EXHIBIT 10.5
AGREEMENT OF LIMITED PARTNERSHIP
OF
W3 L.P.
DATED APRIL 17, 1998
TABLE OF CONTENTS
ARTICLE I Definitions; General Provisions 1
Section 1.1 Definitions 1
Section 1.2 Partnership Organization and Name 3
Section 1.3 Fiscal Year 4
Section 1.4 Registered Office and Agent 4
Section 1.5 Purpose of the Partnership 4
ARTICLE II Management of Partnership 4
Section 2.1 Management 4
Section 2.2 Authority of General Partner 4
Section 2.3 Reliance by Third Parties 5
Section 2.4 Activities of the General Partner 5
Section 2.5 Indemnification of Indemnified Persons 5
Section 2.6 Payment of Costs and Expenses 6
Section 2.7 Compensation to General Partner 6
Section 2.8 Covenants 6
ARTICLE III Contributions; Distributions; Tax Allocations 8
Section 3.1 Contributions 8
Section 3.2 Distributions 9
Section 3.3 Tax Allocations 9
ARTICLE IV Partnership Composition 9
Section 4.1 Assignments 9
Section 4.2 No Withdrawal of General Partner 10
Section 4.3 Removal of General Partner 10
Section 4.4 Admission of New Partners 10
ARTICLE V Duration and Termination of Partnership 10
Section 5.1 Duration and Event of Withdrawal 10
Section 5.2 Termination 11
ARTICLE VI Representations and Warranties of the General
Partner and LOT$OFF 11
Section 6.1 Due Organization 12
Section 6.2 Due Execution; NonContravention; Enforceability 12
Section 6.3 No Liens 12
Section 6.4 [Intentionally Omitted] 12
Section 6.5 Judgment 12
Section 6.6 Complete and Accurate Information 12
ARTICLE VII Representations and Warranties of the
Preferred Limited Partner 13
Section 7.1 Investment Purpose 13
Section 7.2 Transfer Restriction 13
Section 7.3 Knowledgeable Investor 13
Section 7.4 Accredited Investor 13
Section 7.5 No Public Solicitation 13
Section 7.6 Due Diligence 13
ARTICLE VIII Tax Returns; Reports to Partners 14
Section 8.1 Independent Accountants 14
Section 8.2 Filing of Tax Returns 14
Section 8.3 Tax Matters Partner 14
Section 8.4 Financial Statements: Statements of Account 14
Section 8.5 Annual Reports to Partners 14
ARTICLE IX Miscellaneous 15
Section 9.1 General 15
Section 9.2 Amendments 15
Section 9.3 Notices 15
Section 9.4 Headings 15
Section 9.5 Construction; Severability 15
Section 9.6 Governing Law 16
Section 9.7 Confidentiality 16
SCHEDULE I PARTNERS
SCHEDULE II CONTRIBUTIONS
SCHEDULE III PREFERENTIAL DISTRIBUTION
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership (as the same may hereafter be
modified in accordance with the provisions hereof, this "Agreement") is made
as of the 17th day of April, 1998 by and among Giant Sequoia Corporation (the
"General Partner"), a Delaware corporation having an office at ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, as general partner, and those
Persons (as defined below) set forth on Schedule I hereto as the limited
partners (collectively, the "Limited Partners"), and provides for the
organization, governance and operation of W3 L.P., a limited partnership (the
"Partnership") pursuant to the provisions of the Delaware Revised Uniform
Limited Partnership Law, as heretofore or hereafter amended (the "Partnership
Law"), and pursuant to the terms and provisions of this Agreement. All
capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in Section 1.1 below.
W I T N E S S E T H :
WHEREAS, the Partners wish to form a limited partnership for the purpose
of owning, holding and supporting the Judgment and the Cause of Action;
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Partners hereby agree as
follows:
ARTICLE I
Definitions; General Provisions
Section 1.1 Definitions. For the purposes of this Agreement,
capitalized terms used herein and not otherwise defined shall have the
following meanings:
(a) "50-OFF" or "50-OFF Stores, Inc." shall mean LOT$OFF.
(b) "Affiliate" shall mean, with reference to any Person, a Person
which directly or indirectly, controls, is controlled by or is under common
control with such Person. The term "control," as used herein with respect to
any Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
In no event shall any Limited Partner be deemed an Affiliate of the
Partnership as a result of it being a Limited Partner.
(c) "Assignment Agreement" shall mean the Pledge of Partnership
Interest, dated as of April 17, 1998, by the General Partner and the Common
Limited Partner in favor of GECC.
(d) "Cause of Action" shall mean the cause of action which LOT$OFF
has or may have against The Chase Manhattan Bank ("Chase") arising from the
transactions and events which were the basis for the Lawsuit.
(e) "Common Limited Partner" shall mean the Person set forth on
Schedule I hereto who holds a common limited partnership interest in the
Partnership as indicated on such Schedule.
(f) "Contractual Obligation" shall mean, with respect to any
Person, any provision of any debt security or of any preferred stock or other
equity interest issued by such Person or of any contract, agreement,
instrument, arrangement, understanding or other undertaking (in each case,
whether oral, written or otherwise) to which such Person is a party or by
which it or any of its property or assets is bound.
(g) "Contribution" shall mean, with respect to each Partner, the
contribution listed as such opposite its name on Schedule II attached hereto
and made a part hereof.
(h) "Fourth Amendment" shall mean the Fourth Amendment to Revolving
Credit Agreement, dated as of April 17, 1998.
(i) "Indebtedness" shall mean, with respect to any Person, all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property, assets or services, (iv) all capital lease obligations of such
Person, (v) all obligations of such Person in respect of letters of credit,
bankers' acceptances or similar instruments, (vi) all Indebtedness of others
secured by a Lien on any property or asset of such Person, whether or not such
Indebtedness is assumed by such Person, (vii) all contingent obligations of
such Person, (viii) all liabilities of such Person under any interest rate
cap, swap or collar agreements, foreign currency exchange agreements and other
hedging agreements or arrangements and (ix) all obligations of such Person to
purchase investments which arise out of or in connection with the sale of the
same or substantially similar investments or other similar transactions having
the same economic effect or all obligations of such Person incurred in
connection with any security lending transactions.
(j) "Judgment" shall mean the judgment in favor of LOT$OFF and
against Chase entered on December 4, 1997 by the United States District Court
for the Western District of Texas, San Antonio Division (the "District Court")
in the Lawsuit. On February 19, 1998, an order was entered by the District
Court denying all post-trial motions by Chase. Chase has filed a notice of
appeal with respect to the Judgment.
(k) "Lawsuit" shall mean that action from which the Judgment was
obtained in the United States District Court for the Western District of
Texas, San Antonio Division, order styled "50-OFF Stores, Inc. v. Banque
Paribas (Suisse) S.A., et al" (Docket No. SA-95-CA-0159).
(l) "Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or
preference, priority or other security interest or preferential arrangement of
any kind or nature whatsoever.
(m) "Limited Partners" shall mean the Common Limited Partner and
the Preferred Limited Partner.
(n) "LOT$OFF" shall mean LOT$OFF Corporation, a Delaware
corporation and the sole shareholder of the General Partner.
(o) "Net Proceeds" shall mean any and all Proceeds from the
Judgment and/or the Cause of Action, net of all contingency fees paid or owing
to counsel for LOT$OFF upon receipt of such Proceeds, including the
reimbursement to such counsel of related litigation expenses now owing to or
hereafter incurred by such counsel, such related litigation expenses not to
exceed $1,000,000 without the prior written consent of the Preferred Limited
Partner.
(p) "Partner" shall mean any or each or all, as the case may be, of
the General Partner and the Limited Partners.
(q) "Permitted Liens" shall mean the following encumbrances and
claims: (i) liens in favor of General Electric Capital Corporation ("GECC")
under LOT$OFF's $15,000,000 Revolving Credit Agreement with GECC, dated as of
June 16, 1997 (as amended, the "Credit Agreement"), and pursuant to the
Security Agreement and the Assignment Agreement; (ii) the Series B Preferred
Stock Lien and the Class 7 Lien (as those terms are defined in 50-OFF Stores,
Inc.'s Joint Plan of Reorganization, as Amended and Modified, dated as of
March 27, 1997) and (iii) all contingent fee interests and claims of counsel
(including, without limitation, Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.),
including claims for reimbursement of expenses now owing to or hereafter
incurred by such counsel not to exceed $1,000,000 without the prior written
consent of the Preferred Limited Partner.
(r) "Person" shall mean an individual, partnership, corporation,
limited liability company, trust, unincorporated association or any other
legal entity.
(s) "Preferential Distribution" shall mean the full amount of the
preferential distribution to which the Preferred Limited Partner is entitled
under this Agreement, as set forth on Schedule III hereto.
(t) "Preferred Limited Partner" shall mean the Person set forth on
Schedule I hereto who holds a preferred limited partnership interest in the
Partnership as indicated on such Schedule.
(u) "Proceeds" shall mean any and all proceeds from the Judgment
and/or the Cause of Action, including, but not limited to, proceeds pursuant
to a final, non-appealable judgment or settlement of the Lawsuit based on or
arising out of the Cause of Action, or any foreclosure on the Judgment or the
Cause of Action by any Person who holds a Lien on such Judgment or Cause of
Action, and including, without limitations all interest thereon.
(v) "Security Agreement" shall mean the Security Agreement, dated
as of April 17, 1998, by the General Partner and the Partnership in favor of
GECC.
Section 1.2 Partnership Organization and Name. The Partners hereby
organize the Partnership as a limited partnership pursuant to the Partnership
Law. The General Partner shall have the right, upon notice to and consent of
the Limited Partners, to change the name of the Partnership and, in connection
therewith, may execute and file such amendments to this Agreement, and such
other documentation, as shall be necessary or desirable to effect such name
change. Upon the dissolution and termination of the Partnership, the General
Partner shall retain all rights with respect to the name of the Partnership
and the use of such name.
Section 1.3 Fiscal Year. The fiscal year of the Partnership ("Fiscal
Year") shall end on the Friday closest to January 31st of each year.
Notwithstanding the foregoing, if the General Partner shall determine that a
change in the Fiscal Year of the Partnership would be in the best interest of
the Partnership, the General Partner shall be entitled, upon notice to the
Limited Partners, to make such a change without the consent of the Limited
Partners.
Section 1.4 Registered Office and Agent. The principal office of the
Partnership shall be ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
or such other place as may from time to time be designated by the General
Partner. The registered office of the Partnership shall be c/o The
Corporation Trust Company, Corporation Trust Center, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other place as may from time to time be
designated by the General Partner. The agent for service of process upon the
Partnership within the State of Delaware shall be c/o The Corporation Trust
Company, Corporation Trust Center, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, or such other agent as may from time to time be designated by the
General Partner.
Section 1.5 Purpose of the Partnership. The Partnership is organized
for the purpose of holding, owning and supporting the Judgment and the Cause
of Action and making distributions to the Partners of the Net Proceeds from
such Judgment and Cause of Action, in accordance with this Agreement.
ARTICLE II
Management of Partnership
Section 2.1 Management. Subject to the further express provisions of
this Agreement, the management of the Partnership shall be vested exclusively
in the General Partner. The Limited Partners shall have no part in the
management of the Partnership, and shall have no authority or right in their
capacity as Limited Partners to act on behalf of the Partnership in connection
with any matter, including, without limitation, any settlement of the Lawsuit.
Section 2.2 Authority of General Partner. Without limiting the
provisions of Section 2.1, but subject to the further provisions of this Article
2, the General Partner shall have the power by itself on behalf and in the name
of the Partnership, without the consent of the Limited Partners (except as
otherwise explicitly provided in this Agreement), to carry out any and all of
the objectives and purposes of the Partnership set forth in Section 1.5, to
support, pursue, administer and dispose of the Judgment and the Cause of
Action, and to perform all acts and enter into and perform all contracts and
other undertakings which it may deem necessary or advisable in connection
therewith, including the power to:
(a) open, maintain and close bank accounts and draw checks or other
orders for the payment of monies;
(b) make such elections under the Internal Revenue Code of 1986, as
amended (the "Code"), and other relevant tax laws (whether federal, state,
local or foreign) as to the treatment of items of Partnership income, gain,
loss, deduction and credit, and as to all other relevant matters, as the
General Partner deems necessary or appropriate, determinations of which items
of cash outlay are to be capitalized or treated as current expenses and
selection of the method of accounting and bookkeeping procedures to be used;
(c) deposit, withdraw, pay, retain and distribute the Partnership's
funds in a manner consistent with the provisions of this Agreement; and
(d) authorize any officer, director, employee or other agent of the
General Partner, or any employee or agent of the Partnership, to act for and
on behalf of the Partnership in any or all of the foregoing matters and all
matters incidental thereto as fully as if such Person were the General Partner.
Section 2.3 Reliance by Third Parties. Any Person dealing with the
Partnership shall be conclusively protected in relying upon the certificate of
the General Partner to the effect that it is then acting as General Partner,
or in accepting any instrument signed by the General Partner in the name and
on behalf of the Partnership.
Section 2.4 Activities of the General Partner.
(a) The officers, directors, employees and agents of the General
Partner may perform services for Persons other than the Partnership; provided,
however, that the General Partner shall cause its employees, officers,
directors and agents, if any, to devote so much of their time and attention to
the affairs of the Partnership as is reasonably necessary to enable the
General Partner to perform its responsibilities in respect of the
Partnership's business.
(b) Nothing herein contained shall be deemed to preclude the
officers, directors, agents and employees of the General Partner from engaging
directly or indirectly in any other business and from possessing interests in
any other business or businesses.
Section 2.5 Indemnification of Indemnified Persons.
(a) The Partnership, out of its own assets and not out of the
assets of any Limited Partner, shall indemnify and hold harmless each of the
Limited Partners and the shareholders, constituent partners (direct or
indirect), officers, directors, employees, agents and Affiliates of such
Limited Partners (and of such Affiliates) and the legal representatives of
each of the foregoing (collectively, the "Indemnified Persons"), from and
against any loss, expense, judgment, settlement cost, fee and related expenses
(including attorneys' fees and expenses), costs or damages arising out of or
in connection with any act taken or omitted to be taken in respect of the
affairs of the Partnership (including any such act or failure which is
negligent), unless such act or omission resulted from or was attributable to
such Indemnified Person's willful misconduct, bad faith, gross negligence,
violation of law or violation of any provision of this Agreement. The
termination of any action, suit or proceeding by settlement shall not, of
itself, create a presumption that an Indemnified Person did not act in good
faith or was guilty of willful misconduct, bad faith, gross negligence, a
violation of law or a violation of any provision of this Agreement. The
Partnership shall advance to any Indemnified Person reasonable attorneys' fees
and other costs and expenses incurred in connection with the defense of any
action or proceeding which arises out of conduct which is the subject of the
indemnification
provided hereunder; provided that each Indemnified Person shall agree as a
condition to receiving such advances, that in the event such Indemnified
Person receives any such advance, such Indemnified Person shall reimburse the
Partnership for such advance if it shall be judicially determined, in a final,
non-appealable judgment, that such Indemnified Person was not entitled to
indemnification under this Section 2.5.
(b) Notwithstanding any of the foregoing to the contrary, the
provisions of this Section 2.5 shall not be construed so as to provide for the
indemnification of any Indemnified Person for any liability to the extent (but
only to the extent) that such indemnification would be in violation of
applicable law, but shall be construed so as to effectuate the provisions of
this Section 2.5 to the fullest extent permitted by law.
Section 2.6 Payment of Costs and Expenses. The General Partner shall
pay or cause to be paid all expenses incurred in connection with the business
of the Partnership (including, without limitation, legal, auditors, and tax
accountants' fees and expenses, the cost of complying with applicable laws and
regulations, costs associated with the settlement of disputes, the cost of
preparing and making documentary filings, insurance premiums, taxes payable by
the Partnership and the cost of preparing and distributing reports and
financial statements).
Section 2.7 Compensation to General Partner. Neither the General
Partner nor any Affiliate of the General Partner shall be entitled to any
compensation or reimbursement for services rendered by it to the Partnership
or for costs incurred or time expended by it on behalf of the Partnership
(including, without limitation, any expenses paid by the General Partner
pursuant to Section 2.6 hereof) until after the Preferred Limited Partner has
received the full amount of the Preferential Distribution due to it under this
Agreement.
Section 2.8 Covenants. The General Partner hereby covenants and
agrees that unless the Limited Partners otherwise consent in writing, it
shall, and it shall cause the Partnership to:
(a) Maintain its own deposit account or accounts, separate from
those of any Affiliate, with commercial banking institutions and ensure that
the funds of the Partnership will not be diverted to any other Person or for
uses other than the stated purposes of the Partnership, and not commingle such
funds with the funds of the General Partner;
(b) To the extent that it shares the same officers or other
employees as any of its Partners or Affiliates, fairly allocate the salaries
of and the expenses related to providing benefits to such officers and other
employees among such entities, with each such entity bearing its fair share of
the salary and benefit costs associated with all such common officers and
employees;
(c) Refrain from entering into any Contractual Obligation, whether
currently existing or hereafter entered into, except as otherwise expressly
permitted in this Agreement and in connection with the support of the Lawsuit
against Chase; provided, however, the aggregate amount payable under all such
Contractual Obligations not expressly permitted hereunder shall not exceed
$1,000,000;
(d) Issue separate financial statements from those of any
Affiliate, prepared not less frequently than annually and prepared in
accordance with GAAP;
(e) Conduct its affairs in its own name and strictly in accordance
with this Agreement and observe all necessary, appropriate and customary
partnership formalities, including, but not limited to, approving all consents
necessary to authorize actions taken or to be taken, and maintaining accurate
and separate books, records and accounts, including, but not limited to,
payroll and affiliated transaction accounts;
(f) Refrain from assuming or guaranteeing any liabilities of any
Affiliate thereof other than pursuant to the Security Agreement and the
Assignment Agreement.
(g) Take, or refrain from taking, as the case may be, all actions
that are necessary to be taken or not to be taken in order to ensure that the
Partnership does not become subject to any bankruptcy or bankruptcy related
proceedings;
(h) Except for (i) the Contributions hereunder, (ii) in connection
with the Security Agreement and the Assignment Agreement, and (iii) as
otherwise expressly provided in this Agreement, not sell, pledge, assign or
otherwise transfer to any Person, or create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, and including, without limitation, the Judgment or the
Cause of Action, except for the Permitted Liens;
(i) Except as otherwise expressly provided in this Agreement, not
become or remain liable, directly or contingently, in connection with any
Indebtedness or other liability of any other Person, whether by guarantee,
endorsement (other than endorsements of negotiable instruments for deposit or
collection in the ordinary course of business), agreement to purchase or
repurchase, agreement to supply or advance funds, or otherwise;
(j) Not enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or make any material change in its present method of conducting
business, or convey, sell, lease, assign, transfer or otherwise dispose of,
all or any portion of the Judgment or the Cause of Action, except to the
extent that such conveyance, sale, lease, assignment, transfer or other
disposition is (i) pursuant to the Security Agreement and Assignment
Agreement, or (ii) subject to and does not adversely affect the rights of the
Preferred Limited Partner under this Agreement;
(k) Not make any distribution in respect of any of the
Partnership's assets, either directly or indirectly, whether in cash or
property or in obligations of the Partnership, other than pursuant to this
Agreement;
(l) Not engage at any time in any business or business activity
other than the transactions contemplated by this Agreement;
(m) Not make any advance, loan, extension of credit or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting a business unit of, or make any other
investment in, any Person;
(n) Except as otherwise expressly provided in this Agreement, not
create, incur, assume or suffer to exist any Indebtedness, except: (i)
Indebtedness representing fees, expenses and indemnities payable pursuant to
and in accordance with this Agreement, and (ii) Indebtedness for services
supplied or furnished to the Partnership in an amount not to exceed $10,000 at
any one time outstanding;
(o) Unless and until the Preferred Limited Partner has received the
full amount of the Preferential Distribution due to it under this Agreement,
not distribute more than $1,500,000 in cash from the Net Proceeds to satisfy
the Class 7 and Series B Preferred Stock Liens; and
(p) Conduct its business in a separate space within, but segregated
from, the office of any Affiliate, and maintain telephone numbers, mailing
address, stationery and other business forms that are separate and distinct
from those of any Affiliate.
ARTICLE III
Contributions; Distributions; Tax Allocations
Section 3.1 Contributions. Concurrent with the execution of this
Agreement, LOT$OFF shall contribute to the Partnership all of its right, title
and interest in and to the Judgment and the Cause of Action, pursuant to
documentation satisfactory to the Preferred Limited Partner and subject only
to the Permitted Liens, in exchange for a 99% common limited partnership
interest and 1% general partnership interest in the Partnership. Immediately
thereafter, LOT$OFF shall contribute its 99% common limited partnership
interest to the Common Limited Partner and its 1% general partnership interest
to the General Partner. Concurrent with the contribution of the Judgment and
the Cause of Action by LOT$OFF to the Partnership, the Preferred Limited
Partner shall make its Contribution to the Partnership, in cash, in the amount
set forth opposite its name on Schedule II hereto, in exchange for a 100%
preferred limited partnership interest in the Partnership. To the extent
reasonably necessary, LOT$OFF agrees to execute, acknowledge and deliver, and
cause to be executed, acknowledged and delivered, such other and further
documents and take, or cause to be taken, such other action as may be
necessary to effectuate the terms of this Agreement, and to ensure the valid
transfer of the Judgment and the Cause of Action into the Partnership.
Section 3.2 Distributions. Promptly after receipt by the Partnership
of the Contribution of the Preferred Limited Partner, the total amount of such
Contribution shall be distributed in cash to the Common Limited Partner.
Within two business days after the payment of the Proceeds, the Preferential
Distribution shall be made to the Preferred Limited Partner, out of the Net
Proceeds, in cash, by wire transfer of immediately available funds, pursuant
to the formula set forth on Schedule III. Except as provided in the first
sentence of this Section 3.2, no distributions shall be made to the General
Partner or the Common Limited Partner until the Preferred Limited Partner has
received the full amount of the Preferential Distribution to which it is
entitled pursuant to Schedule III. Thereafter, all remaining amounts shall be
distributed to the General Partner and the Common Limited Partner according to
their respective common partnership interests as set forth on Schedule I.
Section 3.3 Tax Allocations. For federal income tax purposes, no
amount of income shall be allocated to the Preferred Limited Partner except to
the extent that distributions shall have been made to the Preferred Limited
Partner in excess of the amount contributed by the Preferred Limited Partner
to the Partnership, and the General Partner agrees to prepare all Partnership
tax returns in a manner consistent with the foregoing. Any loss of the
Partnership shall be allocated in the manner that as closely as possible
results in the Partners' capital accounts being equal to the distributions
they would receive on termination of the Partnership. Any income not
allocable to the Preferred Limited Partner shall be allocated among the
remaining Partners in accordance with their respective common partnership
interests.
ARTICLE IV
Partnership Composition
Section 4.1 Assignments. Unless otherwise provided in this Agreement,
except pursuant to the Security Agreement or the Assignment Agreement or with
the express written consent of the Limited Partners, which may be withheld in
their sole and absolute discretion, and, in each case (if applicable), subject
to compliance with applicable securities laws, the General Partner may not
assign, sell, transfer, pledge, hypothecate or otherwise dispose of all or any
of the portion of its interest in the Partnership or any interest (including a
beneficial interest) in such interest. Unless otherwise provided in this
Agreement, except pursuant to the Assignment Agreement or with the express
written consent of the General Partner, which may not be unreasonably withheld
or delayed, and subject to compliance with applicable securities laws, none of
the Limited Partners may assign, sell, transfer, pledge, hypothecate or
otherwise dispose of all or any portion of its interest in the Partnership or
any interest (including a beneficial interest) in such interest. Any
assignment, sale, transfer, pledge, hypothecation or other disposition made in
violation of this Section 4.1 shall be void and of no effect.
Section 4.2 No Withdrawal of General Partner. Without the prior
written consent of the Limited Partners, the General Partner shall not
withdraw or resign from the Partnership.
Section 4.3 Removal of General Partner. In the event that the General
Partner has committed gross negligence or willful misconduct in the
performance of its duties hereunder or has violated the provisions of this
Agreement and such gross negligence, willful misconduct or violation has had a
material adverse effect on the Partnership, then at the sole and absolute
discretion of the Preferred Limited Partner, the General Partner shall be
removed as general partner of the Partnership and the Limited Partners may
appoint a new general partner; provided,
however, the Preferred Limited Partner shall provide the General Partner with
a notice and an opportunity to cure, if curable, such material adverse effect,
within thirty (30) days of the receipt by the General Partner of such notice.
The removed General Partner's interest in the Partnership shall be treated as
follows: (a) such interest shall be converted into a common limited
partnership interest in the Partnership and shall remain subject to the liens
under the Assignment Agreement and (b) the removed General Partner shall
retain, with respect to such common limited partnership interest, its right to
distributions under this Agreement.
Section 4.4 Admission of New Partners. Unless otherwise permitted by
this Agreement, except with the express written consent of the Limited
Partners, which may be withheld in their sole and absolute discretion, no
Person may be admitted to the Partnership as a new partner. Notwithstanding
anything to the contrary in this Agreement, one or more new common limited
partners may be admitted to the Partnership in the General Partner's
discretion, provided (i) the General Partner provides the Preferred Limited
Partner with ten (10) days prior written notice (including all documentation
to be entered into); (ii) each such new partner's interest does not adversely
affect the rights of the Preferred Limited Partner and (iii) each such new
partner agrees in writing to be bound by the terms and conditions of this
Agreement to the same extent as the existing Common Limited Partner. Each of
the Limited Partners and the General Partner hereby consent to GECC or its
agent or designee, or any other Person purchasing an interest in the
Partnership in connection with GECC's remedies under the Assignment Agreement,
being admitted as a new partner of the Partnership, subject to compliance with
clause (iii) of the preceding sentence.
ARTICLE V
Duration and Termination of Partnership
Section 5.1 Duration and Event of Withdrawal.
(a) The Partnership shall dissolve and terminate on the earliest to
occur of: (i) at any time at the election of the General Partner, upon the
receipt by the Preferred Limited Partner of the full amount of its
Preferential Distribution, in accordance with Schedule III or (ii) the date
that the General Partner becomes bankrupt or insolvent; provided, however,
that upon the occurrence of such bankruptcy or insolvency of the General
Partner, the Partnership may continue its operations if, within ninety (90)
days, the Preferred Limited Partner (or, if the Preferred Limited Partner has
received the full amount of the Preferential Distribution to which it is
entitled under this Agreement, then the Common Limited Partners) shall elect
to continue the business of the Partnership and shall elect a new general
partner for the Partnership.
(b) If a new general partner is elected as provided in Section
5.1(a), then the withdrawn General Partner's interest in the Partnership shall
automatically be converted into a common limited partnership interest therein
and the General Partner shall be entitled to retain its beneficial interest in
the Partnership with respect to such interest.
Section 5.2 Termination. Upon termination of the Partnership, the
Partnership shall wind up its affairs and the property and assets of the
Partnership shall be liquidated as promptly as possible, but in an orderly
manner so as not to involve undue sacrifice. The General Partner shall be the
liquidator to wind up the affairs of the Partnership and to continue to manage
the Partnership's assets during such winding-up; provided that if the General
Partner is removed or withdrawn, the Limited Partners may appoint another
Person to act as liquidator. Any proceeds of the sale or other disposition of
the Partnership's assets shall be applied and distributed in the following
manner and order:
(a) to the payment of the debts and liabilities of the Partnership
and the expenses of liquidation including, to the extent payable, obligations
secured by the Permitted Liens;
(b) to the setting up of any reserves which the liquidator
determines are reasonably necessary for any contingent unforeseen liabilities
or obligations of the Partnership. Such reserves may, in the discretion of
the liquidator, be paid over to an escrow agent selected by it to be held by
such escrow agent for the purpose of disbursing
such reserves in payment of any of the aforementioned contingencies, and, at
the expiration of such period as the liquidator may deem advisable, to
distribute the balance thereafter remaining, if any, to the General Partner;
(c) to the payment of the Preferential Distribution to the
Preferred Limited Partner; and
(d) with respect to all remaining amounts, to the payment to the
Common Limited Partner and the General Partner in accordance with their
respective percentage interests in the Partnership.
ARTICLE VI
Representations and Warranties of
the General Partner and LOT$OFF
The General Partner and LOT$OFF hereby jointly and severally represent
and warrant to the Preferred Limited Partner as follows:
Section 6.1 Due Organization. Each of the General Partner, the Common
Limited Partner and LOT$OFF is (a) a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and (b) is duly qualified as a foreign corporation and is in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification. Each of
the General Partner, the Common Limited Partner and LOT$OFF has the requisite
corporate power and authority and the legal right to own, pledge, mortgage or
otherwise encumber and operate its properties and to conduct its business as
now, heretofore and proposed to be conducted.
Section 6.2 Due Execution; Non-Contravention; Enforceability. The
execution, delivery and performance by the General Partner, the Common Limited
Partner and LOT$OFF of this Agreement and all instruments and documents to be
delivered by such party in connection herewith and the contribution to the
Partnership of the Judgment and the Cause of Action provided for herein and in
the documentation assigning such Judgment and Cause of Action: (a) are within
the applicable party's corporate power; (b) have been duly authorized by all
necessary or proper corporate action; (c) are not in contravention of any
provision of the applicable party's constituent documents; (d) will not
violate any law or regulation, or any judgment, order or decree of any court
or governmental instrumentality; and (e) do not require the consent or
approval of, notice to or filing with any governmental authority or any other
Person other than such consents, approvals, notices or filings which have
already been obtained or made. This Agreement has been duly executed and
delivered by the General Partner, the Common Limited Partner and LOT$OFF, and
constitutes a legal, valid and binding obligation of such party, enforceable
against such party in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights and to equitable principles of general
applicability.
Section 6.3 No Liens. The Judgment and the Cause of Action are
contributed to the Partnership free and clear of all Liens other than the
Permitted Liens.
Section 6.4 [Intentionally Omitted]
Section 6.5 Judgment. The Judgment has been finally entered by the
District Court. The total amount of damages awarded to LOT$OFF under such
Judgment is $148,575,000.00 (plus cost of court and all interest accrued
thereon).
Section 6.6 Complete and Accurate Information. All documents
delivered by or on behalf of the General Partner, the Common Limited Partner,
LOT$OFF or any Affiliate thereof in connection with this Agreement or the
transactions contemplated hereby are true, complete and authentic in all
material respects. No representation or warranty of the General Partner, the
Common Limited Partner or LOT$OFF contained in this Agreement and no document
furnished by or on behalf of the General Partner, the Common Limited Partner,
LOT$OFF or any Affiliate
thereof pursuant to this Agreement or any transaction contemplated hereby
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements made,
in the context in which made, not materially false or misleading.
ARTICLE VII
Representations and Warranties of the Preferred Limited Partner
The Preferred Limited Partner hereby represents and warrants to the
General Partner and the Common Limited Partner as follows:
Section 7.1 Investment Purpose. The Preferred Limited Partner is
acquiring its interest in the Partnership solely for investment, solely for
its own account and not with a view to or for the resale or distribution
thereof in violation of applicable securities laws.
Section 7.2 Transfer Restriction. The Preferred Limited Partner may
sell or otherwise transfer its interest in the Partnership, or any portion
thereof, only if such transaction is duly registered under the Securities Act
of 1933, as amended, or if it shall have received the favorable opinion of
counsel to it, which opinion shall be reasonably satisfactory to counsel to
the Partnership, to the effect that such sale or other transfer may be made in
the absence of registration under the Securities Act of 1933, as amended, and
registration or qualification in every applicable state.
Section 7.3 Knowledgeable Investor. The Preferred Limited Partner has
not relied upon the advice of a "Purchaser Representative" (as defined in
Regulation D of the Securities Act) in evaluating the risks and merits of this
investment. The Preferred Limited Partner has the knowledge and experience to
evaluate the Partnership and the risks and merits relating thereto.
Section 7.4 Accredited Investor. The Preferred Limited Partner is an
"accredited investor" as such term is defined in Rule 501 of Regulation D
Promulgated pursuant to the Securities Act of 1933, as amended; the Preferred
Limited Partner is able to bear the economic risk of losing its entire
investment in the Partnership and understands that an investment in the
Partnership involves substantial risks including the potential liquidation of
the Partnership. The Preferred Limited Partner has the power and authority to
enter into this Agreement. This Agreement is a valid and binding obligation
of the Preferred Limited Partner and the execution and delivery of, and
performance under this Agreement does not and shall not contravene or result
in a default under any bylaw, charter, rule, regulation, judgment or agreement
applicable to the Preferred Limited Partner.
Section 7.5 No Public Solicitation. The Preferred Limited Partner has
not received any public solicitation or advertisement regarding an investment
in the Partnership and is not aware of any such public solicitation or
advertisement.
Section 7.6 Due Diligence. The Preferred Limited Partner represents
that it has been furnished by LOT$OFF during the course of this transaction
with all information regarding LOT$OFF, its Affiliates, the Judgment, the
Cause of Action, the Lawsuit and this transaction which the Preferred Limited
Partner has requested or desired to know, and that copies of all documents
requested have been made available for inspection and review. The Preferred
Limited Partner further represents that it has been afforded the opportunity
to ask questions of and receive answers from officers of LOT$OFF and its
Affiliates concerning LOT$OFF, its Affiliates, the Judgment, the Cause of
Action, the Lawsuit and this transaction.
ARTICLE VIII
Tax Returns; Reports to Partners
Section 8.1 Independent Accountants. The books and records of the
Partnership shall be reviewed as of the end of each Fiscal Year by
independent certified accountants selected by the General Partner.
Section 8.2 Filing of Tax Returns. The General Partner shall prepare
and file, or cause the accountants of the Partnership to prepare and file, a
U.S. federal information tax return in compliance with Section 6031 of the
Code and any required state and local income tax and information returns for
each tax year of the Partnership.
Section 8.3 Tax Matters Partner. The General Partner shall be
designated on the Partnership's annual U.S. federal information tax return as
the tax matters partner of the Partnership (the "Tax Matters Partner") as
provided in Section 6231(a)(7) of the Code. In the event the Partnership
shall be the subject of an income tax audit by any federal, state or local
authority, to the extent the Partnership is treated as an entity for purposes
of such audit, including administrative settlement and judicial review, the
Tax Matters Partner shall be authorized to act for, and its decision shall be
final and binding upon, the Partnership and each Partner thereof. All
expenses incurred in connection with any such audit, investigation,
settlement or review shall be borne by the General Partner. The General
Partner shall promptly respond to all reasonable inquiries of any Limited
Partner with respect to any tax matters and shall, to the extent commercially
reasonable, use its best efforts to obtain all tax refunds to which the
Partnership may be entitled.
Section 8.4 Financial Statements: Statements of Account. Within
ninety (90) days after the end of each Fiscal Year, the General Partner shall
send to each Person who was a Partner in the Partnership at any time during
the Fiscal Year then ended a statement of assets, liabilities and Partners'
capital as of the end of such Fiscal Year and related audited statements of
income or loss and changes in assets, liabilities and Partners' capital. The
General Partner shall make available, from time to time, such information as
may be reasonably requested by any Limited Partner.
Section 8.5 Annual Reports to Partners. Within ninety days after the
end of each Fiscal Year, the General Partner shall prepare and mail, or cause
the Partnership's accountants to prepare and mail, to each Partner (or such
Partner's legal representatives), a report setting forth in sufficient detail
such information relating to the Partnership and its activities as shall
enable such Partner (or such Partner's legal representatives) to prepare
their respective federal, state and local income tax returns in accordance
with the laws, rules and regulations then prevailing.
ARTICLE IX
Miscellaneous
Section 9.1 General. This Agreement: (i) shall be binding on, and
inure to the benefit of, the successors, permitted assigns and legal
representatives of the Partners; and (ii) may be executed, through the use of
separate signature pages or in any number of counterparts, with the same
effect as if the parties executing such counterparts had all executed one
counterpart.
Section 9.2 Amendments. The terms and provisions of this Agreement
may be modified or amended at any time and from time to time only with the
written consent of the Limited Partners and the written consent of the
General Partner; provided, however, the General Partner may, in its own
discretion, amend this Agreement to reflect changes validly made in the
composition of the Partnership in accordance with the terms of this
Agreement. Notwithstanding any provision in this Agreement to the contrary,
no amendment to this Agreement shall increase the liability of a Limited
Partner.
Section 9.3 Notices. All notices, consents, approvals and other
communications required or permitted by this Agreement shall be in writing
and (a) delivered by hand against receipt, (b) transmitted by telecopy with
transmission confirmed, (c) sent by registered or certified mail, postage
prepaid, with return receipt requested, or (d) sent by nationally-recognized
overnight courier, postage prepaid; provided that routine communications such
as reports and financial statements may be sent by first-class mail. All
notices to the Partnership and to the General Partner shall be addressed c/o
the General Partner to the General Partner's principal office. All notices
addressed to a Limited Partner shall be addressed to such Partner at the
address set forth in Schedule II. Any Partner may designate a new address by
notice to that effect given to the Partnership. Unless otherwise
specifically provided in this Agreement, a notice shall be deemed to have
been effectively given when received if received on a business day during
normal business hours and otherwise shall be effective on the next business
day. Refusal to accept delivery shall be deemed to constitute delivery at
the time so refused.
Section 9.4 Headings. The titles of the Articles and the headings of
the Sections of this Agreement are for convenience, of reference only and are
not to be considered in constructing the terms and provisions of this
Agreement.
Section 9.5 Construction; Severability. The language in all parts of
this Agreement shall in all cases be construed simply according to its fair
meaning and not strictly for or against any Limited Partner or the General
Partner. Whenever possible, the provisions of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be unenforceable or invalid
under said applicable law, such provision shall be ineffective only to the
extent of such unenforceability or invalidity, and the remaining provisions
of this Agreement shall continue to be binding and in full force and effect.
Section 9.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made wholly within such state, without regard to the conflict of
law provisions thereof.
Section 9.7 Confidentiality. Except as may be required by applicable
law or the rules of any national securities exchange or national market, none
of the General Partner, the Common Limited Partner, LOT$OFF or any Affiliate
thereof may issue a publicity release or announcement or otherwise make any
public disclosure concerning this Agreement or any of the transactions
contemplated hereby without prior approval by the Preferred Limited Partner.
If any announcement is required by law to be made by the General Partner, the
Common Limited Partner, LOT$OFF or any Affiliate thereof, prior to making
such announcement, the General Partner, the Common Limited Partner, LOT$OFF
or any Affiliate thereof, as the case may be, will deliver a draft of such
announcement to the Preferred Limited Partner as soon as practicable after
such draft has been prepared and shall give the Preferred Limited Partner
sufficient opportunity (in no event to be less than one (1) business day) to
comment thereon.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date first set forth above.
GENERAL PARTNER:
GIANT SEQUOIA CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇
--------------------------------------------
Printed Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇
Title: President and Chief Executive Officer
COMMON LIMITED PARTNER:
MOUNTAIN LAUREL CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------------------
Printed Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President
PREFERRED LIMITED PARTNER:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------
Printed Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President of Commercial Finance
LOT$OFF hereby covenants and agrees (i) to cause the General Partner to
fulfill all of its obligations under Sections 2.8 and 3.1 of this Agreement,
and if the General Partner fails to fulfill such obligations, to fulfill such
obligations on behalf of the General Partner; (ii) that the representations
and warranties of the General Partner and LOT$OFF as set forth in Article VI
of this Agreement are joint and several; (iii) that it shall not, and shall
cause each Affiliate to not, hold itself out, or permit itself to be held
out, as having agreed to pay or be liable for the debts of the Partnership;
and (iv) to prepare its financial statements in a manner that reflects (x)
that the Judgment and the Cause of Action are owned and held by the
Partnership and (y) the interests of the Preferred Limited Partner and of
LOT$OFF's Affiliates in the Partnership.
LOT$OFF CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇
--------------------------------------------
Printed Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇
Title: President and Chief Executive Officer
SCHEDULE I
PARTNERS
Preferred:
Percentage of
Type of Preferred Partnership
Name Interest Interest
General Electric Capital Corporation Limited 100%
Common:
Percentage of
Type of Common Partnership
Name Interest Interest
Mountain Laurel Corporation Limited 99%
Giant Sequoia Corporation General 1%
SCHEDULE II
CONTRIBUTIONS
Name and Address Contribution
Common Limited Partner:
Mountain Laurel Corporation Contribution of the
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Judgment and the Cause of
Suite 200 Action by LOT$OFF
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
General Partner:
Giant Sequoia Corporation Contribution of the
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Judgment and the Cause of
Suite 116 Action by LOT$OFF
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Preferred Limited Partner:
General Electric Capital Corporation $5,800,000
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
SCHEDULE III
PREFERENTIAL DISTRIBUTION
If the aggregate amount of the Then the total amount of the
Net Proceeds is: Preferential Distribution is:
Less than or equal to $1.5 million $0
Greater than $1.5 million but less 100% multiplied by the amount
than or equal to $11.5 million of Net Proceeds in excess of
$1.5 million
Greater than $11.5 million * $10 million
* In no event shall the aggregate amount of the Preferential Distribution
made to the Preferred Limited Partner exceed $10 million.
In the event that the entire Preferential Distribution occurs on or before
July 15, 1998, and if, and only if, the Proceeds received prior to that time
represent the entire settlement from the Judgment and/or Cause of Action, the
Net Proceeds will be disbursed as follows:
If the aggregate amount of the Then the total amount of the
Net Proceeds is: Preferential Distribution is:
Less than or equal to $1.5 million $0
Greater than $1.5 million but less 100% multiplied by the amount
than or equal to $10.5 million of Net Proceeds in excess of
$1.5 million
Greater than $11.5 million ** $9 million
** In no event shall the aggregate amount of the Preferential Distribution
made to the Preferred Limited Partner exceed $9 million.