EXHIBIT 10.1
AMENDMENT NO. 5 TO THE COMPANY'S FINANCING AGREEMENT,
DATED MARCH 25, 1998, WITH THE CIT GROUP/COMMERICAL SERVICES, INC.
AS AGENT FOR ITSELF AND CERTAIN OTHER LENDERS,
AS PREVIOUSLY AMENDED
FIFTH AMENDMENT
TO THE FINANCING AGREEMENT
FIFTH AMENDMENT, dated as of March 25, 1998 (this "Amendment"), to
the Financing Agreement, dated as of February 13, 1996, as amended by the First
Amendment dated as of February 13, 1997, the Second Amendment dated as of June
1, 1997, the Third Amendment dated as of October 1, 1997 and the Fourth
Amendment dated as of November 28, 1997 (as so amended, the "Financing
Agreement"), by and among Happy Kids, Ltd., a New York corporation ("Happy
Kids"), O'Boy Inc., a New York corporation ("O'Boy"), Talk of the Town Apparel
Corp., a New York corporation ("TOT Apparel"), O.P. Kids, L.L.C., a New Jersey
limited liability company ("OP, LLC", and together with Happy Kids, O'Boy, and
TOT Apparel, each a "Borrower" and collectively, the "Borrowers"), the
guarantors listed on Schedule B to the Financing Agreement (each a "Guarantor"
and collectively, the "Guarantors"), the lenders listed on Schedule A to the
Financing Agreement (each a "Lender" and collectively the "Lenders") and The CIT
Group/Commercial Services, Inc., as agent for the Lenders (in such capacity, the
"Agent").
WHEREAS, (i) Happy Kids has changed its name to Happy Kids
Children's Apparel Ltd. ("HK Children's") and (ii) O'Boy has changed its name to
Happy Kids Inc. ("Happy Kids Inc." or the "Parent") and converted from a
Subchapter S corporation to a Subchapter C corporation under the Internal
Revenue Code (collectively, the "Name Changes").
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger
substantially in the form attached hereto as Annex VI (the "OP Merger
Agreement"), to be executed between OP, LLC and O.P. Kids Acquisition, Inc., a
New Jersey corporation ("OP Inc."), (i) OP, LLC intends to merge with and into
OP Inc. with OP Inc., as the surviving corporation in such merger, assuming all
of the obligations of OP, LLC including, without limitation, all such
obligations under the Financing Agreement and the other Loan Documents (the "OP
Merger") and (ii) immediately following the OP Merger, the name of OP Inc. shall
be changed to O.P. Kids, Inc. (collectively, the "OP Merger Transactions").
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger
substantially in the form attached hereto as Annex VII (the "H.O.T. Kidz Merger
Agreement"), to be executed between H.O.T. Kidz, L.L.C., a New York limited
liability company and a Guarantor under the Financing Agreement ("H.O.T. Kidz ")
and H.O.T. Kidz, Inc., a New York corporation ("H.O.T. Kidz, Inc."), H.O.T. Kidz
intends to merge with and into H.O.T. Kidz, Inc. with H.O.T. Kidz, Inc., as the
surviving corporation in such merger, assuming all of the obligations of H.O.T.
Kidz including, without limitation, all such obligations under the Financing
Agreement and the other Loan Documents (the "H.O.T. Kidz Merger").
WHEREAS, pursuant to the terms of the Securities Purchase Agreement
dated as of January 1, 1998 (the "Reorganization Agreement"), among Happy Kids
Inc., ▇▇▇▇ ▇. ▇▇▇▇▇
and ▇▇▇▇ ▇. ▇▇▇▇▇, a copy of which is attached as Annex VIII hereto, after the
date hereof (i) in exchange for an aggregate of 2,131,250 shares of common stock
of Parent, ▇▇▇▇ ▇. ▇▇▇▇▇ shall transfer to Parent all of the Capital Stock of
the Borrowers (other than the Happy Kids Inc.) and the Corporate Guarantors
currently owned by him, (ii) in exchange for an aggregate of 2,131,250 shares of
common stock of Parent, ▇▇▇▇ ▇. ▇▇▇▇▇ shall transfer to Parent all of the
Capital Stock of the Borrowers (other than Happy Kids Inc.) and the Corporate
Guarantors currently owned by him, and (iii) Happy Kids Inc. shall own all of
the outstanding Capital Stock of HK Children's, TOT Apparel, O.P. Kids, Inc.,
H.O.T. Kidz, Inc., Hawk and J&B (the "Corporate Reorganization").
WHEREAS, in connection with the Corporate Reorganization, Happy Kids
Inc. intends to (i) declare a distribution of all the remaining undistributed S
Corporation earnings of the Borrowers and the Guarantors (the "S Corp
Distribution") and (ii) consolidate the indebtedness evidenced by the existing
Subordinated Note in the principal amount of approximately $1,400,000 with the S
Corp Distribution and issue four year 5.7% promissory notes in the aggregate
principal amount of approximately $7,000,000 in favor of ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇, substantially in the form attached hereto as Annex IX (the
"S Corp Distribution Notes").
WHEREAS, after name changes, the OP Merger Transactions, the H.O.T.
Kids Merger, the Corporate Reorganization, and the S Corp Distribution, Happy
Kids Inc. intends to consummate an initial public offering of its common stock
(the "IPO"), the proceeds of which (after, deducting underwriting discounts and
commissions and reasonable and customary offering expenses) shall be used to (i)
prepay the Loans under the Financing Agreement in the principal amount of not
less than $15,800,000, and (ii) prepay the S Corp Distribution Notes in an
aggregate principal amount of $2,000,000 (the "S Corp Notes Prepayment").
WHEREAS, in connection with the Name Changes, the OP Merger
Transactions, the H.O.T. Kidz Merger, the Corporate Reorganization, the S Corp
Distribution, the S Corp Distribution Notes, the IPO and the S Corp Notes
Prepayment (collectively, the "Transactions"), the Borrowers, the Guarantors,
the Lenders and the Agent wish to amend the Financing Agreement to among other
things (i) add O.P. Kids, Inc. as a Borrower to the Financing Agreement and the
other Loan Documents and add H.O.T. Kidz, Inc. as a Guarantor to the Financing
Agreement and the other Loan Documents, (ii) release the Individual Guarantors
from their obligations as Guarantors under the Financing Agreement and to
release certain collateral pledged by the Individual Guarantors, and (iii) to
permit the Transactions.
Accordingly, the Borrowers, the Guarantors, the Lenders and the
Agent hereby agree as follows:
1. Definitions. All terms which are defined in the Financing
Agreement and not otherwise defined herein are used herein as defined therein.
2. The first paragraph of the Financing Agreement is hereby amended
in its entirety to read as follows:
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"FINANCING AGREEMENT, dated as of February 13, 1996 by and
among Happy Kids Children's Apparel Ltd., a New York corporation formerly
known as Happy Kids, Ltd. ('Happy Kids'), Happy Kids Inc., a New York
corporation formerly known as O'Boy Inc. (the 'Parent'), Talk of the Town
Apparel Corp., a New York corporation ('TOT Apparel') and O.P. Kids, Inc.,
a New Jersey corporation and successor by merger to O.P. Kids, L.L.C. ('OP
Inc.', and together with Happy Kids, the Parent and TOT Apparel, each a
'Borrower' and collectively the 'Borrowers'), the guarantors listed on
Schedule B hereto (each a 'Guarantor' and collectively, the 'Guarantors'),
the lenders listed on Schedule A hereto (each a 'Lender' and collectively,
the 'Lenders') and The CIT Group/Commercial Services, Inc., as agent for
the Lenders (in such capacity, the 'Agent')."
3. Recitals. The first two sentences in the Recitals are hereby
amended in their entirety to read as follows: "The Borrowers and the Guarantors
have asked the Lenders to extend credit to the Borrowers, from the date hereof
through the Final Maturity Date (as hereinafter defined), in the form of
discretionary revolving credit loans to the Borrowers at any time and from time
to time prior to the Final Maturity Date in an aggregate principal amount not in
excess of (i) $49,000,000 on and prior to ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) $42,000,000
during the period from May 1, 1998 through December 31, 1998, and (iii)
$47,000,000 during the period from January 1, 1999 through the Final Maturity
Date. This revolving credit facility may include a $35,000,000 letter of credit
subfacility."
4. Existing Definitions. (a) The definition of the term "Additional
Financing" in Section 1.01 of the Financing Agreement is hereby deleted in its
entirety.
(b) The definition of the term "Additional Lender" in Section
1.01 of the Financing Agreement is hereby deleted in its entirety.
(c) The second sentence of the definition of the term
"Affiliate" in Section 1.01 of the Financing Agreement is hereby amended in its
entirety to read as follows:
"Notwithstanding anything to the contrary, for purposes
of this Agreement and the other Loan Documents, the term "Affiliate"
shall also include any Family Member of ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇
or ▇▇▇▇▇ ▇▇▇▇ and any Person controlled by a Family Member of ▇▇▇▇
▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇."
(d) The definition of the term "Cash Collateral Agreement" in
Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(e) The definition of the term "Change of Control" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Change of Control' means (i) ▇▇▇▇ ▇. ▇▇▇▇▇ shall cease
to own and control, of record and beneficially, at least 25% of the
outstanding Capital Stock of the Parent free and clear of all Liens,
provided that the failure of ▇▇▇▇ ▇. ▇▇▇▇▇ to own and control, of
record and beneficially, at least 25% of the outstanding Capital
Stock of
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the Parent free and clear of all Liens shall not constitute a Change
of Control or a Material Adverse Effect if such failure results from
the transfer of such Capital Stock upon his death to his spouse or
the beneficiaries of his estate, any trust established for his
spouse or the beneficiaries of his estate or ▇▇▇▇ ▇. ▇▇▇▇▇ or ▇▇▇▇▇
▇▇▇▇, (ii) ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ shall cease
to own and control in the aggregate, of record and beneficially, at
least 51% of the outstanding Capital Stock of the Parent free and
clear of all Liens, (iii) the Parent shall cease to own and control,
of record and beneficially, all of the outstanding Capital Stock of
Happy Kids, TOT Apparel, OP Inc., H.O.T. Kidz, Hawk and J&B, or (iv)
▇▇▇▇ ▇. ▇▇▇▇▇ shall cease to be the President and Chief Executive
Officer of the Parent or cease to be involved in the day-to-day
operations and management of the business of each Borrower and
Corporate Guarantor, provided that the failure of ▇▇▇▇ ▇. ▇▇▇▇▇ to
be the President and Chief Operating Officer of the Parent or to be
involved in the day-to-day operations and management of the business
of each Borrower and Corporate Guarantor as a result of his death,
disability or incapacity shall not constitute a Change of Control or
a Material Adverse Effect if another Person reasonably acceptable to
the Lenders is hired by the Parent and assumes such offices and
duties within six (6) months of the date of such death, disability
or incapacity."
(f) The definition of the term "Combined Current Assets" in
Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(g) The definition of the term "Combined Current Liabilities"
in Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(h) The definition of the term "Combined Tangible Net Worth"
in Section 1.01 of the Financing Agreement is amended in its entirety to read as
follows:
"'Consolidated Tangible Net Worth' means, with respect
to the Parent and its Subsidiaries, the excess of (i) the aggregate
net book value of the assets (other than patents, patent rights,
trademarks, trade names, franchises, copyrights, licenses, permits,
goodwill and other intangible assets classified as such in
accordance with GAAP) of the Parent and its Subsidiaries after all
appropriate adjustments in accordance with GAAP applied on a
consistent basis (including, without limitation, reserves for
doubtful receivables, obsolescence, depreciation and amortization
and excluding the amount of any write-up or revaluation of any
asset) over (ii) the Consolidated Total Unsubordinated Liabilities
of the Parent and its Subsidiaries, in each case computed and
consolidated in accordance with GAAP applied on a consistent basis."
(i) The definition of the term "Combined Total Unsubordinated
Liabilities" in Section 1.01 of the Financing Agreement is hereby amended in its
entirety to read as follows:
"'Consolidated Total Unsubordinated Liabilities' means,
with respect to the Parent and its Subsidiaries, all items which, in
accordance with GAAP applied on a consistent basis, would properly
be included on the liability side of the balance sheet of the Parent
and its Subsidiaries (other than capital stock, capital surplus
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and retained earnings), as of the date on which the amount of
Consolidated Total Unsubordinated Liabilities is to be computed and
consolidated in accordance with GAAP applied on a consistent basis."
(j) The definition of the term "Credit Exposure" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Credit Exposure' means, with respect to each Lender,
the total credit exposure of such Lender (i) on and prior to April
30, 1998, as set forth in Part A of Schedule A hereto, (ii) during
the period from May 1, 1998 through December 31, 1998, as set forth
in Part B of Schedule A hereto, and (iii) during the period from
January 1, 1999 through the Final Maturity Date, as set forth in
Part C of Schedule A hereto, in each case as the same may be further
adjusted from time to time pursuant to Sections 10.01 or 11.01
hereof."
(k) The definition of the term "Cumulative Net Loss" in
Section 1.01 of the Financing Agreement is hereby amended in its entirety to
read as follows:
"'Cumulative Net Loss' means, at the end of each fiscal
quarter of the Parent and its Subsidiaries, the cumulative Net Loss
for the four (4) consecutive fiscal quarters ending at the end of
such fiscal quarter."
(l) The definition of the term "Disney" in Section 1.01 of the
Financing Agreement is hereby deleted in its entirety.
(m) The definition of the term "Disney License Agreements" in
Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(n) The definition of the term "Guarantors" in Section 1.01 of
the Financing Agreement is hereby amended by deleting the words ", the
Individual Guarantors."
(o) The definition of the term "Guaranty" in Section 1.01 of
the Financing Agreement is hereby amended by deleting clause (ii) thereof in its
entirety and substituting in lieu thereof "(ii) intentionally omitted, and."
(p) The definition of the term "Happy Kids License Agreement"
in Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(q) The definition of the term "H.O.T. Kidz" in Section 1.01
of the Financing Agreement is hereby amended in its entirety to read as follows:
"'H.O.T. Kidz' means H.O.T. Kids, Inc., a New York
corporation and the successor by merger to H.O.T. Kidz, L.L.C., a
New York limited liability company."
(r) The definition of the term "Increased Financing Condition"
in Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
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(s) The definition of the term "Increased Financing Effective
Date" in Section 1.01 of the Financing Agreement is hereby deleted in its
entirety.
(t) The definition of the term "Increased Interest Amount" in
Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(u) The definition of the term "Individual Guarantors" in
Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(v) The definition of the term "L/C Subfacility" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'L/C Subfacility' shall mean that portion of the Total
Credit Exposure equal to $35,000,000, or such other amount as shall
be agreed to in writing by the Agent, the Lenders and the Parent."
(w) The definition of the term "License Agreements" in Section
1.01 of the Financing Agreement is hereby amended by deleting the words ", the
Disney License Agreements and the Happy Kids License Agreements".
(x) The definition of the term "Licensor" in Section 1.01 of
the Financing Agreement is hereby amended by deleting the words ", Disney,
▇▇▇▇▇▇▇'▇".
(y) The definition of the term "Loan Documents" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Loan Documents' means this Agreement, the Notes, the
Joinder Agreements, the Security Agreements, the Pledge Agreement,
the CIT Assignment Agreement, the Guaranties, the Letter of Credit
Applications, the Blockage Agreement and all other instruments,
documents and agreements executed and delivered pursuant hereto."
(z) The definition of the term "Mortgage" in Section 1.01 of
the Financing Agreement is hereby deleted in its entirety.
(aa) The definition of the term "Net Income (Loss)" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Net Income (Loss)' means, for any period, the net
income (or loss) of a Person and its Subsidiaries after income taxes
for such period, but excluding any extraordinary gains, all computed
and consolidated in accordance with GAAP applied on a basis
consistent with the corresponding prior period."
(bb) The definition of the term "O'Boy" in Section 1.01 of the
Financing Agreement is hereby deleted in its entirety.
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(cc) The definition of the term "OP, LLC" in Section 1.01 of
the Financing Agreement is hereby deleted in its entirety.
(dd) The definition of the term "Prime Rate" in Section 1.01
of the Financing Agreement is hereby amended by deleting the name "Chemical
Bank" each time that it appears in such definition and substituting in lieu
thereof "The Chase Manhattan Bank."
(ee) The definition of the term "Security Agreement(s)" in
Section 1.01 of the Financing Agreement is hereby amended by deleting the words
", dated the date hereof," and the words "pursuant to Article V hereof."
(ff) The definition of the term "▇▇▇▇▇▇▇'▇" in Section 1.01 of
the Financing Agreement is hereby deleted in its entirety.
(gg) The definition of the term "Subordinated Note" in Section
1.01 of the Financing Agreement is hereby deleted in its entirety.
(hh) The definition of the term "Subordination Agreement" in
Section 1.01 of the Financing Agreement is hereby deleted in its entirety.
(ii) The definition of the term "Termination Anniversary Date"
in Section 1.01 of the Financing Agreement is hereby amended in its entirety to
read as follows:
"'Termination Anniversary Date' means March 31, 1999 and
thereafter March 31 of each succeeding calendar year."
(jj) The definition of the term "Total Credit Exposure" in
Section 1.01 of the Financing Agreement is hereby amended in its entirety to
read as follows:
"'Total Credit Exposure' means (i) on and prior to April
30, 1998, the sum of the Lenders' Credit Exposures in Part A of
Schedule A hereto, (ii) during the period from May 1, 1998 through
December 31, 1998, the sum of the Lenders' Credit Exposures in Part
B of Schedule A hereto, and (iii) during the period from January 1,
1999 through the Final Maturity Date, the sum of the Lenders' Credit
Exposures in Part C of Schedule A hereto, in each case, as the same
may be further adjusted from time to time pursuant to Sections 10.01
or 11.01 hereof."
(kk) The definition of the term "Working Capital" in Section
1.01 of the Financing Agreement is hereby deleted in its entirety.
5. New Definitions. The following definitions of the terms
"Blockage Agreement", "Fifth Amendment", "IPO", "Joinder Agreements", "OP Inc.",
"Parent", "Pledge Agreement" and "S Corp Distribution Notes" are hereby added to
Section 1.01 of the Financing Agreement:
"'Blockage Agreement' means the Blockage Agreement made
by the Parent, as obligor, and ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇, as creditors, in
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favor of the Agent and the Lenders, in the form of Annex X to the
Fifth Amendment, as the same may be amended or otherwise modified
from time to time."
"'Fifth Amendment' means the Fifth Amendment, dated as
of March 25, 1998 to the Financing Agreement."
"'IPO' has the meaning specified therefor in the Fifth
Amendment."
"'Joinder Agreements' has the meaning specified therefor
in the Fifth Amendment."
"'OP Inc.' has the meaning specified therefor in the
preamble hereto."
"'Parent' has the meaning specified therefor in the
preamble hereto."
"'Pledge Agreement' means the Pledge Agreement made by
the Parent in favor of the Agent, substantially in the form of Annex
XI to the Fifth Amendment, securing the Obligations, as the same may
be amended or otherwise modified from time to time."
"'S Corp Distribution Notes' has the meaning specified
therefor in the Fifth Amendment."
6. Credit Exposure. The second sentence of Section 2.01 of the
Financing Agreement is hereby amended in its entirety to read as follows:
"Notwithstanding the foregoing, the aggregate principal
amount of Loans outstanding at any time to the Borrowers shall not
exceed the lower of (i) the difference between (A) the Total Credit
Exposure, and (B) the aggregate Letter of Credit Obligations, (ii)
the difference between (A) the then current Borrowing Base and (B)
the aggregate Letter of Credit Obligations, and (iii) $35,000,000
during the period from January 1, 1998 through April 30, 1998 and
$30,000,000 during the period from May 1, 1998 through the Final
Maturity Date."
7. Notes. Section 2.04(a) of the Financing Agreement is hereby
amended by deleting the words ", dated the Effective Date,".
8. Interest. Paragraphs (a) and (b) of Section 2.06 of the Financing
Agreement are hereby amended in their entirety to read as follows:
"(a) Loans. Each Loan will bear interest on the
principal amount thereof from time to time outstanding from the date
of such Loan until such principal amount becomes due at the Prime
Rate.
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(b) Default Interest. Any amount of principal of any
Loan and (to the extent permitted by law) interest and other amounts
which are not paid when due, whether upon demand, by acceleration or
otherwise, shall bear interest from the day when due until such
amount is paid in full at a fluctuating interest rate per annum
equal at all times to the Post Default Rate."
9. Prepayment of Loans. Paragraphs (e) and (f) of Section 2.07 of
the Financing Agreement are each hereby amended in their entirety to read as
follows:
"(e) INTENTIONALLY OMITTED.
(f) INTENTIONALLY OMITTED."
10. Letter of Credit Fees. Section 3.03(b)(i) of the Financing
Agreement is hereby amended by deleting each reference to ".25%" contained in
such Section and substituting in lieu thereof ".1875%".
11. Fees. Section 4.01 of the Financing Agreement is hereby amended
by deleting paragraphs (a), (c), (d), (e) and (f) thereof in their entirety and
substituting in lieu thereof the following new paragraphs (a), (c), (d), (e) and
(f):
"(a) INTENTIONALLY OMITTED."
"(c) INTENTIONALLY OMITTED.
(d) INTENTIONALLY OMITTED.
(e) INTENTIONALLY OMITTED.
(f) INTENTIONALLY OMITTED."
12. Contribution. The following new Section 4.06 is hereby added to
the Financing Agreement:
"SECTION 4.06. Contribution. (a) On any date a payment
in respect of the Obligations is made, the right of contribution, if
any, of each Borrower and Corporate Guarantor (each an "Obligor")
against each Contributor shall be determined as provided in the
immediately succeeding sentence, with the right of contribution of
each Obligor to be revised and restated as of each such date. At any
time that a payment (a "Relevant Payment") is made by an Obligor in
respect of the Obligations and results in the aggregate payments
made by such Obligor in respect of the Obligations to and including
the date of such Relevant Payment to exceed such Obligor's
Contribution Percentage of the aggregate payments made by all
Obligors in respect of the Obligations to and including such date
(such excess, the "Aggregate Excess Amount"), each such Obligor
shall have a right of contribution against each Contributor who has
made payments in respect of the Obligations to and including such
date in an aggregate amount less than such Contributor's
Contribution Percentage of the aggregate payments made to
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and including such date by all Obligors in respect of the
Obligations (the aggregate amount of such deficit, the "Aggregate
Deficit Amount") in an amount equal to (x) a fraction the numerator
of which is the Aggregate Excess Amount of such Obligor and the
denominator of which is the sum of the Aggregate Excess Amounts of
all Obligors multiplied by (y) the Aggregate Deficit Amount of such
Contributor. An Obligor's right of contribution, if any, pursuant to
this paragraph shall arise at the time of each computation, subject
to adjustment at the time of subsequent computations, provided that
such Obligor may not take any action to enforce such right until the
Obligations have been paid in full, it being expressly recognized
and agreed by all Obligors that any Obligor's right of contribution
arising pursuant hereto against any Contributor shall be expressly
junior and subordinate to such Contributor's obligations and
liabilities in respect of the Obligations. As used in this Section
4.06 (i) "Contributor" shall mean each Obligor required to make any
payment to any other Obligor pursuant to this Section 4.06, (ii) the
"Contribution Percentage" of each Obligor shall mean the percentage
obtained by dividing (x) the Benefit Amount of such Obligor by (y)
the aggregate Benefit Amount of all Obligors and (iii) the "Benefit
Amount" of each Obligor shall mean the net value of the benefits to
such Obligor from the credit extensions made under the Loan
Documents.
(b) Each of the Obligors recognizes and agrees that,
except for any right of contribution arising pursuant to Section
4.06(a), each Obligor which makes any payment in respect of the
Obligations shall have no right of contribution, reimbursement or
subrogation against any other Obligor in respect of such payment,
any such right of contribution, reimbursement or subrogation arising
under law or otherwise being expressly waived by all Obligors.
(c) Each of the Obligors recognizes and acknowledges
that the rights to contribution arising hereunder shall constitute
an asset in favor of the party entitled to such contribution. In
this connection each Obligor has the right to waive its contribution
right against any Contributor to the extent that after giving effect
to such waiver such Obligor would remain solvent in the
determination of the Agent."
13. Individual Guarantors. The introductory paragraph to Section
7.01 of the Financing Agreement is hereby amended by deleting the words "each
Borrower, each Corporate Guarantor and, where appropriate, each Individual
Guarantor" and substituting in lieu thereof "each Borrower and each Corporate
Guarantor."
14. Reporting Requirements. Section 7.01(a) of the Financing
Agreement is hereby amended in its entirety to read as follows:
"(a) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available, and in any event
within 45 days after the end of each of the first and
third fiscal quarters in each fiscal year of the Parent,
consolidated and consolidating balance sheets,
consolidated and consolidating statements of income and
retained earnings and consolidated and consolidating
statements of cash flow of the Parent and its
Subsidiaries as at the end of such quarter; and for the
period commencing at the
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end of the immediately preceding fiscal year and ending
with the end of such quarter, setting forth in
comparative form the corresponding figures for the
corresponding date or period of the immediately
preceding fiscal year and setting forth in comparative
form the corresponding figures set forth in the most
recent financial projections delivered by the Borrowers
to the Lenders pursuant to clause (x) of this Section
7.01(a), all in reasonable detail and prepared in
accordance with GAAP, duly certified by the chief
executive officer of the Parent as (A) fairly presenting
the financial condition of the Parent and its
Subsidiaries at the end of such quarter and the results
of operations of the Parent and its Subsidiaries for
such periods (subject to normal year-end audit
adjustments), and (B) having been prepared in accordance
with GAAP;
(ii) as soon as available and in any event
within 60 days after the end of the second fiscal
quarter of the Parent, consolidated and consolidating
balance sheets, consolidated and consolidating
statements of income and retained earnings and
consolidated and consolidating statements of cash flow
of the Parent and its Subsidiaries for such fiscal
quarter and for the six-month period ended at the end of
such quarter, setting forth in each case in comparative
form the figures for the corresponding quarter and the
corresponding six-month period of the previous fiscal
year and setting forth in comparative form the
corresponding figures set forth in the most recent
financial projections delivered by the Borrowers to the
Lenders pursuant to clause (x) of this Section 7.01(a),
all in reasonable detail and prepared in accordance with
GAAP and, in the case of the consolidated financial
statements, accompanied by a review report thereon of
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP or other independent certified
public accountants of recognized standing selected by
the Parent and acceptable to the Agent and the Required
Lenders, which report shall state that such accountants
reviewed such semi-annual financial statements and that
based on such review, such accountants are not aware of
any material modifications that should be made in such
financial statements in order for them to be in
conformity with GAAP;
(iii) as soon as available, and in any event
within 90 days after the end of each fiscal year of the
Parent, consolidated and consolidating balance sheets,
consolidated and consolidating statements of income and
retained earnings and consolidated and consolidating
statements of cash flow of the Parent and its
Subsidiaries as at the end of such fiscal year, setting
forth in comparative form the corresponding figures for
the immediately preceding fiscal year and setting forth
in comparative form the corresponding figures set forth
in the most recent financial projections delivered by
the Borrowers to the Lenders pursuant to clause (x) of
this Section 7.01(a), all in reasonable detail and
prepared in accordance with GAAP, and, in the case of
the consolidated financial statements accompanied by an
audit report and with an unqualified opinion of ▇▇▇▇▇
▇▇▇▇▇▇▇▇, LLP or other independent certified public
accountants of recognized standing selected by the
Parent and satisfactory to the Agent and the Required
Lenders, together with a
11
written statement of such accountants (A) to the effect
that, in making the examination necessary for their
unqualified opinion of such financial statements, they
have not obtained any knowledge of the existence of an
Event of Default as it relates to Sections 7.01(l)(i)
and (ii) and insofar as it relates to accounting matters
and (B) if such accountants shall have obtained any
knowledge of the existence of such Event of Default
described in clause (A) above, describing the nature
thereof;
(iv) INTENTIONALLY OMITTED;
(v) INTENTIONALLY OMITTED;
(vi) as soon as available and in any event
within 30 days of the end of each month, an internally
prepared consolidated balance sheet, consolidated
statements of income and retained earnings and
consolidated statements of cash flow for such month of
the Parent and its Subsidiaries and for the period
commencing at the end of the immediately preceding
fiscal year and ending at the end of such month, setting
forth in comparative form the corresponding figures for
the corresponding period of the immediately preceding
fiscal year, all in reasonable detail and prepared in
accordance with GAAP;
(vii) simultaneously with the delivery of
the financial statements required by clauses (i), (ii)
and (iii) of this Section 7.01(a), a certificate of the
chief executive officer of the Parent, (A) stating that
such officer has reviewed the provisions of this
Agreement and the other Loan Documents to which the
Parent and its Subsidiaries are a party and has made or
caused to be made under his supervision a review of the
condition and operations of the Parent and its
Subsidiaries during the period covered by such financial
statements with a view to determining whether the Parent
and its Subsidiaries were in compliance with all of the
provisions of such Loan Documents at the times such
compliance is required by the Loan Documents, and that
such review has not disclosed, and such officer has no
knowledge of, the existence during such period of an
Event of Default or Potential Default or, if an Event of
Default or Potential Default existed, describing the
nature and period of existence thereof and the action
which the Parent and its Subsidiaries propose to take or
took with respect thereto, (B) containing a breakdown of
the expenses set forth on such financial statements
together with any back-up requested by the Agent, and
(C) containing a schedule showing the calculations
specified in Section 7.01(l) of this Agreement;
(viii) within 15 days after the end of each
month, a schedule, in form and substance reasonably
satisfactory to the Agent, current as of the close of
business on the last day of such month, certified by the
chief executive officer of the Parent (A) of all
Accounts Receivable of the Borrowers existing on the
last day of such month showing separately those which
are more than 30, 60, 90 and 120 days old and a
description of all Liens, set-offs, defenses and
counterclaims
12
with respect thereto reasonably satisfactory to the
Agent and current as of the close of business on the
last day of such month together with a reconciliation of
such schedule with the schedule delivered to the Lenders
pursuant to this clause (A) for the prior month and (B)
containing a breakdown of the Borrowers' Inventory on a
consolidated basis for all Borrowers and on an
individual basis by Borrower, by amount and valued at
the lower of cost or market value (which shall include
dollar valuation by location and dollar valuation by the
season for which the Inventory was manufactured to be
sold) and warehouse and production facility location,
appropriately completed with information satisfactory to
the Agent, incorporating all appropriate month-end
adjustments and current as of the close of business on
the last day of such month immediately prior to such
date;
(ix) within 15 days after the end of each
month, a schedule, in form and substance satisfactory to
the Agent, current as of the close of business on the
last day of such month, certified by the chief executive
officer of the Parent, containing all Inventory of the
Borrowers by style and season, all open orders by style
and season and all Inventory of the Borrowers by style
and season available to be shipped against such orders;
(x) financial projections, prepared on a
monthly basis on or before November 1 of each calendar
year for the succeeding calendar year for the Parent and
its Subsidiaries and on or before August 15 of each
calendar year for the following "spring season" of the
Parent and its Subsidiaries, such financial projections
to be reasonable, to be prepared on a reasonable basis
and in good faith, and to be based on assumptions
believed by the Parent and its Subsidiaries to be
reasonable at the time made and from the best
information then available to the Parent and its
Subsidiaries, provided that, in order to satisfy the
requirements of this clause (x), such financial
projections must (A) be reasonably acceptable to the
Agent and the Lenders and (B) be reviewed by and be
acceptable to a financial consultant, acceptable to the
Agent and the Lenders, retained by the Borrowers;
(xi) promptly after submission to any
Government Authority all documents and information
furnished to such Government Authority in connection
with any investigation of any Borrower or Corporate
Guarantor other than inquiries by such Governmental
Authority that will not adversely effect in any material
respect any Borrower, any Corporate Guarantor, the
Collateral or the rights of the Lenders, CIT, the Agent
or the L/C Issuer under this Agreement or the other Loan
Documents;
(xii) as soon as possible, and in any event
within five days after the occurrence of an Event of
Default or Potential Default, or a material adverse
change in the condition or operations, financial or
otherwise, of the Borrowers, the Corporate Guarantors or
any of their respective Subsidiaries, the written
statement of the chief executive officer or the chief
financial officer of the Parent, setting forth the
details of such Event of Default, Potential Default or
material
13
adverse change and the action which the Borrowers and
the Corporate Guarantors propose to take with respect
thereto;
(xiii) (A) as soon as possible and in any
event (1) within 30 days after the Borrowers, the
Corporate Guarantors or any of their respective ERISA
Affiliates knows or has reason to know that any
Termination Event described in clause (i) of the
definition of Termination Event with respect to any
Employee Plan has occurred, (2) within 10 days after the
Borrowers, the Corporate Guarantors or any of their
respective ERISA Affiliates knows or has reason to know
that any other Termination Event with respect to any
Employee Plan has occurred, and (3) within 10 days after
any of the Borrowers, any of the Corporate Guarantors or
any of their respective ERISA Affiliates knows or has
reason to know that an accumulated funding deficiency
has been incurred or an application has been made to the
Secretary of the Treasury for a waiver or modification
of the minimum funding standard (including installment
payments) or an extension of any amortization period
under Section 412 of the IRC with respect to an Employee
Plan, a statement of the chief financial officer of the
Parent setting forth the details of such occurrence and
the action, if any, which the Borrowers, the Corporate
Guarantors or any of their respective ERISA Affiliates
proposes to take with respect thereto, (B) promptly and
in any event within two Business Days after receipt
thereof by the Borrowers, the Corporate Guarantors or
any of their respective ERISA Affiliates from the PBGC,
copies of each notice received by the Borrowers, the
Corporate Guarantors or any of their respective ERISA
Affiliates of the PBGC's intention to terminate any Plan
or to have a trustee appointed to administer any Plan,
(C) promptly and in any event within 30 days after the
filing thereof with the Internal Revenue Service, copies
of each Schedule B (Actuarial Information) to the annual
report (Form 5500 Series) with respect to each Employee
Plan and Multiemployer Plan, (D) promptly and in any
event within five Business Days after receipt thereof by
the Borrowers, the Corporate Guarantors or any of their
respective ERISA Affiliates from a sponsor of a
Multiemployer Plan or from the PBGC, a copy of each
notice received by the Borrowers, the Corporate
Guarantors or any of their respective ERISA Affiliates
concerning the imposition or amount of withdrawal
liability under Section 4202 of ERISA or indicating that
such Multiemployer Plan may enter reorganization status
under Section 4241 of ERISA and (E) promptly and in any
event within 10 days after any of the Borrowers, any of
the Corporate Guarantors or any of their respective
ERISA Affiliates sends notice of a plant closing or mass
layoff (as defined in WARN) to employees, copies of each
such notice sent by the Borrowers, the Corporate
Guarantors or any of their respective ERISA Affiliates;
(xiv) promptly after the commencement
thereof but in any event not later than five days after
service of process with respect thereto on, or the
obtaining of knowledge thereof by, the Borrowers or the
Corporate Guarantors, notice of each action, suit or
proceeding before any court or other Governmental
Authority or other regulatory body or any arbitrator
which may materially
14
adversely affect the operations or condition, financial
or otherwise, of the Borrowers or the Corporate
Guarantors;
(xv) INTENTIONALLY OMITTED;
(xvi) as soon as available and in any event
(A) within 5 days after receipt or delivery thereof,
copies of any notices that the Borrowers receive from or
send to any Licensor, other than notices that (1) are
made in the ordinary course of business, (2) do not
involve matters that will result in a material increase
in the obligations or liabilities of the Borrowers under
any License Agreement and (3) will not adversely effect
in any material respect the Borrowers, the Collateral or
the rights of the Lenders, CIT, the Agent or the L/C
Issuer under this Agreement or the other Loan
Agreements, (B) within 5 Business Days after entering
into any License Agreement not in effect on the
Effective Date, a copy of the License Agreement, and (C)
within 5 Business Days prior to the effective date
thereof, copies of any amendments, modifications,
waivers or other changes to the License Agreements; and
(xvii) promptly upon request, such other
information concerning the condition or operations,
financial or otherwise, of the Borrowers or the
Corporate Guarantors as the Agent from time to time may
reasonably request."
15. Security Interest. Section 6.01(x) of the Financing Agreement is
hereby amended by deleting the words "and the Cash Collateral Agreement."
16. Financial Covenants. Section 7.01(l) of the Financing Agreement
is hereby amended in its entirety to read as follows:
"(l) Financial Covenants.
(i) Tangible Net Worth. Maintained
Consolidated Tangible Net Worth (before any LIFO
adjustments made for the prior fiscal year in accordance
with GAAP) on each date set forth below of at least:
Minimum Consolidated
Date Tangible Net Worth
------------------ --------------------
March 31, 1998 $20,000,000
June 30, 1998 $20,000,000
September 30, 1998 $24,000,000
December 31, 1998 $25,000,000
March 31, 1999 $25,000,000
15
(ii) Net Loss. Not incur a Cumulative Net
Loss (before any LIFO adjustments made for the prior
fiscal year in accordance with GAAP) for the Parent and
its Subsidiaries at the end of any fiscal quarter of the
Parent.
(iii) Upon receipt of the financial
projections required to be delivered to the Lenders
pursuant to Section 7.01(a)(x) for a calendar year, the
Parent and the Lenders shall negotiate in good faith to
determine minimum Consolidated Tangible Net Worth and
Cumulative Net Loss for the Parent and its Subsidiaries
for the calendar year covered by such projections."
17. Miscellaneous Affirmative Covenants. Paragraphs (p), (q), (r)
and (s) of Section 7.01 of the Financing Agreement are each hereby amended in
their entirety to read as follows:
"(p) INTENTIONALLY OMITTED.
(q) INTENTIONALLY OMITTED.
(r) INTENTIONALLY OMITTED.
(s) INTENTIONALLY OMITTED."
18. Indebtedness. Section 7.02(b) of the Financing Agreement is
hereby amended by (i) deleting the word "and" at the end of clause (viii)
thereof, (ii) redesignating clause (ix) thereof as clause (x), and (iii) adding
the following new clause (ix):
"(ix) Indebtedness evidenced by the S Corp Distribution
Notes, provided that such Indebtedness is unsecured and subject to
the terms of the Blockage Agreement, and"
18. Guaranties. Section 7.02(c) of the Financing Agreement is hereby
amended by (i) deleting the word "and" at the end of clause (ii) thereof, (ii)
redesignating clause (iii) thereof as clause (iv), and (iii) adding the
following new clause (iii):
"(iii) guaranties made in favor of the Lenders
guaranteeing the Obligations, and"
20. Investment. Section 7.02(f) of the Financing Agreement is hereby
amended by (i) deleting the words "and" at the end of clause (i) thereof, (ii)
redesignating clause (ii) thereof as clause (iii), and (iii) adding the
following new clause (ii):
"(ii) investments by the Parent in the other Borrowers
and Corporate Guarantors; and"
16
21. Dividends. Section 7.02(i)(1) of the Financing Agreement is
hereby amended in its entirety to read as follows:
"(1) Declare or pay any dividends or distributions,
purchase or otherwise acquire for value any of its Capital Stock now
or hereafter outstanding, return any capital to its stockholders as
such, or make any other payment or distribution of assets to its
stockholders as such, or permit any of its Subsidiaries to do any of
the foregoing, provided that any Subsidiaries of the Parent may
declare or pay dividends or distributions to the Parent."
22. Subordinated Debt. Section 7.02(o) of the Financing Agreement is
hereby amended in its entirety to read as follows:
"(o) Amendment or Waiver of S Corp Distribution Notes;
Prepayment of S Corp Distribution Notes. (i) In the case of the
Parent, agree to any amendment or other change to (or make any
payment consistent with any amendment or other change to), or waive
any of its rights under, the S Corp Distribution Notes or refinance
any of the Indebtedness evidenced by the S Corp Distribution Notes
without obtaining the prior written consent of the Required Lenders
to such amendment, modification, payment, waiver, change or
refinancing.
(ii) Directly or indirectly, by deposit of monies or
otherwise, prepay, purchase, redeem, retire, defease or otherwise
acquire, or make any payment on account of any principal of, premium
or interest payable in connection with the payment, prepayment,
redemption, defeasance or retirement of any Indebtedness evidenced
by the S Corp Distribution Notes, provided that (A) the Parent may
make payments to the extent permitted by the terms of the Blockage
Agreement and (B) Parent may prepay the S Corp Distribution Notes in
an aggregate principal amount not to exceed $2,000,000 from the
proceeds of the IPO."
23. Events of Default. Section 10.01(i) of the Financing Agreement
is hereby amended by deleting the words ", the Mortgage, the Cash Collateral
Agreement,".
24. Notices. Section 11.02 of the Financing Agreement is hereby
amended by (i) deleting the reference to "Happy Kids, Ltd." and substituting in
lieu thereof "Happy Kids Inc." and, (ii) deleting the reference to "▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇
▇▇▇▇▇▇▇▇, Esq., Telephone: (▇▇▇) ▇▇▇-▇▇▇▇, Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇" and
substituting in lieu thereof "▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Center, Princeton, New Jersey 08540, Attention: ▇▇▇▇▇ ▇.
▇▇▇▇▇, Telephone: (▇▇▇) ▇▇▇-▇▇▇▇, Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇".
25. Administrative Borrower. Section 11.06 of the Financing
Agreement is hereby amended by deleting the reference to "Happy Kids" in the
heading and the text of such Section and substituting in lieu thereof "the
Parent." Each Borrower hereby irrevocably appoints the Parent as the new
Administrative Borrower replacing Happy Kids.
17
26. Guaranty. (a) Section 12.01 of the Financing Agreement is hereby
amended by deleting the proviso at the end thereof.
(b) Article XII is hereby amended by deleting each reference to
"subject to the Limitation" contained in such Article.
27. Delivery of Notes. Each Lender shall deliver to the Agent, for
delivery to and cancellation by the Borrowers, all Notes issued by the Borrowers
and held by the Lenders under the Financing Agreement (collectively, the "Old
Notes"). The Borrowers shall execute and deliver to the Agent for the account of
each Lender the Notes which such Lender is entitled to receive pursuant to
Section 2.04 of the Financing Agreement, in the form of Exhibit A to the
Financing Agreement and in the principal amount for each Lender equal to its Pro
Rata Share of the Total Credit Exposure, as set forth in Annex I to this
Amendment (the "New Notes"). The Agent shall release and deliver the Old Notes
to the Borrowers for cancellation and deliver the New Notes to the Lenders.
28. Schedules. Schedule A, Schedule B, Schedule 6.01(e), Schedule
6.01(f) and Schedule 6.01(y) to the Financing Agreement are each hereby amended
by deleting such Schedules in their entirety and substituting in lieu thereof
new Schedules, which are attached hereto as Annex I, Annex II, Annex III, Annex
IV and Annex V, respectively.
29. Waiver and Consent. (a) Pursuant to the request of the Borrowers
and the Guarantors and in accordance with Section 11.03 of the Financing
Agreement, the Lenders and the Agent hereby consent to, and waive any Event of
Default that would otherwise arise under Section 10.01 of the Financing
Agreement from, any non-compliance by the Borrowers and the Guarantors with the
provisions of (i) Section 7.01(d) of the Financing Agreement by reason of the OP
Merger Transactions and the H.O.T. Kidz Merger, (ii) Section 7.02(d)(A) of the
Financing Agreement by reason of the OP Merger Transactions and the H.O.T. Kidz
Merger, (iii) Section 7.02(f) of the Financing Agreement by reason of the
Corporate Reorganization, (iv) Section 7.02(i) of the Financing Agreement by
reason of the S Corp Distribution and the S Corp Notes Prepayment, and (v)
Section 7.02(m) of the Financing Agreement by reason of the Corporate
Reorganization.
(b) The waivers and consents in this Section 29 shall be effective
only in this specific instance and for the specific purposes set forth herein
and do not allow for any other or further departure from the terms and
conditions of the Financing Agreement or any other Loan Document, which terms
and conditions shall remain in full force and effect.
30. Conditions. This Amendment shall become effective only upon
satisfaction in full of the following conditions precedent (the first date upon
which all such conditions have been satisfied being herein called the "Amendment
Effective Date"):
(a) Representations and Warranties; No Event of Default. The
representations and warranties contained herein, in Section 6.01 of the
Financing Agreement and in each other Loan Document and certificate or other
writing delivered to the Agent and the Lenders pursuant hereto on or prior to
the Amendment Effective Date shall be correct on and as of the
18
Amendment Effective Date as though made on and as of such date (except to the
extent that such representations and warranties expressly relate solely to an
earlier date in which case such representations and warranties shall be true and
correct on and as of such date); and no Potential Default or Event of Default
shall have occurred and be continuing on the Amendment Effective Date or would
result from this Amendment becoming effective in accordance with its terms.
(b) Delivery of Documents. The Agent shall have received on or
before the Amendment Effective Date the following, each in form and substance
satisfactory to the Agent and, unless indicated otherwise, dated the Amendment
Effective Date:
(i) counterparts of this Amendment, duly executed by the
Borrowers, the Guarantors and the Lenders;
(ii) the New Notes, duly executed by each of HK
Children's, Happy Kids Inc., TOT Apparel and OP Inc.;
(iii) a Security Agreement, in the form of Exhibit C to
the Financing Agreement, duly executed by each of OP Inc. and H.O.T.
Kidz, Inc.;
(iv) a Joinder Agreement, in the form of Annex XII to
this Amendment (the "Joinder Agreements"), duly executed by each of
OP Inc. and H.O.T. Kidz, Inc.;
(v) the Pledge Agreement, duly executed by the Parent,
together with the original stock certificates representing all of
the shares of issued and outstanding Capital Stock of the Parent,
together with an undated stock power for each such certificate, duly
executed in blank by an authorized officer of the Parent;
(vi) the Blockage Agreement, duly executed by the
Parent, ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ (together with
the documents delivered pursuant to clauses (i), (ii), (iii), (iv)
and (v) above collectively, the "Amendment Documents");
(vii) appropriate financing statements on Form UCC-1,
duly executed by the Parent, HK Children's, OP Inc. and H.O.T. Kidz,
Inc. and duly filed in such office or offices as may be necessary
or, in the opinion of the Agent, desirable to perfect the security
interests purported to be created by the Security Agreement to which
such Persons are a party;
(viii) certified copies of requests for copies of
information on Form UCC-11, listing all effective financing
statements which name as debtor HK Children's, the Parent, O.P. Kids
Acquisition, Inc., OP Inc. and H.O.T. Kidz, Inc., together with
copies of such financing statements, none of which, except as
otherwise agreed in writing by the Agent, shall cover any of the
Collateral, and results of searches for any tax and judgment Liens
filed against HK Children's, the Parent, O.P. Kids Acquisition,
Inc., OP Inc. and H.O.T. Kidz, Inc. or their property,
19
which results, except as otherwise agreed to in writing by the
Agent, shall not show any such Liens;
(ix) evidence of the insurance coverage required by the
terms of Section 7.01(h) of the Financing Agreement and the other
Loan Documents naming the Agent an additional insured or loss payee
thereunder as specified by the Agent;
(x) a certificate of the chief executive officer or the
chief financial officer of the Parent, certifying that attached
thereto are complete and correct copies of the OP Merger Agreement,
the H.O.T. Kidz Merger Agreement, the Reorganization Agreement, the
S Corp Distribution Notes, the registration statement of the Parent
filed with the Securities Exchange Commission, the underwriting
agreement and the other material agreements executed by the Parent
in connection with the IPO, all employment agreements of ▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ with the Parent and all other
agreements, instruments and other documents executed and delivered
in connection therewith as requested by the Agent;
(xi) a letter agreement executed by HK Children's, the
Parent, TOT Apparel and OP Inc. and the Factor in connection with
the Factoring Agreements;
(xii) a copy of the resolutions of each Borrower, each
Corporate Guarantor, OP Inc. and H.O.T. Kidz, Inc., certified as of
the Amendment Effective Date by an authorized officer thereof,
authorizing (A) the execution of each Amendment Document to which
such Person is a party and the transactions contemplated thereby,
and (B) the execution, delivery and performance by each such Person
of each Amendment Documents to which such Person is a party, and the
performance of the Financing Agreement, as amended;
(xiii) a certificate of an authorized officer of each
Borrower, each Corporate Guarantor, OP Inc. and H.O.T. Kidz, Inc.,
certifying the names and true signatures of the representatives of
such Person authorized to sign each Amendment Document to which such
Person is a party and the other documents to be executed and
delivered by such Person in connection herewith, together with
evidence of the incumbency of such authorized officers;
(xiv) a certificate of the appropriate official(s) of
the state of organization and each state of foreign qualification of
each Borrower, each Corporate Guarantor, OP Inc. and H.O.T. Kidz,
Inc., dated within 15 days of the Amendment Effective Date,
certifying as to the subsistence and good standing of, and the
payment of taxes by, such Person in such states;
(xv) a true and complete copy of the charter of each
Borrower, each Corporate Guarantor, OP Inc. and H.O.T. Kidz, Inc.,
certified as of a date not more than 30 days prior to the Amendment
Effective Date by an appropriate official
20
of the state of organization of each such Person (or in the case of
a Borrower or Corporate Guarantor that existed on the effective date
of the Financing Agreement, a certificate confirming that such
charter has not been amended or otherwise modified since it was
delivered to the Agent and the Lenders on the effective date of the
Financing Agreement and that the copy thereof previously delivered
to the Agent is true, correct and complete as of the Amendment
Effective Date);
(xvi) a copy of the by-laws of each Borrower, each
Corporate Guarantor, OP Inc. and H.O.T. Kidz, Inc., together with
all amendments thereto, certified as of the Amendment Effective Date
by an authorized officer of each such Person (or in the case of a
Borrower or Corporate Guarantor that existed on the effective date
of the Financing Agreement, a certificate confirming that such
by-laws have not been amended or otherwise modified since it was
delivered to the Agent and the Lenders on the effective date of the
Financing Agreement and that the copy thereof previously delivered
to the Agent is true, correct and complete as of the Amendment
Effective Date);
(xvii) an opinion of ▇▇▇▇▇▇▇▇ Ingersoll, counsel to the
Borrowers, the Corporate Guarantors, Op Inc. and H.O.T. Kidz, Inc.,
as to such matters as the Agent may reasonably request;
(xviii) a certificate of the chief executive officer or
the chief financial officer of the Parent, certifying as to the
matters set forth in subsection (a) of this Section 30;
(xix) a copy of each of the License Agreements as in
effect on the Amendment Effective Date, certified as a true and
correct copy thereof by the chief executive officer or the chief
financial officer of the Parent, together with a copy of each such
License Agreement; and
(xx) such other agreements, instruments, approvals,
opinions and other documents as the Agent may reasonably request.
(c) Proceedings. All proceedings in connection with the transactions
contemplated by each Amendment Document, and all documents incidental thereto,
shall be satisfactory to the Agent and its special counsel, and the Agent and
such special counsel shall have received all such information and such
counterpart originals or certified copies of documents, and such other
agreements, instruments, approvals, opinions and other documents, as the Agent
or such special counsel may reasonably request.
(d) Consummation of the Transactions. (i) The Name Changes, the OP
Merger Transactions, the H.O.T. Kidz Merger, the Corporate Reorganization and
the S Corp Distribution shall have occurred on terms and conditions satisfactory
to the Lenders, (ii) the Parent shall have consummated the IPO on terms and
conditions satisfactory to the Lenders, provided that, the terms and conditions
of the IPO shall be satisfactory to the Lenders if such terms and conditions are
substantially as set forth in Amendment No. 2 to the Happy Kids Inc. Form S-1,
Registration
21
Statement (Registration No. 333-44267) as filed with the Securities and Exchange
Commission on March 6, 1998 and if the price per share of the common stock
offered in the IPO results in proceeds to the Parent sufficient to make the
payment required by clause (iii) below, (iii) the Borrowers shall have repaid
the Loans with the proceeds of the IPO in a principal amount of not less than
fifteen million eight hundred thousand dollars ($15,800,000) and (iv) the Parent
shall have prepaid the S Corp Distribution Notes in an aggregate principal
amount of $2,000,000.
(e) Restructuring Fee. The Borrowers shall have paid the Agent for
the account of the Lenders in accordance with the Lenders' respective Pro Rata
Shares (or the Agent may charge the Loan Account pursuant to Section 4.02) a
restructuring fee of $300,000, which fee shall be earned in full on the date of
such payment.
31. Representations and Warranties. Each of the Borrowers and the
Corporate Guarantors represents and warrants as follows:
(a) Each Borrower and Guarantor (i) is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization and (ii) has all requisite power, authority and legal right to
execute, deliver and perform the Amendment Documents to which it is a party, and
to perform the Financing Agreement, as amended hereby.
(b) The execution, delivery and performance by it of each Amendment
Document to which it is a party and the performance by it of the Financing
Agreement, as amended hereby (i) have been duly authorized by all necessary
action, (ii) do not and will not violate or create a default under its articles
of organization, by-laws or any applicable law or any contractual restriction
binding or otherwise affecting it or any of its properties, and (iii) except as
provided in the Loan Documents, do not and will not result in or require the
creation of any Lien upon or with respect to its property.
(c) No authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority or other regulatory body is
required in connection with (i) the due execution, delivery and performance by
it of each Amendment Document to which it is a party and (ii) the performance by
it of each Amendment Document to which it is a party and the Financing
Agreement, as amended hereby.
(d) Each Amendment Document and the Financing Agreement, as amended
hereby, is a legal, valid and binding obligation of each Borrower and Corporate
Guarantor that is a party thereto enforceable against each such Person in
accordance with the terms thereof.
(e) The representations and warranties contained in Article VI of
the Financing Agreement are correct on and as of the Amendment Effective Date as
though made on and as of the Amendment Effective Date (except to the extent such
representations and warranties expressly relate to an earlier date in which case
such representations and warranties shall be true and correct as of such earlier
date), and no Event of Default or Potential Default has occurred and is
continuing on and as of the Amendment Effective Date or will result from this
Amendment becoming effective in accordance with its terms.
22
32. Release. Effective on the Amendment Effective Date, the Agent
and the Lenders agree to (i) release ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇
from all of their obligations as Individual Guarantors under the Financing
Agreement, (ii) release and return to ▇▇▇▇ ▇. ▇▇▇▇▇ all cash collateral pledged
to the Agent and the Lenders pursuant to the Cash Collateral Agreement and
release ▇▇▇▇ ▇. ▇▇▇▇▇ from all of his obligations under the Cash Collateral
Agreement, (iii) release ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇▇
▇▇▇▇▇ from all of their obligations under the Assignment of Tax Refunds made by
each such Person in favor of the Agent and the Lenders, (iv) release ▇▇▇▇ ▇.
▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ from all of their obligations under the Mortgage, (v)
release ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ from all of their obligations under the
Guaranty of Payment related to the Mortgage and (vi) execute and deliver to each
of the foregoing Persons all documents necessary to effect such releases,
including, without limitation, UCC-3 termination statements and a satisfaction
of mortgage.
33. Continued Effectiveness of the Financing Agreement. Each of the
Borrowers and the Corporate Guarantors hereby confirms and agrees that, except
as otherwise provided in Section 32 (i) each Loan Document to which it is a
party is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that on and after the Amendment
Effective Date all references in any such Loan Document to "the Financing
Agreement", "thereto", "thereof", "thereunder" or words of like import referring
to the Financing Agreement shall mean the Financing Agreement as amended by this
Amendment, and (ii) to the extent any such Loan Document purports to assign or
pledge to the Agent, or to grant to the Agent a Lien on any collateral as
security for the Obligations of the Borrowers or the Guarantors from time to
time existing in respect of the Financing Agreement and the Loan Documents, such
pledge, assignment and/or grant of the Lien is hereby ratified and confirmed in
all respects.
34. Miscellaneous. (a) This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by, and construed in accordance
with, the laws of the State of New York.
(d) The Borrowers will pay on demand all reasonable fees, costs and
expenses of the Agent in connection with the preparation, execution and delivery
of this Amendment and the other Amendment Documents, including, without
limitation, the reasonable fees, disbursements and other charges of ▇▇▇▇▇▇▇ ▇▇▇▇
& ▇▇▇▇▇ LLP, counsel to the Agent.
23
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWERS
---------
HAPPY KIDS CHILDREN'S APPAREL LTD.,
formerly known as Happy Kids, Ltd.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: President
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
HAPPY KIDS INC.,
formerly known as O'Boy Inc.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: President
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
TALK OF THE TOWN APPAREL CORP.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: President
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
O.P. KIDS, L.L.C.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: President
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
GUARANTORS
H.O.T. KIDZ, L.L.C.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: President
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
24
HAWK INDUSTRIES, INC.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: President
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
J&B 18 CORP.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: President
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Title: Vice President
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
LENDERS
-------
THE CHASE MANHATTAN BANK
By:/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Title: Vice President
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
25
ISRAEL DISCOUNT BANK OF NEW YORK
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
Title: Vice President
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
Title: Vice President
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
REPUBLIC NATIONAL BANK OF NEW YORK
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Title: First Vice President
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
26
ANNEX I
SCHEDULE A
----------
PART A: From January 1, 1998 through April 30, 1998.
-------
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $ 14,518,700 29.63%
The Chase Manhattan Bank $ 20,153,700 41.13%
Israel Discount Bank of New York $ 6,507,200 13.28%
Republic National Bank of New York $ 7,820,400 15.96%
------------ -------
$ 49,000,000 100.00%
PART B: From May 1, 1998 through December 31, 1998.
-------
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $ 12,444,600 29.63%
The Chase Manhattan Bank $ 17,274,600 41.13%
Israel Discount Bank of New York $ 5,577,600 13.28%
Republic National Bank of New York $ 6,703,200 15.96%
------------ -------
$ 42,000,00 100.00%
PART C: From January 1, 1999 through the Final Maturity Date.
-------
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $ 13,927,700 29.63%
The Chase Manhattan Bank $ 19,331,300 41.13%
Israel Discount Bank of New York $ 6,241,000 13.28%
Republic National Bank of New York $ 7,500,000 15.96%
------------ -------
$ 47,000,000 100.00%
ANNEX V
SCHEDULE B
----------
Guarantors
----------
H.O.T. Kidz, Inc., a New York corporation and successor in interest to H.O.T.
Kidz, L.L.C.
Hawk Industries, Inc., a New Jersey corporation
J & B 18 Corp., a New York corporation
