Release And Settlement Agreement

RELEASE AND SETTLEMENT AGREEMENT


THIS RELEASE AND SETTLEMENT AGREEMENT ("Agreement") is made on the 14th day of March, 1996, by and between BAILEY CORPORATION, a Delaware corporation ("Bailey") and PREMIX/E.M.S. INC., and Ohio corporation ("EMS") (referred to collectively as the "Parties").


WHEREAS, on July 31, 1994, Bailey and EMS entered into an Asset Purchase and Sale Agreement (the "Sale Agreement") pursuant to which substantially all of EMS' assets used in its Business (as defined in the Sale Agreement) were sold to and purchased by Bailey.


WHEREAS, on January 31, 1996, principal in the amount of $625,000.00 and accrued interest in the amount of $306,705.30 became due and payable by Bailey to EMS pursuant to that certain Secured Promissory Note (the "Secured Note") executed by Bailey contemporaneously with and as part of the Sale Agreement; and


WHEREAS, on January 31, 1996, accrued interest in the amount of $360,000.00 became due and payable by Bailey to EMS pursuant to that certain Convertible Debenture (the "Debenture") executed by Bailey contemporaneously with and as part of the Sale Agreement; and


WHEREAS, on July 31, 1996, principal in the amount of $625,000.00 and accrued interest in the approximate amount of $315,000.00 will become due and payable by Bailey to EMS pursuant to the Secured Note, and accrued interest in the amount of $360,000 will become due and payable by Bailey to EMS pursuant to the Debenture; and


WHEREAS, since October, 1995, Bailey has failed to comply with the covenant set forth in Section 17(j) of the Debenture; and


WHEREAS, on or about January 25, 1996, Bailey filed a lawsuit against EMS in the United States District Court for the District of New Hampshire seeking an injunction against EMS to prevent EMS from enforcing the provisions of the Secured Note and Debenture; and


WHEREAS, pursuant to an agreement dated January 31, 1996, as extended by three subsequent agreements, Bailey and EMS agreed to extend the time of performance of the payments originally due January 31, 1996, as stated above, to March 14, 1996; and


WHEREAS, the Parties have attempted to resolve numerous differences between themselves without recourse to expensive and time-consuming litigation, and now desire to enter into this Agreement as follows; and


NOW THEREFORE, in consideration of the mutual agreements and other consideration contained herein, the Parties agree as follows:


1. This Agreement shall be binding on both Bailey and EMS from the date of execution of this document.


2. This Agreement will supersede the agreement entered into between Bailey and EMS on January 31, 1996, as extended and described above.


3. The Secured Note, Debenture, and related Security Documents will remain in effect as they have been executed.


4. A new note ("New Note A"), in the form attached hereto as Exhibit A, from Bailey to EMS in the amount of $1,291,705.30 will be executed, with principal and interest accruing from January 31, 1996, at 8% per annum, becoming due and payable on January 31, 1997, with no interim payments of principal or interest required. Bailey agrees to use its best efforts, as determined in its sole and absolute discretion, to provide


security for New Note A, and shall amend New Note A accordingly. New Note A shall be in satisfaction of the principal and interest originally due and payable by Bailey to EMS on January 31, 1996 pursuant to the Secured Note and Debenture.


5. An additional new note ("New Note B"), in the form attached hereto as Exhibit B, will be issued on July 31, 1996, from Bailey to EMS in an amount equal to the principal and interest which will then be due from Bailey to EMS under the Secured Note and Debenture (the approximate amount is $1,300,000.00), with interest accruing from July 31, 1996 at 8% per annum, and principal and interest becoming due and payable on July 31, 1997, with no interim payments of principal and interest required. Bailey agrees to use its best efforts, as determined in its sole and absolute discretion, to provide additional security for New Note B, and shall amend New Note B accordingly. New Note B shall be in satisfaction of the principal and interest originally due and payable by Bailey to EMS on July 31, 1996, pursuant to the Secured Note and the Debenture.


5a. EMS waives compliance with the financial ratio provision in Section 17(j) of the Debenture through October 31, 1997.


6. As part of the consideration paid by EMS to Bailey in exchange for Bailey's agreement to settle all arbitration, indemnification, and other claims released herein, EMS will pay to Bailey the sum of one million dollars ($1,000,000), but only upon such date as Bailey has paid in full all prin ...