Opinion ID: 202596
Heading Depth: 2
Heading Rank: 1

Heading: The Hampshire Venture.

Text: 8 This contract dispute began with a $2 million bridge loan essentially to finance the acquisition of sweaters. 1 The lender, Development Capital Ventures, LP (DCV), is an investment company that provides venture capital to small businesses. The borrower, now-defunct Coachman, was a small business operating in Puerto Rico. In connection with the bridge loan, which was to be made in two $1 million installments (one on February 25, 2000, the other on March 10, 2000), Coachman delivered to DCV a CONVERTIBLE SUBORDINATED DEMAND NOTE (the Note) on February 24, 2000. The Note had a maturity date of June 30, 2000, 2 and provided for the conversion of the principal amount into company stock at DCV's option at any time before the balance was paid in full, or automatically upon the satisfaction of certain conditions. 9 The Note identified, described, and attached as annexes four documents that bore upon the bridge loan. Annex A was a term sheet detailing the conversion of stock; it, along with a guaranty embodied in annex C, is not involved in this dispute. Annex B was a document entitled ASSET PURCHASE AGREEMENT, which the Note identified as the Hampshire Agreement and defined in ¶ 1.(viii) as follows: 10 Hampshire Agreement shall mean the agreement between the Company [Coachman] and Hampshire Corporation (Hampshire) whereby the Company establishes a subsidiary to acquire inventory and equipment from Hampshire and Hampshire guarantees to acquire a minimum of 12 million sweaters from such subsidiary over the next five (5) years, or an average annual purchase of 2.4 million sweater units. See draft agreement under Annex B., 11 The draft version of the Hampshire Agreement identified the subsidiary referenced above as Glamourette/OM, Inc. (Glamourette). 3 The last document attached to the Note (as annex D) was a SUBORDINATION AND STANDBY AGREEMENT (the Subordination Agreement). According to the terms of the Note, Rivera, Coachman's affluent chairman and sometimes lender, was required to execute the Subordination Agreement as a condition precedent to the bridge loan. 12 Rivera executed the Subordination Agreement, along with the Note (on behalf of Coachman), on February 24, 2000. At that time, Coachman owed Rivera approximately $5.75 million on past loans, but neither the Note nor the Subordination Agreement identified the particular loans to be subordinated to DCV's bridge loan. Almost a year later, Coachman fell into default. DCV's corporate general partner, DCC, demanded that Coachman pay its balance. When Coachman took no action to satisfy its obligations under the Note, DCC demanded that Rivera pay all amounts due from payments he had received from Coachman or its affiliates over the previous year. (Between February 24, 2000, and October 18, 2001, Rivera made a series of loans to Coachman, Olympic Mills, and Glamourette totaling $16.6 million, and was repaid at least $5.6 million.) On November 7, 2001, DCC, alleging various state-law claims under the Subordination Agreement, sued Rivera in diversity in federal district court. Shortly thereafter, on November 26, 2001, Coachman, Olympic Mills, and Glamourette filed in bankruptcy court voluntary petitions for relief under Chapter 11. 4 13