ACCOUNTS RECEIVABLE AGREEMENT
THIS ACCOUNTS RECEIVABLE AGREEMENT (the "Agreement") is made and
entered into as of this 3rd day of June, 1996 by and among T-C THREADS,
INC. d/b/a THREADS USA, a Tennessee corporation ("TUSA"), THREADS OF PUERTO
RICO, INC., a North Carolina corporation ("TPR"), PRODUCTOS PARA LA
INDUSTRIA DE LA MAQUILA, S.A. PRIMA, a Honduras corporation ("Prima"),
HILOS Y ACCESORIOS, S.A. DE C.V., a Mexico corporation ("Hilos") and DIXIE
YARNS, INC., a Tennessee corporation ("Dixie") (TUSA, TPR, Prima and Hilos
are sometimes collectively referred to herein as "Threads") and AMERICAN &
EFIRD, INC., a North Carolina corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer, Threads and Dixie have entered into that certain
Asset Purchase Agreement dated as of May 23, 1996 (the "Asset Purchase
Agreement") pursuant to which the Buyer has agreed to purchase and Threads
and Dixie have agreed to sell the Assets (as such capitalized term is
defined in Section 3 of the Asset Purchase Agreement); and
WHEREAS, pursuant to Section 5 of the Asset Purchase Agreement the
parties have agreed to enter into this Agreement relating to the
disposition of Threads' accounts receivable in the manner more particularly
set forth herein.
NOW, THEREFORE, in consideration of these premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
1. TERMS. All terms used herein without definition, unless the context
clearly requires otherwise, shall have the meanings provided therefor in
the Asset Purchase Agreement.
2. COLLECTION OF ACCOUNTS RECEIVABLE.
(a) Commencing on the Closing Date and continuing thereafter for a period
of not more than six (6) months, the Buyer will use prompt, diligent and
reasonable efforts, consistent with the Buyer's regular collection
practices for its own accounts receivable, which practices are set forth in
Schedule A hereto, to assist in the collection of those Threads' accounts
receivable outstanding as of the Closing Date as set forth on Schedule B
attached hereto and incorporated by reference herein (the "Accounts
Receivable"), provided, that the Buyer will not attempt to collect or be
responsible for the collection of those Accounts Receivable for any
customer if all of such customer's accounts receivable balances are thirty
(30) days or more past due as of the Closing Date.
(b) Representatives selected and compensated by Threads or Dixie (the
"Threads Representative") upon prior notification to the Buyer, may
participate in the collection of the Accounts Receivable, provided that all
Threads Representatives will work under the specific direction of the
Buyer's Director of Credit, Senior Vice President of Finance, or other
employees of the Buyer designated in writing by the Buyer. Notwithstanding
anything contained herein to the contrary, the Threads Representatives
involved in such collections shall be independent contractors of the Buyer,
subject to the general control and supervision of Threads. Nothing
contained herein shall be construed to create an employment, agency or
similar relationship between the Buyer and the Threads Representatives.
Threads shall be solely responsible for the compensation and expenses
related to the participation of the Threads Representatives in the
collection of the Accounts Receivable. Threads agrees to make available a
Threads Representative for meetings (at least monthly) with the Buyer's
President or Executive Vice President and Senior Vice President of Finance
or such other person as may be delegated with such authority by either of
them to review the status of the Accounts Receivable. Except as
specifically provided herein or upon the prior express written consent of
the Buyer's President or Executive Vice President, neither Threads nor the
Threads Representatives may contact any current customers of the Buyer or
any former customers of Threads or the Buyer, or any sales representatives
of the Buyer, regarding any aspect of the Accounts Receivable; provided,
however, Threads Representatives may contact such customers for the purpose
of collecting accounts receivable that are being collected solely by
Sellers.
(c) Notwithstanding anything to the contrary contained herein, the Buyer
shall have no obligation whatsoever to institute any action or other
litigation before any court, agency, arbitrator, or tribunal to collect, or
enforce any rights of Threads with respect to the Accounts Receivable. In
each instance where the institution of an action or lawsuit is appropriate,
Buyer will allow Threads and Dixie to collect such Accounts Receivable.
(d) Solely for purposes of evaluating and determining credit limits and
making decisions regarding shipments of products to customers, the Buyer
will consider all uncontested Accounts Receivable to be owed and payable to
the Buyer.
(e) Any payment received from any customer shall be applied to the invoice
specified by the customer. If the customer shall fail to specify the
invoice to which such payment shall be applied, the payment shall be
applied on the account generally until the customer can be contacted and
informs Buyer which invoices are to be paid.
(f) Under no circumstances will Buyer instruct a customer to remit payment
of an Account Receivable in a manner contrary to the instructions set forth
on the corresponding invoice, since to do so may constitute a violation of
the provisions of Dixie's accounts receivable financing arrangements.
3. CUSTOMER CREDITS.
(a) Threads warrants and represents that the list of all customer credits
issued by Threads prior to Closing Date set forth on Schedule C (the
"Customer Credits") attached hereto and incorporated by reference herein
contains all of the Customer Credits issued and outstanding as of the
Closing Date and all such Customer Credits are accurate and valid.
(b) The Buyer hereby agrees to accept Customer Credits in payment of the
Buyer's accounts receivable of such customers if there are no Threads
Accounts Receivable outstanding for that customer. The cash value of any
Customer Credits used by a customer in payment of the accounts receivable
of the Buyer will be deducted from the Accounts Receivable Payment made by
the Buyer to Threads as provided in Paragraph 5 below.
4. RETURNS OF FINISHED GOODS AND DEDUCTIONS AND CREDITS.
(a) The Buyer shall issue credits for the return of Threads Finished Goods
("Return Credits) sold prior to the Closing Date (the "Returned Finished
Goods") and returned after the Closing Date by a customer on a basis
consistent with the policy used by the Buyer for returns of its own
finished goods. Notwithstanding this commitment by the Buyer, with respect
to such Finished Goods returned for customer accommodation (that is, where
there is no shipping error, order entry error, or quality problem
("Customer Accommodation")), the Buyer shall not accept such goods or issue
a Return Credit when the amount of such Return Credit would equal or exceed
$5,000 without the consent of Threads. In addition, should Customer
Accommodations, as reported on the Threads Sales Summary, in the aggregate
exceed $200,000 subsequent to the Closing Date, the Buyer shall not accept
goods or issue a Return Credit when the amount of such Return Credit would
equal or exceed $2,500 without the consent of Threads. Further, should
Customer Accommodations, as reported on the Threads Sales Summary, in the
aggregate exceed $300,000 subsequent to the Closing Date, the Buyer shall
not accept goods or issue a Return Credit when the amount of such Return
Credit would equal or exceed $1,000 without the consent of Threads. In
each instance above, Threads' consent will not be unreasonably withheld.
If, subsequent to the Closing Date, the Buyer alters the reporting of
reason codes on the Threads Sales Summary (that is, no longer reports
Customer Accommodations separately), the Buyer and Threads will use best
efforts to accomplish the intent of this paragraph and, at a minimum, the
Buyer shall furnish Threads with copies of credits indicating the reason
for the Return Credit.
(b) Any Return Credits issued to a customer as a result of a return of
Returned Finished Goods (in whole or in part), including freight, shall be
credited first to any outstanding Accounts Receivable, and if none, then to
the Buyer's accounts receivable balance of that customer to the extent such
customer has a current outstanding accounts receivable balance with the
Buyer. Dixie or Threads shall reimburse the Buyer for the cash value of
all Return Credits within five (5) business days of receipt of a report
prepared by the Buyer listing the Return Credits issued.
(c) Returned Finished Goods returned without a quality problem will be
included with the Threads' Finished Goods Inventory. Finished Goods
returned with a quality problem will be returned to Threads or to a
location specified by Threads, with all freight and risk of loss to be
borne by Threads.
(d) Any customer credit (or debit) invoice issued by the Buyer to correct
a unit price or other dispute (including quantity) of an Accounts
Receivable ("Accounts Receivable Credit (Debit)") will be approved by
Threads (which approval will not be unreasonably withheld).
(i) Account Receivable Debits will be added to the Accounts Receivable.
(ii) Accounts Receivable Credits that are not sent to the Customer (used
only to zero an outstanding Accounts Receivable) will be sent to Threads.
(iii) Dixie shall reimburse the Buyer for the cash value of all Accounts
Receivable Credits that are sent to the Customer within five (5) days of
receipt of a report, prepared by the Buyer listing the Accounts Receivable
Credits issued.
5. PAYMENT OF ACCOUNTS RECEIVABLE.
(a) If Buyer shall receive payment in respect of any Account Receivable,
then Buyer shall provide Dixie with notice of the name of the customer, the
amount paid and the invoice number or other identifying information, such
notice to be transmitted to Dixie by telecopy by the end of each Day in
which any such payment is received.
(b) All payments received by Buyer during each business day ("Day") in
respect of Accounts Receivable will be (i) if by check payable to Dixie,
mailed to Dixie or to an address designated by Dixie, and (ii) otherwise
collected by Buyer and paid to Dixie (the "Accounts Receivable Payment")
the following Day net of (1) returned checks plus (2) Customer Credits used
in payment of Buyer's accounts receivable (collectively, the "Deductions").
Payment will be by ACH transfer to the designated bank account of Dixie.
In the event the sum of the Deductions exceeds the Accounts Receivable
collected by Buyer during any Day (such amount referred to herein as the
"Net Deficiency"), then such Net Deficiency shall be carried over to the
next Day. If a Net Deficiency shall continue to exist for five (5)
consecutive Days, Dixie shall reimburse Buyer for the Net Deficiency within
five (5) Days of receipt of a report prepared by Buyer detailing the Net
Deficiency, which report shall be subject to verification by Dixie.
6. RECEIPT OF ACCOUNTS RECEIVABLE.
(a) If Threads or Dixie shall receive payment in respect of any Accounts
Receivable, then Threads or Dixie, as appropriate, shall provide the Buyer
with notice of the name of the customer, the amount paid and the invoice
number or other identifying information, such notice to be transmitted to
the Buyer by telecopy by the end of each Day in which any such payment is
received.
(b) If Threads or Dixie shall receive payment in respect of any accounts
receivable of the Buyer, then Threads or Dixie, as appropriate, shall (a)
provide the Buyer with notice of the name of the customer, the amount paid,
and the invoice number or other identifying information, such notice to be
transmitted to the Buyer by telecopy by the end of each Day in which any
such payment is received and (b) transfer the amount of each such payment
to the Buyer by ACH transfer (without offset or deduction except for
returned checks and Buyer's credits used to pay Dixie or Threads, provided
such Buyer's credit is confirmed by Buyer) by the end of the Day following
the Day of receipt. In the event the sum of the returned checks and
Buyer's credits exceeds the amount of accounts receivable of the Buyer
received by Threads during any Day (such amount referred to herein as the
"Buyer's Net Deficiency"), then such Buyer's Net Deficiency shall be
carried over to the next Day following the Day of receipt. If a Buyer's
Net Deficiency shall continue to exist for five (5) consecutive Days, the
Buyer shall reimburse Threads for the Buyer's Net Deficiency within five
(5) Days of receipt of a report prepared by Threads, including photocopies
of all returned checks, detailing the Buyer's Net Deficiency, which report
shall be subject to verification by Buyer.
7. TERMINATION OF BUYER'S OBLIGATIONS; TERMINATION OF AGREEMENT.
Commencing thirty (30) days after the Closing Date, at Threads' request,
the Buyer shall turn over to Threads those Accounts Receivable (along with
a copy of the related credit file) for any customer of Threads if all of
such customer's Accounts Receivable owed to Threads are past due thirty
(30) days or more, provided, however, that upon request by Buyer, Threads
and/or Dixie may consent (which consent will not be unreasonably withheld)
to Buyer continuing assistance with respect to such account. All other
requests by Dixie for the Buyer to turn over to Threads other Accounts
Receivable will be promptly considered by the Buyer. Notwithstanding
anything contained herein to the contrary, on the first business day six
(6) months after the Closing Date (the "Termination Date") the Buyer shall
turn over all outstanding Accounts Receivable to Threads for collection by
Threads, at which time all of the Buyer's obligations hereunder shall cease
except the Buyer's obligation to make payments as provided under Paragraph
5.
8. ABSENCE OF CONFLICTS. Threads and Dixie represent and warrant that the
arrangements described herein including specifically the limitations
provided under Section 2(f) do not conflict with any loan agreement,
security agreement or other agreement to which it is a party or to which it
or its accounts receivable is subject.
9. ACCESS TO FACILITIES AND RECORDS. The parties agree to allow each
other reasonable access to their respective facilities and relevant
business records on reasonable notice and during normal business hours to
the extent necessary to verify such party's compliance with its obligations
under this Agreement.
10. NOTICES. All notices, certificates or other communications hereunder
shall be deemed sufficiently given and shall be deemed given when delivered
by hand-delivery, sent by overnight delivery, mailed by first class,
postage prepaid, registered or certified mail, return receipt requested, or
faxed and addressed
as follows:
If to Threads at: Dixie Yarns, Inc.
1100 South Watkins Street
Chattanooga, Tennessee 37404
Attn: Credit Department
Facsimile No.: (423) 493-7437
With copy to: Chief Financial Officer
Facsimile No.: (423) 493-7442
If to the Buyer at: American & Efird, Inc.
22 American Street
Mt. Holly, North Carolina 28120
Attn: Director of Credit
Facsimile No.: (704) 827-0508
With copy to: Senior Vice President-Finance
Threads and the Buyer may by notice given hereunder, designate from time
to time any further or different addresses to which subsequent notices,
certificates or other communications shall be sent.
11. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Dixie, Threads and the Buyer and their respective
successors and assigns.
12. AMENDMENT, EXECUTION IN COUNTERPARTS. This Agreement may not be
amended, changed, modified, altered or terminated except by instrument in
writing signed by the parties to be charged. This Agreement may be
executed in several counterparts, each of which shall be an original and
all of which shall constitute but one and the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of North Carolina.
14. SEVERABILITY. In the event any provision of this Agreement or any
instrument delivered in connection herewith shall be held invalid or
unenforceable by any arbitral body or court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
hereof or thereof.
15. HEADINGS, EXHIBITS AND SCHEDULES. The paragraph headings in this
Agreement are for convenience only, and they form no part of this Agreement
and shall not affect its interpretation. All exhibits and schedules
attached hereto are hereby incorporated by reference and made a part of
this Agreement.
16. RESOLUTION OF QUALITY DISPUTES. Any controversy, dispute or question
arising out of, or in connection with, or in relation to this Agreement
with respect to the handling of quality complaints and claims related to
Finished Goods shall be determined by Mr. Dame S. Hamby. At the request of
either party, the parties may mutually agree upon another qualified
individual to settle such disputes. The expense of Mr. Hamby's or his
successor's services shall be borne equally by the parties involved.
17. ARBITRATION. Except as otherwise provided in the preceding paragraph,
any controversy, dispute or question arising out of, or in connection with,
or in relation to this Agreement or its interpretation, performance or non-
performance or any breach thereof shall be determined by arbitration
conducted in Charlotte, North Carolina in accordance with the then existing
rules of The American Arbitration Association and any decision rendered by
The American Arbitration Association shall be binding upon the parties
hereto. Any judgment upon any award, which may include an award of
damages, may be entered in the highest State or Federal court having
jurisdiction thereof. The expense of arbitration shall be borne equally by
the parties involved.
18. ENTIRE AGREEMENT. This Agreement and accompanying documents contain
the entire agreement between the parties with respect to the subject matter
hereof and all prior or contemporaneous written or oral agreements with
respect to the subject matter hereof are superseded hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their respective names by their duly authorized officers and
their respective seals to be hereunto affixed all as of the day first above
written.
ATTEST: T-C THREADS, INC.
/s/GARY A. HARMON By:/s/GLENN M. GRANDIN
Assistant Secretary Glenn M. Grandin, President
(CORPORATE SEAL)
ATTEST: THREADS OF PUERTO RICO, INC.
/s/GARY A. HARMON By:/s/GLENN M. GRANDIN
Assistant Secretary Glenn M. Grandin, President
(CORPORATE SEAL)
ATTEST: DIXIE YARNS, INC.
/s/GARY A. HARMON By:/s/GLENN M. GRANDIN
Treasurer Glenn M. Grandin,
Senior Vice President
(CORPORATE SEAL)
ATTEST: PRODUCTOS PARA LA INDUSTRIA DE
LA MAQUILA, S.A. PRIMA
/s/GARY A. HARMON By:/s/GLENN M. GRANDIN
Assistant Secretary Glenn M. Grandin, President
(CORPORATE SEAL)
ATTEST: HILOS Y ACCESORIOS, S.A. DE
C.V.
/s/GARY A. HARMON By:/s/GLENN M. GRANDIN
Assistant Secretary Glenn M. Grandin, President
(CORPORATE SEAL)
ATTEST: AMERICAN & EFIRD, INC.
/s/CRAIG G. STOVER By:/s/THOMAS W. DICKSON
Secretary Thomas W. Dickson, President
(CORPORATE SEAL)
List of omitted schedules and exhibits
SCHEDULE A Buyer's Collection Practices
SCHEDULE B Accounts Receivable
SCHEDULE C Customer Credits