EXHIBIT (10)(H)(10)
NatWest Bank N.A.
1133 Avenue of the Americas
New York, NY 10036
NatWest Bank
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
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FOURTH AMENDED AND RESTATED LOAN AGREEMENT, dated as of March 31, 1996, by and
among HAMPSHIRE DESIGNERS, INC., a Delaware corporation with a place of business
at 215 Commerce Blvd. Anderson South Carolina 29621 (the "Borrower") and NATWEST
BANK N.A. (formerly National Westminster Bank USA), a national banking
association with a place of business at 1133 Avenue of the Americas, 39th Floor,
New York, New York 10036 (the "Bank").
WHEREAS the Borrower and the Bank are parties to a Third Amended and Restated
Loan Agreement dated as of March 31, 1995 (as so, the "Loan agreement");
WHEREAS, the Hampshire Group has completed a
corporate reorganization pursuant to which (i)
effective as of July 1, 1995 Hampshire
Designers, Inc. merged with and into Hampshire
Hosiery, Inc. and, as the surviving
corporation, Hampshire Hosiery, Inc. changed
its name to Hampshire Designers, Inc.
(hereinafter referred to as the "Borrower"),
(ii) effective as of December 26, 1995, H. G.
Knitwear merged with and into Segue (America)
Limited ("Segue"); and (iii) effective as of
Oct. 10, 1995, the The Winona Knitting Mills,
Inc. was acquired and merged into Hampshire
Group, Limited and the operations of The
Winona Knitting Mills, Inc. continue as a
division of the Borrower,
WHEREAS, as a result of such restructuring,
the operations of the former Hampshire
Designers, Inc. continue as the Hampshire
Designers Division ("Designers") of the
Borrower, the operations of the former
Hampshire Hosiery, Inc. continue as the
Hampshire Hosiery Division ("Hosiery") of the
Borrower, and the operations of The Winona
Knitting Mills, Inc. ("Winona") continue as a
division of the Borrower;
WHEREAS, the parties hereto now desire to amend and restate in its entirety the
Loan Agreement as herein provided in order to, among other things, reflect the
new corporate structure.
NOW, THEREFORE, IT IS AGREED THAT THE LOAN AGREEMENT IS AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
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SECTION 1. AMOUNT AND TERMS.
l.l.A. WORKING CAPITAL LINE. Subject to and upon the terms and conditions herein
set forth, including (without limitation) the definitions contained in Section
12, at any time or from time to time on or before the termination of this
Agreement, subject to the limitations contained in Section 1.1.B, the Bank shall
extend a working capital credit facility (the "Working Capital Line") for
short-term loans (referred to as "Loans") and Letters of Credit.
l.l.B. LIMITATIONS OF LINE OF CREDIT. Except as otherwise permitted or limited
by the Bank from time to time, the aggregate amount of (i) Loans outstanding at
any time to the Borrower shall not exceed the lesser of $25,000,000 or the Total
Borrowing Base (the "Working Capital Line Limit"); (ii) Letters of Credit
outstanding at any time issued for the account of the Borrower shall not exceed
$6,500,000; (iii) Loans and Letters of Credit outstanding at any time with
respect to Designers individually shall not exceed $20,000,000; (iv) Loans
outstanding at any time with respect to Designers individually shall not exceed
$16,000,000; provided, however, that of the Loans and Letters of Credit
available with respect to Designers, not more than $2,000,000 of the proceeds
thereof shall be available to San Francisco Knitworks, Inc. ("Knitworks") not
more than $4,000,000 of the proceeds thereof shall be available to Segue, and
not more than $3,000,000 of the proceeds thereof shall be available to Winona.
(v) Letters of Credit outstanding at any time issued for the account of
Designers individually shall not exceed $6,000,000; provided, however, that of
the Letters of Credit available with respect to Designers, not more than
$3,000,000 thereof shall be available to Segue (vi) Loans and Letters of Credit
outstanding with respect to Hosiery individually shall not exceed $5,000,000;
(vii) Loans outstanding at any time with respect to Hosiery individually shall
not exceed $5,000,000; (and any working capital needs of Hosiery in excess
thereof, during the term hereof, shall be funded from intercompany advances of
Designers); and (viii) Letters of Credit outstanding at any time issued for the
account of Hosiery individually shall not exceed $500,000.
l.l.C. NOTES AND ADDITIONAL MATTERS RELATIVE TO LETTERS OF CREDIT.
(a) Loans under the Working Capital Line shall mature, subject to earlier
acceleration, on the Maturity Date, and shall be evidenced by, and be repayable
with interest in accordance with the terms of, one promissory note for the
Borrower payable to the order of the Bank, in form and substance substantially
as set forth in Exhibit 1.1.C (the "Note"), which Note shall be dated as of
March 31, l996, shall be duly executed by the Borrower and shall replace the
existing Notes of the Borrower's constituent corporations (but to the extent of
the current principal balance thereof presently outstanding shall represent the
same indebtedness). The Note is in the maximum principal amount of $25,000,000.
and is subject to payment and prepayment as provided in Section 2.
(b) (i) Letters of Credit shall be issued only to facilitate the purchase
of goods in transactions involving the importation, exportation or domestic
shipment of such goods.
(ii) The Borrower agrees to pay for the issuance of each Letter
of Credit and all the Bank's standard fees and commissions routinely charged in
connection therewith.
(iii) In the event the Bank makes payment to the beneficiary of
any Letter of Credit in accordance with the terms thereof, the Borrower agrees
to reimburse the Bank therefor on the same day such payment is made.
(iv) With respect to each Letter of Credit the Borrower, shall
execute, and each such Letter of Credit shall be further governed by the
provisions of, the Bank's standard form of Application for Irrevocable Letter of
Credit (to the extent any inconsistency exists between such Application(s) and
this Agreement, such Application(s) shall govern).
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(v) Notwithstanding anything to the contrary contained herein,
the Borrower may cause the Bank to issue Letters of Credit for the account of
the Borrower, which may be for the particular account of its divisions, Hosiery
or Designers, up to the limits set forth in Section l.lB (v) and (viii) above,
or its subsidiary Segue; provided however, that Letters of Credit issued for the
account of Segue individually shall not exceed $3,000,000.
1.1.D. INTEREST.
(a) Definitions. For purposes of this Section 1.1.D., unless the context
otherwise requires, the following terms shall have the following meanings:
(i) "Fixed Rate" shall mean for any Loans requested by Borrower
and for any Interest Period a fixed rate of interest is quoted by the Bank to
Borrower, if requested by Borrower in accordance with subparagraph (c) hereof
which fixed rate shall be determined in the sole discretion of the Bank by
reference to such factors and considerations as the Bank shall deem relevant;
provided, that Borrower shall be entitled to request a fixed rate of interest
for any portion of the Loans less than $1,000,000. While the Bank will endeavor
to quote a Fixed Rate if requested by a Borrower, the Bank reserves the right
not to quote such a Rate, in which event such Borrower's request shall be
treated as a request for the Prime-Based Rate.
(ii) "Fixed Rate Interest Period" shall mean an Interest Period
during which all or a portion (in excess of $1,000,000 in principal amount) of
Loans under either Note bears interest at the Fixed Rate.
(iii) "Interest Period" shall mean with respect to a Fixed Rate
Interest Period, any period of days which is agreeable to the Bank (in each
case, as selected by Borrower and as determined to be available by the Bank
pursuant to subparagraph (c) of this Section 1.1.D.), and with respect to a
Prime-Based Rate Interest Period, a period continuing from day to day until
terminated by such Borrower, such termination to be effective three (3) business
days after the selection of a Fixed Rate Interest Period in accordance with
subparagraph (c) of this Section 1.1.D. At any one time all Loans under the Note
may be subject to the Prime-Based Rate Interest Period, or all Loans under the
Note may be subject to one or more Fixed Rate Interest Periods, or some Loans
may be subject to the Prime-Based Rate Interest Period and other Loans may be
subject to one or more Fixed Rate Interest Periods. The first Interest Period
under the Note shall commence when the Loan with respect thereto is first
advanced by the Bank and thereafter each Interest Period with respect to any
Loans shall commence on the last day of the immediately preceding Interest
Period with respect to such Loans; provided, that any Interest Period which
would otherwise end on a day which is not a business day shall end on the next
succeeding business day; and provided, further however, that any Interest Period
which commences prior to the Maturity Date and would otherwise end thereafter
shall end on the Maturity Date; and provided, further, however, that Interest
Periods in respect of overdue principal shall be of such durations as the Bank
may select.
(iv) "Interest Renegotiation Date" shall mean the last day of any
Interest Period.
(v) "Prime-Based Rate" shall mean a fluctuating interest rate
equal to the Prime Rate in effect from time to time.
(vi) "Prime Rate" shall mean the rate of interest established
from time to time by the Bank as its "prime rate" whether or not such rate is
the best rate available at the Bank.
(vii) "Prime-Based Rate Interest Period" shall mean an Interest
Period during which all or a portion of the Loans bear interest at the
Prime-Based Rate.
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(b) Interest Rates. Loans shall bear interest on the unpaid principal
balance thereof from the date thereof in respect of each Interest Period at a
rate per annum equal to (i) the Prime-Based Rate, in the case of Loans subject
to the Prime-Based Rate Interest Period (which Loans shall at times be referred
to as "Prime-Based Loans"), or (ii) the Fixed Rate applicable to such Loans, in
the case of Loans subject to a Fixed Rate Interest Period (which Loans shall at
times be referred to as "Fixed Rate Loans"). Interest on the Loans shall be
payable monthly on the first day of each month commencing April 1, 1996, on the
Maturity Date and thereafter on demand. After any stated or any accelerated
maturity of Loans hereunder, Prime-Based Loans shall bear interest (computed
daily) at a rate of 2% per annum in excess of the rate applicable to Prime-Based
Loans and Fixed Rate Loans shall bear interest (computed daily) at a rate of 2%
per annum in excess of the rate applicable to such Fixed Rate Loan until the
expiration of the Fixed Rate Interest Period applicable to such Fixed Rate Loan,
at which time the Loan will automatically be converted into a Prime-Based Loan
and until paid shall bear interest at a rate of 2% per annum in excess of the
rate applicable to Prime-Based Loans, in each case payable on demand. In no
event shall interest payable hereunder be in excess of the maximum rate of
interest permitted under applicable law. Interest shall be calculated on the
basis of actual days elapsed over a 360-day year.
(c) Selection of Interest Periods. (i) The first Interest Period under the
Note shall commence on the date hereof, shall be a Prime-Based Rate Interest
Period and shall continue with respect to the Borrower until a date three (3)
business days after notification by Borrower to the Bank of the selection of the
next succeeding Interest Period under such Notes.
(ii) By no later than 10:00 a.m. (New York time) on the day three
(3) business days prior to each Interest Renegotiation Date, the Borrower shall
deliver to the Bank a written or telephonic request (confirmed in writing) for a
quote for a Fixed Rate specifying the principal amount of Loans to be subject
thereto and a proposed duration therefor; provided, however that the Bank in its
sole discretion may, but shall be under no obligation to, accept such notice the
same day of the requested Loan, in such case the interest rate may not be the
same as would be if the Bank were afforded three days' notice, it being
understood that the Bank's index for determining each such rate may vary
depending on the number of days' advance notice it receives. The Bank shall use
its best efforts to furnish such Borrower not later than 11:30 a.m. (New York
time) on the same business day as the date of such request, a quote of the Fixed
Rate for the Loans and the duration proposed by such Borrower. By no later than
3:00 p.m. (New York time) on the same business day as the date of such request
such Borrower shall specify to the Bank whether the next succeeding Interest
Period for such Loans is to be a Prime-Based Rate Interest Period or a Fixed
Rate Interest Period; provided, that if the Bank shall determine (which
determination shall be conclusive and binding upon such Borrower) that it is
unable for any reason to quote a Fixed Rate or that the duration of the Interest
Period designated by such Borrower is unacceptable, the Bank shall so notify
such Borrower and the Interest Period designated for such Loans shall
automatically be a Prime-Based Rate Interest Period. Each designation of, and
selection of the Loans applicable to and the duration of, an Interest Period by
a Borrower shall be irrevocable and effective upon the acknowledgment and
acceptance by the Bank. If a Borrower shall fail to designate, or in the case of
a Fixed Rate Interest Period to select the principal amount of Loans applicable
to or duration of, an Interest Period as provided above, such Interest Period
shall automatically be a Prime-Based Rate Interest Period. Promptly after the
establishment of the Prime-Based Rate or Fixed Rate, as the case may be, for any
Interest Period, the Bank shall notify such Borrower and the rate set forth in
such notification shall be conclusive absent manifest error.
1.2. DISBURSEMENT. Loans shall be disbursed by the Bank from its office at
1133 Avenue of the Americas, New York, New York 10036.
SECTION 2. PAYMENTS AND PREPAYMENTS OF LOANS.
2.1. MANDATORY PAYMENTS. If at any time the aggregate outstanding Loans and
Letters of Credit to Borrower exceed the Working Capital Line Limit, Borrower
shall pay such excess to the Bank together with accrued interest thereon and
amounts payable pursuant to Section 2.4 hereof.
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2.2. OPTIONAL PREPAYMENTS. Subject to Section 2.4 the Borrower shall have the
right from time to time to prepay the outstanding Loans in part or in whole.
Upon the giving of notice of prepayment, the amount therein specified to be
prepaid shall be due and payable on the date therein specified for such
prepayment, together with accrued interest thereon to such date.
2.3. PROCEDURES FOR PAYMENTS. All payments by the Borrower to the Bank shall be
made at 1133 Avenue of the America, New York, New York 10036 in immediately
available funds and in lawful money of the United States or may be made by a
charge to the demand deposit account of the Borrower and its applicable
subsidiaries and divisions maintained with the Bank.
2.4 FUNDING LOSSES. The Borrower shall indemnify the Bank and hold the Bank
harmless against any loss or expense incurred by it as a result of any payment
of principal of the Loans to Borrower, or any portion thereof, bearing interest
at a Fixed Rate on a date other than the last day of the Fixed Rate Interest
Period applicable thereto or as a result of any prepayment of principal on
account of the applicable Note, whether such loss or expense arises by reason of
the liquidation or reemployment of deposits or other funds acquired by the Bank
to fund or maintain the Loans to the Borrower or otherwise. The Bank shall
certify to the Borrower the amount of, and the basis of determination of, the
loss or expense so incurred (which certification shall be conclusive in the
absence of arithmetical error).
SECTION 3. SECURITY AND GUARANTEES.
As security for and to guarantee the full and timely payment of the Obligations,
whether now existing or hereafter arising:
3.1. SECURITY AGREEMENT. Each of the Borrower, Knitworks and Segue shall execute
and deliver to the Bank, its respective security agreement(s). The Borrower,
Knitworks, and Segue, (Borrower, Knitworks and Segue are also referred to herein
individually as a "Grantor" and collectively as the "Grantors") shall execute a
sufficient quantity of financing statements pursuant to the Uniform Commercial
Code, in form and substance satisfactory to the Bank, granting the Bank a first
priority perfected security interest in all Grantors accounts receivable and
imported inventory shipped under or pursuant to or in connection with Letters of
Credit issued by the Bank, such collateral to include that of Designers,
Hosiery, Knitworks, Winona and Segue. Each Grantor also agrees to execute
additional financing statements as may be required by the Bank from time to
time.
3.2. GUARANTEES. The Borrower has caused a guaranty to be duly executed and
delivered to the Bank, by each of Hampshire Group, Limited ("HGL"), Glamourette
Fashion Mills, Inc. ("Glamourette"), Knitworks, and Segue (each individually
referred to herein as a "Guarantor" and collectively as the "Guarantors") of all
the obligations to the Bank. The Borrower has also executed and delivered
guarantees of all the Obligations of Segue and Knitworks to the Bank. Each of
the foregoing guarantees is secured by the collateral described in the security
agreement executed by such Guarantor.
3.3. FILING AND RECORDING. Each Grantor shall, at its cost and expense, cause
all instruments and documents given as security pursuant to this Agreement to be
duly recorded and/or filed or otherwise perfected in all places necessary, in
the opinion of the Bank, to perfect and protect the lien or security interest of
the Bank in the property covered thereby. Each Grantor, to the extent permitted
by law, hereby authorizes the Bank to file any financing statement or amendment
thereto in respect of any security interest created pursuant to this Agreement
which may at any time be required or which, in the opinion of the Bank, may at
any time be desirable although the same may have been executed only by the Bank
or, at the option of the Bank, to sign such financing statement or amendment on
behalf of such Grantor and file the same, and such Grantor hereby irrevocably
designates the Bank, its agents, representatives and designees as agents and
attorneys-in-fact for such Grantor for this purpose. In the event that any
re-recording or refiling thereof (or the filing of any statements of amendment,
continuation or assignment of any financing statement) is required to protect
and preserve such lien or security interest, each Grantor shall, at its cost and
expense, cause the same to be recorded and/or refiled at the time and in the
manner requested by the Bank.
SECTION 4. CONDITIONS PRECEDENT TO BORROWING.
The commitment of the Bank to make any Loans to the Borrower or to issue any
Letter of Credit for the account of the Borrower (or for the account of any
Guarantor with the written consent of the Borrower) shall be subject to the
satisfaction in full of the following conditions precedent:
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4.1. FINANCIAL STATUS. At the time of each extension of credit hereunder, there
shall have been no material adverse change in the business, operations,
properties, assets or financial condition of the Borrower or any Guarantor from
the financial condition reflected on the consolidated financial statements of
HGL as at December 31, l995.
4.2. QUALIFICATION. At the time of each extension of credit hereunder, the
Borrower and each Guarantor shall be duly qualified as a foreign corporation in
good standing in each jurisdiction in which the nature of its business or
ownership or use of property requires such qualification.
4.3. SECURITY AND GUARANTY INSTRUMENTS. At the time of each extension of credit
hereunder (a) the Bank shall have received all the instruments and documents
then required to be delivered pursuant to Section 3 or any other provision of
this Agreement or pursuant to the instruments and documents referred to in
Section 3 or any other provision of this Agreement and the same shall be in full
force and effect and (b) the Bank shall have received all necessary consents
relating thereto from third parties so that the same shall be valid and not
result in any violation of any agreement running in favor of such third party.
4.4. CORRECTNESS OF WARRANTIES. At the time of each extension of credit
hereunder, all representations and warranties contained herein, or otherwise
made to the Bank in connection herewith or therewith, shall be true and correct
with the same effect as though such representations and warranties had been made
on and as of the date of such extension of credit.
4.5. NO EVENT OF DEFAULT. At the time of each extension of credit hereunder,
there shall exist no Event of Default as defined in Section 9 and no condition,
event or act which, with notice or lapse of time, or both, would constitute an
Event of Default.
4.6. NOTE. At the time of the first borrowing hereunder, the Bank shall have
received a Note from the Borrower, duly completed, executed and delivered.
4.7. PROCEEDINGS; RECEIPT OF DOCUMENTS. At the time of each extension of credit
hereunder, all corporate and legal proceedings and all documents and instruments
in connection with each extension of credit and pursuant to Sections 3 and 4
shall be satisfactory in form and substance to the Bank and the Bank shall have
received all information and copies of all documents, including records of
corporate proceedings, which the Bank may have requested in connection
therewith, such documents where requested by the Bank to be certified by
appropriate corporate or governmental authorities.
SECTION 5. USE OF PROCEEDS.
Subject to the limits set forth in Sections l.lB and 1.1.C. (b)(v), the Borrower
agrees that the proceeds of all Loans hereunder shall be applied solely for the
Borrower's own working capital purposes; provided, however, that Borrower may
downstream, or cause the Bank to advance directly, to Designers, Hosiery, Segue
and Winona and Knitworks, up to $16MM, $5MM, $4MM, $3MM and $2MM respectively,
of the proceeds of Designers' Loans hereunder, to be applied solely for the
working capital purposes of each, as the case may be.
SECTION 6. CERTAIN AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that, until the Obligations are paid in full
and this Agreement is terminated, unless specifically waived by the Bank in
writing:
6.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower shall furnish to
the Bank:
(a) as soon as practicable and in any event within 60 days after the last
day of each of the first three fiscal quarters of each fiscal year of HGL, an
unaudited consolidated and consolidating balance sheet of the Borrower and of
each Guarantor and its Subsidiaries, a consolidated and consolidating statement
of income and surplus account of the Borrower and of each Guarantor and its
Subsidiaries, and a consolidated statement of changes in financial position of
the Borrower and each Guarantor and its Subsidiaries for the quarter then ended,
all in reasonable detail and certified by the chief financial or accounting
officer of the Borrower and of each Guarantor to be true and correct in all
material respects, subject to normal recurring year-end audit adjustments, and
to have been prepared in accordance with generally accepted accounting
principles consistently maintained by the Borrower and Guarantor;
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(b) as soon as practicable and in any event within 120 days after the
close of each fiscal year of HGL, a consolidated and consolidating balance sheet
of the Borrower and of each Guarantor and its Subsidiaries, a consolidated and
consolidating statement of income and surplus account of the Borrower and of
each Guarantor and its Subsidiaries, and a consolidated statement of changes in
financial position of the Borrower and of each Guarantor and its Subsidiaries,
as at the end of and for the fiscal year just closed, setting forth the
corresponding figures of the previous fiscal year in comparative form, all in
reasonable detail and with respect to the consolidated statements certified
(without any qualification or exception deemed material by the Bank) by Price
Waterhouse or other independent public accountants satisfactory to the Bank and
with respect to all other statements certified by the applicable companies chief
financial or accounting officer as having been prepared in accordance with
generally accepted accounting principals consistently applied; and concurrently
with such financial statements, a written statement signed by such independent
accountants and chief financial or accounting officer, as the case may be, to
the effect that, in making the examination necessary for their certification of
such financial statements, they have not obtained any knowledge of the existence
of any Event of Default or other act, condition or event which, with the giving
of notice or lapse of time, or both, as specified in Section 9, would constitute
an Event of Default, or, if such independent accountants or officers shall have
obtained from such examination any such knowledge, they shall disclose in such
written statement the Event of Default or other act, condition or event and the
nature thereof, it being understood, however, that such independent accountants
shall be under no liability, directly or indirectly, to anyone for failure to
obtain knowledge of any such Event of Default or act, condition or event;
(c) Intentionally Omitted;
(d) as soon as practicable and in any event within 30 days after the close
of each month, a receivables aging for such month separately for the Borrower,
Segue and Knitworks in such detail as the Bank may reasonably request;
(e) as soon as practicable and in any event within 30 days of the close of
each month, a monthly borrowing base certificate substantially in the form of
Exhibit 6.1(e) hereto;
(f) promptly upon the commencement thereof, written notice of any
litigation, including arbitrations, where the amount claimed exceeds $500,000
and of any proceedings before any governmental agency which would, if
successful, materially affect the Borrower or any Guarantor or any of its
Subsidiaries; and
(g) with reasonable promptness, such other information respecting the
business, operations and financial condition of HGL and/or the Borrower or any
of their Subsidiaries as the Bank may from time to time request.
6.2. INSPECTION BY BANK. The Borrower and each Guarantor shall allow, and shall
cause each of its Subsidiaries to allow, any representative of the Bank
(including any participant in the loans made hereunder) to visit and inspect any
of the properties of such Borrower, Guarantor or any Subsidiary, to examine the
books of account and other records and files of such Borrower, Guarantor or any
Subsidiary, to make copies thereof and to discuss the affairs, business,
finances and accounts of such Borrower, Guarantor or any Subsidiary with their
respective officers and employees, all at such reasonable times and as often as
the Bank may reasonably request.
6.3. FURTHER ASSURANCES. The Borrower and each Guarantor shall, at its cost and
expense, upon request of the Bank, duly execute and deliver, or cause to be duly
executed and delivered, to the Bank such further instruments and do and cause to
be done such further acts as may be necessary or proper in the opinion of the
Bank to carry out more effectually the provisions and purposes of this
Agreement.
SECTION 7. CERTAIN NEGATIVE COVENANTS.
The Borrower and each Guarantor covenants and agrees that, until the Obligations
are paid in full and this Agreement is terminated either on the Maturity Date or
in writing, neither Borrower nor any Guarantor shall, without the prior written
consent of the Bank:
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7.1. COMPROMISE OF RECEIVABLES. Compromise or adjust any of the Receivables
(or extend the time for payment thereof) or grant any discounts, allowances or
credits thereon, other than in the normal course of business.
7.2. ACQUISITIONS. Purchase, lease or otherwise acquire all or any substantial
part of the business, properties or assets of any person during the term of this
Agreement; except, provided that no Event of Default exists or is continuing,
(ii) the Borrower or any Guarantor may enter into no more than one (1)
acquisition of any person in the same line of business during the term of this
agreement, provided that the consideration given for such acquisition does not
exceed $3,000,000., with the cash portion of such acquisition not to exceed
$1,000,000.
7.3. OTHER INDEBTEDNESS. Incur any indebtedness for borrowed money except for
(i) indebtedness reflected on the Borrower's audited financial statements
furnished to the Bank dated December 31, 1995, (ii) purchase money indebtedness
incurred in the purchase of fixed assets within the limitations of Section 7.5
hereof and (iii) $3,000,000 owing to Merchants National Bank of Minnesota (iv)
$2,000,000 owing to Banco Popular, Puerto Rico (v) indebtedness owing to the
Bank.
7.4. CONTINGENT OBLIGATIONS. Except for obligations owing to the Bank, assume,
endorse, be or become liable for or guarantee the obligations of any person
excluding the endorsement of negotiable instruments for deposit or collection in
the ordinary course of business.
7.5. EXPENDITURES, STOCK TRANSACTIONS AND ADVANCES. (i) Incur with respect to
the Borrowers, Guarantors and Subsidiaries, in the aggregate, capital
expenditures or equipment lease obligations in any fiscal year in excess of
$3,000,000, (ii) acquire the capital stock or assets of any other business,
(iii) purchase any of its outstanding stock or (iv) lend or advance credit,
property or money to any Guarantor or any other person other than as permitted
under Section 7.2 and 7.7 of this Agreement.
7.6. NEGATIVE PLEDGE. Permit the mortgage or pledge of, or creation of a
security interest in, any of its assets other than those in favor of the Bank.
7.7 PAYMENTS TO HGL. During any fiscal year, permit the total of the sum of all
payments, distributions or dividends paid by the Borrower to HGL (excluding,
however, distributions in the ordinary course of business for operating expenses
and payment of management fees) during such fiscal year, plus the sum of all
loans or advances of money, credit or property made by the Borrower to HGL (net
of any repayments by HGL) during such fiscal year, to exceed the Borrowers' net
income (as determined in accordance with generally accepted accounting
principles consistently applied) for such fiscal year; provided, however, that
this covenant shall not restrict or include within its calculations the
repayment to HGL by the Borrower of loans or advances that were made by HGL only
to the extent such loans or advances are not or have not been subordinated to
the Bank.
7.8 FINANCIAL REQUIREMENTS. Permit:
(a) the consolidated Effective Net Worth of HGL and all its subsidiaries
at any time to be less than $25,000,000; and
(b) the consolidated Working Capital of HGL and all its subsidiaries at
any time to be less than $22,500,000.
7.9 Intentionally Omitted.
SECTION 8. Intentionally Omitted.
SECTION 9. DEFAULTS AND REMEDIES.
9.1. EVENTS OF DEFAULT. If any one or more of the following events (herein
called "Events of Default") shall occur for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body), that is to say:
8
(a) if default shall be made in the due and punctual payment of the
principal of the Note, when and as the same shall become due and payable whether
by maturity, acceleration or otherwise, or should any other amount payable
hereunder not be paid when such amount shall have become due and payable,
including, without limitation, amounts necessary to reimburse the Bank for a
draw under a Letter of Credit; or
(b) if default shall be made in the due and punctual payment of any
installment of interest on either Note, when and as such interest installment
shall become due and payable and such default shall have continued for five
days; or
(c) if default shall be made in the performance or observance of, or shall
occur under, any covenant, agreement or provision contained in Section 3, 6, 7,
8 or 11 of this Agreement or in any instrument or document evidencing or
creating any obligation, lien or security interest in favor of the Bank or
delivered to the Bank in connection with or pursuant to this Agreement or any
Obligation or if this Agreement or any such instrument or document shall
terminate, be terminable or be terminated or become void or unenforceable for
any reason whatsoever without the written consent of the Bank; or
(d) if default by the Borrower, any Guarantor or any Subsidiary shall be
made in the performance or observance of any other covenant, agreement or
provision contained in this Agreement and such default shall have continued for
a period of 10 days; or
(e) intentionally omitted;
(f) if any representation, warranty or other statement of fact given
herein or in any writing, certificate, report or statement at any time furnished
to the Bank pursuant to or in connection with this Agreement, or any Guarantee,
shall be false or misleading in any material respect when given or repeated; or
(g) if the Borrower, any Guarantor or any Subsidiary shall be unable to
pay its debts generally as they become due, file a petition to take advantage of
any insolvency act; make an assignment for the benefit of its creditors;
commence a proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself or of a whole or any substantial part of its property;
file a petition or answer seeking reorganization or arrangement or similar
relief under the Federal bankruptcy laws or any other applicable law or statute
of the United States of America or any state; or
(h) if a court of competent jurisdiction shall enter an order, judgment or
decree appointing a receiver, trustee, liquidator or conservator of the
Borrower, any Guarantor or any Subsidiary, or of the whole or any substantial
part of its respective properties, or approve a petition filed against the
Borrower, any Guarantor or any Subsidiary, seeking reorganization or arrangement
or similar relief under the Federal bankruptcy laws or any other applicable law
or statute of the United States of America or any state; or if, under the
provisions of any other law for the relief or aid of debtors, a court of
competent jurisdiction shall assume custody or control of the Borrower, any
Guarantor or any Subsidiary, or of the whole or any substantial part of their
respective properties; or if there is commenced against the Borrower, any
Guarantor or any Subsidiary, any proceeding for any of the foregoing relief and
such proceeding or petition remains undismissed for a period of 30 days; or if
the Borrower, any Guarantor or any Subsidiary, by any act indicates its consent
to or approval of any such proceeding or petition; or
(i) if any judgment aggregating, with other outstanding judgments, in
excess of $50,000 is rendered against the Borrower, any Guarantor or any
Subsidiary, or if any attachment, injunction or execution is issued against any
Collateral or against any of its or their other property having an aggregate
value in excess of $50,000, and in each case remains unpaid, unstayed or
undismissed for a period of 30 days; or
(j) if the Borrower, any Guarantor or any Subsidiary, shall suspend the
operation of a segment material to the operation of its business as presently
conducted; or
9
(k) if the Borrower, any Guarantor or any Subsidiary shall (i) default
under any other agreement, instrument or obligation made with or in favor of or
owing to the Bank or (ii) default in any payment of any indebtedness for
borrowed money (other than the Notes) beyond the period of grace, if any,
provided in the instrument or agreement under which such indebtedness was
created; or (iii) default in the observance or performance of any other
agreement or condition relating to any indebtedness described in subpart "(ii)"
above or contained in any instrument or agreement evidencing, securing or
relating thereto or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause or permit the holder or
holders of the indebtedness described in subpart "(ii)" above (or a trustee or
agent on behalf of such holder or holders) to cause such indebtedness to become
due prior to its stated maturity,
(A) either or both of the following actions may be taken: (i) the Bank
may, at its option, declare any obligation to lend hereunder terminated,
whereupon such obligation to make further loans hereunder shall terminate
immediately, and (ii) the Bank may, at its option, declare the Note and any or
all other Obligations to be due and payable, and the same, and all interest
accrued thereon, shall forthwith become due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything contained herein or in any instrument evidencing the Obligations to the
contrary notwithstanding;
(B) the Bank shall have all rights and remedies of a mortgagee, a secured
party under the Uniform Commercial Code and otherwise, including, without
limitation, the right to foreclose the security interest granted under the
Security Agreements or herein by any available judicial procedure and/or to take
possession of any or all of the Collateral, the other security for the
Obligations and the books and records relating thereto with or without judicial
process; for the purposes of the preceding sentence, the Bank may, so far as the
Borrower can give authority therefor, enter upon any or all of the premises
where any of the Collateral, such other security or books or records may be
situated and take possession and remove the same therefrom; and
(C) the Bank shall have the right in its sole discretion to determine
which rights, security, liens, security interests or remedies it shall at any
time pursue, relinquish, subordinate, modify or take any other action with
respect thereto, without in any way modifying or affecting any of them or any of
the Bank's rights hereunder; and any moneys, deposits, Receivables, balances, or
other property of either or both Borrower which may come into the Bank's hands
at any time or in any manner, may be retained by the Bank and applied to any of
the Obligations.
9.2. SUITS FOR ENFORCEMENT. In case any one or more Events of Default shall
occur and be continuing, the Bank may proceed to protect and enforce its rights
or remedies either by suit in equity or by action at law, or both, whether for
the specific performance of any covenant, agreement or other provision contained
herein or in any document or instrument delivered in connection with or pursuant
to this Agreement, or to enforce the payment of the Obligations or any other
legal or equitable right or remedy.
9.3. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon
the Bank is intended to be exclusive of any other right or remedy contained
herein or in any instrument or document delivered in connection with or pursuant
to this Agreement, and every such right or remedy shall be cumulative and shall
be in addition to every other such right or remedy contained herein and therein
or now or hereafter existing at law or in equity or by statute, or otherwise.
9.4. RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between either or both
Borrower and the Bank or any failure or delay on the part of the Bank in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights or remedies of the Bank and no single or partial exercise of any rights
or remedies hereunder shall operate as a waiver or preclude the exercise of any
other rights or remedies hereunder.
SECTION 10. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement, to extend the Working
Capital Line as herein provided for and to make extensions of credit hereunder,
the Borrower makes the following representations and warranties, all of which
shall survive the execution and delivery of this Agreement, and shall be deemed
repeated and confirmed with respect to each Receivable and/or other item of
Collateral as it is created or otherwise acquired and upon the request for, and
the making of, each extension of credit:
10
10.1. CORPORATE STATUS OF THE BORROWER. Schedule 10.1 annexed hereto correctly
sets forth the Subsidiaries of the Borrower and the outstanding capitalization
and ownership of the stock of each Borrower. The Borrower, each Guarantor and
each Subsidiary is a duly organized and validly existing corporation and in good
standing under the laws of its jurisdiction of incorporation and in all other
jurisdictions where the nature of its business or ownership or use of property
requires such qualification.
10.2. CORPORATE POWER AND AUTHORITY. The Borrower has the corporate power to
borrow and to execute, deliver and carry out the terms and provisions of this
Agreement and all instruments and documents delivered by it pursuant to this
Agreement, and the Borrower has taken or caused to be taken all necessary
corporate action (including, but not limited to, the obtaining of any consent of
stockholders required by law or by the Certificate of Incorporation or By-Laws
of such Borrower) to authorize the execution, delivery and performance of this
Agreement, the borrowings hereunder and the execution, delivery and performance
of the instruments and documents delivered by it pursuant to this Agreement. The
Borrower has all requisite corporate power and authority to own its properties
and to transact the business in which it is now engaged or presently proposes to
be engaged.
10.3. NO VIOLATION OF AGREEMENTS. The Borrower is not in default under any
indenture, mortgage, deed of trust, agreement or other instrument to which it is
a party or by which it may be bound. Neither the execution and delivery of this
Agreement or any of the instruments and documents to be delivered pursuant to
this Agreement, nor the consummation of the transactions herein and therein
contemplated, nor compliance with the provisions hereof or thereof will violate
any law or regulation, or any order or decree of any court or governmental
instrumentality, or will conflict with, or result in the breach of, or
constitute a default under, any indenture, mortgage, deed of trust, agreement or
other instrument to which the Borrower is a party or by which it may be bound,
or, except as contemplated under this Agreement, result in the creation or
imposition of any lien, charge or encumbrance upon any property of either
Borrower thereunder, or violate any provision of the Certificate of
Incorporation, By-Laws or any preferred stock provisions of the Borrower.
10.4. NO LITIGATION. Except as set forth in Schedule 10.4 annexed hereto, there
are no actions, suits or proceedings (nor any basis therefor) pending, or to the
knowledge of either Borrower threatened, against or affecting either Borrower
before any court, arbitrator or governmental or administrative body or agency
which challenge the validity or propriety of the transactions contemplated under
this Agreement or the documents, instruments, agreements executed or delivered
in connection herewith, therewith or related thereto, or which might result in
any material adverse change in the business, operations, properties, assets or
financial condition of either Borrower. Neither Borrower nor any Subsidiary is
or shall be at any time in default under any applicable statute, rule, order,
decree or regulation of any court, arbitrator or governmental body or agency
having jurisdiction over such Borrower or any Subsidiary, which default might
result in any material adverse change in the business, operations, properties,
assets or financial condition of either Borrower.
10.5. GOOD TITLE TO PROPERTIES. Each Grantor has good and marketable title to
all its properties and assets, subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except as set forth on Schedule
10.5 hereof or except such as would be permitted under Section 7.7 of the
Insurance Company Agreement when it was last in effect.
10.6. FINANCIAL STATEMENTS AND CONDITION. The balance sheet of the Borrower and
HGL on a consolidated basis as at December 31, 1995 including the related
schedules and notes, heretofore delivered to the Bank, is true and correct and
presents fairly the pro forma financial position of the Borrower as at the date
of such balance sheet. The Borrower, as of the date hereof, has no direct or
contingent liabilities which are not provided for or reflected in such balance
sheet or referred to in the notes thereto. Such financial statement has been
prepared in accordance with generally accepted accounting principles. Each
fiscal year of the Borrower ends on December 31.
10.7. TRADEMARKS, PATENTS, ETC. The Borrower possesses all the trademarks, trade
names, copyrights, patents, licenses, or rights in any thereof, adequate for the
conduct of its business as now conducted and presently proposed to be conducted,
without conflict with the material rights or claimed rights of others.
10.8. TAX LIABILITY. The Borrower has filed all tax returns which are required
to be filed, except those being contested in good faith by appropriate
proceedings for which adequate reserves are held, and has paid all taxes which
have become due pursuant to such returns or pursuant to any assessment received
by it.
11
10.9. GOVERNMENTAL ACTION. No action of, or filing with, any governmental or
public body or authority (other than normal reporting requirements or filing
under the provisions of Section 3) is required to authorize, or is otherwise
required in connection with, the execution, delivery and performance of this
Agreement or any of the instruments or documents to be delivered pursuant to
this Agreement, except such as have been made.
10.10. DISCLOSURE. Neither the Schedules hereto, nor the financial statements
referred to in Section 10.6, nor any certificate, statement, report or other
document furnished to the Bank by either Borrower in connection herewith or in
connection with any transaction contemplated hereby, nor this Agreement,
contains, at the time furnished, any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained therein not misleading.
10.11. REGULATION U. The Borrower does not own any "margin stock" as such term
is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The
proceeds of the extensions of credit made pursuant to the terms of this
Agreement will be used by the Borrower only for the purposes set forth in
Section 5 hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry margin stock or for any other purpose which might constitute any of the
Loans or Letters of Credit under this Agreement a "purpose credit" within the
meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board.
Neither Borrower nor any Guarantor or Subsidiary nor any agent acting in its or
on their behalf has taken or will take any action which might cause this
Agreement or any of the documents or instruments delivered pursuant hereto to
violate any regulation of the Board or to violate the Securities Exchange Act of
1934.
10.12. INVESTMENT COMPANY. The Borrower is not an "investment company," or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended (15 U.S.C. Section 80a-l, et seq.). The making of the Loans and
Letters of Credit by the Bank, the application of the proceeds and repayment
thereof by the Borrower and the performance of the transactions contemplated by
this Agreement will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.
10.13. EMPLOYEE BENEFIT PLANS.
(1) None of the employee benefit plans maintained at any time by the
Borrower or the trusts created thereunder has engaged in a prohibited
transaction which could subject any such employee benefit plan or trust to a
material tax or penalty or prohibited transaction imposed under Code Section
4975 or ERISA;
(2) None of the employee benefit plans which are employee pension benefit
plans or the trusts created thereunder has been terminated, except as set forth
on Schedule 10.13 hereto; nor has any such employee benefit plan of the Borrower
incurred any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA, other than for required insurance premiums which have been
paid when due, or incurred any accumulated funding deficiency, whether or not
waived; nor has there been any reportable event, or other event or condition,
which presents a risk of termination of any such employee benefit plan by such
Pension Benefit Guaranty Corporation;
(3) The present value of all accrued benefits under the employee benefit
plans which are employee pension benefit plans did not, as of the most recent
valuation date, exceed by an amount greater than $50,000 of the then current
value of the assets of such employee benefit plans allocable to such accrued
benefits;
(4) The making of Loans and issuing of Letters of Credit by the Bank
provided for in Section 1 will not involve any prohibited transaction;
(5) There has been no withdrawal liability incurred with respect to any
multi-employer pension plan of either Borrower;
(6) As used in this Section 10.13, the terms "employee benefit plan,"
"employee pension benefit plan," "accumulated funding deficiency," "reportable
event," and "accrued benefits" shall have the respective meanings assigned to
them in ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in Code Section 4975 and ERISA.
12
SECTION 11. MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND OTHER
COLLATERAL.
11.1. COLLECTION OF RECEIVABLES; MANAGEMENT OF COLLATERAL.
(a) Unless an Event of Default shall be continuing, the Grantors shall, at
their own cost and expense and subject to the continuing security interest
therein held by the Bank, collect and otherwise enforce all amounts paid on or
otherwise received with respect to Receivables. Upon the occurrence of an Event
of Default and for so long as such or any other Event of Default shall be
continuing, the Bank shall have the right to send notice of assignment and/or
notice of the Bank's security interest in any and all Customers or any third
party holding or otherwise concerned with any of the Collateral, and thereafter
the Bank shall have the sole right to collect the Receivables and/or take
possession of the Collateral and the books and records relating thereto.
(b) Upon the occurrence of an Event of Default and for so long as such or
any other Event of Default shall be continuing, the Bank shall have the right to
receive, endorse, assign and/or deliver in its name or the name of any Grantor
any and all checks, drafts and other instruments for the payment of money
relating to the Receivables, and the Grantors hereby waive notice of
presentment, protest and non-payment of any instrument so endorsed. Each Grantor
hereby constitutes the Bank or its designee as such Grantor's attorney-in fact
with power while an Event of Default is continuing (i) to endorse the Grantor's
name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral that may come into the Bank's possession; to
sign the Grantor's name on any invoice or bill of lading relating to any of the
Receivables, drafts against Customers, assignments and verifications of
Receivables and notices to Customers; (ii) to send verifications of Receivables;
(iii) to notify the Post Office authorities to change the address for delivery
of mail addressed to the Borrower to such address as the Bank may designate; and
(iv) to do all other acts and things necessary to carry out this Agreement and
the Security Agreements. All acts of said attorney or designee are hereby
ratified and approved, and said attorney or designee shall not be liable for any
acts of omission or commission (other than acts of gross negligence or willful
misconduct), nor for any error of judgment or mistake of fact or law; this power
being coupled with an interest is irrevocable until the Maturity Date and
thereafter as long as any extension of credit is owing by either Borrower or any
Guarantor to the Bank. The Bank may, while an Event of Default is continuing,
(i) sue upon or otherwise collect, extend the time of payment of, or compromise
or settle for cash, credit or otherwise upon any terms, any of the Receivables
or any securities, instruments or insurance applicable thereto and/or release
the obligor thereon and (ii) accept the return of the goods represented by any
of the Receivables, without notice to or consent by any Grantor, all without
discharging or in any way affecting the Borrowers' liability hereunder or any
Guarantor's liabilities under its Guaranty.
(c) Nothing herein contained shall be construed to constitute the Grantors
as agent of the Bank for any purpose whatsoever, and the Bank shall not be
responsible or liable for any shortage, discrepancy, damage, loss or destruction
of any part of the Collateral wherever the same may be located and regardless of
the cause thereof. The Bank shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the Receivables or
any instrument received in payment thereof or for any damage resulting therefrom
(other than from acts of gross negligence or willful misconduct). The Bank does
not by anything herein or in any assignment or otherwise, assume any Grantor's
obligations under any contract or agreement assigned to the Bank, and the Bank
shall not be responsible in any way for the performance by any Grantor of any of
the terms and conditions thereof.
(d) If any of the Receivables includes a charge for any tax payable to any
governmental tax authority, the Bank is hereby authorized in its discretion, and
while an Event of Default is continuing, to pay the amount thereof to the proper
taxing authority for the applicable Borrower's account and to charge the
applicable Borrower's account therefor. Each Grantor shall, while an Event of
Default is continuing, notify the Bank if any Receivables include any tax due to
any such taxing authority and in the absence of such notice, the Bank shall have
the right to retain the full proceeds of such Receivables and shall not be
liable for any taxes that may be due from any Grantor by reason of the sale and
delivery creating such Receivables.
13
11.2. STATUS OF RECEIVABLES AND COLLATERAL. With respect to Receivables at the
time a Receivable becomes subject to the Bank's security interest the applicable
Grantor represents and warrants to the Bank (which representations and
warranties shall survive the Receivable becoming subject to such security
interest): (a) such Receivable shall be a good and valid account representing an
undisputed bona fide indebtedness incurred or an amount indisputably owed by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto with respect to an absolute sale and delivery upon the specified terms
of goods sold by the applicable Grantor, or work, labor and/or services
theretofore rendered by the applicable Grantor; (b) such Receivable is not and
shall not be subject to any defense, offset, counterclaim, discount or allowance
except as may be stated in the copy of the invoice delivered by the applicable
Grantor to the Bank or discounts and allowances as may be customary in the
business in which the applicable Grantor is now engaged, and each Receivable
will be paid in full when due; (c) no agreement under which any deduction or
offset of any kind, other than normal trade discounts, may be granted or shall
have been made by the applicable Grantor at or before the time such Receivable
is created; (d) all documents and agreements relating to such Receivable shall
be true and correct and in all respects what they purport to be: (e) all
signatures and endorsements that appear on such documents and agreements shall
be genuine and all signatories and endorsers shall have full capacity to
contract; (f) none of the transactions underlying or giving rise to such
Receivable shall violate any applicable state or federal laws or regulations,
and all documents relating to such Receivable shall be legally sufficient under
such laws or regulations and shall be legally enforceable in accordance with
their terms; and (g) each Customer, guarantor or endorser with respect to such
Receivable is solvent and will continue to be fully able to pay such Receivable
when due. The Borrower will immediately notify the Bank if any Receivable in
excess of $50,000 shall arise out of contracts with the United States or any
department, agency, or instrumentality thereof, and will execute any instruments
and take any steps required by the Bank in order that all moneys due or to
become due under any such contract shall be assigned to the Bank and notice
thereof given to the Government under the Federal Assignment of Claims Act. Each
Grantor will, immediately upon learning thereof, report to the Bank any
reclamation, return or repossession of goods in excess of $50,000, all claims or
disputes in excess of $50,000 asserted by any Customer or other obligor, and any
other matters affecting the value, enforceability or collectability of any
Receivable. No Grantor is, nor shall be, entitled to pledge the Bank's credit on
any purchases or for any purpose whatsoever.
SECTION 12. DEFINITIONS.
For all purposes of this Agreement, unless the context otherwise requires:
"Code Section 4975" shall mean, at any date, Section 4975 of the Internal
Revenue Code of 1954, as the same shall be in effect at such date.
"Collateral" shall have the meaning set forth in the Security Agreements.
"Customer" with respect to a Grantor shall mean and include the account debtor
or obligor with respect to any of the Receivables and/or the prospective
purchaser with respect to any contract right, and/or any party who enters into
or proposes to enter into any contract or other arrangement with such Grantor,
pursuant to which such Grantor is to deliver any personal property or perform
any services.
"Effective Net Worth" shall mean the total of all assets appearing on a balance
sheet prepared in accordance with generally accepted accounting principles for
HGL and its Subsidiaries on a consolidated basis, after deducting therefrom
(without duplication of deductions):
(i) any write-up in the book carrying value of any asset resulting from a
revaluation thereof subsequent to December 31, 1995;
(ii) all reserves, including but not limited to reserves for liabilities,
fixed or contingent, deferred income taxes, obsolescence, depletion, insurance,
and inventory valuation, which are not deducted from assets;
(iii) the amount, if any, at which shares of treasury stock of the
Borrower or a Subsidiary appear on the asset side of such balance sheet;
(iv) all Indebtedness of the Borrower and its Subsidiaries (after
eliminating inter-company items); and
14
(v) the book value of all assets which would be treated as intangibles
under generally accepted accounting principles, including, without limitation,
goodwill, trademarks, trade names, patents, copyrights and licenses; and after
adding thereto any indebtedness of the Borrower and its Subsidiaries which has
been completely subordinated to the Borrower's obligations to the Bank on terms
satisfactory to the Bank.
"Eligible Accounts" with respect to a Grantor shall mean Receivables created by
such Grantor in the ordinary course of business arising out of the sale of goods
or rendition of services by such Grantor, which are and at all times shall
continue to be acceptable to the Bank in all respects. Standards of eligibility
may be fixed and revised from time to time solely by the Bank in the exercise of
its reasonable business judgment. In determining eligibility, the Bank may, but
need not, rely on agings, reports and schedules of Receivables furnished by the
Grantor, but reliance by the Bank thereon from time to time shall not be deemed
to limit the Bank's right to revise standards of eligibility at any time as to
both present and future Receivables. In general, a Receivable shall not be
deemed eligible unless: (a) the Customer on such Receivable is and at all times
continues to be acceptable to the Bank and in no event may a Customer be an
affiliate or Subsidiary of any Grantor, (b) such Receivable complies in all
respects with the representations, covenants and warranties set forth in Section
11.2 hereof, (c) such Receivable is no older than 60 days from its due date or
120 days from its invoice date whichever is less, and (d) with respect to Winona
such Receivable is not subject to a factoring agreement.
"ERISA" shall mean, at any date, the Employee Retirement Income Security Act of
1974 and the regulations thereunder, all as the same shall be in effect at such
date.
"Event of Default" shall have the meaning set forth in Section 9.1 hereof.
"Glamourette" shall have the meaning set forth in Section 3.2 hereof.
"Grantor(s)" shall have the meaning set forth in Section 3.1 hereof.
"Guarantors" shall have the meaning set forth in Section 3.2 hereof.
"Guarantees" shall mean the guarantees of each Guarantor executed and delivered
pursuant to Section 3.2 hereof, as amended, modified, supplemented or replaced
from time to time.
"HGL" shall have the meaning set forth in Section 3.2 hereof.
"Indebtedness" shall mean all items which, in accordance with generally accepted
principles of accounting, would be included in determining total liabilities as
shown on the liability side of a balance sheet as at the date Indebtedness is to
be determined and, in any event, shall include (without duplication) letters of
credit and all obligations relating thereto, any liability secured by any
mortgage, pledge, lien or security interest on property owned or acquired,
whether or not such liability shall have been assumed, and guarantees,
endorsements (other than for collection in the ordinary course of business) and
other contingent obligations in respect of the obligations of others.
"Knitworks" shall have the meaning set forth in Section 3.1 hereof.
"Letter of Credit" or "Letters of Credit" shall mean documentary letters of
credit issued by the Bank pursuant to the terms of this Agreement, which Letters
of Credit shall expire not more than 180 days after issuance.
"Loans" shall have the meaning set forth in Section 1.1.A hereof.
"Maturity Date" shall mean March 31, l997.
"Net Amount of Eligible Accounts" with respect to a Grantor shall mean the gross
amount of its Eligible Accounts less sales, excise or similar taxes and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.
"Net Income" shall mean the consolidated net income (or loss) of the applicable
Borrower and its Subsidiaries determined in accordance with generally accepted
accounting principles.
"Note" shall have the meanings set forth in Section 1.1.C hereof.
"Obligations" shall mean any and all sums owing under the Note and all other
obligations, direct or contingent, joint, several or independent, of the
Borrower now or hereafter existing, due or to become due to, or held or to be
held by the Bank, whether created directly or acquired by assignment or
otherwise including, without limitation, any arising under this Agreement.
"Participant" shall mean The Chase Manhattan Bank, N.A., its successors and
permitted assigns under its Participation Agreement, dated as of March 31, 1995,
as the same may be amended from time to time.
15
A "person" shall include an individual, a corporation, an association, a joint
stock company, a business trust, a partnership, a joint venture, an
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Prime Rate" shall have the meaning set forth in Section 1.1.D hereof.
"Receivables" shall have the meaning set forth in the Security Agreements.
"Security Agreements" shall mean the security agreements executed and delivered
pursuant to Section 3.1 and Section 3.2 hereof, as amended, modified,
supplemented or replaced from time to time.
"Subsidiary" shall mean any corporation organized under the laws of any state of
the United States or the District of Columbia and conducting a majority of its
business and having a majority of its assets within the United States, at least
50% of those outstanding stock of all classes (other than directors' qualifying
shares, if any) is at the time owned by HGL, the Borrower, any Guarantor and/or
one or more Subsidiaries.
"Total Borrowing Base" shall mean 85% of the Net Amount of Eligible Accounts of
Designers, Hosiery, Knitworks, Segue and Winona in the aggregate, plus the
lesser of (x) 45% of the aggregate inventory of Designers, Hosiery, Knitworks,
Segue and Winona valued in a manner consistent with the preparation of HGL's
consolidated audited financial statements and (y) for any period (prior to the
Maturity Date) (A) commencing March 1 and ending October 31, $6,000,000; and (B)
commencing November 1 and ending February 28 (or 29, as the case may be), zero.
"Working Capital" shall mean the amount by which consolidated current assets of
HGL and its Subsidiaries (determined in accordance with generally accepted
accounting principles) exceed consolidated current liabilities of HGL and its
Subsidiaries (determined in accordance with generally accepted accounting
principles).
"Working Capital Line" shall have the meaning set forth in Section 1.1.A hereof.
"Working Capital Line Limit" shall have the meaning set forth in Section 1.1.B
hereof.
Each term defined in Articles 1 or 9 of the Uniform Commercial Code shall have
the meaning given therein unless otherwise defined herein.
SECTION 13. MISCELLANEOUS.
13.1. COLLECTION COSTS. In the event that the Bank or the Participant shall
attempt to collect, enforce, protect, maintain, preserve or foreclose its
interests with respect to this Agreement, or any Obligation, or any Receivable,
or the lien or security interest in any other Collateral or any other security
for any Obligation or under any instrument or document delivered pursuant to
this Agreement, or in connection with any Obligation, or to protect the rights
of any holder or holders with respect thereto, the Borrowers shall pay all of
the costs and expenses of such collection, enforcement or protection, including
reasonable attorneys' fees, which amounts shall be part of the Obligations and
shall bear interest at the rate provided in Section l.l.D, and the Bank or the
Participant may take judgment for all such amounts.
13.2. MODIFICATION AND WAIVER. No modification or waiver of any provision of
this Agreement and no consent by the Bank to any departure therefrom by the
Borrower shall be effective unless such modification or waiver shall be in
writing and signed by a duly authorized officer of the Bank, and the same shall
then be effective only for the period and on the conditions and for the specific
instances and purposes specified in such writing. No notice to or demand on
Borrower in any case shall entitle Borrower to any other or further notice or
demand in similar or other circumstances. No delay or omission on the Bank's
part in exercising any right, remedy or option shall operate as a waiver of such
or any other right, remedy or option or of any default.
13.3. NEW YORK LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, applicable to contracts made and
to be performed in such State.
16
13.4. NOTICES AND ADDRESSES. The Borrower shall give the Bank written notice
of each location at which records are kept and the location of the Borrower's
chief executive office. Except as such notice is given, all such records and
offices shall be located at the addresses set forth on Schedule 13.4 hereto.
All notices, requests, demands or other communications provided for herein shall
be in writing and shall be deemed to have been given when sent by registered or
certified mail, return receipt requested, addressed, as the case may be, to
NatWest Bank N.A. at 1133 Avenue of the Americas, New York, New York 10036
(Attention: Cynthia E. Sachs) or to Borrower at 215 Commerce Boulevard,
Anderson, South Carolina 29621 (Attention: Mr. Charles W. Clayton).
13.5. FEES AND EXPENSES. Whether or not any extension of credit is made
hereunder, the Borrower shall pay all out-of-pocket expenses incurred by the
Bank and the Participant in connection with the transactions contemplated
hereunder, including but not limited to appraisal fees, legal fees (including
all related costs of in-house counsel), audit fees, search and filing fees.
13.6. STAMP OR OTHER TAX. Should any stamp or excise tax become payable in
respect of this Agreement, the Obligations or any modification hereof or
thereof, on a joint and several basis, the Borrower shall pay the same
(including interest and penalties, if any) and shall hold the Bank harmless with
respect thereto.
13.7. WAIVER OF JURY TRIAL, SET-OFF AND COUNTERCLAIM. The Borrower hereby waives
trial by jury and the right to interpose any set-off or counterclaim, in any
litigation in any court with respect to, in connection with, or arising out of
this Agreement or the Obligations, or any instrument or document delivered
pursuant to this Agreement or the Obligations, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising, between either or both Borrower and the Bank.
13.8. TERMINATION OF AGREEMENT. This Agreement shall continue in full force and
effect until the Maturity Date. The Bank shall have the right to terminate this
Agreement immediately upon the occurrence of an Event of Default under Section
9. The termination of this Agreement shall not affect any rights of the Borrower
or the Bank, or any obligation of the Borrower or the Bank to the other, arising
prior to the effective date of such termination, and the provisions hereof shall
continue to be fully operative until all transactions entered into, rights
created or Obligations incurred prior to such termination have been fully
disposed of, satisfied, paid, concluded or liquidated. Upon the termination of
this Agreement, all Obligations shall be due and payable without notice or
demand. The security interest, lien and rights granted to the Bank under the
Security Agreements and hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that either or
both Borrowers' accounts may from time to time be temporarily in a credit
position, until all of the Obligations have been paid in full after the
termination hereof or the Borrower have furnished the Bank with an
indemnification satisfactory to the Bank with respect thereto. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof unless otherwise provided.
13.9. CAPTIONS. The captions of the various sections and paragraphs of this
Agreement have been inserted only for the purposes of convenience; such captions
are not a part of this Agreement and shall not be deemed in any manner to
modify, explain, enlarge or restrict any of the provisions of this Agreement.
13.10. LIEN: SET OFF BY BANK. The Borrower hereby grants to the Bank and the
Participant a continuing lien for all Obligations upon any and all moneys,
securities and other property of such Borrower and the proceeds thereof, now or
hereafter held or received by or in transit to, the Bank or the Participant from
or for such Borrower, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of such Borrower with, and any and all claims of such Borrower
against, the Bank or the Participant, at any time existing. During the
continuance of any Event of Default, each of the Bank and the Participant is
hereby authorized at any time and from time to time, without notice to such
Borrower, to set off to the extent permitted by law, appropriate and apply any
or all Collateral (or any such moneys, securities and other property held or
received by or in transit to the Participant) against all Obligations, whether
now existing or hereafter arising.
17
13.11. PAYMENT DUE ON HOLIDAY. Whenever any payment to be made hereunder shall
become due and payable on a Saturday, Sunday or a legal holiday under the laws
of the State of New York, such payment shall be made in the next succeeding
business day and such extension of time shall in such case be included in
computing interest on such payment.
13.12. SERVICE OF PROCESS. The Borrower hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any Federal Court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement, all or any of the Obligations, or any document or
instrument delivered pursuant to or in connection with this Agreement. In any
such litigation the Borrower waives personal service of any summons, complaint
or other process and agrees that the service thereof may be made by certified or
registered mail, return receipt requested, directed to such Borrower at its
address set forth in Section 13.4. Within 30 days after such mailing, the
Borrower shall appear, answer or move in respect of such summons, complaint or
other process. Should such Borrower fail to appear or answer within said 30 day
period, such Borrower shall be deemed in default and judgment may be entered by
the Bank against such Borrower for the amount as demanded in any summons,
complaint or other process so served.
13.13. WAIVER AND PROTEST. The Borrower waives notice of non-payment of any of
the Obligations, demand, presentment, protest and notice thereof with respect to
any and all instruments, notice of acceptance hereof, notice of loans and
advances made, credit extended, Collateral received or delivered, or any other
action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
13.14. BENEFIT OF AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the Borrower and the Bank and their respective successors and
assigns, except that the obligation of the Bank to make loans hereunder shall
not inure to the benefit of any successors and assigns of Borrower.
13.15. COUNTERPARTS. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall together constitute one and the same
agreement.
13.16. RELEASE OF LIENS. Upon the termination of this Agreement and the
payment in full of the Obligations, the Bank shall release its security interest
in the Collateral as required by applicable law.
13.17. AMENDMENT AND RESTATEMENT. This Agreement amends and restates and
replaces in its entirety the facility represented by the Loan Agreement (the
"Original Facility"), provided, however, that any letters of credit which were
issued under the Original Facility or under any other facility made available to
the Borrower by the Bank and which are now outstanding, and any application
and/or reimbursement agreement with respect to such letters of credit, as well
as any notes (unless specifically replaced), security agreements and all other
documents delivered in connection with the Original Facility shall not be
terminated and shall be deemed for purposes of this Agreement to have been made,
under and pursuant to this Agreement and subject to the terms and conditions
hereof.
18
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President
NATWEST BANK N.A.
By: /s/ Cynthia E. Sachs
- -------------------------------------
Name: Cynthia E. Sachs
Title: Vice President
Accepted and Agreed with respect to Sections 3, 11 and as otherwise applicable:
SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
SEGUE (AMERICA) LIMITED
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
Each of the Guarantors indicated below hereby consents to this Fourth
Amended and Restated Loan Agreement and reaffirms its continuing liability under
its respective Guarantee in respect thereof or the documents contemplated
thereby and all the documents, instruments and agreements executed pursuant
thereto or in connection therewith, without offset, defense or counterclaim (any
such offset, defense or counterclaim as may exist being hereby irrevocably
waived by such Guarantor), and hereby confirms and agrees that, on and after the
effective date of this Fourth Amended and Restated Loan Agreement, each
reference in such Guarantee to "the Loan Agreement", "thereunder", "thereof" or
words of like import referring to the Loan Agreement shall mean and be a
reference to this Fourth Amended and Restated Loan Agreement.
HAMPSHIRE GROUP, LTD.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President
GLAMOURETTE FASHION MILLS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
SEGUE (AMERICA) LIMITED
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
HAMPSHIRE DESIGNERS, INC. as guarantor of the
obligations of Segue and Knitworks to the Bank
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
19
EXHIBIT 1.1.C
FORM OF NOTES
-----------------------
20
PROMISSORY NOTE
---------------------------
$21,000,000 New York, New York
As of March 31, 1996
FOR VALUE RECEIVED, Hampshire Designers, Inc., a Delaware corporation with
an office 215 Commerce Boulevard, Anderson, South Carolina 29621 (the "Debtor"),
hereby promises to pay to the order of NatWest Bank N.A., a national banking
association (the "Payee"), at its offices located at 1133 Avenue of the
Americas, New York, New York, or at such other place as the Payee or any holder
hereof may from time to time designate, on the Maturity Date (as defined in the
Loan Agreement defined below), or earlier as hereinafter referred to, the
principal sum of Twenty-One Million and 00/100 Dollars ($21,000,000) (or such
lesser principal sum as may be indicated as outstanding on the grid sheet
attached hereto), in lawful money of the United States, and to pay interest in
like money at said office or place from the date hereof on the unpaid principal
balance hereof from time to time outstanding in accordance with the provisions
of the Loan Agreement (as defined below). In no event shall the rate of interest
hereunder exceed the maximum interest rate permitted by applicable law.
This Note is in replacement of and substitution for the two promissory
notes dated as of March 31, 1995 by the Debtor's two constituent corporations
(Hampshire Designers, Inc. in the principal amount of $16,000,000 and Hampshire
Hosiery, Inc. in the principal amount of $5,000,000), and, to the extent of any
outstanding principal amount, evidences the same indebtedness incurred
thereunder.
This Note is referred to in the Loan Agreement and is secured by a
Continuing General Security Agreement dated March 31, 1996 (as amended,
modified, supplemented or replaced from time to time, the "Security Agreement")
by the Debtor in favor of the Payee and covering certain collateral (the
"Collateral") all as more particularly described and provided therein, and is
entitled to the benefits thereof. Reference is made to the Loan Agreement and
the Security Agreement for certain rights of the Payee hereunder, including,
without limitation, the right of the Payee to accelerate the principal balance
hereunder and interest hereon upon the occurrence of an "Event of Default" as
defined in the Loan Agreement.
The Payee is hereby authorized to enter on the grid sheet attached hereto
all loans made by the Payee to the Debtor pursuant to the Fourth Amended and
Restated Loan Agreement dated as of March 31, 1996 (as amended, modified or
supplemented from time to time, the "Loan Agreement") among the Payee, and the
Debtor and all repayments of principal hereunder, which entries, in the absence
of manifest error, shall be conclusive and binding on the Debtor; provided,
however, that the failure of the Payee to make any such entries shall not
relieve the Debtor from paying any amount due hereunder, nor affect the Payee's
recognition of any repayment of principal.
Whenever any payment to be made hereunder shall become due and payable on
a Saturday, Sunday or a legal holiday under the laws of the State of New York,
such payment shall be made on the next succeeding business day and such
extension of time shall in such case be included in computing interest on such
payment.
The Debtor hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
This Note shall be subject to payment and prepayment as provided in
Section 2 of the Loan Agreement.
This Note may not be changed, modified or terminated orally, but only by
an agreement in writing signed by the party to be charged.
In the event the Payee or any holder hereof shall refer this Note to an
attorney for collection, the Debtor agrees to pay, in addition to unpaid
principal and interest, all the costs and expenses incurred in attempting or
effecting collection hereunder, including reasonable attorney's fees, whether or
not suit is instituted.
21
In the event of any litigation with respect to any of the Obligations (as
such term is defined in the Security Agreement) or Collateral, the Debtor waives
the right to a trial by jury. The Debtor hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any Federal court
located in such State in connection with any action or proceeding arising out of
or relating to any Obligation or Collateral. In any such litigation, the Debtor
waives personal service of any summons, complaint or other process and agrees
that the service thereof may be made by certified or registered mail directed to
the Debtor at its address set forth herein. Within 30 days after such mailing,
the Debtor shall appear, answer or move in respect of such summons, complaint or
other process. Should the Debtor fail to appear or answer within said 30-day
period, the Debtor shall be deemed in default and judgment may be entered by the
Payee against the Debtor for the amount as demanded in any summons, complaint or
other process so served. This Note, the other Obligations and the Collateral
shall be governed by and construed in accordance with the laws of the State of
New York, and shall be binding upon the heirs, executors, administrators,
successors and assigns of the Debtor and inure to the benefit of the Payee, its
successors, endorsees and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable the validity of all other terms and
provisions hereof shall in no way be affected thereby.
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President
22