EXHIBIT 3.1 ----------- SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT ----------------------------------------------- THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT, made, entered into and effective as of the 9th day of November, 1998 (the "Amendment"), by and --------- between ASSOCIATED HYGIENIC PRODUCTS LLC, a limited liability company duly organized under the laws of the State of Wyoming ("Borrower"), and SOUTHTRUST -------- BANK, N.A., successor by merger to SOUTHTRUST BANK OF GEORGIA, N.A., a national banking association with offices in Atlanta, Georgia ("Lender"). ------ WITNESSETH: ---------- WHEREAS, Borrower and Lender executed a certain Loan and Security Agreement, dated as of December 16, 1996 (as amended to date, the "Loan ---- Agreement"; capitalized terms used herein and not defined herein have the - - --------- meanings assigned to them in the Loan Agreement); and WHEREAS, certain Events of Default, as set forth on Schedule I hereto, have ---------- occurred and are continuing (collectively, the "Existing Events of Default"); -------------------------- and WHEREAS, Lender (without waiving the Existing Events of Default) and Borrower wish to amend the Loan Agreement in certain respects, as hereinafter set forth; NOW, THEREFORE, for and in consideration of the sum of $10.00, the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Additional Defined Terms. The following defined terms are ------------------------ hereby added to Section 1.1 of the Loan Agreement in alphabetical order: "AHP Wisconsin" shall mean Associated Hygienic Products Inc. ------------- "Wisconsin Location" shall mean the location of AHP Wisconsin at ------------------ 205 East Highland Drive, Oconto Falls, Wisconsin. 2. Amendment to Definition of "Collateral Locations". The ------------------------------------------------ definition of "Collateral Locations" set forth in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following revised definition of "Collateral Locations" is hereby substituted in lieu thereof: "Collateral Locations" shall mean (i) the New Facility, (ii) 3312 -------------------- Berkley Lake Road, Suite 200, Duluth, Georgia, and (iii) and the Wisconsin Location but only as to Equipment Collateral which is leased by Borrower to AHP Wisconsin as described in Section 7 of that certain Second Amendment to Loan and Security Agreement, dated as of November 9, 1998, between Borrower and Lender. 3. Amendment to Definition of Equipment Collateral. The ----------------------------------------------- definition of "Equipment Collateral" set forth in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following revised definition of "Equipment Collateral" is hereby substituted in lieu thereof: "Equipment Collateral" shall mean all equipment of Borrower, or in -------------------- which it has rights, whether now owned or hereafter acquired and wherever located. As defined herein, "Equipment Collateral" shall -------------------- include, without limitation, all machinery, fixtures, furniture, furnishings, leasehold improvements, rolling stock, motor vehicles, plant equipment, computers and other office equipment and office furniture, together with any and all attachments and accessions, substitutes and replacements, and tools, spare parts, and repair parts used or useful in connection therewith. 4. Addition of New Definition of "Intangibles Collateral". The ----------------------------------------------------- following definition of "Intangibles Collateral" is hereby added in Section 1.1 of the Loan Agreement: "Intangibles Collateral" shall mean all general intangibles of a ---------------------- Borrower, whether now existing or hereafter acquired or arising, including, without limitation, all copyrights, royalties, tax refunds, rights to tax refunds, trademarks, trade names, service marks, patent and proprietary rights, blueprints, drawings, designs, trade secrets, plans, diagrams, schematics and assembly and display materials relating thereto, all customer lists, all books and records, all computer software and programs, and all rights of Borrower under any contract. 4. Collateral. ---------- (a) In connection with the amendments to and addition of certain collateral definitions set forth herein, Section 3 of the Loan Agreement is hereby deleted in its entirety and the following revised Section 3 is hereby substituted in lieu thereof: 3. SECURITY INTEREST--COLLATERAL. --------------------------------- As security for the payment of the Notes and all Obligations whatsoever of Borrower to Lender and the performance by Borrower of all covenants and requirements hereunder and under the other Loan Documents (including, without limitation, all Obligations of Borrower under the Borrower Guaranty), Borrower hereby grants (or re-grants) to Lender a continuing general lien upon and security interest in and to the following described Property, wherever located, whether now existing or hereafter acquired or arising (herein, the "Collateral"), ---------- namely: (a) the Accounts Receivable -2- Collateral; (b) the Inventory Collateral; (c) the Equipment Collateral; (d) the Balances Collateral; (e) the Intangibles Collateral; and (f) all products and/or proceeds of any and all of the foregoing, including, without limitation, insurance or condemnation proceeds, all Property received wholly or partly in trade or exchange for any of the foregoing, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection or any other temporary or permanent disposition of any of the foregoing or any interest therein (but the foregoing is not intended, and shall not be construed to permit, any of the foregoing transactions to the extent otherwise prohibited or restricted pursuant hereto or to any other Loan Documents). The term "Collateral", as used ---------- herein, shall also include the right, title and interest of Borrower in and to the New Facility in which Lender is being granted a security title and Lien pursuant to the Mortgage. (c) In connection with the foregoing modification to Section 3 of the Loan Agreement, and in furtherance thereof, Borrower hereby acknowledges, confirms and agrees that, notwithstanding any provision of the Loan Agreement or any other Loan Document to the contrary, the Collateral (as redefined in Section 3 of the Loan Agreement, as amended hereby) secures, and shall continue to secure, all Obligations of Borrower to Lender, including, without limitation, all of Borrower's Obligations under the Term Note and all of Borrower's Obligations under the Borrower Guaranty, unless and until all of such Obligations are paid in full, and Lender has terminated this Agreement and the Borrower Guaranty in writing. 5. Binding Effect. Except to the extent set forth expressly herein -------------- above to the contrary, Borrower acknowledges and agrees that all terms and provisions, covenants and conditions of the Loan Agreement and all documents executed in connection therewith shall be and remain in full force and effect and constitute the legal, valid, binding and enforceable obligations of Borrower to Lender in accordance with their respective terms as of the date hereof. To the extent of any conflict between any provision of this Amendment and any provision of the Loan Agreement or any other Loan Document, any such conflicting provision shall be deemed to be amended in a manner consistent with this Amendment. 6. Representations. In order to induce Lender to enter into this --------------- Amendment, Borrower hereby restates and renews each and every representation and warranty heretofore made by it under or pursuant to the Loan Agreement, except to the extent that such representations and warranties are untrue as a result of the occurrence and continuance of the Existing Events of Default, and represents and warrants further to Lender that it has taken all necessary and appropriate company action to authorize the execution, delivery and performance hereof and of any other document, instrument or agreement executed and/or delivered in connection herewith and the same will not violate the Organizational Documents or any document, instrument or agreement to which Borrower is a party or any provision of law applicable to Borrower. -3- 7. Covenants. Borrower hereby restates and affirms each and every --------- obligation, covenant and condition of the Loan Agreement, except to the extent that Borrower is in violation thereof as a result of the occurrence and continuance of the Existing Events of Default. In addition, Borrower hereby covenants and agrees with Lender that within thirty (30) days after the date hereof, it will (a) take, and cause HP Canada to take, all actions determined by Lender to be necessary to perfect Lender's security interest in all equipment owned by AHP Canada and located at the Wisconsin Location (the "Canada ------ Equipment"), (b) enter into a lease agreement with AHP Wisconsin documenting the leasing arrangements between Borrower or AHP Canada, as applicable, as lessor, and AHP Wisconsin, as lessee, relative to all such Canada Equipment being used by AHP Wisconsin in its business at the Wisconsin Location, on terms and conditions, including, without limitation, as to rentals, satisfactory to Lender, and (c) execute and deliver, or cause to be executed and delivered, such documents, instruments and agreements as Lender may deem to be necessary or appropriate in connection with the foregoing. 8. Further Assurances. Borrower agrees to take such further ------------------ actions, as Lender shall reasonably request in connection herewith, to evidence the amendments herein contained to the Loan Agreement. 9. No Default. Further to induce Lender to enter into this ---------- Amendment, Borrower hereby certifies to Lender that, upon execution of this Amendment, there exists (i) except for the Existing Events of Default, no Default Condition or Event of Default under the Loan Agreement and (ii) no right of offset, defense, counterclaim, claim or objection in favor of Borrower as against Lender arising out of or with respect to any of the Obligations. 10. No Waiver. Lender does not, by its execution and delivery of --------- this Amendment, waive any of the Existing Events of Default or any other Events of Default or Default Conditions which may presently or hereafter exist. 11. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of Georgia. -4- IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment, through their duly authorized officers, under their hands and seals, effective as of the date and year first above written. "BORROWER" ASSOCIATED HYGIENIC (SEAL) PRODUCTS LLC, a Limited Liability Company By: /s/ PETER CHANG ----------------------------------------- Name: Peter Chang Title: President Attest: /s/ PETER LEUNG --------------------------------- Name: Philip Leung Title: Secretary "LENDER" SOUTHTRUST BANK, N.A. (SEAL) By: /w/ WAYNE F. DURLACHER ----------------------------------------- Wayne F. Durlacher, Senior Vice President -5- REAFFIRMATION OF GUARANTY ------------------------- The undersigned, each a guarantor of the "Obligations" of "Borrower" to "Lender", as such terms are defined in the "Loan Agreement" referenced in the within and foregoing Second Amendment to Loan and Security Agreement ("Second ------ Amendment"), pursuant to a certain Guaranty dated December 16, 1996 - - --------- ("Guaranty"), hereby acknowledges its receipt of a copy of the Second Amendment and agrees that its Guaranty shall continue in full force and effect from and after the execution and delivery thereof. Dated: November 9, 1998 AHP HOLDINGS, L.P. By: ELMBAY LIMITED, an English corporation, as General Partner By: /s/ PETER CHANG -------------------------------- Peter Chang Principal Executive Officer DSG INTERNATIONAL LIMITED By: /s/ PETER CHANG -------------------------------- Peter Chang Vice President -6- SCHEDULE I ---------- Existing Events of Default -------------------------- Events of Default have occurred and are continuing under the Loan Agreement as a result of (a) the failure of Holdings to maintain Tangible Net Worth of at least $16,000,000 as required pursuant to Section 8.18 of the Loan Agreement, (b) the failure of Holdings to achieve annual net income of at least $100,000 for its fiscal quarter ending June 30, 1998, as required pursuant to Section 8.19 of the Loan Agreement, (c) the failure of Holdings to achieve a Fixed Charge Coverage Ratio of at least 1.25:1.00 for its fiscal quarter ending June 30, 1998, as required pursuant to Section 8.20 of the Loan Agreement, (d) the transfer by Borrower of certain of its equipment constituting part of the Collateral of Lender from its former plant location in Bell, California to a location of Associated Hygienic Products, Inc. in Wisconsin, in violation of the provisions of Sections 6.5 and 9.9 of the Loan Agreement (although Borrower disputes that this Event of Default occurred), (e) the failure of AHP to hold cash or cash equivalents at all times in the minimum amount of Eleven Million Dollars ($11,000,000), as required pursuant to Section 8.23 of the Loan Agreement, and (f) violations of Sections 9.6, 9.9 and 9.12 of the Loan Agreement resulting from the making by Borrower of certain advances (as reflected in Borrower's books and records) to Associated Hygienic Products Inc. -7-