hereby authorizes and directs Administrative Agent to execute and deliver such documentation on behalf of a Terminated Lender, and any such documentation so executed by Administrative Agent shall be effective hereunder.

 

2.21.                     Super Priority Nature of Obligations and Lenders’ Liens.  At all times prior to the Exit Facility Conversion Date:

 

(a)                                  The priority of the Secured Parties’ Liens on the Collateral owned by the Credit Parties shall be set forth in the Interim Order or the Final Order, whichever is then in effect.

 

(b)                                 All Obligations shall constitute administrative expenses of the Credit Parties in the Chapter 11 Cases, with administrative priority and senior secured status under Sections 364(c)(1), 364(c)(2), 364(c)(3) and 364(d) of the Bankruptcy Code, all as set forth in, and qualified entirely by, the Interim Order and the Final Order.  Such administrative claim shall have superpriority over all other costs and expenses of the kinds specified in, or ordered pursuant to, Sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726, 1114 or any other provision of the Bankruptcy Code or otherwise, and shall at all times be senior to the rights of the Credit Parties, the estates of the Credit Parties, and any successor trustee or estate representative in the Chapter 11 Cases or any subsequent proceeding or case under the Bankruptcy Code.  The Liens granted to the Secured Parties on the Collateral owned by the Credit Parties, and the priorities accorded to the Obligations, shall have the priority and senior secured status afforded by Sections 364(c)(1), 364(c)(2), 364(c)(3) and 364(d) of the Bankruptcy Code (all as 

 

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more fully set forth in the Interim Order or the Final Order, whichever is then in effect) senior to all claims and interests other than as otherwise provided in the Interim Order and the Final Order; it being understood that the Liens granted to the Secured Parties on the Lancaster Account shall be junior to any valid, perfected and unavoidable Liens in favor of IndyMac Ventures, LLC against the Lancaster Account pursuant to Section 364(c)(3) of the Bankruptcy Code but senior to any other valid, perfected and unavoidable Liens against the Lancaster Account pursuant to Section 364(d) of the Bankruptcy Code (all as more fully set forth in the Interim Order or the Final Order, whichever is then in effect).

 

(c)                                  The Secured Parties’ Liens on the Collateral owned by the Credit Parties and the Secured Parties’ respective administrative claims under Sections 364(c)(1), 364(c)(2), 364(c)(3) and 364(d) of the Bankruptcy Code afforded the Obligations shall also have priority over any claims arising under Section 506(c) of the Bankruptcy Code.  Except as set forth herein or in the Interim Order or the Final Order, whichever is then in effect, no other claim having a priority superior or pari  passu to that granted to the Secured Parties by the Interim Order or the Final Order, whichever is then in effect, shall be granted or approved while any Obligations under this Agreement remain outstanding.  No costs or expenses of administration shall be imposed against Administrative Agent, the Lenders, any other Secured Party or any of the Collateral under Sections 105 or 506(c) of the Bankruptcy Code or otherwise, and each of the Credit Parties hereby waives for itself and on behalf of its estate in bankruptcy, any and all rights under Sections 105 or 506(c) of the Bankruptcy Code or otherwise to assert or impose, or seek to assert or impose, any such costs or expenses of administration against Administrative Agent, the Lenders or any other Secured Party.

 

2.22.                     Payment of Obligations.  Upon the maturity (whether by acceleration or otherwise) of any of the Obligations under this Agreement or any of the other Credit Documents, Agents and the Lenders shall be entitled to immediate payment of such Obligations without further application to or order of the Bankruptcy Court.

 

2.23.                     No Discharge; Survival of Claims.  Borrower, on behalf of itself and its Subsidiaries, agrees that (a) the Obligations hereunder shall not be discharged by the entry of the Confirmation Order or any other order confirming any plan of reorganization of any or all of Borrower and its respective Subsidiaries (and Borrower, on behalf of itself and its Subsidiaries, pursuant to Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such discharge) and (b) the super-priority administrative claim granted to Agents and the Lenders pursuant to the Interim Order and the Final Order and described therein and the Liens granted to Agents pursuant to the Interim Order and the Final Order and described therein shall not be affected in any manner by the entry of the Confirmation Order or any other order confirming any plan of reorganization of any or all of Borrower and its respective Subsidiaries.

 

2.24.                     Release.  Subject to and qualified entirely by the Interim Order or the Final Order, as applicable, Borrower, on behalf of itself and its Subsidiaries, hereby acknowledges that neither Borrower nor any of its Subsidiaries has any defense, counterclaim, offset, recoupment, cross-complaint, claim, objection or demand of any kind or nature whatsoever that can be asserted to reduce or eliminate all or any part of the Credit Parties’ liability to repay the Secured Parties as provided in this Agreement or to seek affirmative relief or damages of any kind or nature from any Secured Party, solely in its capacity as a Secured Party. Borrower, in its own right and with respect to its Subsidiaries and the Credit Parties’ bankruptcy estates, and on behalf of all their respective successors, assigns, Subsidiaries and any Affiliates and any Person acting for and on behalf of, or claiming through them, (collectively, the “Releasing Parties”), hereby fully, finally and forever releases and discharges each Secured Party and all of each Secured Party’s past and present officers, directors, servants, agents, attorneys, assigns, heirs, parents, Subsidiaries, Affiliates and each Person acting for or on behalf of any of them (collectively, the “Released Parties”) of and from any and all past, present and future actions, causes of action, demands, 

 

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suits, claims, liabilities, Liens, lawsuits, adverse consequences, amounts paid in settlement, costs, damages, debts, deficiencies, diminution in value, disbursements, expenses, losses and other obligations of any kind or nature whatsoever, whether in law, equity or otherwise (including, without limitation, those arising under Sections 541 through 550 of the Bankruptcy Code and interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses, and incidental, consequential and punitive damages payable to third parties), whether known or unknown, fixed or contingent, direct, indirect, or derivative, asserted or unasserted, foreseen or unforeseen, suspected or unsuspected, now existing, heretofore existing or which may heretofore accrue against any of the Released Parties, whether held in a personal or representative capacity, and which are based on any act, fact, event or omission or other matter, cause or thing occurring at or from any time prior to and including the date hereof in any way, directly or indirectly arising out of, connected with or relating to this Agreement, the other Credit Documents, the Plan Support Agreement, the Interim Order, the Final Order, the Disclosure Statement or the Plan of Reorganization and the transactions contemplated hereby and thereby, and all other agreements, certificates, instruments and other documents and statements (whether written or oral) related to any of the foregoing.

 

2.25.                     Waiver of any Priming Rights and Non-Consensual Use of Cash Collateral.  Upon the Closing Date, and on behalf of itself and its estates, and for so long as any Obligations shall be outstanding, Borrower, on behalf of itself and its Subsidiaries, hereby irrevocably waives (i) any right, pursuant to Sections 364(c) or 364(d) of the Bankruptcy Code or otherwise, to grant, or to seek Bankruptcy Court approval of the granting of, any Lien of equal or greater priority than the Liens securing the Obligations, or to grant, or to seek Bankruptcy Court approval of the granting of, a claim of equal or greater priority than the Obligations, except as permitted hereunder and under the Interim Order and the Final Order, and (ii) except as provided herein and in the Interim Order or the Final Order, any right, pursuant to Section 363 of the Bankruptcy Code or otherwise, to use, or to seek Bankruptcy Court approval of the use of, Collateral proceeds or any other cash collateral (as defined in the Bankruptcy Code) in any manner not permitted by the Credit Documents or otherwise without the consent of Administrative Agent.

 

SECTION 3.                         CONDITIONS PRECEDENT

 

3.1.                            Conditions to Closing Date.  The obligation of each Lender to make a Term Loan on the Closing Date is subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions on or before the Closing Date:

 

(a)                                  Credit Documents.  Administrative Agent shall have received copies of each Credit Document (other than the Credit Documents set forth in Schedule 5.16) sufficient to distribute to each Lender or as Administrative Agent shall request, originally executed (and notarized, as applicable) and delivered by each applicable Credit Party.

 

(b)                                 Organizational Documents; Incumbency.  Administrative Agent shall have received, in respect of each Credit Party, (i) sufficient copies of each Organizational Document as Administrative Agent shall request, and, to the extent applicable, certified as of the Closing Date or a recent date prior thereto by the secretary of such Credit Party (or of such Credit Party’s managing member); (ii) signature and incumbency certificates of the officers of such Credit Party; (iii) resolutions of the Board of Directors or similar governing body of such Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents to which it is a party or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) except in respect of the Credit Parties identified on Schedule 4.1 as not being in good standing, a good standing certificate from the applicable Governmental Authority of such Credit Party’s jurisdiction of incorporation, organization or formation dated the Closing Date or a recent date prior thereto; and (v) such other documents as Administrative Agent may reasonably request.

 

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(c)           Governmental Authorizations and Consents.  Each Credit Party shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Credit Documents, and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to Administrative Agent.  All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.

 

(d)           Premiums, Consideration and Fees.  Borrower shall have paid to each Agent and each Lender the premiums, consideration and fees payable on or before the Closing Date referred to in Section 2.8(a) and (c) and all costs and expenses payable pursuant to Section 10.2 which have accrued to the Closing Date.

 

(e)           Patriot Act.  The Lenders shall have received all documentation and other information required by bank regulatory authorities under applicable “know-your-customer” and anti-money laundering rules and regulations, including the PATRIOT Act.

 

(f)            Funding Notice.  Administrative Agent shall have received a fully executed and delivered Funding Notice no later than three Business Days prior to the Closing Date or such shorter period of time acceptable to Administrative Agent.

 

(g)           No Default; Truth of Representations.  As of the Closing Date, (i) no Default or Event of Default exists or would result from the consummation of the transactions contemplated by the Credit Documents and (ii) the representations and warranties of each Credit Party contained in Section 4 or any other Credit Document are true and correct.

 

(h)           Approved Budget.  Administrative Agent shall have received an initial 13-week cash flow budget for the period commencing on the Closing Date substantially in the form of Exhibit G (the “Initial  Approved Budget”), to be attached to the Interim Order which shall be in form and substance satisfactory to Administrative Agent.

 

(i)            Interim Order.  Administrative Agent shall have received a signed copy of the Interim Order, and the Interim Order shall be in full force and effect.

 

(j)            Plan Support Agreement.  The Plan Support Agreement shall have been duly executed and delivered by the parties thereto, shall be in full force and effect and shall not have been amended, supplemented or otherwise modified without the prior written consent of Administrative Agent except in accordance with the provisions thereof.

 

3.2.         Conditions to Final Loan Date.  The obligation of each Lender to make a Term Loan on the Final Loan Date is subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions on or before the Final Loan Date:

(a)           Final Order.  Administrative Agent shall have received a signed copy of the Final Order, and the Final Order shall be in full force and effect.

 

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(b)           Premiums, Consideration and Fees.  Borrower shall have paid to each Agent and each Lender the premiums, consideration and fees payable on or before the Final Loan Date referred to in Section 2.8(a) and (c) and all costs and expenses payable pursuant to Section 10.2 which have accrued to the Final Loan Date.

 

(c)           No Litigation.  Other than the Chapter 11 Cases, there shall not exist any action, suit, investigation, litigation, proceeding, hearing or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority with respect to the Existing Indebtedness, the DIP Facility or that, in the reasonable opinion of Administrative Agent, singly or in the aggregate, materially impairs the transactions contemplated by the Credit Documents or that could have a Material Adverse Effect.

 

(d)           Funding Notice.  Administrative Agent shall have received a fully executed and delivered Funding Notice no later than three Business Days prior to the Final Loan Date or such shorter period of time acceptable to Administrative Agent.

 

(e)           No Default; Truth of Representations.  As of the Final Loan Date, (i) no Default or Event of Default exists or would result from the consummation of the transactions contemplated by the Credit Documents and (ii) the representations and warranties of each Credit Party contained in Section 4 or any other Credit Document are true and correct.

 

3.3.         Conditions to Exit Facility Option.  The Lenders hereby grant Borrower the option (the “Exit Facility Option”) to cause the DIP Facility to be converted to an Exit Facility by amending and restating this Agreement or entering into a new agreement with the Lenders, in each case on terms and conditions consistent with the Plan of Reorganization and satisfactory in form and substance to Requisite Lenders (the “Exit Facility Documentation”), subject to the satisfaction, or waiver by Requisite Lenders, of the following conditions on or before the Exit Facility Conversion Date:

 

(a)           Notice of Exercise.  Borrower shall have given, and the Lenders shall have received, not less than five Business Days’ prior written notice of the exercise of the Exit Facility Option.

 

(b)           Premiums, Consideration, and Fees.  Borrower shall have paid to each Agent and each Lender (i) the premiums, consideration and fees payable on or before the Exit Facility Conversion Date referred to in Section 2.8(b) and (c), (ii) all expenses (including reasonable fees and expenses of counsel) payable pursuant to Section 10.2 or pursuant to the Exit Facility Documentation that have accrued to the Exit Facility Conversion Date, and (iii) notwithstanding any rights Borrower may have under applicable law, including any rights under the Settlement and Release Agreement dated July 13, 2010, which was approved by the Bankruptcy Court by Order entered  in the Chapter 11 Cases on August 24, 2010, all unreimbursed expenses incurred by the Lenders during the Chapter 11 Cases (including reasonable fees and expenses of counsel) in the Lenders’ capacity as Pre-Petition Lenders;

 

(c)           Exit Facility Conversion Date.  The Exit Facility Conversion Date shall occur not later than the Maturity Date as in effect immediately prior to the exercise by Borrower of the Exit Facility Option.

 

(d)           Credit Documents.  Administrative Agent shall have received sufficient copies of all documentation in connection with the Exit Facility (including all security agreements, pledge agreements, mortgages, account control agreements and all other instruments, documents and agreements requested in order to grant to, or perfect in favor of, Collateral Agent, for the benefit of the Secured Parties, Liens on all real, personal and mixed property of Borrower and all of its Subsidiaries (collectively, the “Exit Credit Parties”) as security for the obligations of the Exit Credit Parties under the Exit Facility) as Administrative Agent shall request, originally executed (and notarized, as applicable) and delivered by each applicable Exit Credit Party, in each case on terms and conditions consistent with the Plan of Reorganization and satisfactory in form and substance to Administrative Agent.

 

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(e)           Organizational Documents; Incumbency.  Administrative Agent shall have received, in respect of each Exit Credit Party, (i) sufficient copies of each Organizational Document as Administrative Agent shall request, and, to the extent applicable, certified as of the Exit Facility Conversion Date or a recent date prior thereto by the appropriate Governmental Authority; (ii) signature and incumbency certificates of the officers of such Exit Credit Party; (iii) resolutions of the Board of Directors or similar governing body of such Exit Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents to which it is a party or by which it or its assets may be bound as of the Exit Facility Conversion Date, certified as of the Exit Facility Conversion Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable Governmental Authority of such Exit Credit Party’s jurisdiction of incorporation, organization or formation dated the Exit Facility Conversion Date or a recent date prior thereto and (v) such other documents as Administrative Agent may reasonably request.

 

(f)            Governmental Authorizations and Consents.  Each Exit Credit Party shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Exit Facility documentation and the financing thereof, and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to Administrative Agent.  No change in law or regulation shall be applicable in the reasonable judgment of Administrative Agent that would restrain, prevent or otherwise impose materially adverse conditions on the transactions contemplated by the Exit Facility documentation or the financing thereof.  All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Exit Facility documentation or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.

 

(g)           Opinions.  Each Agent shall have received opinions of counsel (which counsel shall be reasonably satisfactory to Agents), satisfactory in form and substance to Agents, covering such matters relating to the Exit Credit Parties, the Exit Facility documentation and the transactions contemplated thereby as Agents shall reasonably request, including, without limitation, with respect to the creation and perfection of the security interests in favor of Collateral Agent in the Collateral (and any other collateral to be pledged under the Exit Facility, as provided in the Plan of Reorganization) and such other matters governed by the laws of each jurisdiction in which any Exit Credit Party or any real, personal or mixed property collateral is located.

 

(h)           Collateral.  Collateral Agent shall have received:

 

(i)            a completed collateral certificate providing information with respect to the real, personal or mixed property of each Exit Credit Party, in form reasonably satisfactory to Collateral Agent, dated the Exit Facility Conversion Date and executed by an Authorized Officer of each Exit Credit Party, together with all attachments contemplated thereby, including the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements (or equivalent filings) made with respect to any real, personal or mixed property of any Exit Credit Party in the jurisdictions specified in such collateral certificate, together with copies of all such filings disclosed by such search;

 

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(ii)           all such releases as reasonably requested by Collateral Agent, in form reasonably satisfactory to Collateral Agent, with respect to the termination and release of any Liens on the real, personal or mixed property of any Exit Credit Party (other than any Liens in respect of “Permitted Liens” as defined in the Exit Facility documentation), including, without limitation, (A) UCC termination statements (or similar documents) duly authorized by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements (or equivalent filings) disclosed in such search, (B) terminations or reassignments of any Liens on any patents, trademarks, copyrights or other intellectual property on which filings have been made, and (C) terminations of all mortgages, leasehold mortgages, hypothecs and deeds of trust created with respect to any Real Estate Asset;

 

(iii)          all such documents, certificates, reports or assurances as reasonably requested by Collateral Agent with respect to any Real Estate Asset, including, without limitation, environmental reports, appraisals, surveys and certifications as to permits, zoning compliance and condemnation proceedings; and

 

(iv)          evidence that each Exit Credit Party shall have taken or caused to be taken any action, executed and delivered or caused to be executed and delivered any agreement, document and instrument, and made or caused to be made any filing and recording reasonably required by Collateral Agent to the extent necessary to maintain or cause the perfection of the Liens granted under the Exit Facility documentation.

 

(i)            Insurance.  Collateral Agent shall have received endorsements from Borrower’s insurance broker naming Collateral Agent, for the benefit of Secured Parties, as additional insured and loss payee thereunder to the extent required under the Exit Facility documentation.

 

(j)            Bankruptcy Matters.  (i) The Bankruptcy Court shall have entered the Confirmation Order and (x) the time to appeal the Confirmation Order or to seek review, rehearing or certiorari with respect to the Confirmation Order shall have expired, (y) unless otherwise waived by Administrative Agent, no appeal or petition for review, rehearing or certiorari with respect to the Confirmation Order shall be pending, and (z) the Confirmation Order shall otherwise be in full force and effect, and shall not have been vacated, reversed, modified, amended or stayed in any respect that, in the good faith judgment of Administrative Agent, is adverse to any or all of Administrative Agent, Collateral Agent and the Lenders without the written consent of Administrative Agent; (ii) the Plan of Reorganization and all documents filed in connection therewith (x) shall have become effective in accordance with their terms, and (y) shall not have been modified, altered, amended or otherwise changed or supplemented in any respect that, in the good faith judgment of Administrative Agent, is adverse to any or all of Administrative Agent, Collateral Agent and the Lenders without the written consent of Administrative Agent;  (iii) all conditions precedent to the effectiveness of the Plan of Reorganization (other than the conversion of the DIP Facility to the Exit Facility pursuant hereto) shall have been satisfied, shall be satisfied substantially simultaneously with the conversion of the DIP Facility to the Exit Facility, or shall be waived (with the prior written consent of Administrative Agent); and (iv) the transactions contemplated by the Plan of Reorganization and the Confirmation Order to occur on the effective date of the Plan of Reorganization and the Confirmation Order shall be consummated on the effective date of the Plan of Reorganization (and pursuant to the Plan of Reorganization, the Exit Credit Parties and their respective property shall have been discharged from, and have no further liability with respect to, Claims and Liens against the Exit Credit Parties provided in the Plan of Reorganization) and substantially simultaneously with the occurrence of the Exit Facility Conversion Date.

 

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(k)           No Default; Truth of Representations.  As of the Exit Facility Conversion Date, (i) no event shall have occurred and be continuing or would result from the exercise by Borrower of the Exit Facility Option that would constitute a “Default” or “Event of Default” under and as defined in either this Agreement or the Exit Facility documentation and (ii) the representations and warranties of each Exit Credit Party contained in the Exit Facility documentation shall be true and correct.

 

(l)            Other Indebtedness.  Concurrently with the consummation of the Plan of Reorganization, (a) all pre-existing Indebtedness of the Exit Credit Parties shall have been satisfied or otherwise treated in the manner specified in the Plan of Reorganization, and all Liens and security interests related thereto, to the extent required by the Plan of Reorganization, shall have been terminated or released, (b) the respective Indebtedness of the Exit Credit Parties and any Liens securing same that are outstanding immediately after the consummation of the Plan of Reorganization shall not exceed the amount contemplated by the Plan of Reorganization, and (c) there shall not occur as a result of, and after giving effect to, the Exit Facility Option, a default (or any event which with the giving of notice or lapse of time or both will be a default) under any of the reorganized Exit Credit Parties’ debt instruments and other material agreements.

 

Notwithstanding the foregoing, to the extent that any Assumed Exit Term is excluded from the Exit Facility Documentation, or any term or condition in the Exit Facility Documentation is inconsistent in any material respect with any of the  Assumed Exit Terms, and a Lender (a “Non-Consenting Exit Lender”) does not consent to such exclusion or perceived material inconsistency, then such Non-Consenting Exit Lender shall have the right to raise an objection to such exclusion or the reasonableness of such term or condition that it believes to be materially inconsistent with the Exit Facility Documentation, which objection shall be filed with the Bankruptcy Court and served upon the other parties to the Plan Support Agreement by no later than the date on which objections to the Plan of Reorganization are due, such that the objection may be considered by the Bankruptcy Court at the confirmation hearing. The determination of the Bankruptcy Court with respect to any such objection shall be binding upon all of the Lenders.

 

SECTION 4.         REPRESENTATIONS AND WARRANTIES

 

In order to induce Agents and the Lenders to enter into this Agreement and to make each Term Loan to be made thereby, each Credit Party represents and warrants to each Agent and each Lender, on each Borrowing Date and the Exit Facility Conversion Date, that the following statements are true and correct (it being understood and agreed that the representations and warranties made on the Closing Date are deemed to be made concurrently with the consummation of the transactions contemplated hereby):

 

4.1.         Corporate Authority, Enforceability and Ownership.

 

(a)           Organization; Good Standing.  Borrower and each Guarantor is duly incorporated or formed pursuant to its articles of incorporation or formation, as the case may be, filed with the Secretary of State of the State of its respective jurisdiction of organization as identified in Schedule 4.1 and is validly existing and in good standing under the laws of such State, except as set forth on Schedule 4.1.  Borrower and each Guarantor is qualified to do business in each State where Borrower is required to be so qualified pursuant to the local laws thereof or where the failure to be so qualified could have a Material Adverse Effect.  Each of Borrower and the Guarantors (i) has all requisite power to own its respective properties and conduct its respective business as now conducted and as presently contemplated, and (ii) to the extent applicable, is in good standing as a foreign entity and is duly authorized to do business in the jurisdictions where legally necessary for the conduct of its business.

 

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(b)           Authorization.  Upon entry by the Bankruptcy Court of the Interim Order, the execution, delivery and performance of the Credit Documents by each Credit Party that is a party thereto and the transactions contemplated hereby and thereby (i) are within the authority of such Person, (ii) have been duly authorized by all necessary proceedings on the part of such Person, (iii) do not and will not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which such Person is subject or any judgment, order, writ, injunction, license or permit applicable to such Person, (iv) do not and will not (whether with the passage of time or the giving of notice, or both) conflict with or constitute a default under any provision of the articles of incorporation, articles of organization, partnership agreement, declaration of trust or other charter documents, bylaws or operating agreement of, or any agreement or other instrument binding upon, such Person or any of its properties, and (v) do not and will not result in or require the imposition of any lien or other encumbrance on any of the properties, assets or rights of such Person, except for the liens and security title granted by the Credit Documents.

 

(c)           Enforceability.  Upon entry by the Bankruptcy Court of the Interim Order, each Credit Document entered into on such date has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable in accordance with the respective terms and provisions hereof and thereof.

 

(d)           Default Under Organizational Documents.  No director, officer, member or shareholder of Borrower or Guarantor is in default in the performance of any of its obligations under the respective Organizational Documents of Borrower or Guarantor, except as set forth on Schedule 4.1.

 

4.2.         Governmental Approvals.  The execution, delivery and performance of the Credit Documents by each Credit Party that is a party thereto and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any Governmental Authority, except for entry by the Bankruptcy Court of the Interim Order, with respect to the Interim Loans, and the Final Order, with respect to the Final Loans.

 

4.3.         Chief Executive Office.  The chief executive office of Borrower is and shall be located at 6 Executive Circle, Suite 250, Irvine, CA 92614.

 

4.4.         Fiscal Year.  Borrower and each Guarantor has a fiscal year ending December 31 of each calendar year.

 

4.5.         Regulations T, U and X.  No portion of any Term Loan is to be used by Borrower for the purpose of purchasing or carrying any “margin security” or “margin stock” as such terms are used in Regulation T, Regulation U and Regulation X of the Board of Governors.

 

4.6.         Investment Company Act.  Neither Borrower nor any Guarantor is an “investment company”, or an “affiliated company” or a “principal underwriter” of an “investment company”, as such terms are defined in the Investment Company Act.

 

4.7.         Reportable Transaction.  Neither Borrower, nor any Guarantor, any non-Borrower trustor, nor any Subsidiary of any of the foregoing intends to treat the Term Loans or the transactions contemplated by this Agreement and the other Credit Documents as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4). If Borrower, or any other party to the Credit Documents, determines to take any action inconsistent with such intention, Borrower will promptly notify Administrative Agent thereof.  If Borrower so notifies Administrative Agent, Borrower acknowledges that Administrative Agent may treat the Term Loans as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and Administrative Agent will maintain the lists and other records, including the identity of the applicable party to the Term Loans as required by such Treasury Regulation.

 

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4.8.         Tax Status.  Each of Borrower and Guarantors (a) has made or filed all Post-Petition federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, if applicable or required, except to the extent such Person has obtained an extension of the deadline to file such return, (b) has paid all Post-Petition taxes and other private or governmental assessments and charges shown or determined to be due on such returns, reports and declarations, if applicable or required, except those being contested in good faith and by appropriate proceedings and (c) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply, if applicable or required. There are no unpaid taxes or assessments in any material amount claimed to be due by the taxing authority of any jurisdiction or pursuant to any private agreement except for those that are being contested as permitted in this Agreement or as disclosed on Schedule 4.8, and the members or officers of such Person know of no basis for any such claim.

 

4.9.         Brokers.  Neither Borrower nor any Guarantor has engaged or otherwise dealt with any broker, finder or similar entity in connection with this Agreement or the Term Loans contemplated hereunder.

 

4.10.       Material Contracts.  As of the Closing Date, all of the Material Contracts are in full force and effect, and no Post-Petition defaults currently exist thereunder other than as a result of the filing of the Chapter 11 Cases (and any payment default directly related to such filing as of the Closing Date).

 

4.11.       Other Indebtedness.  Neither Borrower nor any Guarantor has any Indebtedness not permitted by Section 6.1.  All Indebtedness of Borrower and Guarantors as of the Closing Date, either jointly or severally, is shown on the balance sheets and other financial information provided to Administrative Agent and each Lender on or before the Closing Date with respect to such entity.

 

4.12.       Litigation.  Except for the Chapter 11 Cases and as set forth in Schedule 4.12, there are no actions, suits, proceedings or investigations of any kind pending or, to Borrower’s or any Guarantor’s knowledge and belief, threatened against Borrower or any Guarantor before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, have a Material Adverse Effect or materially impair the right of such Person to carry on business substantially as now conducted by it, or result in any liability not adequately covered by insurance, or for which adequate reserves are not maintained on the balance sheet of such Person, or which might question the validity of any of the Credit Documents, any action taken or to be taken pursuant hereto or thereto or any lien or security interest created or intended to be created pursuant hereto or thereto, or which will materially and adversely affect the ability of such Person to pay and perform the Obligations in the manner contemplated by the Credit Documents.  There are no judgments outstanding against or affecting Borrower, any Guarantor or any of the Collateral which would have a Material Adverse Effect.

 

4.13.       Insurance.  The policies of insurance or certificates of insurance furnished to Administrative Agent with respect to the business and properties of Borrower are in full force and effect, and no notice of cancellation or non-renewal has been received with respect thereto.  Since the commencement of its business, Borrower and each Guarantor, as applicable, has maintained commercially reasonable and adequate amounts of insurance. A list of Borrower’s insurance policies furnished to Administrative Agent is included in Schedule 4.13.

 

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4.14.       Compliance with Other Instruments, Laws.

 

(a)           To their knowledge, neither Borrower nor any Guarantor is in violation of any provision of any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, writ, injunction, statute, license, permit, rule or regulation, in any of the foregoing cases in a manner that, individually or in the aggregate, could result in the imposition of substantial penalties or could have a Material Adverse Effect.

 

(b)           To the extent applicable, each Credit Party is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) the PATRIOT Act. No part of the proceeds of the Term Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

 

4.15.       Certain Transactions.  None of the members, officers, directors or employees of Borrower is a party to any transaction with Borrower or any Guarantor (other than for services as members, employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such member, officer, director or employee or, to the knowledge of Borrower, any corporation, partnership, trust or other entity in which any such member, officer, director or any such employee has a substantial interest or is an officer, director, trustee, member or partner, unless such contract, agreement or other arrangement is an arm’s-length arrangement with terms comparable to those which would be obtained from an unaffiliated Person or as otherwise approved by Administrative Agent.

 

4.16.       Franchises, Intellectual Property.  Borrower and each Guarantor possesses all franchises, patents, copyrights, trademarks, trade names and servicemarks, and all licenses, permits and rights in respect of the foregoing, adequate for the conduct of their business substantially as now conducted without known violation of any rights of others, except where a failure to possess such rights could not have a Material Adverse Effect.

 

4.17.       Title to Properties.  Schedule 4.17 contains a true, accurate and complete list of all Real Estate Assets of Borrower and its Subsidiaries as of the Closing Date.  Each of Borrower and its Subsidiaries owns or leases all of the Real Estate Assets reflected in Schedule 4.17 or acquired since the Closing Date (except property and assets sold or otherwise disposed of in the ordinary course of business since the Closing Date), subject to no rights of others, including any mortgage, leases, conditional sales agreements, title retention agreements, liens or other encumbrances, except for Permitted Liens and the rights of third parties under existing Housing Purchase Contracts.  Without limiting the foregoing, each of Borrower and its Subsidiaries has good and marketable title to all real property reasonably necessary for the operation of its business and all Projects and Other Projects free from all liens or encumbrances of any nature whatsoever, except for Permitted Liens.

 

4.18.       Property Status and Condition.  Except as disclosed to Administrative Agent and the Lenders in writing or on Schedule 4.8, there are no unpaid or outstanding real estate or other taxes or assessments on or against any property of Borrower or Guarantors that are payable by Borrower or Guarantors (except only real estate or other taxes or assessments, that are not yet delinquent or are being protested as permitted by this Agreement).  Except as disclosed to Administrative Agent and the Lenders in writing, there are no pending eminent domain proceedings against any Project or any part thereof, and,

 

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to the knowledge of Borrower and each Guarantor, no such proceedings are presently threatened or contemplated by any taking authority which in either case may individually or in the aggregate have any Material Adverse Effect.  None of the Projects or Other Projects is now damaged as a result of any fire, explosion, accident, flood or other casualty in any manner which individually or in the aggregate would have any Material Adverse Effect.

 

4.19.       Options to Acquire; Restrictions on Development.  Except in connection with Housing Purchase Contracts and the Model Home Lease, neither the Owned Land nor the Collateral is subject to any right of first refusal, right of first offer or other options to purchase.  Other than standard and customary development agreements entered into in the ordinary course of Borrower’s or any Guarantor’s business or standard and customary covenants and restrictions of record affecting the applicable Project or Other Project, which do not, taken individually, have a material economic impact on the applicable Project or Other Project, none of the Projects or Other Project is subject to any material agreement restricting or limiting its development.

 

4.20.       Restrictions.  Borrower and each Guarantor is familiar with all restrictions that affect the Projects and the Other Projects and the construction of the improvements thereon and the contemplated use thereof.  Borrower has obtained, or will be able to obtain, all permits, approvals, consents and other authorizations necessary under such restrictions for such construction and use, and such construction and use will comply with any restrictions. Neither Borrower not any Guarantor has received any written notification that there is any violation nor to Borrower’s or any Guarantor’s knowledge is there an asserted violation of any restrictions concerning any of the Projects or Other Projects or the existing or contemplated use thereof.

 

4.21.       Compliance of Projects with Law.  The location, construction, occupancy, development, operation and use of the Projects and the Other Projects comply in all material respects with the terms of all applicable regional impact plans and reports, all applicable restrictive covenants and deed restrictions, zoning and subdivision ordinances, building codes, Environmental Laws, and other applicable laws, statutes, ordinances, rules, regulations, orders or determinations of any governmental authority.  Except as set forth on Schedule 4.21, subject to completion of infrastructure improvements and the issuance of final maps and building permits, all Entitlements are Vested and Borrower or Guarantor has obtained (or caused to be obtained) all necessary licenses, authorizations, registrations, permits and/or approvals necessary for the use and operation of the Projects and the Other Projects or any part thereof in accordance with all applicable laws.  Without limiting the foregoing, Borrower and each Guarantor hereby warrants and represents to Administrative Agent and the Lenders as follows:

 

(a)           The Projects and the Other Projects are zoned to allow the development, construction and occupancy of Homes.  No action is pending to change or modify any zoning applicable to such Project and the Other Projects, and the zoning rights are Vested.

 

(b)           Other than the final maps and building permits, all permits necessary for the use and operation of the Projects and the Other Projects as currently developed are Vested and run with and benefit the land.

 

4.22.       Environmental Compliance.  Borrower and Guarantors make the following representations and warranties:

 

(a)           No Violations.  To the knowledge and belief of Borrower and Guarantors, neither Borrower nor Guarantors, the operators of the Owned Land or any operations thereon are in violation, or alleged violation, of any Environmental Law.

 

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(b)           No Notice of Liability.  Except as may be disclosed on Schedule 4.22, neither Borrower nor Guarantors has received notice from any third party, including, without limitation, any federal, state or local governmental authority, (i) that it has been identified as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any Hazardous Material has been released or is threatened to be released at, on, under or from the Owned Land; or (iii) that any claim, action, cause of action, complaint or legal or administrative proceeding is pending or threatened against Borrower or any Guarantor arising out of any third party’s incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with any Environmental Law or any Release or threatened Release.

 

(c)           No Releases.  With respect to Owned Land, to the knowledge and belief of Borrower and Guarantors and except as otherwise disclosed in those certain environmental reports set forth in Schedule 4.22, (i) no portion of the Owned Land has been used as a landfill or for dumping or for the handling, processing, storage or disposal of Hazardous Materials except in the ordinary course of business and in accordance and in full compliance with all Environmental Laws, and no underground tank or other underground storage receptacle for Hazardous Materials is located on any portion of the Owned Land; (ii) in the course of any activities conducted by Borrower, Guarantors or the operators of any of their properties, no Hazardous Materials have been generated or are being used on the Owned Land except in the ordinary course of business and in accordance with all Environmental Laws; (iii) there has been no past or present or threatened Release on, upon, into or from any Owned Land other than de minimis quantities not in violation of Environmental Laws; (iv) to Borrower’s knowledge, there have been no Releases on, upon, from or into any real property in the vicinity of any of the Owned Land which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Owned Land; and (v) any Hazardous Materials that have been generated by Borrower has been transported off-site only by approved licensed carriers of Hazardous Materials and treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under all applicable Environmental Laws, which transporters and facilities have been and are, to Borrower’s knowledge, operating in compliance with such permits and applicable Environmental Laws.

 

(d)           No Required Action.  Neither Borrower nor Guarantors have received any written notification that, and to the knowledge of Borrower and Guarantors, neither Borrower, Guarantors, any Project or the Collateral is subject to any applicable Environmental Law requiring the performance of site assessments or the removal or remediation of Hazardous Materials, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of any Collateral Document or to the effectiveness of any other transactions contemplated hereby or thereby.

 

4.23.       Credit Documents.  All of the representations and warranties made by or on behalf of Borrower and Guarantors in the Credit Documents or any document or instrument delivered to Administrative Agent or the Lenders pursuant to or in connection with any of such Credit Documents are true and correct in all material respects, and none of such Persons has failed to disclose such information as is necessary to make such representations and warranties not misleading in any material respect.  There is no material fact or circumstance known to Borrower or Guarantors that would have a material adverse effect on their ability to perform their respective obligations under the Credit Documents that has not been disclosed to Administrative Agent and the Lenders, and the written information, reports and other papers and data with respect to Borrower, Guarantors, the Projects and the other Collateral (other than projections and estimates) furnished to Administrative Agent or the Lenders in connection with this Agreement or the obtaining of the commitments of the Lenders hereunder were, at the time so furnished and when considered as a whole, complete and correct in all material respects, or have been subsequently supplemented by other information, reports or other papers or data, to the extent necessary, to give in all material respects a true and accurate knowledge of the subject matter in all material respects.

 

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4.24.       No Default or Event of Default.

 

(a)           No Default or Event of Default has occurred and is continuing hereunder.

 

(b)           Neither Borrower nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Post-Petition Contractual Obligations other than as a result of the filing of the Chapter 11 Cases (and any payment default directly related to such filing), and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.

 

SECTION 5.         AFFIRMATIVE COVENANTS

 

Each Credit Party covenants and agrees that, from and after the Closing Date until payment in full of all Obligations, each Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5.

 

5.1.         Reports, Notices and Other Information.  Borrower will deliver to Administrative Agent and the Lenders:

 

(a)           Compliance Certificate.  Not later than one Business Day after filing of each Monthly Operating Report, a duly executed and completed Compliance Certificate;

 

(b)           Variance Report.  Not later than 7:00 p.m. (New York City time) on the Wednesday of each week (or if such day is not a Business Day, the next succeeding Business Day) commencing after the Closing Date, a comparison of each line item set forth in the Approved Budget for the week most recently ended on the previous Friday against the actual performance for such week with respect to each line item, including actual cash receipts, disbursements and total available liquidity (and on a cumulative basis from the Closing Date to the date of such report), substantially in the form of Exhibit H (a “Variance Report”), in each case with written explanations of material variances, in form and substance reasonably satisfactory to Administrative Agent and certified by a chief financial officer of Borrower that such Variance Report has been prepared in good faith;

 

(c)           Approved Budget.  At Borrower’s election, proposed updates to the most recent Approved Budget, provided that the Credit Parties shall continue to be subject to and governed by the terms of the Approved Budget then in effect until a new budget becomes an Approved Budget;

 

(d)           Notice of Default.  Promptly upon any officer of Borrower obtaining knowledge (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to Borrower with respect thereto; (ii) that any Person has given any notice to Borrower or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 8.1(h); or (iii) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of an Authorized Officer specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Default, Event of Default, default, event or condition, and what action Borrower has taken, is taking and proposes to take with respect thereto;

 

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(e)           Notice of Litigation.  Promptly upon any officer of Borrower obtaining knowledge of (i) any Adverse Proceeding not previously disclosed in writing by Borrower to the Lenders, or (ii) any development in any Adverse Proceeding that, in the case of either clause (i) or (ii), could be reasonably expected to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other information as may be reasonably available to Borrower to enable the Lenders and their counsel to evaluate such matters;

 

(f)            Notice Regarding Material Contracts.  Promptly, and in any event within ten Business Days after any Material Contract of Borrower or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Borrower or such Subsidiary, as the case may be, a written statement describing such event, with copies of such material amendments, delivered to Administrative Agent (to the extent such delivery is permitted by the terms of any such Material Contract; provided that no such prohibition on delivery shall be effective if it were bargained for by Borrower or its applicable Subsidiary with the intent of avoiding compliance with this Section 5.1(g)), and an explanation of any actions being taken with respect thereto;

 

(g)           Information Regarding Collateral.  (i) Borrower will furnish to Collateral Agent prompt written notice of any change (A) in any Credit Party’s corporate name, (B) in any Credit Party’s identity or corporate structure, (C) in any Credit Party’s jurisdiction of organization or (D) in any Credit Party’s Federal Taxpayer Identification Number or state organizational identification number.  Borrower agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the UCC or otherwise that are required in order for Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral as contemplated in the Collateral Documents. Borrower also agrees promptly to notify Collateral Agent if any material portion of the Collateral is damaged or destroyed or otherwise impaired or adversely affected;

 

(h)           Other Information.  (i) Promptly upon their becoming available, copies of (A) all financial statements, reports, notices and proxy statements sent or made available generally by Borrower to its security holders acting in such capacity or by any Subsidiary of Borrower to its security holders, (B) all regular and periodic reports and all registration statements and prospectuses, if any, filed by Borrower or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any other Governmental Authority, (C) all press releases and other statements made available generally by Borrower or any of its Subsidiaries to the public concerning material developments in the business of Borrower or any of its Subsidiaries, (D) all pleadings, motions, applications and judicial information filed by or on behalf of the Credit Parties with the Bankruptcy Court or provided to the U.S. Trustee (or any monitor or interim receiver, if any, appointed in any Chapter 11 Case), at the time such document is filed with the Bankruptcy Court, or provided by or to the U.S. Trustee, and (E) all proposed orders and pleadings related to this Agreement, which shall be in form and substance reasonably satisfactory to Administrative Agent, any plan of reorganization or liquidation and/or any disclosure statement related to such plan and all documents filed with the Bankruptcy Court, and (ii) such other information and data with respect to Borrower or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent or any Lender;

 

(i)            Certification of Public Information.  Borrower and each Lender acknowledge that certain of the Lenders may be Public Lenders and, if documents or notices required to be delivered pursuant to this Section 5.1 or otherwise are being distributed through IntraLinks/IntraAgency, SyndTrak or another relevant website or other information platform (the “Platform”), any document or notice that

 

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Borrower has indicated contains Non-Public Information shall not be posted on that portion of the Platform designated for such Public Lenders. Borrower agrees to clearly designate all information provided to Administrative Agent that is suitable to make available to Public Lenders.  If Borrower has not indicated whether a document or notice delivered pursuant to this Section 5.1 contains Non-Public Information, Administrative Agent reserves the right to post such document or notice solely on that portion of the Platform designated for the Lenders who wish to receive material non-public information with respect to Borrower, its Subsidiaries and their securities; and

 

(j)            Chapter 11 Cases.  As soon as practicable in advance of filing with the Bankruptcy Court, the Credit Parties shall provide to Administrative Agent and each Lender copies of all pleadings, notices, orders, agreements and all other documents served, filed or entered, as the case may be, in connection with, or in relation to, the Credit Documents or the transactions contemplated thereunder, the Plan of Reorganization, the Disclosure Statement or the Confirmation Order.  Borrower shall give, on a timely basis as specified in the Interim Order or the Final Order, as applicable, all notices required to be given to all parties specified in the Interim Order or the Final Order, as applicable.

 

5.2.         Existence. Except as otherwise permitted under Section 6.7 or as contemplated by the Plan of Reorganization, each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business; provided that no Credit Party (other than Borrower with respect to existence) or any of its Subsidiaries shall be required to preserve any such existence, right or franchise, license or permit if such Person’s board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the loss thereof is not disadvantageous in any material respect to such Person or to the Lenders.

 

5.3.         Payment of Taxes and Claims.  To the extent permitted by the Bankruptcy Code or otherwise provided by the Bankruptcy Court, each Credit Party will, and will cause each of its Subsidiaries to, pay all Post-Petition Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all Post-Petition claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such Post-Petition Tax or Post-Petition claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) adequate reserve or other appropriate provision, as shall be required in conformity with GAAP, shall have been made therefor, and (b) in the case of a Tax or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim.  No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Borrower or any of its Subsidiaries).

 

5.4.         Maintenance of Properties.  Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material tangible properties used or useful in the business of Borrower and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof.

 

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5.5.         Insurance.

 

(a)           Required Coverage.  Borrower will, at its expense, procure and maintain for the benefit of Collateral Agent and the Lenders, insurance policies issued by reputable insurance companies or associations in respect of the assets, properties and businesses of Borrower and its Subsidiaries in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deducibility from coverage thereof.  As customary or appropriate, the insurance policies shall name Collateral Agent and each Lender as an additional insured and contain a cross liability/severability endorsement.  Borrower shall deliver duplicate originals or certified copies of all such policies to Collateral Agent, and Borrower shall promptly furnish to Collateral Agent all renewal notices and evidence that all premiums or portions thereof then due and payable have been paid.  At least 10 days prior to the expiration date of the policies, the Borrower shall deliver to Collateral Agent evidence of continued coverage, including a certificate of insurance, as may be satisfactory to Collateral Agent.

 

(b)           Clauses and Endorsements.  All policies of insurance required by this Agreement shall contain clauses or endorsements to the effect that (i) no act or omission of the Borrower or any of its Subsidiaries or anyone acting for such Person (including, without limitation, any representations made in the procurement of such insurance), which might otherwise result in a forfeiture of such insurance or any part thereof, no occupancy or use of any Project for purposes more hazardous then permitted by the terms of the policy, and no foreclosure or any other change in title to any Project or any part thereof, shall affect the validity or enforceability of such insurance insofar as Collateral Agent is concerned, (ii) the insurer waives any right of set-off, counterclaim, subrogation, or any deduction in respect of any liability of any such Person and Collateral Agent, (iii) such insurance is primary and without right of contribution from any other insurance which may be available, (iv) such policies shall not be modified, canceled or terminated prior to the scheduled expiration date thereof without the insurer thereunder giving at least 30 days’ prior written notice to Collateral Agent by United States mail and (v) none of Agents or the Lenders shall be liable for any premiums thereon or subject to any assessments thereunder, and shall in all events be in amounts sufficient to avoid any coinsurance liability.

 

(c)           Blanket Policy.  The insurance required by this Agreement may be effected through a blanket policy or policies covering additional locations and property of the Borrower, its Subsidiaries and other Persons, provided that such blanket policy or policies comply with all of the terms and provisions of this Section 5.5 (excluding products and completed operations coverage).

 

(d)           Required Rating.  All policies of insurance required by this Agreement shall be issued by companies authorized to do business in the State where the policy is issued and also in the states where any Project of the Borrower or its Subsidiaries is located and having a rating in Best’s Key Rating Guide of at least “A” and a financial size category of at least “X”.

 

(e)           Concurrent Insurance.  Neither Borrower nor any of its Subsidiaries shall carry separate insurance, concurrent in kind or form or contributing in the event of loss, with any insurance required under this Agreement unless such insurance complies with the terms and provisions of this Section 5.5.

 

(f)            Subcontractor Insurance.  Borrower will require its subcontractors to obtain and maintain insurance at all times during the construction of any improvements to any Project or Other Project. The insurance required by the subcontractor’s contract shall be subject to approval by Collateral Agent and such other insurance as may be reasonably required by Collateral Agent (including, without limitation, commercial general liability insurance, comprehensive automobile liability insurance, all-risk contractor’s equipment floater insurance, workmen’s compensation insurance and employer liability insurance).  Borrower and its Subsidiaries will use their respective commercially reasonable efforts to cause its architects, engineers and any other design professionals providing design or engineering services in connection with the construction of any improvements to any Project or Other Project to obtain and maintain professional liability insurance covering any claims asserted with respect to any Project or Other Project for a period of not less than one year after the date of completion of such improvements, or if not commercially available, for such period of time as Collateral Agent may reasonably approve.

 

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(g)           Other Insurance.  The Borrower will, at its expense, procure and maintain insurance covering such Persons and any Project or Other Projects in such amounts and against such risks and casualties as are customary for properties of similar character and location, due regard being given to the type of improvements thereon, their construction, location, use and occupancy, excluding earthquake and subsidence insurance.

 

5.6.         Books and Records; Inspections.  Each Credit Party will, and will cause each of its Subsidiaries to, keep proper books of record and accounts in which full, true and correct entries in conformity in all material respects with GAAP shall be made of all dealings and transactions in relation to its business and activities.  Each Credit Party will, and will cause each of its Subsidiaries to, permit any authorized representatives designated by any Agent to visit and inspect any of the properties of any Credit Party and any of its respective Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested.

 

5.7.         Compliance with Laws.  Each Credit Party will comply, and shall cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

5.8.         Environmental.

 

(a)           Environmental Disclosure.  Borrower and each Guarantor will promptly give written notice to Administrative Agent (i) upon Borrower or any Guarantor obtaining knowledge of any potential or known Release, or threat of Release, at or from any Owned Land other than de minimis quantities not in violation of any Environmental Law; (ii) of any violation of any Environmental Law that Borrower or any Guarantor reports in writing or is reportable by such Person in writing to any federal, state or local environmental agency and (iii) upon becoming aware thereof, of any inquiry, proceeding, investigation or other enforcement action under any environmental lien with respect to the Owned Land.

 

(b)           Environmental Compliance.  Neither Borrower nor any of its Affiliates will do any of the following: (i) use any of the Owned Land or any portion thereof as a facility for the handling, processing, storage or disposal of Hazardous Materials, except for small quantities of Hazardous Materials used in the ordinary course of business and in compliance with all applicable Environmental Laws, (ii) cause or permit to be located on any of the Owned Land any underground tank or other underground storage receptacle for Hazardous Materials, (iii) generate any Hazardous Materials on any of the Owned Land except in full compliance with Environmental Laws, (iv) conduct any activity at any Owned Land or use any Owned Land in any manner so as to cause a Release or a threat of a Release of Hazardous Materials on, upon or into the Owned Land or any surrounding properties, except for de minimis quantities, (v) directly or indirectly transport or arrange for the transport of any Hazardous Materials except in compliance with all Environmental Laws, or (vi) conduct any of its activities or any development of any Project or Other Project in a manner that violates any Environmental Law.

 

(c)           Hazardous Materials.  The Borrower and the Guarantors shall:

 

(i)            In the event of any change in Environmental Laws governing the assessment, Release or removal of Hazardous Materials, which change would lead a prudent lender to require additional testing to avail itself of any statutory insurance or limited liability, take all action (including, without limitation, the conducting of engineering tests at the sole expense of Borrower) to confirm that no Hazardous Materials are or ever were released or disposed on the Owned Land; and

 

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(ii)           If any Release or disposal of Hazardous Materials shall occur or shall have occurred on the Owned Land (including without limitation any such Release or disposal occurring prior to the acquisition or occupation of such Owned Land), other than de minimis quantities not in violation of Environmental Laws, cause the prompt containment and removal of such Hazardous Materials and remediation of the Owned Land in full compliance with all applicable laws and regulations and to the reasonable satisfaction of Administrative Agent; provided that Borrower and Guarantors shall be deemed to be in compliance with Environmental Laws for the purpose of this clause (ii) so long as it or a responsible third party with sufficient financial resources is taking reasonable action to remediate or manage any event of noncompliance to the reasonable satisfaction of Administrative Agent and no action shall have been commenced by any enforcement agency.  Administrative Agent may engage its own environmental engineer to review the environmental assessments and Borrower’s and Guarantors’ compliance with the covenants contained herein.

 

(d)           Administrative Agent Rights.

 

(i)            At any time after an Event of Default shall have occurred hereunder, or, whether or not an Event of Default shall have occurred, at any time that Administrative Agent shall have reasonable grounds to believe that a Release or threatened Release may have occurred relating to the Owned Land other than de minimis quantities not in violation of Environmental Laws, or that the Owned Land is not in compliance with Environmental Laws, Administrative Agent may at its election obtain such environmental assessments of the Owned Land prepared by an Environmental Engineer as may be necessary or advisable for the purpose of evaluating or confirming (i) whether any Hazardous Materials are present in the soil or water at or adjacent to the Owned Land and (ii) whether the use and operation of the Owned Land comply with all Environmental Laws.  Environmental assessments may include detailed visual inspections of the Owned Land including, without limitation, any and all storage areas, storage tanks, drains, dry wells and leaching areas, and the taking of soil samples, as well as such other investigations or analyses as are necessary or appropriate for a complete determination of the compliance of the Owned Land and the use and operation thereof with all applicable Environmental Laws.  All such environmental assessments shall be at the sole cost and expense of Borrower.

 

(ii)           Administrative Agent may, but shall never be obligated to, remove or cause the removal of any Hazardous Materials from the Owned Land (or if removal is prohibited by any Environmental Law, take or cause the taking of such other action as is required by any Environmental Law or otherwise required by Administrative Agent) if Borrower or any Guarantor fails to comply with its obligation hereunder with respect thereto (without limitation of Administrative Agent’s rights to declare a Default or Event of Default under any of the Credit Documents and to exercise all rights and remedies available by reason thereof); and Administrative Agent and its designees are hereby granted access to the Owned Land at any time or times, upon reasonable notice, and a license which is coupled with an interest and irrevocable, to remove or cause such removal or to take or cause the taking of any such other action.  All costs, including, without limitation, the costs incurred by Administrative Agent in taking the foregoing action, damages, liabilities, losses, claims, expenses, fees and costs (including attorneys’ fees and disbursements) which are incurred by Administrative Agent as the result of Borrower’s or Guarantor’s failure to comply with the provisions of this Section 5.8, shall be paid by Borrower to Administrative Agent upon demand by Administrative Agent and shall be additional obligations secured by the Collateral Documents.

 

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(e)           Indemnification for Environmental Liabilities.  Without limitation to the indemnity set forth in Section 10.3, Borrower and Guarantors shall indemnify Administrative Agent and each Lender for all amounts, including costs, expenses and attorneys’ fees,  paid by Administrative Agent or such Lender or any of their respective Affiliates arising in connection with any Environmental Liabilities alleged or imposed relating to the Owned Land.

 

5.9.         Subsidiaries.  In the event that any Person becomes a Domestic Subsidiary of Borrower, Borrower shall (a) promptly cause such Domestic Subsidiary to become a Guarantor hereunder and a Grantor under the Pledge and Security Agreement by executing and delivering to Administrative Agent and Collateral Agent a Counterpart Agreement, and (b) take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments, agreements and certificates reasonably requested by Collateral Agent, including those which are similar to those described in Section 3.1(b).  In the event that any Person becomes a Foreign Subsidiary of Borrower, and the ownership interests of such Foreign Subsidiary are owned by Borrower or by any Domestic Subsidiary thereof, Borrower shall, or shall cause such Domestic Subsidiary to, deliver, all such documents, instruments, agreements and certificates as are similar to those described in Sections 3.1(b), and Borrower shall take, or shall cause such Domestic Subsidiary to take, all of the actions necessary to grant and to perfect a First Priority Lien in favor of Collateral Agent, for the benefit of the Secured Parties, under the Pledge and Security Agreement in 65% of such ownership interests.  With respect to each such Subsidiary, Borrower shall promptly send to Administrative Agent written notice setting forth with respect to such Person (i) the date on which such Person became a Subsidiary of Borrower, and (ii) all of the data required to be set forth in Schedule 4.1 with respect to all Subsidiaries of Borrower; and such written notice shall be deemed to supplement Schedule 4.1 for all purposes hereof.

 

5.10.       Further Assurances.  At any time or from time to time upon the request of Administrative Agent, each Credit Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as Administrative Agent or Collateral Agent may reasonably request in order to effect fully the purposes of the Credit Documents.  In furtherance and not in limitation of the foregoing, each Credit Party shall take such actions as Administrative Agent or Collateral Agent may reasonably request from time to time to ensure that the Obligations are guarantied by the Guarantors and are secured by the Collateral including all of the outstanding Equity Interests of Borrower and its Subsidiaries (subject to limitations contained in the Credit Documents with respect to Foreign Subsidiaries).

 

5.11.       Cash Management.  Borrower and its Domestic Subsidiaries shall continue to use their existing cash management systems in accordance with the Interim Order (with respect to the period prior to the entry of the Final Order) and the Final Order (with respect to the period on and after entry of the Final Order), as the case may be, and shall comply with the terms of the Cash Management Order except with respect to non-material changes to such cash management system as may be required in the ordinary course of business.

 

5.12.       Plan Support Agreement.  Until entry of the Confirmation Order approving the Plan of Reorganization by the Bankruptcy Court,  the Credit Parties shall (a) comply in all material respects with the terms of the Plan Support Agreement and (b) not take any action that would create a “Termination Event” under, and as defined in, the Plan Support Agreement.

 

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5.13.       Plan of Reorganization.  The Credit Parties shall obtain Bankruptcy Court approval of the Plan of Reorganization, the Disclosure Statement and the Confirmation Order in accordance with the following:

 

(a)           On or prior to December 20, 2010, the Plan of Reorganization and the related Disclosure Statement shall have been filed in the Bankruptcy Court;

 

(b)           On or prior to January 14, 2011, the Bankruptcy Court shall have entered an order, in form and substance satisfactory to Administrative Agent and Requisite Lenders in all respects, approving such Disclosure Statement; and

 

(c)           On or prior to February 18, 2011, the Bankruptcy Court shall have entered the Confirmation Order.

 

5.14.       Consultants.  Borrower shall, and shall cause its Subsidiaries to, (a) grant Administrative Agent (and its counsel) and consultants and advisors to Administrative Agent (the “Consultants”)  with access to information (including historical information) and personnel, including, without limitation, regularly scheduled meetings with senior management and other company advisors during normal business hours, and (b) grant the Consultants access to all other information reasonably requested by the Consultants.

 

5.15.       Adverse Motions.  The Credit Parties shall promptly and diligently oppose (x) all motions or other pleadings filed by persons in the Bankruptcy Court that seek to lift the stay on the Collateral (other than motions filed by Administrative Agent and the Lenders relating to this Agreement or the transactions contemplated hereby and other than with respect to Collateral the value of which is not material to the Credit Parties), and (y) all other motions filed by Persons in the Bankruptcy Court that, if granted, could reasonably be expected to have a Material Adverse Effect on Administrative Agent or any Lender (in their capacity as such) or any material portion of the Collateral as indicated to Borrower in writing by Administrative Agent.

 

5.16.       Post-Closing Matters.  Borrower shall, and shall cause each of the other Credit Parties to, satisfy the requirements set forth in Schedule 5.16 on or before the date specified for such requirement therein or such later date as agreed by Requisite Lenders.

 

SECTION 6.         NEGATIVE COVENANTS

 

Each Credit Party covenants and agrees that, from and after the Closing Date until payment in full of all Obligations, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6.

 

6.1.         Indebtedness.  No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except:

 

(a)           the Obligations;

 

(b)           Indebtedness in respect of the Pre-Petition Credit Agreements;

 

(c)           Indebtedness incurred by Borrower or any of its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of Borrower or any such Subsidiary pursuant to such agreements in connection with permitted dispositions of any business, assets or Subsidiary of Borrower or any of its Subsidiaries;

 

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(d)           Indebtedness which may be deemed to exist pursuant to any guaranties, performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business, including, without limitation, any surety obligations to Insurance Company of the West or its affiliates existing as of the Closing Date and in an aggregate amount not to exceed $21,275,000;

 

(e)           Indebtedness in respect of any insurance premium financing existing as of the Closing Date and in an aggregate amount not to exceed $860,000;

 

(f)            Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts;

 

(g)           Indebtedness described in Schedule 6.1, but not any extensions, renewals or replacements of such Indebtedness;

 

(h)           Indebtedness of Borrower or its Subsidiaries with respect to Capital Leases existing as of the Closing Date and in an aggregate amount not to exceed $24,750,000;

 

(i)            purchase money Indebtedness of Borrower or its Subsidiaries in an aggregate amount not to exceed $200,000 at any time; provided that any such Indebtedness (i) shall be secured only by the asset acquired after the Petition Date in connection with the incurrence of such Indebtedness, and (ii) shall constitute not less than 75% of the aggregate consideration paid with respect to such asset;

 

(j)            (i) letters of credit issued for the account of Borrower or any of its Subsidiaries that are outstanding on the Closing Date (and renewals, extensions and replacements thereof) and (ii) other letters of credit issued for the account of Borrower or any of its Subsidiaries in an aggregate principal face amount not to exceed $3,100,000 at any time; and

 

(k)           Indebtedness constituting operating leases that have been recharacterized as Capital Leases in accordance with GAAP.

 

6.2.         Liens. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, created or licensed, or any income, profits or royalties therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income, profits or royalties under the UCC of any State or under any similar recording or notice statute or under any applicable intellectual property laws, rules or procedures, except:

 

(a)           Liens in favor of Collateral Agent for the benefit of the Secured Parties granted pursuant to any Credit Document and other Liens created under the Interim Order or the Final Order, as then in effect;

 

(b)           Liens granted in respect of the Pre-Petition Credit Agreements;

 

(c)           Liens for Taxes not yet due or, if due, if obligations with respect to such Taxes are being contested in good faith by appropriate proceedings and reserves in accordance with GAAP with respect thereto have been provided on the consolidated books of Borrower, and Liens for Taxes disclosed on Schedule 4.8;

 

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(d)           statutory Liens of landlords, banks (and rights of set-off), carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law (other than any such Lien imposed pursuant to Section 430(k) of the Internal Revenue Code or ERISA or a violation of Section 436 of the Internal Revenue Code), in each case incurred in the ordinary course of business (i) for amounts not yet overdue or (ii) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of five days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;

 

(e)           Liens incurred in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money or other Indebtedness), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof;

 

(f)            easements, rights-of-way, restrictions, encroachments and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Borrower or any of its Subsidiaries;

 

(g)           any interest or title of a lessor or sublessor under any lease of real estate permitted hereunder;

 

(h)           purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business;

 

(i)            Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

 

(j)            any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property;

 

(k)           non-exclusive outbound licenses of patents, copyrights, trademarks and other Intellectual Property rights granted by Borrower or any of its Subsidiaries in the ordinary course of business consistent with past practice;

 

(l)            Liens described in Schedule 6.2;

 

(m)          Liens securing Indebtedness permitted pursuant to Section 6.1(g) and (h); provided that any such Lien shall encumber only the asset acquired with the proceeds of such Indebtedness;

 

(n)           Liens consisting of customary rights of set-off for bankers liens on amounts on deposit at banks or other financial institutions, to the extent arising by operation of law or otherwise, incurred in the ordinary course of business;

 

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(o)           judgment Liens in respect of judgments that do not constitute an Event of Default under Section 8.1(f) hereof;

 

(p)           Liens of a collection bank arising in the ordinary course of business under Section 4-208 of the UCC in effect in the relevant jurisdiction; and

 

(q)           Liens on Cash and Cash Equivalents arising in connection with the cash collateralization of letters of credit in an amount not to exceed 105% of the aggregate face amount of the letters of credit permitted pursuant to Section 6.1(i).

 

6.3.         No Further Negative Pledges. Except with respect to (a) specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to a permitted Asset Sale, (b) restrictions by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses and similar agreements entered into in the ordinary course of business (provided that such restrictions are limited to the property or assets secured by such Liens or the property or assets subject to such leases, licenses or similar agreements, as the case may be), (c) the Pre-Petition Credit Agreements, (d) restrictions identified on Schedule 6.3 and (e) restrictions in any Pre-Petition agreement that are unenforceable during the pendency of the Chapter 11 Cases, no Credit Party nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired, to secure the Obligations.

 

6.4.         Restricted Junior Payments.  No Credit Party shall, nor shall it permit any of its Subsidiaries through any manner or means or through any other Person to, directly or indirectly, declare, order, pay, make or set apart, or agree to declare, order, pay, make or set apart, any sum for any Restricted Junior Payment except that (a) any Subsidiary of Borrower may declare and pay dividends or make other distributions ratably to its equity holders and (b) any Credit Party may make Restricted Junior Payments to the extent permitted or required by the Plan of Reorganization.

 

6.5.         Restrictions on Subsidiary Distributions. Except as provided herein, or the Interim Order, the Final Order or the Confirmation Order, or as required by the Bankruptcy Code, no Credit Party shall, nor shall it permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Borrower to (a) pay dividends or make any other distributions on any of such Subsidiary’s Equity Interests owned by Borrower or any other Subsidiary of Borrower, (b) repay or prepay any Indebtedness owed by such Subsidiary to Borrower or any other Subsidiary of Borrower, (c) make loans or advances to Borrower or any other Subsidiary of Borrower or (d) transfer, lease or license any of its property or assets to Borrower or any other Subsidiary of Borrower other than restrictions (i) in agreements evidencing Indebtedness permitted by (x) Section 6.1(h) that impose restrictions on the property so acquired and (y) Section 6.1(b), (ii) by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business, (iii) that are or were created by virtue of any transfer of, agreement to transfer or option or right with respect to any property, assets or Equity Interests not otherwise prohibited under this Agreement or (iv) described on Schedule 6.5.

 

6.6.         Investments.  No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except:

 

(a)           Investments in Cash and Cash Equivalents;

 

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(b)           Investments owned as of the Closing Date and any renewals, replacements, refinancing or refundings thereof, in any Subsidiary and Investments made after the Closing Date in Borrower and any wholly-owned Guarantor Subsidiary of Borrower;

 

(c)           Investments (i) in any Securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors and (ii) deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with the past practices of Borrower and its Subsidiaries;

 

(d)           loans or advances made (i) by Borrower or any Guarantor to Borrower or any Guarantor and (ii) by any Subsidiary to Borrower or any Guarantor;

 

(e)           Investments described in Schedule 6.6; and

 

(f)            Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business.

 

Notwithstanding the foregoing, in no event shall any Credit Party make any Investment which results in or facilitates in any manner any Restricted Junior Payment not otherwise permitted under the terms of Section 6.4.

 

6.7.         Fundamental Changes; Disposition of Assets; Acquisitions.  No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or license, exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, created, leased or licensed, or acquire by purchase or otherwise (other than purchases or other acquisitions of inventory, materials and equipment and capital expenditures in the ordinary course of business) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person, except:

 

(a)           Home Sales; provided that the Net Asset Sale Proceeds of such Home Sales shall be applied as required pursuant to Section 2.11(a);

 

(b)           (i) any Subsidiary of Borrower may be merged with or into Borrower or any Guarantor, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Borrower or any Guarantor; provided that in the case of such a merger, Borrower or such Guarantor, as applicable shall be the continuing or surviving Person and (ii) any non-Guarantor Subsidiary may be merged with or into any other non-Guarantor Subsidiary, or be liquidated, wound up or dissolved, or all or part of its assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to any other non-Guarantor Subsidiary;

 

(c)           sales or other dispositions of assets that do not constitute Asset Sales;

 

(d)           disposals of obsolete, worn out or surplus personal property;

 

(e)           any license of Intellectual Property in the ordinary course of business consistent with past practice, or abandonment or disposition in the ordinary course of business consistent with past  practice, of Intellectual Property no longer material to the conduct of the business of Borrower and its Subsidiaries;

 

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(f)            the discount, write-off or sale of overdue accounts receivables, in each case in the ordinary course of business;

 

(g)           Investments made in accordance with Section 6.6; and

 

(h)           transactions contemplated by the Plan of Reorganization.

 

6.8.         Disposal of Subsidiary Interests. Except for any sale of all of its interests in the Equity Interests of any of its Subsidiaries in compliance with the provisions of Section 6.7, no Credit Party shall, nor shall it permit any of its Subsidiaries to, (a) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any Equity Interests of any of its Subsidiaries, except to qualify directors if required by applicable law; or (b) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any Equity Interests of any of its Subsidiaries, except to another Credit Party (subject to the restrictions on such disposition otherwise imposed hereunder), or to qualify directors if required by applicable law.

 

6.9.         Sales and Lease-Backs.  No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which such Credit Party (a) has sold or transferred or is to sell or to transfer to any other Person (other than Borrower or any of its Subsidiaries), or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by such Credit Party to any Person (other than Borrower or any of its Subsidiaries) in connection with such lease.

 

6.10.       Transactions with Shareholders and Affiliates.  No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of Borrower on terms that are less favorable to Borrower or that Subsidiary, as the case may be, than those that might be obtained at the time from a Person who is not such an Affiliate; provided that the foregoing restriction shall not apply to (a) any transaction between Borrower and any Guarantor Subsidiary; (b) reasonable and customary fees paid to members of the board of directors (or similar governing body) of Borrower and its Subsidiaries; (c) compensation arrangements for officers and other employees of Borrower and its Subsidiaries entered into in the ordinary course of business or pursuant to the Plan of Reorganization; (d) transactions described in Schedule 6.10; (e) Restricted Junior Payments permitted pursuant to Section 6.4; (f) Investments permitted pursuant to Section 6.6; and (g) transactions contemplated by the Plan of Reorganization.

 

6.11.       Conduct of Business.  From and after the Closing Date, no Credit Party shall, nor shall it permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by such Credit Party on the Closing Date and similar or related businesses and (ii) such other lines of business as may be consented to by Requisite Lenders.

 

6.12.       Amendments or Waivers of Organizational Documents, Pre-Petition Credit Agreements.  Except pursuant to the Plan of Reorganization, no Credit Party shall, nor shall it permit any of its Subsidiaries to, (i) agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its Organizational Documents that would adversely affect the Lenders or their rights after the Closing Date without obtaining the prior written consent of Requisite Lenders to such amendment, restatement, supplement or other modification or waiver, or (ii) amend or otherwise change the terms of the Pre-Petition Credit Agreements.

 

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6.13.       Fiscal Year. No Credit Party shall, nor shall it permit any of its Subsidiaries to, change its Fiscal Year from ending on December 31 of each calendar year.

 

6.14.       Chapter 11 Claims.  No Credit Party shall, nor shall it permit any of its Subsidiaries to, create, assume, suffer to exist or permit any other super-priority administrative claim that is pari passu with or senior to the Claims of the Secured Parties against the Credit Parties, except as set forth in the Interim Order and the Final Order, as then in effect.

 

6.15.       Critical Vendor and Other Payments.  No Credit Party shall make (i) any Pre-Petition “critical vendor” payments or other payments on account of any creditor’s Pre-Petition unsecured Claims, (ii) payments on account of Claims or expenses arising under Section 503(b)(9) of the Bankruptcy Code, (iii) payments in respect of a reclamation program or (iv) payments under any management incentive plan or on account of claims or expenses arising under Section 503(c) of the Bankruptcy Code, except in each case in amounts and on terms and conditions that (a) are approved by order of the Bankruptcy Court and (b) are expressly permitted by any Approved Budget.

 

6.16.       Employee Benefit Plans.  No Credit Party shall establish, assume, sponsor, maintain or contribute to any Employee Benefit Plan that is not in existence as of the Closing Date.

 

SECTION 7.         GUARANTY

 

7.1.         Guaranty of the Obligations.  Subject to the provisions of Section 7.2, Guarantors jointly and severally hereby irrevocably and unconditionally guaranty to Administrative Agent for the ratable benefit of the Beneficiaries the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code) (collectively, the “Guaranteed Obligations”).

 

7.2.         Contribution by Guarantors.  All Guarantors desire to allocate among themselves (collectively, the “Contributing Guarantors”), in a fair and equitable manner, their obligations arising under this Guaranty.  Accordingly, in the event any payment or distribution is made on any date by a Guarantor (a “Funding Guarantor”) under this Guaranty such that its Aggregate Payments exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in an amount sufficient to cause each Contributing Guarantor’s Aggregate Payments to equal its Fair Share as of such date. “Fair Share” means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (a) the ratio of (i) the Fair Share Contribution Amount with respect to such Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution Amounts with respect to all Contributing Guarantors multiplied by (b) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations Guaranteed.  “Fair Share Contribution Amount” means, with respect to a Contributing Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Contributing Guarantor under this Guaranty that would not render its obligations hereunder or thereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code or any comparable applicable provisions of state law; provided that solely for purposes of calculating the Fair Share Contribution Amount with respect to any Contributing Guarantor for purposes of this Section 7.2, any assets or liabilities of such Contributing Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Contributing Guarantor.

 

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“Aggregate Payments” means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (1) the aggregate amount of all payments and distributions made on or before such date by such Contributing Guarantor in respect of this Guaranty (including in respect of this Section 7.2), minus (2) the aggregate amount of all payments received on or before such date by such Contributing Guarantor from the other Contributing Guarantors as contributions under this Section 7.2.  The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor.  The allocation among Contributing Guarantors of their obligations as set forth in this Section 7.2 shall not be construed in any way to limit the liability of any Contributing Guarantor hereunder.  Each Guarantor is a third party beneficiary to the contribution agreement set forth in this Section 7.2.

 

7.3.         Payment by Guarantors.  Subject to the provisions of Section 7.2, Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Borrower to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), Guarantors will upon demand pay, or cause to be paid, in Cash, to Administrative Agent for the ratable benefit of the Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Borrower’s becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Borrower for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to the Beneficiaries as aforesaid.

 

7.4.         Liability of Guarantors Absolute.  Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations.  In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:

 

(a)           this Guaranty is a guaranty of payment when due and not of collectability. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety;

 

(b)           Administrative Agent may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between Borrower and any Beneficiary with respect to the existence of such Event of Default;

 

(c)           the obligations of each Guarantor hereunder are independent of the obligations of Borrower and the obligations of any other guarantor (including any other Guarantor) of the obligations of Borrower, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Borrower or any of such other guarantors and whether or not Borrower is joined in any such action or actions;

 

(d)           payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor’s liability for any portion of the Guaranteed Obligations which has not been paid; without limiting the generality of the foregoing, if Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor’s covenant to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor’s liability hereunder in respect of the Guaranteed Obligations;

 

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(e)           any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability hereof or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor’s liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment hereof or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guaranteed Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent herewith and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against any other Credit Party or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Credit Documents; and

 

(f)            this Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce, or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Credit Documents, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other Credit Documents or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations, in each case whether or not in accordance with the terms hereof or such other Credit Document or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Credit Documents or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary’s consent to the change, reorganization or termination of the corporate structure or existence of Borrower or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set-offs or counterclaims which Borrower may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations.

 

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7.5.         Waivers by Guarantors.  Each Guarantor hereby waives, for the benefit of the Beneficiaries, (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Borrower, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Borrower, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of any Credit Party or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Borrower or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Borrower or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Beneficiary’s errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor’s obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor’s liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto, notices of any extension of credit to Borrower and notices of any of the matters referred to in Section 7.4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.

 

7.6.         Guarantors’ Rights of Subrogation, Contribution.  Until the Guaranteed Obligations shall have been indefeasibly paid in full, each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Borrower or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Borrower with respect to the Guaranteed Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Borrower, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary.  In addition, until the Guaranteed Obligations shall have been indefeasibly paid in full, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guaranteed Obligations, including any such right of contribution as contemplated by Section 7.2.  Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Borrower or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Borrower, to all right, title and interest any Beneficiary may have in any such collateral or security, and to 

 

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any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been finally and indefeasibly paid in full, such amount shall be held in trust for Administrative Agent on behalf of the Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of the Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof.

 

7.7.         Subordination of Other Obligations.  Any Indebtedness of Borrower or any Guarantor now or hereafter held by any Guarantor (the “Obligee Guarantor”) is hereby subordinated in right of payment to the Guaranteed Obligations, and any such Indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Administrative Agent on behalf of the Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of the Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof.

 

7.8.         Continuing Guaranty.  This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been paid in full. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guaranteed Obligations.

 

7.9.         Authority of Guarantors or Borrower.  It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Borrower or the officers, directors or any agents acting or purporting to act on behalf of any of them.

 

7.10.       Financial Condition of Borrower.  Any Term Loan may be continued from time to time without notice to or authorization from any Guarantor regardless of the financial or other condition of Borrower at the time of any such grant or continuation. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor’s assessment, of the financial condition of Borrower.  Each Guarantor has adequate means to obtain information from Borrower on a continuing basis concerning the financial condition of Borrower and its ability to perform its obligations under the Credit Documents, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Borrower and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations.  Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Borrower now known or hereafter known by any Beneficiary.

 

7.11.       Discharge of Guaranty Upon Sale of Guarantor. If all of the Equity Interests of any Guarantor or any of its successors in interest hereunder shall be sold or otherwise disposed of (including by merger or consolidation) in accordance with the terms and conditions hereof, the Guaranty of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale.

 

SECTION 8.         EVENTS OF DEFAULT

 

8.1.         Events of Default.  If any one or more of the following conditions or events shall occur:

 

(a)           Failure to Make Payments When Due.  Failure by Borrower to pay (i) when due any installment of principal of any Term Loan, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise, or (ii) any interest on any Term Loan or any fee or any other amount due hereunder within three days after the date due; or

 

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(b)           Breach of Certain Covenants.  Failure of any Credit Party to perform or comply with any term or condition contained in Section 2.3, Sections 5.1(a), 5.1(b), 5.1(c), 5.1(d)(i), 5.1(j), Section 5.2, Section 5.7, Section 5.12, Section 5.13, Section 5.15, Section 5.16 or Section 6; or

 

(c)           Breach of Representations.  Any representation, warranty, certification or other statement made or deemed made by any Credit Party in any Credit Document or in any statement or certificate at any time given by any Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false or misleading in any material respect as of the date made or deemed made; or

 

(d)           Other Defaults Under Credit Documents.  Any Credit Party shall default in the performance of or compliance with any term contained herein or any of the other Credit Documents, other than any such term referred to in any other clause of this Section 8.1, and such default shall not have been remedied or waived within five days after the earlier of (i) an officer of such Credit Party becoming aware of such default or (ii) receipt by Borrower of notice from Administrative Agent or any Lender of such default; or

 

(e)           Material Contracts and Permits.

 

(i)            Except for defaults occasioned by the filing of the Chapter 11 Cases and defaults resulting from obligations with respect to which the Bankruptcy Code prohibits any Credit Party from complying or permits any Credit Party not to comply, a material default or breach occurs under any Material Contract; or

 

(ii)           Any Entitlement, license, authorization, registration, permit or approval necessary for the use and operation of the Brightwater Project or any part thereof in accordance with all applicable laws shall fail to be maintained or Vested; or

 

(f)            Judgments and Attachments.  Any money judgment, writ or warrant of attachment or similar process individually or in the aggregate in excess of $200,000 as to any Post-Petition obligation (to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Borrower or any of its Subsidiaries or any of their respective assets and the enforcement thereof shall not be stayed; or

 

(g)           Guaranties, Collateral Documents and other Credit Documents.  At any time after the execution and delivery thereof, (i) the Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or any Guarantor shall repudiate its obligations thereunder, (ii) this Agreement or any Collateral Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations in accordance with the terms hereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien (if any to the extent perfection may be achieved by the filing of UCC financing statements and the entry of the Interim Order or the Final Order, as the case may be) in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of Collateral Agent or any Secured Party to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by the Lenders, under any Credit Document to which it is a party or shall contest the validity or perfection of any Lien in any Collateral purported to be covered by the Collateral Documents; or

 

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(h)           Defaults in Other Agreements. Except for defaults occasioned by the filing of the Chapter 11 Cases and defaults resulting from obligations with respect to which the Bankruptcy Code prohibits any Credit Party from complying or permits any Credit Party not to comply, a default or breach occurs under any agreement, document or instrument entered into either (x) Pre-Petition and which is assumed after the Petition Date or is not subject to the automatic stay provisions of Section 362 of the Bankruptcy Code, or (y) Post-Petition, to which any Credit Party is a party that is not cured within any applicable grace period therefor, and such default or breach (i) involves the failure to make any payment when due in respect of any Indebtedness (other than the Obligations) of any Credit Party in excess of $200,000 in the aggregate, or (ii) causes such Indebtedness, or permits any holder of such Indebtedness or a trustee to cause such Indebtedness, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; or

 

(i)            Approved Budget.  (i) Any disbursement by any Credit Party that is not set forth as a line item on the Approved Budget or (ii) the occurrence of a Material Adverse Deviation; or

 

(j)            The Chapter 11 Cases.

 

(i)            The Entry of an order, or the filing of any motion or pleading by any Person seeking an order, which such motion or pleading is not withdrawn, dismissed or denied within 15 days after such filing:

 

(A)          dismissing any of the Chapter 11 Cases or converting any of the Chapter 11 Cases to a Chapter 7 case,

 

(B)           appointing a Chapter 11 trustee or an examiner in any of the Chapter 11 Cases having enlarged powers (beyond those set forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code),

 

(C)           granting any other super-priority Claim senior to or pari passu with the super-priority Claims of Administrative Agent and the Lenders or granting any other Lien senior to or pari passu with the Liens of the Secured Parties or the Liens of the Pre-Petition Agents and the Pre-Petition Lenders, other than as permitted under this Agreement or as provided in the Interim Order or the Final Order, whichever is then in effect, or

 

(D)          staying, reversing, vacating, modifying or amending the DIP Facility, the Interim Order or the Final Order, in the case of any modification or amendment, without the prior written consent of Administrative Agent and Requisite Lenders; or

 

(ii)           The Entry of an order, or the filing of any motion or pleading by any Credit Party seeking an order, or any Credit Party supporting the entry of an order or filing of a motion or pleading seeking an order:

 

(A)          authorizing, approving or granting additional Post-Petition financing under Section 364(c) or (d) of the Bankruptcy Code other than Indebtedness permitted under this Agreement or as provided in the Interim Order or the Final Order, whichever is then in effect, without the prior written consent of Administrative Agent and Requisite Lenders,

 

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(B)           authorizing, approving or granting the use of Cash Collateral under Section 363(c) of the Bankruptcy Code other than as provided in the Interim Order or the Final Order, whichever is then in effect, without the prior written consent of Administrative Agent and Requisite Lenders,

 

(C)           authorizing, approving or granting the payment by any Credit Party of any Pre-Petition Claim, other than the Pre-Petition Credit Agreements, without the prior written consent of Administrative Agent and Requisite Lenders,

 

(D)          granting relief from the automatic stay applicable under Section 362 of the Bankruptcy Code (x) to permit any secured creditor (other than the Secured Parties) to enforce or otherwise take action with respect to any Collateral having a book value in excess of $200,000 in the aggregate, (y) to permit any other Person to proceed against any material asset of any Credit Party or (z) to permit any other action that would have a Material Adverse Effect,

 

(E)           approving any settlement or other stipulation not included in the Approved Budget with any secured creditor (other than the Secured Parties) providing for payments as adequate protection or otherwise to such secured creditor, without the prior written consent of Administrative Agent and Requisite Lenders,

 

(F)           granting any Lien upon or affecting any Collateral other than Liens permitted under this Agreement, or

 

(G)           amending, replacing or superseding the Cash Management Order or the Sale Order, each as in effect as of the Closing Date, in each case without the prior written consent of Administrative Agent and Requisite Lenders; or

 

(iii)          The filing, or supporting of any other Person’s filing, or public announcement or execution of any writing to any other party-in-interest of its intention to file or support the filing, by any Credit Party of:

 

(A)          any motion or pleading to disallow in whole or in part the Lenders’ Claim in respect of the DIP Facility, or to challenge the validity and enforceability of the Liens in favor of the Secured Parties, or to contest any material provision of the Credit Documents, or

 

(B)           a plan of reorganization or a disclosure statement that contains terms and conditions that are not satisfactory to Administrative Agent and Requisite Lenders in all respects; or

 

(iv)          The commencement of any action against any of the Secured Parties (solely in their capacities as such under the Credit Documents) by or on behalf of any Credit Party or any of its Affiliates, officers or employees; or

 

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(v)           The super-priority Claim or the super-priority Liens of the Secured Parties shall cease to be valid and in full force and effect in all respects; or

 

(vi)          The Interim Order (prior to entry of the Final Order), the Final Order or any material provision of any Credit Document shall cease to be in full force and effect; or

 

(vii)         Breach by any Credit Party of any provisions of the Interim Order or the Final Order or, upon entry of the Confirmation Order, the Confirmation Order; or

 

(viii)        The assertion by any Credit Party of any claim under Section 506(c) of the Bankruptcy Code or otherwise against any or all of the Secured Parties, Administrative Agent, the Lenders, the Collateral securing the Obligations, the Pre-Petition Agents or the Pre-Petition Lenders, or the commencement of any actions adverse to any or all of the Secured Parties, Administrative Agent, the Lenders, the Collateral securing the Obligations, the Pre-Petition Agents, the Pre-Petition Lenders or any of their respective rights and remedies under the DIP Facility, the Interim Order, the Final Order or any other Bankruptcy Court order; or

 

(ix)           (A) The filing by any Credit Party of any direct or indirect amendment to the Plan of Reorganization or the Disclosure Statement that contains terms or conditions that are not satisfactory to Administrative Agent and Requisite Lenders in all respects, which filing is not withdrawn, dismissed or denied within five Business Days after such filing, or (B) the entry of an order approving any such amendment to the Plan of Reorganization or Disclosure Statement; or

 

(x)            (A) The entry of an order approving any disclosure statement other than the Disclosure Statement that contains terms or conditions that are not satisfactory to Administrative Agent and Requisite Lenders in all respects, or (B) the scheduling of a confirmation hearing for any plan of reorganization other than the Plan of Reorganization that contains terms or conditions that are not satisfactory to Administrative Agent and Requisite Lenders in all respects that is scheduled on or prior to the date of the confirmation hearing scheduled for the Plan of Reorganization; or

 

(xi)           After entry thereof, the Confirmation Order shall cease to be in full force and effect or shall have been reversed, modified, amended, stayed, vacated or subject to stay pending appeal, in the case of any modification or amendment that is adverse to the Lenders (as determined in the good faith judgment of Administrative Agent and Requisite Lenders), without the prior written consent of Administrative Agent and Requisite Lenders; or

 

(xii)          (A) The Plan Support Agreement shall cease to be in full force and effect or shall have been amended, supplemented or otherwise modified other than with the consent of Requisite Lenders, (B) any Credit Party shall have breached the Plan Support Agreement, or (C) a “Termination Event” shall occur under and as defined in the Plan Support Agreement or any party (other than the Credit Parties) shall otherwise have the right to terminate the Plan Support Agreement;

 

THEN, upon the occurrence and during the continuance of any Event of Default, at the request of (or with the consent of) Requisite Lenders, upon notice to Borrower by Administrative Agent, (A) all of the unpaid principal amount of and accrued interest on the Term Loans and all other Obligations shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Credit Party, and (B) subject to any notice requirements in the Interim Order or the Final Order, as applicable, Administrative Agent may cause Collateral Agent to enforce any and all Liens and security interests created pursuant to the Collateral Documents.

 

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SECTION 9.         AGENTS

 

9.1.         Appointment of Agents.  Wilmington Trust FSB is hereby appointed Administrative Agent and Collateral Agent hereunder and under the other Credit Documents, and each Lender hereby authorizes Wilmington Trust FSB to act as Administrative Agent and Collateral Agent in accordance with the terms hereof and the other Credit Documents.  Each Agent hereby agrees to act in its capacity as such upon the express conditions contained herein and the other Credit Documents, as applicable.  The provisions of this Section 9 are solely for the benefit of Agents and the Lenders, and no Credit Party shall have any rights as a third party beneficiary of any of the provisions thereof.  In performing its functions and duties hereunder, each Agent shall act solely as an agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Borrower or any of its Subsidiaries.

 

9.2.         Powers and Duties.  Each Lender irrevocably authorizes each Agent to take such action on such Lender’s behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto.  Each Agent shall have only those duties and responsibilities that are expressly specified herein and the other Credit Documents.  Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees.  No Agent shall have, by reason hereof or any of the other Credit Documents, a fiduciary relationship in respect of any Lender, and nothing herein or in any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or of any of the other Credit Documents except as expressly set forth herein or therein.

 

9.3.         General Immunity.

 

(a)           No Responsibility for Certain Matters.  No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or of any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to the Lenders or by or on behalf of any Credit Party to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Credit Party or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Term Loans or as to the existence or possible existence of any Default or Event of Default or to make any disclosures with respect to the foregoing.  Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Term Loans.  Borrower acknowledges that it is solely responsible for the contents of the Initial Approved Budget and all other information, documentation or materials delivered to Wilmington Trust FSB by or on behalf of Borrower and its Subsidiaries in connection therewith (collectively, the “Information”) and acknowledges that Wilmington Trust FSB will be using and relying upon the Information without independent verification thereof.

 

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(b)           Exculpatory Provisions.  No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent’s gross negligence or willful misconduct, as determined by a final, non-appealable judgment of a court of competent jurisdiction.  Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or with any of the other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders and, upon receipt of such instructions from Requisite Lenders, such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to conclusively rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to conclusively rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Borrower and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or under any of the other Credit Documents in accordance with the instructions of Requisite Lenders.

 

(c)           Delegation of Duties.  Each Agent may perform any and all of its duties and exercise its rights and powers under this Agreement or under any other Credit Document by or through any one or more sub-agents appointed by such Agent.  Each Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through its respective Affiliates. The exculpatory, indemnification and other provisions of this Section 9.3 and of Section 9.6 shall apply to any such sub-agent or Affiliate of each Agent and shall apply to their respective activities as Agent.  All of the rights, benefits and privileges (including the exculpatory and indemnification provisions) of this Section 9.3 and of Section 9.6 shall apply to any such sub-agent and to the Affiliates of any such sub-agent, and shall apply to their respective activities as sub-agent as if such sub-agent and Affiliates were named herein. Notwithstanding anything herein to the contrary, with respect to each sub-agent appointed by any Agent, (i) such sub-agent shall be a third party beneficiary under this Agreement with respect to all such rights, benefits and privileges (including exculpatory rights and rights to indemnification) and shall have all of the rights and benefits of a third party beneficiary, including an independent right of action to enforce such rights, benefits and privileges (including exculpatory rights and rights to indemnification) directly, without the consent or joinder of any other Person, against any or all of the Credit Parties and the Lenders, (ii) such rights, benefits and privileges (including exculpatory rights and rights to indemnification) shall not be modified or amended without the consent of such sub-agent, and (iii) such sub-agent shall only have obligations to such Agent and not to any Credit Party, Lender or any other Person and no Credit Party, Lender or any other Person shall have any rights, directly or indirectly, as a third party beneficiary or otherwise, against such sub-agent.

 

9.4.         Agents Entitled to Act as Lender.  The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder.  With respect to its participation in the Term Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term “Lender” shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity.  Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with Borrower or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Borrower for services in connection herewith and otherwise without having to account for the same to the Lenders.

 

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9.5.         Lenders’ Representations, Warranties and Acknowledgment.

 

(a)           Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Borrower and its Subsidiaries in connection with the Term Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Borrower and its Subsidiaries.  No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Term Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders.

 

(b)           Each Lender, by delivering its signature page to this Agreement or  an Assignment Agreement and funding its Term Loans on the applicable Borrowing Date shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or the Lenders, as applicable, on such Borrowing Date.

 

9.6.         Right to Indemnity.  Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Credit Party, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent (i) in exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Credit Documents and (ii) in connection with (A) the obtaining of approval of the Credit Documents by the Bankruptcy Court and (B) the preparation and review of pleadings, documents and reports related to any Chapter 11 Case and any subsequent case under Chapter 7 of the Bankruptcy Code, attendance at meetings, court hearings or conferences related to any Chapter 11 Case and any subsequent case under Chapter 7 of the Bankruptcy Code, and general monitoring of any Chapter 11 Case and any subsequent case under Chapter 7 of the Bankruptcy Code; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s gross negligence or willful misconduct, as determined by a final, non-appealable judgment of a court of competent jurisdiction.  If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided that in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender’s Pro Rata Share thereof;  provided, further, that this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.  In addition to all other remedies, Administrative Agent may enforce its right to indemnity by recouping or offsetting any claim for indemnity against distributions that Administrative Agent is otherwise required to make pursuant to Section 2.13(c).

 

9.7.         Successor Administrative Agent and Collateral Agent.

 

(a)           Administrative Agent shall have the right to resign at any time by giving prior written notice thereof to the Lenders and Borrower, and Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Borrower 

 

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and Administrative Agent and signed by Requisite Lenders. Administrative Agent shall have the right to appoint a financial institution to act as Administrative Agent hereunder, subject to the reasonable satisfaction of Borrower and Requisite Lenders, and Administrative Agent’s resignation shall become effective on the earliest of (i) 30 days after delivery of the notice of resignation, (ii) the acceptance of such successor Administrative Agent by Borrower and Requisite Lenders or (iii) such other date, if any, agreed to by Requisite Lenders.  Upon any such notice of resignation or any such removal, if a successor Administrative Agent has not already been appointed by the retiring Administrative Agent, Requisite Lenders shall have the right, upon five Business Days’ notice to Borrower, to appoint a successor Administrative Agent.  If neither Requisite Lenders nor Administrative Agent have appointed a successor Administrative Agent, Requisite Lenders shall be deemed to have succeeded to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent; provided that, until a successor Administrative Agent is so appointed by Requisite Lenders or Administrative Agent, any collateral security held by Administrative Agent in its role as Collateral Agent on behalf of the Lenders under any of the Collateral Documents shall continue to be held by the retiring Collateral Agent as nominee until such time as a successor Collateral Agent is appointed.  Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent, and the retiring or removed Administrative Agent shall promptly (i) transfer to such successor Administrative Agent all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent under the Credit Documents, and (ii) execute and deliver to such successor Administrative Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Administrative Agent of the security interests created under the Collateral Documents, whereupon such retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder.  Except as provided above, any resignation or removal of Wilmington Trust FSB or its successor as Administrative Agent pursuant to this Section 9.7 shall also constitute the resignation or removal of Wilmington Trust FSB or its successor as Collateral Agent.  After any retiring or removed Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Section 9.7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent hereunder.  Any successor Administrative Agent appointed pursuant to this Section shall, upon its acceptance of such appointment, become the successor Collateral Agent for all purposes hereunder.

 

(b)           In addition to the foregoing, Collateral Agent may resign at any time by giving prior written notice thereof to the Lenders and Grantors, and Collateral Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Grantors and Collateral Agent signed by Requisite Lenders. Administrative Agent shall have the right to appoint a financial institution to act as Collateral Agent hereunder, subject to the reasonable satisfaction of Borrower and Requisite Lenders, and Collateral Agent’s resignation shall become effective on the earliest of (i) 30 days after delivery of the notice of resignation, (ii) the acceptance of such successor Collateral Agent by Borrower and Requisite Lenders or (iii) such other date, if any, agreed to by Requisite Lenders.  Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days’ notice to Administrative Agent, to appoint a successor Collateral Agent.  Until a successor Collateral Agent is so appointed by Requisite Lenders or Administrative Agent, any collateral security held by Collateral Agent on behalf of the Lenders under any of the Credit Documents shall continue to be held by the retiring Collateral Agent as nominee until such time as a successor Collateral Agent is appointed.  Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent under this Agreement and the Collateral Documents, and the retiring or removed Collateral Agent under this 

 

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Agreement shall promptly (i) transfer to such successor Collateral Agent all sums, Securities and other items of Collateral held hereunder or under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Collateral Agent under this Agreement and the Collateral Documents, and (ii) execute and deliver to such successor Collateral Agent or otherwise authorize the filing of such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Collateral Agent of the security interests created under the Collateral Documents, whereupon such retiring or removed Collateral Agent shall be discharged from its duties and obligations under this Agreement and under the Collateral Documents.  After any retiring or removed Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of this Agreement and the Collateral Documents shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement or the Collateral Documents while it was the Collateral Agent hereunder.

 

9.8.         Collateral Documents and Guaranty.

 

(a)           Agents under Collateral Documents and Guaranty.  Each Secured Party hereby further authorizes Administrative Agent or Collateral Agent, as applicable, on behalf of and for the benefit of the Secured Parties, to be the agent for and representative of the Secured Parties with respect to the Guaranty, the Collateral and the Collateral Documents.  Subject to Section 10.5, without further written consent or authorization from any Secured Party, Administrative Agent or Collateral Agent, as applicable may execute any documents or instruments necessary to (i) in connection with a sale or disposition of assets permitted by this Agreement, release any Lien encumbering any item of Collateral that is the subject of such sale or other disposition of assets or to which Requisite Lenders have otherwise consented, or (ii) release any Guarantor from the Guaranty pursuant to Section 7.11 or with respect to which Requisite Lenders have otherwise consented.

 

(b)           Right to Realize on Collateral and Enforce Guaranty.  Anything contained in any of the Credit Documents to the contrary notwithstanding, Borrower, Administrative Agent, Collateral Agent and each Secured Party hereby agree that (i) no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by Administrative Agent, on behalf of the Secured Parties in accordance with the terms hereof, and all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent, and (ii) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale or other disposition, Collateral Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition and Collateral Agent, as agent for and representative of the Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale or other disposition.

 

(c)           Release of Collateral and Guarantees, Termination of Credit Documents.  Notwithstanding anything to the contrary contained herein or any other Credit Document, when all Obligations have been paid in full, upon request of Borrower, Administrative Agent shall (without notice to, or vote or consent of, any Lender) take such actions as shall be required to release its security interest in all Collateral, and to release all guarantee obligations provided for in any Credit Document.  Any such release of guarantee obligations shall be deemed subject to the provision that such guarantee obligations shall be reinstated if after such release any portion of any payment in respect of the Obligations guaranteed thereby shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payment had not been made.

 

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9.9.         Withholding Taxes. To the extent required by any applicable law, Administrative Agent may withhold from any payment to any Lender an amount equivalent to any applicable withholding tax.  If the Internal Revenue Service or any other Governmental Authority asserts a claim that Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender because the appropriate form was not delivered or was not properly executed or because such Lender failed to notify Administrative Agent of a change in circumstance which rendered the exemption from, or reduction of, withholding tax ineffective or for any other reason, such Lender shall indemnify Administrative Agent fully for all amounts paid, directly or indirectly, by Administrative Agent as tax or otherwise, including any penalties or interest and together with all expenses (including legal expenses, allocated internal costs and out-of-pocket expenses) incurred.

 

SECTION 10.       MISCELLANEOUS

 

10.1.       Notices.

 

(a)           Notices Generally.  Any notice or other communication herein required or permitted to be given to any party hereto shall be sent to such Person’s address as set forth on Appendix B or in the other relevant Credit Document or, in the case of any Lender, the address as otherwise indicated to Administrative Agent in writing.  Except as otherwise set forth in paragraph (b) below, each notice hereunder shall be in writing and may be personally served or sent by telefacsimile (except for any notices sent to Administrative Agent) or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that no notice to any Agent shall be effective until received by such Agent; provided  further, that any such notice or other communication shall at the request of Administrative Agent be provided to any sub-agent appointed pursuant to Section 9.3(c) hereto as designated by Administrative Agent from time to time.

 

(b)           Electronic Communications.

 

(i)            Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites, including the Platform) pursuant to procedures approved by Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Section 2 if such Lender, as applicable, has notified Administrative Agent that it is incapable of receiving notices under such Section 2 by electronic communication.  Administrative Agent or Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.  Unless Administrative Agent otherwise prescribes, (x) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (y) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (x) of notification that such notice or communication is available and identifying the website address therefor.

 

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(ii)           Each Credit Party understands that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution and agrees and assumes the risks associated with such electronic distribution, except to the extent caused by the willful misconduct or gross negligence of Administrative Agent, as determined by a final, non-appealable judgment of a court of competent jurisdiction.

 

(iii)          The Platform and any Approved Electronic Communications are provided “as is” and “as available”.  None of the Agents nor any of their respective officers, directors, employees, agents, advisors or representatives (the “Agent Affiliates”) warrant the accuracy, adequacy or completeness of the Approved Electronic Communications or the Platform and each expressly disclaims liability for errors or omissions in the Platform and the Approved Electronic Communications.  No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects is made by the Agent Affiliates in connection with the Platform or the Approved Electronic Communications.

 

(iv)          Each Credit Party, each Lender and each Agent agrees that Administrative Agent may, but shall not be obligated to, store any Approved Electronic Communications on the Platform in accordance with Administrative Agent’s customary document retention procedures and policies.

 

(v)           Any notice of Default or Event of Default may be provided by telephone if confirmed promptly thereafter by delivery of written notice thereof.

 

(c)           Private Side Information Contacts.  Each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the “Private Side Information” or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lender’s compliance procedures and applicable law, including United States federal and state securities laws, to make reference to information that is not made available through the “Public Side Information” portion of the Platform and that may contain Non-Public Information with respect to Borrower, its Subsidiaries or their securities for purposes of United States federal or state securities laws.

 

10.2.       Expenses.  Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to pay promptly (a) all documented, actual and reasonable costs and expenses incurred by each Agent in connection with the negotiation, preparation and execution of the Credit Documents and any consents, amendments, waivers or other modifications thereto; (b) all reasonable, documented fees, expenses and disbursements of counsel to Agents in connection with the negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Borrower; (c) all the actual costs and reasonable expenses in connection with the custody or preservation of any of the Collateral and of creating, perfecting, recording, maintaining and preserving the Liens in favor of Collateral Agent, for the benefit of the Secured Parties, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may reasonably request in respect of the Collateral or the Liens created pursuant to the Collateral Documents; (d) all the actual and reasonable costs, fees, expenses and 

 

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disbursements of any auditors, accountants, consultants or appraisers; and (e) after the occurrence of a Default or an Event of Default, all costs and expenses, including attorneys’ fees (including allocated costs of internal counsel) and costs of settlement, incurred by any Agent in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale, lease or license of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work-out” or pursuant to any insolvency or bankruptcy cases or proceedings.

 

10.3.       Indemnity.

 

(a)           In addition to the payment of costs, fees and expenses pursuant to Section 10.2, whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees’ selection of counsel), indemnify, pay and hold harmless, each Agent and each Lender and the officers, partners, members, directors, trustees, advisors, employees, agents, sub-agents and Affiliates of each Agent and each Lender (each, an “Indemnitee”) from and against any and all Indemnified Liabilities; provided that no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee, in each case, as determined by a final, non-appealable judgment of a court of competent jurisdiction.  To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.

 

(b)           To the extent permitted by applicable law, no Credit Party shall assert, and each Credit Party hereby waives, any claim against any Lender, any Agent or their respective Affiliates, directors, employees, attorneys, agents or sub-agents, on any theory of liability, for special, indirect, consequential or punitive damages  (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any other Credit Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Term Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Borrower hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

 

(c)           The indemnification pursuant to this Section 10.3 shall expressly survive the effective date of the Plan of Reorganization or any other plan of reorganization confirmed by the Bankruptcy Court.

 

10.4.       Set-Off.  Subject to any notice requirements in the Interim Order (with respect to the period prior to the entry of the Final Order) or the Final Order (with respect to the period on and after entry of the Final Order), in addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized, in each case notwithstanding the provisions of Section 362 of the Bankruptcy Code, and without any application, motion or notice to, hearing before, or order from, the Bankruptcy Court, by each Credit Party at any time or from time to time subject to the consent of Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by 

 

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certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of any Credit Party against and on account of the obligations and liabilities of any Credit Party to such Lender under this Agreement, including participations herein, and the other Credit Documents, including all claims of any nature or description arising out of or connected hereto or thereto, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Term Loans or any amounts in respect of any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured.

 

10.5.       Amendments and Waivers.

 

(a)           Requisite Lenders’ Consent.  Subject to the additional requirements of Sections 10.5(b) and 10.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that Administrative Agent may, with the consent of Borrower only, amend, modify or supplement this Agreement to cure any ambiguity, omission, defect or inconsistency, so long as such amendment, modification or supplement does not adversely affect the rights of any Lender.

 

(b)           Affected Lenders’ Consent.  Without the written consent of each Lender that would be directly and adversely affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would:

 

(i)            extend the scheduled final maturity of any Term Loan beyond 120 days after the Maturity Date;

 

(ii)           waive, reduce or postpone beyond 120 days after the due date therefor any scheduled repayment (but not prepayment);

 

(iii)          reduce the rate of interest on any Term Loan (other than any waiver of any increase in the interest rate applicable to any Term Loan pursuant to Section 2.7 which results from the occurrence of any Event of Default other than an Event of Default under Section 8.1(a)) or any fee, consideration or any premium payable hereunder;

 

(iv)          reduce the principal amount of any Term Loan;

 

(v)           amend, modify, terminate or waive any provision of Section 2.14, Section 2.20, Section 2.21 or this Section 10.5(b) or any other provision of this Agreement that expressly provides that the consent of all Lenders is required;

 

(vi)          amend the definition of “Requisite Lenders”  or  “Pro Rata Share”;

 

(vii)         release, or consent to subordinate the Liens with respect to, all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guaranty except as expressly provided in the Credit Documents; or

 

(viii)        consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document.

 

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(c)           Agent Consent.  No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall amend, modify, terminate or waive any provision of Section 9 as the same applies to any Agent, or any other provision hereof or of the other Credit Documents as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent.

 

(d)           Execution of Amendments.  Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender.  Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.  No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances.  Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by a Credit Party, on such Credit Party.

 

10.6.       Successors and Assigns; Participations.

 

(a)           Generally.  This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders.  No Credit Party’s rights or obligations hereunder nor any interest therein may be assigned or delegated by any Credit Party without the prior written consent of all Lenders.  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of Agents and the Lenders and other Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.

 

(b)           Register.  Except as provided in Section 2.20, Borrower, Administrative Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Term Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment and Term Loan shall be effective, in each case, unless and until recorded in the Register following receipt of a fully executed Assignment Agreement effecting the assignment or transfer thereof, together with the required forms and certificates regarding tax matters and any fees payable in connection with such assignment, in each case, as provided in Section 10.6(d).  Each assignment shall be recorded in the Register promptly following receipt by Administrative Agent of the fully executed Assignment Agreement and all other necessary documents and approvals, prompt notice thereof shall be provided to Borrower and a copy of such Assignment Agreement shall be maintained. The date of such recordation of a transfer shall be referred to herein as the “Assignment Effective Date”.  Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments and Term Loans.

 

(c)           Right to Assign.  Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including all or a portion of its Commitment and Term Loans owing to it or other Obligations (provided, however, that each assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any applicable Term Loan and any related Commitment):

 

(i)            to any Person meeting the criteria of clause (i) of the definition of “Eligible Assignee” upon the giving of notice to Borrower and Administrative Agent; and

 

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(ii)           to any Person meeting the criteria of clause (ii) of the definition of “Eligible Assignee” upon the giving of notice to Borrower and Administrative Agent; provided that each such assignment pursuant to this Section 10.6(c)(ii) shall be in an aggregate amount of not less than $500,000 (or such lesser amount as may be agreed to by Borrower and Administrative Agent or as shall constitute the aggregate amount of the Term Loan of the assigning Lender) with respect to the assignment of Term Loans.

 

(d)           Mechanics.  Assignments and assumptions of Term Loans and Commitments by the Lenders shall be effected by manual execution and delivery to Administrative Agent of an Assignment Agreement.  Assignments made pursuant to the foregoing provision shall be effective as of the Assignment Effective Date.  In connection with each assignment, (i) there shall be delivered to Administrative Agent such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver pursuant to Section 2.17(c) and (ii) the assigning Lender shall pay to Administrative Agent a registration fee in the amount of $3,500.

 

(e)           Representations and Warranties of Assignee.  Each Lender, upon execution and delivery hereof or upon succeeding to an interest in the Commitments and the Term Loans, as the case may be, represents and warrants as of the Closing Date or as of the Assignment Effective Date that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments and loans such as the applicable Commitments and Term Loans; and (iii) it will make or invest in its Commitments and Term Loans for its own account in the ordinary course and without a view to distribution of such Commitments and Term Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 10.6, the disposition of such Commitments and Term Loans or any interests therein shall at all times remain within its exclusive control).

 

(f)            Effect of Assignment.  Subject to the terms and conditions of this Section 10.6, as of the “Assignment Effective Date” (i) the assignee thereunder shall have the rights and obligations of a “Lender” hereunder to the extent of its interest in the Term Loans and the Commitments as reflected in the Register and shall thereafter be a party hereto and a “Lender” for all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned to the assignee, relinquish its rights (other than any rights which survive the termination hereof under Section 10.8) and be released from its obligations hereunder (and, in the case of an assignment covering all or the remaining portion of an assigning Lender’s rights and obligations hereunder, such Lender shall cease to be a party hereto on the Assignment Effective Date; provided that anything contained in any of the Credit Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); and (iii) if any such assignment occurs after the issuance of any Term Loan Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Term Loan Notes to Administrative Agent for cancellation, and thereupon Borrower shall issue and deliver new Term Loan Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new outstanding Term Loans of the assignee and/or the assigning Lender.

 

(g)           Participations.

 

(i)            Each Lender shall have the right at any time to sell one or more participations to any Person (other than Borrower, any of its Subsidiaries or any of its Affiliates)  in all or any part of its Commitments, Term Loans or in any other Obligation.

 

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(ii)           The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would (A) extend the scheduled final maturity of any Term Loan or Term Loan Note in which such participant is participating, or reduce the rate of interest on any Term Loan (other than any waiver of any increase in the interest rate applicable to any Term Loan pursuant to Section 2.7) or any fee, consideration or premium payable hereunder or extend the time for payment of such interest or fees, or reduce the principal amount of any Term Loan, or increase the amount of the participant’s participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Term Loan shall be permitted without the consent of any participant if the participant’s participation is not increased as a result thereof), (B) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this any Credit Document or (C) release all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guaranty (in each case, except as expressly provided in the Credit Documents) supporting the Term Loans hereunder in which such participant is participating.

 

(iii)          Borrower agrees that each participant shall be entitled to the benefits of Sections 2.15(c), 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section 10.6; provided that (x) a participant shall not be entitled to receive any greater payment under Section 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with Borrower’s prior written consent and (y) a participant that would be a Non-U.S. Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless Borrower is notified of the participation sold to such participant and such participant agrees, for the benefit of Borrower, to comply with Section 2.17 as though it were a Lender; provided, further, that, except as specifically set forth in clauses (x) and (y) of this sentence, nothing herein shall require any notice to Borrower or any other Person in connection with the sale of any participation. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 10.4 as though it were a Lender, provided such Participant agrees to be subject to Section 2.14 as though it were a Lender.

 

(h)           Certain Other Assignments and Participations.  In addition to any other assignment or participation permitted pursuant to this Section 10.6, any Lender may assign, pledge and/or grant a security interest in all or any portion of its Term Loans, the other Obligations owed by or to such Lender, and its Term Loan Notes, if any, to secure obligations of such Lender, including to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors and any operating circular issued by such Federal Reserve Bank; provided that no Lender, as between Borrower and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge; provided, further, that in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a “Lender” or be entitled to require the assigning Lender to take or omit to take any action hereunder.

 

10.7.       Independence of Covenants.  All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.

 

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10.8.       Survival of Representations, Warranties and Agreements. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of the Term Loans.  Notwithstanding anything herein or implied by law to the contrary, the agreements of each Credit Party set forth in Sections 2.15(c), 2.16, 2.17, 5.8(e), 10.2, 10.3 and 10.4 and the agreements of the Lenders set forth in Sections 2.14, 9.3(b) and 9.6 shall survive the payment of the Term Loans.

 

10.9.       No Waiver; Remedies Cumulative.  No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege.  The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents.  Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.

 

10.10.     Marshalling; Payments Set Aside.  Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Credit Party or any other Person or against or in payment of any or all of the Obligations.  To the extent that any Credit Party makes a payment or payments to Administrative Agent or the Lenders (or to Administrative Agent, on behalf of the Lenders), or any Agent or any Lender enforces any security interests or exercises any right of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or set-off had not occurred.

 

10.11.     Severability.  In case any provision in or obligation under any Credit Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

 

10.12.     Obligations Several; Independent Nature of Lenders’ Rights. The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or the Commitment of any other Lender hereunder.  Nothing contained herein or in any other Credit Document, and no action taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of the Credit Documents and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.

 

10.13.     Headings.  Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

 

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10.14.     APPLICABLE LAW.  TO THE EXTENT NOT GOVERNED BY THE PROVISIONS OF THE BANKRUPTCY CODE, THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

10.15.     CONSENT TO JURISDICTION.  ALL PARTIES HERETO SUBMIT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE BANKRUPTCY COURT, OR IN THE EVENT THAT THE BANKRUPTCY COURT DOES NOT HAVE OR DOES NOT EXERCISE JURISDICTION, THEN IN ANY FEDERAL OR STATE COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK, SUBJECT TO CLAUSE (E) OF THE FOLLOWING SENTENCE.  BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY, AT ALL TIMES, THE EXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN THE BANKRUPTCY COURT OR ANY OTHER SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES THAT AGENTS AND THE LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION IN CONNECTION WITH THE EXERCISE OF ANY RIGHTS UNDER ANY COLLATERAL DOCUMENT OR THE ENFORCEMENT OF ANY JUDGMENT.

 

10.16.     WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS.  EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 10.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR TO ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TERM LOANS MADE HEREUNDER.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

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10.17.     Confidentiality.  Each Agent and each Lender shall hold all non-public information regarding Borrower and its Subsidiaries and their businesses identified as such by Borrower and obtained by such Agent or such Lender pursuant to the requirements hereof in accordance with such Agent’s and such Lender’s customary procedures for handling confidential information of such nature, it being understood and agreed by Borrower that, in any event, Administrative Agent may disclose such information to the Lenders and each Agent and each Lender may make (i) disclosures of such information to Affiliates of such Lender or such Agent and to their respective agents and advisors (and to other Persons authorized by a Lender or an Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 10.17); (ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation of Term Loans or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) to any swap or derivative transaction relating to Borrower and its obligations (provided that such assignees, transferees, participants, counterparties and advisors are advised of and agree to be bound by either the provisions of this Section 10.17 or other provisions at least as restrictive as this Section 10.17); (iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Credit Parties received by it from any Agent or any Lender; (iv) disclosures in connection with the exercise of any remedies hereunder or under any other Credit Document; and (v) disclosures required or requested by any Governmental Authority or representative thereof or by the NAIC or pursuant to legal or judicial process, provided that unless specifically prohibited by applicable law or court order, each Lender and each Agent shall make reasonable efforts to notify Borrower in writing of any request by any Governmental Authority or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such Governmental Authority) for disclosure of any such non-public information prior to disclosure of such information.  In addition, each Agent and each Lender may disclose the existence of this Agreement and the information about this Agreement to market data collectors, similar service providers to the lending industry and service providers to Agents and the Lenders in connection with the administration and management of this Agreement and the other Credit Documents.  Notwithstanding anything to the contrary set forth herein, each party (and each of their respective employees, representatives or other agents) may disclose to any and all persons without limitation of any kind the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to any such party relating to such tax treatment and tax structure.  However, any information relating to the tax treatment or tax structure shall remain subject to the confidentiality provisions hereof (and the foregoing sentence shall not apply) to the extent reasonably necessary to enable the parties hereto, their respective Affiliates, and their and their respective Affiliates’ directors and employees to comply with applicable securities laws.  For this purpose, “tax structure” means any facts relevant to the federal income tax treatment of the transactions contemplated by this Agreement but does not include information relating to the identity of any of the parties hereto or any of their respective Affiliates.

 

10.18.     Usury Savings Clause.  Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law, shall not exceed the Highest Lawful Rate.  If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Term Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of 

 

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interest set forth in this Agreement had at all times been in effect.  In addition, if when the Term Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, Borrower shall pay to Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and Borrower to conform strictly to any applicable usury laws.  Accordingly, if any Lender contracts for, charges or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender’s option be applied to the outstanding amount of the Term Loans made hereunder or be refunded to Borrower.

 

10.19.     Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

 

10.20.     Effectiveness; Entire Agreement.  This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Borrower and Administrative Agent of written notification of such execution and authorization of delivery thereof. The Credit Documents embody the entire agreement of the parties and supersede all prior agreements and understandings relating to the subject matter hereof and any prior letter of interest, fee letter, confidentiality and similar agreements involving any Credit Party, any Agent, any Lender and any of their respective Affiliates relating to a financing of substantially similar form, purpose or effect.  In the event of any conflict between this Agreement and any other Credit Document, the terms of this Agreement shall govern (unless such terms of such other Credit Documents are necessary to comply with applicable Requirements of Law, in which case such terms shall govern to the extent necessary to comply therewith).  NOTWITHSTANDING THE FOREGOING, IF ANY PROVISION IN THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT CONFLICTS WITH ANY PROVISION IN THE INTERIM ORDER (WITH RESPECT TO THE PERIOD PRIOR TO THE ENTRY OF THE FINAL ORDER) OR THE FINAL ORDER (WITH RESPECT TO THE PERIOD ON AND AFTER ENTRY OF THE FINAL ORDER), THE PROVISION IN THE INTERIM ORDER OR THE FINAL ORDER, AS THE CASE MAY BE, SHALL GOVERN AND CONTROL.

 

10.21.     PATRIOT Act.  Each Lender and Administrative Agent (for itself and not on behalf of any Lender) hereby notifies each Credit Party that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies each Credit Party, which information includes the name and address of each Credit Party and other information that will allow such Lender or Administrative Agent, as applicable, to identify such Credit Party in accordance with the PATRIOT Act.

 

10.22.     Electronic Execution of Assignments.  The words “execution”, “signed”, “signature”, and words of like import in any Assignment Agreement shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

 

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10.23.     No Fiduciary Duty.  Each Agent, each Lender and their Affiliates (collectively, solely for purposes of this paragraph, the “Lender Parties”) may have economic interests that conflict with those of the Credit Parties, their stockholders and/or their affiliates.  Each Credit Party agrees that nothing in the Credit Documents or otherwise will be deemed to create an advisory, fiduciary or agency relationship or fiduciary or other implied duty between any Lender Party, on the one hand, and such Credit Party, its stockholders or its affiliates, on the other.  The Credit Parties acknowledge and agree that (i) the transactions contemplated by the Credit Documents (including the exercise of rights and remedies hereunder and thereunder) are arm’s-length commercial transactions between the Lender Parties, on the one hand, and the Credit Parties, on the other, and (ii) in connection therewith and with the process leading thereto, (x) no Lender Party has assumed an advisory or fiduciary responsibility in favor of any Credit Party, its stockholders or its affiliates with respect to the transactions contemplated hereby (or the exercise of rights or remedies with respect thereto) or the process leading thereto (irrespective of whether any Lender Party has advised, is currently advising or will advise any Credit Party, its stockholders or its Affiliates on other matters) or any other obligation to any Credit Party except the obligations expressly set forth in the Credit Documents and (y) each Lender Party is acting solely as principal and not as the agent or fiduciary of any Credit Party, its management, stockholders, creditors or any other Person.  Each Credit Party acknowledges and agrees that it has consulted its own legal and financial advisors to the extent it deemed appropriate and that it is responsible for making its own independent judgment with respect to such transactions and the process leading thereto.  Each Credit Party agrees that it will not claim that any Lender Party has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to such Credit Party, in connection with such transaction or the process leading thereto.

 

10.24.     Parties Including Trustees; Bankruptcy Court Proceedings.  This Agreement, the other Credit Documents and all Liens and other rights and privileges created by or pursuant to any Credit Document shall be binding upon each Credit Party, the estate of each Credit Party, and any trustee, other estate representative or any successor in interest of any Credit Party in any Chapter 11 Case or any subsequent case commenced under Chapter 7 of the Bankruptcy Code.  This Agreement and the other Credit Documents shall be binding upon, and inure to the benefit of, the successors of Agents and the Lenders and their respective assigns, transferees and endorsees.  The Liens created by this Agreement and the other Credit Documents shall be and remain valid and perfected in the event of the substantive consolidation or conversion of any Chapter 11 Case or any other bankruptcy case of any Credit Party to a case under Chapter 7 of the Bankruptcy Code or in the event of dismissal of any Chapter 11 Case or the release of any Collateral from the jurisdiction of the Bankruptcy Court for any reason, without the necessity that any Agent file financing statements or otherwise perfect its Liens under applicable law.  No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other Credit Documents without the prior express written consent of Agents and the Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by any Credit Party without the prior express written consent of Agents and the Lenders shall be void. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Credit Party, Agents and the Lenders with respect to the transactions contemplated hereby and no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement or of any of the other Credit Documents.

 

10.25.     Conflict Between this Agreement and the Orders.  In the event of any inconsistency between the provisions of this Agreement and the Interim Order or the Final Order, as applicable, the provisions of the Interim Order or the Final Order, as applicable, shall prevail.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

	
 
  	
BORROWER
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
CALIFORNIA COASTAL COMMUNITIES, INC.
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
GUARANTORS
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
SIGNAL LANDMARK HOLDINGS INC.
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
SIGNAL LANDMARK
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HEARTHSIDE HOLDINGS, INC.
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HEARTHSIDE HOMES, INC.
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer
  

 

SIGNATURE PAGE TO DIP CREDIT AND GUARANTY AGREEMENT

 

 

	
 
  	
GUARANTORS
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HHI CHANDLER, LLC
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer of Hearthside 
 Homes, Inc., its Managing Member
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HHI CHINO II, LLC
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer of Hearthside 
 Homes, Inc., its Managing Member
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HHI CROSBY, LLC
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer of Hearthside 
 Homes, Inc., its Managing Member
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HHI HELLMAN, LLC
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer of Hearthside 
 Homes, Inc., its Managing Member
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HHI LANCASTER I, LLC
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer of Hearthside 
 Homes, Inc., its Managing Member
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
HHI SENECA, LLC
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Raymond J. Pacini
  
	
 
  	
 
  	
Name:
  	
Raymond J. Pacini
  
	
 
  	
 
  	
Title:
  	
Chief Executive Officer of Hearthside 
 Homes, Inc., its Managing Member
  

 

SIGNATURE PAGE TO DIP CREDIT AND GUARANTY AGREEMENT

 

 

	
 
  	
ADMINISTRATIVE AGENT
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
WILMINGTON TRUST FSB,
  in its capacity as Administrative Agent
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Jeffery Rose
  
	
 
  	
 
  	
Name:
  	
Jeffery Rose
  
	
 
  	
 
  	
Title:
  	
Vice President
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
COLLATERAL AGENT
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
WILMINGTON TRUST FSB,
  in its capacity as Collateral Agent
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Jeffery Rose
  
	
 
  	
 
  	
Name:
  	
Jeffery Rose
  
	
 
  	
 
  	
Title:
  	
Vice President
  

 

SIGNATURE PAGE TO DIP CREDIT AND GUARANTY AGREEMENT

 

 

	
 
  	
LENDERS
  
	
 
  	
 
  	
 
  
	
 
  	
ANCHORAGE ILLIQUID OPPORTUNITIES 
 OFFSHORE MASTER, L.P.
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
Anchorage Capital Group, L.L.C.,
  
	
 
  	
 
  	
its Investment Manager
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Timothy Valz
  
	
 
  	
 
  	
Name: Timothy Valz
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  	
 
  
	
 
  	
ANCHORAGE ILLIQUID OPPORTUNITIES 
 OFFSHORE MASTER II, L.P.
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
Anchorage Capital Group, L.L.C.,
  
	
 
  	
 
  	
its Investment Manager
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Timothy Valz
  
	
 
  	
 
  	
Name: Timothy Valz
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  	
 
  
	
 
  	
GRF MASTER FUND, L.P.
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
Anchorage Capital Group, L.L.C.,
  
	
 
  	
 
  	
its Investment Manager
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Timothy Valz
  
	
 
  	
 
  	
Name: Timothy Valz
  
	
 
  	
 
  	
Title:
  

 

SIGNATURE PAGE TO DIP CREDIT AND GUARANTY AGREEMENT

 

 

	
 
  	
LENDERS
  
	
 
  	
 
  	
 
  
	
 
  	
BANK OF AMERICA, N.A.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Seth Denson
  
	
 
  	
 
  	
Name: Seth Denson
  
	
 
  	
 
  	
Title:  Vice President
  

 

SIGNATURE PAGE TO DIP CREDIT AND GUARANTY AGREEMENT

 

 

	
 
  	
LENDERS
  
	
 
  	
 
  	
 
  
	
 
  	
LUXOR CAPITAL, LLC
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
Luxor Capital Group, LP,
  
	
 
  	
 
  	
its Manager
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Norris Nissim
  
	
 
  	
 
  	
Name: 
  	
Norris Nissim
  
	
 
  	
 
  	
Title: 
  	
General Counsel
  

 

SIGNATURE PAGE TO DIP CREDIT AND GUARANTY AGREEMENTExhibit 10.50

 

EXECUTION COPY

 

 

 

ASSET PURCHASE AGREEMENT

 

by and among

 

RAFAELLA APPAREL GROUP, INC.,

 

RAFAELLA APPAREL FAR EAST LIMITED

 

and

 

VERRAZANO, INC.

 

and

 

PERRY ELLIS INTERNATIONAL, INC.

 

Dated as of January 7, 2011

 

 

 

 

TABLE OF CONTENTS

 

	
 
  	
 
  	
Page
  
	
 
  	
 
  	
 
  
	
ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION
  	
1
  
	
 
  	
 
  	
 
  
	
Section 1.1.
  	
Definitions
  	
1
  
	
 
  	
 
  	
 
  
	
ARTICLE II PURCHASE AND SALE OF ASSETS AND CLOSING
  	
19
  
	
 
  	
 
  	
 
  
	
Section 2.1.
  	
Purchase and Sale
  	
19
  
	
 
  	
 
  	
 
  
	
Section 2.2.
  	
Excluded Assets
  	
21
  
	
 
  	
 
  	
 
  
	
Section 2.3.
  	
Assumed Liabilities
  	
22
  
	
 
  	
 
  	
 
  
	
Section 2.4.
  	
Excluded Liabilities
  	
23
  
	
 
  	
 
  	
 
  
	
Section 2.5.
  	
Purchase Price
  	
24
  
	
 
  	
 
  	
 
  
	
Section 2.6.
  	
Proration of Payments
  	
25
  
	
 
  	
 
  	
 
  
	
Section 2.7.
  	
Closing
  	
25
  
	
 
  	
 
  	
 
  
	
Section 2.8.
  	
Closing Deliveries by Purchaser
  	
25
  
	
 
  	
 
  	
 
  
	
Section 2.9.
  	
Closing Deliveries by the Sellers
  	
26
  
	
 
  	
 
  	
 
  
	
Section 2.10.
  	
Initial Purchase Price Adjustment
  	
27
  
	
 
  	
 
  	
 
  
	
Section 2.11.
  	
Closing Date Balance Sheet
  	
27
  
	
 
  	
 
  	
 
  
	
Section 2.12.
  	
Inventory Audit
  	
29
  
	
 
  	
 
  	
 
  
	
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS
  	
30
  
	
 
  	
 
  	
 
  
	
Section 3.1.
  	
Organization and Qualification
  	
30
  
	
 
  	
 
  	
 
  
	
Section 3.2.
  	
Authority; Non-Contravention; Approvals
  	
30
  
	
 
  	
 
  	
 
  
	
Section 3.3.
  	
Financial Statements; Adjusted EBITDA
  	
31
  
	
 
  	
 
  	
 
  
	
Section 3.4.
  	
Absence of Undisclosed Liabilities
  	
32
  
	
 
  	
 
  	
 
  
	
Section 3.5.
  	
Absence of Certain Changes or Events
  	
32
  
	
 
  	
 
  	
 
  
	
Section 3.6.
  	
[Intentionally Deleted]
  	
32
  
	
 
  	
 
  	
 
  
	
Section 3.7.
  	
Tax Matters
  	
32
  
	
 
  	
 
  	
 
  
	
Section 3.8.
  	
ERISA and Employee Benefits
  	
33
  

 

i

 

TABLE OF CONTENTS

(continued)

 

	
 
  	
 
  	
Page
  
	
 
  	
 
  	
 
  
	
Section 3.9.
  	
Employment Matters
  	
35
  
	
 
  	
 
  	
 
  
	
Section 3.10.
  	
Labor Relations
  	
36
  
	
 
  	
 
  	
 
  
	
Section 3.11.
  	
Litigation
  	
36
  
	
 
  	
 
  	
 
  
	
Section 3.12.
  	
No Violation of Law; Permits
  	
36
  
	
 
  	
 
  	
 
  
	
Section 3.13.
  	
Title to Purchased Assets; Encumbrances
  	
37
  
	
 
  	
 
  	
 
  
	
Section 3.14.
  	
Entire Business; Sufficiency of Purchased Assets
  	
37
  
	
 
  	
 
  	
 
  
	
Section 3.15.
  	
Transactions with Affiliates
  	
37
  
	
 
  	
 
  	
 
  
	
Section 3.16.
  	
Insurance
  	
37
  
	
 
  	
 
  	
 
  
	
Section 3.17.
  	
Contracts and Other Agreements
  	
38
  
	
 
  	
 
  	
 
  
	
Section 3.18.
  	
Tangible Personal Property
  	
38
  
	
 
  	
 
  	
 
  
	
Section 3.19.
  	
Receivables; Disputed Accounts Payable
  	
39
  
	
 
  	
 
  	
 
  
	
Section 3.20.
  	
Intellectual Property
  	
39
  
	
 
  	
 
  	
 
  
	
Section 3.21.
  	
Real Property
  	
41
  
	
 
  	
 
  	
 
  
	
Section 3.22.
  	
Environmental Matters
  	
42
  
	
 
  	
 
  	
 
  
	
Section 3.23.
  	
Casualties
  	
42
  
	
 
  	
 
  	
 
  
	
Section 3.24.
  	
Product Liability
  	
42
  
	
 
  	
 
  	
 
  
	
Section 3.25.
  	
Product Warranties
  	
43
  
	
 
  	
 
  	
 
  
	
Section 3.26.
  	
Finished Goods
  	
43
  
	
 
  	
 
  	
 
  
	
Section 3.27.
  	
Promotions and Allowances
  	
43
  
	
 
  	
 
  	
 
  
	
Section 3.28.
  	
Bank and Brokerage Accounts; Investment Purchased Assets
  	
43
  
	
 
  	
 
  	
 
  
	
Section 3.29.
  	
Significant Customers and Suppliers
  	
43
  
	
 
  	
 
  	
 
  
	
Section 3.30.
  	
Absence of Certain Business Practices
  	
43
  
	
 
  	
 
  	
 
  
	
Section 3.31.
  	
Propriety of Past Payments
  	
44
  
	
 
  	
 
  	
 
  
	
Section 3.32.
  	
Brokers
  	
44
  

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
 
  	
 
  	
Page
  
	
 
  	
 
  	
 
  
	
Section 3.33.
  	
Public Filings
  	
44
  
	
 
  	
 
  	
 
  
	
Section 3.34.
  	
Disclosure
  	
44
  
	
 
  	
 
  	
 
  
	
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER
  	
45
  
	
 
  	
 
  	
 
  
	
Section 4.1.
  	
Organization and Qualification
  	
45
  
	
 
  	
 
  	
 
  
	
Section 4.2.
  	
Authority; Non-Contravention; Approvals
  	
45
  
	
 
  	
 
  	
 
  
	
Section 4.3.
  	
Financing
  	
46
  
	
 
  	
 
  	
 
  
	
Section 4.4.
  	
Brokers
  	
46
  
	
 
  	
 
  	
 
  
	
Section 4.5.
  	
Purchaser Public Filings
  	
46
  
	
 
  	
 
  	
 
  
	
Section 4.6.
  	
Disclosure
  	
46
  
	
 
  	
 
  	
 
  
	
ARTICLE V COVENANTS
  	
46
  
	
 
  	
 
  	
 
  
	
Section 5.1.
  	
Conduct of the Business
  	
46
  
	
 
  	
 
  	
 
  
	
Section 5.2.
  	
Access to Information
  	
48
  
	
 
  	
 
  	
 
  
	
Section 5.3.
  	
Reasonable Efforts
  	
49
  
	
 
  	
 
  	
 
  
	
Section 5.4.
  	
[Intentionally Omitted.]
  	
50
  
	
 
  	
 
  	
 
  
	
Section 5.5.
  	
Use of Name
  	
50
  
	
 
  	
 
  	
 
  
	
Section 5.6.
  	
Tax Matters
  	
50
  
	
 
  	
 
  	
 
  
	
Section 5.7.
  	
Non-Competition; Non-Solicitation
  	
51
  
	
 
  	
 
  	
 
  
	
Section 5.8.
  	
Assignment of Contracts and Rights
  	
52
  
	
 
  	
 
  	
 
  
	
Section 5.9.
  	
Insurance Coverage
  	
52
  
	
 
  	
 
  	
 
  
	
Section 5.10.
  	
Employee Matters
  	
53
  
	
 
  	
 
  	
 
  
	
Section 5.11.
  	
Parties’ Obligations
  	
54
  
	
 
  	
 
  	
 
  
	
Section 5.12.
  	
Bulk Sale Filings
  	
54
  
	
 
  	
 
  	
 
  
	
Section 5.13.
  	
Public Announcements
  	
54
  
	
 
  	
 
  	
 
  
	
Section 5.14.
  	
Chargebacks and Returns
  	
54
  

 

iii

 

TABLE OF CONTENTS

(continued)

 

	
 
  	
 
  	
Page
  
	
 
  	
 
  	
 
  
	
Section 5.15.
  	
Escrow
  	
56
  
	
 
  	
 
  	
 
  
	
Section 5.16.
  	
Previous Month Adjusted EBITDA Statement
  	
57
  
	
 
  	
 
  	
 
  
	
Section 5.17.
  	
Further Assurances; Post-Closing Cooperation
  	
57
  
	
 
  	
 
  	
 
  
	
Section 5.18.
  	
Disclosure; Updated Sellers’ Disclosure Schedule
  	
58
  
	
 
  	
 
  	
 
  
	
Section 5.19.
  	
Purchaser Cash Collateralized Letters of Credit
  	
59
  
	
 
  	
 
  	
 
  
	
ARTICLE VI CONDITIONS OF CLOSING
  	
59
  
	
 
  	
 
  	
 
  
	
Section 6.1.
  	
Conditions to Each Party’s Obligations
  	
59
  
	
 
  	
 
  	
 
  
	
Section 6.2.
  	
Conditions to the Purchaser’s Obligations
  	
59
  
	
 
  	
 
  	
 
  
	
Section 6.3.
  	
Conditions to the Sellers’ Obligations
  	
61
  
	
 
  	
 
  	
 
  
	
ARTICLE VII SURVIVAL; INDEMNIFICATION
  	
62
  
	
 
  	
 
  	
 
  
	
Section 7.1.
  	
Survival of Representations, Warranties, Covenants and Agreements
  	
62
  
	
 
  	
 
  	
 
  
	
Section 7.2.
  	
Indemnification of Purchaser
  	
63
  
	
 
  	
 
  	
 
  
	
Section 7.3.
  	
Indemnification of the Sellers
  	
63
  
	
 
  	
 
  	
 
  
	
Section 7.4.
  	
Limitations
  	
64
  
	
 
  	
 
  	
 
  
	
Section 7.5.
  	
Method of Asserting Claims
  	
65
  
	
 
  	
 
  	
 
  
	
Section 7.6.
  	
Payment of Claims
  	
66
  
	
 
  	
 
  	
 
  
	
Section 7.7.
  	
Character of Indemnity Payments
  	
66
  
	
 
  	
 
  	
 
  
	
Section 7.8.
  	
Exclusive Remedy
  	
67
  
	
 
  	
 
  	
 
  
	
ARTICLE VIII TERMINATION OF AGREEMENT
  	
67
  
	
 
  	
 
  	
 
  
	
Section 8.1.
  	
Termination
  	
67
  
	
 
  	
 
  	
 
  
	
Section 8.2.
  	
Automatic Amendment of Closing Date
  	
68
  
	
 
  	
 
  	
 
  
	
Section 8.3.
  	
Effect of Termination
  	
69
  
	
 
  	
 
  	
 
  
	
ARTICLE IX MISCELLANEOUS
  	
69
  
	
 
  	
 
  	
 
  
	
Section 9.1.
  	
Notices
  	
69
  
	
 
  	
 
  	
 
  
	
Section 9.2.
  	
Entire Agreement
  	
70
  

 

iv

 

TABLE OF CONTENTS

(continued)

 

	
 
  	
 
  	
Page
  
	
 
  	
 
  	
 
  
	
Section 9.3.
  	
Expenses
  	
70
  
	
 
  	
 
  	
 
  
	
Section 9.4.
  	
Waiver
  	
70
  
	
 
  	
 
  	
 
  
	
Section 9.5.
  	
Amendment
  	
70
  
	
 
  	
 
  	
 
  
	
Section 9.6.
  	
No Third-Party Beneficiary
  	
70
  
	
 
  	
 
  	
 
  
	
Section 9.7.
  	
Assignment; Binding Effect
  	
71
  
	
 
  	
 
  	
 
  
	
Section 9.8.
  	
CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL
  	
71
  
	
 
  	
 
  	
 
  
	
Section 9.9.
  	
Specific Performance
  	
72
  
	
 
  	
 
  	
 
  
	
Section 9.10.
  	
Invalid Provisions
  	
72
  
	
 
  	
 
  	
 
  
	
Section 9.11.
  	
GOVERNING LAW
  	
72
  
	
 
  	
 
  	
 
  
	
Section 9.12.
  	
Counterparts
  	
72
  
	
 
  	
 
  	
 
  
	
Section 9.13.
  	
Interpretation
  	
72
  

 

	
EXHIBITS
  	
 
  
	
 
  	
 
  
	
Form of Bill of Sale
  	
A
  
	
Form of Escrow Agreement
  	
B
  
	
Form of Intellectual Property Powers of Attorney
  	
C
  
	
Form of Trademark and Copyright Assignment
  	
D
  
	
Form of Transition Agreement
  	
E
  
	
Form of Warrant Agreement
  	
F
  
	
 
  	
 
  
	
SCHEDULES
  	
 
  
	
 
  	
 
  
	
Sellers’ Disclosure Schedule
  	
I
  

 

v

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement, dated as of January 7, 2011 (this “Agreement”), is by and among Rafaella Apparel Group, Inc., a Delaware corporation (“Rafaella”), Rafaella Apparel Far East Limited, a Hong Kong limited company (“Rafaella Apparel Far East”), and Verrazano, Inc., a New York corporation (“Verrazano” and collectively with Rafaella, Rafaella Apparel Far East and Verrazano, the “Sellers”), and Perry Ellis International, Inc., a Florida corporation (“Purchaser” and collectively with the Sellers, the “Parties”).

 

RECITALS

 

WHEREAS, the Sellers desire to sell, transfer and assign to Purchaser substantially all of the assets owned, leased or licensed by the Sellers;

 

WHEREAS, Rafaella directly owns all of the capital stock of Rafaella Apparel Far East and Verrazano; and

 

WHEREAS, Purchaser desires to acquire and assume from the Sellers substantially all of the assets owned, leased or licensed by the Sellers.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants, promises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree, intending to be legally bound hereby, as follows:

 

ARTICLE I

 

DEFINITIONS AND RULES OF CONSTRUCTION

 

Section 1.1.            Definitions.

 

(a)           Whenever used in this Agreement, unless the context otherwise requires, the following words and phrases shall have the respective meanings ascribed to them as follows:

 

“Adjusted EBITDA” means EBITDA adjusted to exclude (a) any extraordinary or non-recurring cash expenses or losses, including, without limitation, (i) costs of the transactions contemplated under this Agreement and the Transaction Documents, including without limitation financial advisory, legal, accounting, tax and investment banking fees and expenses incurred, (ii) the refinancing, repurchasing, and proposed refinancing of Indebtedness, (iii) costs, fees and expenses (including legal fees) incurred by the Sellers in connection with the arbitration proceedings commenced by Kobra International, Ltd. d/b/a Nicole Miller in April of 2009, (iv) subleases and related charges in connection with the New Jersey Lease, (v) third party warehouse transition costs incurred in connection with the outsourcing of Sellers’ distribution center to a third party, including, without limitation, severance and benefit costs, transportation costs, legal fees and expenses, information technology costs, rent and lease charges, (vi) expenses incurred in connection with any insured loss or casualty with respect to Leased Real Property, and (vii) charges related to closure of former pattern room in New York; (b) any non-cash charges; (c) any extraordinary income or gains, including, without limitation, all insurance proceeds and all rights to insurance proceeds, received or

 

 

receivable in respect of any loss or casualty with respect to Leased Real Property referenced in clause (a)(vi) above; and (d) any other non-cash income.

 

“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified.  The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies and affairs of a Person, whether through the ownership of voting securities, by Contract or otherwise.

 

“Aged Inventory” means any Inventory (other than Replenishment Inventory, Ongoing Inventory or any Piece Goods Inventory) more than six (6) months old and subject of a Customer Order as of any date of determination.

 

“Assumed Current Assets” means all Purchased Assets that are Current Assets.

 

“Assumed Current Liabilities” means all Assumed Liabilities that are Current Liabilities.

 

“Balance Sheet” means the Sellers’ most recent consolidated audited balance sheet included in the Financial Statements.

 

“Base Net Working Capital” means ten million dollars ($10,000,000).

 

“BoNY” means The Bank of New York, a New York banking corporation, and its successors in interest.

 

“Business” means (i) the business of designing, manufacturing, sourcing, wholesaling, marketing, selling and distributing women’s apparel, accessories and related goods and services, as currently conducted by the Sellers, and (ii) the business of marketing and managing the “Rafaella,” “Verrazano” and “Ellavie” family of trademarks for use in connection with the related goods and services.

 

“Business Day” means any day, other than Saturday and Sunday, on which federally-insured commercial banks in Miami, Florida and New York, New York are generally open for business and capable of sending and receiving wire transfers.

 

“Business Intellectual Property” means all Sellers’ right, title and interests in Intellectual Property that is now, and/or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business, including, without limitation, all the Intellectual Property listed in Section 3.20(a) of the Sellers’ Disclosure Schedule.

 

“Business Material Adverse Effect” means any event, change, violation, inaccuracy, circumstance, occurrence, state of facts, condition or effect that, individually or when taken together with all other such events, changes, violations, inaccuracies, circumstances, occurrences, state of facts, conditions or effects, has had, or is reasonably likely to have, (i) a material adverse effect on the business, assets, properties, results of operations, or condition (financial or otherwise) of the Business, taken as a whole, (ii) a material adverse diminution in the

 

2

 

value of, or the rights associated with, the Purchased Assets, or (iii) a material adverse effect on the value of, or the rights associated with, the Assumed Liabilities; provided, however, that in determining whether a Business Material Adverse Effect has occurred or exists, there shall be excluded any adverse change or effect that is the result of (A) any war, riot, acts of terrorism, revolution, civil commotion, acts of public enemies or embargo involving the United States or the military forces of the Unites States, (B) general declines in the economy or financial markets of the United States, (C) any conditions generally affecting the industry in which the Business competes, but only to the extent that the change or effect thereof on the Business is not disproportionately more adverse than the change or effect thereof on comparable companies or businesses in the industry in which the Business competes, (D) actions taken by Sellers as required or contemplated by this Agreement or with the express written consent of the Purchaser between the date hereof and the Closing Date, (E) any public announcement of this Agreement or the transactions contemplated hereby, or (F) a termination of the New York Lease pursuant to Item 4 of Schedule 6.2(c).

 

“Cash Collateralized Letters of Credit” means the Purchaser Cash Collateralized Letters of Credit and the Sellers Cash Collateralized Letters of Credit.

 

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the rules and regulations promulgated thereunder.

 

“Cleanup” means all actions to: (i) clean up, remove, treat or remediate Hazardous Substances in the indoor or outdoor environment; (ii) prevent the Release of Hazardous Substances so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations and post-remedial monitoring and care; or (iv) respond to any requests by any Governmental Authority for information or documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Hazardous Substances in the indoor or outdoor environment, that in any such case are reasonably determined by the Person taking the actions to be required under any applicable Environmental Law or reasonably determined to be desirable in order to mitigate or avoid Liability under any Environmental Law.

 

“Closing” means the closing of the sale and purchase of the Purchased Assets and the assumption of the Assumed Liabilities, each as contemplated by this Agreement.

 

“Closing Date” means the date on which the Closing occurs.

 

“Closing Date Net Working Capital” means the amount of Net Working Capital calculated as of the end of the Business Day immediately preceding the Closing Date.

 

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Collateral Agreements” has the meaning ascribed to such term in the Senior Indenture, including any amendments or supplements to the Collateral Agreements.

 

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“Contract” means any agreement, contract, plan, undertaking, instrument, note, bond, mortgage, indenture, deed of trust, loan, credit agreement, franchise concession, Permit, license (including, without limitation any License), lease, purchase order, sales order or other similar commitment, obligation, arrangement or understanding, whether written or oral.

 

“Contract Manufacturer” means any Person other than the Sellers that produces or manufactures any Finished Goods, Inventory or Excluded Inventory or produces any goods or performs any services using the Business Intellectual Property.

 

“CPSA” means the Consumer Product Safety Act, as amended, and the rules and regulations promulgated thereunder or any successor statute or statutes thereto.

 

“CPSA Certificate” means the General Certification of Conformity required by section 14(g) of the CPSA and any similar form required under the CPSA.

 

“Current Assets” means, as of a particular date and without duplication, amounts which would, in conformity with GAAP, be included under and classified as current assets on a consolidated balance sheet of the Sellers, provided, however, that (i) the amount of Receivables from the Sellers’ consolidated balance sheet shall be reduced to an amount equal to Eligible Receivables, (ii) the amount of inventory from the Sellers’ consolidated balance sheet shall be reduced by the amount of Excluded Inventory included therein, and (iii) that Current Assets shall exclude (x) assets associated with federal, state, local or foreign income based Taxes, (y) the Sellers’ LC Cash Deposit, and (z) any deferred costs incurred in connection with the Sellers’ Senior Notes and Financing Agreements.

 

“Current Liabilities” means, as of a particular date and without duplication, amounts which would, in conformity with GAAP, be included under and classified as current liabilities on a consolidated balance sheet of the Sellers, including, without limitation, (i) all of the Sellers’ obligations with respect to accounts payable associated with the corresponding Business obligations of any of the Sellers and (ii) all accrued, but unpaid, expenses, but excluding any liabilities to HSBC (or any other financial institution which issued such Cash Collateralized Letters of Credit) relating to the Cash Collateralized Letters of Credit.

 

“Deregistration Notice” means a notice filed or to be filed with the SEC on Form 15 or otherwise, whether or not required under the Exchange Act, regarding Rafaella’s termination of registration and/or duty to file periodic SEC Reports.

 

“DOJ” means the United States Department of Justice, or any successor Governmental Authority.

 

“EBITDA” means, for any date of determination, consolidated net income of the Sellers plus, without duplication and to the extent reflected as a charge in the statement of consolidated net income of the Sellers, the sum of (a) total Taxes, (b) interest expense, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with indebtedness, (c) depreciation expense, (d) amortization of intangibles (including customer relationships and non-competition agreements), (e) non-cash write offs of fixed assets, and minus, to the extent included in the statement of such consolidated net income, (x) interest income and (y) gains from the Sellers’ purchase of Senior Notes.

 

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“Eligible Receivables” means Receivables less (a) any reserves established by Sellers for returns, allowances, chargebacks and discounts to, or taken by, customers for such Receivables, and (b) any fees or charges of Wells Fargo in its capacity as Seller Factor under Seller Factoring Agreements or any agreements entered into by any Seller, Wells Fargo and Purchaser in respect of Section 6.2(p) for bad checks, wire transfers or changed terms, which were deducted by Wells Fargo after the Closing Date from payments made by Wells Fargo to Purchaser in accordance with the foregoing agreements.

 

“Encumbrances” means any and all liens, charges, security interests, mortgages, pledges, options, preemptive rights, rights of first refusal or first offer, proxies, levies, voting trusts or agreements, or other adverse claims or restrictions on, or imperfections of, title or transfer of any nature whatsoever (including, without limitation, any Encumbrances arising from any Liability for Taxes).

 

“Environmental Claim” means any claim, action, cause of action, investigation, demand, letter, request for information or notice (written or oral) by any Person inquiring as to or alleging potential Liability (including, without limitation, potential Liability for investigatory costs, Cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties) arising out of, based on or resulting from (i) the presence, Release or threatened Release of any Hazardous Substance, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.

 

“Environmental Law” means any international, supranational, national, provincial, regional, federal, state, municipal or local Law, regulation, order, judgment, decree, authorization, opinion or other legally binding requirement relating to the protection, investigation or restoration of the environment (including, without limitation, natural resources) or the health or safety of human or other living organisms, including, without limitation, the manufacture, introduction into commerce, export, import, processing, distribution, use, generation, treatment, storage, handling, presence, disposal, transportation, Release or management of, or other activities with respect to, Hazardous Substances, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq., the Clean Water Act, 33 U.S.C. § 1251, et seq., the Clean Air Act, 33 U.S.C. § 2601, et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136, et seq., the Oil Pollution Act of 1990, 33 U.S.C. § 2701, et seq. and the Occupational Safety and Health Act, 29 U.S.C. § 651, et seq., in each case as in effect from time to time prior to, on and after the Closing.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

 

“ERISA Affiliate” means Person required at any particular time to be aggregated with any of the Sellers under Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder or any successor statute or statutes thereto.

 

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“Excluded Inventory” means any Inventory that is (i) damaged, (ii) more than six (6) months old (exclusive of any Replenishment Inventory, any  Ongoing Inventory or any Piece Goods Inventory) and not to subject of a Customer Order as of any date of determination and/or (iii) not of useable or saleable quality in the ordinary course of business.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations promulgated thereunder or any successor statute or statutes thereto.

 

“Final Adjustment Amount” means (x) Final Net Working Capital, plus any decrease of the Purchase Price in accordance with the first sentence of Section 2.10(b), if any, minus (y) the sum of (i) Base Net Working Capital, plus (ii) Excluded Cash, if any, plus (iii) any Purchase Price increase paid to Sellers pursuant to clause (y) of the second sentence of Section 2.10(b), if applicable.

 

“Final Net Working Capital” means the Closing Date Net Working Capital (y) as shown in Purchaser’s calculation delivered pursuant to Section 2.11(a), if no Dispute Notice with respect thereto is duly delivered pursuant to Section 2.11(b); or (z) if a Dispute Notice with respect thereto is duly delivered pursuant to Section 2.11(b), (A) as agreed by Purchaser and the Sellers pursuant to Section 2.11(c) or (B) in the absence of such agreement, as shown in the Reviewing Accountant’s calculation delivered pursuant to Section 2.11(d); provided,  that in no event shall Final Net Working Capital be more than the Sellers’ calculation of Closing Date Net Working Capital delivered pursuant to Section 2.11(b) or less than Purchaser’s calculation of Closing Date Net Working Capital delivered pursuant to Section 2.11(a).

 

“Financing Agreements” means, collectively, (i) the Financing Agreement, dated June 20, 2005, among Rafaella, Verrazano, HSBC, Israel Discount Bank of New York and the other lenders signatory thereto, (ii) the Amended and Restated Financing Agreement, dated May 21, 2010, among Rafaella, Verrazano, Cerberus Capital Management, L.P., HSBC and the other lenders signatory thereto, (iii) the Continuing Indemnity Agreement, dated June 20, 2005, between Rafaella and HSBC, (iv) the Pledge Agreement, dated June 20, 2005, among Rafaella and HSBC, as agent, and the other parties thereto, (v) the Reaffirmation of Stock Pledge Agreement, dated May 21, 2010, among Rafaella and HSBC, as agent, and the other parties thereto, (vi) the Continuing Letter of Credit Agreement, dated June 20, 2005, among Rafaella and HSBC and the other parties thereto, (vii) the Deposit Account Control Agreement, dated June 20, 2005, among Rafaella, BoNY and HSBC, (viii) the Trademark Collateral Security Agreement, dated June 20, 2005, among Rafaella and HSBC and the other parties thereto, (ix) the Reaffirmation of Trademark Collateral Security Agreement, dated May 21, 2010, among Rafaella and HSBC and the other parties thereto, (x) the Intercreditor Agreement, dated June 20, 2005, among Rafaella, Verrazano, HSBC and BoNY, as trustee and collateral agent, (xi) the Second Lien Security Agreement, dated June 20, 2005, in favor of BoNY, among Rafaella, the additional grantors listed therein and BoNY, and (xii) the Note Purchase Agreement.

 

“Finished Goods” means items of apparel or accessories that are complete and packaged or ready to be packaged and ready to be shipped.

 

“FTC” means the United States Federal Trade Commission, or any successor Governmental Authority.

 

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“GAAP” means United States generally accepted accounting principles.

 

“GMAC” means Ally Commercial Finance LLC, formerly known as GMAC Commercial Finance LLC.

 

“GMAC Factoring Agreement” means that certain Amended and Restated Collection Services Factoring Agreement, dated December 16, 2008, between GMAC and Rafaella, which was terminated prior to February 28, 2009.

 

“Governmental Authority” means any international, supranational, national, provincial, regional, federal, state, municipal or local government, any instrumentality, subdivision, court, administrative or regulatory agency or commission or other authority thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.

 

“Hazardous Substance” means (i) any petroleum or petroleum products, flammable explosives, radioactive materials, medical waste, radon, asbestos or asbestos-containing products or materials, chlorofluorocarbon, hydrofluorocarbon, urea formaldehyde foam insulation, polychlorinated biphenyls (PCBs) or lead-containing paint or plumbing; and (ii) any element, compound, substance, waste or other material that is regulated under any Environmental Law or is defined as, or included in the definition of, or deemed by or pursuant to any Environmental Law or by any Governmental Authority to be “hazardous,” “toxic,” a “contaminant,” “waste,” a “pollutant,” “hazardous substance,” “hazardous waste,” “restricted hazardous waste,” “hazardous material,” “extremely hazardous waste,” a “toxic substance,” a “toxic pollutant” or words with similar meaning.

 

“HSBC” means HSBC Bank USA, National Association, a national banking association, including its successors and assigns.

 

“Identified Agreements” means, collectively, the Collateral Agreements, the Financing Agreements, the Seller Factoring Agreements, the Senior Indenture and the Rafaella Acquisition Agreements.

 

“Indebtedness” means, with respect to any Person, (i) all obligations of such Person for borrowed money (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured), (ii) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary and usual course of business, (iv) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (v) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (vi) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (vii) all indebtedness secured by any lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been

 

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assumed by such Person or is non-recourse to the credit of such Person, and (viii) all guarantees by such Person of the indebtedness of any other Person.

 

“Indemnified Party” means any Person claiming indemnification under any provision of Article VII.

 

“Indemnifying Party” means any Person against whom a claim for indemnification is being asserted under any provision of Article VII.

 

“Initial Adjustment Amount” means an amount equal to the difference between the Net Working Capital as of the date of the Previous Month’s Balance Sheet and Base Net Working Capital.

 

“Intellectual Property” means all intellectual property, in any jurisdiction worldwide, whether registered and unregistered, including, without limitation: (i) all trademarks, service marks, trade names, logos, artwork, designs and symbols, corporate names, certification marks, collective marks, d/b/a’s, Internet domain names and websites, user names on social media websites, business symbols, brand names and other indicia of origin, all applications and registration for the foregoing and all goodwill associated therewith and symbolized thereby, including all renewals of same; (ii) all patents, patent applications and inventions, if any, including any provisional, utility, continuation, continuation-in-part or divisional applications filed in the United States or other jurisdiction, and all reissues thereof and all reexamination certificates issuing therefrom; (iii) all published and unpublished works of authorship, if any, whether copyrightable or not (including, without limitation, data bases and other compilations of information), copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof; (iv) all confidential information, trade secrets and know-how, if any, including processes, schematics, business methods, formulae, drawings, prototypes, models, designs, customer and supplier lists and other industry information; (v) the right to sue for and recover damages, assert, settle and/or release any claims or demands and obtain all other remedies and relief at Law or equity for any past, present or future infringement or misappropriation of any of the Intellectual Property; (vi) all Licenses, options to license and other contractual rights to use the Intellectual Property; (vii) all UPC Codes; and (viii) all computer and electronic data processing programs and software programs and related documentation, existing research projects, computer software presently under development, and all software concepts owned and all proprietary information, processes, formulae and algorithms, used in the ownership, marketing, development, maintenance, support and delivery of such software, subject to all applicable licenses and rights to use such software.

 

“Intellectual Property Powers of Attorney” means, collectively, the irrevocable powers of attorney naming Purchaser or its designee as the applicable Seller’s attorney-in-fact for the purpose of transferring any registered Business Intellectual Property from the applicable Sellers to Purchaser or its designee, in substantially the form of Exhibit C attached hereto.

 

“Inventory” means all inventory, valued at (i) for Finished Goods (other than Aged Inventory), the Landed Duty-Paid Value at cost, (ii) for Aged Inventory, the lower of the Landed Duty-Paid Value at cost or the purchase price in any related Customer Order with respect to such Aged Inventory, and (iii) for work-in-process, supplies and raw materials, the standard cost which approximates a first-in-first-out basis, that is now, or at the time of the Closing will be, used or held

 

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for use in or otherwise related to, useful in or necessary for the conduct of, the Business, including, without limitation, Finished Goods, work-in-process, supplies and raw materials; provided, however, that Inventory shall not include any Excluded Inventory.

 

“IRS” means the United States Internal Revenue Service, or any successor Governmental Authority.

 

“Jefferies” means Jefferies & Company, Inc.

 

“Landed Duty-Paid Value” means, with respect to any Finished Goods, the sum of (i) the standard cost of such Inventory (including insurance, freight costs and commissions allocated thereto) at the first port of arrival in the United States (whether such Finished Goods have been shipped to such port, are in transit or have arrived at such port) and any import duties thereon, plus (ii) standard freight costs to transport such Finished Goods to the first warehouse or distribution center owned, leased or operated by Sellers or a third party for Sellers’ behalf or account (whether such Finished Goods have been shipped, are in transit or have arrived at such warehouse or distribution center).

 

“Law” means any federal, provincial, state, local, municipal, foreign, national, supranational, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute or treaty imposed by a Governmental Authority.

 

“Letter of Intent” means the non-binding expression of interest in pursuing the transactions contemplated by this Agreement, dated October 18, 2010, by and between Rafaella and Purchaser.

 

“Liability” means any direct or indirect, primary or secondary, liability, Indebtedness, obligation, penalty, cost or expense (including, without limitation, costs of investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person of any type, secured or unsecured whether accrued, absolute or contingent, direct or indirect, liquidated or unliquidated, matured or unmatured, known or unknown or otherwise.

 

“Losses” means any and all damages, fines, fees, penalties, deficiencies, Liabilities, claims, losses (including loss of value), demands, judgments, settlements, actions, obligations and costs and expenses (including interest, court costs and fees and costs of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment).

 

“Net Working Capital” means, as of a specified date, (A) the sum of (x) Assumed Current Assets plus (y) Excluded Cash plus (z) Prepaid Expenses which are not classified as current assets on the consolidated balance sheet of the Sellers, less (B) the sum of (x) Assumed Current Liabilities plus (y) $150,000; provided, that such calculation shall exclude (i) any intercompany accounts and any balances owed between or among any of the Sellers, (ii) any current Tax assets and Tax liabilities (including deferred Tax assets and Tax liabilities), (iii) any property or item of value received in connection with any transfer of any Excluded Assets (other than any Assumed Current Assets or cash so received, which shall be included in the calculations), (iv) the Sellers’ LC Cash Deposit, and (v) any gain or loss relating to or resulting from any hedging agreement,

 

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calculated in a manner consistent with the preparation of the Sellers’ calculation of Net Working Capital as of September 30, 2010, as set forth in Section 2.10(a) to the Sellers’ Disclosure Schedule.   For the avoidance of doubt, “cash and cash equivalents” of the Sellers for purposes of calculating Net Working Capital shall not include the amount of Sellers’ LC Cash Deposit (or the amount required to be deposited in respect thereto) but shall include the cash and cash equivalents released or to be released by HSBC to Purchaser, if any, upon Purchaser’s deposit of cash with HSBC to cash collateralize the Purchaser’s Cash Collateralized Letters of Credit.

 

“New Jersey Lease” means that certain lease, dated as of July 25, 2007, by and between 51-53 Hook Road, L.L.C., as landlord, and Rafaella, as tenant.

 

“New York Lease” means the Indenture of Lease, dated March 15, 1993, between Keystone Associates and Rafaella Sportswear, Inc., as amended and supplemented, regarding the property located at 1411 Broadway, New York, New York 10018.

 

“Note Purchase Agreement” means the Note Purchase Agreement, dated June 13, 2005, among Rafaella, Jefferies and the guarantors named therein.

 

“Ongoing Inventory” means, for the purposes of the Previous Month’s Balance Sheet, “ongoing” Inventory as of November 30, 2010 which is set forth on Section 1.1(a) of the Sellers’ Disclosure Schedule as of the date hereof and, for purposes of the Closing Date Balance Sheet, “ongoing” Inventory as of the Closing Date.  As of two (2) Business Days prior to the Closing Date, the Sellers shall deliver an updated Section 1.1(a) of the Sellers’ Disclosure Schedule as of the last day of the immediately preceding month end prior to the Closing Date.

 

“Parent” means RSW 2005, Inc., a Delaware corporation.

 

“PBGC” means the Pension Benefit Guaranty Corporation, or any successor Governmental Authority established under ERISA.

 

“Permit” means any permit, license, franchise, approval, consent, registration, clearance, variance, exemption, order, certificate or authorization by, of or to any Governmental Authority, including, without limitation, any CSPA Certificates.

 

“Permitted Encumbrances” means (i) landlord’s liens, (ii) liens for Taxes, assessments and charges of Governmental Authorities that are not yet due and payable (or being contested in good faith; provided, that adequate reserves have been posted or set aside therefor); (iii) mechanics’, carriers’, workers’ and other similar Encumbrances arising or incurred in the ordinary course of business, in each case that individually or in the aggregate with other such title defects and imperfections, does not materially impair the value of the property subject to such Encumbrances or other such title defect or the use of such property in the conduct of the Business; (iv) in the case of the Purchased Leased Real Property, (a) the rights of any lessor and (b) any Encumbrance granted by any lessor of such Purchased Leased Real Property or any such lessor’s predecessors in title; (v) Encumbrances, including custom duties and freight costs, created or imposed by the terms of the Purchase Orders, Customer Orders, Purchased Contracts or Purchased Real Property Leases set forth in Sections 2.1(i), 2.3(a)(ii) (as such Section 2.3(a)(ii) of the Sellers’ Disclosure Schedule is updated in accordance with Section 2.3(a)(ii) and Section 5.18), 3.17(a), 3.17(b) (as such Section 3.17(b) of Sellers’ Disclosure Schedules is updated in accordance with Section 5.18) and 3.21(b) of

 

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the Sellers’ Disclosure Schedule, respectively; (vi) Encumbrances under the Purchaser Cash Collateralized Letters of Credit; and (vii) the lien in favor of GMAC in connection with the GMAC Factoring Agreement against (x) all of Rafaella’s Receivables (together with the proceeds thereof) created or arising prior to December 19, 2008 and (y) any merchandise represented thereby and any proceeds thereof; provided, that the obligation giving rise to such lien is for an amount not exceeding $65,000 and has been fully collateralized by a cash collateralized letter of credit issued by HSBC, which has been posted by Rafaella for the benefit of GMAC.

 

“Person” means any natural person, corporation, general partnership, limited partnership, limited or unlimited liability company, proprietorship, joint venture, other business organization, trust, union, association or Governmental Authority.

 

“Piece Goods Inventory” means, for the purposes of the Previous Month’s Balance Sheet, “piece goods” Inventory as of November 30, 2010 which is set forth on Section 1.1(b) of the Sellers’ Disclosure Schedule as of the date hereof and, for purposes of the Closing Date Balance Sheet, “piece goods” Inventory as of the Closing Date.  As of two (2) Business Days prior to the Closing Date, the Sellers shall deliver an updated Section 1.1(b) of the Sellers’ Disclosure Schedule as of the last day of immediately preceding month end prior to the Closing Date.

 

“Plan” means any employment, consulting, wage, base compensation, bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation or depreciation rights, phantom stock, equity (or equity-based), leave of absence, layoff, vacation, sick time, day or dependent care, legal services, cafeteria, life, health, medical, dental, vision, welfare, accident, disability, workmen’s compensation or other insurance, severance, separation, termination, change of control, collective bargaining or other benefit plan, understanding, agreement, practice, obligation, policy or arrangement of any kind, whether written or oral, and whether or not subject to ERISA, including, without limitation, any “employee benefit plan” within the meaning of Section 3(3) of ERISA.

 

“Pre-Closing Environmental Liabilities” means all Losses asserted against, resulting to, imposed on, or incurred by Purchaser or its Affiliates in connection with: (i) any actual or alleged Release or threatened Release of any Hazardous Substance prior to the Closing Date on or from or affecting any of the Leased Real Property; (ii) any actual or alleged violation of any Environmental Law prior to the Closing Date, by any of the Sellers or in connection with the Business by any other Person; (iii) any Environmental Claim made by any Person that relates to or is based upon the operation of the Business prior to the Closing Date or to any act or omission of any of the Sellers prior to the Closing, including, without limitation, Environmental Claims based on indemnities or other contractual undertakings; and (iv) the matters listed in Section 3.22 of the Sellers’ Disclosure Schedule.

 

“Prepaid Expenses” means all prepaid expenses, deferred charges, advance payments, the Security Deposits paid by or on behalf of Sellers, reserves in connection with any Permitted Encumbrances and similar items, excluding any such items arising from, related to, or in connection with, any Excluded Assets. The Prepaid Expense categories and amounts as of September 30, 2010 are set forth in Section 1.1(c) of the Sellers’ Disclosure Schedule.

 

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“Previous Month Adjusted EBITDA Statement” means the statement of Adjusted EBITDA for the twelve (12) calendar months ended on the date of the Previous Month’s Balance Sheet.

 

“Proposition 65” means The Safe Drinking Water and Toxic Enforcement Act of 1986 of the State of California, as amended, including the rules and regulations promulgated thereunder.

 

“Purchase Order” means a Contract between the Sellers and any of their Contract Manufacturers for Finished Goods detailing the merchandise or services to be rendered to the Sellers.

 

“Purchaser Material Adverse Change” means any development or change that has, or is reasonably likely to have a Purchaser Material Adverse Effect.

 

“Purchaser Material Adverse Effect” means a material adverse effect on the enforceability of Purchaser’s obligations under this Agreement or the Transaction Documents or the Purchaser’s ability to perform its obligations under this Agreement or the Transaction Documents in a timely manner or to consummate the transactions contemplated by this Agreement or the Transaction Documents without material delay.

 

“Purchaser Public Reports” means, collectively, (i) all Annual Reports on Form 10-K, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, Purchaser with the SEC since January 1, 2008; (ii) all Quarterly Reports on Form 10-Q, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, Purchaser with the SEC since January 1, 2008; (iii) all Current Reports on Form 8-K, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, Purchaser with the SEC since January 1, 2008; (iv) all registration statements, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, Purchaser with the SEC since January 1, 2008; and (v) any other information, reports, forms, applications and other documents and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, Purchaser with the SEC since January 1, 2008.

 

“Rafaella Acquisition Agreements” means, collectively, (i) the Securities Purchase Agreement, dated April 15, 2005, among RA Cerberus Acquisition, LLC, Parent, Verrazano, Ronald Frankel and Rafaella (including Amendment No. 1 to the Securities Purchase Agreement, dated May 27, 2005); (ii) the Contribution Agreement, dated June 20, 2005, among Parent and Rafaella; (iii) the Registration Rights Agreement, dated June 20, 2005, among Rafaella, Jefferies and the guarantors named therein; (iv) the Escrow Agreement, dated June 20, 2005, among Rafaella, RA Cerberus Acquisition, LLC, Ronald Frankel, and JPMorgan Chase Bank, N.A., as escrow agent; (v) the Redemption Agreement, dated June 20, 2005, among Rafaella, Parent and RA Cerberus Acquisition, LLC; and (vi) the Stockholder’s Agreement, dated June 20, 2005, among Rafaella, RA Cerberus Acquisition, LLC, Parent and the principals set forth therein; and (vii) any other Contract (other than the Financing Agreements) entered into in connection with the acquisition of the assets of Parent and the Sellers and the Business, including any amendments or supplements to any of the foregoing.

 

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“Receivables” means all of the Sellers’ accounts (including, without limitation, all health-care insurance receivables), Contract rights, instruments (including, without limitation, promissory notes and other instruments evidencing Indebtedness owed to the Sellers by any Person other than any of their respective Affiliates), chattel paper (whether tangible or electronic), general intangible assets relating to accounts, drafts and acceptances, and all other forms of obligation owing to any of the Sellers arising out of, or in connection with, the sale, lease or other disposition of Inventory or Excluded Inventory or the rendition of services, all guarantees and other security therefor, whether secured or unsecured.

 

“Release” means any releasing, spilling, leaking, discharging, disposing of, pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing to escape and includes any “release” as defined in CERCLA or in any other Environmental Law.

 

“Replenishment Inventory” means Inventory that relates to a current customer program that will be in place for at least twelve (12) months after the Closing Date.  The Replenishment Inventory as of December 6, 2010 is set forth on Section 1.1(d) of the Sellers’ Disclosure Schedule attached hereto.  As of two (2) Business Days prior to the Closing Date, the Sellers shall update Section 1.1(d) of the Sellers’ Disclosure Schedule as of the close of business on the date which is four (4) Business Days prior to the Closing Date.

 

“Representatives” with respect to any Person, means, collectively, such Person’s directors, officers, managers, trustees, shareholders, members, partners, employees, agents, counsel, accountants, financial advisors, lenders, consultants and other representatives.

 

“SEC” means the United States Securities and Exchange Commission, or any successor Governmental Authority.

 

“SEC Reports” means, collectively, (i) all Annual Reports on Form 10-K, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, any of the Sellers with the SEC since July 1, 2008; (ii) all Quarterly Reports on Form 10-Q, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, any of the Sellers with the SEC since July 1, 2008; (iii) all Current Reports on Form 8-K, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, any of the Sellers with the SEC since July 1, 2008; (iv) all registration statements, and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, any of the Sellers with the SEC since July 1, 2008; (v) any Deregistration Notice, and any amendments or supplements thereto, filed or to be filed by, or on behalf of, any of the Sellers with the SEC; and (vi) any other information, reports, forms, applications and other documents and any amendments or supplements thereto, filed or required to be filed by, or on behalf of, any of the Sellers with the SEC since July 1, 2008.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder or any successor statute or statutes thereto.

 

“Security Deposit” means any security deposits, whether deposited with or paid by any of the Sellers or any of their respective Affiliates (including any tenant security or other similar deposit held by or on behalf of a landlord in connection with any Leased Real Property and any

 

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tenant security or other similar deposit held by or on behalf of any of the Sellers in connection with any sub-lease thereof).

 

“Seller Employment Agreements” means, collectively, (i) the Employment Agreement, dated June 20, 2005, between Rafaella and Chad J. Spooner, (ii) the Employment Agreement, dated as of April 24, 2006, between Rafaella and Christa Michalaros, (iii) the Consulting Agreement and General Release, effective as of April 25, 2006, among Rafaella and Glenn S. Palmer, (iv) the Employment Agreement dated as of May 1, 2006, between Rafaella and Nichole Vowteras, (v) the Employment Agreement, dated as of June 20, 2006, between Rafaella and Rosemary Mancino, (vi) the Employment Agreement, dated as of April 3, 2009, between Rafaella and Lance Arneson, (vii) the Employment Agreement, dated as of January 22, 2007, between Rafaella and Jason W. Epstein, (viii) the Employment Agreement, dated as of January 8, 2008, between Rafaella and Husein Jafferjee, (ix) the Amended and Restated Employment Agreement, dated as of October 13, 2010, between Rafaella and Richard Metzger, (x) the letter agreement, dated as of July 28, 2009, between Rafaella and Joel H. Newman, (xi) the Amended and Restated Agreement for Chairman of the Board of Directors, dated as of May 21, 2010, between Rafaella and John Kourakos and (xii) any other Seller Plan with, or for the benefit of, any of the Sellers’ current and former directors and principal executive officers, including any amendments or supplements to any of the foregoing.

 

“Seller Factor” means Wells Fargo and any other factor that enters into a Seller Factoring Agreement.

 

“Seller Factoring Agreements” means, collectively, the Factoring Agreement, dated December 19, 2008, between Rafaella and the Wells Fargo (including the amendment thereto, dated February 18, 2010) and the Factoring Agreement, dated December 19, 2008, between Verrazano and Wells Fargo (including the amendment thereto, dated February 18, 2010) and any other agreement between any of the Sellers and a Seller Factor, including any other amendments or supplements thereto, but excluding the GMAC Factoring Agreement.

 

“Seller Material Adverse Change” means any development or change that has or is reasonably likely to have a Business Material Adverse Effect or a Seller Material Adverse Effect.

 

“Seller Material Adverse Effect” means a material adverse effect on the enforceability of the Sellers’ respective obligations under this Agreement or the Transaction Documents or the Sellers’ ability to perform their respective obligations under this Agreement or the Transaction Documents in a timely manner or to consummate the transactions contemplated by this Agreement or the Transaction Documents without material delay, but excluding a Business Material Adverse Effect, provided a termination of the New York Lease pursuant to Item 4 of Schedule 6.2(c) shall not constitute a Seller Material Adverse Effect.

 

“Seller Plan” means a Plan that any of the Sellers, or any ERISA Affiliate, sponsors, maintains, has any obligation to contribute to, has or may have Liability under or is otherwise a party to, or that otherwise provides benefits for employees, former employees, independent contractors or former independent contractors (or their dependents and beneficiaries) of any of the Sellers or the Business on account of employment with the Sellers, on the date of this Agreement or, in the case of representations being made as of the Closing Date, the Closing Date, and, in the case

 

14

 

of a Plan that is subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA, at any time during the five (5) year period preceding the date of this Agreement, but excluding any provision or covenant therein that prohibits or limits the ability of any Person to disclose or use any of the Sellers’ confidential information or compete with the Business, the Sellers or any of their respective Affiliates.

 

“Seller Subsidiaries” means Verrazano and Rafaella Apparel Far East and any other Subsidiaries of Rafaella.

 

“Sellers’ Disclosure Schedule” means that schedule of disclosures made by Sellers and annexed hereto as Schedule I.

 

“Sellers’ Knowledge” means, with respect to the Sellers, the facts and circumstances that are known or reasonably should have been known, (i) after reasonable inquiry, by Christa Michalaros or Lance Arneson or (ii) by Rosemary Mancino, in each case pursuant to the discharge of their duties as executive officers of Rafaella.

 

“Senior Indenture” means the Indenture, dated June 20, 2005, among Rafaella, the guarantors named therein, the Senior Indenture Trustee and BoNY, as collateral agent, including any amendments and supplements thereto.

 

“Senior Indenture Trustee” means BoNY, as trustee under the Senior Notes Indenture, and its successors in such capacity.

 

“Senior Notes” means the 11.25% Senior Secured Notes due 2011 issued by Rafaella under the Senior Indenture.

 

“Straddle Period” means any Tax period beginning, but not ending, on or before the Closing Date.

 

“Subsidiary” means, with respect to any Person, any other Person (i) of which the first Person owns directly or indirectly fifty percent (50%) or more of the equity interest in the other Person; (ii) of which the first Person or any other Subsidiary of the first Person is a general partner or managing member or (iii) of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions with respect to the other Person are at the time owned by the first Person and/or one or more of the first Person’s Subsidiaries.

 

“Tangible Property” means all machinery, tools, equipment, computers, computer equipment, servers, computer disks and peripheral devices, appliances, fixtures, motor vehicles, trucks, forklifts, and other rolling stock, spare parts and other tangible personal property (other than Inventory or Excluded Inventory) including, without limitation, any assignable warranties related thereto, in each case whether owned or leased by any of the Sellers or any of their respective Affiliates, that is now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business.

 

“Tax” and “Taxes” means all federal, state, municipal, local or foreign income, gross receipts, employment, payroll, license, excise, severance, stamp (other than as expressly set forth in

 

15

 

Section 12 of the Warrant), occupation, premium, windfall profits, environmental (including, without limitation, taxes under Section 59A of the Code), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value-added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, and any Liability for the payment of any items described above as a result of (i) being (or ceasing to be) a member of an affiliated, consolidated, combined, unitary or aggregate group, (ii) being included (or being required to be included) in any Tax Return related to such group and (iii) any Liability for the payment of any amounts as a result of any express or implied obligation to indemnify any other Person, or any successor or transferee Liability, in respect of any of the items described in above, including any interest, penalty or addition to any of the foregoing imposed by any Taxing Authority, whether disputed or not.

 

“Tax Return” means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“Taxing Authority” means any Governmental Authority or any subdivision, agency, commission or authority thereof having jurisdiction over the assessment, determination, collection or imposition of any Tax.

 

“Trademark and Copyright Assignment” means the agreement, substantially in the form attached as Exhibit D hereto.

 

“Transaction Documents” means the Bill of Sale, the Escrow Agreement, the Trademark and Copyright Assignment, the Transition Agreement, and the Warrant, collectively.

 

“Transition Agreement” means that certain agreement, dated as of the Closing Date, between Purchaser and Sellers pursuant to which Purchaser shall provide assistance to Sellers in connection with the winding down of each of Rafaella, Rafaella Far East and Verrazano, substantially in the form attached as Exhibit E hereto.

 

“UPC Code” means any Universal Product Code, including, without limitation, any International Article Numbers.

 

“Warrant” means the non-transferable two (2) year warrant agreement to be issued and delivered to Rafaella, substantially in the form attached as Exhibit F hereto, entitling the holder thereof to purchase up to one-hundred six thousand five-hundred sixty-four (106,564) unregistered shares of Purchaser’s common stock pursuant to the terms, and subject to the conditions, of the Warrant.

 

“Wells Fargo” means Wells Fargo Trade Capital, LLC.

 

Section 1.2.                                   Other terms defined are in the other parts of this Agreement indicated below:

 

	
“AAA”
  	
 
  	
2.11(c)
  
	
“Acceptance Notice”
  	
 
  	
5.14(b)
  
	
“Agreement”
  	
 
  	
Preamble
  
	
“Assumed Liabilities”
  	
 
  	
2.3(a)
  

 

16

 

	
“BDO Seidman”
  	
 
  	
2.11(c)
  
	
“Bill of Sale”
  	
 
  	
2.9(b)
  
	
“Business Permits”
  	
 
  	
3.12(b)
  
	
“Chargeback Dispute Resolution Period”
  	
 
  	
5.14(c)
  
	
“Chargeback Disputed Matters”
  	
 
  	
5.14(c)
  
	
“Chargeback Special Accountants”
  	
 
  	
5.14(c)
  
	
“Closing Amount”
  	
 
  	
2.8(a)
  
	
“Closing Date Balance Sheet”
  	
 
  	
2.11(a)
  
	
“Closing Extension Notice”
  	
 
  	
8.2(a)
  
	
“Confidentiality Agreement”
  	
 
  	
5.2(a)
  
	
“Confirmed Inventory”
  	
 
  	
2.12
  
	
“Confirmed Inventory Location”
  	
 
  	
2.12
  
	
“Consent”
  	
 
  	
3.2(b)
  
	
“Customer Order”
  	
 
  	
2.3(a)(ii)
  
	
“Deferred Purchased Contract”
  	
 
  	
5.8
  
	
“Deferred Purchased Contract Period”
  	
 
  	
5.8
  
	
“Dispute Notice”
  	
 
  	
2.11(b)
  
	
“Downward Adjustment Payment”
  	
 
  	
2.11(e)
  
	
“Escrow Account”
  	
 
  	
5.15
  
	
“Escrow Agent”
  	
 
  	
5.15
  
	
“Escrow Agreement”
  	
 
  	
5.15
  
	
“Escrow Amount”
  	
 
  	
2.8(b)
  
	
“Excluded Assets”
  	
 
  	
2.2
  
	
“Excluded Cash”
  	
 
  	
2.10(b)
  
	
“Excluded Insurance Items”
  	
 
  	
2.2
  
	
“Excluded Liabilities”
  	
 
  	
2.4
  
	
“Excluded Tax Refunds”
  	
 
  	
2.2
  
	
“FF&E”
  	
 
  	
2.1(b)
  
	
“Financial Statements”
  	
 
  	
3.3(a)
  
	
“Governmental Approvals”
  	
 
  	
3.2(c)
  
	
“HSR Act”
  	
 
  	
3.2(c)
  
	
“Indemnity Amount”
  	
 
  	
7.4(a)
  
	
“Indemnity Period”
  	
 
  	
7.1(a)
  
	
“Landlord”
  	
 
  	
8.2(b)
  
	
“LC Limit
  	
 
  	
2.8(j)
  
	
“Leased Real Property”
  	
 
  	
3.21(a)
  
	
“License”
  	
 
  	
3.20(b)
  
	
“Licensed Intellectual Property”
  	
 
  	
3.20(b)
  
	
“Maximum Indemnity Amount”
  	
 
  	
7.4(a)
  
	
“McGladrey”
  	
 
  	
2.11(c)
  
	
“New York Lease Extension Notice”
  	
 
  	
8.2(b)
  
	
“Order Book”
  	
 
  	
2.3(a)
  
	
“Parties”
  	
 
  	
Preamble
  
	
“Permitted Closing”
  	
 
  	
8.2(a)
  
	
“Physical Count”
  	
 
  	
2.12
  
	
“Previous Month’s Balance Sheet”
  	
 
  	
2.10(a)
  

 

17

 

	
“Purchase Price”
  	
 
  	
2.5(a)
  
	
“Purchase Price Allocation”
  	
 
  	
2.5(b)
  
	
“Purchased Assets”
  	
 
  	
2.1
  
	
“Purchased Contract”
  	
 
  	
2.1(i)
  
	
“Purchased Leased Real Property”
  	
 
  	
3.21(b)
  
	
“Purchaser”
  	
 
  	
Preamble
  
	
“Purchaser Cash Collateralized Letters of Credit
  	
 
  	
2.8(j)
  
	
“Purchaser Chargebacks”
  	
 
  	
5.14(a)
  
	
“Purchaser Health Plan”
  	
 
  	
5.10(a)
  
	
“Purchaser Indemnified Parties”
  	
 
  	
7.2
  
	
“Purchaser Plans”
  	
 
  	
5.10(a)
  
	
“Purchaser Returns”
  	
 
  	
5.14(b)
  
	
“Rafaella”
  	
 
  	
Preamble
  
	
“Rafaella Apparel Far East”
  	
 
  	
Preamble
  
	
“Return Notice”
  	
 
  	
5.14(b)
  
	
“Returned Goods”
  	
 
  	
5.14(b)
  
	
“Reviewing Accountant”
  	
 
  	
2.11(c)
  
	
“Right of First Refusal”
  	
 
  	
5.14(b)
  
	
“ROFR Notice Period”
  	
 
  	
5.14(b)
  
	
“Seller Cash Collateralized Letters of Credit”
  	
 
  	
2.9(e)
  
	
“Seller Chargebacks”
  	
 
  	
5.14(a)
  
	
“Seller Indemnified Parties”
  	
 
  	
7.3
  
	
“Seller Returns”
  	
 
  	
5.14(b)
  
	
“Sellers”
  	
 
  	
Preamble
  
	
“Sellers’ LC Cash Deposit”
  	
 
  	
2.9(e)
  
	
“Supplemental Disclosure”
  	
 
  	
5.18
  
	
“Third Party Price”
  	
 
  	
5.14(b)
  
	
“Threshold”
  	
 
  	
7.4(a)
  
	
“Transferred Employees”
  	
 
  	
5.10(a)
  
	
“Unidentifiable Chargebacks”
  	
 
  	
5.14(a)
  
	
“Unidentifiable Returns”
  	
 
  	
5.14(b)
  
	
“Upward Adjustment Payment”
  	
 
  	
2.11(e)
  

 

Section 1.3.                                   As used in this Agreement, except to the extent that the context otherwise requires:

 

(a)                                  when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;

 

(b)                                 the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;

 

(c)                                  whenever the words “include,” “includes” or “including” (or similar terms) are used in this Agreement, irrespective of whether used in connection with the words “without limitation”, they are deemed in all cases to be followed by the words “without limitation”;

 

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(d)                                 the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;

 

(e)                                  all terms defined in this Agreement have their defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;

 

(f)                                    the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;

 

(g)                                 if any action is to be taken by any Party hereto pursuant to this Agreement on a day that is not a Business Day, such action shall be taken on the next Business Day following such day; provided, however, that if an action is to be taken in Hong Kong on a day that commercial banks in Hong Kong are not generally open for business, such action shall be taken on the next business day that commercial banks in Hong Kong are generally open for business;

 

(h)                                 references to a Person are also to its permitted successors and assigns;

 

(i)                                     references to “dollar” amounts or “$” shall mean United States dollars.

 

(j)                                     the use of “or” is not intended to be exclusive unless expressly indicated otherwise;

 

(k)                                  “ordinary course of business” (or similar terms) shall be deemed followed by “consistent with past practice”;

 

(l)                                     “assets” shall include “rights,” including rights under Contracts; and

 

(m)                               “reasonable efforts” or similar terms shall not require the waiver of any rights under this Agreement.

 

ARTICLE II

 

PURCHASE AND SALE OF ASSETS AND CLOSING

 

Section 2.1.                                   Purchase and Sale.  At the Closing, upon the terms and subject to the conditions of this Agreement, each of the Sellers will sell, transfer, assign, convey and deliver or cause to be sold, transferred, assigned, conveyed and delivered, to Purchaser, and Purchaser will purchase from the Sellers, and acquire good, valid and marketable title to, free and clear of all Encumbrances (including, without limitation, any Encumbrances under the Identified Agreements), other than Permitted Encumbrances, all of the assets, properties and rights of the Sellers and their respective Subsidiaries that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business, including, without limitation, all assets reflected on the most recent balance sheet included in the Financial Statements and not subsequently disposed of in the ordinary course of business without breach of any provision of this Agreement, in each case other than the Excluded Assets described in Section 2.2 (collectively, the “Purchased Assets”).  The Purchased Assets shall include:

 

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(a)                                  all Purchased Leased Real Property;

 

(b)                                 all Tangible Property (including all rights of the Sellers in any leases of Tangible Property), including all of the furniture, fixtures and equipment (“FF&E”); Section 2.1(b) of the Sellers’ Disclosure Schedule sets forth the FF&E as of November 30, 2010, which FF&E shall be listed by location;

 

(c)                                  all Inventory and Excluded Inventory;

 

(d)                                 the Order Book;

 

(e)                                  the Purchase Orders, as set forth in Section 3.17(b) of the Sellers’ Disclosure Schedule as updated as of two (2) Business Days prior to the Closing Date in accordance with Section 5.18 hereof and the Customer Orders as set forth in Section 2.3(a)(ii) of the Sellers’ Disclosure Schedules as updated as of two (2) Business Days prior to the Closing Date in accordance with Section 2.3(a)(ii) and Section 5.18;

 

(f)                                    all Receivables and all notes, bonds and other evidence of Indebtedness of any Person (other than the Sellers), and rights of any of the Sellers or any of their respective Affiliates to receive payments arising out of, sales occurring in the conduct of the Business and the security agreements related thereto, including, without limitation, all rights of any of the Sellers or their respective Affiliates with respect to any third-party collection proceedings or any other actions or proceedings that have been commenced in connection therewith;

 

(g)                                 the Sellers’ UPC Codes, in each case, as set forth in Section 2.1(g) of the Sellers’ Disclosure Schedule;

 

(h)                                 all Business Intellectual Property;

 

(i)                                     all rights of the Sellers under all Contracts (including the Purchaser Cash Collateralized Letters of Credit) that are now, or at the time of the Closing will be, used or useful in, or necessary for the conduct of, the Business or relating to or arising out of the conduct of the Business, including, without limitation, all Contracts under which any of the Sellers have the right to protect the confidentiality of information relating to the Business or to prevent third parties from competing with the Business or soliciting employees of the Business, all agency and distributor agreements, all of which Contracts are listed either in Section 2.1(i), 2.3(a)(ii) (as such Section 2.3(a)(ii) of the Sellers’ Disclosure Schedule is updated in accordance with Section 2.3(a)(ii) and Section 5.18), 3.17(a), 3.17(b) (as such Section 3.17(b) of the Sellers’ Disclosure Schedule is updated in accordance with Section 5.18 hereof) or 3.21(b) of the Sellers’ Disclosure Schedule (collectively, the “Purchased Contracts”); provided, however, that Purchased Contracts shall exclude the (i) Identified Agreements (other than the Purchaser Cash Collateralized Letters of Credit) and the GMAC Factoring Agreement and (ii) the New York Lease in the event the New York Lease is terminated pursuant to Item 4 of Schedule 6.2(c);

 

(j)                                     all Permits that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business, including, without limitation, the Business Permits listed in Section 3.12(b) of the Sellers’ Disclosure Schedule;

 

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(k)                                  all files, documents, instruments, papers, books and records (whether in paper, digital or other tangible or intangible form) that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business, the Purchased Assets or the Assumed Liabilities, including, without limitation, copies of financial records, copies of Tax records (other than income Tax records), all technical information, operating and production records, quality control records, blueprints, research and development notebooks and files, customer credit data, manuals, engineering and scientific data, sales and promotional literature, drawings, technical plans, business plans, budgets, price lists, lists of customers and suppliers and human resources data;

 

(l)                                     all rights, claims and causes of action and choses in action that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business or any of the Assumed Liabilities or the Purchased Assets;

 

(m)                               all Prepaid Expenses that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business;

 

(n)                                 all rights to any all refunds or credits, if any, of Taxes with respect to the Business for the Straddle Period, other than the Excluded Tax Refunds, and for any taxable period beginning after the Closing Date;

 

(o)                                 all rights of any of the Sellers under or pursuant to all warranties, representations, indemnities and guarantees made by suppliers, manufacturers, intermediaries, distributors and contractors in connection with products sold or services provided to any of the Sellers for, or in connection with, the Business, or in respect of any Purchased Asset, but excluding any such rights with respect to Excluded Assets;

 

(p)                                 all insurance proceeds and all rights to insurance proceeds, other than Excluded Insurance Items, received or receivable in respect of any loss or casualty with respect to any asset that on the Closing Date is a Purchased Asset;

 

(q)                                 all telephone numbers, websites and domain names and user names on social media websites that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business;

 

(r)                                    all goodwill associated with the Business and the Purchased Assets, together with the right to represent to third parties that Purchaser is the successor to the Business;

 

(s)                                  all assets described in Section 2.1(s) of the Sellers’ Disclosure Schedule, whether or not now, or at the time of the Closing, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business; and

 

(t)                                    cash and cash equivalents of Sellers, other than the Excluded Cash.

 

Section 2.2.                                   Excluded Assets.  Notwithstanding any provision of this Agreement express or implied to the contrary, Purchaser shall not acquire and there shall be excluded from the Purchased Assets (a) the capital stock of, or any membership interest, partnership interest or any similar equity interest in, any Person, (b) any Seller Plan and all Contracts and refunds related

 

21

 

thereto (including refunds of workers’ compensation expenses, Contract premiums or payments), (c) all Leased Real Property (other than Purchased Leased Real Property), (d) the Excluded Cash and any bank account in which the Excluded Cash is deposited, (e) insurance policies and all prepaid expenses or premiums, proceeds, rights and claims thereunder (“Excluded Insurance Items”), provided Excluded Insurance Items shall not include insurance proceeds or the rights to insurance proceeds received or receivable by the Sellers in respect of any loss or casualty with respect to any asset that on the Closing Date is a Purchased Asset, unless the Company has paid to restore, repair or replace such asset prior to the Closing Date, (f) all income Tax based assets and all refunds or credits, if any, of Taxes due to or from the Sellers with respect to the Business for a taxable period ending before the Closing Date or due to or from Sellers with respect to the Business for the applicable pro rata portion of the Straddle Period (the “Excluded Tax Refunds”), (g) the minute books, charter documents, and transfer records of the Sellers and such other books and records as pertain to the organization, existence or capitalization of the Sellers, any other books or records not related to the Business or the Purchased Assets, and financial records pertinent to the Sellers’ operation of the Business (copies of which will be provided to Purchaser) and the Sellers’ Tax records (copies of which will be provided to Purchaser), (h) the Sellers’ rights under this Agreement and the Transaction Documents to which it is a party, (i) all assets owned or held in trust or otherwise associated with or used in connection with any Seller Plan, (j) all of the Sellers’ rights, claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind against third parties which (1) may arise in connection with the discharge by the Sellers of the Excluded Liabilities or (2) are related to the Excluded Assets, (k) any amounts received by Purchaser or the Sellers related to, associated with, or in payments of the Seller Chargebacks and the Seller Returns, (l) the Sellers’ LC Cash Deposit, (m) the Seller Cash Collateralized Letters of Credit, (n) any prepaid expenses made by or on behalf of the Sellers other than Prepaid Expenses, (o) each of the assets set forth in Section 2.2 of the Sellers’ Disclosure Schedule, and (p) any assets, properties, privileges, rights, interests and claims, real and personal, tangible and intangible, disposed of prior to the Closing in the ordinary course of business and not in violation of this Agreement (collectively, the “Excluded Assets”).

 

Section 2.3.                                   Assumed Liabilities.

 

(a)                                  Purchaser agrees that, on the Closing Date, Purchaser shall assume and thereafter (subject to contesting such assumed Liabilities in good faith) pay, perform or discharge, as the case may be, only (i) Liabilities related to Purchaser Chargebacks and Purchaser Returns; (ii) those Liabilities accruing as of or after the Closing Date and in respect of the all orders (“Customer Orders”) for shipment of goods bearing the Business Intellectual Property as set forth in Section 2.3(a)(ii) of the Sellers’ Disclosure Schedule, (which shall be updated two (2) Business Days prior to the Closing Date to the close of business as of the date which is four (4) Business Days prior to Closing solely to reflect, and such updates shall be limited to, ordinary course transactions consistent with the past practices of the Business, which occur between the date hereof and the Closing Date) (the “Order Book”); (iii) all Liabilities related to the Purchaser Cash Collateralized Letters of Credit; (iv) all Liabilities of the Sellers under the Purchased Contracts, Governmental Authorizations and other agreements and interests that are included in the Purchased Assets, in all cases only to the extent arising and to be performed after the Closing, and (v) the Liabilities to be prorated pursuant to Section 2.6 (collectively, the “Assumed Liabilities”).

 

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(b)                                 Notwithstanding the provisions of Section 2.3(a), in the event that the Sellers incur any Liabilities in the ordinary course of business in connection with the Business prior to the Closing Date in accordance with Section 5.1, Purchaser shall assume such Liabilities.

 

(c)                                  In the event of any claim against Purchaser with respect to any of the Assumed Liabilities, Purchaser shall have, and each of the Sellers hereby assigns to Purchaser, all defenses, counterclaims and rights of setoff that would have been available to any of the Sellers or the Business if such claim had been asserted against any of the Sellers or the Business.  The assumption by Purchaser of the Assumed Liabilities and the transfer of the Assumed Liabilities by any of the Sellers shall in no way expand the rights or remedies of any Person against Purchaser, the Sellers, their respective Affiliates or any of their respective Representatives as compared to the rights and remedies that such Person would have had against the Purchaser, any of the Sellers, their respective Affiliates or any of their respective Representatives had Purchaser not assumed the Assumed Liabilities.  Without limiting the generality of the foregoing, the assumption by Purchaser of the Assumed Liabilities shall not create any direct or indirect third-party beneficiary rights.

 

Section 2.4.                                   Excluded Liabilities. Notwithstanding any provision of this Agreement express or implied to the contrary (and without any implication that Purchaser is assuming any Liability of the Sellers or the Business or any Liability related to any of the Purchased Assets not expressly excluded), Purchaser is not assuming or becoming obligated in any way in respect of, and shall not be required to pay, perform, undertake or discharge, any Liabilities that are not specifically included in the Assumed Liabilities (the “Excluded Liabilities”).  The Sellers shall pay, perform or discharge when due or required to be performed or discharged, or contest in good faith, the Excluded Liabilities.  The Excluded Liabilities shall include, without limitation, the following:

 

(a)                                  all Liabilities related to, associated with, arising out of, or incurred in connection with the Excluded Assets;

 

(b)                                 all Liabilities related to, associated with, or arising out of the Seller Chargebacks and the Seller Returns in excess of aggregate reserves reflected in the Closing Date Balance Sheet;

 

(c)                                  all Liabilities related to, associated with, or arising out of any Contract that is (i) not a Purchased Asset or (ii) a Purchased Asset that is not set forth in any of Sections 2.1(i), 2.3(a)(ii) (as such Section 2.3(a)(ii) of the Sellers’ Disclosure Schedule is updated in accordance with Section 2.3(a)(ii) and Section 5.18), 3.17(a), 3.17(b) (as such Section 3.17(b) of the Sellers’ Disclosure Schedule is updated in accordance with Section 5.18 hereof) and 3.21(b) of the Sellers’ Disclosure Schedule;

 

(d)                                 all Liabilities related to, associated with, or arising out of any Seller Employment Agreement;

 

(e)                                  all Liabilities related to, in connection with, or arising from any SEC Reports;

 

(f)                                    all Liabilities based on any actual or alleged defect in the design, manufacture, quality, conformity to specification or fitness for purpose of any product manufactured, sold or distributed (including, without limitation, the Inventory and the Excluded Inventory) by, or for, the Sellers, or any service provided by the Sellers and/or the Business, before

 

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the Closing Date, including, without limitation, all product Liability, product warranty Liabilities and all Liabilities in respect of product recalls or product warnings (including, without limitation, product labeling, product disclosure, voluntary recalls and warnings reasonably intended to avoid or mitigate Liability);

 

(g)                                 all Pre-Closing Environmental Liabilities;

 

(h)                                 all Liabilities for income Taxes, franchise Taxes or other Taxes based on income, revenue or gross receipts, and all Liabilities for or relating to other Taxes to the extent the other Taxes arise from or relate to any period ending prior to the Closing Date and the portion attributable to any a Straddle Period that is allocable to the portion of the taxable period ending on the Closing Date;

 

(i)                                     all Liabilities related to, associated with, or arising out of any breach or default, failure to perform and overcharges or underpayments, in each case arising from events or actions prior to the Closing under the Purchased Contracts (including, without limitation, any Licenses);

 

(j)                                     all Liabilities related to, associated with, or arising out of any employment or other service arrangement by or with the Sellers or any of their respective Affiliates (including, without limitation, all Seller Plans) for all periods prior to and including the Closing Date (other than the COBRA responsibilities expressly provided for in Section 5.10(b)), including, without limitation, any amounts payable as compensation, bonuses, expense reimbursements and indemnification;

 

(k)                                  all legal, accounting, brokerage, investment banking and finder’s fees or other fees and expenses incurred by or on behalf of the Sellers or any of their respective Affiliates in connection with this Agreement and the transactions contemplated hereby;

 

(l)                                     all Liabilities related to, associated with, or arising out of the matters described in Items 1 and 2 of Section 3.11 of the Sellers’ Disclosure Schedule or in Section 2.4(l) of the Sellers’ Disclosure Schedule; and

 

(m)                               all Liabilities related to, associated with or arising out of any action, claim, suit or proceeding with respect to the operation of the Business prior to the Closing, whether such action, claim, suit or proceeding is brought prior to, on or after the Closing.

 

Section 2.5.                                   Purchase Price.

 

(a)                                  Subject to any adjustments required pursuant to Sections 2.10 and 2.11, the aggregate purchase price (the “Purchase Price”) for the Purchased Assets is (i) seventy million dollars ($70,000,000) plus (ii) the issuance and delivery by Purchaser to Rafaella of the Warrant, plus (iii) the assumption by Purchaser of the Assumed Liabilities.

 

(b)                                 Within sixty (60) days after the Closing Date, Purchaser shall provide the Sellers with a proposed schedule (the “Purchase Price Allocation”) allocating Purchase Price and the Assumed Liabilities in a manner consistent with Section 1060 of the Code.  The Allocation Schedule shall become final and binding on the Parties ten (10) Business Days after Purchaser

 

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provides to the Sellers the Purchase Price Allocation, unless the Sellers object in writing to Purchaser, specifying the basis for their objection and preparing an alternative allocation.  If the Sellers do so object, the Sellers and Purchaser shall in good faith attempt to resolve the dispute within ten (10) Business Days of written notice to Purchaser of the Sellers’ objection.  Any such resolution shall be final and binding on the Parties.  Any unresolved disputes shall be promptly submitted to the Reviewing Accountant for determination, with such determination being final and binding on the Parties.  The Sellers and Purchaser will each pay one-half of the fees and expenses of the Reviewing Accountant. The Parties shall cooperate with each other and the Reviewing Accountant in connection with the matters contemplated by this Section 2.5(b), including, without limitation, by furnishing such information and access to books, records (including, without limitation, accountants’ work papers), personnel and properties as may be reasonably requested.   Unless required by Law, each of the Parties (i) agrees to be bound by the Purchase Price Allocation, (ii) will prepare all Tax Returns in a manner consistent with the Purchase Price Allocation, (iii) will not take a position on any Tax Return before any Taxing Authority or in any judicial proceeding that is in any way inconsistent with the Purchase Price Allocation and (iv) will cooperate with each other in timely filing Forms 8594 with the IRS consistent with such allocation.

 

Section 2.6.                                   Proration of Payments.  After the Closing, any regular periodic charges with respect to the Business or the Purchased Assets, including amounts payable with respect to leases, insurance and utilities and all real property, personal property and similar Taxes relating to the Purchased Assets, which become due and payable on or after the Closing Date and relate to periods both before and after the Closing Date, shall be prorated and adjusted between the Sellers and Purchaser as of the Closing Date on a per diem basis and the Sellers shall be responsible for and pay to Purchaser the portion of such amounts allocable to the period prior to the Closing Date for which payment is due on or after the Closing Date within five (5) Business Days of the receipt of an invoice from Purchaser.

 

Section 2.7.                                   Closing.  The Closing shall be held at the offices of Greenberg Traurig, LLP, The MetLife Building, 200 Park Avenue, New York, New York 10166, at 10:00 a.m. local time, on the fifth Business Day following the satisfaction or waiver of all conditions set forth in Article VI (other than conditions that, by their nature, are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions) or at such other time or place as Purchaser and the Sellers mutually agree.

 

Section 2.8.                                   Closing Deliveries by Purchaser.

 

At the Closing, Purchaser will deliver or cause to be delivered:

 

(a)                                  to the Sellers, an amount in cash equal to sixty-three million five hundred thousand dollars ($63,500,000) (the “Closing Amount”) by wire transfer of immediately-available funds to such account as the Sellers may direct by written notice to Purchaser; provided, that the value of the Closing Amount shall be subject to adjustment, as of the Closing Date, pursuant to Section 2.10 hereof;

 

(b)                                 to the Escrow Agent, an amount in cash equal to three million five hundred thousand dollars ($3,500,000) (the “Escrow Amount”) by wire transfer of immediately-available funds to the Escrow Agent in accordance with the Escrow Agreement;

 

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(c)                                  to the Escrow Agent, an additional amount in cash equal to three million dollars ($3,000,000) by wire transfer of immediately available funds to the Escrow Agent in accordance with the Escrow Agreement to be distributed in accordance with Section 2.11(e) and (f) hereof. For avoidance of doubt, the three million dollars ($3,000,000) deposited pursuant to this Section 2.8(c) shall not be included in the definition of Escrow Amount.

 

(d)                                 to the Sellers, the duly executed Warrant;

 

(e)                                  to the Sellers, a duly executed counterpart of the Escrow Agreement;

 

(f)                                    to the Sellers, a duly acknowledged counterpart of the Trademark and Copyright Assignment;

 

(g)                                 to the Sellers, a duly executed counterpart of the Transition Agreement;

 

(h)                                 to the Sellers, acknowledged counterparts of the Intellectual Property Powers of Attorney; and

 

(i)                                     to HSBC, an amount of cash equal to 105%, or such lesser percentage agreed to in writing by HSBC, of the undrawn amounts of the outstanding letters of credit (x) described in Section 2.8(j) of the Sellers’ Disclosure Schedule (as the amount of such letters of credit may increase or decrease) or (y) issued in respect of the Business in the ordinary course of business after the date hereof (the “Purchaser Cash Collateralized Letters of Credit”); provided, however, that in no event shall the face amount of such Purchaser Cash Collateralized Letters of Credit as of the Closing Date exceed $15,000,000, in the aggregate (the “LC Limit”).

 

Section 2.9.                                   Closing Deliveries by the Sellers.  At the Closing, the Sellers will deliver or cause to be delivered:

 

(a)                                  To Purchaser, a duly executed original copy of the Bill of Sale (the “Bill of Sale”) in substantially the form of Exhibit A;

 

(b)                                 To Purchaser, a duly executed counterpart of the Trademark and Copyright Assignment;

 

(c)                                  To Purchaser, a duly executed counterpart of the Escrow Agreement;

 

(d)                                 To Purchaser, duly executed copies of the Intellectual Property Powers of Attorney;

 

(e)                                  To HSBC (unless delivered prior to the Closing), an amount of cash (“Sellers’ LC Cash Deposit”) equal to 105%, or such lesser percentage agreed to in writing by HSBC, of the undrawn amounts of the outstanding letters of credit described in Section 2.9(e) of the Sellers’ Disclosure Schedule (as the amounts of such letters of credit may increase or decrease) (the “Seller Cash Collateralized Letters of Credit”); and

 

(f)                                    Such further instruments and documents as may be required to be delivered by the Sellers pursuant to the terms of this Agreement or as may be reasonably requested by

 

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Purchaser in connection with the Closing of the transactions contemplated by this Agreement and the Transaction Documents to complete the transfer of the Purchased Assets and the Business to Purchaser, including, without limitation, good, sufficient instruments of assignment with respect to the Intellectual Property being transferred by the Sellers to Purchaser in recordable form, endorsements, consents, assignments and other good and sufficient instruments of conveyance and assignment necessary or appropriate to vest in Purchaser all right, title and interest in, to and under the Purchased Assets.

 

Section 2.10.                             Initial Purchase Price Adjustment.

 

(a)                                  No later than two (2) calendar days prior to the Closing Date, the Sellers shall deliver to Purchaser the unaudited consolidated balance sheet of the Sellers as of November 30, 2010, the “Previous Month’s Balance Sheet”), together with a statement based on the Previous Month’s Balance Sheet setting forth the Sellers’ calculation of Net Working Capital as of the date of the Previous Month’s Balance Sheet; provided, that the Sellers’ calculation of Net Working Capital shall be prepared in a manner consistent with the preparation of the Sellers’ calculation of Net Working Capital as of September 30, 2010, as set forth in Section 2.10(a) to the Sellers’ Disclosure Schedule. Purchaser shall as promptly as practicable review such statement of Net Working Capital, and the Parties promptly shall discuss in good faith all comments and questions Purchaser may have with respect to such statement of Net Working Capital.

 

(b)                                 The Purchase Price and Closing Amount payable pursuant to Sections 2.5 and 2.8, respectively, shall be decreased on a dollar-for-dollar basis (without any threshold or deductible for de minimus amounts) by the Initial Adjustment Amount if that amount is negative.  If the Initial Adjustment Amount is positive, (x) the Sellers shall be entitled to retain an amount of cash or cash equivalents (the “Excluded Cash”) equal to the lesser of (i) the Initial Adjustment Amount and (ii) the amount of cash and cash equivalents of the Sellers, but excluding cash and cash equivalents of Sellers related to Prepaid Expenses of third-parties held by Sellers, and (y) the Purchase Price and Closing Amount payable in cash pursuant to Sections 2.5 and 2.8, respectively, shall be increased on a dollar-for-dollar basis (without any threshold or deductible for de minimis amounts) by a cash amount equal to the (i) Initial Adjustment Amount minus (ii) the amount of Excluded Cash retained by the Sellers.  For the avoidance of doubt, (x) the definition of “Excluded Cash” shall not include the Sellers’ LC Cash Deposit but shall include the cash and cash equivalents released or to be released by HSBC upon Purchaser’s deposit of cash with HSBC to cash collateralize the Purchaser’s Cash Collateralized Letters of Credit, and (y) for the purpose of this Section 2.10(b), “cash and cash equivalents” of the Sellers shall not include the Sellers’ LC Cash Deposit but shall include the cash and cash equivalents released or to be released by HSBC upon Purchaser’s deposit of cash with HSBC to cash collateralize the Purchaser’s Cash Collateralized Letters of Credit.

 

Section 2.11.                             Closing Date Balance Sheet.

 

(a)                                  As promptly as practicable following the Closing Date, but in no event more than ninety (90) days following the Closing Date, Purchaser will prepare and deliver to the Sellers (i) a pro forma balance sheet as of the Business Day immediately preceding the Closing Date, which shall be prepared in accordance with GAAP applied on a basis consistent with the preparation of the Balance Sheet, as if the Business Day immediately preceding the Closing Date were the end of a fiscal year, and which shall set forth the Purchased Assets, the Excluded Cash and Assumed

 

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Liabilities as of the Closing Date (the “Closing Date Balance Sheet”) and (ii) a statement based on the Closing Date Balance Sheet setting forth Purchaser’s calculation of Closing Date Net Working Capital.  Purchaser shall permit Sellers to review and to have reasonable access to the financial records of the Business for purposes of reviewing the Closing Date Balance Sheet and the Closing Date Net Working Capital determination during the thirty (30) day period set forth in Section 2.11(b).  For the avoidance of doubt, to the extent known or reasonably estimable, any Liabilities with respect to Seller Chargebacks and Seller Returns (excluding Unidentifiable Chargebacks and Unidentifiable Returns) relating to shipments prior to the Closing Date in excess of the amounts reserved for Seller Chargebacks and Seller Returns shall be deducted from Closing Date Net Working Capital.

 

(b)                                 Unless within thirty (30) days after delivery of the Closing Date Balance Sheet, the Sellers shall deliver to Purchaser a notice setting forth, in reasonable detail, any good faith dispute as to the Closing Date Net Working Capital and the basis for such dispute (a “Dispute Notice”), Purchaser’s calculation of Closing Date Net Working Capital shall be deemed accepted by the Sellers and shall be final and binding.

 

(c)                                  For thirty (30) days after Purchaser’s receipt of any Dispute Notice, the Parties shall endeavor in good faith to resolve by mutual agreement all matters in the Dispute Notice to reach definitive agreement on the disputed items or amounts in order to determine, as may be required, the amount of Closing Date Net Working Capital, which amount shall not be more than the amount thereof shown in the Sellers’ calculations delivered pursuant to Section 2.11(b) nor less than the amount thereof shown in Purchaser’s calculation delivered pursuant to Section 2.11(a). If the Parties are unable to resolve any matter in the Dispute Notice within such thirty (30) day period, Purchaser and the Sellers shall engage McGladrey & Pullen, LLP (“McGladrey”) as the “Reviewing Accountant”; provided, however, that if McGladrey is unable or unwilling to serve as the Reviewing Accountant, Purchaser and the Sellers shall engage BDO Seidman, LLP (“BDO Seidman”) as the Reviewing Accountant and if both McGladrey and BDO Seidman are unable or unwilling to serve as the Reviewing Accountant, the Parties shall, within fifteen (15) days after the end of such thirty (30) day period, agree on an alternate independent accounting firm or have such selection made pursuant to the rules of the American Arbitration Association (the “AAA”) to resolve the remaining disputes. Purchaser and the Sellers will each pay one-half of the fees and expenses of the Reviewing Accountant.

 

(d)                                 Purchaser and the Sellers shall instruct the Reviewing Accountant to resolve the disputed matters as promptly as practicable.  The Parties shall cooperate with each other and the Reviewing Accountant in connection with the matters set forth in this Section 2.11, including by furnishing such information as may be reasonably requested.  Each Party shall afford the other Party the reasonable and unrestricted opportunity to participate in all communications with the Reviewing Accountant.  The Reviewing Accountant will give to the Purchaser and the Sellers its written determination of its calculation of the Closing Date Net Working Capital, which determination will be made, to the extent practicable, within thirty (30) days of the Reviewing Accountant’s engagement; provided, that, in no event will such final determination be greater than the amount shown in the Sellers’ calculations delivered pursuant to Section 2.11(b), or less than the amount shown on Purchaser’s calculation delivered pursuant to Section 2.11(a).  The Reviewing Accountant’s determination shall be final and binding and no Party shall seek recourse to any Governmental Authority, arbitral body or otherwise, other than to collect any amounts due under

 

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this Section 2.11.  Judgment may be entered to enforce the Reviewing Accountant’s determination in any court having jurisdiction over the Party against which such determination is to be enforced.

 

(e)                              (i)  If the Final Adjustment Amount is zero or a positive amount, then (A) the Escrow Agent shall release to the Sellers, in the manner and with interest as provided in Section 2.11(f) and in accordance with the terms of the Escrow Agreement, three million dollars ($3,000,000), and (B) Purchaser shall pay in cash to the Sellers, as an adjustment to the Purchase Price, an amount equal to the Final Adjustment Amount, in the manner and with interest as provided in Section 2.11(f) (the “Upward Adjustment Payment”);

 

(ii)                                  If the Final Adjustment Amount is a negative amount, and the amount is less than or equal to three million dollars ($3,000,000), then the Escrow Agent shall (A) release to Purchaser, in accordance with the terms of the Escrow Agreement, as an adjustment to the Purchase Price, in the manner and with interest as provided in Section 2.11(f), an amount equal to the lesser of (x) $3,000,000 or (y) an amount equal to the Final Adjustment Amount, and (B) release to Sellers, in accordance with the terms of the Escrow Agreement, in the manner and with interest as provided in Section 2.11(f), the difference, if any, between three million dollars ($3,000,000) and the Final Adjustment Amount; and

 

(iii)                               If the Final Adjustment Amount is a negative amount which exceeds three million dollars ($3,000,000), then (A) the Escrow Agent shall release to Purchaser, in accordance with the terms of the Escrow Agreement, as an adjustment to the Purchase Price, in the manner and with interest as provided in Section 2.11(f), the amount equal to three million dollars ($3,000,000), and (B) the Sellers shall pay in cash to Purchaser, as an adjustment to the Purchase Price, in the manner and with interest as provided in Section 2.11(f), the amount equal to the difference between the Final Adjustment Amount and three million dollars ($3,000,000) (the “Downward Adjustment Payment”).

 

(f)                                    Any payment pursuant to Section 2.11(e) shall be made within three (3) Business Days after Final Net Working Capital and the Final Adjustment Amount have been determined, by wire transfer of immediately-available funds and funds held pursuant to the Escrow Agreement shall be accompanied by interest in accordance with the Escrow Agreement.  Any funds required to be paid by Sellers or Purchaser which were not held in the Escrow Account shall be made within three (3) Business Days after Final Net Working Capital and the Final Adjustment Amount have been determined, by wire transfer of immediately-available funds and shall be accompanied by interest at a fixed annual rate equal to two-hundred and fifty (250) basis points over the “Prime Rate” as reported in The Wall Street Journal on the Closing Date and shall be calculated on the basis of the actual days elapsed between the Closing Date and the payment date based on a three hundred and sixty-five (365) day year.

 

Section 2.12.                             Inventory Audit.  In the two (2) day period beginning on the fourth (4th) calendar day prior to the Closing Date and ending on the third (3rd) calendar day prior to the Closing Date, the Sellers shall (or shall cause their Subsidiaries or representatives to) conduct a physical count of all Inventory and Excluded Inventory (the “Physical Count”) located at any location (including, without limitation, Contract Manufacturers’ premises) where the total value of Inventory exceeds fifty thousand dollars ($50,000) (each such location, a “Confirmed Inventory Location”).

 

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At least seven (7) calendar days prior to the Physical Count, the Sellers shall notify Purchaser of the address of each Confirmed Inventory Location and the date(s) and time(s) when the Physical Inventory is scheduled at each such Confirmed Inventory Location and shall provide Purchaser with a schedule setting forth (A) the Inventory and Excluded Inventory located at each Confirmed Inventory Location and (B) all Inventory and Excluded Inventory.  Purchaser and its Affiliates and their respective Representatives shall have the right to monitor the Physical Count as well to have access at such reasonable times and to all such Confirmed Inventory Locations as Purchaser may reasonably request to conduct an inspection of all Inventory and Excluded Inventory located at such Confirmed Inventory Locations.  Based on the Physical Count, the Sellers shall confirm and identify all Inventory and Excluded Inventory at each Confirmed Inventory Location (such Inventory and Excluded Inventory, the “Confirmed Inventory”).

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES
 OF THE SELLERS

 

Each of the Sellers, jointly and severally, represents and warrants to Purchaser as of the date hereof and as of the Closing Date, as set forth in this Article III.

 

Section 3.1.                                   Organization and Qualification.

 

(a)                                  Rafaella is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and has all requisite power and authority to own, license, use, lease and operate its assets and properties (including, without limitation, the Purchased Assets owned by Rafaella) and to carry on its business as it is now being conducted. Neither the Purchased Assets nor the Assumed Liabilities include any securities or ownership interests of any Person.  All of the outstanding capital stock of Rafaella is owned, directly or indirectly, by Parent and RA Cerberus Acquisition, LLC.

 

(b)                                 Verrazano is a corporation duly organized, validly existing and in good standing under the Laws of the State of New York and has all requisite power and authority to own, license, use, lease and operate its assets and properties (including, without limitation, any Purchased Assets owned by Verrazano) and to carry on its business as it is now being conducted. All of the outstanding capital stock of Verrazano is owned directly by Rafaella.

 

(c)                                  Rafaella Apparel Far East is a limited company duly organized, validly existing and is of continuing registration under the Laws of Hong Kong and has all requisite power and authority to own, license, use, lease and operate its assets and properties (including, without limitation, any Purchased Assets owned by Rafaella Far East) and to carry on its business as it is now being conducted.  All of the outstanding capital stock of Rafaella Apparel Far East is owned directly by Rafaella.

 

Section 3.2.                                   Authority; Non-Contravention; Approvals.

 

(a)                                  Each Seller has all requisite power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform the transactions contemplated by this Agreement and the Transaction Documents.  The execution and delivery by

 

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each of the Sellers of this Agreement and the Transaction Documents and the performance by each of the Sellers of the transactions contemplated by this Agreement and the Transaction Documents have been duly authorized and approved by the respective Board of Directors and the requisite stockholders of each of the Sellers, and except as set forth on Section 3.2(a) of the Disclosure Schedule, no other corporate or other actions or proceedings on the part of any of the Sellers that are party thereto or any other Person are necessary to authorize the execution and delivery of this Agreement and the Transaction Documents by each of the Sellers that are party thereto or the performance and consummation by each of the Sellers of the transactions contemplated by this Agreement and the Transaction Documents.  This Agreement has been, and upon their execution the Transaction Documents will be, duly executed and delivered by each of the Sellers that are party thereto and, assuming the due authorization, execution and delivery of this Agreement and the Transaction Documents by Purchaser and, with respect to the Escrow Agreement, the Escrow Agent, constitutes, and upon their execution the Transaction Documents will constitute, valid and binding obligations of each of the Sellers that are party thereto, enforceable against such Sellers in accordance with their respective terms.

 

(b)                                 The execution and delivery by each of the Sellers of this Agreement and the Transaction Documents that such Sellers are party to and the performance of the transactions contemplated by this Agreement and the Transaction Documents do not and will not (i) conflict with or result in a breach of any provision of the organizational documents of the Sellers; (ii) except as set forth in Section 3.2(b)(ii) of the Sellers’ Disclosure Schedule, constitute a material default or a material event of default under (with or without due notice, lapse of time or both), or give any third party the right to accelerate any obligation under, any material Contract to which any of the Sellers is a party, by which any of the Sellers may be bound or to which the Purchased Assets are subject (excluding the Identified Agreements), (iii) result in the creation of any material Encumbrance on the Purchased Assets or any other right or asset of any of the Sellers, (iv) violate any Law applicable to the Sellers, the Business, the Purchased Assets or the Assumed Liabilities, the violation of which could reasonably be expected to have a Business Material Adverse Effect, or (v) require any authorization, consent, approval, waiver, exemption or other action by, or notice to, any party (other than the Sellers) to any Purchased Contract (each, a “Consent”), except as disclosed in Section 3.2(b)(v) of the Sellers’ Disclosure Schedule.

 

(c)                                  Except for the filings by the Sellers required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and as disclosed in Section 3.2(c) of the Sellers’ Disclosure Schedule (collectively, the “Governmental Approvals”), and subject to the provisions of Section 5.12 below, no declaration, filing, or registration with, or notice to, or authorization, consent, order or approval of, any Governmental Authority is required to be obtained or made in connection with or as a result of the execution and delivery of this Agreement and the Transaction Documents by the Sellers or the performance by the Sellers of the transactions contemplated by this Agreement and the Transaction Documents, except as could not reasonably be expected to have a Business Material Adverse Effect.

 

Section 3.3.                                   Financial Statements; Adjusted EBITDA.

 

(a)                                  Section 3.3(a) of the Sellers’ Disclosure Schedule sets forth the audited balance sheet of the Sellers for each of the three (3) fiscal years ended June 30, 2008, June 30, 2009 and June 30, 2010 and the related audited consolidated statements of income, cash flows and

 

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stockholders’ equity for the periods then ended, and the Previous Month’s Balance Sheet and the related unaudited consolidated statements of income, and cash flows for the five (5)-month period then ended (collectively, the “Financial Statements”).  The Financial Statements were prepared in accordance with GAAP on a basis consistent with prior periods and fairly present the financial position and results of operations of the Sellers as of their respective dates and for the respective periods presented (subject, in the case of the unaudited portions of the Financial Statements, to the absence of notes, recordation of Taxes and certain footnote disclosures otherwise required by GAAP).

 

(b)                                 Rafaella has provided Purchaser true and complete copies of all written management representation letters delivered to its independent auditors since July 1, 2007 relating to the Financial Statements, accounting controls relating to the Business and all related matters.

 

(c)                                  The Previous Month Adjusted EBITDA Statement was prepared in on a basis consistent with the Financial Statements and fairly presents results of operations of the Business as of the period presented.

 

Section 3.4.                                   Absence of Undisclosed Liabilities.  Except as set forth in Section 3.4 of the Sellers’ Disclosure Schedule, there are no material Liabilities relating to the Business of any nature, whether accrued, contingent or otherwise, and there is no existing condition, situation or set of facts or circumstances that reasonably could be expected to result in such a Liability, except for Liabilities (a) reflected on the Balance Sheet, (b) that were incurred in the ordinary course of business and could not reasonably be expected to have a Business Material Adverse Effect, (c) disclosed in the SEC Reports, or (d) transaction expenses relating to the transactions contemplated by this Agreement or the Transaction Documents.

 

Section 3.5.                                   Absence of Certain Changes or Events. Since the date of the Balance Sheet (a) there has not been any event, circumstance, change or effect that has had or reasonably could be expected to have a Business Material Adverse Effect; and (b) except as disclosed in Section 3.5 of the Sellers’ Disclosure Schedule, the Business has been conducted only in the ordinary course of business.

 

Section 3.6.                                   [Intentionally Deleted].

 

Section 3.7.                                   Tax Matters.

 

(a)                                  All material Tax Returns required to be filed by any of the Sellers have been timely filed.  All such Tax Returns were correct and complete in all material respects. The Sellers have delivered or made available upon request to Purchaser complete and accurate copies of federal income and material state and local Tax Returns of the Sellers for all Tax years ending on or after December 31, 2007.

 

(b)                                 Except as set forth on Section 3.7(b) of the Sellers’ Disclosure Schedule, all Taxes (whether or not shown on any Tax Return) imposed on, or with respect to, the Sellers, the Business and the Purchased Assets have been paid.  No claim has been made by any Taxing Authority, and to the Sellers’ Knowledge threatened, in any jurisdiction in which the Sellers has not filed all appropriate Tax Returns or that any of the Sellers is or may be required to pay Taxes in such jurisdiction in connection with the Business or any of the Purchased Assets.

 

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(c)                                  None of the Sellers is currently the beneficiary of any extension of time within which to file any Tax Return or pay any Tax.

 

(d)                                 The Sellers have withheld and paid all Taxes required to have been withheld and paid by the Sellers in connection with amounts paid and/or owing to any Person by any of the Sellers and/or relating to the Business or any of the Purchased Assets.

 

(e)                                  No judicial, audit or other administrative proceeding is pending, and to the Sellers’ Knowledge, threatened, which involves or otherwise relates to any Tax imposed on, or any Tax Return filed by, any of the Sellers or otherwise related to the Sellers, the Business or any of the Purchased Assets.

 

(f)                                    No Taxing Authority has asserted, is asserting or, to the Sellers’ Knowledge, has threatened to assert, a claim against the Sellers and their respective Subsidiaries under, or as a result of, Section 482 of the Code or any similar provision of any other Law.

 

(g)                                 The Sellers have not made any payments, are not obligated to make any payments and none of them is a party to any agreement that under certain circumstances could obligate any of them to make any payments relating to the Business or any of the Purchased Assets that is or would not be deductible under Section 162(m) or 280G of the Code.

 

(h)                                 The Sellers have not waived any statute of limitations in respect of material Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency which has not been previously resolved.

 

(i)                                     Section 3.7(i) of the Sellers’ Disclosure Schedule sets forth all closing agreements and Tax rulings requested or received from any Governmental Authority with respect to the Purchased Assets or the Business.

 

(j)                                     The Sellers are not obligated in connection with the Business or any of the Purchased Assets to pay the Taxes of another Person by Contract, as transferee, as successor or otherwise.

 

Section 3.8.                                   ERISA and Employee Benefits.

 

(a)                                  Section 3.8(a) of the Sellers’ Disclosure Schedule contains a true and complete list of each Seller Plan.  Except to the extent required by applicable Law or to maintain Tax-qualified status, neither the Sellers nor any ERISA Affiliate has any obligation to change or otherwise modify any existing Seller Plan or program or to establish any new plan or program.

 

(b)                                 Each of the Seller Plans is, and its administration (including, without limitation, with respect to reporting and disclosure) is in material compliance with, and none of the Sellers has received any claim or notice that any such Seller Plan is not in compliance with, the terms of the applicable Seller Plan and, to the extent applicable, with ERISA, the Code (including, without limitation, all Tax rules compliance with which is required for any intended favorable Tax treatment) and any and all other applicable Laws.

 

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(c)                                  Neither the PBGC nor any of the Sellers has instituted proceedings to terminate any Seller Plan that is or has ever been subject to Part 3 of Subtitle B of Title I of ERISA, Section 412 of the Code, or Title IV of ERISA.

 

(d)                                 All contributions, premiums and other payments required by Law or any Seller Plan to have been made under any such Seller Plan (without regard to any waivers granted under Section 412 of the Code) to any fund, trust or account established thereunder or in connection therewith have been made by the due date thereof, and no amounts are or will be due to the PBGC (except for premiums in the ordinary course of business).

 

(e)                                  No Seller Plan that is or has ever been subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code has incurred any “accumulated funding deficiency” (as defined therein), whether or not waived, no Liability under Title IV of ERISA has been incurred or is expected to be incurred with respect to any such Plan subject thereto (other than premiums incurred and paid when due), nor has there been any “reportable event” within the meaning of Section 4043(c) of ERISA (other than one for which all otherwise applicable notice requirements have been waived by the PBGC) with respect to any such Plan; and the actuarial present value on a termination basis of accrued benefits under each of the Seller Plans that is subject to Title IV of ERISA, based upon the interest rate assumptions that would be utilized by the PBGC to value annuities for a pension plan termination and the other actuarial assumptions and methods currently used for such Seller Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Seller Plan.

 

(f)                                    Neither the Sellers nor any ERISA Affiliate has at any time: (A) had any obligation to contribute to any “multiemployer plan” as defined in Section 3(37) of ERISA, or (B) withdrawn in any complete or partial withdrawal from any “multiemployer plan” as defined in Section 3(37) of ERISA; and, if the Sellers and each ERISA Affiliate were to, as of the date hereof, completely withdraw from all multiemployer plans in which any of them participate, or to which any of them otherwise have any obligation to contribute, neither the Sellers nor any ERISA Affiliate would incur any withdrawal Liability.

 

(g)                                 Each of the Seller Plans that is intended to be Tax-qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified and such determination has not been modified, revoked or limited, and to the Knowledge of the Sellers no circumstances have occurred that would adversely affect the Tax-qualified status of any such Plan.

 

(h)                                 Except as set forth in Section 3.8(h) of the Sellers’ Disclosure Schedules, there is no suit, action, dispute, claim, arbitration or legal, administrative or other proceeding or governmental investigation pending, or, to the Sellers’ Knowledge, threatened alleging any breach of the terms of any Seller Plan or of any fiduciary duties thereunder or violation of any applicable Law with respect to any such Plan.

 

(i)                                     No event has occurred and no condition exists with respect to any Seller Plan that has resulted or could result in: (A) Liability to the Sellers or any of their ERISA Affiliates under Section 4069 or 4212(c) or any other provision of Title IV of ERISA, or (B) an Encumbrance or other security interest under Section 401(a)(29) or Section 412(n) of the Code or under ERISA with respect to any property of the Sellers or any of their ERISA Affiliates.

 

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(j)                                     None of the Sellers is in default in performing any of its contractual obligations under any of the Seller Plans or any related trust agreement or insurance Contract.

 

(k)                                  None of the Sellers, nor any “party in interest” (as defined in Section 3(14) of ERISA) nor any “disqualified person” (as defined in Section 4975 of the Code) with respect to any Seller Plan that is an employee pension benefit plan (as defined in Section 3(2) of ERISA), has engaged in a non-exempt “prohibited transaction” within the meaning of Section 4975 of the Code or Section 406 of ERISA with respect to such Seller Plan.

 

(l)                                     (i) No Seller Plan that is a “welfare plan” as defined in Section 3(1) of ERISA provides for continuing benefits or coverage for any participant or beneficiary or covered dependent of a participant after such participant’s termination of employment, except to the extent required by Law; (ii) there has been no violation of Section 4980B of the Code or Sections 601 through 608 of ERISA with respect to any such Plan that could result in any material Liability; (iii) no such Plans are “multiple employer welfare arrangements” within the meaning of Section 3(40) of ERISA; (iv) none of the Sellers maintains or has any obligation to contribute to any “voluntary employees’ beneficiary association” within the meaning of Section 501(c)(9) of the Code or other arrangement for the provision of welfare benefits that would cause any Seller Plan that is a welfare plan to be “funded” for purposes of ERISA; and (vi) all Seller Plans that provide medical, dental health or long-term disability benefits are fully insured and claims with respect to any participant or covered dependent under such Seller Plan could not result in any uninsured Liability to any of the Sellers or Purchaser.

 

(m)                               With respect to each Seller Plan, true, correct and complete copies of the applicable following documents have been delivered to Purchaser: (i) all current Plan documents and related trust documents, and any amendment thereto; (ii) Forms 5500, financial statements and actuarial reports for the last three Plan years; and (iii) summary plan descriptions and all summaries of material modifications.

 

(n)                                 Each of the Sellers has properly classified for all purposes (including, without limitation, for all Tax purposes and for purposes of determining eligibility to participate in any employee benefit plan) all employees, leased employees, consultants and independent contractors, and has withheld and paid all applicable Taxes and made all appropriate governmental filings in connection with services provided by such Persons to any of the Sellers.

 

Section 3.9.                                   Employment Matters.

 

(a)                                  Section 3.9(a) of the Sellers’ Disclosure Schedule sets forth the name and title of all of the Sellers’ current officers and employees. To the Sellers’ Knowledge, no officer or director of Sellers have made a threat or otherwise indicated any intent to the Sellers to cancel or otherwise terminate such Person’s relationship with any of the Sellers or the Business.

 

(b)                                 Except as set forth in Section 3.9(b) of the Sellers’ Disclosure Schedule,  neither the execution and delivery of this Agreement or the Transaction Documents, nor the performance of the transactions contemplated thereby, will (either alone or in conjunction with any other event, such as termination of employment) (i) result in any material payment (including, without limitation, severance payments, payments under any other agreements, unemployment

 

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compensation payments, payments subject to Section 280G of the Code or otherwise) becoming due to any director or any employee of any of the Sellers from any of the Sellers under any Seller Plan (including, without limitation, any Seller Employment Agreement) or otherwise, (ii) materially increase any benefits otherwise payable under any Seller Plan or (iii) result in any acceleration of the time of payment or vesting of any material benefits under any Seller Plan.

 

Section 3.10.                             Labor Relations.  There is no unfair labor practice, charge or complaint or other proceeding pending or, to the Sellers’ Knowledge, threatened against any of the Business, the Purchased Assets or any of the Sellers.  Each of the Sellers is in material compliance with all Laws applicable to the Business respecting employment and employment practices, terms, and conditions of employment, and wages and hours, and none of them have engaged in any unfair labor practices.  None of the Sellers is a party to, or has any Liability with respect to, any collective bargaining agreement or other labor union Contract applicable to Persons employed by any of the Sellers, and to Sellers’ Knowledge there are not any activities or proceedings of any labor union or other Person to organize any Sellers’ employees.  There is no labor strike, slowdown, work stoppage or lockout pending or, to the Sellers’ Knowledge, threatened, against the Sellers or the Business.

 

Section 3.11.                             Litigation.  Except as set forth in Section 3.11 of the Sellers’ Disclosure Schedule, there are no inquiries, claims, suits, proceedings, actions, investigations, oppositions, challenges, cancellation proceedings or changes pending or, to the Sellers’ Knowledge, threatened against or affecting any of the Sellers or relating to or affecting the Purchased Assets, the Business or the Assumed Liabilities.  There are no outstanding orders, writs, judgments, decrees, injunctions or settlements rendered against the Sellers that restrict the Business, the Purchased Assets or the Assumed Liabilities.

 

Section 3.12.                             No Violation of Law; Permits.

 

(a)                                  Neither the Sellers nor the Business is, or in the past five (5) years has been, in material default under or in violation of, or has been charged with any material violation of, any Law to which the Sellers or the Business or any of the Purchased Assets or Assumed Liabilities is or was subject.

 

(b)                                 The Purchased Assets include all Permits that are now, or at the time of the Closing will be, used or held for use in or otherwise related to or necessary for the conduct of, the Business and the Purchased Assets and all such Permits are listed in Section 3.12(b) of the Sellers’ Disclosure Schedule (collectively, the “Business Permits”), except for such Business Permits the absence of which could not reasonably be expected to have a Business Material Adverse Effect.  All the Business Permits have been legally obtained and maintained and are in full force and effect.  None of the Sellers, the Business or any of the Purchased Assets is in violation of, in any material respect, or is being operated in violation of, in any material respect, the terms of any Business Permit.

 

(c)                                  Except as set forth in Section 3.12(c) of the Sellers’ Disclosure Schedule, neither the execution and delivery of this Agreement nor the performance of any of the transactions contemplated hereby will: (i) require any assignment, consent, waiver or other action in respect of any Business Permit; (ii) result in the termination or modification of any Business Permit; or (iii) result in a need for additional Permits.

 

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Section 3.13.                             Title to Purchased Assets; Encumbrances.  The Sellers have good, valid and marketable title in or to, or a valid leasehold interest in, all of the Purchased Assets, free and clear of all Encumbrances (other than Encumbrances under the Identified Agreements and Permitted Encumbrances) and, at the Closing, will convey to Purchaser good, valid and marketable title in or to, or a valid leasehold interest in, all of the Purchased Assets, free and clear of all Encumbrances (including, without limitation, any Encumbrances under the Identified Agreements) other than Permitted Encumbrances.

 

Section 3.14.                             Entire Business; Sufficiency of Purchased Assets.   The Purchased Assets constitute all of the assets, properties and rights used in or necessary for the conduct of the Business as heretofore conducted by the Sellers (except for the Excluded Assets) and are adequate to conduct the Business as presently conducted.  Immediately following the Closing, neither the Sellers nor any of their respective Affiliates  will own or lease any assets, properties or rights that are necessary for the conduct of the Business, except for the Excluded Assets.  There are no facilities, services, assets or properties that are used by the Sellers in the conduct or operation of the Business and that are not required to be transferred to Purchaser pursuant to the provisions of this Agreement other than the Excluded Assets.  Upon consummation of the transactions contemplated by this Agreement, Purchaser will have acquired good and marketable title in and to, or a valid leasehold interest in, each of the Purchased Assets free and clear of all Encumbrances (including, without limitation, any Encumbrances under the Identified Agreements) other than Permitted Encumbrances.

 

Section 3.15.                             Transactions with Affiliates.  Except as disclosed in the SEC Reports or as set forth on Section 3.15 of the Sellers’ Disclosure Schedule, no director, officer or stockholder of the Sellers has, since July 1, 2008: (a) borrowed money from or loaned money to the Business that remains outstanding; (b) asserted any contractual or other claim, express or implied, of any kind whatsoever against or in respect of the Business; (c) acquired any interest in any assets used or held for use in the Business; or (d) engaged in any other transaction with or in respect of the Business involving amounts in excess of seventy-five thousand dollars ($75,000.00) per calendar year.

 

Section 3.16.                             Insurance.  Section 3.16 of the Sellers’ Disclosure Schedule sets forth a complete and correct list of all insurance policies (other than insurance policies that provide benefits under any Seller Plan) held by or on behalf of any of the Sellers relating to the Business and a brief description of such policies, including the names and addresses of the insurers, the principal insured and each named insured, the policy number and period of coverage, the expiration dates, the annual premiums and payment terms, a brief description of the interests insured by such policies and the amount of any deductible.  The Sellers have delivered to Purchaser a complete and correct copy of all such policies together with all riders and amendments thereto.  Except as disclosed on Section 3.16 of the Sellers’ Disclosure Schedule, none of the Sellers maintains any self-insurance arrangement with respect to the Business.  The insurance policies listed on Section 3.16 of the Sellers’ Disclosure Schedule include all policies of insurance that are required by the Purchased Contracts, in the amounts required under such Purchased Contracts.  All the insurance policies listed on Section 3.16 of the Sellers’ Disclosure Schedule are in full force and effect, all premiums due and payable thereon have been paid and no notice of cancellation or termination has been received with respect to any such policy.

 

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Section 3.17.                             Contracts and Other Agreements.

 

(a)                                  Section 3.17(a) of the Sellers’ Disclosure Schedule lists all Purchased Contracts other than (i) Purchase Orders, (ii) Customer Orders and (iii) Purchased Contracts that involve the payment of less than seventy-five thousand dollars ($75,000) per year and the parties to such Purchased Contracts (other than the Sellers) are not parties to Purchased Contracts involving payments of more than one hundred seventy-five thousand dollars ($175,000) per year in the aggregate and that are not otherwise material to the Business.

 

(b)                                 Section 3.17(b) of the Sellers’ Disclosure Schedule attached as of the date hereof lists all Purchase Orders as of December 8, 2010, including the payment terms, delivery dates, item identification, quantities and shipping terms and Section 3.17(b) of the Sellers’ Disclosure Schedule as updated in accordance with Section 5.18 hereof on the Closing Date shall list all Purchase Orders as of the close of business as of the date which is four (4) Business Days preceding the Closing Date, including the payment terms, delivery dates, item identification, quantities and shipping terms, provided such updated Section 3.17(b) shall be provided to Purchaser two (2) Business Days prior to the Closing Date.

 

(c)                                  Section 3.17(c) of the Sellers’ Disclosure Schedule lists all Purchased Contracts that contain any provision or covenant that would, after giving effect to the transactions contemplated hereby and by the Transaction Documents, prohibit or limit the ability of Purchaser or any of its Affiliates to engage in any business activity or compete with any Person or prohibit or limit the ability of any Person to compete with Purchaser or any of its Affiliates.

 

(d)                                 Except as set forth in Section 3.17(d), each Purchased Contract is in full force and effect and constitutes a legal, valid and binding agreement, enforceable against any of the Sellers and, to the Sellers’ Knowledge, each other party thereto, in accordance with its terms. The Sellers are not, and to the Sellers’ Knowledge, no other party to any Purchased Contract is, in violation or breach of, or in default under, nor has there occurred an event or condition that with the passage of time or giving of notice (or both) could constitute a default under, or permit the termination of, any such Purchased Contract.

 

(e)                                  Section 3.17(e) of the Sellers’ Disclosure Schedule lists all of the Collateral Agreements, the Financing Agreements, the Seller Factoring Agreements, the Rafaella Acquisition Agreements and the Seller Employment Agreements.

 

(f)                                    Except as noted in Sections 3.17(a), 3.17(c) or 3.17(e) of the Sellers’ Disclosure Schedule, the Sellers have delivered to Purchaser true and complete copies of each Contract listed on Sections 3.17(a), 3.17(c) and 3.17(e) of the Sellers’ Disclosure Schedule, together with all amendments and supplements thereto, to the extent not filed with the SEC; provided, that such Contracts filed with the SEC are publicly-available, unredacted, include facsimiles or conformed copies of all signatures thereto and include all exhibits, schedules, annexes and appendices thereto.

 

Section 3.18.                             Tangible Personal Property.  The Tangible Property is in good operating condition, subject to continued repair and replacement in accordance with past practice, and none of the Sellers has received notice that any of the Tangible Property is in material violation of any existing Law or order of any Governmental Authority.  During the past three years there has not been any material interruption of the operations of the Business due to inadequate maintenance or

 

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repair of the Tangible Property.  No approval or consent of any Person is needed so that the interest of the Sellers in the Tangible Property shall continue to be in full force and effect and enforceable by Purchaser following the Closing.

 

Section 3.19.                             Receivables; Disputed Accounts Payable.

 

(a)                                  All Receivables (other than Receivables collected since the date of the most recent balance sheet included in the Financial Statements) reflected on the most recent balance sheet included in the Financial Statements are, and all Receivables arising from or otherwise relating to the Business will be at the Closing Date, valid and genuine in the aggregate amount thereof subject to normal and customary trade discounts, customer allowances for discounts, returns, markdowns, co-op advertising and operational chargebacks, less any bona fide reserves for doubtful accounts in amounts consistent with those recorded on the most recent balance sheet included in the Financial Statements.

 

(b)                                 Except as set forth in Section 3.19(b) of the Sellers’ Disclosure Schedule, to Sellers’ Knowledge, there are no unpaid invoices or bills representing amounts in excess of $1,000 alleged to be owed with respect to the Business, or other alleged obligations of any of the Sellers or with respect to the Business, which any of the Sellers has disputed or determined to dispute or refused to pay.

 

Section 3.20.                             Intellectual Property.

 

(a)                                  Section 3.20(a) of the Sellers’ Disclosure Schedule sets forth a true, complete and accurate list of all Business Intellectual Property (other than trade secrets, know-how and goodwill attendant to the Business Intellectual Property and other intellectual property rights not reducible to schedule form).

 

(b)                                 Section 3.20(b) of the Sellers’ Disclosure Schedule sets forth a true, complete and accurate list of all Business Intellectual Property (the “Licensed Intellectual Property”) that any of the Sellers holds a license or sub-license (each, a “License”) to use thereof, excluding commercial “off-the-shelf” software with aggregate license fees of less than ten thousand dollars ($10,000).  All such Licenses are valid, enforceable, subsisting, in full force and effect, and binding upon the parties thereto, and to the Sellers’ Knowledge, each party thereto is and has been in full compliance with all applicable material terms and requirements thereof, including, without limitation, any payments of royalties thereunder, and there has occurred no event which, with notice or the passage of time or otherwise, would constitute a default thereunder or grounds for termination or modification thereof or the imposition of any charge or penalty thereunder.

 

(c)                                  None of the Sellers owns, any patents, nor does any Seller have any applications therefor pending.

 

(d)                                 The Sellers are the sole and exclusive owners of all right, title and interest in and to the Business Intellectual Property (other than the Licensed Intellectual Property), free and clear of all Encumbrances (other than any Encumbrances under the Identified Agreements and any Permitted Encumbrances).  Upon the Closing, Purchaser shall receive all right, title and interest in and to the Business Intellectual Property (other than the Licensed Intellectual Property), free and

 

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clear of all Encumbrances (including, without limitation, any Encumbrances under the Identified Agreements) other than Permitted Encumbrances.

 

(e)                                  Any and all documentation relating to any know-how and/or trade secrets included in the Business Intellectual Property:  (i) is current, accurate, and sufficient in detail and content to identify and explain such know-how and/or trade secrets and to allow its full and proper use, and the Sellers have taken all reasonable precautions to protect the secrecy, confidentiality and value of such know-how and/or trade secrets, and (ii) pertains to the know-how and/or trade secrets necessary for the operation of the Business as currently conducted.

 

(f)                                    (i) To Sellers’ Knowledge, none of the Business Intellectual Property, nor the conduct of the Business infringes upon or misappropriates the rights of any other Person nor is infringed upon or misappropriated by any other Person or its property; (ii) none of the Sellers has received any claim, any cease and desist or equivalent letter or any other notice of any allegation that any of the Business Intellectual Property or the Business infringes upon, misappropriates or otherwise violates the Intellectual Property of any third parties; (iii) to Sellers’ Knowledge, there has been no unauthorized use by, disclosure to or by or infringement, misappropriation or other violation of any of the Business Intellectual Property by any third party and/or any current or former officer, employee, independent contractor, consultant or any other agent of the Sellers; (iv) none of the Business Intellectual Property is subject to any suits, actions, claims or demands of any third party and no action or proceeding, whether judicial, administrative or otherwise, has been instituted or, to Sellers’ Knowledge, is threatened that challenges or affects the rights of any of the Sellers and there are no claims, demands, actions or proceedings that are pending or, to Sellers’ Knowledge, threatened with respect to any of the Business Intellectual Property; (v) Purchaser’s ownership and/or use of any of the Business Intellectual Property and continuation of the Business does not and will not infringe upon any Intellectual Property rights or any other rights of any third party; and (vi) none of the Sellers has received any written opinions of counsel (outside or inside) relating to infringement, invalidity or unenforceability of any Business Intellectual Property.

 

(g)                                 (i) To Sellers’ Knowledge, all registrations with and applications to Governmental Authorities in respect of the Business Intellectual Property (other than Licensed Intellectual Property) are valid and in full force and effect, (ii) to Sellers’ Knowledge, each of the Sellers is in material compliance with all applicable Laws regarding the manufacture, advertising, sale, import, and export of the Business Intellectual Property and products incorporating or made using the Business Intellectual Property, (iii) there are no restrictions on the direct or indirect transfer of any License, or any interest therein, held by any of the Sellers in respect of the Business Intellectual Property, excluding Licenses for “off-the-shelf” software with aggregate license fees of less than ten thousand dollars ($10,000), and (iv) none of the Sellers is in default (or with the giving of notice or lapse of time or both, would be in default) in any material respect under any License, or any other Contract pursuant to which any of the Sellers has been granted a right to use the Business Intellectual Property.

 

(h)                                 Upon the Closing, Purchaser shall have acquired all of Sellers’ rights, with respect to any Business Intellectual Property (other than Licensed Intellectual Property), to: (i) sue for (and otherwise assert claims for) and recover damages and obtain any and all other remedies available at Law or in equity for any past, present or future infringement, misappropriation or other violation of any of such Business Intellectual Property (and to settle all such suits, actions and

 

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proceedings); (ii) seek protection therefor (including, without limitation, the right to seek and obtain copyright, trademark and service mark registrations and letters patent in the United States and all other countries and governmental divisions); and (iii) to claim all rights and priority thereunder.

 

(i)                                     Each of the Sellers has taken all commercially reasonable steps to protect and preserve the secrecy, confidentiality and value of all Business Intellectual Property (other than the Licensed Intellectual Property), including, without limitation, all trade secrets and source code included in the Business Intellectual Property not subject to issued letters patents other than steps which Sellers’ failure to take would not result in a Sellers Material Adverse Effect.

 

Section 3.21.                             Real Property.

 

(a)                                  Section 3.21(a) of the Sellers’ Disclosure Schedule contains a true and correct list of each parcel of real property leased to or by the Sellers that is now, or at the time of the Closing will be, used or held for use in or otherwise related to or necessary for the conduct of, the Business (the “Leased Real Property”).

 

(b)                                 Purchaser will assume the Sellers’ interests in the Leased Real Property listed in Section 3.21(b) of the Sellers’ Disclosure Schedule, exclusive however, of the New York Lease in the event that the New York Lease is terminated pursuant to Item 4 of Schedule 6.2(c) (the “Purchased Leased Real Property”) and such Purchased Leased Real Property shall be included in the Purchased Assets.  The Sellers have a valid and subsisting leasehold estate in and the right to quiet enjoyment of the Purchased Leased Real Property for the full term of the lease of such properties.  Each lease with respect to the Purchased Leased Real Property is a legal, valid and binding agreement, enforceable in accordance with its terms and there is no, and none of the Sellers has received notice of any, default (or any condition or event that, after notice or lapse of time or both, would constitute a default) thereunder.  None of the Sellers owes any brokerage commissions with respect to any such Purchased Leased Real Property (including, without limitation, any contingent obligation in respect of future lease extensions).

 

(c)                                  The Sellers have delivered to Purchaser prior to the execution of this Agreement true and complete copies of all leases (including any amendments and renewal letters) and, to the extent reasonably available, copies of all deeds, leases, mortgages, deeds of trust, certificates of occupancy, title insurance policies, title reports, surveys and similar documents with respect to the Purchased Leased Real Property.

 

(d)                                 The buildings, structures, equipment and improvements on the Purchased Leased Real Property are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, are adequate and suitable for the purposes for which they are presently being used and, to the Sellers’ Knowledge, there are no condemnation or appropriation proceedings pending or threatened against any of such Purchased Leased Real Property or any plants, buildings or other structures thereon.

 

(e)                                  None of the Sellers owns any real property.

 

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Section 3.22.                             Environmental Matters.

 

(a)                                  (i) The Sellers, the Purchased Assets and the Business comply and at all times have materially complied with all applicable Environmental Laws; (ii) to Sellers’ Knowledge, no Hazardous Substances are present at or have been disposed on or released or discharged from, onto or under any of the properties currently owned, leased, operated or otherwise used by any of the Sellers or the Business (including, without limitation, soils, groundwater, surface water, buildings or other structures); (iii) to Sellers’ Knowledge, no Hazardous Substances were present at or disposed on or released or discharged from, onto or under any of the properties formerly owned, leased, operated or otherwise used by any of the Sellers or the Business; (iv) to Sellers’ Knowledge, none of the Purchased Leased Real Property contains an active or inactive incinerator, lagoon, landfill, septic system, wastewater treatment system or underground storage tank; (v) to the Sellers’ Knowledge, none of the Sellers, the Purchased Assets or the Business are subject to any material Liability in connection with Hazardous Substances present at any location owned, leased, operated or otherwise used by any third party; (vi)  the Sellers have not received any Environmental Claim; (vii) none of the Sellers, any of the Purchased Assets or the Business is subject to any order, decree, injunction or other directive of any Governmental Authority and none of the Sellers, the Purchased Assets or the Business is subject to any indemnity or other agreement with any Person relating to Hazardous Substances except with respect to the Identified Agreements; and (viii) to Sellers’ Knowledge, there are no circumstances or conditions involving any of the Sellers, any of the Purchased Assets or the Business, any assets (including, without limitation, real property) or businesses previously owned, leased, operated or otherwise used by the Sellers that could reasonably be expected to result in a Business Material Adverse Effect arising under or pursuant to Environmental Law or in any material restriction on the ownership, use or transfer of any of the Purchased Assets arising under or pursuant to any Environmental Law.

 

(b)                                 Purchaser has been provided with true, correct and complete copies of all material environmental investigations, studies, audits, tests, reports, reviews or other analyses conducted by or on behalf of, and that are in the possession of, the Sellers in relation to any premises presently or formerly owned, used, leased or occupied by any of the Sellers or the Business.

 

Section 3.23.                             Casualties.  Except as set forth on Section 3.23 of the Sellers’ Disclosure Schedule, since the date of the Balance Sheet, neither the Business nor any Purchased Asset has been materially affected in any way by or as a result of any flood, fire, explosion or other casualty (whether or not covered by insurance).

 

Section 3.24.                             Product Liability.  Except as set forth on Section 3.24 of the Sellers’ Disclosure Schedule, there are not presently pending, or, to the Sellers’ Knowledge, threatened, any civil, criminal or administrative actions, suits, demands, claims, hearings, notices of violation, inquiries, investigations, proceedings or demand letters relating to any alleged hazard or alleged defect in design, labeling, testing, manufacture, materials or workmanship, including, without limitation, any failure to warn or alleged breach of express or implied warranty or representation, relating to any product manufactured, distributed or sold by or on behalf of the Sellers or the Business, including, without limitation, the Inventory and the Excluded Inventory.  To the extent required by any applicable Laws, the products manufactured, distributed or sold by or on behalf of the Sellers and the Business (including, without limitation, the Inventory and the Excluded

 

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Inventory) have been tested for safety pursuant to, and in accordance with, in all material respects, all such applicable Laws (including, without limitation, the CPSA and Proposition 65).

 

Section 3.25.                             Product Warranties.  There are no Liabilities for product returns other than those arising in the ordinary course of business.  To the Sellers’ Knowledge, there are no threatened claims for (a) product returns, (b) warranty obligations or (c) product services other than in the ordinary course of business.  None of the Sellers has made any express warranties with respect to products sold or distributed by the Sellers (other than passing on warranties made by the manufacturers thereof) and, to the Sellers’ Knowledge, no other warranties have been made by their Representatives.  To Sellers’ Knowledge, there does not presently exist any circumstances that would constitute a valid basis for any voluntary or governmental recall of any product sold or distributed by the Sellers in the course of or that relates to the Business.

 

Section 3.26.                             Finished Goods.  All Finished Goods as of the Closing consist of items of merchantable quality for sale in the ordinary course of business.

 

Section 3.27.                             Promotions and Allowances. Section 3.27 of the Sellers’ Disclosure Schedule sets forth the material terms in effect as of the date hereof of all return, markdown, promotion, co-op advertising and other similar programs or allowances offered generally by the Sellers to any customer with respect to the Business.

 

Section 3.28.                             Bank and Brokerage Accounts; Investment Purchased Assets.  Section 3.28 of the Sellers’ Disclosure Schedule sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which the Sellers have an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship with respect to the Business or any of the Purchased Assets; and (b) a list of each investment asset, the name of the record and beneficial owner thereof, the location of the certificates, if any, therefor, the maturity date, if any, and any stock or bond powers or other authority for transfer granted with respect thereto.

 

Section 3.29.                             Significant Customers and Suppliers.

 

(a)                                  Section 3.29(a) of the Sellers’ Disclosure Schedule lists the ten (10) most significant customers of the Business, on the basis of revenues for goods sold or services provided for the fiscal year ended June 30, 2010.  None of the Sellers has received any notice that any customer listed in Section 3.29(a) of the Sellers’ Disclosure Schedule has ceased, or will cease, to use the products, goods or services of the Business, or has substantially reduced, or will substantially reduce, the use of such products, goods or services at any time, except as may be attributable to general, industry-wide or market-wide conditions.

 

(b)                                 The Sellers have not received any notice from any of the ten (10) most significant Contract Manufacturers utilized by the Sellers that such Contract Manufacturer will not provide services to Purchaser at any time after the Closing Date on terms and conditions substantially similar to those used in its current sales to the Sellers, subject only to general and customary price increases.

 

Section 3.30.                             Absence of Certain Business Practices.  Neither the Sellers nor any of their respective Representatives has given or agreed to give any gift or similar benefit to any customer,

 

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supplier, employee of any Governmental Authority or any other Person that (a) could reasonably be expected to subject the Business, Purchased Assets or Assumed Liabilities to any material penalty in any civil, criminal or governmental litigation or proceeding, (b) if not given in the past, might have had a Business Material Adverse Effect or (c) if not continued in the future, might have a Business Material Adverse Effect or that might subject a the Sellers or any of their respective Affiliates to suit or penalty in any private or governmental litigation or proceeding.

 

Section 3.31.                             Propriety of Past Payments.  In connection with the Business, (a) no unrecorded fund or asset of the Sellers has been established for any purpose, (b) no material accumulation or material use of corporate funds of the Sellers has been made without being properly accounted for in the books and records of the Business, (c) no payment has been made by or on behalf of the Sellers with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment and (d) none of the Sellers, any of their respective Representatives or any other Person associated with or acting for or on behalf of the Sellers has, directly or indirectly, made any illegal contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services, (i) to obtain favorable treatment for any of the Sellers in securing business, (ii) to pay for favorable treatment for business secured for any of the Sellers, (iii) to obtain special concessions, or for special concessions already obtained, for or in respect of any of the Sellers or (iv) otherwise for the benefit of any of the Sellers in violation of Law, including, without limitation, the FCPA.  Neither the Sellers nor any current director, officer, agent, employee or other Person acting on behalf of the Sellers, has accepted or received any unlawful contribution, payment, gift, kickback, expenditure or other item of value that could reasonably be expected to have a Business Material Adverse Effect.

 

Section 3.32.                             Brokers.  No agent, broker, investment banker, financial advisor or other firm or Person is entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission for which Purchaser or any of its Affiliates could become liable in connection with the transactions contemplated by this Agreement as a result of any action taken by or on behalf of the Sellers and their respective Affiliates, other than Financo, Inc., whose fees and expenses will be paid by Rafaella pursuant to an engagement letter dated, January [·], 2011, a correct and complete copy of which has been delivered to Purchaser and has not been modified or amended.

 

Section 3.33.                             Public Filings.  The SEC Reports, as filed with the SEC, were prepared in all material respects in accordance with the requirements of the Exchange Act and the Securities Act as the case may be, and the rules promulgated thereunder.  Except with respect to correspondence relating to the effectiveness of the Form S-4 filed by Rafaella, there has not been any written correspondence received by Rafaella from the SEC or any written responses thereto by, or on behalf of, Rafaella regarding any of the SEC Reports and Rafaella has provided to Purchaser true, correct and complete copies thereof.

 

Section 3.34.                             Disclosure.  No representation or warranty contained in this Agreement, and no statement contained in the Sellers’ Disclosure Schedule or in any certificate, list or other writing furnished to Purchaser pursuant to this Agreement (including, without limitation, the Financial Statements), contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading.

 

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ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser hereby represents and warrants to each of the Sellers as of the date hereof and as of the Closing Date, as set forth in this Article IV:

 

Section 4.1.                                   Organization and Qualification.  Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Florida and has all requisite power and authority to own, license, use or lease and operate its assets and properties and to carry on its business as it is now conducted.

 

Section 4.2.                                   Authority; Non-Contravention; Approvals.

 

(a)                                  Purchaser has all requisite power and authority to execute and deliver this Agreement and the Transaction Documents and to perform the transactions contemplated by this Agreement and the Transaction Documents.  The execution and delivery by Purchaser of this Agreement and the Transaction Documents and the performance by Purchaser of the transactions contemplated by this Agreement and the Transaction Documents have been duly authorized and approved by the Board of Directors of Purchaser and no other corporate or other actions or proceedings on the part of Purchaser or any other Person are necessary to authorize the execution and delivery of this Agreement or the Transaction Documents or the performance and consummation by Purchaser of the transactions contemplated by this Agreement and the Transaction Documents.  This Agreement has been, and upon their execution the Transaction Documents will be, duly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery of this Agreement and the Transaction Documents by the Sellers and, with respect to the Escrow Agreement, the Escrow Agent, constitutes and upon their execution the Transaction Documents will constitute, valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their respective terms.

 

(b)                                 The execution and delivery by Purchaser of this Agreement and the Transaction Documents and the performance of the transactions contemplated by this Agreement and the Transaction Documents do not and will not (i) conflict with or result in a breach of any provisions of the certificate of incorporation or bylaws of Purchaser; (ii) result in a violation or breach of or constitute a default (or an event which, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination of, or the loss of a benefit under or accelerate the performance required by, or result in a right of termination, modification, cancellation or acceleration under, the terms, conditions or provisions of any Contract of any kind to which Purchaser or any of its subsidiaries is now a Party or by which Purchaser or any of its subsidiaries or any of their respective properties or assets may be bound or affected; or (iii) violate any order, writ, injunction, decree, statute, treaty, rule or regulation applicable to Purchaser or any of its Subsidiaries other than in the case of clauses (ii) and (iii) above as would not reasonably be expected to result in a Purchaser Material Adverse Effect.

 

(c)                                  Except for the filings by Purchaser required by the HSR Act and the Exchange Act, no declaration, filing or registration with, or notice to, or authorization, consent, order or approval of, any Governmental Authority is required to be obtained or made in connection

 

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with or as a result of the execution and delivery of this Agreement and the Transaction Documents by Purchaser or the performance by Purchaser of the transactions contemplated by this Agreement and the Transaction Documents, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not made or obtained, as the case may be, could not reasonably be expected to result in a Purchaser Material Adverse Effect.

 

Section 4.3.                                   Financing.  Purchaser’s obligation to effect the Closing is not subject to any financing and Purchaser currently has, and at Closing will have, available sufficient funds (through existing credit facilities and cash on hand) to pay the Purchase Price in full at the Closing.

 

Section 4.4.                                   Brokers.  No agent, broker, investment banker, financial advisor or other Person is entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission for which any of the Sellers could become liable in connection with the transactions contemplated by this Agreement as a result of any action taken by or on behalf of Purchaser or any of its Affiliates.

 

Section 4.5.                                   Purchaser Public Filings.  The Purchaser Public Reports, as filed with the SEC, were prepared in all material respects in accordance with the requirements of the Exchange Act and the Securities Act as the case may be, and the rules promulgated thereunder.

 

Section 4.6.                                   Disclosure.  No representation or warranty contained in this Agreement, and no statement contained in any certificate, list or other writing furnished to the Sellers pursuant to this Agreement, contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading.

 

ARTICLE V

 

COVENANTS

 

Section 5.1.                                   Conduct of the Business.  During the period from the date of this Agreement to the Closing, except as otherwise expressly provided in this Agreement, the Sellers shall operate the Business only in the ordinary course of business. The Sellers shall use commercially reasonable efforts to (i) preserve intact the present organization of the Business, (ii) keep available the services of the present officers and employees of the Business and (iii) preserve relationships with customers, suppliers, licensors, licensees, contractors, distributors and others having business dealings with the Business.  Without limiting the generality of the foregoing, from the date of this Agreement to the Closing, except as set forth in Section 5.1 of the Sellers’ Disclosure Schedule, the Sellers shall not, to the extent related to the Business:

 

(a)                                  sell, lease, encumber, transfer or dispose of any assets or rights or acquire any material assets or rights that, in either case, would be included in the Purchased Assets, except in the ordinary course of business;

 

(b)                                 engage in any activity of the type sometimes referred to as “trade loading” or “channel stuffing” or in any other activity that reasonably could be expected to result in a material reduction, temporary or otherwise, in the demand for the products offered by the Business following the Closing, including, without limitation, sales of a product (i) with payment terms longer than

 

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terms customarily offered by the Sellers for such product, (ii) at a greater discount from listed prices than customarily offered for such product, other than pursuant to a promotion of a nature previously used in the normal course of business of the Sellers for such product, (iii) at a price that does not give effect to any previously announced general increase in the list price for such product, (iv) with shipment terms more favorable to the customer than shipment terms customarily offered by the Sellers for such product, (v) in a quantity greater than the reasonable retail or wholesale (as the case may be) resale requirement of the particular customer or (vi) in conjunction with other material benefits to the customer not previously offered to such customer in the ordinary course of business;

 

(c)                                  waive any rights in respect of or write off any Receivables or fail to timely pay any account payable, except in either case other than in the ordinary course of business;

 

(d)                                 enter into any material commitment or transaction except in the ordinary course of business;

 

(e)                                  incur, create or assume any Indebtedness for borrowed money in excess of $100,000  (other than letters of credit entered into or issued in the ordinary course up to the amount of the LC Limit) or take or omit to take any action that results in an Encumbrance, other than a Permitted Encumbrance in excess of $100,000  (other than letters of credit entered into or issued in the ordinary course up to the amount of the LC Limit), being imposed on any asset that may be a Purchased Asset;

 

(f)                                    change (or permit to be changed) any accounting or Tax procedure or practice, make (or permit to be made) any Tax election or settle or compromise any Tax Liability, in each case relating to the Business or any of the Purchased Assets;

 

(g)                                 except to the extent required by this Agreement or applicable Law enter into, adopt, amend or terminate any Seller Plan, increase in any manner the compensation or benefits of any officer, employee or consultant of Seller or pay or otherwise grant any benefit not required by any Seller Plan, or enter into any Contract to do any of the foregoing;

 

(h)                                 except to the extent required by this Agreement or applicable Law enter into or offer to enter into or amend, terminate or waive any right under any employment or consulting arrangement with any Person or any group of Persons in excess of $100,000;

 

(i)                                     make or commit to any capital expenditures in excess of $50,000  outside the ordinary course of business;

 

(j)                                     enter into, amend or terminate any Contract of a type that, if in effect at the date of this Agreement, would be required to be disclosed pursuant to Section 3.17(a) or, except in the ordinary course of business, enter into, amend or terminate any other Contract;

 

(k)                                  pay, discharge or satisfy any claims, Liabilities (absolute, accrued, asserted or unasserted, contingent or otherwise) relating to the Business in excess of $100,000, except in the ordinary course of business;

 

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(l)                                     settle or compromise any claim, action, suit or proceeding pending or threatened against the Sellers, the Business or the Purchased Assets in excess of $100,000, except in the ordinary course of business;

 

(m)                               enter into any transaction or any Contract with any Affiliate, except in the ordinary course of business; or

 

(n)                                 take, or agree or otherwise commit to take, any of the foregoing actions or any other action that if taken would cause any representation or warranty of the Sellers contained in this Agreement to be untrue or incorrect as of the date when made or as of any subsequent date (as if made as of such date) or that could prevent the satisfaction of any condition set forth in Article VI.

 

Section 5.2.                                   Access to Information.

 

(a)                                  The Sellers shall (i) provide Purchaser and its Representatives with full access during normal business hours, upon no less than forty-eight (48) hours prior written notice, to all personnel, officers, employees, agents, accountants, properties (including, without limitation, for the purpose of environmental testing) and facilities, of the Sellers, the Business, the Purchased Assets and the books and records relating to the Business and the Purchased Assets and (ii) furnish Purchaser and its Representatives with all information and data available to Sellers or prepared in the normal course of business (including, without limitation, copies of Contracts, Plans and other books and records) concerning the Business and operations of the Business and the Purchased Assets as Purchaser or any of such Representatives reasonably may request in connection with such investigation. All such information shall be kept confidential in accordance with the terms of the Confidentiality Agreement, dated as of September 9, 2010 (the “Confidentiality Agreement”), between Purchaser and Cerberus Capital Management, L.P. In the event of a conflict or inconsistency between the terms of this Agreement and the Confidentiality Agreement, the terms of this Agreement will govern.

 

(b)                                 Upon the execution hereof, the provisions of the Confidentiality Agreement shall remain binding and in full force, except that the Confidentiality Agreement shall not apply to any documents prepared in connection with or proceeding before or filed with, or other disclosure made to, a court, arbitration tribunal or mediation service to enforce Purchaser’s or the Sellers’ rights arising in connection with the termination of this Agreement.  The information contained herein, in the Sellers’ Disclosure Schedule or delivered to Purchaser or its authorized representatives pursuant hereto shall be subject to the Confidentiality Agreement as Information (as defined and subject to the exceptions contained therein) until the Closing and, for that purpose and to that extent, the terms of the Confidentiality Agreement are incorporated herein by reference.  Except as otherwise provided herein, the Sellers shall and shall cause their respective Representatives to, treat after the date hereof as strictly confidential (unless compelled to disclose by judicial or administrative process or, in the opinion of legal counsel, by other requirements of Law, including securities regulations) the terms of this Agreement and all nonpublic, confidential or proprietary information concerning the Business, and the Sellers shall not, and shall cause their respective Affiliates and their respective Representatives not to, use such information to the detriment of the Business.  None of the Sellers has waived, nor will it waive, any provision of any confidentiality or similar agreement that relates to any of the Business, the Purchased Assets or the Assumed Liabilities.

 

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Section 5.3.                                   Reasonable Efforts.

 

(a)                                  Upon the terms and subject to the conditions of this Agreement, each of the Parties shall use all reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, filing (as promptly as practicable, but in no event later than ten (10) Business Days after the Letter of Intent was executed and delivered by the parties thereto) with the FTC and the DOJ, the notification and report form under the HSR Act required for the transactions contemplated hereby and, thereafter, furnishing as promptly as reasonably practicable any supplemental information requested in connection therewith by any Governmental Authority pursuant to the HSR Act.  The Sellers and Purchaser each shall comply as promptly as practicable with any other Laws that are applicable to any of the transactions contemplated hereby or by the Transaction Documents and pursuant to which any consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or any other Person in connection with such transactions is necessary.  The Sellers and Purchaser each shall furnish to the others such necessary information and reasonable assistance as the other Party may request in connection with their preparation of any filing, registration or declaration which is necessary under the HSR Act or any other such Laws.  Purchaser and the Sellers shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, any Governmental Authority (or other Person regarding any of the transactions contemplated by this Agreement or the Transaction Documents) in respect of any such filing, registration or declaration, and shall comply promptly with any such inquiry or request (and, unless precluded by Law, provide copies of any such communications that are in writing).  The Parties shall use their respective reasonable best efforts and take all necessary action to obtain any clearance under the HSR Act or any other consent, approval, order or authorization of any Governmental Authority under United States or foreign antitrust or competition Laws, necessary in connection with the transactions contemplated hereby or to resolve any objections that may be asserted by any Governmental Authority with respect to the transactions contemplated hereby.  Without limiting the generality of the foregoing, Purchaser agrees to use its reasonable best efforts to take any and all reasonable actions to receive regulatory clearance under all applicable Laws to effect the Closing of the transaction contemplated by this Agreement; provided, however, that nothing in this Agreement shall require Purchaser or its Affiliates to divest or hold separate or agree to any limitations on or other requirements in respect of the operation of any business, division or operating unit of Purchaser or any of its Affiliates, including, without limitation, the Business and the Purchased Assets from and after the Closing.

 

(b)                                 Subject to the terms and conditions of this Agreement, each Party shall use its reasonable best efforts to cause the Closing to occur as promptly as practicable, including, without limitation, by defending against any lawsuits, actions or proceedings, judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, and seeking to have any preliminary injunction, temporary restraining order, stay or other legal restraint or prohibition entered or imposed by any court or other Governmental Authority that is not yet final and nonappealable vacated or reversed.

 

(c)                                  Purchaser and the Sellers shall each use its reasonable best efforts to obtain as promptly as practicable all Permits required by Law for Purchaser to conduct the Business following

 

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the Closing and to own the Purchased Assets at Purchaser’s expense.  Notwithstanding the foregoing, neither Purchaser nor the Sellers shall be required to expend any material sum or agree to a material concession to any Governmental Authority to obtain any such Permits.

 

(d)                                 The Sellers and Purchaser will cooperate and use their respective reasonable best efforts to obtain as promptly as practicable all Consents and Permits required by third Persons to transfer the Purchased Assets to Purchaser in a manner that will avoid any applicable default, conflict, or termination of rights under or in respect of the Purchased Assets.  Nothing in this Section shall (i) require the Sellers or Purchaser to expend any material sum, make a material financial commitment or grant or agree to any material concession to any third Person to obtain any such consent, approval or waiver or (ii) alter, diminish or otherwise affect Purchaser’s rights under Article VI.

 

Section 5.4.                                   [Intentionally Omitted.]

 

Section 5.5.                                   Use of Name.  Each of  the Sellers agrees, for itself and its Affiliates, that from and after the Closing none of them will use the name “Rafaella,” “Verrazano” or “Ellavie,” any abbreviation of, or derivation from, those names or any name similar thereto in any form whatsoever, including, without limitation, in respect of advertising and promotional materials.  Promptly after the Closing, (a) Rafaella Apparel Far East shall amend its certificate or articles of incorporation or similar governing document to change its name to a name that does not contain the word “Rafaella,” or similar words, (b) Rafaella shall amend its certificate of formation or similar governing document to change its name to a name that does not contain the word “Rafaella,” or similar words and (c) Verrazano shall amend its certificate or articles of incorporation or similar governing document to change its name to a name that does not contain the word “Verrazano,” or similar words.

 

Section 5.6.                                   Tax Matters.

 

(a)                                  Prior to the Closing, each of Rafaella and Verrazano shall provide to Purchaser a certification in the form contained in Section 1.1445-2(b)(2)(iv) of the Treasury Regulations to the effect that neither Rafaella nor Verrazano is a “foreign person.”

 

(b)                                 All transfer, registration, stamp, documentary, sales, use and similar Taxes (including, without limitation, all applicable real estate transfer or gains Taxes and transfer Taxes), any penalties, interest and additions to Tax, and fees incurred in connection with this Agreement, the Transaction Documents and the transactions contemplated hereby and thereby shall be the sole responsibility of the Sellers and such Taxes will be timely paid by the Sellers.  The Sellers and Purchaser shall cooperate in the timely making of all filings, Tax Returns, reports and forms as may be required in connection therewith.

 

(c)                                  Purchaser shall be responsible for preparing and filing all Tax Returns with respect to the Purchased Assets and the Business, other than income Tax Returns, required to be filed for any period ending after the Closing Date or in respect to any Straddle Period.  With respect to Tax Returns for any period ending on or before the Closing Date, the Sellers shall be responsible for preparing and filing all Tax Returns with respect to the Purchased Assets and the Business.  With respect to Tax Returns for any Straddle Period, Purchaser shall provide to the Sellers copies of

 

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such Tax Returns for Sellers’ review and comment, and Purchaser shall make all revisions as are reasonably requested by the Sellers, as well as a statement containing the amount of Tax shown on such Tax Return that is allocable to the Sellers at least fifteen (15) days prior to the due date (including any extension thereof) for filing of such Tax Return.  Within ten (10) Business Days of the Sellers’ receipt of such notice, the Sellers shall pay to Purchaser in immediately-available funds (i) if for a period ending on or before the Closing Date, any amount owing on such Tax Return or (ii) if for a Straddle Period, the portion allocable to the Sellers.

 

(d)                                 In the case of any Taxes that are payable for a Straddle Period, the Sellers and Purchaser shall treat the Closing Date as the last day of such period (i.e., the Sellers and Purchaser shall “close the books” on the Closing Date) and shall elect to do so if permitted by applicable Law.  The portion of any such Tax payable for a Straddle Period that is allocable to the portion of the taxable period ending on the Closing Date shall be, (i) in the case of Taxes based on income or receipts determined under the closing of the books method and (ii) in the case of other Taxes, deemed to be the amount of such Taxes for the entire Straddle Period (after giving effect to amounts which may be deducted from or offset against such Taxes with respect to such periods under applicable Law) (or in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period), multiplied by a fraction the numerator of which is the number of days in the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period.

 

Section 5.7.                                   Non-Competition; Non-Solicitation.

 

(a)                                  From the Closing and for three (3) years thereafter, (i) the Sellers will not, directly or indirectly anywhere in the United States and in any other jurisdiction in which the Business operates, (A) engage in, own any interest in, invest in, lend funds to, or provide any management, consulting, financial, administrative or other services to any business that competes with the Business directly or indirectly in any manner, (B) solicit, sell or attempt to sell goods and services offered by the Business to any facility that is a customer of the Business (or any successor), and (ii) the Sellers will not, and will not cause their respective Affiliates to, directly or indirectly anywhere in the United States and in any other jurisdiction in which the Business operates, (A) disclose any confidential or non-public information regarding the Business or the Purchased Assets to any third party or (B) directly or indirectly solicit or encourage to leave employ or contract or offer to employ or contract with any person who is (or was during the previous twelve (12) months) an employee of the Business (or any successor) or who is (or was during the previous twelve (12) months) hired by Purchaser in connection with the transactions contemplated hereby; provided, however, that notwithstanding the foregoing, the Sellers may collectively own, directly or indirectly, solely as an investment, securities of any Person that are traded on any national securities exchange or the NASDAQ Stock Market if the Sellers (alone or collectively) (1) is not a controlling Person of, or a member of a group that controls such Person and (2) does not, directly or indirectly, own 4.99% or more of any class of securities of such Person.

 

(b)                                 The Parties recognize that the Laws and public policies of the various states of the United States may differ as to the validity and enforceability of covenants similar to those set forth in this Section 5.7. It is the intention of the Parties that the provisions of this Section 5.7 be enforced to the fullest extent permissible under the Laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification to conform to such

 

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Laws or policies) of any provisions of this Section 5.7 shall not render unenforceable, or impair, the remainder of the provisions of this Section 5.7.  Accordingly, if any provision of this Section 5.7 shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall be deemed to apply only with respect to the operation of such provision in the particular jurisdiction in which such determination is made and not with respect to any other provision or jurisdiction.

 

(c)                                  The Parties to this Agreement acknowledge and agree that any remedy at Law for any breach of the provisions of this Section 5.7 would be inadequate, and each of the Sellers hereby consents to the granting by any court of an injunction or other equitable relief, without the necessity of actual monetary loss being proved, in order that the breach or threatened breach of such provisions may be effectively restrained.

 

Section 5.8.                                   Assignment of Contracts and Rights.  Prior to the Closing, the Sellers shall use commercially reasonable efforts, and Purchaser shall reasonably cooperate with such efforts, to obtain at the earliest practicable date all Consents of third parties related to the consummation of the transactions contemplated hereby and by the Transaction Documents, and the Sellers shall provide to Purchaser copies of each such Consent as such Consents are obtained; provided, that Purchaser shall be under no obligation to pay any Person in order to obtain such Person’s consent.  The Sellers shall be responsible for any reasonable out-of-pocket costs required to obtain the Consents for the Purchased Contracts; provided, that the Sellers shall be under no obligation to pay a third party in order to obtain such third party’s consent.  To the extent that (a) the assignment of any such Purchased Contract requires the Consent of another party that is not obtained prior to Closing, (b) Sellers acknowledge in writing their inability to obtain the Consent prior to Closing, and (c) the Purchased Contract requiring such Consent is specified on Section 3.2(b)(v) of the Sellers’ Disclosure Schedule as a Consent that any of the Sellers must obtain, then (x) such Purchased Contract will not be transferred or assigned at Closing (each such Purchased Contract, a “Deferred Purchased Contract”) and (y) the Sellers will continue to use commercially reasonable efforts, and Purchaser shall reasonably cooperate with such efforts, to obtain any such Consent and/or remove any other impediments to the transfer or assignment of such Deferred Purchased Contract at the earliest practicable date and shall transfer or assign such Deferred Purchased Contract within one (1) Business Day after receipt of such Consent.  Until the time of assignment of a Deferred Purchased Contract (each such period, a “Deferred Purchased Contract Period”), such Seller shall provide Purchaser the benefits of such Deferred Purchased Contract, cooperate in any reasonable and lawful arrangement designed to provide such benefits to Purchaser, and allow Purchaser to perform its obligations under the Assumed Liabilities, to the same extent as if the Deferred Purchased Contract were transferred or assigned to Purchaser at Closing.  Each Party shall bear its own administrative expenses incurred in connection with any such arrangement during a Deferred Purchased Contract Period.  Until the time of assignment or termination of a Deferred Purchased Contract, such Seller shall, at the request and for the account of Purchaser, and subject to Purchaser’s reasonable direction, enforce, at Purchaser’s expense, such Seller’s rights thereto or interests therein against other Persons.  Nothing in this Section 5.8 shall affect Purchaser’s other rights under this Agreement and shall not affect the conditions to Purchaser’s obligations under Article VI.  The provisions of this Section 5.8 shall not limit, modify or otherwise affect any representation or warranty of the Sellers under this Agreement.

 

Section 5.9.                                   Insurance Coverage.  With respect to any Assumed Liabilities and Purchaser’s indemnification obligations pursuant to Section 7.3 or any other Liabilities to which

 

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Purchaser may become subject for pre-Closing occurrences, in each case to the extent such Liabilities may be covered by insurance maintained by any of the Sellers or as to which any of the Sellers is additional insured, the Sellers agree to prosecute diligently any insurance claims that may be asserted in respect thereof and to promptly notify Purchaser of the assertion of each such claim. From and after the date of this Agreement, if any of the Sellers recovers insurance proceeds in respect of any amounts in respect of the Liabilities described in the preceding sentence, such Seller shall promptly remit such proceeds to Purchaser and Purchaser shall pay such Liabilities with such proceeds unless Seller has previously paid such Liabilities.

 

Section 5.10.                             Employee Matters.

 

(a)                                  The Sellers shall update Section 3.9 of the Sellers’ Disclosure Schedule prior to the Closing Date to reflect new hires and employment terminations.  Purchaser will, immediately prior to the Closing Date and conditioned on the occurrence of the Closing, convey an offer of employment as of the Closing Date to those employees of the Sellers listed on a schedule to be delivered by Purchaser to the Sellers no more than five (5) Business Days prior to the Closing Date; provided, that any such offer shall be on terms and conditions that are no less favorable, in the aggregate, to employees of Purchaser or its Affiliates who have substantially similar duties and responsibilities.  Each such employee who accepts Purchaser’s offer of employment will be a “Transferred Employee”.  Purchaser shall credit periods of service prior to the Closing for purposes of determining eligibility and vesting of all Plans maintained by Purchaser on or after the Closing Date (the “Purchaser Plans”).  In addition and without limiting the generality of the foregoing, (i) each Transferred Employee shall be eligible to participate in each Purchaser Plan immediately after the Closing, without regard to any waiting period, to the extent coverage under such Purchaser Plan replaces coverage under a Seller Plan in which such Transferred Employee participated immediately prior to the Closing, and (ii) each Transferred Employee and his or her covered dependents shall be given credit under each Purchaser Plan providing medical, dental, pharmaceutical, vision and/or other health benefits (a “Purchaser Health Plan”) for amounts paid under a Seller Plan during any period for purposes of applying deductibles, copayments and out-of-pocket maximums under the corresponding Purchaser Health Plan for such period as though such amounts had been paid in accordance with the terms and conditions of such Purchaser Health Plan.

 

(b)                                 If, at any time on or after the Closing Date, Sellers and their ERISA Affiliates cease to provide any group health coverage, then, immediately upon such cessation, Purchaser shall assume the obligation to provide group health continuation coverage to persons who are M&A Qualified Beneficiaries (within the meaning of Treasury Regulation Section 54.4980B-9) with respect to the assets being purchased by Purchaser hereunder and the transactions contemplated hereby, commencing immediately as of the date coverage ceases to be provided under the Sellers’ group health plan(s), regardless of whether such M&A Qualified Beneficiaries were offered or accepted employment with Purchaser as of the Closing Date.  Any such continuation coverage shall be provided in accordance with Treasury Regulation Section 54.4980B-9 and any applicable state insurance law (to the extent such state law continuation coverage would otherwise have continued under Sellers’ group health plan(s) had such plan(s) not been terminated) under any appropriate group health plan(s) maintained by Purchaser.  Notwithstanding the foregoing, Purchaser’s obligations to provide such continuation coverage shall not arise unless, not later than five (5) Business Days prior to ceasing its group health coverage, Seller shall provide Purchaser with written notice of the effective date of such cessation and, in usable electronic format, the identifying data

 

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necessary to enable Purchaser to identify, locate and enroll such M&A Qualified Beneficiaries in Purchaser’s appropriate group health plan(s) in order to fulfill its COBRA responsibilities under this paragraph.

 

(c)                                  The Parties shall cooperate in good faith to determine whether any notification may be required under the Workers Adjustment and Retraining Notification Act as a result of the transactions contemplated by this Agreement and to comply with any such statute with respect to any “plant closing” or “mass layoff” (as defined in the WARN Act) or similar event affecting Transferred Employees and occurring on or after the Closing.

 

(d)                                 Notwithstanding anything in this Section 5.10 to the contrary, no employee shall have any third-party beneficiary rights under this Agreement or any of the Transaction Documents.

 

(e)                                  The Sellers shall satisfy any and all severance and bonus obligations due to any employees of Rafaella Far East or any other employee of the other Sellers that are principally based in Hong Kong that is due and payable on or prior to the Closing or otherwise arising from, associated with, or related to the transactions contemplated by this Agreement.

 

(f)                                    Each of the Sellers and the Purchaser agree to take all actions reasonably necessary to accomplish the transactions contemplated by this Section 5.10.

 

Section 5.11.                             Parties’ Obligations.  Each of the Sellers and Purchaser will cause their respective Representatives to timely perform any of their respective obligations under this Agreement and the Transaction Documents.

 

Section 5.12.                             Bulk Sale Filings.  Purchaser hereby waives compliance for the Sellers and their respective Affiliates with the provisions of any bulk sales transfer Laws applicable to the transfers described in this Agreement.  The Sellers shall indemnify and hold harmless Purchaser from and against any and all Liabilities that may be asserted by third parties against Purchaser as a result of such Seller noncompliance.

 

Section 5.13.                             Public Announcements.  Until the Closing, no Party to this Agreement, nor any Affiliate of any Party, shall issue or cause the dissemination of any press release or other public announcements or statements with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other Party, which consent will not be unreasonably withheld; provided, however, that a Party or its Affiliates may, upon written notice to the other Parties, disclose this Agreement and the transactions contemplated hereby in any press release or filing with the SEC or other governmental body as may be required by applicable Law (and in such case the disclosing Party shall use all reasonable efforts to consult with, and seek the consent of, the other Party prior to such release or statement) and, if required, may file this Agreement with the SEC.

 

Section 5.14.                             Chargebacks and Returns.

 

(a)                                  Chargebacks.  The Sellers shall be responsible for and shall indemnify Purchaser with respect to any and all (i) chargebacks in respect of Finished Goods identifiable to shipments by the Sellers prior to the Closing Date, and (ii) chargebacks in respect of Finished

 

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Goods that are not identifiable or linkable to shipments to the extent they arise within one hundred twenty (120) calendar days following the Closing Date (the chargebacks referenced in clause (ii), the “Unidentifiable Chargebacks” and the chargebacks referenced in clauses (i) and (ii), collectively, the “Seller Chargebacks”); provided, however, that the Sellers shall have the exclusive right to negotiate, authorize and approve each Seller Chargeback; provided, that the Sellers are acting in good faith and in a reasonably prudent business manner consistent with Sellers’ past practices; provided further, that the Sellers shall only be responsible for and shall only indemnify Purchaser with respect to Seller Chargebacks in excess of the amounts reserved for Seller Chargebacks in the Closing Date Balance Sheet.  Purchaser shall be responsible for and shall indemnify the Sellers with respect to any and all (i) chargebacks in respect of Finished Goods identifiable to shipments by Purchaser or its Affiliates on or after the Closing Date and (ii) chargebacks in respect of Finished Goods that are not identifiable or linkable to any shipments to the extent they arise on or after the one hundred twenty-first (121st) calendar day following the Closing Date (collectively, the “Purchaser Chargebacks”); provided, however, that Purchaser shall have the exclusive right to negotiate, authorize and approve each Purchaser Chargeback; provided, that the Purchaser is acting in good faith and in reasonably prudent business manner consistent with Purchaser’s past practices.

 

(b)           Returns.  The Sellers shall be responsible for and shall indemnify Purchaser with respect to any and all returns in respect of (i) Finished Goods sold by the Sellers prior to the Closing Date and (ii) Finished Goods not identifiable as sold by either the Sellers or Purchaser or their respective Affiliates that are physically returned within one hundred twenty (120) calendar days  following the Closing Date (the returns referenced in clause (ii), the “Unidentifiable Returns” and the returns referenced in clauses (i) and (ii) collectively, the “Seller Returns”); provided, however, that the Sellers shall have the exclusive right to negotiate, authorize and approve each Seller Return; provided, that the Sellers are acting in good faith and in a reasonably prudent business manner consistent with past practices; provided further, that the Sellers shall only be responsible for and shall only indemnify Purchaser with respect to Seller Returns in excess of the amounts reserved for such Seller Returns in the Closing Date Balance Sheet.  Purchaser shall be responsible for and shall indemnify Sellers with respect to any and all returns in respect of (i) Finished Goods sold by Purchaser or its Affiliates on or after the Closing Date and (ii) Finished Goods not identifiable as sold by, or that have not been authorized by, either Seller or Purchaser or their respective Affiliates and that are physically returned on or after the one hundred twenty-first (121st) calendar day following the Closing Date (“Purchaser Returns”).  Following the Closing Date, the Sellers and their respective Affiliates shall have the right, at their respective option, to either (i) sell off any Finished Goods relating to Seller Returns (“Returned Goods”) to Purchaser at a purchase price calculated at Landed Duty-Paid Value or otherwise agreed upon between the Parties, or (ii) negotiate with third parties to sell such Returned Goods at a negotiated price; provided, that Purchaser shall have a right of first refusal on any sale of Returned Goods as expressly described in the following four sentences (a “Right of First Refusal”).  Prior to agreeing to sell any Returned Goods to any third party, the Sellers shall send a written notice to Purchaser (a “Return Notice”) setting forth a description of the Returned Goods in question and the purchase price offered by the third party (the “Third Party Price”).  Purchaser shall have five (5) Business Days (the “ROFR Notice Period”) to notify the Sellers in writing pursuant to which it agrees to purchase such Returned Goods from the Sellers at the Third Party Price (an “Acceptance Notice”).  If within ROFR Notice Period, the Sellers receive an Acceptance Notice from Purchaser, the Sellers shall be obligated to sell such Returned Goods to Purchaser at the Third Party Price.  If Purchaser

 

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does not exercise its Right of First Refusal (either by providing notice to the Sellers of its intention not to exercise its Right of First Refusal or by allowing the ROFR Notice Period to lapse), the Sellers shall have the right to sell such Returned Goods to a third party at the Third Party Price.

 

(c)           Disputes. The Sellers and Purchaser shall cooperate with each other to resolve any issues relating to or arising under this Section 5.14.  If a Party provides a dispute notice to the other Party, the representatives of the Sellers and Purchaser shall, within thirty (30) days following the date of receipt of the dispute notice (the “Chargeback Dispute Resolution Period”), attempt in good faith to resolve their differences and any resolution by them that is agreed to in writing shall be final, binding and conclusive.  If at the conclusion of the Chargeback Dispute Resolution Period there is any matter still remaining in dispute (“Chargeback Disputed Matters”), then all Chargeback Disputed Matters shall be submitted for resolution to an independent registered public accounting firm or third-party factoring company that is mutually agreeable to the Parties (the “Chargeback Special Accountants”). The Parties will cause the Chargeback Special Accountants to use commercially reasonable efforts to resolve all Chargeback Disputed Matters within ten (10) Business Days of submission to the Chargeback Special Accountants.  In making such resolution, the Chargeback Special Accountants will review only those items and amounts specifically set forth and objected to in writing and will resolve the dispute with respect to each such item and amount. The determination of the Chargeback Special Accountants shall be conclusive, nonappealable and binding upon the Parties for all purposes.  Purchaser and the Sellers agree that (x) the procedures established by this Section 5.14(c) shall be the exclusive procedures for resolving disputes or disagreements arising under this Section 5.14, and (y) that all of the time periods provided for in this Section 5.14 may be extended by mutual written agreement by Purchaser and the Sellers.  The fees, expenses and disbursements of the Chargeback Special Accountants shall be borne by Purchaser, on the one hand, and the Sellers, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each Party bears to the amount actually contested.

 

(d)           Limitation on Unidentifiable Chargebacks and Returns. Notwithstanding the foregoing, in no event shall Sellers be responsible for Unidentifiable Chargebacks and Unidentifiable Returns in excess of $500,000 in the aggregate.

 

Section 5.15.         Escrow.  On the Closing Date, Rafaella, Purchaser and Wells Fargo Bank, N.A., a national banking association, as escrow agent (including its successors and permitted assigns in such capacity, the “Escrow Agent”) shall enter into an escrow agreement, substantially in the form of Exhibit B (the “Escrow Agreement”).  Rafaella and Purchaser shall each pay fifty percent (50%) of all fees and expenses of the Escrow Agent in connection with the Escrow Agreement.  Rafaella and Purchaser agree that, for Tax reporting purposes, all interest or other income from investment of such escrowed funds shall, as of the end of each calendar year and to the extent required by the IRS, be reported as having been earned by Rafaella, whether or not income was disbursed during a particular year, and, in accordance with the terms of the Escrow Agreement, the Escrow Agent shall release to Rafaella from the accounts established by the Escrow Agent pursuant to the Escrow Agreement (the “Escrow Accounts”) funds sufficient to pay such Tax Liability. In accordance with the terms of the Escrow Agreement, to the extent that no unresolved claim for indemnification pursuant to Article VII hereof is outstanding on the one (1) year anniversary of the Closing Date, the Escrow Agent shall release and pay to Rafaella the portion of the Escrow Amount remaining after the one (1) year anniversary of the Closing Date.  In the event

 

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that any claim for indemnification has been asserted, but has not been fully and finally resolved on the one (1) year anniversary of the Closing Date, the Escrow Agent shall release and pay to Rafaella the Escrow Amount remaining on such one (1) year anniversary, less an amount equal to the maximum aggregate amount of all such unresolved claims, and thereafter, any portion of the Escrow Amount not required to pay such claims as soon as practicable following the full and final resolution of such claims.

 

Section 5.16.         Previous Month Adjusted EBITDA Statement.  No later than two (2) calendar days prior to the Closing Date, the Sellers shall deliver to Purchaser the Previous Month Adjusted EBITDA Statement.

 

Section 5.17.         Further Assurances; Post-Closing Cooperation.

 

(a)           From time to time after the Closing, without additional consideration, each of the Parties will (or, if appropriate, cause their Affiliates to) execute and deliver such further instruments and take such other action as may be necessary to make effective the transactions contemplated by this Agreement and the Transaction Documents. If either Party shall following the Closing have in its possession any asset or right that under this Agreement that should have been delivered to the other Party, then such Party shall promptly deliver such asset or right to the other Party.

 

(b)           Subject to the Sellers’ rights in Section 5.14, the Sellers hereby constitute and appoint, effective as of the Closing Date, Purchaser and its successors and assigns as the true and lawful attorney of the Sellers with full power of substitution in the name of Purchaser, or in the name of the Sellers, but for the benefit of Purchaser, at Purchaser’s cost (i) to collect for the account of Purchaser any items of Purchased Assets and (ii) to institute and prosecute all proceedings that Purchaser may in its sole discretion deem proper to assert or enforce any right, title or interest in, to or under the Purchased Assets, and to defend or compromise any and all actions, suits or proceedings in respect of the Purchased Assets.  Purchaser shall be entitled to retain for its own account any amounts collected pursuant to the foregoing powers, including, without limitation, any amounts payable as interest in respect thereof.

 

(c)           Following the Closing, the Sellers will afford Purchaser and its Representatives (i) such access during normal business hours as Purchaser may reasonably request to all books, records and other data and information, including, without limitation, any information from employees of the Sellers, relating to the Business, the Purchased Assets, the Excluded Assets, the Assumed Liabilities and the Excluded Liabilities and (ii) the right to make copies and extracts therefrom. Further, each Party agrees for a period extending seven years after the Closing Date not to destroy or otherwise dispose of any such books, records and other data unless such Party shall first offer in writing to surrender such books, records and other data to the other Party and such other Party shall not agree in writing to take possession thereof during the ten (10) day period after such offer is made and to inform the senders that Purchaser is the new rightful recipient.

 

(d)           Following the Closing, Purchaser may receive and open all mail addressed to the Sellers or Parent and deal with the contents thereof in its discretion to the extent that such mail and the contents thereof relate to the Business.  Purchaser agrees to deliver or cause to be delivered

 

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to the Sellers all mail received by Purchaser after the Closing addressed to the Sellers, Parent or any of their respective Affiliates that does not relate to the Business.

 

(e)           The Sellers will take, or cause to be taken, all actions and do, or cause to be done, at no cost to Sellers, all things necessary, proper, or advisable to register, maintain, and prevent the diminution in value of the Intellectual Property, including, without limitation, filing any affidavits of use in commerce with the U.S. Patent and Trademark Office, responding to all office actions or other correspondence from the U.S. Patent and Trademark Office, U.S. Copyright Office, and all other corresponding governmental offices throughout the world, obtaining and recording all documents necessary to establish, maintain, transfer, or identify Purchaser’s rights in such Intellectual Property, including, without limitation, all necessary assignments of such Intellectual Property and fulfilling all of its duties and obligations and avoid any defaults under all Contracts regarding Intellectual Property, and assist Purchaser after the Closing with respect to any legal or administrative action relating to the Intellectual Property, including before the U.S. Patent and Trademark Office, U.S. Copyright Office, and all other corresponding foreign and domestic Governmental Authorities.

 

(f)            To the extent that any moral rights or rights of droit moral are deemed to exist or apply in any jurisdiction to any of the Intellectual Property rights transferred hereunder, each of the Sellers agrees to, and hereby waives, or hereby agrees to seek a waiver in favor of the Sellers and Purchaser of any and all such moral rights or rights of droit moral.

 

(g)           Each of the Sellers shall affect all renewals of all Intellectual Property that are scheduled to or may expire between the date hereof and the date that is thirty (30) days after the Closing Date.  The Sellers shall be responsible for all out-of-pocket third-party fees and expenses incurred by the Sellers in connection with all such renewals, and Purchaser shall reasonably assist the Sellers in connection therewith, including executing and delivering, or causing to be executed and delivered, all such documents and instruments as the Sellers may reasonably deem necessary to affect such renewals.  The Sellers shall be fully responsible for, including paying all costs associated with, filing releases of all security Encumbrances currently placed on any or all of the Business Intellectual Property with the United States Patent and Trademark Office and any other applicable foreign intellectual property offices where Encumbrances have been recorded.

 

Section 5.18.         Disclosure; Updated Sellers’ Disclosure Schedule.  In the event that (a) any material fact relating to the Business and/or the Purchased Assets has not been disclosed to Purchaser in this Agreement or (b) any representation or warranty contained in this Agreement, any statement contained in the Sellers’ Disclosure Schedule or in any certificate furnished to Purchaser pursuant to this Agreement (including the Financial Statements), contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading, the Sellers shall disclose to Purchaser such facts and circumstances in writing (including, without limitation, by delivering to Purchaser an updated Sellers’ Disclosure Schedule) (the “Supplemental Disclosure”) at least one (1) Business Day prior to the Closing Date; provided, however, that no Supplemental Disclosure shall in any way affect the truthfulness of the Sellers’ representations and warranties in this Agreement or alter, diminish or otherwise affect Purchaser’s rights under this Agreement and the Transaction Documents, including, without limitation, Article VI and Article VIII.  Notwithstanding the foregoing, Sellers shall update (a) Section 2.3(a)(ii), Section 3.17(b) of the

 

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Sellers’ Disclosure Schedule and the Order Book solely to reflect, and such updates shall be limited to, ordinary course transactions consistent with the past practices of the Business, which occur between the date hereof and the Closing Date, in accordance with Sections 2.3(a)(ii) and 5.1, and the Assumed Liabilities shall include the liabilities in respect to such Customer Orders and Purchase Orders and (b) Sections 1.1(a), 1.1(b) and 1.1(d) of the Sellers’ Disclosure Schedule and such revised Sections 1.1(a), 1.1(b) and 1.1(d) shall be included for purposes of Final Net Working Capital calculations.

 

Section 5.19.         Purchaser Cash Collateralized Letters of Credit.  On or before the Closing Date, Purchaser shall deposit cash with HSBC in an aggregate amount of 105%, or such lesser percentage agreed to in writing by HSBC, of the face value of the Purchaser Cash Collateralized Letters of Credit; provided, however, that in no event shall the face amount of such Purchaser Cash Collateralized Letters of Credit exceed the LC Limit.

 

ARTICLE VI

 

CONDITIONS OF CLOSING

 

Section 6.1.           Conditions to Each Party’s Obligations.   The respective obligations of each Party to affect the Closing are subject to the satisfaction or waiver at or prior to the Closing of the following conditions:

 

(a)           All necessary consents and approvals of any Governmental Authority required for the consummation of the transactions contemplated by this Agreement shall have been obtained, and any waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have expired or been terminated.

 

(b)           No Law shall have been enacted, entered, promulgated or enforced by a Governmental Authority that prohibits the consummation of the transactions contemplated by this Agreement or the Transaction Documents shall be in effect.

 

Section 6.2.           Conditions to the Purchaser’s Obligations. The obligations of Purchaser to affect the Closing are further subject to the satisfaction or waiver at or prior to the Closing of the following conditions:

 

(a)           Each of the representations and warranties made by the Sellers in this Agreement that is qualified by reference to materiality, Business Material Adverse Effect or Seller Material Adverse Effect shall be true and correct in all respects, and each of the representations and warranties made by the Sellers in this Agreement that are not so qualified shall by true and correct in all material respects, in each case as of the date of this Agreement and at and as of the Closing Date as if made on that date (except in any case that representations and warranties that expressly speak as of a specified date or time need only be true and correct as of such specified date or time).

 

(b)           The Sellers shall have performed and complied in all material respects with each agreement, covenant and obligation required by this Agreement to be so performed or complied with by the Sellers at or before the Closing (including, without limitation, delivering to Purchaser the items set forth in Section 2.9).

 

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(c)           All consents or approvals or the termination listed in Section 6.2(c) of the Sellers’ Disclosure Schedule shall have been obtained and Purchaser shall have received copies of such consents in form and substance reasonably satisfactory to Purchaser.

 

(d)           Since the date of this Agreement, no event, circumstance or change shall have occurred, that individually or in the aggregate with one (1) or more other events, circumstances or changes, have had or reasonably could be expected to have, a Seller Material Adverse Effect or a Business Material Adverse Effect.

 

(e)           Each of the Sellers shall have delivered to Purchaser a certificate, dated the Closing Date and duly executed by the Chief Executive Officer of such Seller, in form and substance reasonably satisfactory to Purchaser, to the effect that the conditions set forth in clauses (a) — (c) above have been satisfied.

 

(f)            Each of the Sellers shall have delivered to Purchaser a certificate of the corporate secretary of such Seller attaching thereto a true, correct and complete copy of resolutions of the board of directors of such Seller authorizing the execution, delivery and performance of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby and thereby.

 

(g)           Each of the Sellers shall have delivered to Purchaser a certificate of good standing or similar document (which for Rafaella Apparel Far East is a certificate of continuing registration) with respect to such Seller issued by the applicable Governmental Authority as of a date within three (3) Business Days of the Closing Date.

 

(h)           [Intentionally omitted]

 

(i)            Each of Rafaella and Verrazano shall have provided to Purchaser a certification in the form contained in Section 1.1445-2(b)(2)(iv) of the Treasury Regulations to the effect that such Seller is not a “foreign person.”

 

(j)            The Sellers shall have delivered to Purchaser a certificate dated the Closing Date and duly executed by the Chief Financial Officer of Rafaella to the effect that the Previous Month’s Balance Sheet was prepared in accordance with GAAP (subject to the absence of recordation of Taxes and certain footnote disclosures and normal year-end audit adjustments otherwise required by GAAP) consistently applied.

 

(k)           The Sellers shall have delivered to Purchaser the Order Book, Customer Orders, Purchase Orders, all UPC Codes and any CPSA Certificates with respect to the Inventory and Excluded Inventory.

 

(l)            The Sellers shall have delivered to the Purchaser the Previous Month Adjusted EBITDA Statement.

 

(m)          Rafaella shall have delivered a written acknowledgment, in form and substance reasonably satisfactory to Purchaser, duly executed and delivered by the Senior Indenture Trustee pursuant to Section 8.04 of the Senior Indenture.

 

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(n)           The Sellers shall have delivered written evidence, in form and substance reasonably satisfactory to Purchaser, that the Collateral Agreements have been terminated, all obligations thereunder have been satisfied or waived and any Encumbrances thereunder have been released.

 

(o)           The Sellers shall have delivered written evidence, in form and substance reasonably satisfactory to Purchaser, that the Financing Agreements other than the Note Purchase Agreement and the Cash Collateralized Letters of Credit have been terminated, all obligations under the Financing Agreements other than the Note Purchase Agreement and the Cash Collateralized Letters of Credit have been satisfied or waived and any Encumbrances thereunder other than applicable to the cash collateral in respect of the Cash Collateralized Letters of Credit have been released.

 

(p)           The Sellers shall have delivered written evidence, in form and substance reasonably satisfactory to Purchaser, that the Seller Factoring Agreements have been terminated and Seller Factor shall have consented in writing to the sale of Receivables, and the release of any and all Encumbrances against Sellers’ assets that are not Excluded Assets and that are subject to any Seller Factoring Agreement; provided, that Purchaser acknowledges that Seller Factor may require that Purchaser grant a lien to Seller Factor in respect of transferred Receivables, and that Purchaser (and any applicable lender to Purchaser) shall, if requested or required by the Seller Factor, enter into an intercreditor agreement for the benefit of Seller Factor in respect of all such transferred Receivables and proceeds thereof and such requirements and other customary requirements applicable to Purchaser for a transfer of Receivables of this type shall not be a basis for Purchaser to object to the written evidence delivered hereunder.

 

(q)           Rafaella shall have filed, and delivered to Purchaser a copy of, any Deregistration Notice required to be filed under applicable Law.

 

(r)            Rafaella and the Escrow Agent (or, if the Escrow Agent is unable or unwilling to serve in such capacity, an alternative escrow agent reasonably satisfactory to the Purchaser) shall have entered into and delivered the Escrow Agreement.

 

(s)            The Sellers shall have deposited the Sellers’ LC Cash Deposit with HSBC.

 

Section 6.3.           Conditions to the Sellers’ Obligations.  The obligations of the Sellers to affect the Closing are further subject to the satisfaction or waiver at or prior to the Closing of the following conditions:

 

(a)           Each of the representations and warranties made by Purchaser in this Agreement that is qualified by reference to materiality or Purchaser Material Adverse Effect shall be true and correct in all respects, and each of the other representations and warranties made by Purchaser in this Agreement shall by true and correct in all material respects, in each case as of the date of this Agreement and at and as of the Closing Date as if made on that date (except in any case that representations and warranties that expressly speak as of a specified date or time need only be true and correct as of such specified date or time).

 

(b)           Purchaser shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or

 

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complied with by Purchaser at or before the Closing (including, without limitation, delivering to the Sellers the items set forth in Section 2.8).

 

(c)           Since the date of this Agreement, no event, circumstance or change shall have occurred, that individually or in the aggregate with one (1) or more other events, circumstances or changes, have had or reasonably could be expected to have, a Purchaser Material Adverse Effect.

 

(d)           Purchaser shall have delivered to the Sellers a certificate, dated the Closing Date and duly executed by Purchaser’s Chief Executive Officer, in form and substance reasonably satisfactory to the Sellers, to the effect that the conditions set forth in clauses (a) and (b) above have been satisfied.

 

(e)           Purchaser shall have delivered to the Sellers a certificate of the corporate secretary of Purchaser attaching thereto a true, correct and complete copy of resolutions of the board of directors of Purchaser authorizing the execution, delivery and performance of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby and thereby.

 

(f)            Purchaser shall have delivered to the Sellers a certificate of good standing with respect to Purchaser issued by the Secretary of State of the State of Florida as of a date within three (3) Business Days of the Closing Date.

 

(g)           Purchaser shall have deposited cash with HSBC in an aggregate amount equal to 105%, or such lesser percentage agreed to in writing by HSBC, of the face value of the Purchaser Cash Collateralized Letters of Credit and HSBC shall release to the Sellers any cash previously deposited by the Sellers to cash collateralize the Purchaser Cash Collateralized Letters of Credit.

 

(h)           Purchaser and the Escrow Agent (or, if the Escrow Agent is unable or unwilling to serve in such capacity, an alternative escrow agent reasonably satisfactory to the Sellers) shall have entered into and delivered the Escrow Agreement.

 

(i)            Purchaser shall have entered into and delivered the Transition Agreement.

 

ARTICLE VII

 

SURVIVAL; INDEMNIFICATION

 

Section 7.1.           Survival of Representations, Warranties, Covenants and Agreements.

 

(a)           The representations and warranties of each of the Parties contained in this Agreement will survive the Closing for a period of two (2) years following the Closing Date, except that (i) the representations and warranties set forth in Sections 3.1, 3.2(a), 3.7, 3.13, 3.22, 3.32, 3.33, 4.1, 4.2(a) and 4.4 shall survive until ninety (90) days following the expiration of the applicable statutory period of limitations with respect to the matter to which the claim relates, and (ii) each covenant and agreement contained in this Agreement will survive the Closing until the last date on which such covenant or agreement is to be performed, or if no such date is specified or such covenant or agreement is to be performed prior to or at the Closing, with no obligations thereafter, such covenant or agreement shall expire on the Closing; provided, that any claim regarding a breach of the covenants and agreements set forth in Section 5.1 shall survive until twelve (12) months

 

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following the Closing Date (as the case may be, the “Indemnity Period”).  No claim for indemnification may be asserted under this Article VII after the expiration of the applicable Indemnity Period; provided, that a specific claim for indemnification which was made timely and properly pursuant to Section 7.5(a) before expiration of the Indemnity Period but not resolved prior to its expiration will extend the Indemnity Period with respect to the specific representation or warranty underlying such claim through the date such claim is conclusively resolved.  Notwithstanding the foregoing, in no event shall a generalized notice that a claim may be commenced at some point be construed as satisfying the requirement of this Agreement for the purposes of the foregoing tolling provision.

 

(b)           For purposes of this Agreement, the Sellers’ representations and warranties shall be deemed to include the Sellers’ Disclosure Schedule and certificates delivered by or on behalf of the Sellers pursuant to Article VI hereof.  No Party’s rights hereunder (including, without limitation, rights under this Article VII) shall be affected by any investigation conducted by or any knowledge acquired (or capable of being acquired) by such Party at any time, whether before or after the execution or delivery of this Agreement or the Closing.

 

Section 7.2.           Indemnification of Purchaser.  Subject to the limitations set forth in Article VII hereof, each of the Sellers shall, jointly and severally, indemnify and hold harmless Purchaser, its Affiliates and their respective successors and the respective Representatives of each such indemnified Person (collectively, the “Purchaser Indemnified Parties”) from and against any and all Losses paid, suffered or incurred by any Purchaser Indemnified Party (whether or not due to third party claims) that, directly or indirectly, arise out of, result from, are based upon or relate to:

 

(a)           any inaccuracy in or any breach of, as of the date of this Agreement or the Closing Date, any representation and warranty made by the Sellers in this Agreement, in any of the Transaction Documents or in any certificate delivered by the Sellers pursuant to Section 6.2 of this Agreement;

 

(b)           any failure by any of the Sellers to duly and timely perform or fulfill any of its covenants or agreements required to be performed by such Seller under this Agreement or the Transaction Documents;

 

(c)           any Excluded Liability;

 

(d)           the failure of the Sellers to comply with any bulk sales Laws and Purchaser’s waiver of compliance with such Laws;

 

(e)           the Seller Chargebacks and the Seller Returns net of applicable reserves on Closing Date Balance Sheet in accordance with Sections 5.14(a) and 5.14(b); and

 

(f)            any claim for a commission or similar fee brought or made by any Person who may have been hired by the Sellers as an investment adviser, agent, broker or finder in connection with the transactions contemplated by this Agreement, including, but not limited to, Financo, Inc.

 

Section 7.3.           Indemnification of the Sellers.  Subject to the limitations set forth in Article VII hereof, Purchaser shall indemnify and hold harmless each of the Sellers, its Affiliates

 

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and successors to the foregoing and the respective Representatives of each such indemnified Person (collectively, the “Seller Indemnified Parties”) from and against any and all Losses paid, suffered or incurred by any Seller Indemnified Party (whether or not due to third party claims) that, directly or indirectly, arise out of, result from, are based upon or relate to:

 

(a)           the inaccuracy in or any breach of, as of the date of this Agreement or the Closing Date, any representation or warranty made by Purchaser in this Agreement in any of the Transaction Documents or in any certificate delivered by Purchaser pursuant to Section 6.3 of this Agreement;

 

(b)           any failure by Purchaser to perform or fulfill any of its covenants or agreements required to be performed by Purchaser under this Agreement or the Transaction Documents;

 

(c)           any Assumed Liability;

 

(d)           The Purchaser Chargebacks and the Purchaser Returns; and

 

(e)           any claim for a commission or similar fee brought or made by any Person who may have been hired by Purchaser as an investment adviser, agent, broker or finder in connection with the transactions contemplated by this Agreement.

 

Section 7.4.           Limitations.

 

(a)           No amounts of indemnity shall be payable as a result of any claim arising under Section 7.2(a) relating to a breach or alleged breach of a representation or warranty unless and until the Purchaser Indemnified Parties have suffered, incurred, sustained or become subject to Losses referred to in that clause in excess of one hundred seventy five thousand dollars ($175,000) in the aggregate (the “Threshold”), in which case the Purchaser Indemnified Parties may bring a claim for all such Losses in excess of the Threshold, except that the Purchaser Indemnified Parties may bring claims related to any breach or alleged breach of a representation or warranty under Sections 3.1, 3.2(a), 3.7, 3.22, 3.32 and 3.33 shall not be subject to, or in any way limited by, the Threshold.  Except for indemnity based on any of Sections 3.1, 3.2(a), 3.7, 3.13, 3.22, 3.32 and 3.33, the maximum Liability of the Sellers under Sections 7.2(a) shall not exceed three million five hundred thousand dollars ($3,500,000) in the aggregate (the “Indemnity Amount”).  Notwithstanding anything herein to the contrary, the maximum aggregate liability of the Sellers under Section 7.2(a) shall not exceed the aggregate cash portion of the Purchase Price paid by Purchaser to the Sellers after giving effect to the adjustments in accordance with Section 2.10 and Section 2.11 (the “Maximum Indemnity Amount”).  For the purpose of calculating any Loss arising from a breach by the Sellers of any representation or warranty that is qualified in any respect by materiality, Seller Material Adverse Effect or Business Material Adverse Effect, solely for purposes of calculating such Loss for purpose of this Section 7.4(a), such materiality, Seller Material Adverse Effect or Business Material Adverse Effect qualification will in all respects be ignored. For purposes of determining if a breach occurred for any reason under this Agreement, such qualification in respect of materiality or Seller Material Adverse Effect should not be ignored.

 

(b)           No amounts of indemnity shall be payable as a result of any claim arising under Section 7.3(a) relating to a breach or alleged breach of a representation or warranty unless and

 

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until the Seller Indemnified Parties have suffered, incurred, sustained or become subject to Losses referred to in that clause in excess of the Threshold, in which case the Seller Indemnified Parties may bring a claim for all such Losses in excess of the Threshold, except that the Seller Indemnified Parties may bring claims related to any breach or alleged breach of a representation or warranty under Sections 4.1, 4.2(a) and 4.4 and such claims shall not be subject to, or in any way limited by, the Threshold.  Notwithstanding anything herein to the contrary, the maximum aggregate liability of Purchaser under Section 7.3(a) shall not exceed the Indemnity Amount.  For the purpose of calculating any Loss arising from a breach by Purchaser of any representation or warranty that is qualified in any respect by materiality or Purchaser Material Adverse Effect, solely for purposes of calculating such Loss for purposes of this Section 7.4(b), such materiality or Purchaser Material Adverse Effect qualification will in all respects be ignored.  For purposes of determining if a breach occurred for any purpose under this Agreement, such qualifications in respect of materiality or Purchaser Material Adverse Effect shall not be ignored.

 

(c)           The amount of any claim pursuant to this Article VII will be reduced by the amount of any insurance proceeds and the amount of any Tax benefit (net of all Tax detriments incurred in the Loss) when actually realized to the Indemnified Party in respect of such claim or the facts or events giving rise to such indemnity obligation.  If the Indemnified Party realizes such Tax benefit or insurance proceeds after the date on which an indemnity payment has been made to the Indemnified Party, the Indemnified Party shall promptly make payment to the indemnifying party in an amount equal to such Tax benefit or insurance proceeds; provided, that such payment shall not exceed the amount of the indemnity payment.  In computing the amount of any such Tax cost or Tax benefit, the Indemnified Party shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnification payment hereunder or the incurrence or payment of any indemnified Loss.

 

(d)           In no event will any of the Parties be liable under this Article VII for incidental, consequential (including business interruption, loss of future revenue, profits or income, or loss of business reputation or opportunity), or punitive damages.

 

Section 7.5.            Method of Asserting Claims.  All claims for indemnification by any Indemnified Party under this Article VII shall be asserted and resolved as follows:

 

(a)           If an Indemnified Party intends to seek indemnification under this Article VII, it shall promptly notify the Indemnifying Party in writing of such claim.  The failure to provide such notice will not affect any rights hereunder except to the extent the Indemnifying Party is materially prejudiced thereby.

 

(b)           The Indemnified Party and the Indemnifying Party shall make a bona fide attempt to settle any claim for indemnification amicably through negotiations within thirty (30) days of its submission to the Indemnifying Party. If the claim has not been settled within thirty (30) days or within such other period as the Indemnified Party and the Indemnifying Party may agree in writing then such claim shall be submitted to mediation under the Commercial Mediation Rules of the AAA in New York, New York prior to seeking relief from a court of competent jurisdiction. Either the Indemnified Party or the Indemnifying Party may submit a demand for mediation.  If within sixty (60) days after service of a written demand for mediation, the mediation does not result

 

65

 

in settlement of the dispute or difference, the Indemnified Party or the Indemnifying Party may seek relief from a court of competent jurisdiction in accordance with Section 9.8.

 

(c)           If such claim involves a claim by a third party against the Indemnified Party, the Indemnifying Party may, within ten (10) calendar days after receipt of such notice and upon notice to the Indemnified Party, assume, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, the settlement or defense thereof; provided, that (ii) the Indemnifying Party acknowledges its obligation to indemnify the Indemnified Party with respect to such claim subject to the terms and conditions of this Article VII and (iii) the Indemnified Party may participate at its own costs in such settlement or defense through counsel chosen by it.  If the Indemnified Party determines in good faith that representation by the Indemnifying Party’s counsel of both the Indemnifying Party and the Indemnified Party may present such counsel with a conflict of interest, then the Indemnifying Party shall pay the reasonable fees and expenses of the Indemnified Party’s counsel.  Notwithstanding the foregoing, (A) the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party’s delivery of the notice referred to in the first sentence of this Section 7.5(b), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests, (B) the Indemnified Party may take over the control of the defense or settlement of a third-party claim (other than claims brought by a Taxing Authority against a Purchaser Indemnified Party) at any time if it irrevocably waives its right to indemnity under this Article VII with respect to such claim, except for claims by a Purchaser Indemnified Party in respect of Taxes and (C) the Indemnifying Party may not, without the consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment, such consent not to be unreasonably delayed or withheld.  So long as the Indemnifying Party is contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim without the Indemnifying Party’s consent, such consent not to be unreasonably delayed or withheld. If the Indemnifying Party is not entitled to assume the defense of the claim pursuant to the foregoing provisions or is entitled but does not contest such claim in good faith (including if it does not notify the Indemnified Party of its assumption of the defense of such claim within the ten-day period set forth above), then the Indemnified Party may conduct and control, through counsel of its own choosing and at the expense of the Indemnifying Party, the settlement or defense thereof, and the Indemnifying Party shall cooperate with it in connection therewith.  The failure of the Indemnified Party to participate in, conduct or control such defense shall not relieve the Indemnifying Party of any obligation it may have hereunder.  Any defense costs required to be paid by the Indemnifying Party shall be paid as incurred, promptly against delivery of invoices therefor.

 

Section 7.6.            Payment of Claims.  If the Sellers are required to indemnify any Purchaser Indemnified Party pursuant to this Article VII (subject to the limitations set forth in Section 7.4), then Purchaser and Seller shall instruct the Escrow Agent to pay to such Purchaser Indemnified Party the Indemnity Amount pursuant to the terms of, and subject to, the Escrow Agreement.

 

Section 7.7.            Character of Indemnity Payments.  The Parties agree that any indemnification payments made with respect to this Agreement shall be treated for all Tax purposes as an adjustment to the Purchase Price, unless otherwise required by Law (including, without limitation, by a determination of a Taxing Authority that, under applicable Law, is not subject to further review or appeal).  If an indemnification payment by Law cannot be treated as an adjustment to Purchase Price, the Indemnifying Party will pay an amount to the Indemnified Party that reflects the

 

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hypothetical Tax consequences of the receipt or accrual of such indemnification payment, using the maximum applicable statutory rate (or, in the case of an item that affects more than one Tax, rates) of Tax and reflecting, for example, the effect of deductions available for Taxes such as state and local income Taxes.

 

Section 7.8.            Exclusive Remedy.  Following the Closing, absent fraud or intentional misrepresentation the provisions of this Article VII shall be the exclusive remedy for damages in connection with the matters covered hereby; provided, however, that this Section 7.8 shall not affect the Parties rights to equitable relief under Section 9.9.

 

ARTICLE VIII

 

TERMINATION OF AGREEMENT

 

Section 8.1.            Termination.  This Agreement may be terminated, and the transactions contemplated by this Agreement may be abandoned at any time prior to the Closing by:

 

(a)           Purchaser, (i) in the event of a material breach of this Agreement by the Sellers, if Sellers fail to cure such breach within five (5) Business Days following notification thereof by Purchaser, (ii) the satisfaction of any condition to Purchaser’s obligations under Section 6.2 becomes impossible or impracticable with the use of commercially reasonable efforts if the failure of such condition to be satisfied is not caused by a breach of this Agreement by Purchaser or its Affiliates and Purchaser has determined that it will not waive the satisfaction of such condition, (iii) in the event that, as set forth on the Previous Month Adjusted EBITDA Statement, the Adjusted EBITDA of the Business was less than fourteen million dollars ($14,000,000) or (iv) in the event of a Seller Material Adverse Change;

 

(b)           the Sellers, (i) in the event of a material breach of this Agreement by Purchaser, if Purchaser fails to cure such breach within five (5) Business Days following notification thereof by the Sellers, (ii) the satisfaction of any condition to the Sellers’ obligations under Section 6.3 becomes impossible or impracticable with the use of commercially reasonable efforts if the failure of such condition to be satisfied is not caused by a breach of this Agreement by the Sellers and the Sellers have determined that it will not waive the satisfaction of such condition or (iii) in the event of a Purchaser Material Adverse Change;

 

(c)           the mutual written agreement of the Sellers and Purchaser;

 

(d)           either the Sellers or Purchaser if any court of competent jurisdiction or other competent Governmental Authority shall have issued a statute, rule, regulation, order, decree or injunction or taken any other action permanently restraining, enjoining or otherwise prohibiting all or any portion of the transactions contemplated by this Agreement and such statute, rule, regulation, order, decree or injunction or other action shall have become final and nonappealable; or

 

(e)           the Sellers or Purchaser if the Closing shall not have occurred on or before January 28, 2011, but in all instances subject to the provisions of Section 8.2 below,  or any later date as mutually agreed in writing by the Parties, unless the failure to consummate the Closing is due to the failure to act (subject in all instances to the provisions of Section 8.2 below) by the terminating Party or its Affiliates.

 

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Section 8.2.            Automatic Amendment of Closing Date.

 

(a)           Notwithstanding anything else set forth herein to the contrary, the Parties hereto acknowledge and agree that in order to effect a Closing of this Agreement, and all transactions contemplated herein and contemplated by the Transaction Documents, including but not limited to the provisions of Section 2.1 hereof (a “Permitted Closing”), on or before January 28, 2011, that (i) the Company shall require the affirmative acknowledgement, agreement and written consent of the Senior Indenture Trustee with respect to the repayment of the Senior Notes under the Senior Indenture and the termination of all liens thereunder, and in connection therewith, the Senior Indenture Trustee may require the Sellers to effect certain amendments with respect to the Senior Indenture, and (ii) the Company may need to effect amendments to the Seller Factoring Agreement, the Collateral Agreements and/or the Financing Agreements.  Sellers agree that it shall use commercially reasonable efforts (i) to obtain the Senior Indenture Trustee’s acknowledgement, agreement and written consent with respect to the payment of the Senior Notes under the Senior Indenture and the termination of all liens thereunder, and any amendments required by the Trustee to the Senior Indenture and (ii) to obtain any amendments required pursuant to the Seller Factoring Agreements, the Collateral Agreements and/or the Financing Agreements in order to effect a Permitted Closing on or before January 28, 2011; provided, however, that it is expressly understood and agreed, and it shall be of the essence hereof, that in the event that at such time that Seller delivers written notice to Purchaser in accordance with Section 9.1 hereof that states that Seller, in good faith, is unable to obtain the requisite acknowledgement, agreement and written consent from the Senior Indenture Trustee, or any amendments to Senior Indenture required by the Senior Indenture Trustee, or any requisite amendment to any of the Seller Factoring Agreements, Collateral Agreements and/or Financing Agreements in order to effect a Permitted Closing on or before January 28, 2011 (the “Closing Extension Notice”), then in such event the date of January 28, 2011 set forth in Section 8.1(e) above shall automatically and irrevocably be amended, without any further action required by the Parties, to February 21, 2011.

 

(b)           Notwithstanding anything set forth herein to the contrary, the Parties hereto acknowledge and agree that in order to effect a Permitted Closing on or before January 28, 2011, the Company is required to obtain the consent of the landlord (the “Landlord”) with respect to the New York Lease.  The Parties further acknowledge and agree that pursuant to the express provisions of the New York Lease, the Landlord has thirty (30) days to provide such consent.  Sellers shall attempt to obtain the requisite consent of the Landlord prior to January 28, 2011; provided, however, that it is expressly understood and agreed, and it shall be of the essence hereof, that in the event that at such time as Sellers deliver written notice to Purchaser in accordance with Section 9.1 hereof on or before January 28, 2011 that states that the Landlord is unwilling to provide the requisite consent with respect to the New York Lease by January 28, 2011 (the “New York Lease Extension Notice”), in such event the date of January 28, 2011 set forth in Section 8.1(e) above shall automatically and irrevocably be amended, without any further action required by the Parties, to February 11, 2011, subject to the provisions of Section 8.2(c) below.

 

(c)           In the event Sellers have given the Closing Extension Notice and the New York Lease Extension Notice, the Parties expressly acknowledge and agree that the Closing Extension Notice shall govern for all purposes.

 

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Section 8.3.            Effect of Termination.  If this Agreement is validly terminated pursuant to Section 8.1, this Agreement will forthwith become null and void and have no further effect, without any Liability on the part of any Party hereto or its Affiliates, directors, officers or stockholders, except for any liability resulting from any fraud, actions taken in bad faith, intentional misrepresentation or intentional breach prior to termination, and other than the provisions of this Section 8.3 and Article IX hereof.  Nothing contained in this Section 8.3 shall relieve any Party from Liability for any breach of this Agreement occurring prior to termination.

 

ARTICLE IX

 

MISCELLANEOUS

 

Section 9.1.            Notices.  All notices, requests and other communications under this Agreement must be in writing and will be deemed to have been duly given upon receipt to the Parties at the following addresses or facsimiles (or at such other address or facsimile for a Party as shall be specified by the notice):

 

	
If to the Sellers:
  
	
 
  	
 
  	
 
  
	
 
  	
Rafaella Apparel Group, Inc.
  
	
 
  	
1411 Broadway
  
	
 
  	
New York, New York 10018
  
	
 
  	
Attention:
  	
Ms. Christa Michalaros, Chief Executive Officer
  
	
 
  	
Facsimile:
  	
(212) 764-9275
  
	
 
  	
 
  	
 
  
	
With a copy (which shall not constitute notice) to:
  
	
 
  	
 
  	
 
  
	
 
  	
RA Cerberus LLC
  
	
 
  	
c/o Cerberus Capital Management, L.P.
  
	
 
  	
299 Park Avenue
  
	
 
  	
New York, New York 10017
  
	
 
  	
Attention:
  	
Mark Neporent, Esq., Senior Managing Director,
  
	
 
  	
 
  	
Chief Operating Officer and General Counsel
  
	
 
  	
Facsimile:
  	
(212) 891-1540
  
	
 
  	
 
  
	
With a copy (which shall not constitute notice) to:
  
	
 
  	
 
  
	
 
  	
Zukerman Gore Brandeis & Crossman, LLP
  
	
 
  	
875 Third Avenue
  
	
 
  	
New York, New York 10022
  
	
 
  	
Attention: Clifford A. Brandeis, Esq.
  
	
 
  	
Facsimile: (212) 223-6433
  

 

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If to Purchaser:
  
	
 
  
	
 
  	
Perry Ellis International, Inc.
  
	
 
  	
3000 NW 107 Avenue
  
	
 
  	
Miami, Florida 33172
  
	
 
  	
Attention: General Counsel
  
	
 
  	
Facsimile: (305) 406-0513
  
	
 
  	
 
  	
 
  
	
With a copy (which shall not constitute notice) to:
  
	
 
  
	
 
  	
Greenberg Traurig, LLP
  
	
 
  	
MetLife Building
  
	
 
  	
200 Park Avenue
  
	
 
  	
New York, New York 10166
  
	
 
  	
Attention: 
  	
Clifford E. Neimeth
  
	
 
  	
 
  	
David C. Peck
  
	
 
  	
Facsimile: 
  	
(212) 801-6400
  

 

Section 9.2.            Entire Agreement.  This Agreement, the exhibits and schedules hereto and the Transaction Documents supersede all prior and contemporaneous discussions and agreements, both written and oral, among the Parties with respect to the subject matter of this Agreement and the Transaction Documents and constitute the sole and entire agreement among the Parties to this Agreement with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements and understandings, written or oral, with respect to the subject matter hereof, including but not limited to the Letter of Intent.

 

Section 9.3.            Expenses.  Except as otherwise expressly provided in this Agreement (including as provided in Article VII and Section 8.3), whether or not the transactions contemplated by this Agreement are consummated, each Party will pay its own costs and expenses incurred in connection with the negotiation, execution and closing of this Agreement and the Transaction Documents and the transactions contemplated by this Agreement and the Transaction Documents.

 

Section 9.4.            Waiver.  Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition.  No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.  All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.

 

Section 9.5.            Amendment.  This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each Party to this Agreement.

 

Section 9.6.            No Third-Party Beneficiary.  The terms and provisions of this Agreement are intended solely for the benefit of each Party hereto and their respective successors or permitted assigns, and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Article VII.

 

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Section 9.7.            Assignment; Binding Effect.  Neither this Agreement nor any right, interest or obligation under this Agreement may be assigned by any Party to this Agreement by operation of Law or otherwise without the prior written consent of the other Party to this Agreement and any attempt to do so will be void, except that Purchaser may assign any or all of its rights, interests and obligations under this Agreement (i) before or after the Closing, to any Affiliate and (ii) after the Closing, to any Person; provided, that any such Affiliate or Person, as applicable, agrees in writing to be bound by all of the terms, conditions and provisions contained in this Agreement, but no such assignment shall relieve Purchaser of its obligations under this Agreement if such assignee does not perform such obligations.  Without limiting the generality of the foregoing, if requested by Purchaser, the Sellers agree to cause the Business and the Purchased Assets or any portion thereof at the Closing to be transferred to any Person that Purchaser may direct.  Subject to the foregoing, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and assigns.

 

Section 9.8.            CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR ANY COURT OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE BROUGHT ONLY IN SUCH COURT (AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS OR ANY OTHER OBJECTION TO VENUE THEREIN); PROVIDED, HOWEVER, THAT SUCH CONSENT TO JURISDICTION IS SOLELY FOR THE PURPOSE REFERRED TO IN THIS SECTION 9.8 AND SHALL NOT BE DEEMED TO BE A GENERAL SUBMISSION TO THE JURISDICTION OF SAID COURTS OR IN THE STATE OF NEW YORK OTHER THAN FOR SUCH PURPOSE.  Any and all process may be served in any action, suit or proceeding arising in connection with this Agreement or the Transaction Documents by complying with the provisions of Section 9.1.  Such service of process shall have the same effect as if the Party being served were a resident in the State of New York and had been lawfully served with such process in such jurisdiction.  The Parties hereby waive all claims of error by reason of such service. Nothing herein shall affect the right of any Party to service process in any other manner permitted by Law or to commence legal proceedings or otherwise proceed against the other in any other jurisdiction to enforce judgments or rulings of the aforementioned courts. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY TRANSACTION DOCUMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY TRANSACTION DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 9.8 WITH ANY COURT AS

 

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WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

Section 9.9.            Specific Performance.  The Parties agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at Law would exist and damages would be difficult to determine, and that the Parties shall be entitled to full specific performance and enforcement of the terms hereof, in addition to any other remedy at Law or equity.

 

Section 9.10.          Invalid Provisions.  If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any Party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (iv) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

 

Section 9.11.          GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD FOR THE CONFLICTS OF LAWS PRINCIPLES THEREOF.

 

Section 9.12.          Counterparts.  This Agreement may be executed in any number of counterparts, all of which will constitute one and the same instrument.

 

Section 9.13.          Interpretation.  The Parties have participated jointly in the negotiating and drafting of this Agreement. If an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.

 

[The remainder of this page has been intentionally left blank.]

 

72

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

 

	
 
  	
RAFAELLA APPAREL GROUP, INC.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Christa Michalaros
  
	
 
  	
 
  	
Name: Christa Michalaros
  
	
 
  	
 
  	
Title: Chief Executive Officer
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
RAFAELLA APPAREL FAR EAST LIMITED
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Christa Michalaros
  
	
 
  	
 
  	
Name: Christa Michalaros
  
	
 
  	
 
  	
Title: Chief Executive Officer
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
VERRAZANO, INC.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ Christa Michalaros
  
	
 
  	
 
  	
Name: Christa Michalaros
  
	
 
  	
 
  	
Title: Chief Executive Officer
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
PERRY ELLIS INTERNATIONAL, INC.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
/s/ George Feldenkreis
  
	
 
  	
 
  	
Name: George Feldenkreis
  
	
 
  	
 
  	
Title: Chairman and Chief Executive Officer
  

 

 

73

 

Exhibit A

 

Form of Bill of Sale

 

 

FORM OF
 BILL OF SALE

 

Dated:  [·], 2011

 

Rafaella Apparel Group, Inc., a Delaware corporation (“Rafaella”), Rafaella Apparel Far East Limited, a Hong Kong limited company (“Rafaella Apparel Far East”), and Verrazano, Inc., a New York corporation (“Verrazano” and collectively with Rafaella and Rafaella Apparel Far East, the “Sellers”), do hereby sell, transfer, convey and deliver to Perry Ellis International, Inc., a Florida corporation (“Purchaser”), all of the Sellers’ rights, title and interests in and to the Purchased Assets, as such term is defined in, and pursuant to, that certain Asset Purchase Agreement, dated as of January 7, 2011 (the “Purchase Agreement”), by and among the Sellers and Purchaser, on the terms, and subject to the conditions of, the Purchase Agreement. This Bill of Sale and the sale, transfer, conveyance and delivery evidenced hereby are subject to the terms and conditions of the Purchase Agreement.  Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement.

 

In accordance with the Purchase Agreement, each of the Sellers, for itself and its successors and permitted assigns, does hereby covenant with Purchaser, its successors and permitted assigns, that such Seller and its successors and permitted assigns will do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered all such further acts, deeds, bills of sale, instruments of transfer, assignments, conveyances and powers of attorney, conveying and confirming unto Purchaser, its successors and permitted assigns, any and all of the Purchased Assets hereby granted, sold, assigned, transferred, conveyed and delivered as Purchaser, its successors or permitted assigns shall reasonably require.

 

In accordance with the Purchase Agreement, (i) this Bill of Sale shall inure to the benefit of Purchaser and its successors and permitted assigns, (ii) shall be binding upon each of the Sellers and their respective successors and permitted assigns and (iii) Purchaser may assign its rights and interests hereunder pursuant to, and in accordance with, Section 9.7 of the Purchase Agreement.

 

This Bill of Sale is executed pursuant to the terms of the Purchase Agreement, and is intended to implement and be consistent with the terms and conditions of the Purchase Agreement.  If any of the provisions hereof are in conflict with the provisions of the Purchase Agreement, the Purchase Agreement shall control.

 

[The remainder of this page has been intentionally left blank]

 

 

IN WITNESS WHEREOF, each of the Sellers has executed this Bill of Sale as of the date first written above.

 

	
 
  	
RAFAELLA APPAREL GROUP, INC.
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
RAFAELLA APPAREL FAR EAST LIMITED
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
VERRAZANO, INC.
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
ACKNOWLEDGED BY:
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
PERRY ELLIS INTERNATIONAL, INC.
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  

 

2

 

Exhibit B

 

Form of Escrow Agreement

 

 

FORM OF
  ESCROW AGREEMENT

 

This Escrow Agreement, dated as of January [·], 2011 (this “Escrow Agreement”), is entered into by and among Rafaella Apparel Group, Inc., a Delaware corporation (“Rafaella”), and Perry Ellis International, Inc., a Florida corporation (“PEI” and together with Rafaella, the “Parties,” and each individually, a “Party”), and Wells Fargo Bank, National Association, a national banking association, as escrow agent (in such capacity, including its successors and permitted assigns in such capacity, the “Escrow Agent”).

 

RECITALS

 

A.                                   Reference is hereby made to that certain Asset Purchase Agreement, dated as of January [·], 2011 (the “Purchase Agreement”), by and among Rafaella, Rafaella Apparel Far East Limited (“Rafaella Apparel Far East”), Verrazano, Inc. (“Verrazano” and collectively with Rafaella and Rafaella Apparel Far East, the “Sellers”) and PEI, pursuant to which PEI has agreed to purchase substantially all of the assets of the Sellers.

 

B.                                     Pursuant to the terms of the Purchase Agreement, PEI shall deposit into escrow the amount required to be deposited pursuant to the Purchase Agreement, and the Escrow Agent agrees to hold and distribute such funds in accordance with the terms of this Escrow Agreement.

 

C.                                     Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.

 

D.                                    The Parties hereto acknowledge that the Escrow Agent is not a party to, is not bound by, and has no duties or obligations under, the Purchase Agreement, that all references in this Escrow Agreement to the Purchase Agreement are for convenience, and that the Escrow Agent shall have no implied duties beyond the express duties set forth in this Escrow Agreement.

 

In consideration of the promises and agreements of the Parties and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties and the Escrow Agent agree as follows:

 

 

ARTICLE 1
 ESCROW DEPOSIT

 

 

Section 1.1.                                   Receipt of Escrow Property.

 

(a)                                  On the Closing Date, PEI shall deposit with the Escrow Agent, by wire transfer of immediately-available funds, to the bank account set forth in Exhibit A hereto, an amount in cash equal to three million dollars ($3,000,000) (together with investment income earned thereon pursuant to the terms hereof, the “Net Working Capital Escrow Property”).

 

(b)                                 On the Closing Date, PEI shall deposit with the Escrow Agent, by wire transfer of immediately-available funds, to the bank account set forth in Exhibit B hereto, an amount in cash equal to three million five-hundred thousand dollars ($3,500,000) (together with investment income earned thereon pursuant to the terms hereof, the “Indemnity Escrow Property” and together with the Net Working Capital Escrow Property, the “Escrow Property”).

 

(c)                                  The Escrow Property will be segregated from other assets of the Escrow Agent.  The Escrow Agent agrees to hold and administer the Escrow Property subject to the terms of this Escrow Agreement.  The New Working Capital Escrow Property will be segregated from the Indemnity Escrow Property.

 

(d)                                 The parties acknowledge that the Net Working Capital Escrow Property and the Indemnity Escrow Property held in escrow hereunder may be reduced from time to time during the term hereof pursuant to the terms of this Escrow Agreement.

 

Section 1.2.                                   Investments.

 

(a)                                  The Escrow Agent is authorized and directed to deposit, transfer, hold and invest the Escrow Property and any investment income thereon as set forth in Exhibit C hereto, or as set forth in any subsequent written instruction signed by both PEI and Rafaella, which may be executed and delivered in counterparts. Any investment earnings and income on the Net Working Capital Escrow Property shall become part of the Net Working Capital Escrow Property, and shall be disbursed in accordance with Section 1.3 of this Escrow Agreement. Any investment earnings and income on the Indemnity Escrow Property shall become part of the Indemnity Escrow Property, and shall be disbursed in accordance with Section 1.3 of this Escrow Agreement.

 

(b)                                 The Escrow Agent is hereby authorized and directed to sell or redeem any such investments as it deems necessary to make any payments or distributions required under this Escrow Agreement.  The Escrow Agent shall have no responsibility or liability for any loss which may result from any investment or sale of investment made pursuant to this Escrow Agreement.  The Escrow Agent is hereby authorized, in making or disposing of any investment permitted by this Escrow Agreement, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or any such affiliate is acting as agent of the Escrow Agent or for any third person or dealing as principal for its own account.  The Parties acknowledge that the Escrow Agent is not providing investment supervision, recommendations, or advice.

 

Section 1.3.                                   Disbursements; Interest.

 

(a)                                  In the event that the calculation of the Final Adjustment Amount pursuant to Section 2.11 of the Purchase Agreement results in a decrease of the Purchase Price, PEI and

 

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Rafaella shall deliver a joint written direction signed by both PEI and Rafaella, substantially in the form attached as Exhibit D hereto (a “Joint Direction”), to the Escrow Agent instructing the Escrow Agent to release the applicable portion of the Net Working Capital Escrow Property to PEI pursuant to Section 2.11(e) of the Purchase Agreement, and release the remainder, if any, of the Net Working Capital Escrow Property to Rafaella. Upon receipt of such Joint Direction signed by PEI and Rafaella, the Escrow Agent will release to PEI and Rafaella the respective amounts of Net Working Capital Escrow Property indicated in such Joint Direction, with interest as set forth below as applicable, subject to any obligations under applicable law to withhold amounts in respect of taxes.

 

(b)                                 In the event that the calculation of the Final Adjustment Amount pursuant to Section 2.11 of the Purchase Agreement does not result in a decrease of the Purchase Price, PEI and Rafaella shall deliver a Joint Direction to the Escrow Agent instructing the Escrow Agent to release the full amount of the Net Working Capital Escrow Property to Rafaella pursuant to Section 2.11(e) of the Purchase Agreement.  Upon receipt of such Joint Direction signed by both PEI and Rafaella, the Escrow Agent will release to Rafaella the full amount of the Net Working Capital Escrow Property, with interest as provided below and subject to any obligations under applicable law to withhold amounts in respect of taxes.

 

(c)                                  In the event that the calculation of the Final Adjustment Amount pursuant to Section 2.11 of the Purchase Agreement is determined pursuant to a final order of a court of competent jurisdiction or a final arbitration decision to which no appeal is pending from such judgment or decision and if the time to appeal therefrom has elapsed (a “Court Direction”), either PEI or Rafaella shall provide a copy of such final Court Direction to the Escrow Agent, together with certificate substantially in the form attached as Exhibit E hereto (a “Court Direction Certificate”).  Upon receipt of such Court Direction (together with a Court Direction Certificate) in respect of the Final Adjustment Amount, the Escrow Agent will release the Net Working Capital Escrow Property in accordance with such Court Direction, with interest as set forth below and subject to any obligations under applicable law to withhold amounts in respect of taxes.

 

(d)                                 If, at any time on or prior to                              [Insert date which is one year from Closing Date] (the “Termination Date”), PEI claims that a Purchaser Indemnified Party (as defined in the Purchase Agreement) has suffered Losses (as defined in the Purchase Agreement) for which it is entitled to indemnification from the Sellers under Article VII of the Purchase Agreement, PEI shall deliver to the Sellers and the Escrow Agent the notice contemplated by Section 7.5 of the Purchase Agreement (a “Claim Notice”) when such notice is delivered to Sellers and shall include in that notice the maximum amount proposed to be disbursed from the Indemnity Escrow Property (the “Claimed Amount”).  Upon receipt, the Escrow Agent shall forward a copy to Rafaella.  If the Escrow Agent has not received from Rafaella a written objection (a “Dispute Notice”) to the Claim Notice within thirty (30) days after the date on which Rafaella receives such Claim Notice from the applicable Purchaser Indemnified Party (as such term is defined in the Purchase Agreement) under Section 7.5(a) of the Purchase Agreement in accordance with Section 9.1 of the Purchase Agreement (the “Date of Receipt”), then on the thirty-first (31st) day following the Date of Receipt, the Escrow Agent shall release to the applicable Purchaser Indemnified Party an amount of Indemnity Escrow Property equal to the Claimed Amount.  If the Escrow Agent and PEI receive from Rafaella a

 

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Dispute Notice with respect to the Claim Notice within thirty (30) days following the Date of Receipt, the Escrow Agent shall continue to hold in escrow the Claimed Amount set forth in such Claim Notice until (A) it shall receive a Joint Direction with further instructions as to the disposition of such sum in a writing signed by PEI and Rafaella or (B) it shall receive a copy of a Court Direction (together with a Court Direction Certificate) with respect to such Claimed Amount.  The parties acknowledge that PEI may give multiple Claim Notices in accordance with this Section 1.3(d) during the term hereof and that the PEI may amend any Claim Notice on or prior to the Termination Date (e.g., to increase or decrease the Claimed Amount stated therein); provided, however, the parties acknowledge that any amendment of a Claim Notice may be objected to or disputed by Rafaella in accordance with this Section 1.3(d) within thirty (30) days of the Date of Receipt of any such amendment.

 

(e)                                  To the extent that any unresolved claim for indemnification by a Purchaser Indemnified Party pursuant to Article VII of the Purchase Agreement has not been paid prior to the Termination Date (an “Unresolved Claim”), and a Claim Notice for such Unresolved Claim was received by the Escrow Agent in accordance with Section 1.3(d) hereof prior to the Termination Date, then the Escrow Agent shall release to Rafaella an amount equal to the difference between (i) the amount remaining of the Indemnity Escrow Property as of the Termination Date and (ii) the maximum aggregate amount of all Claimed Amounts with respect to such Unresolved Claims.  Any Indemnity Escrow Property held by the Escrow Agent beyond the Termination Date in connection with an Unresolved Claim shall be released by the Escrow Agent to the applicable party or parties at such time as a Joint Direction or a Court Direction (together with a Court Direction Certificate) in respect to such Unresolved Claim shall be delivered to the Escrow Agent, and any portion of the Indemnity Escrow Property not required to pay such Unresolved Claim shall be distributed to Rafaella as soon as practicable following the full and final resolution of Unresolved Claim.  After the resolution of all Unresolved Claims, any remaining Indemnity Escrow Property shall be released by the Escrow Agent to Rafaella.  PEI and Rafaella shall use their respective reasonable efforts to resolve all Unresolved Claims as promptly as possible following the Termination Date.

 

(f)                                    To the extent that no Unresolved Claim for indemnification by a Purchaser Indemnified Party pursuant to Article VII of the Purchase Agreement is outstanding as of the Termination Date, then promptly following the Termination Date, the Escrow Agent shall release and pay to Rafaella the full amount of the Indemnity Escrow Property remaining on such date.

 

(g)                                 At any time prior to the Termination Date, PEI and Rafaella may deliver to the Escrow Agent a Joint Direction relating to the disposition of the Escrow Property signed by both PEI and Rafaella.

 

(h)                                 The Escrow Agent may act and rely in good faith exclusively on the  Joint Direction or the Court Direction (together with a Court Direction Certificate) and shall not be required to make any determinations in discharging its obligations pursuant to this Section 1.3.

 

(i)                                     Any amounts of the Escrow Property to be distributed to PEI or Rafaella pursuant to this Escrow Agreement shall be made within three (3) Business Days after receipt of the Joint Direction or the Court Direction (together with a Court Direction Certificate), as

 

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applicable, by the Escrow Agent, by wire transfer of immediately-available funds and shall be accompanied by any applicable interest accrued thereon.

 

(j)                                     Interest, dividends, gains and other income earned through the end of each calendar quarter with respect to the Escrow Property shall be released to Rafaella within five (5) Business Days after the end of each calendar quarter upon Rafaella’s written request.  All interest, dividends, gains or other income earned on the Escrow Property shall be fully taxable to Rafaella.  For avoidance of doubt, the interest, dividends, gains or other income earned on the Escrow Property shall not be part of the Escrow Property and shall not be subject to any Claims Notice or Claimed Amount.  Any the interest, dividends, gains or other income earned on the Escrow Property which is released to PEI, shall be paid to Rafaella at the time such Escrow Property is released to PEI.

 

Section 1.4.                                   Income Tax Allocation and Reporting.

 

(a)                                  The Parties agree that, for tax reporting purposes, all interest and other income from investment of the Escrow Property shall, as of the end of each calendar year and to the extent required by the Internal Revenue Service, be reported as having been earned by Rafaella, whether or not such income was disbursed during such calendar year.

 

(b)                                 Prior to closing, the Parties shall provide the Escrow Agent with certified tax identification numbers by furnishing appropriate forms W-9 or W-8 and such other forms and documents that the Escrow Agent may reasonably request.   The Parties understand that if such tax reporting documentation is not provided and certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, to withhold a portion of any interest or other income earned on the investment of the Escrow Property.

 

(c)                                  To the extent that the Escrow Agent becomes liable for the payment of any taxes in respect of income derived from the investment of the Escrow Property, the Escrow Agent shall satisfy such liability to the extent possible from the Escrow Property.  The Parties, jointly and severally, shall indemnify, defend and hold the Escrow Agent harmless from and against any tax, late payment, interest, penalty or other cost or expense that may be assessed against the Escrow Agent on or with respect to the Escrow Property and the investment thereof unless such tax, late payment, interest, penalty or other expense was directly caused by the gross negligence or willful misconduct of the Escrow Agent.  The indemnification provided by this Section 1.4(c) is in addition to the indemnification provided in Section 3.1 and shall survive the resignation or removal of the Escrow Agent and the termination of this Escrow Agreement.

 

Section 1.5.                                   Termination.  Upon the disbursement of all of the Escrow Property, including any interest and investment earnings thereon, this Escrow Agreement shall terminate and be of no further force and effect except that the provisions of Sections 1.4(c), 3.1 and 3.2 hereof shall survive termination.

 

5

 

ARTICLE 2
 DUTIES OF THE ESCROW AGENT

 

Section 2.1.                                   Scope of Responsibility. Notwithstanding any provision to the contrary, the Escrow Agent is obligated only to perform the duties specifically set forth in this Escrow Agreement, which shall be deemed purely ministerial in nature.  Under no circumstances will the Escrow Agent be deemed to be a fiduciary to any Party or any other person under this Escrow Agreement.  The Escrow Agent will not be responsible or liable for the failure of any Party to perform in accordance with this Escrow Agreement. The Escrow Agent shall neither be responsible for, nor chargeable with, knowledge of the terms and conditions of any other agreement, instrument, or document other than this Escrow Agreement, whether or not an original or a copy of such agreement has been provided to the Escrow Agent; and the Escrow Agent shall have no duty to know or inquire as to the performance or nonperformance of any provision of any such agreement, instrument, or document.  References in this Escrow Agreement to any other agreement, instrument, or document are for the convenience of the Parties, and the Escrow Agent has no duties or obligations with respect thereto.  This Escrow Agreement sets forth all matters pertinent to the escrow contemplated hereunder, and no additional obligations of the Escrow Agent shall be inferred or implied from the terms of this Escrow Agreement or any other agreement.

 

Section 2.2.                                   Attorneys and Agents.  The Escrow Agent shall be entitled to rely on and shall not be liable for any action taken or omitted to be taken by the Escrow Agent in accordance with the advice of counsel retained or consulted by the Escrow Agent.  The Escrow Agent shall be reimbursed as set forth in Section 3.1 for any and all compensation (reasonable fees, expenses and other costs) paid and/or reimbursed to such counsel.  The Escrow Agent may perform any and all of its duties through its agents, representatives, attorneys, custodians, and/or nominees.

 

Section 2.3.                                   Reliance.  The Escrow Agent shall not be liable for any action taken or not taken by it in accordance with the direction or consent of the Parties or their respective agents, representatives, successors, or assigns in accordance with this Escrow Agreement. The Escrow Agent shall not be liable for acting or refraining from acting upon any notice, request, consent, direction, requisition, certificate, order, affidavit, letter, or other paper or document reasonably believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, without further inquiry into the person’s or persons’ authority.  Concurrent with the execution of this Escrow Agreement, the Parties shall deliver to the Escrow Agent authorized signers’ forms in the form of Exhibit F-1 and Exhibit F-2 to this Escrow Agreement.

 

Section 2.4.                                   Right Not Duty Undertaken.  The permissive rights of the Escrow Agent to do things enumerated in this Escrow Agreement shall not be construed as duties.

 

Section 2.5.                                   No Financial Obligation.  No provision of this Escrow Agreement shall require the Escrow Agent to risk or advance its own funds or otherwise incur any financial liability or potential financial liability in the performance of its duties or the exercise of its rights under this Escrow Agreement.

 

ARTICLE 3
 PROVISIONS CONCERNING THE ESCROW AGENT

 

Section 3.1.                                   Indemnification.  The Parties, jointly and severally, shall indemnify, defend and

 

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hold harmless the Escrow Agent from and against any and all loss, liability, cost, damage and expense, including, without limitation, reasonable attorneys’ fees and expenses or other professional fees and expenses which the Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against the Escrow Agent, arising out of or relating in any way to this Escrow Agreement or any transaction to which this Escrow Agreement relates, unless such loss, liability, cost, damage or expense shall have been finally adjudicated to have been directly caused by the willful misconduct or gross negligence of the Escrow Agent. The provisions of this Section 3.1 shall survive the resignation or removal of the Escrow Agent and the termination of this Escrow Agreement.

 

Section 3.2.                                   Limitation of Liability.  THE ESCROW AGENT SHALL NOT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.

 

Section 3.3.                                   Resignation or Removal.  The Escrow Agent may resign by furnishing written notice of its resignation to the Parties, and the Parties may remove the Escrow Agent by furnishing to the Escrow Agent a joint written notice of its removal along with payment of all fees and expenses to which it is entitled through the date of termination.  No resignation or removal of the Escrow Agent shall become effective until the appointment of a successor Escrow Agent hereunder and the acceptance by such successor of the duties of the Escrow Agent hereunder.  Notwithstanding the foregoing, if no replacement Escrow Agent is appointed in accordance with this Section 3.3 within thirty (30) days after the Escrow Agent gives written notice to the Parties of its resignation or is otherwise removed, the Escrow Agent may petition a court of competent jurisdiction at the expense of the Parties (which shall each be responsible for fifty percent (50%) of such expenses) for the appointment of a successor Escrow Agent and any such resulting appointment shall be binding upon the Parties.  Such resignation or removal, as the case may be, shall be effective upon the appointment of a successor Escrow Agent, and the Escrow Agent’s sole responsibility thereafter shall be to safely keep the Escrow Property and to deliver the same to a successor Escrow Agent as shall be appointed by the Parties, as evidenced by a joint written notice delivered to the Escrow Agent, or in accordance with the order of a court of competent jurisdiction.

 

Section 3.4.                                   Compensation.  The Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit G.  PEI and Rafaella shall each pay fifty percent (50%) of the Escrow Agent’s fees and expenses pursuant to this Escrow Agreement. The fee agreed, upon for the services rendered hereunder is intended as full compensation for the Escrow Agent’s services as contemplated by this Escrow Agreement; provided, however, that in the event that the conditions for the disbursement of funds under this Escrow Agreement are not fulfilled, or the Escrow Agent renders any service not contemplated in this Escrow Agreement, or there is any assignment of interest in the subject matter of this

 

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Escrow Agreement, or any material modification hereof, or if any material controversy arises hereunder, or the Escrow Agent is made a party to any litigation pertaining to this Escrow Agreement or the subject matter hereof, then the Escrow Agent shall be compensated for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorneys’ fees and expenses, occasioned by any such delay, controversy, litigation or event.  If any amount due to the Escrow Agent hereunder is not paid within thirty (30) days of the date due, the Escrow Agent in its sole discretion may deduct such amounts from the Escrow Property.  The Escrow Agent shall have, and is hereby granted, a prior lien upon the Escrow Property with respect to its unpaid fees, non-reimbursed expenses and unsatisfied indemnification rights, superior to the interests of any other persons or entities and is hereby granted the right to set off and deduct any unpaid fees, non-reimbursed expenses and unsatisfied indemnification rights from the Escrow Property.

 

Section 3.5.                                   Disagreements.  If any conflict, disagreement or dispute arises between, among, or involving any of the parties hereto concerning the meaning or validity of any provision hereunder or concerning any other matter relating to this Escrow Agreement, or the Escrow Agent is in doubt as to the action to be taken hereunder, the Escrow Agent is authorized to retain the Escrow Property until the Escrow Agent (a) receives a Court Direction (together with a Court Direction Certificate) directing delivery of the Escrow Property, (b) receives a Joint Direction directing delivery of the Escrow Property, in which event the Escrow Agent shall be authorized to disburse the Escrow Property in accordance with such Court Direction, or Joint Direction, as the case maybe, or (c) files an interpleader action in any court of competent jurisdiction, and upon the filing thereof, the Escrow Agent shall be relieved of all liability as to the Escrow Property and shall be entitled to recover reasonable attorneys’ fees, expenses and other costs incurred in commencing and maintaining any such interpleader action.  The Escrow Agent shall be entitled to act on any such agreement, court order, or arbitration decision without further question, inquiry, or consent.

 

Section 3.6.                                   Merger or Consolidation.  Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor escrow agent under this Escrow Agreement and shall have and succeed to the rights, powers, duties, obligations, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance of any further act.

 

Section 3.7.                                   Attachment of Escrow Property; Compliance with Legal Orders.  In the event that any Escrow Property shall be attached, garnished or levied upon by any court order, or the delivery thereof shall be stayed or enjoined by an order of a court, or any order, judgment or decree shall be made or entered by any court order affecting the Escrow Property, the Escrow Agent is hereby expressly authorized, in its sole discretion, to respond as it deems appropriate or to comply with all writs, orders or decrees so entered or issued, or which it is advised by legal counsel of its own choosing is binding upon it, whether with or without jurisdiction.  In the event that the Escrow Agent obeys or complies with any such writ, order or decree it shall not be liable to any of the Parties or to any other person or entity, should, by reason of such compliance

 

8

 

notwithstanding, such writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated.

 

ARTICLE 4
 MISCELLANEOUS

 

Section 4.1.                                   Successors and Assigns.  This Escrow Agreement shall be binding on and inure to the benefit of the Parties and the Escrow Agent and their respective successors and permitted assigns. No other persons or entities shall have any rights under this Escrow Agreement.  Except as set forth in Section 3.3 hereof, neither this Escrow Agreement nor any right, interest or obligation under this Agreement may be assigned by the Escrow Agent by operation of Law or otherwise without the prior written consent of the Parties and any attempt to do so will be void. No assignment of the interest of any of the Parties shall be binding unless and until written notice of such assignment shall be delivered to the other Party and the Escrow Agent and shall require the prior written consent of the other Party and the Escrow Agent (such consent not to be unreasonably withheld).

 

Section 4.2.                                   Escheat.  The Parties are aware that under applicable state law, property which is presumed abandoned may under certain circumstances escheat to the applicable state.  The Escrow Agent shall have no liability to the Parties, their respective heirs, legal representatives, successors and assigns, or any other party, should any or all of the Escrow Property escheat by operation of law.

 

Section 4.3.                                   Notices.  All notices, requests, demands, and other communications required under this Escrow Agreement shall be in writing, in English, and shall be deemed to have been duly given if delivered (a) personally, (b) by facsimile transmission with written confirmation of receipt, (c) by overnight delivery with a reputable national overnight delivery service, or (d) by certified mail, return receipt requested, and postage prepaid. If any notice is mailed, it shall be deemed given five business days after the date such notice is deposited in the United States mail.  Any notice given personally, by facsimile or by overnight delivery service shall be deemed given upon the actual date of such delivery.  Copies of each notice or communication given or sent by the Escrow Agent to a Party or by a Party to the Escrow Agent shall be concurrently delivered to the other Party.  If notice is given to a Party, it shall be given at the address for the Escrow Agent or such Party set forth below.  It shall be the responsibility of the Parties to notify the Escrow Agent and the other Party in writing of any name or address changes.  In the case of communications delivered to the Escrow Agent, such communications shall be deemed to have been given on the date received by the Escrow Agent.

 

If to Rafaella:

 

	
Rafaella Apparel Group, Inc. [Name change]
  
	
[address]
  
	
New York, New York [            ]
  
	
Attention: [·]
  
	
Telephone: [·]
  
	
Facsimile: [·]]
  

 

9

 

	
With a copy (which shall not constitute notice) to:
  
	
 
  
	
RA Cerberus LLC
  
	
c/o Cerberus Capital Management, L.P.
  
	
299 Park Avenue
  
	
New York, New York 10017
  
	
Attention: [·]
  
	
Telephone: [·]
  
	
Facsimile: [·]
  
	
 
  
	
With a copy (which shall not constitute notice) to:
  
	
 
  
	
Zukerman Gore Brandeis & Crossman, LLP
  
	
875 Third Avenue
  
	
New York, New York 10022
  
	
Attention: Clifford A. Brandeis, Esq.
  
	
Telephone: (212) 223-6700
  
	
Facsimile: (212) 223-6433
  
	
 
  
	
If to PEI:
  
	
 
  
	
Perry Ellis International, Inc.
  
	
3000 NW 107 Avenue
  
	
Miami, Florida 33172
  
	
Attention: General Counsel
  
	
Telephone: [·]
  
	
Facsimile: (305) 406-0513
  
	
 
  
	
With a copy (which shall not constitute notice) to:
  
	
 
  
	
Greenberg Traurig, LLP
  
	
MetLife Building
  
	
200 Park Avenue
  
	
New York, New York 10166
  
	
Attention:
  	
Clifford E. Neimeth
  
	
 
  	
David C. Peck
  
	
Telephone: [·]
  
	
Facsimile: (212) 801-6400
  
	
 
  
	
If to the Escrow Agent:
  
	
 
  
	
Wells Fargo Bank, National Association
  
	
625 Marquette Avenue, 11th Fl. MAC N9311-115
  
	
Minneapolis, MN 55479
  

 

10

 

Attention: Aaron R. Soper, Corporate, Municipal and Escrow Services

Telephone:  (612) 667-5628

Facsimile:  (612) 667-2149

 

Section 4.4.            Governing Law.  This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of the State of New York, without regard for the conflicts of laws principals thereof.

 

Section 4.5.            CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL. EACH PARTY AND THE ESCROW AGENT HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR ANY COURT OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING IN CONNECTION WITH THIS ESCROW AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE BROUGHT ONLY IN SUCH COURT (AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS OR ANY OTHER OBJECTION TO VENUE THEREIN); PROVIDED, HOWEVER, THAT SUCH CONSENT TO JURISDICTION IS SOLELY FOR THE PURPOSE REFERRED TO IN THIS SECTION 4.5 AND SHALL NOT BE DEEMED TO BE A GENERAL SUBMISSION TO THE JURISDICTION OF SAID COURTS OR IN THE STATE OF NEW YORK OTHER THAN FOR SUCH PURPOSE.  Any and all process may be served in any action, suit or proceeding arising in connection with this Escrow Agreement by complying with the provisions of Section 4.5.  Such service of process shall have the same effect as if the Party or the Escrow Agent, as the case may be, being served were a resident in the State of New York and had been lawfully served with such process in such jurisdiction.  The Parties and the Escrow Agent hereby waive all claims of error by reason of such service.  Nothing herein shall affect the right of any Party or the Escrow Agent to service process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the other in any other jurisdiction to enforce judgments or rulings of the aforementioned courts.  EACH PARTY AND THE ESCROW AGENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY TRANSACTION DOCUMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS ESCROW AGREEMENT, OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT ANY PARTY TO THIS ESCROW AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.5 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

Section 4.6.            Entire Agreement.  This Escrow Agreement, together with the Purchase Agreement, constitutes the entire agreement and understanding of the parties related to the 

 

11

 

Escrow Property and the subject matter hereof, and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof (provided that the Escrow Agent is not a party to the Purchase Agreement, and with respect to the Escrow Agent the terms of this Escrow Agreement shall control).

 

Section 4.7.            Amendment.  This Escrow Agreement may be amended, modified, superseded, rescinded, or canceled only by a written instrument executed by the Parties and the Escrow Agent.

 

Section 4.8.            Waivers.  The failure of any party to this Escrow Agreement at any time or times to require performance of any provision under this Escrow Agreement shall in no manner affect the right at a later time to enforce the same performance.  A waiver by any party to this Escrow Agreement of any such condition or breach of any term, covenant, representation, or warranty contained in this Escrow Agreement, in any one or more instances, shall neither be construed as a further or continuing waiver of any such condition or breach nor a waiver of any other condition or breach of any other term, covenant, representation, or warranty contained in this Escrow Agreement.

 

Section 4.9.            Headings.  Section headings of this Escrow Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise modify any of the terms or provisions of this Escrow Agreement.

 

Section 4.10.          Counterparts.  This Escrow Agreement, including all Exhibits hereto, may be executed in one or more original, facsimile or electronic counterparts, each of which when executed shall be deemed to be an original, and such counterparts shall together constitute one and the same instrument.

 

[The remainder of this page left intentionally blank.]

 

12

 

IN WITNESS WHEREOF, this Escrow Agreement has been duly executed by the parties hereto as of the date first written above.

 

 

	
 
  	
RAFAELLA APPAREL GROUP, INC.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
PERRY ELLIS INTERNATIONAL, INC.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Escrow Agent
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  

 

S-1

 

EXHIBIT A

 

Wire Transfer Instructions with respect to the

Net Working Capital Escrow Property

 

Wire Instructions:

 

Wells Fargo Bank, National Association

ABA # 121000248

Account Name: Corporate Trust Clearing Account

Attn: Brent Jordahl

A/C # 0001038377

Ref: Perry Ellis/Rafaella NWC

 

 

EXHIBIT B

Wire Transfer Instructions with respect to the

Indemnity Escrow Property

 

Wire Instructions:

 

Wells Fargo Bank, National Association

ABA # 121000248

Account Name: Corporate Trust Clearing Account

Attn: Brent Jordahl

A/C # 0001038377

Ref: Perry Ellis/Rafaella Indem.

 

 

EXHIBIT C

 

Agency and Custody Account Direction

For Cash Balances

Wells Fargo Money Market Deposit Accounts

 

Direction to use the following Wells Fargo Money Market Deposit Accounts for Cash Balances for the escrow account or accounts (each, an “Account” and collectively, the “Accounts”) established under the Escrow Agreement to which this Exhibit C is attached.

 

You are hereby directed to deposit, as indicated below, or as jointly directed by the parties hereto in writing from time to time, all cash in the Account(s) in the following money market deposit account of Wells Fargo Bank, National Association (Bank):

 

Wells Fargo Institutional Money Market Deposit Account (IMMA)

 

The undersigned parties understand that amounts on deposit in the IMMA are insured, subject to the applicable rules and regulations of the Federal Deposit Insurance Corporation (FDIC), in the basic FDIC insurance amount of $250,000 per depositor, per insured bank. This includes principal and accrued interest up to a total of $250,000.

 

The undersigned parties acknowledge that they have full power to direct investments of the Account(s) when acting jointly.

 

The undersigned parties understand that the parties hereto may jointly change this direction at any time and that it shall continue in effect until revoked or modified by me by written notice to you.

 

 

	
RAFAELLA APPAREL GROUP, INC.
  	
 
  	
PERRY ELLIS INTERNATIONAL, INC.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
By:
  	
 
  	
 
  	
By:
  	
 
  
	
 
  	
Name:
  	
 
  	
 
  	
Name:
  
	
 
  	
Title:
  	
 
  	
 
  	
Title:
  

 

 

EXHIBIT D

JOINT DIRECTION

 

TO:                                                                            WELLS FARGO BANK, NATIONAL ASSOCIATION

(the “Escrow Agent”)

 

RE:                                                                             Escrow Agreement, dated as of January [·], 2011 (the “Escrow Agreement”), by and among  Rafaella Apparel Group, Inc., a Delaware corporation (“Rafaella”), and Perry Ellis International, Inc., a Florida corporation (“PEI”) and the Escrow Agent.

 

Capitalized terms used but not defined herein have the meaning ascribed to such terms in the Escrow Agreement.

 

The undersigned hereby irrevocably directs the Escrow Agent to pay as soon as reasonably practicable, but in no event more than three (3) business days following receipt of this notice, the following Net Working Capital  Escrow Property, by wire transfer of immediately-available funds, to the following persons or entities in the amounts referenced:

 

	
Recipient
  	
 
  	
Wire Transfer Instructions
  	
 
  	
Payment Amount
  
	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  

 

The undersigned hereby irrevocably directs the Escrow Agent to pay as soon as reasonably practicable, but in no event more than three (3) business days following receipt of this notice, the following Indemnity Escrow Property, by wire transfer of immediately-available funds, to the following persons or entities in the amounts referenced:

 

	
Recipient
  	
 
  	
Wire Transfer Instructions
  	
 
  	
Payment Amount
  
	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  

 

 

	
 
  	
RAFAELLA APPAREL GROUP, INC.
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  

 

 

	
 
  	
PERRY ELLIS INTERNATIONAL, INC.
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  

 

 

EXHIBIT E

 

CERTIFIED COPY OF COURT DECISION

 

TO:                                                                            WELLS FARGO BANK, NATIONAL ASSOCIATION

(the “Escrow Agent”)

 

RE:                                                                             Escrow Agreement, dated as of January [·], 2011 (the “Escrow Agreement”), by and among Rafaella Apparel Group, Inc., a Delaware corporation (“Rafaella”), and Perry Ellis International, Inc., a Florida corporation (“PEI”) and the Escrow Agent.

 

Capitalized terms used but not defined herein have the meaning ascribed to such terms in the Escrow Agreement.

 

I, [insert name], the [insert title] of [PEI][Rafaella], hereby certify on behalf of [PEI][Rafaella] and not in my individual capacity that attached to this certificate as Appendix A is a true, correct and complete certified copy of the final decision of [·], which remains in full force and effect, unamended as of the date hereof.

 

The undersigned hereby directs the Escrow Agent to pay from the [Net Working Capital Escrow Property][Indemnity Escrow Property] the amounts set forth in the decision attached hereto to the specified recipients as soon as reasonably practicable, but in no event more than three (3) business days following receipt of this notice, by wire transfer of immediately-available funds, in accordance with the terms of the Escrow Agreement and the decision attached hereto.

 

Dated this [·] day of [·], 20[·]

 

 

	
 
  	
)
  	
 
  
	
 
  	
)
  	
 
  
	
 
  	
)
  	
 
  
	
 
  	
)
  	
 
  
	
Witness
  	
 
  	
 
  

 

 

EXHIBIT F-1

CERTIFICATE AS TO AUTHORIZED SIGNATURES

 

The specimen signatures shown below are the specimen signatures of the individuals who have been designated as authorized representatives of Rafaella Apparel Group, Inc., a Delaware corporation (“Rafaella”), and are authorized to initiate and approve transactions of all types for the escrow accounts established under the Escrow Agreement to which this Exhibit F-1 is attached, on behalf of Rafaella.

 

	
Name / Title
  	
 
  	
Specimen Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  

 

 

EXHIBIT F-2

CERTIFICATE AS TO AUTHORIZED SIGNATURES

 

The specimen signatures shown below are the specimen signatures of the individuals who have been designated as authorized representatives of Perry Ellis International, Inc., a Florida corporation (“PEI”), and are authorized to initiate and approve transactions of all types for the escrow accounts established under the Escrow Agreement to which this Exhibit F-2 is attached, on behalf of PEI.

 

	
Name / Title
  	
 
  	
Specimen Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Name
  	
 
  	
Signature
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Title
  	
 
  	
 
  

 

 

EXHIBIT G

FEES OF ESCROW AGENT

 

	
Acceptance One Time Fee:
  	
$
  	
2,500
  

 

The Acceptance Fee includes review of all related documents and accepting the appointment of Escrow Agent on behalf of Wells Fargo Bank, National Association. The fee also includes setting up the required account(s) and accounting records, document filing, and coordinating the receipt of funds/assets for deposit to the Escrow Account.  The Acceptance Fee is due at the time of closing and covers the life of the Escrow.

 

Wells Fargo’s bid is based on the following assumptions:

 

·                  Number of escrow accounts to be established:  Two (2);

·                  Investment in the Wells Fargo Institutional Money Market Deposit Account

 

 

Exhibit C

 

Form of Intellectual Property Power of Attorney

 

 

	
 
  	
RECORDING REQUESTED BY
  
	
 
  	
 
  
	
 
  	
WHEN RECORDED MAIL TO
  

 

IRREVOCABLE LIMITED POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS: That I,                  , the                      (enter official officer authorized to sign on behalf of Rafaella Apparel Group, Inc.) of Rafaella Apparel Group, Inc., a Delaware corporation with offices located at 1411 Broadway, New York, NY 10018 hereby makes, constitutes and appoints PEI Licensing, Inc. and its respective affiliates through each of the respective company’s officers as the true and lawful Attorney for Rafaella Apparel Group, Inc. and in its name, place and stead and for its use and benefit effective as of the date set forth below as follows:

 

(a)  To execute and sign all power of attorney documents, assignment documents, agreements or other written documents relating to the registration, application, opposition, cancellation or assignment of all world wide “Rafaella”, “Rafaella Jeans”, “Rafaella Form and Function”, “Ellavie”, “Ergofit”, “V Verrazano”, “2 W 2 Way Stretch” and logo design marks and all “Rafaella”, “Rafaella Jeans”, “Rafaella Form and Function”, “Ellavie”, “Ergofit”, “V Verrazano”, “2 W 2 Way Stretch” and related logo design domain names, social media user names, patents, trademark and copyright applications, registrations, oppositions, cancellation, infringement and/or counterfeiting action proceedings owned by, or instituted on behalf of Rafaella Apparel Group, Inc.

 

(b)  This Power of Attorney shall remain effective in perpetuity.

 

(c)  WARNING TO THE PERSON EXECUTING THIS DOCUMENT:

 

This is an important legal document.  It creates a limited power of attorney.  Before executing this document, you should know these important facts:

 

1.  This document may provide the persons you designate as your attorney in fact with power to execute, amend or modify transactions, documents and agreements on your behalf.

 

2.  The duration of these powers have been granted in perpetuity.  These powers will remain effective even upon your subsequent disability or incapacity.

 

3.  You do not have the right to revoke or terminate this power of attorney.

 

4.  If there is anything about this form that you do not understand, you should ask a lawyer to explain it to you.

 

GIVING AND GRANTING unto my said Attorney full power and authority to do and perform all and every act and thing whatsoever requisite, necessary or appropriate to be done in and relating to the matters set forth above and to all intents and purposes as I might or could do if personally present, hereby ratifying all that my said Attorney shall lawfully do or cause to be done by virtue of these presents.  The powers and authority hereby conferred upon my said Attorney shall be limited and applicable only to those acts and matters as set forth above.

 

My said Attorney is empowered hereby to determine in their sole discretion the time when, purpose for and manner in which any power herein conferred upon them shall be exercised, and the conditions, provisions and covenants of any instrument or document which may be executed by them pursuant hereto.

 

WITNESS my hand this        day of                ,2011.

 

	
 
  	
 
  	
Accepted by:
  
	
Rafaella Apparel Group, Inc.
  	
 
  	
PEI Licensing, Inc.
  
	
 
  	
 
  	
 
  
	
By:
  	
 
  	
 
  	
By:
  	
 
  
	
Print Name:
  	
 
  	
 
  	
Print Name:
  	
 
  
	
Title:
  	
 
  	
 
  	
Title:
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  
	
Witness:
  	
 
  	
 
  	
Witness:
  	
 
  
	
Name: 
  	
 
  	
 
  	
Name:
  	
 
  

 

 

Exhibit D

 

Form of Trademark and Copyright Assignment

 

 

UNITED STATES AND CANADA

 

INTELLECTUAL PROPERTY AND DOMAIN NAME ASSIGNMENT

 

This INTELLECTUAL PROPERTY AND DOMAIN NAME ASSIGNMENT (this “Assignment”), effective the        day of                  , 2011, is made and entered into by and between Rafaella Apparel Group, Inc., a Delaware corporation, having a place of business at 1411 Broadway, New York, New York 10018 (hereinafter referred to as “Assignor”), and PEI Licensing, Inc., a Delaware corporation, having a place of business at 3000 N.W. 107th Avenue, Miami, Florida 33172 (hereinafter referred to as “Assignee”) (“Assignee” and “Assignor” each a “Party,” and collectively, the “Parties”). Capitalized terms used herein but not otherwise defined herein shall have the meanings set forth in that certain Asset Purchase Agreement, dated as of January       , 2011 between Perry Ellis International, Inc. and Rafaella Apparel Group, Inc., a Delaware Corporation,  having a place of business located at 1411 Broadway, New York, NY 10018, Rafaella Apparel Far East Limited, a Hong Kong limited company, having a place of business located at                                                   ,  Verrazano, Inc., a New York corporation, having a place of business located at                                                    (the “Purchase Agreement”).

 

WHEREAS, Assignor is the owner of each of (i) the patents and patent applications set forth on Schedule A hereto (the “Patents”); (ii) the copyrights, copyright registrations and copyright applications set forth on Schedule B hereto (the “Copyrights”); and (iii) the trademarks (including those which may be entitled to be registered in additional territories), trademark registrations and trademark applications  (including any and all goodwill symbolized thereby) set forth on Schedule C hereto, (the “Trademarks”), and any and all copyright subsisting in the subject matter of the Trademarks, including any design or word components ((i)-(iii), collectively, the “Purchased Intellectual Property”);

 

WHEREAS, Assignor is the registrant of record and owner of each of the Internet domain names (including any and all goodwill symbolized thereby) set forth on Schedule D hereto and the domain name registrations therefor (the “Domain Names”);

 

WHEREAS, Assignor is the registration of record and owner of each of the social media user names (including any and all goodwill symbolized thereby) set forth on Schedule E hereto (the “Social Media User Names”);

 

WHEREAS, the execution and delivery of this Assignment is a condition to Closing.

 

NOW THEREFORE, for the consideration set forth in the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.             Assignment.  Effective upon Closing, Assignor hereby assigns to Assignee:

 

1

 

(a)                                                        all of Assignor’s right, title and interest in, and good will associated with, the Purchased Intellectual Property, the Domain Names, and the Social Media User Names, including all rights therein provided by international conventions and treaties, and the right to sue for past, present and future infringement thereof (“Transferred Rights”); and

 

(b)                                                        any and all rights to sue at law or in equity for any infringement, imitation, impairment, distortion, dilution or other unauthorized use or conduct in derogation of the Transferred Rights occurring prior to the Closing, including the right to receive all proceeds and damages therefrom;

 

(c)                                                         any and all rights to royalties, profits, compensation, license fees or other payments or remuneration of any kind relating to the Transferred Rights; and

 

(d)                                                        any and all rights to obtain renewals, reissues, and extensions of registrations or other legal protections pertaining to the Transferred Rights.

 

Assignee, its successors and assigns, shall hold the rights to the foregoing for and during the existence of such Transferred Rights, and all renewals, reissues and extensions thereof, as fully and as entirely as the same would have been held and enjoyed by Assignor had this Assignment not been made.

 

2.             Further Assurances.  Assignor shall, at the cost and expense of Assignee, timely execute and deliver any additional documents and perform such additional acts reasonably necessary or desirable to record and perfect the interest of Assignee in and to the Purchased Intellectual Property, the Domain Names and the Social Media User Names, and shall not enter into any agreement in conflict with this Assignment.

 

3.             Governing Law.  This Assignment shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law rules of such state.

 

4.             Counterparts.  This Assignment may be executed by facsimile and/or .pdf in one (1) or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same agreement.  Facsimile or .pdf transmission of any signed original counterpart and/or retransmission of any signed facsimile transmission shall be deemed the same as the delivery of an original.

 

2

 

IN WITNESS WHEREOF, each Party has caused this Assignment to be executed by its duly authorized representative.

 

	
ASSIGNOR:
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
By:
  	
 
  	
 
  	
 
  
	
Name:
  	
 
  	
 
  	
 
  
	
Title:
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Witness:
  	
 
  	
 
  	
Witness:
  	
 
  
	
Name:
  	
 
  	
 
  	
Name:
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
ASSIGNEE:
  	
 
  	
 
  
	
PEI LICENSING, INC.
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
By:
  	
 
  	
 
  	
 
  
	
Name:
  	
 
  	
 
  	
 
  
	
Title:
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
Witness:
  	
 
  	
 
  	
Witness:
  	
 
  
	
Name:
  	
 
  	
 
  	
Name:
  	
 
  

 

3

 

SCHEDULE A - PATENTS

 

	
Country
  	
 
  	
Application No.
  	
 
  	
Patent No.
  	
 
  	
Filing Date
  	
 
  	
Issue Date
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  

 

4

 

SCHEDULE B -  COPYRIGHTS

 

	
Country
  	
 
  	
Title
  	
 
  	
App. No.
  	
 
  	
Reg. No.
  	
 
  	
Filing Date
  	
 
  	
Issue Date
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  

 

5

 

SCHEDULE C -  TRADEMARKS

 

See Attached

 

6

 

SCHEDULE D -  DOMAIN NAMES

 

	
Domain Name
  	
 
  	
Registering Authority
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  

 

7

 

SCHEDULE E -  SOCIAL MEDIA USER NAMES

 

8

 

Exhibit E

 

Form of Transition Agreement

 

 

FORM OF
  TRANSITION SERVICES AGREEMENT

 

THIS TRANSITION SERVICES AGREEMENT (“Agreement”) is made and entered into this [      ] day of         , 2011 by and between Rafaella Apparel Group, Inc., a Delaware corporation (“Rafaella”), Rafaella Apparel Far East Limited, a Hong Kong company (“Far East”) and Verrazano, Inc., a New York corporation (“Verrazano”), on one hand (Rafaella, Far East and Verrazano are collectively referred to as the “Sellers”), and Perry Ellis International, Inc., a Florida corporation (“Purchaser”, and along with Sellers, each sometimes hereinafter a “Party”, and sometimes collectively, the “Parties”).

 

W I T N E S S E T H:

 

WHEREAS, Sellers and Purchaser have entered into the Asset Purchase Agreement dated as of January [   ], 2011 (the “Purchase Agreement”), pursuant to which Purchaser has purchased substantially all of the assets and assumed certain liabilities relating to the Business.  Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Purchase Agreement;

 

WHEREAS, the Sellers seek the orderly winding down of the operations of each of the Sellers following the closing of the transactions contemplated by the Purchase Agreement (the “Closing”);

 

WHEREAS, historically, the persons named on Schedule A attached hereto (the “Named Employees”) were employed by one of the Sellers and performed certain corporate and administrative, accounting, financial and other services for the Sellers in connection with the Business;

 

WHEREAS, effective as of or subsequent to the Closing, the Named Employees shall be employed by Purchaser or one of its Affiliates; and

 

WHEREAS, in consideration for the Sellers’ obligations under the Purchase Agreement (including but not limited to the liabilities that are to remain on account of the Sellers after Closing and the covenants that survive Closing), the Purchaser shall make available, or cause to be made available, to the Sellers the Named Employees who provided certain services to the Business  prior to the date hereof, and during the “Transition Services Period” (as hereinbelow defined).

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and as a material inducement to the Sellers upon which the Sellers relied in executing the Purchase Agreement, the Parties agree as follows:

 

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Section 1.                                          Provision of Services.

 

(a)                                  Purchaser shall make available, or cause its Affiliates to make available, to the Sellers the Named Employees and Sellers may directly engage the Named Employees during any leave period to perform those services set forth on Schedule A (the “Transition Services”), during the time period(s) set forth on Schedule A (the “Transition Services Period”); provided that the Named Employees are then employed by Purchaser or its Affiliates (and not otherwise incapacitated).  In order to conclude the Transition Services Period as promptly as practicable,(i) the Sellers hereby agree, subject to the provisions of Section 4 below, to provide the Named Employees access to the books and records of the Sellers in a timely fashion and a license to use any systems of the Sellers during the Transition Services Period at no cost to Named Employees to the extent necessary for Named Employees to provide the Transition Services, and (ii) Purchaser hereby agrees to provide the Named Employees access to the books and records of the Business and any necessary systems of the Purchaser or the Business during the Transition Services Period at no cost to Sellers to the extent necessary for the Named Employees to perform the Transition Services as directed by Sellers.  No equipment or facility of either Party used by Named Employees in performing the Transition Services for or subject to use by the other Party shall be deemed to be transferred, assigned, conveyed or leased by such performance or use.

 

(b)                                 Purchaser may in its sole discretion, but only as pre-approved in writing by Sellers, agree to incur certain third party costs or expenses on behalf of the Sellers in connection with the Transition Services.  In such event, Purchaser shall, or shall cause its Affiliates to, invoice Rafaella monthly in arrears, subject to Section 3 of this Agreement, for any third party costs or expenses incurred in connection with the provision of the Transition Services provided by the Named Employees and such invoices shall be due and payable by Sellers in accordance with the provisions of Section 3.

 

(c)                                  During the Transition Services Period, Sellers shall not be required to engage the services of the Named Employees and may engage third parties or professional advisors for the completion of the Transition Services.

 

(d)                                 The Parties hereby understand and agree that, notwithstanding anything to the contrary in this Agreement or the Purchase Agreement (including without limitation Section 5.7 of the Purchase Agreement), in the event that any Named Employee ceases to be employed by Purchaser or its Affiliates, the Sellers shall have the right to directly or indirectly solicit or contact or offer to employ or contract with such Named Employee.

 

(e)                                  Sellers acknowledge and understand that Purchaser’s obligation hereunder is limited to making available to Sellers the Named Employees in accordance with the terms hereof, and that Purchaser and its Affiliates do not undertake to provide any Transition Services to Sellers or any third parties.  Any Transition Services performed by the Named Employees pursuant to this Agreement shall be as engaged with, and as directed by, Sellers and/or their respective Affiliates.

 

(f)                                    Sellers agree to use commercially reasonable best efforts to conclude the Transition Services as promptly as practicable.  Sellers further agree to notify Purchaser, in advance where practicable under the circumstances, of the dates and times when any of the

 

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Named Employees shall be needed.  Purchaser reserves the right to reasonably reject any request for services to be provided by any Named Employee in the event such request is in conflict with the legitimate business needs of Purchaser; provided, however, that the foregoing shall not in any way prohibit Sellers from subsequently requesting that the Named Employees provide Transition Services hereunder, subject to all of the terms and conditions hereof.

 

(g)                                 Sellers acknowledge and agree that Purchaser does not undertake to supervise, manage or otherwise direct the provision of any Transition Services by any Named Employee. The obligation to supervise, manage and direct the Transition Services remains at all times with Sellers and/or their respective Affiliates.  The Named Employees shall be subject to the direction and control of the Sellers while providing such Transition Services to Sellers and/or their respective Affiliates. The Named Employees shall be independent contractors of Sellers in connection with their providing any Transition Services to Sellers.

 

(h)                                 Purchaser promises to allow the Named Employees to use Purchaser’s workspace, materials, and equipment necessary for the performance of the Transition Services.

 

Section 2.                                          Termination.

 

(a)                                  The Transition Services Period shall be deemed to terminate on the earliest of: (i) the date set forth on Schedule A, (ii) the date on which any Seller terminates this Agreement upon five (5) days’ prior written notice to Purchaser, or (iii) the date on which this Agreement is terminated or expires in accordance with its terms.

 

(b)                                 In the event that either Party fails to perform, or cause to be performed, any material obligation under this Agreement (the “Failing Party”), and such failure is not cured within ten (10) Business Days after receipt by the Failing Party of written notice from the other Party, then such other Party may, upon written notice to Failing Party, and in addition to the rights and remedies provided in at law or in equity, terminate this Agreement and, except as otherwise set forth in Section 2(c) hereof, all rights and privileges granted or created hereunder.

 

(c)                                  Upon termination of this Agreement for any reason, Sellers shall have no payment obligations to the Purchaser or any of its Affiliates with respect to this Agreement other than any unfulfilled payment obligations provided for in Section 3 of this Agreement.

 

(d)                                 Notwithstanding the termination of this Agreement, each of Sections 1(c), 3, 5, 6, 8, 9, 10, 12, 13, 14, 15 and 16 of this Agreement shall survive any such termination.

 

Section 3.                                          Reimbursement for Costs and Expenses Incurred in Connection with the Transition Services; Relationship of the Parties.  Sellers shall pay Purchaser a fee of Two Hundred Dollars ($200.00) per hour (pro rated for any partial hours) for any Transition Services performed by the Named Employees for Sellers hereunder, and Sellers shall also reimburse Purchaser for all reasonable, third-party out-of-pocket expenses incurred by Purchaser in connection with the Named Employees providing the Transition Services that have been pre-approved in writing by any Seller and Purchaser in accordance with the provisions of Section 1(b) above.  Sellers shall pay Purchaser, by wire transfer, in accordance with the wire transfer instructions annexed hereto as Schedule B, within fifteen (15) Business Days of its receipt of any invoice; provided that in the event that Sellers fail to make timely payment of any

 

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fees or costs invoiced to Sellers, which Sellers are not disputing in good faith, such amounts shall bear interest at the rate of eight percent (8%) per annum from the date on which such payment is due until the same is paid in full.

 

Section 4.                                          Access to Records and Properties.   In the event that the Named Employees require access to the Sellers’ books and records to perform the Transition Services as engaged by Rafaella hereunder, the Sellers shall, during normal business hours, provide Named Employees with reasonable access to its books and records .

 

Section 5.                                          Standard of Care; Limitation of Liability; Indemnification.

 

(a)                                  Purchaser shall use its reasonable best efforts to ensure that the Named Employees are permitted to provide Transition Services during periods reasonably requested by Rafaella.

 

(b)                                 NO PARTY NOR ANY OF ITS REPRESENTATIVES OR AFFILIATES WILL BE LIABLE FOR ANY AMOUNTS REPRESENTING OPPORTUNITY COSTS, LOSS OF PROFITS, LOSS OF BUSINESS OR SALES OR SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, EVEN IF SUCH PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATION OF LIABILITY SHALL NOT APPLY TO LIABILITY RESULTING FROM A BREACH BY EITHER PARTY AND/OR THEIR RESPECTIVE AFFILIATES OF THEIR CONFIDENTIALITY OBLIGATIONS UNDER THIS AGREEMENT.

 

(c)                                  NONE OF PURCHASER, ITS REPRESENTATIVES, ITS AFFILIATES OR ITS EMPLOYEES OR AGENTS WILL BE LIABLE, WHETHER BASED ON AN ACTION OR CLAIM IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF OR RELATED TO THIS AGREEMENT, IN EXCESS OF THE SUM (I) THE AMOUNTS PAID TO PURCHASER AND ITS AFFILIATES UNDER THIS AGREEMENT, AND (II) ANY AMOUNTS DUE TO PURCHASER AND ITS AFFILIATES UNDER THIS AGREEMENT.

 

(d)                                 IN FURTHERANCE AND NOT IN LIMITATION OF THE FOREGOING, PURCHASER AND ITS REPRESENTATIVES AND AFFILIATES AND EMPLOYEES WILL NOT BE LIABLE IN RESPECT OF ANY DECISIONS MADE BY ANY OF THE SELLERS AND/OR THEIR RESPECTIVE AFFILIATES AS A RESULT OF THE PROVISION OF TRANSITION SERVICES DURING THE WINDING DOWN OF THE SELLERS’ BUSINESS.

 

(e)                                  Except as otherwise hereinabove provided, Purchaser, its Affiliates and their respective successors and the respective Representatives shall have no indemnification obligation to Sellers or their Affiliates arising out of or related to the performance of Purchaser’s obligations pursuant to this Agreement, in any manner whatsoever, including but limited to any alleged or actual gross negligence or willful misconduct by Purchaser, its Affiliates and their respective Representatives and/or the Named Employees.

 

(f)                                    Sellers shall indemnify Purchaser, its Affiliates and their respective successors and the respective Representatives against whom a claim for indemnification is being

 

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asserted under this Agreement, and hold them harmless from and against, any and all loss, liability, damage, claim, cost or expense (including, but not limited to, the reasonable fees and expenses of their legal counsel and reasonable costs of investigation) arising out of or related to the performance of Sellers’ obligations pursuant to this Agreement.

 

Section 6.                                          Relationship of the Parties.  In performing their respective obligations hereunder, each Party shall be a independent to the other and no such Party nor any of such Party’s representatives, agents or employees shall be deemed to be the representative, agent or employee of the other Party.  The Parties do not intend to create a partnership, joint venture, association, agency or other relationship between them and any legal relationship other than that of independent contractors on the terms set forth herein, no Party shall have the authority to act on behalf of or bind the other Party.  Accordingly, Purchaser acknowledges and agrees that Purchaser is obligated to report as income all consideration received by Purchaser pursuant to this Agreement and that Purchaser is solely responsible for all taxes, withholdings, and other similar statutory obligations including, but not limited to, self-employment tax and workers’ compensation insurance with respect to any Named Employee.  Purchaser agrees to defend, indemnify and hold Sellers harmless from any and all claims made by any entity on account of a failure by Purchaser to satisfy any such tax or withholding obligations.

 

Section 7.                                          Representatives.  Each of the Parties will designate a qualified employee to serve as its principal representative to coordinate and facilitate the providing of Transition Services by the Named Employees.  Such employees designated will be granted sufficient authority to resolve on behalf of each of the Parties all questions and problems arising with respect to the provision of Transition Services.  From the date hereof until further notice, the representative of Rafaella shall be            and the representative of Purchaser shall be the CFO of Purchaser.

 

Section 8.                                          Confidentiality.  In addition to any and all other confidentiality agreements made in writing between the Parties, which shall remain in effect in accordance with their terms and shall not be deemed to be limited hereby, each Party shall hold and shall cause its directors, officers, employees, agents, consultants and advisors to hold in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all information concerning the other Party (except to the extent that such information can be shown to have been (a) in the public domain through no fault of such Party or (b) later lawfully acquired on a non-confidential basis from other sources by the Party to which it was furnished), and neither Party shall release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who shall be advised of the provisions of this Section 9.

 

Section 9.                                          Non-Performance.  Neither party shall be liable for any loss or damage whatsoever arising out of any delay or failure in the performance of its obligations pursuant to this Agreement to the extent such delay or failure results from events beyond the control of that party, including but not limited to acts of God, acts or regulations of any governmental entity, war, terrorism, riots, insurrection or other hostilities, accident, fire, flood, strikes, lockouts, industrial disputes or shortages of fuel, the termination, nonperformance, illness

 

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or resignation of the Named Employees.  Neither party shall be entitled to terminate this Agreement in respect of any such delay or failure resulting from any such event.

 

Section 10.                                   Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and made (a) in the case of personal delivery or delivery by facsimile (with confirmation of delivery), on the date of such delivery, (b) in the case of nationally-recognized overnight courier, on the next business day following dispatch and (c) in the case of mailing, on the fifth Business Day following such mailing if sent by certified mail, return receipt requested, postage prepaid.  All such notices, requests, demands and other communications shall be addressed  at the address or facsimile number shown in this Section 10 for, or such other address or facsimile number as may be designated in writing hereafter by, such Party:

 

	
If to Seller:
  	
 
  	
Rafaella Apparel Group, Inc.

1411 Broadway

New York, New York 10018

Attention: [·]

Facsimile: [·]
  
	
 
  	
 
  	
 
  
	
With a copy (which shall not constitute notice) simultaneously by like means to each of:
  	
 
  	
RA Cerberus LLC

c/o Cerberus Capital Management, L.P.

299 Park Avenue

New York, New York 10017

Attention: [·]

Facsimile: [·]
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
Zukerman Gore & Brandeis, LLP
 875 Third Avenue
 New York, New York 10022
 Attention: Clifford A. Brandeis, Esq.
 Fax: 212-223-6433
  
	
 
  	
 
  	
 
  
	
If to Purchaser:
  	
 
  	
Perry Ellis International, Inc.

3000 NW 107 Avenue

Miami, Florida 33172

Attention: General Counsel

Facsimile: (786) 221-8245
  
	
 
  	
 
  	
 
  
	
With a copy (which shall not constitute notice) simultaneously by like means to:
  	
 
  	
Greenberg Traurig, LLP

MetLife Building

200 Park Avenue

New York, New York 10166

Attention: Clifford E. Neimeth

   David C. Peck

Facsimile: (212) 801-6400
  

 

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Section 11.                                   Counterparts.  This Agreement may be executed in one or more original, facsimile or electronic counterparts, and in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

 

Section 12.                                   Entire Agreement; No Third Party Beneficiaries; Amendments.  This Agreement (including the Schedules hereto) embodies the entire agreement and understanding of the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings relative to such subject matter.  Each Party acknowledges that it is not relying on any promise or representation not explicitly set forth herein in entering into this Agreement.  Nothing herein shall grant to or create in any person or entity not a Party hereto, including but not limited to an employee of the Sellers, or their Affiliates or Purchaser, or any of its Affiliates, any right to any benefits hereunder, and no such person or entity shall be entitled to sue either Party to this Agreement with respect thereto.  No amendment or modification of this Agreement shall be valid unless in writing and signed by all the Parties.

 

Section 13.                                   Severability.  If any provision hereof shall be held invalid or unenforceable by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not affect the validity or effect of any other provision hereof, as long as the remaining provisions, taken together, are sufficient to carry out the overall intentions of the Parties as evidenced hereby.

 

Section 14.                                   Governing Law; Waiver of Jury Trial.

 

(a)                                  This Agreement shall be interpreted and governed by the laws of New York without giving effect to those principles of conflict of laws that may require the application of the laws of a jurisdiction other than New York.  The Parties irrevocably agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the District of New York or, if such court does not have jurisdiction over the subject matter of such proceeding or if such jurisdiction is not available, in a court in the State of New York sitting in New York County with proper jurisdiction to hear the dispute, and each of the Parties hereby irrevocably consents to the exclusive jurisdiction and venue of those courts (and of the appropriate appellate courts therefrom) in any suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have based on forum non coveniens or any other objection to the laying of the venue in any of those courts.

 

(b)                                 The Parties each waive their respective rights to a trial by jury of any claim or cause of action based upon or arising out of or related to this Agreement or the transactions contemplated hereby, in any action, proceeding or other litigation of any type brought by any of the parties against any other party, whether with respect to contract claims, tort claims, or otherwise. The Parties each agree that any such claim or cause of action shall be tried by a court trial without a jury. Without limiting the foregoing, the Parties further agree that their respective right to a trial by jury is waived by operation of this section as to any action, counterclaim or other proceeding which seeks, in whole or in part, to challenge the validity or

 

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enforceability of this Agreement or any provision hereof. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to this Agreement.

 

Section 15.                                   Assignment.  This Agreement and various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the Parties hereto and their successors and permitted assigns.  Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be transferred, delegated, or assigned by either Party hereto without the prior written consent of the other Party (which consent shall not be unreasonably withheld).

 

Section 16.                                   Headings; Interpretation.  The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. Each reference in this Agreement to a Section or Schedule, unless otherwise indicated, shall mean a Section of this Agreement or Schedule attached to this Agreement, respectively. References herein to “days”, unless otherwise indicated, are to consecutive calendar days.  References to a “corporation” or “company” shall be construed so as to include any corporation, company or other body corporate, wherever and however incorporated or established.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Agreement as of the day and year first above written.

 

	
 
  	
RAFAELLA APPAREL GROUP, INC.
  
	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
RAFAELLA APPAREL FAR EAST LIMITED
  
	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
VERRAZANO, INC.
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
PERRY ELLIS INTERNATIONAL, INC.
  
	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
 
  	
Name:
  
	
 
  	
 
  	
Title:
  

 

Signature Page to Transition Services Agreement

 

 

Schedule A

 

Named Employees and Transition Service Periods

 

Reference is hereby made to that certain Transition Services Agreement by and between Rafaella Apparel Group and Perry Ellis International, Inc. (the “Agreement”) to which this Schedule A is annexed.  Unless otherwise expressly set forth on this Schedule A to the contrary, all capitalized terms on this Schedule A shall have the same meanings as ascribed to them in the Agreement.

 

The Sellers have requested the services of Lance Arneson, Michelle Pavon or David Regasky (the “Named Employees”) for a period not to exceed nine (9) months after the Closing Date.  During such period, Sellers may request that the Purchaser make available the Named Employees to facilitate (i) the orderly winding down of the business and operations of each of the Sellers, (ii) the sale of Excluded Assets, (iii) the settlement and satisfaction of the Excluded Liabilities; (iv) the negotiation of any Seller Returns and Seller Chargebacks in accordance with Section 5.14 of the Purchase Agreement (the “Transition Services”). Purchaser will agree to make the Named Employees available to provide such Transition Services; provided that the Named Employees are then employed by Purchaser or its Affiliates (and not otherwise incapacitated); provided further, that Seller directly engages, supervises, manages and otherwise directs the provision of the Transition Services by the Named Employees; and provided further that the services of the Named Employees will be provided at reasonable times and on a reasonable basis taking into account their duty and responsibilities to provide services to Purchaser.

 

 

Schedule B

 

Purchaser Wire Transfer Instructions

 

 

Exhibit F

 

Form of Warrant Assignment

 

 

FORM OF

WARRANT AGREEMENT

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE.  THE SECURITIES REPRESENTED HEREBY ARE RESTRICTED AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS (A) REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE COMPANY, IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.

 

	
Dated as of January      , 2011
  	
 
  	
No. W-1
  

 

PERRY ELLIS INTERNATIONAL, INC.

 

Warrant for the Purchase of Shares of Common Stock

 

FOR VALUE RECEIVED, Perry Ellis International, Inc., a corporation organized under the laws of the State of Florida (the “Company”), hereby certifies that Rafaella Apparel Group, Inc., a corporation organized under the laws of Delaware, or its registered assigns, is the registered holder (the “Holder”) of a warrant (the “Warrant”) of the Company that entitles the Holder to purchase from the Company, on the terms and subject to the conditions hereinafter set forth, the number of shares of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock (as defined below) set forth in Section 1 hereof at the Exercise Price (as defined in Section 2) per share of Common Stock. This Warrant has been issued pursuant to that certain Asset Purchase Agreement dated as of January [    ], 2011 (the “Agreement”) by and among the Company and Rafaella Apparel Group, Inc., Rafaella Apparel Far East Limited, and Verrazono, Inc.

 

The term “Common Stock” means the Common Stock, par value $0.01 per share, of the Company as constituted on the date of issuance of this Warrant.  The number of shares of Common Stock to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth.  The term “Warrant Shares” means the shares of Common Stock deliverable upon exercise of the Warrant, as may be adjusted from time to time. The term “Company” means and includes Perry Ellis International, Inc., as well as any person or entity which shall succeed, or assume the obligations of, Perry Ellis International, Inc. The term “Business Day” means any day, except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized by law to close.  The term “Closing Price” means

 

 

on any date specified herein, the amount per share of Common Stock equal to (a) if shares of Common Stock are then listed or admitted to trading on any national securities exchange, the last sale price of such share of Common Stock on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which the Common Stock is then listed or admitted to trading, (b) if shares of Common Stock are not then listed or admitted to trading on any national securities exchange but are designated as a national market system security by Financial Industry Regulatory Authority, Inc. (“FINRA”), the last trading price of the shares of Common Stock on such date, (c) if there shall have been no trading on such date or if the shares of Common Stock are not so designated, the average of the closing bid and asked prices of the shares of Common Stock on such date as shown by a FINRA automated quotation system, or (d) if shares of Common Stock are not then listed or admitted to trading on any national exchange or quoted in the over-the-counter market, the fair value thereof determined by a nationally recognized investment bank selected by the Board of Directors of the Company and reasonably acceptable to the Holders.

 

The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held subject to, all of the conditions, limitations and provisions set forth herein.

 

1.                                      Number of Shares.  The Holder of this Warrant is entitled to purchase 106,565 duly authorized, validly issued, fully paid and nonassessable shares of the Company’s Common Stock, as such amount may be adjusted under Section 9 hereof.

 

2.                                      Exercise Price.  The Exercise Price shall be $0.01  per share, subject to adjustment pursuant to Section 9 hereof (originally and as adjusted, the “Exercise Price”).

 

3.                                      Exercise of Warrant.  This Warrant may be exercised in whole or in part, at any time or from time to time during the period (a) commencing on the Business Day immediately following the first Business Day on which the Closing Price of the Company’s Common Stock equals or exceeds $28.152 subsequent to the closing of the transactions contemplated by the Agreement (the “Threshold Price”) and (b) expiring as of 5:00 p.m. on [January]       , 2013, or if such date is not a Business Day, then as of 5:00 p.m. on the next succeeding day that shall be a Business Day (the “Expiration Date”).

 

4.                                      Notice of Exercise.

 

(a)                                  The purchase rights represented by this Warrant may be exercised by presentation and surrender of this Warrant to the Company at its principal office, or at the office of a warrant agent designated by the Company by written notice to the Holder (the “Warrant Agent”), with the form of Warrant exercise attached hereto as Exhibit A (the “Warrant Exercise Form”), duly executed by the Holder or its duly authorized attorney and either (i) accompanied by payment of the Exercise Price, as adjusted as provided herein, or (ii) otherwise paid for in accordance with the provisions of Section 5 below, in each instance for the number of Warrant Shares specified in such Warrant Exercise Form.

 

 

(b)                                 Payment in cash of the aggregate Exercise Price shall be made by wire transfer in cash or by certified check or cashier’s check, payable to the order of the Company in accordance with the provisions of Section 4(a).

 

(c)                                  Upon surrender of this Warrant, the Warrant Exercise Form and payment of the aggregate Exercise Price, whether in accordance with this Section 4 or Section 5 below, the Company shall direct its transfer agent to issue and cause to be delivered as soon as reasonably practicable, and in any case within three (3) Business Days after the surrender of this Warrant, to or upon the written order of the Holder, and in such name or names, as the Holder may designate as provided in Section 10, a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of this Warrant.  If this Warrant should be exercised in part only, the Company shall execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder.  In no event shall the Company be liable to the Holder for any failure by the Company’s transfer agent to issue and cause to be delivered any Warrant Shares as provided herein.

 

(d)                                 Upon receipt by the Company at its office, or by the Warrant Agent at its office, of this Warrant, together with the Warrant Exercise Form and the payment of the aggregate Exercise Price in accordance with either this Section 4 or Section 5, the Holder shall immediately be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder.

 

5.                                      Cashless Exercise.  Notwithstanding any provision herein to the contrary, in lieu of paying the Exercise Price in cash upon the exercise of this Warrant, in whole or in part, a Holder may exercise this Warrant, in whole or in part, by electing to receive that number of shares of Common Stock as determined below by surrendering to the Company such Warrant, with the Warrant Exercise Form duly completed and signed by the Holder or its duly authorized attorney, in which event the Company shall issue to the Holder the number of shares of Common Stock computed using the following formula (“Cashless Exercise”):

 

 

For purposes of the foregoing formula:

 

	
CS =
  	
the number of shares of Common Stock to be issued to the Holder;
  
	
 
  	
 
  
	
WCS =
  	
equals the number of Warrant Shares purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised;
  
	
 
  	
 
  
	
CP =
  	
the Closing Price of the Common Stock on the date immediately preceding the date of the applicable Warrant Exercise Form; and
  

 

 

 

	
EP = 
  	
the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
  

 

Upon such surrender of this Warrant and the Warrant Exercise Form indicating the Holder’s election to exercise pursuant to a Cashless Exercise, the Company shall issue and cause to be delivered promptly, and in any case within three (3) Business Days after the surrender of this Warrant, to or upon the written order of the Holder and in such name or names, as the Holder may designate, a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of this Warrant. If this Warrant should be exercised in part only, the Company shall execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder.

 

6.                                      Reservation of Shares.  The Company will at all times reserve and keep available out of its authorized but unissued shares of Common Stock for issuance and delivery upon exercise of this Warrant the maximum number of shares of Common Stock or other shares of capital stock of the Company (and other securities) from time to time receivable upon exercise of this Warrant, and all shares so reserved shall not be affected or limited by preemptive rights granted to others. All such shares (and other securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights, liens, charges and encumbrances.

 

7.                                      Fractional Shares.  No fractional shares or script representing fractional shares shall be issued upon the exercise of the Warrants, but the Company shall pay to the Holder in cash an amount equal to the Closing Price multiplied by such fraction in respect of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of the Warrants.

 

8.                                      Rights of the Holder.  Prior to exercise of the Warrants, the Holder, in its capacity hereunder, shall not, by virtue hereof, be entitled to any rights as a shareholder of the Company, either at law or in equity, and the rights of the Holder, in its capacity hereunder, are limited to those expressed in this Warrant.

 

9.                                      Adjustment of Exercise Price and Number of Shares.  The number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of certain events, as follows:

 

(a)                                  Consolidation, Merger, Equity Exchange, etc.  In case a consolidation, merger or equity exchange of the Company shall be effected with another Person (as defined in Section 10) after the date hereof and the Company shall not be the surviving entity, or the Company shall be the surviving entity but its shares of Common Stock shall be changed into securities or other property of another Person, and in either such case, this Warrant shall not then be exercisable as provided in Section 3 hereof, then, as a condition of such consolidation, merger, or equity exchange, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive, upon the exercise of this Warrant, on the basis and the terms and conditions specified herein (and in lieu of each Warrant Share immediately theretofore purchasable and receivable upon the exercise of this Warrant), such securities, cash or other property receivable upon such consolidation, merger, or equity

 

 

exchange, as such Holder would have been entitled to receive if this Warrant had been exercised immediately prior to such event.  In any such case, appropriate and equitable provision also shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including Section 9 hereof) shall thereafter be applicable, as nearly as may be, in relation to any securities, cash or other property thereafter deliverable upon the exercise of this Warrant.  The Company shall not effect any such consolidation, merger, or equity exchange at a time when this Warrant is not then exercisable as provided in Section 3 hereof, unless prior to or simultaneously with the consummation thereof the successor Person (if other than the Company) resulting from such consolidation, merger or equity exchange shall assume, by written instrument, the obligation to deliver to such Holder such securities, cash or other property as, in accordance with the foregoing provisions, such Holder may be entitled to receive upon the exercise of this Warrant.  The above provisions of this Section 9 (a) shall similarly apply to any successive consolidations, mergers, or equity exchanges, provided that this Warrant is not then exercisable at the time of such successive consolidation, merger or equity exchange.

 

(b)                                 Reclassification, Etc.  If the Company at any time shall, by combination or reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such combination, reclassification or other change.

 

(c)                                   Stock Dividends, Splits, Subdivisions or Combination of Shares.  If the Company at any time shall pay a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, or split or subdivide its Common Stock, (i) the number of Warrant Shares issuable pursuant to this Warrant shall be proportionately increased, (ii) the Threshold Price shall be proportionately decreased; provided, however, if the Closing Price has exceeded the Threshold Price prior to such stock dividend, split or subdivision, the adjustment to the Threshold Price hereunder shall not effect the exercisability hereunder in accordance with Section 3 hereof and (iii) the Exercise Price per share of Common Stock shall remain $0.01 per share.  If the Company at any time shall combine or reverse split its Common Stock, the Exercise Price and the Threshold Price shall be proportionately increased and the number of Warrant Shares issuable pursuant to this Warrant shall be proportionately decreased; provided, however, if the Closing Price has exceeded the Threshold Price prior to such combination or reverse stock split, the adjustment to the Threshold Price hereunder shall not effect the exercisability hereunder in accordance with Section 3 hereof.  The Company will not take any action to increase the par value of the Common Stock or take any action which results in an increase of the par value of the Common Stock in either case above the then current Exercise Price per share of Common Stock, unless concurrently therewith (i) the Exercise Price per share will be adjusted to an amount equal to the lowest Exercise Price per share required to permit exercise of the Warrant, in whole or in part, under applicable law, and (ii) an increase is made in the number of Warrant Shares issuable pursuant to this Warrant to preserve the economic value of the Warrant as determined immediately prior to such increase in par value in order to offset the higher Exercise Price per share required under applicable law to permit exercise of the Warrant.

 

 

(d)                                 No Other Rights.  Except as expressly set forth in this Section 9, the Holder shall not be entitled to receive any preferences, anti-dilution adjustments, preemptive rights, rights of first refusal or other rights with respect to this Warrant or the Warrant Shares.

 

(e)                                  Notice of Adjustments; Notices.  Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted as set forth in this Section 9, the Company shall as promptly as reasonably practicable deliver in accordance with Section 11 to the Holder a certificate signed by its President, Chief Executive Officer or Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment.

 

(f)                                    Notices of Corporate Events.  If the Company (i) shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of cash, securities or other property in respect of its Common Stock, including without limitation granting any rights or warrants to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, or to receive any other right; (ii) authorizes or approves any (A) capital reorganization of the Company, (B) any reclassification of the capital stock of the Company, (C) any consolidation or merger of the Company with or into another corporation, (D) any sale of all or substantially all of its assets in one or a series of related transactions; (E) any tender offer or exchange offer pursuant to which holders of the Common Stock are permitted to tender or exchange their shares for other securities, cash or property; or (F) an increase in the par value per share of the Common Stock, or (iii) authorizes the voluntary dissolution, liquidation or winding up of the Company, then the Company shall mail to the Holder a notice describing the material terms and conditions of such transaction (but only to the extent such disclosure would not result in the dissemination of material non-public information) at least ten (10) calendar days prior to the applicable record or effective date on which a person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps necessary in order to provide the Holder with the opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

10.                               Transferability of Warrant; Compliance with the Securities Act.  Except as set forth herein, a Holder may not transfer, assign or encumber all or any part of this Warrant (“Transfer”).  Notwithstanding the foregoing, a Holder may Transfer all or any part of this Warrant to a Permitted Transferee.  “Permitted Transferee” means (i) Cerberus Capital Management, L.P. (“Cerberus”), (ii) any Affiliate of Cerberus, (iii) any investment fund or managed account managed or controlled by Cerberus or any Affiliate of Cerberus, (iv) any Affiliate of any investment fund or managed account managed or controlled by Cerberus or any Affiliate of Cerberus, (v) RSW 2005 Inc. or any Affiliate of RSW 2005, Inc.  The term “Affiliate” shall mean, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person.  The term “Person” shall include an individual, a corporation, an association, a partnership, a limited liability company, a trust or estate, a government, foreign or domestic, and any agency or political subdivision thereof, or any other

 

 

entity.  The term “control” (including the terms “controlled by”, “controlling” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.  The Company shall from time to time register the transfer of any outstanding Warrant certificates upon the records to be maintained by it for that purpose, upon surrender thereof accompanied by a Warrant assignment in the form of Exhibit B hereto, duly executed by the Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney.  Upon any such registration of transfer, a new Warrant certificate shall be issued to the transferee(s) and the surrendered Warrant certificate shall be cancelled by the Company.  Cancelled Warrant Certificates shall thereafter be disposed of by or at the direction of the Company in accordance with applicable law.  The Company shall number and register the Warrant certificates in a Warrant register as they are issued by the Company.  The Warrant register will show the names and addresses of the Holders, the numbers of Warrants and Warrant Shares evidenced on the face of each Warrant certificate and the date of each Warrant certificate. The Company shall change the address of the registered Holder in the Warrant register upon written notice of such Holder delivered in accordance with Section 11 hereof.

 

The Warrant Shares may not be sold, transferred, pledged, hypothecated or otherwise disposed of unless registered under the Securities Act and any applicable state securities laws or pursuant to available exemptions from such registration, provided that the transferor delivers to the Company an opinion of counsel reasonably satisfactory to the Company confirming the availability of such exemption.  All certificates representing the Warrant Shares shall bear on the face thereof substantially the following legend:

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or under applicable state securities laws and may not be sold, offered for sale, assigned, transferred or otherwise disposed of, unless registered pursuant to the provisions of the Securities Act and any applicable state securities laws or unless an opinion of counsel reasonably acceptable to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration.”

 

11.                               Notices.  Any notice or demand authorized or permitted by this Warrant to be given or made by any Holder to or on the Company shall be sufficiently given or made when and if (i) transmitted in legible form by facsimile machine to the facsimile number below with confirmation of receipt, or (ii) (A) deposited in the mail, first class or registered, postage prepaid, or (B) delivered to a nationally recognized private delivery service (such as FedEx) on an overnight basis, postage or freight prepaid, addressed (until another address is sent in writing by the Company to the Holders) as follows:

 

 

Perry Ellis International, Inc.
 3000 NW 107 Avenue
 Miami, Florida 33172
 Attention:  General Counsel

Facsimile: (786) 221-8245

 

Any notice pursuant to this Warrant Agreement to be given by the Company to a Holder shall be sufficiently given when and if (i) transmitted in legible form by facsimile machine to the facsimile number appearing on the Warrant register, with confirmation of receipt, or (ii) (A) deposited in the mail, first-class or registered, postage prepaid, or (B) delivered to a nationally recognized private delivery service (such as FedEx) on an overnight basis, postage or freight prepaid, addressed to such Holder at the address appearing on the Warrant register, and with a copy simultaneously by like means to:

 

Zukerman Gore Brandeis & Crossman, LLP
 875 Third Avenue
 New York, New York 10022
 Attention:  Clifford A. Brandeis, Esq.
 Facsimile:  (212) 223-6433

 

The initial address for the initial Holder to be included in the Warrant register is set forth below:

 

Rafaella Apparel Group, Inc.
 c/o Cerberus Capital Management, L.P.
 299 Park Avenue
 New York, New York 10017
 Attention:  [·]
 Facsimile:  [·]

 

12.                               Payment of Taxes and Customary Expenses of Issuance.  No service charge shall be made to any Holder for any exercise, exchange or registration of a Transfer permitted in accordance with Section 10 of this Warrant.  The Company shall pay its expenses and the customary expenses of its transfer agent in connection with the issuance of the Warrant Shares.  The Company shall not be required to pay any tax or taxes which may be payable in respect of any subsequent Transfer of this Warrant or a Transfer involved in the issue of any Warrant certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant certificate surrendered upon the exercise of a Warrant, and all required opinions of counsel shall be at the sole expense of the Holder.  The Company shall pay all stamp taxes attributable to the issuance of Warrant Shares to the registered Holder upon exercise of the Warrant by the registered Holder.

 

13.                               Rule 144 Information.

 

(a)                                  With a view to making available the benefits of certain rules and regulations of the Securities and Exchange Commission (the “SEC”) which may permit the sale of the Warrant Shares to the public without registration, the Company agrees to:

 

 

(b)                                 make and keep public information available, as those terms are defined in Rule 144 under the Securities Act;

 

(c)                                  use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

 

(d)                                 furnish to each Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and the Exchange Act.

 

14.                               General Provisions.

 

(a)                                  Successors.  All the covenants and provisions of this Warrant shall bind and inure to the benefit of the respective executors, administrators, successors and permitted assigns of the Holder and the Company.

 

(b)                                 Amendment.  This Warrant may only be modified or amended by a writing signed by the Company and the Holder.

 

(c)                                  Applicable Law.  This Warrant shall be deemed to be a contract made under the laws of the State of Florida and for all purposes shall be governed by and construed in accordance with the internal laws of said State, without giving effect to such State’s conflicts of laws provisions.  The parties hereto irrevocably consent to the jurisdiction of the state and federal courts sitting in the Miami-Dade County, Florida in connection with any action, suit or proceeding arising out of or relating to this Warrant.  Each party hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of any action in any jurisdiction.

 

(d)                                 Entire Agreement.  Except as provided herein, this Warrant, including exhibits, contains the entire agreement of the parties, and supersedes all existing negotiations, representations or agreements and other oral, written, or other communications between them concerning the subject matter of this Warrant.

 

(e)                                  Severability.  If any provision of this Warrant is unenforceable, invalid, or violates applicable law, such provision shall be deemed stricken and shall not affect the enforceability of any other provisions of this Warrant.

 

(f)                                    Captions.  The captions in this Warrant are inserted only as a matter of convenience and for reference and shall not be deemed to define, limit, enlarge, or describe the scope of this Warrant or the relationship of the parties, and shall not affect this Warrant or the construction of any provisions herein.

 

(g)                                 Lost or Mutilated Warrant.  The Company covenants to the Holder that upon receipt by the Company of documentation reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company in customary form and reasonably satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation of

 

 

this Warrant, the Company shall execute and deliver a new warrant of like tenor and date in lieu of this Warrant.  Any such new warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone.

 

(h)                                 Further Assurances.  The Company shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.  Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority or any other person, and otherwise fulfilling, or causing the fulfillment of, the various obligations made herein), as may be reasonably required or desirable to carry out or to perform the provisions of this Warrant and to consummate and make effective as promptly as possible the transactions contemplated by this Warrant.

 

(i)                                     Enforcement.  The parties agree that irreparable damage would occur in the event that any of the provisions of this Warrant were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall have such remedies to which they are entitled at law or in equity; provided, however, that each Holder’s equitable relief shall be limited to (i) the right to enforce specifically the right of such Holder to exercise this Warrant in accordance with the terms hereof and to receive delivery of the Warrant Shares issuable upon such exercise and (ii) the right to seek such equitable remedies as may apply as a result of the bankruptcy or insolvency of the Company, in each instance in any Florida state court or any federal or bankruptcy court located in the State of Florida.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written.

 

 

	
 
  	
PERRY ELLIS INTERNATIONAL, INC.
  
	
 
  	
a Florida corporation
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
 
  
	
 
  	
Name:
  	
 
  
	
 
  	
Title:
  	
 
  

 

 

EXHIBIT A

 

WARRANT EXERCISE FORM

(To be executed by the Holder to exercise the right to purchase shares of Common Stock

under the foregoing Warrant)

 

To Perry Ellis International, Inc.:

 

In accordance with the Warrant for the Purchase of Shares of Common Stock (the “Warrant”) enclosed with this Warrant Exercise Form, the undersigned hereby irrevocably elects to purchase                                              shares of Common Stock, $0.01 par value per share (“Common Stock”), of Perry Ellis International, Inc. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.                                       Form of Exercise Price.  The Holder intends that payment of the Exercise Price shall be made as:

 

a “Cash Exercise” with respect to                            Warrant Shares; and/or

 

a “Cashless Exercise” with respect to                      Warrant Shares.

 

2.                                       Payment of Exercise Price.  In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the aggregate Exercise Price in the sum of $                     to the Company in accordance with the terms of the Warrant.

 

3.                                       Delivery of Warrant Shares.  In accordance with the terms of the Warrant, the Company shall deliver to the Holder                      Warrant Shares issued in the name of:

 

	
 
  
	
(Please print name and address)
  
	
 
  

 

 

If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock that the undersigned had elected to purchase in accordance with the enclosed Warrant, the undersigned requests that a new Warrant evidencing the right to purchase the shares of Common Stock not issued pursuant to the exercise evidenced hereby be issued in the name of and delivered to:

 

	
 
  
	
(Please print name and address)
  
	
 
  
	
 
  
	
 
  
	
 
  
	
 
  
	
Dated:
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
(Print name of holder)
  

 

 

	
 
  	
By:
  	
 
  
	
 
  	
Name:
  	
 
  
	
 
  	
Title:
  	
 
  
	
 
  	
(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)
  

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

	
FOR VALUE RECEIVED,
  	
 
  
	
 
  
	
hereby sells, assigns, and transfers unto
  
	
 
  
	
Name:
  	
 
  
	
 
  	
(Please type or print in block letters)
  
			

 

the right to purchase Common Stock of Perry Ellis International, Inc., a Florida corporation (the”Company”), represented by this Warrant to the extent of                                  shares as to which such right is exercisable and does hereby irrevocably constitute and appoint                                                                        Attorney, to transfer the same on the books of the Company with full power of substitution in the premises.

 

 

	
Dated:
  	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
By:
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
Name
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
 
  
	
 
  	
 
  	
Title
  

 

13

 

Schedule I

 

Sellers’ Disclosure Schedules

 

[Omitted pursuant to Item 601(b)(2) of Regulation S-K]

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