LIQUIDATION AGREEMENT
This Agreement is entered into as of this 5th day of May, 1997 between
Norwest Bank Minnesota, National Association (the "Lender") and Xxxxx X. Xxxxx,
Incorporated (the "Company").
Recitals
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A. The Company is indebted to the Lender pursuant to a Loan and Security
Agreement dated October 28, 1994, as amended, (the "Credit Agreement"). All
advances under the Credit Agreement, together with daily interest, fees, costs
and expenses and any other indebtedness of the Company to Lender, are
hereinafter collectively referred to as the "Indebtedness." The Credit Agreement
and all related documents in favor of the Lender are referred to herein as the
"Security Documents."
B. As of the close of business on May 4, 1997, the outstanding principal
amount of the Indebtedness was $6,055,473.65. In addition, interest, fees, costs
and expenses have accrued and are accruing.
C. The Indebtedness is secured by, among other things, a perfected
security interest in, without limitation, all inventory, receivables, accounts,
equipment and general intangibles of the Company (the "Collateral").
D. Xxxxxx X. Xxxxxxxxx and Xxxx X. Xxxxxxxx (the "Guarantors") have each,
in their personal capacities, executed a Guaranty dated as of October 28, 1994,
as amended, and a Management Agreement dated as of October 28, 1994.
E. The Company is in default of its obligations under the Security
Documents. The Lender is entitled to exercise its rights and remedies.
F. The Company has acknowledged its financial difficulties and has
represented to the Lender its desire to liquidate its assets. The Company
desires to seek a buyer for its assets on a going concern basis for a limited
period of time, and, if the Company cannot sell its assets as a going concern,
to wind up its affairs through an orderly liquidation. The Company has
represented that the level of the Collateral will not materially deteriorate in
relationship to the level of Indebtedness while the Company seeks buyers for its
assets. The Lender has consented to a winding down of the Company's business and
orderly liquidation on the terms and conditions set forth below.
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AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
each party, the parties agree as follows:
1. The Recitals are true and correct. The Indebtedness is due and owing,
without defense, offset or counterclaim.
2. The Company may continue its business operations to the extent
reasonably necessary to sell inventory and other assets, service existing
customers, collect receivables and wind down its affairs in a timely manner
until July 31, 1997, provided that it complies with the Budget attached hereto
as Exhibit A in all material respects. No item of Collateral with a value
greater than $5,000.00 may be sold, other than in the ordinary course of
business, by the Company without the prior approval of the Lender. The Company
shall pay the Indebtedness in full on or before July 31, 1997. Promptly after
July 15, 1997, unless the Company has located a buyer who will buy the Company's
assets on a going-concern basis, the Company will conduct a going out of
business sale or will otherwise sell its remaining inventory, equipment and
other assets, and shall either sell or collect its remaining receivables.
3. All proceeds from the sale of assets and from the collection of accounts
or otherwise collected or received by the Company shall be turned over to the
Lender in the form received for application to the Indebtedness in a manner to
be determined by the Lender in its sole discretion.
4. Except as set forth in paragraph 5 below, the Company shall not incur or
pay expenses or other obligations except expenses which are both (i) set forth
in the Budget and (ii) reasonably necessary to wind down its business. The
Lender, in its sole discretion, may fund advances required by the Company as set
forth in the Budget, and any amounts so advanced shall become part of the
Indebtedness. The Company shall achieve the collections and payments to the
Indebtedness as set forth in the Budget, and shall comply with the Budget in
every respect at the times and in the amounts set forth in the Budget. The
Company shall not accept consigned inventory unless the consignor has executed
an intercreditor agreement with the Lender, in form and substance acceptable to
the Lender, including, without limitation, provisions regarding the segregation
of consigned inventory and that no consigned inventory shall be sold on a
deferred payment basis unless such deferred payments are sold to a third party.
5. The Company has represented to the Lender that certain parties
("Consignors") may provide inventory to the Company on consignment (the
"Consignment Goods") for sale by the Company. The Lender has no objection to the
Company accepting Consigned Goods for sale, provided:
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(i) All Consigned Goods must be readily identifiable by marking or
labeling as constituting Consigned Goods.
(ii) All Consigned Goods that are not clearly marked or labeled as such
shall be deemed to be part of the Collateral.
(iii) The Company shall not sell any Consigned Goods for less than the
amount owing to the Consignor for such Consigned Goods.
(iv) The Company shall not sell any Consigned Goods other than for cash
unless the company has an agreement from an unrelated third party
to purchase any accounts receivable or chattel paper created by
such sales at face value.
(v) The Company will deliver to the Lender all payments made to the
Company on account of the sale of the Consigned Goods, including the
proceeds from the disposition of chattel paper or accounts
receivable resulting from the sale of Consigned Goods.
Provided that the Company meets its obligations herein and complies with the
foregoing, the Lender has no objection to the Company's payment to Consignors of
an amount equal to the cost of Consigned Goods sold by the Company,
notwithstanding that the Budget does not list any payments to Consignors for the
Sale of Consigned Goods.
6. The Company agrees to permit the Lender, and its respective officers,
employees and agents, to have full access to the Company's books, records and
properties for the purpose of verifying the Company's compliance with the terms
of the Security Documents and this Agreement.
7. Except as expressly modified by this Agreement, all provisions of the
Security Documents remain in full force and effect. The Lender reserves its
rights at any time to exercise all of its rights and remedies under the Security
Documents, whether or not the Company has complied with its covenants and
obligations under this Agreement, or the Security Documents. The Company shall,
upon request of the Lender, deliver all of the Collateral to the Lender and
shall permit the Lender to use the Company's premises for the purpose of
enforcement and foreclosure of the Lender's security interest in the Collateral.
Without limiting the generality of the foregoing, the Lender specifically
reserves its rights with respect to the Guarantors.
8. The Company shall also deliver the following to the Lender: (a) a
daily report setting forth the sales of inventory, equipment and other assets
and collection of receivables by 12:00 noon on the next business day and (b) a
revised weekly cash flow
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forecast comparing actual results to forecasted performance for the prior week,
along with a collateral\loan schedule, and a sales projection schedule, all to
be received by 12:00 noon on the Tuesday of the following week and reflecting
information through the close of business for the prior week. The Company shall
also deliver to the Lender by 12:00 noon on each Tuesday, a report with respect
to the Company's efforts with respect to the sale of its receivables portfolio,
including information regarding offers received, contacts made, and other
information relevant to the disposition of the Company's assets. The reports
shall also provide detailed information regarding the Company's efforts to sell
its store operations, and information regarding store performance including
sales, cash collections and expenses. The Company agrees to execute and deliver
such other and further documents or reports as the Lender may request from the
Company to execute, perfect, evidence or otherwise implement the agreements set
forth in this Agreement. In consideration of the Lender's willingness to provide
further advances to the Company and to provide the Company an opportunity to
liquidate its assets in an orderly fashion, the Company shall execute such
further financing statements, assignments, mortgages or other documents which
the Lender may require to create perfected security interests or liens on assets
of the Company.
9. If the Company permanently reduces the outstanding Indebtedness from
the proceeds of liquidation to $4,000,000 or less by no later than July 31,
1997, the Lender will not object if Company elects to pay the Guarantors a bonus
of $25,000 each. If the Company further permanently reduces the outstanding
Indebtedness from the proceeds of the liquidation below $4,000,000 by no later
than July 31, 1997, the Lender will not object to the Company's payment of an
additional bonus to each Guarantor, not to exceed $50,000 each (in addition to
the foregoing $25,000 bonus), equal to five percent (5%) of the amount such
permanent reduction is less than $4,000,000. If the Company further permanently
reduces the outstanding Indebtedness from the proceeds of liquidation below
$3,000,000 by no later than July 31, 1997, the Lender will not object to the
Company's payment of a bonus to each of Guarantors of ten percent (10%) of the
amount of such permanent reduction below $3,000,000, such bonus being in
addition to the foregoing described bonuses. For the purposes of the
calculations set forth in this paragraph 9 only, (i) the proceeds of liquidation
shall not include any proceeds received from life insurance policies, and (ii)
collateral monitoring fees, unused line fees and interest accruing after April
5, 1997 shall not be added to the Indebtedness.
10. In consideration of the execution of this Agreement, the Company, on
behalf of itself, its officers, agents, insurers, successors and assigns,
releases, acquits and forever discharges the Lender, and its respective
officers, directors, agents, attorneys, insurers, parents, affiliates,
successors and assigns, of and from any and all manner of action or actions,
suits, claims, damages, judgments, levies and executions, whether known or
unknown, liquidated or unliquidated, fixed, contingent, direct or indirect,
which the Company ever had, has, or may have or claim to have against the Lender
or its respective officers, agents, insurers, successors and assigns, for, upon
or by reason of any matter, act or thing prior to the date of execution of this
Agreement.
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11. No modifications or amendments to this Agreement may be made except in a
writing signed by all parties hereto.
12. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument. Facsimiles or photocopies of executed signature pages to this
Agreement shall be considered originals.
13. This Agreement is made and entered into in the State of Minnesota, and
the laws of Minnesota shall govern its enforcement and performance.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NORWEST BANK MINNESOTA
NATIONAL ASSOCIATION
By______________________________
Its___________________________
XXXXX X. XXXXX, INCORPORATED
By /s/
______________________________
Its President
____________________________
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