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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RIDGEVIEW, INC.
(Exact name of Registrant as specified in its charter)
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NORTH CAROLINA 2251 & 2252 56-0377410
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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RIDGEVIEW, INC.
2101 NORTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
(704) 464-2972
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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HUGH R. GAITHER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RIDGEVIEW, INC.
2101 NORTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
(704) 464-2972
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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DUMONT CLARKE, IV R. DOUGLAS HARMON
MOORE & VAN ALLEN, PLLC SMITH HELMS MULLISS & MOORE, L.L.P.
NATIONSBANK CORPORATE CENTER 214 NORTH CHURCH STREET
100 NORTH TRYON STREET, FLOOR 47 P.O. BOX 31247
CHARLOTTE, NORTH CAROLINA 28202-4003 CHARLOTTE, NORTH CAROLINA 28231
(704) 331-1000 (704) 343-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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Common Stock........................... 1,840,000 shares $11.00 $20,240,000 $6,980
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(1) Includes 240,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 30, 1996
1,600,000 SHARES
(LOGO) RIDGEVIEW(R)
COMMON STOCK
Of the 1,600,000 shares of Common Stock offered hereby, 1,520,000 are being
sold by Ridgeview, Inc. (the "Company") and 80,000 are being sold by certain
shareholders of the Company (the "Selling Shareholders"). See "Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
the shares by the Selling Shareholders.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company (the "Common Stock"). It currently is
anticipated that the initial public offering price will be between $9.00 and
$11.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Application has
been made for the Common Stock to be listed on the Nasdaq National Market under
the symbol "RIDG."
SEE "RISK FACTORS," BEGINNING ON PAGE 7, FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses, payable by the Company estimated to be $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
240,000 additional shares of Common Stock on the same terms and conditions
as set forth above to cover over-allotments, if any. If the Underwriters
exercise this option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Interstate/Johnson Lane Corporation, Charlotte, North
Carolina, on or about , 1996.
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INTERSTATE/JOHNSON LANE SCOTT & STRINGFELLOW, INC.
Corporation
The date of this Prospectus is , 1996
<PAGE> 3
Photographs of certain of the Company's products, socks and women's
hosiery, as worn by various individuals, registered trademarks licensed by the
Company for use on its products and the names and trademarks of certain of the
Company's major customers appear here.
The following trademarks are mentioned in this Prospectus: ASICS, which is
a registered trademark of ASICS Corporation; Bass, which is a registered
trademark of Phillips-Van Heusen Corporation; Brooks, which is a registered
trademark of Brooks Sports, Inc.; Coleman, which is a registered trademark of
The Coleman Company, Inc.; Converse, which is a registered trademark of
Converse, Inc.; Ellen Tracy, which is a registered trademark of Ellen Tracy,
Inc.; Evan-Picone, which is a registered trademark of Jones Investment Company,
Inc.; Fila, which is a registered trademarks of Fila Holdings SpA; IZOD, which
is a registered trademark of Phillips-Van Heusen Corporation; Jacques Moret,
which is a registered trademark of Jacques Moret, Inc.; Kidsox, LINEOne, Oyster
Bay, Ridgeview and Seneca which are registered trademarks of the Company;
Reebok, which is a registered trademark of Reebok International, Ltd.; New
Balance, which is a registered trademark of New Balance Athletic Shoe, Inc.; Liz
Claiborne and Elisabeth, which are registered trademarks of Liz Claiborne, Inc.;
Rockport, which is a registered trademark of The Rockport Company, Inc.;
Winchester, which is a registered trademark of Kmart Corporation; and Woolrich,
which is a registered trademark of John Rich & Sons Investment Holding Company.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Prospective investors should carefully consider the
information discussed under "Risk Factors." Except as set forth in the financial
statements and unless otherwise indicated, all information in this Prospectus
(i) gives effect to an approximate 129 for 1 split of the Company's outstanding
Common Stock immediately prior to the completion of this Offering effected in
the form of a stock dividend, (ii) reflects the issuance of 240,000 shares of
Common Stock pursuant to a share exchange agreement by and among the Company and
the shareholders of an affiliated corporation, which will occur immediately
prior to the completion of this Offering, and (iii) assumes no exercise of the
Underwriters' over-allotment option. Unless otherwise indicated, references to
years in this Prospectus refer to the Company's fiscal year ending December 31
in such year. This Prospectus contains forward-looking statements and
information which involve risks and uncertainties. The Company's actual results
could differ materially from the results anticipated in these forward-looking
statements as a result of certain risks and uncertainties described under the
heading "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Founded in 1912, the Company designs, manufactures and markets a complete
range of sports, rugged outdoor and heavyweight casual socks as well as a wide
variety of women's hosiery products, including tights, trouser socks, pantyhose
and knee-highs. The Company is one of the leading vendors of sports socks to
sporting goods and active apparel stores and also sells its products to
department stores, discount stores and a variety of other retailers. In
addition, the Company produces sports socks for sale by others under such brand
names as ASICS, Bass, Brooks, Fila, Head Sportswear, IZOD, New Balance and
Reebok and women's hosiery products for sale under the Liz Claiborne and
Elisabeth brand names. Under license agreements, the Company produces and sells
socks and women's hosiery directly to retailers under the brand names Converse,
Ellen Tracy, Evan-Picone, Jacques Moret and Woolrich. The Company is currently
negotiating licensing terms to produce and sell socks under the Coleman and
Rockport brand names. The Company expects that approximately two-thirds of its
net sales in the current year will be derived from sales of socks with the
balance derived from sales of women's hosiery products. As of August 15, 1996,
the Company had more than 3,500 customers in the United States, Europe and other
parts of the world.
In recent years the Company has diversified geographically and modernized
its production capacity, increased its domestic customer base, expanded its
contract manufacturing business, negotiated the rights to manufacture and sell
socks and women's hosiery under widely-recognized brand names and increased its
marketing activities and sales in Europe and other foreign markets. These steps
included in 1994 and 1995 establishing a manufacturing facility with high speed
electronic knitting equipment in Ft. Payne, Alabama to produce
promotionally-priced, multi-pair pack sports socks and replacing all of the
mechanical sock knitting equipment in the Company's facilities in Newton, North
Carolina with similar electronic equipment. In 1994, the Company entered the
designer segment of the women's hosiery market through a licensing agreement to
manufacture and sell women's hosiery under the Ellen Tracy brand name in the
United States. Ellen Tracy hosiery products manufactured by the Company are
available in tights, trouser socks and pantyhose in department stores, including
Neiman Marcus, Nordstrom, Saks Fifth Avenue, Macy's, Dillard's and
Bloomingdale's. The Company recently negotiated a license to manufacture and
sell women's hosiery under the Evan-Picone trademark, an established consumer
brand of women's hosiery.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
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In June 1995, the Company expanded its manufacturing capacity and customer
base by acquiring Seneca Knitting Mills Corporation ("Seneca") located in Seneca
Falls, New York (the "Seneca Acquisition"). Seneca has been engaged since 1954
exclusively in producing rugged outdoor and heavyweight casual socks under
various private labels, for customers such as Kmart, J.C. Penney and Structure
(a division of The Limited, Inc.), and under Seneca's own brand, Oyster Bay. In
1995, to accommodate growth from a new sports sock manufacturing program for an
internationally-recognized athletic footwear and apparel brand name, the Company
doubled the capacity of its manufacturing facility in the Republic of Ireland,
which was established in 1986 to serve European customers.
During the last three years, the Company has experienced substantial
growth. Net sales increased 52.8% from $35.6 million in 1993 to $54.4 million in
1995, a compound annual growth rate of 23.6%. On a pro forma basis (giving
effect to certain acquisitions -- see "Summary Consolidated Financial Data"),
for the six months ended June 30, 1996, net sales increased 25.7% compared to
net sales in the same period in the prior year. The Company's future growth
strategy includes the following elements:
INCREASING SALES TO EXISTING CUSTOMERS. Many of the Company's existing
customers in the sporting goods industry, such as Just for Feet, The Sports
Authority, Sports & Recreation and Oshman's Sporting Goods, are rapidly
expanding the number of stores they operate, and the Company expects its sales
to these customers will increase as a result of their unit growth. The Company
also expects to be able to increase its sales to other existing customers such
as Target, J.C. Penney and Nordstrom.
EXPANDING SALES RELATIONSHIPS THROUGH CROSS-SELLING. The Company is
seeking to establish relationships with certain major retailers with which the
Company has not historically done business. Management believes that the
Company's expanded customer base of major retailers resulting from the Seneca
Acquisition and the Evan-Picone hosiery program creates opportunities for
cross-selling the Company's other products.
OBTAINING ADDITIONAL LICENSING ARRANGEMENTS. The Company is seeking to
license additional nationally and internationally recognized consumer brand
names to complement the Converse, Ellen Tracy, Evan-Picone, Jacques Moret and
Woolrich licensed brand names. Management is currently negotiating licensing
terms to produce and sell socks under the Coleman and Rockport brand names.
ADDING COMPLEMENTARY PRODUCT CATEGORIES THROUGH SELECTIVE
ACQUISITIONS. Women's casual socks and men's dress socks are complementary
product categories that could be added to the Company's existing product lines
through selective acquisitions of other manufacturers of socks or women's
hosiery or through internal product diversification. Although the Company has no
proposal, agreement, understanding or arrangement relating to the acquisition of
any other company at this time, future acquisitions could also be expected to
expand production capacity and add to the Company's customer base.
INCREASING INTERNATIONAL SALES. The Company plans to build on the existing
customer base served by its manufacturing facility in the Republic of Ireland
and on the Company's base of export sales of domestically manufactured products.
In recent years, manufacturers of socks and women's hosiery have
experienced a period of rapid technological change and encountered a demanding
retail environment characterized by customers' expectations of immediate order
fulfillment and depth in all product categories. The Company is investing in new
technology and strengthening its ability to provide a significant share of major
retailers' total socks and women's hosiery requirements. The Company's core
operating strategy includes the following elements:
- Manufacturing a broad range of products, including sports socks, rugged
outdoor and heavyweight casual socks, tights, trouser socks, pantyhose and
knee-highs, for sale under widely-recognized consumer brand names as well
as for large retailers' private label programs and under the Company's own
brands.
- Replacing most of its mechanical sock knitting machines with more
flexible electronic machines capable of operating at significantly higher
production levels with lower per unit costs.
- Making additional capital investments required to make the Company a
lower-cost, higher volume producer of a wide variety of products with the
capability of responding to tighter shipment schedules and increased
production capabilities demanded by large retailers.
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- Outsourcing the manufacturing of certain products to meet peak demand,
allowing the Company to operate its own manufacturing facilities at more
efficient production levels.
- Focusing on consistent product quality and providing rapid order
fulfillment to a large and diverse customer base.
The Company believes the sock and women's hosiery manufacturing industry is
entering a period of consolidation. Management believes the pace of
consolidation will increase in future years in part as a result of a trend among
large retailers to do business with a smaller group of vendors that are capable
not only of providing a significant share of a large retailer's total sock and
women's hosiery requirements but also of satisfying large retailers' increasing
inventory management demands. Although the Company does not currently have any
proposal, agreement, understanding or arrangement regarding any particular
acquisition, management believes manufacturers such as the Company that have the
commitment and resources to remain independent will be presented with attractive
acquisition opportunities in future years.
The Company's executive offices are located at 2101 North Main Street,
Newton, North Carolina 28658, and its telephone number is (704) 464-2972.
ACQUISITION OF AFFILIATE
Immediately prior to the completion of this Offering, the Company will
acquire all of the issued and outstanding shares of Interknit, Inc.
("Interknit"), a corporation affiliated with the Company through common
ownership of its shares by certain shareholders of the Company (the "Interknit
Acquisition"). Interknit was established in January 1994 for the purpose of
providing a consistent, reliable supply of high quality "greige goods"
(unfinished socks and women's hosiery) for the Company's sock finishing and
shipping facility in Ft. Payne, Alabama. During 1995, approximately 82% of
Interknit's output of greige goods was sold to the Company, and Interknit
purchased approximately 11% of its raw materials requirements from the Company.
Pursuant to a share exchange agreement by and among the Company and the
shareholders of Interknit, the shareholders of Interknit will, immediately prior
to the completion of this Offering, transfer all of the outstanding capital
stock of Interknit to the Company in exchange for an aggregate of 240,000 shares
of Common Stock. The acquisition of the shares of Interknit will be accounted
for as a "pooling of interests." See "Certain Transactions."
Unless the context otherwise requires, all references to the "Company" in
this Prospectus are to the Company, including its subsidiaries, and Interknit,
collectively, and all references to the Company's outstanding Common Stock
include the 240,000 shares of Common Stock to be issued to the shareholders of
Interknit.
THE OFFERING
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Common Stock offered by the Company................... 1,520,000 shares
Common Stock offered by the Selling Shareholders...... 80,000 shares
Common Stock to be outstanding after this Offering.... 3,120,000 shares(1)
Use of proceeds by the Company........................ To reduce outstanding debt and fund
capital expenditures, including
construction of a new distribution
facility and purchase of additional
electronic knitting equipment.
Nasdaq National Market symbol......................... RIDG
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(1) Excludes (i) 300,000 shares of Common Stock available for future grants of
stock options, restricted stock and other stock-based awards under the
Company's omnibus stock plan and (ii) 100,000 shares of Common Stock that
may be issued in connection with future purchases by employees under the
Company's employee stock purchase plan. See "Management -- Employee Benefit
Plans."
5
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SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
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PRO PRO PRO
FORMA FORMA FORMA
1991 1992 1993 1994 1995 1995(2) 1995 1996 1995(2) 1996(3)
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STATEMENT OF OPERATIONS DATA:
Net sales..................... $32,283 $32,438 $35,605 $40,093 $54,408 $59,602 $21,474 $31,799 $26,026 $32,712
Gross profit.................. 7,232 6,259 7,792 9,130 10,685 11,658 4,552 6,143 5,422 6,474
Operating income.............. 1,760 944 1,760 2,362 2,016 2,210 838 1,242 986 1,522
Interest expense.............. (721) (630) (661) (829) (1,584) (2,014) (520) (1,064) (906) (1,130)
Income before income
taxes....................... 1,159 610 1,433 1,587 535 314 335 207 104 420
Net income.................... $ 912 $ 533 $ 1,084 $ 1,014 $ 296 $ 105 $ 238 $ 129 $ 37 $ 271
Net income per share.......... $ 0.67 $ 0.40 $ 0.80 $ 0.75 $ 0.22 $ 0.07 $ 0.18 $ 0.10 $ 0.02 $ 0.17
Weighted average shares
outstanding................. 1,362 1,359 1,353 1,350 1,350 1,590 1,353 1,355 1,593 1,595
OTHER DATA:
Operating income before
depreciation and
amortization................ $ 2,447 $ 1,768 $ 2,661 $ 3,279 $ 3,216 $ 3,736 $ 1,342 $ 1,988 $ 1,725 $ 2,391
Depreciation and
amortization................ 687 824 901 917 1,200 1,526 504 746 739 869
Capital expenditures.......... 2,066 1,512 840 1,881 3,619 4,383 1,794 606 1,834 624
As adjusted for certain
charges(4):
Gross profit................ 11,306 12,279 4,862 5,732
Operating income............ 3,137 3,331 1,148 1,296
Operating income before
depreciation and
amortization.............. 4,337 4,857 1,652 2,035
Net income.................. $ 969 $ 778 $ 424 $ 223
Net income per share........ $ 0.72 $ 0.49 $ 0.31 $ 0.14
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AT JUNE 30, 1996
AT DECEMBER 31, ---------------------------------
----------------------------------------------- PRO PRO FORMA AS
1991 1992 1993 1994 1995 ACTUAL FORMA(5) ADJUSTED(6)
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BALANCE SHEET DATA:
Working capital........................ $ 7,205 $ 6,885 $ 7,616 $11,696 $11,911 $15,112 $15,090 $ 15,158
Total assets........................... 18,094 19,145 21,614 24,487 38,534 44,445 46,401 46,119
Long-term debt (less current
portion)............................. 5,693 5,859 5,771 9,492 14,624 17,516 18,771 5,585
Total debt............................. 7,964 9,651 10,918 11,292 21,511 25,423 27,052 13,516
Shareholders' equity................... 5,924 6,119 6,690 7,776 7,986 8,106 8,243 21,779
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(1) The summary historical consolidated financial data have been derived from
the Company's annual consolidated financial statements and unaudited interim
financial statements appearing elsewhere in this Prospectus. The summary
consolidated pro forma financial data have been derived from the Company's
unaudited pro forma financial statements also appearing elsewhere in this
Prospectus.
(2) Gives effect to the Seneca and Interknit Acquisitions as if each of such
events had occurred on January 1, 1995. See the unaudited pro forma
condensed consolidated financial statements and notes thereto.
(3) Gives effect to the Interknit Acquisition as if such event had occurred on
January 1, 1996.
(4) Gross profit for the year ended December 31, 1995 and the six months ended
June 30, 1995 reflects charges for the write-off of obsolete, unfinished
women's hosiery products in excess of normal reserves in the amounts of
$621,000 and $310,000, respectively. Operating income for the year ended
December 31, 1995 reflects the recognition of a supplemental retirement
obligation in the amount of $500,000 to the Company's former chairman. See
"Certain Transactions -- Supplemental Retirement Benefit." The data
presented have been adjusted to eliminate the effect of these one-time
charges.
(5) Gives effect to the Interknit Acquisition as if such event had occurred on
June 30, 1996.
(6) Adjusted to give effect to this Offering and the use of the net proceeds
thereof as described in "Use of Proceeds."
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RISK FACTORS
In addition to other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
Competition. As the result of increasing retail concentration and
overcapacity in certain segments of the industry, competition in the sock and
women's hosiery manufacturing industries, which is based on price, quality and
service, is becoming increasingly intense. The Company faces competition in both
its sock and women's hosiery businesses from a large number of manufacturers
located in the United States, many of which have substantially greater market
shares and financial and other resources than the Company. Competition from
foreign manufacturers is a factor primarily affecting competition for sales of
women's sheer hosiery only. Increased competition from these and future
competitors could reduce sales and prices, adversely affecting the Company's
results of operations. Accordingly, there can be no assurance that the Company
will be able to compete effectively with its competitors in the future. See
"Business -- Competition."
Reliance on Target. In 1995, sales to Target represented approximately 13%
of the Company's total net sales (approximately 12% on a pro forma basis
assuming the Seneca Acquisition had occurred at the beginning of 1995). The
Company could be adversely affected in the event of the bankruptcy or insolvency
of, or a downturn in the business of, Target or in the event that Target were to
increase its purchases of private label women's hosiery from other
manufacturers. See "Business -- Major Customers."
Seasonality and Fluctuations in Operating Results. Sales of certain of the
Company's products, particularly rugged outdoor socks, ski socks and heavyweight
tights, are seasonal in nature and generally occur during the fall and winter
selling seasons, which begin in August and end in December. Historically, the
majority of the Company's net sales have been generated, and most of the
Company's profits have been earned, in the third and fourth quarters of its
fiscal year. The Company's operating results may also fluctuate significantly on
an annual and quarterly basis as a result of a number of other factors,
including general economic and political conditions (such as recessions or
military conflicts), the timing of domestic and international orders from large
customers such as Target, the timing of capital expenditures, increased
competition and variations in the product mix of the Company's sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Associated with Licensed Brands. The Company's right to manufacture
and sell socks and women's hosiery under the consumer brand names Converse,
Ellen Tracy, Evan-Picone, Jacques Moret and Woolrich is dependent on license
agreements with the owners of these registered trademarks. In general, the
license agreements give the Company the right to use the trademarks with respect
to certain specified categories of hosiery products for terms ranging from one
to three years, with renewal rights if certain minimum annual sales thresholds
are satisfied, in exchange for the payment of a royalty equal to a percentage of
the Company's net sales of products under the trademark. Each of the license
agreements provides for payment of a minimum guaranteed royalty for each annual
period during the term of the agreement and requires the Company to spend a
specified percentage of its net sales for each annual period on advertising.
Each of the agreements also gives the owner of the trademark the right to
terminate the agreement under certain circumstances, including the failure by
the Company to meet manufacturing and distribution standards required under the
license and, in some instances, failure by the Company to meet specified annual
sales targets. There can be no assurances that the Company's sales of products
under these or other licensed brand names will be sufficient to satisfy minimum
annual sales thresholds. In certain instances, the Company has failed to satisfy
minimum annual sales requirements and has been required to pay minimum
guaranteed royalties. There can be no assurance that the Company will be able to
renew these licenses upon the expiration of their respective terms. See
"Business -- Operations -- Women's Hosiery Products."
Operational Risks Associated with Transition of Evan-Picone Women's Hosiery
Program. In July 1996, the Company negotiated a license for the Evan-Picone
women's hosiery program, which was previously held by another manufacturer. The
Company does not have the manufacturing capacity to satisfy the current demand
for Evan-Picone products, and the prior licensee will continue to manufacture
Evan-Picone women's hosiery under a contract with the Company until the Company
has arranged to outsource all of its
7
<PAGE> 9
manufacturing requirements to other manufacturers, which the Company expects to
accomplish by the end of 1996. Outsourcing by its very nature complicates the
quality assurance risks associated with textile manufacturing. Should the
contract manufacturers involved in the Evan-Picone program fail to meet the
quality standards established by the Company, the program could suffer. The
Company is also contracting with an independent warehouse distribution center
for inventory and order fulfillment services with respect to Evan-Picone
products. Dependence upon this service provider further complicates the risks
associated with the Evan-Picone program. To facilitate the transition of the
operational aspects of the program, the Company has employed the individual who
managed the Evan-Picone program for the prior licensee and expects to contract
for the services of the nationwide independent sales force and network of
merchandisers used by the prior licensee to sell Evan-Picone women's hosiery and
provide merchandising services to retailers. There can be no assurances,
however, that the transition of the operations will occur in accordance with the
Company's plans and without significant disruptions that could adversely affect
the Evan-Picone program and the Company's operating results.
Net sales of women's hosiery under the Evan-Picone brand name by the prior
licensee, which were $17.5 million in such licensee's fiscal year ended January
31, 1996, declined by approximately 33% from such licensee's fiscal 1994 to 1996
and are expected to decline again in the twelve months ending January 31, 1997.
Notwithstanding this declining sales trend, based on discussions with
representatives of the major department and discount stores handling the
Evan-Picone women's hosiery products, the Company believes the Evan-Picone brand
name continues to be well-recognized by consumers. There can be no assurances,
however, that consumer recognition of the brand will continue, that the Company
will be successful in stabilizing the program or that the declining sales trend
of recent years will not continue. The largest single customer for Evan-Picone
women's hosiery accounted for approximately 20% of the net sales of this program
by the prior licensee in its most recent fiscal year. The loss of this customer
or another major customer for the Evan-Picone brand of women's hosiery would
have a material adverse impact on the Company's sales and profitability under
the Evan-Picone program and could lead to the Company's failure to meet minimum
sales thresholds.
Management of Growth and Dependence on Key Personnel. During the last
three fiscal years, the Company has experienced substantial growth and expects
in the future to devote significant resources to enhancing and marketing
existing products, developing and marketing new products and increasing
personnel to support its anticipated growth. If the Company's management is
unable to manage growth effectively, this could have a material adverse effect
on the Company. The success of the Company is largely dependent on the personal
efforts and abilities of its President and Chief Executive Officer, Hugh R.
Gaither, its Executive Vice President of Sales and Marketing, William D.
Durrant, and its Executive Vice President and Chief Financial Officer, Walter L.
Bost, Jr. The loss of the services of any one of the Company's executive
officers could have a material adverse effect upon the Company's business and
development. None of these executive officers has an employment agreement with
the Company. The Company intends to purchase key man life insurance on Messrs.
Gaither, Durrant and Bost in the amounts of $2.0 million, $1.0 million and $1.0
million, respectively. See "Management."
Risks Associated with Possible Acquisitions. As part of its growth
strategy and in order to achieve greater product diversification, the Company
may pursue acquisitions of other sock and women's hosiery manufacturers. The
Company does not currently have any proposal, agreement, understanding or
arrangement regarding any particular acquisition. With respect to any future
acquisitions, there can be no assurance that the Company will be able to locate
or acquire suitable candidates or that any operations which are acquired can be
effectively and profitably integrated into the Company. Furthermore, any future
acquisitions may negatively impact the Company's operating results, particularly
during the periods immediately following the acquisition and may place
significant demands on the Company's managerial and financial resources. In
order to provide funds for any acquisitions, the Company will likely need to
incur, from time to time, additional indebtedness to banks and other financial
institutions and to issue, in public or private transactions, equity and debt
securities. The availability and terms of any such financing will depend on
market and other conditions, and there can be no assurance that such additional
financing will be available on terms acceptable to the Company, if at all. See
"Business -- Growth Strategy."
8
<PAGE> 10
Risk of Price Increases and Quality of Raw Materials. The principal raw
materials used by the Company in the manufacture of its products are cotton,
nylon, wool, spandex and a variety of other synthetic fibers. With recent
declines in cotton prices, United States cotton prices are close to their
ten-year average price, but there can be no assurance that as a result of
shortages in the cotton supply by reason of weather, crop disease or other
factors, prices will not increase. Although the Company makes advance purchases
of cotton-spun yarn based on projected demand, there can be no assurances that
price increases of cotton or other raw materials will not adversely affect the
Company's results of operations. In addition, the Company's failure to discover
raw material defects could adversely affect the Company's results of operations.
See "Business -- Raw Materials."
Financial Condition of Customers. In recent years a number of large
retailers, including certain customers of the Company, have filed for bankruptcy
protection or experienced financial difficulties, thus increasing the risk of
extending credit to such customers. Historically, the bankruptcies and financial
difficulties of the Company's customers have not had a material adverse effect
on the Company's financial condition. There can be no assurance, however, that
additional customers will not file for bankruptcy protection or experience
financial difficulties in the future and that such events will not adversely
affect the Company's operating results or financial condition. See
"Business -- Credit and Collections."
Unaffiliated Manufacturers. The Company outsources the manufacturing of
certain products. The inability of an outside manufacturer to ship the Company's
products in a timely manner or to meet the Company's quality standards could
adversely affect the Company's ability to deliver products to its customers in a
timely manner. The Company does not have long-term contracts with any outside
manufacturers.
Fashion Trends and Retail Cyclicality. The Company's business depends in
part on its ability to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner. There can be no assurance,
however, that the Company will continue to be successful in this regard. The
Company attempts to minimize the risk of changing fashion trends and product
acceptance by closely monitoring retail sales trends. The retail apparel
industry has been subject to substantial cyclical variation, and a recession in
the general economy or uncertainties regarding future economic prospects that
affect consumer spending habits could have an adverse effect on the Company. See
"Business -- Seasonality."
Environmental Matters. The Company's manufacturing operations are subject
to compliance with various federal, state and local governmental laws and
regulations. The Company believes that it is currently in compliance in all
material respects with applicable environmental laws and regulations. In the
event additional environmental requirements are imposed, the expense of
compliance could be substantial. See "Business -- Regulation."
Possibility of Additional Unionization. The employees of the Company at
its manufacturing facilities in Seneca Falls, New York and the Republic of
Ireland are currently represented by unions. If the balance of the Company's
employees should elect to be represented by a union in the future, increased
costs may be incurred and the financial results of the Company could adversely
be affected. See "Business -- Employees."
Exchange Rate Fluctuations. Approximately 12%, 10% and 9% of the Company's
net revenue for the fiscal years ended December 31, 1993, 1994 and 1995,
respectively, were derived from the Company's operations in the Republic of
Ireland. Since the revenues and expenses of the Company's operations in the
Republic of Ireland are generally denominated in the Irish punt, exchange rate
fluctuations between the Irish punt and the United States dollar will subject
the Company to currency translation risk with respect to the reported results of
its operations in the Republic of Ireland.
Control by Existing Shareholders. Upon completion of this Offering, the
Company's existing shareholders, many of whom are lineal descendants of the
Company's founder, will beneficially own a total of 49% of the outstanding
shares of Common Stock. As a result, subsequent to this Offering, these
shareholders, acting together with a limited number of other shareholders, would
be able to elect all of the Company's directors, amend the Company's Articles of
Incorporation, effect a merger, sale of assets or other business acquisition or
disposition, and otherwise effectively control the outcome of other matters
requiring shareholder approval. See "Principal and Management Shareholders."
9
<PAGE> 11
Anti-Takeover Provisions; Possible Issuance of Preferred Stock. The
Company's Articles of Incorporation and Bylaws contain various provisions that
may make it more difficult for a third party to acquire, or may discourage
acquisition bids for, the Company and could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
In addition, the Articles of Incorporation provide for 2,000,000 shares of
authorized but unissued Preferred Stock, the terms of which from time to time
may be fixed by the Board of Directors who also have the right to determine the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the shareholders
of the Company. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of such Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire control of the outstanding voting stock of the
Company. See "Description of Capital Stock."
No Prior Market for Common Stock; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations among the Company and the representatives of the Underwriters
and may not be indicative of the market price of the Common Stock after this
Offering. There can be no assurance that an active trading market will develop
or continue after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The trading price of
the Common Stock could be subject to significant fluctuations in response to
variations in the Company's operating results, announcements by the Company, its
competitors and others, general trends in the sock and women's hosiery industry
and other factors. In addition, in recent months and years the equity markets
have experienced significant price and volume fluctuations which have affected
the market prices for many companies and often have been unrelated to the
operating performance of specific companies or market segments. Broad market
fluctuations may, after completion of this Offering, adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale" and
"Underwriting."
Related Party Transactions and Conflicts of Interest. In the past, the
Company has engaged in transactions with affiliates of the Company which were
not the result of arm's length negotiations, including selling raw materials to
and purchasing significant quantities of greige goods from Interknit, a
corporation affiliated with the Company through common ownership of its shares
by certain shareholders and employees of the Company. Immediately prior to the
completion of this Offering, the Company will acquire all of the issued and
outstanding shares of Interknit in exchange for 240,000 shares of the Company's
Common Stock. As guarantors of the debt incurred to finance the start-up costs
of Interknit, the shareholders of Interknit may derive an additional benefit
from this Offering should the lender subsequently release them from their
personal guaranties. See "Certain Transactions -- Transactions with and
Acquisition of Interknit."
Shares Eligible for Future Sale. Sales of a substantial number of shares
of the Common Stock in the public market following this Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock. Upon completion of this Offering, there will be 3,120,000
shares of Common Stock outstanding (3,360,000 shares if the Underwriters'
over-allotment option is exercised). Of these shares, the 1,600,000 shares
offered hereby (1,840,000 if the Underwriters' over-allotment option is
exercised) will be freely tradeable without restriction under the Securities
Act, except for any shares held by "affiliates" of the Company, which will be
subject to the resale limitations of Rule 144 under the Securities Act. An
additional 1,264,547 additional shares will be eligible for sale in the public
market beginning 180 days after the date of this Prospectus upon the expiration
of certain lock-up agreements with the Underwriters, subject to the provisions
of Rule 144. See "Shares Eligible for Future Sale" and "Underwriting."
Dilution. Purchasers of the Common Stock in this Offering will suffer
immediate and substantial dilution in the net tangible book value per share of
the Common Stock from the initial public offering price. See "Dilution."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,520,000 shares of
Common Stock offered hereby by the Company (assuming an initial public offering
price of $10.00 per share and after deducting underwriting discounts and
commissions and estimated expenses of this Offering) are estimated to be $13.5
million ($15.8 million if the Underwriters' over-allotment option is exercised
in full). The Company intends to use approximately $10.7 million of the net
proceeds (approximately $12.9 million if the Underwriters' over-allotment option
is exercised in full) to repay outstanding indebtedness under its revolving
credit facility (the "Revolving Credit Facility"). The Revolving Credit Facility
is a $20.0 million credit line with a bank secured by substantially all of the
Company's property, which bears interest at a rate equal to the bank's prime
rate plus 1% (currently 9.25%) and expires in January 1999. As of August 15,
1996, borrowings outstanding under the Revolving Credit Facility were $17.7
million. The Company expects to continue using the Revolving Credit Facility for
working capital needs and to fund the growth of its business after completion of
this Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The Company will use $850,000 of the net proceeds to pay a $500,000
promissory note the Company issued in June 1995 to the former principal
shareholder of Seneca in connection with the Seneca Acquisition and a $350,000
note payable to the estate of one of his immediate family members. The $500,000
promissory note bears interest at 7% per annum and is due and payable in full in
September 1997, unless the Company completes a public offering of the Common
Stock sooner, in which event the note provides that it shall become due and
payable in full. The $350,000 note bears interest at 9% per annum and is due and
payable in full in December 1996, but contains the same acceleration provision
relating to a public offering of the Common Stock by the Company.
Of the balance of the net proceeds, approximately $1.5 million will be used
to construct a distribution facility on Company-owned land adjacent to the
Company's existing facility in Newton, North Carolina, and approximately
$500,000 will be used to fund a portion of the estimated $1.5 million total cost
of purchasing and installing over the next 18 to 24 months approximately 60
electronic knitting machines in replacement of the more than 100 knitting
machines currently installed in the Company's women's hosiery division. Pending
application of the balance of the net proceeds for such purposes, the Company
intends to use the $2.0 million balance of the net proceeds to temporarily repay
additional amounts of outstanding indebtedness under its Revolving Credit
Facility.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholders.
DIVIDEND POLICY
Although the Company has paid regular cash dividends on the Common Stock in
the past, the Company intends to cease paying dividends and to retain earnings
to support the growth and development of its business. Accordingly, the Company
does not anticipate that any dividends will be declared on the Common Stock for
the foreseeable future. The payment of future dividends, if any, will be at the
discretion of the Board of Directors and will depend upon the Company's
earnings, financial condition, cash requirements, restrictive covenants under
the Revolving Credit Facility or any other indebtedness, future prospects and
other factors deemed relevant by the Company's Board of Directors.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 (i) on an actual basis, (ii) on a pro forma basis to reflect the
Interknit Acquisition and (iii) on a pro forma, as adjusted basis to reflect the
Interknit Acquisition and the sale by the Company of 1,520,000 shares of Common
Stock in this Offering (at an assumed initial public offering price of $10.00
per share) and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current portion
of long-term debt.................................... $ 7,907 $ 8,281 $ 7,931
-------- -------- --------
Long-term debt, less current portion................... 17,516 18,771 5,585
-------- -------- --------
Shareholders' equity:
Common Stock, $.01 par value; 20,000,000 shares
authorized; 1,360,000 shares issued and
outstanding, actual; 1,600,000 shares issued and
outstanding, pro forma; and 3,120,000 shares
issued and outstanding, pro forma, as
adjusted(1)....................................... 14 16 31
Additional paid-in capital........................... 1,108 1,131 14,652
Foreign currency translation adjustments............. 91 91 91
Retained earnings.................................... 6,893 7,005 7,005
-------- -------- --------
Total shareholders' equity........................ 8,106 8,243 21,779
-------- -------- --------
Total capitalization......................... $33,529 $35,295 $35,295
======== ======== ========
</TABLE>
- ---------------
(1) Excludes 300,000 shares of Common Stock available for future grants of stock
options, restricted stock and other stock-based awards under the Company's
omnibus stock plan and 100,000 shares of Common Stock that may be issued in
connection with future purchases by employees under the Company's employee
stock purchase plan. See "Management -- Employee Benefit Plans."
12
<PAGE> 14
DILUTION
On a pro forma basis giving effect to the Interknit Acquisition as if such
event had occurred on June 30, 1996, the net tangible book value at June 30,
1996 was approximately $6,446,000, or $4.03 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of the Company's net
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding. After giving effect to the sale of 1,520,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $10.00 per
share, and after deducting underwriting discounts and commissions and estimated
offering expenses, the Company's pro forma as adjusted net tangible book value
at June 30, 1996 would have been $19,982,000, or $6.40 per share. This
represents an immediate increase in pro forma net tangible book value of $2.37
per share to existing shareholders and an immediate dilution of $3.60 per share
to new investors purchasing shares of Common Stock in this Offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................... $10.00
-----
Pro forma net tangible book value per share at June 30, 1996.... $4.03
Increase per share attributable to new investors................ 2.37
-----
Pro forma net tangible book value per share after this Offering... 6.40
-----
Net tangible book value dilution per share to new investors....... $ 3.60
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
shareholders and by the new investors at an assumed initial public offering
price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 1,600,000 51.3% $ 1,147,000 7.0% $ 0.72
New investors........... 1,520,000 48.7 15,200,000 93.0 10.00
--------- ----- ----------- -----
Total......... 3,120,000 100.0% $16,347,000 100.0%
========= ===== =========== =====
</TABLE>
The above computations exclude (i) 300,000 shares of Common Stock available
for future grants of stock options, restricted stock and other stock-based
awards under the Company's omnibus stock plan and (ii) 100,000 shares of Common
Stock that may be issued in connection with future purchases by employees under
the Company's employee stock purchase plan. See "Management -- Employee Benefit
Plans."
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data (except the pro forma
data), insofar as they relate to each of the years 1991 through 1995, have been
derived from the Company's annual audited consolidated financial statements,
including the consolidated balance sheets at December 31, 1994 and 1995 and the
related consolidated statements of operations for each of the three years in the
period ended December 31, 1995 and notes thereto appearing elsewhere in this
Prospectus. The data for the six months ended June 30, 1995 and June 30, 1996
(except the pro forma data) have been derived from the Company's unaudited
financial statements also appearing elsewhere herein, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments and an adjustment for an obsolete inventory write-off in excess of
normal reserves, necessary for a fair statement of the results of operations for
the unaudited interim periods.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and unaudited
pro forma condensed consolidated financial statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------- -------------------------------------
PRO PRO PRO
FORMA FORMA FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996 1995(1) 1996(2)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $32,283 $32,438 $35,605 $40,093 $54,408 $59,602 $21,474 $31,799 $26,026 $32,712
Cost of goods sold........... 25,051 26,179 27,813 30,963 43,723 47,944 16,922 25,656 20,604 26,238
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 7,232 6,259 7,792 9,130 10,685 11,658 4,552 6,143 5,422 6,474
Selling, general and
administrative expenses.... 5,472 5,315 6,032 6,768 8,669 9,448 3,714 4,901 4,436 4,952
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income............. 1,760 944 1,760 2,362 2,016 2,210 838 1,242 986 1,522
Other income (expense):
Interest expense........... (721) (630) (661) (829) (1,584) (2,014 ) (520) (1,064) (906 ) (1,130 )
Other...................... 120 296 334 54 103 118 17 29 24 28
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes...................... 1,159 610 1,433 1,587 535 314 335 207 104 420
Provision for income taxes... 247 77 349 573 239 209 97 78 67 149
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................... $ 912 $ 533 $ 1,084 $ 1,014 $ 296 $ 105 $ 238 $ 129 $ 37 $ 271
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per share......... $ 0.67 $ 0.40 $ 0.80 $ 0.75 $ 0.22 $ 0.07 $ 0.18 $ 0.10 $ 0.02 $ 0.17
Cash dividends per share..... $ 0.08 $ 0.09 $ 0.09 $ 0.11 $ 0.12 $ 0.11 $ 0.06 $ 0.03 $ 0.05 $ 0.03
Weighted average shares
outstanding................ 1,362 1,359 1,353 1,350 1,350 1,590 1,353 1,355 1,593 1,595
OTHER DATA:
Operating income before
depreciation and
amortization............... $ 2,447 $ 1,768 $ 2,661 $ 3,279 $ 3,216 $3,736 $ 1,342 $ 1,988 $1,725 $2,391
Depreciation and
amortization............... 687 824 901 917 1,200 1,526 504 746 739 869
Capital expenditures......... 2,066 1,512 840 1,881 3,619 4,383 1,794 606 1,834 624
As adjusted for certain
charges(3):
Gross profit............... 11,306 12,279 4,862 5,732
Operating income........... 3,137 3,331 1,148 1,296
Operating income before
depreciation and
amortization............. 4,337 4,857 1,652 2,035
Net income................. $ 969 $ 778 $ 424 $ 223
Net income per share....... $ 0.72 $ 0.49 $ 0.31 $ 0.14
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
AT JUNE 30, 1996
AT DECEMBER 31, ---------------------------------------
----------------------------------------------- PRO FORMA
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------- ------- ------- ------- ------- ------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 7,205 $ 6,885 $ 7,616 $11,696 $11,911 $15,112 $ 15,090 $ 15,158
Property, plant and equipment,
net............................. 5,578 6,096 5,740 6,332 10,349 10,242 11,588 11,588
Total assets...................... 18,094 19,145 21,614 24,487 38,534 44,445 46,401 46,119
Long-term debt (less current
portion)........................ 5,693 5,859 5,771 9,492 14,624 17,516 18,771 5,585
Total debt........................ 7,964 9,651 10,918 11,292 21,511 25,423 27,052 13,516
Shareholders' equity.............. 5,924 6,119 6,690 7,776 7,986 8,106 8,243 21,779
</TABLE>
- ---------------
(1) Gives effect to the Seneca and Interknit Acquisitions as if each of such
events had occurred on January 1, 1995. See the unaudited pro forma
condensed consolidated financial statements and notes thereto.
(2) Gives effect to the Interknit Acquisition as if such event had occurred on
January 1, 1996.
(3) Gross profit for the year ended December 31, 1995 and the six months ended
June 30, 1995 reflects charges for the write-off of obsolete, unfinished
women's hosiery products in excess of normal reserves in the amounts of
$621,000 and $310,000, respectively. Operating income for the year ended
December 31, 1995 reflects the recognition of a supplemental retirement
obligation in the amount of $500,000 to the Company's former chairman. See
"Certain Transactions -- Supplemental Retirement Benefit." The data
presented have been adjusted to eliminate the effect of these one-time
charges.
(4) Gives effect to the Interknit Acquisition as if such event had occurred on
June 30, 1996.
(5) Adjusted to give effect to the Offering and the use of the net proceeds as
described in "Use of Proceeds."
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's consolidated financial condition as of June 30, 1995 and 1996 and as
of December 31, 1993, 1994 and 1995 and its results of operations for the six
months ended June 30, 1995 and 1996 and for the years ended December 31, 1993,
1994 and 1995. This discussion and analysis should be read in conjunction with
the preceding Selected Consolidated Financial Data and the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. Data for the six months ended June 30, 1996 are not necessarily
indicative of results expected for the year ending December 31, 1996. The
percentages provided below are calculated using the detailed financial data
contained in the Company's consolidated financial statements and notes thereto.
GENERAL
The Company derives its revenue from the manufacture and sale of sports,
rugged outdoor and heavyweight casual socks and women's hosiery products. The
Company's manufacturing facilities are located in Newton, North Carolina; Ft.
Payne, Alabama; Seneca Falls, New York; and Tralee, in the Republic of Ireland.
The Company is one of the leading vendors of sports socks to sporting goods and
active apparel stores and also sells its products to department stores, discount
stores and a variety of other retailers. In addition, the Company produces
sports socks for sale by others under such widely-recognized brand names as
ASICS, Bass, Brooks, Fila, Head Sportswear, IZOD, New Balance and Reebok and
women's hosiery products for sale under the Liz Claiborne and Elisabeth brand
names. Under license agreements, the Company produces and sells socks and
women's hosiery directly to retailers under the brand names Converse, Ellen
Tracy, Evan-Picone, Jacques Moret and Woolrich. The Company is currently
negotiating licensing terms to produce and sell socks under the Coleman and
Rockport brand names.
The Company's net sales have increased over the past three years, from
$35.6 million in 1993 to $54.4 million in 1995, a compounded annual growth rate
of 23.6%. The majority of the Company's revenue growth over the past three years
is attributable to increased sales of promotional weight sports socks, rugged
outdoor and heavyweight casual socks and women's tights and trouser socks. The
increased sales of promotional weight sports socks and women's tights and
trouser socks were generated internally, while the increased sales of rugged
outdoor and heavyweight casual sock lines resulted from the Seneca Acquisition
in June 1995. See note 2 to the Company's consolidated financial statements. The
Company's operating income before depreciation and amortization, as adjusted for
certain one-time items (an obsolete inventory write-off in excess of normal
reserves and the recognition of a supplemental retirement benefit liability in
1995), also increased over the past three years, from $2.7 million in 1993 to
$4.3 million in 1995. In 1994 and 1995, the Company invested a significant
portion of its capital resources in modernizing its sock manufacturing
operations, with aggregate capital expenditures for modern electronic knitting
equipment and other capital improvements during such years totalling $5.5
million. While the expenses associated with the Seneca Acquisition and the lost
production time and other costs associated with the Company's modernization
program had a negative impact on the Company's net income for the year ended
December 31, 1995 and the first six months of 1996, management believes the
integration of Seneca's operations has been substantially completed, as has been
the Company's modernization program for its sports sock operations.
16
<PAGE> 18
The following table presents the Company's net sales by product category
for the most recent three years and the first six months of 1995 and 1996,
expressed in thousands of dollars and as a percentage of total net sales.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- ----------------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOCKS:
Sports specific............. $13,421 37.7% $14,212 35.4% $14,878 27.3% $ 7,380 34.4% $10,287 32.4%
Sports promotional.......... 9,385 26.4 12,035 30.0 13,344 24.5 6,858 31.9 8,932 28.1
Active sport................ 1,654 4.6 1,879 4.8 1,846 3.4 904 4.2 738 2.3
Rugged outdoor and
heavyweight casual........ -- -- -- -- 9,178 16.9 -- -- 4,298 13.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total socks............. 24,460 68.7 28,126 70.2 39,246 72.1 15,142 70.5 24,255 76.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
WOMEN'S HOSIERY:
Sheer pantyhose and
knee-highs................ 6,147 17.3 5,782 14.4 6,047 11.1 3,522 16.4 3,395 10.7
Tights and trouser socks.... 4,998 14.0 6,185 15.4 9,115 16.8 2,810 13.1 4,149 13.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total women's hosiery... 11,145 31.3 11,967 29.8 15,162 27.9 6,332 29.5 7,544 23.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total net sales.... $35,605 100.0% $40,093 100.0% $54,408 100.0% $21,474 100.0% $31,799 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
As illustrated by the table set forth above, socks have accounted for an
increasing percentage of the Company's total net sales, increasing from 68.7% in
1993 to 76.3% in the six months ended June 30, 1996. Within the sock product
lines, the percentage of total net sales attributable to rugged outdoor and
heavyweight casual socks, which were not previously sold by the Company, was
16.9% in 1995, due to the Seneca Acquisition in June 1995, while sales of
promotional weight sports socks grew at a faster rate than sales of heavier
weight sports specific and active sport socks due primarily to consumer
preferences. Within the women's hosiery product lines, the percentage of net
sales attributable to tights and trouser socks increased from 14.0% in 1993 to
16.8% in 1995 due to consumer preferences and the success of the Ellen Tracy
program, which began in 1994. The net sales by product category for the six
months ended June 30, 1996 are not indicative of the net sales by product
category expected for the year ending December 31, 1996, because sales of rugged
outdoor socks, heavyweight casual socks, tights and trouser socks typically are
higher during the third and fourth calendar quarters and sales of women's
hosiery products are expected to increase as a percentage of total net sales due
to implementation of the Evan-Picone program in the third and fourth quarters of
1996.
RESULTS OF OPERATIONS
General
Management believes that the Company's recent operating results have been,
and its future operating results may be, affected by certain industry and
business trends discussed below and elsewhere in this Prospectus. The impact of
these trends on historical operating results can be difficult to identify and
measure and, with respect to future operating results, difficult to predict. The
following discussion of such trends includes forward-looking statements that are
subject to inherent risks and uncertainties. Accordingly, the Company's
performance in future periods may differ materially from those suggested by such
statements.
The Company's success depends in part on its ability to anticipate and
respond to changing customer demands and fashion trends. See "Risk
Factors -- Fashion Trends and Retail Cyclicality." One such trend that the
Company has benefitted from in recent years is a fashion trend toward more
casual dress and active wear. Sales of the Company's socks have increased in
part because socks typically are an integral part of a more casual,
sports-oriented wardrobe. While existing retailers have modified their sales
strategies to emphasize such items, new retailers have emerged that focus
entirely on casual clothing or sporting goods and apparel. Women's hosiery
products also have been affected by the trend toward more casual dress by
shifting the emphasis from traditional sheer products to more durable,
heavyweight products such as tights and trouser socks. This trend has increased
the Company's sales of women's hosiery products as well as its profitability,
17
<PAGE> 19
due to the emphasis on heavier-weight product lines which carry higher margins.
Selling, general and administrative costs have increased as well, due to
development costs incurred to modify and expand the Company's established
product lines to include more casual and sports-oriented items.
As the market for socks and women's hosiery products has become more
fashion conscious, association with consumer brand names has become an
increasingly important marketing tool. The Company has responded to this trend
by entering into licensing agreements to use designer brand names such as Ellen
Tracy, Evan-Picone and Jacques Moret in its women's hosiery product lines,
Woolrich in its rugged outdoor and heavyweight casual product lines and Converse
in its sports sock product lines. See "Risk Factors -- Risks Associated with
Licensed Brands." Because these licensing agreements typically involve higher
margin products, they have had a positive impact on the Company's revenue and
gross profit margins. Licensing arrangements also tend to result in higher
selling, general and administrative costs due to royalty payments, cooperative
advertising and marketing requirements imposed by licensors. Management expects
to continue to pursue licensing arrangements for brand names that complement the
Company's existing product lines.
As producers of consumer goods, sock and women's hosiery manufacturers are
subject to certain trends in the retailing industry. Of considerable importance
in recent years has been the trend toward consolidation of apparel retailers
into large regional or national chains. See "Business -- Industry Overview."
This trend has been particularly prevalent among the sporting goods retailers
and discount and department stores where the bulk of the Company's products are
sold. The centralized purchasing departments for these chains have the leverage
to demand preferential pricing and tend to favor vendors who can supply a
variety of related products in large quantities, accommodate strict packaging
and shipping requirements and maintain substantial finished goods inventories
managed by computerized information networks that are compatible with electronic
ordering systems. These retailers also expect manufacturers to play an expanding
role in the marketing and managing of their product lines. In order to maintain
and increase sales to such retailers, the Company has modernized and expanded
its production facilities, developed outsourcing relationships with other
manufacturers, updated its information systems and hired key sales people who
are familiar with the preferences and practices of such retailers.
Implementation of this strategy has resulted in substantial increases in
revenues, narrower gross profit margins on higher production volumes and
increased selling, general and administrative expenses.
The Company believes a trend toward consolidation in the sock and women's
hosiery industry has developed in recent years, due in part to powerful
incentives for manufacturers to become low cost, high volume producers. Smaller
companies that have not modernized their production facilities, focused on
profitable niche markets and developed effective channels of distribution are
finding it increasingly difficult to survive as independent manufacturers. This
consolidation trend periodically creates attractive acquisition opportunities
for companies that have the commitment and resources to remain independent.
While any future acquisitions by the Company will be designed to contribute to
the Company's long-term profitability by expanding capacity and adding
complementary product lines, they may initially have a negative impact on the
Company's gross profit and selling, general and administrative expenses as the
operations of the acquired company are integrated into the Company's existing
operations. To the extent any future acquisitions are financed by or involve the
assumption of additional debt, interest expense also will increase. The Seneca
Acquisition, for example, enabled the Company to broaden its product line to
include rugged outdoor and heavyweight casual socks. While the Seneca
Acquisition is expected to have a positive impact on the Company's long-term
profitability, increased interest expense and the expenses associated with the
integration of Seneca's operations into the Company's had an adverse effect on
the Company's operating results for the second half of 1995 and the first six
months of 1996. The Interknit Acquisition, however, will be effected to achieve
the benefits of vertical integration rather than in response to the trend toward
consolidation in the industry. Because the operations of Interknit and the
Company's facility in Ft. Payne, Alabama are already closely coordinated,
management expects that the administrative expenses associated with the
integration of Interknit into the Company's operations will be minimal. See
"Certain Transactions -- Transactions with and Acquisition of Interknit."
During 1994 and 1995, the Company replaced all of its mechanical sports
sock knitting machines with electronic machines capable of operating at
significantly higher production levels with lower per unit costs.
18
<PAGE> 20
Although the efficiencies achieved through this modernization program have been
offset to some degree by implementation costs and lost production time,
management believes the impact of the program on the Company's overall
profitability has been favorable. See "Business -- Manufacturing." The
anticipated replacement over the next 18 to 24 months of the more than 100
knitting machines currently used by the Company to manufacture women's hosiery
products with approximately 60 new electronic knitting machines is expected to
produce similar results in future periods. See "Use of Proceeds."
The following table presents the Company's results of operations as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................................... 78.1 77.2 80.4 78.8 80.7
----- ----- ----- ----- -----
Gross profit............................................. 21.9 22.8 19.6 21.2 19.3
Selling, general and administrative expenses............... 16.9 16.9 15.9 17.3 15.4
----- ----- ----- ----- -----
Operating income......................................... 5.0 5.9 3.7 3.9 3.9
Interest expense........................................... (1.9) (2.1) (2.9) (2.4) (3.3)
Other income, net.......................................... 0.9 0.1 0.2 0.1 0.1
----- ----- ----- ----- -----
Income before income taxes................................. 4.0 3.9 1.0 1.6 0.7
Income tax expense......................................... 1.0 1.4 0.4 0.5 0.3
----- ----- ----- ----- -----
Net income............................................... 3.0% 2.5% 0.6% 1.1% 0.4%
===== ===== ===== ===== =====
</TABLE>
Comparison of Six Months Ended June 30, 1996 to Six Months Ended June 30, 1995
Net sales for the six months ended June 30, 1996 were $31.8 million, an
increase of $10.3 million, or 48.1%, over the same period for the prior year.
Seneca accounted for $4.3 million, or 41.6%, of the net sales increase. In
addition, the Company's subsidiary in the Republic of Ireland experienced a
72.0% increase in net sales for the first six months of 1996, compared to the
same period in 1995 primarily as the result of a strategic alliance entered into
with another domestic hosiery manufacturer that holds the license to manufacture
and sell socks under an internationally-recognized athletic footwear and apparel
brand name. Under this alliance, the Company is the primary manufacturer of
socks required to fill orders from European distributors of products bearing
this brand name. Sales of these products, which were not sold in 1995, were $2.2
million for the first six months of 1996. See note 13 to the Company's
consolidated financial statements. The Company's domestic divisions, excluding
Seneca, experienced an average of 24.3% net sales growth due to increased demand
for sport specific and sports promotional socks and women's hosiery products. On
a pro forma basis, net sales for the six-month period ended June 30, 1996 were
$32.7 million, compared to $26.0 million for the comparable period of 1995, or
an increase of 25.7%.
Gross profit for the first six months of 1996 was $6.1 million, an increase
of $1.6 million, or 35.0%, over the same period for the prior year. As a
percentage of net sales, gross profit decreased from 21.2% in 1995 to 19.3% in
1996. Although the Company experienced significant growth in net sales compared
to the prior six-month period, this sales growth came from products bearing a
lower gross margin. During the first six months of 1996, $4.3 million in sales
of rugged outdoor and heavyweight casual socks by Seneca carried lower margins
than the products sold by the Company in the same period of 1995 while $2.2
million in sales by the Company's subsidiary in the Republic of Ireland were
from a new program that initially were at low margins. Price increases on
selected products that have been or will be implemented by the Company should
increase the margins relating to this new program to more favorable levels. The
pricing of a significant private label program in the women's hosiery division
also was reduced early in 1996 to increase sales volume. Management believes
that continued sales growth even at lower margins will maximize the Company's
use of its production facilities, increase its operating efficiencies and allow
fixed costs to be more efficiently absorbed. The effect on the gross profit
margin of increased sales of certain lower margin products was partially offset
by increases in gross margins in the sport specific and active sports sock
products. Gross profit on a pro forma basis increased
19
<PAGE> 21
$1.1 million, or 19.4%, from $5.4 million for the six months ended June 30, 1995
to $6.5 million for the first six months of 1996.
Selling, general and administrative expenses for the six months ended June
30, 1996 were $4.9 million, compared to $3.7 million for the same period in
1995, an increase of $1.2 million. This increase was primarily due to the
additional expenses associated with the integration of the Seneca Acquisition.
As a percentage of net sales, selling, general and administrative expenses
decreased from 17.3% in the six-month period ended June 30, 1995, to 15.4% for
the same period in 1996. This reduction is largely due to net sales increasing
at a faster rate than selling, general and administrative expenses. On a pro
forma basis, selling, general and administrative expenses increased 11.6%, from
$4.4 million for the first six months of 1995 to $4.9 million for the comparable
period of 1996.
Operating income increased from $838,000 to $1.2 million for the six months
ended June 30, 1996. As a percentage of net sales, operating income was 3.9% for
each of the six-month periods of 1995 and 1996. For the pro forma six-month
period ended June 30, 1996, operating income increased $536,000 from the same
pro forma period of 1995. This represents a pro forma increase of 54.4% and is
primarily attributable to the profitability of Interknit during the first six
months of 1996 versus an operating loss during the comparable period of 1995.
Interest expense increased 104.6% from $520,000 in the first six months of
1995 to $1.1 million in the comparable 1996 period due to the debt incurred for
the Seneca Acquisition. The acquisition debt of $7.0 million was incurred at
June 28, 1995, and as a result, no interest expense related to that debt is
reflected in the six months ended June 30, 1995, whereas the six-month period
ended June 30, 1996 reflects interest relating to that debt. Pro forma interest
expense for the six-month periods ended June 30, 1996 and 1995 was $1.1 million
and $906,000, respectively.
Other income for the first six months of 1996 was $29,000 compared to
$17,000 for the same period in 1995. Relative to net sales, other income
remained stable on both a historical and pro forma basis.
Income tax for the six-month period for 1996 was $78,000, compared to
$97,000 for 1995. The decrease in income tax expense was largely due to the loss
incurred at Seneca.
Net income for the six months ended June 30, 1996 was $109,000 less than
net income for the comparable period of 1995. This decrease is primarily
attributable to the net loss incurred by Seneca during the six months ended June
30, 1996. Since the Seneca Acquisition was effective on June 28, 1995, a
comparison of the historical operating results for the six-month periods ended
June 30, 1996 and 1995 is not meaningful. Without giving effect to Seneca's net
loss during the first six months of 1996, the Company's net income would have
increased $363,000, or 153%, over the comparable period of 1995. Pro forma net
income for the six months ended June 30, 1996 was $271,000, compared to pro
forma net income of $37,000 for the comparable period of 1995. The increase in
pro forma net income is primarily attributable to the profitability of Interknit
during the first six months of 1996 versus an operating loss during the
comparable period in 1995.
Comparison of 1995 to 1994
Net sales for 1995 were $54.4 million, compared to $40.1 million in 1994,
an increase of $14.3 million, or 35.7%. The Seneca Acquisition in June 1995 was
responsible for $9.2 million of the overall increase in net sales. The balance
of the increase was attributable to growth in demand for certain of the
Company's women's hosiery products and sport socks from new and existing
customers.
Gross profit for 1995 was $10.7 million, or 19.6% of net sales, as compared
to $9.1 million, or 22.8% of net sales, for 1994. The decrease in gross profit
as a percentage of net sales for 1995 was due in part to a trend towards higher
sales volume at lower gross profit margins. Included in the cost of goods sold
for 1995, however, is a one-time charge of $621,000 related to accumulated
unfinished women's hosiery products determined during the year to be obsolete,
which exceeded the Company's normal estimate for reserves for obsolete and
discontinued inventory and also had a negative impact on gross profit margin.
This one-time charge in excess of normal reserves reduced gross profit, as a
percentage of net sales, by 1.1%.
20
<PAGE> 22
Selling, general and administrative expenses increased $1.9 million in 1995
to $8.7 million, as compared to $6.8 million in 1994. The majority of the
increase was attributable to costs associated with the integration of Seneca
into the Company's operations during the second half of 1995. The Company also
recorded a one-time charge of $500,000 during 1995 to recognize its future
liability under an agreement entered into in December 1995 to pay a supplemental
retirement benefit to the Company's former Chairman over a seven-year period.
See "Certain Transactions -- Supplemental Retirement Benefit." As a percentage
of net sales, selling, general and administrative expenses nonetheless decreased
in 1995 to 15.9% compared to 16.9% in 1994. The Company attributes this
percentage decrease primarily to net sales increasing at a faster rate than
selling, general and administrative expenses.
Although the Company experienced significant growth in net sales during
1995, operating income decreased to $2.0 million compared to $2.4 million in
1994. The decrease was the result of the one-time charges for the write-off of
obsolete inventory and to recognize the Company's future liability to pay a
supplemental retirement benefit. Had these one-time charges, which totaled $1.1
million, not been incurred, operating income in 1995 would have been $3.1
million, or a 32.8% increase over operating income in the prior year.
Interest expense in 1995 was $1.6 million compared to $829,000 in 1994.
Interest on the additional borrowings incurred to fund the Seneca Acquisition
and increased borrowings under the Revolving Credit Facility to support higher
levels of inventory and accounts receivable accounted for most of this 91%
increase in interest expense.
Other income for 1995 was $103,000, compared to $54,000 for 1994. The lower
amount of other income for 1995 was primarily due to losses incurred on the sale
or disposal of equipment in 1994 that offset other income in that year. There
were no offsetting losses from the sale or disposal of equipment in 1995.
Income taxes for 1995 decreased by $334,000 from 1994. The effective tax
rate in 1995 was 44.7% compared to 36.1% in 1994. The increase in the effective
tax rate for 1995 was the result of a decrease in the percentage of the
Company's total income represented by income from the Company's operations in
the Republic of Ireland, which is not subject to United States income tax.
Net income for 1995 was $296,000 compared to $1.0 million in 1994. The
decrease was the result primarily of the one-time charges incurred during 1995
for the write-off of obsolete inventory in excess of normal reserves and to
recognize the Company's future liability to pay a supplemental retirement
benefit to a former executive officer. Without these charges, income before
income taxes for 1995 would have been $1.7 million and net income would have
been $969,000. The Company's net income for 1995 was also adversely impacted by
the 91% increase in interest expense over the prior year described above.
Comparison of 1994 to 1993
Net sales for 1994 were $40.1 million, as compared to $35.6 million for
1993, for an increase of $4.5 million, or 12.6%. The increase in net sales was
primarily attributable to sales of Ellen Tracy women's hosiery products, which
the Company began selling in 1994, and steady growth in sports sock sales
resulting primarily from strong demand for sport specific socks from large
format sporting goods retailers.
Gross profit for 1994 was $9.1 million, or 22.8% of net sales, as compared
to $7.8 million, or 21.9% of sales, for 1993. The increase in gross profit as a
percentage of net sales resulted from a combination of increased sales of
tights, trouser socks and other higher margin products in the women's hosiery
division and operating efficiencies achieved from steady production at close to
capacity in the women's hosiery and promotional sports sock divisions.
Selling, general and administrative expenses increased 12.2% to $6.8
million in 1994 from $6.0 million in 1993. As a percentage of net sales,
however, selling, general and administrative expenses remained constant at
16.9%. The Company attributes this result primarily to net sales increasing at a
faster rate than selling, general and administrative expenses.
21
<PAGE> 23
The changes in sales, margins and expenses during 1994 described above
combined to result in an increase in operating income of 34.2% from $1.8 million
in 1993 to $2.4 million in 1994. As a percentage of net sales, operating income
increased from 5.0% in 1993 to 5.9% in 1994.
Interest expense in 1994 of $829,000 was 25.4% higher than interest expense
of $661,000 in 1993. The increase was attributable to increased borrowings to
support accounts receivables and inventories and an increase in prevailing
interest rates during 1994.
Other income decreased 83.8% to $54,000 in 1994 from $334,000 in 1993. The
unusually large amount of other income in 1993 was attributable to the
recognition in such year of $108,000 in foreign currency exchange gains upon the
repayment of debt, denominated in U.S. dollars, owed to the Company by its
foreign subsidiary conducting operations in the Republic of Ireland, which had
been recorded, at the date of incurrence, on the foreign subsidiary's balance
sheet in a foreign currency. The Company also received in 1993 an extraordinary
grant of $104,000 from the Republic of Ireland to offset the adverse effect of
currency exchange losses incurred during 1993 on outstanding receivables of the
Company's foreign subsidiary when the exchange rate for certain European
currencies, particularly the British pound, began floating on the open market
without limits.
Income taxes for 1994 increased by $224,000 compared to 1993. The effective
tax rate was 36.1% in 1994 compared to 24.8% in 1993. This increase in the
effective tax rate for 1994 was the result of a decrease in the percentage of
the Company's total income represented by income from the Company's operations
in the Republic of Ireland, which is not subject to United States income taxes.
Net income for 1994 was $1.0 million compared to $1.1 million for 1993. The
decrease in net income was primarily a result of higher income taxes in 1994
caused primarily by decreasing income from the Company's operations in the
Republic of Ireland.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities for the years ended December 31, 1993,
1994 and 1995 were $(102,000), $984,000 and $2.0 million, respectively. Cash
flows from operating activities during the six months ended June 30, 1995 and
1996 were $924,000 and $(3.0 million), respectively. The negative cash flows
from operating activities during the first six months of 1996 were the result of
a $4.3 million increase in inventories and a $1.7 million increase in accounts
receivable since year end. The $4.3 million increase in inventories was largely
due to increased inventories to support higher levels of sales in the women's
hosiery division and to support sales of Seneca's rugged outdoor and heavyweight
casual socks, which are higher in the last six months of the year. The $1.7
million increase in accounts receivable was the result of increased net sales by
the Company's other divisions.
In addition to cash flow from operations, the Company obtains working
capital and, on a temporary basis, finances its capital expenditures for
equipment modernization, through borrowings under the Company's Revolving Credit
Facility extended by NationsBank, N.A. (South) ("NationsBank"). Borrowings under
the Revolving Credit Facility were also used to fund a portion of the costs of
the Seneca Acquisition. The Revolving Credit Facility, which was recently
increased by $3.0 million to provide the additional working capital needed to
support the Evan-Picone women's hosiery program, provides for borrowings of up
to $20.0 million through January 1999. As of August 15, 1996, $17.7 million was
outstanding under the Revolving Credit Facility, and there was $2.3 million
available for additional borrowings. Funds borrowed under the Revolving Credit
Facility bear interest at a rate equal to NationsBank's prime rate plus 1% per
annum (currently 9.25%) and are secured by the Company's accounts receivable,
inventory, equipment and certain real property. Amounts outstanding under the
Revolving Credit Facility may not exceed the sum of specified percentages of the
Company's accounts receivable and the value of the Company's inventory.
The Revolving Credit Facility imposes several financial and other covenants
that the Company must satisfy including, among other things, maintenance of
specified levels of working capital, maintenance of a specified tangible net
worth, debt service coverage ratios and positive cash flow. The covenants also
impose limits on capital expenditures and dividends. Pursuant to grant
agreements with the Republic of Ireland, the
22
<PAGE> 24
retained earnings of the Company's Irish subsidiary are subject to certain
restrictions based upon the amount of government grants received to date. See
note 12 to the Company's consolidated financial statements.
In addition to the Revolving Credit Facility, the Company has two term
loans outstanding with NationsBank. As of August 15, 1996, the term loans had an
aggregate principal balance of $5.2 million. The first loan, which was entered
into as a source of permanent financing for the Company's capital equipment
modernization program and at August 15, 1996 had an outstanding principal
balance of $4.2 million, bears interest at NationsBank's prime rate plus 1%
(currently 9.25%) and is payable in two monthly installments of $41,667 each,
with a balloon payment of approximately $4.1 million due in November 1996. This
loan is secured by the same collateral as the Revolving Credit Facility and
imposes similar restrictive covenants on the Company. The Company expects to
extend, and increase the principal balance of, this term loan prior to its due
date. Any additional principal the Company is able to borrow will be used to
reduce the outstanding balance under the Revolving Credit Facility, thereby
increasing the amount available for additional borrowings thereunder to support
future sales growth. The second term loan with NationsBank, which at August 15,
1996 had an outstanding principal balance of $976,000, was obtained in
connection with the Seneca Acquisition in June 1995. This loan bears interest at
NationsBank's prime rate plus 1% (currently 9.25%) and is payable in 32 monthly
installments of $12,000 each, with a balloon payment of approximately $640,000
due in January 1999.
In payment of a portion of the purchase price of Seneca, the Company issued
a $500,000 promissory note due in June 1997 to Seneca's former principal
shareholder. This note, which is due in September 1997, provides for
acceleration of the due date upon completion of this Offering. In connection
with the Seneca Acquisition, the Company also guaranteed an existing obligation
of Seneca in the amount of $350,000 owed to the estate of a family member of the
former principal shareholder of Seneca that similarly provides for acceleration
of the due date upon completion of this Offering. The Company will use $850,000
of the net proceeds of this Offering to satisfy these obligations.
As a result of the Interknit Acquisition, the Company's total debt will
increase by approximately $1.7 million. Interknit's debt, which was incurred to
finance the start-up and capital equipment costs and working capital needs of
Interknit, bears interest at rates ranging from 6.9% to 9.3% and is payable in
monthly installments through 2004.
The Company intends to use the balance of the estimated net proceeds of
this Offering to temporarily repay borrowings outstanding under the Revolving
Credit Facility. Additional borrowings under the Revolving Credit Facility will
be made during the 18 to 24 month period following the completion of this
Offering in the approximate amounts of $1.5 million to construct a distribution
facility and $500,000 to fund a portion of the estimated $1.5 million cost of
purchasing 60 electronic knitting machines to replace the more than 100 knitting
machines currently installed in the women's hosiery division.
Management believes the net proceeds of this Offering, when combined with
the Revolving Credit Facility and other financing arrangements described herein
and anticipated cash flows from operations, will be adequate to fund the
Company's working capital requirements and planned capital expenditures for a
period of at least 12 months following completion of this Offering. There can be
no assurance, however, that acquisitions, adverse economic or competitive
conditions or other factors will not result in the need for additional financing
or have an adverse impact on the availability and reasonableness of such
additional financing, if required.
SEASONALITY
The Company's business is impacted by the general seasonal trends that are
characteristic of the apparel and retail industries. The Company's net sales and
profitability generally experience stronger performance in the third and fourth
quarters. As the timing of the shipment of products may vary from year to year,
the results for any particular quarter may not be indicative of results for the
full year.
23
<PAGE> 25
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"),
effective for fiscal years beginning after December 15, 1995. SFAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to these assets and
certain identifiable intangibles to be disposed of. Since the Company's current
policy is consistent with the provisions of SFAS 121, it does not anticipate
that the new pronouncement will impact its financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
effective for fiscal years beginning after December 15, 1995. SFAS 123
establishes a fair value-based method of accounting for compensation cost
related to stock options and other forms of stock-based compensation plans.
However, SFAS 123 allows an entity to continue to measure compensation costs
using the principles of Accounting Principles Board Pronouncement 25 if certain
pro forma disclosures are made. The Company intends to adopt the provisions for
pro forma disclosure requirements of SFAS 123 in 1996 and anticipates that SFAS
123 will not have a material impact on its financial statements. As of August
15, 1996, the Company had not granted any stock-based awards subject to SFAS
123.
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<PAGE> 26
BUSINESS
GENERAL
The Company designs, manufactures and markets a complete range of sports,
rugged outdoor and heavyweight casual socks as well as a wide variety of women's
hosiery products, including tights, trouser socks, pantyhose and knee-highs. The
Company is one of the leading vendors of sports socks to sporting goods and
active apparel stores and also sells its products to department stores, discount
stores and a variety of other retailers. In addition, the Company produces
sports socks for sale by others under such widely-recognized brand names as
ASICS, Bass, Brooks, Fila, Head Sportswear, IZOD, New Balance and Reebok and
women's hosiery products for sale under the Liz Claiborne and Elisabeth brand
names. Under license agreements, the Company produces and sells socks and
women's hosiery directly to retailers under the brand names Converse, Ellen
Tracy, Evan-Picone, Jacques Moret and Woolrich. The Company is currently
negotiating licensing terms to produce and sell socks under the Coleman and
Rockport brand names. The Company expects that approximately two-thirds of its
net sales in the current fiscal year will be derived from sales of socks with
the balance derived from sales of women's hosiery products. As of August 15,
1996, the Company had more than 3,500 customers in the United States, Europe and
other parts of the world.
The Company was founded in 1912 in Newton, North Carolina by a group of
individuals, including Joseph Albert Gaither, grandfather of the Company's
Chairman and great grandfather of the Company's President and Chief Executive
Officer, as a manufacturer of women's hosiery. In the mid-1970's the Company
began diversifying its product line to include sports socks, and during the past
ten years the Company has diversified geographically and modernized its
production capacity, increased its domestic customer base, expanded its contract
manufacturing business, acquired the rights to manufacture and sell socks and
women's hosiery under several widely-recognized brand names and increased its
marketing activities and sales in Europe and other foreign markets. In 1986 the
Company established a manufacturing facility in the Republic of Ireland to serve
European customers and in 1992 established a manufacturing facility in Ft.
Payne, Alabama to produce promotionally-priced, multi-pack sports socks. In June
1995, the Company expanded its manufacturing capacity and customer base by
acquiring Seneca, which has been engaged since 1954 exclusively in designing,
manufacturing and marketing these socks. In 1995 the Company also completed a
major expansion of its manufacturing facility in the Republic of Ireland to
accomodate growth from a new sports sock manufacturing program for an
internationally-recognized athletic footwear and apparel brand name.
INDUSTRY OVERVIEW
According to statistics compiled by the National Association of Hosiery
Manufacturers ("NAHM"), total retail dollar volume in the United States of total
hosiery, which includes all socks, women's sheer hosiery and tights, increased
by approximately 18% from $6.1 billion in 1990 to $7.2 billion in 1995. During
the same five-year period, total retail dollar volume of (i) socks increased by
26% from $3.0 to $3.8 billion on a 31% increase in retail unit volume, (ii)
women's sheer hosiery remained unchanged at $2.7 billion on an 18% increase in
retail unit volume and (iii) tights increased 96% from $300 million to $589
million on an 88% increase in retail unit volume. From 1990 to 1995, total
retail dollar volume of men's and boy's sport/athletic socks (a category that
includes rugged outdoor and heavyweight casual socks) increased by approximately
28% from $587 million to $754 million on a 32% increase in retail unit volume.
During the same period, annual per capita purchases of socks in the United
States increased from 9.2 to 11.5 pairs while the total United States population
increased from 254 million to 266 million persons.
During the first six months of 1996, total retail dollar volume of total
hosiery increased by 7.6% to $3.3 billion from $3.0 billion in the first six
months of 1995. During the first six months of 1996 compared to the same period
in the prior year, total retail dollar volume of (i) socks increased by 15.4%
from $1.5 billion to $1.8 billion on an 11.5% increase in retail unit volume,
(ii) women's sheer hosiery declined by 2.9% from $1.4 billion to $1.3 billion on
a 9.7% decrease in retail unit volume and (iii) tights increased 25.5% from $150
million to $187 million on a 3.6% increase in retail unit volume.
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Statistics compiled by the NAHM regarding United States foreign trade in
hosiery products indicate that during the past ten years total hosiery imports
have increased approximately one and a half times from 12,012,000 dozens of
pairs to 29,713,000 dozens of pairs while total hosiery exports have increased
more than five-fold from 3,942,000 dozens of pairs to 22,236,000 dozens of
pairs. From 1990 to 1995, total hosiery imports' share of retail dollars spent
on hosiery in the United States has increased from 5.2% to 8.2% with most of the
increase attributable to increased sales of imported women's sheer hosiery.
Imported socks' share of retail dollars spent on socks in the United States
increased from 6.7% in 1990 to 7.6% in 1995. Imported tights' share of total
retail dollars spent on tights in the United States increased during the same
period from 8.1% to 14.3%.
From 1990 to 1995, exports of socks increased more than three-fold from
2,979,000 dozens of pairs to 9,785,000 dozens of pairs with a corresponding
increase in total dollar value of sock exports from $32.8 million to $98.5
million. The leading countries for United States exports of socks and women's
hosiery in 1995 were Canada, Japan, Mexico and Germany. Analysts for the NAHM
believe that the potential for increased export sales of hosiery to countries
with increasing per capita disposable income is great, particularly for socks,
but that different retail distribution practices and customs in many of these
countries will require United States manufacturers to adapt their sales and
marketing strategies. Companies with foreign operations located in close
proximity to developed and developing markets are expected to have an advantage
over manufacturers having only domestic manufacturing capability.
As part of the current trend in the United States towards more casual
dress, socks are increasingly becoming a fashion statement for style-conscious
consumers. The Company believes that this trend has helped drive the growth in
recent years in sales of socks. Sales of promotionally-priced, multi-pair pack
sports socks have also increased significantly during the past five years and
captured an increasing share of the sports sock retail dollar volume. Influenced
by the same trend towards more casual dress, the market for women's hosiery is
changing from its emphasis on traditional sheer pantyhose to include more
durable, heavyweight products such as tights and trouser socks. Manufacturing of
women's hosiery products is also becoming increasingly concentrated with only 58
manufacturers of sheer hosiery operating in the United States. Of that number,
the 30 largest manufacturers produce most of the women's hosiery sold in the
United States.
Rapid technological change is also affecting all sock and women's hosiery
manufacturers. In the last ten years, manufacturers have been replacing their
existing mechanical knitting machines with a smaller number of higher speed
electronic machines capable of equal or greater production than the machines
they replaced. The newer electronic machines, which have fewer moving parts and
require less maintenance, also provide greater production flexibility since they
can be rapidly changed over to knit a different style or type of product.
Changing over older mechanical machines is a time-consuming, labor intensive
process. The increased production capacity of the latest generation of knitting
machinery has led to production overcapacity in some segments of the industry,
which has been exacerbated by the fact that many of the older machines they
replaced have been purchased by others and put back into production.
In recent years, the industry has also been, and will continue in the
future to be, affected by certain trends in the retailing industry, including a
trend towards consolidation of all categories of retailers into larger units
having greater purchasing power. The retail sporting goods industry, for
example, which was traditionally highly fragmented and comprised of relatively
small sporting goods retailers, sports specific specialty shops, pro shops and
departments within chain and discount stores, is being transformed by the rapid
growth of large format sporting goods retailers. They include certain major
customers of the Company such as The Sports Authority, which operates 120 stores
under that name, Sports and Recreation, Inc., which operates more than 60 stores
principally under the names "Sports Unlimited," "Sports" and "Sports & Rec" in
conjunction with a local community name, and Oshman's Sporting Goods, Inc.,
which operates in addition to its 125 traditional sporting goods stores, a
growing chain of large format stores under the name "SuperSports USA."
Similarly, smaller regional discount chains in many regions of the United States
are experiencing increasing pressure from the growth of the larger national
discount stores such as Wal-Mart Stores and Target. Department stores are also
affected by the industry trend towards consolidation of retailers. In 1995,
Federated Department Stores, Inc. and Broadway Stores Inc. merged, and May
Department Stores Co. and J.C. Penney separately
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<PAGE> 28
purchased most of Woodward & Lothrop, Inc. Industry analysts expect the trend
towards consolidation and bankruptcy reorganizations among retailers to
continue.
The large format sporting goods stores and national discount, department
and chain stores to which the Company and its competitors sell their products
are using sophisticated electronic inventory management systems to achieve
optimal in-stock levels of merchandise. These systems with electronic order
placement features require manufacturers to make greater investments in working
capital to maintain a more extensive inventory of finished products and in
information technology that will give them a quick response capability when
orders are placed, usually electronically, by these retailers. Increasingly, the
large format sporting goods stores, national discount stores and large
department store chains are also requiring manufacturers to play a greater role
in marketing and managing their retail sock and women's hosiery business. This
includes placing logistical demands on manufacturers that impose extra
distribution costs and penalizing them through "chargebacks" when they do not
conform to a retailer's rules for packaging, prepricing and shipping goods.
The logistical and other demands retailers are placing on manufacturers and
the rapid technological changes that have created overcapacity in some segments
of the industry have already led to some consolidation of women's hosiery
manufacturers (58 at December 31, 1995, as opposed to 66 at the same date in
1990 and 86 in 1986). While, according to the NAHM, the number of manufacturers
of socks in the United States increased to 309 at December 31, 1995 compared
with 279 at the same date in 1990, the Company expects this number to decline in
the next several years. Industry analysts expect that the sock manufacturing
industry will be increasingly characterized by the presence of a small number of
large manufacturers, relatively few medium-sized manufacturers and a large
number of small manufacturers primarily selling greige goods and finished
hosiery products to the larger manufacturers.
The trend towards consolidation of manufacturers of socks and women's
hosiery is expected to be reinforced by the trend among large retailers such as
the national discount chains and the large format sporting goods stores to do
business with a smaller group of vendors that are capable of providing a
significant share of their total sock and women's hosiery requirements. With the
exception of the very large manufacturers such as Sara Lee Hosiery and
Kayser-Roth, most manufacturers concentrate on making either socks or women's
hosiery products. The Company, which produces socks and women's sheer hosiery
and tights, is one of only a few companies its size that makes all three of
these categories of products. The Company believes that being a diversified
manufacturer will become increasingly important as larger retailers seek to
reduce the total number of vendors with which they do business. The Company also
believes that product diversity will make the Company less vulnerable to
consumer trends and trends in the retailing industry affecting only one segment
of the sock and women's hosiery industry.
GROWTH STRATEGY
During the past ten years, the Company has increased sales by diversifying
its product lines, adding to and geographically diversifying its production
capacity, expanding its domestic customer base, expanding its contract
manufacturing business, acquiring the rights to manufacture and sell products
under licensed brand names and increasing its marketing activities and sales in
Europe and other foreign markets. The Company intends to continue this overall
growth strategy by focusing on the following goals:
INCREASING SALES TO EXISTING CUSTOMERS. Many of the Company's
existing customers in the sporting goods industry, such as Just for
Feet, The Sports Authority, Sports & Recreation and Oshman's Sporting
Goods, are expanding the number of stores they operate, and the
Company expects its sales to these customers will increase as a result
of their unit growth. The Company believes that it will be able to
increase its sales to other existing customers such as Target, J.C.
Penney and Nordstrom. The Company also expects to be able to expand
its contract manufacturing of products sold under such
widely-recognized brand names as Reebok and Fila for major athletic
footwear and apparel companies, and for other companies, such as Liz
Claiborne, that design, contract for the manufacture of and market
products under their own trademarks.
ESTABLISHING SALES RELATIONSHIPS THROUGH CROSS-SELLING. The
Company is seeking to establish relationships with certain major
retailers with which the Company has not historically done business.
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<PAGE> 29
Management believes that the Company's expanded customer base of major
retailers resulting from the Seneca Acquisition and the Evan-Picone women's
hosiery program creates opportunities for cross-selling the Company's other
products. The recent expansion of the Company's manufacturing facility in
Ft. Payne, Alabama that produces multi-pair pack sports socks also
positions the Company to compete effectively for sales to new customers.
OBTAINING ADDITIONAL LICENSING ARRANGEMENTS. The Company is
seeking to license additional nationally and internationally
recognized consumer brand names to complement the Converse, Ellen
Tracy, Evan-Picone, Jacques Moret and Woolrich licensed brand names.
Management is currently negotiating licensing terms to produce and
sell socks under the Coleman and Rockport brand names.
ADDING COMPLEMENTARY PRODUCT CATEGORIES THROUGH SELECTIVE
ACQUISITIONS. Women's casual socks and men's dress socks are
complementary product categories that could be added to the Company's
existing product lines through selective acquisitions of other
manufacturers or through internal product diversification. Although
the Company has no proposal, agreement, understanding or arrangement
relating to the acquisition of any other company at this time, future
acquisitions could also be expected to expand production capacity and
add to the customer base.
INCREASING INTERNATIONAL SALES. The Company plans to build on
the existing customer base served by the Company's manufacturing
facility in the Republic of Ireland and on the Company's base of
export sales of domestically manufactured products. In 1995 the
Company completed an expansion of this facility that approximately
doubled its production capacity.
OPERATING STRATEGIES
In recent years, manufacturers of socks and women's hosiery have
experienced a period of rapid technological change and encountered a demanding
retail environment characterized by customers' expectations of immediate order
fulfillment and depth in all product categories. Through the following core
operating strategies, the Company is investing in new technology and
strengthening its ability to provide a significant share of major retailers'
total socks and women's hosiery requirements.
PRODUCING HOSIERY PRODUCTS FOR SALE UNDER BRAND NAMES. The
Company produces socks for sale under its own brand names and for sale
by athletic footwear companies and others under such widely-recognized
brand names as ASICS, Bass, Brooks, Fila, Head Sportswear, IZOD, New
Balance and Reebok. Under licensing arrangements, the Company produces
and sells women's hosiery products directly to retailers under the
Ellen Tracy, Evan-Picone and Jacques Moret brand names and socks under
the Converse and Woolrich brand names. The Company also manufactures
women's hosiery products for Liz Claiborne, Inc. under its brand
names. The Company believes its reputation as a producer of well-known
branded products, including the Company's own branded products in the
sporting goods retail industry, distinguishes the Company from many of
its competitors that manufacture socks and women's hosiery for sale
only under retailers' private labels.
INVESTING TO REMAIN A LOW-COST MANUFACTURER. In recent years the
Company has made significant capital investments in manufacturing
technology with the goal of becoming a lower-cost, higher-volume
producer of a broad range of products. Most of these investments have
been made to replace existing mechanical knitting machinery for socks
with higher speed, more flexible electronic knitting machines that
require less maintenance and result in significant productivity
increases. The Company has also invested in sophisticated machinery
that automates the finishing operations at certain of its facilities,
significantly reducing the labor inputs required. The Company will
continue making capital investments in manufacturing and distribution
technology when appropriate to remain competitive.
OUTSOURCING MANUFACTURING TO INCREASE OPERATING EFFICIENCIES. To
meet peak demand, the Company regularly outsources the manufacturing
of certain products. As a result, the Company has been able to operate
its own manufacturing facilities at more efficient production levels.
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MANUFACTURING A BROAD RANGE OF PRODUCTS. For a number of years
the Company has manufactured a complete range of sports socks and
produced a wide variety of women's hosiery products, including tights,
trouser socks, pantyhose and knee-highs. With the Seneca Acquisition,
the Company added rugged outdoor and heavyweight casual socks to its
product lines. The Company has also broadened its product lines beyond
traditional products to include complementary products such as thermal
underwear/leggings, glove liners and gators for skiers and other
outdoor sports enthusiasts.
MAINTAINING A LARGE AND DIVERSE CUSTOMER BASE. As of August 15,
1996, the Company had more than 3,500 customers in the United States,
Europe and other parts of the world. Only one of such customers,
Target, accounted for more than 10% of the Company's 1995 net sales
and is expected to account for more than 10% of the Company's 1996 net
sales. Management believes that maintaining a large and diverse
customer base puts the Company in a stronger position to recover
increased raw material and manufacturing costs through price increases
than many of the Company's competitors who are dependent on a small
number of major customers.
PROVIDING RAPID ORDER FULFILLMENT. The Company maintains
finished inventory of many of its products that allows the Company to
fill and deliver customer orders for those products generally within
three days of the date the order is placed. In recent years, the
Company has made capital investments in information technology to
develop and implement its Quick Response system, which coordinates its
manufacturing and order fulfillment systems with the sophisticated
electronic inventory management control systems employed by an
increasing number of the Company's larger customers.
FOCUSING ON CONSISTENT, HIGH QUALITY. The Company believes that
consistent product quality is as important to its customers as rapid
order fulfillment. The Company maintains a rigorous quality assurance
program for its manufacturing operations and enjoys a good reputation
among its customers for product quality.
The Company's intended uses of the proceeds of this Offering will
contribute to the further implementation of the Company's core operating
strategies by reducing outstanding debt, improving cash flow and funding
additional capital expenditures intended to give the Company an advantage as a
lower-cost, higher-volume producer in an increasingly competitive marketplace.
See "Use of Proceeds."
OPERATIONS
Sports Socks
The Company manufactures an extensive collection of sports specific, active
sport and sports promotional socks for men, women and children. The socks are
knitted from a variety of natural and synthetic fibers and are manufactured in a
wide array of styles, including tubes, crews, half-crews, quarters, rolldowns,
slouches and cuffs.
"Sports specific socks," which allow a team or individual athlete to match
their socks to their activity, contain extra cushioning and differ according to
where the protective cushioning is placed (ball, toes, instep, heel, arch,
shin), how thick the cushioning is and the materials used to construct the
socks. The Company produces most of its sports specific socks for athletic
footwear and apparel companies that design, contract for the manufacture of and
market sports socks under such widely-recognized brand names as ASICS, Bass,
Brooks, Fila, Head Sportswear, IZOD, New Balance and Reebok. Through its vendor
relationships with these athletic footwear and apparel companies, the Company
not only increases its sales but also gains access to changes in styling trends
in the sporting goods industry. The Company also produces its own collection of
sports specific socks, which are sold to retailers under the Company's Sports
Socks brand name (in packaging and on displays that also bear the Ridgeview name
and trademark). This collection includes socks for seven different sports,
including in-line skating, tennis, cross-training, cycling and aerobics.
The Company's "team collection" of sports specific socks is designed for
sale to sporting goods dealers that outfit school and recreational athletic
teams. The collection includes basketball, baseball, soccer and
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<PAGE> 31
volleyball socks. The baseball socks include the traditional nylon stirrup and
sanitary socks worn under the stirrups as well as several styles of one piece,
knitted-in stirrup socks. The soccer socks include acrylic soccer socks for
recreational play and heavier, more expensive nylon socks for the serious soccer
player.
Under the brand name Kidsox, the Company manufactures several styles of
basic cushion socks specifically for children that are made with the same
quality features found in their adult-sized counterparts. The Kidsox line
includes a feature the Company calls "dirt defender," which is a grey color
blend on the bottom of the sock that helps keep that portion of the sock
color-fast despite rough use and repeated washings.
"Active sport socks" are specifically designed for the serious athlete who
participates in active sports such as basketball, tennis, running, cycling and
aerobics. They offer high performance features like special fibers and triple
layer construction to provide cushioning in high impact areas and protection
against abrasion and blisters. The Company's premium line of active sport socks,
which includes socks for eight different sports, is sold at premium prices under
the Company's LINEOne brand name in packaging and on displays that also bear the
Ridgeview name and trademark. The natural and synthetic fibers used in these
socks include mercerized cotton, wool, silk, Duraspun (a Monsanto synthetic
fiber that allows for maximum shock absorbency and offers excellent wicking
properties), CoolMax (a DuPont synthetic fiber that breathes, while wicking
perspiration away from the skin) and Thermastat (a DuPont cold-weather synthetic
fiber that traps warmth while allowing moisture to escape).
Under the brand name Sport Sox and under private labels of various sporting
goods and discount stores, the Company manufactures and sells in multi-pair
packs a variety of styles of lightweight basic cushion socks designed to be sold
at promotional prices. These socks, which include tubes, crews, quarters,
rolldowns, slouches and cuffs and offer many of the features that are found in
the Company's premium-line socks, are knitted from a cotton-rich blend of yarns.
Rugged Outdoor and Heavyweight Casual Socks
The Company's collection of rugged outdoor and heavyweight casual socks,
which expanded significantly with the acquisition of Seneca, is designed for
hikers and other outdoor enthusiasts as well as consumers who appreciate the
value of heavyweight casual socks. The collection of rugged outdoor and
heavyweight casual socks, most of which are sold under private labels, includes
14 styles of thermal insulated socks, 11 styles of hiking and trekking socks, 15
styles of general outdoor wear socks and 13 styles of heavyweight casual socks.
In June 1995, Seneca began manufacturing rugged outdoor and heavyweight
casual socks under the licensed brand name Woolrich. Under the three-year
license agreement with Woolrich, Inc., the Company has the right to manufacture
and sell rugged outdoor and heavyweight casual socks under the Woolrich name in
the United States. The Company must meet minimum annual sales thresholds that
increase during the license term and pay a royalty equal to the greater of 5% of
its net sales of Woolrich brand socks or the applicable minimum annual sales
amount. The license agreement terminates on June 30, 1998 with an option to
renew for an additional three-year period provided the Company's performance as
licensee has been satisfactory. The Company is currently negotiating licensing
terms to manufacture and sell socks, beginning January 1, 1997, under the
Coleman and Rockport names under similar licensing agreements.
The Company also manufactures and sells a collection of outdoor socks
specifically designed for downhill and cross-country skiers, which includes nine
styles of bright, colorful skiing socks and liners. These socks are sold under
the Ridgeview name or private labels to several large retailers with national
distribution as well as to smaller, resort-oriented ski merchandise shops. The
skier-oriented outdoor collection also includes several styles of thermal
underwear/leggings as well as glove liners and gators. The Company believes the
favorable market response to its thermal underwear/leggings products offers
continued opportunities for sales growth and additional complementary product
development.
The fibers used in manufacturing the rugged outdoor and heavyweight casual
and ski sock collections include wool, wool blend, cotton and silk. They also
include such synthetic fibers as polypropylene (which when blended with wool or
cotton provides a superior level of durability and serves to effectively wick
moisture away from the skin, keeping feet dry), turbo hi-bulk acrylic (a premium
grade of acrylic that provides high
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bulk, softness and loft), Thermax (a hollow core fiber used in cold weather
socks that traps warmth while wicking moisture away from the skin) and CoolMax.
The thermal underwear/leggings are constructed from a blend of DuPont's newest
cold weather fighting polyester fiber, Thermostat, and spandex fiber, Lycra.
Women's Hosiery Products
The Company manufactures a complete line of women's private label hosiery,
including more than 600 styles of tights, trouser socks, pantyhose and
knee-highs available in all popular colors and textures. The Company's largest
customer for these private label products is Target. In 1994, the Company
entered the designer segment of the women's hosiery market through the
negotiation of the license to manufacture and sell women's hosiery under the
Ellen Tracy brand name in the United States. The licensor, Ellen Tracy, Inc. is
a designer and manufacturer of "upmarket" women's ready-to-wear fashions. In
return, the Company must meet certain quality standards, distribute only to
better department and specialty stores, sell only limited quantities of Ellen
Tracy hosiery at off-price and pay a royalty equal to 7% of its net sales of
Ellen Tracy hosiery. The Company has recently broadened the Ellen Tracy product
line beyond the original limited product category of high-end tights and trouser
socks to include dress pantyhose and casual socks and improved the packaging of
the entire line of Ellen Tracy products. Ellen Tracy hosiery products are now
available in tights, trouser socks and pantyhose sold at premium retail prices.
The Ellen Tracy license expires on December 31, 1996. Although the
Company's net sales of Ellen Tracy products in 1995 represented only 84% of the
minimum annual sales threshold for that year and the Company does not expect its
sales of Ellen Tracy products in the current fiscal year to achieve the higher
minimum sales threshold for such period, the Company has been paying minimum
guaranteed royalties based on the minimum annual sales thresholds. Management
believes its performance as licensee has otherwise been satisfactory to date and
that it will be able to renew the license at its expiration for another
three-year term with new minimum annual sales thresholds based on the Company's
sales experience as the initial licensee of the Ellen Tracy program. There can
be no assurance, however, that the Company will be able to renew the Ellen Tracy
license upon the expiration of its term.
In July 1996, the Company negotiated a license to manufacture and sell
women's sheer hosiery and medium-weight tights under the Evan-Picone brand name,
a widely-recognized and established consumer brand of women's hosiery. The
initial term of the license agreement ends December 31, 1999, but the license is
renewable at the Company's option for another three years, provided the Company
has satisfied the minimum annual sales threshold for the twelve-month period
ending June 30, 1999. The Company is required to make minimum guaranteed royalty
payments during the term of the agreement in increasing amounts in each annual
period of the license term. The license also requires the Company to use its
best efforts to sell and promote Evan-Picone women's hosiery and provides the
Company shall be deemed to be not using its best efforts if the Company's net
sales fail to exceed certain specified amounts during specified periods of the
license term, in which event the licensor has the right to terminate the
agreement.
The Company also manufactures and sells tights packaged under the Jacques
Moret brand name under a one-year license agreement with Jacques Moret, Inc., a
firm that designs, contracts for the manufacture of, markets and sells an
extensive collection of active apparel.
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SALES AND MARKETING
During 1995 the Company integrated the sales and marketing of its socks and
women's hosiery products, which have traditionally been segregated by product
category. This reorganization of the Company's direct sales force gives one
executive officer responsibility for sales of all of the Company's products and
allows each member of the direct sales force to offer the entire mix of the
Company's products to customers.
The chart set forth below provides an overview of the sales and marketing
of the Company's products by product category, pricing approach, selected brand
names, market segment, major customers and method of distribution.
<TABLE>
<CAPTION>
SELECTED PERCENTAGE
PRICING BRAND DISTRIBUTION MAJOR OF 1995
PRODUCT CATEGORY GENERAL DESCRIPTION APPROACH NAMES CHANNELS USED CUSTOMERS REVENUE
- -------------------- -------------------- ------------ -------------- ------------------ -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
SOCKS:
Sports specific Functional, high Moderate Reebok, Fila, Sporting goods The Sports 27.3%
quality socks with Converse, stores, athletic Authority, Sports &
extra cushioning IZOD, Head, footwear stores, Recreation, Champs,
that allow an ASICS, athletic footwear Oshman's SuperSports
individual to match Ridgeview, Pro and apparel USA, SportMart,
socks to a Am manufacturers Reebok, Fila
particular sport
activity
Sports promotional Lightweight, basic Value Jacques Moret, Sporting goods The Sports 24.5%
cushion socks for a Sports Sox, stores, athletic Authority, Sports &
variety of uses Game Sox footwear stores, Recreation, Champs,
mass market and Oshman's SuperSports
discount stores USA,
Rugged outdoor and Heavyweight socks Moderate to Woolrich, Mass market and Kmart, J.C. Penney, 16.9%
heavyweight casual with true rib Premium Oyster Bay, discount stores, The Gap, Lands' End,
construction made Winchester, outdoor specialty Eddie Bauer, WIX
with wool and cotton Seneca stores, department Corporation, Wal-
blends for hiking, stores, mail order Mart Stores,
skiing, hunting and retailers, SportMart, Target
other active outdoor sporting goods
uses stores
Active sport Cushion-engineered Premium LINEOne Sporting goods The Sports 3.4%
socks with fiber and stores, athletic Authority, Sports &
construction footwear stores, Recreation, Champs,
elements intended to athletic footwear Oshman's SuperSports
provide high and apparel USA, SportMart
performance features manufacturers
for the serious
athlete
WOMEN'S HOSIERY:
Tights and trouser Opaque, durable Moderate to Ellen Tracy, Department stores, Target, J.C. Penney, 16.8%
socks pantyhose and Premium Liz Claiborne mass market and Mercantile,
trouser socks made discount stores, Dillard's, Federated
with heavy-weight women's fashion (Macy's, Rich's),
nylon yarns and with specialty stores Neiman Marcus,
spandex in either Parisian, Nordstrom
half or all of the
knitted courses
Sheer pantyhose and Basic ladies Value to Ellen Tracy, Mass market, Target, J.C. Penney, 11.1%
knee-highs pantyhose and Premium Liz Claiborne, discount and Mercantile,
knee-highs made with Evan-Picone department stores Dillard's, Federated
lightweight nylon (Macy's, Rich's),
yarns and nylon/ Neiman Marcus,
spandex yarns for Parisian, Nordstrom
everyday and special
uses
</TABLE>
32
<PAGE> 34
Sports, Rugged Outdoor and Heavyweight Casual Socks
The Company, which is one of the leading vendors of sports socks to
sporting goods stores, also sells its own and licensed brand name socks to
athletic footwear stores, sporting goods dealers, department stores and mass
merchandisers throughout the United States and Canada. Among the Company's
leading customers for its own sports sock brands are Just for Feet, The Sports
Authority, The Athlete's Foot, Oshman's Sporting Goods, Inc., Sportmart, Inc.
and Sports & Recreation, Inc. Among the Company's leading customers for its
rugged outdoor and heavyweight casual socks, most of which are sold under
various retailer's private labels, are Kmart, J.C. Penney and Structure (a
division of The Limited, Inc.).
The Company also sells sports specific socks to many of the large athletic
footwear and apparel companies, including Reebok International, Ltd., New
Balance, Inc. and Fila Holdings SpA, which design, contract for the manufacture
of and market sports socks under their widely-recognized brand names. Under a
strategic alliance entered into in 1995 with another domestic sock manufacturer
that holds licenses to manufacture and sell socks under an
internationally-recognized athletic footwear and apparel brand name, the Company
is the primary manufacturer of sport socks to fill orders from distributors of
these branded products located throughout Europe. To accommodate growth from
this new sports sock manufacturing program, in 1995 the Company doubled the
capacity of its manufacturing facility in the Republic of Ireland.
In conjunction with its retailers, the Company employs a sophisticated
marketing program for its own footwear collection designed to increase sales by
educating consumers about the benefits of its active sports, sports specific and
outdoor and rugged casual socks. For example, the Company's LINEOne brand of
active sports socks are packaged in bright, colorful, attention-getting sleeves
printed with extensive information about the benefits of the extra cushioning in
high impact areas, the unique qualities and benefits of the natural and
synthetic fibers used and other features of the LINEOne brand that are designed
to help consumers appreciate the value of these premium-priced socks. The
marketing program includes offering retailers a variety of merchandising aids
such as floor and counter unit displays equipped with signage bearing the
Ridgeview name as well as the Company's brand names. For the Company's
promotionally-priced socks, which are typically sold in packages of three or six
pairs each, the Company offers retailers free-standing, wire-constructed package
bins equipped with similar signage. For most of its socks, the Company also
offers a 'tier' unit sock display system equipped with Ridgeview and brand name
specific signage designed to fit into retailers' existing pegboard or slat wall
product display systems.
Over 50% of the Company's sock sales in fiscal 1995 were made by a
nationwide network of more than 80 independent sales representatives, most of
whom specialize in sporting goods and athletic apparel, who earn commissions on
sales of the Company's products. The Company has an internal sales force of six
employees, four of whom are located at the Company's headquarters and the rest
of whom are located at the Company's other facilities. Two of these sales
employees work exclusively with large athletic footwear and apparel companies
for which the Company serves as a manufacturing source and major private label
accounts. Sales of sports socks manufactured at the Company's facility in the
Republic of Ireland, which are sold primarily to Reebok International, Ltd., and
ASICS Corporation for distribution by them to retail outlets in Europe, have
traditionally been handled by a small group of employees located at that
facility.
Since the Seneca Acquisition in June 1995, the Company has been selling
outdoor and rugged casual socks under the licensed brand name Woolrich. Sales of
Woolrich socks are made primarily by the 40-person direct sales force employed
by Woolrich, Inc., who earn commissions from the Company.
In both its branded and private label sock business, the Company engages in
cooperative advertising with major retail accounts, whereby the Company pays a
percentage of the cost of advertising and promotional expenses. In most
instances, the percentage of the Company's contribution to the retailer's
advertising budget is related to the volume of the Company's sales to the retail
account.
International Sales and Marketing of Socks
In 1995, approximately 10% of the Company's sock sales (on a pro forma
basis assuming the Seneca Acquisition had occurred at the beginning of 1995)
were attributable to sales to customers located outside of
33
<PAGE> 35
the United States. Among the principal countries to which the Company exports
socks are the United Kingdom, France, Japan, Singapore and Finland. All of the
production at the Company's manufacturing facility in the Republic of Ireland is
sold in Europe. To accommodate growth from a new sports sock manufacturing
program, the Company completed a major expansion of this facility in 1995. See
note 13 of the Company's consolidated financial statements.
Women's Hosiery Products
The Company sells private label women's hosiery products to approximately
150 department stores, specialty retailers, mass market and discount stores
throughout the United States in over 5,000 locations. Among the Company's
leading customers for its private label products are Target, J.C. Penney,
Nordstrom and Liz Claiborne, Inc., which designs, contracts for the manufacture
of and markets women's hosiery packaged under various trademarks, including Liz
Claiborne and Elisabeth, to better department and specialty stores. The Company
sells Ellen Tracy women's hosiery to more than 100 department and specialty
stores in over 1,000 locations throughout the United States and Canada.
Principal customers for the Ellen Tracy line of hosiery products include Saks
Fifth Avenue, Neiman Marcus, Nordstrom, Macy's, Bloomingdale's and Dillard's.
In July 1996, the Company began selling the line of Evan-Picone women's
hosiery products, which is distributed through more than 200 department and
specialty stores in over 1,500 locations throughout the United States and
Canada. Principal customers for the Evan-Picone product line include The May
Company, Dillard's, J.C. Penney and Federated Department Stores. The Company is
selling Evan-Picone product through a nationwide network of independent sales
representatives, most of whom were selling Evan-Picone product for the company
that previously held the license for the Evan-Picone women's hosiery program.
The Company intends to expand the Evan-Picone product line to include
medium-weight tights and trouser socks as well as pantyhose and knee-highs.
The Company has an internal sales force of six employees located throughout
the United States who handle primarily the private label and Ellen Tracy hosiery
business. For both private label and Ellen Tracy hosiery products, senior
management is actively involved in selling to major accounts and participates
during market weeks and at other times in presentations to department stores and
specialty retailing customers.
The Company works closely with retailers, placing special emphasis on
packaging and design, to develop attractive and economical private label hosiery
programs that will meet with consumer acceptance and generate increased sales
for the retailer as well as the Company. For example, in fiscal 1995 the Company
made significant changes in product construction and pricing for its private
label programs with Target and took steps to control product costs by making
additional investments in knitting and automated finishing and packaging
machinery to increase the efficiency of the Company's manufacturing operations.
In both its private label and branded business, the Company engages in
cooperative advertising with major retail accounts, whereby the Company pays a
percentage of the cost of advertising and promotional expenses. In most
instances, the percentage of the Company's contribution to the retailer's
advertising budget is related to the volume of the Company's sales to the retail
account. From time to time, the Company's major yarn suppliers also contribute
to the cost of such cooperative advertising and promotions. The Company is
required to devote 3% of its Ellen Tracy sales to advertising. In 1995,
approximately one-half of that amount was used for cooperative advertising with
retail accounts, and the remainder was paid to Ellen Tracy, Inc. to support
general advertising of the Ellen Tracy brand name in fashion magazines and other
national media.
The Company intends to expand its private label women's hosiery business,
sales of which have increased in each of the last three years, by augmenting
sales under private label programs with existing customers, improving customer
service and pursuing additional private label program business with major
retailers. Following the anticipated purchases of additional electronic knitting
equipment during the next 18 to 24 months, together with the investments in
technology recently made to strengthen women's hosiery manufacturing and the
ability to contract with other manufacturers for finished product when
necessary, the Company will have the capability to expand sales of its private
label business without making significant additional capital expenditures. The
Company intends to expand the sales of Ellen Tracy and Evan-Picone
34
<PAGE> 36
women's hosiery by adding to the existing styles offered, increasing its sales
and marketing effort and continuing major product development.
MANUFACTURING
The chart set forth below provides an overview of the Company's
manufacturing facilities by geographic location:
<TABLE>
<CAPTION>
AT AUGUST
15, 1996
NUMBER OF ------------
KNITTING APPROXIMATE
NUMBER MACHINES OUTPUT PER
OF INSTALLED IN YEAR APPROXIMATE WEEK IN
LOCATION KNITTING LAST THREE OPERATIONS SQUARE DOZENS OF
OF FACILITY MACHINES YEARS COMMENCED FOOTAGE PRODUCT CATEGORIES PAIRS
- --------------- --------- ------------- ---------- ------------ ---------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Newton, NC 114 12 1912 100,000 Tights, trouser socks, pantyhose 18,000
(women's and knee-highs
hosiery)
Newton, NC 53 53 1976 70,000 Complete range of sports specific 15,000
(sports socks
socks)
Tralee, 79 48 1986 45,000 Complete range of sports specific 15,000
Republic of socks
Ireland
Ft. Payne, AL 71 71 1992 72,000 Complete range of sports 35,000
promotional socks
Seneca Falls, 197 29 1954 180,000 Complete range of rugged outdoor 12,000
NY ----- ----- ------- and heavyweight casual socks -------
Total 514 213 467,000 95,000
=== === ======= ======
<CAPTION>
APPROXIMATE
LOCATION NUMBER OF
OF FACILITY EMPLOYEES
- --------------- ------------
<S> <C>
Newton, NC 160
(women's
hosiery)
Newton, NC 155
(sports
socks)
Tralee, 115
Republic of
Ireland
Ft. Payne, AL 145
Seneca Falls, 190
NY ------
Total 765
===
</TABLE>
Sports, Rugged Outdoor and Heavyweight Casual Socks
The Company manufactures socks primarily for inventory requirements based
on estimated demand but also in response to customer orders on private label
business. The Company maintains finished inventory of its own and licensed brand
products under the Company's Quick Response inventory control system. Products
maintained in finished inventory are generally shipped within three days of
receipt of an order, which in the case of the Company's larger customers is
typically received and processed by the Company electronically. Orders for socks
not maintained in finished goods inventory are typically shipped within ten to
thirty days of receipt of the customer's order, depending upon the size of the
order.
The Company manufactures socks at all of its facilities. At its facility
located in Newton, North Carolina, the Company has 53 knitting machines, all of
which are electronic. In its facility located in Ft. Payne, Alabama, where all
of the Company's promotionally-priced, multi-pack lightweight cushion socks are
made, the Company has 71 electronic knitting machines. At its facility located
in the Republic of Ireland, where the Company makes sports specific socks
primarily for sale to major athletic footwear and apparel companies, the Company
has 79 knitting machines, 48 of which were installed in the last three years. At
its facility located in Seneca Falls, New York where the Company produces all of
its rugged outdoor and heavyweight casual socks, the Company has 197 "double
cylinder" knitting machines, most of which are mechanical machines.
The Company's electronic, CAD/CAM-driven machines allow the Company to vary
its manufacturing runs to adjust quickly to changing patterns in demand without
traditional high change-over or retooling costs. They also allow the Company to
maintain a computer library of pattern and texture designs that can be
electronically transmitted to these knitting machines. When the appropriate
yarns have been installed to feed into them, the machines will automatically
adjust to knit socks conforming to the new pattern and texture design.
35
<PAGE> 37
The Company generally operates its sock knitting machinery at each facility
five days a week, 24 hours a day, except in Newton where the Company operates
its sock knitting machinery seven days a week, 24 hours a day. Finishing socks,
which includes toe closing, bleaching, scouring and dyeing, boarding, pairing
and packaging, is generally accomplished at each facility by one shift of labor
working five days a week and overtime when necessary. To meet peaks in demand
for finished inventory that cannot be met from its own production, the Company
from time to time purchases greige goods from other manufacturers.
Although the Company expects to continue making regular, and in some years
significant, investments in technology that will increase the productive
capacity, efficiency and competitive position of its sock manufacturing
operations, the Company believes that its sock manufacturing operations,
supplemented by the purchase of greige goods from others when necessary, will be
able to meet current and projected demand for the Company's products.
Women's Hosiery Products
The Company manufactures its women's hosiery products not only in response
to customer orders but also for inventory requirements based on estimated
demand. The Company maintains finished inventory of certain private label and
Ellen Tracy hosiery under the Company's Quick Response inventory system.
Products maintained in finished inventory are generally shipped within three
days of receipt of an order from a retail account, which in the case of the
Company's larger customers, such as Target, is typically received and processed
by the Company electronically. Orders for women's hosiery not maintained in
finished goods inventory are typically shipped within ten to thirty days of
receipt of the customer's order.
The Company's manufacturing of women's hosiery is currently done at the
facility in Newton, North Carolina, where the Company has 114 knitting machines,
automated assembly equipment and static dyeing machines. Eleven of the Company's
machines are electronic, CAD/CAM-driven and allow the Company to vary its
manufacturing runs to adjust quickly to changing patterns in demand without
traditional high change-over or retooling costs. The Evan-Picone hosiery program
and certain other women's hosiery products are outsourced to other
manufacturers. With a portion of the net proceeds of this Offering, the Company
intends to purchase over the next 18 to 24 months approximately 60 new
electronic CAD/CAM knitting machines to replace the more than 100 existing
knitting machines used in the production of women's hosiery. Not only do modern
electronic knitting machines produce hosiery at a faster rate and reduce
change-over and retooling costs, they provide higher efficiency levels,
significantly improve product quality, reduce "fallout" and enhance product
development through product sophistication and diversity. The Company generally
operates its women's hosiery knitting machinery 24 hours a day, five days a
week. The finishing of women's hosiery, which includes toe closing, fabricating,
boarding and packaging, is generally accomplished by one shift of labor working
five days a week. Overtime work is scheduled when necessary to respond to
increased product demand. The Company recently purchased new assembly and
packaging machinery, which by automating several of the steps in the finishing
process has reduced the Company's labor requirements for this traditionally
labor intensive part of the manufacturing process.
For its electronic CAD/CAM-driven knitting machinery, the Company is able
to maintain a computer library of hosiery patterns and texture designs that can
be electronically transmitted to the knitting machines. When the appropriate
yarns have been installed to feed into them, these machines will automatically
adjust to knit hosiery conforming to the new pattern and texture design. The
Company has a small in-house product development staff that develops original
designs on the Company's CAD/CAM system and contracts with an experienced
fashion designer to provide design input on a seasonal basis. The Company is
seeking to hire an experienced fashion designer to provide design input on all
of the Company's socks and women's hosiery programs.
The Company regularly contracts with other manufacturers for greige goods
as well as finished hosiery when orders for the Company's women's hosiery
products exceed its production capacity. Although the Company expects to make
continuing, significant investments in technology to increase the productive
capacity and efficiency of its women's hosiery manufacturing operations, the
Company believes that, with the exception of the Evan-Picone and certain other
women's hosiery programs which will be outsourced to other
36
<PAGE> 38
manufacturers, it will have sufficient technologically advanced production
capacity to meet current and projected demand for its women's hosiery products
for the next several years.
QUALITY ASSURANCE PROGRAM
The Company maintains a rigorous quality assurance program for its
manufacturing operations that begins with the purchase of only high-quality
yarns and a program of regular maintenance and constant monitoring, some of
which is done by computer, of the Company's knitting machinery. Greige goods
produced by the Company or purchased from others are carefully inspected prior
to finishing, and randomly selected samples of finished goods are inspected
prior to being packaged and shipped. The Company also emphasizes strong
interaction with its major customers on quality assurance issues and employee
education on the importance of quality assurance. The Company has achieved
high-quality standards with less than 1% of its products being returned as
defective.
RAW MATERIALS
The Company's products are manufactured from yarns spun from either
synthetic (e.g., nylon and acrylic) or natural (e.g., cotton and wool) fibers,
or a blend of both. The principal yarns used in the manufacture of sports,
outdoor and casual socks are cotton, wool and a variety of synthetic fibers. The
principal yarns used in the manufacture of women's hosiery products are textured
nylon of varying weights and spandex, principally DuPont's Lycra. As the Company
has achieved greater manufacturing efficiencies through investments in modern
knitting machinery and automated finishing and packaging equipment that reduce
labor inputs and as the prices of yarns spun from both natural and synthetic
fibers have increased, the cost of raw materials as a percentage of the
Company's cost of goods sold has increased.
With recent declines in cotton prices, United States cotton prices are
currently just above their ten-year average price of 70 cents a pound after two
years of prices that were significantly above the ten-year average. Prices for
wool, the other major natural fiber the Company uses, have also declined in the
last year after sharp increases in the previous two years, reflecting increased
consumer demand for natural fibers and changes in production. The Company and
other major users of cotton and wool yarns typically enter into long-term supply
contracts ranging from six to 12 months during the fall months of the year when
much of the cotton crop is being harvested worldwide. By doing so, the Company
and its competitors are able to avoid making significant purchases of cotton and
wool on the spot market and are able to establish and maintain pricing for their
products using large amounts of these natural fibers throughout the year with
only minor adjustments.
The Company purchases its requirements for textured nylon, polyester,
polypropylene and other yarns made from synthetic fibers from a variety of
suppliers at prevailing prices that are influenced both by changes in demand and
the producers' costs. Many synthetic fibers, such as polyester, are
petrochemical-based, and prices for them are influenced by changes in the price
of petroleum. The Company has reduced the adverse effect of price increases for
synthetic fiber yarns in recent years by negotiating rebates with its major
synthetic yarn suppliers based on the Company's volume of purchases.
The Company has generally been successful in recovering increased raw
material costs on its branded products, many of which include significant
amounts of wool and cotton yarn as well as yarns made from synthetic fibers.
Recovering higher costs for raw materials on the Company's private label women's
hosiery products is generally more difficult because of the highly competitive
nature of this business.
QUICK RESPONSE INVENTORY SYSTEM
The Company has developed its sophisticated Quick Response inventory system
to enable the Company to coordinate its manufacturing operations and order
fulfillment system with the electronic inventory control systems employed by
most of the Company's women's hosiery customers and an increasing number of its
major sport socks customers. The Quick Response inventory system, which combines
bar code technology with electronic data interchange ("EDI"), provides a link
between the customers' and the Company's computers, eliminates inefficiencies by
automating receipt and processing of customers orders and allows the Company to
respond with "just-in-time" manufacturing techniques to the tighter shipment
schedules
37
<PAGE> 39
demanded by large retailers. Using the EDI technology, the Company receives from
certain major customers, via electronic interchange, weekly updates of sales and
inventory levels from store locations nationwide. For certain customers, such as
Target and The Sports Authority, this information automatically generates orders
which the Company then fills.
With a portion of the net proceeds of this Offering, the Company intends to
construct a distribution center at its manufacturing facility in Newton, North
Carolina, which will incorporate inventory control and order fulfillment
technology and become an integral component of the Company's Quick Response
inventory system. In the last five years, the Company has made significant
investments in computer hardware and software to implement its Quick Response
system. While the Company will need to continue making significant capital
investments in new information technology to maintain and strengthen its Quick
Response system in response to major retailers' increasingly sophisticated EDI
expectations, the Company believes the current system is adequate for its
current business.
MAJOR CUSTOMERS
In 1995, sales of women's hosiery products and socks to Target accounted
for approximately 13% of the Company's total net sales (approximately 12% on a
pro forma basis assuming the Seneca Acquisition had occurred at the beginning of
1995). During such year, no other single customer accounted for more than 10% of
the Company's business. The Company's business relationship with Target began
more than 20 years ago when Target had less than 100 stores. As the number of
stores operated by Target has increased to over 700, the Company's sales to this
customer have increased commensurately. The Company's five largest women's
hosiery customers, including Target, accounted for approximately 75% of the
Company's total women's hosiery business in 1995. During the same year, the
Company's five largest sock customers accounted for approximately 25% of the
Company's sock business.
CREDIT AND COLLECTIONS
The Company's credit and collection functions are managed by the Company's
credit department at its corporate headquarters, except for credit and
collection on sales of socks manufactured at the Company's facilities located in
Seneca Falls, New York and in the Republic of Ireland, which are handled by
employees at those facilities. The credit of the Company's customers is
evaluated regularly by monitoring of accounts receivable and through reports
obtained from major business credit evaluation services. In the case of smaller
retail outlets for sports socks, the Company relies in part on credit evaluation
information available through a variety of credit information sources. The
Company believes its credit and collection management has been a significant
factor in minimizing the effect on the Company of bankruptcy filings of certain
customers for its sports socks. In each of the last five years, the Company's
write-off of uncollectible receivables has averaged less than 1% of net sales.
SEASONALITY
The Company's sales of rugged outdoor and heavyweight casual socks, ski
socks and thermal underwear/leggings are highly seasonal and generally occur
during the fall and winter selling seasons, which begin in August and end in
December. The Company's women's hosiery business is also somewhat seasonal with
hosiery sales, particularly sales of tights (which sell for higher wholesale
prices than women's sheer hosiery) increasing in the fall and winter months.
Historically, the majority of the Company's sales have been generated, and most
of the Company's profits have been earned, in the third and fourth quarters of
its fiscal year.
BACKLOG
As a result of the seasonality of certain products, the Company accumulates
a temporary backlog of orders primarily during the summer and early fall months.
At August 1, 1996, the Company's order book reflected unfilled customer orders
for approximately $11.9 million of products as compared to $13.0 million at the
same date in the prior year. Order book data at any given date is also
materially affected by the timing of recording orders and of shipments, as well
as the status of major private label programs. Recently, certain large
38
<PAGE> 40
customers who formerly placed firm orders with the Company began instead
providing projections of their demand for the Company's products and
transmitting smaller firm orders on a more frequent basis. Accordingly, order
book data should not be taken as indicative of eventual actual shipments or net
sales, or as providing meaningful period-to-period comparisons. Excluding those
products which are seasonal in nature and major private label programs, the
Company receives orders fairly evenly throughout the year and generally ships
within three to thirty days after receipt of a customer's order.
COMPETITION
The sock manufacturing segment of the hosiery industry is highly fragmented
and competitive. According to the NAHM, at December 31, 1995 there were 309
companies manufacturing socks in the United States at 394 locations. The Company
is subject to competition from a number of these companies that manufacture and
sell a complete range of sports socks or, in many cases, specific categories of
sports socks, such as active sports socks, that are competitive with one or more
of the Company's products. The Company believes that it is one of the leading
vendors of sports socks to sporting goods and active apparel stores. The number
of competitors in the manufacture and sale of rugged outdoor and heavyweight
casual socks is considerably smaller because the number of "double cylinder"
knitting machines required to make these socks is limited.
The women's hosiery industry is highly competitive and is currently
experiencing excess capacity and flat demand for sheer hosiery products. The
women's hosiery industry is dominated by the industry leader, Sara Lee Hosiery,
and by Kayser-Roth. Sara Lee Hosiery not only sells private label and brand name
women's hosiery to department stores, specialty stores and mass merchandisers,
it also sells substantial quantities of its brand name products directly to
consumers through its outlet catalog. Sara Lee Hosiery and Kayser-Roth, as well
as several other large domestic manufacturers of women's hosiery, have
substantially greater market share and financial resources than the Company. The
Company is also subject to competition from a large number of smaller domestic
competitors, which compete primarily based on price for private label business.
Sara Lee Hosiery manufactures and sells women's hosiery in the designer segment
of the market under the licensed Donna Karan brand name in competition with the
Company's Ellen Tracy hosiery. Other women's hosiery manufacturers sell similar
designer name brand women's hosiery with equal or greater consumer recognition,
which is marketed to the same group of fashion-conscious consumers to which the
Company's Ellen Tracy hosiery is marketed.
Competition among manufacturers of all categories of the Company's products
is primarily on the basis of customer service, product quality, pricing, order
fulfillment capability and relationships forged over time between sales
personnel and buyers for the large national retailers and other major customers.
The Company believes that the most important of these are order fulfillment and
product quality, which encompass the ability to service the customer's needs by
fulfilling and shipping orders for products that are of a consistent quality on
a timely basis. The Company believes its good reputation for order fulfillment
and consistent product quality gives it a competitive advantage over many of its
competitors, including some competitors whose prices are lower than the
Company's prices for similar products.
The Company believes that its increased size, which has occurred as the
result of internal sales growth and the Seneca Acquisition, as well as its
diversified product lines, give the Company an increasing competitive advantage.
The Company believes a manufacturer's size will be particularly important during
a period of anticipated consolidation in the sock and women's hosiery industry
that is being driven in part by increased retail concentration. In this regard,
the Company expects to benefit from an industry trend for retailers to align
with a fewer number of major manufacturers who can provide a significant share
of a major retailer's total sock and women's hosiery requirements, have the
capability of assisting the retailer in managing its hosiery business and are
able to meet increased logistical demands imposed by major retailers.
REGULATION
The Company's business is subject to regulation by federal, state and local
governmental agencies dealing with various aspects of conducting a sock and
women's hosiery manufacturing business such as work place safety, protection of
the environment, wage and hour policies, product labeling, family and medical
leave
39
<PAGE> 41
policies and product flammability standards. Certain of these regulations,
particularly those relating to air quality, water quality and disposal of waste
products, are technical in nature, involve substantial penalties in the event of
breach and require extensive controls to assure compliance with their
provisions. While the Company believes that it has operated and intends to
operate in full compliance with these regulations, such compliance may result in
significant additional costs.
EMPLOYEES
As of August 15, 1996, the Company employed approximately 765 persons, 136
of whom, employed at Seneca, were covered by a collective bargaining agreement
with the International Ladies Garment Workers Union, which in 1995 merged with
the Amalgamated Clothing and Textile Workers Union to form the Union of
Needletrades, Industrial and Textile Employees. The employees at the Company's
facility in the Republic of Ireland are not covered by a collective bargaining
agreement, but the Company does recognize Services Industrial Professional
Technical Union as their representative. In April 1995, the Company signed a
three-year collective bargaining agreement covering wages and benefits for the
Company's employees at Seneca. None of the Company's employees represented by a
union has engaged in any kind of work stoppage in the last ten years. The
Company considers its relationships with its employees to be good.
PROPERTIES
The Company's corporate offices, all of its women's hosiery and a
significant portion of its sports sock manufacturing operations are located in
Newton, North Carolina in five Company-owned buildings containing approximately
170,000 square feet of space. The Company plans to construct a distribution
center on Company-owned land adjacent to the Company's existing facility in
Newton that will add an additional 75,000 to 100,000 square feet of space. The
Company's facilities in Newton also include a 4,000 square foot building housing
a Company-sponsored child care center.
The Company owns an approximately 60,000 square foot sock finishing and
shipping facility and leases on a month-to-month basis an approximately 12,000
square foot sock knitting and sewing facility in Ft. Payne, Alabama. The Company
also owns a manufacturing facility located in Tralee, Republic of Ireland. With
the assistance of a grant from the Irish Development Authority equal to
approximately one-third of the total capital investment required, the Company
expanded the size of this facility in 1995 to approximately 45,000 square feet.
The Company also owns an approximately 100,000 square foot, three-story building
at Seneca that houses the knitting, sewing and finishing operations for the
Company's production of rugged outdoor and heavyweight casual socks. The Company
owns a nearby 80,000 square foot building on 37 acres of land that serves as a
warehouse and distribution center for Seneca.
LITIGATION
The Company is not a party to any legal proceedings which it believes would
have a material adverse effect on the business, income, assets or operation of
the Company. The Company is not aware of any material threatened litigation
against the Company.
40
<PAGE> 42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and their ages, as of August
15, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------------- ---- ---------------------------------
<S> <C> <C>
Albert C. Gaither............................ 65 Chairman and Director
Hugh R. Gaither.............................. 45 President, Chief Executive
Officer and Director
William D. Durrant........................... 58 Executive Vice President -- Sales
and Marketing and Director
Walter L. Bost, Jr........................... 41 Executive Vice President and
Chief Financial Officer
Susan Gaither Jones.......................... 36 Vice President and Director
J. Michael Gaither........................... 45 Secretary and Director
Claude S. Abernethy, Jr...................... 69 Director
Joseph D. Hicks.............................. 53 Prospective Director*
Charles M. Snipes............................ 63 Prospective Director*
</TABLE>
- ---------------
* Mr. Hicks and Mr. Snipes have been elected as directors of the Company,
effective upon the completion of this Offering. Both Mr. Hicks and Mr. Snipes
have agreed to serve upon the effectiveness of their election as directors.
Albert C. Gaither has been a director since 1958 and Chairman of the
Company since January 1992. From January 1980 through December 1991 he served as
the Company's President and from January 1992 until September 1995 was the
Company's Chief Executive Officer. He received his B.A. from Davidson College in
1956 and has been employed by the Company since 1956. Mr. Gaither is Susan
Gaither Jones' father and a cousin of Hugh R. Gaither and J. Michael Gaither.
Hugh R. Gaither has been a director since 1977 and President of the Company
since January 1992. Since September 1995, he has also served as the Company's
Chief Executive Officer. Prior thereto he had served as Vice President of the
Company since January 1980. Mr. Gaither joined the Company in 1975 after
receiving his B.A. from Davidson College and his M.B.A. from the University of
North Carolina at Chapel Hill. During 1994 and 1995, Mr. Gaither served as
Chairman of the NAHM. Mr. Gaither is J. Michael Gaither's brother and a cousin
of Albert C. Gaither and Susan Gaither Jones.
William D. Durrant, who was elected to his current position in September
1995, has been employed by the Company since 1976 and has been a director since
1979. From January 1992 until September 1995, Mr. Durrant served as Senior Vice
President -- Sales and Marketing for the Company's sports sock divisions. From
July 1976 until December 1992, he served as Vice President -- Sales for the
sports sock divisions.
Walter L. Bost, Jr., who is a certified public accountant, was elected to
his current position in September 1995 and has been employed by the Company for
more than eight years, during which entire period he has served as the Company's
Chief Financial Officer. From 1982 until 1987 he was controller of a
privately-owned hosiery manufacturing company located in Hickory, North
Carolina. Mr. Bost received his B.A. in Accounting from the University of North
Carolina at Chapel Hill in 1977.
Susan Gaither Jones has been a Vice President of the Company since January
1992 engaged principally in sales, marketing and customer service activities
related to the Company's women's hosiery division. She has been employed by the
Company in various positions since 1984 and a director since 1991. Ms. Jones
received her B.A. in Psychology from Appalachian State University in 1982. Ms.
Jones is Albert C. Gaither's daughter and a cousin of Hugh R. Gaither and J.
Michael Gaither.
41
<PAGE> 43
J. Michael Gaither is Vice President and General Counsel of J.H. Heafner
Company, Inc., a privately-owned firm located in Lincolnton, North Carolina
engaged in the manufacturing and distribution of motor vehicle tires. Mr.
Gaither, who has been a director since 1980, received his B.A. from Duke
University in 1974 and his J.D. from the University of North Carolina at Chapel
Hill in 1977. Mr. Gaither is Hugh R. Gaither's brother and a cousin of Albert C.
Gaither and Susan Gaither Jones.
Claude S. Abernethy, Jr. has been a Senior Vice President of
Interstate/Johnson Lane Corporation, a New York Stock Exchange member firm since
1963. Mr. Abernethy received his B.A. from Davidson College and his M.B.A. from
Harvard University. He has been a director since 1969 and is a director of
Interstate/Johnson Lane, Inc., the parent of Interstate/Johnson Lane
Corporation, and two other publicly-traded companies: Air Transportation Holding
Company, an air freight company, and Carolina Mills, Inc.
Joseph D. Hicks is the President and Chief Executive Officer and a director
of Siecor Corporation, a privately-held fiber optics cable company. Mr. Hicks,
who has worked at Siecor Corporation since 1979, received his B.S.E.E. from the
University of Kentucky in 1966 and his M.B.A. from the University of Maryland in
1970. Prior to his employment by Siecor Corporation, Mr. Hicks held various
positions with Motorola, Inc.
Charles M. Snipes is the President and a member of the Board of Directors
of Bank of Granite Corporation, a bank holding company, and has been President
and Chief Executive Officer since 1994 and a director since 1982 of its
principal subsidiary, the Bank of Granite. He serves as a director of Vanguard
Furniture, Inc., First Factors, Inc. and Ingold Company, Inc., all of which are
privately-held companies. Mr. Snipes received his B.A. from Lenoir-Rhyne College
in 1958.
TERMS OF DIRECTORS AND OFFICERS
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. The Company's
executive officers are appointed by and serve at the discretion of the Company's
Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Following completion of this Offering, the Board of Directors intends to
establish a Compensation Committee to make recommendations concerning salaries
and incentive compensation for executive officers and other employees of the
Company and administer the Company's stock plans. The Board also intends to
establish an Audit Committee to recommend to the Board of Directors the
selection of the Company's independent auditors and review the results and scope
of the audit and other services provided by the independent auditors. It is
currently anticipated that Messrs. Abernethy, Hicks and Snipes will be appointed
the members of the Compensation and Audit Committees.
COMPENSATION OF DIRECTORS
Following completion of this Offering, the Company intends to pay its
directors who are not compensated as officers or employees of the Company an
annual retainer fee of $5,000 and a fee of $500 for each meeting of the Board of
Directors or any committee thereof attended (other than any such committee
meeting held in conjunction with a meeting of the full board). The Company will
also reimburse each director for out-of-pocket expenses incurred in attending
meetings of the Board of Directors and any of its committees.
Directors who are officers or employees of the Company will not receive any
compensation for serving as directors.
42
<PAGE> 44
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information with respect to the 1995
compensation of the Company's Chief Executive Officer and four other most highly
compensated executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- ---------------------------------------------------- -------- ------- ---------------
<S> <C> <C> <C>
Hugh R. Gaither..................................... $180,000 $90,165 $ 7,882
President and Chief Executive Officer
Albert C. Gaither................................... 168,000 89,826 14,011
Chairman
William D. Durrant.................................. 166,000 96,570 10,216
Executive Vice President -- Sales and Marketing
Walter L. Bost, Jr.................................. 108,000 35,179 2,104
Executive Vice President and
Chief Financial Officer
Susan Gaither Jones................................. 96,000 21,613 5,649
Vice President
</TABLE>
- ---------------
(1) The amounts shown for Hugh R. Gaither, Albert C. Gaither, William D. Durrant
and Susan Gaither Jones include $3,500 in fees paid to them for serving as
directors. Upon completion of this Offering, directors who are employees of
the Company will not receive any compensation for services as directors. The
amounts shown for Hugh R. Gaither, Albert C. Gaither and Ms. Jones include
$2,882, $9,077 and $325, respectively, representing the present value of the
imputed interest for premiums paid by the Company under a split dollar life
insurance arrangement. The amounts shown for Messrs. Durrant and Bost and
Ms. Jones include $4,400, $374 and $296, respectively, representing the
dollar value of term life insurance premiums paid by the Company during
1995. The amounts shown for Hugh R. Gaither, Albert C. Gaither, Messrs.
Durrant and Bost and Ms. Jones also include contributions made by the
Company to the Company's 401(k) Plan in the amounts of $1,500, $1,434,
$2,310, $1,730 and $1,555, respectively.
SALARY CONTINUATION AGREEMENTS
The Company has entered into salary continuation agreements with each of
the Named Executive Officers. For each Named Executive Officer other than Albert
C. Gaither, the agreements provide that upon retirement, death or disability,
the officer or his or her designated beneficiary, as applicable, will begin
receiving monthly payments equal to 60% of the highest monthly base salary paid
to the officer during the term of his or her employment. The agreements provide
that such payments will continue for a period of 15 years. At 1995 salary levels
the annual benefit that would be payable under these agreements to Hugh R.
Gaither, Messrs. Durrant and Bost and Ms. Jones would be $108,000, $99,600,
$64,800 and $57,600, respectively. The retirement benefits payable to each of
the Named Executive Officers, other than Albert C. Gaither whose retirement
benefit is fully vested, will be 25% vested when the officer reaches age 50, 50%
at age 55 and 100% at age 60. The salary continuation agreement entered into
with Albert C. Gaither provides for monthly payments of $3,000 for a period of
15 years commencing upon Mr. Gaither's retirement or death. The Company's
obligations under all salary continuation agreements are unsecured and are not
required to be funded. The Company has elected to partially fund its obligations
under these agreements through the purchase of life insurance on the Named
Executive Officers that are expected to provide a return to the Company that
will approximately offset its liability. The compensation expense associated
with these agreements is recognized over the term of the officers' employment.
See note 12 to the Company's consolidated financial statements.
EMPLOYEE BENEFIT PLANS
Omnibus Stock Plan. The Company adopted the 1995 Omnibus Stock Plan (the
"Omnibus Plan") in September 1995. The Omnibus Plan is intended to encourage
high levels of performance by the Company's officers and key employees and to
enable the Company to recruit, reward, retain and motivate employees of
experience and ability on a basis competitive with industry practices. The
Company has reserved 300,000 shares of Common Stock for issuance under the
Omnibus Plan.
43
<PAGE> 45
The Omnibus Plan will be administered by the Compensation Committee of the
Board of Directors. Awards under the plan may include, but are not limited to,
incentive stock options or nonqualified stock options, stock appreciation
rights, restricted stock, performance awards, or other stock-based awards, such
as stock units, securities convertible into stock, phantom securities and
dividend equivalents. The Compensation Committee, based on recommendations made
by management, will have sole authority and discretion under the Omnibus Plan to
(i) designate eligible participants in the plan and (ii) determine the types of
awards to be granted and the conditions and limitations applicable to such
awards, if any, including the acceleration of vesting or exercise rights upon a
Change in Control of the Company (as defined in the plan). The awards may be
granted singly or together with other awards, or as replacement of, in
combination with, or as alternatives to, grants or rights under the Omnibus Plan
or other employee benefit plans of the Company. Awards under the Omnibus Plan
may be issued based on past performance, as an incentive for future efforts, or
contingent upon the future performance of the Company.
Options granted under the Omnibus Plan must be exercised within the period
fixed by the Compensation Committee, which may not exceed 10 years from the date
of the option grant, or in the case of incentive stock options granted to any
10% shareholder, five years from the date of the option grant. Options may be
made exercisable in whole or in installments, as determined by the Compensation
Committee. Options will not be transferable other than by will or the laws of
descent and distribution and, during the lifetime of an optionee, may be
exercised only by the optionee. The option price will be determined by the
Compensation Committee; provided, however, that the option price for incentive
stock options may not be less than the market value of the Common Stock on the
date of grant of the option and the option price for incentive stock options
granted to any 10% shareholder may not be less than 110% of the market value of
the Common Stock on the date of grant. Unless otherwise designated by the
Compensation Committee as "incentive stock options" intended to qualify under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
options granted under the Omnibus Plan are intended to be "nonqualified stock
options." No options or other awards have been granted under the Omnibus Plan.
Employee Stock Purchase Plan. In September 1995, the Company adopted an
Employee Stock Purchase Plan (the "Purchase Plan"), which is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Code. A total of
100,000 shares of Common Stock are available for purchase under the Purchase
Plan and it will be administered by the Compensation Committee of the Board of
Directors. The Purchase Plan will permit eligible employees of the Company,
including executive officers, to periodically purchase shares of the Common
Stock after the completion of this Offering through payroll deductions.
Participating employees may authorize the Company to withhold up to 6% of their
base compensation in each offering period established under the Plan to purchase
shares of Common Stock. The Purchase Plan provides for 12-month offering periods
beginning January 1 of each year. At the end of each offering period,
participating employees are entitled to use such withheld compensation to
purchase the number of newly issued shares of Common Stock or shares purchased
by the Company in the market determined by dividing the amount of withheld
compensation by 85% of the lower of the market price of the Common Stock on the
first or last business day of the offering period. Participants may terminate
their participation in the Purchase Plan prior to the end of each offering
period and obtain a refund of payroll deductions not yet applied to the purchase
of Common Stock. Upon termination of employment, a participant's right to
participate in the Purchase Price will automatically cease, and all payroll
deductions not applied to the purchase of Common Stock will be refunded.
401(k) Plan. The Company has a tax deferred savings plan (the "401(k)
Plan") that covers all employees age 21 and older who have been employed by the
Company for at least 12 months. Eligible employees may contribute up to 6% of
their compensation to the 401(k) Plan on a pre-tax basis, not to exceed $9,500
per year (adjusted for cost-of-living increases). The Company, at its
discretion, may annually match up to 25% of an employee's pre-tax contributions,
up to a maximum of 6% of compensation. The rates of pre-tax and matching
contributions may be reduced with respect to highly compensated employees, as
defined in the Code, so that the 401(k) Plan will comply with Sections 401(k)
and 401(m) of the Code. Pre-tax and matching contributions are allocated to each
employee's individual account, which is invested in selected mutual funds
according to the directions of the employee. An employee's pre-tax contributions
are fully vested and nonforfeitable at all times. The Company's matching
contributions vest after three years of employment.
44
<PAGE> 46
CERTAIN TRANSACTIONS
TRANSACTIONS WITH AND ACQUISITION OF INTERKNIT
Immediately prior to the completion of this Offering, the Company will
acquire all of the issued and outstanding shares of Interknit, a corporation
affiliated with the Company through common ownership of its shares by certain
shareholders and employees of the Company. Since beginning operations in January
1994, Interknit has sold substantially all of its output of greige goods to, and
has purchased a portion of its raw materials requirements from, the Company. In
addition, the services of certain executive officers of the Company have been
provided to Interknit from time to time without consideration. The purchase and
sale transactions between the Company and Interknit during the Company's two
most recent years and the six months ended June 30, 1996 are summarized in the
table below.
<TABLE>
<CAPTION>
PERCENTAGE
SALES OF
PURCHASES BY PERCENTAGE OF BY THE INTERKNIT'S
THE COMPANY INTERKNIT'S COMPANY TO RAW MATERIAL
FROM INTERKNIT NET SALES INTERKNIT PURCHASES
-------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994.................. $2,338,000 100% $266,000 19%
Year ended December 31, 1995.................. 3,162,000 82 289,000 11
Six Months ended June 30, 1996................ 2,363,026 71 25,000 1
</TABLE>
Pursuant to a share exchange agreement dated as of August 27, 1996, by and
among the Company and the shareholders of Interknit, the shareholders of
Interknit will, immediately prior to the completion of this Offering, transfer
all of the issued and outstanding shares of capital stock of Interknit to the
Company in exchange for an aggregate of 240,000 shares of Common Stock (the
"Exchange"). When the Exchange is consummated, the following directors and
executive officers of the Company will receive the number of shares of Common
Stock set forth opposite their names. Although there is no agreement or
understanding with the lenders regarding a release of their liability, as
guarantors of the approximately $1.7 million in debt incurred to finance the
start-up and capital equipment costs and working capital needs of Interknit,
these directors and executive officers may derive an additional benefit from the
Exchange and this Offering if the lenders subsequently agree to release them
from their personal guaranties.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
DIRECTOR OR EXECUTIVE OFFICER OF COMMON STOCK
--------------------------------------------------------------------- ---------------
<S> <C>
Hugh R. Gaither...................................................... 37,200
William D. Durrant................................................... 37,200
Walter L. Bost, Jr................................................... 24,000
Albert C. Gaither.................................................... 16,800
Susan Gaither Jones.................................................. 16,800
J. Michael Gaither................................................... 8,400
</TABLE>
The aggregate number of shares to be issued to the shareholders of
Interknit was determined on the basis of a valuation of Interknit's business
performed by Interstate/Johnson Lane Corporation, one of the managing
underwriters of this Offering. The Company has agreed to pay Interstate/Johnson
Lane Corporation $25,000 for rendering a fairness opinion to the Board of
Directors of the Company regarding the terms of the Exchange. One of the
Company's directors, Claude S. Abernethy, Jr., who is not a shareholder of
Interknit, is a Senior Vice President of Interstate/Johnson Lane Corporation.
SUPPLEMENTAL RETIREMENT BENEFIT
In December 1992, J. Robert Gaither, Jr., the Company's former Chairman,
retired after more than 45 years of employment with the Company. Until August
15, 1996, when he submitted his resignation, he continued to serve as a director
of the Company. From the date of his retirement in 1992 until December 31, 1995,
the Company continued to pay Mr. Gaither approximately $105,000 annually. During
such three-year period, the Company also paid him $36,000 annually under a
salary continuation agreement entered into while he was still employed as an
executive officer of the Company.
45
<PAGE> 47
In December 1995, the Company and Mr. Gaither entered into an amendment to
his salary continuation agreement pursuant to which the Company agreed to pay
him, in addition to the $36,000 the Company is obligated to pay him annually for
another 12 years, a supplemental retirement benefit of $84,000 annually for
seven years. In the event of his death before the end of the seven-year period,
the Company's obligation will continue until the end of such period and the
payments will be made to his designated beneficiary. In 1995, the Company
accrued a liability and recorded an expense of $500,000 for this obligation. See
note 12 of the Company's consolidated financial statements.
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
As of August 15, 1996 there were 47 holders of record of the Company's
Common Stock. The following table sets forth certain information with respect to
the beneficial ownership of shares of Common Stock of the Company as of August
15, 1996 and as adjusted to reflect the sale of the shares of Common Stock
offered by the Company and the Selling Shareholders, by (i) each person known by
the Company to be the beneficial owner of more than 5% of the shares of Common
Stock outstanding, (ii) each director of the Company, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group. None of the prospective directors of the Company currently own any
shares of Common Stock. Except as otherwise indicated, each person named below
has sole voting and dispositive power with respect to the shares of Common Stock
beneficially owned by such person.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE THIS OFFERING AFTER THIS OFFERING
-------------------- --------------------
NAME NUMBER PERCENT(1) NUMBER PERCENT(1)
- ------------------------------------------------------ ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Robert E. Cline(2).................................... 217,760 13.6% 193,005 6.2%
J. Robert Gaither, Jr.(3)............................. 204,268 12.8 184,670 5.9
James C. Gaither(4)................................... 186,855 11.7 186,855 6.0
Albert C. Gaither(5).................................. 167,597 10.5 157,654 5.1
Carolina Glove Co.(6)................................. 89,371 5.6 89,371 2.9
Hugh R. Gaither....................................... 51,366 3.2 51,366 1.6
Claude S. Abernethy, Jr.(7)........................... 44,557 2.8 44,557 1.4
William D. Durrant.................................... 42,351 2.6 42,351 1.4
Susan Gaither Jones................................... 35,732 2.2 35,732 1.1
Walter L. Bost, Jr.................................... 29,151 1.8 29,151 *
J. Michael Gaither.................................... 22,566 1.4 21,741 *
All Directors and Executive Officers as a Group
(including persons named above)..................... 393,320 24.6% 382,552 12.3%
</TABLE>
- ---------------
* Less than 1%.
(1) For purposes of this table, the percentage of class beneficially owned has
been computed, in accordance with Rule 13d-3(1) under the Securities
Exchange Act of 1934 (the "Exchange Act"), on the basis of 1,600,000 shares
of Common Stock outstanding on August 15, 1996 and 3,120,000 shares
outstanding after this Offering. Beneficial ownership is based upon
information available to the Company or furnished by the respective
shareholders, directors and executive officers.
(2) Robert E. Cline's address is P.O. Box 2343, Hickory, NC 28603.
(3) J. Robert Gaither, Jr.'s address is c/o Ridgeview, Inc., 2101 N. Main
Avenue, Newton, NC 28658. Of the 204,268 shares of Common Stock
beneficially owned by J. Robert Gaither, Jr. prior to this Offering,
107,657 are owned of record by his wife, Grace W. Gaither. Of the 184,670
shares of Common Stock beneficially owned by J. Robert Gaither, Jr. after
this Offering, 97,342 are owned of record by his wife. Prior to and after
this Offering, Grace W. Gaither also is the owner of more than 5% of the
shares of Common Stock outstanding.
46
<PAGE> 48
(4) James C. Gaither's address is Route 2, Box 199, Conover, NC 28613. Of the
186,855 shares of Common Stock beneficially owned by James C. Gaither prior
to and after this Offering, 30,520 are owned of record by his wife, Rachel
C. Gaither. Prior to and after this Offering, Rachel C. Gaither also is the
owner of more than 5% of the shares of Common Stock outstanding.
(5) Albert C. Gaither's address is c/o Ridgeview, Inc., 2101 N. Main Avenue,
Newton, NC 28658. Of the 167,597 shares of Common Stock beneficially owned
by Albert C. Gaither prior to this Offering, 31,036 shares are owned of
record by his wife, Ann Heafner Gaither. Of the 157,654 shares of Common
Stock beneficially owned by Albert C. Gaither after this Offering, 21,093
shares are owned of record by his wife. Prior to and after this Offering,
Ann Heafner Gaither also is the owner of more than 5% of the shares of
Common Stock outstanding.
(6) Carolina Glove Co.'s address is P.O. Box 999, Conover, NC 28613.
(7) Of the 44,557 shares of Common Stock beneficially owned by Mr. Abernethy,
prior to and after this offering, 2,576 are owned of record by his wife,
Raenelle Abernethy and 22,536 are owned by certain persons with whom Mr.
Abernethy shares voting or dispositive power.
SELLING SHAREHOLDERS
The following table sets forth information with respect to the ownership of
Common Stock as of August 15, 1996 by each Selling Shareholder, the number of
shares of Common Stock being sold by each Selling Shareholder and the number of
shares beneficially owned by each Selling Shareholder after this Offering.
<TABLE>
<CAPTION>
SHARES SHARES
OWNED PRIOR OWNED AFTER
TO THIS NUMBER OF SHARES THIS
NAME OFFERING BEING SOLD OFFERING
- -------------------------------------------------------- ----------- ---------------- -----------
<S> <C> <C> <C>
Robert E. Cline(1)...................................... 217,760 24,755 193,005
Grace W. Gaither(2)..................................... 107,657 10,315 97,342
Ann Heafner Gaither..................................... 31,036 9,943 21,093
J. Robert Gaither, Jr.(1)(2)............................ 96,611 9,283 87,328
Robert Macon Yount(3)................................... 71,085 8,252 62,833
William H. Gaither...................................... 18,417 5,900 12,517
Comer Gaither........................................... 14,811 5,570 9,241
Cole A. Gaither......................................... 7,727 2,475 5,252
Lawson Gaither.......................................... 4,508 1,444 3,064
Ernest H. Yount, Jr..................................... 12,620 1,238 11,382
J. Michael Gaither(4)................................... 22,566 825 21,741
----------- ------- -----------
Total.............................................. 604,798 80,000 524,798
========= ============= =========
</TABLE>
- ---------------
(1) Until they resigned on August 15, 1996, Robert E. Cline and J. Robert
Gaither, Jr. were directors of the Company.
(2) The numbers shown for Grace W. Gaither do not include 96,611 and 87,328
shares owned prior to and after this Offering, respectively, by her husband,
J. Robert Gaither, Jr. The numbers shown for J. Robert Gaither, Jr. do not
include 107,657 and 97,342 shares owned prior to and after this Offering,
respectively, by his wife, Grace W. Gaither.
(3) Until he resigned on March 19, 1996, Robert Macon Yount was a director of
the Company. After this offering Mr. Yount will own 2.0% of the shares of
Common Stock outstanding.
(4) J. Michael Gaither is a director and officer of the Company.
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
Upon completion of this Offering, the Company's authorized capital stock
will consist of 20,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock (the "Preferred Stock"), and there will be
3,120,000 shares of Common Stock outstanding (3,360,000 if the Underwriters'
over-allotment option is exercised).
The following description of the capital stock of the Company does not
purport to be complete or to give full effect to the North Carolina provisions
of statutory or common law and is subject in all respects to the provisions of
the Company's Articles of Incorporation (the "Articles") and Bylaws.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock.
All currently outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be outstanding upon completion
of this Offering will be fully paid and nonassessable.
PREFERRED STOCK
Immediately following the completion of this Offering, the Company will be
authorized to issue 2,000,000 shares of undesignated Preferred Stock. The Board
of Directors, without any further vote or action by the shareholders, will have
the authority to issue the undesignated Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of shares of undesignated Preferred
Stock and to fix the number of shares constituting any series and the
designations of such series. The Board of Directors, without shareholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Articles and Bylaws described below could have
the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management. In addition, the exculpation
provisions in the Articles with respect to directors and the indemnification
provisions in the Bylaws described below may discourage shareholders from
bringing a lawsuit against directors for breach of their fiduciary duty and also
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefitted the Company and its shareholders. A shareholder's
investment in the Company may be adversely affected to the extent that
litigation costs and damage awards against the Company's directors and officers
are paid by the Company pursuant to the indemnification provisions described
below.
Classified Board of Directors. The Bylaws provide that at any time when
the Board of Directors consists of nine or more directors upon action by the
directors, the Board may be divided into three classes with staggered three-year
terms. This classified board provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its shareholders. In addition, this provision could delay shareholders who
do not agree with the policies of the Board of Directors from removing a
majority of the Board for two years. See "Number of Directors; Removal; Filling
Vacancies" below.
48
<PAGE> 50
Special Meetings of Shareholders. The Bylaws provide that special meetings
of the shareholders of the Company may be called only by the Chairman of the
Board of the Company, the President of the Company, or a majority of the
directors. This provision will render it more difficult for shareholders to take
action opposed by the Board of Directors.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the discretion of the Board of Directors or a
committee thereof, of candidates for election as director as well as for other
shareholder proposals to be considered at shareholders' meetings. Notice of
shareholder proposals and director nominations must be timely given in writing
to the Secretary of the Company prior to the meeting at which the matters are to
be acted upon or the directors are to be elected.
Number of Directors; Removal; Filling Vacancies. The Bylaws provide that
the Board of Directors will consist of between three and 15 members, as
determined from time to time by the Board of Directors. The number of directors
has been set at nine. Further, subject to the rights of the holders of any
series of Preferred Stock then outstanding, the Bylaws authorize only the Board
of Directors to fill newly created directorships. Accordingly, this provision
could prevent a shareholder from obtaining majority representation on the Board
of Directors by enlarging the Board of Directors and filling the new
directorships with its own nominees. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, the Bylaws also provide that
directors of the Company may be removed only by the affirmative vote of holders
of a majority of the outstanding shares of voting stock.
Limitation of Liability. The Articles eliminate, to the fullest extent
permitted by the North Carolina Business Corporation Act (the "Business
Corporation Act"), the personal liability of each director to the Company or its
shareholders for monetary damages for breach of duty as a director. This
provision in the Articles does not change a director's duty of care, but it
eliminates monetary liability for certain violations of that duty, including
violations based on grossly negligent business decisions that may include
decisions relating to attempts to change control of the Company. The provision
does not affect the availability of equitable remedies for a breach of the duty
of care, such as an action to enjoin or rescind a transaction involving a breach
of fiduciary duty. In certain circumstances, however, equitable remedies may not
be available as a practical matter. Under the Business Corporation Act, the
limitation of liability provision is ineffective against liabilities for (i)
acts or omissions that the director knew or believed at the time of the breach
to be clearly in conflict with the best interests of the Company, (ii) unlawful
distributions described in Section 55-8-33 of the Business Corporation Act, or
(iii) any transaction from which the director derived an improper personal
benefit. The provision also in no way affects a director's liability under the
federal securities laws.
Indemnification. The Bylaws provide that, in addition to the
indemnification of directors and officers otherwise provided by the Business
Corporation Act, the Company's current or former directors, officers and
employees will be indemnified against any and all liability and litigation
expenses, including reasonable attorneys' fees, arising out of their status or
activities as directors, officers and employees, except for liability or
litigation expense incurred on account of activities that were at the time known
or believed by such director, officer or employee to be clearly in conflict with
the best interests of the Company. The Bylaws also provide that this right to
indemnification is not exclusive of any other right now possessed or hereafter
acquired under any statute, agreement or otherwise.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock will be First Union
National Bank of North Carolina.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 3,120,000 shares of the Company's Common
Stock will be outstanding (3,360,000 shares if the Underwriters' over-allotment
option is exercised in full). The 1,600,000 shares sold in this Offering
(1,840,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, unless acquired by an "affiliate" of the Company (as that
term is defined in the Securities Act) which shares will be subject to the
resale limitations of Rule 144 under the Securities Act. Beginning 180 days
after the date of this Prospectus, all but 255,453 of the remaining shares will
be eligible for resale under Rule 144.
In general, under Rule 144 as currently in effect, a shareholder who has
beneficially owned for at least two years shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons who
are affiliates of the Company, will be entitled to sell within any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
outstanding shares of the Common Stock (approximately 31,000 shares immediately
after completion of this Offering, or approximately 34,000 shares if the
Underwriters' over-allotment option is exercised in full) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements relating to the manner and notice of sale and the availability of
current public information about the Company.
The Company, each of its directors and officers and the Selling
Shareholders have agreed with the Underwriters not to offer, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Interstate/Johnson Lane
Corporation except for shares offered or sold under the Company's stock-based
benefit plans.
The Company has reserved 400,000 shares of Common Stock for issuance under
the Omnibus Stock Plan and the Purchase Plan. At appropriate times subsequent to
the closing of this Offering, the Company intends to file registration
statements under the Securities Act to register the Common Stock to be issued
under these plans. After the effective date of such registration statements,
shares issued under these plans will be freely tradeable without restriction or
further registration under the Securities Act, unless acquired by affiliates of
the Company.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after this Offering. Sales of substantial
amounts of the Common Stock in the public market following this Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock or the ability of the Company to raise capital through sales of
its equity securities.
50
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of such Underwriters,
for whom Interstate/Johnson Lane Corporation and Scott & Stringfellow, Inc. (the
"Representatives") are acting as representatives, has agreed severally to
purchase from the Company and the Selling Shareholders, the respective number of
shares of Common Stock set forth opposite its name below. The Underwriters are
committed to purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Interstate/Johnson Lane Corporation..........................................
Scott & Stringfellow, Inc. ..................................................
--------
Total.............................................................. 1,600,000
========
</TABLE>
The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby if any
are purchased. Under certain circumstances the commitment of a nondefaulting
Underwriter may be increased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of per share of which
may be reallocated to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by the Company or the Selling Shareholders as set forth
on the cover page of this Prospectus. The Representatives have advised the
Company that the Underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority.
The Company has granted the Underwriters an option for 30 days after the
date of this Prospectus to purchase, at the initial public offering price, less
the underwriting discounts and commissions as set forth on the cover page of
this Prospectus, up to 240,000 additional shares of Common Stock at the same
price per share as the Company and the Selling Shareholders receive for the
1,600,000 shares of Common Stock, solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them, as shown in the foregoing table, bears to the
1,600,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover the over-allotments in connection with the sale of the
1,600,000 shares of Common Stock offered hereby.
Each of the Company's directors, executive officers and 5% shareholders has
agreed not to offer, sell, contract to sell or otherwise dispose of Common Stock
for a period of 180 days following the date of this Prospectus, without the
prior written consent of Interstate/Johnson Lane Corporation. The Company also
has agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable for,
or any rights to purchase or acquire, Common Stock for a period of 180 days
following the date of this Prospectus without the prior written consent of
Interstate/Johnson Lane Corporation, except for the granting of options, stock
awards or the sale of stock pursuant to the Company's existing stock plans.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be negotiated
between the Company and the Representatives. Among the factors to be considered
in determining the initial public offering price of the Common Stock, in
addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential
51
<PAGE> 53
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related business.
At the request of the Company, the Underwriters have reserved 75,000 of the
shares of Common Stock being offered hereby for sale at the initial public
offering price to directors, officers, employees and certain individuals
associated with the Company, its directors, its officers or its employees. The
number of shares of Common Stock available to the public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares that are
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
In the Underwriting Agreement, the Company and the Selling Shareholders
have agreed to indemnify the Underwriters against certain liabilities that may
be incurred in connection with this Offering, including liabilities under the
Securities Act, or to contribute payments that the Underwriters may be required
to make in respect thereof.
The aggregate number of shares to be issued to the shareholders of
Interknit was determined on the basis of a valuation performed by
Interstate/Johnson Lane Corporation, one of the managing underwriters of this
Offering. The Company has agreed to pay Interstate/Johnson Lane Corporation
$25,000 in fees for rendering to the Board of Directors of the Company a
fairness opinion regarding the terms and conditions of the Exchange. One of the
Company's directors, Claude S. Abernethy, Jr., who is not a shareholder of
Interknit, is a Senior Vice President of Interstate/Johnson Lane Corporation.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Moore & Van Allen, PLLC,
Charlotte, North Carolina. Certain legal matters relating to the shares of
Common Stock offered hereby will be passed upon for the Underwriters by Smith
Helms Mulliss & Moore, L.L.P., Charlotte, North Carolina.
EXPERTS
The financial statements and schedules included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, Mengel,
Metzger, Barr & Co. LLP and KPMG, to the extent and for the periods set forth in
the respective reports of such firms contained herein and in the Registration
Statement. All such financial statements and schedules have been included in
reliance upon such reports given upon the authority of such firms as experts in
auditing and accounting.
Whisnant & Company of Hickory, North Carolina resigned effective September
15, 1995 as the independent auditors for the Company. The change in independent
auditors was made because Whisnant & Company does not routinely prepare
financial statements for filings with the Securities and Exchange Commission
(the "Commission"). The reports of Whisnant & Company regarding the financial
statements as of and for the years ended December 31, 1993 and 1994, which are
not included in this Prospectus, contained no adverse opinion, disclaimer of
opinion or qualifications as to uncertainty, audit scope or accounting
principles. The decision to change independent auditors was made by management
of the Company, but was not voted on or approved by the Board of Directors. The
resignation of Whisnant & Company and the engagement of BDO Seidman, LLP was
effective on September 15, 1995. The Company had no disagreements with Whisnant
& Company on any matter of accounting principle or practice, financial statement
disclosure or auditing scope or procedure during the two years ended December
31, 1994. Whisnant & Company was authorized by the Company to respond fully to
inquiries of BDO Seidman, LLP. The Company had not consulted with BDO Seidman,
LLP regarding application of accounting principles prior to such firm's
engagement.
52
<PAGE> 54
ADDITIONAL INFORMATION
The Company has filed a Registration Statement, including amendments
thereto, relating to the Common Stock offered hereby with the Commission. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document to which
reference is made are not necessarily complete and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement, exhibits and schedules. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office at 450 Fifth
Street N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; and Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the
Registration Statement, including the exhibits thereto, may be obtained, upon
payment of the prescribed fees, at such offices of the Commission. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering and Retrieval System ("EDGAR") are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto, has been filed with the Commission via EDGAR.
The Company has not previously been subject to the informational
requirements of the Exchange Act. Upon completion of this Offering, the Company
intends to register the Common Stock under the Exchange Act and, in accordance
therewith, will file reports, proxy statements, and other information
periodically with the Commission. Such reports, proxy statements and other
information will be available for inspection and copying at the Commission's
Washington, D.C. office and the Northeast and Midwest Regional Offices. The
Company intends to furnish its shareholders with annual reports containing
audited financial statements.
53
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
RIDGEVIEW, INC. AND SUBSIDIARIES
Report of BDO Seidman, LLP....................................................... F-2
Report of KPMG................................................................... F-3
Report of Mengel, Metzger, Barr & Co. LLP........................................ F-4
Consolidated balance sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)................................................................... F-5
Consolidated statements of income for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)................................................................... F-6
Consolidated statements of shareholders' equity for the years ended December 31,
1993, 1994 and 1995 and the six months ended June 30, 1996 (unaudited)........ F-7
Consolidated statements of cash flows for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)................................................................... F-8
Notes to consolidated financial statements....................................... F-10
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
Report of Mengel, Metzger, Barr & Co. LLP........................................ F-22
Consolidated balance sheets as of April 1, 1995 and April 2, 1994................ F-23
Consolidated statements of income and retained earnings for the years ended April
1, 1995 and April 2, 1994..................................................... F-24
Consolidated statements of cash flows for the years ended April 1, 1995 and April
2, 1994....................................................................... F-25
Notes to consolidated financial statements....................................... F-26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF RIDGEVIEW, INC.
AND SUBSIDIARIES
Introduction..................................................................... F-31
Pro forma condensed consolidated balance sheet as of June 30, 1996............... F-32
Pro forma condensed consolidated statement of income for the six months ended
June 30, 1996................................................................. F-33
Pro forma condensed consolidated statement of income for the six months ended
June 30, 1995................................................................. F-34
Pro forma condensed consolidated statement of income for the year ended
December 31, 1995............................................................. F-35
Notes to pro forma condensed consolidated financial statements................... F-36
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(The following is the form of the opinion that BDO Seidman, LLP will be in a
position to issue upon consummation of the stock split discussed in Note 10)
To the Board of Directors of
Ridgeview, Inc.
Newton, North Carolina
We have audited the accompanying consolidated balance sheets of Ridgeview, Inc.
and subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Ridgeview, Ltd. (a wholly-owned subsidiary), which
statements reflect total assets of $4,183,000 and $7,038,000 as of December 31,
1994 and 1995, respectively, and total revenues of $4,227,000, $4,065,000 and
$4,724,000 for each of the three years in the period ended December 31, 1995,
respectively. Also, we did not audit the financial statements of Seneca Knitting
Mills Corporation and subsidiaries (a wholly-owned subsidiary), which statements
reflect total assets of $9,898,000 as of December 31, 1995 and total revenues of
$9,178,000 for the period from the date of acquisition (June 28, 1995) through
December 31, 1995. Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the amounts
included for these subsidiaries, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly in all
material respects, the financial position of Ridgeview, Inc. and subsidiaries as
of December 31, 1994 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Greensboro, North Carolina
February 2, 1996, except for the stock split discussed in Note 10,
which is as of October , 1996
F-2
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF RIDGEVIEW LIMITED
We have audited the financial statements of the Irish branch of Ridgeview
Limited ("the financial statements") for the three years ended December 31, 1995
which have been prepared by branch management in accordance with the basis of
preparation set out below. These branch financial statements are not attached to
this report. The latest audit report we issued is in respect of the audit for
the year ended 31 December 1995 and this was dated 18 March 1996.
BASIS OF PREPARATION
The financial statements have been prepared solely for the purposes of
incorporating the results of the Irish branch into the financial statements of
Ridgeview Limited.
The financial statements, which are prepared in Irish punts, have been
prepared under the historical cost convention and in accordance with generally
accepted accounting principles in the Republic of Ireland.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors and branch management are responsible for the
preparation of the financial statements. The directors are required to prepare
the financial statements for each financial year which give a true and fair view
of the state of affairs and of the profit and loss for that period. It is our
responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audits in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
branch management in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the branch's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audits so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements which we audited, none of which are
attached to this report, give a true and fair view of the state of affairs of
the branch at 31 December 1993, 1994 and 1995 and of the profit for the branch
for the years ended 31 December 1993, 31 December 1994 and 31 December 1995.
/s/ KPMG
Chartered Accountants
Registered Auditors
90 South Mall
Cork
Date: 29 August 1996
F-3
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
Board of Directors
Seneca Knitting Mills Corporation
We have audited the consolidated balance sheet of Seneca Knitting Mills
Corporation (a wholly-owned subsidiary of Ridgeview, Inc.) as of December 31,
1995, and the related consolidated statements of income and retained earnings
and cash flows for the six months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Seneca Knitting
Mills Corporation as of December 31, 1995, and the consolidated results of its
operations and its consolidated cash flows for the six months then ended in
conformity with generally accepted accounting principles.
MENGEL, METZGER, BARR & CO. LLP
Rochester, New York
January 31, 1996
F-4
<PAGE> 59
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................... $ 86 $ 223 $ 144
Accounts receivable (less allowance for doubtful accounts of
$195, $371 and $379) (Note 8).............................. 7,196 9,997 11,630
Inventories (Note 3).......................................... 9,994 14,780 19,075
Prepaid expenses (Note 14).................................... 24 297 464
Deferred income taxes (Note 7)................................ 69 -- --
------- ------- -------
Total current assets.................................. 17,369 25,297 31,313
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and
amortization (Note 4)......................................... 6,332 10,349 10,242
DEFERRED INCOME TAXES (Note 7).................................. 15 -- --
OTHER ASSETS.................................................... 771 1,027 1,093
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, less
accumulated amortization of $0, $56 and $167 (Note 2)......... -- 1,861 1,797
------- ------- -------
Total assets (Note 6)................................. $24,487 $38,534 $44,445
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 5)................................ $ 1,156 $ 1,255 $ 1,869
Accounts payable.............................................. 2,515 4,922 6,439
Accrued expenses and other liabilities........................ 724 852 1,225
Income taxes payable (Note 7)................................. 488 -- 14
Deferred income taxes (Note 7)................................ -- 581 518
Current portion of long-term debt (Note 6).................... 644 5,632 6,038
Current portion of deferred compensation (Note 12)............ 146 144 98
------- ------- -------
Total current liabilities............................. 5,673 13,386 16,201
LONG-TERM DEBT, less current portion (Note 6)................... 9,492 14,624 17,516
DEFERRED COMPENSATION, less current portion (Note 12)........... 874 1,434 1,491
DEFERRED CREDIT (Note 12)....................................... 672 1,064 1,024
DEFERRED INCOME TAXES (Note 7).................................. -- 40 107
------- ------- -------
Total liabilities..................................... 16,711 30,548 36,339
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' EQUITY: (Notes 10 and 12)
Common stock -- authorized 20,000,000 shares of $.01 par
value; issued 1,350,087 shares, 1,349,701 shares and
1,360,000 shares, respectively............................. 14 14 14
Additional paid-in capital.................................... 1,078 1,077 1,108
Retained earnings............................................. 6,678 6,806 6,893
Foreign currency translation adjustments...................... 6 89 91
------- ------- -------
Total shareholders' equity............................ 7,776 7,986 8,106
------- ------- -------
Total liabilities and shareholders' equity.......... $24,487 $38,534 $44,445
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 60
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES (Notes 8 and 11)................... $35,605 $40,093 $54,408 $21,474 $31,799
COST OF SALES (Note 11)...................... 27,813 30,963 43,723 16,922 25,656
------- ------- ------- ------- -------
GROSS PROFIT................................. 7,792 9,130 10,685 4,552 6,143
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 6,032 6,768 8,169 3,714 4,901
SUPPLEMENTAL RETIREMENT BENEFIT (Note 12).... -- -- 500 -- --
------- ------- ------- ------- -------
OPERATING INCOME............................. 1,760 2,362 2,016 838 1,242
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE)
Interest expense........................... (661) (829) (1,584) (520) (1,064)
Foreign currency exchange gains............ 108 -- -- -- --
Grant income............................... 163 117 75 41 39
Other, net................................. 63 (63) 28 (24) (10)
------- ------- ------- ------- -------
Total other income (expense)....... (327) (775) (1,481) (503) (1,035)
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES................... 1,433 1,587 535 335 207
PROVISION FOR INCOME TAXES (Note 7).......... 349 573 239 97 78
------- ------- ------- ------- -------
NET INCOME................................... $ 1,084 $ 1,014 $ 296 $ 238 $ 129
======= ======= ======= ======= =======
EARNINGS PER SHARE........................... $ 0.80 $ 0.75 $ 0.22 $ 0.18 $ 0.10
======= ======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING......................... 1,353 1,350 1,350 1,353 1,355
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 61
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------ PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ------ ---------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........... 1,355,367 $ 14 $1,090 $4,841 $ 174 $6,119
Net income........................... 1,084 1,084
Cash dividends ($.09 per share)...... (115) (115)
Redemption of common stock........... (5,151) (12) (12)
Foreign currency translation
adjustment........................ (386) (386)
--------- --- ------ ------ ----- ------
Balance at December 31, 1993........... 1,350,216 14 1,078 5,810 (212) 6,690
Net income........................... 1,014 1,014
Cash dividends ($.11 per share)...... (146) (146)
Redemption of common stock........... (129)
Foreign currency translation
adjustment........................ 218 218
--------- --- ------ ------ ----- ------
Balance at December 31, 1994........... 1,350,087 14 1,078 6,678 6 7,776
Net income........................... 296 296
Cash dividends ($.12 per share)...... (168) (168)
Issuance of common stock............. 5,151 15 15
Redemption of common stock........... (5,540) (16) (16)
Foreign currency translation
adjustment........................ 83 83
--------- --- ------ ------ ----- ------
Balance at December 31, 1995........... 1,349,698 14 1,077 6,806 89 7,986
Six months ended June 30, 1996
(unaudited):
Net income........................... 129 129
Cash dividends ($.03 per share)...... (42) (42)
Issuance of common stock............. 10,302 31 31
Foreign currency translation
adjustment........................ 2 2
--------- --- ------ ------ ----- ------
Balance at June 30, 1996 (unaudited)... 1,360,000 $ 14 $1,108 $6,893 $ 91 $8,106
========= === ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 62
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers............ $ 34,808 $ 38,764 $ 53,231 $ 20,561 $ 29,065
Cash paid to suppliers and employees.... (34,236) (36,689) (48,793) (18,715) (30,965)
Foreign currency exchange gains realized
in cash.............................. 108 -- -- -- --
Interest paid........................... (613) (730) (1,403) (442) (1,005)
Income taxes paid, net of refunds....... (190) (373) (937) (437) (54)
Other cash receipts..................... 21 12 16 25 15
Other cash disbursements................ -- -- (126) (68) (83)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities........................... (102) 984 1,988 924 (3,027)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for organizational costs....... -- -- (133) (68) --
Payments for investments in
subsidiaries......................... -- -- (76) -- (65)
Payments for purchase of 100% of Seneca
capital stock, net of cash
acquired............................. -- -- (2,097) (2,097) --
Proceeds from sale of property and
equipment............................ 24 435 174 114 28
Payments for purchase of property, plant
and equipment........................ (840) (1,881) (3,619) (1,794) (606)
-------- -------- -------- -------- --------
Net cash used in investing activities... (816) (1,446) (5,751) (3,845) (643)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings............... 1,426 1,057 99 (313) 304
Proceeds from long-term debt............ 595 56 58,729 25,928 30,588
Repayment of long-term debt............. (860) (761) (55,254) (22,442) (27,290)
Dividends paid.......................... (115) (146) (168) (84) (42)
Proceeds from issuance of common
stock................................ -- -- 15 15 31
Payments for stock redemption........... (12) -- (16) -- --
Proceeds from government grants......... 104 56 490 -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities........................... 1,138 262 3,895 3,104 3,591
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE ON CASH........... (17) 20 5 (4) --
-------- -------- -------- -------- --------
Net increase (decrease) in cash......... 203 (180) 137 179 (79)
CASH, beginning of period................. 63 266 86 86 223
-------- -------- -------- -------- --------
CASH, end of period....................... $ 266 $ 86 $ 223 $ 265 $ 144
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 63
RIDGEVIEW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONCLUDED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income................................. $ 1,084 $ 1,014 $ 296 $ 238 $ 129
------- ------- ------- ------- -------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 901 917 1,200 504 746
Provision for doubtful accounts
receivable............................ 4 162 126 45 28
Capital grants recognized............... (163) (117) (75) (32) (39)
Decrease in government grants........... -- -- (43) -- --
(Gain) loss on sale of assets........... (15) 66 (13) 27 25
Increase in deferred compensation
liability............................. 138 139 557 15 12
Decrease in deferred income taxes....... (30) (60) (243) (35) 4
Changes in operating assets and
liabilities, net of effects from
purchase of Seneca:
(Increase) decrease in accounts
receivable............................ (659) (1,329) (1,119) (841) (1,675)
(Increase) decrease in inventories...... (2,065) (884) 946 (814) (4,291)
(Increase) decrease in prepaid expenses
and other assets...................... (25) (153) (303) (72) (198)
Increase (decrease) in accounts
payable............................... 444 813 1,403 2,330 1,530
Increase (decrease) in income taxes
payable............................... 161 260 (455) (304) 19
Increase (decrease) in accrued expenses
and other liabilities................. 123 156 (289) (137) 683
------- ------- ------- ------- -------
Total adjustments to net income.... (1,186) (30) 1,692 686 (3,156)
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................. $ (102) $ 984 $ 1,988 $ 924 $(3,027)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR
ENDED
SCHEDULE OF NONCASH INVESTING DECEMBER 31,
AND FINANCING ACTIVITIES 1995
------------
<S> <C>
Purchase price of 100% of Seneca capital stock............................. $ 7,000
Less: Short-term notes issued.............................................. (4,000)
Less: Cash acquired........................................................ (903)
-------
Payment for purchase of Seneca capital stock, net of cash acquired......... $ 2,097
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 64
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Ridgeview, Inc. and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS. The consolidated
financial statements as of June 30, 1996 and for the six months ended June 30,
1995 and 1996 are unaudited, and have been prepared on the same basis as the
audited financial statements included herein. In the opinion of management, such
unaudited financial statements include all adjustments consisting of normal
recurring accruals and an adjustment for an obsolete inventory write-off in
excess of normal reserves of $310,000 for the six month period ended June 30,
1995, necessary to present fairly the information set forth therein. Results for
interim periods are not indicative of results to be expected for an entire year.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
INVENTORIES. All inventories except those at Seneca are stated at the
lower of cost (first-in, first-out) or market. Inventories for Seneca are stated
at the lower of cost (last-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Expenditures for maintenance and repairs, which do not improve or extend
the life of an asset, are charged to expense as incurred. Expenditures for
renewals and improvements that significantly add to productive capacity or
extend the useful life of an asset are capitalized.
Depreciation is provided over the estimated useful lives of the individual
assets by the straight-line method. The estimated useful lives used in the
computation of depreciation are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................... 8-39
Machinery and equipment....................................... 5-12
Automobiles and trucks........................................ 5
Office furniture and equipment................................ 5-10
</TABLE>
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED. The excess of cost
over fair value of net assets acquired represents the excess of purchase price
over the fair value of net tangible assets of businesses acquired and is
amortized using the straight-line method over the estimated useful life of 15
years. Recoverability of the excess of cost over the fair value of net assets
acquired (goodwill) is reviewed annually unless circumstances indicate that such
review should be performed sooner. The underlying business which gave rise to
the goodwill is evaluated based upon expectations of non-discounted cash flows
and operating income to determine whether any impairment has occurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Financial instruments of the Company
include long-term debt. Based upon the current borrowing rates available to the
Company, estimated fair values of these financial instruments approximate their
recorded carrying amounts.
INCOME TAXES. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes,
which requires an asset and liability approach to financial accounting and
reporting for income taxes. The difference between the financial statement and
tax basis of assets and liabilities is determined annually. Deferred income tax
assets and liabilities are computed for those differences that have future tax
consequences using the currently enacted tax
F-10
<PAGE> 65
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
laws and rates that apply to the periods in which they are expected to affect
taxable income. The cumulative effect of adopting SFAS No. 109 was not
significant.
REVENUE RECOGNITION. Sales and related costs are recorded by the Company
upon shipment of its products.
ADVERTISING COSTS. Advertising costs, included in selling, general and
administrative expenses, are expensed as incurred and were $462,000, $629,000
and $851,000 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $384,000 and $444,000 for the six months ended June 30, 1995 and 1996,
respectively.
FOREIGN CURRENCY TRANSLATION. The Company's subsidiary, Ridgeview, Ltd.
("Limited") operates primarily in the Republic of Ireland and the local
currency, the Irish punt, has been designated as its functional currency.
Limited's assets and liabilities are translated at the balance sheet date using
the current exchange rate for the Irish punt and U.S. dollar. Results of
operations are translated using the exchange rates for the Irish punt and U.S.
dollar prevailing throughout the period. The resulting foreign currency
translation adjustments are included as a separate component of shareholders'
equity.
RECENT ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board
has recently issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reported at the lower of the
carrying amount or their estimated recoverable amount. Adoption of this standard
by the Company did not have a significant impact on the consolidated financial
statements. SFAS No. 123 encourages the accounting for stock-based employee
compensation programs to be reported within the financial statements on a fair
value based method; however, it allows an entity to continue to measure
compensation cost under Accounting Principles Board Opinion ("APB") No. 25. If
electing to remain with the accounting under APB No. 25, then the standard
requires pro forma disclosure of net income and earnings per share as if the
fair value based method had been adopted. The Company intends to adopt the pro
forma disclosure requirements of SFAS No. 123. Both standards are effective for
fiscal years beginning after December 15, 1995.
EARNINGS PER SHARE. Earnings per share are calculated using the weighted
average number of shares outstanding of Common Stock and dilutive common stock
equivalents during each period presented, after giving retroactive effect to a
129 for 1 stock split (see Note 10). Additionally, earnings per share, after
giving retroactive effect to the reduction in debt through the use of proceeds
from the proposed public offering, for the year ended December 31, 1995 and the
six months ended June 30, 1996 would have been $0.30 and $0.15, respectively.
RECLASSIFICATIONS. Financial statements for 1993 and 1994 have been
reclassified, where applicable, to conform to financial statement presentation
used in 1995.
NOTE 2 -- ACQUISITIONS
On June 28, 1995, the Company acquired all of the issued and outstanding
shares of capital stock of Seneca and certain real property owned by Seneca or
certain of its shareholders for $3 million in cash and $4 million in notes
payable in a transaction accounted for as a purchase. The purchase price
exceeded the fair value of the net tangible assets acquired by $1.9 million,
which amount is being amortized over 15 years on the straight-line method. The
operating results of Seneca are included in the Company's consolidated results
of operations from the date of acquisition.
F-11
<PAGE> 66
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
The Company expects to acquire all of the outstanding shares of capital
stock of Interknit, Inc. ("Interknit"), a corporation affiliated through common
ownership (see Note 11), in exchange for 240,000 shares of Common Stock in a
transaction to be accounted for as a pooling of interests. The shares of Common
Stock are to be issued immediately prior to the completion of the Company's
proposed initial public offering of Common Stock (see Note 14).
The following unaudited pro forma summary presents information as if the
acquisition of Seneca had occurred at January 1, 1994 and the acquisition of
Interknit had occurred at January 1, 1995. The 1994 results of operations of
Interknit were not material. The pro forma information, which is provided for
information purposes only, is based on historical information and does not
necessarily reflect the actual results that would have occurred, nor is it
necessarily indicative of future results of operations of the combined entities.
Pro forma information (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales....................................... $54,305 $59,602 $32,712
Net income...................................... $ 1,151 $ 105 $ 271
Earnings per share.............................. $ 0.85 $ 0.07 $ 0.17
</TABLE>
NOTE 3 -- INVENTORIES
A summary of inventories by major classification is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials........................................ $1,520 $ 3,444 $ 3,309
Work-in-process...................................... 4,480 4,864 6,803
Finished goods....................................... 3,994 6,522 9,013
(LIFO reserve)....................................... -- (50) (50)
------ ------- -------
$9,994 $14,780 $ 19,075
====== ======= =======
</TABLE>
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................................ $ 132 $ 313 $ 313
Buildings and improvements.......................... 4,722 6,220 6,268
Machinery and equipment............................. 9,906 12,756 12,959
Automobiles and trucks.............................. 85 102 102
Office furniture and equipment...................... 1,831 2,072 2,245
------- ------- -------
16,676 21,463 21,887
Less accumulated depreciation and amortization...... 10,344 11,114 11,645
------- ------- -------
Net property, plant and equipment................... $ 6,332 $10,349 $ 10,242
======= ======= =======
</TABLE>
F-12
<PAGE> 67
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
Depreciation expense for each of the three years in the period ended
December 31, 1995 was $874,000, $901,000 and $1,096,000, respectively, and was
$491,000 and $657,000 for the six months ended June 30, 1995 and 1996,
respectively.
NOTE 5 -- SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank drafts issued, not yet presented for payment...... $1,156 $1,255 $1,869
====== ====== ======
</TABLE>
The Company has an agreement with a bank whereby funds are automatically
drawn on the Company's Revolving Credit Facility (see Note 6) and transferred to
the Company's bank account to cover bank drafts as they are presented for
payment. Included in short-term borrowings is the liability for bank drafts
issued, but not yet presented for payment.
F-13
<PAGE> 68
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 6 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving Credit Facility (see discussion below)...... $ 4,869 $12,553 $ 16,191
Term loan payable to bank in monthly installments of
$42, plus interest at prime plus 1% (9.25% at June
30, 1996), beginning February 2, 1995, with a final
balloon payment November 2, 1996, collateralized by
substantially all assets of the Company............. 5,000 4,542 4,292
Note payable to bank in 32 monthly installments of
$12, plus interest at prime plus 1% (9.25% at June
30, 1996), beginning July 1996, with a final payment
due January 1999, collateralized by substantially
all assets of the Company........................... -- 1,000 1,000
Note payable to bank in annual installments of $160,
beginning in 1997, with a final payment due in 2001,
collateralized by the assets of Limited and a
guarantee by the Company............................ -- 800 800
Note payable to Seneca County IDA, due in monthly
payments of approximately $5 including interest at
5% through March 1996 at which time the interest
rate adjusts annually to 50% of prime but not less
than 5%, collateralized by certain equipment........ -- 354 330
Note payable to former principal shareholder of
Seneca, due September 1, 1997, with interest only
payable monthly at 7% per annum; unsecured.......... -- 500 500
Note payable, due December 1996, with interest only
payable monthly at 9% per annum; unsecured.......... -- 350 350
Various notes payable in installments through March
1998, including interest at rates ranging up to
13.2%; collateralized by a building and
communications equipment............................ 267 157 91
------- ------- -------
10,136 20,256 23,554
Less current portion............................. 644 5,632 6,038
------- ------- -------
Total long-term debt.................................. $ 9,492 $14,624 $ 17,516
======= ======= =======
</TABLE>
On January 10, 1995, the Company restructured its existing bank loan
agreements. The restructured agreements provide a Revolving Credit Facility and
a $5 million term loan. The term loan provides for monthly payments and a final
balloon payment due on November 2, 1996. In connection with the restructured
agreements, short-term borrowings of $4.3 million and long-term notes totaling
$5.6 million at December 31, 1994 were effectively canceled and replaced with
the restructured bank loans. Accordingly, the loan balances outstanding at
December 31, 1994 were classified as long-term.
In connection with the acquisition of Seneca (see Note 2), the Revolving
Credit Facility was amended to increase the Company's borrowing capability to
$15 million. The Revolving Credit Facility was amended again on August 28, 1996
(pursuant to a letter of commitment issued by the lender) to, among other
things,
F-14
<PAGE> 69
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
increase the borrowing capability to $20 million. The amended Revolving Credit
Facility expires in January 1999. Borrowings under the Revolving Credit Facility
bear interest at the lender's prime interest rate plus 1% and are collateralized
by substantially all assets of the Company.
The provisions of the restructured agreements relating to both the
Revolving Credit Facility and the term loan contain certain covenants which
require, among other things, the maintenance of minimum amounts of working
capital and tangible net worth, restrictions on capital expenditures,
restrictions on dividends and compliance with minimum financial ratios relating
to debt coverage and cash flows. At December 31, 1995 and June 30, 1996, the
Company was in violation of certain of these loan covenants. Pursuant to the
August 28, 1996 letter of commitment issued by the lender, these violations have
been waived and the lender has agreed to permanent modifications of the loan
covenants. Accordingly, the amounts outstanding at December 31, 1995 and June
30, 1996 have been classified as long-term.
Approximate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
-------------------------------------------------------
<S> <C>
1996................................................... $ 5,632
1997................................................... 390
1998................................................... 363
1999................................................... 13,411
2000................................................... 220
Thereafter............................................. 240
-----------
$ 20,256
===========
</TABLE>
NOTE 7 -- INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $272 $550 $ 448
State................................................ 34 60 54
Foreign.............................................. 45 23 (20)
---- ---- -----
351 633 482
---- ---- -----
Deferred:
Federal.............................................. 4 (48) (229)
State................................................ -- (6) (28)
Foreign.............................................. (6) (6) 14
---- ---- -----
(2) (60) (243)
---- ---- -----
Provision for income taxes............................. $349 $573 $ 239
==== ==== =====
</TABLE>
F-15
<PAGE> 70
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
The actual income tax expense differs from the "expected" tax expense for
those years (computed by applying the applicable statutory U.S. corporate income
tax rate of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes............................... $1,433 $1,587 $ 535
====== ====== ====
Computed "expected" tax expense.......................... 487 540 182
Increase (decrease) in taxes resulting from:
Foreign income with no U.S. income tax effect....... (183) (64) 20
State income taxes, net of federal income tax....... 23 36 17
Nondeductible expenses.............................. 5 14 27
Foreign tax......................................... 39 17 (6)
Other............................................... (22) 30 (1)
------ ------ ----
$ 349 $ 573 $ 239
====== ====== ====
</TABLE>
Net deferred tax assets and net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
----- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Receivable and inventory reserves.......................... $ 69 $ 195
Accrued expenses........................................... -- 73
Deferred compensation liability............................ 374 578
----- -------
Total deferred tax assets............................. $ 443 $ 846
----- -------
Deferred tax liabilities:
Tax greater than book depreciation......................... $(359) $ (618)
LIFO reserve............................................... -- (849)
----- -------
Total deferred tax liabilities........................ (359) (1,467)
----- -------
Net deferred tax assets (liabilities)................. $ 84 $ (621)
===== =======
</TABLE>
The Company does not accrue income taxes on the undistributed earnings of
its foreign subsidiary, Limited, which are intended to be invested in Limited
indefinitely. At December 31, 1995, the amount of undistributed earnings for
which taxes have not been accrued was $1.7 million.
NOTE 8 -- CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMER
The Company sells its products principally through retailers in North
America and Europe (see Note 13). The Company performs ongoing credit
evaluations of its customers and generally does not require collateral for
outstanding accounts receivable. Allowances are maintained for potential credit
losses, and such losses during the periods covered by these financial statements
have not exceeded management's expectations.
For the years ended December 31, 1993, 1994 and 1995, sales to one
customer, Target, accounted for 11%, 18% and 13%, respectively, of the Company's
net sales. For the six months ended June 30, 1995 and 1996, sales to this same
customer accounted for 12% of net sales in both periods. Accounts receivable
from this same customer were 23%, 19% and 7%, respectively, of total accounts
receivable at December 31, 1994 and 1995 and June 30, 1996.
F-16
<PAGE> 71
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 9 -- BENEFIT PLANS
The Company has an employee savings plan which covers participating
employees who have completed one year of employment and have attained age 21.
Under the terms of the plan, the Company contributes an amount equal to 25% of
participating employees' contributions which do not exceed 6% of each
participant's earnings. Total contributions to the plan by the Company amounted
to $86,000, $87,000 and $85,000 for the years ended December 31, 1993, 1994 and
1995, respectively, and $45,000 and $44,000 for the six months ended June 30,
1995 and 1996, respectively.
As specified by the collective bargaining agreement between Seneca and The
International Ladies' Garment Workers' Union, which in 1995 merged with the
Amalgamated Clothing and Textile Workers Union to form the Union of
Needletrades, Industrial and Textile Employees ("UNITE"), Seneca is required to
make contributions based on a percentage of the gross salary for all bargaining
unit employees, who are members of the union, to the following multi-employer
benefit plans:
1. Eastern Region, UNITE Health and Welfare Fund, a trust fund
established by collective agreement for the purpose of providing workers
with health, welfare and recreation benefits and services.
2. UNITE National Retirement Fund, a trust fund established by
collective agreement for the purpose of providing pensions or annuities on
retirement or death of workers.
3. UNITE Health Services Plan, a trust fund established by collective
agreement for the purpose of providing workers with drugs, medication and
other health services.
From the date of acquisition of Seneca, June 28, 1995, through December 31,
1995 and for the six months ended June 30, 1996, contribution expense under this
collective bargaining agreement amounted to approximately $243,000. The
Company's applicable portion of total plan benefits and net assets of the plans
are not separately identifiable.
NOTE 10 -- CAPITAL STOCK
In contemplation of a proposed initial public offering of the Company's
common stock (see Note 14), the Company's board of directors has authorized, and
the Company's shareholders have approved, amended and restated articles of
incorporation that increase the Company's authorized capital stock to 22,000,000
shares, to be divided into 20,000,000 shares of common stock and 2,000,000
shares of preferred stock. The board of directors has also declared a stock
dividend to become effective upon the signing of the underwriting agreement for
the proposed initial public offering, that is expected to result in the issuance
of approximately 129 additional shares of Common Stock for each share of Common
Stock then issued and outstanding. To reflect this anticipated split-up of the
Company's outstanding common stock into a greater number of shares, all share
numbers and per share amounts in these financial statements have been adjusted
retroactively.
Also in contemplation of the proposed initial public offering, the board of
directors and the shareholders have approved the Omnibus Plan, which permits the
issuance of options, stock appreciation rights ("SARS"), limited SARS,
restricted stock, performance awards and other stock-based awards to selected
employees and independent contractors of the Company. The Company has reserved
300,000 shares of common stock for issuance under the Omnibus Plan, which
provides that the term of each award shall be determined by a committee of the
board of directors charged with administering the Omnibus Plan, but no longer
than ten years after the date they are granted. Under the terms of the Omnibus
Plan, options granted may be either nonqualified or incentive stock options.
SARS and limited SARS granted in tandem with an option shall be exercisable only
to the extent the underlying option is exercisable. To date, no awards have been
granted under the Omnibus Plan.
F-17
<PAGE> 72
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
The directors have also authorized an employee stock purchase plan that,
after the initial public offering is completed and the plan activated, will
allow employees to purchase shares of common stock of the Company through
payroll deductions at 85% of the market value of the shares at the time of
purchase. The Company has reserved 100,000 shares for issuance under this plan.
NOTE 11 -- RELATED PARTY TRANSACTIONS
All of the Company's executive officers are shareholders of Interknit,
which manufactures greige goods and sells substantially all of its production to
the Company. The Company also sells raw materials to Interknit.
The Company's transactions with Interknit are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Purchases of greige goods........... $ -- $2,338 $3,162 $1,442 $2,363
Sales of raw materials.............. -- 266 289 288 25
Payables and receivables related to
the above transactions are as
follows:
Accounts payable.................... -- 135 136 206 300
Accounts receivable................. -- 1 1 32 6
</TABLE>
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
SELF INSURANCE PLAN. The Company is self insured for certain health
benefits up to $50,000 per occurrence per individual, with certain maximum
aggregate policy limits per claim year. The cost of such benefits is recognized
as an expense in the period the claim occurred. This cost amounted to $575,000,
$402,000 and $491,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $275,000 and $412,000 for the six months ended June 30, 1995
and 1996, respectively.
LOAN GUARANTEE. On July 5, 1995, the Company acquired a 50% interest in a
limited liability corporation formed for the purpose of purchasing an airplane.
The limited liability company financed the purchase of the airplane with
proceeds of a bank loan. At December 31, 1995, this loan had an outstanding
balance of $1.2 million, of which $600,000 is guaranteed by the Company. The
Company's investment in the limited liability company, which is accounted for
under the equity method, is not material and is included in other assets.
DEFERRED COMPENSATION. The Company has various agreements with certain
executive officers that provide for specified levels of compensation upon
retirement, death or disability. The expense related to these agreements
amounted to $174,000, $175,000 and $176,000 for the years ended December 31,
1993, 1994 and 1995, respectively, and $88,000 and $129,000 for the six months
ended June 30, 1995 and 1996, respectively.
In December 1995, the Company agreed to provide a senior level executive a
supplemental retirement benefit of $7,000 per month for a period of 84 months
commencing January 1996. As a result, the Company recorded a $500,000 pre-tax
charge to operating expenses.
DEFERRED CREDIT. The Republic of Ireland grants relating to property,
plant and equipment additions at Limited have been deferred and are amortized
over the life of the related assets. During the year ended December 31, 1995,
$445,000 in additional grants were received in connection with a major expansion
of Limited's manufacturing facility. No grants were received for the years ended
December 31, 1993 and 1994. Over a ten-year period, the grants are subject to
full or partial repayment to the Republic of Ireland if certain
F-18
<PAGE> 73
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
conditions specified in the grant agreement are not met. In the opinion of
management, Limited was in compliance with those conditions at December 31,
1995, and the Company intends to remain in compliance throughout the ten-year
period.
RESERVED RETAINED EARNINGS. Pursuant to the grant agreements with the
Republic of Ireland, Limited is required to maintain a minimum amount of equity
(and equity equivalents, as defined) based upon the amount of government grants
received. At December 31, 1994 and 1995, $460,000 and $475,000 of retained
earnings, respectively, have been reserved for this purpose.
On March 27, 1996, in compliance with the above government grant agreement,
Limited reserved an additional $480,000 of retained earnings for an aggregate of
$955,000 at June 30, 1996. These reserved retained earnings are required to be
maintained for the duration of the grant agreement, which expires December 31,
1999.
LEASES. The Company has several noncancellable operating leases, primarily
for manufacturing, showroom, storage and office purposes, that expire over the
next four years. Total rental expense amounted to $85,000, $99,000 and $186,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and $78,000
and $143,000 for the six months ended June 30, 1995 and 1996, respectively.
Future minimum lease payments under noncancellable operating leases are as
follows: 1996 -- $244,000; 1997 -- $136,000; 1998 -- $88,000; and
1999 -- $13,000.
LICENSE AGREEMENTS. In the normal course of its business, the Company
enters into license agreements for the use of trademarks owned by others on the
Company's products. Each of the license agreements provides for payment of
minimum royalties for each annual period during the term of the license
agreement.
Aggregate minimum guaranteed royalty payments under the license agreements
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
-----------------------------------------------------
<S> <C>
1996................................................. $400
1997................................................. 50
1998................................................. 50
--------
Total minimum royalty payments....................... $500
========
</TABLE>
On May 28, 1996, the Company signed an additional license agreement for the
Evan-Picone trademark, which calls for minimum guaranteed royalty payments of
$450,000, $500,000 and $600,000 for the period commencing July 1, 1996 through
December 31, 1997 and the years ending December 31, 1998 and 1999, respectively.
Total royalty expense for license agreements amounted to $40,000, $169,000
and $270,000 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $129,000 and $197,000 for the six months ended June 30, 1995 and 1996,
respectively.
F-19
<PAGE> 74
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 13 -- INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment, the manufacture and
sale of socks and women's hosiery products. The Company's products are sold
primarily through retailers.
Financial information by geographic region is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated
customers:
United States.................. $31,379 $36,028 $49,684 $19,042 $27,633
Europe......................... 4,226 4,065 4,724 2,432 4,166
------- ------- ------- ------- -------
Total net sales................ $35,605 $40,093 $54,408 $21,474 $31,799
======= ======= ======= ======= =======
Transfers between geographic
areas (Eliminated in
consolidation):
United States.................. $ 175 $ 84 $ 144 $ 24 $ 340
Europe......................... -- -- -- -- 16
------- ------- ------- ------- -------
Total transfers................ $ 175 $ 84 $ 144 $ 24 $ 356
======= ======= ======= ======= =======
Operating income (loss):
United States.................. $ 1,464 $ 2,294 $ 2,134 $ 765 $ 1,133
Europe......................... 296 140 (118) 73 109
Eliminations................... -- (72) -- -- --
Other income (expense), net.... (327) (775) (1,481) (503) (1,035)
------- ------- ------- ------- -------
Income before income taxes..... $ 1,433 $ 1,587 $ 535 $ 335 $ 207
======= ======= ======= ======= =======
Identifiable assets:
United States.................. $18,703 $21,267 $32,525 $35,125 $38,834
Europe......................... 3,673 4,183 7,038 4,783 6,837
Eliminations................... (762) (963) (1,029) (813) (1,226)
------- ------- ------- ------- -------
Total assets................... $21,614 $24,487 $38,534 $39,095 $44,445
======= ======= ======= ======= =======
</TABLE>
The classification by geographic region of the Company's net sales to
unaffiliated customers in the table above is based on the geographic location of
the customers for the Company's products. Transfers between geographic regions
are recorded at amounts generally above cost and in accordance with the rules
and regulations of the respective governing tax authorities. Operating income
consists of total net sales less operating expenses, and does not include other
income (expense) net, or income taxes. Identifiable assets of geographic areas
are those assets used in the Company's operations in each area.
F-20
<PAGE> 75
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
(INFORMATION FOR JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 14 -- PROPOSED PUBLIC OFFERING
The Company's board of directors has approved resolutions authorizing the
preparation and filing of a registration statement under the Securities Act with
the Commission pursuant to which the Company intends to register shares of its
Common Stock for sale to the public through a group of underwriters on a firm
commitment basis. Direct costs of $282,000 incurred in preparation of the
proposed initial public offering have been deferred and will be charged to
additional paid-in capital upon successful completion of the proposed public
offering or, if the public offering is not successfully completed, expensed
during the period in which the Company determines not to proceed with such
offering.
F-21
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
Board of Directors
Seneca Knitting Mills Corporation
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Seneca
Knitting Mills Corporation and Subsidiaries as of April 1, 1995 and April 2,
1994, and the related consolidated statements of income and retained earnings
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seneca
Knitting Mills Corporation and Subsidiaries as of April 1, 1995 and April 2,
1994, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Mengel, Metzger, Barr & Co LLP
Rochester, New York
May 11, 1995
F-22
<PAGE> 77
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................................... $ 239,926 $ 428,135
Note receivable from shareholder.......................................... 453,000 --
Accounts receivable, less allowance for doubtful accounts of $50,000 in
1995 and $18,000 in 1994................................................ 1,370,913 960,291
Inventories............................................................... 2,254,794 2,078,550
Prepaid income taxes...................................................... 90,585 --
Other prepaid expenses.................................................... 91,925 125,036
Deferred income taxes..................................................... 108,000 111,000
---------- ----------
TOTAL CURRENT ASSETS............................................... 4,609,143 3,703,012
PROPERTY, PLANT AND EQUIPMENT
Land...................................................................... 25,216 93,898
Buildings................................................................. 439,259 748,850
Leasehold improvements.................................................... 652,554 617,856
Machinery and equipment................................................... 1,901,405 1,264,795
Furniture and fixtures.................................................... 171,899 211,530
Vehicles.................................................................. 34,221 34,221
---------- ----------
3,224,554 2,971,150
Less accumulated depreciation and amortization............................ 1,875,024 1,787,536
---------- ----------
1,349,530 1,183,614
OTHER ASSETS
Cash value of life insurance.............................................. 293,413 270,883
Sundry.................................................................... 1,000 93,336
---------- ----------
294,413 364,219
---------- ----------
$6,253,086 $5,250,845
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................................... $ 107,929 $ 60,000
Accounts payable.......................................................... 1,189,663 624,890
Accrued payroll and related accruals...................................... 264,151 308,250
Accrued retirement and welfare contributions.............................. 358,106 330,334
Income taxes payable...................................................... 16,859 469,390
Other accrued liabilities................................................. 17,282 38,952
---------- ----------
TOTAL CURRENT LIABILITIES.......................................... 1,953,990 1,831,816
LONG-TERM DEBT.............................................................. 780,015 501,831
DEFERRED INCOME TAXES....................................................... 48,300 74,500
LEASE COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, Class A, voting, $10 par value:
Authorized, 50,000 shares
Issued and outstanding, 16,725 shares................................. 167,250 167,250
Common stock, Class B, non-voting, $10 par value:
Priority as to dividends and dissolution, Authorized, 50,000 shares
Issued and outstanding, 20,000 shares................................. 200,000 200,000
Retained earnings......................................................... 3,103,531 2,475,448
---------- ----------
3,470,781 2,842,698
---------- ----------
$6,253,086 $5,250,845
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE> 78
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
APRIL 1, APRIL 2,
1995 1994
----------- -----------
<S> <C> <C>
Net sales........................................................... $14,211,680 $11,743,641
Cost of sales....................................................... 11,162,712 8,911,545
----------- -----------
GROSS PROFIT................................................... 3,048,968 2,832,096
Selling, general and administrative expenses........................ 1,901,427 1,292,725
----------- -----------
INCOME FROM OPERATIONS......................................... 1,147,541 1,539,371
Other (expense) income:
Interest expense.................................................. (160,509) (155,707)
Interest income................................................... 6,771 11,376
Gain on sale of property, equipment and sundry assets............. 27,104 9,723
Sundry............................................................ 22,176 17,351
----------- -----------
(104,458) (117,257)
----------- -----------
INCOME BEFORE INCOME TAXES..................................... 1,043,083 1,422,114
Income taxes:
Current:
Federal........................................................ 385,200 400,000
State.......................................................... 53,000 68,500
Deferred (benefit)................................................ (23,200) 54,284
----------- -----------
415,000 522,784
----------- -----------
NET INCOME..................................................... 628,083 899,330
Retained earnings at beginning of year.............................. 2,475,448 1,576,118
----------- -----------
RETAINED EARNINGS AT END OF YEAR............................... $ 3,103,531 $ 2,475,448
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
<PAGE> 79
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------
APRIL 1, APRIL 2,
1995 1994
--------- ----------
<S> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES
Net income for the year............................................. $ 628,083 $ 899,330
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization.................................... 271,572 184,428
Gain on sale of property, equipment and sundry assets............ (27,104) (9,723)
Bad debts........................................................ 32,299 49,095
Deferred income taxes............................................ (23,200) 54,284
Cash value of life insurance..................................... (3,756) (2,432)
Changes in certain assets and liabilities affecting operations:
Accounts receivable............................................ (442,921) (213,436)
Inventories.................................................... (176,244) (665,048)
Prepaid income taxes........................................... (90,585) --
Other prepaid expenses......................................... 33,111 (46,764)
Sundry other assets............................................ -- (1,000)
Accounts payable............................................... 564,773 167,775
Accrued payroll and related accruals........................... (44,099) 121,226
Accrued retirement and welfare contributions................... 27,772 255,933
Income taxes payable........................................... (452,531) 399,767
Other accrued liabilities...................................... (21,670) 23,246
--------- ----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES................. 275,500 1,216,681
CASH FLOWS -- INVESTING ACTIVITIES
Purchase of property and equipment.................................. (771,048) (321,444)
Proceeds from the sale of equipment................................. -- 35,500
Cash value of life insurance........................................ (18,774) (19,856)
--------- ----------
NET CASH (USED FOR) INVESTING ACTIVITIES.................... (789,822) (305,800)
CASH FLOWS -- FINANCING ACTIVITIES
Note payable to bank................................................ -- (770,000)
Proceeds on long-term debt.......................................... 390,000 150,000
Payments on long-term debt.......................................... (63,887) (60,000)
--------- ----------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES...... 326,113 (680,000)
--------- ----------
NET (DECREASE) INCREASE IN CASH............................. (188,209) 230,881
Cash at beginning of year........................................... 428,135 197,254
--------- ----------
CASH AT END OF YEAR......................................... $ 239,926 $ 428,135
========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash payments during the fiscal year for:
Interest......................................................... $ 170,480 $ 142,917
========= ==========
Income taxes..................................................... $ 981,316 $ 68,733
========= ==========
NON-CASH INVESTING ACTIVITY
Sale of property, equipment and sundry assets financed through a
note receivable from shareholder.................................... $ 453,000 $ --
========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE> 80
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995 AND APRIL 2, 1994
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is primarily engaged in the manufacturing and sale of yarn and
heavy weight sport hosiery. GPM Corporation is involved in real estate
activities. The Company grants credit to qualified customers, who are located
primarily in the United States and involved in retail sales.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Seneca
Knitting Mills Corporation (the Company) and its wholly-owned subsidiaries,
Seneca Knitting Mills International Sales, Inc. (a Foreign Sales Corporation)
and GPM Corporation. All significant intercompany transactions and balances have
been eliminated.
FISCAL YEAR END
The Company has adopted a 52-53 week fiscal year ending on the Saturday
closest to March 31.
CASH
The Company maintains its cash balances in one financial institution
located in New York State. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At April 1, 1995, uninsured amounts held
at this financial institution total approximately $121,000.
INVENTORIES
Substantially all of the Company's inventories are stated at the lower of
cost or market with cost determined on the last-in, first-out (LIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Major
renewals and betterments are charged to the property accounts while
replacements, maintenance and repairs, which do not improve or extend the lives
of the respective assets, are expensed currently.
Depreciation is provided using both accelerated and straight-line methods
at rates sufficient to amortize the cost of the related asset over its estimated
useful life. Upon sale or retirement, the related cost and accumulated
depreciation are removed from the accounts and the related gain or loss is
reflected in operations.
INCOME TAXES
Deferred income tax assets and liabilities arise from temporary differences
associated with differences between the financial statement and tax basis of
assets and liabilities. Deferred tax assets and liabilities not related to an
asset or liability are classified as current or noncurrent depending on the
periods in which the temporary differences are expected to reverse. The
principal types of temporary differences between assets and liabilities for
financial statement and tax return purposes are accumulated depreciation,
inventories, accounts receivable, accrued payroll and accrued vacation.
F-26
<PAGE> 81
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B: NOTE RECEIVABLE FROM SHAREHOLDER
Note receivable from shareholder results from the sale of certain assets of
the Company to the shareholder as of March 31, 1995. Pursuant to the agreement
as discussed in Note J and as a condition thereto, the note receivable from
shareholder is to be paid when the sale is completed. Therefore, the Company has
classified the note receivable from shareholder as a current asset as of April
1, 1995.
NOTE C: INVENTORIES
The major categories of inventory are as follows:
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1995 1994
---------- ----------
<S> <C> <C>
Raw materials................................................. $1,542,447 $1,137,666
Work in process............................................... 1,290,778 1,372,182
Finished goods................................................ 1,550,148 1,408,189
Supplies...................................................... 227,096 196,643
---------- ----------
4,610,469 4,114,680
Less LIFO reserve............................................. 2,355,675 2,036,130
---------- ----------
$2,254,794 $2,078,550
========== ==========
</TABLE>
NOTE D: NOTE PAYABLE TO BANK
The Company maintains a revolving line of credit of $3,750,000. Interest is
at prime for outstanding borrowings up to $1,875,000 and prime plus .5% for
amounts over that amount. The line of credit is secured by the Company's
accounts receivable, inventories and the personal guarantee of the Company's
majority shareholder. At April 1, 1995, there was no outstanding balance.
F-27
<PAGE> 82
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E: LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1995 1994
-------- --------
<S> <C> <C>
Note payable to bank, due in monthly payments of $5,000 plus
interest at prime plus 1% (an effective rate of 10% at April
1, 1995) through December 1997. Collateralized by accounts
receivable, inventories and fixed assets and the personal
guarantee of the Company's majority shareholder............. $151,831 $211,831
Note payable to Seneca County IDA, due in monthly payments of
$5,500 including interest at 5% through March 1996 at which
time the interest rate adjusts annually to 50% of prime but
not less than 5%. Collateralized by certain equipment and
the personal guarantee of the Company's majority
shareholder................................................. 386,113 --
Note payable to related party, due June 1, 1996, with interest
only payable monthly at 10% per annum....................... 200,000 200,000
Note payable to related party, due September 8, 1996, with
interest only payable monthly at 8% per annum............... 150,000 150,000
-------- --------
887,944 561,831
Less current portion........................................... 107,929 60,000
-------- --------
$780,015 $501,831
======== ========
</TABLE>
Annual fiscal year maturities of long-term debt are estimated as follows:
<TABLE>
<S> <C>
1996............................................................ $107,929
1997............................................................ 460,382
1998............................................................ 84,790
1999............................................................ 55,669
2000............................................................ 58,517
Thereafter...................................................... 120,657
--------
$887,944
========
</TABLE>
NOTE F: INCOME TAXES
Deferred income tax assets and liabilities are determined based on the
differences between the financial statement and tax basis of assets and
liabilities as measured by the enacted rates which will be in effect when these
differences reverse.
F-28
<PAGE> 83
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes resulting from temporary differences are summarized
as follows:
<TABLE>
<CAPTION>
ASSETS/(LIABILITIES)
-------------------
APRIL 1, APRIL 2,
1995 1994
-------- --------
<S> <C> <C>
Accumulated depreciation....................................... $(48,300) $(74,500)
Inventories.................................................... 38,400 44,000
Accounts receivable............................................ 20,000 7,200
Accrued payroll................................................ -- 28,000
Accrued vacation............................................... 49,600 31,800
-------- --------
$ 59,700 $ 36,500
======== ========
Classification of deferred taxes:
Current asset.................................................. $108,000 $111,000
Non-current liability.......................................... (48,300) (74,500)
-------- --------
$ 59,700 $ 36,500
======== ========
</TABLE>
At April 1, 1995, the Company has unused investment tax credits (ITC) of
approximately $64,000 to reduce future state income taxes, which expire at
various dates through 2005. The future benefit of these New York State ITC
carryforwards is significantly limited because of the state income tax rules
and, accordingly, no related deferred tax asset has been recorded relating to
these credits.
NOTE G: BENEFIT PLANS
As specified by the collective agreement between the Company and The
International Ladies' Garment Workers' Union (ILGWU), the Company is required to
make contributions to the following multi-employer benefit plans:
1. Eastern Region, ILGWU Health and Welfare Fund, a trust fund
established by collective agreement for the purpose of providing workers
with health, welfare and recreation benefits and services.
2. ILGWU National Retirement Fund, a trust fund established by
collective agreement for the purpose of providing pensions or annuities on
retirement or death of workers.
3. ILGWU Health Services Plan, a trust fund established by collective
agreement for the purpose of providing workers with drugs, medication and
other health services.
Contributions are made as a percentage of the gross salary for all
bargaining unit employees (union) as follows:
<TABLE>
<CAPTION>
EFFECTIVE
JANUARY 1,
---------------
1995 1994
----- -----
<S> <C> <C>
ILGWU Health and Welfare Fund........................................ 4.50% 4.50%
ILGWU National Retirement Fund....................................... 9.00% 9.00%
ILGWU Health Services Plan........................................... 2.375% 2.375%
</TABLE>
For the years ended April 1, 1995 and April 2, 1994, contribution expense
amounted to approximately $487,500 and $430,400, respectively. The Company's
applicable portion of total plan benefits and net assets of the plans are not
separately identifiable.
NOTE H: OTHER
Sales to four major customers in 1995 were approximately $4,737,000 and to
three major customers in 1994 were approximately $3,024,000.
F-29
<PAGE> 84
SENECA KNITTING MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I: LEASE COMMITMENTS
The Company leases warehouse space from a related party at a monthly amount
of $4,000 plus taxes and insurance through December 1997.
The Company leases retail store space in Ithaca, Camillus and Corning, New
York at a total monthly amount aggregating $4,250 expiring at different dates
through January 1997.
The Company leases certain equipment and vehicles. Lease payments aggregate
approximately $5,000 per month and expire at different dates through February
1998.
Total lease expense approximated $150,000 and $92,000 for the years ended
April 1, 1995 and April 2, 1994, respectively.
NOTE J: SUBSEQUENT EVENT
On April 27, 1995, the shareholders of the Company signed an agreement for
the sale of their common stock to Ridgeview, Inc., a North Carolina corporation.
Subject to several conditions of the contract, the shareholders of the Company
anticipate the sale of their common stock to be completed prior to July 1995.
F-30
<PAGE> 85
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1996 gives effect to the proposed acquisition of Interknit as if
such event had occurred on June 30, 1996. The unaudited pro forma statements of
income for the six months ended June 30, 1995 and the year ended December 31,
1995 give effect to the acquisition of Seneca and the proposed acquisition of
Interknit as if such events had occurred on January 1, 1995. See Note 2 to the
Company's consolidated financial statements. The unaudited pro forma statement
of income for the six months ended June 30, 1996 gives effect to the proposed
acquisition of Interknit as if such event had occurred on January 1, 1996. The
pro forma condensed consolidated information has been prepared by the Company's
management and is based on the historical financial statements of the Company,
Seneca and Interknit. These pro forma condensed consolidated financial
statements may not be indicative of the results that actually would have
occurred if the combinations had been in effect on the dates indicated or which
may be obtained in the future. The pro forma condensed financial information for
the year ended December 31, 1994 to include Interknit is not material to the
combined financial statements of the Company and, accordingly, such financial
information is not included in this Prospectus. Interknit had no operations in
the year ended December 31, 1993.
F-31
<PAGE> 86
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RIDGEVIEW INTERKNIT ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Accounts receivable................... $11,630,003 $ 722,794 $(305,841)(B.1(a)) $12,046,956
Inventories........................... 19,074,777 105,575 (47,500)(B.1(b)) 19,132,852
Other current assets.................. 608,050 27,891 635,941
----------- ---------- ----------
Total current assets................ 31,312,830 856,260 31,815,749
Property, plant and equipment, net.... 10,242,418 1,345,125 11,587,543
Other assets.......................... 1,092,387 108,587 1,200,974
Excess of cost over fair value of net
assets acquired, less
amortization........................ 1,797,153 1,797,153
----------- ---------- --------- ----------
Total assets........................ $44,444,788 $2,309,972 $(353,341) $46,401,419
=========== ========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable...................... $ 6,439,336 $ 392,687 $(305,841)(B.1(a)) $ 6,526,182
Current portion of long-term debt..... 6,038,292 218,943 6,257,235
Other current liabilities............. 3,722,668 236,816 (17,100)(B.1(c)) 3,942,384
----------- ---------- ----------
Total current liabilities........... 16,200,296 848,446 16,724,801
Long-term debt, less current
portion............................. 17,516,384 1,255,051 18,771,435
Other liabilities..................... 2,621,874 38,958 2,660,832
----------- ---------- ----------
Total liabilities................... 36,338,554 2,142,455 38,158,068
Shareholders' equity.................. 8,106,234 167,517 (30,400)(B.1(c)) 8,243,351
----------- ---------- --------- ----------
Total liabilities and shareholders'
equity........................... $44,444,788 $2,309,972 $(353,341) $46,401,419
=========== ========== ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-32
<PAGE> 87
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RIDGEVIEW INTERKNIT ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................ $31,799,404 $3,300,002 $(2,387,673)(B.2(a)) $32,711,733
Costs of goods sold.................. 25,656,306 2,921,709 2,340,173(B.2(a)) 26,237,842
----------- ---------- -----------
Gross profit......................... 6,143,098 378,293 6,473,891
Selling, general and administrative
expenses........................... 4,901,083 51,222 4,952,305
----------- ---------- -----------
Operating income..................... 1,242,015 327,071 1,521,586
Interest expense..................... 1,063,672 66,610 1,130,282
Other income, net.................... 28,938 28,938
Income taxes......................... 77,796 88,511 (17,100)(B.2(b)) 149,207
----------- ---------- ----------- -----------
Net income........................... $ 129,485 $ 171,950 $ (30,400) $ 271,035
=========== ========== =========== ===========
Net income per share................. $ 0.10 $ 0.17
=========== ===========
Weighted average shares
outstanding........................ 1,354,852 1,594,852
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-33
<PAGE> 88
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
RIDGEVIEW SENECA INTERKNIT ADJUSTMENTS FORMA
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................. $21,474,024 $4,768,572 $1,512,902 $(1,729,825)(B.3(a)) $26,025,673
Costs of goods sold....... 16,921,693 3,904,326 1,565,288 1,787,775(B.3(b)) 20,603,532
----------- ---------- ---------- -----------
Gross profit (loss)....... 4,552,331 864,246 (52,386) 5,422,141
Selling, general and
administrative
expenses................ 3,714,346 636,876 8,279 76,685(B.3(c)) 4,436,186
----------- ---------- ---------- -----------
Operating income (loss)... 837,985 227,370 (60,665) 985,955
Interest expense.......... 520,155 44,770 39,751 301,313(B.3(d)) 905,989
Other income, net......... 17,525 6,013 23,538
Income taxes.............. 97,804 73,040 (29,804) (74,165)(B.3(e)) 66,875
----------- ---------- ---------- ----------- -----------
Net income (loss)......... $ 237,551 $ 109,560 $ (64,599) $ (245,883) $ 36,629
=========== ========== ========== =========== ===========
Net income per share...... $ 0.18 $ 0.02
=========== ===========
Weighted average shares
outstanding............. 1,352,663 1,592,663
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-34
<PAGE> 89
RIDGEVIEW, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RIDGEVIEW SENECA INTERKNIT ADJUSTMENTS PRO FORMA
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................. $54,407,813 $4,768,572 $3,876,758 $(3,450,853)(B.3(a)) $59,602,290
Costs of goods sold....... 43,723,004 3,904,326 3,825,248 3,508,803(B.3(b)) 47,943,775
----------- ---------- ---------- -----------
Gross profit.............. 10,684,809 864,246 51,510 11,658,515
Selling, general and
administrative
expenses................ 8,668,711 636,876 66,005 76,685(B.3(c)) 9,448,277
----------- ---------- ---------- -----------
Operating income (loss)... 2,016,098 227,370 (14,495) 2,210,238
Interest expense.......... 1,583,336 44,770 84,910 301,313(B.3(d)) 2,014,329
Other income, net......... 102,581 15,530 118,111
Income taxes.............. 238,808 73,040 (28,326) (74,165)(B.3(e)) 209,357
----------- ---------- ---------- ----------- -----------
Net income (loss)......... $ 296,535 $ 109,560 $ (55,549) $ (245,883) $ 104,663
=========== ========== ========== =========== ===========
Net income per share...... $ 0.22 $ 0.07
=========== ===========
Weighted average shares
outstanding............. 1,349,894 1,589,894
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-35
<PAGE> 90
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
A. GENERAL
On June 28, 1995, the Company acquired all of the outstanding capital stock
of Seneca for $3.0 million in cash and $4.0 million in notes payable in a
transaction that was accounted for as a purchase. The purchase price exceeded
the fair value of the net assets acquired by $1.9 million, which is being
amortized over 15 years using the straight-line method.
Immediately prior to completion of this Offering, the Company will acquire
all of the outstanding stock of Interknit, a corporation affiliated with the
Company through common ownership of its shares by certain shareholders of the
Company. Interknit was established for the purpose of providing a consistent,
reliable supply of greige goods to the Company's sock finishing and shipping
facility in Ft. Payne, Alabama. Pursuant to an exchange agreement by and among
the Company and the shareholders of Interknit, the shareholders of Interknit
will, immediately prior to completion of this Offering, transfer all of the
outstanding capital stock of Interknit to the Company in exchange for an
aggregate of 240,000 shares of Common Stock. The acquisition of Interknit will
be accounted for as a pooling of interests. The aggregate number of shares of
Common Stock to be issued in the acquisition was determined on the basis of a
valuation of Interknit's business performed by Interstate/Johnson Lane
Corporation.
B. PRO FORMA ADJUSTMENTS
1. Balance sheet as of June 30, 1996.
(a) The adjustments to accounts receivable and accounts payable
eliminate the intercompany receivable and payable between the Company and
Interknit.
(b) The adjustment to inventories eliminates intercompany profits
included in the Company's ending inventory.
(c) The adjustments to other liabilities and shareholders' equity
reflect the tax effect of the elimination of intercompany profits included
in the Company's ending inventory.
2. Statement of income for the six months ended June 30, 1996.
(a) The adjustments to net sales and cost of goods sold reflect the
elimination of sales of greige goods by Interknit to the Company and sales
of raw materials by the Company to Interknit. The adjustment to cost of
goods sold also reflects the elimination of intercompany profits included
in the Company's ending inventory.
(b) The adjustment to income taxes reflects the net of tax effect of
the elimination of intercompany profits included in the Company's ending
inventory.
3. Statements of income for the year ended December 31, 1995 and the six
months ended June 30, 1995, which for Seneca reflect operations for the
period from January 1, 1995 to June 28, 1995.
(a) The adjustment to net sales reflects the elimination of sales of
greige goods by Interknit to the Company and sales of raw materials by the
Company to Interknit.
(b) The adjustment to cost of goods sold reflects the decrease in
depreciation expense arising from recording Seneca's property, plant and
equipment at its fair value in connection with the acquisition. The
adjustment also reflects the decrease in cost of goods sold by eliminating
sales between the Company and Interknit.
F-36
<PAGE> 91
RIDGEVIEW, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONCLUDED)
(UNAUDITED)
(c) The adjustment to selling, general and administrative expenses
reflects the increase in amortization expense arising from the excess of
cost over book value of assets acquired (goodwill) and organizational costs
related to the Seneca Acquisition.
(d) This pro forma adjustment reflects the interest expense incurred
on the notes payable issued in connection with the Seneca Acquisition.
(e) This pro forma adjustment reflects the decrease in the income tax
provision arising from net deductible expenses for book purposes and an
increase in deferred tax expense arising from an increase in tax
depreciation over book related to the Seneca Acquisition.
F-37
<PAGE> 92
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Dividend Policy....................... 11
Capitalization........................ 12
Dilution.............................. 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 25
Management............................ 41
Certain Transactions.................. 45
Principal and Management
Shareholders........................ 46
Selling Shareholders.................. 47
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Additional Information................ 53
Financial Statements.................. F-1
</TABLE>
---------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,600,000 SHARES
(LOGO) RIDGEVIEW(R)
COMMON STOCK
-----------------
PROSPECTUS
, 1996
-----------------
INTERSTATE/JOHNSON LANE
Corporation
SCOTT & STRINGFELLOW, INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with this offering:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.............................. $ 6,980
Nasdaq National Market listing fee......................................... 20,600
National Association of Securities Dealers filing fee...................... 3,490
Printing expenses.......................................................... *
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Blue Sky expenses.......................................................... *
Transfer Agent's fees...................................................... *
Miscellaneous expenses..................................................... *
-------
Total.................................................................... *
=======
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 55-2-02 of the North Carolina Business Corporation Act (the
"Business Corporation Act") enables a corporation in its articles of
incorporation to eliminate or limit, with certain exceptions, the personal
liability of a director for monetary damages for breach of duty as a director.
No such provision is effective to eliminate or limit a director's liability for
(i) acts or omissions that the director at the time of the breach knew or
believed to be clearly in conflict with the best interests of the corporation,
(ii) improper distributions described in Section 55-8-33 of the Business
Corporation Act, (iii) any transaction from which the director derived an
improper personal benefit, or (iv) acts or omissions occurring prior to the date
the exculpatory provision became effective. The Company's Articles of
Incorporation limit the personal liability of its directors to the fullest
extent permitted by the Business Corporation Act.
Sections 55-8-50 through 55-8-58 of the Business Corporation Act permit a
corporation to indemnify its directors and officers under either or both a
statutory or nonstatutory scheme of indemnification. Under the statutory scheme,
a corporation may, with certain exceptions, indemnify a director or officer of
the corporation who was, is, or is threatened to be made, a party to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative, or investigative, because of the fact that such
person was a director or officer of the corporation, or is or was serving at the
request of such corporation as a director, officer, agent or employee of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses, including
attorneys' fees, incurred in connection with a proceeding; provided that no such
indemnification may be granted unless such director or officer (i) conducted
himself or herself in good faith, (ii) reasonably believed that (A) any action
taken in his or her official capacity with the corporation was in the best
interests of the corporation and (B) in all other cases, his or her conduct was
at least not opposed to the corporation's best interests, and (iii) in the case
of any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In accordance with Section 55-8-55 of the Business
Corporation Act, the determination of whether a director has met the requisite
standard of conduct for the type of indemnification set forth above is made by
the board of directors, a committee of directors, special legal counsel or the
shareholders. A corporation may not indemnify a director under the statutory
scheme in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation or in connection with
a proceeding in which a director was adjudged liable on the basis of having
received an improper personal benefit.
II-1
<PAGE> 94
In addition to, and notwithstanding the conditions of and limitations on
indemnification described above under the statutory scheme, Section 55-8-57 of
the Business Corporation Act permits a corporation in its articles of
incorporation or bylaws or by contract or resolution to indemnify or agree to
indemnify any of its directors or officers against liability and expenses,
including attorneys' fees, in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation.
Pursuant to this nonstatutory scheme, the Company's Bylaws provide for
indemnification to the fullest extent permitted by law of any person who at any
time serves or has served as an officer, employee or a director of the Company,
or who, while serving as an officer, employee or a director of the Company,
serves or has served at the request of the Company as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a trustee or administrator under an
employee benefit plan; provided such persons have not engaged in activities
known or believed by the person who undertook them to be clearly in conflict
with the Company's best interests when they occurred.
Sections 55-8-52 and 55-8-56 of the Business Corporation Act require a
corporation, unless its articles of incorporation provide otherwise, to
indemnify a director or officer who has been wholly successful on the merits or
otherwise in the defense of any proceeding to which such director or officer
was, or was threatened to be made, a party. Unless prohibited by the articles of
incorporation, a director or officer also may make application and obtain
court-ordered indemnification if the court determines that such director or
officer is fairly and reasonably entitled to such indemnification in view of all
the relevant circumstances as provided in Sections 55-8-54 and 55-8-56 of the
Business Corporation Act.
In addition, Section 55-8-57 of the Business Corporation Act authorizes a
corporation to purchase and maintain insurance on behalf of an individual who is
or was a director or officer of the corporation against certain liabilities
incurred by such persons, whether or not the corporation is otherwise authorized
by the Business Corporation Act to indemnify such party.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 15, 1993, the Company has issued the following securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act").
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SELLING PRICE
DATE OF SALE NAME OF PURCHASER COMMON STOCK PER SHARE
- ------------ -------------------- ------------ -------------
<S> <C> <C> <C>
3/1/95 Ander Horne 5,151 $2.88
3/1/96 Walter L. Bost, Jr. 5,151 2.95
3/1/96 Barry Tartarkin 5,151 2.95
</TABLE>
The securities referenced above were exempt from registration pursuant to
the exemption from registration set forth in Section 4(2) of the Securities Act.
The claim of exemption in each instance is based on the fact that none of the
transactions described involved a public offering, since the purchasers acquired
the shares for investment, the share certificates were appropriately legended
and the purchasers were provided (or had access to) all material information
concerning the Company.
Pursuant to a share exchange agreement dated as of August 27, 1996 (the
"Share Exchange Agreement"), by and among the Company and the shareholders of
Interknit, Inc. ("Interknit"), a corporation affiliated with the Company through
ownership of its shares by certain shareholders and employees of the Company,
the Company has agreed to issue (immediately prior to the completion of the
public offering of the shares of the Company's Common Stock being registered
hereunder) 240,000 shares of the Company's Common Stock to the shareholders of
Interknit in exchange for all of the issued and outstanding shares of capital
stock of Interknit. Pursuant to the Share Exchange Agreement, the shareholders
of Interknit are obligated to exchange their shares of Interknit for the 240,000
shares of the Company's Common Stock subject only to the satisfaction of
specified conditions, none of which will be within the control of the Interknit
shareholders. The shares of Common Stock to be issued pursuant to the Share
Exchange Agreement are
II-2
<PAGE> 95
exempt from registration pursuant to the exemption from registration set forth
in Section 4(2) of the 1933 Act. The claim of exemption for the shares to be
issued pursuant to the Share Exchange Agreement is based upon the fact that the
transaction did not and will not involve a public offering, since the purchasers
have represented they are acquiring the shares for investment, the share
certificates will be appropriately legended and the purchasers were provided (or
had access to) prior to the execution of the Share Exchange Agreement all
material information concerning the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S> <C>
1 -- Form of Underwriting Agreement.
2.1 -- Share Exchange Agreement dated August 27, 1996 by and among Ridgeview, Inc. and
the shareholders of Interknit, Inc.
3.1 -- Articles of Incorporation of Ridgeview, Inc.
3.2 -- Bylaws of Ridgeview, Inc.
4 -- Form of stock certificate for Ridgeview, Inc. Common Stock.*
5 -- Opinion of Moore & Van Allen, PLLC.
10.1 -- License Agreement dated as of January 1, 1994 by and between Ellen Tracy, Inc. and
Ridgeview, Inc.
10.2 -- License Agreement dated May 28, 1996 between Jones Investment Co., Inc. and
Ridgeview, Inc.
10.3 -- Loan and Security Agreement (Term Loan) dated as of January 10, 1995 between
Ridgeview, Inc. and NationsBank, N.A. (Carolinas).
10.4 -- First Amendment to Loan and Security Agreement (Term Loan) dated as of June 28,
1995 between Ridgeview, Inc. and NationsBank of Georgia, N.A.
10.5 -- Second Amendment to Loan and Security Agreement (Term Loan) dated October 1995
between Ridgeview, Inc. and NationsBank of Georgia, N.A.
10.6 -- Third Amendment to Loan and Security Agreement (Term Loan) dated as of June 11,
1996 between Ridgeview, Inc. and NationsBank, N.A. (South).
10.7 -- Loan and Security Agreement (Revolving Loans) dated as of January 10, 1995 between
Ridgeview, Inc. and NationsBank of Georgia, N.A.
10.8 -- First Amendment to Loan and Security Agreement (Revolving Loans) dated as of June
28, 1995 by and between Ridgeview, Inc. and NationsBank of Georgia, N.A.
10.9 -- Second Amendment to Loan and Security Agreement (Revolving Loans) dated October
1995 by and between Ridgeview, Inc. and NationsBank of Georgia, N.A.
10.10 -- Third Amendment to Loan and Security Agreement (Revolving Loans) dated as of June
11, 1996 by and between Ridgeview, Inc. and NationsBank, N.A. (South).
10.11 -- Form of Loan and Security Agreement for outstanding loans from Metlife Capital
Corporation to Interknit, Inc.
10.12 -- Mortgage and Security Agreement dated June 28, 1995 between Ridgeview, Inc. and
NationsBank of Georgia, N.A.
10.13 -- Deed of Trust and Security Agreement (Term Loans) dated as of January 10, 1995 by
and among Ridgeview, Inc., Christopher C. Kupec and NationsBank, N.A. (Carolinas).
10.14 -- Deed of Trust and Security Agreement (Revolving Loans) dated as of January 10,
1995, by and among Ridgeview, Inc., Christopher C. Kupec and NationsBank of
Georgia, N.A.
10.15 -- First Amendment to Deed of Trust and Security Agreement (Revolving Loans) dated as
of June 11, 1996, by and among Ridgeview, Inc., Christopher C. Kupec and
NationsBank, National Association (South).
10.16 -- Security Agreement dated as of June 28, 1995 by and between Seneca Knitting Mills
Corporation and NationsBank of Georgia, N.A.
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S> <C>
10.17 -- Corporate Guaranty Agreement dated June 28, 1996 issued by Ridgeview, Inc. to
Clara G. Souhan guaranteeing payment of a promissory note dated June 28, 1996 made
by Seneca Knitting Mills Corporation payable to the order of Clara G. Souhan.
10.18 -- Agreement for Sale of Capital Stock dated April 27, 1995, between George G.
Souhan, Susan C. Souhan, Geb F. Souhan, Elizabeth M. Souhan and Timothy J.J.
Souhan and Ridgeview, Inc.
10.19 -- Agreement for Sale of Capital Stock Amendment No. 1 dated June 28, 1995, between
George C. Souhan, Susan C. Souhan, Geb F. Souhan, Elizabeth M. Souhan and Timothy
J.J. Souhan and Ridgeview, Inc.
10.20 -- Amended and Restated Promissory Note dated June 28, 1996 of Ridgeview, Inc.
payable to the order of George G. Souhan.
10.21 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and Albert C. Gaither.
10.22 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and Hugh R. Gaither.
10.23 -- First Amendment to Salary Continuation Agreement by and between Ridgeview, Inc.
and Hugh R. Gaither dated June 8, 1992.
10.24 -- Salary Continuation Agreement dated March 1, 1983 by and between Ridgeview Mills,
Inc. and William D. Durrant.
10.25 -- First Amendment to Salary Continuation Agreement by and between Ridgeview, Inc.
and William D. Durrant dated June 8, 1992.
10.26 -- Salary Continuation Agreement dated June 8, 1992 by and between Ridgeview, Inc.
and Susan Gaither Jones.
10.27 -- Salary Continuation Agreement dated July 1, 1996 by and between Ridgeview, Inc.
and Walter L. Bost, Jr.
10.28 -- Split Dollar Life Insurance Agreement dated January 1, 1992 between Ridgeview,
Inc. and Albert C. Gaither.
10.29 -- Ridgeview, Inc. 1995 Omnibus Stock Option Plan as amended and restated.
10.30 -- Commitment letter dated August 28, 1996 between Ridgeview, Inc. and NationsBank,
National Association (South).
10.31 -- Promissory Note dated June 28, 1996 of Seneca Knitting Mills Corporation payable
to the order of Clara Souhan.
10.32 -- Description of Incentive Bonus Arrangements for Named Executive Officers.
21 -- Subsidiaries of Ridgeview, Inc.
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of KPMG.
23.3 -- Consent of Mengel, Metzger, Barr & Co. LLP.
23.4 -- Consent of Moore & Van Allen, PLLC (included in Exhibit 5).
24 -- Power of Attorney (included on signature page II-6).
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
(B) SCHEDULES
Report of Independent Certified Public Accountants.
Schedule II -- Valuation and Qualifying Accounts.
- ---------------
* to be filed by Amendment
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE> 97
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each such post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 29, 1996.
RIDGEVIEW, INC.
By: /s/ HUGH R. GAITHER
------------------------------------
Hugh R. Gaither
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Hugh R. Gaither and Walter L. Bost, Jr. and each
of them, his attorney-in-fact, with power of substitution, for him in any and
all capacities, to sign any amendments or supplements to this Registration
Statement or any other instruments he deems necessary or appropriate, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute or substitutes may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ----------------
<C> <S> <C>
/s/ ALBERT C. GAITHER Chairman and Director August 26, 1996
- ---------------------------------------------
Albert C. Gaither
/s/ HUGH R. GAITHER President, Chief Executive August 29, 1996
- --------------------------------------------- Officer and Director
Hugh R. Gaither
/s/ WILLIAM D. DURRANT Executive Vice August 26, 1996
- --------------------------------------------- President -- Sales and
William D. Durrant Marketing and Director
/s/ WALTER L. BOST, JR. Executive Vice President and August 29, 1996
- --------------------------------------------- Chief Financial Officer
Walter L. Bost, Jr.
/s/ SUSAN GAITHER JONES Vice President and Director August 29, 1996
- ---------------------------------------------
Susan Gaither Jones
/s/ P. DOUGLAS YODER Chief Accounting Officer and August 29, 1996
- --------------------------------------------- Comptroller (Principal
P. Douglas Yoder Accounting Officer)
/s/ J. MICHAEL GAITHER Secretary and Director August 26, 1996
- ---------------------------------------------
J. Michael Gaither
/s/ CLAUDE S. ABERNETHY, JR. Director August 26, 1996
- ---------------------------------------------
Claude S. Abernethy, Jr.
</TABLE>
II-6
<PAGE> 99
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to the requirements of Rule 438 promulgated under the Securities
Act of 1933, I hereby consent to being named in the Registration Statement as a
person about to become a director of the Registrant.
/s/ Joseph D. Hicks
--------------------------------------
Joseph D. Hicks
August 22, 1996
II-7
<PAGE> 100
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to the requirements of Rule 438 promulgated under the Securities
Act of 1933, I hereby consent to being named in the Registration Statement as a
person about to become a director of the Registrant.
/s/ Charles M. Snipes
--------------------------------------
Charles M. Snipes
August 21, 1996
II-8
<PAGE> 101
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Ridgeview, Inc.
The audits referred to in our report to Ridgeview, Inc. and subsidiaries,
dated February 2, 1996, except for Note 10 which is as of October , 1996,
which is contained in the Prospectus constituting part of this Registration
Statement, included the audits of the financial statement schedule listed in the
accompanying index for each of the three years in the period ended December 31,
1995. The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Greensboro, North Carolina
February 2, 1996
<PAGE> 102
RIDGEVIEW, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING OF TO COSTS OTHER AT END
DESCRIPTION PERIOD AND EXPENSES CHANGES DEDUCTIONS OF PERIOD
- ------------------------------------ ------------ ------------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts....................... $229 $ (5) $ -- $ -- $ 224
========= ========== ====== ======== =======
Inventory obsolescence reserve.... $237 $ 76 $ -- $ -- $ 313
========= ========== ====== ======== =======
YEAR ENDED DECEMBER 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts....................... $224 $ (29) $ -- $ -- $ 195
========= ========== ====== ======== =======
Inventory obsolescence reserve.... $313 $ (128) $ -- $ -- $ 185
========= ========== ====== ======== =======
YEAR ENDED DECEMBER 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts....................... $195 $ 176 $ -- $ -- $ 371
========= ========== ====== ======== =======
Inventory obsolescence reserve.... $185 $ 85(a) $ -- $ -- $ 270
========= ========== ====== ======== =======
</TABLE>
- ---------------
(a) Does not include an adjustment for the direct write-off of obsolete,
unfinished women's hosiery products in excess of normal reserves in the
amount of $621.
<PAGE> 1
EXHIBIT 1
1,600,000 SHARES
RIDGEVIEW, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
___________, 1996
INTERSTATE/JOHNSON LANE CORPORATION
SCOTT & STRINGFELLOW, INC.
as Representatives of the Underwriters
c/o Interstate/Johnson Lane Corporation
Interstate Tower
121 West Trade Street, Suite 1500
Charlotte, North Carolina 28202
Dear Ladies and Gentlemen:
Ridgeview, Inc., a North Carolina corporation (the "Company"), proposes to
issue and sell 1,520,000 shares of the Common Stock, $.01 par value, of the
Company (the "Common Stock"), and certain shareholders of the Company named in
Schedule I hereto (the "Selling Shareholders") propose severally to sell an
aggregate of 80,000 outstanding shares of Common Stock, to the underwriters
named in Schedule II hereto (the "Underwriters") for whom you are acting as the
representatives (the "Representatives"). Such 1,600,000 shares of Common Stock
are hereinafter referred to as the "Firm Shares." The Company has also agreed
to grant to the Underwriters an option (the "Option") to purchase up to an
additional 240,000 shares of Common Stock (the "Option Shares") on the terms
and for the purposes set forth in Section l(b) hereof. The Firm Shares and the
Option Shares are hereinafter collectively referred to as the "Shares."
The Company and the Selling Shareholders hereby confirm their agreements
with each of the Underwriters as follows.
1. AGREEMENT TO SELL AND PURCHASE.
(a) The Company and each Selling Shareholder hereby agree to sell to each
Underwriter, and upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions of this Agreement, each Underwriter
agrees, severally and not jointly, to purchase from the Company and each
Selling Shareholder, at a price of $_____ per share, that number of Firm Shares
(rounded up or down as determined by you in your discretion, in order to avoid
fractions of a share) obtained by multiplying the number of Firm Shares to be
sold by the Company or the number of Firm Shares to be sold by each Selling
Shareholder as set forth opposite the name of such Selling Shareholder in
Schedule I hereto, as the case may be, by a fraction the numerator of which is
the number of Firm Shares set forth opposite the name of
<PAGE> 2
each Underwriter in Schedule II hereto (or such number of Firm Shares increased
as set forth in Section 9 hereof) and the denominator of which is the
total number of Firm Shares. The difference of $_____ per Firm Share between
the initial public offering price and the price at which the Company and each
Selling Shareholder will sell the Firm Shares to the Underwriter is the
"Underwriters' Discount."
(b) Subject to all the terms and conditions of this Agreement, the Company
hereby grants the Option to the Underwriters to purchase, severally and not
jointly, up to 240,000 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover overallotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, Charlotte, North
Carolina time, at least two and no more than five business days before the date
specified for closing in the Option Shares Notice (the "Option Closing Date")
setting forth the aggregate number of Option Shares to be purchased and the
time and date for such purchase. On the Option Closing Date, the Company will
issue and sell to the Underwriters the number of Option Shares set forth in the
Option Shares Notice, and each Underwriter will purchase, severally and not
jointly, such percentage of the Option Shares as is equal to the percentage of
Firm Shares that it is purchasing.
(c) Certificates in negotiable form for the Firm Shares to be sold by the
Selling Shareholders hereunder have been placed in custody for delivery under
this Agreement, under a custody agreement (the "Custody Agreement") made with
_________, as custodian (the "Custodian").
2. DELIVERY AND PAYMENT.
(a) Delivery of the Firm Shares shall be made by the Company and the
Custodian to the Underwriters, against payment of the purchase price by
certified or official bank check or checks payable in New York Clearing House
(next-day) funds drawn to the order of the Company in the case of the 1,520,000
Firm Shares to be sold by the Company and to the order of the Custodian in the
case of the 80,000 Firm Shares to be sold by the Selling Shareholders, at the
office of Smith Helms Mulliss & Moore, L.L.P., 214 North Church Street,
Charlotte, North Carolina 28202, at 10:00 a.m., Charlotte, North Carolina time,
on the third business day following the date of this Agreement, or at such time
on such other date, not later than seven business days after the date of this
Agreement, as may be agreed upon by the Company and the Representatives (such
date is hereinafter referred to as the "Closing Date").
(b) To the extent the Option is exercised, delivery of the Option Shares
by the Company to the Underwriters against payment by the Underwriters to the
Company (in the manner specified above) will take place at the offices
specified above for the Closing Date at the time and date (which may be the
Closing Date) specified in the Option Shares Notice.
2
<PAGE> 3
(c) Certificates evidencing the Shares to be issued and sold by the Company
shall be in definitive form and shall be registered in such names and in such
denominations as the Representatives shall request at least two business days
prior to the Closing Date or the Option Closing Date, as the case may be, by
written notice to the Company. For the purpose of expediting the checking and
packaging of certificates for such Shares, the Company agrees to make such
certificates available for inspection at least 24 hours prior to the Closing
Date or the Option Closing Date, as the case may be.
(d) The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of that number of the Shares to be issued and sold by the
Company to the Underwriters shall be borne by the Company. The Company will
pay and save each Underwriter and any subsequent holder of such Shares harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying Federal and state stamp and other transfer taxes, if any, which
may be payable or determined to be payable in connection with the original
issuance or sale to such Underwriter of such Shares.
(e) Upon each sale by an Underwriter of any Shares to selected dealers, the
Underwriter shall require the selected dealer purchasing any such Shares to
agree to re-offer the Shares on the terms and conditions of the offering set
forth in the Registration Statement and Prospectus (each as hereinafter
defined).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents,
warrants and covenants to each of the Underwriters and the Selling Shareholders
that:
(a) The Company meets the requirements for use of Form S-1 and a
registration statement (Registration No. 333-_________) on Form S-1 relating to
the Shares, including a Preliminary Prospectus (as defined below) and such
amendments to such registration statement as may have been required to the date
of this Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "Preliminary Prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Rules
and Regulations included at any time as part of the Registration Statement (as
defined below). Copies of the Registration Statement and of each related
Preliminary Prospectus have been delivered to the Underwriters. If the
Registration Statement has not become effective, a further amendment to such
Registration Statement, including a form of final prospectus, necessary to
permit the Registration Statement to become effective will be filed promptly by
the Company with the Commission. If the Registration Statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule 424
or Rule 434 of the Rules and Regulations. The term "Registration Statement'
means the registration statement as amended at the time the Commission declares
or declared it effective pursuant to Section 8 of the Act (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A. The term "Prospectus" means the
<PAGE> 4
prospectus as first filed with the Commission pursuant to Rule 424 or Rule 434
of the Rules and Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement at the Effective Date.
(b) No stop order or orders suspending the use of any Preliminary
Prospectus have been issued, and no proceedings for that purpose have been
commenced or are pending before or are contemplated by the Commission or any
state securities commission or other regulatory authority. On the Effective
Date, the date the Prospectus is first filed with the Commission pursuant to
Rule 424 or Rule 434 (if required), at all times subsequent to and including
the Closing Date and, if later, the Option Closing Date and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the Commission, the
Registration Statement and the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto), including the financial statements included in the Prospectus, did or
will comply in all material respects with all applicable provisions of the Act
and the Rules and Regulations and will contain all statements required to be
stated therein in accordance with the Act and the Rules and Regulations. On
the Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment did or will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not or will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to the Underwriters furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. The Company acknowledges
that the statements set forth in the last paragraph on the cover page of the
Prospectus and under the heading "Underwriting" in the Prospectus constitute
the only information relating to the Underwriters furnished in writing to the
Company by the Representatives specifically for inclusion in the Registration
Statement.
(c) All outstanding shares of capital stock of the Company (including the
Shares to be sold by the Selling Shareholders hereunder) have been duly
authorized, are validly issued, fully paid and nonassessable and conform to the
description thereof contained in the Prospectus; none of such outstanding
shares were issued in violation of the preemptive rights of any shareholder of
the Company; and the Company has an authorized and outstanding capital stock as
set forth under the caption "Description of Capital Stock" in the Prospectus.
(d) The Shares to be issued and sold by the Company to the Underwriters
hereunder have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; the certificates evidencing the
4
<PAGE> 5
Shares will comply with all applicable requirements of North Carolina
law; and none of the Shares will be issued or sold in violation of any
preemptive rights of shareholders of the Company. Except as disclosed in the
Prospectus, there are no (i) outstanding securities or obligations of the
Company or any of its subsidiaries convertible into or exchangeable for any
capital stock of the Company or any of its subsidiaries, (ii) warrants, rights
or options to subscribe for or purchase from the Company or any of its
subsidiaries any such capital stock or any such convertible or exchangeable
securities or obligations or (iii) obligations of the Company or any of its
subsidiaries to issue any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(e) All of the outstanding shares of capital stock of the Company's
subsidiaries have been duly authorized and validly issued and are fully paid
and nonassessable, and are owned by the Company free and clear of any and all
liens, charges, encumbrances or claims.
(f) The financial statements and schedules included in the Registration
Statement or the Prospectus present fairly the consolidated financial condition
of the Company as of the respective dates thereof and the consolidated results
of operations and cash flows of the Company for the respective periods covered
thereby, all in conformity with generally accepted accounting principles
applied on a consistent basis throughout the entire period involved, except as
otherwise disclosed in the Prospectus. No other financial statements or
schedules of the Company are required by the Act or the Rules and Regulations
to be included in the Registration Statement or the Prospectus. BDO Seidman,
LLP, independent auditors (the "Accountants"), who have reported on such
financial statements and schedules, are independent accountants with respect to
the Company as required by the Act and the Rules and Regulations.
(g) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Date
and, if later, the Option Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there has not been and
will not have been any change in the capitalization of the Company, or in the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, arising for any reason whatsoever, (ii)
the Company has not incurred nor will it incur any material liabilities or
obligations, direct or contingent, nor has it entered into nor will it enter
into any material transactions other than pursuant to this Agreement and the
transactions referred to herein and (iii) the Company has not and will not have
paid or declared any dividends or other distributions of any kind on any class
of its capital stock.
(h) The Company is not, and does not intend to conduct its business in a
manner in which it would become, an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
(i) Except as set forth in the Registration Statement and the Prospectus,
there are no actions, suits or proceedings at law or in equity pending or
threatened to which the Company
5
<PAGE> 6
or any of its subsidiaries is a party or against or affecting the Company, its
subsidiaries or any of their respective officers in their capacity as such,
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might materially and adversely
affect the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations.
(j) The Company and its subsidiaries have (i) all governmental licenses,
permits, consents, orders, approvals and other authorizations necessary to
carry on their business as contemplated in the Prospectus, (ii) complied in all
material respects with all laws, regulations and orders applicable to them or
their business and (iii) performed all their obligations required to be
performed by them thereunder.
(k) Neither the Company nor any of its subsidiaries is in default under
any contract or other instrument to which it is a party or by which any of its
property is bound or affected, except defaults which singly or in the aggregate
do not have a material adverse effect on the condition, financial or otherwise,
results of operations, affairs or business prospects of the Company. To the
best knowledge of the Company, no other party under any contract or other
instrument to which it or its subsidiaries is a party is in default in any
material respect thereunder. Neither the Company nor any of its subsidiaries
is in violation of any provision of its respective articles or certificate
incorporation or bylaws.
(l) No event of default or event which, but for the giving of notice or
the lapse of time or both, would constitute an event of default exists or will
exist under any material agreement or instrument for borrowed money or any
guarantee of any material agreement or instrument for borrowed money to which
the Company or any of its subsidiaries or any of the respective properties or
assets of the Company or its subsidiaries are subject.
(m) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, adequate trademarks, service marks and trade names necessary
to conduct the business now conducted by them, and neither the Company nor any
of its subsidiaries has received any notice of infringement or conflict with
asserted rights of others with respect to any trademarks, service marks or
trade names which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
condition, financial or otherwise, results of operations, affairs or business
prospects of the Company and its subsidiaries.
(n) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries has violated any environmental, safety or similar law or
regulation applicable to its business relating to the protection of human
health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants, which violation could have a material adverse
effect on the condition (financial or otherwise), results of operations,
affairs or business prospects of the Company or its subsidiaries; and no labor
dispute by the employees of the Company or any of its subsidiaries exists or,
to the knowledge of the Company, is imminent
6
<PAGE> 7
which might be expected to have a material adverse effect on the condition,
financial or otherwise, results of operations, affairs or business prospects of
the Company or its subsidiaries.
(o) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the Bylaws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution by the
Underwriters of the Shares.
(p) The Company has full corporate power and authority to enter into this
Agreement. This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding agreement of the Company and is
enforceable against the Company in accordance with the terms hereof. The
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company or its subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the respective articles or certificate of
incorporation or bylaws of the Company or its subsidiaries, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company, any of its subsidiaries or any of their
properties are bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company or any of its subsidiaries.
(q) The Company is duly incorporated and validly existing in good
standing as a corporation under the laws of the State of North Carolina, and
each of the Company's subsidiaries is duly incorporated and validly existing as
a corporation under the laws of the jurisdiction of its incorporation. Each of
the Company and its subsidiaries has full power and authority (corporate and
other) to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus. Each of the Company and its
subsidiaries is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which it owns or leases real property or transacts
business requiring such qualification. Except as disclosed in the Registration
Statement, the Company does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association
or other entity. Complete and correct copies of the respective articles or
certificate of incorporation and bylaws of the Company and each of its
subsidiaries and all amendments thereto have been delivered to the
Representatives, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
7
<PAGE> 8
(r) The Company, or its subsidiaries, has good and marketable title to
all properties and assets described in the Prospectus as owned by it or them,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are described in the Prospectus or are not material to the business of the
Company or its subsidiaries. The Company, or its subsidiaries, has valid,
subsisting and enforceable leases for the properties described in the
Prospectus as leased by it or them, with such exceptions as are not material
and do not materially interfere with the use made and proposed to be made of
such properties by the Company or its subsidiaries, and neither the Company nor
any of its subsidiaries, as applicable, is in default in any material respects
of any terms or provisions of any leases.
(s) The Company and its subsidiaries has filed all necessary federal,
state and foreign tax returns that are required to be filed by them and have
paid all taxes shown on such returns and on all assessments received by them
to the extent such taxes have become due. All taxes with respect to which the
Company and its subsidiaries are obligated have been paid or adequate accruals
have been set up to cover any such taxes. The Company has no knowledge of any
tax deficiency which has been assessed or threatened against the Company or
any of its subsidiaries.
(t) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described or filed as
required. All such contracts to which any of the Company or its subsidiaries
is a party have been duly authorized, executed and delivered by the Company or
such subsidiary, constitute valid and binding agreements of the Company or such
subsidiary and are enforceable against the Company or such subsidiary, as the
case may be, in accordance with the terms thereof. The Company knows of no
present situation or condition or fact that would prevent compliance with the
terms of such contracts, as amended to date. Except for amendments or
modifications of such contracts in the ordinary course of business, neither the
Company nor any such subsidiary has any intention of exercising any right that
it may have to cancel any of its obligations under any of such contracts, and
has no knowledge that any other party to any of such contracts has any
intention not to render full performance under such contracts.
(u) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriters was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(v) Neither the Company nor any of its directors, officers or controlling
persons has taken, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares or the
Common Stock.
(w) No holder of securities of the Company has any right that, if
exercised, ould require the Company to cause such securities to be included in
the Registration Statement.
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(x) The Shares have been approved for trading, subject to notice of
issuance, on the Nasdaq National Market.
(y) Other than as contemplated by this Agreement, there is no broker,
finder or other party that is entitled to receive from the Company any
brokerage or finder's fee or other fee or commission as a result of any of
the transactions contemplated by this Agreement.
4. REPRESENTATIONS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
severally represents, warrants and covenants to each of the Underwriters that:
(a) Such Selling Shareholder has duly executed and delivered a power of
attorney (the "Power of Attorney"), in the form heretofore delivered to you,
appointing __________ as such Selling Shareholder's attorney-in-fact (the
"Attorney-in-Fact"), with authority to execute, deliver and perform this
Agreement on behalf of such Selling Shareholder, and in connection therewith
such Selling Shareholder has duly executed and delivered a Custody Agreement,
in the form heretofore delivered to you, with the Custodian. Such Selling
Shareholder agrees that the Shares represented by the certificates held in
custody for such Selling Shareholder under such Custody Agreement are subject
to the interests of the Underwriters hereunder, that the arrangements made for
such custody and appointment of the Attorney-in-Fact are irrevocable, and that
the obligations of such Selling Shareholder hereunder shall not be terminated
except as provided in this Agreement, the Power of Attorney or the Custody
Agreement, by any act of such Selling Shareholder, by operation of law or
otherwise, whether by the death, incapacity or bankruptcy of such Selling
Shareholder or by the occurrence of any other event. If such Selling
Shareholder should die, become incapacitated or become bankrupt, or if any
other event shall occur, before the delivery of the Shares being sold by such
Selling Shareholder hereunder, the certificate for such Shares deposited with
the Custodian shall be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such death, incapacity, bankruptcy or
other event had not occurred, regardless of whether the Custodian or the
Attorney-in-Fact shall have received notice thereof.
(b) Such Selling Shareholder has and on the Closing Date will have valid
and unencumbered title to the Shares to be sold by such Selling Shareholder on
that date and full right, power and authority to enter into this Agreement, the
Custody Agreement and the Power of Attorney delivered therewith and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Shareholder
hereunder; and upon the delivery of and payment for the Shares hereunder, the
several Underwriters will acquire valid and unencumbered title to the Shares to
be sold by such Selling Shareholder.
(c) Such Selling Shareholder has legal capacity or full corporate power
and authority, as applicable, to authorize, execute, and deliver each of this
Agreement, the Custody Agreement and the Power of Attorney; each of this
Agreement, the Custody Agreement and the Power of Attorney delivered thereunder
has been duly authorized, executed and delivered by such Selling Shareholder;
the execution, delivery and performance of this Agreement, the Custody
Agreement and the Power of Attorney delivered thereunder and the consummation
of the transactions herein and therein contemplated will not result in a breach
or violation of any of the terms and
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<PAGE> 10
provisions of, or constitute a default under, any statute, any rule,
regulation or order of any governmental agency or body or any court having
jurisdiction over such Selling Shareholder or any of its properties, or any
agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or to which any of the property or
assets of such Selling Shareholder is subject.
(d) No consent, approval, authorization, order, registration, or
qualification of or with any court or governmental agency or body is required
for the sale and delivery of the Shares to be sold by such Selling Shareholder
hereunder or for such Selling Shareholder's performance of its obligations
under this Agreement and the Custody Agreement or for the execution and
delivery of the Power of Attorney delivered under such Custody Agreement,
except such as have been obtained and made under the Act and the Rules and
Regulations and such as may be required under the securities laws of states and
foreign jurisdictions in connection with the offer and sale of the Shares to be
sold by such Selling Shareholder hereunder.
(e) There are no contracts, agreements or understandings between such
Selling Shareholder and any person which would give rise to a valid claim
against such Selling Shareholder for a brokerage commission, finder's fee or
other like payment in connection with the offering of the Shares other than the
compensation due and payable to the Underwriters as described in the
Prospectus.
(f) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with information furnished to the Company by such Selling Shareholder expressly
for use therein, the Preliminary Prospectus did, and the Registration Statement
and the Prospectus and any amendments or supplements thereto will, when they
become effective or are filed with the Commission, as the case may be, conform
in all material respects to the requirements of the Act and the Rules and
Regulations and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(g) The sale of Shares by such Selling Shareholder pursuant to this
Agreement is not prompted by or based upon any information concerning the
Company that is not set forth in the Prospectus.
(h) Such Selling Shareholder has not taken and will not take, directly or
indirectly, any action, in contravention of any law, designed to result in or
which has constituted or which might reasonably be expected to cause or result
in, under the 1934 Act, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with each of the
Underwriters as follows:
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(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives and made available to the Underwriters within a reasonable
period of time prior to the filing thereof and the Underwriters shall not have
objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify you promptly, and will confirm
such advice in writing, (A) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective, (B)
of the filing of the Prospectus pursuant to Rule 424 or Rule 434 under the Act,
(C) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (D) of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose or the threat thereof, (E) of the happening of any event during the
period mentioned in the third sentence of Section 5(e) hereof that in the
judgment of the Company makes any statement made in the Registration Statement
or the Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they are made, not misleading
and (F) of receipt by the Company or any representatives or attorney of the
Company of any other communication from the Commission relating to the Company,
the Registration Statement or any post-effective amendment thereto, any
Preliminary Prospectus or the Prospectus. If at any time the Commission shall
issue any order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A of the Rules
and Regulations, the Company will use its best efforts to comply with the
provisions of and make all requisite filings with the Commission pursuant to
said Rule 430A and to notify the Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives, without charge, two
signed copies of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits
thereto, and such number of conformed copies of the Registration Statement,
with or without exhibits, and any supplement or amendment thereto, as the
Representatives shall reasonably request.
(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
(e) Prior to the Effective Date, and thereafter from time to time, the
Company will deliver to the Representatives, without charge, as many copies of
the Preliminary Prospectus and the Prospectus or any amendment or supplement
thereto as the Representatives may reasonably request. The Company consents to
the use of the Preliminary Prospectus and the Prospectus, or any amendment or
supplement thereto, by the Underwriters and by all dealers to whom the Shares
may be sold, both in connection with the initial offering or sale of the Shares
and for any
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<PAGE> 12
period of time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or the Underwriters' counsel
should be set forth in the Preliminary Prospectus or the Prospectus to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Preliminary
Prospectus or the Prospectus to comply with law, the Company will forthwith
prepare and duly file with the Commission an appropriate supplement or
amendment thereto, and will deliver to the Representatives, without charge,
such number of copies thereof as the Representatives may reasonably request.
(f) Prior to any public offering of the Shares by the Underwriters, the
Company will cooperate with the Underwriters and the Underwriters' counsel in
connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may request; provided, that in no event shall the Company be
obligated to qualify to do business as a foreign corporation in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it is not
now so subject.
(g) During the period of five years commencing on the Effective Date, the
Company will furnish to the Representatives and make available to the
Underwriters copies of such financial statements and other periodic and special
reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and make available to the Underwriters a copy of each annual or
other report it shall be required to file with the Commission.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for a period of 12 months ended
commencing after the Effective Date, and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Underwriters, all costs and expenses incident to the performance
of the obligations of the Company under this Agreement, including but not
limited to costs and expenses of or relating to (A) the preparation, printing
and filing of the Registration Statement and exhibits thereto, each Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus, (B) the preparation and delivery of certificates
representing the Shares, (C) the printing of this Agreement and any Agreement
Among Underwriters and Selected Dealer Agreements, (D) furnishing (including
costs of shipping and mailing) such copies of the Registration Statement, the
Prospectus and any Preliminary Prospectus, and all amendments and supplements
thereto, as may be requested for use in connection with the offering and sale
of the Shares by the Underwriters or by dealers to whom Shares may be sold, (E)
the quotation of the Shares on the Nasdaq National Market, (F) any filing fees
required to
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be paid to the NASD, (G) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(f) hereof, including the fees,
disbursements and other charges of your counsel in connection therewith, and
the preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (H) counsel to and accountants for the Company and (I) the transfer
agent for the Shares.
(j) If this Agreement shall be terminated by the Company pursuant to
any of the provisions hereof (otherwise than pursuant to Section 11 hereof) or
if for any reason the Company shall be unable to perform its obligations
hereunder, the Company will reimburse the Underwriters for all out-of-pocket
expenses (including the fees, disbursements and other charges of the
Underwriters' counsel) reasonably incurred by the Underwriters in connection
herewith.
(k) The Company will not at any time, directly or indirectly, take any
action designed, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds."
(m) During the period of 180 days commencing at the Closing Date, the
Company will not, without the Representatives' prior written consent, grant
options or warrants to purchase shares of Common Stock at a price less than
the initial public offering price or issue any securities convertible into
shares of Common Stock at a conversion price less than the initial public
offering price.
(n) The Company will not, and will cause each of its executive officers,
directors and each beneficial owner of more than 5% of the outstanding shares
of Common Stock (if any) to enter into agreements with the Underwriters to the
effect that they will not, prior to the Effective Date and for a period of 180
days after the Effective Date, without the Representatives' prior written
consent, sell, contract to sell or otherwise dispose of any shares of Common
Stock or rights to acquire such shares (other than pursuant to employee stock
option plans or in connection with other employee incentive compensation
arrangements).
(o) The Company will not change or terminate the appointment of First
Union National Bank of North Carolina as transfer agent for the Shares for a
period of one year from the Effective Date without first obtaining the
Representatives' written consent, which shall not be unreasonably withheld.
(p) The Company will use all reasonable efforts to comply or cause to be
complied with the conditions precedent to the several obligations of the
Underwriters in Section 7 hereof.
(q) The Company agrees to file with the Commission all required reports
on Form SR in accordance with the provisions of Rule 463 promulgated under the
Act and to provide a copy of such reports to the Underwriters and the
Underwriters' counsel.
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(r) The Company shall register the Common Stock under the Exchange Act
and shall use its best efforts to maintain such registration.
6. AGREEMENTS OF THE SELLING SHAREHOLDERS. Each of the Selling Shareholders
agrees with the Underwriters as follows:
(a) Such Selling Shareholder will cooperate with you and your counsel
in order to qualify the Shares for offering and sale under the securities or
blue sky laws of such jurisdictions as you may reasonably request and will
comply to the best of such Selling Shareholder's ability with such laws so as
to permit the completion of the distribution of the Shares. Such Selling
Shareholder will file such statements and reports as may be required by the
laws of each jurisdiction in which the Shares have been qualified as above.
(b) Such Selling Shareholder will provide to you on or prior to the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
each of the Underwriters hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 10:00 a.m., Charlotte,
North Carolina time, on the first full business day after the Effective Date
or at such later date and time as shall be consented to in writing by the
Representatives and all filings required by Rule 424, Rule 434, Rule 430A and
Rule 434 of the Rules and Regulations shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the
Commission or such authorities and (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to the Representatives and made
available to the Underwriters and the Underwriters did not object thereto in
good faith, and the Representatives shall have received certificates, dated the
Closing Date and, with respect to the option shares, the Option Closing Date
and signed by the Chief Executive Officer or the Chairman of the Board of
Directors of the Company and the Chief Financial Officer of the Company (who
may, as to proceedings threatened, rely upon the best of their information and
belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the
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<PAGE> 15
general affairs, business, business prospects, properties, management,
condition (financial or otherwise) or results of operations of the Company,
taken as a whole, whether or not arising from transactions in the ordinary
course of business, and there shall have been no material transaction, contract
or agreement entered into by the Company or any of its subsidiaries other than
in the ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus, and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and the Prospectus, if in the
Representatives' judgment any such development makes it impracticable or
inadvisable to consummate the sale and delivery of the Shares by the
Underwriters at the public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted or threatened against the Company, its
subsidiaries or any of the Company's officers or directors in their capacities
as such, before or by any Federal, state or local court, commission, regulatory
body, administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company or
its subsidiaries.
(e) Each of the representations and warranties of the Company and the
Selling Shareholders contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, as if made at the Closing Date and, with respect to the
Option Shares, at the Option Closing Date, and all covenants and agreements
herein contained to be performed on the part of the Company and the Selling
Shareholders and all conditions herein contained to be fulfilled or complied
with by the Company and the Selling Shareholders at or prior to the Closing
Date and, with respect to the Option Shares, at or prior to the Option Closing
Date, shall have been duly performed, fulfilled or complied with in all
material respects.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
and satisfactory in form and substance to the Representatives' counsel, from
Moore & Van Allen, PLLC, counsel to the Company, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of North Carolina, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) Each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of
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its incorporation, with corporate power and authority to own
its properties and conduct its business as described in the Prospectus;
(iii) The Company and each of its subsidiaries is qualified as a
foreign corporation in each jurisdiction in which the ownership of
property or the conduct of business by the Company or such subsidiary
requires such qualification and where the failure to so qualify would
have a material adverse affect on the Company's operations;
(iv) Except as described in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible
into or exchangeable for any capital stock of the Company, (B) warrants,
rights or options to subscribe for or purchase from the Company any such
capital stock or any convertible or exchangeable securities or
obligations, or (C) obligations of the Company to issue any such
convertible or exchangeable securities or obligations, or any such
warrants, rights or options;
(v) The Shares delivered on such date have been duly authorized,
executed, authenticated, issued and delivered and conform to the
description thereof contained in the Prospectus and have not been issued
in violation of any pre-emptive or similar rights of shareholders of the
Company; and the Shares constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(vi) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the shareholders of the Company have no preemptive or
similar rights with respect to the Shares or the Common Stock;
(vii) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such person
the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities
with the securities registered pursuant to the Registration Statement or
with any securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(viii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required in
connection with the authorization, issuance, transfer, sale or delivery
of the Shares by the Company, in connection with the execution, delivery
and performance of this Agreement by the Company or in connection with
the taking by the Company of any action contemplated hereby, except such
as have been obtained and made under the Act and such as may be required
under state securities laws;
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(ix) The execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated, including the
issuance and sale of the Shares and compliance with the provisions
thereof, will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, (A) any statute, rule,
regulation or, to the knowledge of such counsel after due inquiry, any
order of any governmental agency or body or any court having jurisdiction
over the Company, its subsidiaries or any of their properties, or (B) any
material obligation, agreement, covenant or condition contained in any
agreement or instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the properties of the Company or
any of its subsidiaries is subject, or (C) the respective articles or
certificate of incorporation or bylaws of the Company or any of its
subsidiaries; and the Company has full power and authority to authorize,
issue and sell the Shares as contemplated by this Agreement;
(x) To the best of such counsel's knowledge, neither the Company
or any of its subsidiaries is in violation of any judgment, ruling,
decree, order, franchise, license or permit known to such counsel of any
court or other governmental authority applicable to the business or
properties of the Company or any of its subsidiaries, other than
violations or defaults which, individually or in the aggregate, will not
have a material adverse effect on the financial position, shareholders'
equity or results of operation of the Company;
(xi) The Registration Statement was declared effective under the
Act as of the date and time specified in such opinion, the Prospectus
either was filed with the Commission pursuant to the subparagraph of Rule
424(b) or 434 specified in such opinion on the date specified therein or
was included in the Registration Statement (as the case may be), and, to
the best of the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any part thereof has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Act, and the Registration Statement and
the Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
such counsel has no reason to believe that the Registration Statement, or
any amendment thereto, as of its Effective Date, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus, or any supplement thereto, as of
its issue date, included any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in light of the circumstances
under which they were made, not misleading; the descriptions in the
Registration Statement and Prospectus of statutes, legal and governmental
proceedings and contracts and other documents are accurate in all
material respects and fairly present the information required to be
shown; it being understood that such counsel need express no opinion as
to the financial statements or other financial data contained in the
Registration Statement or the Prospectus or as to the section of the
Prospectus entitled "Underwriting";
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(xii) The Company has the full corporate power and authority to
enter into this Agreement, and this Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and legally
binding obligation of the Company enforceable in accordance with its
terms, except (A) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws now or
hereafter in effect relating to creditors' rights or debtors' obligations
generally; (B) that the remedies of specific performance and injunctive
and other forms of relief are subject to general equitable principles,
whether enforcement is sought at law or in equity, and that such
enforcement may be subject to the discretion of the court before which
any proceedings therefor may be brought; (C) as rights to indemnity and
contribution may be limited by state or Federal laws relating to
securities or the policies underlying such laws; and (D) as such
enforceability may be limited by possible limitations imposed by law (in
addition to those set forth herein) on provisions relating to remedies
(including without limitation any provision whereby any right is waived).
No opinion is given as to the enforceability of any provision requiring
or in effect requiring that waivers or amendments of any provision of the
Agreement may be effected only in writing or any choice of law
provisions;
(xiii) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940; and
(xiv) The offer and sale of shares of Common Stock to be issued
pursuant to that certain Share Exchange Agreement dated August 27, 1996
among the Company and the shareholders of Interknit, Inc. as named
therein are exempt from registration under the Act and the Rules and
Regulations and under the various state securities or Blue Sky laws.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent deemed proper, on certificates of responsible officers of the Company
and public officials.
(g) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
and satisfactory in form and substance to the Representatives' counsel, from
Moore & Van Allen, PLLC, counsel to the Selling Shareholders, to the effect
that:
(i) Each Selling Shareholder has duly authorized, executed and
delivered a Power of Attorney and Custody Agreement constituting valid
and legally binding agreements of such Selling Shareholder and
enforceable in accordance with their terms, except as enforceability may
be limited to bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally
and the availability of equitable remedies;
18
<PAGE> 19
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Shareholder;
(iii) All authorizations, approvals, orders and consents
necessary for the execution and delivery by each Selling Shareholder of
this Agreement, the Power of Attorney and the Custody Agreement have been
duly and validly given, and each Selling Shareholder has full legal
right, power and authority to enter into this Agreement, the Power of
Attorney and the Custody Agreement and to sell, assign, transfer and
deliver to the several Underwriters the Shares to be sold by such Selling
Shareholder hereunder;
(iv) The performance of this Agreement and the consummation of the
transactions contemplated hereby and by the Power of Attorney and the
Custody Agreement will not result in a breach or violation by such
Selling Shareholder of any of the terms or provisions of, or constitute a
default by such Selling Shareholder under, any indenture, mortgage, will,
trust (constructive or other), loan agreement, lease or other agreement
or instrument known to such counsel after due inquiry to which such
Selling Shareholder or any of its properties is bound, any statute,
order, rule, regulation or decree of any government, governmental
instrumentality or court having jurisdiction over such Selling
Shareholder;
(v) Immediately prior to such Closing Date, each Selling
Shareholder was the sole registered owner of the Shares to be sold by
such Selling Shareholder hereunder; and
(vi) The several Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code as in effect
in the governing jurisdiction) will, upon payment therefor in accordance
with the terms hereof, acquire all the rights of each Selling Shareholder
in the Shares purchased by them, free and clear of any liens, security
interests, pledges, claims, encumbrances, shareholders' agreements,
voting trusts or other interests.
(h) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
from Smith Helms Mulliss & Moore, L.L.P., as the Underwriters' counsel, with
respect to the Registration Statement, the Prospectus and this Agreement, which
opinion shall be satisfactory in all respects to the Representatives, and the
Company shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received, concurrently with the
execution and delivery of this Agreement, and at the Closing Date and, with
respect to the Option Shares, at the Option Closing Date, a letter from the
Accountants dated the date of its delivery, addressed to the Representatives
and in form and substance satisfactory to them, to the effect that:
(i) with respect to the Company they are independent public
accountants within the meaning of the Act and the Rules and
Regulations and that
19
<PAGE> 20
they have no interest required to be disclosed in the
Prospectus pursuant to Item 10 of Form S-1;
(ii) in their opinion, the financial statements of the
Company examined by them at all dates and for all periods
referred to in their opinion and included in the Registration
Statement and Prospectus comply in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations with respect to registration statements on Form S-1;
(iii) on the basis of certain indicated procedures (but
not an examination in accordance with generally accepted
auditing standards), including examinations of the instruments of
the Company set forth in the Prospectus, a reading of the latest
available interim unaudited financial statements of the Company,
whether or not appearing in the Prospectus, inquiries of the
officers of the Company or other persons responsible for its
financial and accounting matters regarding the specific items for
which representations are requested below and a reading of the
minute books of the Company, nothing has come to their attention
which would cause them to believe that:
(A) during the period from the last audited balance
sheet included in the Registration Statement to a specified
date not more than five days prior to the date of such letter
there has been any change in the capital stock or other
securities of the Company on a consolidated basis or in the
consolidated long-term debt or other long-term obligations of
the Company or any payment or declaration of any dividend or
other distribution in respect thereof or exchange therefor,
or there have been any material decreases in consolidated net
current assets or consolidated net assets or any increases in
consolidated short-term debt, in each case from that shown on
the last audited balance sheet included in the Registration
Statement or Prospectus, other than as set forth in or
contemplated by the Registration Statement or Prospectus;
(B) from the period from December 31, 1995 to a
specified date not more than five days prior to the date of
such letter there were any decreases in consolidated net
sales or operating income or the total or per share amounts
of consolidated net income, or any decreases in the
consolidated ratios of operating income to net sales or net
income to net sales or the ratio of earnings to fixed
charges, or any increases in the consolidated ratio of
costs and expenses to net sales, in each case as compared
with the comparable periods of the preceding year and the
preceding year to date period; or
(C) the unaudited financial statements and schedules
(including any unaudited condensed pro forma financial
statements), whether or not appearing in the Registration
Statement and Prospectus, do not comply
20
<PAGE> 21
with the accounting requirements of the Act, or
do not present fairly the financial position and results of
the Company for the periods indicated, in conformity with the
generally accepted accounting principles applied on a
consistent basis with the audited financial statements.
(iv) in addition to the examination referred to in their
report included in the Registration Statement and the
Prospectus and the limited procedures and inspection of minutes
books, inquiries and other procedures referred to in subparagraph
(iii) above, they have carried out certain procedures (which shall
be satisfactory to the Representatives), not constituting an
examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and
financial information specified by the Representatives which are
derived from the general accounting records of the Company and its
subsidiaries, or which are derived directly from such records by
analysis or computation, and are set forth in the Prospectus; have
compared certain of those amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries (in a manner acceptable to the Representatives); and
have found them to be in agreement except as such discrepancies are
described in such letter and are acceptable to you.
(j) The Representatives shall have received, concurrently with the
execution and delivery of this Agreement and at the Closing Date and, with
respect to the Option Shares, the Option Closing Date, an accurate certificate,
dated the date of its delivery, signed by each of the Chief Executive Officer
and the Chief Financial Officer of the Company, and in form and substance
satisfactory to the Representatives, to the effect that:
(i) The Registration Statement has become effective, and no order
suspending the effectiveness of the Registration Statement has been
issued and to the best knowledge of the respective signers no proceeding
for that purpose has been initiated or is threatened by the Commission;
(ii) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, such documents are true and correct in all material respects
and do not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not untrue or
misleading and (B) in the case of the certificate delivered at the
Closing Date and, with respect to the Option Shares, the Option Closing
Date, since the Effective Date no event has occurred as a result of which
it is necessary to amend or supplement the Prospectus in order to make
the statements therein not untrue or misleading in any material respect;
(iii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects; and
21
<PAGE> 22
(iv) Each of the covenants required herein to be performed by the
Company on or prior to the delivery of such certificate has been duly,
timely and fully performed and each condition herein required to be
complied with by the Company on or prior to the date of such certificate
has been duly, timely and fully complied with in all material respects.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 5(n) hereof.
(l) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing
Date and the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for trading on the Nasdaq National Market.
(n) At the Closing Date, each Selling Shareholder shall have submitted a
certificate to the Representatives stating that the representations and
warranties of such Selling Shareholder in the Agreement are true and correct as
of such date and that such Selling Shareholder has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date.
(o) The Company and the Selling Shareholders shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and, with respect to the Option Shares,
the Option Closing Date of any statement in the Registration Statement or the
Prospectus as to the accuracy at the Closing Date and, with respect to the
Option Shares, the Option Closing Date of the representations and warranties of
the Company or the Selling Shareholders herein, as to the performance by the
Company or the Selling Shareholders of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the Underwriters'
obligations hereunder.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter,
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any and all losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based in whole
or in part upon (i) any inaccuracy in the representations and warranties of the
Company contained herein, (ii) any failure of the Company to perform its
obligations hereunder or under law, (iii) any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
as originally filed, the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, or in any Blue Sky
application or other written information furnished by the Company filed in any
state or other jurisdiction in order
22
<PAGE> 23
to qualify any or all of the Shares under the securities laws thereof (a "Blue
Sky Application"), or (iv) the omission or alleged omission to state in the
registration statement as originally filed, the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto
or any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or such supplement or any Blue Sky Application in reliance upon and
in conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the only
information so provided by the Underwriters is the information included in the
last paragraph on the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and the Prospectus). The Company shall be liable for
the full amount of all claims pursuant to this Section and this Agreement.
(b) The Selling Shareholders will severally but not jointly indemnify
and hold harmless each Underwriter, and each person who controls any
Underwriter within the meaning of Section 15 of the Act, against any and all
losses, claims, damages or liabilities to which such Underwriter or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based in whole or in part upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement as
originally filed, the Registration Statement, any Preliminary Prospectus or the
Prospectus, or in any amendment or supplement thereto, or the omission or
alleged omission to state in the registration statement as originally filed,
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that a
Selling Shareholder will not be liable in any such case to the extent that any
such loss, claim, damage, liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or such supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically for use
therein (it being understood that the only information so provided by the
Underwriters is the information included in the last paragraph on the cover
page and under the caption "Underwriting" in any Preliminary Prospectus and the
Prospectus). In no event shall any Selling Shareholder be liable hereunder for
an amount in excess of the proceeds received by such Selling Shareholder from
the Underwriters hereunder.
23
<PAGE> 24
(c) The Underwriters severally but not jointly agree, to the extent of
and only to the extent of their commitment pursuant to Schedule II, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act, and each Selling
Shareholder, against any and all losses, claims, damages or liabilities to
which the Company or any such director, officer or controlling person or such
Selling Shareholder may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement as originally
filed, the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or any Blue Sky Application, or arise
out of or are based upon the omission or the alleged omission to state in the
registration statement as originally filed, the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto
or any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only information so
provided is the information included in the last paragraph on the cover page
and under the caption "Underwriting" in any Preliminary Prospectus and in the
Prospectus).
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, including governmental
proceedings, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 8, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; and after notice
from the indemnifying party to such indemnified party of its election to so
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation except that the
indemnified party shall have the right to employ separate counsel if, in its
reasonable judgment, it is advisable for the indemnified party and any other
Underwriter to be represented by separate counsel, and in that event the fees
and expenses of separate counsel shall be paid by the indemnifying party.
(e) The Company will not, without prior written consent of the
Representatives, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding (or related
cause of action or portion thereof) in respect of which indemnification may be
sought hereunder (whether or not any Underwriter is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
includes an
24
<PAGE> 25
unconditional release of all Underwriters from all liability arising out of
such claim, action, suit or proceeding (or related cause of action or portion
thereof).
(f) To provide for just and equitable contribution in circumstances in
which the indemnity agreement provided for in the preceding part of this
Section 8 is for any reason held to be unavailable to the Underwriters or the
Company or any Selling Shareholders or is insufficient to hold harmless an
indemnified party, then the Company and the Selling Shareholders shall
contribute to the damages paid by the Underwriters, and the Underwriters shall
contribute to the damages paid by the Company and the Selling Shareholders;
provided, however, that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the relative
benefits received by each party from the offering of the Shares (taking into
account the portion of the proceeds of the offering realized by each), the
parties' relative knowledge and access to information concerning the matter
with respect to which the claim was asserted, the opportunity to correct and
prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. The Company, the Selling Shareholders and
the Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose). No Underwriter or
person controlling such Underwriter shall be obligated to make contribution
hereunder which in the aggregate exceeds the Underwriting Discount applicable
to the Shares purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or any
similar claim. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint. For purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act shall have the same
rights to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act, shall have the same rights to contribution as the Company.
(g) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
9. DEFAULT OF UNDERWRITERS.
If any Underwriter defaults in its obligation to purchase Shares hereunder
and if the total number of Shares that such defaulting Underwriter agreed but
failed to purchase is ten percent or less of the total number of Shares to be
sold hereunder, the non-defaulting Underwriters shall
25
<PAGE> 26
be obligated severally and not jointly to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule II hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters or
in such other proportions as you may specify), the Shares that such defaulting
Underwriter or Underwriters agreed but failed to purchase. If any Underwriter
so defaults and the total number of Shares with respect to which such default
or defaults occur is more than ten percent of the total number of Shares to be
sold hereunder, and arrangements satisfactory to the other Underwriters and the
Company and the Selling Shareholders for the purchase of such Shares by other
persons (who may include the non-defaulting Underwriters) are not made within
36 hours after such default, this Agreement, insofar as it relates to the sale
of the Shares, will terminate without liability on the part of the
non-defaulting Underwriters or the Company except for (i) the provisions of
Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the Company
pursuant to Section 5(i) hereof. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. In any such case, you shall have the right to postpone the Closing
Date, or the Option Closing Date, as the case may be, but in no event longer
then seven (7) days, in order that the required changes, if any, in the
Registration Statement and Prospectus or in any other documents or agreements
may be made. Nothing herein shall relieve a defaulting Underwriter from
liability for its default hereunder.
10. SURVIVAL CLAUSE.
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company and its officers, the
Underwriters and the Selling Shareholders set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall remain
in full force and effect, regardless of (i) any investigation made by or on
behalf of the Company, any of its officers or directors, any Underwriter or any
controlling person of an Underwriter, or any Selling Shareholder, (ii) any
termination of this Agreement and (iii) delivery of and payment for the Shares.
11. TERMINATION.
(a) The Underwriters' obligations under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the
Company from the Representatives, without liability on the part of the
Underwriters to the Company, if, prior to delivery and payment for the Shares
(or the Option Shares, as the case may be), in the Representatives' sole
judgment:
(i) there has been since the respective dates as of which
information is given in the Registration Statement or the Prospectus
any materially adverse change in the condition, financial or otherwise,
results of operations, affairs or business prospects of the Company or
its subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business;
26
<PAGE> 27
(ii) the Company or any Selling Shareholder shall have failed or
been unable to comply with any of the terms or provisions of this
Agreement on the part of the Company or such Selling Shareholder to be
performed within the respective times herein provided for, unless
compliance therewith or performance thereof shall have been expressly
waived by the Representative in writing;
(iii) trading in any of the equity securities of the Company
shall have been suspended by the Commission, by an exchange that lists
the Shares or by the Nasdaq National Market;
(iv) trading in securities generally on the New York Stock
Exchange or in the over-the-counter market shall have been suspended or
limited or minimum or maximum prices shall have been generally
established on such exchange or market, or additional material
governmental restrictions, not in force on the date of this Agreement,
shall have been imposed upon trading in securities generally by such
exchange or market or by order of the Commission or any court or other
governmental authority;
(v) a general banking moratorium shall have been declared by either
Federal, New York or North Carolina state authorities; or
(vi) any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or
other calamity or crisis shall have occurred the effect of any of which
is such as to make it, in your sole, reasonable judgment, impracticable
or inadvisable to market the Shares on the terms and in the manner
contemplated by the Prospectus.
(b) Any termination of this Agreement pursuant to this Section 11
shall be without liability of any character (including, but not limited to,
loss of anticipated profits or consequential damages) on the part of any party
thereto, except that the Company shall remain obligated to pay the costs and
expenses provided in Section 5(i) hereof and the Company, the Selling
Shareholders and the Underwriters shall remain obligated under Section 8
hereof.
12. MISCELLANEOUS.
(a) Notice given pursuant to any of the provisions of this Agreement
shall be in writing and, unless otherwise specified, shall be mailed, delivered
or telecopied
(i) if to the Company:
Ridgeview, Inc.
2101 North Main Avenue
Newton, North Carolina 28658
Attention: President
27
<PAGE> 28
with a copy to:
Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Dumont Clarke, IV
(ii) if to the Underwriters:
Interstate/Johnson Lane Corporation
121 West Trade Suite, Suite 1500
Charlotte, North Carolina 28202
Attention: Corporate Finance Department
with a copy to:
Smith Helms Mulliss & Moore, L.L.P.
214 North Church Street
Post Office Box 31247
Charlotte, North Carolina 28231
Attention: R. Douglas Harmon
(iii) if to the Selling Shareholders:
[to be completed]
(b) This Agreement has been and is made solely for the Underwriters', the
Selling Shareholders' and the Company's benefit and of the controlling persons,
directors and officers referred to in Section 8 hereof, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as
used in this Agreement shall not include a purchaser, as such purchaser, of
Shares from the Underwriters.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina.
(d) This Agreement may be signed in two or more counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
(e) In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
28
<PAGE> 29
(f) The Company, the Underwriters and the Selling Shareholders each
hereby irrevocably waive any right they may have to a trial by jury in respect
of any claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the Underwriters.
Very truly yours,
RIDGEVIEW, INC.
By:
------------------------------
Title:
---------------------------
SELLING SHAREHOLDERS
By:
------------------------------
Attorney-in-fact
Confirmed as of the date first above mentioned:
INTERSTATE/JOHNSON LANE CORPORATION
SCOTT & STRINGFELLOW, INC.
(for themselves and as Representatives of the Underwriters named in Schedule I
hereto)
By:
---------------------------------
Title:
-------------------------------
29
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
No. of Shares
Selling Shareholders to be Sold
- -------------------- -------------
<S> <C>
------
TOTAL 80,000
======
</TABLE>
30
<PAGE> 31
SCHEDULE II
<TABLE>
<CAPTION>
No. of Shares
Underwriters to be Purchased
------------ ---------------
<S> <C>
Interstate/Johnson Lane Corporation
Scott & Stringfellow, Inc.
---------
TOTAL 1,600,000
=========
</TABLE>
31
<PAGE> 1
EXHIBIT 2.1
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is made and entered
into as of the 27th day of August, 1996, by and among Ridgeview, Inc., a North
Carolina Corporation ("Ridgeview"), and the persons listed on Schedule 1,
attached hereto (collectively the "Shareholders"), being all of the
shareholders of Interknit, Inc., an Alabama Corporation ("Interknit").
Statement of Purpose
The Shareholders own all of the issued and outstanding capital stock
of Interknit. Interknit operates a manufacturing facility in Fort Payne,
Alabama for the knitting of hosiery products, most of which are sold to
Ridgeview. Interknit also purchases most of the raw materials it uses in the
manufacturing of hosiery products from Ridgeview.
Ridgeview desires to acquire all of the capital stock of Interknit,
and the Shareholders, collectively, desire to transfer all of their capital
stock of Interknit to Ridgeview in consideration and exchange for an aggregate
of 240,000 shares of the common stock of Ridgeview ("Ridgeview Common Stock").
Subject to the completion of the share exchange contemplated hereby (the
"Exchange"), Ridgeview intends to make an initial public offering (the "IPO")
of approximately 1,840,000 shares of Ridgeview Common Stock (plus up to
approximately 240,000 additional shares subject to an underwriters' over
allotment option). The first issuance of Ridgeview Common Stock in such IPO is
referred to herein as the "IPO Closing" and the date of first issuance is
referred to herein as the "IPO Closing Date." The shares of Ridgeview Common
Stock to be issued in the IPO are to be registered under the Securities Act of
1933, as amended (the "Securities Act") pursuant to a registration statement on
form S-1 (as initially filed and as from time to time amended, the
"Registration Statement"), and such shares are to be issued and sold pursuant
to an underwriting agreement (the "Underwriting Agreement") by and among
Ridgeview and a group of underwriters (the "Underwriters"), the managers of
which are expected to be Interstate/Johnson Lane Corporation and Scott &
Stringfellow, Inc. The initial per share Price to Public for the Ridgeview
Common Stock offered and sold in the IPO, as set forth (or deemed to be set
forth in) the Registration Statement at the time it becomes effective, is
referred to herein as the "IPO Price."
NOW, THEREFORE, in Consideration of The Premises and The Mutual
Agreements Set Forth Herein, Ridgeview and Each of The Shareholders do Hereby
Agree as Follows:
1. Exchange of Shares.
(a) Subject to the terms and conditions hereof, at the Closing (as
hereinafter defined), (i) each of the Shareholders severally agrees to deliver
and duly transfer, or cause to be
<PAGE> 2
duly delivered and transferred, to Ridgeview, all of the shares of common stock
of Interknit set forth opposite such Shareholder's name on Schedule 1, free and
clear of all liens, encumbrances and adverse claims, in consideration and
exchange for the number of shares of Ridgeview Common Stock set forth beside
such Shareholder's name on Schedule 1 hereto and (ii) in consideration and
exchange for such shares of Common Stock of Interknit, Ridgeview agrees to
issue and deliver the certificates representing such shares of Ridgeview Common
Stock to the respective Shareholders entitled thereto.
2. Appointment of Representatives; Custody Arrangements.
(a) Each of the shareholders does hereby irrevocably constitute
and appoint each of Hugh R. Gaither and Walter L. Bost, Jr. as such
Shareholder's agent, custodian, attorney-in-fact and representative (together,
the "Representatives"), each with full power to act without the other and with
full power of substitution and does hereby authorize each such Representative
to act in the name of and on behalf of such Shareholder for the following
purposes:
(i) Until the Closing or termination of this Agreement
pursuant to Section 9 hereof, whichever shall first occur, to hold in
custody the certificates (the "Stock Certificates") representing such
shareholder's shares of common stock of Interknit and related stock
powers duly endorsed, as appropriate to transfer said shares to
Ridgeview hereunder (the "Stock Powers"), which Stock Powers are being
delivered to the Representatives herewith and which Stock
Certificates, if not delivered to the Representatives herewith, will
be delivered to the Representatives promptly hereafter;
(ii) To deliver the Stock Certificates and the Stock
Powers to Ridgeview at the Closing upon the satisfaction or waiver of
the conditions therefor described in Section 3(b) hereof; or if the
Agreement is terminated in accordance with Section 9 hereof, to
deliver them to or as directed by such Shareholder promptly after such
termination;
(iii) To receive from Ridgeview or any transfer agent engaged
by Ridgeview, as applicable, in exchange for the shares represented by
such Stock Certificates, the stock certificate or certificates
representing the shares of Ridgeview Common Stock issuable to such
Shareholder hereunder; and
(iv) To do all things and to execute and deliver any and
all documents (including the certificates described in Section
3(b)(ii) hereof) on behalf of such Shareholder that may be deemed
necessary or advisable by the Representatives in order to effect on
behalf of
- 2 -
<PAGE> 3
such Shareholder the transactions contemplated by this Agreement.
The aforesaid powers and authority of the Representatives are coupled
with an interest and shall be irrevocable, notwithstanding the subsequent
death, incompetency, liquidation, dissolution or other incapacity of any
Shareholder. Without limiting the generality of the foregoing, the
Representatives are hereby directed to complete at Closing the transfer of the
shares represented by the Stock Certificates and Stock Powers delivered to
them, subject only to the express conditions to such transfer set forth herein.
(b) The Representatives shall not be liable for any action taken
pursuant to the authority granted pursuant to this Section 2, or for any
failure to act hereunder, or for any other reason except for gross negligence
or willful misconduct. Each Shareholder agrees to indemnify and hold the
Representatives harmless against all losses, suits, damages, attorney's fees,
expenses and liabilities which they may incur or sustain, directly or
indirectly, in connection with the authority granted by such Shareholder
pursuant to this Section 2 or any claim or legal or arbitration proceeding
relating thereto, and will pay such items upon demand.
3. Closing.
(a) The consummation of the transactions contemplated hereby to
effect the Exchange (the "Closing") shall be held at the same location as the
IPO Closing and shall occur immediately prior to the completion of the IPO
Closing, or at such other time and place as Ridgeview and the Representatives
may mutually agree. At the Closing, subject to the fulfillment or waiver of
the conditions set forth in subsection (b) below, the parties hereto shall
cause the Exchange to be effected in the manner and as provided in Sections 1
and 2 hereof.
(b) The obligations of each of the parties hereto to complete the
Closing and effect the Exchange are contingent upon the fulfillment of each of
the following conditions at or before the IPO Closing Date, except to the
extent that Ridgeview and the Representatives may, in their absolute
discretion, waive any one or more thereof in whole or in part (provided that
the conditions described in subsections (i), (ii) and (iii) below may not be
waived by the Representatives without the consent of all of the other
Shareholders):
(i) All of the conditions to the issuance and sale of the
Ridgeview Common Stock to the Underwriters in the IPO, other than the
condition that the Exchange be consummated, shall have been met or
waived, and the Underwriters shall be ready, willing and able to
purchase the Ridgeview Common Stock subject only to the effectiveness
of the Exchange.
- 3 -
<PAGE> 4
(ii) The Registration Statement, at the time it shall
have become effective, or as amended after its effectiveness and prior
to the IPO Closing, shall not have contained any material changes from
the proposed form of Registration Statement most recently delivered to
the Shareholders prior to their execution of this Agreement that
adversely affect the interests of the Shareholders, except for any
such material adverse changes that have been approved by the
Representatives, of which the Shareholders shall have been notified in
writing (including by means of delivery of an amendment to the
Registration Statement or of the Prospectus included therein
reflecting such material changes), and that have been approved (or
deemed approved) by all of the Shareholders. Any such material
adverse change shall be conclusively deemed to have been approved by a
Shareholder unless the Shareholder gives the Representatives written
notice of objection thereto not later than the next day after the date
on which notice of such change is given to such Shareholder. No
changes shall be deemed material changes for these purposes unless
such changes are such that the recirculation of the Prospectus or
Preliminary Prospectus included in the Registration Statement is
required as a condition to acceleration of the effectiveness of the
Registration Statement.
(iii) The representations and warranties of each party set
forth in this Agreement shall be true and correct in all material
respects immediately prior to the Closing with the same force and
effect as though made at such time; all terms, covenants and
conditions to be complied with and performed by each party under this
Agreement at or before the Closing shall have been duly complied with
and duly performed; and Ridgeview and the Representatives shall have
delivered at the Closing certificates to such effect.
(iv) No action, suit or proceeding before any court or any
governmental or regulatory authority shall have been commenced, no
investigation by any governmental or regulatory authority shall have
been commenced, and no action, suit or proceeding by any governmental
or regulatory authority shall have been threatened, against any of the
parties to this Agreement, or any of the principals, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or
legality of any of such transactions or seeking damages in connection
with any of such transactions.
4. Representations and Warranties of Ridgeview. To induce the
Shareholders to enter into this Agreement and to effect the
- 4 -
<PAGE> 5
Exchange hereunder, Ridgeview hereby represents and warrants that:
(a) Ridgeview is a corporation duly organized and validly existing
in good standing under the laws of the State of North Carolina, with full
corporate power and authority to conduct its business as now conducted and to
enter into and perform its obligations hereunder.
(b) The authorized capital stock of Ridgeview currently consists
of 12,500 shares of Ridgeview Common Stock, of which 10,561 shares are issued
and outstanding. The shareholders of Ridgeview have approved amended and
restated Articles of Incorporation of Ridgeview that will be filed prior to the
effectiveness of the Registration Statement that increase Ridgeview's
authorized capital stock to 22,000,000 shares divided into 20,000,000 shares of
Ridgeview Common Stock and 2,000,000 shares of Preferred Stock, which may be
issued in one or more series with such designations, preferences, limitations
and relative rights as the Board of Directors of Ridgeview may determine from
time to time in accordance with applicable law. Ridgeview's Board of Directors
has declared a stock dividend, effective as of the date on which the
Underwriting Agreement is signed, that will result in the issuance of
approximately 129 additional shares for each share of Ridgeview common stock
then outstanding, the effect of which will be to increase the number of shares
of Ridgeview Common Stock issued and outstanding as of such date, together with
the 1,520,000 shares of Ridgeview Common Stock to be issued and sold to the
Underwriters and the 240,000 shares of Ridgeview Common Stock to be issued
pursuant to the Exchange, to 3,120,00 shares (3,360,000 if the Underwriters
exercise the over-allotment option to purchase an additional 240,000 shares the
Company expects to grant to them in the Underwriting Agreement). There are no
other outstanding options, warrants, conversion rights or other rights which
could entitle any person to acquire, or require Ridgeview to issue, any
additional shares of its capital stock, other than the obligations of Ridgeview
hereunder to issue shares of Ridgeview Common Stock in the Exchange and the
proposed issuance of Ridgeview Common Stock in the IPO. Each of the shares of
Ridgeview Common Stock to be issued to the Shareholders in the Exchange
hereunder will be, when so issued, duly and validly issued, fully paid and
nonassessable.
(c) This Agreement and the Exchange have been approved by all
requisite corporate action on the part of Ridgeview, and this Agreement
constitutes the legal, valid and binding obligation of Ridgeview. There are no
pending corporate proceedings of Ridgeview for any dissolution or liquidation
of Ridgeview or any merger or consolidation or similar transaction to which
Ridgeview would be a party, other than with respect to the Exchange.
(d) Ridgeview's execution and delivery of this Agreement and
performance of its obligations hereunder, including effecting the Exchange
hereunder, do not and will not conflict with,
- 5 -
<PAGE> 6
violate or result in any default under Ridgeview's Articles of Incorporation or
Bylaws or any mortgage, indenture, agreement, instrument or other contract to
which Ridgeview is a party or by which Ridgeview or its property is bound, nor
will they violate any judgment, order, decree, law, statute, regulation or
other judicial or governmental restriction to which Ridgeview is subject, nor
do they or will they require the consent of, or any prior filing with or notice
to, any governmental authority or other third party not theretofore obtained,
made or given.
(e) The Registration Statement will not, when such Registration
Statement becomes effective and thereafter until the IPO Closing, contain an
untrue statement as to a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty shall not extend to any Shareholder with respect to
any information therein about such Shareholder provided by such Shareholder.
5. Representations and Warranties of Shareholders. To induce
each of the other parties hereto to enter into this Agreement and to effect the
Exchange hereunder, each of the Shareholders hereby severally represents and
warrants that:
(a) Such Shareholder is the record and beneficial owner of the
shares of common stock of Interknit set forth beside such Shareholder's name in
Schedule 1 hereto with full right, power and authority to dispose of all such
shares (upon the termination of the Stock Purchase Agreement defined and
described in Section 7 of this Agreement), such Shareholder claims no interest
in, or rights to acquire any additional shares of Interknit other than the
shares set forth by such Shareholder's name in Schedule 1 hereto and the shares
set forth by such Shareholder's name in Schedule 1 represent all the shares of
common stock of Interknit owned by such Shareholder. Such Shareholder owns
such shares free and clear of any and all liens, encumbrances and adverse
claims, other than Permitted Pledges, and will transfer such shares to
Ridgeview in the Exchange free and clear of any and all liens, encumbrances and
adverse claims. A "Permitted Pledge" means an existing pledge of such shares
to secure indebtedness, provided that arrangements satisfactory to Ridgeview
and the Representatives have been made with the pledgee of such shares to
assure that the Stock Certificates representing such shares will be promptly
delivered to the Representatives to be held in custody by them hereunder, and
will be duly transferred to Ridgeview at the Closing free and clear of such
pledge and all other liens encumbrances and adverse claims.
(b) Such Shareholder has no other claims against Interknit or any
of its directors or officers that have not been satisfied or released prior to
the date hereof.
- 6 -
<PAGE> 7
(c) Such Shareholder has no rights to have any shares of common
stock of Interknit registered under the Securities Act for public sale.
(d) Such Shareholder has received a copy of the proposed form of
the Registration Statement prepared for filing under the Securities Act and, to
the best of such Shareholder's knowledge, such Registration Statement does not
contain an untrue statement as to a material fact or omit to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(e) Such Shareholder has received such information (including the
proposed form of the Registration Statement and current financial statements
for Interknit) relating to the business and affairs of Ridgeview and Interknit
as such Shareholder deems necessary or desirable for purposes of entering into
this Agreement or otherwise has requested, and all additional information which
such Shareholder has considered necessary to verify the accuracy of the
information so received. Such Shareholder is familiar with the business and
affairs of Ridgeview and Interknit and, in addition, such Shareholder has had
the opportunity to ask questions of, and receive answers and obtain additional
information from, management of Ridgeview and Interknit concerning the
Registration Statement and the business and affairs of Ridgeview and Interknit.
Such Shareholder, either alone or together with such Shareholder's advisors,
has such knowledge and experience in financial and business matters that such
Shareholder is capable of evaluating the merits and risks of acquiring the
shares of Ridgeview Common Stock hereunder and has participated, if and to the
extent such Shareholder has desired to participate, in the discussions,
negotiations and analyses pursuant to which the number of shares of Ridgeview
Common Stock to be issued in the Exchange was determined. On the basis of the
foregoing, such Shareholder is familiar with the operations, business plans and
financial condition of Ridgeview and is in a position to make an informed
decision to enter into this Agreement and acquire Ridgeview Common Stock as
consideration for such Shareholder's shares of common stock of Interknit. Such
Shareholder's financial position is such that such Shareholder can afford to
retain such shares for an indefinite period of time without realizing any
direct or indirect cash return on such Shareholder's investment.
(f) Such Shareholder understands that Ridgeview proposes to issue
and deliver to such Shareholder the shares of Ridgeview Common Stock pursuant
to this Agreement without compliance with the registration requirements of the
Securities Act or any state securities laws in reliance upon one or more
exemptions therefrom, and that for such purpose, Ridgeview will rely upon the
representations, warranties, covenants and agreements contained in this Section
5.
(g) Such Shareholder understands that, under the Securities Act
and existing rules of the Securities and Exchange Commission
- 7 -
<PAGE> 8
(the "SEC"), such Shareholder may be unable to sell such Shareholder's shares
of Ridgeview Common Stock except to the extent that such Shareholder's shares
of Ridgeview Common Stock may be sold (i) pursuant to an effective registration
statement covering such shares pursuant to the Securities Act or (ii) in
accordance with, and subject to the conditions and limitations of, Rule 144
under the Securities Act ("Rule 144"), including the condition that such shares
be held for a period of at least two years prior to such resale. Such
Shareholder understands that Ridgeview is under no obligation to effect a
registration of the shares of Ridgeview Common Stock delivered to such
Shareholder hereunder under the Securities Act and that the shares of Ridgeview
Common Stock to be issued to such Shareholder will be deemed to be "restricted
securities" under Rule 144. Such Shareholder understands that as "restricted
securities," under current law such shares will generally not be eligible for
resale pursuant to Rule 144 for a period of two years following the Exchange,
and after such period any resales under Rule 144 will be subject to other
restrictions as to the volume that may be sold in any three-month period, as to
the manner of sale, and as to other matters, which restrictions will continue
for at least another one year period, or thereafter for so long as such
Shareholder is deemed to be an "affiliate" of Ridgeview.
(h) Such Shareholder is acquiring such Shareholder's shares of
Ridgeview Common Stock for such Shareholder's own account for investment
purposes and not with a view to, or for sale in connection with, the
distribution thereof within the meaning of the Securities Act.
(i) Such Shareholder acknowledges and agrees that the certificates
for the shares of Ridgeview Common Stock issued to such Shareholder shall bear
an appropriate legend giving notice of the restrictions on transfer imposed by
applicable securities laws, and that Ridgeview may lodge appropriate stop
transfer instructions with its transfer agent to prevent any purported
transfers in violation of applicable securities laws or of this Agreement.
6. Certain Covenants and Agreements.
(a) From the date hereof through the Closing, unless each of the
parties hereto consents otherwise in writing and except for the transactions
contemplated hereby in connection with the Exchange and the transactions
contemplated by or described in the Registration Statement, (i) Ridgeview
agrees that it will conduct its business only in the ordinary course, will not
amend its Articles of Incorporation (except as herein before indicated) or
Bylaws, will not issue or obligate itself to issue any additional shares of its
capital stock (other than shares to be issued in the IPO and the shares to be
issued in the payment of the stock dividend effective upon signing of the
Underwriting Agreement), and will not take any other action which would cause
any representation or warranty made in Section 4 hereof to be incorrect in any
material respect if such representation or
- 8 -
<PAGE> 9
warranty were made on any date from the date hereof through the Closing and
(ii) each of the Shareholders agrees that (A) such Shareholder will continue to
own the shares of Interknit set forth beside such Shareholder's name on
Schedule 1 hereto in the manner and as described in Section 5(a) of this
Agreement and (B) such Shareholder will use its best efforts (given the voting
power or official position of such Shareholder) to see that Interknit conducts
its business only in the ordinary course, does not amend its Articles or
Certificate of Incorporation (as applicable) or Bylaws, and does not issue or
obligate itself to issue any additional shares of capital stock.
(b) Ridgeview has provided to each of the Shareholders a copy of
the Registration Statement in substantially the form proposed to be filed with
the SEC and Ridgeview covenants and agrees to provide each Shareholder, upon
request, with a copy of any amendment thereto promptly after such amendment is
filed and with copies of any exhibits thereto requested to be provided.
(c) Ridgeview agrees to use its reasonable best efforts to proceed
with and consummate the IPO in the manner contemplated by the Registration
Statement.
(d) Each of the parties hereto hereby covenants and agrees with
the others that at any time and from time to time it will promptly execute and
deliver to the others such further assurances, instruments; and documents and
take such further action as any of the others may reasonably request in order
to carry out the full intent and purpose of this Agreement.
7. Termination of Shareholders' Agreements. The Shareholders
acknowledge that they have each entered into an agreement, dated October 1,
1993, and an agreement dated January 15, 1995 (collectively, the "Stock
Purchase Agreement") with Interknit and the other shareholders of Interknit
pursuant to which, under certain circumstances, they have (i) granted Interknit
and such other shareholders the right to purchase their shares of capital stock
of Interknit and (ii) received the right to sell their shares of capital stock
of Interknit to Interknit or such other shareholders. The Shareholders agree
that the Stock Purchase Agreements and any other similar such agreements
pursuant to which any of the Shareholders have granted any other individuals
any rights with respect to their shares of capital stock of Interknit shall be
terminated in all respects effective as of the Closing.
8. Indemnification.
(a) Shareholders agree, jointly and severally, to indemnify and
hold Ridgeview harmless from any loss, liability, cost or expense, including
without limitation reasonable attorneys' fees, suffered by Ridgeview resulting
from or arising out of:
- 9 -
<PAGE> 10
(i) Any material breach by Shareholders in the
performance of their respective obligations or
covenants under this Agreement;
(ii) Any material breach of any of the
representations or warranties made by
Shareholders in this Agreement; and
(iii) All actions, suits, proceedings, claims,
demands, assessments or judgments incident to
any of the foregoing.
9. Termination. This Agreement may be terminated and the Exchange
may be abandoned at any time prior to the Closing by the following parties
under the following circumstances: (a) by Ridgeview and the Representatives by
their mutual consent; or (b) by any of the parties hereto, upon notice to the
others, if the Closing shall not have occurred by December 31, 1996 or such
later date to which all of the parties hereto shall have otherwise agreed.
Upon any such termination of this Agreement, the Representatives covenant and
agree to return the Stock Certificates and Stock Powers to the applicable
Shareholders as promptly as reasonably practicable following such termination.
10. Notices. Any notice to be given to a party in connection with
this Agreement shall be in writing addressed to such party at such party's
"Notice Address" set forth below such party's signature hereto, which Notice
Address may be changed from time to time by such party by notice thereof to the
other parties as herein provided. Any such notice shall be deemed effectively
given to a party on the second day after the date of mailing when mailed to
such party by first class registered or certified United States mail, postage
prepaid, addressed to such party at such party's Notice Address, or, if
earlier, when actually delivered to such party's Notice Address directed to
such party or when actually received by, such party. Notwithstanding the
foregoing, no notice to the Representatives, in their capacity as such, shall
be deemed effective until actual receipt by one of them.
11. Integration. This Agreement constitutes the final, complete
and exclusive statement of the agreement among the parties hereto as to the
subject matter hereof, and all other prior or contemporaneous oral or written
agreements of the parties hereto with respect to the subject matter hereof are
merged herein and superseded hereby.
12. Amendment. This Agreement may be modified or amended only by
express agreement of the parties hereto in writing, assenting to such
modification or amendment.
13. Waivers. No waiver by any party of any provision hereof or
part thereof at any time shall constitute or evidence a waiver by such party of
any other provision or other part of such provision or of the same provision or
part at any other time.
- 10 -
<PAGE> 11
14. Assignment. No party may assign its rights or delegate its
duties hereunder without the prior written consent of all of the other parties.
15. Severability. The parties have entered into this Agreement for
the purposes herein expressed, with the intention that this Agreement be given
full effect to carry out such purposes. Therefore, consistent with the
effectuation of the purposes hereof, the invalidity or unenforceability of any
provision hereof or part thereof shall not affect the validity or
enforceability of any other provision hereof or any other part of such
provision.
16. Construction. The section headings and subheadings in this
Agreement have been inserted for convenience of reference only and shall be
ignored in any construction of the provisions hereof. Unless the context
requires a contrary meaning, whenever used in this Agreement a pronoun in any
gender shall include the remaining genders; the singular shall include the
plural and the plural the singular; the word "any" shall mean one or more or
all; the conjunction "or" shall include both the conjunctive and disjunctive;
and the word "person" may refer to an entity or group as well as to a natural
person.
17. Benefits and Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
18. Governing Law. The validity and construction of this
Agreement shall be governed by the substantive laws of the State of North
Carolina.
19. Counterparts. This Agreement may be executed by the parties in
multiple counterparts, each of which shall be deemed an original.
20. Effectiveness. This Agreement shall be effective as of the
date hereinabove set forth upon the execution and delivery hereof by each party
hereto of a counterpart hereof (whether or not the same counterpart). Upon
such execution, one or more complete counterparts of this Agreement may be
assembled using the signature pages from various separately executed
counterparts.
- 11 -
<PAGE> 12
IN WITNESS WHEREOF, Ridgeview has caused this Agreement to be duly
executed by its duly authorized officers and the Shareholders have each duly
executed this Agreement, under seal as of the day and year first above written.
RIDGEVIEW: RIDGEVIEW, INC.
(CORPORATE: SEAL]
ATTEST:
/s/ J. Michael Gaither By:/s/ Hugh R. Gaither
- -------------------------------- -------------------------
Name: J. Michael Gaither Name: Hugh R. Gaither
Title: Secretary Title: President and Chief
Executive Officer
Notice Address:
2101 North Main Avenue
Newton, North Carolina 28658
Attention: President
THE REPRESENTATIVES: /s/ Hugh R. Gaither [SEAL]
----------------------------
Hugh R. Gaither
Notice Address:
c/o Ridgeview, Inc.
2101 North Main Avenue
Newton, North Carolina 28658
/s/ Walter L. Bost, Jr. [SEAL]
---------------------------
Walter L. Bost, Jr.
Notice Address:
c/o Ridgeview, Inc.
2101 North Main Avenue
P.O. Box 8
Newton, NC 28658
- 12 -
<PAGE> 13
THE SHAREHOLDERS: /s/ Hugh R. Gaither [SEAL]
---------------------------
Hugh R. Gaither
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
/s/ William D. Durrant [SEAL]
---------------------------
William D. Durrant
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
/s/ Walter L. Bost, Jr. [SEAL]
---------------------------
Walter L. Bost, Jr.
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
/s/ Joseph G. Royall [SEAL]
---------------------------
Joseph G. Royall
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
/s/ Albert C. Gaither [SEAL]
---------------------------
Albert C. Gaither
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
- 13 -
<PAGE> 14
/s/ Susan Gaither Jones [SEAL]
---------------------------
Susan Gaither Jones
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
/s/ J. Robert Gaither, Jr. [SEAL]
---------------------------
J. Robert Gaither, Jr.
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
/s/ Marc H. Swinnen [SEAL]
---------------------------
Marc H. Swinnen
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
/s/ Michael A. Horne [SEAL]
---------------------------
Michael A. Horne
Notice Address:
c/o Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
- 14 -
<PAGE> 15
SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT DATED
AUGUST 27, 1996 BY AND AMONG RIDGEVIEW, INC. A NORTH
CAROLINA CORPORATION, AND THE SHAREHOLDERS OF
INTERKNIT, INC., AN ALABAMA CORPORATION
/s/ Douglas E. Reagor [SEAL]
---------------------------
Douglas E. Reagor
Notice Address:
1906 Barclay Place
Richardson, TX 75081
- 15 -
<PAGE> 16
SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT DATED
AUGUST 27, 1996 BY AND AMONG RIDGEVIEW, INC. A NORTH
CAROLINA CORPORATION, AND THE SHAREHOLDERS OF
INTERKNIT, INC., AN ALABAMA CORPORATION
/s/ Daniel J. Stubbs [SEAL]
---------------------------
Daniel J. Stubbs
Notice Address:
Route 7, Box 745 B1
Ft. Payne, AL 35967
/s/ Harold S. Houck [SEAL]
---------------------------
Harold S. Houck
Notice Address:
4205 Roden Drive
Ft. Payne, AL 35967
- 16 -
<PAGE> 17
SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT DATED
AUGUST 27, 1996 BY AND AMONG RIDGEVIEW, INC. A NORTH
CAROLINA CORPORATION, AND THE SHAREHOLDERS OF
INTERKNIT, INC., AN ALABAMA CORPORATION
/s/ J. Michael Gaither [SEAL]
---------------------------
J. Michael Gaither
Notice Address:
315 West 7th Street
Newton, NC 28658
- 17 -
<PAGE> 18
SCHEDULE 1
<TABLE>
<CAPTION>
RIDGEVIEW
SHARES OF
INTERKNIT COMMON STOCK
COMMON SHARES TO BE RECEIVED
INTERKNIT SHAREHOLDERS OWNED IN EXCHANGE
- ---------------------- ------------- ---------------
<S> <C> <C>
Hugh R. Gaither 77.5 37,200
William D. Durrant 77.5 37,200
Walter L. Bost, Jr. 50.0 24,000
Joseph G. Royall 50.0 24,000
Albert C. Gaither 35.0 16,800
Susan Gaither Jones 35.0 16,800
Michael A. Horne 35.0 16,800
Douglas E. Reagor 35.0 16,800
Marc H. Swinnen 35.0 16,800
Daniel J. Stubbs 30.0 14,400
J. Robert Gaither, Jr. 17.5 8,400
J. Michael Gaither 17.5 8,400
Harold S. Houck 5.0 2,400
----- -------
TOTALS 500 240,000
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RIDGEVIEW, INC.
The undersigned corporation (the "Corporation") hereby
executes these Amended and Restated Articles of Incorporation for the purpose
of integrating into one document its original Articles of Incorporation and all
past and current amendments thereto:
ARTICLE 1
The name of the Corporation is Ridgeview, Inc.
ARTICLE 2
The period of duration of the Corporation shall be perpetual.
ARTICLE 3
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under Chapter 55
of the General Statutes of North Carolina.
ARTICLE 4
The aggregate number of shares which the Corporation shall have
authority to issue is 22,000,000 divided into Twenty Million (20,000,000)
Common Shares and Two Million (2,000,000) Preferred Shares, all of which shares
shall have a par value of $.01. The preferences, limitations and relative
rights of each class and series of shares are as follows:
Common Shares
The Common Shares shall be entitled to one vote per share and
to all other rights of shareholders subject to any rights granted to
the Preferred Shares.
Preferred Shares
The Preferred Shares may be issued in one or more series with
such designations, preferences, limitations, and
<PAGE> 2
relative rights as the Board of Directors may determine from time to
time in accordance with applicable law.
ARTICLE 5
Except as may otherwise be provided herein, the shareholders of the
Corporation shall have no preemptive right to acquire additional or treasury
shares of the Corporation.
ARTICLE 6
Shareholders shall not have the right of cumulate voting at an
election of directors.
ARTICLE 7
The address of the registered office of the Corporation is 2101 North
Main Avenue, Newton, Catawba County, North Carolina 28658, and the name of the
registered agent at such address is Hugh R. Gaither. The mailing address of
the registered office is P. O. Box 8, Newton, NC 28658.
ARTICLE 8
To the fullest extent permitted by the North Carolina Business
Corporation Act, as the same exists or may hereafter be amended, or other law,
a director of the Corporation shall not be personally liable to the
Corporation, its shareholders or otherwise for monetary damage for breach of
duty as a director. Any repeal or modification of this Article shall be
prospective only and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE 9
The provisions of the North Carolina Shareholders Protection Act, as
set forth in Article 9, "Shareholders Protection Act," of the North Carolina
Business Corporation Act shall not be applicable to the Corporation.
ARTICLE 10
The provisions of the North Carolina Control Share Acquisition Act, as
set forth in Article 9A, "Control Share Acquisition Act," of the North Carolina
Business Corporation Act shall not be applicable to the Corporation.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, these Amended and Restated Articles of
Incorporation are signed by the President and Secretary of the Corporation this
2nd day of October, 1995
RIDGEVIEW, INC.
By: /s/ Hugh R. Gaither
----------------------------------------
Hugh R. Gaither, President
By: /s/ Susan Gaither Jones
----------------------------------------
Susan Gaither Jones, Assistant Secretary
- 3 -
<PAGE> 1
EXHIBIT 3.2
RIDGEVIEW, INC.
AMENDED AND RESTATED BYLAWS
(Effective October 2, 1995)
<PAGE> 2
TABLE OF CONTENTS
AMENDED AND RESTATED BYLAWS
OF
RIDGEVIEW, INC.
<TABLE>
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. PRINCIPAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.03. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.01. ANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.02. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.03. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.04. NOTICE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.05. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.06. PRESIDING OFFICER AND SECRETARY AT MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.07. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.08. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.09. VOTING OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.10. SHAREHOLDERS' LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.11. INSPECTORS OF ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.12. ADVANCE NOTICE OF DIRECTOR NOMINATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.13. ADVANCE NOTICE OF SHAREHOLDER BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.14. EXEMPTION FROM SHAREHOLDER PROTECTION ACT . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.15. CONTROL SHARE ACQUISITION ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.01. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.02. NUMBER OF DIRECTORS, TERM, AND QUALIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.03. ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.04. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.05. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.06. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.07. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.08. NOTICE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.09. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10. TELEPHONE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.11. ACTION WITHOUT MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.12. PRESIDING OFFICER AND SECRETARY AT MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.13. QUORUM AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.14. PRESUMPTION OF ASSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.15. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.01. EXECUTIVE COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.02. FINANCE COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.03. AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.04. COMPENSATION COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.05. NOMINATING COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.06. OTHER COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.07. MEETINGS OF COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.01. OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.02. APPOINTMENT AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.03. CHAIRMAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.04. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.05. VICE-PRESIDENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.06. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.07. TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.08. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS . . . . . . . . . . . . . . . . . . . . . 14
Section 5.09. OFFICERS HOLDING TWO OR MORE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.10. COMPENSATION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.11. RESIGNATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.12. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.13. BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI CONTRACTS, LOANS AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.01. CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.02. LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.03. CHECKS AND DRAFTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.04. DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.01. CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.02. TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.03. TRANSFER AGENTS AND REGISTRARS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.04. RECORD DATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.05. NEW CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IX MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9.01. ANNUAL REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9.02. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.03. VOTING OF SHARES IN OTHER CORPORATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.04. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.05. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
RIDGEVIEW, INC.
ARTICLE I
OFFICES
SECTION 1.01. PRINCIPAL OFFICE. The principal office of Ridgeview,
Inc. (hereinafter referred to as the "Corporation" shall be located at such
blace, within or without the State of North Carolina, as shall be determined
from time to time by the Board of Directors and as shall have been so
designated most recently in the annual report of the Corporation or amendment
thereto, filed with the North Carolina Secretary of State pursuant to the North
Carolina Business Corporation Act.
SECTION 1.02. REGISTERED OFFICE. The Corporation shall maintain a
registered office in the State of North Carolina as required by law, which may
be, but need not be, identical with the principal office.
SECTION 1.03. OTHER OFFICES. The Corporation may have offices at
such other places, either within or without the State of North Carolina, as the
Board of Directors may from time to time determine, or as the affairs of the
Corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 2.01. ANNUAL MEETINGS. The Corporation shall hold an
annual meeting of the shareholders for the election of directors and the
transaction of any business within the powers of the Corporation on the third
Tuesday in March at 10:00 a.m. in each year as shall be determined by the Board
of Directors or at such other time during the year as the Board of Directors
may prescribe. Subject to Section 2.12 of these bylaws, any business of the
Corporation may be transacted at such annual meeting. However, failure to hold
an annual meeting at the designated time shall not invalidate the corporate
existence or affect otherwise valid corporate acts.
SECTION 2.02. SPECIAL MEETINGS. At any time in the interval
between annual meetings, special meetings of the shareholders may be called by
the Chairman, President or the Board of Directors by vote at a meeting or in
writing with or without a meeting. It shall be the duty of the President to
promptly call such meetings whenever so requested.
<PAGE> 5
SECTION 2.03. PLACE OF MEETINGS. All meetings of shareholders
shall be held at such place within the United States as may be designated in
the Notice of Meeting.
SECTION 2.04. NOTICE OF MEETINGS. Not less than ten (10) days nor
more than sixty (60) days before the date of every shareholders' meeting, the
Secretary shall give to each shareholder entitled to vote at such meeting and
each other shareholder entitled to notice of the meeting, written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, either by
mail or by presenting it to him or her personally or by leaving it at his or
her residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
shareholder at his or her post office address as it appears on the records of
the Corporation, with postage thereon prepaid. Any meeting of shareholders,
annual or special, may adjourn from time to time without further notice to a
date not more than 120 days after the original record date at the same or some
other place.
SECTION 2.05. WAIVER OF NOTICE. Any shareholder may waive notice
of any meeting before or after the meeting. The waiver must be in writing,
signed by the shareholder and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. A shareholder's attendance, in
person or by proxy, at a meeting (a) waives objection to lack of notice or
defective notice of the meeting, unless the shareholder or his proxy at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; and (b) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder or his proxy objects to considering
the matter before it is voted upon.
SECTION 2.06. PRESIDING OFFICER AND SECRETARY AT MEETINGS. At each
meeting of shareholders, the Chairman or in his or her absence the President,
or in their absence the person designated in writing by the Chairman, or if no
person is so designated, then a person designated by the Board of Directors,
shall preside as chairman of the meeting. If no person is so designated, then
the meeting shall choose a chairman by a majority of all votes cast at a
meeting at which a quorum is present. The Secretary or, in the absence of the
Secretary, a person designated by the chairman of the meeting shall act as
secretary of the meeting.
SECTION 2.07. QUORUM. Except as otherwise provided by law or by
the Articles of Incorporation of the Corporation shares entitled to vote as a
separate voting group (as defined in Section 2.09) may take action on a matter
at the meeting only if a quorum of those shares exists. A majority of the
votes entitled to be cast on the matter by the voting group constitutes a
quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by the vote of a
majority of the votes cast on the motion to adjourn. Subject to the provisions
of Section 2.04, at any subsequent session
2
<PAGE> 6
of a meeting that has been adjourned, any business may be transacted that might
have been transacted at the original meeting if a quorum exists with respect to
the matter proposed.
SECTION 2.08. PROXIES. Shares may be voted either in person or by
one or more proxies authorized by a written appointment of proxy signed by the
shareholder or by his duly authorized attorney in fact. An appointment of
proxy is valid for eleven (11) months from the date of its execution unless a
different period is expressly provided in the appointment form.
SECTION 2.09. VOTING OF SHARES. Subject to the provisions of the
Articles of Incorporation, each outstanding share shall be entitled to one vote
on each matter voted on at the meeting of shareholders.
Except in the election of directors as governed by the provisions of
Section 3.03, if a quorum exists, action on a matter by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action unless a greater vote is required by law,
the Articles of Incorporation, or these bylaws.
Absent special circumstances, shares of the Corporation are not
entitled to vote if they are owned, directly or indirectly, by another
corporation in which the Corporation owns, directly or indirectly, a majority
of the shares entitled to vote for directors of the second corporation;
provided, however, that this provision does not limit the power of the
Corporation to vote its own shares held by it in a fiduciary capacity.
Voting on all matters, including the election of directors, shall be
by voice vote or by a show of hands unless, as to any matter, the holders of
shares entitled to at least twenty-five percent (25%) of the votes of shares
represented at the meeting and entitled to vote on that matter shall demand,
prior to the voting on such matter, a ballot vote on such matter.
As used in these bylaws, the term "voting group" means all shares of
one or more classes or series that, under the Articles of Incorporation or
applicable law, are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders. All shares entitled by the Articles of
Incorporation or applicable law to vote generally on the matter are for that
purpose a single voting group. So long as the Corporation shall have only one
class of shares outstanding and the voting rights of all shares of such class
are identical, then all such outstanding shares shall constitute a voting group
and the sole voting group, except to the extent that applicable law or the
Articles of Incorporation requires that any of such shares be treated as a
separate voting group.
SECTION 2.10. SHAREHOLDERS' LIST. Before each meeting of
shareholders, the Secretary of the Corporation shall prepare an alphabetical
list of the shareholders entitled to notice of such meeting. The list shall be
arranged by voting group (and within each voting group by class or series of
shares) and show the address of and number of shares held by each shareholder.
The list shall be kept on file at the principal office of the Corporation, or
at a place identified in the meeting notice in the city where the meeting will
be held, for the period beginning two business days after notice of the meeting
is given and continuing through the meeting, and shall be available for
inspection by any shareholder, his agent or
3
<PAGE> 7
attorney, at any time during regular business hours. The list shall also be
available at the meeting and shall be subject to inspection by any shareholder,
his agent or attorney, at any time during the meeting or any adjournment
thereof.
SECTION 2.11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint Inspectors of Election to act
at such meeting or at any adjournment or adjournments thereof. If Inspectors
of Election are not so appointed or fail or refuse to act, the chairman of any
such meeting may (and shall upon the request of shareholders entitled to cast a
majority of all the votes entitled to be cast at the meeting) make such
appointments. No Inspector of Election need be a shareholder of the
Corporation.
If there are three (3) or more Inspectors of Election, the decision,
act or certificate of a majority shall be effective in all respects as the
decision, act or certificate of all. The Inspectors of Election shall
determine the number of shares outstanding, the voting power of each, the
shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies. In addition, Inspectors of
Election shall receive votes, ballots, assents or consents, hear and determine
all challenges and questions in any way arising in connection with the vote,
count and tabulate all votes, assents and consents, and determine the result,
and do such acts as may be proper to conduct the election and the vote with
fairness to all shareholders. On request, the Inspectors shall make a report
in writing of any challenge, question or matter determined by them, and shall
make and execute a certificate of any fact found by them.
SECTION 2.12. ADVANCE NOTICE OF DIRECTOR NOMINATIONS. Only persons
who are nominated in accordance with the provisions set forth in these bylaws
shall be eligible to be elected as directors at an annual or special meeting of
shareholders. Nomination for election to the Board of Directors shall be made
by the Board of Directors or a Nominating Committee appointed by the Board of
Directors.
Nomination for election of any person to the Board of Directors may
also be made by a shareholder if written notice of the nomination of such
person shall have been delivered to the Secretary of the Corporation at the
principal office of the Corporation not later than the close of business on the
fifth business day following the date on which notice is first given to
shareholders of the meeting at which such election is to be held. Each such
notice shall set forth: (a) the name and address of the shareholder who intends
to make the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission if the nominee had been nominated by the Board of Directors; and (e)
the written consent of each nominee to serve as a director of the Corporation
if so elected.
4
<PAGE> 8
The chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
SECTION 2.13. ADVANCE NOTICE OF SHAREHOLDER BUSINESS. No business
shall be transacted at an annual meeting of shareholders, except such business
as shall be (a) specified in the notice of meeting given as provided in Section
2.04, (b) otherwise brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise brought before the meeting by a
shareholder of record entitled to vote at the meeting, in compliance with the
procedure set forth in this Section 2.13. For business to be brought before an
annual meeting by a shareholder pursuant to (c) above, the shareholder must
have given timely notice in writing to the Secretary. To be timely, a
shareholder's notice must be delivered to, or mailed to and received at, the
principal executive offices of the Corporation not less than ten (10) days
prior to the meeting; provided, however, that if less than twenty (20) days'
notice or prior public disclosure of the meeting is given or made to
shareholders, notice by the shareholder will be timely if received not later
than the close of business on the fifth business day following the day on which
such notice of the date of the meeting or such public disclosure was given or
made. Notice of actions to be brought before the annual meeting pursuant to
(c) above shall set forth as to each matter the shareholder proposes to bring
before the annual meeting, including: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for bringing
such business before the annual meeting, (ii) the name and address, as they
appear on the Corporation's books, of each shareholder proposing such business,
(iii) the classes and number of shares of the Corporation that are owned of
record and beneficially by such shareholder, and (iv) any material interest of
such shareholder in such business other than his interest as a shareholder of
the Corporation. Notwithstanding anything in these bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
provisions set forth in this Section 2.13. If the chairman of the annual
meeting determines that any business was not properly brought before the
meeting in accordance with provisions prescribed by these bylaws, he shall so
declare to the meeting and, to the extent permitted by law, any such business
not properly brought before the meeting shall not be transacted.
SECTION 2.14. EXEMPTION FROM SHAREHOLDER PROTECTION ACT. The
provisions of the North Carolina Business Corporation Act Article 9 entitled
"The North Carolina Shareholder Protection Act" shall not be applicable to the
Corporation.
SECTION 2.15.CONTROL SHARE ACQUISITION ACT. The provisions of the
North Carolina Business Corporation Act entitled "The North Carolina Share
Acquisition Act" (as of the date hereof located in Article 9A) shall not apply
to the Corporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. POWERS. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors. The Board of
Directors may exercise
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all the powers of the Corporation, except such as are by statute, or the
Articles of Incorporation or the bylaws conferred upon or reserved to the
shareholders.
SECTION 3.02. NUMBER OF DIRECTORS, TERM, AND QUALIFICATIONS. The
number of directors of the Corporation shall be not less than five (5) nor more
than fifteen (15). By a majority vote of the Board of Directors, the number of
directors may be increased or decreased, or fixed, from time to time, within
the limits above specified; provided, however, that the tenure of office of a
director shall not be affected by any decrease in the number of directors so
made by the Board of Directors.
Except as provided in Section 3.03 regarding the staggered election of
directors, the term of each director shall be the period from the effective
date of his or her election until the next annual meeting of shareholders.
Notwithstanding the stated terms of directors, a director shall continue to
serve after expiration of his or her stated term until: (a) his or her
successor is elected and qualifies or (b) there is a decrease in the number of
directors eliminating his or her position. A director shall cease to serve as
director and his or her position shall be deemed vacant upon his or her death,
resignation, removal, or disqualification.
Directors need not be residents of the State of North Carolina or
shareholders of the Corporation.
SECTION 3.03. ELECTION OF DIRECTORS. Except as provided in Section
3.06, directors shall be elected at the annual meeting of shareholders. Those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected.
At any time after the number of directors is fixed at nine (9) or
more, the Board of Directors may divide the directors into three classes, as
nearly equal in number as may be, to serve in the first instance for terms of
one, two or three years, respectively, and thereafter the successors in each
class of directors shall be elected to serve for terms of three years. In the
event of any increase or decrease in the authorized number of directors, the
additional or eliminated directorships shall be so classified or chosen that
all classes of directors shall remain or become as nearly equal in number as
may be reasonable; provided, however, that if the authorized number of
directors is decreased below nine (9) the directors shall no longer be divided
into classes.
SECTION 3.04. REMOVAL. Any director may be removed at any time
with or without cause by a vote of the shareholders if the number of votes cast
to remove such director exceeds the number of votes cast not to remove him. If
a director is elected by a voting group of shareholders, only the shareholders
of that voting group may participate in the vote to remove him. A director may
not be removed by the shareholders at a meeting unless the notice of the
meeting states that the purpose, or one of the purposes, of the meeting is
removal of the director. If any directors are so removed, new directors may be
elected at the same meeting.
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SECTION 3.05. VACANCIES. Vacancies in the Board of Directors,
including vacancies resulting from an increase in the number of directors,
shall be filled only by a majority vote of the remaining directors then in
office, though less than a quorum; provided, however, that vacancies resulting
from removal from office by a vote of the shareholders may be filled by the
shareholders at the same meeting at which such removal occurs. All directors
elected by the Board of Directors to fill vacancies shall, in accordance with
applicable law, stand for election at the next annual meeting of shareholders,
provided, however, that if the directors shall have been divided into classes
as provided in Section 3.03 regarding the staggered election of directors, a
director elected to fill a vacancy shall not be required to stand for election
until the annual meeting of shareholders at which the terms of the other
directors in the same class shall expire. No decrease in the number of
directors constituting the Board of Directors shall affect the tenure of any
incumbent director.
SECTION 3.06. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held immediately after the annual meeting of shareholders.
In addition, the Board of Directors may provide the time and place, either
within or without the State of North Carolina, for the holding of additional
regular meetings.
SECTION 3.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time, at any place, and for any purpose by the
Chairman, the President, the Chairman of the Executive Committee, or upon the
request of a majority of the Board by any officer of the Corporation.
SECTION 3.08. NOTICE OF MEETINGS. Regular meetings of the Board of
Directors may be held without notice. Notice of the place, day, and hour of
every special meeting of the Board of Directors shall be given to each director
at least twenty-four (24) hours before the meeting by telephoning the notice to
such director, delivering the notice to him or her personally, sending the
notice to him or her by telegram or facsimile, or leaving the notice at his or
her residence or usual place of business. In the alternative, notice of the
special meeting of the Board of Directors may be given to each director by
mailing such notice three (3) days (or more) before the meeting, postage
prepaid, and addressed to him or her at his or her last known post office
address, according to the records of the Corporation. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, properly
addressed, with postage thereon prepaid. If notice is given by telegram or
facsimile, such notice shall be deemed to be given when the telegram is
delivered to the telegraph company or when the facsimile is transmitted. If
the notice is given by telephone or by personal delivery, such notice shall be
deemed to be given at the time of the communication or delivery. Unless
required by law, the bylaws, or resolution of the Board of Directors, no notice
of any meeting of the Board of Directors need state the business to be
transacted at such meeting. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no further notice need be given of any such adjourned meeting.
SECTION 3.09. WAIVER OF NOTICE. Any director may waive notice of
any meeting before or after the meeting. The waiver must be in writing, signed
by the director entitled to the notice, and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. A director's
attendance at or participation in a meeting waives
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any required notice of such meeting unless the director at the beginning of the
meeting, or promptly upon arrival, objects to holding the meeting or to
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
SECTION 3.10. TELEPHONE MEETING. Members of the Board, or of any
committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time.
Participation in this manner shall constitute presence in person at the
meeting.
SECTION 3.11. ACTION WITHOUT MEETING. Action required or permitted
to be taken at a meeting of the Board of Directors may be taken without a
meeting if the action is taken by all members of the Board. The action must be
evidenced by one or more written consents signed by each director before or
after such action, describing the action taken, and included in the minutes or
filed with the corporate records.
SECTION 3.12. PRESIDING OFFICER AND SECRETARY AT MEETINGS. Each
meeting of the Board of Directors shall be presided over by the Chairman or, in
his or her absence, by the President or, if neither is present, by such member
of the Board of Directors as shall be chosen at the meeting. The Secretary or,
in his or her absence, an Assistant Secretary shall act as secretary of the
meeting. If no such officer is present, a secretary of the meeting shall be
designated by the person presiding over the meeting.
SECTION 3.13. QUORUM AND VOTING. At all meetings of the Board of
Directors a majority of the Board of Directors shall constitute a quorum for
the transaction of business. Except as otherwise provided by statute, the
Articles of Incorporation, or the bylaws, the vote of a majority of such quorum
at a duly constituted meeting shall be sufficient to pass any measure. In the
absence of a quorum, the directors present may adjourn the meeting by majority
vote and without notice other than by announcement until such time as a quorum
shall be present. At any meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the adjourned
meeting as originally notified.
SECTION 3.14. PRESUMPTION OF ASSENT. A director who is present at
a meeting of the Board of Directors or a committee of the Board of Directors
when corporate action is taken is deemed to have assented to the action taken
unless: (a) at the beginning of the meeting or promptly upon his arrival at the
meeting, the director objects to holding the meeting or to transacting business
at the meeting, or (b) the director's dissent or abstention from the action
taken is entered in the minutes of the meeting, or (c) the director files
written notice of his dissent or abstention with the presiding officer of the
meeting before its adjournment or with the Corporation immediately after the
adjournment of the meeting. Such right of dissent or abstention is not
available to a director who votes in favor of the action taken.
SECTION 3.15. COMPENSATION. The Board of Directors may provide by
resolution for the compensation of directors for their services as directors
and may provide for the payment of all expenses reasonably incurred by
directors in attending meetings of the Board of Directors, or any committee
thereof, or in the performance of their other duties as
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directors. However, nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
COMMITTEES
SECTION 4.01. EXECUTIVE COMMITTEE. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for an
Executive Committee of three (3) or more directors. If provision be made for
an Executive Committee, the members thereof shall be elected by the Board of
Directors to serve at the pleasure of the Board of Directors. Unless a
chairman for the Executive Committee was selected by the Board of Directors,
the President shall act as the chairman of the Executive Committee. During the
intervals between the meetings of the Board of Directors, the Executive
Committee may possess and exercise such powers in the management of the
business and affairs of the Corporation as may be authorized by the Board of
Directors, subject to applicable law. All actions by the Executive Committee
shall be reported to the Board of Directors at the next Board of Directors
meeting following such action, and shall be subject to revision and alteration
by the Board of Directors. Vacancies in the Executive Committee shall be
filled by the Board of Directors.
SECTION 4.02. FINANCE COMMITTEE. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for a
Finance Committee of three (3) or more directors. If provision is made for a
Finance Committee, the members of the Finance Committee shall be elected by the
Board of Directors to serve at the pleasure of the Board of Directors. The
Board of Directors shall designate a chairman of the Finance Committee from
among the committee's membership. Except when such powers are by statute, the
Articles of Incorporation, or the bylaws either reserved to the full Board of
Directors or delegated to another committee of the Board of Directors, during
the intervals between the meetings of the Board of Directors, the Finance
Committee may possess and exercise all of the powers of the Board of Directors
in the management of the financial affairs of the Corporation, including but
not limited to establishing lines of credit or other short-term borrowing
arrangements and investing excess working capital funds on a short-term basis.
The Finance Committee will review all proposed changes to the capital structure
of the Corporation, including the incurrence of long-term indebtedness and the
issuance of additional equity securities, and will make suitable
recommendations to the Board of Directors. The Finance Committee will review
annually the proposed capital expenditure and contributions budgets of the
Corporation and make recommendations to the Board of Directors for their
adoption. The Finance Committee will also review the financial impact of the
implementation of all compensation and employee benefit plans and of any
amendments or modifications thereto, approve the actuarial assumptions and
financial policies pertaining to the investment of funds related to such plans,
and further review such plans to ensure that they are operated in accordance
with existing legal requirements and sound financial principles. All actions
by the Finance Committee shall be reported to the Board of Directors at the
next Board of Directors meeting following such action and shall be subject to
revision
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and alteration by the Board of Directors. Vacancies in the Finance Committee
shall be filled by the Board of Directors.
SECTION 4.03. AUDIT COMMITTEE. By resolution adopted by a majority
of the Board of Directors, the Board of Directors shall provide for an Audit
Committee, including three (3) or more directors that are not officers or
employees of the Corporation and that are otherwise independent of management
and free from any relationship that, in the opinion of the Board of Directors,
would interfere with the exercise of the independent judgment of such member as
a Committee member. The members of the Audit Committee shall be elected by the
Board of Directors to serve at the pleasure of the Board of Directors. The
Board of Directors shall designate a chairman of the Audit Committee from among
the membership of the committee. Except when such powers are by statute, the
Articles of Incorporation, or the bylaws either reserved to the full Board of
Directors or delegated to another committee of the Board of Directors, the
Audit Committee may possess and exercise the powers of the Board of Directors
relating to all accounting and auditing matters of this Corporation. The Audit
Committee shall: (a) recommend to the Board of Directors the selection of, and
monitor the independence of, the independent public accountants selected by the
Board; (b) review with the Corporation's management and the independent public
accountants the financial accounting and reporting principles appropriate for
the Corporation, the policies and procedures concerning audits, accounting and
financial controls, and any recommendations to improve existing practices, and
the qualifications and work of the Corporation's internal auditing staff; (c)
review with the Corporation's independent public accountants the results of
their audit and their report including any changes in accounting principles and
any significant amendments; and (d) meet with the Corporation's internal audit
department representative to review the plan and scope of work of the internal
auditing staff. The Audit Committee shall hold meetings at such times as the
Chairman thereof deems necessary and at least once each year, shall separately
meet in executive session, with the Corporation's independent public
accountants to review all matters of concern presented to the Audit Committee.
The Audit Committee shall also: (a) review and monitor the adequacy of the
Corporation's policies and procedures, as well as the organizational structure,
for ensuring compliance with environmental laws and regulations; (b) review at
least annually the Corporation's record of compliance with environmental laws
and regulations and the policies and procedures relating thereto; (c) review
with the Corporation's management significant environmental litigation and
regulatory proceedings in which the Corporation is or may become involved; and
(d) review the accounting and financial reporting issues, including the
adequacy of disclosure, for all environmental matters. The Audit Committee
shall have the power to investigate any matter falling within its jurisdiction,
and it shall also perform such other functions and exercise such other powers
as may be delegated to it from time to time by the Board of Directors. All
action by the Audit Committee shall be reported to the Board of Directors at
the Board of Directors meeting following such action. Vacancies in the Audit
Committee shall be filled by the Board of Directors.
SECTION 4.04. COMPENSATION COMMITTEE. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for a
Compensation Committee of three (3) or more directors of whom none shall be an
officer or employee of the Corporation. If provision is made for a
Compensation Committee, the members of the
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Compensation Committee shall be elected by the Board of Directors to serve at
the pleasure of the Board of Directors. The Board of Directors shall designate
a chairman for the Compensation Committee from among the membership of the
committee. The Compensation Committee may recommend to the Board of Directors
the compensation to be paid for services of elected officers of the
Corporation. The Compensation Committee may also have the power to fix the
compensation of all employees, except elected officers. The compensation of
elected officers shall be at such rate as may be established by resolution of
the Board of Directors from time to time. Except for such powers as are by
statute, the Articles of Incorporation, or the bylaws reserved to the full
Board of Directors, the Compensation Committee may have the power to approve
the benefits provided by any bonus, supplemental, and special compensation
plans, including pension, insurance, health, and stock plans. Except as
otherwise required by law, all action by the Compensation Committee shall be
reported to the Board of Directors at the next Board of Directors meeting
following such action. Vacancies in the Compensation Committee shall be filled
by the Board of Directors.
SECTION 4.05. NOMINATING COMMITTEE. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for a
Nominating Committee of three (3) or more directors who are not officers or
employees of the Corporation. If provision is made for a Nominating Committee,
the members of the Nominating Committee shall be elected by the Board of
Directors to serve at the pleasure of the Board of Directors. The Board of
Directors shall designate a chairman of the Nominating Committee from among the
membership of the committee. The Nominating Committee may make recommendations
to the Board of Directors concerning the composition of the Board including
its size and the qualifications for membership. The Nominating Committee may
also recommend to the Board of Directors nominees for election to fill any
vacancy occurring in the Board and to fill new positions created by an increase
in the authorized number of directors of the Corporation. Annually, the
Nominating Committee may recommend to the Board of Directors a slate of
directors to serve as management's nominees for election at the annual meeting
of shareholders. Vacancies in the Nominating Committee shall be filled by the
Board of Directors.
SECTION 4.06. OTHER COMMITTEES. By resolution adopted by a
majority of the Board of Directors, the Board of Directors may provide for such
other standing or special committees, composed of three (3) or more directors,
or discontinue the same. Each such committee shall have such powers and
perform such duties, not inconsistent with law, as may be assigned to it by the
Board of Directors; provided, however, that no such committee shall have
authority to: (a) authorize dividends or other distributions not permitted by
applicable law to be authorized by a committee; (b) approve or propose to
shareholders action that applicable law requires to be approved by
shareholders; (c) fill vacancies on the Board of Directors or on any committee
thereof; (d) amend the Articles of Incorporation; (e) adopt, amend or repeal
bylaws; (f) approve a plan of merger; (g) authorize or approve reacquisition of
shares, except according to a formula or method prescribed by the Board of
Directors; (h) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares (except that the Board of Directors
may authorize a committee of the Board of Directors or a senior executive
officer to do so within limits specifically prescribed by the Board of
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Directors); or (i) amend or repeal any resolution of the Board of Directors
that by its terms provides that it is not so amendable or repealable.
SECTION 4.07. MEETINGS OF COMMITTEES. Each committee of the Board
of Directors shall fix its own rules of procedure consistent with the
provisions of the Board of Directors governing such committee and shall meet as
provided by such rules or by resolution of the Board of Directors. Each
committee shall also meet at the call of its chairman or any two (2) members of
such committee. Unless otherwise provided by such rules or by such resolution,
the provisions of Article 3 of the bylaws shall govern the place of holding and
notice required for meetings of committees of the Board of Directors. A
majority of each committee shall constitute a quorum thereof; provided,
however, that in the absence of any member of such committee, the members
present at such meeting, whether or not they constitute a quorum, may appoint a
member of the Board of Directors, not otherwise prohibited by the bylaws from
serving on such committee, to act in the place of such absent member. Except
in cases in which it is otherwise provided by the rules of such committee or by
resolution of the Board of Directors, the vote of a majority of such quorum at
a duly constituted meeting shall be sufficient to pass any measure.
ARTICLE V
OFFICERS
SECTION 5.01. OFFICERS OF THE CORPORATION. The officers of the
Corporation shall consist of a Chairman, a President, a Secretary, a Treasurer
and such Vice-Presidents, Assistant Secretaries, Assistant Treasurers, and
other officers as may from time to time be appointed by or under the authority
of the Board of Directors. Any two or more offices may be held by the same
person; provided, however, no officer may act in more than one capacity where
action of two or more officers is required. The title of any officer may
include any additional designation, descriptive of such officer's duties as the
Board of Directors may prescribe including, but not limited to, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and Principal
Accounting Officer.
SECTION 5.02. APPOINTMENT AND TERM. The officers of the
Corporation shall be appointed from time to time by the Board of Directors;
provided, however, that the Board of Directors may authorize a duly appointed
officer to appoint one or more officers or assistant officers, other than
appointment of the President. Each officer shall serve at the pleasure of the
Board of Directors.
SECTION 5.03. CHAIRMAN. The Chairman shall have such powers and
perform such duties as the Board of Directors may from time to time prescribe,
and shall perform such other duties as may be prescribed in these Bylaws.
SECTION 5.04. PRESIDENT. The President shall be the chief
executive officer of the Corporation and, while serving as the Chairman, shall
preside at all meetings of the shareholders. Subject to the authority of the
Board of Directors, he or she shall have general charge and supervision of the
business and affairs of the Corporation. With the Secretary or
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an Assistant Secretary, he or she may sign certificates of shares of the
Corporation. He or she shall have the authority to sign and execute in the
name of the Corporation all deeds, mortgages, bonds, contracts or other
instruments. He or she shall have the authority to vote stock in other
corporations and shall perform such other duties of management as may be
prescribed by a resolution or resolutions or as otherwise may be assigned to
him or her by the Board of Directors. He or she shall have the authority to
delegate such authorization and power as vested in him or her by these bylaws
to some other officer or employee or agent of the Corporation as he or she
shall deem appropriate.
SECTION 5.05. VICE-PRESIDENTS. In the absence of the President or in
the event of his or her death, inability or refusal to act, the Vice-Presidents
in the order of their length of service as such, unless otherwise determined by
the Board of Directors, shall perform the duties of the President. When acting
as President, the Vice-Presidents shall have all the powers of and be subject
to all the restrictions upon the President. With the Secretary or an Assistant
Secretary and in the absence of the Chairman or the President, any
Vice-President may sign certificates for shares of the Corporation. The
Vice-Presidents shall perform such other duties as from time to time may be
prescribed by the President or Board of Directors.
SECTION 5.06. SECRETARY. The Secretary shall keep the minutes of
the meetings of the shareholders and of the Board of Directors, in books
provided for the purpose and shall see that all notices of such meetings are
duly given in accordance with the provisions of the bylaws of the Corporation,
or as required by law. The Secretary may sign certificates of shares of the
Corporation with the Chairman, the President, or a Vice-President, as provided
in the bylaws. The Secretary shall be custodian of the corporate seal and
shall see that the corporate seal is affixed to all documents, the execution of
which, on behalf of the Corporation, under its seal, is duly authorized, and
when so affixed may attest the same. In general, the Secretary shall perform
all duties incident to the office of a secretary of a corporation, and such
other duties as from time to time may be assigned to the Secretary by the
President or the Board of Directors.
SECTION 5.07. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit, or cause to be deposited, in the name of the
Corporation, all monies or other valuable effects in such banks, trust
companies, or other depositories as shall, from time to time, be selected by
the Board of Directors. In general, the Treasurer shall perform all the duties
incident to the office of a treasurer of a corporation, and such other duties
as from time to time may be assigned to him or her by the President or the
Board of Directors.
SECTION 5.08. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, if any, shall, in the absence
or disability of the Secretary or the Treasurer, respectively, have all the
powers and perform all of the duties of those offices and such other duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the President or the Board of Directors.
SECTION 5.09. OFFICERS HOLDING TWO OR MORE OFFICES. Any two (2) or
more of the above mentioned offices, except those of President and
Vice-President, may be held by the same person; provided, however, no officer
shall execute, acknowledge or
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verify any instrument in more than one capacity, if such instrument is required
by law, the Articles of Incorporation, or the bylaws, to be executed,
acknowledged or verified by any two (2) or more officers.
SECTION 5.10. COMPENSATION OF OFFICERS. The compensation of all
elected officers of the Corporation shall be fixed by or under the authority of
the Board of Directors and no officer shall serve the Corporation in any other
capacity and receive compensation therefor unless such additional compensation
shall be duly authorized. The appointment of an officer does not by itself
create contract rights.
SECTION 5.11. RESIGNATIONS. An officer may resign at any time by
communicating his or her resignation to the Corporation, orally or in writing.
A resignation is effective when communicated unless the resignation specifies
in writing a later effective date. If a resignation is made effective at a
later date and accepted by the Corporation, the Board of Directors may fill the
pending vacancy before the effective date if the Board provides that the
successor does not take office until the effective date.
SECTION 5.12. REMOVAL. Any officer of the Corporation may be
removed, with or without cause, by the Board of Directors, if such removal is
determined in the judgment of the Board of Directors to be in the best
interests of the Corporation, and any officer of the Corporation duly appointed
by another officer may be removed, with or without cause, by such officer.
SECTION 5.13. BONDS. By resolution, the Board of Directors may
require any officer, agent, or employee of the Corporation to give bond to the
Corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of his respective office or position and to comply with such
other conditions as may from time to time be required by the Board of
Directors.
ARTICLE VI
CONTRACTS, LOANS AND DEPOSITS
SECTION 6.01. CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any document or instrument on behalf of the Corporation, and such
authority may be general or confined to specific instances. Any resolution of
the Board of Directors authorizing the execution of documents by the proper
officers of the Corporation or by the officers generally and not specifying
particular officers shall be deemed to authorize such execution by the
President, or any Vice President, or by any other officer if such execution is
within the scope of the duties of such other office. The Board of Directors
may by resolution authorize such execution by means of one or more facsimile
signatures.
SECTION 6.02. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
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SECTION 6.03. CHECKS AND DRAFTS. All checks, drafts or other
orders for the payment of money issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation, and in
such manner, as shall from time to time be determined by resolution of the
Board of Directors.
SECTION 6.04. DEPOSITS. All funds of the Corporation not otherwise
employed or invested shall be deposited from time to time to the credit of the
Corporation in such depositories as the Board of Directors shall direct.
ARTICLE VII
SHARES
SECTION 7.01. CERTIFICATES. Each shareholder shall be entitled to
a certificate or certificates which shall represent and certify the number and
kind of shares owned by such shareholder in the Corporation. Such certificates
shall be signed by the Chairman, the President, or in his or her absence any
Vice-President, and countersigned by the Secretary or an Assistant Secretary,
and sealed with the seal of the Corporation or a facsimile of such seal.
Shares certificates shall be in such form, not inconsistent with law or with
the charter, as shall be approved by the Board of Directors. When certificates
for stock of any class are countersigned by a transfer agent, other than the
Corporation or its employee, or by a registrar, other than the Corporation or
its employee, any other signature on such certificates may be a facsimile. In
the event that any officer of the Corporation who has signed any certificate
ceases to be an officer of the Corporation, whether because of death,
resignation or otherwise, before such certificate is issued, the certificate
may nevertheless be issued and delivered by the Corporation as if the officer
had not ceased to be an officer as of the date of its issue.
SECTION 7.02. TRANSFER OF SHARES. Shares shall be transferable
only on the books of the Corporation by the holder thereof, in person or by
duly authorized attorney, and upon the surrender of the certificate
representing the shares to be transferred, properly endorsed. The Board of
Directors shall have power and authority to make such other rules and
regulations concerning the issue, transfer and registration of certificates of
stock as it may deem expedient.
SECTION 7.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may
have one or more transfer agents and one or more registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a transfer agent, if
the Corporation has a transfer agent, or until registered by a registrar, if
the Corporation has a registrar. The duties of transfer agent and registrar
may be combined.
SECTION 7.04. RECORD DATES. The Board of Directors is hereby
empowered to fix, in advance, a date as the record date for the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders, or shareholders entitled to receive payment of any dividend or
the allotment of any rights, or in order to make a determination
15
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of shareholders for any other proper purpose. Such date in any case shall be
not more than seventy (70) days and, in case of a meeting of shareholders, not
less than ten (10) days, prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken. If a record date
is not set and the transfer books are not closed, the record date for the
purpose of making any proper determination with respect to shareholders shall
be fixed in accordance with applicable law.
SECTION 7.05. NEW CERTIFICATES. In case any certificate of stock
is lost, stolen, mutilated or destroyed, the Board of Directors may authorize
the issue of a new certificate in place thereof upon such terms and conditions
as it may deem advisable. In the alternative, the Board of Directors may
delegate such power to any officer or officers or agents of the Corporation;
provided, however, the Board of Directors or such officer or officers, in their
discretion, may refuse to issue such new certificate save upon the order of
some court having jurisdiction in the premises.
ARTICLE VIII
INDEMNIFICATION
Any person who at any time serves or has served as an officer,
employee or a director of the Corporation, or who, while serving as an officer,
employee or a director of the Corporation, serves or has served at the request
of the Corporation as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
or as a trustee or administrator under an employee benefit plan, shall have a
right to be indemnified by the Corporation to the fullest extent permitted by
law against: (a) expenses, including attorneys' fees, incurred by him or her
in connection with any threatened, pending or completed civil, criminal,
administrative, investigative or arbitrative action, suit or proceeding (and
any appeal therein), whether or not brought by or on behalf of the Corporation,
seeking to hold him or her liable by reason of the fact that such person is or
was acting in such capacity; and (b) payments made by such person in
satisfaction of any liability, judgment, money decree, fine (including an
excise tax assessed with respect to an employee benefit plan), penalty or
settlement for which he or she may have become liable in any such action, suit
or proceeding. From time to time and to the fullest extent permitted by law,
the Corporation agrees to pay the indemnitee's expenses, including attorney's
fees and expenses incurred in defending any such action, suit, or proceeding in
advance of the final disposition of such action, suit, or proceeding. The
foregoing rights of the indemnitee hereunder shall inure to the benefit of the
indemnitee, whether or not he or she is an officer, director, employee, or
agent at the time such liabilities or expenses are imposed or incurred.
The Board of Directors of the Corporation shall take all such action
as may be necessary and appropriate to authorize the Corporation to pay the
indemnification required by this bylaw, including without limitation, making a
determination that indemnification is permissible in the circumstances, a good
faith evaluation of the manner in which the claimant for indemnity acted, and
of the reasonable amount of indemnity due. The Board of Directors may appoint
a committee or special counsel to make such determination and evaluation. The
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Board of Directors may give notice to, and obtain approval by, the shareholders
of the Corporation for any decision to indemnify.
At any time after the adoption of this bylaw, any person who serves or
has served in the aforesaid capacity for or on behalf of the Corporation shall
be deemed to be doing or to have done so in reliance upon and as consideration
for the right of indemnification provided herein. Such right shall inure to
the benefit of the legal representatives of any such person and shall not be
exclusive of any other rights to which such person may be entitled apart from
the provision of this bylaw, including a right of indemnification under any
statute, agreement or insurance policy.
Notwithstanding the foregoing, no indemnity offered under this Bylaw
shall be granted for liability or litigation expenses incurred on account of
any activities that were known or believed by the director, officer or employee
who undertook them to be clearly in conflict with the best interests of the
Corporation when they occurred.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.01. ANNUAL REPORT. The Corporation shall prepare and
deliver to the North Carolina Secretary of State for filing each year the
annual report required by the North Carolina Business Corporation Act. Such
annual report shall be filed each year within 60 days after the end of the
month in which Corporation was incorporated, or at such other time as is then
required by applicable law. The Corporation may, and when required by law
shall, file all necessary or appropriate corrections and amendments to such
annual report, and shall promptly file an amendment to its annual report to
reflect any change in the location of the principal office of the Corporation.
SECTION 9.02. SEAL. The corporate seal of the Corporation shall
consist of two concentric circles between which is the name of the Corporation
and in the center of which is inscribed SEAL; and such seal, as impressed or
affixed on the margin hereof, is hereby adopted as the corporate seal of the
Corporation. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, stamped or reproduced by any means.
SECTION 9.03. VOTING OF SHARES IN OTHER CORPORATIONS. Any shares in
other corporations or associations, which may from time to time be held by the
Corporation, may be represented and voted at any of the shareholders' meetings
thereof by the Chairman or President of the Corporation or by proxy or proxies
appointed by the Chairman or President of the Corporation. However, the Board
of Directors or Chairman may by resolution or delegation appoint some other
person or persons to vote such shares, in which case such person or persons
shall be entitled to vote such shares upon the production of a certified copy
of such resolution or delegation.
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SECTION 9.04. FISCAL YEAR. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors. Until further resolution,
the fiscal year shall be from January 1st to December 31st.
SECTION 9.05. AMENDMENTS. Except as otherwise provided in the
Articles of Incorporation or by law, these bylaws, including any bylaws adopted
by the shareholders, may be amended or repealed and new bylaws may be adopted
by the Board of Directors.
18
<PAGE> 1
EXHIBIT 5
August 28, 1996
Ridgeview, Inc.
2101 N. Main Avenue
P.O. Box 8
Newton, NC 28658
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We are acting as counsel for Ridgeview, Inc., a North Carolina
corporation (the "Company"), in connection with the registration by the Company
under the Securities Act of 1933, as amended, on Form S-1 of 1,840,000 shares
(the "Initial Shares") of the Company's common stock, par value $0.01 per
share (the "Common Stock"), and up to 240,000 shares (the "Option Shares") of
Common Stock upon the exercise of the over-allotment option granted to the
several underwriters named in the registration statement relating to the Shares
(as defined below) (the "Registration Statement"). The Initial Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively referred to as the "Shares." Eighty thousand (80,000) of the
Initial Shares are owned and will be sold to the several underwriters named in
the Registration Statement by certain shareholders of the Company (the "Selling
Shareholders"); the remaining Initial Shares are owned and will be sold to the
several underwriters named in the Registration Statement by the Company.
The Shares will be sold pursuant to an Underwriting Agreement by and
among the Company, Interstate/Johnson Lane Corporation and Scott &
Stringfellow, Inc., as representatives of the several underwriters named in the
Registration Statement and the Selling Shareholders (the "Underwriting
Agreement").
We have examined the originals or photocopies or certified copies of
such records of the Company, certificates of officers of the Company and public
officials and other documents as we have deemed relevant and appropriate as the
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all original
documents submitted to us, the conformity to the originals of all documents
submitted to us as certified copies or photocopies and the authenticity of the
originals of such documents.
Based upon such examination, and relying upon statements of fact
contained in the documents which we have examined, we are of the opinion that
the Shares to be sold pursuant to the Underwriting Agreement have been duly
authorized and will be validly issued, fully paid and nonassessable when
issued, delivered and paid for as contemplated by the Underwriting Agreement.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the related Prospectus.
Very truly yours,
MOORE & VAN ALLEN, PLLC
<PAGE> 1
EXHIBIT 10.1
LICENSE AGREEMENT
AGREEMENT dated as of January 1, 1994 by and between ELLEN TRACY INC.
("Licensor"), a New Jersey corporation, with its principal offices located at
575 Seventh Avenue, New York, New York 10018, and RIDGEVIEW, INC. ("Licensee"),
a North Carolina corporation, with its principal offices located at P.O. Box 8,
Newton, North Carolina 28658.
W I T N E S S E T H:
WHEREAS, Licensor is the owner of the Licensed Properties (as defined
in Section 1(b) hereof) and the goodwill associated therewith; and
WHEREAS, Licensee desires to use the Licensed Properties on the
Licensed Articles (as defined in Section 1(b) hereof), and Licensor desires to
grant to Licensee a license to use the Licensed Properties on the Licensed
Articles.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements hereinafter set forth, and of other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto do hereby agree as follows:
1. Definitions. As used in this Agreement:
(a) "Advertising Materials" means all advertising and
promotional materials and all packaging, wrapping and labelling materials for
the Licensed Articles (including, without limitation, catalogues, trade
advertisements, flyers, sales sheets, labels, package inserts, hangtags and
displays) which are produced by or for the Licensee and which make use of any
of the Licensed Properties.
<PAGE> 2
(b) "Licensed Properties" means the names, logos,
trademarks and other intellectual properties set forth on Schedule A, attached
hereto.
(c) "Licensed Articles" means the goods or products set
forth on Schedule B, attached hereto, whether produced by Licensee or any
contract manufacturer pursuant to Section 16 hereof for Licensee, and which
bear the Licensed Properties.
(d) "Licensed Territory" means the country or countries
set forth on Schedule C, attached hereto.
(e) "Net Sales Price" means the amount invoiced by
Licensee to its retail customers or distributors for Licensed Articles shipped
by Licensor less returns actually received and customary trade and volume
discounts and allowances actually granted or allowed. In computing Net Sales
Price, no costs incurred in manufacturing, selling, advertising or distributing
the Licensed Articles shall be deducted, nor shall any deduction be made for
uncollectible accounts. If a sale, transfer or other disposition is made
otherwise than at arm's length, including, without limitation, a sale by
Licensee to an affiliate of Licensee, the Net Sales Price of such Licensed
Articles shall be deemed to be the Net Sales Price of like quantities of like
products sold at arm's length.
(f) "Retail" means the better department stores and
better specialty stores within the Licensed Territory and within Licensee's
industry set forth on Schedule D, attached hereto. Such list may be amended
from time to time with the mutual written approval of Licensor and Licensee.
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<PAGE> 3
(g) "Term" shall have the meaning set forth in Section
3(b) hereof.
(h) "Premiums" means any article used for the purpose of
increasing the sale, promoting or publicizing any other product, or any service,
including, without limitation, incentives for sales forces and for fund raising,
give-aways and entries in sweepstakes.
2. Grant of License.
(a) Grant. Subject to the terms, conditions and
limitations set forth in this Agreement, Licensor hereby grants to Licensee the
right, license and privilege, during the Term hereof, to use or reproduce the
Licensed Properties solely on the Licensed Articles or in connection with the
manufacture, sale and distribution of the Licensed Articles through Retail
channels of distribution throughout the Licensed Territory (the "License") . The
License shall include the right to use the Licensed Properties to advertise,
market and promote the Licensed Articles (on a non-exclusive basis). Licensee
hereby covenants and agrees to use its best efforts to manufacture, distribute,
sell, advertise and promote the Licensed Articles in the Territory during the
Term.
(b) Exclusivity. The License granted herein shall be
exclusive in the Licensed Territory.
(c) Limitations. Licensee shall not sell the Licensed
Articles outside the Licensed Territory, or sell to those third parties Licensee
knows or has reason to know will sell the Licensed Articles outside the Licensed
Territory. The License does not include the right to export any Licensed
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<PAGE> 4
Articles from the Licensed Territory. The Licensed Articles shall not be used
as Premiums, in combination sales, as give-aways, as charitable contributions
or disposed of under similar methods of merchandising or other transfer without
the prior written consent of Licensor.
3. Term.
(a) Initial Term. The initial term of this Agreement
shall commence on January 1, 1994 (the "Commencement Date") and shall expire on
December 31, 1996, subject to the terms of Section 20(c) hereof and unless
sooner terminated in accordance with the terms hereof. Each calendar 12-month
period during the Term hereof shall hereinafter be referred to as an "Annual
Period."
(b) Renewal Option. Licensee shall have the right to
renew this Agreement, upon written notice to Licensor given within 30 days
prior to the expiration of the initial term, for an additional three (3) years,
provided that at the time of such notice Licensee is not in breach of Section
21(c) hereof or in breach of any other provision hereof. The initial term and
the renewal period are collectively referred to herein as the "Term."
4. Royalties. In consideration for the License granted to
Licensee hereunder, Licensee agrees to pay the following:
(a) Actual Royalties. Licensee shall pay to Licensor, at
the times and in the manner set forth in Section 4(c) hereof, a royalty equal
to seven percent (7%) of the aggregate Net Sales Price of the Licensed Articles
sold during the Term hereof ("Royalties"). All Royalties due to Licensor shall
accrue upon the sale of the Licensed Articles, regardless
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<PAGE> 5
of the time of collection by the Licensee. For purposes of this Agreement, a
Licensed Article shall be considered "sold" as of the date on which such
Licensed Article is billed, invoiced, shipped or paid for, whichever event
occurs first. Royalties shall be paid to Licensor quarterly in accordance with
the provisions of Section 4(c) hereof.
(b) Guaranteed Minimum Royalties. Licensee shall pay
to Licensor the following amounts (the "Guaranteed Minimum Royalties") for each
Annual Period hereunder which are based on the Projected Annual Sales for the
respective Annual Periods:
<TABLE>
<CAPTION>
FOR ANNUAL AMOUNT OF GUARANTEED
PERIOD COMMENCING PROJECTED ANNUAL SALES MINIMUM ROYALTIES
- ----------------- ---------------------- --------------------
<S> <C> <C>
January 1, 1994 $1,500,000 $105,000
January 1, 1995 $3,000,000 $210,000
January 1, 1996 $5,000,000 $350,000
</TABLE>
The Guaranteed Minimum Royalties for each Annual Period shall be paid
in accordance with the provisions of Section 4(c) hereof. If the renewal option
provided for in Section 3(b) hereof is exercised, the respective Projected
Annual Sales and the Guaranteed Minimum Royalties for the Annual Periods during
such renewal term shall be mutually agreed upon by the parties at the time of
exercise of such option.
(c) Statements and Payments. Within thirty (30) days after
the close of each calendar quarter during the Term hereof, Licensee shall
furnish to Licensor complete and accurate statements (the "Quarterly
Statements") certified by the President and Chief Financial Officer of Licensee
showing in a format provided by or acceptable to Licensor the number, style
description and Net Sales Price of each Licensed Article sold by
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<PAGE> 6
Licensee during the preceding calendar quarter, together with the quantity and
invoice value of any returns and allowances made during the preceding quarter,
and the calculation of actual Royalties thereon due to Licensor. The Quarterly
Statements shall include a summary of each consumer complaint, if any, made
during such calendar quarter, and any remedial action taken by Licensee. The
Quarterly Statements shall be furnished to Licensor whether or not any Licensed
Articles have been sold and whether or not Royalties are due and payable for
the preceding calendar quarter. Payment of the amount due as actual Royalties
for such quarter, as such amount is shown on the Quarterly Statements, shall
accompany the Quarterly Statements and shall be made in U.S. dollars; provided,
however, that within thirty (30) days following the fourth calendar quarter of
each Annual Period, Licensee shall pay to Licensor, in addition to the actual
Royalties for the preceding quarter, an amount equal to the shortfall, if any,
between the actual Royalties for such annual Period and the Guaranteed Minimum
Royalties for such Annual Period. Failure to pay such shortfall shall
constitute a breach in accordance with the provisions of Section 20(a) hereof;
provided, however, that Licensor's sole remedy in the event of a failure to pay
such amount for the first Annual Period shall be the right to terminate this
Agreement, which right must be exercised by Licensor within thirty (30) days
following delivery of the Quarterly Statement. Licensee hereby waives all
claims to the refund of any Royalty payment or Guaranteed Minimum Royalties
payment once made, including, without limitation, claims for
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<PAGE> 7
refunds of payments for returns of Licensed Articles in subsequent reporting
periods.
(d) No Waiver. The receipt or acceptance by Licensor of
any of the Quarterly Statements or of any Royalties or Guaranteed Minimum
Royalties paid hereunder (or the cashing of any checks evidencing such
payments) shall not preclude Licensor from questioning the correctness thereof
at any time, and in the event any inconsistencies, mistakes or errors are
discovered in the Quarterly Statements or payments, such mistakes shall be
immediately rectified and the appropriate payment made by Licensee.
(e) Time of Essence; Interest. Time is of the essence
with respect to the furnishing of all statements and the making of all payments
due hereunder. All amounts payable by Licensee to Licensor paid more than
thirty (30) days after the due date thereof shall bear interest equal to the
lower of (i) the maximum rate allowed by law or (ii) 1-1/2% per month, computed
from the original due date until paid. In addition, Licensee shall pay to
Licensor a late payment penalty equal to $100 per day for each day that a
Quarterly Statement and the accompanying Royalty payment is past due.
5. Amounts Expended for Advertising and Promotion.
(a) Annual Advertising Amount. Licensee shall expend
during each Annual Period an amount equal to at least one and one-half percent
(1/2%) of the projected aggregate Net Sales Price for all sales of the Licensed
Articles (other than Samples, Seconds and Close-Outs (as such terms are defined
in Section 12 hereof)) during such Annual Period (the "Projected Annual
- 7 -
<PAGE> 8
Sales"), for the Purposes of advertising the Licensed Articles in various
advertising media and for promoting and publicizing the Licensed Articles
(hereinafter, the "Annual Advertising Amount"). The Annual Advertising Amount
shall not include, and shall be in addition to, the amounts expended by
Licensee for national advertising as set forth in Section 5(b) below. The
Projected Annual Sales for each of the three Annual Periods during the initial
term hereof are set forth on Schedule E hereto. Any shortfall in advertising
expenditure in any Annual Period, which shortfall shall constitute a breach of
this subsection (a), shall be made up by Licensee in the succeeding Annual
Period by supplemental allocation for advertising to be made during the first
120 days of the succeeding Annual Period.
(b) National Advertising. Licensee shall expend at least
one and one-half percent (1/2%) of the Projected Annual Sales for each Annual
Period (the "National Advertising Amount") for national advertising to be run by
Licensor, in which national advertising the Licensed Articles may be featured
(but are not required to be featured), either alone or in conjunction with other
products of Licensor or products of Licensor's other Licensees which bear the
Licensed Properties. Licensee shall utilize Licensor's advertising agency,
Ciccardi & Partners (the "Advertising Agency") for all national advertising.
Advertisements in national catalogues shall not be deemed to be national
advertising and any amounts expended for advertising in such catalogues shall
not be included in the calculation of the National Advertising Amount. The
National Advertising Amount shall be paid to Licensor by Licensee on a quarterly
basis, in
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<PAGE> 9
four (4) equal installments per Annual Period, simultaneously with the delivery
of the Quarterly Statements and payment of amounts due as Royalties.
In the event that Licensee does not expend all or any part of the
National Advertising Amount in any Annual Period in breach of this subsection
(b), the unspent portion shall be added to Licensee's advertising budget for
the succeeding Annual Period.
(c) Budgets. Not later than 30 days prior to the end of
each calendar six-month period during the Term hereof, Licensee shall send
Licensor (and/or the Advertising Agency if so designated by Licensor) the
advertising budget and plan for the succeeding six-month period; provided,
however, that Licensee shall submit to Licensor the advertising budget and plan
for the first six-month period of the first Annual Period no later than
December 15, 1993. Such advertising budget must be approved in writing by
Licensor and/or the Advertising Agency within 20 days prior to the commencement
of the succeeding six-month period.
(d) Cooperative Advertising. The portion of any
cooperative advertising paid by stores or expenses for packaging shall not be
deemed to be amounts expended on advertising by Licensee for purposes of this
Agreement.
(e) Use of Licensed Properties. The Licensed
Properties alone shall be used in advertising and promotion. No other trademark
or trade name, including Licensee's own trademark or trade name, may be
associated with the Licensed Properties. Notwithstanding the above, Licensee,
after obtaining approval of Licensor, may associate another trademark or trade
name with the Licensed Properties in the following cases:
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<PAGE> 10
(i) In cooperative advertising in which
the Licensed Properties are associated with the names of one or more retailers
who sell the Licensed Articles to consumers and/or where the Licensed Articles
are advertised together with other products with different trademarks;
(ii) In trade papers or magazines in
which Licensee's name is associated with the Licensed Articles or the Licensed
Properties; and
(iii) In advertising in which a trademark
is used to designate materials used in manufacturing the Licensed Articles.
(f) Failure to Expend Annual Advertising Amount. If
Licensee shall for any two (2) consecutive Annual Periods during the Term hereof
fail to expend the Annual Advertising Amount for such two (2) Annual Periods,
then Licensee shall remit to Licensor, within sixty (60) days after the end of
such second Annual Period, the difference between the dollars spent for
advertising during such two (2) Annual Periods and the aggregate Annual
Advertising Amounts for such two (2) Annual Periods.
(g) Documentation. During the Term hereof, upon Licensor's
request, Licensee shall provide Licensor with any documentation and records
satisfactory to Licensor, including paid invoices, receipts of payment and tear
sheets, which demonstrate that Licensee has expended the sums set forth in this
Section 5 on advertising as and in the manner required by this Section 5.
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<PAGE> 11
(h) Quality of Advertising. Licensee shall ensure that
all advertising produced by Licensee or Licensee's designees hereunder shall be
of the highest caliber.
(i) Audit. Licensee's expenditures for advertising and
promotion shall be subject to audit by Licensor in accordance with Section 8
hereof.
6. Research and Development Expenditure. Licensee covenants and
agrees that it will take all steps necessary to develop new designs for the
Licensed Articles so as to assure that during the Term hereof the Licensed
Articles shall maintain a standard of high fashion. In this regard, Licensee
shall use its best efforts to annually attend a reasonable number of trade shows
in the hosiery, yarn and fabric industries. Licensee shall regularly report to
Licensor on its attendance of such trade shows. Licensee shall use its best
efforts to determine and utilize the state-of-the-art yarns and fabrics in the
design and manufacture of the Licensed Articles.
7. Showroom; Sales Offices; Monitoring.
(a) Showroom. Prior to January 30, 1994, Licensor
shall commence operations of a showroom in New York City in which Licensee shall
exclusively display and market the Licensed Articles. Licensor and/or Licensor's
architect shall approve all architectural and design plans for such showroom.
Such showroom shall be exclusively used to display and market the Licensed
Articles, it being understood, however, that Licensee may use office space at
such location for business purposes and for marketing and displaying articles
other than the Licensed Articles, including articles sold under Licensee's
private label.
- 11 -
<PAGE> 12
Licensee shall ensure that the showroom is adequately staffed by personnel of
the highest caliber at all times.
(b) Sales Offices. Licensee shall ensure that any sales
offices through which Licensed Articles are distributed and sold are staffed by
personnel of the highest caliber at all times.
(c) Monitoring. From time to time senior personnel
of Licensee shall, as reasonably required, visit Retail locations where the
Licensed Articles are sold to ensure that the Licensed Articles are being
displayed and merchandised in accordance with the highest standards.
8. Books and Records; Audit. Licensee shall keep accurate books of
account and records at its principal place of business covering all transactions
relating to the License granted hereunder. Licensor and Licensor's duly
authorized representatives shall have the right during regular business hours to
examine said books of account and records and all other documents and material
in the possession or under control of Licensee with respect to the subject
matter and terms of this Agreement, and shall have free and full access thereto
to make copies and extracts thereof. In order to facilitate inspection by
Licensor or Licensor's representatives, Licensee shall maintain books and
records concerning the Licensed Articles separately from the books and records
of goods which are not licensed hereunder. Upon demand by Licensor, Licensee
shall, at its own expense, furnish to Licensor a detailed statement by an
independent certified accountant showing pricing information and the number and
description of the Licensed Articles shipped
- 12 -
<PAGE> 13
and/or sold by Licensee up to the date of Licensor's demand. If any audit
discloses that Licensee owes Royalties to Licensor in excess of two percent
(2%) of those previously paid, Licensee shall pay, in addition to such
deficiency, the cost of such examination and collection. If any audit discloses
that Licensee owes Royalties to Licensor in an amount in excess of five percent
(5%) of the Royalties previously paid, then, in addition to any and all other
remedies that Licensor may have hereunder, Licensor shall have the right to
terminate this Agreement upon written notice to Licensee. All books of account
and records shall be kept available for at least three (3) years after the
expiration of the Term or earlier termination of this Agreement. At least 90
days prior to the destruction of any such books of account or records, Licensee
shall provide Licensor with a "Notice of Intent to Destroy" and upon the
request of Licensor, all such books or records shall be delivered to Licensor.
9. Quality Control/Approval Process.
(a) General. Licensee shall comply with all reasonable
procedures which Licensor may from time to time adopt regarding its approval of
Licensed Articles and Advertising Materials which Licensee proposes to
manufacture, sell, or use under this Agreement. These approval procedures shall
be carried out on prescribed forms to be supplied to Licensee by Licensor, and
shall incorporate the basic approval requirements and steps outlined in the
following subsections. Licensee agrees to retain all materials relating to
approvals in its files during the Term hereof and for one (1) year thereafter.
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<PAGE> 14
(b) Preliminary Activities. Licensee shall designate at
least one individual employed by Licensee (the "Designer") who shall have
principal responsibility for the design of each line of the Licensed Articles
for each season. Licensor shall have the right to approve the designation of
the Designer. In addition, Licensor shall have the right to instruct Licensee
to replace the Designer if Licensor deems the performance of the Designer to be
unsatisfactory. The Designer shall devote a substantial portion of his or her
working hours to the design of the Licensed Articles; provided, however, that
the Designer may also have merchandising responsibilities. Within a reasonable
period of time prior to the commencement of the design of each seasonal line,
the Designer shall consult with Licensor as to proposed styles, colors, fabrics
and yarn weaves. At such meeting, the Designer shall advise Licensor of all of
the latest developments in design, fabric and yarn types in the hosiery
industry. Following such meeting but prior to commencement of the approval
process set forth in subsection (c) below, the Designer shall submit to
Licensor for approval a written design plan for the line, which shall include
actual proposed designs for the Licensed Articles, proposed fabrics and yarns,
a breakdown of the proposed colors for the designs and the percentage of the
total line each such design (including a breakdown by color groups) shall
constitute. Licensor shall have the right to disapprove any aspect of the
design plan and designate all desired modifications of the plan, which
modifications the Designer shall accept and incorporate into the new design
plan.
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<PAGE> 15
(c) Approval of Licensed Articles. With respect to each
different Licensed Article which Licensee proposes to manufacture and sell
under this Agreement and which is part of the approved design plan, Licensee
shall submit to Licensor for review and approval by Licensor the following
materials for such Licensed Article, in the order stated, in each instance,
sufficiently in advance to accommodate any comments or requests for changes by
Licensor and to maintain the schedule necessary to meet the opening date of
each seasonal line:
(i) preliminary workshop samples which will
generally show the type of Licensed Article that will be made and which will
include a sample of the proposed fabric and/or yarn weave;
(ii) a sample from the dye-lot for each color group
for each Licensed Article;
(iii) a preproduction prototype sample of the
Licensed Article in each color, where appropriate, or a preproduction final
sample of the Licensed Article in each color showing in either case the exact
form, finish, quality and color the Licensed Article will have when manufactured
in production quantities; and
(iv) 12 identical production samples of the
Licensed Article, to be submitted immediately upon commencement of production.
Licensee shall comply with all of the foregoing approval steps for each Licensed
Article, obtaining written approval from Licensor at each step of the process,
unless by prior written
- 15 -
<PAGE> 16
notice from Licensor it is exempted from any such step with respect to a
specific Licensed Article.
(d) Approval of Advertising Materials. With respect to
each different item of Advertising Material which Licensee (or any party acting
on its behalf) proposes to produce and use under this Agreement, Licensee shall
submit to Licensor and/or the Advertising Agency if so designated by Licensor
for review and approval the following materials, in the order stated:
(i) proposed written copy for the item of
Advertising Material with attached rough art showing how the Licensed
Properties will be used in connection with the copy;
(ii) final copy for the item, with finished "lift"
art, showing the use of the Licensed Properties;
(iii) finished "mechanicals" for the item; and
(iv) a final printed sample of the item, where
feasible (as, for example, in the case of labels, hangtags, printed brochures,
catalogues, and the like).
Licensee shall be required to comply with all of the foregoing approval
steps for each item of Advertising Material, obtaining written approval from
Licensor and/or the Advertising Agency at each step of the procedure, unless by
prior written notice from Licensor and/or the Advertising Agency it is exempted
from any such Step with respect to a specific item of Advertising Material. With
respect to those kinds of Advertising Materials (such as print media
advertisements, catalogues, promotional flyers, and the like) which Licensee
proposes to use for the purpose of advertising and promoting the Licensed
Articles to the general public, Licensee, when submitting such Advertising
- 16 -
<PAGE> 17
Materials to Licensor and/or the Advertising Agency for approval, shall describe
the proposed uses of the Advertising Materials (including the media to be used
in exploiting the same) and the duration of such proposed uses. In such cases,
approval of the Advertising Materials by Licensor and/or the Advertising Agency
shall extend only to those proposed uses, durations of use, etc., described in
Licensee's submissions.
(e) Approval Standards. Licensor, and in the case of
Section 9(d) the Advertising Agency, shall have the right to disapprove any
materials under Sections 9(b), 9(c) and 9(d) if either of them determine, in
their sole discretion, that the materials in question would impair the value and
goodwill associated with the Licensed Properties and/or Licensor's licensing
program.
(f) Time for Approval. Licensor agrees to use
reasonable efforts to notify Licensee in writing of approval or disapproval by
Licensor of any materials submitted to Licensor under Sections 9(b), 9(c) and
9(d) within 15 business days after Licensor's receipt of such materials.
(g) Out-of-Pocket Expenses. From time to time Licensor
may submit to Licensee proposed fabrics, samples, reference materials, yarns or
other materials or articles. Licensee shall promptly reimburse Licensor for any
out-of-pocket expenses incurred by Licensor in connection with the foregoing.
10. Warranty of Quality; Maintenance of Quality of Licensed
Articles; Inspection of Production Facilities.
(a) Warranty of Quality. Licensee warrants that the
Licensed Articles will be of good quality in design, material and
- 17 -
<PAGE> 18
workmanship and will be suitable for their intended purpose; that no injurious,
deleterious or toxic substances will be used in or on the Licensed Articles;
that the Licensed Article; will not cause harm when used as instructed and with
ordinary care for their intended purpose; and that the Licensed Articles will
be manufactured, sold and distributed in strict compliance with all applicable
laws and regulations.
(b) Maintenance of Quality. Licensee agrees to maintain
the quality of Licensed Articles manufactured under this Agreement up to the
specifications, quality and finish of the production sample of such Licensed
Article approved by Licensor under Sections 9(b), 9(c) and 9(d), and agrees not
to change the Licensed Article in any respect or to make any change in the
artwork for the Licensed Article without first submitting to Licensor samples
showing such proposed changes and obtaining written approval of such samples
from Licensor. From time to time after it has commenced manufacturing the
Licensed Articles, Licensee, upon request from Licensor, shall furnish free of
charge to Licensor a reasonable number of random production samples of any
Licensed Article specified by Licensor in its request.
(c) Inspection of Production Facilities. Upon request from
Licensor, Licensee shall furnish to Licensor the addresses of the production
facilities used by Licensee for manufacturing the Licensed Articles, and shall
make arrangements for Licensor or its representatives to inspect such production
facilities during reasonable business hours.
- 18 -
<PAGE> 19
11. Prohibition Against Manufacture, Sale or Use of Unapproved
Licensed Articles or Advertising Materials; Termination of Rights of Licensor.
Licensee shall not have the right to manufacture, offer for sale, distribute,
sell or use any Licensed Article or item of Advertising Material unless it has
complied with all of the approval procedures and requirements set forth in
Section 9 with respect to such Licensed Article or item of Advertising Material,
and has obtained prior written approval of such Licensed Article or item of
Advertising Material by Licensor. Failure by Licensee to comply with the
provisions of Section 9 shall constitute a material breach of this Agreement and
shall be grounds for immediate termination of this Agreement by Licensor, as
provided in Section 20 hereof.
12. Samples, Seconds and Close-Outs.
(a) Definitions.
(i) "Samples" are Licensed Articles which are
trial productions which are never part of the line.
(ii) "Seconds" are Licensed Articles which are not
first quality goods which are sold as irregulars.
(iii) "Close-Outs" are Licensed Articles sold which
are part of a collection or line which Licensee is unable to market through
Retail channels of distribution and which are sold at reduced prices.
(b) Limitation on Sale. Licensee may sell Seconds of
Licensed Articles; provided, however, that such sales shall not constitute more
than five percent (5%) of Licensee's total annual wholesale sales (calculated
per Annual Period) of first quality unit production of Licensed Articles. All
Licensed Articles sold
- 19 -
<PAGE> 20
as Seconds, and any related packaging and/or labelling, must be clearly marked
as such and Licensee's label shall not be removed from the Licensed Articles.
All Seconds produced in excess of the five percent (5%) limitation set forth
shall be destroyed and Licensee shall notify Licensor of such destruction.
Licensor shall have the option to provide that Seconds and Close-Outs (or
certain of such Seconds and Close-Outs) shall be sold only through approved
outlet stores operated by Licensor. If Licensor exercises such option (which
Licensor may do with respect to some but not all of the Seconds and Close-Outs),
such Seconds and Close-Outs shall be shipped to Licensor's outlet stores and
sold on a consignment basis. Licensor shall establish the prices paid by
Licensor for such Seconds and Close-Outs. If Licensor shall not exercise such
option at all or shall not exercise such option in its entirety, Licensor shall
have the right to approve any outlet stores through which Seconds and Close-Outs
not shipped to Licensor's stores shall be sold. Records as to sales of Seconds
and Close-Outs shall be provided by Licensee to Licensor in accordance with
Section 8 hereof. Licensee hereby covenants and agrees to use its best efforts
to comply with all federal, state and local laws, rules and regulations relating
to sales made on a consignment basis.
(c) Royalties; Records. During each Annual Period, for
sales (including consignment) of Seconds and Close-Outs equal to the greater of
(i) 100,000 or (ii) fifteen percent (15%) of the aggregate sales of Seconds and
Close-Outs during the preceding Annual Period, Licensee shall pay to Licensor
Royalties on such Seconds and Close-Outs at the rate of fifty percent (50%)
- 20 -
<PAGE> 21
of the otherwise applicable royalty rate. For all sales of Seconds and
Close-Outs during each Annual Period in excess of the greater of (i) $100,000
or (ii) fifteen percent (15%) of the aggregate sales of Seconds and Close-Outs
during the preceding Annual Period, Licensee shall pay to Licensor Royalties at
the rate set forth in Section 4(a) hereof. In either case, the computation of
such Royalties shall be based upon the non-discounted Net Sales Price of such
Licensed Articles. No Royalties shall be paid on Samples. Licensee shall
maintain such records that in the event of an audit, Licensor's auditors shall
be able to confirm that the five percent (5%) limitation on Seconds is adhered
to Licensor may, upon notice to Licensee, require Licensee to cease selling
Seconds and Close-Outs to particular accounts as Licensor may from time to time
determine in its sole discretion.
13. Licensed Properties Rights and Obligations.
(a) General. All uses of the Licensed Properties
hereunder shall inure to Licensor's benefit. Licensee acknowledges that
Licensor is the exclusive owner of all the Licensed Properties and of any
trademark incorporating all or any part of any Licensed Property and the
trademark rights created by such uses. Without limiting the foregoing, Licensee
hereby assigns to Licensor any trademark incorporating all or any part of any
Licensed Property and the trademark rights created by such uses together with
the goodwill attaching to that part of the business in connection with which
such Licensed Properties or trademarks are used. Licensee agrees to execute and
deliver to censor such documents as are required to register Licensee as a
- 21 -
<PAGE> 22
registered user or permitted user of the Licensed Properties of such trademarks
and to follow Licensor's instructions for proper use thereof in order that
protection and/or registrations for the Licensed Properties and such trademarks
may be obtained or maintained.
(b) Prohibitions. Licensee agrees not to use any Licensed
Properties or any trademark incorporating all or any part of any Licensed
Properties on any business sign, business cards, stationery or forms (except as
licensed herein) or to use any Licensed Properties, as the name of Licensee's
business or any division thereof, unless otherwise agreed by Licensor in
writing.
14. Registrations. Except with the written consent of Licensor,
neither Licensee, its parent or any subsidiary of Licensee shall register or
attempt in any country to register copyrights in, or to register as a trademark,
service mark, design patent or industrial design or business designation, any of
the Licensed Properties or derivations or adaptations thereof, or any word,
symbol or design which is so similar thereto as to suggest association with or
sponsorship by Licensor or any subsidiary of Licensor. In the event of breach of
the foregoing, Licensee agrees, at Licensee's expense and Licensor's request,
immediately to terminate the unauthorized registration activity and promptly to
execute and deliver, or cause to be delivered, to Licensor such assignments and
other documents as Licensor may require to transfer to Licensor all rights to
the registrations, patents or applications involved.
- 22 -
<PAGE> 23
15. Unauthorized Use of Licensed Materials.
(a) No Unauthorized Use. Licensee shall not use the
Licensed Properties or any other material the copyright to which is owned by
Licensor in any way other than as herein authorized (or as is authorized in
such other written contract signed by Licensor and Licensee as may be in effect
between such parties). In addition to any other remedy Licensor may have,
Licensee agrees that the profits from any use thereof on products other than
the Licensed Articles (unless authorized by Licensor in writing), and all
profits from the use of any other copyrighted material of Licensor without
written authorization, shall be payable to Licensor.
(b) Notice of Unauthorized Use. Licensee shall give to
Licensor prompt written notice of any unauthorized use by third parties of
Licensed Properties and Licensee shall not, without written consent, bring or
cause to be brought any criminal prosecution, lawsuit or administrative action
for infringement, interference with or violation of any rights to Licensed
Properties. Licensee agrees to cooperate with Licensor, and, if necessary, to
be named by Licensor as a sole complainant or co-complainant in any action
against an infringer of the Licensed Properties and Licensee agrees to pay to
Licensor all or any part of damages or other monetary relief recovered in such
action other than for reasonable expenses incurred at Licensor's request.
- 23 -
<PAGE> 24
16. Manufacture of Licensed Articles by Third-Party Manufacturers.
(a) Sublicensing. Licensee shall not have the right to
sublicense any of the rights granted to it under this Agreement.
(b) Agreements with Third-Party Manufacturers. If Licensee
at any time desires to have Licensed Articles or components thereof containing
Licensed Properties manufactured by a third party, Licensee must, as a condition
to the continuation of this Agreement, notify Licensor of the name and address
of such manufacturer and the Licensed Articles or components involved and obtain
Licensor's prior written permission to do so. The granting of said permission
will be conditioned upon:
(i) In the case of manufacture outside the
Territory:
(A) Licensee signing a consent
agreement in a form which Licensor will furnish;
(B) Licensee causing each such
manufacturer and any submanufacturer to sign an agreement in a form which
Licensor will also furnish Licensee; and
(C) Receipt by Licensor of such
agreements properly signed; and
(ii) In the case of manufacture in the
Territory:
(A) If Licensor so requests, Licensee
causing each such manufacturer to sign an agreement in a form which Licensor
will furnish; and
- 24 -
<PAGE> 25
(B) Licensor's receipt of such agreement
properly signed.
(c) Unauthorized Use by Third-Party Manufacturers. If any
third-party manufacturer utilizes Licensed Properties for any unauthorized
purpose, Licensee shall cooperate fully in bringing such utilization to an
immediate halt. If, by reason of Licensee not having supplied the
above-mentioned agreements to Licensor or not having given us the name of any
supplier, Licensor makes any representation or takes any action and is thereby
subjected to any penalty or expense, Licensee will fully compensate Licensor for
any cost or loss Licensor sustains.
17. Indemnification.
(a) By Licensee. Licensee shall indemnify Licensor during
and after the Term against all claims, liabilities (including settlements
entered into in good faith with Licensee's consent, not to be unreasonably
withheld) and expenses (including reasonable attorneys' fees) arising out of
Licensee's activities hereunder or out of any defect (whether obvious or hidden
and whether not present in any sample approved by Licensor) in any Licensed
Article or arising from personal injury or any infringement of any rights of
any other person by the manufacture, production, sale, distribution, possession
or use of Licensed Articles or their failure to comply with applicable laws,
regulations and standards. The parties indemnified hereunder shall include
Licensor, any parent company, subsidiary or affiliate of Licensor, and their
officers, directors, employees and agents. The indemnity shall not apply to any
claim or liability relating to any infringement of the copyright of a
- 25 -
<PAGE> 26
third party caused by Licensee's utilization of the Licensed Properties in
accordance with provisions hereof.
(b) Prior Rights. No warranty or indemnity is
given with respect to any liability or expense arising from any claim that use
of the Licensed Properties or the trademarks on or in connection with the
Licensed Articles hereunder or any packaging, advertising or promotional
material infringes on any trademark right of any third party or otherwise
constitutes unfair competition by reason of any prior rights acquired by such
third party other than rights acquired from Licensor. It is expressly agreed
that it is Licensee's response ability to carry out such investigations as
Licensee may deem appropriate to establish that the Licensed Articles,
packaging, promotional and advertising material which are manufactured or
created hereunder, including any use made of the Licensed Properties therewith,
do not infringe such right of any third party, and Licensor shall not be liable
to Licensee if such infringement occurs.
18. Insurance. Licensee shall maintain in full force and effect at
all times while this Agreement is in effect and for three (3) years thereafter
comprehensive general and commercial liability insurance, including broad form
contractual and products liability coverage waiving subrogation, with combined
single limits of no less than three million dollars (US $3,000,000.00), with a
deductible of no more than $25,000 and naming as additional insured those
indemnified in Section 17(a) hereof. Licensee shall deliver to Licensor a
Certificate or certificates of insurance evidencing satisfactory coverage and
indicating that Licensor shall receive written notice of
- 26 -
<PAGE> 27
cancellation, nonrenewal or of any material change in coverage at least thirty
(30) days prior to the effective date hereof. Licensees insurance shall be
carried by an insurer with a BEST rating of B + V. Compliance herewith in no way
limits Licensee's indemnity obligations, except to the extent that Licensee's
insurance company actually pays Licensor amounts which Licensee would otherwise
pay Licensor. Licensee shall take all necessary steps to ensure that the insurer
has no right of subrogation against the Licensor.
19. Withdrawal of Licensed Material. Licensee agrees that Licensor
may, without obligation to Licensee other than to give Licensee written notice
thereof, withdraw from the scope of this Agreement any Licensed Properties which
within six (6) months from the commencement of the Term of this Agreement, are
not being used on or in connection with Licensed Articles. Licensor may also
withdraw any Licensed Properties or Licensed Articles the use or sale of which
under this Agreement would infringe or reasonably be claimed to infringe the
rights, other than rights granted by Licensor, of a third party, in which case
Licensor's obligations to Licensee shall be limited to the purchase at cost of
Licensed Article's and other materials utilizing such withdrawn Licensed
Properties which cannot be sold or used.
20. Termination. Without prejudice to any other right or
remedy available to Licensor:
(a) Default; Breach. If Licensee fails to manufacture,
sell and distribute the Licensed Articles or to furnish statements and pay
Royalties and Guaranteed Minimum Royalties as herein provided, or if Licensee
breaches the terms
- 27 -
<PAGE> 28
of this Agreement, and if any such failure is not corrected within fifteen (15)
days after Licensor sends Licensee written notice setting forth the nature of
the failure and/or breach, Licensor shall have the right at any time to
terminate this Agreement by giving Licensee a written notice of termination.
(b) Immediate Termination. Licensor shall have the right
at any time to terminate this Agreement forthwith by giving Licensee written
notice thereof if:
(i) Licensee delivers to any customer
without Licensor's written authorization merchandise containing representations
of Licensed Properties or other material the copyright or other proprietary
rights to which are owned by Licensor other than Licensed Articles listed
herein and approved in accordance with Sections 9(b), 9(c) and 9(d);
(ii) Licensee delivers Licensed Articles
outside the Territory or knowingly sells Licensed Articles to a third party for
delivery outside the Territory unless pursuant to a written distribution
permission or separate written license agreements with Licensor or any
subsidiary of Licensor;
(iii) a breach occurs which is of the same
nature, and which violates the same provision of this Agreement, as a breach of
which Licensor has previously given Licensee two (2) written notices;
(iv) Licensee breaches any material term
of any other license agreement between Licensor and Licensee, and Licensor
terminates such agreement for cause;
(v) Licensee shall make assignment for
the benefit of creditors, or files a petition in bankruptcy, or is
- 28 -
<PAGE> 29
adjudged bankrupt, or becomes insolvent, or is placed in the hands of a
receiver, or if the equivalent of any such proceedings or acts occurs, though
known by some other name or term; or
(vi) Licensee is not permitted or is
unable to operate its business in the usual manner, or is not permitted or is
unable to provide Licensor with assurance satisfactory to Licensor that Licensee
will so operate its business, as debtor in possession or its equivalent, or is
not permitted, or is unable to, otherwise meet its obligations under this
Agreement or to provide Licensor with assurance satisfactory to Licensor that
Licensee will meet such obligations.
(c) Lack of Sales. In the event that Licensee has not made
aggregate sales of the Licensed Articles (not including Samples, Seconds and
Close-Outs) in an amount equal to $1,500,000 during the first Annual Period, or
$3,000,000 during the second Annual Period, Licensor may terminate this
Agreement upon ten (10) days written notice notwithstanding the provisions of
Section 3(a) hereof.
21. Rights and Obligations Upon Expiration or Termination. Upon
the expiration or termination of this Agreement, all rights herein granted to
Licensee shall revert to Licensor, and Licensor shall be entitled to retain all
Royalties and other things of value paid or delivered to Licensor. Licensee
agrees that from the expiration or termination of this Agreement Licensee shall
neither manufacture nor have manufactured for Licensee any Licensed Articles,
that Licensee will deliver to Licensor any and all artwork which may have been
used or created by Licensee in connection with this Agreement, that Licensee
will at Licensor's
- 29 -
<PAGE> 30
option either sell to Licensor at cost or destroy or efface any molds, plates
and other items used to reproduce Licensed Properties and that, subject as
hereinafter provided, Licensee will cease selling Licensed Articles. If
Licensee has any unsold Licensed Articles in inventory on the expiration or
termination date, Licensee shall provide Licensor with a full statement of the
kinds and numbers of such unsold Licensed Articles and shall thereupon, but
only if such statement has been provided to Licensor and if Licensee has fully
complied with the terms of this Agreement including the payment of all
Royalties due, have the right for a limited period of ninety (90) days from
such expiration or earlier termination date to sell off and deliver such
Licensed Articles or, at the option of Licensor resell such Licensed Articles
to Licensor at cost. Licensee shall furnish Licensor with statements covering
such sales and pay Licensor Royalties in respect of such sales. Except as
otherwise agreed by the parties in writing, any inventory of Licensed Articles
in Licensee's possession or control after the expiration or termination hereof
and of any sell-off period granted hereunder shall be destroyed or all Licensed
Properties removed or obliterated therefrom.
22. Waivers. A waiver by either party at any time of a
breach of any provision of this Agreement shall not apply to any breach of any
other provision of this Agreement or imply that a breach of the same provision
at any other time has been or will be waived or that this Agreement has been in
any way amended, nor shall any failure by either party to object to conduct of
the
- 30 -
<PAGE> 31
other be deemed to waive such party's right to claim that a repetition of such
conduct is a breach hereof.
23. Purchase of Licensed Articles by Licensor. If Licensor
wishes to purchase Licensed Articles, Licensee agrees to sell such Licensed
Articles to Licensor or any subsidiary of Licensor at as low a price as
Licensee charges for similar quantities sold to regular customers and to pay
Licensor Royalties on any such sales.
24. Non-Assignability. Licensee shall not voluntarily or
by operation of law assign, sub-license, transfer, encumber or otherwise
dispose of all or any part of its interest in this Agreement without Licensor's
prior written consent. Any attempted assignment, sublicense, transfer,
encumbrance or other disposal without such consent shall be void and shall
constitute a material default and breach of this Agreement. "Transfer" within
the meaning of this Section 24 shall include any merger or consolidation
involving Licensee's company, any sale or transfer of all or substantially all
of Licensee's assets and any transaction or series of related transactions
resulting in the transfer of thirty-three and one-third percent (33-1/3%) or
more of the voting stock of Licensee.
25. Relationship. This Agreement does not provide for a joint
venture, partnership, agency or employment relationship between the Licensor
and Licensee.
26. Headings. Headings of paragraphs herein are for
convenience of reference only and are without substantive significance.
- 31 -
<PAGE> 32
27. Modifications or Extensions of this Agreement. Except as
otherwise provided herein, this Agreement can only be extended or modified by a
writing signed by both parties.
28. Notices. All notices and statements required hereunder shall
be in writing and shall be sent by hand delivery or registered or certified
mail (postage prepaid and return receipt requested) to the addresses set forth
below unless notification of a change of address is given in writing. Notice
shall be deemed received upon actual receipt.
If to Licensor, to:
Ellen Tracy Inc.
575 Seventh Avenue
New York, New York 10018
Attention: Herbert Gallen
If to Licensee, to:
Ridgeview, Inc.
P.O. Box 8
Newton, North Carolina 28658
Attention: Hugh Gaither
29. Entire Agreement. This Agreement contains the entire agreement
between the parties concerning the subject matter hereof and supersedes any
preexisting agreement and any oral or written communications between the
parties.
30. Choice of Law and Forum. This Agreement shall be deemed to be
entered into in New York and shall be governed and interpreted according to the
laws of the State of New York. Any legal actions pertaining to this Agreement
shall be commenced within the State of New York. The prevailing party shall be
entitled to recover reasonable attorney's fees and costs incurred therein.
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<PAGE> 33
IN WITNESS WHEREOF, the parties hereunto have signed this Agreement as
of the date first written above.
ELLEN TRACY INC.
By: /s/ Herbert Gallen
-------------------------------
Title:
----------------------------
RIDGEVIEW, INC.
By: /s/ Hugh R. Gaither
-------------------------------
Title:
----------------------------
- 33 -
<PAGE> 34
Schedule A
Licensed Properties
Trademark
"Ellen Tracy"
"Linda Allard"
"Linda Allard for Ellen Tracy"
- 34 -
<PAGE> 35
Schedule B
Licensed Articles
Ladies hosiery products
Ladies sport socks
Ladies casual socks
- 35 -
<PAGE> 36
Schedule C
Licensed Territories
United States of America, its territories and possessions, and Canada
- 36 -
<PAGE> 37
Schedule D
List of Better Department Stores and
Better Specialty Stores
<TABLE>
<CAPTION>
Retail Stores Specialty Stores
- ------------- ----------------
<S> <C>
Saks Adele's-Pittsburgh, PA
Nieman Marcus Ed Mitchell-Westport, CT
Nordstrom Country Fair-Deal, NJ
Dillards Binns-Williamburgh, VA
Lord & Taylor Kays Cabin-Roanoke,VA
I Magnin Halls/Swanson-Kansas City, MO
Bloomingdales Donneckers-Ephrata, PA
Macys East Meyer Jonasson-Altoona, PA
Dayton Hudson/Marshall Field Zita-Milwaukee, WI
Robinson/May Coco-Nashville, TN
Macys West/Bullocks Mansours-La Grange, GA
Parisian Tootsies-Houston, TX
Richs Turtletique-Dallas, TX
Filenes Julian Gold-Corpus Christi,
Stawbridges San Antonio, Midland, TX
Jacobson, MI Salon-Modesto, CA
Famous Barr
Woodies/Wanamakers
Kaufmans
Foleys
</TABLE>
- 37 -
<PAGE> 38
Schedule E
<TABLE>
<CAPTION>
Year Projected Net Sales
- ---- -------------------
<S> <C>
1994 $1,500,000
1995 $3,000,000
1996 $5,000,000
</TABLE>
- 38 -
<PAGE> 1
EXHIBIT 10.2
================================================================================
DOMESTIC LICENSE AGREEMENT
BETWEEN
JONES INVESTMENT CO., INC.
AND
RIDGEVIEW, INC.
Dated: May 28, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Approval or Approved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Guaranteed Minimum Royalty(ies) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Jones Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Mark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Territory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Grant of License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Distribution Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Close Out Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Prohibition on Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Resolution of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Reservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Percentage Royalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Guaranteed Minimum Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Payment and Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Books and Records and Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Performance Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Restriction on Other Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Restrictions on Promotionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.6 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.7 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Designs, Samples and Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Designs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Continuing Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Trademark and Trademark Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 No Adverse Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 No Secondary Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
6.4 Trademark Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Trademark Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7. Warranties, Indemnification and Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Indemnification by Jones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 Indemnification by Licensee and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.4 Infringements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. Term and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Renewal of License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 Termination of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 Termination Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 Termination Inventory Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.7 Subsequent License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.8 Reservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. General Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.2 Jones Displays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.3 Showroom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.4 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.5 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.6 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.7 No Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.8 Failure to Exercise Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 4
LICENSE AGREEMENT
THIS AGREEMENT made this __________________ day of__________________,
19________ by and between JONES INVESTMENT CO., INC., a Delaware corporation
having its principal place of business at 300 Delaware Avenue, Suite 534,
Wilmington, Delaware 19801-1622, ("Jones") and RIDGEVIEW, INC., a North
Carolina corporation having its principal place of business at 2101 North Main
Avenue, Newton, North Carolina 28658 ("Licensee").
W I T N E S S E T H:
WHEREAS, Jones is the owner and registrant of the trademarks and
subsisting registrations for the marks "EVAN- PICONE", registered in the United
States Patent and Trademark Office, and
WHEREAS, Licensee is engaged in the manufacture, sale and distribution
of women's sheer hosiery, and License desires to obtain from Jones a license to
use the Mark in connection with such goods under and subject to all of the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing
and of the mutual covenants contained herein, and intending to be locally bound
hereby, agree as follows:
1. Definitions
As used in this Agreement, the following terms and phrases shall have the
following meanings:
1.1 Annual Period: shall mean the period from the date of
execution of this Agreement through December 31, 1997 and each consecutive
calendar year thereafter during the Term.
1.2 Approval or Approved: shall mean the approval by Jones of one
or more designs, samples, items of Package, advertising or promotional
materials or other items for which Approval is required under this Agreement,
in writing in a document which identifies the item or items Approved and is
signed by an authorized representative of Jones. Jones shall be deemed to have
Approved any item submitted to it by Licensee for Approval under the terms of
this Agreement if Jones fails to approve, disapprove or otherwise definitively
respond to the submission in writing within fourteen (14) days after receipt of
the items submitted. The receipt of each item submitted for Approval by Jones
shall be evidenced by an appropriate receipt dated and signed by Jones.
1.3 Guaranteed Minimum Royalty(ies): shall mean the guaranteed
minimum royalties payable by Licensee under Paragraph 3.2 hereof
1.4 Jones Merchandise: shall mean any and all items of
Merchandise which in any manner bear, incorporate or embody the Mark or any
design, pattern, sketch or written idea supplied by Jones.
1.5 Mark: shall mean Jones' trademark "EVAN-PICONE".
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1.6 Merchandise: shall mean the item or items of merchandise
covered by the license granted under this Agreement which include only the
following categories:
Women's sheer hosiery, sheer tights under 70 denier, and
trouser socks for sale at wholesale to buyers for the hosiery department for
ultimate sale in such department.
1.7 Net Sales: shall mean the gross invoice or contract price
charged for Jones Merchandise by Licensee, less (1) the lower of refunds,
credits and allowances actually made or allowed to customers for returned Jones
Merchandise; (2) customary trade discounts (not including advertising,
mark-down, volume discounts or other allowances) exclusive of anticipations
afforded to and actually taken by customers in payment of Jones Merchandise;
and (3) freight charged to customers. In the event of sales by Licensee of
Jones Merchandise to a marketing organization or any individual or company in
whole or in part controlled by Licensee, or in any transaction other than an
arm's length transaction, the invoice price used to determine Net Sales
hereunder shall be the invoice price at which the Jones Merchandise is resold
by such entity to an unrelated customer in any arm's length transaction. Jones
Merchandise shall be deemed sold when shipped.
1.8 Packaging: shall mean all tags, labels, cartons or containers
and packing or wrapping material used or to be used by Licensee in connection
with Jones Merchandise.
1.9 Royalties: shall mean the royalties to be paid by Licensee to
Jones for or in connection with the license to use the Mark granted under this
Agreement, provided for in Article 3 and all other applicable portions of this
Agreement.
1.10 Term: shall mean the Initial and Renewal Terms, if any, of
this Agreement, provided for and defined in Article 8, taken collectively.
1.11 Termination Inventory: shall mean the inventory provided for
in Paragraph 8.5 consisting of Jones Merchandise finished products and work in
process, Packaging, advertising and promotional material on hand at the time of
the termination of this Agreement.
1.12 Territory: shall mean the geographical area consisting of the
United States, its territories and possessions. Notwithstanding the foregoing,
Licensee may sell Jones Merchandise in Canada and Mexico ("Additional
Territory"). Licensee shall pay Royalties on all such sales at the percentage
rate provided by subparagraph 3.1.1 herein, but in no event shall such sales in
the Additional Territory be included in the minimum requirements provided for
in Paragraphs 3.2.1, 4.1.1 and 8.2 hereof. The license with respect to sales
in the Additional Territory may be terminated at any time and for any reason by
Jones, and Jones shall not be liable for damages which Licensee may suffer due
to such termination. In the event Jones exercises its right to terminate the
license for sales in the Additional Territory, all requirements of this
Agreement, including the payment of Royalties, shall remain unchanged, and the
parties shall comply in all respects with Paragraphs 8.5 and 8.6 regarding the
inventory and termination sales thereof in the Additional Territory.
2. License
2.1 Grant of License. Subject to the terms and provisions hereof,
Jones hereby grants to Licensee an exclusive non-assignable license throughout
the Territory to use the Mark in connection with the manufacture, advertising,
merchandising, promotion, sale and distribution of Jones Merchandise Approved
by Jones, in accordance with the terms of this Agreement. The license
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<PAGE> 6
granted herein extends only to the Merchandise, Territory and uses expressly
provided for in this Agreement, and Licensee shall not use or attempt to use
the Mark on any other products or goods in any other area or in any other
manner whatsoever.
It understood and agreed that the license applies solely to the use of
the Mark, as defined herein, on Jones Merchandise, and that (I) no use of any
other trademark of Jones, and (ii) no use of the Mark on any other products, is
authorized or permitted.
2.2 Distribution Channels: Licensee acknowledges that Jones has
established a reputation for unique, high quality and fashionable merchandise,
and that Jones maintains a marketing strategy of retaining and projecting to
consumers that reputation and ambience for its products. Accordingly, in order
to protect Jones' marketing, strategy, goodwill, prestige and reputation, Jones
Merchandise shall be sold only in better department stores and in better
specially stores in accordance with Jones' marketing strategy for sales of
"EVAN-PICONE" product, and the license granted under this Agreement extends
only to the use of the Mark in connection with the manufacture, advertising
merchandising, promotion, sale and distribution of Jones Merchandise for sale
to customers in such better department and specialty stores.
2.3 Close Out Sales. Notwithstanding the provision in paragraph
2.2 hereof, Licensee may sell Close Outs and excess inventory, provided such
sales do not exceed twenty percent (20%), unless otherwise agreed to in
writing, of its annual Net Sales of Jones Merchandise to those outlets Jones
uses to dispose of its close outs and excess inventory, unless otherwise agreed
to in writing between the parties hereto. Close Out sales shall be subject to
payment of royalties computed at the Close Out price at the usual royalty rate.
All Close Out sales shall be fully and separately recorded and accounted for in
a manner which will enable Jones to determine Licensee's compliance with the
above provision. For purposes hereof, Close Out and excess inventory sales
shall be defined as Jones Merchandise which is sold at a discounted price of
thirty percent (30%) or more from the stated applicable wholesale price that
otherwise would apply to such Jones Merchandise. Any irregular merchandise,
seconds, or Merchandise consisting of misweaves or flawed merchandise shall not
be sold without first being debranded in a manner so as to completely conceal
or remove the Mark and any identifying characteristics relating to the Mark.
In addition, all such Merchandise shall be clearly marked as "seconds" or
"irregulars".
2.4 Prohibition on Exports: Licensee shall not export Jones
Merchandise from the Territory to any area outside of the Territory, unless
otherwise agreed to in writing, and shall not sell or distribute Jones
Merchandise to any person or entity that Licensee knows or has reason to know
so intends to export Jones Merchandise.
2.5 Resolution of Conflicts: Licensee recognizes that Jones has
granted, and may in the future grant, licenses to other parties to use the Mark
or one or more of Jones' other trademarks in connection with the manufacture,
promotion and distribution of various items. If Licensee or the licensee under
any other such license notifies Jones of an existing or potential conflict in
the definition of the merchandise covered by, or the rights of the licensee
under, their respective licenses and license agreements, Jones shall endeavor
to deal with the issue by discussions with authorized representatives of the
affected parties, and Licensee shall fully cooperate in any such efforts.
Jones may at any time determine to resolve finally any such conflict by written
notice of its determination and resolution to the affected licensees, act all
such determinations shall be final and binding, upon Licensee.
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<PAGE> 7
2.6 Reservation of Rights. Jones reserves all rights to the Mark
including, without limitation, all rights to use the Mark and to grant others
the right to use the Mark in any area and with regard to any product, except as
specifically granted and licensed to Licensee under this Agreement.
2.7 Covenant Not to Compete. Jones shall not design, manufacture,
distribute or sell or license the design, manufacture, distribution,
exploitation or sale, of Merchandise bearing the Mark in the Territory in
competition with Licensee during the Term.
3. Royalties
3.1 Percentage Royalty.
3.1.1 In consideration of the license granted and the
services to be performed by Jones under this Agreement and subject to
Guaranteed Minimum Royalties ("GMR") as set forth in Paragraph 3.2 hereof,
Licensee shall pay to Jones Royalties equal to five percent (5%) of the Net
Sales of all Jones Merchandise and three percent (3%) of Net Sales on close-out
and excess inventory Sales, all in accordance with all the terms and conditions
of this Agreement.
3.1.2 Licensee shall be obligated to pay and all Jones
account for Royalties on all Jones Merchandise billed or shipped, even if the
Merchandise improperly bears the Mark or the applicable transaction is
otherwise in breach or violation of the terms of this Agreement; provided that
this subparagraph 3.1.2 shall not be considered to authorize such transactions
and that the payment or obligation to pay Royalties for such transaction shall
not in any manner limit Jones' right to terminate this Agreement or to exercise
any other right or remedy that Jones may have as a result of the breach of this
Agreement by such transactions.
3.2 Guaranteed Minimum Royalties.
3.2.1 Notwithstanding the amount of Royalties computed and
payable under Paragraph 3.1, the GMR to be paid from Licensee to Jones for each
Annual Period during the Term shall be as follows: for the First Annual
Period, the amount of $450,000; for the Second Annual Period, the amount of
$500,000; for the Third Annual Period, the amount of $600,000 for the Fourth
Annual Period, (if renewed pursuant to subparagraph 8.2.1), the amount of
$650,000; for the Fifth Annual Period, the amount of $700,000; and for the
Sixth Annual Period, and for each subsequent Annual Period, the amount of
$750,000.
3.2.2 The GMR for each Annual Period shall be paid as
follows:
First Annual Period:
$75,000 contemporaneously with the execution of this Agreement;
$75,000 on or before December 31, 1996;
$75,000 on or before March 31, 1997;
$75,000 on or before June 30, 1997;
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<PAGE> 8
$75,000 on or before September 30, 1997; and
$75,000 on or before December 31, 1997.
Second Annual Period and each Annual Period thereafter:
Four (4) equal quarterly installments due on or before the last day of
each calendar quarter commencing on March 31, 1998.
The GMR shall not be carried forward to any subsequent Annual Period and shall
not, under any circumstances, be repayable or refundable to Licensee.
3.2.3 The obligation of Licensee to pay royalties hereunder
shall be absolute notwithstanding any claim which Licensee may assert against
Jones. Licensee shall not have the right to set-off, compensate or make any
deduction from such royalty payments for any reason whatsoever.
3.3 Payment and Periodic Reports. Royalties shall be paid,
without set-off or deduction for any reason, and accounted for quarterly,
commencing with a report for the period ending September 30, 1996, within
twenty-five (25) days after the end of each quarter. At the time each Royalty
payment is due, Licensee shall deliver to Jones a statement signed and
certified as accurate by Licensee's chief financial officer or by another
officer or official of Licensee, approved by Jones in advance in writing,
accounting for the Net Sales and Royalties for the applicable quarter. Such
statement shall show the total amount of gross sales of all Merchandise billed
or shipped during the quarter; list, by customer, the category, style number,
quantity, description and invoice price of all Merchandise sold; and itemized
list of any amounts which may, under this Agreement, be deducted from gross
sales for computing Net Sales; a computation of the amount of Royalties payable
on account of the Net Sales for the quarter; advertising expenditures under
subparagraph 4.6.1 during the quarter; and such other information including,
without limitation, Net Sales for each item of Merchandise and any customer and
financial information and reports as Jones may reasonably require. Jones may,
at any time, provide Licensee a standardized form for accounting for Royalties
and Licensee shall use any form for the statements under this paragraph. The
statements provided for in this paragraph shall be furnished to Jones whether
or not Licensee has sold, shipped or billed any Jones Merchandise during the
quarter for which the statements is due.
3.4 Annual Reports. Not later than forty-five (45) days after the
end of each Annual Period, Licensee shall deliver to Jones: (a) a statement,
signed and certified by Licensee's then regularly engaged independent certified
public accountant (or, if Licensee has no such regular engagement, by a
reputable independent certified public accountant) in accordance with generally
accepted accounting principles consistently applied; and such other information
as Jones may reasonably request within a reasonable time prior to the date on
which the statement is due. If said statement discloses that the amount of
royalties to be paid to Jones during the Annual Period reported is less than
the amount required to be paid to Jones pursuant to the terms of this
Agreement, Licensee shall pay said deficiency, plus interest at a rate equal to
two percent (2%) above the rate announced by Citibank as it's "Prime Rate", to
Jones concurrently with the delivery of such statement.
3.5 Books and Records and Audit:
3.5.1 Licensee shall prepare and maintain, in
accordance with generally accepted accounting principles consistently applied,
complete and accurate books of accounts and records covering all transactions
arising out of or relating, to this Agreement, which books and
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<PAGE> 9
records shall at least be in sufficient detail to permit Jones to monitor
compliance by Licensee with all of its obligations under this Agreement. Jones
and its duly authorized representatives shall have the right, upon five (5)
days prior written or oral notice, during regular business hours, throughout
the Term and for three (3) years hereafter, to audit such books of account and
records and to examine all documents and materials in Licensee's possession or
control relating to this Agreement and Licensee's performance hereunder.
Licensee shall maintain such books of account, records and documents and
material available for Licensee for at least three (3) years after the
termination of this Agreement. Except as provided in subparagraph 3.5.2, any
audit under this paragraph shall be at Jones' expense.
3.5.2 If any audit of Licensee's books and records by Jones under
subparagraph 3.5.1 discloses that the payments made by Licensee to Jones during
the period covered by the audit were up to two percent (2%) less than the
payments that should have been made under this Agreement, Licensee shall pay
the deficiency, plus interest at a rate equal to two percent (2%) above the
rate announced by Citibank as it's "Prime Rate", within fourteen (14) days
after demand therefor by Jones. If any audit shows that the amount paid by
Licensee was more than two percent (2%) less than the amount which should have
been paid, the interest payable shall be at a rate of five (5) percentage
points above such Prime Rate and, in addition, Licensee shall reimburse Jones
for all reasonable costs of the audit within fourteen (14) days after demand by
Jones.
4. Performance
4.1 Performance Standards
4.1.1 Throughout the Term, Licensee hereby agrees to use
its best efforts and cause its officers, employees, accents and contractors to
use their reasonable efforts to sell Jones Merchandise, promote business for
Jones Merchandise and enhance the value and reputation of the Mark, consistent
with good business practices and the high standards and prestige represented by
the Mark. Without limitation to the preceding covenant and obligation, the
best efforts of Licensee shall be deemed not to be met if:
(I) Licensee's Net Sales during any Annual Period fail to
exceed the following amounts:
First Annual Period: $ 9,500,000
Second Annual Period: $11,000,000
Third Annual Period: $14,000,000
Fourth Annual Period: $16,000,000
Fifth Annual Period: $18,000,000
Sixth Annual Period: $20,000,000, or
(ii) Licensee fails to commence substantial production and
sale of any category of Merchandise within six months of the
date of this Agreement except that Sales of trouser socks need
not commence prior to October 1, 1997.
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4.1.2 In the use of the Mark and all other aspects of the
performance of this Agreement, License shall at all times comply with all
applicable laws and regulations including, without limitation, all laws and
regulations related to the manufacture, sale, labeling, Packaging, distribution
and advertising of Jones merchandise sold within the Territory.
4.2 Abandonment. If Licensee fails to use the Mark in the
manufacture, sale or distribution of Jones Merchandise for any consecutive six
(6) month period or if Licensee shall be deemed to have abandoned use of the
Mark, and Jones may at any time thereafter terminate this Agreement by written
notice under subparagraph 8.2.1. hereof. The parties acknowledge that the
abandonment of the use of the Mark by Licensee will irreparably damage
Licensee's capacity to use the Mark under the terms of this Agreement and, for
purposes of termination under Article 8, abandonment of the use of the Mark
under this paragraph shall be considered an incurable breach or violation of
this Agreement.
4.3 Restriction on Other Marks. During the Term, Licensee shall
not manufacture, sell, distribute, promote or enter into any license other than
Ellen Tracy or other agreement to manufacture, sell, distribute or promote any
product or category of products included in the Merchandise bearing any
trademark, trade name or other mark (including, without limitation, Licensee's
own corporate name or trade name), except the Mark in accordance with this
Agreement, if such merchandise would be, in price range and style, in direct
competition with Jones Merchandise.
4.4 Restrictions on Promotionals. Licensee shall not, without the
prior written consent of Jones, give away any Jones Merchandise or market, sell
or distribute any Jones Merchandise as a premium or in connection with any
tie-in or promotional campaign for any product or products (except Jones
Merchandise).
4.5 Quality.
4.5.1 Licensee acknowledges that the Mark has established
prestige and goodwill and is well recognized in the minds of the public, and
that it is of great importance to each party that in the manufacture and sale
of various lines of Jones' products, including the Jones Merchandise granted
herein, the high standards and reputation that Jones has established be
maintained. Accordingly, all items of Jones Merchandise manufactured or caused
to be manufactured by Licensee hereunder shall be of high quality workmanship
which consumers have come to expect from Jones. In the event that any
Merchandise is, in Jones' sole discretion, not being manufactured, distributed
or sold with first quality workmanship or in accordance with the terms and
conditions of this Agreement, Jones shall notify Licensee thereof in writing
and Licensee shall promptly repair or change such Merchandise to conform
thereto. If the Merchandise as repaired or changed does not strictly conform
to Jones' request and such conformity cannot be obtained after at least one (1)
resubmission, the Mark shall be promptly removed from the item, at the option
of Jones, in which event the item may be sold by Licensee, provided such miscut
or damaged item does not contain any labels or other identification bearing the
Mark. No sales of miscuts or damaged merchandise shall contain any labels or
other identification bearing the Mark without Jones' prior written approval.
4.5.2 Jones shall have the right, at any time with five (5)
days prior notice to Licensee, to inspect the process of manufacturing of any
and all Merchandise produced hereunder and Licensee shall at all times during
the Term (including renewals if any) hereof use its best efforts to make it's
manufacturing, warehouse and distribution facilities available to Jones, and
shall use it's best efforts to make available each subcontractor's
manufacturing, warehouse and distribution facilities for inspection by Jones'
or its duly authorized representatives during normal business hours.
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4.5.3 Licensee shall maintain the high standards of the
Trademark and the Jones Merchandise, in all advertising, Packaging and
promotion of Jones Merchandise. Licensee shall not employ or otherwise release
any such advertising or Packaging or other business materials relating to any
Jones Merchandise or bearing the Mark, unless and until Licensee shall have
made a request, in writing, for Approval by Jones, Jones may, with respect to
any advertising, Packaging or business materials submitted by Licensee, make
such suggestions as Jones deems necessary or appropriate, or disapprove, in
either event by notice to Licensee. Any Approval granted hereunder shall be
limited to use during the seasonal collection of Jones Merchandise to which
such advertising relates and shall be further limited to the use for which
Approval by Jones was granted.
4.6 Advertising
4.6.1 Within reasonable time before each Annual Period,
Licensee shall submit to Jones for approval Licensee's proposed advertising
plan for the Jones Merchandise for the ensuing Annual Period. The advertising
plan approved by Jones may be updated with Jones' approval from time to time
within the Annual Period to reflect changes in strategies and promotional
activities. Licensee shall promote the Jones Merchandise bearing the Mark at
the important trade shows that are appropriate for the promotion of the Jones
Merchandise which are approved, in advance, by Jones. Licensee will
incorporate into its advertising plan, otherwise approved by Jones, materials
and directions, if any, submitted by Jones.
4.6.2 Until such time as Jones institutes a national
advertising program, Licensee shall, during each Annual Period, expend not less
than two percent (2%) of the amount of the aggregate Net Sales for the Annual
Period for advertising in promoting Jones Merchandise in communications media,
national consumer publications, trade press and store promotional mailings or
advertising campaigns. Licensee shall deliver to Jones, within forty-five (45)
days after the end of each year hereof an accounting statement in respect of
amounts expended by Licensee for the prior year. Each such statement shall be
signed, and certified as correct, by a duly authorized officer of Licensee.
If, notwithstanding Licensee's good faith effort, the amount expended by
Licensee for an Annual Period is less than two percent (2%) of the Net Sales
for the Annual Period, the difference shall, at Jones' option, either be added
to Licensee's required advertising expenditures for the next Annual Period or
be paid to Jones within the earlier of thirty (30) days after the delivery to
Jones of the annual report for the Annual Period under Paragraph 3.4 or ninety
(90) days after the end of the Annual Period.
4.6.3 If, at any time during the Term, Jones institutes a
national advertising program, Licensee shall participate to the extent
reasonably required by Jones in such national advertising program, the
contribution to same by Licensee not to exceed two percent (2%) of the
aggregate Net Sales for the Annual Period; and such contribution shall be a
credit against Licensee's obligations, if any, under subparagraph 4.6.2 hereof.
4.6.4 Licensee shall comply with any reasonable guidelines
established by Jones for advertising activities and expenditures, and in no
event shall Jones Merchandise be advertised "on sale", or in a similar
promotional manner, without the express written consent of Jones in each
instance.
4.6.5 All advertising materials for advertising placed by
the Licensee will use only those designs, photographs, catalogues, in-store
displays, texts, graphics, audiovisual and audio materials in form and in
content furnished or Approved in writing by Jones. Any such items furnished to
Licensee by Jones shall be paid for by and shall be the sole expense of
Licensee.
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Advertising materials may, at Jones' election, be prepared by or under the
direction of Jones or any person or entity designated by Jones the cost of
which shall be solely borne by Licensee. To the extent that Jones does not
prepare or furnish advertising materials to be used in the implementation of
the advertising plan Approved by Jones, Licensee shall submit to Jones the
advertising material for its Approval prior to use. Any advertising material
Approved by Jones shall be used by Licensee in the manner, form and
presentation directed or approved by Jones. It is hereby acknowledged by Jones
that Licensee may not be able to control the content and placement of
cooperative advertising placed by retailers to which Licensee sells Jones
Merchandise. Licensee agrees, however, that it shall use its best efforts to
assure that all cooperative advertising, whereby Licensee provides a customer
with a contribution toward the cost of an advertisement for Jones Merchandise,
whether Licensee's contribution be in the form of an actual monetary
contribution, a credit or otherwise, shall be subject to prior Approval of
Jones under the same terms and conditions as apply to advertising and
promotional materials prepared by or to be used by Licensee pursuant to
paragraph 4.5.3 hereof, provided, however, that in the event that Licensee is
not as a matter of practice given an opportunity to review the cooperative
advertising due to time constraints, then Licensee shall notify Jones, in
advance, of those customers with whom it does cooperative Jones Merchandise
advertising and/or promotion, and Licensee at Jones' request shall notify the
named customer of the terms of this Agreement which pertain to the advertising
or promotional materials.
4.7 Approvals. Licensee shall not in any aspect of its
performance under this Agreement use any materials, designs, styles, fits or
workmanship for Jones Merchandise or use any items of Packaging, advertising or
promotional materials for Jones Merchandise which Jones has not Approved under
the terms of this Agreement. Jones' Approval or disapproval of any item or
matter for purposes of this Agreement may be based solely on Jones' subjective
standards and Approval may be given or withheld in Jones' sole discretion,
provided that Jones shall act in good faith. Approval of a product, product
design, method of fabrication, color or shape by Jones is not permission to
market a product which shall infringe on any other trademark, design patent or
trade dress. It shall be the obligation of Licensee alone to produce and sell
a product which is not a violation of the right of any other manufacturer,
seller or producer of any other product. In addition to such obligations of
defense and indemnification elsewhere in this Agreement, if a product violates
the legal rights of another or is claimed to do so, whether or not approved by
Jones, Licensee shall indemnity, defend if requested, and hold Jones harmless
against any liability, judgment, claim or suit alleging such violation, which
indemnification shall include Jones' reasonable attorney fees and other costs
of defense. Jones may request Licensee to supply such legal defense as shall
be required in the event of any litigation or threatened litigation arising
from any claim of infringement and, if requested, Licensee shall timely supply
such defense at it's sole expense. Nothing herein shall be deemed to modify or
reduce the obligations of Jones under paragraphs 7.1.1 or 7.2.
5. Designs, Samples and Packaging
5.1 Designs. Jones and Licensee shall cooperate in such manner as
Jones may approve in the development and creation of designs, styles and design
and style ideas for each collection of Jones Merchandise. To the extent that
Jones deems it appropriate, Jones will furnish Licensee with ideas for design
specifications for all or part of the Jones Merchandise. In the event and to
the extent Jones provides Licensee with ideas for design specifications,
Licensee shall develop Merchandise embodying such design specifications. Jones
shall use its reasonable efforts to furnish Licensee with design ideas for each
collection of the Jones Merchandise and will use its reasonable efforts to make
design staff available to Licensee in New York City to edit the development of
the Jones Merchandise. Any such ideas, designs, styles, patterns or samples
furnished by Jones to Licensee, wherein Jones is required
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to expend monies to create or acquire said ideas, designs, styles, patterns or
samples, shall be paid for by and shall be the sole expense of Licensee,
provided such ideas, designs, styles, patterns or samples are utilized by
Licensee in the manufacture of Jones Merchandise. Notwithstanding the
foregoing, Jones shall have no obligation to furnish such assistance and shall
consult with Licensee only at Jones' sole discretion. All designs, styles,
patterns, photographs or written ideas for Jones Merchandise provided by the
parties for purposes of this Agreement shall be the exclusive property of the
respective party; however, any and all designs, styles, patterns, photographs
or written ideas provided by either party and used in the manufacture,
distribution, sale, advertising or promotion of Jones Merchandise shall be
exclusive to Jones Merchandise and shall not be used in any other manner
whatsoever unless agreed to, in writing, by Jones. At all times during the
term hereof, Licensee shall employ a Design Director, approved in advance by
Jones, whose sole responsibility shall be to work on the creation and
implementation of designs for the Jones Merchandise granted under this
Agreement.
5.2 Samples. Each season, Licensee shall submit to Jones, at
Licensee's expense, samples of each item of Jones Merchandise within a
reasonable time prior to the commencement of production of the item for sale
and distribution, but not later than five (5) days prior to the scheduled first
showing of the collection of Jones Merchandise which includes the item.
Licensee shall also submit to Jones for its approval, prior to the showing of
the collection, production samples of each item of Jones Merchandise within ten
days of receipt of request for such samples by Jones. Licensee may not sell or
distribute any item of Jones Merchandise unless Jones has Approved the sample
of the item in advance. All samples of the Merchandise presented to customers
shall bear a permanently affixed EVAN-PICONE label and hang tag which have been
previously approved by Jones.
In furtherance of the foregoing, Licensee shall provide to Jones, on
an annual basis, a schedule reflecting the dates of collection showings with an
indication as to when the sample of each item of Jones Merchandise will be
available for inspection by Jones prior thereto. Licensee may, after
commencing the production and distribution of the first collection of Jones
Merchandise under this Agreement, suggest procedures for submitting
representative samples, subject to continuing inspections under Paragraph 5.4
hereof, and Jones shall consider and respond to any such request in good faith
but shall not be required to approve any such procedures.
5.3 Packaging. To the extent reasonably feasible, the samples
required under Paragraph 5.2 hereof shall include all tags, labels and other
items of Packaging that relate to, or that Licensee intends to use with, the
item submitted as a sample. Licensee shall submit to Jones, for Approval,
samples of all other items of Packaging within a reasonable time prior to the
commencement of the production of such items for use with Jones Merchandise.
Jones shall not unreasonably require Licensee to materially change labels, tags
or other significant items or Packaging from collection to collection. Except
as required by law, Jones' trade name and trademark shall appear exclusively on
all tags, labels, cartons, hang tags, or other indicia where such markings are
used in connection with the sale of Merchandise to customers. On order slips,
bills of lading, invoices, statements, stationary and on such other documents
as are used in connection with persons other than purchasers of the Merchandise
by customers, both the name of the Licensee and Jones' trademark or trade name
may appear. All uses pursuant hereto shall be submitted to Jones for written
approval prior to its use.
If at any time Jones is of the opinion that Licensee is not properly
using the Mark on the Merchandise on labels, tags, hang tags and other indicia
to be used on or in connection with the Merchandise, or that the standard of
quality of any item of the Merchandise does not conform to the standards set by
Jones, Jones may give Licensee written notice to this effect, identifying in
such notice the situation to which it objects. Upon receipt of such notice,
Licensee shall immediately and
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forthwith cease the sale, advertising and distribution of such items. Jones
also reserves all other rights and remedies as against the Licensee that it may
have, all of which are cumulative.
5.4 Continuing Inspection. Upon Jones' request at any time and
from time to time, Licensee shall provide Jones, at Licensee's expense, with a
reasonable number of production samples of Jones Merchandise and/or Packaging
in order for Jones to monitor production in accordance with Jones' Approvals,
quality standards and other requirements of this Agreement. Upon written
notice by Jones to Licensee of Jones' disapproval of any production sample,
Licensee shall immediately take such action as may be necessary for the item to
meet Jones' Approval and Licensee shall cease production, distribution and sale
of the item pending Approval. Jones shall not unreasonably disapprove any
production sample under this paragraph.
6. Trademark and Trademark Protection
6.1 Ownership.
6.1.1 Licensee acknowledges that, as between Jones and
Licensee, Jones is the owner of all right, title and interest in and to the
Mark in any form or embodiment and is also the owner of the good will attached
or which shall become attached to the Mark in connection with the business and
goods in relation to which the same has, is or shall be used. Sales by
Licensee shall be deemed to have been made for purposes of trademark
registration, and all uses of the Marks by Licensee shall inure to the benefit
of Jones.
6.1.2 At Jones' request, Licensee shall execute any
documents, including registered users agreements, reasonably required by Jones
to confirm Jones' ownership of all rights in and to the Mark in the Territory
and the respective rights of Jones and Licensee under this Agreement. Licensee
shall cooperate with Jones, at Jones' expense, in connection with the filing
and prosecution by Jones of applications in Jones' name relating to the use of
the Mark for Merchandise in the Territory.
6.1.3 Licensee shall never challenge or encourage anyone to
challenge Jones' ownership or the validity of the Mark or any application for
registration thereof or any trademark, copyright or other registration thereof
or any rights of Jones thereto.
6.2 No Adverse Acts. Licensee shall not, at any time or in any
manner, engage in any activity or do or permit any act which may in any way
adversely affect any rights of Jones to the Mark or any registrations or
applications for registration thereof or which may directly or indirectly
reduce the value of the Mark or derogate or detract from its repute.
6.3 No Secondary Marks. Licensee shall not use any other trade
names, trademarks or other designations (including, without limitation,
Licensee's own corporate name or trade name) in connection with the Mark in any
consumer advertising or publicity, or labeling, Packaging, or printed matter
utilized by Licensee in connection with Jones Merchandise. Licensee shall not
co-join the Mark with any other names or marks to form a new mark and shall not
itself use the Mark as a corporate name or trade name or in any other names
other than in connection with the manufacture, distribution, sale and promotion
of Jones Merchandise under this Agreement.
6.4 Trademark Notices. Licensee shall cause the designation "R"
to appear immediately after, on the upper right, of the Mark on all Packaging,
advertising and promotional material and
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shall, in addition, cause to appear on all Packaging, advertising and
promotional materials and on all forms, invoices, stationary, business cards
and other documents and materials of any kind bearing the Mark such
designations, legends, markings or notices as may be necessary, or as Jones may
require, to give notice of the status of the Mark and Jones' rights and
interests therein.
6.5 Copyrights. Any copyright relating to Jones Merchandise that
may be created by statute, common law or otherwise in any design, sketch,
print, Packaging or similar manner created by Jones shall be the sole property
of Jones. Licensee shall take such action as may be necessary or as Jones may
require, at Jones' expense, to confirm, preserve or protect such copyright,
including placement of copyright notices on the appropriate items. Licensee
shall not claim for itself or for any party other than Jones copyrights in any
such items and shall not file or attempt to file any copyright registrations
therefor.
6.6 Trademark Applications. Licensee acknowledges that only Jones
may file and prosecute trademark applications regarding the Licensee's use of
the Mark in any country and jurisdiction as Jones may, from time to time, deem
advisable. Licensee will cooperate with Jones in connection with any such
filings, but the expenses of preparing and prosecuting such applications shall
be borne solely by Jones.
7. Warranties, Indemnification and Infringement
7.1 Warranties.
7.1.1 Jones represents and warrants to Licensee that Jones
has the full right, power and authority to enter into this Agreement and to
grant the rights, licenses and privileges hereunder to Licensee and to perform
all of Jones' obligations hereunder.
7.1.2 Licensee represents to Jones that Licensee has the
full right, power and authority to enter into this Agreement and to perform all
of its obligations hereunder.
7.2 Indemnification by Jones. Jones shall indemnity, defend and
hold harmless Licensee from and against any and all claims, causes of actions,
suits, damages and expenses (including reasonable attorneys' fees and expenses)
arising out of any claim, by a third party that Licensee's use of the Mark in
accordance with the terms of this Agreement constitutes an infringement of a
valid trademark in the Territory, upon Licensee giving Jones prompt written
notice and authority and an opportunity to undertake and fully conduct the
defense thereof.
7.3 Indemnification by Licensee and Insurance.
7.3.1 Licensee shall indemnity, defend and hold harmless
Jones from and against any and all claims, causes of action, suits, damages and
expenses (including, reasonable attorneys' fees) which Jones may incur or for
which it may become liable or required to pay, as a result of a third party
claim, by reason of: any defect or alleged defect in any Jones Merchandise; the
breach by Licensee of any provision of this Agreement or of any of Licensee's
duties hereunder, or the acts or omissions of Licensee or of any of its
servants, agents, employees or contractors in connection with the performance
of this Agreement (excluding matters covered by Paragraph 7.2). Jones shall
promptly notify Licensee, in writing, of any instance of the foregoing and
shall grant authority and opportunity to Licensee to undertake and fully
conduct the defense thereof.
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7.3.2 Licensee shall, at its own expense, obtain and
maintain throughout the Term in full force and effect, with an insurance
carrier acceptable to Jones, products liability insurance with a limit of
liability of not less than $3,000,000, insuring against, without limitation,
all damages, profits, interest, attorneys' fees, costs and expenses arising out
of any suit or legal proceeding, claim or demand by a third party resulting
from a defect or alleged defect in any item of Jones Merchandise or out of the
use or condition of an item of Jones Merchandise. Such insurance policy shall
name Jones as a co-insured and shall provide for at least thirty (30) days
advance written notice to Jones before cancellation or substantial
modification. Licensee shall promptly deliver a certificate of such insurance
to Jones and, if Jones so requests, a copy of the policy for such insurance.
The obligation of this subparagraph with respect to insurance shall not be
deemed to limit in any manner the indemnification obligations of Licensee under
subparagraph 7.3.1.
7.4 Infringements. Licensee shall promptly notify Jones in
writing of any known or suspected infringements of the Mark or of any copyright
or other rights or property of Jones, promptly after the same comes to
Licensee's attention. Jones shall have the sole and exclusive right to take
action or institute proceedings with respect to such infringement and shall
proceed as it may, in its sole discretion, deem appropriate or desirable.
Licensee shall cooperate in any action or proceeding by Jones, at Jones'
expense, with respect to an infringement or suspected infringement in such
manner as Jones may reasonably request.
8. Term and Termination
8.1 Initial Term. The initial term of this Agreement ("the
Initial Term") shall commence upon execution of this Agreement and end on
December 31, 1999, subject to earlier termination as provided in this Agreement
and to renewal as provided in Paragraph 8.2.
8.2 Renewal of License.
8.2.1 First Renewal Term. If Licensee is not in default or
material breach of any of the terms of this Agreement, has complied with its
obligations under this Agreement in all material respects (without regard to
whether Jones has given any notices of default or failure to comply), no
default as defined herein has occurred and is continuing and if Net Sales for
the twelve (12) month period ending June 30, 1999 exceeded $14,000,000,
Licensee shall have the option, exercisable by written notice given to Jones
not later than six (6) months prior to the expiration of the Initial Term, to
renew this Agreement in accordance with the terms and conditions set forth
herein for a first renewal term ("First Renewal Term") of three (3) years,
commencing on January 1, 2000 and ending on December 31, 2002, subject to
earlier termination as provided in this Agreement.
8.3 Termination.
8.3.1 Jones may terminate this Agreement, effective
immediately upon giving Licensee written notice of termination, if (i) Licensee
fails to make any payment due to Jones under this Agreement when such payment
is due and continues such failure uncured for ten (10) days after written
notice thereof from Jones to Licensee, (ii) Licensee fails two (2) or more
times during any Annual Period during the Term to make any payment due to Jones
within ten (10) days after such payment is due, whether or not there has been
any notice made by Jones, (iii) Licensee defaults in performing any of the
other terms of this Agreement and continues such default for a period of thirty
(30) days after notice thereof (unless the default cannot be cured within such
thirty (30) day period and Licensee shall have commenced to cure the default
and proceeds diligently thereafter to cure
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within an additional fifteen (15) day Period), (iv) Licensee falls within
fifteen (15) days after written notice that payment is overdue to pay for any
materials, trim, fabrics, packaging, samples, merchandise or services provided
by Jones, or an agent of licensee of Jones or any other supplier of such items,
to Licensee as the same relates to Jones Merchandise, (v) Licensee abandons the
Mark, pursuant to Paragraph 4.2 hereof, (vi) the record or beneficial ownership
of Licensee or any of its parents or affiliates changes in a manner so as to
change the record, beneficial ownership of a majority of the voting shares or
actual control of Licensee, (vii) there is a material adverse change in the
financial condition of Licensee, (viii) there is a breach of, or termination
for Licensee's breach of, or non-compliance with the terms of any other
agreement between the parties hereto, their affiliates, subsidiaries or parent
company, (ix) failure by Licensee to use its Best Efforts as required by
Subparagraph 4.1.1, or (x) Licensee grants a lien or encumbrance on Jones
Merchandise or defaults on any obligations secured by a security interest in or
other lien or encumbrance on Jones Merchandise. In the event of termination
pursuant to this section, Licensee shall not be relieved of any of its
financial obligations, including but not limited to those for the Guaranteed
Minimum Royalties set forth herein; and any such amounts currently due, or
which shall become due with the passage of time, shall at the election of
Licensor, become immediately due and payable. Licensor's right to termination
is in addition to any and all other remedies available to it at law or in
equity by reason of Licensee's default including but not limited to, a claim
for anticipatory breach of contract.
8.3.2 Either Jones or Licensee may terminate this
Agreement, effective immediately upon giving the other party written notice of
termination, if (I) the other party breaches or fails to perform any of the
terms or provisions of this Agreement in a manner not provided for in
subparagraph 8.3.1, in any material respect and such breach or failure is not
curable or, if curable, is not cured within twenty (20) days after written
notice thereof from the non-breaching party, or (ii) the other party files a
voluntary petition or proceeding in bankruptcy or under any federal or state
bankruptcy or insolvency or other law for the relief of debtors; consents to
the appointment of a receiver, custodian or liquidator for a portion of its
business or property; has filed against it and not dismissed within forty-five
(45) days an involuntary proceeding under any federal or state bankruptcy or
insolvency or other law for the relief of debtors or for the appointment of a
receiver, custodian or liquidator; makes an assignment for the benefit of its
creditors, or ceases, or admits its intention to cease, the manufacture, sale
or distribution of Jones Merchandise or the conduct of its business in the
ordinary course.
8.4 Termination of Rights.
8.4.1 Upon the expiration or termination of this Agreement
for any reason whatsoever, all rights of Licensee under this Agreement shall
terminate and automatically revert to Jones. Licensee shall immediately
discontinue all use of the Mark and shall no longer have any right to use the
Mark or any variation or simulation thereof in any manner or for any purpose
whatsoever, except as provided in Paragraph 8.6 hereof. Licensee shall
transfer to Jones by such documentation as Jones may require all registrations,
filing, trademarks, copyrights and other rights with regard to the Mark which
Licensee may have possessed at any time. Subject to the provisions of
Paragraph 8.6 hereof, Licensee shall deliver to Jones, at Licensee's expense,
all sketches, samples, designs or other material relating to Jones Merchandise
and all Merchandise, Packaging materials and advertising and promotional
materials bearing the Mark in any form.
8.4.2 Upon termination or expiration of this Agreement for
any reason, including termination under subparagraph 8.3.2(ii) hereof, no
trustee in bankruptcy, assignee for the benefit of creditors, custodian,
receiver, sheriff or court officer or other successors to Licensee or its
assets or
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business shall have any right to continue this Agreement or to use or exploit
the Mark in any manner whatsoever.
8.4.3 Notwithstanding the provisions of subparagraph 8.4.2
hereof, in the event that under the United States Bankruptcy Code or any
amendment or successor thereto (collectively the "Bankruptcy Code"), the
trustee in bankruptcy of Licensee or Licensee, as bankruptcy debtor, is
permitted to and does assume this Agreement and thereafter proposes to assign
this Agreement by an assignment which fulfills the applicable requirements of
the Bankruptcy Code, the trustee or Licensee shall notify Jones of the proposed
assignment in advance, in writing, setting forth the name and address of the
proposed assignee, the proposed consideration for the assignment and all other
material terms and details of the proposal. Such notice shall be considered an
offer to Jones to have this Agreement assigned to Jones or to its designee for
the consideration (or its reasonable equivalent in money) and under the other
material terms in the notice. Jones may exercise the option and accept the
offer by giving the trustee or Licensee, as appropriate, written notice of
exercise and acceptance within twenty (20) days after Jones receives the notice
from the trustee or Licensee. If Jones fails to give notice and exercise the
option within such twenty (20) day period, the trustee or Licensee may complete
the proposed assignment, but only to the party and for the consideration and
under the terms described in the notice.
8.5 Termination Inventory. Within ten (10) days after the
expiration or termination of this Agreement, and on the last of day of each
month during the period as defined in paragraph 8.6 hereof, Licensee shall
prepare and deliver to Jones a written Termination Inventory, including a
complete and accurate schedule as of the date of expiration or termination, of
all completed Jones Merchandise on hand; work in process relating to Jones
Merchandise on hand, including uncut piece goods and products and materials in
the process of manufacture; all Packaging, advertising and promotional
materials and other documents or items that bear the Mark or Jones' name in any
form in Licensee's possession or control or in the process of manufacture for
Licensee and the cost of each item included in such Termination Inventory.
Jones shall have the option, exercisable within ten (10) days after receipt of
the Termination Inventory, to purchase all or any portion of the items in the
Termination Inventory for a purchase price equal to seventy-five percent (75%)
of Licensee's cost. Licensee shall deliver to Jones the items in the
Termination Inventory to be purchased, within five (5) days after receipt of
Jones' notice exercising its option to purchase, and Jones shall pay the
purchase price within thirty (30) days after receipt of all items of the
Termination Inventory purchased, provided that Jones shall be entitled to
deduct from such purchase price any amounts owed it by Licensee (and/or to
direct payment of any part of such merchandise to any supplier of Jones
Merchandise in order to reduce an outstanding balance due to such supplier from
Licensee).
8.6 Termination Inventory Sales. For a period of three (3) months
after the expiration of Jones' first option to purchase Termination Inventory
under Paragraph 8.5 hereof, Licensee may sell finished Jones Merchandise in the
remaining Termination Inventory or furnished Jones Merchandise completed from
work in process in the remaining Termination Inventory, on a non-exclusive
basis, in accordance with all of the terms of this Agreement. Royalties for
all such sales shall be paid and accounted for by Licensee within thirty (30)
days after the end of such three (3) month period. In the event of the
expiration or termination of this Agreement, if for any reason Licensee has not
rendered to Jones all accounting statements then due, and paid all Royalties
and other amounts then due to Jones, Licensee shall have no right whatsoever to
dispose of any inventory of Jones Merchandise in any manner. In addition, if
during the Termination Inventory Sales period Licensee fails timely to render
any accounting statements, or inventory lists as required pursuant to paragraph
8.5 hereof, or to make all payments when due, Licensee's disposal rights
hereunder shall immediately terminate without notice. Any items in the
Termination Inventory not sold and remaining after the selling
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period provided for in this paragraph shall be delivered, without charge to
Jones, disposed of or destroyed in accordance with Jones' instructions.
8.7 Subsequent License. Immediately upon the expiration or
termination of this Agreement for any reason, Jones shall have the free and
unrestricted right to grant other parties one or more licenses to use the Mark
in connection with the manufacture, sale, distribution or advertising and
promotion of Merchandise in the Territory or to enter into such other
transactions as it desires for the use of the Mark with Merchandise or in any
other manner, without any obligation of any kind to Licensee. The right of
Licensee to sell items of Termination Inventory under Paragraph 8.6 hereof is
non-exclusive only and shall not in any manner limit Jones' right to enter into
other licenses or transactions.
8.8 Reservation of Rights. Notwithstanding the termination of
this Agreement, Jones shall have and hereby reserves all rights and remedies
which are granted or available to it under this Agreement or applicable law,
and termination shall not be deemed to be an exclusive remedy or to limit Jones
in any manner from enforcing any other rights or remedies.
9. General Terms
9.1 Confidentiality. The parties acknowledge that all information
and data which the parties have learned or will learn in connection with this
License Agreement and activities and transactions hereunder concerning the
business and operation of the parties and all tangible manifestations of such
information and data including, without limitation, designs, patterns,
sketches, business and marketing plans, customer lists, and financial and
operating reports, constitute valuable, proprietary and confidential
information and trade secrets of the parties, and that parties shall not
disclose any such data or information or use any such data or information for
themselves or any other person or entity, except for the proper and authorized
performance of this Agreement in accordance with all of the terms hereof.
9.2 Jones Displays. From time to time Jones may display Jones
Merchandise bearing the Mark as granted herein at Jones' licensing showroom, or
at other premises controlled by Jones, and (if appropriate, within the sole and
absolute discretion of Jones) at fashion shows or other fashion events within
Jones' reasonable control.
9.3 Showroom. Licensee shall establish and maintain a suitable
showroom for the presentation and sale of the Jones Merchandise hereunder and
Licensee agrees to maintain, operate, decorate and staff the showroom in a
manner consistent with the of the showrooms established for the presentation
and sale of Jones' other products. Jones shall have the right of approval with
respect to the design, layout, decoration and staffing of the showroom and all
expenses incurred with respect to the design, construction, operation and
maintenance of such showroom shall be borne by Licensee. If the Jones
Merchandise is to be displayed in a showroom with any products other than Jones
Merchandise, the area used to display Jones Merchandise shall be kept separate
and distinct from all other areas in such showroom, and shall be clearly
designated with the EVAN-PICONE trademark.
9.4 Arbitration.
9.4.1 Subject to the provisions of subparagraph 9.4.2 hereof,
all disputes arising under this Agreement or the obligations of the parties
hereunder shall be submitted to arbitration in New York, New York before a
panel of three arbitrators, in accordance with the then prevailing
- 16 -
<PAGE> 20
Rules for Commercial Arbitration of the American Arbitration Association. The
arbitrators in any such arbitration shall award costs to the prevailing party
and may, but shall not be required to, award reasonable attorneys' fees. The
decision of the arbitrators shall be final and binding on all parties, except
that the arbitrators shall have no power to vary the terms of this Agreement.
Judgement on the arbitrators' award may be entered in any court in the State of
New York or in any other court of competent jurisdiction.
9.4.2 The parties acknowledge that a breach of this Agreement
involving the improper or unauthorized use of the Mark or other matters may
give rise to irreparable harm pending the outcome of arbitration under
subparagraph 9.4.1 hereof. Accordingly, and notwithstanding the provisions of
subparagraph 9.4.1 hereof, either party may, upon a breach or threatened breach
of this Agreement, bring an action in a court of competent jurisdiction and
apply therein for temporary or preliminary injunctive or other equitable
relief, pending resort to, and a decision in, arbitration under subparagraph
9.4.1 hereof. If otherwise appropriate under applicable law, a court may
entertain any such action and grant injunctive or equitable relief, and the
provisions of subparagraph 9.4.1 hereof providing for arbitration shall not be
construed to prevent the action or relief.
9.5 Assignability.
9.5.1 Jones may assign this Agreement to a successor to all
or substantially all of its business or the portion of its business which
utilizes the Mark, provided the successor assumes all of Jones'
responsibilities, obligations and liabilities hereunder. Jones may, in
addition, assign the right to receive payments, but not any obligations, under
this Agreement to a financial or similar institution for purposes of financing,
so long as Jones remains responsible for all of its obligations hereunder.
9.5.2 This Agreement is personal to Licensee, and Licensee
may not, without the prior written consent of Jones, assign, sublicense or
otherwise transfer all or any portion of this Agreement or any rights or
obligations hereunder, whether voluntarily, involuntarily, by operation of law
or otherwise, and any such attempted assignment or other transfer shall be null
and void and of no effect.
9.6 Applicable Law. New York law shall govern the validity,
construction, interpretation and effect of this Agreement.
9.7 No Agency. Nothing contained in this Agreement shall be
deemed or construed as constituting the parties hereto as partners or joint
venturers or either party as an agent of the other and, without limiting the
foregoing, Licensee shall have no authority to bind, obligate or incur any
indebtedness for Jones, and no such authority shall be implied.
9.8 Failure to Exercise Rights. The failure of either party to
act or exercise any right under this Agreement, upon the breach of any of the
terms hereof, or otherwise, shall not be construed as a waiver of such breach
or as preventing either party from thereafter enforcing strict compliance with
any and all of the terms hereof.
9.9 Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such provision shall be considered
severable, and the remaining provisions of this Agreement shall continue in
full force and effect and shall be valid and enforceable to the fullest extent
permitted by law.
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<PAGE> 21
9.10 Entire Agreement. This Agreement contains the entire
understanding between the parties, no other representations or covenants having
induced either party to execute this Agreement. This Agreement supersedes any
prior agreement or understanding between the parties and the obligations and
duties under this Agreement may not be amended or modified in any manner, in
whole or in part, except by a written agreement or amendment or modification
duly executed by the parties hereto.
9.11 Headings. The Article and paragraph headings of this
Agreement are for convenience of reference only and do not form a part of the
covenants, terms or conditions of this Agreement or give full notice thereof.
9.12 Notices. All notices, reports, statements, exercises of
options, service of process or other communications required or permitted under
this Agreement shall be in writing and shall be sufficiently given only if
personally delivered; mailed by registered or certified mail, return receipt
requested; sent by overnight express courier, with written receipt of delivery;
or transmitted by telecopier and confirmed by first class mail within twenty-
four (24) hours. All notices shall be sent or delivered to the following
addresses or to such other addresses as either party may, by written notice,
direct:
If to Jones: Jones Investment Co., Inc.
P.O. Box 2105
Wilmington, Delaware 19899
Attn: Norman J. Shuman
with copies to: Jones Apparel Group, Inc.
1411 Broadway
New York, New York 10018
Attn: Herbert J. Goodfriend
If to Licensee: Ridgeview, Inc.
2101 North Main Avenue
P.O. Box 8
Newton, North Carolina 28658
Attn: Hugh Gaither
with copies to: Isenhower, Wood & Cilley
7 East Second Street
Newton, North Carolina 28658
Attn: Allen Wood
Notices given by mail shall be deemed given on the second business day after
the date on which they are mailed. All other notices shall be deemed as given
upon receipt.
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<PAGE> 22
IN WITNESS WHEREOF, the parties, each by their duly authorized
representative, have executed this License Agreement as of the date first above
written.
JONES INVESTMENT CO., INC.
By:
------------------------------------
Norman J. Shuman
Vice President
RIDGEVIEW, INC.
By: /s/ Hugh R. Gaither
------------------------------------
Hugh Gaither
Title: President & CEO
- 19 -
<PAGE> 1
EXHIBIT 10.3
================================================================================
LOAN AND SECURITY AGREEMENT
Dated as of January 10, 1995
Between
Ridgeview, Inc.
(the Borrower)
and
[NATIONSBANK OF GEORGIA, N.A.]
(the Lender)
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Referential Provisions . . . . . . . . . 17
Section 1.3 Exhibits and Schedules . . . . . . . . . . . . 18
ARTICLE 2 - FACILITIES
A. REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . . 18
Section 2.1 Revolving Credit Loans . . . . . . . . . . . . 18
Section 2A.2 Manner of Borrowing Revolving Credit Loans . . 19
Section 2A.3 Repayment of Revolving Credit Loans . . . . . . 20
Section 2A.4 Revolving Credit Note . . . . . . . . . . . . . 20
Section 2A.5 Extension of Facility . . . . . . . . . . . . . 20
Section 2A.6 Letters of Credit . . . . . . . . . . . . . . . 20
B. TERM LOAN FACILITY . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.1 Term Loan . . . . . . . . . . . . . . . . . . . 21
Section 2B.2 Manner of Borrowing and Disbursing Term Loan . 21
Section 2B.3 Repayment of Term Loan . . . . . . . . . . . . 21
Section 2B.4 Term Note . . . . . . . . . . . . . . . . . . . 22
Section 2B.5 Prepayment of Term Loan . . . . . . . . . . . . 22
ARTICLE 3 - GENERAL LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . 22
Section 3.1 Interest . . . . . . . . . . . . . . . . . . . 22
Section 3.2 Fees . . . . . . . . . . . . . . . . . . . . . 23
Section 3.3 Manner of Payment . . . . . . . . . . . . . . . 24
Section 3.4 Statements of Account . . . . . . . . . . . . . 25
Section 3.5 Reduction of Revolving Credit Facility;
Termination of Agreement . . . . . . . . . . . 25
Section 3.6 Increased Costs and Reduced Returns . . . . . . 26
ARTICLE 4 - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . 27
Section 4.1 Conditions Precedent to Initial Loans . . . . . 27
Section 4.2 All Loans . . . . . . . . . . . . . . . . . . . 31
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER . . . . . . . 31
Section 5.1 Representations and Warranties . . . . . . . . 31
Section 5.2 Survival of Representations and
Warranties, Etc . . . . . . . . . . . . . . . . 37
ARTICLE 6 - SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.1 Security Interest . . . . . . . . . . . . . . . 37
Section 6.2 Continued Priority of Security Interest . . . . 38
ARTICLE 7 - COLLATERAL COVENANTS . . . . . . . . . . . . . . . . . . . . 38
Section 7.1 Collection of Receivables . . . . . . . . . . . 39
Section 7.2 Verification and Notification . . . . . . . . . 39
Section 7.3 Disputes, Returns and Adjustments . . . . . . . 39
Section 7.4 Invoices . . . . . . . . . . . . . . . . . . . 40
Section 7.5 Delivery of Instruments . . . . . . . . . . . . 40
Section 7.6 Sales of Inventory . . . . . . . . . . . . . . 40
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Section 7.7 Returned Goods . . . . . . . . . . . . . . . . 40
Section 7.8 Ownership and Defense of Title . . . . . . . . 41
Section 7.9 Insurance . . . . . . . . . . . . . . . . . . . 41
Section 7.10 Location of Offices and Collateral . . . . . . 42
Section 7.11 Records Relating to Collateral . . . . . . . . 42
Section 7.12 Inspection . . . . . . . . . . . . . . . . . . 43
Section 7.13 Maintenance of Equipment . . . . . . . . . . . 43
Section 7.14 Information and Reports . . . . . . . . . . . . 43
Section 7.15 Power of Attorney . . . . . . . . . . . . . . . 44
Section 7.16 Mortgages of Newly Acquired Real Estate . . . . 45
ARTICLE 8 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 45
Section 8.1 Preservation of Corporate Existence and
Similar Matters . . . . . . . . . . . . . . . . 45
Section 8.2 Compliance with Applicable Law . . . . . . . . 45
Section 8.3 Conduct of Business . . . . . . . . . . . . . . 45
Section 8.4 Payment of Taxes and Claims . . . . . . . . . . 45
Section 8.5 Accounting Methods and Financial Records . . . 45
Section 8.6 Use of Proceeds . . . . . . . . . . . . . . . . 46
Section 8.7 Hazardous Waste and Substances;
Environmental Requirements . . . . . . . . . . 46
Section 8.8 Accuracy of Information . . . . . . . . . . . . 46
Section 8.9 Revisions or Updates to Schedules . . . . . . . 47
ARTICLE 9 - INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.1 Financial Statements . . . . . . . . . . . . . 47
Section 9.2 Accountants' Certificate . . . . . . . . . . . 48
Section 9.3 Officer's Certificate . . . . . . . . . . . . . 48
Section 9.4 Copies of Other Reports . . . . . . . . . . . . 48
Section 9.5 Notice of Litigation and Other Matters . . . . 49
Section 9.6 ERISA . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 10 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 50
Section 10.1 Financial Ratios . . . . . . . . . . . . . . . 50
Section 10.2 Indebtedness . . . . . . . . . . . . . . . . . 51
Section 10.3 Guaranties . . . . . . . . . . . . . . . . . . 51
Section 10.4 Investments . . . . . . . . . . . . . . . . . . 51
Section 10.5 Capital Expenditures . . . . . . . . . . . . . 51
Section 10.6 Restricted Distributions and Payments, Etc. . . 51
Section 10.7 Merger, Consolidation and Sale of Assets . . . 51
Section 10.8 Transactions with Affiliates . . . . . . . . . 52
Section 10.9 Liens . . . . . . . . . . . . . . . . . . . . . 52
Section 10.10 Operating Leases . . . . . . . . . . . . . . . 52
Section 10.11 Benefit Plans . . . . . . . . . . . . . . . . . 52
Section 10.12 Sales and Leasebacks . . . . . . . . . . . . . 52
Section 10.13 Amendments of the Other Agreements . . . . . . 52
Section 10.14 Minimum Availability . . . . . . . . . . . . . 52
ARTICLE 11 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.1 Events of Default . . . . . . . . . . . . . . . 52
Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . 55
Section 11.3 Application of Proceeds . . . . . . . . . . . . 58
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 11.4 Power of Attorney . . . . . . . . . . . . . . . 58
Section 11.5 Miscellaneous Provisions Concerning
Remedies . . . . . . . . . . . . . . . . . . . 59
Section 11.6 Trademark License . . . . . . . . . . . . . . . 60
ARTICLE 12 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 60
Section 12.1 Notices . . . . . . . . . . . . . . . . . . . . 60
Section 12.2 Expenses . . . . . . . . . . . . . . . . . . . 61
Section 12.3 Stamp and Other Taxes . . . . . . . . . . . . . 62
Section 12.4 Setoff . . . . . . . . . . . . . . . . . . . . 62
Section 12.5 Litigation . . . . . . . . . . . . . . . . . . 62
Section 12.6 Waiver of Rights . . . . . . . . . . . . . . . 63
Section 12.7 Reversal of Payments . . . . . . . . . . . . . 63
Section 12.8 Injunctive Relief . . . . . . . . . . . . . . . 64
Section 12.9 Accounting Matters . . . . . . . . . . . . . . 64
Section 12.10 Assignment; Participation . . . . . . . . . . . 64
Section 12.11 Amendments . . . . . . . . . . . . . . . . . . 64
Section 12.12 Performance of Borrower's Duties . . . . . . . 65
Section 12.13 Indemnification . . . . . . . . . . . . . . . . 65
Section 12.14 All Powers Coupled with Interest . . . . . . . 65
Section 12.15 Survival . . . . . . . . . . . . . . . . . . . 65
Section 12.16 Severability of Provisions . . . . . . . . . . 65
Section 12.17 Governing Law . . . . . . . . . . . . . . . . . 66
Section 12.18 Counterparts . . . . . . . . . . . . . . . . . 66
Section 12.19 Reproduction of Documents . . . . . . . . . . . 66
</TABLE>
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<PAGE> 5
EXHIBITS AND SCHEDULES
EXHIBIT A-1 FORM OF REVOLVING CREDIT NOTE
EXHIBIT A-2 FORM OF TERM NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
[EXHIBIT C FORM OF CERTIFICATE OF CHIEF FINANCIAL OFFICER]
SCHEDULE 1.1 Letter of Credit Fees
SCHEDULE 5.1(a) Jurisdictions in Which Borrower is Qualified as a
Foreign Corporation
SCHEDULE 5.1(b) Borrower's Capital Stock
SCHEDULE 5.1(e) Borrower's Business
SCHEDULE 5.1(f) Exceptions to Governmental Approvals
SCHEDULE 5.1(g) Non Lien Title Exceptions and Defects and Property
Disposed of Out of Ordinary Course of Business
SCHEDULE 5.1(h) Liens
SCHEDULE 5.1(i) Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1(j) Litigation
SCHEDULE 5.1(k) Tax Returns and Payments
SCHEDULE 5.1(o) ERISA
SCHEDULE 5.1(t) Location of Chief Executive Office
SCHEDULE 5.1(u) Locations of Inventory
SCHEDULE 5.1(v) Locations of Equipment
SCHEDULE 5.1(w) Real Property
SCHEDULE 5.1(x) Corporate and Fictitious Names
SCHEDULE 5.1(aa) Employee Relations
SCHEDULE 5.1(ab) Proprietary Rights
SCHEDULE 8.6 Use of Proceeds
-iv-
<PAGE> 6
LOAN AND SECURITY AGREEMENT
(Term Loan)
Dated as of January 10, 1995
RIDGEVIEW, INC., a North Carolina corporation and NATIONSBANK, N.A.
(CAROLINAS), a national banking association, agree as follows:
ARTICLE 1 - DEFINITIONS
Section 1.1 Definitions. For the purposes of this Agreement:
"Account Debtor" means a Person who is obligated on a Receivable.
"Acquire" or "Acquisition", as applied to any Business Unit or
Investment, means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
"Affiliate" means, with respect to a Person, (a) any officer,
director, employee or managing agent of such Person, (b) any spouse, parents,
brothers, sisters, children and grandchildren of such Person, (c) any
association, partnership, trust, entity or enterprise in which such Person is a
director, officer or general partner, (d) any other Person that, (i) directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such given Person, (ii) directly or
indirectly beneficially owns or holds 10% or more of any class of voting stock
or partnership or other interest of such Person or any Subsidiary of such
Person, or (iii) 10% or more of any class of the voting stock or partnership or
other interest of which is directly or indirectly beneficially owned or held by
such Person or a Subsidiary of such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities or partnership or other interests, by contract or
otherwise.
"Agency Account" means an account of the Borrower maintained by it
with a Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among the Borrower, the
Lender and a Clearing Bank (if other than the Lender) concerning the collection
of payments which represent the proceeds of Receivables or of any other
Collateral.
"Agreement" means this Agreement, including the Exhibits and Schedules
hereto, and all amendments, modifications and
<PAGE> 7
supplements hereto and thereto and restatements hereof and thereof.
"Agreement Date" means the date as of which this Agreement is dated.
"Applicable Margin" means 1/2%.
"Availability" means as of the date of determination, the amount of
revolving credit loans available to be borrowed by the Borrower in accordance
with SECTION 2.1 of the Revolving Loan Agreement less the sum of the
outstanding principal balance of all revolving credit loans hereunder as of
such date.
"Benefit Plan" means an employee benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which a Person
or any Related Company is, or within the immediately preceding 6 years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
"Borrower" means Ridgeview, Inc., a North Carolina corporation, and
its successors and assigns.
"Business Day" means any day other than a Saturday, Sunday or other
day on which banks in the city in which the principal office of the Lender is
located are authorized to close.
"Business Unit" means the assets constituting the business, or a
division or operating unit thereof, of any Person.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than assets which constitute a Business Unit) which are not, in accordance with
GAAP, treated as expense items for such Person in the year made or incurred or
as a prepaid expense applicable to a future year or years.
"Capitalized Lease" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Clearing Bank" means the Lender and any other banking institution
with which an Agency Account has been established pursuant to an Agency Account
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
-2-
<PAGE> 8
"Collateral" means and includes all of the Borrower's right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising:
(a) all Receivables,
(b) all Inventory,
(c) all Equipment,
(d) all Contract Rights,
(e) all General Intangibles,
(f) all Deposit Accounts,
(g) all Real Estate,
(h) all goods and other property, whether or not delivered, (i)
the sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
(i) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(j) all documents of title, policies and certificates of
insurance, securities, chattel paper and other documents and instruments
evidencing or pertaining to any and all items of Collateral,
(k) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the
amounts thereof or payments thereon or otherwise necessary or helpful in the
realization thereon or the collection thereof,
(l) all cash deposited with the Lender or any Affiliate thereof or
which the Lender is entitled to retain or otherwise possess as collateral
pursuant to the provisions of this Agreement or any of the Security Documents,
and
(m) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to
in this definition and any claims against third parties for loss of, damage to
or destruction of any or all of
-3-
<PAGE> 9
the Collateral or for proceeds payable under or unearned premiums with respect
to policies of insurance) in whatever form, including, but not limited to,
cash, negotiable instruments and other instruments for the payment of money,
chattel paper, security agreements and other documents.
"Contract Rights" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, to the extent that the same may lawfully be assigned.
"Controlled Disbursement Account" means the account maintained by and
in the name of the Borrower with the Lender for the purpose of disbursing
Revolving Credit Loan proceeds and amounts credited thereto pursuant to
SECTIONS 2.2(B)(I) and 7.1(B)(II).
"Default" means any of the events specified in SECTION 11.1 that, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
"Default Margin" means 2%.
"Deposit Accounts" means any demand, time, savings, passbook or like
account maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of deposit
that is an instrument under the UCC.
"Dollar" and "$" means freely transferable United States dollars.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time, and any successor statute.
"Effective Date" means the later of (a) the Agreement Date, and (b)
the first date on which all of the conditions set forth in SECTION 4.1 shall
have been fulfilled or waived by the Lender.
"Effective Interest Rate" means the rate of interest per annum on the
Loans in effect from time to time pursuant to the provisions of SECTION 3.1(A),
(b) and (c).
"Environmental Laws" means all federal, state, local and foreign laws
now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including without
limitation, ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any and
-4-
<PAGE> 10
all regulations, notices or demand letters issued, entered, promulgated or
approved thereunder.
"Equipment" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings,
fixtures and other tangible personal property (other than Inventory) of every
kind and description used in such Person's business operations or owned by such
Person or in which such Person has an interest and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
"Event of Default" means any of the events specified in SECTION 11.1.
"Financing Statements" means the Uniform Commercial Code financing
statements executed and delivered by the Borrower to the Lender, naming the
Lender as secured party and the Borrower as debtor, in connection with this
Agreement.
"Fixed Charged Ratio" means, as to any Person, the following ratio for
such Person computed for the applicable period of computation: the ratio of
(i) Net Income plus depreciation plus amortization (except grant amortization
income) plus change in the deferred compensation accrual minus Unfunded Capital
Expenditures minus amortization income relating to the Ireland grant credit
minus foreign currency gains plus foreign currency losses to (ii) current
maturities of Funded Indebtedness and current maturities of Lease Obligations.
"Funded Indebtedness" means Indebtedness for Money Borrowed having a
maturity of more than 12 months from the date of the most recent balance sheet
of the Borrower or having a maturity of less than 12 months from the date of
such balance sheet but by its terms being renewable or extendable beyond 12
months from the date of such balance sheet at the option of the Person liable
thereon.
"GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with the
prior financial practice of the Person referred to.
"General Intangibles" means, as to any Person, all of such Person's
then owned or existing and future acquired or arising general intangibles,
choses in action and causes of action and all other intangible personal
property of such Person of every kind and nature (other than Receivables),
including, without limitation, Intellectual Property, corporate or other
business records, inventions, designs, blueprints, plans, specifications, trade
secrets, goodwill, computer software, customer lists, registrations, licenses,
franchises, tax refund claims, reversions or any rights thereto and any other
amounts payable to such Person from any Benefit Plan, Multiemployer Plan or
other
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employee benefit plan, rights and claims against carriers and shippers, rights
to indemnification, business interruption insurance and proceeds thereof,
property, casualty or any similar type of insurance and any proceeds thereof,
proceeds of insurance covering the lives of key employees on which such Person
is beneficiary and any letter of credit, guarantee, claims, security interest
or other security held by or granted to such Person to secure payment by an
Account Debtor of any of the Receivables.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all governmental bodies, whether federal, state, local, foreign
national or provincial, and all agencies thereof.
"Governmental Authority" means any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Guaranty", "Guaranteed" or to "Guarantee," as applied to any
obligation of another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation of such other
Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by (i) the purchase of securities or obligations, (ii) the purchase,
sale or lease (as lessee or lessor) of property or the purchase or sale of
services primarily for the purpose of enabling the obligor with respect to such
obligation to make any payment or performance (or payment of damages in the
event of nonperformance) of or on account of any part or all of such obligation
or to assure the owner of such obligation against loss, (iii) the supplying of
funds to, or in any other manner investing in, the obligor with respect to such
obligation, (iv) repayment of amounts drawn down by beneficiaries of letters of
credit, or (v) the supplying of funds to or investing in a Person on account of
all or any part of such Person's obligation under a guaranty of any obligation
or indemnifying or holding harmless, in any way, such Person against any part
or all of such obligation.
"Indebtedness" of any Person means, without duplication, (a)
Liabilities, (b) all obligations for money borrowed or for the deferred
purchase price of property or services or in respect of reimbursement
obligations under letters of credit, (c) all obligations represented by bonds,
debentures, notes and accepted
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drafts that represent extensions of credit, (d) Capitalized Lease Obligations,
(e) all obligations (including, during the non-cancellable term of any lease in
the nature of a title retention agreement, all future payment obligations under
such lease discounted to their present value in accordance with GAAP) secured
by any Lien to which any property or asset owned or held by such Person is
subject, whether or not the obligation secured thereby shall have been assumed
by such Person, (f) all obligations of other Persons which such Person has
Guaranteed, including, but not limited to, all obligations of such Person
consisting of recourse liability with respect to accounts receivable sold or
otherwise disposed of by such Person, and (g) in the case of the Borrower
(without duplication) the Loans.
"Intellectual Property" means, as to any Person, all of such Person's
then owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals,
reissues, divisions, continuations and continuations-in-part of any of the
foregoing and all rights to sue for past, present and future infringements of
any of the foregoing.
"Inventory" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) goods intended for
sale or lease or for display or demonstration, (b) work in process, (c) raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or otherwise used or
consumed in the conduct of business, and (d) documents evidencing and general
intangibles relating to any of the foregoing.
"Investment" means, with respect to any Person: (a) the direct or
indirect purchase or acquisition of any beneficial interest in, any share of
capital stock of, evidence of Indebtedness of or other security issued by any
other Person, (b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person, excluding advances to employees in the
ordinary course of business for business expenses, (c) any Guaranty of the
obligations of any other Person, or (d) any commitment or option to take any of
the actions described in CLAUSES (A), (B) or (C) above.
"Lender" means NationsBank, N.A. (Carolinas), a national banking
association, and its successors and assigns.
"Lender's Office" means the office of the Lender specified in or
determined in accordance with the provisions of SECTION 12.1(c).
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"Liabilities" means all liabilities of a Person determined in
accordance with GAAP and includable on a balance sheet of such Person prepared
in accordance with GAAP.
"Lien" as applied to the property of any Person means: (a) any
mortgage, deed to secure debt, deed of trust, lien, pledge, charge, lease
constituting a Capitalized Lease Obligation, conditional sale or other title
retention agreement, or other security interest, security title or encumbrance
of any kind in respect of any property of such Person or upon the income or
profits therefrom, (b) any arrangement, express or implied, under which any
property of such Person is transferred, sequestered or otherwise identified for
the purpose of subjecting the same to the payment of Indebtedness or
performance of any other obligation in priority to the payment of the general,
unsecured creditors of such Person, (c) any Indebtedness which is unpaid more
than 30 days after the same shall have become due and payable and which if
unpaid might by law (including, but not limited to, bankruptcy and insolvency
laws) or otherwise be given any priority whatsoever over general unsecured
creditors of such Person, and (d) the filing of, or any agreement to give, any
financing statement under the UCC or its equivalent in any jurisdiction.
"Loan" means the Term Loan.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents and each other instrument, agreement and document executed
and delivered by the Borrower in connection with this Agreement and each other
instrument, agreement or document referred to herein or contemplated hereby.
"Lockbox" means the U.S. Post Office Box(es) specified in, or pursuant
to, an Agency Account Agreement.
"Materially Adverse Effect" means any act, omission, event or
undertaking which would, singly or in the aggregate, have a materially adverse
effect upon (a) the business, assets, properties, liabilities, condition
(financial or otherwise), results of operations or business prospects of the
Borrower or any of its Subsidiaries, (b) upon the respective ability of the
Borrower or any of its Subsidiaries to perform any obligations under this
Agreement or any other Loan Document to which it is a party, or (c) the
legality, validity, binding effect, enforceability or admissibility into
evidence of any Loan Document or the ability of Lender to enforce any rights or
remedies under or in connection with any Loan Document; in any case, whether
resulting from any single act, omission, situation, status, event, or
undertaking, together with other such acts, omissions, situations, statuses,
events, or undertakings.
"Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness
for money borrowed, (b) Indebtedness, whether or not in any such case the same
was for money borrowed, (i) represented by notes payable and drafts accepted,
that
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represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than trade Indebtedness) or that was issued
or assumed as full or partial payment for property, (c) Indebtedness that
constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is such
by virtue of CLAUSE (f) of the definition thereof, but only to the extent that
the obligations Guaranteed are obligations that would constitute Indebtedness
for Money Borrowed.
"Mortgages" means and includes any and all of the mortgages, deeds of
trust, deeds to secure debt and other instruments executed and delivered by the
Borrower to or for the benefit of the Lender by which the Lender acquires a
Lien on the Borrower's Real Estate and all amendments, modifications and
supplements thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or a Related Company is
required to contribute or has contributed within the immediately preceding 6
years.
"Net Income" or "Net Loss" means, as applied to any Person, the net
income (or net loss) of such Person for the period in question after giving
effect to deduction of or provision for all operating expenses, all taxes and
reserves (including reserves for deferred taxes and all other proper
deductions), all determined in accordance with GAAP, provided that there shall
be excluded: (a) the net income (or net loss) of any Person accrued prior to
the date it becomes a Subsidiary of, or is merged into or consolidated with,
the Person whose Net Income is being determined or a Subsidiary of such Person,
(b) the net income (or net loss) of any Person in which the Person whose Net
Income is being determined or any Subsidiary of such Person has an ownership
interest, except, in the case of net income, to the extent that any such income
has actually been received by such Person or such Subsidiary in the form of
cash dividends or similar distributions, (c) any restoration of any contingency
reserve, except to the extent that provision for such reserve was made out of
income during such period, (d) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments, Business
Units and other capital assets, provided that there shall also be excluded any
related charges for taxes thereon, (e) any net gain arising from the collection
of the proceeds of any insurance policy, (f) any write-up of any asset, and (g)
any other extraordinary item.
"Net Worth" of any Person means the total shareholders' equity
(including capital stock, additional paid-in capital and retained earnings,
after deducting treasury stock) which would appear as such on a balance sheet
of such Person prepared in accordance with GAAP.
"Note" means the Term Note.
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"Operating Lease" means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Permitted Indebtedness for Money Borrowed" means existing
Indebtedness disclosed by Borrower to Lender and Indebtedness under the
Revolving Loan Agreement.
"Permitted Investments" means: Investments of the Borrower in: (i)
negotiable certificates of deposit, time deposits and banker's acceptances
issued by the Lender or any Affiliate of the Lender or by any United States
bank or trust company having capital, surplus and undivided profits in excess
of $250,000,000, (ii) any direct obligation of the United States of America or
any agency or instrumentality thereof which has a remaining maturity at the
time of purchase of not more than one year and repurchase agreements relating
to the same, (iii) sales on credit in the ordinary course of business on terms
customary in the industry, and (iv) notes, accepted in the ordinary course of
business, evidencing overdue accounts receivable arising in the ordinary course
of business.
"Permitted Liens" means: (a) Liens securing taxes, assessments and
other governmental charges or levies (excluding any Lien imposed pursuant to
any of the provisions of ERISA) or the claims of materialmen, mechanics,
carriers, warehousemen or landlords for labor, materials, supplies or rentals
incurred in the ordinary course of business, but (i) in all cases, only if
payment shall not at the time be required to be made in accordance with SECTION
8.4, and (ii) in the case of warehousemen or landlords controlling locations
where Inventory is located, only if such liens have been waived or subordinated
to the Security Interest in a manner satisfactory to the Lender; (b) Liens
consisting of deposits or pledges made in the ordinary course of business in
connection with, or to secure payment of, obligations under workers'
compensation, unemployment insurance or similar legislation or under surety or
performance bonds, in each case arising in the ordinary course of business; (c)
Liens constituting encumbrances in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of the Real Estate, which in
the sole judgment of the Lender do not materially detract from the value of
such Real Estate or impair the use thereof in the business of the Borrower; (d)
Liens of the Lender arising under this Agreement and the other Loan Documents;
and (e) Liens arising out of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which shall not have expired, or in
respect of which the Borrower is fully protected by insurance or in respect of
which the Borrower shall at any time in good faith be prosecuting an appeal or
proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review shall have
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been secured, and as to which appropriate reserves have been established on the
books of the Borrower.
"Person" means an individual, corporation, partnership, association,
trust or unincorporated organization or a government or any agency or political
subdivision thereof.
"Prime Rate" means during the period from the Effective Date through
the last day of the month in which the Effective Date falls, the per annum rate
of interest publicly announced by the Lender at its principal office as its
"prime rate" as in effect on the Effective Date, and thereafter during each
succeeding calendar month, means such "prime rate" as in effect on the last
Business Day of the immediately preceding calendar month. Any change in an
interest rate resulting from a change in the Prime Rate shall become effective
as of 12:01 a.m. on the first day of the month following the month in which
such change was announced. The Prime Rate is a reference used by the Lender in
determining interest rates on certain loans and is not intended to be the
lowest rate of interest charged on any extension of credit to any debtor.
"Purchase Money Indebtedness" means Indebtedness created to finance
the payment of all or any part of the purchase price (not in excess of the fair
market value thereof) of any tangible asset (other than Inventory) and incurred
at the time of or within 10 days prior to or after the acquisition of such
tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money
Indebtedness, but only if such Lien shall at all times be confined solely to
the tangible asset (other than Inventory) the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness secured by
such Lien.
"Real Estate" means all of the Borrower's now owned or hereafter
acquired estates in real property, including, without limitation, all fees,
leaseholds, future interests and easements, together with all of the Borrower's
now owned or hereafter acquired interests in the improvements and emblements
thereon, the fixtures attached thereto and the easements appurtenant thereto.
"Receivables" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising (a) rights to
the payment of money or other forms of consideration of any kind (whether
classified under the UCC as accounts, contract rights, chattel paper, general
intangibles or otherwise) including, but not limited to, accounts receivable,
letters of credit and the right to receive payment thereunder, chattel paper,
tax refunds, insurance proceeds, Contract Rights, notes, drafts, instruments,
documents, acceptances and all other debts, obligations and liabilities in
whatever form from any Person and guaranties, security and Liens securing
payment thereof, (b) goods, whether now owned or hereafter acquired, and
whether sold, delivered, undelivered, in transit or returned,
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which may be represented by, or the sale or lease of which may have given rise
to, any such right to payment or other debt, obligation or liability, and (c)
cash and non-cash proceeds of any of the foregoing.
"Related Company" means, as to any Person, any (a) corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Code) with such Person, or (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in CLAUSE (a) above or any
partnership, trade or business described in CLAUSE (b) above.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to
any such securities or partnership interests, (c) any loan or advance by such
Person to, or other investment by such Person in, the holder of any of such
securities or partnership interests, and (d) any other payment by such Person
in respect of such securities or partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or
prepayment or other retirement, prior to the stated maturity thereof or prior
to the due date of any regularly scheduled installment or amortization payment
with respect thereto, of any Indebtedness of a Person (other than the Secured
Obligations and trade debt), and (b) the payment by any Person of the principal
amount of or interest on any Indebtedness (other than trade debt) owing to an
Affiliate of such Person.
"Revolving Loan Agreement" means that certain Loan and Security
Agreement by and between the Borrower and NationsBank of Georgia, N.A.,
together with all amendments and modifications thereto and all replacements
therefor.
"Schedule of Equipment" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(c).
"Schedule of Inventory" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(b).
"Schedule of Receivables" means a schedule delivered by the Borrower
to the Lender pursuant to the provisions of SECTION 7.14(a).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising, (a) the principal of and interest
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and premium, if any, on the Loans, (b) all reimbursement and other obligations
relating to Letters of Credit, and (c) all indebtedness, liabilities,
obligations, overdrafts, covenants and duties of the Borrower to the Lender or
any Affiliate of the Lender of every kind, nature and description, direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated and whether or not evidenced by any note and whether
or not for the payment of money under or in respect of this Agreement, any Note
or any of the other Loan Documents.
"Security Documents" means each of (a) the Financing Statements, (b)
the Mortgages, and (c) each other writing executed and delivered by any Person
securing the Secured Obligations or evidencing such security.
"Security Interest" means the Liens of the Lender on and in the
Collateral effected hereby or by any of the Security Documents or pursuant to
the terms hereof or thereof.
"Subordinated Indebtedness" means any Indebtedness for money borrowed
of the Borrower which is subordinated to the Secured Obligations on terms and
conditions acceptable to the Lender in its sole discretion.
"Subsidiary" when used to determine the relationship of a Person to
another Person, means a Person of which an aggregate of 50% or more of the
stock of any class or classes or 50% or more of other ownership interests is
owned of record or beneficially by such other Person or by one or more
Subsidiaries of such other Person or by such other Person and one or more
subsidiaries of such Person, (i) if the holders of such stock or other
ownership interests (A) are ordinarily, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or other
individuals performing similar functions) of such Person, even though the right
so to vote has been suspended by the happening of such a contingency, or (B)
are entitled, as such holders, to vote for the election of a majority of the
directors (or individuals performing similar functions) of such Person, whether
or not the right so to vote exists by reason of the happening of a contingency,
or (ii) in the case of such other ownership interests, if such ownership
interests constitute a majority voting interest.
"Tangible Net Worth" means, as applied to any Person, the Net Worth of
such Person at the time in question, after deducting therefrom the amount of
all intangible items reflected therein, including all unamortized debt discount
and expense, unamortized research and development expense, unamortized deferred
charges, goodwill, Intellectual Property, unamortized excess cost of investment
in Subsidiaries over equity at dates of acquisition, and all similar items
which should properly be treated as intangibles in accordance with GAAP.
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"Term Loan" means the loan made to the Borrower pursuant to SECTION
2.1.
"Term Note" means the Term Note made by the Borrower payable to the
order of the Lender evidencing the obligation of the Borrower to pay the
aggregate unpaid principal amount of the Term Loan made to it by the Lender
(and any promissory note or notes that may be issued from time to time in
substitution, renewal, extension, replacement or exchange therefor, whether
payable to the Lender or a different lender, whether issued in connection with
a Person becoming a lender after the Effective Date or otherwise),
substantially in the form of EXHIBIT A hereto, with all blanks properly
completed.
"Termination Event" means (a) a "Reportable Event" as defined in
Section 4043(b) of ERISA, but excluding any such event as to which the
provision for 30 days' notice to the PBGC is waived under applicable
regulations, (b) the filing of a notice of intent to terminate a Benefit Plan
or the treatment of a Benefit Plan amendment as a termination under Section
4041 of ERISA, or (c) the institution of proceedings to terminate a Benefit
Plan by the PBGC under Section 4042 of ERISA or the appointment of a trustee to
administer any Benefit Plan.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of North Carolina.
"Unfunded Capital Expenditures" means Capital Expenditures which are
paid for by a Person other than with the proceeds of Indebtedness for Money
Borrowed (other than the Loans) incurred to finance such Capital Expenditures
and other than those represented by Capitalized Lease Obligations.
"Unfunded Vested Accrued Benefits" means, with respect to any Benefit
Plan at any time, the amount (if any) by which (a) the present value of all
vested nonforfeitable benefits under such Benefit Plan exceeds (b) the fair
market value of all Benefit Plan assets allocable to such benefits, as
determined using such reasonable actuarial assumptions and methods as are
specified in the Schedule B (Actuarial Information) to the most recent Annual
Report (Form 5500) filed with respect to such Benefit Plan.
Section 1.2 Other Referential Provisions.
(a) All terms in this Agreement, the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan Documents,
unless the context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting
terms not specifically defined or specified herein shall have the meanings
generally attributed to such terms under GAAP including, without limitation,
applicable statements and interpretations issued by the Financial Accounting
Standards Board and bulletins, opinions, interpretations and statements
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issued by the American Institute of Certified Public Accountants or its
committees.
(c) All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
(d) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit
nor amplify the provisions of this Agreement, and all references in this
Agreement to Articles, Sections, Subsections, paragraphs, clauses, subclauses,
Schedules or Exhibits shall refer to the corresponding Article, Section,
Subsection, paragraph, clause or subclause of, or Schedule or Exhibit attached
to, this Agreement, unless specific reference is made to the articles, sections
or other subdivisions or divisions of, or to schedules or exhibits to, another
document or instrument.
(f) Each definition of a document in this Agreement shall include
such document as amended, modified, supplemented or restated from time to time
in accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to
a Loan Document includes that party and its successors and assigns permitted
hereunder or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is
referred to in this Agreement or in any other Loan Document, such time shall be
the local time in the city in which the principal office of Lender is located.
(i) Whenever the phrase "to the knowledge of the Borrower" or
words of similar import relating to the knowledge of the Borrower are used
herein, such phrase shall mean and refer to (i) the actual knowledge of the
[President or chief financial officer] or (ii) the knowledge that such officers
would have obtained if they had engaged in good faith in the diligent
performance of their duties, including the making of such reasonable specific
inquiries as may be necessary of the appropriate persons in a good faith
attempt to ascertain the accuracy of the matter to which such phrase relates.
(j) The terms accounts, chattel paper, documents, equipment,
instruments, general intangibles and inventory, as and when used (without being
capitalized) in this Agreement or the Security Documents, shall have the
meanings given those terms in the UCC.
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Section 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
ARTICLE 2 - TERM LOAN FACILITY
Section 2.1 Term Loan. Upon the terms and subject to the conditions
of, and in reliance upon the representations and warranties made under, this
Agreement, the Lender agrees to make the Term Loan to the Borrower on the
Effective Date in the amount of $5,000,000.00.
Section 2.2 Manner of Borrowing and Disbursing Term Loan. Provided
that the Borrower has given the Lender at least two Business Days' prior
written notice of the occurrence of the Effective Date, upon satisfaction of
the applicable conditions set forth in ARTICLE 4, the Lender shall make the
amount of the Term Loan available to the Borrower on the Effective Date in same
day funds in accordance with the instructions set forth in the letter from the
Borrower to the Lender referred to in SECTION 4.1(a)(17).
Section 2.3 Repayment of Term Loan. The Term Loan is due and payable,
and shall be repaid in full by the Borrower in twenty-two (22) consecutive
installments on successive Installment Payment Dates. The first twenty-one
(21) of such installments shall each be in the amount of $41,667.00. The final
installment payable on November 2, 1996 shall be in the amount of the then
unpaid balance of the Term Loan.
Section 2.4 Term Note. The Term Loan and the obligation of the
Borrower to repay such Loan shall be evidenced by a single Term Note payable to
the order of the Lender. Such Note shall be dated the Effective Date and be
duly and validly executed and delivered by the Borrower.
Section 2.5 Prepayment of Term Loan.
(a) Voluntary Prepayment. The Borrower shall have the right at
any time and from time to time, upon at least 60 days' prior written notice to
the Lender in the case of a prepayment in full and upon at least five days'
prior written notice to the Lender in the case of a partial prepayment, to
prepay the Term Loan in whole or in part on any Business Day. Each partial
prepayment of the Term loan shall be applied to the principal installments of
the Term Loan in the inverse order of their maturities. On the prepayment
date, the Borrower shall pay interest on the amount prepaid, accrued to the
prepayment date. Any notice of prepayment given by the Borrower hereunder
shall be irrevocable, and the amount to be prepaid (including accrued interest
and any prepayment fees) shall be due and payable on the date designated in the
notice.
(b) Mandatory Prepayment. Any and all amounts received by the
Borrower as proceeds from the sale of any Equipment or Real Estate to the
extent such proceeds exceed (i) $50,000.00 in the
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case of any single item of Equipment or parcel of Real Estate, or (ii)
$100,000.00 in the aggregate for all such Equipment and Real Estate sold during
any twelve-month period shall be paid, immediately upon receipt by the Borrower
to the Lender and shall be applied to the principal installments of the Term
Loan in the inverse order of their maturities. The Borrower shall also be
obligated to prepay the Term Loan in full together with accrued and unpaid
interest thereon upon any termination of this Agreement pursuant to SECTION 3.5
or otherwise or upon any acceleration of the Term Loan pursuant to ARTICLE 11.
ARTICLE 3 - GENERAL LOAN PROVISIONS
Section 3.1 Interest. (a) The Borrower shall pay interest on the
unpaid principal amount of the Term Loan for each day from the day such Loan is
made until such Loan is due (whether at maturity, by reason of acceleration or
otherwise) at a rate per annum equal to the sum of the Prime Rate and the
Applicable Margin, payable monthly in arrears on the first day of each calendar
month commencing January 1, 1995.
(b) The Borrower shall pay interest on the unpaid principal amount
of each Secured Obligation other than a Loan for each day from the day such
Secured Obligation becomes due and payable until such Secured Obligation is
paid at the rate per annum applicable to the Term Loan, payable on demand.
(c) From and after the occurrence of an Event of Default, the
unpaid principal amount of each Secured Obligation shall bear interest until
paid in full (or, if earlier, until such Event of Default is cured or waived in
writing by the Lender) at a rate per annum equal to the Default Margin plus the
rate otherwise in effect under SECTION 3.1(a) or (b), payable on demand. The
interest rate provided for in this SECTION 3.1(c) shall to the extent permitted
by applicable law apply to and accrue on the amount of any judgment entered
with respect to any Secured Obligation and shall continue to accrue at such
rate during any proceeding described in SECTION 11.1(g) or (h).
(d) The interest rates provided for in SECTIONS 3.1(a), (b) and
(C) shall be computed on the basis of a year of 360 days and the actual number
of days elapsed.
(e) It is not intended by the Lender, and nothing contained in
this Agreement or the Note shall be deemed, to establish or require the payment
of a rate of interest in excess of the maximum rate permitted by applicable law
(the "Maximum Rate"). If, in any month, the Effective Interest Rate, absent
such limitation, would have exceeded the Maximum Rate, then the Effective
Interest Rate for that month shall be the Maximum Rate, and if, in future
months, the Effective Interest Rate would otherwise be less than the Maximum
Rate, then the Effective Interest Rate shall remain at the Maximum Rate until
such time as the amount of interest paid hereunder equals the amount of
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<PAGE> 23
interest which would have been paid if the same had not been limited by the
Maximum Rate. In this connection, in the event that, upon payment in full of
the Secured Obligations, the total amount of interest paid or accrued under the
terms of this Agreement is less than the total amount of interest which would
have been paid or accrued if the Effective Interest Rate had at all times been
in effect, then the Borrower shall, to the extent permitted by applicable law,
pay to the Lender an amount equal to the difference between (i) the lesser of
(A) the amount of interest which would have been charged if the Maximum Rate
had, at all times, been in effect and (B) the amount of interest which would
have accrued had the Effective Interest Rate, at all times, been in effect, and
(ii) the amount of interest actually paid or accrued under this Agreement. In
the event the Lender receives, collects or applies as interest any sum in
excess of the Maximum Rate, such excess amount shall be applied to the
reduction of the principal balance of the applicable Secured Obligation, and,
if no such principal is then outstanding, such excess or part thereof remaining
shall be paid to the Borrower.
Section 3.2 [intentionally left blank].
Section 3.3 Manner of Payment. (a) Each payment (including
prepayments) by the Borrower on account of the principal of or interest on the
Loans or of any fee or other amounts payable to the Lender under this Agreement
or the Note shall be made not later than 1:30 p.m. on the date specified for
payment under this Agreement (or if such day is not a Business Day, the next
succeeding Business Day) to the Lender at the Lender's Office, in Dollars, in
immediately available funds and shall be made without any setoff, counterclaim
or deduction whatsoever.
(b) The Borrower hereby irrevocably authorizes the Lender and each
Affiliate of the Lender to charge any account of the Borrower maintained with
the Lender or such Affiliate with such amounts as may be necessary from time to
time to pay any Secured Obligations which are not paid when due.
Section 3.4 Statements of Account. The Lender will account to the
Borrower within 30 days after the end of each calendar month with a statement
of Loans, charges and payments made pursuant to this Agreement during such
calendar month, and such account rendered by the Lender shall be deemed an
account stated as between the Borrower and the Lender and shall be deemed
final, binding and conclusive unless the Lender is notified by the Borrower in
writing to the contrary within 60 days after the date such account is delivered
to the Borrower, save for manifest error. Any such notice shall be deemed an
objection only to those items specifically objected to therein. Failure of the
Lender to render such account shall in no way affect its rights hereunder.
Section 3.5 [intentionally left blank].
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<PAGE> 24
Section 3.6 Increased Costs and Reduced Returns. Borrower agrees
that if any law now or hereafter in effect and whether or not presently
applicable to Lender or any request, guideline or directive of any Governmental
Authority (whether or not having the force of law and whether or not failure to
comply therewith would be unlawful) or the interpretation or administration
thereof by any Governmental Authority, shall either (a)(i) impose, affect,
modify or deem applicable any reserve, special deposit, capital maintenance or
similar requirement against any Loan, (ii) impose on the Lender any other
condition regarding any Loan, this Agreement, the Note or the facilities
provided hereunder, or (iii) result in any requirement regarding capital
adequacy (including any risk-based capital guidelines) affecting Lender being
imposed or modified or deemed applicable to Lender or (b) subject Lender to any
taxes on the recording, registration, notarization or other formalization of
the Loans or the Note, and the result of any event referred to in CLAUSE (a) or
(b) above shall be to increase the cost to the Lender of making, funding or
maintaining any Loan or to reduce the amount of any sum receivable by Lender or
Lender's rate of return on capital with respect to any Loan to a level below
that which the Lender could have achieved but for such imposition, modification
or deemed applicability (taking into consideration Lender's policies with
respect to capital adequacy) by an amount deemed by Lender (in the exercise of
its discretion) to be material, then, upon demand by the Lender, Borrower shall
immediately pay to the Lender additional amounts which shall be sufficient to
compensate the Lender for such increased cost, tax or reduced rate of return.
A certificate of the Lender to the Borrower claiming compensation under this
SECTION 3.6 shall be final, conclusive and binding on all parties for all
purposes in the absence of manifest error. Such certificate shall set forth
the nature of the occurrence giving rise to such compensation, the additional
amount or amounts to be paid to it hereunder and the method by which such
amounts were determined. In determining such amount, the Lender may use any
reasonable averaging and attribution methods.
ARTICLE 4 - CONDITIONS PRECEDENT
Section 4.1 Conditions Precedent to Term Loan. Notwithstanding any
other provision of this Agreement, the Lender's obligation to make the Term
Loan is subject to the fulfillment of each of the following conditions prior to
or contemporaneously with the making of the Term Loan:
(a) Closing Documents. The Lender shall have received each of the
following documents, all of which shall be satisfactory in form and substance
to the Lender and its counsel:
(1) this Agreement, duly executed and delivered by the
Borrower;
(2) the Note, dated the Effective Date and duly executed
and delivered by the Borrower;
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<PAGE> 25
(3) certified copies of the articles of incorporation and
by-laws of the Borrower as in effect on the Effective Date;
(4) certified copies of all corporate action, including
stockholder approval, if necessary, taken by the Borrower to authorize
the execution, delivery and performance of this Agreement and the
other Loan Documents and the borrowings under this Agreement;
(5) certificates of incumbency and specimen signatures
with respect to each of the officers of the Borrower who is authorized
to execute and deliver this Agreement or any other Loan Document on
behalf of the Borrower or any document, certificate or instrument to
be delivered in connection with this Agreement or the other Loan
Documents and to request borrowings under this Agreement;
(6) a certificate evidencing the good standing of the
Borrower in the jurisdiction of its incorporation and in each other
jurisdiction in which it is qualified as a foreign corporation to
transact business;
(7) the Financing Statements duly executed and delivered
by the Borrower, and evidence satisfactory to the Lender that the
Financing Statements have been filed in each jurisdiction where such
filing may be necessary or appropriate to perfect the Security
Interest;
(8) landlord's waiver and consent agreements duly
executed on behalf of each landlord of real property on which any
Collateral is located;
(9) mortgagee's waiver and consent agreements duly
executed on behalf of each mortgagee of real property on which any
Collateral is located;
(10) copies of the Mortgages duly executed and delivered
by the Borrower and evidencing the recording of each such instrument
in the appropriate jurisdiction for the recording thereof on the Real
Estate subject thereto or, at the option of the Lender, in proper form
for recording in such jurisdiction;
(11) one or more fully paid mortgagee title insurance
policies or, at the option of the Lender, unconditional commitments
for the issuance thereof with all requirements and conditions to the
issuance of the final policy deleted or marked satisfied, issued by a
title insurance company satisfactory to the Lender, each in an amount
equal to not less than the fair market value of the Real Estate
subject to the Mortgage insured thereby, insuring that such Mortgage
creates a valid first lien on, and security title to, all Real Estate
described therein, with no survey exceptions and
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<PAGE> 26
no other exceptions which the Lender shall not have approved in
writing;
(12) such materials and information concerning the Real
Estate as the Lender may require, including, without limitation, (a)
current and accurate surveys satisfactory to the Lender of all of the
Real Estate, certified to the Lender and showing the location of the
100-year and 50-year flood plains thereon, (b) zoning letters as to
the zoning status of all of the Real Estate, (c) certificates of
occupancy covering all of the Real Estate, and (d) owner's affidavits
as to such matters relating to the Real Estate as the Lender may
request;
(13) a Schedule of Inventory, a Schedule of Receivables
and a Schedule of Equipment, each prepared as of a recent date;
(14) certificates or binders of insurance relating to (a)
each of the policies of insurance covering any of the Collateral
together with loss payable clauses which comply with the terms of
SECTION 7.9(b) and (b) each of the policies of insurance required by
the Mortgages, together with mortgagee clauses satisfactory to the
Lender;
(15) such Agency Account Agreements as shall be required
by the Lender duly executed by the applicable Clearing Bank and the
Borrower;
(16) [intentionally left blank];
(17) a letter from the Borrower to the Lender requesting
the Term Loan and specifying the method of disbursement;
(18) copies of all the financial statements referred to in
SECTION 5.1(m) and meeting the requirements thereof;
(19) a balance sheet of the Borrower as at September 30,
1994;
(20) a certificate of the President of the Borrower
stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct as of the Effective Date, both with and
without giving effect to the Loans to be made at such time and the
application of the proceeds thereof, and (b) no Default or Event of
Default exists;
(21) a signed opinion of Isenhower, Wood & Cilley, P.A.,
counsel for the Borrower, and such local counsel as the Lender shall
deem necessary or desirable, opining as to
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<PAGE> 27
such matters in connection with this Agreement as the Lender or its
counsel may reasonable request; and
(22) copies of each of the other Loan Documents duly
executed by the parties thereto with evidence satisfactory to the
Lender and its counsel of the due authorization, binding effect and
enforceability of each such Loan Document on each such party and such
other documents and instruments as the Lender may reasonably request.
(b) Availability. The Lender shall be provided with evidence
satisfactory to it that, as of the Effective Date, Availability will be not
less than $1,500,000.00.
(c) No Injunctions, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain
or prohibit or to obtain substantial damages in respect of or which is related
to or arises out of this Agreement or the consummation of the transactions
contemplated hereby or which, in the Lender's sole discretion, would make it
inadvisable to consummate the transactions contemplated by this Agreement.
(d) Material Adverse Change. As of the Effective Date, there
shall not have occurred any change which, in the Lender's sole discretion, has
had or may have a Materially Adverse Effect as compared to the condition of the
Borrower presented by the most recent unaudited financial statements of the
Borrower described in SECTION 5.1(M).
(e) Solvency. The Lender shall have received evidence
satisfactory to it that, after giving effect to the Term Loan (i) the Borrower
has assets (excluding goodwill and other intangible assets not capable of
valuation) having value, both at fair value and at present fair saleable value,
greater than the amount of its liabilities, and (ii) the Borrower's assets are
sufficient in value to provide the Borrower with sufficient working capital to
enable it profitably to operate its business and to meet its obligations as
they become due, and (iii) the Borrower has adequate capital to conduct the
business in which it is and proposes to be engaged.
(f) Release of Security Interests. The Lender shall have received
evidence satisfactory to it of the release and termination of all Liens other
than Permitted Liens.
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<PAGE> 28
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER
Section 5.1 Representations and Warranties. The Borrower represents
and warrants to the Lender as follows:
(a) Organization; Power; Qualification. The Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which failure to be so qualified and
authorized would have a Materially Adverse Effect. The jurisdictions in which
the Borrower is qualified to do business as a foreign corporation are listed on
SCHEDULE 5.1(a).
(b) Subsidiaries and Ownership of the Borrower. The Borrower has
no Subsidiaries EXCEPT AS LISTED ON SCHEDULE 5.1(b)-1. The outstanding stock
of the Borrower has been duly and validly issued and is fully paid and
nonassessable by the Borrower and the number and owners of such shares of
capital stock of the Borrower are set forth on SCHEDULE 5.1(b)-1.
(c) Authorization of Agreement, Note, Loan Documents and
Borrowing. The Borrower has the right and power and has taken all necessary
action to authorize it to execute, deliver and perform this Agreement and each
of the other Loan Documents to which it is a party in accordance with their
respective terms and to borrow hereunder. This Agreement and each of the other
Loan Documents to which it is a party have been duly executed and delivered by
the duly authorized officers of the Borrower and each is, or when executed and
delivered in accordance with this Agreement will be, a legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
(d) Compliance of Agreement, Note, Loan Documents and Borrowing
with Laws, Etc. The execution, delivery and performance of this Agreement and
each of the other Loan Documents to which the Borrower is a party in accordance
with their respective terms and the borrowings hereunder do not and will not,
by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
applicable law relating to the Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a
default under (A) the articles or certificate of incorporation or
by-laws of the Borrower, (B) any indenture, agreement or other
instrument to which the Borrower is a party or by which any of its
property may be bound or (C) any Governmental Approval relating to the
Borrower, or,
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<PAGE> 29
(iii) result in or require the creation or imposition of any Lien
upon or with respect to any property now owned or hereafter acquired
by the Borrower other than the Security Interest.
(e) Business. The Borrower is engaged principally in the business
described on SCHEDULE 5.1(e).
(f) Compliance with Law; Governmental Approvals. Except as set
forth in SCHEDULE 5.1(f), the Borrower (i) has all Governmental Approvals,
including permits relating to federal, state and local Environmental Laws,
ordinances and regulations required by any applicable law for it to conduct its
business, each of which is in full force and effect, is final and not subject
to review on appeal and is not the subject of any pending or, to the knowledge
of the Borrower, threatened attack by direct or collateral proceeding, and (ii)
is in compliance with each Governmental Approval applicable to it and in
compliance with all other applicable laws relating to it, including, without
being limited to, all Environmental laws and all occupational health and safety
laws applicable to the Borrower or its properties, except for instances of
noncompliance which would not, singly or in the aggregate, cause a Default or
Event of Default or have a Materially Adverse Effect and in respect of which
adequate reserves have been established on the books of the Borrower.
(g) Titles to Properties. Except as set forth in SCHEDULE 5.1(g),
the Borrower has good and marketable title to or a valid leasehold interest in
all its Real Estate and valid and legal title to or a valid leasehold interest
in all personal property and assets used in or necessary to the conduct of the
Borrower's business, including, but not limited to, those reflected on the
balance sheet of the Borrower delivered pursuant to SECTION 5.1(m)(ii).
(h) Liens. Except as set forth in SCHEDULE 5.1(h), none of the
properties and assets of the Borrower is subject to any Lien, except Permitted
Liens. Other than the Financing Statements, no financing statement under the
Uniform Commercial Code of any state which names the Borrower as debtor and
which has not been terminated has been filed in any state or other
jurisdiction, and the Borrower has not signed any such financing statement or
any security agreement authorizing any secured party thereunder to file any
such financing statement, except to perfect those Liens listed in SCHEDULE
5.1(h) and Permitted Liens.
(i) Indebtedness and Guaranties. Set forth on SCHEDULE 5.1(i) is
a complete and correct listing of all of the Borrower's (i) Indebtedness for
Money Borrowed and (ii) Guaranties. The Borrower is not in default of any
material provision of any agreement evidencing or relating to such any such
Indebtedness or Guaranty.
(j) Litigation. Except as set forth on SCHEDULE 5.1(j), there are
no actions, suits or proceedings pending (nor, to the
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<PAGE> 30
knowledge of the Borrower, are there any actions, suits or proceedings
threatened, nor is there any basis therefor) against or in any other way
relating adversely to or affecting the Borrower or any of its property in any
court or before any arbitrator of any kind or before or by any governmental
body.
(k) Tax Returns and Payments. Except as set forth on SCHEDULE
5.1(k), all United States federal, state and local and foreign national,
provincial and local and all other tax returns of the Borrower required by
applicable law to be filed have been duly filed, and all United States federal,
state and local and foreign national, provincial and local and all other taxes,
assessments and other governmental charges or levies upon the Borrower and its
property, income, profits and assets which are due and payable have been paid,
except any such nonpayment which is at the time permitted under SECTION 8.4.
The charges, accruals and reserves on the books of the Borrower in respect of
United States federal, state and local taxes and foreign national, provincial
and local taxes for all fiscal years and portions thereof since the
organization of the Borrower are in the judgment of the Borrower adequate, and
the Borrower knows of no reason to anticipate any additional assessments for
any of such years which, singly or in the aggregate, might have a Materially
Adverse Effect.
(l) Burdensome Provisions. The Borrower is not a party to any
indenture, agreement, lease or other instrument, or subject to any charter or
corporate restriction, Governmental Approval or applicable law, compliance with
the terms of which might have a Materially Adverse Effect.
(m) Financial Statements. The Borrower has furnished to the
Lender a copy of (i) its audited balance sheet as at December 31, 1993, and the
related statements of income, cash flow and retained earnings for the
twelve-month period then ended and (ii) its unaudited balance sheet as at
November 30, 1994, and the related statement of income for the 11-month period
then ended. Such financial statements are complete and correct and present
fairly and in all material respects in accordance with GAAP, the financial
position of the Borrower as at the dates thereof and the results of operations
of the Borrower for the periods then ended. Except as disclosed or reflected
in such financial statements, the Borrower had no material liabilities,
contingent or otherwise, and there were no material unrealized or anticipated
losses of the Borrower.
(n) Adverse Change. Since the date of the financial statements
described in CLAUSE (i) of SECTION 5.1(m), (i) no change in the business,
assets, liabilities, condition (financial or otherwise), results of operations
or business prospects of the Borrower has occurred that has had, or may have, a
Materially Adverse Effect, and (ii) no event has occurred or failed to occur
which has had, or may have, a Materially Adverse Effect.
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<PAGE> 31
(o) ERISA. Neither the Borrower nor any Related Company maintains
or contributes to any Benefit Plan other than those listed on SCHEDULE 5.1(o).
Each Benefit Plan is in substantial compliance with ERISA, and neither the
Borrower nor any Related Company has received any notice asserting that a
Benefit Plan is not in compliance with ERISA. No material liability to the
PBGC or to a Multiemployer Plan has been, or is expected by the Borrower to be,
incurred by the Borrower or any Related Company.
(p) Absence of Defaults. The Borrower is not in default under its
articles or certificate of incorporation or by-laws, and no event has occurred
which has not been remedied, cured or waived (i) that constitutes a Default or
an Event of Default or (ii) that constitutes or that, with the passage of time
or giving of notice, or both, would constitute a default or event of default by
the Borrower under any material agreement (other than this Agreement) or
judgment, decree or order to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or which would require the
Borrower to make any payment thereunder prior to the scheduled maturity date
therefor.
(q) Accuracy and Completeness of Information. All written
information, reports and other papers and data produced by or on behalf of the
Borrower and furnished to the Lender were, at the time the same were so
furnished, complete and correct in all material respects to the extent
necessary to give the recipient a true and accurate knowledge of the subject
matter, no fact is known to the Borrower which has had, or may in the future
have (so far as the Borrower can foresee), a Materially Adverse Effect which
has not been set forth in the financial statements or disclosure delivered
prior to the Effective Date, in each case referred to in SECTION 5.1(m), or in
such written information, reports or other papers or data or otherwise
disclosed in writing to the Lender prior to the Effective Date. No document
furnished or written statement made to the Lender by the Borrower in connection
with the negotiation, preparation or execution of this Agreement or any of the
Loan Documents contains or will contain any untrue statement of a fact material
to the creditworthiness of the Borrower or omits or will omit to state a
material fact necessary in order to make the statements contained therein not
misleading.
(r) Solvency. In each case after giving effect to the
Indebtedness represented by the Loans outstanding and to be incurred and the
transactions contemplated by this Agreement, the Borrower is solvent, having
assets of a fair value which exceeds the amount required to pay its debts
(including contingent, subordinated, unmatured and unliquidated liabilities) as
they become absolute and matured, and the Borrower is able to and anticipates
that it will be able to meet its debts as they mature and has adequate capital
to conduct the business in which it is or proposes to be engaged.
(s) [intentionally left blank].
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<PAGE> 32
(t) Chief Executive Office. The chief executive office of the
Borrower and the books and records relating to the Receivables are located at
the address or addresses set forth on SCHEDULE 5.1(t); except as set forth
SCHEDULE 5.1(t), the Borrower has not maintained its chief executive office or
the books and records relating to any Receivables at any other address at any
time during the five years immediately preceding the Agreement Date.
(u) [intentionally left blank].
(v) Equipment. All Equipment is in good order and repair in all
material respects. Set forth on SCHEDULE 5.1(v) is the (i) address (including
street, city, county and state) of each facility at which Equipment (other than
motor vehicles) is located, (ii) the approximate value of Equipment located at
such facility; and (iii) if such facility is leased, the name of the landlord.
Except as set forth on SECTION 5.1(v), within the past twelve months no
Equipment has been located at any other location.
(w) Real Property. Set forth on SCHEDULE 5.1(w) is the (i)
address (street, city, county and state) of each parcel of Real Estate owned or
leased by the Borrower; and (ii) the name of the lessor of each leased parcel.
(x) Corporate and Fictitious Names; Trade Names. Except as
otherwise disclosed on SCHEDULE 5.1(x), during the one-year period preceding
the Agreement Date, the Borrower has not been known as or used any corporate or
fictitious name other than the corporate name of the Borrower on the Effective
Date. All trade names or styles under which the Borrower sells Inventory or
Equipment or creates Receivables, or to which instruments in payment of
Receivables are made payable, are listed on SCHEDULE 5.1(x).
(y) Federal Regulations. The Borrower is not engaged, principally
or as one of its important activities, in the business of extending credit for
tile purpose of "purchasing" or "carrying" any "margin stock" (as each of the
quoted terms is defined or used in Regulations G and U of the Board of
Governors of the Federal Reserve System).
(z) Investment Company Act. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" (as each of the
quoted terms is defined or used in the Investment Company Act of 1940, as
amended).
(aa) Employee Relations. The Borrower is not, except as set forth
on SCHEDULE 5.1(aa), party to any collective bargaining agreement nor has any
labor union been recognized as the representative of the Borrower's employees;
the Borrower knows of no pending, threatened or contemplated strikes, work
stoppage or other labor disputes involving its employees or those of its
Subsidiaries.
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<PAGE> 33
(ab) Intellectual Property. The Borrower owns or possesses all
Intellectual Property required to conduct its business as now and presently
planned to be conducted without, to its knowledge, conflict with the rights of
others, and SCHEDULE 5.1(ab) lists all Intellectual Property owned by the
Borrower.
Section 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this ARTICLE 5 and all statements
contained in any certificate, financial statement or other instrument delivered
by or on behalf of the Borrower pursuant to or in connection with this
Agreement or any of the Loan Documents (including, but not limited to, any such
representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date, at and as
of the Effective Date and at and as of the date of each Loan, except that
representations and warranties which, by their terms are applicable only to one
such date shall be deemed to be made only at and as of such date. All
representations and warranties made or deemed to be made under this Agreement
shall survive and not be waived by the execution and delivery of this
Agreement, any investigation made by or on behalf of the Lender or any
borrowing hereunder.
ARTICLE 6 - SECURITY INTEREST
Section 6.1 Security Interest. (a) To secure the payment, observance
and performance of the Secured Obligations, the Borrower hereby mortgages,
pledges and assigns all of the Collateral to the Lender for itself and as agent
for any Affiliate of the Lender and grants to the Lender for itself and as
agent for any Affiliate of the Lender a continuing security interest in, and a
continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations, the
Borrower grants to the Lender for itself and as agent for any Affiliate of the
Lender a security interest in, and assigns to the Lender for itself and as
agent for any Affiliate of the Lender all of the Borrower's right, title and
interest in and to, any deposits or other sums at any time credited by or due
from the Lender and each Affiliate of the Lender to the Borrower, with the same
rights therein as if the deposits or other sums were credited by or due from
the Lender.
Section 6.2 Continued Priority of Security Interest. (a) The
Security Interest granted by the Borrower shall at all times be valid,
perfected and enforceable against the Borrower and all third parties in
accordance with the terms of this Agreement, as security for the Secured
Obligations, and the Collateral shall not at any time be subject to any Liens
that are prior to, on a parity with or junior to the Security Interest, other
than Permitted Liens.
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(b) The Borrower shall, at its sole cost and expense, take all
action that may be necessary or desirable, or that the Lender may request, so
as at all times to maintain the validity, perfection, enforceability and rank
of the Security Interest in the Collateral in conformity with the requirements
of SECTION 6.2(a) or to enable the Lender to exercise or enforce its rights
hereunder, including, but not limited to: (i) paying all taxes, assessments and
other claims lawfully levied or assessed on any of the Collateral, except to
the extent that such taxes, assessments and other claims constitute Permitted
Liens, (ii) diligently seeking to obtain, after the Agreement Date, landlords',
mortgagees' or mechanics' releases, subordinations or waivers, (iii) delivering
to the Lender, endorsed or accompanied by such instruments of assignment as the
Lender may specify, and stamping or marking in such manner as the Lender may
specify, any and all chattel paper, instruments, letters and advices of
guaranty and documents evidencing or forming a part of the Collateral, and (iv)
executing and delivering financing statements, pledges, designations,
hypothecations, notices and assignments, in each case in form and substance
satisfactory to the Lender, relating to the creation, validity, perfection,
maintenance or continuation of the Security Interest under the UCC or other
applicable law.
(c) The Lender is hereby authorized to file one or more financing
or continuation statements or amendments thereto without the signature of or in
the name of the Borrower for any purpose described in SECTION 6.2(b). A
carbon, photographic or other reproduction of this Agreement or of any of the
Security Documents or of any financing statement filed in connection with this
Agreement is sufficient as a financing statement, to the extent permitted by
applicable law.
(d) The Borrower shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect the Security Interest
and shall cause its financial statements to reflect the Security Interest.
ARTICLE 7 - COLLATERAL COVENANTS
Until all the Secured Obligations have been indefeasibly paid in full,
unless the Lender shall otherwise consent in the manner provided in SECTION
12.11:
Section 7.1 Collection of Receivables. (a) The Borrower will cause
all moneys, checks, notes, drafts and other payments relating to or
constituting proceeds of Receivables, or of any other Collateral, to be
forwarded to a Lockbox for deposit in an Agency Account in accordance with the
procedures set out in the corresponding Agency Account Agreement, and in
particular the Borrower will (i) advise each Account Debtor to address all
remittances with respect to amounts payable on account of any Receivables to a
specified Lockbox, and (ii) stamp all invoices relating to any such amounts
with a legend satisfactory to the
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Lender indicating that payment is to be made to the Borrower via a specified
Lockbox.
(b) The Borrower and the Lender shall cause all collected balances
in each Agency Account to be transmitted daily by wire transfer or depository
transfer check or Automated Clearing House transfer in accordance with the
procedures set forth in the corresponding Agency Account Agreement to the
Lender at the Lender's Office (i) for application, on account of the Secured
Obligations, as provided in SECTION 2.3(c), 11.2 and 11.3, such credits to be
entered on the second Business Day following receipt and to be conditioned upon
final payment in cash or solvent credits of the items giving rise to them, and
(ii) with respect to any balance remaining after such application, so long as
no Default or Event of Default has occurred and is continuing, for transfer to
the Controlled Disbursement Account or such other account of the Borrower as
the Borrower and the Lender may agree.
(c) Any moneys, checks, notes, drafts or other payments referred
to in CLAUSE (a) of this SECTION 7.1 which are received by or on behalf of the
Borrower will be held in trust for the Lender and will be delivered to the
Lender at the Lender's Office as promptly as possible in the exact form
received, together with any necessary endorsements.
Section 7.2 Verification and Notification. The Lender shall have the
right (a) at any time and from time to time, in the name of the Lender or in
the name of the Borrower, to verify the validity, amount or any other matter
relating to any Receivables by mail, telephone, telegraph or otherwise, and (b)
after an Event of Default, to notify the Account Debtors or obligors under any
Receivables of the assignment of such Receivables to the Lender and to direct
such Account Debtor or obligors to make payment of all amounts due or to become
due thereunder directly to the Lender and, upon such notification and at the
expense of the Borrower, to enforce collection of any such Receivables and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Borrower might have done.
Section 7.3 Disputes, Returns and Adjustments. (a) In the event
amounts due and owing under any Receivable in excess of $25,000.00 are in
dispute between the Account Debtor and the Borrower, the Borrower shall provide
the Lender with prompt written notice thereof.
(b) The Borrower shall notify the Lender promptly of all material
returns and credits in excess of $25,000.00 in respect of any Receivable, which
notice shall specify the Receivables affected.
(c) The Borrower may, in the ordinary course of business and prior
to a Default or an Event of Default, grant any extension of time for payment of
any Receivable or compromise, compound or settle the same for less than the
full amount thereof
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or release wholly or partly any Person liable for the payment thereof or allow
any credit or discount whatsoever thereon; PROVIDED that (i) no such action
results in the reduction of more than $200,000.00 in the amount payable with
respect to any Receivable or of more than $750,000.00 with respect to all
Receivables in any fiscal year of the Borrower, and (ii) the Lender is promptly
notified of the amount of such adjustments and the Receivable(s) affected
thereby.
Section 7.4 Invoices. (a) The Borrower will not use any invoices
except invoices in the forms delivered to the Lender prior to the Agreement
Date, unless the Borrower shall have given the Lender 45 days' prior notice of
the intended use of a different form of invoice together with a copy of such
different form.
(b) Upon the request of the Lender, the Borrower shall deliver to
the Lender, at the Borrower's expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, the original copy of all documents, including, without
limitation, repayment histories and present status reports, relating to
Receivables and such other documents and information relating to the
Receivables as the Lender shall specify.
Section 7.5 Delivery of Instruments. In the event any Receivable in
an amount in excess of $25,000.00 is, or Receivables in excess of $25,000.00 in
the aggregate are, at any time evidenced by a promissory note or notes, trade
acceptance or any other instrument for the payment of money, the Borrower will
immediately thereafter deliver such instruments to the Lender, appropriately
endorsed to the Lender.
Section 7.6 Sales of Inventory. All sales of Inventory will be made
in compliance with all requirements of applicable law.
Section 7.7 Returned Goods. The Security Interest in the Inventory
shall, without further act, attach to the cash and non-cash proceeds resulting
from the sale or other disposition thereof and to all Inventory which is
returned to the Borrower by customers or is otherwise recovered.
Section 7.8 Ownership and Defense of Title. (a) Except for
Permitted Liens, the Borrower shall at all times be the sole owner of each and
every item of Collateral and shall not create any Lien on, or sell, lease,
exchange, assign, transfer, pledge, hypothecate, grant a security interest or
security title in or otherwise dispose of, any of the Collateral or any
interest therein, except for sales of Inventory in the ordinary course of
business, for cash or on open account or on terms of payment ordinarily
extended to its customers and except as otherwise expressly contemplated
herein. The inclusion of "proceeds" of the Collateral under the Security
Interest shall not be deemed a
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consent by the Lender to any other sale or other disposition of any part or all
of the Collateral.
(b) The Borrower shall defend its title in and to the Collateral
and shall defend the Security Interest in the Collateral against the claims and
demands of all Persons.
(c) In addition to, and not in derogation of, the foregoing and the
requirements of any of the Security Documents, the Borrower shall (i) protect
and preserve all properties material to its business, including Intellectual
Property and maintain all tangible property in good and workable condition in
all material respects, with reasonable allowance for wear and tear, and (ii)
from time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements and additions to such properties necessary for the
conduct of its business, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
Section 7.9 Insurance. (a) The Borrower shall at all times maintain
insurance on the Inventory, Equipment and the improvements on all Real Estate
against loss or damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as the Lender shall reasonably specify, in amounts and under
policies issued by insurers acceptable to the Lender. All premiums on such
insurance shall be paid by the Borrower and copies of the policies delivered to
the Lender. The Borrower will not use or permit the Inventory, Equipment or
such improvements to be used in violation of any applicable law or in any
manner which might render inapplicable any insurance coverage.
(b) All insurance policies required under SECTION 7.9(a) shall name
the Lender as an additional named insured and shall contain "New York standard"
loss payable clauses in the form submitted to the Borrower by the Lender, or
otherwise in form and substance satisfactory to the Lender, naming the Lender
as loss payee as its interests may appear, and providing that (i) all proceeds
thereunder shall be payable to the Lender, (ii) no such insurance shall be
affected by any act or neglect of the insured or owner of the property
described in such policy, and (iii) such policy and loss payable clauses may
not be cancelled, amended or terminated unless at least ten days' prior written
notice is given to the Lender.
(c) Any proceeds of insurance referred to in this SECTION 7.9
which are paid to the Lender shall be, at the option of the Lender in its sole
discretion, either (i) applied to rebuild, restore or replace the damaged or
destroyed property, or (ii) applied to the payment or prepayment of the Secured
Obligations.
(d) The Borrower shall at all times maintain, in addition to the
insurance required by SECTION 7.9(a) or any of the Security Documents,
insurance with responsible
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insurance companies against such risks and in such amounts as is customarily
maintained by similar businesses or as may be required by applicable law,
including such public liability, products liability, third party property
damage and business interruption insurance as is consistent with reasonable
business practices, and from time to time deliver to the Lender upon its
request a detailed list of the insurance then in effect, stating the names of
the insurance companies, the amounts and rates of the insurance, the dates of
the expiration thereof and the properties and risks covered thereby.
Section 7.10 Location of Offices and Collateral. (a) The Borrower
will not change the location of its chief executive office or the place where
it keeps its books and records relating to the Collateral or change its name,
identity or corporate structure without giving the Lender 30 days' prior
written notice thereof.
(b) All Inventory, other than Inventory in transit to any such
location, and all Equipment, other than motor vehicles, will at all times be
kept by the Borrower at one of the locations set forth in SCHEDULES 5.1(u) and
5.1(v), respectively, and shall not, without the prior written consent of the
Lender, be removed therefrom except, so long as no Event of Default shall have
occurred and be continuing, for sales of Inventory permitted under SECTION 7.8.
(c) If any Inventory is in the possession or control of any of the
Borrower's agents or processors, the Borrower shall notify such agents or
processors of the Security Interest and, upon the occurrence of an Event of
Default, shall instruct them (and cause them to acknowledge such instruction)
to hold all such Inventory for the account of the Lender, subject to the
instructions of the Lender.
Section 7.11 Records Relating to Collateral. (a) The Borrower will
at all times (i) keep complete and accurate records of Inventory on a basis
consistent with past practices of the Borrower, itemizing and describing the
kind, type and quantity of Inventory and the Borrower's cost therefor and a
current price list for such Inventory, and (ii) keep complete and accurate
records of all other Collateral.
(b) The Borrower will take a physical listing of all Inventory,
wherever located, at least annually.
Section 7.12 Inspection. The Lender (by any of its officers,
employees or agents) shall have the right, to the extent that the exercise of
such right shall be within the control of the Borrower, at any time or times to
(a) visit the properties of the Borrower, inspect the Collateral and the other
assets of the Borrower and its Subsidiaries and inspect and make extracts from
the books and records of the Borrower and its Subsidiaries, including, but not
limited to, management letters prepared by independent accountants, all during
customary
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business hours at such premises, (b) discuss the Borrower's business, assets,
liabilities, financial condition, results of operations and business prospects,
insofar as the same are reasonably related to the rights of the Lender
hereunder or under any of the Loan Documents, with the Borrower's and its
Subsidiaries' (i) principal officers, (ii) independent accountants and other
professionals providing services to the Borrower, and (iii) any other Person
(except that any such discussion with any third parties shall be conducted only
in accordance with the Lender's standard operating procedures relating to the
maintenance of confidentiality of confidential information of borrowers), and
(c) verify the amount, quantity, value and condition of, or any other matter
relating to, any of the Collateral and in this connection to review, audit and
make extracts from all records and files related to any of the Collateral. The
Borrower will deliver to the Lender any instrument necessary to authorize an
independent accountant or other professional to have discussions of the type
outlined above with the Lender or for the Lender to obtain records from any
service bureau maintaining records on behalf of the Borrower.
Section 7.13 Maintenance of Equipment. The Borrower shall maintain
all physical property that constitutes Equipment in good and workable condition
in all material respects, with reasonable allowance for wear and tear, and
shall exercise proper custody over all such property.
Section 7.14 Information and Reports.
(a) Schedule of Receivables. The Borrower shall deliver to the
Lender (i) on or before the Effective Date, a Schedule of Receivables as of a
date not more than three Business Days prior to the Effective Date setting
forth a detailed aged trial balance of all of its then existing Receivables,
specifying the name of and the balance due from (and any rebate due to) each
Account Debtor obligated on a Receivable so listed, and (ii) no later than 10
days after the end of each accounting month of the Borrower, a Schedule of
Receivables as of the last Business Day of the Borrower's immediately preceding
accounting month setting forth (A) a detailed aged trial balance of all the
Borrower's then existing Receivables, specifying the name of and the balance
due from (and any rebate due to) each Account Debtor obligated on a Receivable
so listed and (B) a reconciliation to the Schedule of Receivables delivered in
respect of the next preceding accounting month.
(b) Schedule of Inventory. The Borrower shall deliver to the
Lender on or before the Effective Date and no later than the first day of each
accounting month of the Borrower thereafter a Schedule of Inventory as of the
last Business Day of the immediately preceding accounting month of the
Borrower, itemizing and describing the kind, type, quantity and location of
Inventory and the cost thereof.
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(c) Schedule of Equipment. The Borrower shall deliver to the
Lender on or before the Effective Date and thereafter on such subsequent dates
as may be requested by the Lender, a Schedule of Equipment, describing each
item of such Equipment and the location, cost and then current book value
thereof.
(d) [intentionally left blank].
(e) Notice of Diminution of Value. The Borrower shall give prompt
notice to the Lender of any matter or event which has resulted in, or may
result in, the actual or potential diminution in excess of $200,000.00 in the
value of any of its Collateral, except for any diminution in the value of any
Receivables or Inventory in the ordinary course of business which has been
appropriately reserved against, as reflected in the financial statements
previously delivered to the Lender pursuant to ARTICLE 9.
(f) Certification. Each of the schedules delivered to the Lender
pursuant to this SECTION 7.14 shall be certified by the Chief Financial Officer
of the Borrower to be true, correct and complete as of the date indicated
thereon.
(g) Other Information. The Lender may, in its discretion, from
time to time require the Borrower to deliver the schedules described in SECTION
7.14(A), (B), (C) and (D) more or less often and on different schedules than
specified in such Section, and the Borrower will comply with such requests.
The Borrower shall also furnish to the Lender such other information with
respect to the Collateral as the Lender may from time to time reasonably
request.
Section 7.15 Power of Attorney. The Borrower hereby appoints the
Lender as its attorney, with power (a) to endorse the name of the Borrower on
any checks, notes, acceptances, money orders, drafts or other forms of payment
or security that may come into the Lender's possession, and (b) to sign the
name of the Borrower on any invoice or bill of lading relating to any
Receivables, Inventory or other Collateral, on any drafts against customers
related to letters of credit, on schedules and assignments of Receivables
furnished to the Lender by the Borrower, on notices of assignment, financing
statements and other public records relating to the perfection or priority of
the Security Interest or verifications of account and on notices to or from
customers.
Section 7.16 Mortgages of Newly Acquired Real Estate. Promptly upon
the acquisition by the Borrower of Real Estate, the Borrower will execute and
deliver in favor of the Lender a Mortgage, in form and substance satisfactory
to the Lender, conveying to the Lender a Lien on such Real Estate, subject only
to such prior Liens as the Lender shall consent to in writing and, if requested
by the Lender, the Borrower shall, at the expense of the Borrower, obtain
mortgagee title insurance in
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favor of the Lender insuring such Mortgage to create and convey such Lien,
subject only to such exceptions.
ARTICLE 8 - AFFIRMATIVE COVENANTS
Until all the Secured Obligations have been indefeasibly paid in full,
unless the Lender shall otherwise consent in the manner provided for in SECTION
12.11, the Borrower will:
Section 8.1 Preservation of Corporate Existence and Similar Matters.
Preserve and maintain its corporate existence, rights, franchises, licenses and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
Section 8.2 Compliance with Applicable Law. Comply with all
applicable laws relating to the Borrower.
Section 8.3 Conduct of Business. Engage only in businesses in
substantially the same fields as the businesses conducted on the Effective Date.
Section 8.4 Payment of Taxes and Claims. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or upon any properties belonging to it, and (b)
all lawful claims of materialmen, mechanics, carriers, warehousemen and
landlords for labor, materials, supplies and rentals which, if unpaid, might
become a Lien on any properties of the Borrower or such Subsidiary, EXCEPT that
this SECTION 8.4 shall not require the payment or discharge of any such tax,
assessment, charge, levy or claim which is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
on the appropriate books.
Section 8.5 Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP consistently
applied.
Section 8.6 Use of Proceeds. (a) Use the proceeds of the Term Loan
to pay in full the Borrower's secured Indebtedness and to pay the amounts
indicated in SCHEDULE 8.6 to the Persons indicated therein, and
(b) not use any part of such proceeds to purchase or carry, or to
reduce or retire or refinance any credit incurred to purchase or carry, any
margin stock (within the meaning of Regulation G or U of the Board of Governors
of the Federal Reserve System) or for any other purpose which would involve a
violation of such Regulation G or U or Regulation T or X of such
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Board of Governors or for any other purpose prohibited by law or by the terms
and conditions of this Agreement.
Section 8.7 Hazardous Waste and Substances; Environmental
Requirements. (a) In addition to, and not in derogation of, the requirements
of SECTION 8.2 and of the Security Documents, comply with all laws,
governmental standards and regulations applicable to the Borrower or to any of
its assets in respect of occupational health and safety laws, rules and
regulations and Environmental Laws, promptly notify the Lender of its receipt
of any notice of a violation of any such law, rule, standard or regulation and
indemnify and hold the Lender harmless from all loss, cost, damage, liability,
claim and expense incurred by or imposed upon the Lender on account of the
Borrower's failure to perform its obligations under this SECTION 8.7.
(b) Whenever the Borrower gives notice to the Lender pursuant to
this SECTION 8.7 with respect to a matter that reasonably could be expected to
result in liability to the Borrower in excess of $250,000.00 in the aggregate,
the Borrower shall, at the Lender's request and the Borrower's expense, (i)
cause an independent environmental engineer acceptable to the Lender to conduct
such tests of the site where the noncompliance or alleged noncompliance with
Environmental Laws has occurred and prepare and deliver to the Lender a report
setting forth the results of such tests, a proposed plan to bring the Borrower
into compliance with such Environmental Laws and an estimate of the costs
thereof, and (ii) provide to the Lender a supplemental report of such engineer
whenever the scope of the noncompliance or the response thereto or the
estimated costs thereof shall materially change.
Section 8.8 Accuracy of Information. All written information,
reports, statements and other papers and data furnished to the Lender, whether
pursuant to ARTICLE 9 or any other provision of this Agreement or any of the
other Loan Documents, shall be, at the time the same is so furnished, complete
and correct in all material respects to the extent necessary to give the Lender
true and accurate knowledge of the subject matter.
Section 8.9 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, the Borrower shall
provide promptly to the Lender such revisions or updates to such Schedule(s) as
may be necessary or appropriate to update or correct such Schedule(s); PROVIDED
that no such revisions or updates to any Schedule(s) shall be deemed to have
cured any breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule(s) unless and until the Lender, in its sole
discretion, shall have accepted in writing such revisions or updates to such
Schedule(s).
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ARTICLE 9 - INFORMATION
Until all the Secured Obligations have been indefeasibly paid in full,
unless the Lender shall otherwise consent in the manner set forth in SECTION
12.11, the Borrower will furnish to the Lender at the Lender's Office:
Section 9.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in any
event within 90 days after the end of each fiscal year of the Borrower, copies
of the consolidated and consolidating balance sheet of the Borrower as at the
end of such fiscal year and the related statements of income, shareholders'
equity and cash flow for such fiscal year, in each case setting forth in
comparative form the figures for the previous year of the Borrower and reported
on, without qualification, by Whisnant Company or other independent certified
public accountants selected by the Borrower and acceptable to the Lender.
(b) Monthly Financial Statements. As soon as available, but in
any event within 45 days after the end of each accounting month of the
Borrower, copies of (i) the unaudited unconsolidated balance sheet of the
Borrower as at the end of such month and the related unaudited income statement
for the Borrower for such month and for the portion of the fiscal year of the
Borrower through such month, certified by the chief financial officer of the
Borrower to the best of his knowledge as presenting fairly the financial
condition and results of operations of the Borrower as at the date thereof and
for the periods ended on such date, subject to normal year end adjustments and
(ii) the unaudited balance sheet of Ridgeview, Ltd. as at the end of such month
and the related unaudited income statement for Ridgeview, Ltd. for such month
and for the portion of the fiscal year of Ridgeview, Ltd. through such month,
certified by the chief financial officer of the Borrower to the best of his
knowledge as presenting fairly the financial condition and results of
operations of Ridgeview, Ltd. as at the date thereof and for the periods ended
on such date, subject to normal year end adjustments.
All such financial statements shall be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of footnotes) applied consistently
throughout the periods reflected therein.
Section 9.2 Accountants' Certificate. Together with each
delivery of financial statements required by SECTION 9.1(a), a certificate of
the accountants who performed the audit in connection with such statements (a)
stating that they have reviewed this Agreement and that, in making the audit
necessary to the issuance of a report on such financial statements, they have
obtained no knowledge of any Default or Event of Default or, if such
accountants have obtained knowledge of a Default or Event of Default,
specifying the nature and period of existence
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thereof, and (b) setting forth the calculations necessary to establish whether
or not the Borrower was in compliance with the covenants contained in SECTIONS
10.1, 10.2, and 10.5 as of the date of such statements.
The Borrower authorizes the Lender to discuss the financial condition of the
Borrower with the Borrower's independent certified public accountants and
agrees that such discussion or communication shall be without liability to
either the Lender or the Borrower's independent certified public accountants.
The Borrower shall deliver a letter addressed to such accountants authorizing
them to comply with the provisions of this SECTION 9.2.
Section 9.3 Officer's Certificate. Together with each delivery of
financial statements required by SECTION 9.1(A) and (B), a certificate of the
Borrower's President or chief financial officer (a) stating that, based on an
examination sufficient to enable him to make an informed statement, no Default
or Event of Default exists or, if such is not the case, specifying such Default
or Event of Default and its nature, when it occurred, whether it is continuing
and the steps being taken by the Borrower with respect to such Default or Event
of Default, and (b) setting forth the calculations necessary to establish
whether or not the Borrower was in compliance with the covenants contained in
SECTIONS 10.1, 10.2, and 10.5 as of the date of such statements.
Section 9.4 Copies of Other Reports. (a) Promptly upon receipt
thereof, copies of all reports, if any, submitted to the Borrower or its Board
of Directors by its independent public accountants, including, without
limitation, all management reports.
(b) From time to time and promptly upon each request, such forecasts,
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities, financial
condition, results of operations or business prospects of the Borrower as the
Lender may reasonably request. The rights of the Lender under this SECTION
9.4(b) are in addition to and not in derogation of its rights under any other
provision of this Agreement or any Loan Document.
(c) If requested by the Lender, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred to in Regulations G
and U, respectively, of the Board of Governors of the Federal Reserve System.
Section 9.5 Notice of Litigation and Other Matters. Prompt notice of:
(a) the commencement, to the extent the Borrower is aware of the
same, of all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and
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proceedings in any court or before any arbitrator against or in any other way
relating adversely to, or adversely affecting, the Borrower or any Affiliate of
the Borrower or any of their respective property, assets or businesses which
might, singly or in the aggregate, cause a Default or an Event of Default or
have a Materially Adverse Effect,
(b) any amendment of the articles of incorporation or by laws of
the Borrower,
(c) any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of the Borrower or any
Affiliate of the Borrower which has had or may have any Materially Adverse
Effect and any change in the executive officers of the Borrower, and
(d) any (i) Default or Event of Default, or (ii) event that
constitutes or that, with the passage of time or giving of notice or both,
would constitute a default or event of default by the Borrower under any
material agreement (other than this Agreement) to which the Borrower is a party
or by which the Borrower or any of its property may be bound if the exercise of
remedies thereunder by the other party to such agreement would have, either
individually or in the aggregate, a Materially Adverse Effect.
Section 9.6 ERISA. As soon as possible and in any event within 30
days after the Borrower knows, or has reason to know, that:
(a) any Termination Event with respect to a Benefit Plan has
occurred or will occur,
(b) the aggregate present value of the Unfunded Vested Accrued
Benefits under all Plans has increased to an amount in excess of $0, or
(c) the Borrower is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan required
by reason of its complete or partial withdrawal (as described in Section 4203
or 4205 of ERISA) from such Multiemployer Plan, a certificate of the President
or the chief financial officer of the Borrower setting forth the details of
such of the events described in CLAUSES (a) through (c) as applicable and the
action which is proposed to be taken with respect thereto and, simultaneously
with the filing thereof, copies of any notice or filing which may be required
by the PBGC or other agency of the United States government with respect to
such of the events described in CLAUSES (a) through (c) as applicable.
ARTICLE 10 - NEGATIVE COVENANTS
Until all the Secured Obligations have been indefeasibly paid in full,
unless the Lender shall otherwise consent in the
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manner set forth in SECTION 12.11, the Borrower will not directly or indirectly:
Section 10A.1 Consolidated Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth. Permit the ratio of
total Liabilities of the Borrower and its Subsidiaries (computed on a
consolidated basis) to Tangible Net Worth of the Borrower and its Subsidiaries
(computed on a consolidated basis) to be greater than 3.5 to 1.0 as of December
31, 1995 or 3.0 to 1.0 as of any December 31 thereafter (for purposes of
computing Tangible Net Worth for the foregoing covenant, the foreign currency
translation adjustment will be eliminated from Tangible Net Worth).
(b) Minimum Tangible Net Worth. Permit the Tangible Net Worth of
the Borrower and its Subsidiaries (computed on a consolidated basis) as of the
following test dates to be less than the following amounts:
<TABLE>
<CAPTION>
Minimum Consolidated
Test Date Tangible Net Worth
--------- --------------------
<S> <C>
December 31, 1994 $6,841,000 plus
the greater of
$500,000 or 70%
of earnings for
the fiscal year ending
December 31, 1994
December 31, 1995 consolidated
Tangible Net Worth
as of December 31, 1994
plus the greater of
$500,000 or 70% of
earnings for the fiscal
year ending December 31, 1995
December 31, 1996 consolidated
Tangible Net Worth
as of December 31, 1995
plus the greater of
$500,000 or 70% of
earnings for the fiscal
year ending December 31, 1996
</TABLE>
(c) Minimum Fixed Charge Ratio. Permit the Fixed Charge Ratio of
the Borrower and its Subsidiaries (computed on a consolidated basis) to be less
than 1.25 to 1.0 as of the last day of each fiscal year (commencing with the
fiscal year ending December 31, 1994), in each case computed for the fiscal
year then ending.
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<PAGE> 47
Section 10B.1 Unconsolidated Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth. Permit the ratio of
total Liabilities of the Borrower (computed on an unconsolidated basis) to
Tangible Net Worth of the Borrower (computed on an unconsolidated basis) to be
greater than (i) 4.0 to 1.0 as of the last day of each month during the period
commencing on the Effective Date through and including December 31, 1995 or
(ii) 3.5 to 1.0 as of the last day of each month ending thereafter.
(b) Minimum Tangible Net Worth. Permit the Tangible Net Worth of
the Borrower (computed on an unconsolidated basis and excluding investments in
Subsidiaries) as of the following test dates to be less than the following
amounts:
<TABLE>
<CAPTION>
Minimum Unconsolidated
Test Date Tangible Net Worth
--------- ----------------------
<S> <C>
December 31, 1994 and $5,000,000 plus
the last day of each the greater of
of the following eleven $400,000 or 70%
months of earnings for
the fiscal year ending
December 31, 1994
December 31, 1995 and unconsolidated
the last day of each Tangible Net Worth
of the following eleven as of December 31, 1994
months plus the greater of
$400,000 or 70% of
earnings for the fiscal
year ending December 31, 1995
December 31, 1996 and unconsolidated
the last day of each Tangible Net Worth
of the following eleven as of December 31, 1995
months plus the greater of
$400,000 or 70% of
earnings for the fiscal
year ending December 31, 1996
</TABLE>
(c) Minimum Fixed Charge Ratio. Permit the Fixed Charge Ratio of
the Borrower (computed on an unconsolidated basis) to be less than 1.25 to 1.0
as of the last day of each month (commencing with the month ending December 31,
1994), in each case computed for the twelve monthly periods then ending.
(d) Minimum Current Ratio. Permit the ratio of current assets of
the Borrower (computed on an unconsolidated basis) to the current Liabilities
of the Borrower (computed on an unconsolidated basis) to be equal to or less
than 1.3 to 1.0 as of the last day of any month (commencing with the month
ending
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<PAGE> 48
December 31, 1994) (for purposes of the foregoing, outstanding revolving loans
under the Revolving Loan Agreement shall be included within current
Liabilities).
Section 10.2 Indebtedness. Create, assume, or otherwise become or
remain obligated in respect of, or permit or suffer to exist or to be created,
assumed or incurred or to be outstanding any Indebtedness for Money Borrowed,
except for Permitted Indebtedness for Money Borrowed.
Section 10.3 Guaranties. Become or remain liable with respect to any
Guaranty of any obligation of any other Person.
Section 10.4 Investments. Acquire, after the Agreement Date, any
Business Unit or Investment or, after such date, permit any Investment to be
outstanding, other than Permitted Investments.
Section 10.5 Capital Expenditures. Make or incur any Capital
Expenditures, except that the Borrower and its Subsidiaries may make or incur
Capital Expenditures in any fiscal year in an amount not to exceed, in the
aggregate, $500,000.00; provided, however, Capital Expenditures made with the
proceeds of the Term Loan or any other term loan made by the Lender to the
Borrower shall not count for purposes of computing the foregoing limitation.
Section 10.6 Restricted Distributions and Payments, Etc. Declare
or make any Restricted Distribution or Restricted Payment other than (i) loans
to officers, directors, shareholders, subsidiaries and Affiliates not to exceed
$50,000.00 at any time outstanding or (ii) dividends paid to the shareholders
of the Borrower provided no Default or Event of Default hereunder exists
immediately prior to or after the payment of any such dividends.
Section 10.7 Merger, Consolidation and Sale of Assets. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person.
Section 10.8 Transactions with Affiliates. Effect any transaction
with any Affiliate on a basis less favorable to the Borrower than would be the
case if such transaction had been effected with a Person not an Affiliate.
Section 10.9 Liens. Create, assume or permit or suffer to exist or
to be created or assumed any Lien on any of the property or assets of the
Borrower, real, personal or mixed, tangible or intangible, except for Permitted
Liens.
Section 10.10 Operating Leases. Enter into any lease other than a
Capitalized Lease which would cause the annual payment obligations of the
Borrower under all leases (other than leases of real property listed on
SCHEDULE 5.1(w) and Capitalized Leases) to exceed $75,000.00 in the aggregate.
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<PAGE> 49
Section 10.11 Benefit Plans. Permit, or take any action which
would result in, the aggregate present value of the Unfunded Vested Accrued
Benefits under all Benefit Plans of the Borrower to exceed $0.
Section 10.12 Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing from such Person of real or personal
property which has been or is to be sold or transferred, directly or
indirectly, by the Borrower to such Person.
Section 10.13 Amendments of Other Agreements. Amend in any way the
interest rate or principal amount or schedule of payments of principal and
interest with respect to any Indebtedness (other than the Secured Obligations)
other than to reduce the interest rate or extend the schedule of payments with
respect thereto.
Section 10.14 Minimum Availability. Permit Availability to be less
than $500,000.00 at any time.
ARTICLE 11 - DEFAULT
Section 11.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any governmental or nongovernmental body:
(a) Default in Payment of Loans. The Borrower shall default in
any payment of principal of, or interest on, any Loan or the Note when and as
due (whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the
payment, as and when due, of principal of or interest on, any other Secured
Obligation, and such default shall continue for five days after written notice
thereof has been given to the Borrower by the Lender.
(c) Misrepresentation. Any representation or warranty made or
deemed to be made by the Borrower under this Agreement or any other Loan
Document or any amendment hereto or thereto shall at any time prove to have
been incorrect or misleading in any material respect when made.
(d) Default in Performance. The Borrower shall default in the
performance or observance of any term, covenant, condition or agreement
contained in (i) ARTICLES 6, 7, 8, 9 or 10 or (ii) this Agreement (other than
is specifically provided for otherwise in this SECTION 11.1) and such default
shall continue for a period of 10 days after written notice thereof has been
given to the Borrower by the Lender.
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<PAGE> 50
(e) Indebtedness Cross-Default. (i) The Borrower shall fail to
pay when due and payable the principal of or interest on any Indebtedness
(other than the Term Loan or Note) where the principal amount of such
Indebtedness is in excess of $100,000.00, or (ii) the maturity of any such
Indebtedness shall have (A) been accelerated in accordance with the provisions
of any indenture, contract or instrument providing for the creation of or
concerning such Indebtedness, or (B) been required to be prepaid prior to the
stated maturity thereof, or (iii) any event shall have occurred and be
continuing which, with or without the passage of time or the giving of notice,
or both, would permit any holder or holders of such Indebtedness, any trustee
or agent acting on behalf of such holder or holders or any other Person so to
accelerate such maturity.
(f) Other Cross-Defaults. The Borrower shall default in the
payment when due or in the performance or observance of any material obligation
or condition of any agreement, contract or lease (other than the Security
Documents or any such agreement, contract or lease relating to Indebtedness),
if the exercise of remedies thereunder by the other party to such agreement
could have a Materially Adverse Effect.
(g) Voluntary Bankruptcy Proceeding. The Borrower shall (i)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (ii) commence a proceeding seeking to take advantage of
any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts, (iii)
consent to or fail to contest in a timely and appropriate manner any petition
filed against it in an involuntary case under such bankruptcy laws or other
laws, (iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of a substantial part
of its property, domestic or foreign, (v) admit in writing its inability to pay
its debts as they become due, (vi) make a general assignment for the benefit of
creditors, or (vii) take any corporate action for the purpose of authorizing
any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against the Borrower in any court of competent jurisdiction
seeking (i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts, or (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of the
Borrower or of all or any substantial part of the assets, domestic or foreign,
of the Borrower, and such case or proceeding shall continue undismissed or
unstayed for a period of 60 consecutive calendar days, or an order granting the
relief requested in such case or proceeding against the Borrower (including,
but not limited to, an order for relief under such federal bankruptcy laws)
shall be entered.
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<PAGE> 51
(i) Loan Documents. Any event of default or Event of Default
under any other Loan Document shall occur or the Borrower shall default in the
performance or observance of any material term, covenant, condition or
agreement contained in, or the payment of any other sum covenanted to be paid
by the Borrower under, any such Loan Document or any provision of this
Agreement, or of any other Loan Document after delivery thereof hereunder,
shall for any reason cease to be valid and binding, other than a nonmaterial
provision rendered unenforceable by operation of law, or the Borrower or other
party thereto (other than the Lender) shall so state in writing, or this
Agreement or any other Loan Document, after delivery thereof hereunder, shall
for any reason (other than any action taken independently by the Lender and
except to the extent permitted by the terms thereof) cease to create a valid,
perfected and, except as otherwise expressly permitted herein, first priority
Lien on, or security interest in, any of the Collateral purported to be covered
thereby.
(j) Judgment. A judgment or order for the payment of money which
exceeds $250,000.00 in amount not covered by insurance shall be entered against
the Borrower by any court and such judgment or order shall continue
undischarged or unstayed for 30 days.
(k) Attachment. A warrant or writ of attachment or execution or
similar process which exceeds $250,000.00 in value shall be issued against any
property of the Borrower and such warrant or process shall continue
undischarged or unstayed for 30 days.
(l) ERISA. (i) Any Termination Event with respect to a Benefit
Plan shall occur that, after taking into account the excess, if any, of (A) the
fair market value of the assets of any other Benefit Plan with respect to which
a Termination Event occurs on the same day (but only to the extent that such
excess is the property of the Borrower) over (B) the present value on such day
of all vested nonforfeitable benefits under such other Benefit Plan, results in
an Unfunded Vested Accrued Benefit in excess of $0, (ii) any Benefit Plan shall
incur an "accumulated funding deficiency" (as defined in Section 412 of the
Code or Section 302 of ERISA) for which a waiver has not been obtained in
accordance with the applicable provisions of the Code and ERISA, or (iii) the
Borrower is in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan resulting from the Borrower's
complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA)
from such Multiemployer Plan.
(m) Qualified Audits. The independent certified public
accountants retained by the Borrower shall refuse to deliver an opinion in
accordance with SECTION 9.1(A) with respect to the annual financial statements
of the Borrower.
(n) Change of Control. There occurs any change in the voting
control of the Borrower.
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<PAGE> 52
(o) Material Adverse Change. There occurs any act, omission,
event, undertaking or circumstance or series of acts, omissions, events,
undertakings or circumstances which have, or in the sole judgment of the Lender
would have, either individually or in the aggregate, a Materially Adverse
Effect.
(p) Change in Management. Hugh Gaither shall for any reason cease
to be the chief executive officer of the Borrower and 30 days shall have
elapsed during which time no replacement satisfactory to the Lender shall have
been appointed.
Section 11.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon
the occurrence of an Event of Default specified in SECTION 11.1(g) or (h), the
principal of and the interest on the Loans and the Note at the time
outstanding, and all other amounts owed to the Lender under this Agreement or
any of the Loan Documents and all other Secured Obligations, shall thereupon
become due and payable without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in this Agreement or any
of the Loan Documents to the contrary notwithstanding.
(b) Other Remedies. If any Event of Default (other than as
specified in SECTION 11.1(g) or (h)) shall have occurred and be continuing, the
Lender, in its sole and absolute discretion, may do any of the following:
(i) declare the principal of and interest on the
Loans and the Note at the time outstanding, and all other amounts owed
to the Lender under this Agreement or any of the Loan Documents and
all other Secured Obligations, to be forthwith due and payable,
whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything in this Agreement or the Loan Documents
to the contrary notwithstanding;
(ii) notify, or request the Borrower to notify, in
writing or otherwise, any Account Debtor or obligor with respect to
any one or more of the Receivables to make payment to the Lender or
any agent or designee of the Lender, at such address as may be
specified by the Lender, and, if, notwithstanding the giving of any
notice, any Account Debtor or other such obligor shall make payments
to the Borrower, the Borrower shall hold all such payments it receives
in trust for the Lender, without commingling the same with other funds
or property of, or held by, the Borrower and shall deliver the same to
the Lender or any such agent or designee immediately upon receipt by
the Borrower in the identical form received, together with any
necessary endorsements;
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<PAGE> 53
(iii) settle or adjust disputes and claims directly
with Account Debtors and other obligors on Receivables for amounts and
on terms which the Lender considers advisable and in all such cases
only the net amounts received by the Lender in payment of such
amounts, after deductions of costs and attorneys' fees, shall
constitute Collateral, and the Borrower shall have no further right to
make any such settlements or adjustments or to accept any returns of
merchandise;
(iv) enter upon any premises on which Inventory or
Equipment may be allocated and, without resistance or interference by
the Borrower, take physical possession of any or all thereof and
maintain such possession on such premises or move the same or any part
thereof to such other place or places as the Lender shall choose,
without being liable to the Borrower on account of any loss, damage or
depreciation that may occur as a result thereof, so long as the Lender
shall act reasonably and in good faith;
(v) require the Borrower to and the Borrower
shall, without charge to the Lender, assemble the Inventory and
Equipment and maintain or deliver it into the possession of the Lender
or any agent or representative of the Lender at such place or places
as the Lender may designate;
(vi) at the expense of the Borrower, cause any of
the Inventory and Equipment to be placed in a public or field
warehouse, and the Lender shall not be liable to the Borrower on
account of any loss, damage or depreciation that may occur as a result
thereof, so long as the Lender shall act reasonably and in good faith;
(vii) without notice, demand or other process, and
without payment of any rent or any other charge, enter any of the
Borrower's premises and, without breach of the peace, until the Lender
completes the enforcement of its rights in the Collateral, take
possession of such premises or place custodians in exclusive control
thereof, remain on such premises and use the same and any of the
Borrower's equipment, for the purpose of (A) completing any work in
process, preparing any Inventory for disposition and disposing
thereof, and (B) collecting any Receivable, and the Lender is hereby
granted a license or sublicense and all other rights as may be
necessary, appropriate or desirable to use the Intellectual Property
in connection with the foregoing, and the rights of the Borrower under
all licenses and franchise agreements shall inure to the Lender's
benefit (provided, however, that any use of any federally registered
trademarks as to any goods shall be subject to the control as to the
quality of such goods of the owner of such trademarks and the goodwill
of the business symbolized thereby);
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<PAGE> 54
(viii) exercise any and all of its rights under any
and all of the Security Documents;
(ix) apply any cash Collateral to the payment of
the Secured Obligations in any order in which the Lender may elect or
use such cash in connection with the exercise of any of its other
rights hereunder or under any of the Security Documents;
(x) establish or cause to be established one or
more Lockboxes or other arrangement for the deposit of proceeds of
Receivables, and, in such case, the Borrower shall cause to be
forwarded to the Lender at the Lender's Office, on a daily basis,
copies of all checks and other items of payment and deposit slips
related thereto deposited in such Lockboxes, together with collection
reports in form and substance satisfactory to the Lender; and
(xi) exercise all of the rights and remedies of a
secured party under the UCC (whether or not the UCC is applicable) and
under any other applicable law, including, without limitation, the
right, without notice except as specified below and with or without
taking the possession thereof, to sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any
location chosen by the Lender, for cash, on credit or for future
delivery and at such price or prices and upon such other terms as the
Lender may deem commercially reasonable. The Borrower agrees that, to
the extent notice of sale shall be required by law, at least 10 days'
notice to the Borrower of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notice, but notice given in any other reasonable manner or
at any other reasonable time shall also constitute reasonable
notification. The Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Lender
may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
Section 11.3 Application of Proceeds. All proceeds from each sale
of, or other realization upon, all or any part of the Collateral following an
Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including attorneys' fees,
(b) Second: to the payment of the Secured Obligations (with the
Borrower remaining liable for any deficiency) in any order which the Lender may
elect, and
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<PAGE> 55
(c) Third: the balance (if any) of such proceeds shall be paid to
the Borrower or, subject to any duty imposed by law or otherwise, to whomsoever
is entitled thereto.
THE BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
Section 11.4 Power of Attorney. In addition to the authorizations
granted to the Lender under SECTION 7.15 or under any other provision of this
Agreement or any of the Loan Documents, upon and after an Event of Default, the
Borrower hereby irrevocably designates, makes, constitutes and appoints the
Lender (and all Persons designated by the Lender from time to time) as the
Borrower's true and lawful attorney and agent in fact, and the Lender or any
agent of the Lender may, without notice to the Borrower, and at such time or
times as the Lender or any such agent in its sole discretion may determine, in
the name of the Borrower or the Lender,
(a) demand payment of the Receivables, enforce payment thereof by
legal proceedings or otherwise, settle, adjust, compromise, extend or renew any
or all of the Receivables or any legal proceedings brought to collect the
Receivables, discharge and release the Receivables or any of them and exercise
all of the Borrower's rights and remedies with respect to the collection of
Receivables,
(b) prepare, file and sign the name of the Borrower on any proof
of claim in bankruptcy or any similar document against any Account Debtor or
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral,
(c) endorse the name of the Borrower upon any chattel paper,
document, instrument, notice, freight bill, bill of lading or similar document
or agreement relating to the Receivables, the Inventory or any other Collateral,
(d) use the stationery of the Borrower, open the Borrower's mail,
notify the post office authorities to change the address for delivery of the
Borrower's mail to an address designated by the Lender and sign the name of the
Borrower to verifications of the Receivables and on any notice to the Account
Debtors,
(e) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Receivables, Inventory or other Collateral to which the Borrower or any
Subsidiary of the Borrower has access.
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<PAGE> 56
Section 11.5 Miscellaneous Provisions Concerning Remedies.
(a) Right Cumulative. The rights and remedies of the Lender under
this Agreement, the Note and each of the Loan Documents shall be cumulative and
not exclusive of any rights or remedies which it or they would otherwise have.
In exercising such rights and remedies, the Lender may be selective and no
failure or delay by the Lender in exercising any right shall operate as a
waiver of such right nor shall any single or partial exercise of any power or
right preclude its other or further exercise or the exercise of any other power
or right.
(b) Waiver of Marshalling. The Borrower hereby waives any right
to require any marshalling of assets and any similar right.
(c) Limitation. Nothing contained in this ARTICLE 11 or elsewhere
in this Agreement or in any of the Loan Documents shall be construed as
requiring or obligating the Lender or any agent or designee of the Lender to
make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or notice or take any
action with respect to any Receivable or any other Collateral or the moneys due
or to become due thereunder or in connection therewith or to take any steps
necessary to preserve any rights against prior parties, and neither the Lender
nor any of its agents or designees shall have any liability to the Borrower for
actions taken pursuant to this ARTICLE 11, any other provision of this
Agreement or any of the Loan Documents, so long as the Lender or such agent or
designee shall act reasonably and in good faith.
(d) Appointment of Receiver. In any action under this ARTICLE 11,
the Lender shall be entitled to the appointment of a receiver, without notice
of any kind whatsoever, to take possession of all or any portion of the
Collateral and to exercise such power as the court shall confer upon such
receiver.
Section 11.6 Trademark License. The Borrower hereby grants to the
Lender the nonexclusive right and license to use the trademark "[describe
trademark]" and any other trademark then used by the Borrower, for the purposes
set forth in SECTION 11.2(b)(VIII) and for the purpose of enabling the Lender
to realize on the Collateral and to permit any purchaser of any portion of the
Collateral through a foreclosure sale or any other exercise of the Lender's
rights and remedies under the Loan Documents to use, sell or otherwise dispose
of the Collateral bearing any such trademark. Such right and license is
granted free of charge, without the requirement that any monetary payment
whatsoever be made to the Borrower or any other Person by the Lender. The
Borrower hereby represents, warrants, covenants and agrees that it presently
has, and shall continue to have, the right, without the approval or consent of
others, to grant the license set forth in this SECTION 11.6.
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<PAGE> 57
ARTICLE 12 - MISCELLANEOUS
Section 12.1 Notices.
(a) Method of Communication. Except as specifically provided in
this Agreement or in any of the Loan Documents, all notices and the
communications hereunder and thereunder shall be in writing or by telephone
subsequently confirmed in writing. Notices in writing shall be delivered
personally or sent by overnight courier service, by certified or registered
mail, postage pre-paid, or by facsimile transmission and shall be deemed
received, in the case of personal delivery, when delivered, in the case of
overnight courier service, on the next Business Day after delivery to such
service, in the case of mailing, on the third day after mailing (or, if such
day is a day on which deliveries of mail are not made, on the next succeeding
day on which deliveries of mail are made) and, in the case of facsimile
transmission, upon transmittal; provided that in the case of notices to the
Lender, the Lender shall be charged with knowledge of the contents thereof only
when such notice is actually received by the Lender. A telephonic notice to
the Lender as understood by the Lender will be deemed to be the controlling and
proper notice in the event of a discrepancy with or failure to receive a
confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to
it at the following addresses, or any other address of which all the other
parties are notified in writing.
If to the Borrower: Ridgeview, Inc.
Post Office Box 8
Newton, NC 28658
Attention: Walter Bost
Facsimile No.: 704-464-2994
With a copy to: Isenhower, Wood & Cilley, P.A.
Post Office Box
145 Newton, NC 28658-0145
Attention: David L. Isenhower
Facsimile No.: 704-465-3707
If to the Lender: NationsBank, N.A. (Carolinas)
P.O. Box 2408
Hickory, NC 28601-2408
Attention: Dan Stewart
Facsimile No.: 704-322-4012
(c) Lender's Office. The Lender hereby designates its office
located at Hickory, North Carolina, or any subsequent office which shall have
been specified for such purpose by written notice to the Borrower, as the
office to which payments due are to be made and at which Loans will be
disbursed.
Section 12.2 Expenses. The Borrower agrees to pay or reimburse on
demand all costs and expenses incurred by the
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<PAGE> 58
Lender, including, without limitation, the reasonable fees and disbursements of
counsel, in connection with (a) the negotiation, preparation, execution,
delivery, administration, enforcement and termination of this Agreement and
each of the other Loan Documents, whenever the same shall be executed and
delivered, including, without limitation, (i) the out-of-pocket costs and
expenses incurred in connection with the administration and interpretation of
this Agreement and the other Loan Documents, (ii) the costs and expenses of
appraisals of the Collateral, (iii) the costs and expenses of lien and title
searches and title insurance, (iv) the costs and expenses of environmental
reports with respect to the Real Estate, (v) taxes, fees and other charges of
recording the Mortgages, filing the Financing Statements and continuations and
the costs and expenses of taking other actions to perfect, protect, and
continue the Security Interest; (b) the preparation, execution and delivery of
any waiver, amendment, supplement or consent by the Lender relating to this
Agreement or any of the Loan Documents; (c) sums paid or obligations incurred
in connection with the payment of any amount or taking any action required of
the Borrower under the Loan Documents that the Borrower fails to pay or take;
(d) costs of inspections and verifications of the Collateral, including,
without limitation, standard per diem fees charged by the Lender, travel,
lodging, and meals for inspections of the Collateral and the Borrower's
operations and books and records by the Lender's agents up to four times per
year and whenever an Event of Default exists; (e) costs and expenses of
forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining each Controlled Disbursement Account, Agency
Account and Lockbox; (f) costs and expenses of preserving and protecting the
Collateral; (g) after the occurrence of a Default, consulting with and
obtaining opinions and appraisals from one or more Persons, including real
estate and personal property appraisers, accountants and lawyers, concerning
the value of any Collateral, including Real Estate, for the Secured Obligations
or related to the nature, scope or value of any right or remedy of the Lender
hereunder or under any of the Loan Documents, including any review of factual
matters in connection therewith, which expenses shall include the fees and
disbursements of such Persons; and (h) costs and expenses paid or incurred to
obtain payment of the Secured Obligations, enforce the Security Interest, sell
or otherwise realize upon the Collateral, including Real Estate, and otherwise
enforce the provisions of the Loan Documents, or to prosecute or defend any
claim in any way arising out of, related to or connected with, this Agreement
or any of the Loan Documents, which expenses shall include the reasonable fees
and disbursements of counsel and of experts and other consultants retained by
the Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrower.
Section 12.3 Stamp and Other Taxes. The Borrower will pay any and
all stamp, registration, recordation and similar taxes,
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<PAGE> 59
fees or charges and shall indemnify the Lender against any and all liabilities
with respect to or resulting from any delay in the payment or omission to pay
any such taxes, fees or charges, which may be payable or determined to be
payable in connection with the execution, delivery, performance or enforcement
of this Agreement and any of the Loan Documents or the perfection of any rights
or security interest thereunder.
Section 12.4 Setoff. In addition to any rights now or hereafter
granted under applicable law, and not by way of limitation of any such rights,
upon and after the occurrence of any Default or Event of Default, the Lender
and any participant with the Lender in the Loans are hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness at any
time held or owing by the Lender or any participant to or for the credit or the
account of the Borrower against and on account of the Secured Obligations
irrespective or whether or not (a) the Lender shall have made any demand under
this Agreement or any of the Loan Documents, or (b) the Lender shall have
declared any or all of the Secured Obligations to be due and payable as
permitted by SECTION 11.2 and although such Secured Obligations shall be
contingent or unmatured.
Section 12.5 Litigation. THE BORROWER AND THE LENDER HEREBY AGREE
THAT THE FEDERAL COURT OF THE WESTERN DISTRICT OF NORTH CAROLINA OR, AT THE
OPTION OF THE LENDER, ANY COURT IN WHICH THE LENDER SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY AND WHICH SITS IN A JURISDICTION IN WHICH THE BORROWER TRANSACTS
BUSINESS SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN THE BORROWER AND THE LENDER, PERTAINING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING
THEREFROM. THE BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS, HEREBY
WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS OR
PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND COMPLAINT
OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE BORROWER AND ITS COUNSEL AT THE RESPECTIVE ADDRESSES SET FORTH
IN SECTION 12.1(b), WHICH SERVICE SHALL BE DEEMED MADE UPON RECEIPT THEREOF.
THE NON-EXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR
THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY
APPROPRIATE JURISDICTION.
Section 12.6 Reversal of Payments. To the extent the Borrower
makes a payment or payments to the Lender or the Lender receives any payment or
proceeds of the Collateral for the
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<PAGE> 60
Borrower's benefit, which payment(s) or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then,
the Lender shall have the continuing and exclusive right to apply, reverse and
re-apply any and all payments to any portion of the Secured Obligations, and,
to the extent of such payment or proceeds received, the Secured Obligations or
part thereof intended to be satisfied shall be revived and continued in full
force and effect, as if such payment or proceeds had not been received by the
Lender.
Section 12.7 Injunctive Relief. The Borrower recognizes that, in
the event the Borrower fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy of law may prove to
be inadequate relief to the Lender; therefore, the Borrower agrees that the
Lender, at the Lender's option, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 12.8 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower to determine whether it is in compliance with any covenant contained
herein, shall, unless there is an express written direction or consent by the
Lender to the contrary, be performed in accordance with GAAP.
Section 12.9 Assignment; Participation. All the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights under the Agreement. The Lender
may assign to one or more Persons, or sell participations to one or more
Persons in, all or a portion of its rights and obligations hereunder and under
the Note and, in connection with any such assignment or sale of a
participation, may assign its rights and obligations under the Security
Documents. The Lender may, in connection with any assignment or proposed
assignment or sale or proposed sale of a participation, disclose to the
assignee or proposed assignee or participant or proposed participant any
information relating to the Borrower furnished to the Lender by or on behalf of
the Borrower.
Section 12.10 Amendments. Any term, covenant, agreement or
condition of this Agreement or any of the other Loan Documents may be amended
or waived and any departure therefrom may be consented to if, but only if, such
amendment, waiver or consent is in writing signed by the Lender and, in the
case of an amendment, by the Borrower. Unless otherwise specified in such
waiver or consent, a waiver or consent given hereunder shall be
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<PAGE> 61
effective only in the specific instance and for the specific purpose for which
given.
Section 12.11 Performance of Borrower's Duties. The Borrower's
obligations under this Agreement and each of the Loan Documents shall be
performed by the Borrower at its sole cost and expense. If the Borrower shall
fail to do any act or thing which it has covenanted to do under this Agreement
or any of the Loan Documents, the Lender may (but shall not be obligated to) do
the same or cause it to be done either in the name of the Lender or in the name
and on behalf of the Borrower, and the Borrower hereby irrevocably authorizes
the Lender so to act.
Section 12.12 Indemnification. The Borrower agrees to reimburse
the Lender for all reasonable costs and expenses, including counsel fees and
disbursements, incurred and to indemnify and hold the Lender harmless from and
against all losses suffered by the Lender, other than losses resulting from the
Lender's gross negligence or willful misconduct, in connection with (a) the
exercise by the Lender of any right or remedy granted to it under this
Agreement or any of the Loan Documents, (b) any claim, and the prosecution or
defense thereof, arising out of or in any way connected with this Agreement or
any of the Loan Documents, except in the case of a dispute between the Borrower
and the Lender in which the Borrower prevails in a final unappealed or
unappealable judgment, and (c) the collection or enforcement of the Secured
Obligations or any of them.
Section 12.13 All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to the Lender and any Persons
designated by the Lender pursuant to any provisions of this Agreement or any of
the Loan Documents shall be deemed coupled with an interest and shall be
irrevocable so long as any of the Secured Obligations remain unpaid or
unsatisfied.
Section 12.14 Survival. Notwithstanding any termination of this
Agreement, (a) until all Secured Obligations have been paid in full, the Lender
shall retain its Security Interest and shall retain all rights under this
Agreement and each of the Security Documents with respect to the Collateral as
fully as though this Agreement had not been terminated, and (b) the indemnities
to which the Lender is entitled under the provisions of this ARTICLE 12 and any
other provision of this Agreement and the Loan Documents shall continue in full
force and effect and shall protect the Lender against events arising after such
termination as well as before.
Section 12.15 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
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<PAGE> 62
Section 12.16 Governing Law. This Agreement and the Note shall be
construed in accordance with and governed by the law of the State of North
Carolina.
Section 12.17 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
Section 12.18 Reproduction of Documents. This Agreement, each of
the Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Lender, and (c) financial statements,
certificates and other information previously or hereafter furnished to the
Lender, may be reproduced by the Lender by any photographic, photostatic,
microcard, microfilm, miniature photographic or other similar process, and the
Lender may destroy any original document so reproduced. Each party hereto
stipulates that, to the extent permitted by applicable laws any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be in
existence and whether or not such reproduction was made by such Lender in the
regular course of business), and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
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<PAGE> 63
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers in several counterparts all as of
the day and year first written above.
BORROWER:
RIDGEVIEW, INC.
[CORPORATE SEAL]
Attest: By: /s/ Hugh R. Gaither
-------------------------------------
Name: Hugh R. Gaither
--------------------------------
By: /s/ Susan Gaither Jones Title: President
----------------------------------- -------------------------------
Name: Susan Gaither Jones
------------------------------
Title: Assistant Secretary
-----------------------------
LENDER:
NATIONSBANK, N.A. (CAROLINAS)
By: /s/ Scott Goldstein
-------------------------------------
Name: Scott K. Goldstein
--------------------------------
Title: Vice President
-------------------------------
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<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
(Term Loan)
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "First
Amendment"), dated as of June 28, 1995, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws
of the State of North Carolina (the "Borrower"); and
NATIONSBANK OF GEORGIA, N.A., a national banking association organized
and existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and NationsBank, N.A. (Carolinas) ("NB-C")
entered into that certain Loan and Security Agreement (Term Loan), dated
January 10, 1995 (the "Loan Agreement").
B. NB-C assigned all of its rights, title and interest in and to
the Loan Agreement to the Lender.
C. The Borrower and the Lender have agreed to modify and amend
the Loan Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) The introductory paragraph of the Loan Agreement is
amended in its entirety so that such paragraph now reads as follows:
RIDGEVIEW, INC., a North Carolina corporation and
NATIONSBANK OF GEORGIA, N.A., a national banking association,
agree as follows:
(b) Section 1.1 is amended by amending in their entirety
the following definitions so that such definitions now read as
follows:
"Applicable Margin" means 1/2% prior to the funding
of the Additional Term Loan, and 1% thereafter.
"Permitted Indebtedness for Money Borrowed" means
existing Indebtedness disclosed by Borrower to Lender.
(c) Section 1.1 is amended by adding the following
definitions in the alphabetically appropriate places:
1
<PAGE> 2
"Subsidiary Guarantor" means Seneca Knitting Mills
Corporation.
"Subsidiary Guaranty" means the Subsidiary Guaranty
executed by the Subsidiary Guarantor in favor of the Lender
guaranteeing the repayment of the Secured Obligations.
"Subsidiary Security Agreement" means the Security
Agreement by and between the Subsidiary Guarantor and the
Lender.
(d) The first sentence of Section 5.1(b) is amended by
adding the words "and the Subsidiary Guarantor" at the end of such
sentence.
(e) Section 10.4 is amended in its entirety so that such
Section now reads as follows:
Section 10.4 Investments. Acquire, after the
Agreement Date, any Business Unit or Investment or, after such
date, permit any Investment to be outstanding, other than
Permitted Investments and the acquisition of the Subsidiary
Guarantor.
(f) Section 11.1 is amended by adding the following
subsection (q) thereto:
(q) Subsidiary Guaranty; Subsidiary Security
Agreement. The occurrence of a default under the Subsidiary
Guaranty or the occurrence of a Default or an Event of Default
under the Subsidiary Security Agreement.
(g) Sections 12.1(b) and (c) are amended in their
entirety so that such Sections now read as follows:
(b) Addresses for Notices. Notices to any party
shall be sent to it at the following addresses, or any other
address of which all the other parties are notified in
writing.
If to the Borrower: Ridgeview, Inc.
Post Office Box 8
Newton, NC 28658
Attention: Walter Bost
Facsimile No.: 704-464-2994
2
<PAGE> 3
With a copy to: Isenhower, Wood & Cilley, P.A.
Post Office Box 145
Newton, NC 28658-0145
Attention: David L. Isenhower
Facsimile No.: 704-465-3707
If to the Lender: NationsBank of Georgia, N.A.
c/o NationsBank Business
Credit
600 Peachtree Street,
13th Floor
Atlanta, GA 30308
Attention: Scott Goldstein
Facsimile No.: 404-607-6439
(c) Lender's Office. The Lender hereby
designates its office located at 600 Peachtree Street, 13th
Floor, Atlanta, Georgia 30308 or any subsequent office which
shall have been specified for such purpose by written notice
to the Borrower, as the office to which payments due are to be
made and at which Loans will be disbursed.
(h) Schedule 5.1(u) is deleted and replaced with Schedule
5.1(u-1) attached hereto.
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement remain in full force and effect.
3. The Borrower acknowledges the assignment of the Loan Agreement
and the Loan Documents (as defined in the Loan Agreement) from NationsBank,
N.A. (Carolinas) to NationsBank of Georgia, N.A. and agrees that all of its
obligations under the Loan Agreement and the Loan Documents remain in full
force and effect without setoff, defense or counterclaim of any nature.
4. The Borrower will execute such additional documents as are
reasonably requested by the Lender to reflect the terms and conditions of this
First Amendment and will cause to be delivered such certificates, legal
opinions and other documents as are reasonably required by the Lender. In
addition, the Borrower will pay all costs and expenses in connection with the
preparation, execution and delivery of the documents executed in connection
with this transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Lender as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Lender harmless from any and all such costs, expenses and liabilities.
5. This First Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall
3
<PAGE> 4
be deemed an original, and it shall not be necessary in making proof of this
First Amendment to produce or account for more than one counterpart.
6. This First Amendment and all other documents executed pursuant
to the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of Georgia and shall be subject to the
provisions of Section 12.5 and 12.6 of the Loan Agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
RIDGEVIEW, INC.
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
------------------------- ------------------------------
Title Assistant Secretary Title President
---------------------- ---------------------------
(Corporate Seal)
NATIONSBANK OF GEORGIA, N.A.
By /s/ Scott Goldstein
------------------------------
Title Vice President
---------------------------
5
<PAGE> 1
EXHIBIT 10.5
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
(Term Loan)
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Second
Amendment"), dated as of October __, 1995, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws
of the State of North Carolina (the "Borrower"); and
NATIONSBANK OF GEORGIA, N.A., a national banking association organized
and existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and the Lender are parties to that certain Loan
and Security Agreement (Term Loan), dated January 10, 1995, as amended June 28,
1995 (the "Loan Agreement").
B. The Borrower and the Lender have agreed to modify and amend
the Loan Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 1.1 is amended by amending in its entirety
the definition of "Fixed Charge Ratio" contained therein so that such
definition now reads as follows:
"Fixed Charge Ratio" means, as to any Person, the
following ratio for such Person computed for the applicable
period of computation: the ratio of (i) Net Income plus
depreciation plus amortization (except grant amortization
income) plus change in the deferred compensation accrual minus
Unfunded Capital Expenditures minus amortization income
relating to the Ireland grant credit minus foreign currency
gains plus foreign currency losses to (ii) current maturities
of Funded Indebtedness and current maturities of Lease
Obligations plus dividends.
(b) Section 1.1 is further amended by adding the
following definition in the alphabetically appropriate place:
"Domestic Business" means all of the domestic
operations of the Borrower and the Subsidiary Guarantor
conducted in the United States.
1
<PAGE> 2
(c) A new Section 8.10 is added to the Loan Agreement as
follows:
Section 8.10. Cash Surrender Value. The Borrower
agrees to maintain at all times cash surrender value of at
least $500,000 in life insurance policies insuring key
officers of the Borrower (less any amounts borrowed by the
Borrower thereunder and paid to the Lender in accordance with
the terms of the assignments of such policies from the
Borrower to the Lender).
(d) Section 10A.1(b) of the Loan Agreement is amended in
its entirety so that such Section now reads as follows:
(b) Minimum Tangible Net Worth. Permit the
Tangible Net Worth of the Borrower and its Subsidiaries
(computed on a consolidated basis) as of the following test
dates to be less than the following amounts:
<TABLE>
<CAPTION>
Minimum Consolidated
Test Date Tangible Net Worth
--------- --------------------
<S> <C>
December 31, 1995 $5,750,000 plus the
greater of $700,000 or 70%
of earnings for the fiscal
year ending December 31, 1995
December 31, 1996 consolidated
Tangible Net Worth
as of December 31, 1995
plus the greater of
$700,000 or 70% of
earnings for the fiscal
year ending December 31, 1996
</TABLE>
(e) Section 10B.1 of the Loan Agreement is amended in its
entirety so that such Section now reads as follows:
Section 10B.1 Domestic Business Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth.
Permit the ratio of total Liabilities of the Domestic Business
of the Borrower and its U.S. Subsidiaries to Tangible Net
Worth of the Domestic Business of the Borrower and its U.S.
Subsidiaries to be greater than (i) 8.0 to 1.0 during the
period commencing on October __, 1995 through and including
December 30, 1995, (ii) 6.5 to 1.0 during the period
commencing on and including December 31, 1995 through and
including September 29, 1996, (iii) 5.25 to 1.0 during the
period commencing on and including September 30, 1996 through
2
<PAGE> 3
and including December 30, 1996, (iv) 4.5 to 1.0 during the
period commencing on and including December 31, 1996 through
and including September 29, 1997, (v) 4.0 to 1.0 during the
period commencing on and including September 30, 1997 through
and including December 30, 1997 and (vi) 3.5 to 1.0 during the
period commencing on December 31, 1997 and thereafter;
(b) Minimum Tangible Net Worth. Permit the
Tangible Net Worth of the Domestic Business of the Borrower
and its U.S. Subsidiaries as of the following test dates to be
less than the following amounts:
<TABLE>
<CAPTION>
Minimum Domestic Business
Test Date Tangible Net Worth
--------- -------------------------
<S> <C>
October 31, 1995 $3,600,000
November 30, 1995 $3,600,000
December 31, 1995 and $3,600,000 plus
the last day of each the greater of
of the following eleven $600,000 or 70%
months of earnings for the
fiscal year ending
December 31, 1995
December 31, 1996 and Domestic Business
the last day of each Tangible Net Worth as
of the following eleven of December 31, 1995
months plus the greater of
$600,000 or 70%
of earnings for the
fiscal year ending
December 31, 1996
</TABLE>
(c) Minimum Fixed Charge Ratio. Permit the Fixed
Charge Ratio of the Domestic Business of the Borrower and its
U.S. Subsidiaries to be less than 1.25 to 1.0 as of the last
day of each month (commencing with the month ending October
31, 1995), in each case computed for the twelve monthly
periods then ending.
(d) Minimum Current Ratio. Permit the ratio of
current assets of the Domestic Business of the Borrower and
its U.S. Subsidiaries to the current Liabilities of the
Domestic Business of the Borrower and its U.S. Subsidiaries to
be equal to or less than 1.0 to 1.0 as of the last day of any
month (commencing with the month ending October 31, 1995) (for
purposes of the foregoing, outstanding Revolving Credit Loans
shall be included within current Liabilities).
3
<PAGE> 4
(f) Section 10.5 of the Loan Agreement is amended in its
entirety so that such Section now reads as follows:
Section 10.5 Capital Expenditures. Make or incur
any Capital Expenditures, except that the Borrower and its
U.S. Subsidiaries may make or incur Capital Expenditures in
any fiscal year in an amount not to exceed, in the aggregate,
$750,000.00; provided, however, Capital Expenditures made with
the proceeds of any term loan made by NationsBank, N.A. to the
Borrower shall not count for purposes of computing the
foregoing limitation; provided further, the acquisition of the
Subsidiary Guarantor shall not count for purposes of computing
the foregoing limitation.
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as are
reasonably requested by the Lender to reflect the terms and conditions of this
Second Amendment and will cause to be delivered such certificates, legal
opinions and other documents as are reasonably required by the Lender. In
addition, the Borrower will pay all costs and expenses in connection with the
preparation, execution and delivery of the documents executed in connection
with this transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Lender as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Lender harmless from any and all such costs, expenses and liabilities.
4. This Second Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Second
Amendment to produce or account for more than one counterpart.
4
<PAGE> 5
5. This Second Amendment and all other documents executed
pursuant to the transactions contemplated herein shall be deemed to be
contracts made under, and for all purposes shall be construed in accordance
with, the internal laws and judicial decisions of the State of Georgia and
shall be subject to the provisions of Section 12.5 and 12.6 of the Loan
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
RIDGEVIEW, INC.
ATTEST:
By /s/ Susan Gaither Jones By /s/ Walter Bost
----------------------- -----------------------------
Title Asst. Secretary Title CFO
-------------------- --------------------------
(Corporate Seal)
NATIONSBANK OF GEORGIA, N.A.
By /s/ Scott Goldstein
-----------------------------
Title Vice President
--------------------------
5
<PAGE> 1
EXHIBIT 10.6
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
(Term Loan)
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Third
Amendment"), dated as of June 11, 1996, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws
of the State of North Carolina (the "Borrower"); and
NATIONSBANK, N.A. (SOUTH), a national banking association organized
and existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and the Lender entered into that certain Loan and
Security Agreement (Term Loan), dated January 10, 1995, as amended (the "Loan
Agreement").
B. The Borrower and the Lender have agreed to modify and amend
the Loan Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 10.6 is amended in its entirety so that such
Section now reads as follows:
Section 10.6 Restricted Distributions and Payments,
Etc. Declare or make any Restricted Distribution or
Restricted Payment other than (i) loans to officers,
directors, shareholders, subsidiaries and Affiliates not to
exceed $50,000.00 at any time outstanding or (ii) dividends
paid to the shareholders of the Borrower during fiscal year
1996 in an amount up to $50,000.00 regardless of whether a
Default or Event of Default hereunder exists immediately prior
to or after the payment of any such dividends.
(b) All references to "NationsBank of Georgia, N.A." are
replaced with references to "NationsBank, N.A. (South)".
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as are
reasonably requested by the Lender to reflect the terms and conditions of this
Third Amendment and will cause to be delivered
<PAGE> 2
such certificates, legal opinions and other documents as are reasonably
required by the Lender. In addition, the Borrower will pay all costs and
expenses in connection with the preparation, execution and delivery of the
documents executed in connection with this transaction, including, without
limitation, the reasonable fees and out-of-pocket expenses of special counsel
to the Lender as well as any and all filing and recording fees and stamp and
other taxes with respect thereto and to save the Lender harmless from any and
all such costs, expenses and liabilities.
4. This Third Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Third Amendment
to produce or account for more than one counterpart.
5. This Third Amendment and all other documents executed pursuant
to the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of Georgia and shall be subject to the
provisions of Section 12.5 and 12.6 of the Loan Agreement.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
RIDGEVIEW, INC.
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
----------------------- ----------------------------
Title Asst. Secretary Title President & CEO
-------------------- -------------------------
(Corporate Seal)
NATIONSBANK, N.A. (SOUTH)
By /s/ Scott Goldstein
----------------------------
Title VP
-------------------------
Agreed to and accepted by the undersigned in its capacity as a
guarantor.
SENECA KNITTING MILLS CORPORATION
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
----------------------- ----------------------------
Title Asst. Secretary Title President
-------------------- -------------------------
(Corporate Seal)
GPM CORPORATION
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
----------------------- ----------------------------
Title Asst. Secretary Title President
-------------------- -------------------------
(Corporate Seal)
- 3-
<PAGE> 1
Exhibit 10.7
================================================================================
LOAN AND SECURITY AGREEMENT
Dated as of January 10, 1995
Between
Ridgeview, Inc.
(the Borrower)
and
[NATIONSBANK OF GEORGIA, N.A.]
(the Lender)
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Referential Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.3 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 2 - FACILITIES
A. REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.1 Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2A.2 Manner of Borrowing Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2A.3 Repayment of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2A.4 Revolving Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2A.5 Extension of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2A.6 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
B. TERM LOAN FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.1 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.2 Manner of Borrowing and Disbursing Term Loan . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.3 Repayment of Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.4 Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2B.5 Prepayment of Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 3 - GENERAL LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.2 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.3 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.4 Statements of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.5 Reduction of Revolving Credit Facility; Termination of Agreement . . . . . . . . . . . . 25
Section 3.6 Increased Costs and Reduced Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4 - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1 Conditions Precedent to Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2 All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.2 Survival of Representations and Warranties, Etc . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 6 - SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.1 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.2 Continued Priority of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 7 - COLLATERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.1 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.2 Verification and Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.3 Disputes, Returns and Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.4 Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.5 Delivery of Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.6 Sales of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Section 7.7 Returned Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.8 Ownership and Defense of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.9 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.10 Location of Offices and Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.11 Records Relating to Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.12 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.13 Maintenance of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.14 Information and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.15 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.16 Mortgages of Newly Acquired Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 8 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.1 Preservation of Corporate Existence and Similar Matters . . . . . . . . . . . . . . . . . 45
Section 8.2 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.3 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.4 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.5 Accounting Methods and Financial Records . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.7 Hazardous Waste and Substances; Environmental Requirements . . . . . . . . . . . . . . . 46
Section 8.8 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.9 Revisions or Updates to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 9 - INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.2 Accountants' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.4 Copies of Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.5 Notice of Litigation and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 10 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.1 Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.3 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.4 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.5 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.6 Restricted Distributions and Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.7 Merger, Consolidation and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.9 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.10 Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.11 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.12 Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.13 Amendments of the Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.14 Minimum Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 11 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.3 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 11.4 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.5 Miscellaneous Provisions Concerning Remedies . . . . . . . . . . . . . . . . . . . . . . 59
Section 11.6 Trademark License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 12 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 12.3 Stamp and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 12.4 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 12.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 12.6 Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.7 Reversal of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.8 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.9 Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.10 Assignment; Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.12 Performance of Borrower's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.13 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.14 All Powers Coupled with Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.15 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.16 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.17 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.18 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.19 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
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<PAGE> 5
<TABLE>
EXHIBITS AND SCHEDULES
<S> <C>
EXHIBIT A-1 FORM OF REVOLVING CREDIT NOTE
EXHIBIT A-2 FORM OF TERM NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
[EXHIBIT C FORM OF CERTIFICATE OF CHIEF FINANCIAL OFFICER]
SCHEDULE 1.1 Letter of Credit Fees
SCHEDULE 5.1(a) Jurisdictions in Which Borrower is Qualified as a
Foreign Corporation
SCHEDULE 5.1(b) Borrower's Capital Stock
SCHEDULE 5.1(e) Borrower's Business
SCHEDULE 5.1(f) Exceptions to Governmental Approvals
SCHEDULE 5.1(g) Non Lien Title Exceptions and Defects and Property
Disposed of Out of Ordinary Course of Business
SCHEDULE 5.1(h) Liens
SCHEDULE 5.1(i) Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1(j) Litigation
SCHEDULE 5.1(k) Tax Returns and Payments
SCHEDULE 5.1(o) ERISA
SCHEDULE 5.1(t) Location of Chief Executive Office
SCHEDULE 5.1(u) Locations of Inventory
SCHEDULE 5.1(v) Locations of Equipment
SCHEDULE 5.1(w) Real Property
SCHEDULE 5.1(x) Corporate and Fictitious Names
SCHEDULE 5.1(aa) Employee Relations
SCHEDULE 5.1(ab) Proprietary Rights
SCHEDULE 8.6 Use of Proceeds
</TABLE>
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<PAGE> 6
LOAN AND SECURITY AGREEMENT
(Revolving Loans)
Dated as of January 10, 1995
RIDGEVIEW, INC., a North Carolina corporation and NATIONSBANK OF
GEORGIA, N.A., a national banking association, agree as follows:
ARTICLE 1 - DEFINITIONS
Section 1.1 Definitions. For the purposes of this Agreement:
"Account Debtor" means a Person who is obligated on a Receivable.
"Acquire" or "Acquisition", as applied to any Business Unit or
Investment, means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
"Affiliate" means, with respect to a Person, (a) any officer, director,
employee or managing agent of such Person, (b) any spouse, parents, brothers,
sisters, children and grandchildren of such Person, (c) any association,
partnership, trust, entity or enterprise in which such Person is a director,
officer or general partner, (d) any other Person that, (i) directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such given Person, (ii) directly or indirectly
beneficially owns or holds 10% or more of any class of voting stock or
partnership or other interest of such Person or any Subsidiary of such Person,
or (iii) 10% or more of any class of the voting stock or partnership or other
interest of which is directly or indirectly beneficially owned or held by such
Person or a Subsidiary of such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities or partnership or other interests, by contract or otherwise.
"Agency Account" means an account of the Borrower maintained by it with
a Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among the Borrower, the
Lender and a Clearing Bank (if other than the Lender) concerning the collection
of payments which represent the proceeds of Receivables or of any other
Collateral.
"Agreement" means this Agreement, including the Exhibits and Schedules
hereto, and all amendments, modifications and
<PAGE> 7
supplements hereto and thereto and restatements hereof and thereof.
"Agreement Date" means the date as of which this Agreement is dated.
"Applicable Margin" means 1/2%.
"Availability" means as of the date of determination, the amount of
Revolving Credit Loans available to be borrowed by the Borrower hereunder in
accordance with SECTION 2.1 less the sum of the outstanding principal balance of
all Revolving Credit Loans hereunder as of such date.
"Benefit Plan" means an employee benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which a Person or
any Related Company is, or within the immediately preceding 6 years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
"Borrower" means Ridgeview, Inc., a North Carolina corporation, and its
successors and assigns.
"Borrowing Base" means at any time an amount equal to the sum of:
(a) 80% (or such lesser percentage as the Lender may in its sole
and absolute discretion determine from time to time) of the face value of
Eligible Receivables due and owing at such time, PLUS
(b) THE LESSER OF
(i) 50% (or such lesser percentage as the Lender
may in its sole and absolute discretion determine from time to time)
of the lesser of cost (computed on a first-in-first-out basis) and
fair market value of Eligible Inventory at such time, AND
(ii) $5,000,000.
"Borrowing Base Certificate" means a certificate in the form of EXHIBIT
B attached hereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which banks in the city in which the principal office of the Lender is
located are authorized to close.
"Business Unit" means the assets constituting the business, or a
division or operating unit thereof, of any Person.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than assets which constitute a
- 2 -
<PAGE> 8
Business Unit) which are not, in accordance with GAAP, treated as expense items
for such Person in the year made or incurred or as a prepaid expense applicable
to a future year or years.
"Capitalized Lease" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
"Clearing Bank" means the Lender and any other banking institution with
which an Agency Account has been established pursuant to an Agency Account
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means and includes all of the Borrower's right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising:
(a) all Receivables,
(b) all Inventory,
(c) all Equipment,
(d) all Contract Rights,
(e) all General Intangibles,
(f) all Deposit Accounts,
(g) all Real Estate,
(h) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
(i) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
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(j) all documents of title, policies and certificates of insurance,
securities, chattel paper and other documents and instruments evidencing or
pertaining to any and all items of Collateral,
(k) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
(l) all cash deposited with the Lender or any Affiliate thereof or
which the Lender is entitled to retain or otherwise possess as collateral
pursuant to the provisions of this Agreement or any of the Security Documents,
and
(m) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
"Contract Rights" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, to the extent that the same may lawfully be assigned.
"Controlled Disbursement Account" means the account maintained by and
in the name of the Borrower with the Lender for the purpose of disbursing
Revolving Credit Loan proceeds and amounts credited thereto pursuant to
SECTIONS 2.2(B)(I) and 7.1(B)(II).
"Default" means any of the events specified in SECTION 11.1 that, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
"Default Margin" means 2%.
"Deposit Accounts" means any demand, time, savings, passbook or like
account maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of deposit
that is an instrument under the UCC.
"Dollar" and "$" means freely transferable United States dollars.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time, and any successor statute.
"Effective Date" means the later of (a) the Agreement Date, and (b) the
first date on which all of the conditions set forth in SECTION 4.1 shall have
been fulfilled or waived by the Lender.
"Effective Interest Rate" means the rate of interest per annum on the
Loans in effect from time to time pursuant to the provisions of SECTION 3.1(A),
(B) and (C).
"Eligible Inventory" means items of Inventory of the Borrower held for
sale in the ordinary course of the business of the Borrower (but not including
packaging or shipping materials or maintenance supplies) which are deemed by the
Lender in the exercise of its sole and absolute discretion to be eligible for
inclusion in the calculation of the Borrowing Base. Unless otherwise approved
in writing by the Lender, no Inventory shall be deemed to be Eligible Inventory
unless it meets all of the following requirements: (a) such Inventory is owned
by the Borrower, is subject to the Security Interest, which is perfected as to
such Inventory, and is subject to no other Lien whatsoever other than a
Permitted Lien; (b) such Inventory consists of raw materials or finished goods
and does not consist of work-in-process (other than greige goods), supplies or
consigned goods; (c) such Inventory is in good condition and meets all standards
applicable to such goods, their use or sale imposed by any governmental agency,
or department or division thereof, having regulatory authority over such
matters; (d) such Inventory is currently either usable or saleable, at prices
approximating at least the cost thereof, in the normal course of the Borrower's
business; (e) such Inventory is not obsolete or returned or repossessed or used
goods taken in trade; (f) such Inventory is located within the United States at
one of the locations listed in SCHEDULE 5.1(U); and (g) such Inventory is in the
possession and control of the Borrower and not any third party and if located in
a warehouse or other facility leased by the Borrower, the lessor has delivered
to the Lender a waiver and consent in form and substance satisfactory to the
Lender.
"Eligible Receivable" means the unpaid portion of a Receivable payable
in Dollars to the Borrower net of any returns, discounts, claims, credits,
charges or other allowances, offsets, deductions, counterclaims, disputes or
other defenses and reduced by the aggregate amount of all reserves, limits and
deductions provided for in this definition and elsewhere in this Agreement which
is deemed by the Lender in the exercise of its sole and absolute discretion to
be eligible for inclusion in the calculation of the Borrowing Base. Unless
otherwise approved in writing by the Lender, no Receivable shall be deemed an
Eligible Receivable unless it meets all of the following requirements: (a) such
Receivable is owned by the Borrower and represents a complete BONA FIDE
transaction which requires no further act under any circumstances on the part of
the Borrower to make such Receivable payable by the Account Debtor; (b) such
Receivable is
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not unpaid more than 120 days after the date of the original invoice or past
due more than 60 days after its due date; (c) such Receivable does not arise
out of any transaction with any Subsidiary, Affiliate, creditor, lessor or
supplier of the Borrower; (d) such Receivable is not owing by an Account Debtor
more than 50% of whose then-existing accounts owing to the Borrower do not meet
the requirements set forth in CLAUSE B above; (e) if the Account Debtor with
respect thereto is located outside of the United States of America, the goods
which gave rise to such Receivable were shipped after receipt by the Borrower
from the Account Debtor of an irrevocable letter of credit that has been
confirmed by a financial institution acceptable to the Lender and is in form and
substance acceptable to the Lender, payable in the full face amount of the face
value of the Receivable in Dollars at a place of payment located within the
United States and has been duly assigned to the Lender; (f) the Borrower is not
in breach of any express or implied representation or warranty with respect to
the goods the sale of which gave rise to such Receivable; (g) the Account Debtor
with respect to such Receivable is not insolvent or the subject of any
bankruptcy or insolvency proceedings of any kind or of any other proceeding or
action, threatened or pending, which might, in the Lender's sole judgment, have
a Materially Adverse Effect on such Account Debtor; (h) the goods the sale of
which gave rise to such Receivable were shipped or delivered to the Account
Debtor on an absolute sale basis and not on a bill and hold sale basis, a
consignment sale basis, a guaranteed sale basis, a sale or return basis or on
the basis of any other similar understanding, and such goods have not been
returned or rejected; (i) such Receivable is not owing by an Account Debtor or a
group of affiliated Account Debtors whose then-existing accounts owing to the
Borrower exceed in face amount 20% of the Borrower's total Eligible Receivables;
(j) such Receivable is evidenced by an invoice or other documentation in form
acceptable to the Lender containing only terms normally offered by the Borrower,
and dated no later than the date of shipment; (k) such Receivable is a valid,
legally enforceable obligation of the Account Debtor with respect thereto and is
not subject to any present, or contingent (and no facts exist which are the
basis for any future), offset, deduction or counterclaim, dispute or other
defense on the part of such Account Debtor; (l) such Receivable is not evidenced
by chattel paper or an instrument of any kind; (m) such Receivable does not
arise from the performance of services, including services under or related to
any warranty obligation of the Borrower or out of service charges by the
Borrower or other fees for the time value of money; and (n) such Receivable is
subject to the Security Interest, which is perfected as to such Receivable, and
is subject to no other Lien whatsoever other than a Permitted Lien and the goods
giving rise to such Receivable were not, at the time of the sale thereof,
subject to any Lien other than a Permitted Lien.
"Environmental Laws" means all federal, state, local and foreign
laws now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to
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<PAGE> 12
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including without limitation, ambient air, surface water,
ground water or land) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, removal, transport or handling
of pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes, and any and all regulations, notices or demand letters
issued, entered, promulgated or approved thereunder.
"Equipment" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures
and other tangible personal property (other than Inventory) of every kind and
description used in such Person's business operations or owned by such Person or
in which such Person has an interest and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
"Event of Default" means any of the events specified in SECTION 11.1.
"Financing Statements" means the Uniform Commercial Code financing
statements executed and delivered by the Borrower to the Lender, naming the
Lender as secured party and the Borrower as debtor, in connection with this
Agreement.
"Fixed Charged Ratio" means, as to any Person, the following ratio for
such Person computed for the applicable period of computation: the ratio of (i)
Net Income plus depreciation plus amortization (except grant amortization
income) plus change in the deferred compensation accrual minus Unfunded Capital
Expenditures minus amortization income relating to the Ireland grant credit
minus foreign currency gains plus foreign currency losses to (ii) current
maturities of Funded Indebtedness and current maturities of Lease Obligations.
"Funded Indebtedness" means Indebtedness for Money Borrowed having a
maturity of more than 12 months from the date of the most recent balance sheet
of the Borrower or having a maturity of less than 12 months from the date of
such balance sheet but by its terms being renewable or extendable beyond 12
months from the date of such balance sheet at the option of the Person liable
thereon.
"GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with the
prior financial practice of the Person referred to.
"General Intangibles" means, as to any Person, all of such Person's
then owned or existing and future acquired or arising general intangibles,
choses in action and causes of action and
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all other intangible personal property of such Person of every kind and nature
(other than Receivables), including, without limitation, Intellectual Property,
corporate or other business records, inventions, designs, blueprints, plans,
specifications, trade secrets, goodwill, computer software, customer lists,
registrations, licenses, franchises, tax refund claims, reversions or any rights
thereto and any other amounts payable to such Person from any Benefit
Plan, Multiemployer Plan or other employee benefit plan, rights and claims
against carriers and shippers, rights to indemnification, business interruption
insurance and proceeds thereof, property, casualty or any similar type of
insurance and any proceeds thereof, proceeds of insurance covering the lives of
key employees on which such Person is beneficiary and any letter of credit,
guarantee, claims, security interest or other security held by or granted to
such Person to secure payment by an Account Debtor of any of the Receivables.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
governmental bodies, whether federal, state, local, foreign national or
provincial, and all agencies thereof.
"Governmental Authority" means any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Guaranty", "Guaranteed" or to "Guarantee," as applied to any
obligation of another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), directly or indirectly, in
any manner, of any part or all of such obligation of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by (i) the purchase of securities or obligations, (ii) the purchase,
sale or lease (as lessee or lessor) of property or the purchase or sale of
services primarily for the purpose of enabling the obligor with respect to such
obligation to make any payment or performance (or payment of damages in the
event of nonperformance) of or on account of any part or all of such obligation
or to assure the owner of such obligation against loss, (iii) the supplying of
funds to, or in any other manner investing in, the obligor with respect to such
obligation, (iv) repayment of amounts drawn down by beneficiaries of letters of
credit, or (v) the supplying of funds to or investing in a Person on account of
all or any part of such Person's obligation under a guaranty of any obligation
or indemnifying or holding harmless,
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in any way, such Person against any part or all of such obligation.
"Indebtedness" of any Person means, without duplication, (a)
Liabilities, (b) all obligations for money borrowed or for the deferred purchase
price of property or services or in respect of reimbursement obligations under
letters of credit, (c) all obligations represented by bonds, debentures, notes
and accepted drafts that represent extensions of credit, (d) Capitalized Lease
Obligations, (e) all obligations (including, during the non-cancellable term of
any lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall have
been assumed by such Person, (f) all obligations of other Persons which such
Person has Guaranteed, including, but not limited to, all obligations of such
Person consisting of recourse liability with respect to accounts receivable sold
or otherwise disposed of by such Person, and (g) in the case of the Borrower
(without duplication) the Loans.
"Initial Loans" means the Revolving Credit Loan made to the Borrower on
the Effective Date pursuant to the letter referred to in SECTION 4.1(A)(17).
"Intellectual Property" means, as to any Person, all of such Person's
then owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations and continuations-in-part of any of the foregoing and
all rights to sue for past, present and future infringements of any of the
foregoing.
"Inventory" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) goods intended for
sale or lease or for display or demonstration, (b) work in process, (c) raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or otherwise used or
consumed in the conduct of business, and (d) documents evidencing and general
intangibles relating to any of the foregoing.
"Investment" means, with respect to any Person: (a) the direct or
indirect purchase or acquisition of any beneficial interest in, any share of
capital stock of, evidence of Indebtedness of or other security issued by any
other Person, (b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person, excluding advances to employees in the
ordinary course of business for business expenses, (c) any
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<PAGE> 15
Guaranty of the obligations of any other Person, or (d) any commitment or
option to take any of the actions described in CLAUSES (A), (B) or (C) above.
"Lender" means NationsBank of Georgia, N.A., a national banking
association, and its successors and assigns.
"Lender's Office" means the office of the Lender specified in or
determined in accordance with the provisions of SECTION 12.1(C).
"Liabilities" means all liabilities of a Person determined in
accordance with GAAP and includable on a balance sheet of such Person prepared
in accordance with GAAP.
"Lien" as applied to the property of any Person means: (a) any
mortgage, deed to secure debt, deed of trust, lien, pledge, charge, lease
constituting a Capitalized Lease Obligation, conditional sale or other title
retention agreement, or other security interest, security title or encumbrance
of any kind in respect of any property of such Person or upon the income or
profits therefrom, (b) any arrangement, express or implied, under which any
property of such Person is transferred, sequestered or otherwise identified for
the purpose of subjecting the same to the payment of Indebtedness or
performance of any other obligation in priority to the payment of the general,
unsecured creditorsof such Person, (c) any Indebtedness which is unpaid more
than 30 days after the same shall have become due and payable and which if
unpaid might by law (including, but not limited to, bankruptcy and insolvency
laws) or otherwise be given any priority whatsoever over general unsecured
creditors of such Person, and (d) the filing of, or any agreement to give, any
financing statement under the UCC or its equivalent in any jurisdiction.
"Loan" means any Revolving Credit Loan as well as all such Revolving
Credit Loans collectively.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents and each other instrument, agreement and document executed
and delivered by the Borrower in connection with this Agreement and each other
instrument, agreement or document referred to herein or contemplated hereby.
"Lockbox" means the U.S. Post Office Box(es) specified in, or pursuant
to, an Agency Account Agreement.
"Materially Adverse Effect" means any act, omission, event or
undertaking which would, singly or in the aggregate, have a materially adverse
effect upon (a) the business, assets, properties, liabilities, condition
(financial or otherwise), results of operations or business prospects of the
Borrower or any of its Subsidiaries, (b) upon the respective ability of the
Borrower or any of its Subsidiaries to perform any obligations under this
Agreement or any other Loan Document to which it is a
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<PAGE> 16
party, or (c) the legality, validity, binding effect, enforceability or
admissibility into evidence of any Loan Document or the ability of Lender to
enforce any rights or remedies under or in connection with any Loan Document; in
any case, whether resulting from any single act, omission, situation, status,
event, or undertaking, together with other such acts, omissions, situations,
statuses, events, or undertakings.
"Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness
for money borrowed, (b) Indebtedness, whether or not in any such case the same
was for money borrowed, (i) represented by notes payable and drafts accepted,
that represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than trade Indebtedness) or that was issued
or assumed as full or partial payment for property, (c) Indebtedness that
constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is such by
virtue of clause (f) of the definition thereof, but only to the extent that the
obligations Guaranteed are obligations that would constitute Indebtedness for
Money Borrowed.
"Mortgages" means and includes any and all of the mortgages, deeds of
trust, deeds to secure debt and other instruments executed and delivered by the
Borrower to or for the benefit of the Lender by which the Lender acquires a Lien
on the Borrower's Real Estate and all amendments, modifications and supplements
thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding 6 years.
"Net Income" or "Net Loss" means, as applied to any Person, the net
income (or net loss) of such Person for the period in question after giving
effect to deduction of or provision for all operating expenses, all taxes and
reserves (including reserves for deferred taxes and all other proper
deductions), all determined in accordance with GAAP, provided that there shall
be excluded: (a) the net income (or net loss) of any Person accrued prior to the
date it becomes a Subsidiary of, or is merged into or consolidated with, the
Person whose Net Income is being determined or a Subsidiary of such Person, (b)
the net income (or net loss) of any Person in which the Person whose Net Income
is being determined or any Subsidiary of such Person has an ownership interest,
except, in the case of net income, to the extent that any such income has
actually been received by such Person or such Subsidiary in the form of cash
dividends or similar distributions, (c) any restoration of any contingency
reserve, except to the extent that provision for such reserve was made out of
income during such period, (d) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments, Business
Units and other capital assets, provided that there shall also be excluded any
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related charges for taxes thereon, (e) any net gain arising from the collection
of the proceeds of any insurance policy, (f) any write-up of any asset, and (g)
any other extraordinary item.
"Net Worth" of any Person means the total shareholders' equity
(including capital stock, additional paid-in capital and retained earnings,
after deducting treasury stock) which would appear as such on a balance sheet of
such Person prepared in accordance with GAAP.
"Note" means the Revolving Credit Note.
"Operating Lease" means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Permitted Indebtedness for Money Borrowed" means existing Indebtedness
disclosed by Borrower to Lender and a $5,000,000.00 term loan to be made by
NationsBank, N.A. (Carolinas) to Borrower.
"Permitted Investments" means: Investments of the Borrower in: (i)
negotiable certificates of deposit, time deposits and banker's acceptances
issued by the Lender or any Affiliate of the Lender or by any United States bank
or trust company having capital, surplus and undivided profits in excess of
$250,000,000, (ii) any direct obligation of the United States of America or any
agency or instrumentality thereof which has a remaining maturity at the time of
purchase of not more than one year and repurchase agreements relating to the
same, (iii) sales on credit in the ordinary course of business on terms
customary in the industry, and (iv) notes, accepted in the ordinary course of
business, evidencing overdue accounts receivable arising in the ordinary course
of business.
"Permitted Liens" means: (a) Liens securing taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, but (i) in all cases, only if payment shall not
at the time be required to be made in accordance with SECTION 8.4, and (ii) in
the case of warehousemen or landlords controlling locations where Inventory is
located, only if such liens have been waived or subordinated to the Security
Interest in a manner satisfactory to the Lender; (b) Liens consisting of
deposits or pledges made in the ordinary course of business in connection with,
or to secure payment of, obligations under workers' compensation, unemployment
insurance or similar legislation or under surety or performance bonds, in each
case arising in the ordinary course of business; (c) Liens constituting
encumbrances in the nature of zoning restrictions,
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easements and rights or restrictions of record on the use of the Real Estate,
which in the sole judgment of the Lender do not materially detract from the
value of such Real Estate or impair the use thereof in the business of the
Borrower; (d) Liens of the Lender arising under this Agreement and the other
Loan Documents; and (e) Liens arising out of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the Borrower is fully protected by insurance or
in respect of which the Borrower shall at any time in good faith be prosecuting
an appeal or proceeding for a review and in respect of which a stay of execution
pending such appeal or proceeding for review shall have been secured, and as to
which appropriate reserves have been established on the books of the Borrower.
"Person" means an individual, corporation, partnership, association,
trust or unincorporated organization or a government or any agency or political
subdivision thereof.
"Prime Rate" means during the period from the Effective Date through
the last day of the month in which the Effective Date falls, the per annum
rate of interest publicly announced by the Lender at its principal office as
its "prime rate" as in effect on the Effective Date, and thereafter during each
succeeding calendar month, means such "prime rate" as in effect on the last
Business Day of the immediately preceding calendar month. Any change in an
interest rate resulting from a change in the Prime Rate shall become effective
as of 12:01 a.m. on the first day of the month following the month in which
such change was announced. The Prime Rate is a reference used by the Lender in
determining interest rates on certain loans and is not intended to be the
lowest rate of interest charged on any extension of credit to any debtor.
"Purchase Money Indebtedness" means Indebtedness created to finance the
payment of all or any part of the purchase price (not in excess of the fair
market value thereof) of any tangible asset (other than Inventory) and incurred
at the time of or within 10 days prior to or after the acquisition of such
tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money
Indebtedness, but only if such Lien shall at all times be confined solely to the
tangible asset (other than Inventory) the purchase price of which was financed
through the incurrence of the Purchase Money Indebtedness secured by such Lien.
"Real Estate" means all of the Borrower's now owned or hereafter
acquired estates in real property, including, without limitation, all fees,
leaseholds, future interests and easements, together with all of the Borrower's
now owned or hereafter acquired interests in the improvements and emblements
thereon, the fixtures attached thereto and the easements appurtenant thereto.
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"Receivables" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) rights to the payment
of money or other forms of consideration of any kind (whether classified under
the UCC as accounts, contract rights, chattel paper, general intangibles or
otherwise) including, but not limited to, accounts receivable, letters of credit
and the right to receive payment thereunder, chattel paper, tax refunds,
insurance proceeds, Contract Rights, notes, drafts, instruments, documents,
acceptances and all other debts, obligations and liabilities in whatever form
from any Person and guaranties, security and Liens securing payment thereof, (b)
goods, whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale or
lease of which may have given rise to, any such right to payment or other debt,
obligation or liability, and (c) cash and non-cash proceeds of any of the
foregoing.
"Related Company" means, as to any Person, any (a) corporation which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Code) with such Person, or (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in CLAUSE (A) above or any partnership,
trade or business described in CLAUSE (B) above.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to any
such securities or partnership interests, (c) any loan or advance by such Person
to, or other investment by such Person in, the holder of any of such securities
or partnership interests, and (d) any other payment by such Person in respect of
such securities or partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or prepayment
or other retirement, prior to the stated maturity thereof or prior to the due
date of any regularly scheduled installment or amortization payment with respect
thereto, of any Indebtedness of a Person (other than the Secured Obligations and
trade debt), and (b) the payment by any Person of the principal amount of or
interest on any Indebtedness (other than trade debt) owing to an Affiliate of
such Person.
"Revolving Credit Facility" means the principal sum of $10,000,000.00.
"Revolving Credit Loans" means loans made to the Borrower pursuant to
SECTION 2.1.
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"Revolving Credit Note" means the Revolving Credit Note made by the
Borrower payable to the order of the Lender evidencing the obligation of the
Borrower to pay the aggregate unpaid principal amount of all Revolving Credit
Loans made to it by the Lender (and any promissory note or notes that may be
issued from time to time in substitution, renewal, extension, replacement or
exchange therefor, whether payable to the Lender or a different Lender, whether
issued in connection with a Person becoming a lender after the Effective Date or
otherwise), substantially in the form of EXHIBIT A hereto, with all blanks
properly completed.
"Schedule of Equipment" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(C).
"Schedule of Inventory" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(B).
"Schedule of Receivables" means a schedule delivered by the Borrower to
the Lender pursuant to the provisions of SECTION 7.14(A).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising, (a) the principal of and interest and premium, if any, on the
Loans, (b) all reimbursement and other obligations relating to Letters of
Credit, and (c) all indebtedness, liabilities, obligations, overdrafts,
covenants and duties of the Borrower to the Lender or any Affiliate of the
Lender of every kind, nature and description, direct or indirect, absolute or
contingent, due or not due, contractual or tortious, liquidated or unliquidated
and whether or not evidenced by any note and whether or not for the payment of
money under or in respect of this Agreement, any Note or any of the other Loan
Documents.
"Security Documents" means each of (a) the Financing Statements, (b) the
Mortgages, and (c) each other writing executed and delivered by any Person
securing the Secured Obligations or evidencing such security.
"Security Interest" means the Liens of the Lender on and in the
Collateral effected hereby or by any of the Security Documents or pursuant to
the terms hereof or thereof.
"Subordinated Indebtedness" means any Indebtedness for money borrowed of
the Borrower which is subordinated to the Secured Obligations on terms and
conditions acceptable to the Lender in its sole discretion.
"Subsidiary" when used to determine the relationship of a Person to
another Person, means a Person of which an aggregate of 50% or more of the stock
of any class or classes or 50% or more of other ownership interests is owned of
record or beneficially by such other Person or by one or more Subsidiaries of
such other
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<PAGE> 21
Person or by such other Person and one or more subsidiaries of such Person, (i)
if the holders of such stock or other ownership interests (A) are ordinarily,
in the absence of contingencies, entitled to vote for the election of a
majority of the directors (or other individuals performing similar functions)
of such Person, even though the right so to vote has been suspended by the
happening of such a contingency, or (B) are entitled, as such holders, to vote
for the election of a majority of the directors (or individuals performing
similar functions) of such Person, whether or not the right so to vote exists by
reason of the happening of a contingency, or (ii) in the case of such other
ownership interests, if such ownership interests constitute a majority voting
interest.
"Tangible Net Worth" means, as applied to any Person, the Net Worth of
such Person at the time in question, after deducting therefrom the amount of all
intangible items reflected therein, including all unamortized debt discount and
expense, unamortized research and development expense, unamortized deferred
charges, goodwill, Intellectual Property, unamortized excess cost of investment
in Subsidiaries over equity at dates of acquisition, and all similar items which
should properly be treated as intangibles in accordance with GAAP.
"Termination Date" means the earlier of (a) January 10, 1998 or such
later date to which the termination of the Revolving Credit Facility shall be
extended pursuant to SECTION 2.5, and (b) the date on which all Secured
Obligations shall have been irrevocably paid in full and the Revolving Credit
Facility terminated.
"Termination Event" means (a) a "Reportable Event" as defined in Section
4043(b) of ERISA, but excluding any such event as to which the provision for 30
days' notice to the PBGC is waived under applicable regulations, (b) the filing
of a notice of intent to terminate a Benefit Plan or the treatment of a Benefit
Plan amendment as a termination under Section 4041 of ERISA, or (c) the
institution of proceedings to terminate a Benefit Plan by the PBGC under Section
4042 of ERISA or the appointment of a trustee to administer any Benefit Plan.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Georgia.
"Unfunded Capital Expenditures" means Capital Expenditures which are
paid for by a Person other than with the proceeds of Indebtedness for Money
Borrowed (other than the Loans) incurred to finance such Capital Expenditures
and other than those represented by Capitalized Lease Obligations.
"Unfunded Vested Accrued Benefits" means, with respect to any Benefit
Plan at any time, the amount (if any) by which (a) the present value of all
vested nonforfeitable benefits under such Benefit Plan exceeds (b) the fair
market value of all Benefit Plan assets allocable to such benefits, as
determined
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<PAGE> 22
using such reasonable actuarial assumptions and methods as are specified in the
Schedule B (Actuarial Information) to the most recent Annual Report (Form 5500)
filed with respect to such Benefit Plan.
Section 1.2 Other Referential Provisions.
(a) All terms in this Agreement, the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan Documents,
unless the context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting
terms not specifically defined or specified herein shall have the meanings
generally attributed to such terms under GAAP including, without limitation,
applicable statements and interpretations issued by the Financial Accounting
Standards Board and bulletins, opinions, interpretations and statements issued
by the American Institute of Certified Public Accountants or its committees.
(c) All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
(d) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit nor
amplify the provisions of this Agreement, and all references in this Agreement
to Articles, Sections, Subsections, paragraphs, clauses, subclauses, Schedules
or Exhibits shall refer to the corresponding Article, Section, Subsection,
paragraph, clause or subclause of, or Schedule or Exhibit attached to, this
Agreement, unless specific reference is made to the articles, sections or other
subdivisions or divisions of, or to schedules or exhibits to, another document
or instrument.
(f) Each definition of a document in this Agreement shall include
such document as amended, modified, supplemented or restated from time to time
in accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to a
Loan Document includes that party and its successors and assigns permitted
hereunder or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is
referred to in this Agreement or in any other Loan Document, such time shall be
the local time in the city in which the principal office of Lender is located.
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<PAGE> 23
(i) Whenever the phrase "to the knowledge of the Borrower" or words
of similar import relating to the knowledge of the Borrower are used herein,
such phrase shall mean and refer to (i) the actual knowledge of the President or
chief financial officer or (ii) the knowledge that such officers would have
obtained if they had engaged in good faith in the diligent performance of their
duties, including the making of such reasonable specific inquiries as may be
necessary of the appropriate persons in a good faith attempt to ascertain the
accuracy of the matter to which such phrase relates.
(j) The terms accounts, chattel paper, documents, equipment,
instruments, general intangibles and inventory, as and when used (without being
capitalized) in this Agreement or the Security Documents, shall have the
meanings given those terms in the UCC.
Section 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
ARTICLE 2 - REVOLVING CREDIT FACILITY
Section 2.1 Revolving Credit Loans. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, the Lender shall make Revolving Credit Loans to the
Borrower from time to time from the Effective Date to the Termination Date, as
requested by the Borrower in accordance with the terms of SECTION 2.2, in an
aggregate principal amount outstanding not to exceed at any time the LESSER OF
(a) the Revolving Credit Facility AND (b) the Borrowing Base. It is expressly
understood and agreed that the Lender may and at present intends to use the
lesser of the amounts referred to in the foregoing SUBCLAUSES (A) AND (B) as a
maximum ceiling on Revolving Credit Loans; PROVIDED, HOWEVER, that it is agreed
that should Revolving Credit Loans exceed the ceiling so determined or any other
limitation set forth in this Agreement, such Revolving Credit Loans shall
nevertheless constitute Secured Obligations and, as such, shall be entitled to
all benefits thereof and security therefor. The principal amount of any
Revolving Credit Loan which is repaid may be reborrowed by the Borrower in
accordance with the terms of this SECTION 2.1. The Lender is hereby authorized
to record each repayment of principal of the Revolving Credit Loans in its books
and records, such books and records constituting PRIMA FACIE evidence of the
accuracy of the information contained therein.
Section 2.2 Manner of Borrowing Revolving Credit Loans. Borrowings of
the Revolving Credit Loans shall be made as follows:
(a) Requests for Borrowing. A request for a borrowing shall be
made, or shall be deemed to be made, in the following manner:
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<PAGE> 24
(i) with respect to the Revolving Credit Loan to
be made to the Borrower on the Effective Date, the Borrower shall give
the Lender at least two Business Days' prior written notice of the
Effective Date, which notice shall be irrevocable, and, as to
subsequent Revolving Credit Loans, the Borrower may give the Lender
notice, before 1:00 p.m. on the proposed borrowing date (unless the
proposed borrowing date is the last day of the month, in which case
notice shall be given before 12:00 noon) of its intention to borrow
specifying the amount of the proposed borrowing and the proposed
borrowing date; PROVIDED, HOWEVER, that if any notice referred to in
this CLAUSE (A)(I) is received after 1:00 p.m. or 12:00 noon, as
applicable, the proposed borrowing will be postponed automatically to
the next Business Day;
(ii) whenever a check is presented to the Lender for
payment against the Controlled Disbursement Account in an amount
greater than the then available balance in such account, such
presentation shall be deemed to be a request for a borrowing on the
date of such notice in an amount equal to the excess of such check
over such available balance; and
(iii) unless payment is otherwise made by the
Borrower, the maturity of any Secured Obligation required to be paid
shall be deemed to be a request for a borrowing on the due date in the
amount required to pay such Secured Obligation.
(b) Disbursement of Loans. The Borrower hereby irrevocably
authorizes the Lender to disburse the proceeds of each borrowing requested, or
deemed to be requested, pursuant to this SECTION 2.2 as follows: (i) the
proceeds of each borrowing requested under SECTION 2.2(A)(I) or (II) shall be
disbursed by the Lender in lawful money of the United States of America in
immediately available funds, (A) in the case of the initial borrowing, in
accordance with the terms of the letter from the Borrower to the Lender referred
to in SECTION 4.1(A)(17), and (B) in the case of each subsequent borrowing, by
credit to the Controlled Disbursement Account or to such other account as may be
agreed upon by the Borrower and the Lender from time to time; and (ii) the
proceeds of each borrowing requested under SECTION 2.2(A)(III) shall be
disbursed by the Lender by way of direct payment of the relevant principal,
interest or other Secured Obligation, as the case may be.
Section 2.3 Repayment of Revolving Credit Loans. The Revolving Credit
Loans will be repaid as follows: (a) whether or not any Default or Event of
Default has occurred, the outstanding principal amount of all the Revolving
Credit Loans is due and payable, and shall be repaid by the Borrower in full
together with accrued and unpaid interest on the amount repaid to the date of
repayment, on the Termination Date; (b) if at any time the aggregate unpaid
principal amount of the Revolving Credit Loans
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<PAGE> 25
then outstanding exceeds the lesser of the amounts referred to in CLAUSES (A)
and (B) of SECTION 2.1, the Borrower shall repay the Revolving Credit Loans in
an amount sufficient to reduce the aggregate unpaid principal amount of such
Loans by an amount equal to such excess, together with accrued and unpaid
interest on the amount repaid to the date of repayment; and (c) the Borrower
hereby instructs the Lender to repay the Revolving Credit Loans outstanding on
any day in an amount equal to the amount received by the Lender on such day
pursuant to SECTION 7.1(B).
Section 2.4 Revolving Credit Note. The Lender's Revolving Credit Loans
and the obligation of the Borrower to repay such Loans shall also be evidenced
by a single Revolving Credit Note payable to the order of the Lender. Such Note
shall be dated the Effective Date and be duly and validly executed and delivered
by the Borrower.
Section 2.5 Extension of Facility. If the Borrower wishes to obtain an
extension of the then effective Termination Date, the Borrower shall provide the
Lender with a written notice to such effect not less than 60 days prior to the
then effective Termination Date. The Lender may, in its sole and absolute
discretion, by written notice to the Borrower extend the Revolving Credit
Facility for a period of one year from the then effective Termination Date.
ARTICLE 3 - GENERAL LOAN PROVISIONS
Section 3.1 Interest. (a) The Borrower shall pay interest on the unpaid
principal amount of each Loan for each day from the day such Loan is made until
such Loan is due (whether at maturity, by reason of acceleration or otherwise)
at a rate per annum equal to the sum of the Prime Rate and the Applicable
Margin, payable monthly in arrears on the first day of each calendar month
commencing January 1, 1995.
(b) The Borrower shall pay interest on the unpaid principal amount
of each Secured Obligation other than a Loan for each day from the day such
Secured Obligation becomes due and payable until such Secured Obligation is paid
at the rate per annum applicable to Revolving Credit Loans, payable on demand.
(c) From and after the occurrence of an Event of Default, the unpaid
principal amount of each Secured Obligation shall bear interest until paid in
full (or, if earlier, until such Event of Default is cured or waived in writing
by the Lender) at a rate per annum equal to the Default Margin plus the rate
otherwise in effect under SECTION 3.1(A) or (B), payable on demand. The
interest rate provided for in this SECTION 3.1(C) shall to the extent permitted
by applicable law apply to and accrue on the amount of any judgment entered with
respect to any Secured Obligation and shall continue to accrue at such rate
during any proceeding described in SECTION 11.1(G) or (H).
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<PAGE> 26
(d) The interest rates provided for in SECTIONS 3.1(A), (B) and (C)
shall be computed on the basis of a year of 360 days and the actual number of
days elapsed.
(e) It is not intended by the Lender, and nothing contained in this
Agreement or the Note shall be deemed, to establish or require the payment of a
rate of interest in excess of the maximum rate permitted by applicable law (the
"Maximum Rate"). If, in any month, the Effective Interest Rate, absent such
limitation, would have exceeded the Maximum Rate, then the Effective Interest
Rate for that month shall be the Maximum Rate, and if, in future months, the
Effective Interest Rate would otherwise be less than the Maximum Rate, then the
Effective Interest Rate shall remain at the Maximum Rate until such time as the
amount of interest paid hereunder equals the amount of interest which would hav
been paid if the same had not been limited by the Maximum Rate. In this
connection, in the event that, upon payment in full of the Secured Obligations,
the total amount of interest paid or accrued under the terms of this Agreement
is less than the total amount of interest which would have been paid or accrued
if the Effective Interest Rate had at all times been in effect, then the
Borrower shall, to the extent permitted by applicable law, pay to the Lender an
amount equal to the difference between (i) the lesser of (A) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect and (B) the amount of interest which would have accrued had the
Effective Interest Rate, at all times, been in effect, and (ii) the amount of
interest actually paid or accrued under this Agreement. In the event the Lende
receives, collects or applies as interest any sum in excess of the Maximum Rate
such excess amount shall be applied to the reduction of the principal balance o
the applicable Secured Obligation, and, if no such principal is then
outstanding, such excess or part thereof remaining shall be paid to the
Borrower.
Section 3.2 Fees.
(a) Commitment Fee. In connection with and as consideration for th
Lender's commitment hereunder, subject to the terms hereof, to lend to the
Borrower under the Revolving Credit Facility, the Borrower shall pay a fee to
the Lender, from the Effective Date until the Termination Date, in an amount
equal to 1/8% per annum of the average daily unused portion of the Revolving
Credit Facility, payable monthly in arrears on the first day of each month and
on the date of any permanent reduction in the Revolving Credit Facility.
(b) [Intentionally left blank].
(c) Administration Fee. For services performed by the Lender in
connection with its continuing administration hereof, the Borrower shall pay to
the Lender a fee of $5,000.00 per year, payable annually in advance on the
Effective Date and continuing on each anniversary thereafter so long as any Loa
shall remain
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<PAGE> 27
outstanding or the Revolving Credit Facility shall not have been terminated.
(d) [Intentionally left blank].
(e) General. All fees shall be fully earned by the Lender when due
and payable and, except as otherwise set forth herein, shall not be subject to
refund or rebate. All fees are for compensation for services and are not, and
shall not be deemed to be, interest or a charge for the use of money.
Section 3.3 Manner of Payment. (a) Each payment (including
prepayments) by the Borrower on account of the principal of or interest on the
Loans or of any fee or other amounts payable to the Lender under this Agreement
or the Note shall be made not later than 1:30 p.m. on the date specified for
payment under this Agreement (or if such day is not a Business Day, the next
succeeding Business Day) to the Lender at the Lender's Office, in Dollars, in
immediately available funds and shall be made without any setoff, counterclaim
or deduction whatsoever.
(b) The Borrower hereby irrevocably authorizes the Lender and each
Affiliate of the Lender to charge any account of the Borrower maintained with
the Lender or such Affiliate with such amounts as may be necessary from time to
time to pay any Secured Obligations which are not paid when due.
Section 3.4 Statements of Account. The Lender will account to the
Borrower within 30 days after the end of each calendar month with a statement of
Loans, charges and payments made pursuant to this Agreement during such calendar
month, and such account rendered by the Lender shall be deemed an account stated
as between the Borrower and the Lender and shall be deemed final, binding and
conclusive unless the Lender is notified by the Borrower in writing to the
contrary within 60 days after the date such account is delivered to the
Borrower, save for manifest error. Any such notice shall be deemed an objection
only to those items specifically objected to therein. Failure of the Lender to
render such account shall in no way affect its rights hereunder.
Section 3.5 Reduction of Revolving Credit Facility; Termination of
Agreement.
(a) Reduction of Revolving Credit Facility.
(i) The Borrower shall have the right, at any time
and from time to time, after the date which is 180 days after the
Effective Date, upon at least 30 days' prior irrevocable, written
notice to Lender, to terminate or reduce permanently all or a portion
of the Revolving Credit Facility; PROVIDED, HOWEVER, that any such
partial reduction shall be made in increments of not less than
$1,000,000.00. As of the date of termination or reduction set forth
in such notice, the Revolving Credit Facility shall be permanently
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<PAGE> 28
reduced to the amount stated in the Borrower's notice for all purposes
herein, and the Borrower shall pay the amount necessary to reduce the
amount of the Revolving Credit Loans outstanding under the Revolving
Credit Facility as so reduced, together with accrued interest on the
amounts so prepaid.
(ii) The amount of the Revolving Credit Facility
shall be automatically reduced to zero on the Termination Date.
(iii) The Revolving Credit Facility or any portion
thereof terminated or reduced pursuant to this SECTION 3.5 may not be
reinstated.
(b) Termination of Agreement. The Borrower shall have the right, at
any time, to terminate this Agreement upon not less than 60 Business Days' prior
written notice to the Lender of the Borrower's intention to terminate this
Agreement, which notice shall specify the effective date of such termination.
On the date specified in such notice, such termination shall be effected;
PROVIDED that the Borrower shall, on or prior to such day, pay to the Lender, in
same day funds, an amount equal to the aggregate amount of all Loans outstanding
on such date, together with accrued interest thereon, all fees payable pursuant
to SECTION 3.2 accrued from the date last paid through the effective date of
termination, any amounts payable to the Lender pursuant to the other provisions
of this Agreement, including, without limitation, SECTIONS 11.2, 12.12 AND
12.13, any and all other Secured Obligations then outstanding, provide the
Lender with an indemnification agreement in form and substance satisfactory to
the Lender with respect to returned and dishonored items and such other matters
as the Lender shall require and, if the termination occurs prior to the
Termination Date in effect at such time, an early termination fee computed as
follows: (A) $200,000.00 if such termination occurs prior to January 10, 1996,
(B) $100,000.00 if such termination occurs on or after January 10, 1996, but
prior to January 10, 1997 and (C) $50,000.00 if such termination occurs any time
thereafter; provided, however, the foregoing termination fees shall not be
payable if the termination occurs as a result of the initial public offering of
the stock of the Borrower or the refinancing of the indebtedness hereunder with
the Lender or any of its Affiliates.
Section 3.6 Increased Costs and Reduced Returns. Borrower agrees that
if any law now or hereafter in effect and whether or not presently applicable to
Lender or any request, guideline or directive of any Governmental Authority
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) or the interpretation or administration thereof by
any Governmental Authority, shall either (a)(i) impose, affect, modify or deem
applicable any reserve, special deposit, capital maintenance or similar
requirement against any Loan, (ii) impose on the Lender any other condition
regarding any Loan, this Agreement, the Note or the facilities provided
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<PAGE> 29
hereunder, or (iii) result in any requirement regarding capital adequacy
(including any risk-based capital guidelines) affecting Lender being imposed or
modified or deemed applicable to Lender or (b) subject Lender to any taxes on
the recording, registration, notarization or other formalization of the Loans or
the Note, and the result of any event referred to in CLAUSE (A) or (B) above
shall be to increase the cost to the Lender of making, funding or maintaining
any Loan or to reduce the amount of any sum receivable by Lender or Lender's
rate of return on capital with respect to any Loan to a level below that which
the Lender could have achieved but for such imposition, modification or deemed
applicability (taking into consideration Lender's policies with respect to
capital adequacy) by an amount deemed by Lender (in the exercise of its
discretion) to be material, then, upon demand by the Lender, Borrower shall
immediately pay to the Lender additional amounts which shall be sufficient to
compensate the Lender for such increased cost, tax or reduced rate of return. A
certificate of the Lender to the Borrower claiming compensation under this
SECTION 3.6 shall be final, conclusive and binding on all parties for all
purposes in the absence of manifest error. Such certificate shall set forth the
nature of the occurrence giving rise to such compensation, the additional amount
or amounts to be paid to it hereunder and the method by which such amounts were
determined. In determining such amount, the Lender may use any reasonable
averaging and attribution methods.
ARTICLE 4 - CONDITIONS PRECEDENT
Section 4.1 Conditions Precedent to Initial Loans. Notwithstanding any
other provision of this Agreement, the Lender's obligation to make the Initial
Loans is subject to the fulfillment of each of the following conditions prior to
or contemporaneously with the making of such Loans:
(a) Closing Documents. The Lender shall have received each of the
following documents, all of which shall be satisfactory in form and substance to
the Lender and its counsel:
(1) this Agreement, duly executed and delivered by the
Borrower;
(2) the Note, dated the Effective Date and duly executed
and delivered by the Borrower;
(3) certified copies of the articles of incorporation and
by-laws of the Borrower as in effect on the Effective Date;
(4) certified copies of all corporate action, including
stockholder approval, if necessary, taken by the Borrower to authorize
the execution, delivery and performance of this Agreement and the other
Loan Documents and the borrowings under this Agreement;
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<PAGE> 30
(5) certificates of incumbency and specimen signatures
with respect to each of the officers of the Borrower who is authorized
to execute and deliver this Agreement or any other Loan Document on
behalf of the Borrower or any document, certificate or instrument to
be delivered in connection with this Agreement or the other Loan
Documents and to request borrowings under this Agreement;
(6) a certificate evidencing the good standing of the
Borrower in the jurisdiction of its incorporation and in each other
jurisdiction in which it is qualified as a foreign corporation to
transact business;
(7) the Financing Statements duly executed and delivered
by the Borrower, and evidence satisfactory to the Lender that the
Financing Statements have been filed in each jurisdiction where such
filing may be necessary or appropriate to perfect the Security Interest;
(8) landlord's waiver and consent agreements duly executed
on behalf of each landlord of real property on which any Collateral is
located;
(9) mortgagee's waiver and consent agreements duly
executed on behalf of each mortgagee of real property on which any
Collateral is located;
(10) copies of the Mortgages duly executed and delivered by
the Borrower and evidencing the recording of each such instrument in
the appropriate jurisdiction for the recording thereof on the Real
Estate subject thereto or, at the option of the Lender, in proper form
for recording in such jurisdiction;
(11) one or more fully paid mortgagee title insurance
policies or, at the option of the Lender, unconditional commitments for
the issuance thereof with all requirements and conditions to the
issuance of the final policy deleted or marked satisfied, issued by a
title insurance company satisfactory to the Lender, each in an amount
equal to not less than the fair market value of the Real Estate subject
to the Mortgage insured thereby, insuring that such Mortgage creates a
valid first lien on, and security title to, all Real Estate described
therein, with no survey exceptions and no other exceptions which the
Lender shall not have approved in writing;
(12) such materials and information concerning the Real
Estate as the Lender may require, including, without limitation, (a)
current and accurate surveys satisfactory to the Lender of all of the
Real Estate, certified to the Lender and showing the location of the
100-year and 50-year flood plains thereon, (b) zoning letters as to the
zoning status of all of the Real Estate, (c) certificates of occupancy
covering all of the Real Estate, and (d) owner's
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<PAGE> 31
affidavits as to such matters relating to the Real Estate as the Lender
may request;
(13) a Schedule of Inventory, a Schedule of Receivables and
a Schedule of Equipment, each prepared as of a recent date;
(14) certificates or binders of insurance relating to (a)
each of the policies of insurance covering any of the Collateral
together with loss payable clauses which comply with the terms of
SECTION 7.9(B) and (b) each of the policies of insurance required by the
Mortgages, together with mortgagee clauses satisfactory to the Lender;
(15) such Agency Account Agreements as shall be required by
the Lender duly executed by the applicable Clearing Bank and the
Borrower;
(16) a Borrowing Base Certificate prepared as of the
Effective Date duly executed and delivered by the chief financial
officer of the Borrower;
(17) a letter from the Borrower to the Lender requesting
the Initial Loans and specifying the method of disbursement;
(18) copies of all the financial statements referred to
in SECTION 5.1(M) and meeting the requirements thereof;
(19) a balance sheet of the Borrower as at September 30,
1994;
(20) a certificate of the President of the Borrower stating
that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct as of the Effective Date, both with and
without giving effect to the Loans to be made at such time and the
application of the proceeds thereof, and (b) no Default or Event of
Default exists;
(21) a signed opinion of Isenhower, Wood & Cilley, P.A.,
counsel for the Borrower, and such local counsel as the Lender shall
deem necessary or desirable, opining as to such matters in connection
with this Agreement as the Lender or its counsel may reasonable request;
and
(22) copies of each of the other Loan Documents duly
executed by the parties thereto with evidence satisfactory to the
Lender and its counsel of the due authorization, binding effect and
enforceability of each such Loan Document on each such party and such
other documents and instruments as the Lender may reasonably request.
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<PAGE> 32
(b) Availability. The Lender shall be provided with evidence
satisfactory to it that, as of the Effective Date, after giving effect to the
Initial Loans, Availability will be not less than $1,500,000.00.
(c) No Injunctions, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain o
prohibit or to obtain substantial damages in respect of or which is related to
or arises out of this Agreement or the consummation of the transactions
contemplated hereby or which, in the Lender's sole discretion, would make it
inadvisable to consummate the transactions contemplated by this Agreement.
(d) Material Adverse Change. As of the Effective Date, there shall
not have occurred any change which, in the Lender's sole discretion, has had or
may have a Materially Adverse Effect as compared to the condition of the
Borrower presented by the most recent unaudited financial statements of the
Borrower described in SECTION 5.1(M).
(e) Solvency. The Lender shall have received evidence satisfactory
to it that, after giving effect to the Initial Loans (i) the Borrower has asset
(excluding goodwill and other intangible assets not capable of valuation) havin
value, both at fair value and at present fair saleable value, greater than the
amount of its liabilities, and (ii) the Borrower's assets are sufficient in
value to provide the Borrower with sufficient working capital to enable it
profitably to operate its business and to meet its obligations as they become
due, and (iii) the Borrower has adequate capital to conduct the business in
which it is and proposes to be engaged.
(f) Release of Security Interests. The Lender shall have received
evidence satisfactory to it of the release and termination of all Liens other
than Permitted Liens.
Section 4.2 All Loans. At the time of making of each Loan, including
the Initial Loans:
(a) all of the representations and warranties made or deemed to be
made under this Agreement shall be true and correct at such time both with and
without giving effect to the Loans to be made at such time and the application
of the proceeds thereof, except that representations and warranties which, by
their terms, are applicable only to the Effective Date shall be required to be
true and correct only as of the Effective Date,
(b) the corporate actions of the Borrower referred to in SECTION
4.1(A)(4) shall remain in full force and effect and the incumbency of officers
shall be as stated in the certificates of incumbency delivered pursuant to
SECTION 4.1(A)(5) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Lender, and
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(c) the Lender may, without waiving either condition, consider the
conditions specified in SECTIONS 4.2(A) and (B) fulfilled and a representation
by the Borrower to such effect made if no written notice to the contrary is
received by the Lender from the Borrower prior to the making of the Loans then
to be made.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER
Section 5.1 Representations and Warranties. The Borrower represents
and warrants to the Lender as follows:
(a) Organization; Power; Qualification. The Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which failure to be so qualified and authorized
would have a Materially Adverse Effect. The jurisdictions in which the Borrower
is qualified to do business as a foreign corporation are listed on SCHEDULE
5.1(A).
(b) Subsidiaries and Ownership of the Borrower. The Borrower has no
Subsidiaries EXCEPT AS LISTED ON SCHEDULE 5.1(B)-1. The outstanding stock of
the Borrower has been duly and validly issued and is fully paid and
nonassessable by the Borrower and the number and owners of such shares of
capital stock of the Borrower are set forth on SCHEDULE 5.1(B)-1.
(c) Authorization of Agreement, Note, Loan Documents and Borrowing.
The Borrower has the right and power and has taken all necessary action to
authorize it to execute, deliver and perform this Agreement and each of the
other Loan Documents to which it is a party in accordance with their respective
terms and to borrow hereunder. This Agreement and each of the other Loan
Documents to which it is a party have been duly executed and delivered by the
duly authorized officers of the Borrower and each is, or when executed and
delivered in accordance with this Agreement will be, a legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
(d) Compliance of Agreement, Note, Loan Documents and Borrowing with
Laws, Etc. The execution, delivery and performance of this Agreement and each
of the other Loan Documents to which the Borrower is a party in accordance with
their respective terms and the borrowings hereunder do not and will not, by the
passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate
any applicable law relating to the Borrower or any of its Affiliates,
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(ii) conflict with, result in a breach of or
constitute a default under (A) the articles or certificate of
incorporation or by-laws of the Borrower, (B) any indenture, agreement
or other instrument to which the Borrower is a party or by which any of
its property may be bound or (C) any Governmental Approval relating to
the Borrower, or,
(iii) result in or require the creation or imposition
of any Lien upon or with respect to any property now owned or hereafter
acquired by the Borrower other than the Security Interest.
(e) Business. The Borrower is engaged principally in the business
described on SCHEDULE 5.1(E).
(f) Compliance with Law; Governmental Approvals. Except as set
forth in SCHEDULE 5.1(F), the Borrower (i) has all Governmental Approvals,
including permits relating to federal, state and local Environmental Laws,
ordinances and regulations required by any applicable law for it to conduct its
business, each of which is in full force and effect, is final and not subject to
review on appeal and is not the subject of any pending or, to the knowledge of
the Borrower, threatened attack by direct or collateral proceeding, and (ii) is
in compliance with each Governmental Approval applicable to it and in compliance
with all other applicable laws relating to it, including, without being limited
to, all Environmental laws and all occupational health and safety laws
applicable to the Borrower or its properties, except for instances of
noncompliance which would not, singly or in the aggregate, cause a Default or
Event of Default or have a Materially Adverse Effect and in respect of which
adequate reserves have been established on the books of the Borrower.
(g) Titles to Properties. Except as set forth in SCHEDULE 5.1(G),
the Borrower has good and marketable title to or a valid leasehold interest in
all its Real Estate and valid and legal title to or a valid leasehold interest
in all personal property and assets used in or necessary to the conduct of the
Borrower's business, including, but not limited to, those reflected on the
balance sheet of the Borrower delivered pursuant to SECTION 5.1(M)(II).
(h) Liens. Except as set forth in SCHEDULE 5.1(H), none of the
properties and assets of the Borrower is subject to any Lien, except Permitted
Liens. Other than the Financing Statements, no financing statement under the
Uniform Commercial Code of any state which names the Borrower as debtor and
which has not been terminated has been filed in any state or other jurisdiction,
and the Borrower has not signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement, except to perfect those Liens listed in SCHEDULE 5.1(H) and Permitted
Liens.
(i) Indebtedness and Guaranties. Set forth on SCHEDULE 5.1(I) is a
complete and correct listing of all of the Borrower's
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(i) Indebtedness for Money Borrowed and (ii) Guaranties. The Borrower
is not in default of any material provision of any agreement evidencing or
relating to such any such Indebtedness or Guaranty.
(j) Litigation. Except as set forth on SCHEDULE 5.1(J), there are
no actions, suits or proceedings pending (nor, to the knowledge of the Borrower,
are there any actions, suits or proceedings threatened, nor is there any basis
therefor) against or in any other way relating adversely to or affecting the
Borrower or any of its property in any court or before any arbitrator of any
kind or before or by any governmental body.
(k) Tax Returns and Payments. Except as set forth on SCHEDULE
5.1(K), all United States federal, state and local and foreign national,
provincial and local and all other tax returns of the Borrower required by
applicable law to be filed have been duly filed, and all United States federal,
state and local and foreign national, provincial and local and all other taxes,
assessments and other governmental charges or levies upon the Borrower and its
property, income, profits and assets which are due and payable have been paid,
except any such nonpayment which is at the time permitted under SECTION 8.4.
The charges, accruals and reserves on the books of the Borrower in respect of
United States federal, state and local taxes and foreign national, provincial
and local taxes for all fiscal years and portions thereof since the organization
of the Borrower are in the judgment of the Borrower adequate, and the Borrower
knows of no reason to anticipate any additional assessments for any of such
years which, singly or in the aggregate, might have a Materially Adverse Effect.
(l) Burdensome Provisions. The Borrower is not a party to any
indenture, agreement, lease or other instrument, or subject to any charter or
corporate restriction, Governmental Approval or applicable law, compliance with
the terms of which might have a Materially Adverse Effect.
(m) Financial Statements. The Borrower has furnished to the Lender
a copy of (i) its audited balance sheet as at December 31, 1993, and the related
statements of income, cash flow and retained earnings for the twelve-month
period then ended and (ii) its unaudited balance sheet as at November 30, 1994,
and the related statement of income for the 11-month period then ended. Such
financial statements are complete and correct and present fairly and in all
material respects in accordance with GAAP, the financial position of the
Borrower as at the dates thereof and the results of operations of the Borrower
for the periods then ended. Except as disclosed or reflected in such financial
statements, the Borrower had no material liabilities, contingent or otherwise,
and there were no material unrealized or anticipated losses of the Borrower.
(n) Adverse Change. Since the date of the financial statements
described in CLAUSE (I) of SECTION 5.1(M), (i) no
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change in the business, assets, liabilities, condition (financial or otherwise),
results of operations or business prospects of the Borrower has occurred that
has had, or may have, a Materially Adverse Effect, and (ii) no event has
occurred or failed to occur which has had, or may have, a Materially Adverse
Effect.
(o) ERISA. Neither the Borrower nor any Related Company maintains
or contributes to any Benefit Plan other than those listed on SCHEDULE 5.1(O).
Each Benefit Plan is in substantial compliance with ERISA, and neither the
Borrower nor any Related Company has received any notice asserting that a
Benefit Plan is not in compliance with ERISA. No material liability to the PBGC
or to a Multiemployer Plan has been, or is expected by the Borrower to be,
incurred by the Borrower or any Related Company.
(p) Absence of Defaults. The Borrower is not in default under its
articles or certificate of incorporation or by-laws, and no event has occurred
which has not been remedied, cured or waived (i) that constitutes a Default or
an Event of Default or (ii) that constitutes or that, with the passage of time
or giving of notice, or both, would constitute a default or event of default by
the Borrower under any material agreement (other than this Agreement) or
judgment, decree or order to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or which would require the
Borrower to make any payment thereunder prior to the scheduled maturity date
therefor.
(q) Accuracy and Completeness of Information. All written
information, reports and other papers and data produced by or on behalf of the
Borrower and furnished to the Lender were, at the time the same were so
furnished, complete and correct in all material respects to the extent necessary
to give the recipient a true and accurate knowledge of the subject matter, no
fact is known to the Borrower which has had, or may in the future have (so far
as the Borrower can foresee), a Materially Adverse Effect which has not been set
forth in the financial statements or disclosure delivered prior to the Effective
Date, in each case referred to in SECTION 5.1(M), or in such written
information, reports or other papers or data or otherwise disclosed in writing
to the Lender prior to the Effective Date. No document furnished or written
statement made to the Lender by the Borrower in connection with the negotiation,
preparation or execution of this Agreement or any of the Loan Documents contains
or will contain any untrue statement of a fact material to the creditworthiness
of the Borrower or omits or will omit to state a material fact necessary in
order to make the statements contained therein not misleading.
(r) Solvency. In each case after giving effect to the Indebtedness
represented by the Loans outstanding and to be incurred and the transactions
contemplated by this Agreement, the Borrower is solvent, having assets of a fair
value which exceeds the amount required to pay its debts (including contingent,
subordinated, unmatured and unliquidated liabilities) as they
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become absolute and matured, and the Borrower is able to and anticipates that
it will be able to meet its debts as they mature and has adequate capital to
conduct the business in which it is or proposes to be engaged.
(s) Status of Receivables. Each Receivable reflected in the
computations included in any Borrowing Base Certificate meets the criteria
enumerated in CLAUSES (A) through (N) of the definition of Eligible Receivables,
except as disclosed in such Borrowing Base Certificate or as disclosed in a
timely manner in a subsequent Borrowing Base Certificate or otherwise in writing
to the Lender.
(t) Chief Executive Office. The chief executive office of the
Borrower and the books and records relating to the Receivables are located at
the address or addresses set forth on SCHEDULE 5.1(T); except as set forth
SCHEDULE 5.1(T), the Borrower has not maintained its chief executive office or
the books and records relating to any Receivables at any other address at any
time during the five years immediately preceding the Agreement Date.
(u) Status of Inventory. All Inventory included in any Borrowing
Base Certificate delivered to the Lender pursuant to SECTION 7.14(D) meets the
criteria enumerated in CLAUSES (A) through (G) of the definition of Eligible
Inventory, except as disclosed in such Borrowing Base Certificate or in a
subsequent Borrowing Base Certificate or as otherwise specifically disclosed in
writing to the Lender. All Inventory is in good condition, meets all standards
imposed by any governmental agency or department or division thereof having
regulatory authority over such goods, their use or sale, and is currently either
usable or saleable in the normal course of the Borrower's business, except to
the extent reserved against in the financial statements delivered pursuant to
ARTICLE 9 or as disclosed on a Schedule of Inventory delivered to the Lender
pursuant to SECTION 7.14(B). Set forth on SCHEDULE 5.1(U) is the (i) address
(including street, city, county and state) of each facility at which Inventory
is located, (ii) the approximate quantity in Dollars of the Inventory
customarily located at each such facility, and (iii) if the facility is leased
or is a third party warehouse or processor location, the name of the landlord or
such third party warehouseman or processor. All Inventory is located on the
premises set forth on SCHEDULE 5.1(U) or is in transit to one of such locations,
except as otherwise disclosed in writing to the Lender; the Borrower has not
located Inventory at premises other than those set forth on SCHEDULE 5.1(U) at
any time during the twelve months immediately preceding the Agreement Date.
(v) Equipment. All Equipment is in good order and repair in all
material respects. Set forth on SCHEDULE 5.1(V) is the (i) address (including
street, city, county and state) of each facility at which Equipment (other than
motor vehicles) is located, (ii) the approximate value of Equipment located at
such facility; and (iii) if such facility is leased, the name of the
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landlord. Except as set forth on SECTION 5.1(V), within the past twelve months
no Equipment has been located at any other location.
(w) Real Property. Set forth on SCHEDULE 5.1(W) is the (i) address
(street, city, county and state) of each parcel of Real Estate owned or leased
by the Borrower; and (ii) the name of the lessor of each leased parcel.
(x) Corporate and Fictitious Names; Trade Names. Except as
otherwise disclosed on SCHEDULE 5.1(X), during the one-year period preceding
the Agreement Date, the Borrower has not been known as or used any corporate
or fictitious name other than the corporate name of the Borrower on the
Effective Date. All trade names or styles under which the Borrower sells
Inventory or Equipment or creates Receivables, or to which instruments in
payment of Receivables are made payable, are listed on SCHEDULE 5.1(X).
(y) Federal Regulations. The Borrower is not engaged, principally
or as one of its important activities, in the business of extending credit for
tile purpose of "purchasing" or "carrying" any "margin stock" (as each of the
quoted terms is defined or used in Regulations G and U of the Board of Governors
of the Federal Reserve System).
(z) Investment Company Act. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" (as each of the
quoted terms is defined or used in the Investment Company Act of 1940, as
amended).
(aa) Employee Relations. The Borrower is not, except as set forth on
SCHEDULE 5.1(AA), party to any collective bargaining agreement nor has any labor
union been recognized as the representative of the Borrower's employees; the
Borrower knows of no pending, threatened or contemplated strikes, work stoppage
or other labor disputes involving its employees or those of its Subsidiaries.
(ab) Intellectual Property. The Borrower owns or possesses all
Intellectual Property required to conduct its business as now and presently
planned to be conducted without, to its knowledge, conflict with the rights of
others, and SCHEDULE 5.1(AB) lists all Intellectual Property owned by the
Borrower.
Section 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this ARTICLE 5 and all statements
contained in any certificate, financial statement or other instrument delivered
by or on behalf of the Borrower pursuant to or in connection with this Agreement
or any of the Loan Documents (including, but not limited to, any such
representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be
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made or deemed to be made at and as of the Agreement Date, at and as of the
Effective Date and at and as of the date of each Loan, except that
representations and warranties which, by their terms are applicable only to one
such date shall be deemed to be made only at and as of such date. All
representations and warranties made or deemed to be made under this Agreement
shall survive and not be waived by the execution and delivery of this Agreement,
any investigation made by or on behalf of the Lender or any borrowing hereunder.
ARTICLE 6 - SECURITY INTEREST
Section 6.1 Security Interest. (a) To secure the payment, observance
and performance of the Secured Obligations, the Borrower hereby mortgages,
pledges and assigns all of the Collateral to the Lender for itself and as agent
for any Affiliate of the Lender and grants to the Lender for itself and as agent
for any Affiliate of the Lender a continuing security interest in, and a
continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations, the
Borrower grants to the Lender for itself and as agent for any Affiliate of the
Lender a security interest in, and assigns to the Lender for itself and as agent
for any Affiliate of the Lender all of the Borrower's right, title and interest
in and to, any deposits or other sums at any time credited by or due from the
Lender and each Affiliate of the Lender to the Borrower, with the same rights
therein as if the deposits or other sums were credited by or due from the
Lender.
Section 6.2 Continued Priority of Security Interest. (a) The Security
Interest granted by the Borrower shall at all times be valid, perfected and
enforceable against the Borrower and all third parties in accordance with the
terms of this Agreement, as security for the Secured Obligations, and the
Collateral shall not at any time be subject to any Liens that are prior to, on a
parity with or junior to the Security Interest, other than Permitted Liens.
(b) The Borrower shall, at its sole cost and expense, take all
action that may be necessary or desirable, or that the Lender may request, so as
at all times to maintain the validity, perfection, enforceability and rank of
the Security Interest in the Collateral in conformity with the requirements of
SECTION 6.2(A) or to enable the Lender to exercise or enforce its rights
hereunder, including, but not limited to: (i) paying all taxes, assessments and
other claims lawfully levied or assessed on any of the Collateral, except to the
extent that such taxes, assessments and other claims constitute Permitted Liens,
(ii) diligently seeking to obtain, after the Agreement Date, landlords',
mortgagees' or mechanics' releases, subordinations or waivers, (iii) delivering
to the Lender, endorsed or accompanied by such instruments of assignment as the
Lender may specify, and stamping or marking in such manner as the Lender may
specify, any and all chattel paper, instruments, letters and advices of
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guaranty and documents evidencing or forming a part of the Collateral, and (iv)
executing and delivering financing statements, pledges, designations,
hypothecations, notices and assignments, in each case in form and substance
satisfactory to the Lender, relating to the creation, validity, perfection,
maintenance or continuation of the Security Interest under the UCC or other
applicable law.
(c) The Lender is hereby authorized to file one or more financing
or continuation statements or amendments thereto without the signature of or in
the name of the Borrower for any purpose described in SECTION 6.2(B). A
carbon, photographic or other reproduction of this Agreement or of any of the
Security Documents or of any financing statement filed in connection with this
Agreement is sufficient as a financing statement, to the extent permitted by
applicable law.
(d) The Borrower shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect the Security Interest
and shall cause its financial statements to reflect the Security Interest.
ARTICLE 7 - COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner provided in SECTION 12.11:
Section 7.1 Collection of Receivables. (a) The Borrower will cause
all moneys, checks, notes, drafts and other payments relating to or
constituting proceeds of Receivables, or of any other Collateral, to be
forwarded to a Lockbox for deposit in an Agency Account in accordance with the
procedures set out in the corresponding Agency Account Agreement and in
particular the Borrower will (i) advise each Account Debtor to address all
remittances with respect to amounts payable on account of any Receivables to a
specified Lockbox, and (ii) stamp all invoices relating to any such amounts
with a legend satisfactory to the Lender indicating that payment is to be made
to the Borrower via a specified Lockbox.
(b) The Borrower and the Lender shall cause all collected balances
in each Agency Account to be transmitted daily by wire transfer or depository
transfer check or Automated Clearing House transfer in accordance with the
procedures set forth in the corresponding Agency Account Agreement to the
Lender at the Lender's Office (i) for application, on account of the Secured
Obligations, as provided in SECTION 2.3(C), 11.2 and 11.3, such credits to be
entered on the second Business Day following receipt and to be conditioned upon
final payment in cash or solvent credits of the items giving rise to them, and
(ii) with respect to any balance remaining after such application, so long as
no Default or Event of Default has occurred and is continuing,
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for transfer to the Controlled Disbursement Account or such other account of
the Borrower as the Borrower and the Lender may agree.
(c) Any moneys, checks, notes, drafts or other payments referred to
in CLAUSE (A) of this SECTION 7.1 which are received by or on behalf of the
Borrower will be held in trust for the Lender and will be delivered to the
Lender at the Lender's Office as promptly as possible in the exact form
received, together with any necessary endorsements.
Section 7.2 Verification and Notification. The Lender shall have the
right (a) at any time and from time to time, in the name of the Lender or in
the name of the Borrower, to verify the validity, amount or any other matter
relating to any Receivables by mail, telephone, telegraph or otherwise, and (b)
after an Event of Default, to notify the Account Debtors or obligors under any
Receivables of the assignment of such Receivables to the Lender and to direct
such Account Debtor or obligors to make payment of all amounts due or to become
due thereunder directly to the Lender and, upon such notification and at the
expense of the Borrower, to enforce collection of any such Receivables and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Borrower might have done.
Section 7.3 Disputes, Returns and Adjustments. (a) In the event
amounts due and owing under any Receivable in excess of $25,000.00 are in
dispute between the Account Debtor and the Borrower, the Borrower shall provide
the Lender with prompt written notice thereof.
(b) The Borrower shall notify the Lender promptly of all material
returns and credits in excess of $25,000.00 in respect of any Receivable, which
notice shall specify the Receivables affected.
(c) The Borrower may, in the ordinary course of business and prior
to a Default or an Event of Default, grant any extension of time for payment of
any Receivable or compromise, compound or settle the same for less than the
full amount thereof or release wholly or partly any Person liable for the
payment thereof or allow any credit or discount whatsoever thereon; PROVIDED
that (i) no such action results in the reduction of more than $200,000.00 in
the amount payable with respect to any Receivable or of more than $750,000.00
with respect to all Receivables in any fiscal year of the Borrower, and (ii)
the Lender is promptly notified of the amount of such adjustments and the
Receivable(s) affected thereby.
Section 7.4 Invoices. (a) The Borrower will not use any invoices
except invoices in the forms delivered to the Lender prior to the Agreement
Date, unless the Borrower shall have given the Lender 45 days' prior notice of
the intended use of a different form of invoice together with a copy of such
different form.
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(b) Upon the request of the Lender, the Borrower shall deliver to
the Lender, at the Borrower's expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, the original copy of all documents, including, without
limitation, repayment histories and present status reports, relating to
Receivables and such other documents and information relating to the
Receivables as the Lender shall specify.
Section 7.5 Delivery of Instruments. In the event any Receivable in
an amount in excess of $25,000.00 is, or Receivables in excess of $25,000.00 in
the aggregate are, at any time evidenced by a promissory note or notes, trade
acceptance or any other instrument for the payment of money, the Borrower will
immediately thereafter deliver such instruments to the Lender, appropriately
endorsed to the Lender.
Section 7.6 Sales of Inventory. All sales of Inventory will be made
in compliance with all requirements of applicable law.
Section 7.7 Returned Goods. The Security Interest in the Inventory
shall, without further act, attach to the cash and non-cash proceeds resulting
from the sale or other disposition thereof and to all Inventory which is
returned to the Borrower by customers or is otherwise recovered.
Section 7.8 Ownership and Defense of Title. (a) Except for Permitted
Liens, the Borrower shall at all times be the sole owner of each and every item
of Collateral and shall not create any Lien on, or sell, lease, exchange,
assign, transfer, pledge, hypothecate, grant a security interest or security
title in or otherwise dispose of, any of the Collateral or any interest
therein, except for sales of Inventory in the ordinary course of business, for
cash or on open account or on terms of payment ordinarily extended to its
customers and except as otherwise expressly contemplated herein. The inclusion
of "proceeds" of the Collateral under the Security Interest shall not be deemed
a consent by the Lender to any other sale or other disposition of any part or
all of the Collateral.
(b) The Borrower shall defend its title in and to the Collateral
and shall defend the Security Interest in the Collateral against the claims and
demands of all Persons.
(c) In addition to, and not in derogation of, the foregoing and the
requirements of any of the Security Documents, the Borrower shall (i) protect
and preserve all properties material to its business, including Intellectual
Property and maintain all tangible property in good and workable condition in
all material respects, with reasonable allowance for wear and tear, and (ii)
from time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements and additions to such properties necessary for the
conduct of its business, so that the
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business carried on in connection therewith may be properly and advantageously
conducted at all times.
Section 7.9 Insurance. (a) The Borrower shall at all times maintain
insurance on the Inventory, Equipment and the improvements on all Real Estate
against loss or damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as the Lender shall reasonably specify, in amounts and under
policies issued by insurers acceptable to the Lender. All premiums on such
insurance shall be paid by the Borrower and copies of the policies delivered to
the Lender. The Borrower will not use or permit the Inventory, Equipment or
such improvements to be used in violation of any applicable law or in any
manner which might render inapplicable any insurance coverage.
(b) All insurance policies required under SECTION 7.9(A) shall
name the Lender as an additional named insured and shall contain "New York
standard" loss payable clauses in the form submitted to the Borrower by the
Lender, or otherwise in form and substance satisfactory to the Lender, naming
the Lender as loss payee as its interests may appear, and providing that (i)
all proceeds thereunder shall be payable to the Lender, (ii) no such insurance
shall be affected by any act or neglect of the insured or owner of the
property described in such policy, and (iii) such policy and loss payable
clauses may not be cancelled, amended or terminated unless at least ten days'
prior written notice is given to the Lender.
(c) Any proceeds of insurance referred to in this SECTION 7.9 which
are paid to the Lender shall be, at the option of the Lender in its sole
discretion, either (i) applied to rebuild, restore or replace the damaged or
destroyed property, or (ii) applied to the payment or prepayment of the Secured
Obligations.
(d) The Borrower shall at all times maintain, in addition to the
insurance required by SECTION 7.9(A) or any of the Security Documents,
insurance with responsible insurance companies against such risks and in such
amounts as is customarily maintained by similar businesses or as may be
required by applicable law, including such public liability, products
liability, third party property damage and business interruption insurance as
is consistent with reasonable business practices, and from time to time deliver
to the Lender upon its request a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of the expiration thereof and the properties and risks
covered thereby.
Section 7.10 Location of Offices and Collateral. (a) The Borrower
will not change the location of its chief executive office or the place where
it keeps its books and records relating to the Collateral or change its name,
identity or corporate structure without giving the Lender 30 days' prior
written notice thereof.
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<PAGE> 44
(b) All Inventory, other than Inventory in transit to any such
location, and all Equipment, other than motor vehicles, will at all times be
kept by the Borrower at one of the locations set forth in SCHEDULES 5.1(U) and
5.1(V), respectively, and shall not, without the prior written consent of the
Lender, be removed therefrom except, so long as no Event of Default shall have
occurred and be continuing, for sales of Inventory permitted under SECTION 7.8.
(c) If any Inventory is in the possession or control of any of the
Borrower's agents or processors, the Borrower shall notify such agents or
processors of the Security Interest and, upon the occurrence of an Event of
Default, shall instruct them (and cause them to acknowledge such instruction)
to hold all such Inventory for the account of the Lender, subject to the
instructions of the Lender.
Section 7.11 Records Relating to Collateral. (a) The Borrower will at
all times (i) keep complete and accurate records of Inventory on a basis
consistent with past practices of the Borrower, itemizing and describing the
kind, type and quantity of Inventory and the Borrower's cost therefor and a
current price list for such Inventory, and (ii) keep complete and accurate
records of all other Collateral.
(b) The Borrower will take a physical listing of all Inventory,
wherever located, at least annually.
Section 7.12 Inspection. The Lender (by any of its officers, employees
or agents) shall have the right, to the extent that the exercise of such right
shall be within the control of the Borrower, at any time or times to (a) visit
the properties of the Borrower, inspect the Collateral and the other assets of
the Borrower and its Subsidiaries and inspect and make extracts from the books
and records of the Borrower and its Subsidiaries, including, but not limited
to, management letters prepared by independent accountants, all during
customary business hours at such premises, (b) discuss the Borrower's business,
assets, liabilities, financial condition, results of operations and business
prospects, insofar as the same are reasonably related to the rights of the
Lender hereunder or under any of the Loan Documents, with the Borrower's and
its Subsidiaries' (i) principal officers, (ii) independent accountants and
other professionals providing services to the Borrower, and (iii) any other
Person (except that any such discussion with any third parties shall be
conducted only in accordance with the Lender's standard operating procedures
relating to the maintenance of confidentiality of confidential information of
borrowers), and (c) verify the amount, quantity, value and condition of, or any
other matter relating to, any of the Collateral and in this connection to
review, audit and make extracts from all records and files related to any of
the Collateral. The Borrower will deliver to the Lender any instrument
necessary to authorize an independent accountant or other professional to have
discussions of the type outlined above
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<PAGE> 45
with the Lender or for the Lender to obtain records from any service bureau
maintaining records on behalf of the Borrower.
Section 7.13 Maintenance of Equipment. The Borrower shall maintain
all physical property that constitutes Equipment in good and workable condition
in all material respects, with reasonable allowance for wear and tear, and
shall exercise proper custody over all such property.
Section 7.14 Information and Reports.
(a) Schedule of Receivables. The Borrower shall deliver to the
Lender (i) on or before the Effective Date, a Schedule of Receivables as of a
date not more than three Business Days prior to the Effective Date setting
forth a detailed aged trial balance of all of its then existing Receivables,
specifying the name of and the balance due from (and any rebate due to) each
Account Debtor obligated on a Receivable so listed, and (ii) no later than 10
days after the end of each accounting month of the Borrower, a Schedule of
Receivables as of the last Business Day of the Borrower's immediately preceding
accounting month setting forth (A) a detailed aged trial balance of all the
Borrower's then existing Receivables, specifying the name of and the balance
due from (and any rebate due to) each Account Debtor obligated on a Receivable
so listed and (B) a reconciliation to the Schedule of Receivables delivered in
respect of the next preceding accounting month.
(b) Schedule of Inventory. The Borrower shall deliver to the
Lender on or before the Effective Date and no later than the first day of each
accounting month of the Borrower thereafter a Schedule of Inventory as of the
last Business Day of the immediately preceding accounting month of the
Borrower, itemizing and describing the kind, type, quantity and location of
Inventory and the cost thereof.
(c) Schedule of Equipment. The Borrower shall deliver to the
Lender on or before the Effective Date and thereafter on such subsequent dates
as may be requested by the Lender, a Schedule of Equipment, describing each
item of such Equipment and the location, cost and then current book value
thereof.
(d) Borrowing Base Certificate. The Borrower shall deliver to the
Lender not later than 2 days after the last day of each accounting week of the
Borrower a Borrowing Base Certificate prepared as of the close of business on
the last Business Day of such accounting week.
(e) Notice of Diminution of Value. The Borrower shall give prompt
notice to the Lender of any matter or event which has resulted in, or may
result in, the actual or potential diminution in excess of $200,000.00 in the
value of any of its Collateral, except for any diminution in the value of any
Receivables or Inventory in the ordinary course of business which has been
appropriately reserved against, as reflected in the financial
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<PAGE> 46
statements previously delivered to the Lender pursuant to ARTICLE 9.
(f) Certification. Each of the schedules delivered to the Lender
pursuant to this SECTION 7.14 shall be certified by the Chief Financial Officer
of the Borrower to be true, correct and complete as of the date indicated
thereon.
(g) Other Information. The Lender may, in its discretion, from
time to time require the Borrower to deliver the schedules described in SECTION
7.14(A), (B), (C) and (D) more or less often and on different schedules than
specified in such Section, and the Borrower will comply with such requests.
The Borrower shall also furnish to the Lender such other information with
respect to the Collateral as the Lender may from time to time reasonably
request.
Section 7.15 Power of Attorney. The Borrower hereby appoints the
Lender as its attorney, with power (a) to endorse the name of the Borrower on
any checks, notes, acceptances, money orders, drafts or other forms of payment
or security that may come into the Lender's possession, and (b) to sign the
name of the Borrower on any invoice or bill of lading relating to any
Receivables, Inventory or other Collateral, on any drafts against customers
related to letters of credit, on schedules and assignments of Receivables
furnished to the Lender by the Borrower, on notices of assignment, financing
statements and other public records relating to the perfection or priority of
the Security Interest or verifications of account and on notices to or from
customers.
Section 7.16 Mortgages of Newly Acquired Real Estate. Promptly upon
the acquisition by the Borrower of Real Estate, the Borrower will execute and
deliver in favor of the Lender a Mortgage, in form and substance satisfactory
to the Lender, conveying to the Lender a Lien on such Real Estate, subject only
to such prior Liens as the Lender shall consent to in writing and, if requested
by the Lender, the Borrower shall, at the expense of the Borrower, obtain
mortgagee title insurance in favor of the Lender insuring such Mortgage to
create and convey such Lien, subject only to such exceptions.
ARTICLE 8 - AFFIRMATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner provided for in SECTION 12.11, the
Borrower will:
Section 8.1 Preservation of Corporate Existence and Similar Matters.
Preserve and maintain its corporate existence, rights, franchises, licenses and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in
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<PAGE> 47
which the character of its properties or the nature of its business requires
such qualification or authorization.
Section 8.2 Compliance with Applicable Law. Comply with all
applicable laws relating to the Borrower.
Section 8.3 Conduct of Business. Engage only in businesses in
substantially the same fields as the businesses conducted on the Effective
Date.
Section 8.4 Payment of Taxes and Claims. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or upon any properties belonging to it, and (b)
all lawful claims of materialmen, mechanics, carriers, warehousemen and
landlords for labor, materials, supplies and rentals which, if unpaid, might
become a Lien on any properties of the Borrower or such Subsidiary, EXCEPT that
this SECTION 8.4 shall not require the payment or discharge of any such tax,
assessment, charge, levy or claim which is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
on the appropriate books.
Section 8.5 Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP consistently
applied.
Section 8.6 Use of Proceeds. (a) Use the proceeds of (i) the Initial
Loans to pay in full the Borrower's secured Indebtedness and to pay the amounts
indicated in SCHEDULE 8.6 to the Persons indicated therein, and (ii) all
subsequent Revolving Credit Loans only for working capital and general business
purposes, and
(b) not use any part of such proceeds to purchase or carry, or to
reduce or retire or refinance any credit incurred to purchase or carry, any
margin stock (within the meaning of Regulation G or U of the Board of Governors
of the Federal Reserve System) or for any other purpose which would involve a
violation of such Regulation G or U or Regulation T or X of such Board of
Governors or for any other purpose prohibited by law or by the terms and
conditions of this Agreement.
Section 8.7 Hazardous Waste and Substances; Environmental
Requirements. (a) In addition to, and not in derogation of, the requirements
of SECTION 8.2 and of the Security Documents, comply with all laws,
governmental standards and regulations applicable to the Borrower or to any of
its assets in respect of occupational health and safety laws, rules and
regulations and Environmental Laws, promptly notify the Lender of its receipt
of any notice of a violation of any such law, rule, standard or regulation and
indemnify and hold the Lender harmless from all loss, cost, damage, liability,
claim and expense incurred by or
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<PAGE> 48
imposed upon the Lender on account of the Borrower's failure to perform its
obligations under this SECTION 8.7.
(b) Whenever the Borrower gives notice to the Lender pursuant to
this SECTION 8.7 with respect to a matter that reasonably could be expected to
result in liability to the Borrower in excess of $250,000.00 in the aggregate,
the Borrower shall, at the Lender's request and the Borrower's expense, (i)
cause an independent environmental engineer acceptable to the Lender to conduct
such tests of the site where the noncompliance or alleged noncompliance with
Environmental Laws has occurred and prepare and deliver to the Lender a report
setting forth the results of such tests, a proposed plan to bring the Borrower
into compliance with such Environmental Laws and an estimate of the costs
thereof, and (ii) provide to the Lender a supplemental report of such engineer
whenever the scope of the noncompliance or the response thereto or the
estimated costs thereof shall materially change.
Section 8.8 Accuracy of Information. All written information,
reports, statements and other papers and data furnished to the Lender, whether
pursuant to ARTICLE 9 or any other provision of this Agreement or any of the
other Loan Documents, shall be, at the time the same is so furnished, complete
and correct in all material respects to the extent necessary to give the Lender
true and accurate knowledge of the subject matter.
Section 8.9 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, the Borrower shall
provide promptly to the Lender such revisions or updates to such Schedule(s) as
may be necessary or appropriate to update or correct such Schedule(s); PROVIDED
that no such revisions or updates to any Schedule(s) shall be deemed to have
cured any breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule(s) unless and until the Lender, in its sole
discretion, shall have accepted in writing such revisions or updates to such
Schedule(s).
ARTICLE 9 - INFORMATION
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner set forth in SECTION 12.11, the Borrower
will furnish to the Lender at the Lender's Office:
Section 9.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in any
event within 90 days after the end of each fiscal year of the Borrower, copies
of the consolidated and consolidating balance sheet of the Borrower as at the
end of such fiscal year
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<PAGE> 49
and the related statements of income, shareholders' equity and cash flow for
such fiscal year, in each case setting forth in comparative form the figures
for the previous year of the Borrower and reported on, without qualification,
by Whisnant Company or other independent certified public accountants selected
by the Borrower and acceptable to the Lender.
(b) Monthly Financial Statements. As soon as available, but in any
event within 45 days after the end of each accounting month of the Borrower,
copies of (i) the unaudited unconsolidated balance sheet of the Borrower as at
the end of such month and the related unaudited income statement for the
Borrower for such month and for the portion of the fiscal year of the Borrower
through such month, certified by the chief financial officer of the Borrower to
the best of his knowledge as presenting fairly the financial condition and
results of operations of the Borrower as at the date thereof and for the
periods ended on such date, subject to normal year end adjustments and (ii) the
unaudited balance sheet of Ridgeview, Ltd. as at the end of such month and the
related unaudited income statement for Ridgeview, Ltd. for such month and for
the portion of the fiscal year of Ridgeview, Ltd. through such month, certified
by the chief financial officer of the Borrower to the best of his knowledge as
presenting fairly the financial condition and results of operations of
Ridgeview, Ltd. as at the date thereof and for the periods ended on such date,
subject to normal year end adjustments.
All such financial statements shall be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of footnotes) applied consistently
throughout the periods reflected therein.
Section 9.2 Accountants' Certificate. Together with each delivery of
financial statements required by SECTION 9.1(A), a certificate of the
accountants who performed the audit in connection with such statements (a)
stating that they have reviewed this Agreement and that, in making the audit
necessary to the issuance of a report on such financial statements, they have
obtained no knowledge of any Default or Event of Default or, if such
accountants have obtained knowledge of a Default or Event of Default,
specifying the nature and period of existence thereof, and (b) setting forth
the calculations necessary to establish whether or not the Borrower was in
compliance with the covenants contained in SECTIONS 10.1, 10.2, and 10.5 as of
the date of such statements.
The Borrower authorizes the Lender to discuss the financial condition of the
Borrower with the Borrower's independent certified public accountants and
agrees that such discussion or communication shall be without liability to
either the Lender or the Borrower's independent certified public accountants.
The Borrower shall deliver a letter addressed to such accountants authorizing
them to comply with the provisions of this SECTION 9.2.
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<PAGE> 50
Section 9.3 Officer's Certificate. Together with each delivery of
financial statements required by SECTION 9.1(A) and (B), a certificate of the
Borrower's President or chief financial officer (a) stating that, based on an
examination sufficient to enable him to make an informed statement, no Default
or Event of Default exists or, if such is not the case, specifying such Default
or Event of Default and its nature, when it occurred, whether it is continuing
and the steps being taken by the Borrower with respect to such Default or Event
of Default, and (b) setting forth the calculations necessary to establish
whether or not the Borrower was in compliance with the covenants contained in
SECTIONS 10.1, 10.2, and 10.5 as of the date of such statements.
Section 9.4 Copies of Other Reports. (a) Promptly upon receipt
thereof, copies of all reports, if any, submitted to the Borrower or its Board
of Directors by its independent public accountants, including, without
limitation, all management reports.
(b) From time to time and promptly upon each request, such forecasts,
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities, financial
condition, results of operations or business prospects of the Borrower as the
Lender may reasonably request. The rights of the Lender under this SECTION
9.4(B) are in addition to and not in derogation of its rights under any other
provision of this Agreement or any Loan Document.
(c) If requested by the Lender, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred to in Regulations G
and U, respectively, of the Board of Governors of the Federal Reserve System.
Section 9.5 Notice of Litigation and Other Matters. Prompt notice of:
(a) the commencement, to the extent the Borrower is aware of the
same, of all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating adversely to, or adversely
affecting, the Borrower or any Affiliate of the Borrower or any of their
respective property, assets or businesses which might, singly or in the
aggregate, cause a Default or an Event of Default or have a Materially Adverse
Effect,
(b) any amendment of the articles of incorporation or by laws of the
Borrower,
(c) any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of the Borrower or any
Affiliate of the Borrower which has had or
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<PAGE> 51
may have any Materially Adverse Effect and any change in the executive officers
of the Borrower, and
(d) any (i) Default or Event of Default, or (ii) event that
constitutes or that, with the passage of time or giving of notice or both,
would constitute a default or event of default by the Borrower under any
material agreement (other than this Agreement) to which the Borrower is a party
or by which the Borrower or any of its property may be bound if the exercise of
remedies thereunder by the other party to such agreement would have, either
individually or in the aggregate, a Materially Adverse Effect.
Section 9.6 ERISA. As soon as possible and in any event within 30
days after the Borrower knows, or has reason to know, that:
(a) any Termination Event with respect to a Benefit Plan has
occurred or will occur,
(b) the aggregate present value of the Unfunded Vested Accrued
Benefits under all Plans has increased to an amount in excess of $0, or
(c) the Borrower is in "default" (as defined in Section 4219(c)(5)
of ERISA) with respect to payments to a Multiemployer Plan required by reason
of its complete or partial withdrawal (as described in Section 4203 or 4205 of
ERISA) from such Multiemployer Plan, a certificate of the President or the
chief financial officer of the Borrower setting forth the details of such of
the events described in CLAUSES (A) through (C) as applicable and the action
which is proposed to be taken with respect thereto and, simultaneously with the
filing thereof, copies of any notice or filing which may be required by the
PBGC or other agency of the United States government with respect to such of
the events described in CLAUSES (A) through (C) as applicable.
ARTICLE 10 - NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless the Lender
shall otherwise consent in the manner set forth in SECTION 12.11, the Borrower
will not directly or indirectly:
Section 10A.1 Consolidated Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth. Permit the ratio of
total Liabilities of the Borrower and its Subsidiaries (computed on a
consolidated basis) to Tangible Net Worth of the Borrower and its Subsidiaries
(computed on a consolidated basis) to be greater than 3.5 to 1.0 as of December
31, 1995 or 3.0 to 1.0 as of any December 31 thereafter (for purposes of
computing Tangible Net Worth for the foregoing covenant, the foreign
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<PAGE> 52
currency translation adjustment will be eliminated from Tangible Net Worth).
(b) Minimum Tangible Net Worth. Permit the Tangible Net Worth of
the Borrower and its Subsidiaries (computed on a consolidated basis) as of the
following test dates to be less than the following amounts:
<TABLE>
<CAPTION>
Minimum Consolidated
Test Date Tangible Net Worth
--------- ----------------------
<S> <C>
December 31, 1994 $6,841,000 plus
the greater of
$500,000 or 70%
of earnings for
the fiscal year ending
December 31, 1994
December 31, 1995 consolidated
Tangible Net Worth
as of December 31, 1994
plus the greater of
$500,000 or 70% of
earnings for the fiscal
year ending December 31, 1995
December 31, 1996 consolidated
Tangible Net Worth
as of December 31, 1995
plus the greater of
$500,000 or 70% of
earnings for the fiscal
year ending December 31, 1996
</TABLE>
(c) Minimum Fixed Charge Ratio. Permit the Fixed Charge Ratio of
the Borrower and its Subsidiaries (computed on a consolidated basis) to be less
than 1.25 to 1.0 as of the last day of each fiscal year (commencing with the
fiscal year ending December 31, 1994), in each case computed for the fiscal
year then ending.
Section 10B.1 Unconsolidated Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth. Permit the ratio of
total Liabilities of the Borrower (computed on an unconsolidated basis) to
Tangible Net Worth of the Borrower (computed on an unconsolidated basis) to be
greater than (i) 4.0 to 1.0 as of the last day of each month during the period
commencing on the Effective Date through and including December 31, 1995 or
(ii) 3.5 to 1.0 as of the last day of each month ending thereafter.
(b) Minimum Tangible Net Worth. Permit the Tangible Net Worth of
the Borrower (computed on an unconsolidated basis and
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<PAGE> 53
excluding investments in Subsidiaries) as of the following test dates to be
less than the following amounts:
<TABLE>
<CAPTION>
Minimum Unconsolidated
Test Date Tangible Net Worth
--------- ------------------------
<S> <C>
December 31, 1994 and $5,000,000 plus
the last day of each the greater of
of the following eleven $400,000 or 70%
months of earnings for
the fiscal year ending
December 31, 1994
December 31, 1995 and unconsolidated
the last day of each Tangible Net Worth
of the following eleven as of December 31, 1994
months plus the greater of
$400,000 or 70% of
earnings for the fiscal
year ending December
31, 1995
December 31, 1996 and unconsolidated
the last day of each Tangible Net Worth
of the following eleven as of December 31, 1995
months plus the greater of
$400,000 or 70% of
earnings for the fiscal
year ending December
31, 1996
</TABLE>
(c) Minimum Fixed Charge Ratio. Permit the Fixed Charge Ratio of
the Borrower (computed on an unconsolidated basis) to be less than 1.25 to 1.0
as of the last day of each month (commencing with the month ending December 31,
1994), in each case computed for the twelve monthly periods then ending.
(d) Minimum Current Ratio. Permit the ratio of current assets of
the Borrower (computed on an unconsolidated basis) to the current Liabilities
of the Borrower (computed on an unconsolidated basis) to be equal to or less
than 1.3 to 1.0 as of the last day of any month (commencing with the month
ending December 31, 1994) (for purposes of the foregoing, outstanding Revolving
Credit Loans shall be included within current Liabilities).
Section 10.2 Indebtedness. Create, assume, or otherwise become or
remain obligated in respect of, or permit or suffer to exist or to be created,
assumed or incurred or to be outstanding any Indebtedness for Money Borrowed,
except for Permitted Indebtedness for Money Borrowed.
Section 10.3 Guaranties. Become or remain
liable with respect to any Guaranty of any obligation of any other Person.
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<PAGE> 54
Section 10.4 Investments. Acquire, after the Agreement Date, any
Business Unit or Investment or, after such date, permit any Investment to be
outstanding, other than Permitted Investments.
Section 10.5 Capital Expenditures. Make or incur any Capital
Expenditures, except that the Borrower and its Subsidiaries may make or incur
Capital Expenditures in any fiscal year in an amount not to exceed, in the
aggregate, $500,000.00; provided, however, Capital Expenditures made with the
proceeds of any term loan made by NationsBank, N.A. (Carolinas) to the Borrower
shall not count for purposes of computing the foregoing limitation.
Section 10.6 Restricted Distributions and Payments, Etc. Declare or
make any Restricted Distribution or Restricted Payment other than (i) loans to
officers, directors, shareholders, subsidiaries and Affiliates not to exceed
$50,000.00 at any time outstanding or (ii) dividends paid to the shareholders
of the Borrower provided no Default or Event of Default hereunder exists
immediately prior to or after the payment of any such dividends.
Section 10.7 Merger, Consolidation and Sale of Assets. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person.
Section 10.8 Transactions with Affiliates. Effect any transaction
with any Affiliate on a basis less favorable to the Borrower than would be the
case if such transaction had been effected with a Person not an Affiliate.
Section 10.9 Liens. Create, assume or permit or suffer to exist or
to be created or assumed any Lien on any of the property or assets of the
Borrower, real, personal or mixed, tangible or intangible, except for Permitted
Liens.
Section 10.10 Operating Leases. Enter into any lease other than a
Capitalized Lease which would cause the annual payment obligations of the
Borrower under all leases (other than leases of real property listed on
SCHEDULE 5.1(W) and Capitalized Leases) to exceed $75,000.00 in the aggregate.
Section 10.11 Benefit Plans. Permit, or take any action which would
result in, the aggregate present value of the Unfunded Vested Accrued Benefits
under all Benefit Plans of the Borrower to exceed $0.
Section 10.12 Sales and Leasebacks. Enter into any arrangement with
any Person providing for the leasing from such Person of real or personal
property which has been or is to be sold or transferred, directly or
indirectly, by the Borrower to such Person.
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<PAGE> 55
Section 10.13 Amendments of Other Agreements. Amend in any way the
interest rate or principal amount or schedule of payments of principal and
interest with respect to any Indebtedness (other than the Secured Obligations)
other than to reduce the interest rate or extend the schedule of payments with
respect thereto.
Section 10.14 Minimum Availability. Permit Availability to be less
than $500,000.00 at any time.
ARTICLE 11 - DEFAULT
Section 11.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any governmental or nongovernmental body:
(a) Default in Payment of Loans. The Borrower shall default in any
payment of principal of, or interest on, any Loan or the Note when and as due
(whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the
payment, as and when due, of principal of or interest on, any other Secured
Obligation, and such default shall continue for five days after written notice
thereof has been given to the Borrower by the Lender.
(c) Misrepresentation. Any representation or warranty made or
deemed to be made by the Borrower under this Agreement or any other Loan
Document or any amendment hereto or thereto shall at any time prove to have
been incorrect or misleading in any material respect when made.
(d) Default in Performance. The Borrower shall default in the
performance or observance of any term, covenant, condition or agreement
contained in (i) ARTICLES 6, 7, 8, 9 or 10 or (ii) this Agreement (other than
is specifically provided for otherwise in this SECTION 11.1) and such default
shall continue for a period of 10 days after written notice thereof has been
given to the Borrower by the Lender.
(e) Indebtedness Cross-Default. (i) The Borrower shall fail to pay
when due and payable the principal of or interest on any Indebtedness (other
than the Loans or Note) where the principal amount of such Indebtedness is in
excess of $100,000.00, or (ii) the maturity of any such Indebtedness shall have
(A) been accelerated in accordance with the provisions of any indenture,
contract or instrument providing for the creation of or concerning such
Indebtedness, or (B) been required to be prepaid prior to the stated maturity
thereof, or (iii) any event shall have occurred and be continuing which, with
or without the passage of time or the giving of notice, or both, would permit
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any holder or holders of such Indebtedness, any trustee or agent acting on
behalf of such holder or holders or any other Person so to accelerate such
maturity.
(f) Other Cross-Defaults. The Borrower shall default in the
payment when due or in the performance or observance of any material obligation
or condition of any agreement, contract or lease (other than the Security
Documents or any such agreement, contract or lease relating to Indebtedness),
if the exercise of remedies thereunder by the other party to such agreement
could have a Materially Adverse Effect.
(g) Voluntary Bankruptcy Proceeding. The Borrower shall (i)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (ii) commence a proceeding seeking to take advantage of
any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts, (iii)
consent to or fail to contest in a timely and appropriate manner any petition
filed against it in an involuntary case under such bankruptcy laws or other
laws, (iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of a substantial part
of its property, domestic or foreign, (v) admit in writing its inability to pay
its debts as they become due, (vi) make a general assignment for the benefit of
creditors, or (vii) take any corporate action for the purpose of authorizing
any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against the Borrower in any court of competent jurisdiction
seeking (i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts, or (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of the
Borrower or of all or any substantial part of the assets, domestic or foreign,
of the Borrower, and such case or proceeding shall continue undismissed or
unstayed for a period of 60 consecutive calendar days, or an order granting the
relief requested in such case or proceeding against the Borrower (including,
but not limited to, an order for relief under such federal bankruptcy laws)
shall be entered.
(i) Loan Documents. Any event of default or Event of Default under
any other Loan Document shall occur or the Borrower shall default in the
performance or observance of any material term, covenant, condition or
agreement contained in, or the payment of any other sum covenanted to be paid
by the Borrower under, any such Loan Document or any provision of this
Agreement, or of any other Loan Document after delivery thereof hereunder,
shall for any reason cease to be valid and binding, other than a nonmaterial
provision rendered unenforceable by operation of law, or the Borrower or other
party thereto (other than the Lender) shall so state in writing, or this
Agreement or any other Loan
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<PAGE> 57
Document, after delivery thereof hereunder, shall for any reason (other than
any action taken independently by the Lender and except to the extent permitted
by the terms thereof) cease to create a valid, perfected and, except as
otherwise expressly permitted herein, first priority Lien on, or security
interest in, any of the Collateral purported to be covered thereby.
(j) Judgment. A judgment or order for the payment of money which
exceeds $250,000.00 in amount not covered by insurance shall be entered against
the Borrower by any court and such judgment or order shall continue
undischarged or unstayed for 30 days.
(k) Attachment. A warrant or writ of attachment or execution or
similar process which exceeds $250,000.00 in value shall be issued against any
property of the Borrower and such warrant or process shall continue
undischarged or unstayed for 30 days.
(l) ERISA. (i) Any Termination Event with respect to a Benefit
Plan shall occur that, after taking into account the excess, if any, of (A) the
fair market value of the assets of any other Benefit Plan with respect to which
a Termination Event occurs on the same day (but only to the extent that such
excess is the property of the Borrower) over (B) the present value on such day
of all vested nonforfeitable benefits under such other Benefit Plan, results in
an Unfunded Vested Accrued Benefit in excess of $0, (ii) any Benefit Plan shall
incur an "accumulated funding deficiency" (as defined in Section 412 of the
Code or Section 302 of ERISA) for which a waiver has not been obtained in
accordance with the applicable provisions of the Code and ERISA, or (iii) the
Borrower is in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan resulting from the Borrower's
complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA)
from such Multiemployer Plan.
(m) Qualified Audits. The independent certified public accountants
retained by the Borrower shall refuse to deliver an opinion in accordance with
SECTION 9.1(A) with respect to the annual financial statements of the Borrower.
(n) Change of Control. There occurs any change in the voting
control of the Borrower.
(o) Material Adverse Change. There occurs any act, omission,
event, undertaking or circumstance or series of acts, omissions, events,
undertakings or circumstances which have, or in the sole judgment of the Lender
would have, either individually or in the aggregate, a Materially Adverse
Effect.
(p) Change in Management. Hugh Gaither shall for any reason cease
to be the chief executive officer of the Borrower and 30 days shall have
elapsed during which time no replacement satisfactory to the Lender shall have
been appointed.
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Section 11.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon the
occurrence of an Event of Default specified in SECTION 11.1(G) or (H), (i) the
principal of and the interest on the Loans and the Note at the time
outstanding, and all other amounts owed to the Lender under this Agreement or
any of the Loan Documents and all other Secured Obligations, shall thereupon
become due and payable without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in this Agreement or any
of the Loan Documents to the contrary notwithstanding, and (ii) the Revolving
Credit Facility and the commitment of the Lender to make advances thereunder or
under this Agreement shall immediately terminate.
(b) Other Remedies. If any Event of Default (other than as
specified in SECTION 11.1(G) or (H)) shall have occurred and be continuing, the
Lender, in its sole and absolute discretion, may do any of the following:
(i) declare the principal of and interest on the Loans
and the Note at the time outstanding, and all other amounts owed to
the Lender under this Agreement or any of the Loan Documents and all
other Secured Obligations, to be forthwith due and payable, whereupon
the same shall immediately become due and payable without presentment,
demand, protest or other notice of any kind, all of which are
expressly waived, anything in this Agreement or the Loan Documents to
the contrary notwithstanding;
(ii) terminate the Revolving Credit Facility and any
commitment of the Lender to make advances hereunder;
(iii) notify, or request the Borrower to notify, in writing
or otherwise, any Account Debtor or obligor with respect to any one
or more of the Receivables to make payment to the Lender or any
agent or designee of the Lender, at such address as may be specified by
the Lender, and, if, notwithstanding the giving of any notice, any
Account Debtor or other such obligor shall make payments to the
Borrower, the Borrower shall hold all such payments it receives in
trust for the Lender, without commingling the same with other funds or
property of, or held by, the Borrower and shall deliver the same to the
Lender or any such agent or designee immediately upon receipt by the
Borrower in the identical form received, together with any necessary
endorsements;
(iv) settle or adjust disputes and claims directly with
Account Debtors and other obligors on Receivables for amounts and on
terms which the Lender considers advisable and in all such cases only
the net amounts received by the Lender in payment of such amounts,
after deductions of costs and attorneys' fees, shall constitute
Collateral, and the Borrower shall have no further right to make any
such
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<PAGE> 59
settlements or adjustments or to accept any returns of merchandise;
(v) enter upon any premises on which Inventory or
Equipment may be allocated and, without resistance or interference by
the Borrower, take physical possession of any or all thereof and
maintain such possession on such premises or move the same or any
part thereof to such other place or places as the Lender shall choose,
without being liable to the Borrower on account of any loss, damage
or depreciation that may occur as a result thereof, so long as the
Lender shall act reasonably and in good faith;
(vi) require the Borrower to and the Borrower shall,
without charge to the Lender, assemble the Inventory and Equipment and
maintain or deliver it into the possession of the Lender or any agent
or representative of the Lender at such place or places as the Lender
may designate;
(vii) at the expense of the Borrower, cause any of the
Inventory and Equipment to be placed in a public or field warehouse,
and the Lender shall not be liable to the Borrower on account of any
loss, damage or depreciation that may occur as a result thereof, so
long as the Lender shall act reasonably and in good faith;
(viii) without notice, demand or other process, and without
payment of any rent or any other charge, enter any of the Borrower's
premises and, without breach of the peace, until the Lender completes
the enforcement of its rights in the Collateral, take possession of
such premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of the Borrower's
equipment, for the purpose of (A) completing any work in process,
preparing any Inventory for disposition and disposing thereof, and (B)
collecting any Receivable, and the Lender is hereby granted a license
or sublicense and all other rights as may be necessary, appropriate
or desirable to use the Intellectual Property in connection with the
foregoing, and the rights of the Borrower under all licenses and
franchise agreements shall inure to the Lender's benefit (provided,
however, that any use of any federally registered trademarks as to
any goods shall be subject to the control as to the quality of such
goods of the owner of such trademarks and the goodwill of the business
symbolized thereby);
(ix) exercise any and all of its rights under any and all
of the Security Documents;
(x) apply any cash Collateral to the payment of the
Secured Obligations in any order in which the Lender may elect or use
such cash in connection with the exercise of any of its other rights
hereunder or under any of the Security Documents;
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<PAGE> 60
(xi) establish or cause to be established one or more
Lockboxes or other arrangement for the deposit of proceeds of
Receivables, and, in such case, the Borrower shall cause to be
forwarded to the Lender at the Lender's Office, on a daily basis,
copies of all checks and other items of payment and deposit slips
related thereto deposited in such Lockboxes, together with collection
reports in form and substance satisfactory to the Lender; and
(xii) exercise all of the rights and remedies of a secured
party under the UCC (whether or not the UCC is applicable) and under
any other applicable law, including, without limitation, the right,
without notice except as specified below and with or without taking
the possession thereof, to sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any location chosen
by the Lender, for cash, on credit or for future delivery and at such
price or prices and upon such other terms as the Lender may deem
commercially reasonable. The Borrower agrees that, to the extent
notice of sale shall be required by law, at least 10 days' notice to
the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notice, but notice given in any other reasonable manner or at any
other reasonable time shall also constitute reasonable notification.
The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so
adjourned.
Section 11.3 Application of Proceeds. All proceeds from each sale
of, or other realization upon, all or any part of the Collateral following an
Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including attorneys' fees,
(b) Second: to the payment of the Secured Obligations (with the
Borrower remaining liable for any deficiency) in any order which the Lender may
elect, and
(c) Third: the balance (if any) of such proceeds shall be paid to the
Borrower or, subject to any duty imposed by law or otherwise, to whomsoever is
entitled thereto.
THE BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
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Section 11.4 Power of Attorney. In addition to the authorizations
granted to the Lender under SECTION 7.15 or under any other provision of this
Agreement or any of the Loan Documents, upon and after an Event of Default, the
Borrower hereby irrevocably designates, makes, constitutes and appoints the
Lender (and all Persons designated by the Lender from time to time) as the
Borrower's true and lawful attorney and agent in fact, and the Lender or any
agent of the Lender may, without notice to the Borrower, and at such time or
times as the Lender or any such agent in its sole discretion may determine, in
the name of the Borrower or the Lender,
(a) demand payment of the Receivables, enforce payment thereof by
legal proceedings or otherwise, settle, adjust, compromise, extend or renew any
or all of the Receivables or any legal proceedings brought to collect the
Receivables, discharge and release the Receivables or any of them and exercise
all of the Borrower's rights and remedies with respect to the collection of
Receivables,
(b) prepare, file and sign the name of the Borrower on any proof of
claim in bankruptcy or any similar document against any Account Debtor or any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral,
(c) endorse the name of the Borrower upon any chattel paper,
document, instrument, notice, freight bill, bill of lading or similar document
or agreement relating to the Receivables, the Inventory or any other
Collateral,
(d) use the stationery of the Borrower, open the Borrower's mail,
notify the post office authorities to change the address for delivery of the
Borrower's mail to an address designated by the Lender and sign the name of the
Borrower to verifications of the Receivables and on any notice to the Account
Debtors,
(e) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Receivables, Inventory or other Collateral to which the Borrower or any
Subsidiary of the Borrower has access.
Section 11.5 Miscellaneous Provisions Concerning Remedies.
(a) Right Cumulative. The rights and remedies of the Lender under
this Agreement, the Note and each of the Loan Documents shall be cumulative and
not exclusive of any rights or remedies which it or they would otherwise have.
In exercising such rights and remedies, the Lender may be selective and no
failure or delay by the Lender in exercising any right shall operate as a
waiver of such right nor shall any single or partial exercise of any power or
right preclude its other or further exercise or the exercise of any other power
or right.
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(b) Waiver of Marshalling. The Borrower hereby waives any right to
require any marshalling of assets and any similar right.
(c) Limitation. Nothing contained in this ARTICLE 11 or elsewhere
in this Agreement or in any of the Loan Documents shall be construed as
requiring or obligating the Lender or any agent or designee of the Lender to
make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or notice or take any
action with respect to any Receivable or any other Collateral or the moneys due
or to become due thereunder or in connection therewith or to take any steps
necessary to preserve any rights against prior parties, and neither the Lender
nor any of its agents or designees shall have any liability to the Borrower for
actions taken pursuant to this ARTICLE 11, any other provision of this
Agreement or any of the Loan Documents, so long as the Lender or such agent or
designee shall act reasonably and in good faith.
(d) Appointment of Receiver. In any action under this ARTICLE 11,
the Lender shall be entitled to the appointment of a receiver, without notice
of any kind whatsoever, to take possession of all or any portion of the
Collateral and to exercise such power as the court shall confer upon such
receiver.
Section 11.6 Trademark License. The Borrower hereby grants to the
Lender the nonexclusive right and license to use the trademarks described on
SCHEDULE 11.6 and any other trademark then used by the Borrower, for the
purposes set forth in SECTION 11.2(B)(VIII) and for the purpose of enabling the
Lender to realize on the Collateral and to permit any purchaser of any portion
of the Collateral through a foreclosure sale or any other exercise of the
Lender's rights and remedies under the Loan Documents to use, sell or otherwise
dispose of the Collateral bearing any such trademark. Such right and license
is granted free of charge, without the requirement that any monetary payment
whatsoever be made to the Borrower or any other Person by the Lender. The
Borrower hereby represents, warrants, covenants and agrees that it presently
has, and shall continue to have, the right, without the approval or consent of
others, to grant the license set forth in this SECTION 11.6.
ARTICLE 12 - MISCELLANEOUS
Section 12.1 Notices.
(a) Method of Communication. Except as specifically provided in
this Agreement or in any of the Loan Documents, all notices and the
communications hereunder and thereunder shall be in writing or by telephone
subsequently confirmed in writing. Notices in writing shall be delivered
personally or sent by overnight courier service, by certified or registered
mail, postage pre-paid, or by facsimile transmission and shall be deemed
received, in the case of personal delivery, when delivered, in the case of
overnight courier service, on the next
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Business Day after delivery to such service, in the case of mailing, on the
third day after mailing (or, if such day is a day on which deliveries of mail
are not made, on the next succeeding day on which deliveries of mail are made)
and, in the case of facsimile transmission, upon transmittal; provided that in
the case of notices to the Lender, the Lender shall be charged with knowledge
of the contents thereof only when such notice is actually received by the
Lender. A telephonic notice to the Lender as understood by the Lender will be
deemed to be the controlling and proper notice in the event of a discrepancy
with or failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to
it at the following addresses, or any other address of which all the other
parties are notified in writing.
<TABLE>
<S> <C>
If to the Borrower: Ridgeview, Inc.
Post Office Box 8
Newton, NC 28658
Attention: Walter Bost
Facsimile No.: 704-464-2994
With a copy to: Isenhower, Wood & Cilley, P.A.
Post Office Box 145
Newton, NC 28658-0145
Attention: David L. Isenhower
Facsimile No.: 704-465-3707
If to the Lender: NationsBank of Georgia, N.A.
c/o NationsBank Business Credit
600 Peachtree Street, 13th Floor
Atlanta, Georgia 30308
Attention: Scott Goldstein
Facsimile No.: (404) 607-6439
</TABLE>
(c) Lender's Office. The Lender hereby designates its office
located at 600 Peachtree Street, 13th Floor, Atlanta, Georgia 30308, or any
subsequent office which shall have been specified for such purpose by written
notice to the Borrower, as the office to which payments due are to be made and
at which Loans will be disbursed.
Section 12.2 Expenses. The Borrower agrees to pay or reimburse on
demand all costs and expenses incurred by the Lender, including, without
limitation, the reasonable fees and disbursements of counsel, in connection
with (a) the negotiation, preparation, execution, delivery, administration,
enforcement and termination of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including,
without limitation, (i) the out- of-pocket costs and expenses incurred in
connection with the administration and interpretation of this Agreement and the
other Loan Documents, (ii) the costs and expenses of appraisals of the
Collateral, (iii) the costs and expenses of lien and title searches and title
insurance, (iv) the costs and expenses of environmental reports
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with respect to the Real Estate, (v) taxes, fees and other charges of recording
the Mortgages, filing the Financing Statements and continuations and the costs
and expenses of taking other actions to perfect, protect, and continue the
Security Interest; (b) the preparation, execution and delivery of any waiver,
amendment, supplement or consent by the Lender relating to this Agreement or
any of the Loan Documents; (c) sums paid or obligations incurred in connection
with the payment of any amount or taking any action required of the Borrower
under the Loan Documents that the Borrower fails to pay or take; (d) costs of
inspections and verifications of the Collateral, including, without limitation,
standard per diem fees charged by the Lender, travel, lodging, and meals for
inspections of the Collateral and the Borrower's operations and books and
records by the Lender's agents up to four times per year and whenever an Event
of Default exists; (e) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
each Controlled Disbursement Account, Agency Account and Lockbox; (f) costs and
expenses of preserving and protecting the Collateral; (g) after the occurrence
of a Default, consulting with and obtaining opinions and appraisals from one
or more Persons, including real estate and personal property appraisers,
accountants and lawyers, concerning the value of any Collateral, including Real
Estate, for the Secured Obligations or related to the nature, scope or value of
any right or remedy of the Lender hereunder or under any of the Loan Documents,
including any review of factual matters in connection therewith, which expenses
shall include the fees and disbursements of such Persons; and (h) costs and
expenses paid or incurred to obtain payment of the Secured Obligations, enforce
the Security Interest, sell or otherwise realize upon the Collateral, including
Real Estate, and otherwise enforce the provisions of the Loan Documents, or to
prosecute or defend any claim in any way arising out of, related to or
connected with, this Agreement or any of the Loan Documents, which expenses
shall include the reasonable fees and disbursements of counsel and of experts
and other consultants retained by the Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrower. The
Borrower hereby authorizes the Lender to debit the Borrower's loan accounts
(by increasing the principal amount of the Revolving Credit Loan) in the amount
of any such costs and expenses owed by the Borrower when due.
Section 12.3 Stamp and Other Taxes. The Borrower will pay any and
all stamp, registration, recordation and similar taxes, fees or charges and
shall indemnify the Lender against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges, which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any
of the Loan Documents or the perfection of any rights or security interest
thereunder.
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Section 12.4 Setoff. In addition to any rights now or hereafter
granted under applicable law, and not by way of limitation of any such rights,
upon and after the occurrence of any Default or Event of Default, the Lender
and any participant with the Lender in the Loans are hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness at any
time held or owing by the Lender or any participant to or for the credit or the
account of the Borrower against and on account of the Secured Obligations
irrespective or whether or not (a) the Lender shall have made any demand under
this Agreement or any of the Loan Documents, or (b) the Lender shall have
declared any or all of the Secured Obligations to be due and payable as
permitted by SECTION 11.2 and although such Secured Obligations shall be
contingent or unmatured.
Section 12.5 Litigation. EACH OF THE LENDER AND THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY
BE COMMENCED BY OR AGAINST THE BORROWER OR THE LENDER ARISING OUT OF THIS
AGREEMENT, THE COLLATERAL OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER
CAUSE OR DISPUTE WHATSOEVER BETWEEN THE BORROWER AND THE LENDER OF ANY KIND OR
NATURE. THE BORROWER AND THE LENDER HEREBY AGREE THAT THE FEDERAL COURT OF THE
NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE LENDER, ANY COURT IN
WHICH THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND WHICH SITS IN A
JURISDICTION IN WHICH THE BORROWER TRANSACTS BUSINESS SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE BORROWER
AND THE LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE LOAN
DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE BORROWER EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE
OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE BORROWER AND ITS COUNSEL AT THE
RESPECTIVE ADDRESSES SET FORTH IN SECTION 12.1(B), WHICH SERVICE SHALL BE
DEEMED MADE UPON RECEIPT THEREOF. THE NON-EXCLUSIVE CHOICE OF FORUM SET FORTH
IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION.
Section 12.6 Waiver of Rights. THE BORROWER HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH THE BORROWER HAS UNDER
CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR
PROVISION OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE
ISSUANCE OF A
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WRIT OF POSSESSION ENTITLING THE LENDER, ITS SUCCESSORS AND ASSIGNS TO
POSSESSION OF THE COLLATERAL UPON DEFAULT OR EVENT OF DEFAULT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT
WHICH THE LENDER MAY HAVE, THE BORROWER CONSENTS THAT, IF THE LENDER FILES A
PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH SECTIONS
44-14-261 AND 44-14-262 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR
PROVISION OF APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH
PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED
MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE
FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH CHAPTER 14 OF
TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE WITH ANY SIMILAR
PROVISION OF APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND AS
OTHERWISE REQUIRED BY SECTION 44- 14-263 OF THE OFFICIAL CODE OF GEORGIA OR IN
ACCORDANCE WITH ANY SIMILAR PROVISION OF APPLICABLE LAW. THE BORROWER HEREBY
ACKNOWLEDGES THAT IT HAS READ AND FULLY UNDERSTANDS THE TERMS OF THIS WAIVER
AND THE EFFECT HEREOF.
Section 12.7 Reversal of Payments. To the extent the Borrower
makes a payment or payments to the Lender or the Lender receives any payment or
proceeds of the Collateral for the Borrower's benefit, which payment(s) or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, the Lender shall have the continuing
and exclusive right to apply, reverse and re-apply any and all payments to any
portion of the Secured Obligations, and, to the extent of such payment or
proceeds received, the Secured Obligations or part thereof intended to be
satisfied shall be revived and continued in full force and effect, as if such
payment or proceeds had not been received by the Lender.
Section 12.8 Injunctive Relief. The Borrower recognizes that, in
the event the Borrower fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy of law may prove to
be inadequate relief to the Lender; therefore, the Borrower agrees that the
Lender, at the Lender's option, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 12.9 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower to determine whether it is in compliance with any covenant contained
herein, shall, unless there is an express written direction or consent by the
Lender to the contrary, be performed in accordance with GAAP.
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Section 12.10 Assignment; Participation. All the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights under the Agreement. The Lender may
assign to one or more Persons, or sell participations to one or more Persons
in, all or a portion of its rights and obligations hereunder and under the Note
and, in connection with any such assignment or sale of a participation, may
assign its rights and obligations under the Security Documents. The Lender
may, in connection with any assignment or proposed assignment or sale or
proposed sale of a participation, disclose to the assignee or proposed assignee
or participant or proposed participant any information relating to the Borrower
furnished to the Lender by or on behalf of the Borrower.
Section 12.11 Amendments. Any term, covenant, agreement or
condition of this Agreement or any of the other Loan Documents may be amended
or waived and any departure therefrom may be consented to if, but only if, such
amendment, waiver or consent is in writing signed by the Lender and, in the
case of an amendment, by the Borrower. Unless otherwise specified in such
waiver or consent, a waiver or consent given hereunder shall be effective only
in the specific instance and for the specific purpose for which given.
Section 12.12 Performance of Borrower's Duties. The Borrower's
obligations under this Agreement and each of the Loan Documents shall be
performed by the Borrower at its sole cost and expense. If the Borrower shall
fail to do any act or thing which it has covenanted to do under this Agreement
or any of the Loan Documents, the Lender may (but shall not be obligated to) do
the same or cause it to be done either in the name of the Lender or in the name
and on behalf of the Borrower, and the Borrower hereby irrevocably authorizes
the Lender so to act.
Section 12.13 Indemnification. The Borrower agrees to reimburse the
Lender for all reasonable costs and expenses, including counsel fees and
disbursements, incurred and to indemnify and hold the Lender harmless from and
against all losses suffered by the Lender, other than losses resulting from the
Lender's gross negligence or willful misconduct, in connection with (a) the
exercise by the Lender of any right or remedy granted to it under this
Agreement or any of the Loan Documents, (b) any claim, and the prosecution or
defense thereof, arising out of or in any way connected with this Agreement or
any of the Loan Documents, except in the case of a dispute between the Borrower
and the Lender in which the Borrower prevails in a final unappealed or
unappealable judgment, and (c) the collection or enforcement of the Secured
Obligations or any of them.
Section 12.14 All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to the Lender and any Persons
designated by the Lender pursuant to any provisions of this Agreement or any of
the Loan Documents shall be deemed
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coupled with an interest and shall be irrevocable so long as any of the Secured
Obligations remain unpaid or unsatisfied or the Revolving Credit Facility has
not been terminated.
Section 12.15 Survival. Notwithstanding any termination of this
Agreement, (a) until all Secured Obligations have been paid in full and the
Revolving Credit Facility terminated, the Lender shall retain its Security
Interest and shall retain all rights under this Agreement and each of the
Security Documents with respect to the Collateral as fully as though this
Agreement had not been terminated, and (b) the indemnities to which the Lender
is entitled under the provisions of this ARTICLE 12 and any other provision of
this Agreement and the Loan Documents shall continue in full force and effect
and shall protect the Lender against events arising after such termination as
well as before.
Section 12.16 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 12.17 Governing Law. This Agreement and the Note shall be
construed in accordance with and governed by the law of the State of Georgia.
Section 12.18 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
Section 12.19 Reproduction of Documents. This Agreement, each of
the Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Lender, and (c) financial statements,
certificates and other information previously or hereafter furnished to the
Lender, may be reproduced by the Lender by any photographic, photostatic,
microcard, microfilm, miniature photographic or other similar process, and the
Lender may destroy any original document so reproduced. Each party hereto
stipulates that, to the extent permitted by applicable laws any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be in
existence and whether or not such reproduction was made by such Lender in the
regular course of business), and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
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<PAGE> 69
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts all as of
the day and year first written above.
BORROWER:
RIDGEVIEW, INC.
[CORPORATE SEAL]
Attest: By: /s/ Hugh R. Gaither
----------------------------
Name: Hugh R. Gaither
-----------------------
By: /s/ Susan Gaither Jones Title: President
-------------------------- ----------------------
Name: Susan Gaither Jones
---------------------
Title: Assistant Secretary
--------------------
LENDER:
NATIONSBANK OF GEORGIA, N.A.
By: /s/ Scott Goldstein
----------------------------
Name: Scott K. Goldstein
-----------------------
Title: Vice President
----------------------
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<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
(Revolving Loans)
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "First
Amendment"), dated as of June 28, 1995, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws
of the State of North Carolina (the "Borrower"); and
NATIONSBANK OF GEORGIA, N.A., a national banking association organized
and existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and the Lender entered into that certain Loan and
Security Agreement (Revolving Loans), dated January 10, 1995 (the "Loan
Agreement").
B. The Borrower and the Lender have agreed to modify and amend
the Loan Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 1.1 is amended by amending in their entirety
the following definitions so that such definitions now read as
follows:
"Applicable Margin" means (a) with respect the
Revolving Credit Loans, 1/2% prior to the funding of the Term
Loan, and 1% thereafter and (b) with respect to the Term Loan,
1%.
"Borrowing Base" means at any time an amount equal to the sum
of:
(a) 80% (or such lesser percentage as
the Lender may in its sole and absolute discretion
determine from time to time) of the face value of
Eligible Receivables due and owing at such time, PLUS
(b) THE LESSER OF
(i) 50% (or such lesser
percentage as the Lender may in its sole and
absolute discretion determine from time to
time) of
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<PAGE> 2
the lesser of cost (computed on a
first-in-first-out basis) and fair market
value of Eligible Inventory at such time, AND
(ii) $7,500,000, MINUS.
(c) the Letter of Credit Reserve and the
Term Loan Reserve and such other reserves as the
Lender may determine from time to time in the
exercise of its reasonable credit judgment,
"Eligible Inventory" means items of Inventory of the
Borrower or the Subsidiary Guarantor held for sale in the
ordinary course of the business of the Borrower or the
Subsidiary Guarantor (but not including packaging or shipping
materials or maintenance supplies) which are deemed by the
Lender in the exercise of its sole and absolute discretion to
be eligible for inclusion in the calculation of the Borrowing
Base. Unless otherwise approved in writing by the Lender, no
Inventory shall be deemed to be Eligible Inventory unless it
meets all of the following requirements: (a) such Inventory
is owned by the Borrower or the Subsidiary Guarantor, is
subject to the Security Interest, which is perfected as to
such Inventory, and is subject to no other Lien whatsoever
other than a Permitted Lien; (b) such Inventory (i) in the
case of the Borrower consists of raw materials or finished
goods and does not consist of work-in-process (other than
greige goods), supplies or consigned goods and (ii) in the
case of the Subsidiary Guarantor consists of finished goods
and greige goods and does not consist of work- in-process
(other than greige goods), supplies or consigned goods; (c)
such Inventory is in good condition and meets all standards
applicable to such goods, their use or sale imposed by any
governmental agency, or department or division thereof, having
regulatory authority over such matters; (d) such Inventory is
currently either usable or saleable, at prices approximating
at least the cost thereof, in the normal course of the
Borrower's or the Subsidiary Guarantor's business; (e) such
Inventory is not obsolete or returned or repossessed or used
goods taken in trade; (f) such Inventory is located within the
United States at one of the locations listed in SCHEDULE
5.1(U); and (g) such Inventory is in the possession and
control of the Borrower or the Subsidiary Guarantor and not
any third party and if located in a warehouse or other
facility leased by the Borrower or the Subsidiary Guarantor,
the lessor has delivered to the Lender a waiver and consent in
form and substance satisfactory to the Lender.
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<PAGE> 3
"Eligible Receivable" means the unpaid portion of a
Receivable payable in Dollars to the Borrower or the
Subsidiary Guarantor net of any returns, discounts, claims,
credits, charges or other allowances, offsets, deductions,
counterclaims, disputes or other defenses and reduced by the
aggregate amount of all reserves, limits and deductions
provided for in this definition and elsewhere in this
Agreement which is deemed by the Lender in the exercise of its
sole and absolute discretion to be eligible for inclusion in
the calculation of the Borrowing Base. Unless otherwise
approved in writing by the Lender, no Receivable shall be
deemed an Eligible Receivable unless it meets all of the
following requirements: (a) such Receivable is owned by the
Borrower or the Subsidiary Guarantor and represents a complete
BONA FIDE transaction which requires no further act under any
circumstances on the part of the Borrower or the Subsidiary
Guarantor to make such Receivable payable by the Account
Debtor; (b) such Receivable is not unpaid more than 120 days
after the date of the original invoice or past due more than
60 days after its due date; (c) such Receivable does not arise
out of any transaction with any Subsidiary, Affiliate,
creditor, lessor or supplier of the Borrower or the Subsidiary
Guarantor; (d) such Receivable is not owing by an Account
Debtor more than 50% of whose then-existing accounts owing to
the Borrower or the Subsidiary Guarantor do not meet the
requirements set forth in CLAUSE B above; (e) if the Account
Debtor with respect thereto is located outside of the United
States of America, the goods which gave rise to such
Receivable were shipped after receipt by the Borrower or the
Subsidiary Guarantor from the Account Debtor of an irrevocable
letter of credit that has been confirmed by a financial
institution acceptable to the Lender and is in form and
substance acceptable to the Lender, payable in the full face
amount of the face value of the Receivable in Dollars at a
place of payment located within the United States and has been
duly assigned to the Lender; (f) the Borrower or the
Subsidiary Guarantor is not in breach of any express or
implied representation or warranty with respect to the goods
the sale of which gave rise to such Receivable; (g) the
Account Debtor with respect to such Receivable is not
insolvent or the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action,
threatened or pending, which might, in the Lender's sole
judgment, have a Materially Adverse Effect on such Account
Debtor; (h) the goods the sale of which gave rise to such
Receivable were shipped or delivered to the Account Debtor on
an absolute sale basis and not on a bill and hold sale
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<PAGE> 4
basis, a consignment sale basis, a guaranteed sale basis, a
sale or return basis or on the basis of any other similar
understanding, and such goods have not been returned or
rejected; (i) such Receivable is not owing by an Account
Debtor or a group of affiliated Account Debtors whose
then-existing accounts owing tothe Borrower and the Subsidiary
Guarantor exceed in face amount 20% of the Borrower's and the
Subsidiary Guarantor's total Eligible Receivables; (j) such
Receivable is evidenced by an invoice or other documentation
in form acceptable to the Lender containing only terms
normally offered by the Borrower or the Subsidiary Guarantor,
and dated no later than the date of shipment; (k) such
Receivable is a valid, legally enforceable obligation of the
Account Debtor with respect thereto and is not subject to any
present, or contingent (and no facts exist which are the basis
for any future), offset, deduction or counterclaim, dispute or
other defense on the part of such Account Debtor; (l) such
Receivable is not evidenced by chattel paper or an instrument
of any kind; (m) such Receivable does not arise from the
performance of services, including services under or related
to any warranty obligation of the Borrower or the Subsidiary
Guarantor or out of service charges by the Borrower or the
Subsidiary Guarantor or other fees for the time value of
money; and (n) such Receivable is subject to the Security
Interest, which is perfected as to such Receivable, and is
subject to no other Lien whatsoever other than a Permitted
Lien and the goods giving rise to such Receivable were not, at
the time of the sale thereof, subject to any Lien other than a
Permitted Lien.
"Loan" means any Revolving Credit Loan or the Term
Loan, as well as all such Loans collectively.
"Note" means the Revolving Credit Loan or the Term
Note, as well as both of such Notes collectively.
"Permitted Indebtedness for Money Borrowed" means
existing Indebtedness disclosed by Borrower to Lender.
"Revolving Credit Facility" means the principal sum
of $15,000,000.00.
"Secured Obligations" means, in each case whether now
in existence or hereafter arising, (a) the principal of and
interest and premium, if any, on the Loans, (b) all
reimbursement and other obligations relating to the Letter of
Credit, and (c) all indebtedness, liabilities, obligations,
overdrafts,
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<PAGE> 5
covenants and duties of the Borrower to the Lender or any
Affiliate of the Lender of every kind, nature and description,
direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or unliquidated and
whether or not evidenced by any note and whether or not for
the payment of money under or in respect of this Agreement,
any Note or any of the other Loan Documents.
"Termination Date" means the earlier of (a) January
10, 1999 or such later date to which the termination of the
Revolving Credit Facility shall be extended pursuant to
SECTION 2.5, and (b) the date on which all Secured Obligations
shall have been irrevocably paid in full and the Revolving
Credit Facility terminated.
(a) Section 1.1 is amended by adding the following
definitions in the alphabetically appropriate places:
"Letter of Credit" means the letter of credit issued
by the Lender for the account of the Borrower to George G.
Souhan in the original face amount of $3,500,000.00.
"Letter of Credit Documents" means each of the
documents, agreements and other writings required by the
Lender to be executed and/or delivered in connection with the
issuance of the Letter of Credit, including, without
limitation, each letter of credit application and
reimbursement agreement.
"Letter of Credit Reserve" means, at any time, 100%
of the sum of (i) the aggregate undrawn amount of the Letter
of Credit outstanding at such time, PLUS (ii) the aggregate
amount of all drawings under the Letter of Credit for which
the Lender has not been reimbursed.
"Subsidiary Guarantor" means Seneca Knitting Mills
Corporation.
"Subsidiary Guaranty" means the Subsidiary Guaranty
executed by the Subsidiary Guarantor in favor of the Lender
guaranteeing the repayment of the Secured Obligations.
"Subsidiary Security Agreement" means the Security
Agreement by and between the Subsidiary Guarantor and the
Lender.
5
<PAGE> 6
"Term Loan" means the loan made to the Borrower
pursuant to SECTION 2.7(A).
"Term Note" means the Term Note made by the Borrower
payable to the order of the Lender evidencing the obligation
of the Borrower to pay the aggregate unpaid principal amount
of the Term Loan made to it by the Lender (and any promissory
note or notes that may be issued from time to time in
substitution, renewal, extension, replacement or exchange
therefor, whether payable to the Lender or a different lender,
whether issued in connection with a Person becoming a lender
after the Effective Date or otherwise).
"Term Loan Reserve" means, at any time prior to the
funding of the Term Loan, $1,000,000.00.
(c) Section 2.4 is amended in its entirety so that such
Section now reads as follows:
Section 2.4 Revolving Credit Note. The Lender's
Revolving Credit Loans and the obligation of the Borrower to
repay such Loans shall also be evidenced by a single Revolving
Credit Note payable to the order of the Lender. Such Note
shall be dated June 28, 1995 and be duly and validly executed
and delivered by the Borrower.
(d) Article 2 is amended by adding the following Section
thereto:
Section 2.6 Letter of Credit. (a) The Lender shall
in accordance with the provisions of this SECTION 2.6 issue
the Letter of Credit on June 28, 1995.
(b) The Borrower acknowledges and agrees that if
and to the extent the Borrower shall fail to reimburse the
Lender under the Letter of Credit Documents for the amount
drawn under the Letter of Credit, the Borrower hereby
irrevocably requests and directs the Lender to make the Term
Loan and to make Revolving Credit Loans of $2,500,000.00 and
hereby irrevocably authorizes the Lender to retain the
proceeds of such Loans in satisfaction of the Borrower's
obligations under the Letter of Credit Documents to reimburse
the Lender for the amount drawn under the Letter of Credit.
(c) The issuance and negotiation of the Letter of
Credit shall be governed by the Uniform Customs and Practices
for Documentary Credits (1993 Revision), as published in the
International Chamber of Commerce
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<PAGE> 7
Uniform Customs and Practices, Publication No. 500 or such
other policies and practices as may be followed by the Lender
with respect to similar letters of credit at the time.
(e) Article 2 is further amended by adding the following
Section thereto:
Section 2.7 Term Loan. (a) Upon the terms and
subject to the conditions of, and in reliance upon the
representations and warranties made under this Agreement, the
Lender agrees to make the Term Loan to the Borrower on the
date of the drawing under the Letter of Credit.
(b) Repayment of the Term Loan. The Term Loan is due
and payable, and shall be repaid in full by the Borrower, in
(i) 32 consecutive monthly installments on the 1st day of each
month commencing July 1, 1996 each in the amount of $12,000
and (ii) a final installment on January 10, 1999 in the amount
of the then unpaid balance of the Term Loan.
(c) Term Note. The Term Loan and the obligation of
the Borrower to repay the Term Loan shall be evidenced the
Term Note. The Term Note shall be dated June 28, 1995 and be
duly and validly executed and delivered by the Borrower.
(d) Prepayment of Term Loan.
(i) Voluntary Prepayment. The Borrower
shall have the right at any time and from time to
time, upon at least 15 days' prior written notice to
the Lender in the case of a prepayment in full and
upon at least five days' prior written notice to the
Lender in the case of a partial prepayment, to prepay
the Term Loan in whole or in part on any Business
Day. Each partial prepayment of the Term Loan shall
be in a principal amount equal to $100,000 or any
integral multiple thereof and shall be applied to the
principal installments of the Term Loan in the
inverse order of their maturities. On the prepayment
date, the Borrower shall pay interest on the amount
prepaid, accrued to the prepayment date. Any notice
of prepayment given by the Borrower hereunder shall
be irrevocable, and the amount to be prepaid
(including accrued interest and any prepayment fees)
shall be due and payable on the date designated in
the notice.
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<PAGE> 8
(ii) Mandatory Prepayment. Any and all
amounts received by the Borrower as proceeds from the
sale of any Equipment or Real Estate to the extent
such proceeds exceed (i) $5,000 in the case of any
single item of Equipment or parcel of Real Estate, or
(ii) $25,000 in the aggregate for all such Equipment
and Real Estate sold during any twelve-month period
shall be paid, immediately upon receipt by the
Borrower to the Lender and shall be applied to the
Term Loan. Amounts applied to the Term Loan shall
reduce principal installments thereunder in the
inverse order of maturities. The Borrower shall also
be obligated to prepay the Term Loan in full together
with accrued and unpaid interest thereon upon any
termination of this Agreement pursuant to SECTION 3.5
or otherwise or upon any acceleration of the Term
Loan pursuant to ARTICLE 11.
(f) Section 3.2(b) is amended in its entirety so
that such Section now read as follows:
(b) Facility Fee. The Borrower shall
pay the Lender a facility fee of $40,000.00 payable
in two $20,000.00 installments, the first of which
will be payable by the Borrower on June 28, 1995 and
the second of which shall be due and payable on the
date the Term Loan is funded. If the Term Loan is
not funded, the Borrower shall not be obligated to
pay the second $20,000.00 installment of the
$40,000.00 fee.
(g) Section 3.2(c) is amended in its entirety so
that such Section now reads as follows:
(c) Administration Fee. For services
performed by the Lender in connection with its
continuing administration hereof, the Borrower shall
pay to the Lender a fee of $5,000.00 per year for
each year prior to January 10, 1996 and $10,000.00
per year for each year thereafter, payable annually
in advance on the Effective Date and continuing on
each anniversary thereafter so long as any Loan shall
remain outstanding or the Revolving Credit Facility
shall not have been terminated.
(h) Section 3.2(d) is amended in its entirety so
that such Section now reads as follows:
(d) Letter of Credit Fee. The Borrower
shall pay the Lender a 1% per annum fee on the
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<PAGE> 9
face amount of the Letter of Credit for the issuance
of the Letter of Credit. Such fee shall be paid on
the date of the issuance of the Letter of Credit.
(i) The first sentence of Section 5.1(b) is
amended by adding the words "and the Subsidiary Guarantor" at
the end of such sentence.
(j) Section 10.4 is amended in its entirety so
that such Section now reads as follows:
Section 10.4 Investments. Acquire, after the
Agreement Date, any Business Unit or Investment or,
after such date, permit any Investment to be
outstanding, other than Permitted Investments and the
acquisition of the Subsidiary Guarantor.
(k) Section 11.1 is amended by adding the
following subsection (q) thereto:
(q) Subsidiary Guaranty; Subsidiary
Security Agreement. The occurrence of a default
under the Subsidiary Guaranty or the occurrence of a
Default or an Event of Default under the Subsidiary
Security Agreement.
(l) Exhibit A (Revolving Credit Note form) is
deleted and replaced with Exhibit A-1 (Revised Revolving
Credit Note form) attached hereto.
(m) Schedule 5.1(u) is deleted and replaced with
Schedule 5.1(u-1) attached hereto.
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as are
reasonably requested by the Lender to reflect the terms and conditions of this
First Amendment and will cause to be delivered such certificates, legal
opinions and other documents as are reasonably required by the Lender. In
addition, the Borrower will pay all costs and expenses in connection with the
preparation, execution and delivery of the documents executed in connection
with this transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Lender as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Lender harmless from any and all such costs, expenses and liabilities.
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<PAGE> 10
4. This First Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this First Amendment
to produce or account for more than one counterpart.
5. This First Amendment and all other documents executed pursuant
to the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of Georgia and shall be subject to the
provisions of Section 12.5 and 12.6 of the Loan Agreement.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
RIDGEVIEW, INC.
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
------------------------- ------------------------------
Title Assistant Secretary Title President
---------------------- ---------------------------
(Corporate Seal)
NATIONSBANK OF GEORGIA, N.A.
By /s/ Scott Goldstein
------------------------------
Title Vice President
---------------------------
11
<PAGE> 1
EXHIBIT 10.9
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
(Revolving Loans)
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Second
Amendment"), dated as of October __, 1995, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws
of the State of North Carolina (the "Borrower"); and
NATIONSBANK OF GEORGIA, N.A., a national banking association organized
and existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and the Lender entered into that certain Loan and
Security Agreement (Revolving Loans), dated January 10, 1995, as amended June
28, 1995 (the "Loan Agreement").
B. The Borrower and the Lender have agreed to modify and amend
the Loan Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 1.1 is amended by amending in its entirety
the definition of "Fixed Charge Ratio" contained therein so that such
definition now reads as follows:
"Fixed Charge Ratio" means, as to any Person, the
following ratio for such Person computed for the applicable
period of computation: the ratio of (i) Net Income plus
depreciation plus amortization (except grant amortization
income) plus change in the deferred compensation accrual minus
Unfunded Capital Expenditures minus amortization income
relating to the Ireland grant credit minus foreign currency
gains plus foreign currency losses to (ii) current maturities
of Funded Indebtedness and current maturities of Lease
Obligations plus dividends.
(b) Section 1.1 is further amended by adding the
following definition in the alphabetically appropriate place:
"Domestic Business" means all of the domestic
operations of the Borrower and the Subsidiary Guarantor
conducted in the United States.
1
<PAGE> 2
(c) A new Section 8.10 is added to the Loan Agreement as
follows:
Section 8.10. Cash Surrender Value. The Borrower
agrees to maintain at all times cash surrender value of at
least $500,000 in life insurance policies insuring key
officers of the Borrower (less any amounts borrowed by the
Borrower thereunder and paid to the Lender in accordance with
the terms of the assignments of such policies from the
Borrower to the Lender).
(d) Section 10A.1(b) of the Loan Agreement is amended in
its entirety so that such Section now reads as follows:
(b) Minimum Tangible Net Worth. Permit the
Tangible Net Worth of the Borrower and its Subsidiaries
(computed on a consolidated basis) as of the following test
dates to be less than the following amounts:
<TABLE>
<CAPTION>
Minimum Consolidated
Test Date Tangible Net Worth
--------- -------------------------
<S> <C>
December 31, 1995 $5,750,000 plus the
greater of $700,000 or 70%
of earnings for the fiscal
year ending December 31, 1995
December 31, 1996 consolidated
Tangible Net Worth
as of December 31, 1995
plus the greater of
$700,000 or 70% of
earnings for the fiscal
year ending December 31, 1996
</TABLE>
(e) Section 10B.1 of the Loan Agreement is amended in its
entirety so that such Section now reads as follows:
Section 10B.1 Domestic Business Financial Ratios.
(a) Maximum Liabilities to Tangible Net Worth.
Permit the ratio of total Liabilities of the Domestic Business
of the Borrower and its U.S. Subsidiaries to Tangible Net
Worth of the Domestic Business of the Borrower and its U.S.
Subsidiaries to be greater than (i) 8.0 to 1.0 during the
period commencing on October __, 1995 through and including
December 30, 1995, (ii) 6.5 to 1.0 during the period
commencing on and including December 31, 1995 through and
including September 29, 1996, (iii) 5.25 to 1.0 during the
period commencing on and including September 30, 1996 through
2
<PAGE> 3
and including December 30, 1996, (iv) 4.5 to 1.0 during the
period commencing on and including December 31, 1996 through
and including September 29, 1997, (v) 4.0 to 1.0 during the
period commencing on and including September 30, 1997 through
and including December 30, 1997 and (vi) 3.5 to 1.0 during the
period commencing on December 31, 1997 and thereafter;
(b) Minimum Tangible Net Worth. Permit the
Tangible Net Worth of the Domestic Business of the Borrower
and its U.S. Subsidiaries as of the following test dates to be
less than the following amounts:
<TABLE>
<CAPTION>
Minimum Domestic Business
Test Date Tangible Net Worth
--------- --------------------------
<S> <C>
October 31, 1995 $3,600,000
November 30, 1995 $3,600,000
December 31, 1995 and $3,600,000 plus
the last day of each the greater of
of the following eleven $600,000 or 70%
months of earnings for the
fiscal year ending
December 31, 1995
December 31, 1996 and Domestic Business
the last day of each Tangible Net Worth as
of the following eleven of December 31, 1995
months plus the greater of
$600,000 or 70%
of earnings for the
fiscal year ending
December 31, 1996
</TABLE>
(c) Minimum Fixed Charge Ratio. Permit the Fixed
Charge Ratio of the Domestic Business of the Borrower and its
U.S. Subsidiaries to be less than 1.25 to 1.0 as of the last
day of each month (commencing with the month ending October
31, 1995), in each case computed for the twelve monthly
periods then ending.
(d) Minimum Current Ratio. Permit the ratio of
current assets of the Domestic Business of the Borrower and
its U.S. Subsidiaries to the current Liabilities of the
Domestic Business of the Borrower and its U.S. Subsidiaries to
be equal to or less than 1.0 to 1.0 as of the last day of any
month (commencing with the month ending October 31, 1995) (for
purposes of the foregoing, outstanding Revolving Credit Loans
shall be included within current Liabilities).
3
<PAGE> 4
(f) Section 10.5 of the Loan Agreement is amended in its
entirety so that such Section now reads as follows:
Section 10.5 Capital Expenditures. Make or incur
any Capital Expenditures, except that the Borrower and its
U.S. Subsidiaries may make or incur Capital Expenditures in
any fiscal year in an amount not to exceed, in the aggregate,
$750,000.00; provided, however, Capital Expenditures made with
the proceeds of any term loan made by NationsBank, N.A. to the
Borrower shall not count for purposes of computing the
foregoing limitation; provided further, the acquisition of the
Subsidiary Guarantor shall not count for purposes of computing
the foregoing limitation.
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as are
reasonably requested by the Lender to reflect the terms and conditions of this
Second Amendment and will cause to be delivered such certificates, legal
opinions and other documents as are reasonably required by the Lender. In
addition, the Borrower will pay all costs and expenses in connection with the
preparation, execution and delivery of the documents executed in connection
with this transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Lender as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Lender harmless from any and all such costs, expenses and liabilities.
4. This Second Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Second
Amendment to produce or account for more than one counterpart.
4
<PAGE> 5
5. This Second Amendment and all other documents executed
pursuant to the transactions contemplated herein shall be deemed to be
contracts made under, and for all purposes shall be construed in accordance
with, the internal laws and judicial decisions of the State of Georgia and
shall be subject to the provisions of Section 12.5 and 12.6 of the Loan
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
RIDGEVIEW, INC.
ATTEST:
By /s/ Susan Gaither Jones By /s/ Walter Bost
----------------------- -----------------------
Title Asst. Secretary Title CFO
-------------------- --------------------
(Corporate Seal)
NATIONSBANK OF GEORGIA, N.A.
By /s/ Scott Goldstein
--------------------------------
Title Vice President
----------------------------
5
<PAGE> 1
EXHIBIT 10.10
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
(Revolving Loans)
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Third
Amendment"), dated as of June 11, 1996, is made by and between
RIDGEVIEW, INC., a corporation organized and existing under the laws
of the State of North Carolina (the "Borrower"); and
NATIONSBANK, N.A. (SOUTH), a national banking association organized
and existing under the laws of the United States (the "Lender").
RECITALS:
A. The Borrower and the Lender entered into that certain Loan and
Security Agreement (Revolving Loans), dated January 10, 1995, as amended (the
"Loan Agreement").
B. The Borrower and the Lender have agreed to modify and amend
the Loan Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 1.1 is amended by amending in their entirety
the following definitions so that such definitions now read as
follows:
"Borrowing Base" means at any time an amount equal to
the sum of:
(a) 80% (or such lesser percentage as
the Lender may in its sole and absolute discretion
determine from time to time) of the face value of
Eligible Receivables due and owing at such time, PLUS
(b) THE LESSER OF
(i) 50% (or such lesser
percentage as the Lender may in its sole and
absolute discretion determine from time to
time) of the lesser of cost (computed on a
first-in-first-out basis) and fair market
value of Eligible Inventory at such time, AND
<PAGE> 2
(ii) 50% of the Revolving Credit
Facility, PLUS
(c) an amount equal to $2,700,000.00
during the period commencing on May 1, 1996 through
July 15, 1996, an amount equal to $1,000,000.00
during the period commencing on July 16, 1996 through
September 15, 1996 and an amount equal to $750,000.00
during the period commencing on September 15, 1996
through September 29, 1996, MINUS
(d) the Letter of Credit Reserve and the
Term Loan Reserve and such other reserves as the
Lender may determine from time to time in the exercise
of its reasonable credit judgment,
"Revolving Credit Facility" means the principal sum
of $17,000,000.00 from June 11, 1996 through and including
December 31, 1996 and $15,000,000.00 thereafter.
(b) Section 2.4 is amended in its entirety so that such
Section now reads as follows:
Section 2.4 Revolving Credit Note. The Lender's
Revolving Credit Loans and the obligation of the Borrower to
repay such Loans shall also be evidenced by a single Revolving
Credit Note payable to the order of the Lender. Such Note
shall be dated June 11, 1996 and be duly and validly executed
and delivered by the Borrower.
(c) Section 3.2 is amended by adding thereto a new
Section 3.2(d-1) as follows:
(d-1) Facility Fee. The Borrower shall pay the
Lender an amendment fee of $47,000.00 on July 2, 1996.
(d) Section 10.6 is amended in its entirety so that such
Section now reads as follows:
Section 10.6 Restricted Distributions and Payments,
Etc. Declare or make any Restricted Distribution or
Restricted Payment other than (i) loans to officers,
directors, shareholders, subsidiaries and Affiliates not to
exceed $50,000.00 at any time outstanding or (ii) dividends
paid to the shareholders of the Borrower during fiscal year
1996 in an amount up to $50,000.00 regardless of whether a
Default or Event
- 2-
<PAGE> 3
of Default hereunder exists immediately prior to or after the
payment of any such dividends.
(e) Exhibit A-1 (Revolving Credit Note form) is deleted
and replaced with Exhibit A-2 (Revised Revolving Credit Note form)
attached hereto.
(f) All references to "NationsBank of Georgia, N.A." are
replaced with references to "NationsBank, N.A. (South)".
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement remain in full force and effect.
3. The Borrower will execute such additional documents as are
reasonably requested by the Lender to reflect the terms and conditions of this
Third Amendment and will cause to be delivered such certificates, legal
opinions and other documents as are reasonably required by the Lender. In
addition, the Borrower will pay all costs and expenses in connection with the
preparation, execution and delivery of the documents executed in connection
with this transaction, including, without limitation, the reasonable fees and
out-of-pocket expenses of special counsel to the Lender as well as any and all
filing and recording fees and stamp and other taxes with respect thereto and to
save the Lender harmless from any and all such costs, expenses and liabilities.
4. This Third Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Third Amendment
to produce or account for more than one counterpart.
5. This Third Amendment and all other documents executed pursuant
to the transactions contemplated herein shall be deemed to be contracts made
under, and for all purposes shall be construed in accordance with, the internal
laws and judicial decisions of the State of Georgia and shall be subject to the
provisions of Section 12.5 and 12.6 of the Loan Agreement.
- 3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be executed by their fully authorized officers as of the day and
year first above written.
RIDGEVIEW, INC.
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
----------------------- -----------------------------
Title Asst. Secretary Title President & CEO
-------------------- --------------------------
(Corporate Seal)
NATIONSBANK, N.A. (SOUTH)
By /s/ Scott Goldstein
-----------------------------
Title VP
--------------------------
Agreed to and accepted by the undersigned in its capacity as a
guarantor.
SENECA KNITTING MILLS CORPORATION
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
----------------------- -----------------------------
Title Asst. Secretary Title President
-------------------- --------------------------
(Corporate Seal)
GPM CORPORATION
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
----------------------- -----------------------------
Title Asst. Secretary Title President
-------------------- --------------------------
(Corporate Seal)
- 4-
<PAGE> 1
EXHIBIT 10.11
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT entered into as of the _______ day of
______________, 19____ between _______________________, a _____________________
corporation, whose address is _________________________________________________
("Lender") and ______________________________________________________________ a
________________ corporation, whose address is ________________________________
_________________________________________________________ ("Borrower").
WHEREAS, Lender has agreed to make a commercial loan or loans to
Borrower; and
WHEREAS, as a condition to making the loans, and in order to secure
the repayment thereof, Lender has required Borrower to execute and deliver to
Lender this Loan and Security Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Borrower and Lender agree as
follows:
1. Creation of Security Interest. As security for the due and
punctual payment of any and all of the present and future obligations of the
Borrower to Lender, whether direct or contingent or joint or ___________,
Borrower hereby conveys, assigns and grants to Lender a continuing security
interest in all of Borrower's rights, title and interests in and to the
equipment described in the Supplemental Security Agreement(s) entered into
pursuant to this Loan and Security Agreement from time to time ("Equipment")
including all present and future additions, attachments and accessories thereof
all substitutions therefor and replacements thereof and all proceeds thereof
including all proceeds of insurance (such Equipment and properly hereinafter
called "Collateral").
2. The Loans. (a) Subject to the terms and conditions of this
Loan and Security Agreement, Lender agrees to make a loan or loans to Borrower.
The maximum principal amount of any loan or loans to be made by Lender to
Borrower shall be within Lender's discretion, subject to the exercise of
Lender's reasonable business judgment, and shall be as stated in the loan
commitment letter issued by Lender to Borrower, or in the event a commitment
letter is not issued by Lender, in Lender's inten_____ credit approval (each
such loan or loans shall be referred to as the "Loan Amount").
(b) The Loan Amount shall be repaid by Borrower as a term loan or
term loans ("Term Loan"). The Term Loan shall be evidenced by
a promissory note or notes in the form attached hereto as
Exhibit "A" ("Term Note"). The payment provisions of each
Term Note shall be stated therein.
<PAGE> 2
(c) If requested by Borrower, and in accordance with the terms and
conditions of Section 3 hereof, Lender shall make interim
fundings to Borrower of a Term Loan as partial advances of the
Loan Amount ("Interim Loans"). The Interim Loans shall either
be for the payment of the acquisition cost of any items of
Equipment delivered and accepted by Borrower prior to the
expiration date of Lender's loan commitment to Borrower
("Commitment Expiration Date") or to fund progress payments to
the vendor or manufacturer of the Equipment, if the making of
progress payments was agreed to by Lender in its commitment or
approval to make the loan or loans to Borrower. The Interim
Loans shall be evidenced by promissory notes in the form
attached hereto as Exhibit "B" ("Interim Note" interest on all
Interim Loans shall be payment as provided therein the
principal amount due under the Interim Loans shall be due as
provided in the Interim Notes, at which time, provided no
Event of Default hereunder has occurred and is continuing or
event which with the passing of time or giving of notice or
both would become an Event of Default hereunder has occurred
and is continuing, Lender shall consolidated all Interim Loans
and convert them to a Term Loan evidenced by a Term Note or
Notes. Whether or not a Term Loan is evidenced by one or more
Term Notes shall be as agreed between Lender and Borrower, or
in the absence of such an agreement, as decided by Lender, in
the exercise of its reasonable business judgment.
(d) In the event that the amount loaned pursuant to the Interim
Loans is less than the Loan Amount, subject to Borrower's
compliance with the terms and conditions of this Loan and
Security Agreement (including the satisfaction of the
conditions of borrowing set forth in Section 7 of this Loan
and Security Agreement, including but not limited to providing
Lender with a description of the items of Equipment), Lender
shall disburse to Borrower the balance of the Loan Amount on
the same date that the Interim Loans are converted into a term
loan.
3. Method for Borrowing On Interim Loan. Borrower shall give
Lender at least five (5) business days written notice of a request for the
disbursement of an Interim Loan ("Request"), specifying the date on which the
Interim Loan is to be disbursed. Such Request shall be in the form attached
herein as Exhibit "C". Such Request shall be accompanied by an original copy
of the Invoice or Invoices to be paid from the Interim Loan. Such Request
shall constitute a representation and warranty by the Borrower that (i) as of
the date of the Request no Event of Default or event which with the passing of
time or the giving of notice or both would constitute an Event of Default
hereunder has occurred and is continuing and (ii) in the event items of
Equipment have been delivered to the Borrower, Borrower has
- 2 -
<PAGE> 3
unconditionally accepted the Equipment from the vendor thereof. Subject to the
conditions of this Loan and Security Agreement, Lender shall disburse the
Interim Loan to the invoicing party, or if Borrower shall have paid the amount
of such invoice, Lender shall reimburse Borrower, upon receipt of proof of
payment from Borrower.
4. Cross Collateral/Cross Default. All Collateral shall secure
the payment and performance of all of Borrower's liabilities and obligations to
Lender hereunder and under any of the loan documents relating hereto including,
but not limited to, all Interim Notes and all Term Notes (the Loan and Security
Agreement, the Interim Notes, the Term Notes, the Supplemental Security
Agreement(s) and all other loan documents may be referred to herein collectively
as the "Loan Documents"). Lender's security interest in the Collateral shall
not be terminated until and unless all of Borrower's obligations to Lender under
any of the Loan Documents are fully paid and performed. The occurrence of an
event of default under any other of the Loan Documents shall be deemed to be an
Event of Default hereunder and an Event of Default hereunder shall be deemed to
be an event of default under any other of the Loan Documents.
5. Representations and Warranties. Borrower hereby represents
and warrants as follows:
(a) POWER AND AUTHORIZATION. Borrower has the full power and
(corporate) authority to execute, deliver and perform
Borrower's obligations under the Loan Documents. The
execution and delivery of the Loan Documents have been
authorized by all requisite corporate (or partnership) action
on the part of Borrower. The execution, delivery and
performance of the Loan Documents have not constituted and
will not constitute a breach, default, or violation of or
under Borrower's articles of incorporation, by-laws
(partnership agreement), or any other agreement, indenture,
contract, lease, law, order, decree, judgment, or injunction
to which Borrower is a party or may be bound and have not
resulted and will not result in the creation of any lien upon
the Equipment pursuant to any agreement, indenture, lease,
contract or other instrument to which Borrower is a party,
except the lien created by this Loan and Security Agreement.
(b) EXISTENCE. If Borrower is a corporation, Borrower (i) is duly
incorporated, validly existing and in good standing under the
laws of its state or incorporation, (ii) has all corporate
powers and all governmental licenses, authorizations, consents
and approvals required to carry on its business as now
conducted, and (iii) is duly qualified to transact business as
a foreign corporation in each jurisdiction where its principal
place of business is located. If Borrower is a partnership,
Borrower (i) has been duly formed as a
- 3 -
<PAGE> 4
(limited or general) partnership under the laws of the
state of its organization, (ii) is comprised of the general
partner(s) listed on the Schedule of Partners attached to this
Loan and Security Agreement, and (iii) is in good standing
under the laws of the state of its formation.
(c) BINDING EFFECT. This Loan and Security Agreement constitutes
the valid and binding agreement of the Borrower, the Interim
Notes and the Term Note, when executed and delivered will
constitute the valid and binding obligations of the Borrower;
and the Loan Documents are enforceable in accordance with the
terms except as (i) the enforceability thereof may be limited
to the bankruptcy laws, and (ii) rights of acceleration and
the availability of equitable remedies may be limited by
equitable principles of general applicability.
(d) LITIGATION. There is no action, suit or proceeding pending
against, or to the knowledge of the Borrower, threatened
against or affecting the Borrower, before any court or
arbitrator or any governmental body, agency or official which
has not been previously disclosed to the Lender in writing and
in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business,
financial condition or results of operations of the Borrower
or which would in any manner draw into question the validity
of any of the Loan Documents.
(e) FILING OF TAX RETURNS. The Borrower has filled all tax
returns required to have been filed and has paid all taxes
shown to be due and payable on such returns, including
interest and penalties, and all other taxes which are payable
by it, to the extent the same have become due and payable.
The Borrower knows of no proposed tax assessment against it
and all tax liabilities of the Borrower are adequately
provided for.
(f) TITLE. The Borrower has or shall have at the time it executes
the Term Note good and indefeasible title to the Collateral
free and clear of all liens other than the Lender's lien.
(g) COMPLIANCE WITH LAW. The business and operations of the
Borrower have been and are being conducted in accordance with
all applicable laws, rules and regulations, other than
violations which could not (either individually or
collectively) have a material adverse effect on the financial
condition or operations of the Borrower.
- 4 -
<PAGE> 5
(h) FULL DISCLOSURE. All documents, records, instruments,
certificates, statements (including, but not by way of
initiation, financial statements of Borrower) and information
provided to Lender by Borrower in connection with this Loan
and Security Agreement are true and accurate in all material
respects and do not contain any untrue statement, or fail to
contain any statement of a material fact necessary to make the
statements contained herein or therein not misleading. There
is no fact known to the Borrower that Borrower has not
disclosed in writing which could materially and adversely
affect the financial condition or operations of Borrower.
(i) SECURITY INTEREST. The security interest granted to Lender
hereunder is a valid, first priority security interest in the
Collateral and has been or promptly after the execution of the
Supplemental Security Agreement describing the Collateral will
be perfected in accordance with the requirements of all states
in which any item of the Collateral is located.
(j) PERSONAL PROPERTY. Under the laws of the state(s) in which
the Collateral is to be located, the Collateral is deemed to
consist solely of personal property.
(k) POLLUTION AND ENVIRONMENTAL CONTROL. Borrower has obtained
all permits, licenses and other authorizations which are
required under, and is in material compliance with, all
federal, state, and local laws and regulations relating to
pollution, reclamation, or protection of the environment,
including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous
or toxic materials or wastes into all water, or land, or
otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic
materials or wastes. Borrower shall maintain all such
permits, licenses, and authorizations current.
6. COVENANTS. Borrower hereby agrees and covenants as follows:
(a) PAYMENT. Borrower shall pay the indebtedness secured hereby
as provided herein and in the Interim Notes and Term Notes.
(b) LOCATION OF COLLATERAL. Borrower will keep the Collateral
located at the location or locations stated on the
Supplemental Security Agreements, provided, however, that
Borrower may change the location of the collateral with
Lender's prior written consent.
- 5 -
<PAGE> 6
(c) NO LIENS. Except for the security interest granted hereby or
under any other agreement under which Lender is the secured
party, whether as mortgagee, beneficiary or otherwise,
Borrower shall keep the Collateral free and clear of any
security interest, lien or encumbrance of any kind and
Borrower shall not sell, assign (by operation of law or
otherwise) exchange or otherwise dispose of any of the
Collateral.
(d) INSURANCE. Borrower shall procure and continuously maintain
and pay for (a) all risk physical damage and property
insurance covering loss or damage to the equipment for not
less than the full replacement value thereof naming Lender as
loss payee and (b) bodily injury and property damage combined
single ________ liability insurance, all in such amounts and
against such risks and hazards as are reasonably required by
Lender, with insurance companies and pursuant to contracts or
policies and with deductibles satisfactory to Lender. All
contracts and policies shall include provisions for the
protection of Lender notwithstanding any act or neglect of or
breach or default by Borrower, shall provide for payment of
insurance proceeds to Lender, shall provide that they may not
be modified, terminated or canceled unless Lender is given at
least thirty (30) days' advance written notice thereof, and
shall provide that the coverage is "primary coverage" for the
protection of Borrower or Lender notwithstanding any other
coverage carried by Lender protecting against similar risks.
Borrower shall promptly notify any appropriate Insurer and
Lender of each and every occurrence, which may become the
basis of a claim or cause of action against the insured and
provide Lender with all data pertinent to such occurrence.
Borrower shall furnish Lender with certificates of such
insurance or copies of policies upon request and shall furnish
Lender with renewal certificates not less than thirty (30)
days prior to the renewal date. Proceeds of all insurance are
payable first to Lender to the extent of its Interest.
(e) FINANCING STATEMENTS. At the request of Lender, Borrower will
join Lender in executing one or more financing statements
pursuant to the Uniform Commercial Code and other documents
deemed necessary by Lender under applicable law to record or
perfect its security interest in the Collateral, including
continuation statements, in form satisfactory to Lender and
will pay the cost of filing the same in all public offices
wherever filing is deemed by Lender to be necessary or
desirable. Borrower hereby authorizes Lender, in such
jurisdictions where such action is authorized by law, to
effect any such recordation or filing of financing statements
or other documents without Borrower's signature thereto.
- 6 -
<PAGE> 7
(f) CHANGE OF NAME OR ADDRESS. Borrower will immediately notify
Lender in writing of any change in its place of business or
the adoption or change of any tradename or fictitious business
name, and will upon request of Lender, execute any additional
financing statements or other similar documents necessary to
perfect or maintain its security interest.
(g) USE OF EQUIPMENT, MAINTENANCE. Borrower will cause the
Equipment to be used in a careful and proper manner, will
comply with and conform to all governmental laws, rules and
regulations relating thereto, and will cause the Equipment to
be operated in accordance with the manufacturer's or
supplier's instructions or manuals and only by competent and
duly qualified personnel. Borrower will cause the Equipment
to be kept and maintained in good repair, condition and
working order and will furnish all parts, replacements,
mechanisms, devices and servicing required therefor so that
the value, condition and operating efficiency thereof will at
all times be maintained and preserved, normal wear and tear
excepted. All such repairs, parts, mechanisms, devices and
replacements shall immediately, without further act, become
part of the Equipment and subject to the security interest
created by this Loan and Security Agreement. Borrower will
not make any improvement, change, addition or alteration to
the Equipment if such improvement, change, addition or
alteration will impair the originally intended function or use
of the Equipment or impair the value of the Equipment as it
existed immediately prior to such improvement, change,
addition or alteration. Any part added to the Equipment in
connection with any improvement, change, addition or
alteration shall immediately, without further act, become part
of the Equipment and subject to the security interest created
by this Loan and Security Agreement.
(h) INSPECTION. Lender may at any reasonable time or times
inspect the Equipment and may at any reasonable time or times
inspect the books and records of Borrower.
(i) TAXES. Borrower shall promptly pay, when due, all charges,
fees, assessments and taxes (excluding all taxes measured by
Lender's income) which may now or hereafter be imposed upon
the ownership, leasing, possession, sale or use of the
Collateral.
(j) PERFORMANCE BY LENDER. If Borrower fails to perform any
agreement or obligation contained herein, Lender may itself
perform, or cause the performance of such agreement or
obligation. Borrower will pay, or reimburse Lender, on
demand, for any and all fees, including attorneys' fees, costs
and expenses of whatever kind or nature incurred by Lender in
- 7 -
<PAGE> 8
connection with (i) the creation, preservation and protection
of Lender's security interest in the Collateral, including,
without limitation, all fees and taxes in connection with the
recording or filing of instruments and documents in public
offices, (ii) payments or discharge of any taxes or liens upon
or in respect of the Collateral, (iii) premiums for insurance
with respect to the Equipment and (iv) this Loan and Security
Agreement and with protecting, maintaining or preserving the
Collateral and Lender's interests therein, whether through
judicial proceedings or otherwise, or in connection with
defending or prosecuting any actions, suits or proceedings
arising out of or related to the Loan and Security Agreement
and the Loan Documents or in connection with any debt
restructuring, loan workout negotiations or bankruptcy or
insolvency case or proceedings. All such amounts shall
constitute obligations of Borrower secured by the Collateral.
In the event that Borrower fails to perform any of its
agreements contained herein, Borrower will, on demand,
reimburse Lender for all such expenditures, together with
interest thereon from the date of such expenditure until fully
reimbursed at the rate of two percent (2%) per month on the
outstanding balance of such expenditures or the highest rate
permitted by law, whichever is less.
(k) POWER OF ATTORNEY. Borrower hereby irrevocably appoints
Lender Borrower's attorney-in-fact, with full authority in the
place and stead of Borrower and in the name of Borrower or
otherwise, from time to time in the Lender's discretion, to
take any action and to execute any instrument which Lender may
deem necessary or advisable to accomplish the purposes of this
Loan and Security Agreement, including, without limitation:
(i) to obtain, compromise and adjust insurance required to be
paid to Lender; (ii) to ask, demand, collect, sue for,
recover, receive, and give acquittals and receipts for moneys
due and to become due under or in respect of any of the
Collateral; (iii) to receive, endorse, and collect any drafts
or other instruments, documents, and chattel paper in
connection with clause (i) or (ii) above; and (iv) to file any
claims or take any action or institute any proceedings which
Lender may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of
Lender with respect to any of the Collateral.
(l) NO DUTIES. The powers conferred on Lender hereunder are
solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except
for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder,
Lender shall have no duty as to any Collateral or as to the
taking
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<PAGE> 9
of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral.
(m) FINANCIAL DATA. Borrower will furnish to Lender and will cause
any guarantor of Borrower's obligations to furnish to Lender on
request (i) annual balance sheet and profit and loss statements
prepared in accordance with generally accepted accounting
principles and practices consistently applied and, if Lender so
requires, accompanied by the annual audit report of an
independent certified public accountant reasonably acceptable
to Lender, and (ii) all other financial information and reports
that Lender may from time to time reasonably request,
including, if Lender so requires, income tax returns of
Borrower and any guarantor of Borrower's obligations hereunder.
7. CONDITIONS OF BORROWING. Lender shall not be obligated to make
any loan hereunder unless:
(a) The Interim Notes or Term Notes evidencing such loan shall have
been duly executed and delivered to Lender;
(b) Borrower shall have executed and delivered to Lender the
Supplemental Security Agreement describing the Collateral and
stating, except with respect to progress payment fundings, the
location thereof;
(c) Except with respect to progress payment fundings, Lender shall
have received evidence (as described in Section ____ hereof)
that insurance has been obtained in accordance with the
provisions of this Loan and Security Agreement;
(d) Lender shall have received any and all third party consents,
waivers or releases deemed necessary or desirable by it in
connection with the loan and the Collateral being financed,
including, without limitation, Uniform Commercial Code lien
releases and the consent and waiver, in form and substance
satisfactory to Lender, of each and every realty owner,
landlord and mortgagee holding an interest in or encumbrance on
the real property where any of the Collateral is to be located;
(e) All filings, recordings and other actions deemed necessary or
desirable by Lender in order to establish, protect, preserve
and perfect its security interest in the Collateral being
financed by such loan as a valid perfected first priority
security interest shall have been duly effected, including,
without limitation, the filing of financing statements and the
recordation of landlord (owners) and/or mortgagee waivers or
disclaimers, all in form and substance satisfactory to
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<PAGE> 10
Lender, and all fees, taxes and other charges relating to such
filings and recordings shall have been paid by Borrower;
(f) The representations and warranties contained in this Loan and
Security Agreement shall be true and correct in all respects
on and as of the date of the making of any loan hereunder with
the same effect as if made on and as of such date;
(g) In the sole judgment of Lender, there shall have been no
material adverse change in the financial condition,
_______________ or operations of Borrower from the earliest
date of any financing statement, credit report, business
report or similar document submitted to Lender for its review;
(h) All Loan Documents shall be satisfactory to Lender's attorneys;
and
(i) Lender shall have received, in form and substance satisfactory
to Lender, such other documents as Lender shall require
including, but not limited to a Request, proof of payment,
vendor invoices and certificates of authority and incumbency.
8. DEFAULT. The occurrence of any of the following events,
following the giving of any required notice and/or the expiration of any
applicable period of grace, shall constitute an event of default ("Event of
Default") hereunder:
(a) Borrower's default in payment of any installment of the
principal of or interest on any Interim Note or Term Note when
and after the same shall be come due and payable, whether at
the due date thereof or by acceleration or otherwise, which
default shall continue unremedied for ten (10) days; or
(b) The failure by Borrower to make payment of any other amount
payable hereunder or under any Interim Note or Term Note, and
the continuance of such failure for more than ten (10) days
after written notice thereof by Lender to Borrower; or
(c) The failure by Borrower to perform or observe any covenant,
condition, obligation or agreement to be performed or observed
by it hereunder, which failure shall continue unremedied for
thirty (30) days after written notice hereof by Lender to
Borrower; or
(d) The occurrence of a default described in Section ___ hereof; or
(e) Any warranty, representation or statement made or furnished
with respect to the Borrower or the
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<PAGE> 11
Collateral to Lender by or on behalf of Borrower, in connection
with this Loan and Security Agreement, or the indebtedness
secured hereby, shall prove to have been false in any adverse,
material respect when made or furnished; or
(f) Borrower shall become insolvent or bankrupt or make an
assignment for the benefit of creditors or consent to the
appointment of a trustee or receiver; or a trustee or a
receiver shall be appointed for Borrower or for a substantial
part of its property without its consent and shall not be
dismissed for a period of sixty (60) days; or bankruptcy,
reorganization, liquidation, insolvency or dissolution
proceedings shall be instituted by or against Borrower and, if
instituted against Borrower, shall be consented to or be
pending and not dismissed for a period of sixty (60) days; or
any execution or writ of process shall be issued under any
action or proceeding against Borrower in such capacity whereby
any of the Collateral may be taken or restrained; Borrower
shall cease doing business as a going concern; or, without the
prior written consent of Lender, Borrower shall sell, transfer
or dispose of all or substantially all of its assets or
property; or
(g) The liquidation, merger, consolidation, reorganization,
conversion to an "S" status or dissolution, if Borrower is a
corporation or partnership, of Borrower, if in Lender's
reasonable opinion, such act shall materially and adversely
affect Borrower's ability to perform under any of the Loan
Documents; or
(h) Any item of Collateral is seized or levied on under legal or
governmental process or for any reason Lender deems itself
insecure, Lender shall be entitled to deem itself insecure when
some event occurs, fails to occur or is threatened or some
objective condition exists or is threatened which significantly
impairs the prospects that any of Borrower's obligations to
Lender will be paid when due, which significantly impairs the
value of the Collateral to Lender or which significantly
affects the financial or business condition of Borrower.
The occurrence of an Event of Default shall terminate any
commitment or obligation by Lender to make any of the loans
contemplated by this Loan and Security Agreement.
9. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of
Default hereunder, Lender may, at its option, do any one or more of the
following:
(a) Declare all obligations of Borrower to Lender to be immediately
due and payable, whereupon all unpaid principal of and interest
on said indebtedness and
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<PAGE> 12
other amounts declared due and payable shall be and become
immediately due and payable;
(b) Take possession of all or any of the Collateral and exclude
therefrom Borrower and all others claiming under Borrower, and
thereafter hold, store, use, operate, manage, maintain and
control, make repairs, replacements, alterations, additions and
improvements to and exercise all rights and powers of Borrower
in respect to the Collateral or any part thereof. In the event
Lender demands, or attempts to take possession of the
collateral in the exercise of any rights under this Loan and
Security Agreement, Borrower promises and agrees to promptly
turn over and deliver complete possession thereof to Lender;
(c) Require Borrower to assemble the Collateral, or any portion
thereof, at a place designated by Lender and reasonably
convenient to both parties, and promptly to deliver such
Collateral to Lender, or an agent or representative designated
by it;
(d) Sell, lease or otherwise dispose of the Collateral at public or
private sale, without having the Collateral at the place of
sale, and upon terms and in such manner as Lender may determine
(and Lender may be a purchaser at any sale); and
(e) Exercise any remedies of a secured party under the Uniform
Commercial Code as adopted in the state where the Collateral is
located or any other applicable law.
Except as to portions of the Collateral which are perishable or
threaten to decline speedily in value or are a type customarily
sold on a recognized market, Lender shall give Borrower at
least ten (10) days' prior written notice of the time and place
of any public or private sale of the Collateral or other
intended disposition thereof to be made. Such notice may be
mailed to Borrower at the address set forth in the first
paragraph of this Loan and Security Agreement. Borrower hereby
specifically agrees (to the extent that applicable law and
public policy allows it to effectively do_____) that any public
or private sale held in accordance with the terms of this Loan
and Security Agreement shall, for the purpose of the Uniform
Commercial Code as adopted in the state where the Collateral is
located and for all other purposes, be deemed to have been
conducted in a commercially reasonable manner and in good
faith.
The proceeds of any sale under Section ___9(d) shall be
applied as follows:
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<PAGE> 13
(i) To the repayment of the costs and expenses of
retaking, holding and preparing for the sale and
the selling of the Collateral (including legal
expenses and attorneys' fees) and the discharge
of all assessments, encumbrances, charges or
liens, if any, on the Collateral prior to the
lien hereof (except any taxes, assessments,
encumbrances, charges or liens subject to which
such sale shall have been made);
(ii) To the payment of the whole amount then due and
unpaid of the indebtedness of Borrower to
Lender;
(iii) To the payment of other amounts then secured
hereunder; and
(iv) The surplus, if any shall be paid to the
Borrower or to whomsoever may be lawfully
entitled to receive the same.
Lender shall have the right to enforce one or more remedies
hereunder, successively or concurrently, and such action shall
not operate to estop or prevent Lender from pursuing any
further remedy which it may have, and any repossession or
retaking or sale of the Collateral pursuant to the terms
hereof shall not operate to release Borrower until full
payment of any deficiency has been made in cash.
10. LIMITATION ON INTEREST. It is the intent of the parties to
this Loan and Security Agreement to contract in strict compliance with
applicable usury laws from time to time in effect. In furtherance thereof, the
parties stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay for the
use, forbearance or detention of money at a rate in excess of the maximum
interest rate permitted to be charged by applicable law from time to time in
effect.
11. PERSONAL PROPERTY/TAGS. No item of Equipment will be attached
or affixed to realty or any building without Lender's prior knowledge and
written consent and waiver of the landlord and the mortgage, if any, of the real
property. If so requested by Lender, Borrower will affix tags supplied by
Lender, reflecting Lender's security interest in the Equipment.
12. LOSS AND DAMAGE. Borrower shall bear ______ risk of damage,
loss, theft, or destruction, partial or complete of the Equipment, whether or
not such loss or damage is covered by insurance, except that while Borrower is
not in default, Lender agrees to apply toward __________ of obligations of
Borrower insurance proceeds payable to Lender by reason of such damage, loss,
theft, or destruction. In the event of any damage, loss,
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<PAGE> 14
theft, or destruction, partial or complete, of any item of Equipment, Borrower
shall promptly notify Lender in writing and at the option of Lender (a) repair
or restore the Equipment to good condition and working order, or (b) replace the
Equipment with similar equipment in good repair, condition and working order, or
(c) pay Lender, in cash, an amount equal to the unamortized equipment cost for
the item or if the Equipment was not purchased with the loan proceeds, the pro
rata portion of the outstanding principal balance due under the Interim Note or
Term Note, as the case may be, and all other amounts relating to that item of
Equipment then due and owing hereunder, and upon payment of that amount,
Lender's lien shall be terminated with respect to that item of Equipment only,
and Lender will release its interest in that item of Equipment.
13. ASSIGNMENT. Borrower may not assign or transfer any rights
under this Loan and Security Agreement or to the Collateral without Lender's
prior written consent.
14. INDEMNIFICATION. Borrower shall indemnify and hold harmless
Lender from and against any and all claims, losses, liabilities, causes of
action, costs and expenses (including the fees of Lender's attorneys) ("Claims")
in any way relating to or arising out of this Loan and Security Agreement, the
other Loan Documents or the Collateral, except for any claims resulting solely
and directly from Lender's gross negligence or willful misconduct.
15. NOTICES. Whenever Borrower or Lender shall desire to give or
serve any notice, demand, request or other communication with respect to this
Loan and Security Agreement, each such notice, demand, request or communication
shall be in writing and shall be effective only if the same is physically
delivered or is by certified mail, postage prepaid, return receipt requested, or
by overnight courier, postage prepaid, mailed to the parties at the addresses
set forth in the first paragraph of this Loan and Security Agreement, with a
copy to Lender's Vice President of Credit. Any party hereto may change its
address for such notices by delivering or mailing to the other parties hereto,
as aforesaid, a notice of such change.
16. NO WAIVER BY LENDER. By exercising or failing to exercise any
of its rights, options or elections hereunder, Lender shall not be deemed to
have waived any breach or default on the part of Borrower or to have released
Borrower from any of the obligations secured hereby, unless such waiver or
release is in writing and is signed by Lender. In addition, the waiver by
Lender of any breach hereof for default in payment of an indebtedness secured
hereby shall not be deemed to constitute a waiver of any succeeding breach or
default.
17. FURTHER AGREEMENTS. From time to time, Borrower will execute
such further instruments as Lender may reasonably require, in order to protect,
preserve, and maintain the security interest granted hereby.
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<PAGE> 15
18. BINDING UPON SUCCESSORS. All agreements, covenants,
conditions and provisions of this Loan and Security Agreement shall apply to
and bind the successors and assigns of all parties hereto.
19. GOVERNING LAWS. This Loan and Security Agreement shall be
governed by the laws of the State of ___________________.
20. AMENDMENT. This Loan and Security Agreement can be modified
or rescinded only by a writing expressly referring to this Loan and Security
Agreement, signed by both of the parties hereto.
21. INVALIDITY OF PROVISIONS. Every provision of this Loan and
Security Agreement is intended to be severable. In the event that any term or
provision hereof is declared by a court to be illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the balance of the
terms and provisions hereof, which terms and provisions shall remain binding
and enforceable, then to the extent possible all of the other provisions shall
nonetheless remain in full force and effect.
IN WITNESS WHEREOF, Borrower and Lender have fully executed this Loan
and Security Agreement the day and year first above written.
Lender: MetLife Capital Corporation Borrower: Interknit, Inc.
--------------------------- --------------------
By: /s/ Judy Johnston By: /s/ Walter Bost
------------------------------- --------------------------
Print Name: Judy Johnston Print Name: Walter Bost
----------------------- ------------------
Title: Vice President Title: CFO
---------------------------- -----------------------
Social Security Number:_______
(if Borrower is an individual)
Federal Tax Identification
Number: 63-1097622
----------------------
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<PAGE> 1
EXHIBIT 10.12
DRAWN BY AND RETURN TO:
MOORE & VAN ALLEN, PLLC
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Christopher C. Kupec
STATE OF NEW YORK
COUNTY OF SENECA
MORTGAGE AND SECURITY AGREEMENT
(COLLATERAL IS OR INCLUDES FIXTURES)
THIS MORTGAGE AND SECURITY AGREEMENT made as of the 28th day of June,
1995 between RIDGEVIEW, INC., a North Carolina corporation having a mailing
address of Post Office Box 8, 2101 North Main Street, Newton, North Carolina
28658 ("Mortgagor"), and NATIONSBANK OF GEORGIA, N.A., a national banking
association with its principal offices in Atlanta, Georgia ("Mortgagee").
1. Mortgagor owns one hundred percent (100%) of the stock of
Seneca Knitting Mills Corporation. GPM Corporation, the wholly-owned
subsidiary of Seneca Knitting Mills Corporation (the "Guarantor"), has entered
into a Mortgage and Security Agreement with the Mortgagee dated as of even date
herewith (the "GPM Mortgage"). The GPM Mortgage secures the obligations and
duties of the Guarantor under that certain Subsidiary Guaranty dated as of even
date herewith (the "Guaranty"), which Guaranty secures the same Six Hundred
Thirty Five Thousand Dollar ($635,000.00) indebtedness of the Mortgagor secured
by this Mortgage.
W I T N E S S E T H:
To secure the payment of the indebtedness of Mortgagor to Mortgagee up
to a maximum principal sum of SIX HUNDRED THIRTY FIVE THOUSAND DOLLARS
($635,000.00) lawful money of the United States of America, to be paid with
interest and evidenced by promissory notes executed by the Mortgagor in favor
of Mortgagee (such promissory notes and all amendments, modifications, renewals
or replacements thereof being referred to as the "Note") (said indebtedness,
interest and all other sums which may or shall become due hereunder being
hereinafter collectively referred to as the "Debt") and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor has mortgaged, granted, conveyed, hypothecated and
assigned, and by these presents does mortgage, grant a security interest in,
grant, hypothecate, convey, and assign unto Mortgagee all right, title and
interest of Mortgagor in and to the property described in Schedule A attached
hereto (hereinafter referred to as the "Premises") and the buildings and
improvements now or hereafter located thereon (hereinafter referred to as the
"Improvements");
TOGETHER WITH all right, title and interest of Mortgagor in and to the
following property, rights and interests (the Premises and the Improvements
together with such property, rights and
<PAGE> 2
interests being hereinafter collectively called the "Mortgaged Property");
(a) all easements, rights-of-way, gores of land, streets, ways,
alleys, passages, sewer rights, waters, water courses, water rights and powers,
and all estates, rights, titles, interests, privileges, liberties, tenements,
hereditaments, and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to the Mortgaged Property and all land lying
in the bed of any street, road or avenue, opened or proposed, in front of or
adjoining the Premises to the center line thereof;
(b) all machinery, apparatus, appliances, equipment, fittings,
fixtures and other property of every kind and nature whatsoever owned by
Mortgagor, or in which Mortgagor has or shall have an interest, now or
hereafter affixed to the Mortgaged Property, or located upon the Mortgaged
Property or appurtenant thereto and usable in connection with the present or
future operation and occupancy of the Mortgaged Property and all building
equipment, materials and supplies of any nature whatsoever owned by Mortgagor,
or in which Mortgagor has or shall have an interest, now or hereafter located
upon the Mortgaged Property, all together with any replacements therefor,
additions thereto, or proceeds thereof (hereinafter collectively referred to as
the "Equipment");
(c) all awards or payments, including interest thereon, and the
right to receive the same, which may be made with respect to the Mortgaged
Property, whether from the exercise of the right of eminent domain (including
any transfer made in lieu of the exercise of said right), or for any other
injury to or decrease in the value of the Mortgaged Property;
(d) all leases and other agreements (including without limitation
all utility, management, or similar agreements) affecting the use or occupancy
of the Mortgaged Property now or hereafter entered into (hereinafter referred
to as the "Leases") and the right to receive and apply the rents, issues and
profits of the Mortgaged Property (hereinafter referred to as the "Rents)" to
the payment of the Debt;
(e) all proceeds of and any unearned premiums on any insurance
policies covering the Mortgaged Property, including, without limitation, the
right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Mortgaged Property;
(f) all benefits of any deposits or payments heretofore or
hereafter made relating to the Mortgaged Property; and
(g) the right, in the name and on behalf of Mortgagor, to appear
in and defend any action or proceeding brought with respect to the Mortgaged
Property and to commence any action or
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<PAGE> 3
proceeding to protect the interest of Mortgagee in the Mortgaged Property.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the proper use and benefit of Mortgagee, and its successors and
assigns.
AND Mortgagor covenants with and represents and warrants to Mortgagee
as follows:
1. Payment of Debt. Mortgagor will pay the Debt at the time and
in the manner provided for in this Mortgage and the Note and any other
instruments evidencing the same.
2. Warranty of Title. Mortgagor represents and warrants that it
is seized of the Premises and Improvements (and any fixtures in fee) (and has
title to any appurtenant easements) and has the right to convey the same, that
the title to the Premises, the Improvements and the Equipment is free and clear
of all encumbrances except for matters shown on the title insurance policy
accepted by Mortgagee in connection with this Mortgage (the "Permitted
Encumbrances") and that it will warrant and defend the title to such property
except for the Permitted Encumbrances against the claims of all persons or
parties. As to the balance of the Mortgaged Property, the Leases and the
Rents, the Mortgagor represents and warrants that it has title to such
property, that it has the right to convey such property and that it will
warrant and defend such property against all claims of all persons or parties.
3. Insurance. Mortgagor (i) will keep the Improvements and the
Equipment insured against loss or damage by fire, standard extended coverage
perils, flood and such other hazards as Mortgagee shall from time to time
require in amounts approved by Mortgagee, which amounts shall in no event be
less than the outstanding principal balance of this Mortgage or exceed in the
aggregate 100% of the full insurable value of the Improvements and the
Equipment and shall be sufficient to meet all applicable co-insurance
requirements, (ii) will maintain rental and business interruption insurance and
such other forms of insurance coverage with respect to the Mortgaged Property
as Mortgagee shall from time to time require in amounts approved by Mortgagee,
and (iii) if required by Mortgagee will maintain flood insurance satisfactory
to Mortgagee. All policies of insurance (hereinafter referred to as the
"Policies") shall be issued by an insurer lawfully doing business in New York
and acceptable to Mortgagee, shall contain the standard New York mortgagee
non-contribution clause endorsement or an equivalent endorsement satisfactory
to Mortgagee naming Mortgagee as its interest may appear as the person to which
all payments made by such insurance company shall be paid, and shall provide
for thirty days prior notice of cancellation to Mortgagee. Mortgagor shall pay
the premiums for the "Policies" as the same become due and payable. On the
anniversary date hereof in each year, Mortgagor will assign and deliver a
certificate of insurance to Mortgagee. Not
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<PAGE> 4
later than thirty (30) days prior to the expiration date of each of the
Policies Mortgagor will deliver to Mortgagee a renewal policy marked "premium
paid" or accompanied by other evidence of payment of premium satisfactory to
Mortgagee. If at any time Mortgagee is not in receipt of written evidence that
all insurance required hereunder is in force and effect, Mortgagee shall have
the right with reasonable notice to Mortgagor to take such action as Mortgagee
deems necessary to protect its interest in the Mortgaged Property, including,
without limitation, the obtaining of such insurance coverage as Mortgagee in
its sole discretion deems appropriate, and all expenses incurred by Mortgagee
in connection with such action or in obtaining such insurance and keeping it in
effect shall be paid by Mortgagor to Mortgagee upon demand.
If the Mortgaged Property shall be damaged or destroyed, in whole or
in part, by fire or other casualty, Mortgagor shall give prompt notice thereof
to Mortgagee. Sums paid to Mortgagee by any insurer may be retained and
applied by Mortgagee toward payment of the Debt whether or not then due and
payable in such priority and proportions as Mortgagee in its discretion shall
deem proper or, at the discretion of Mortgagee, the same may be paid, either in
whole or in part, to Mortgagor for such purposes as Mortgagee shall designate,
including repair and restoration of the Mortgaged Property. The Mortgagor will
not adjust and settle any claims under the Policies without the prior written
consent of the Mortgagee. If Mortgagee shall receive and retain such insurance
proceeds, the lien of this Mortgage shall be reduced only by the amount thereof
received and retained by Mortgagee and actually applied by Mortgagee in
reduction of the Debt. The provisions of subsection 4 of Section 254 of the
Real Property Law of New York covering the insurance of building against loss
by fire shall not apply to this Mortgage.
4. Payment of Taxes, etc. Mortgagor shall pay all taxes,
assessments, water rates, sewer rents and other charges, including vault
charges and license fees for the use of vaults, chutes and similar areas
adjoining the Premises, now or hereafter levied or assessed against the
Mortgaged Property (hereinafter referred to as the "Taxes") prior to the date
upon which any fine, penalty, interest or cost may be added thereto or imposed
by law for the nonpayment thereof. Mortgagor shall deliver to Mortgagee, upon
request, receipted bills, canceled checks and other evidence satisfactory to
Mortgagee evidencing the payment of the Taxes prior to the date upon which any
fine, penalty, interest or cost may be added thereto or imposed by law for the
nonpayment thereof. If such evidence of payment is not delivered within ten
(10) days, failure to deliver such proof may be conclusively deemed by
Mortgagee to be a default in the payment thereof hereunder and to be a waiver
by Mortgagor of any right to assert or plead payment thereof as a defense to or
to deprive Mortgagee of any right or remedy hereunder.
Notwithstanding the above, together with, and in addition to, the
monthly payments of principal and interest payable under
- 4 -
<PAGE> 5
the terms of the Note, the Mortgagor shall, at the option of the holder of this
Mortgage, pay to the Mortgagee on each date when an installment of interest and
principal is due and until the indebtedness secured hereby is fully paid, a sum
equal to the Taxes plus the premiums that will next become due and payable on
the Policies, less all sums already paid therefor divided by the number of
mortgage payment dates to elapse before one month prior to the date when such
Taxes or premiums on the Policies will become due, such sums to be held by the
Mortgagee in escrow, without interest to pay said Taxes before the same become
due. Any deficiency in the amount of such aggregate monthly payment shall,
unless paid on demand, by the Mortgagor prior to the due date of the next such
payment constitute a default under this Mortgage.
In the event that any such escrow payment due hereunder shall become
overdue for a period in excess of ten days, a "late charge" not to exceed an
amount equal to six percent (6%) of any escrow payment or payments so overdue
may be charged by the holder hereof for the purpose of defraying the expense
incident to handling such delinquent escrow payment or payments.
5. Reimbursement. The Mortgagor agrees that if it shall fail to
pay when due any tax, assessment or charge levied or assessed against the
Mortgaged Property or any utility charge, whether public or private, or any
insurance premium or if it shall fail to procure the insurance coverage and the
delivery of the insurance certificates required hereunder, or if it shall fail
to pay any other charge or fee described herein, then the Mortgagee, at its
option, may pay or procure the same. The Mortgagor will reimburse the
Mortgagee upon demand for any sums of money paid by the Mortgagee pursuant to
this Section, together with interest on each such payment at the rate set forth
in the Note and all such sums and interest thereon shall be secured hereby.
6. Taxes and Expenses. The Mortgagor will pay or reimburse the
Mortgagee for all reasonable attorneys' fees, costs and expenses incurred by
the Mortgagee in any action, legal proceedings or dispute of any kind which
affects the interest created herein, the Mortgaged Property, the Rents and the
Leases, including but not limited to, any foreclosure of this Mortgage,
enforcement of payment of the Note, any condemnation action involving the
Mortgaged Property or any action to protect the security hereof. Any such
amounts paid by the Mortgagee shall be due and payable upon demand and shall be
secured hereby.
7. Condemnation. Notwithstanding any taking by any public or
quasi-public governmental body or authority through eminent domain or
otherwise, Mortgagor shall continue to pay the Debt at the time and in the
manner provided for its payment in the Note and in this Mortgage and the Debt
shall not be reduced until any award or payment therefor shall have been
actually received and applied by Mortgagee to the discharge of the Debt.
Mortgagee may apply any such award or payment to the discharge of the Debt.
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<PAGE> 6
Mortgagee may apply any such priority and proportions as Mortgagee in its
discretion shall deem proper. If the Mortgaged Property is sold, through
foreclosure or otherwise, prior to the receipt by Mortgagee of such award or
payment, Mortgagee shall have the right, whether or not a deficiency judgment
on the Note shall have been sought, recovered or denied, to receive such award
or payment, or a portion thereof sufficient to pay the Debt, whichever is less.
Mortgagor shall file and prosecute its claim or claims for any such award or
payment in good faith and with due diligence and cause the same to be collected
and paid over to Mortgagee and hereby irrevocably authorizes and empowers
Mortgagee, in the name of Mortgagor or otherwise to collect and receipt for any
such award or payment and to file and prosecute such claim or claims, and
although it is hereby expressly agreed that the same shall not be necessary in
any event, Mortgagor shall, upon demand of Mortgagee, make, execute and deliver
any and all assignments and other instruments sufficient for the purpose of
assigning any such award or payment to Mortgagee, free and clear of any
encumbrances of any kind or nature whatsoever.
8. Leases and Rents. Subject to the terms of this paragraph,
Mortgagee shall not exercise any right to enter the Mortgaged Property for the
purpose of collecting the Rents, and grants Mortgagor a license to collect the
Rents. Mortgagor shall hold the Rents, or an amount sufficient to discharge
all current sums due on the debt, in trust of use in payment of the Debt. The
license of Mortgagor to collect the Rents shall be automatically terminated and
revoked, without the necessity of notice or other action by the Mortgagee, both
of which are expressly waived, upon the occurrence of an Event of Default by
Mortgagor under the terms of any instrument evidencing the Debt or this
Mortgage by giving notice of such revocation to Mortgagor. Following such
termination, Mortgagee may collect, retain, and apply the Rents toward payment
of the Debt in such priority and proportions as Mortgagee, in its discretion,
shall deem proper, or to the operation, maintenance and repair of the Mortgaged
Property.
No pledge or assignment of any rents of the Mortgaged Property or any
portion thereof, other than any given to Mortgagee is outstanding or in force.
Mortgagor will make no such pledge or assignment thereof except with prior
written consent of Mortgagee. If any such pledge or assignment is made, the
same shall be deemed to be subject hereto and for the use and benefit of
Mortgagee.
Mortgagee shall have all of the rights against tenants of the
Mortgaged Property as set forth in section 291-f of the Real Property Law of
New York. Mortgagor shall (i) fulfill or perform each and every provision of
the Leases on the part of Mortgagor to be fulfilled or performed, and (ii)
enforce, short of termination of the Leases, the performance or observance of
the provisions thereof by the tenants thereunder. In addition to the rights
which Mortgagee may have herein, in the event of any default under this
Mortgage, Mortgagee, at its option, may
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require Mortgagor to pay monthly in advance to Mortgagee, or any receiver
appointed to collect the Rents, the fair and reasonable rental value of the use
and occupation of such part of the Mortgaged Property as may be in possession
of Mortgagor. Upon default in any such payment, Mortgagor will vacate and
surrender possession of Mortgaged Property to Mortgagee, or to such receiver
and, in default thereof, Mortgagor may be evicted by summary proceedings or
otherwise. Nothing contained in this paragraph shall be construed as imposing
on Mortgagee any of the obligations of the obligations of the lessor under the
Leases.
9. Maintenance of the Mortgaged Property. Mortgagor shall cause
the Mortgaged Property to be maintained in good condition and repair and will
not commit or suffer to be committed any waste of the Mortgaged Property. Upon
any default in doing so to the reasonable satisfaction of Mortgagee after
thirty (30) days notice from Mortgagee, Mortgagee at its option may put the
Mortgaged Property into reasonable condition and repair, and all sums paid by
Mortgagee for such purposes shall, together with interest thereon, be added to
the amount secured hereunder and be payable on demand. The Improvements and
the Equipment shall not be removed, demolished or materially altered (except
for normal replacement of the Equipment), without the prior written consent of
Mortgagee. Mortgagor shall promptly repair, replace or rebuild any part of the
Mortgaged Property which may be damaged or destroyed by any casualty (including
any casualty for which insurance was not obtained or obtainable) or which may
be affected by any proceeding of the character referred to in Section 7 hereof
and shall complete and pay for, within a reasonable time, any structure at any
time in process of construction or repair on the Premises. If such casualty
shall be covered by the Policies or an award or payment made pursuant to
Section 7 hereof, Mortgagor's obligation to repair, replace or rebuild such
portion of the Mortgaged Property shall be contingent upon Mortgagee paying
Mortgagor the proceeds of the Policies, awards or payments, or such portion
thereof as shall be sufficient to complete such repair, replacement or
rebuilding, whichever is less. Mortgagor will not, without obtaining the prior
consent of the Mortgagee, initiate, join in or consent to any private
restrictive covenant, zoning ordinance, or other public or private
restrictions, limiting or defining the uses which may be made of the Mortgaged
Property or any part thereof.
10. Estoppel Certificates. Mortgagor, within ten (10) days after
request by Mortgagee and at its expense, will furnish Mortgagee with a
statement, duly acknowledged and certified, setting forth the offsets or
defenses, if any it may have to the payment of the Debt.
11. Transfer or Encumbrance of the Mortgaged Property. No part of
the Mortgaged Property or any interest therein or legal or equitable title
thereto or beneficial use or constructive possession thereof, shall in any
matter be further mortgaged, encumbered, sold, transferred, conveyed, or
subjected voluntarily or involuntarily, directly or indirectly, to any lien or
other
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<PAGE> 8
similar claim, or permitted to be further mortgaged, encumbered, sold,
transferred, conveyed, or subjected to any lien without the written consent of
Mortgagee. For purposes of this Mortgage, a transfer shall be deemed to have
occurred upon (i) any merger, consolidation, or sale of substantially all of
the assets of a corporation, or (ii) transfer of any interest in a corporation,
or (iii) admission or release of any person as a partner of a partnership or
change of controlling shares of a partnership. The provisions of this section
shall apply to each and every such further mortgage, encumbrance, sale,
transfer, conveyance, or lien regardless of whether or not Mortgagee has
consented to, or waived by its action or inaction its rights hereunder with
respect to any such previous further mortgage, encumbrance, sale, transfer,
conveyance or lien.
12. Notice. All notices required to be given hereunder shall be
in writing and shall be deemed served twenty-four (24) hours after deposit in
registered, certified or first-class United States mail, postage prepaid, and
addressed to the parties at the following addresses, or such other addresses as
may from time to time be designated by written notice given as herein required:
to the Mortgagor:
Ridgeview, Inc.
Post Office Box 8
2101 North Main Street
Newton, North Carolina 28658
Attn: Mr. Walter Bost
to the Mortgagee:
NationsBank of Georgia, N.A.
c/o NationsBank Business Credit
600 Peachtree Street, 13th Floor
Atlanta, Georgia 30308
13. Sale of Mortgaged Property. If this Mortgage is foreclosed,
the Mortgaged Property, or any interest therein, may, at the discretion of
Mortgagee, be sold in one or more parcels or in several interests or portions
and in any order or manner. It is the intention of the parties that if this
Mortgage covers multiple parcels and if Mortgagee so elects, Mortgagee in a
foreclosure proceeding or proceedings may sell all or a portion of the parcels
in one sale and may sell additional parcels in additional sales without the
necessity of bringing further foreclosure actions or obtaining deficiency
judgments between sales in order to hold additional sales and apply the
proceeds thereof to the Debt. A deficiency judgment may be obtained at the
option of the Mortgagee after all or any portion of the properties have been
sold, with such judgment taking into account the value of all the properties
previously sold, and the period of time for application for a deficiency
judgment shall be deemed to run from the date of the sale of the final parcel.
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<PAGE> 9
14. Changes in Laws Regarding Taxation. In the event of the
passage after the date of this Mortgage of any law of the State of New York
deducting from the value of real property for the purpose of taxation any lien
or encumbrance thereon or changing in any way the laws for the taxation of
mortgages or debts secured by mortgages for state or local purposes or the
manner of the collection of any such taxes, and imposing a tax, either directly
or indirectly on this Mortgage, the Note or the Debt, Mortgagee shall have the
right, at its option, to declare the Debt due and payable on a date specified
in a prior notice to Mortgagor of not less than thirty (30) days.
15. Offsets, Counterclaims and Defenses. Any assignee of this
Mortgage and the instruments evidencing the Debt shall take the same free and
clear of all offsets, counterclaims or defense of any nature whatsoever which
Mortgagor may have against any assignor of this Mortgage and the Note and no
such offset, counterclaim or defense shall be interposed or asserted by
Mortgagor in any action or proceeding brought by any such assignee upon this
Mortgage and/or the Note and any such right to interpose or assert any such
offset, counterclaim or defense in any such action or proceeding is hereby
expressly waived by Mortgagor.
16. Other Security for the Debt. Mortgagor shall observe and
perform all of the terms, covenants and provisions contained in any instruments
evidencing the Debt and in all other mortgages and other agreements or
documents evidencing, securing or guaranteeing payment of the Debt, in whole or
in part, or otherwise executed and delivered in connection with the Note, this
Mortgage or the loan evidenced and secured thereby.
17. Documentary Stamps. If at any time the United States of
America, any state thereof or any governmental subdivision of any such state,
shall require revenue or other stamps to be affixed to any instrument
evidencing the Debt or this Mortgage, Mortgagor will pay for the same, with
interest and penalties thereon, if any.
18. Right of Entry. Mortgagee and its agents shall have the right
to enter and inspect the Mortgaged Property at all reasonable times.
19. Books and Records/Financial Statements. Mortgagor will keep
and maintain or will cause to be kept and maintained on a fiscal year basis in
accordance with generally accepted accounting practices consistently applied
proper and accurate books, records and accounts reflecting all of the financial
affairs of Mortgagor and all items of income and expense in connection with the
operation of the Mortgaged Property or in connection with any services,
equipment or furnishings provided in connection with the operation of the
Mortgaged Property, whether such income or expense be realized by Mortgagor or
by any other person whatsoever expecting lessees unrelated to and unaffiliated
with Mortgagor who have leased from Mortgagor portions of the Mort-
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<PAGE> 10
gaged Property for the purpose of occupying the same. Mortgagee shall have the
right from time to time at all times during normal business hours to examine
such books, records and accounts at the office of Mortgagor or other person
maintaining such books, records and accounts and to make copies of extracts
thereof as Mortgagee shall desire.
20. Performance of Other Agreements. Mortgagor shall observe and
perform each and every term to be observed or performed by Mortgagor pursuant
to the terms of any agreement or recorded instrument affecting or pertaining to
the Mortgaged Property.
21. Environmental Assessment. Upon the reasonable request of the
Mortgagee, Mortgagor shall provide the Mortgagee (at the Mortgagor's expense)
with a current environmental assessment of the Mortgaged Property within a
reasonable time after such request. Such assessment shall be in a form
reasonably satisfactory to the Mortgagee and from an environmental engineer or
consultant satisfactory to the Mortgagee. If the Mortgagee requests any such
environmental assessment on account of a directive received by any governmental
agency having regulatory authority over the Mortgagee, the Mortgagor agrees
that such request shall be deemed to be reasonable.
22. Appraisal. Upon the reasonable request of the Mortgagee, provide
the Mortagee (at the Mortgagor's expense) with a current appraisal of the
Property within a reasonable time after such request. Such appraisal shall be
by a qualified appraiser reasonably satisfactory to the Mortgagee and must be
reasonably satisfactory to the Mortgagee in form and substance. If the
Mortgagee requests any such appraisal on account of a directive received by any
governmental agency having regulatory authority over the Mortgagee, the
Mortgagor agrees that such request shall be deemed to be reasonable.
23. Defaults. The Debt together with any amount which may become
due because of prepayment shall become due upon the occurrence of any one of
the following events or conditions described below (each individually, an
"Event of Default"):
(a) failure to pay when due any installment of principal
or interest due on the Note or any other portion of the Debt within
five (5) days after the same is due;
(b) if Mortgagor shall fail to pay within ten (10) days
of notice and demand by Mortgagee, any installment of any assessment
against the Mortgaged Property for local improvements heretofore or
hereafter laid, which assessment is or may become payable in annual or
periodic installments and is or may become a lien on the Mortgaged
Property, notwithstanding the fact that such installment may not be
due and payable at the time of such notice and demand;
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<PAGE> 11
(c) if any Federal tax lien is filed against Mortgagor
and/or the Mortgaged Property;
(d) if without the consent of Mortgagee any part of the
Mortgaged Property or any interest therein is in any manner further
mortgaged, encumbered, sold, transferred, conveyed or subjected to a
lien, or if any Improvement or the Equipment (except for normal
replacement of the Equipment) is removed, demolished or materially
altered, or if the Mortgaged Property is not kept in good condition
and repair or if any material portion of the Mortgaged Property is
taken by any public or quasi-public governmental body or authority
through eminent domain or otherwise;
(e) if the Policies are not kept in full force and
effect, or if the certificates of insurance are not delivered to
Mortgagee upon request;
(f) if without the consent of Mortgagee any Leases,
rental agreements, sales contracts, management contracts, franchise
agreements, technical service agreements or other contracts or
agreements affecting the Mortgaged Property are made, canceled,
terminated, altered, breached or modified (other than in the ordinary
course of business), or if any portion of the Rents is paid for a
period of more than one (1) month in advance or if any of the Rents
are assigned to anyone other than Mortgagee;
(g) (i) if any representation or warranty of
Mortgagor, or of any person guaranteeing payment of the Debt or any
portion thereof (hereinafter referred to as the "Guarantor") or (ii)
performance by Mortgagor of any of the terms of this Mortgage made
herein or in any such guaranty, or in any certificate, report,
financial statement or other instrument furnished in connection with
the making of any instrument evidencing the Debt, this Mortgage, or
any such guaranty, shall prove false or misleading in any material
respect;
(h) if Mortgagor or other person shall be in default
under any instrument evidencing the Debt or under any other mortgage,
instrument or document evidencing, securing or guaranteeing payment of
the Debt, in whole or in part, or otherwise executed and delivered in
connection with any instrument evidencing the Debt, this Mortgage or
the loan evidenced and secured thereby, or if Mortgagor or any
Guarantor shall be in default under any other note, agreement,
guaranty, or document between Mortgagor or any Guarantor and
Mortgagee;
(i) failure to comply with any of the terms, covenants or
conditions of the Note, the Mortgage or loan document executed in
connection with the Debt;
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<PAGE> 12
(j) if the Mortgaged Property shall become subject (i) to
any tax lien, or (ii) to any mechanic's, materialman's or other lien;
or
(k) liquidation or dissolution of Mortgagor;
(l) if Mortgagor or any Guarantor shall make an
assignment for the benefit of creditors;
(m) if a court of competent jurisdiction enters a decree
or order for relief with respect to Mortgagor or any Guarantor under
the United States Bankruptcy Code as now constituted or hereafter
amended or under any other applicable federal or state bankruptcy law
or other similar law, or if such court enters a decree or order
appointing a receiver, liquidator, assignee, trustee sequestrator (or
similar official) of Mortgagor or any guarantor, or of any substantial
part of their respective properties, or if such court decrees or
orders the winding up or liquidation of the affairs of Mortgagor or
any Guarantor;
(n) if Mortgagor or any Guarantor files a petition or
answer or consent seeking relief under the United States Bankruptcy
Code as now constituted or hereafter amended, or under any other
applicable Federal or state bankruptcy law or other similar law, or if
Mortgagor or any Guarantor consents to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of Mortgagor or
any Guarantor, or of any substantial part of their respective
properties, or if Mortgagor or any Guarantor fails generally to pay
their respective debts as such debts become due, or if Mortgagor or
any Guarantor takes any action in furtherance of any action described
in this subparagraph (n);
(o) if there is any legal or equitable transfer of
ownership of any kind of the Mortgaged Property or any change in the
membership or control of the Mortgagor, except as may be approved in
writing in advance by the Mortgagee in its sole discretion; or
(p) any suit or combination of suits shall be filed
against Mortgagor, which in the reasonable judgment of the Mortgagee
has a substantial likelihood of being determined adversely, and which
if determined adversely, could reasonably be expected substantially to
impair the ability of Mortgagor to perform each and every one of their
respective obligations under the Mortgage, the Note or any other
document in connection with the indebtedness secured hereby.
24. Rights and Remedies Upon Default. Upon the occurrence of any
"Event of Default" hereunder, the Mortgagee may, at its
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<PAGE> 13
option, exercise any one or more of the following rights and remedies:
(a) Right to Take Possession of Mortgaged Property. The
Mortgagor agrees to surrender possession of the Mortgaged Property to
the Mortgagee upon demand, and the Mortgagee shall thereupon have the
right to enter and take possession of the Mortgaged Property, to let
the Premises, the Improvements, the Equipment, or any part thereof, to
collect all Rents, Rental Insurance Proceeds and Business Interruption
Insurance Proceeds and to apply the same on account of the Debt,
whether then matured or not, after payment of all proper costs,
charges and expenses, including, but not limited to, (i) impositions,
(ii) any premiums for fire, public liability and other insurance
coverage affecting the Premises, the Improvements, the Equipment or
any part thereof and (iii) any and all other costs, charges and
expenses which it may be necessary or advisable for the Mortgagee to
pay in the management, operation and maintenance of the Premises, the
Improvements, the Equipment or any part thereof, including, but not
limited to, the cost of making repairs, alterations, and tenant
improvements, commissions for renting the Premises, the Improvements,
the Equipment, or any part thereof and legal expenses incurred in
enforcing claims, preparing papers or any other services that may be
required, or otherwise as a court of competent jurisdiction may
direct. After taking possession of the Mortgaged Property, the
Mortgagee may dispossess, by summary proceedings or otherwise, any
tenants, subtenants or occupants of the Premises, the Improvements or
any part thereof then or thereafter in default in the payment of any
Rent, and the Mortgagor hereby irrevocably appoints the Mortgagee its
agent and attorney-in-fact (which agency shall be deemed to be coupled
with an interest), with full power of substitution, for such purpose.
In the event that the Mortgagor is then an occupant of the Premises,
the Improvements or any part thereof, it agrees to surrender
possession thereof to the Mortgagee upon demand, and if the Mortgagor
remains in possession thereof after such demand, such possession shall
be as tenant of the Mortgagor, and the Mortgagor agrees to pay monthly
in advance to the Mortgagee such rent for the Premises, the
Improvements or any part thereof so occupied as the Mortgagee may
reasonably demand, and in default of so doing, the Mortgagor may also
be dispossessed by summary proceedings or otherwise.
(b) Right to Foreclosing Mortgage. The Mortgagee may
foreclose this Mortgage and sell, if permitted by law, or petition to
be sold, the Premises in one parcel or in such parcels, manner or
order as a court of competent jurisdiction may direct. If permitted
by law, Mortgagee may foreclose this Mortgage for any portion of the
Debt or any other sums secured hereby which are then due and payable,
subject to the continuing lien of this Mortgage for the balance of
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<PAGE> 14
the Debt not then due. If any real property transfer tax or real
property transfer gains tax shall be due and payable upon the
conveyance of the Premises pursuant to a judicial sale in any action,
suit or proceeding brought to foreclose this Mortgage or by deed in
lieu of foreclosure, the Mortgagor will pay or cause the same to be
paid. In the event that the Mortgagor fails to pay any such tax
within 20 days after notice and demand for payment is given by the
Mortgagee, the Mortgagee is hereby authorized to pay the same, and any
amount thereof so paid by the Mortgagee, together with all costs and
expenses incurred by the Mortgagee in connection with such payment,
including, but not limited to, reasonable attorneys' fees and
disbursements, and interest on all such amounts, costs and expenses at
the rate of five percent (5%) per annum in excess of the interest rate
specified with respect to the Debt, but in no event in excess of the
maximum interest rate permitted by law, shall be paid by the Mortgagor
to the Mortgagee on demand. Until paid by the Mortgagor, all such
amounts, costs and expenses, together with interest thereon, shall be
secured by this Mortgage and may be added to the judgment in any suit
brought by the Mortgagee against the Mortgagor hereon.
(c) Right to Appointment of Receiver. In any action to
foreclose this Mortgage, the Mortgagee shall be entitled, without
notice, without regard to the adequacy of any security for the
indebtedness secured hereby and without regard to the solvency of any
person, firm or corporation who is or may become liable for the
payment of all or any part of the Debt secured hereby, to have a
receiver appointed with all the rights and powers permitted under the
laws of the State of New York. In addition, the receiver shall be
entitled to take any and all action necessary or deemed advisable to
let the Mortgaged Property, including, without limitation, making
improvements or tenant improvements and adding the cost of same to the
Debt secured hereby. In the event that a receiver of the Premises is
appointed hereunder, such receiver shall also have and may enforce all
of the rights and remedies of the Mortgagee under subparagraph (a)
hereof.
(d) Additional Rights and Remedies. The rights and
remedies of the Mortgagee hereunder shall be in addition to its rights
and remedies under the laws of the State of New York, including
without limitation its rights and remedies under Section 254 of the
Real Property Law. Nothing contained in this Mortgage shall be
construed as requiring the Mortgagee to pursue any particular right or
remedy for the purpose of procuring the satisfaction of the
obligations and Debt secured hereby, and the Mortgagee may exercise
any or all of its rights and remedies under this Mortgage, the
instruments evidencing the Debt, or otherwise provided by law, in its
sole discretion. No failure of the Mortgagee to insist upon strict
performance by the Mortgagor of any of
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<PAGE> 15
its covenants or obligations under this Mortgage or the instruments
evidencing the Debt, and no delay by the Mortgagee in exercising any
of its rights or remedies hereunder, thereunder or otherwise provided
by law, shall be deemed to be a waiver of such covenants or
obligations or to preclude the exercise of such rights or remedies,
and the Mortgagee, notwithstanding any such failure or delay, shall
have the right thereafter to insist upon the strict performance by the
Mortgagor of any and all of its covenants and obligations under this
Mortgage and the instrument evidencing the Debt, and to exercise any
and all of its rights and remedies hereunder, thereunder or otherwise
provided by law.
25. Right to Cure Defaults/Costs of Collection. If default in the
performance of any of the covenants of Mortgagor herein occurs, the Mortgagee
may, at its discretion, remedy the same and for such purpose shall have the
right to enter upon the Mortgaged Property or any portion thereof without
thereby becoming liable to Mortgagor or any person in possession thereof
holding under Mortgagor. If Mortgagee shall remedy such a default or appear
in, defend, or bring any action or proceeding to protect its interest in the
Mortgaged Property or to foreclose this Mortgage or collect the Debt (including
without limitation taking possession, monitoring, appointing a receiver, or
collecting rents), the costs and expenses thereof (including reasonable
attorneys' fees to the extent permitted by law), with interest as provided in
this paragraph, shall be paid by Mortgagor to Mortgagee upon demand. All such
costs and expenses incurred by Mortgagee in remedying such default or in
appearing in, defending, or bringing any such action or proceeding, or in
taking any other action shall be paid by Mortgagor to Mortgagee upon demand,
with interest at the rate of interest in effect on the Debt immediately before
said default, for the period after notice from Mortgagee that such costs or
expenses were incurred to the date of payment to Mortgagee. All such costs and
expenses incurred by Mortgagee pursuant to the terms of this Mortgage, with
interest, shall be secured by this Mortgage.
26. Late Payment Charge. If any portion of the Debt is not paid
within five (5) days after the date on which it is due, Mortgagor shall pay to
Mortgagee upon demand a late payment charge of ten percent (10%) of such unpaid
portion of the Debt to defray the expense incurred by Mortgagee in handling and
processing such delinquent payment, and such amount shall be secured by this
Mortgage.
27. Non-Waiver. The failure of Mortgagee to insist upon strict
performance of any term of this Mortgage shall not be deemed to be a waiver of
any term of this Mortgage. Mortgagor shall not be relieved of Mortgagor's
obligation to pay the Debt at the time and in the manner required by reason of
(i) failure of Mortgagee to comply with any request of Mortgagor to take any
action to foreclose this Mortgage or otherwise enforce any of the provisions
hereof or of any instrument evidencing the Debt or any other mortgage,
instrument or document evidencing, securing or
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<PAGE> 16
guaranteeing payment of the Debt or any portion thereof, (ii) the release,
regardless of consideration, of the whole or any part of the Mortgaged Property
or any other security for the Debt or (iii) any agreement or stipulation
between Mortgagee and any subsequent owner or owners of the Mortgaged Property
or other person extending the time of payment or otherwise modifying or
supplementing the terms of any instrument evidencing the Debt, this Mortgage or
any other mortgage, instrument or document evidencing, securing or guaranteeing
payment of the Debt or any portion thereof, without first having obtained the
consent of Mortgagor, and in the latter event, Mortgagor shall continue to be
obligated to pay the Debt at the time and in the manner provided in any
instrument evidencing the Debt and this Mortgage, as so extended, modified and
supplemented, unless expressly released and discharged by Mortgagee.
Regardless of consideration, Mortgagee may release any person at any time
liable for the payment of the Debt or any portion thereof or any part of the
security held for the Debt and may extend the time of payment or otherwise
modify the terms of any instrument evidencing the Debt and/or this Mortgage,
including, without limitation, a modification of the interest rate payable on
the principal balance of any instrument evidencing the Debt, without in any
manner impairing or affecting this Mortgage or the lien thereof or the priority
of this Mortgage, as so extended and modified, as security for the Debt over
any such subordinate lien, encumbrance, right, title or interest. Mortgagee
may resort for the payment of the Debt to any other security held by Mortgagee
in such order and manner and Mortgagee, in its discretion, may elect.
Mortgagor's obligation shall not be impaired or altered by the taking of any
other or additional security for or guarantee of the Debt or any part thereof,
or by the failure to hold, protect, or realize upon any other additional
security or guarantee, or by the release of same. Mortgagee may take action to
recover the Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of Mortgagee thereafter to foreclose this
Mortgage. Mortgagee shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every additional right and
remedy now or hereafter afforded by law. The rights of Mortgagee under this
Mortgage shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. No act of Mortgagee shall be construed
as an election to proceed under any one provision herein to the exclusion of
any other provision.
28. Prepayment After Event of Default. Upon the occurrence of an
Event of Default under this Mortgage and if by reason thereof the Mortgagee
elects to declare the entire principal balance of the Debt to be immediately
due and payable, or if an action is commenced for the foreclosure of this
Mortgage, then in such event the prepayment consideration herein provided for
shall become due and payable on the date of such election in the same manner as
though the Mortgagor had exercised such right of prepayment as herein set
forth. If any such event occurs prior to the earliest date upon which the
Mortgagor has a right of prepayment, then in such event the prepayment
consideration
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<PAGE> 17
applicable upon the earliest date on which the Mortgagor had such right of
prepayment shall apply and Mortgagor also shall pay to Mortgagee a sum equal to
interest which would have accrued on the principal balance of the Debt at the
rate specified in the instrument evidencing the Debt from the date of payment
to the end of the period during which prepayment is prohibited. The amount of
such prepayment consideration computed on the principal balance as of the date
aforesaid, shall be added to and secured by this Mortgage and shall be
recoverable by the Mortgagee in the same manner as the principal balance of the
Debt and in addition thereto, in any action brought for the foreclosure of the
Mortgage.
29. Liability. If Mortgagor consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and
several.
30. Construction. The terms of the Mortgage shall be construed in
accordance with the laws of the State of New York.
31. Security Agreement. This Mortgage constitutes both a real
property mortgage and a "security agreement", within the meaning of the New
York Uniform Commercial Code, and the Mortgaged Property includes both real and
personal property and all other rights and interest, whether tangible or
intangible in nature of Mortgagor in the Mortgaged Property. Mortgagor by
executing and delivering this Mortgage has granted to Mortgagee, as security
for the Debt, a security interest in the Equipment and all other personal
property identified in clauses (a) through (g) of the granting clauses (the
"Personalty"). If Mortgagor shall default under any instrument evidencing the
Debt or this Mortgage, Mortgagee, in addition to any other rights and remedies
which it may have, shall have and may exercise immediately and without demand,
any and all rights and remedies granted to a secured party upon default under
the New York Uniform Commercial Code, including, without limiting the
generality of the foregoing, the right to take possession of the Equipment or
any part thereof or the Personalty or any part thereof, and to take such other
measures as Mortgagee may deem necessary for the care, protection and
preservation of the Equipment and Personalty. Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Equipment and Personalty
and make it available to Mortgagee at a convenient place acceptable to
Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses,
including legal expenses and attorneys' fees, incurred or paid by Mortgagee in
protecting its interest in the Equipment and Personalty and in enforcing its
rights hereunder with respect to the Equipment and Personalty. Any notice of
sale, disposition or other intended action by Mortgagee with respect to the
Equipment or Personalty sent to Mortgagor in accordance with the provisions
hereof at least five (5) days prior to such action, shall constitute reasonable
notice to Mortgagor. The proceeds of any disposition of the Equipment or
Personalty, or any part thereof, may be applied by Mortgagee to
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<PAGE> 18
the payment of the Debt in such priority and proportions as Mortgagee in its
discretion shall deem proper.
32. Further Acts, etc. Mortgagor will, at the cost of Mortgagor,
and without expense to Mortgagee, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, assignments, notice of
assignment, transfers and assurances as Mortgagee shall, from time to time,
require, for the better assuring, conveying, assigning, transferring and
confirming unto Mortgagee the property and right hereby mortgaged or intended
now or hereafter so to be, or which Mortgagor may be or may hereafter become
bound to convey or assign to Mortgagee, or for carrying out the intention or
facilitating the performance of the terms of this Mortgage or for filing,
registering or recording this Mortgage and, on demand, will execute and deliver
and hereby authorizes Mortgagee to execute in the name of Mortgagor to the
extent Mortgagee may lawfully do so, one or more financing statements, chattel
mortgages or comparable security instruments, to evidence more effectively the
lien hereof upon the Mortgaged Property.
33. Headings, etc. The headings and captions of various
paragraphs of this Mortgage are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or interest of
the provisions hereof.
34. Filing/Recording of Mortgage, etc. Mortgagor forthwith upon
the execution and delivery of this Mortgage and thereafter, from time to time,
will cause this Mortgage, and any security instrument creating a lien or
evidencing the lien hereof upon the Mortgaged Property and each instrument of
further assurance to be filed, registered or recorded in such manner and in
such places as may be required by any present or future law in order to publish
notice of and fully to protect the lien hereof upon, and the interest of
Mortgagee in the Mortgaged Property. Mortgagor will pay all filing,
registration or recording fees, and all expenses incident to the preparation,
execution and acknowledgement of this Mortgage, any mortgage supplemental
hereof, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all Federal, state, and county and
municipal taxes, duties, impost, assessments and charges arising out of or in
connection with the execution and delivery of this Mortgage, any mortgage
supplemental hereof, any security instrument and with respect to the Mortgaged
Property or any instrument of further assurance. Mortgagor shall hold harmless
and indemnify Mortgagee, its successors and assigns, against any liability
incurred by reason of the imposition of any tax on the making and recording of
this Mortgage.
35. Usury Laws. This Mortgage and any instrument evidencing the
Debt are subject to the express condition that at no time shall Mortgagor be
obligated or required to pay interest on the principal balance due at a rate
which could subject the holder of any instrument evidencing the Debt to either
civil or criminal liability as a result of being in excess of the maximum
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<PAGE> 19
interest rate which Mortgagor is permitted by law to contract or agree to pay.
If by the terms of the Mortgage or any instrument evidencing the Debt,
Mortgagor is at any time required or obligated to pay interest on the principal
balance due under any instrument evidencing the Debt at the rate in excess of
such maximum rate, the rate of interest under any instrument evidencing the
Debt shall be deemed to be immediately reduced to such maximum rate and the
interest payable shall be computed at such maximum rate and all prior interest
payments in excess of such maximum rate shall be applied and shall be deemed
to have been payments in reduction of the principal balance of any instrument
evidencing the Debt.
36. Sole Discretion of Mortgagee. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive.
37. Recovery of Sums Required To Be Paid. Mortgagee shall have
the right from time to time to take action to recover any sum or sums which
constitute a part of the Debt as the same become due, without regard to whether
or not the balance of the Debt shall be due and without prejudice to the right
of Mortgagee thereafter to bring an action of foreclosure, or any other action,
for a default or defaults by Mortgagor existing at the time such earlier action
was commenced.
38. Marshalling. Mortgagor waives and releases any right to have
the Mortgaged Property marshalled.
39. Authority. Mortgagor has full power, authority and legal
right to execute this Mortgage and to mortgage, give, grant, bargain, sell,
convey, hypothecate, confirm and assign the Mortgaged Property pursuant to the
terms hereof and to keep and observe all of the terms of this Mortgage on
Mortgagor's part to be performed. If Mortgagor is a corporation or a
partnership, the execution and delivery of the Mortgage has been duly
authorized by all necessary persons.
40. Actions and Proceedings. Mortgagee shall have the right to
appear in and defend any action or proceeding brought with respect to the
Mortgaged Property and to bring any action or proceeding that it, in its
discretion, feels should be brought to protect its interest in the Mortgaged
Property.
41. Inapplicable Provisions. If any term, covenant or condition
of this Mortgage shall be held to be invalid, illegal or unenforceable in any
respect, this Mortgage shall be construed without such provision.
42. Duplicate Originals. This Mortgage may be executed in any
number of duplicate originals and each such duplicate
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<PAGE> 20
original shall be deemed to constitute but one and the same instrument.
43. Certain Definitions. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, (i) words
used in this Mortgage shall be used interchangeably in singular or plural form,
(ii) the word "Mortgagor" shall mean "each Mortgagor and/or any subsequent
owner or owners of the Mortgaged Property or any part thereof or interest
therein or any of its or their heirs, representatives, successors, agents or
assigns", the word "Mortgagee" shall mean "Mortgagee or any subsequent holder
of any evidence of indebtedness secured by this Mortgage or any of its
successors, assigns, agents, or representatives", (iii) the word "person" shall
include an individual, corporation, partnership, trust, unincorporated
association, government, governmental authority, or other entity, (iv) the
words "Mortgaged Property" shall include any portion of the Mortgaged Property
or interest therein, and (v) the word "Debt" shall mean all sums secured by
this Mortgage. Whenever the context may require, any pronouns used herein
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns and pronouns shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa.
44. Waiver of Notice. Mortgagor shall not be entitled to any
notices of any nature whatsoever from Mortgagee except with respect to matters
for which this Mortgage specifically and expressly provides for the giving of
notice by Mortgagee to Mortgagor, and Mortgagor hereby expressly waives the
right to receive any notice from Mortgagee with respect to any matter for which
this Mortgagee does not specifically and expressly provide for the giving of
notice by Mortgagee to Mortgagor.
45. No Oral Change. This Mortgage may not be modified, amended,
changed, discharged or terminated orally, but only by an agreement in writing
signed by the party against whom the enforcement of the modification,
amendment, change, discharge or termination is sought.
46. Business Days. If any payment or obligation hereunder becomes
due on a Saturday, Sunday, or other holiday on which banks doing business in
the State of New York are authorized to close, the due date for payment or
performance is extended to the next succeeding business day, but any interest
and fees shall be calculated based upon the time of actual payment or
performance.
47. Set Off. Mortgagee may set off toward payment of any
obligation secured hereby any indebtedness due or to become due from Mortgagee
to Mortgagor and any moneys or other property of Mortgagor in possession of
Mortgagee at any time.
48. Article 31-B. In the event of and in connection with any
foreclosure action commenced under this Mortgage or the
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<PAGE> 21
taking of a deed in lieu of foreclosure, Mortgagor hereby appoints Mortgagee
and the holders from time to time of this Mortgage as its attorneys-in-fact for
the purpose of prepaying, executing and filing, on behalf of the Mortgagor, any
forms, affidavits or returns that may be required by Article 31-B of the New
York Tax Law and any regulations promulgated thereunder as the same may be
amended from time to time.
49. Environmental Matters. The Mortgagor represents and warrants
that (i) Mortgagor has not, and (ii) to the best of Mortgagor's knowledge no
third party has disposed of Hazardous Materials on, under or about the
Mortgaged Property in such a manner as would give rise to a liability which
would have a material adverse effect on the Mortgagor, and that to the best of
the Mortgagor's knowledge, to the extent that the Mortgagor generated, stored
or transported Hazardous Materials, such activities were done in such a manner
as would not give rise to a liability for failure to comply with any applicable
federal, state and local laws, ordinances and regulations which would have a
material adverse effect on the Mortgagor. For purposes hereof, "Hazardous
Materials" shall be defined as "hazardous substances" or "toxic substances" in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 et seq.; Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Section 1801 et seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.;
Articles 15 and 27 of the New York State Environmental Conservation Law and
those substances defined as "hazardous substances or wastes" in any state or
local laws, rules or regulations applicable to the Mortgagor.
The Mortgagor covenants that it will (i) comply with or contest in
good faith all statutes and governmental regulations, specifically including
without limitation all federal, state and local environmental laws, rules and
regulations, the noncompliance with which would have a material adverse effect
on the financial condition of the Mortgagor; and (ii) pay all taxes,
assessments, governmental charges, claims for labor, supplies, rent and any
other obligation which, if unpaid, might become a lien against any of its
properties except liabilities being contested in good faith and against which,
if reasonably requested by the Mortgagee, reserves satisfactory to the
Mortgagee will be established;
The Mortgagor covenants and agrees that it will (i) conduct and
complete all investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to clean up and remove all Hazardous
Materials on, from, or affecting the Mortgaged Property (A) in accordance with
all applicable federal, state, and local laws, regulations, rules, and
policies, (B) to the reasonable satisfaction of the Mortgagee, and (C) in
accordance with the orders and directives of all federal, state and local
governmental authorities, and (ii) defend, indemnify, and hold harmless the
Mortgagee, its employees, agents, officers, and directors, from and against any
claims, demands, penalties,
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<PAGE> 22
fines, liabilities, settlements, damages, costs, or expenses (including,
without limit, attorney and consultant fees, investigation and laboratory fees,
court costs, and litigation expenses) of whatever kind or nature, known or
unknown, contingent or otherwise, arising out of or in any way related to (A)
the presence, disposal, release, or threatened release of any Hazardous
Materials which are on, from, or affecting the soil, water, vegetation,
buildings, personal property, persons, animals, or otherwise; (B) any personal
injury (including wrongful death) or property damage (real or personal) arising
out of or related to such Hazardous Materials; (C) any lawsuit brought or
threatened, settlement reached, or government order relating to such Hazardous
Materials, and/or (D) any violation of laws, orders, regulations, requirements,
or demands of government authorities, or any policies or requirements of the
Lender, which are based upon or in any way related to such Hazardous Materials;
provided, however, the foregoing indemnity shall not be applicable to
liabilities incurred by the Mortgagee as a result of the Mortgagee's actions.
50. Compliance with Laws and Ordinances. Mortgagor shall comply,
and shall cause all tenants, subtenants and occupants of the Mortgaged Property
to comply, with all laws and ordinances relating to the use or occupancy of the
Mortgaged Property and with all requirements, orders and notices of violation
thereof issued by any government or department or agency thereof having
apparent jurisdiction.
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<PAGE> 23
IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage the day
and year first above written.
MORTGAGOR:
RIDGEVIEW, INC., a North
Carolina corporation
By: /s/ Hugh R. Gaither
----------------------------------
Name: Hugh R. Gaither
--------------------------------
Title: President
-------------------------------
STATE OF NEW YORK )
COUNTY OF ONONDAGA ) ss:
On this 28th day of June, 1995, before me personally came Hugh R.
Gaither, to me known, who, being by me duly sworn, did depose and say that he
resides in North Carolina, that he is the President of RIDGEVIEW, INC., North
Carolina corporation, the corporation described in and which executed the
foregoing instrument, and he signed his name thereto by order of the Board of
Directors of said corporation.
/s/ Patricia Fitzsimmons
-------------------------------
Notary Public
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<PAGE> 1
EXHIBIT 10.13
Drawn By and Return To:
Moore & Van Allen (CCK)
100 N. Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
STATE OF NORTH CAROLINA DEED OF TRUST
AND
COUNTY OF CATAWBA SECURITY AGREEMENT
COLLATERAL IS OR INCLUDES FIXTURES
THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Deed of Trust") is
made and entered into as of the ____ day of January, 1995, by and among
RIDGEVIEW, INC., a North Carolina corporation (the "Grantor"); and
CHRISTOPHER C. KUPEC, a resident of North Carolina (the "Trustee"); and
NATIONSBANK, N.A. (CAROLINAS), a national banking association
organized and existing under the laws of the United States, having its
principal place of business in Charlotte, North Carolina (the "Lender").
W I T N E S S E T H:
The Grantor, in consideration of the indebtedness herein recited,
irrevocably grants and conveys to the Trustee and the Trustee's successors and
assigns, all of the following described land, real property interests,
buildings, improvements, fixtures, furniture and appliances and other personal
property (all hereafter referred to collectively as the "Property"):
(a) All those tracts or parcels of land and other real property
interests in Catawba County, North Carolina more particularly described in
Exhibit A attached hereto and made a part hereof; and
(b) All buildings and improvements of every kind and description
now or hereafter erected or placed on the aforesaid land and all materials
intended for construction, reconstruction, alteration and repair of such
improvements now or hereafter erected thereon, all of which materials shall be
deemed to be included within the premises hereby conveyed immediately upon the
delivery thereof to the aforesaid land, and all fixtures now or
<PAGE> 2
hereafter owned by the Grantor and attached to or contained in and used in
connection with the aforesaid land and improvements including, but not limited
to, all furniture, furnishings, apparatus, machinery, motors, elevators,
fittings, radiators, ranges, refrigerators, awnings, shades, screens, blinds,
carpeting, office equipment and other furnishings and all plumbing, heating,
lighting, cooking, laundry, ventilating, refrigerating, incinerating, air
conditioning and sprinkler equipment and fixtures and appurtenances thereto and
all renewals or replacements thereof or articles in substitution thereof,
whether or not the same are or shall be attached to said land and improvements
in any manner;
TO HAVE AND HOLD the same, together with all privileges,
hereditaments, easements and appurtenances thereunto belonging, to the Trustee
and the Trustee's successors and assigns to secure the indebtedness herein
recited and upon this special trust: that should the indebtedness secured
hereby be paid according to the tenor and effect thereof when the same shall be
due and payable and should the Grantor timely and fully discharge its
obligations secured hereunder, then the Property shall be reconveyed to the
Grantor or the title thereto shall be revested according to the provisions of
law;
And, as additional security for said indebtedness, the Grantor hereby
conditionally assigns to the Lender all the security deposits, rents, issues,
profits and revenues of the Property from time to time accruing reserving only
the right to the Grantor to collect and use the same as long as the Grantor is
not in default hereunder.
All the fixtures which comprise a part of the Property shall, as far
as permitted by law, be deemed to be affixed to the aforesaid land and conveyed
therewith. As to the balance of the fixtures, this Deed of Trust shall be
considered a security agreement which creates a security interest in such
fixtures for the benefit of Lender. In that regard, the Grantor grants to the
Lender all of the rights and remedies of a secured party under the North
Carolina Uniform Commercial Code.
As additional collateral and further security for the indebtedness,
the Grantor does hereby assign to the Lender the interest of the Grantor in and
to any and all leases, rental agreements, management contracts, construction
contracts, licenses and permits now or hereafter affecting the Property, or any
part thereof, and the Grantor agrees to execute and deliver to the Lender such
additional instruments, in form and substance satisfactory to the Lender, as
may hereafter be reasonably requested by the Lender to evidence and confirm
said assignment; provided, however, that acceptance of any such assignment
shall not be construed as a consent by the Lender to any lease, rental
agreement, franchise agreement, management contract, construction
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<PAGE> 3
contract, or other contract, license or permit, or to impose upon the Lender
any obligation with respect thereto. Without first obtaining on each occasion
the written approval of the Lender (which approval shall not be unreasonably
withheld), the Grantor shall not cancel or permit the cancellation of any such
lease, rental agreement, franchise agreement, management contract, construction
contract, or other contract, license or permit, or modify any of said
instruments, or accept or permit to be made, any prepayment of any installment
of rent or fees thereunder except to the extent permitted in Section 2.15
hereof. The Grantor shall faithfully keep and perform, or cause to be kept and
performed, all of the covenants, conditions, and agreements contained in each
of said instruments, now or hereafter existing, on the part of the Grantor to
be kept and performed and shall at all times do all things reasonably necessary
and reasonably appropriate to compel performance by each other party to said
instruments of all obligations, covenants and agreements by such other party to
be performed thereunder.
The Grantor, the Trustee and the Lender covenant, represent and agree
as follows:
ARTICLE I
The Loan
1.1 The indebtedness secured by this Deed of Trust is the result
of a term loan of $5,000,000.00 (the "Loan") made by Lender to the Grantor
pursuant to the Loan and Security Agreement of even date herewith executed by
the Grantor and the Lender (the "Loan Agreement") and as evidenced by the terms
of the Promissory Note of even date herewith executed by the Grantor in favor
of the Lender in the original principal amount of $5,000,000.00 (the "Note")
(hereinafter the obligations of the Grantor to the Lender under the Loan
Agreement and the Note may be referred to as the "Obligations").
1.2 Payment by the Grantor of the Obligations will be in
accordance with the Loan Agreement, the Note and this Deed of Trust which
require payment on the terms set forth therein.
1.3 This Deed of Trust secures the obligations of the Grantor to
repay the Loan to the Lender under the Note, and all other obligations from
time to time owing to the Lender under the Loan Agreement. The amount of the
present disbursement secured hereby is Five Million Dollars ($5,000,000.00) and
the maximum amount which may be secured hereby at any one time is Ten Million
Dollars ($10,000,000.00). The time period within which future disbursements
are to be made is the period between the date hereof and the date fifteen (15)
years from the date hereof. Disbursements secured hereby shall not be required
to be evidenced by a "written instrument or notation" as described in
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<PAGE> 4
Section 45-68(2) of the North Carolina General Statutes, it being the intent of
the parties that the requirements of Section 45-68(2) for a "written instrument
or notation" for each advance shall not be applicable to disbursements made
under the Loan Agreement and Note.
ARTICLE II
Grantor's Covenants, Representations and Agreements
2.1 The Grantor represents and covenants that it is seised of the
Property in fee and has the right to convey the same, that the title to the
Property is free and clear of all encumbrances except for liens and
encumbrances in favor of the Lender and other liens and encumbrances permitted
by the Lender, in its sole discretion, and any matters shown as specific
exceptions in the policy of title insurance accepted by the Lender in
connection with this Deed of Trust, and that it will warrant and defend the
title to the Property against the claims of all persons or parties except for
the matters (i) permitted by Lender, in its sole discretion, or (ii) shown as
specific exceptions in the policy of title insurance accepted by the Lender in
connection with this Deed of Trust.
2.2 The Grantor will punctually pay all sums secured hereby at the
time and place and in the manner specified in the Loan Agreement and the Note.
2.3 The Grantor will pay as they become due all taxes, general and
special assessments, insurance premiums, permit fees, inspection fees, license
fees and all water and sewer charges against it or the Property, and the
Grantor, upon request of the Lender, will submit to the Lender receipts
evidencing said payments.
2.4 The Grantor covenants to keep the Property insured against
loss or damage by fire and the risks embraced within the term "extended
coverage" and insured against such other hazards and risks as may be reasonably
required by the Lender.
2.5 The Grantor covenants to maintain or cause to be maintained
general accident and public liability insurance against all claims for bodily
injury, death or property damage occurring upon, in or about any part of the
Property.
2.6 Upon the request of the Lender, the Grantor shall, at its own
cost, keep the value of all buildings now or hereafter comprising a part of the
Property insured against loss or damage by fire and such other insurable risks,
casualties and hazards as the Lender may from time to time specify.
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<PAGE> 5
2.7 The Grantor agrees to deliver to the Lender, as additional
security hereto, copies of the original policies of such insurance as is
required by the Lender pursuant to Sections 2.4, 2.5 and 2.6 hereof and of any
additional insurance which shall be taken out upon the Property while any part
of the Loan shall remain unpaid. Renewals of such policies shall be so
delivered at least ten (10) days before any such insurance shall expire. The
insurance policies are to designate the Lender as mortgagee in a standard
mortgagee endorsement, provided that such policies may not be cancelled without
thirty (30) days prior written notice to the Lender, and are to be for such
amounts and from such insurance companies as are reasonably satisfactory to the
Lender. The Grantor hereby assigns the proceeds of any such insurance policies
to the Lender and hereby directs and authorizes each insurance company to make
payment for such loss directly to the Lender as its interests may appear. The
proceeds of any insurance or any part thereof may be applied by the Lender, at
its option, either to the payment of the Loan or to restoration or repair of
the property damaged.
2.8 Upon the request of the Lender, the Grantor shall submit to
the Lender such receipts and other statements which shall evidence, to the
satisfaction of Lender, that all taxes, assessments and insurance premiums have
been paid in full.
2.9 The Grantor agrees that if it shall fail to pay when due any
tax, assessment or charge levied or assessed against the Property or any
utility charge, whether public or private, or any insurance premium or if it
shall fail to procure the insurance coverage and the delivery of the insurance
certificates required hereunder, then the Lender, at its option, may pay or
procure the same. The Grantor will reimburse the Lender immediately and
without demand for any sums of money paid by the Lender pursuant to this
Section, together with interest on each such payment at the default rate set
forth in the Loan Agreement and all such sums and interest thereon shall be
secured hereby.
2.10 The Grantor agrees to execute and deliver to the Lender,
concurrently with the execution of this Deed of Trust and upon the request of
the Lender from time to time hereafter, all financing statements and other
documents reasonably required to perfect and maintain the security interest
created hereby. The Grantor hereby irrevocably (as long as any of the
Obligations remain unpaid) makes, constitutes and appoints the Lender as the
true and lawful attorney of the Grantor to sign the name of the Grantor (after
the Grantor has failed or refused to timely execute such documents upon request
of the Lender) on any financing statement, continuation of financing statement
or similar document required to perfect or continue such security interests.
2.11 The Grantor will not sell, encumber or otherwise dispose of
the fixtures and articles of personal property
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<PAGE> 6
comprising part of the Property except to incorporate such into the
improvements on the land or replace such with goods of quality and value at
least equal to that replaced.
2.12 The Grantor assigns to the Lender any proceeds or awards which
may become due by reason of any condemnation or other taking for public use of
the whole or any part of the Property or any rights appurtenant thereto, and
the Lender may, at its option, either apply the same to the Obligations secured
hereby or release the same to the Grantor without thereby incurring any
liability to any other person. The Grantor agrees to execute such further
assignments and agreements as may be reasonably required by the Lender to
assure the effectiveness of this Section.
2.13 The Grantor will pay or reimburse the Lender for all
reasonable attorneys' fees, costs and expenses incurred by the Lender in any
action, legal proceeding or dispute of any kind which affects any of the
Obligations, the interest created herein, or the Property, including but not
limited to, any foreclosure of this Deed of Trust, enforcement of payment of
amounts due under the Loan Agreement and the Note, any condemnation action
involving the Property or any action to protect the security hereof. Any such
amounts paid by the Lender shall be added to the indebtedness secured hereby
and shall bear interest at the default rate specified in the Loan Agreement.
2.14 The Grantor shall perform all covenants to be performed by
the lessor under any and all leases of the Property or any part thereof and
shall not, without the written consent of the Lender (which consent shall not
be unreasonably withheld), cancel, surrender or modify any lease in which the
Grantor has assigned any rights or interest to the Lender. Upon demand the
Grantor will furnish the Lender with copies of any lease of the Property or any
part thereof.
2.15 The Grantor will not accept any prepayment of rent or
installments of rent for more than one month in advance without the prior
written consent of the Lender (which consent shall not be unreasonably
withheld).
2.16 The Grantor will abstain from and will not permit the
commission of waste by the Grantor in or about the Property and will maintain
the Property in good condition and repair, reasonable wear and tear excepted.
2.17 The Grantor covenants and agrees with the Lender that the
Grantor shall not sell, transfer, convey, mortgage (except for mortgages
permitted by the Loan Agreement), encumber (except for encumbrances permitted
by the Loan Agreement), lease or otherwise dispose of the Property or any part
thereof or any interest therein or engage in secondary financing with respect
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<PAGE> 7
thereto during the term of this Deed of Trust without the prior written consent
of the Lender.
2.18 The Grantor will do, or cause to be done, all such things as
may be required by law in order fully to protect the security and all rights of
the Lender under this Deed of Trust. The Grantor shall not cause or permit the
lien of this Deed of Trust to be impaired in any way provided the foregoing is
within the control of the Grantor.
2.19 The Grantor will permit the Lender, or its agents, at all
reasonable times and with advance notice to enter and pass through or over the
Property for the purpose of inspecting same.
2.20 The Grantor agrees that no release by the Lender of any of the
Grantor's successors in title from liability on any of the Obligations secured
hereby, no release by the Lender of any portion of the Property, no
subordination of lien, no forbearance on the part of the Lender to collect on
the Obligations, or any part thereof, no waiver of any right granted or remedy
available to the Lender and no action taken or not taken by the Lender shall in
any way diminish the Grantor's obligation to the Lender or have the effect of
releasing the Grantor or any successor to the Grantor from full responsibility
to the Lender for the complete discharge of each and every of the Grantor's
obligations hereunder, or under the Loan Agreement or the Note or under any
other document submitted by the Grantor to the Lender in connection with the
Obligations.
2.21 The Grantor will maintain full and correct books and records
showing in detail the earnings and expenses of the Property and will permit the
Lender and its representatives to examine said books and records and all
supporting vouchers and data at any time and from time to time during normal
business hours upon reasonable prior request by the Lender. When so requested,
the Grantor will also submit to the Lender statements of income and expenses
accurately setting forth the operation of its interest in the Property for each
fiscal year. Such statements shall be in such form and forms as are acceptable
to the Lender.
2.22 (a) The Grantor represents that it is in compliance with
all federal, state, and local requirements relating to protection of health or
the environment in connection with the operation of the Grantor's business on
the Property;
(b) The Grantor represents and warrants that (i) Grantor has not,
and (ii) to the best of Grantor's knowledge no third party has disposed of
Hazardous Materials on, under or about the Property in such a manner as would
give rise to a liability which would have a material adverse effect on the
Grantor, and that to the best of the Grantor's knowledge, to the extent that the
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<PAGE> 8
Grantor generated, stored or transported Hazardous Materials, such activities
were done in such a manner as would not give rise to a liability for failure to
comply with any applicable federal, state and local laws, ordinances and
regulations which would have a material adverse effect on the Grantor. For
purposes hereof, "Hazardous Materials" shall be defined as "hazardous
substances" or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq.; Hazardous Materials Transportation Act, 42 U.S.C. Section 6901 et seq.;
and those substances defined as "hazardous substances or wastes" in any state
or local laws, rules or regulations applicable to the Grantor.
(c) The Grantor covenants that it will (i) comply with or contest
in good faith all statutes and governmental regulations, specifically including
without limitation all federal, state and local environmental laws, rules and
regulations, the noncompliance with which would have a material adverse effect
on the financial condition of the Grantor; and (ii) pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent and any other obligation
which, if unpaid, might become a lien against any of its properties except
liabilities being contested in good faith and against which, if reasonably
requested by the Lender, reserves satisfactory to the Lender will be
established;
(d) The Grantor covenants and agrees that it will (i) conduct and
complete all investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to clean up and remove all Hazardous
Materials on, from, or affecting the Property (A) in accordance with all
applicable federal, state, and local laws, regulations, rules, and policies,
(B) to the reasonable satisfaction of the Lender, and (C) in accordance with
the orders and directives of all federal, state and local governmental
authorities, and (ii) defend, indemnify, and hold harmless the Lender, its
employees, agents, officers, and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or
expenses (including, without limit, attorney and consultant fees, investigation
and laboratory fees, court costs, and litigation expenses) of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of or in any way
related to (A) the presence, disposal, release, or threatened release of any
Hazardous Materials which are on, from, or affecting the soil, water,
vegetation, buildings, personal property, persons, animals, or otherwise; (B)
any personal injury (including wrongful death) or property damage (real or
personal) arising out of or related to such Hazardous Materials; (C) any
lawsuit brought or threatened, settlement reached, or government order relating
to such Hazardous Materials, and/or (D) any violation of laws, orders,
regulations, requirements, or demands of government authorities, or any
policies or requirements of the Lender, which
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<PAGE> 9
are based upon or in any way related to such Hazardous Materials; provided,
however, the foregoing indemnity shall not be applicable to liabilities
incurred by the Lender as a result of the Lender's actions.
2.23 Upon the reasonable request of the Lender, provide the Lender
(at the Grantor's expense) with a current environmental assessment of the
Property within a reasonable time after such request. Such assessment shall be
in a form reasonably satisfactory to the Lender and from an environmental
engineer or consultant satisfactory to the Lender. If the Lender requests any
such environmental assessment on account of a directive received by any
governmental agency having regulatory authority over the Lender, the Grantor
agrees that such request shall be deemed to be reasonable.
2.24 Upon the reasonable request of the Lender, provide the Lender
(at the Grantor's expense) with a current appraisal of the Property within a
reasonable time after such request. Such appraisal shall be by a qualified
appraiser reasonably satisfactory to the Lender and must be reasonably
satisfactory to the Lender in form and substance. If the Lender requests any
such appraisal on account of a directive received by any governmental agency
having regulatory authority over the Lender, the Grantor agrees that such
request shall be deemed to be reasonable.
ARTICLE III
Events of Default
An "Event of Default" shall exist under the terms of this Deed of
Trust upon the existence of an Event of Default under the terms of the Note,
the Loan Agreement or any other document executed in connection with the
Obligations.
ARTICLE IV
Foreclosure
4.1 Upon the occurrence of an Event of Default all of the
Obligations secured hereby, including all accrued interest, shall, at the
option of the Lender, become immediately due and payable. Thereupon the Lender
may foreclose the lien of this Deed of Trust pursuant to the power of sale
hereby granted or by judicial proceeding.
4.2 The Trustee is hereby granted a power of sale and may sell the
Property, or such part or parts thereof or interests therein as the Lender may
select after having first given such notice of hearing as to commencement of
foreclosure proceedings and obtained such findings or leave of court as may
then be required by law and giving such notice and advertising the time and
place of such sale in such manner as may be then provided by
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<PAGE> 10
law, and upon such and any resale and upon compliance with the then law
relating to foreclosure proceedings, to convey title to the purchaser in fee
simple.
4.3 Following a foreclosure sale, the Trustee shall deliver to the
purchaser the Trustee's deed conveying the property so sold without any
covenant or warranty, expressed or implied. The recitals in the Trustee's deed
shall be prima facie evidence of the statements made therein. The Trustee
shall apply the proceeds of such sale in the following order: (a) to all costs
and expenses of the sale, including but not limited to, reasonable Trustee's
fees of not more than three percent (3%) of the gross sales price and costs of
title evidence; (b) to all sums secured by this Deed of Trust; and (c) the
excess, if any, to the person or persons legally entitled thereto.
4.4 If a foreclosure proceeding is commenced by the Trustee but
terminated prior to its completion, the Trustee's fees will be reasonable but
not more than one percent (1%) of the Obligations if the termination occurs
prior to the first public auction sale and not more than two percent (2%) of
the Obligations if the termination occurs after the first public auction sale.
ARTICLE V
Additional Rights and Remedies of the Lender
5.1 Upon the occurrence of an Event of Default, the Lender,
immediately and without additional notice and without liability therefor to the
Grantor, except for gross negligence or willful misconduct, may do or cause to
be done any or all of the following: (a) take physical possession of the
Property; (b) exercise its right to collect the rents and profits derived from
the Property; (c) enter into contracts for the completion, repair and
maintenance of the improvements thereon; (d) expend Loan funds and any rents,
income and profits derived from the Property for payment of any taxes,
insurance premiums, assessments and charges for completion, repair and
maintenance of the improvements, preservation of the lien of this Deed of Trust
and satisfaction and fulfillment of any liabilities or obligations of the
Grantor arising out of or in any way connected with the construction of
improvements on the Property whether or not such liabilities and obligations in
any way affect, or may affect, the lien of this Deed of Trust; (e) enter into
leases demising the Property or any part thereof; (f) take such steps to
protect and enforce the specific performance of any covenant, condition or
agreement in the Note, this Deed of Trust, the Loan Agreement or any other
document executed in connection with the Obligations, or to aid the execution
of any power herein granted; and (g) generally, supervise, manage, and contract
with reference to the Property as if the Lender were equitable owner of the
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<PAGE> 11
Property. The Lender shall also have the continuing right to pay money for the
purposes described in Sections 2.2, 2.3, 2.4, 2.5 and 2.6 hereof, and all such
sums and interest thereon shall be secured hereby. The Grantor also agrees
that any of the foregoing rights and remedies of the Lender may be exercised at
any time independently of the exercise of any other such rights and remedies,
and the Lender may continue to exercise any or all such rights and remedies
until the default or defaults of the Grantor are cured with the consent of the
Lender or until foreclosure and the conveyance of the Property to the high
bidder or until the Obligations are otherwise satisfied or paid in full.
5.2 Upon the occurrence of an Event of Default, the Lender shall
be entitled, without additional notice and without regard to the adequacy of
any security for the Obligations and the solvency of any party bound for its
payment, to seek the appointment of a receiver to take possession of and to
operate the Property, and to collect the rents, issues, profits, and income
thereof, all expenses of which shall be added to the Obligations and secured
hereby.
5.3 No waiver of any Event of Default shall at any time thereafter
be held to be a waiver of any rights of the Lender stated anywhere in the Note,
the Loan Agreement, this Deed of Trust, or any other document executed in
connection with the Obligations, nor shall any waiver of a prior Event of
Default operate to waive any subsequent Event of Default or Events of Default.
All remedies provided in this Deed of Trust, the Note, the Loan Agreement, or
in any other document executed in connection with the Obligations are
cumulative and may, at the election of the Lender, be exercised alternatively,
successively, or in any manner and are in addition to any other rights provided
by law.
ARTICLE VI
General Conditions
6.1 If, for any reason, the Lender shall elect to substitute for
the trustee herein named (or for any successor to said trustee), the Lender
shall have the right to appoint successor Trustee(s) by duly acknowledged
written instruments, and each new Trustee immediately upon recordation of the
instrument so appointing him shall become successor in title to the Property
for the uses and purposes of this Deed of Trust, with all the powers, duties
and obligations conferred on the Trustee in the same manner and to the same
effect as though he were named herein as the Trustee.
6.2 The singular used herein shall be deemed to include the
plural; the masculine deemed to include the feminine and neuter;
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<PAGE> 12
and the named parties deemed to include their heirs, successors and assigns.
The term "Lender" shall include any payee of the indebtedness hereby secured or
any transferee thereof whether by operation of law or otherwise.
6.3 All notices required to be given hereunder shall be in writing
and shall be deemed served twenty-four (24) hours after deposit in registered,
certified or first-class United States mail, postage prepaid, and addressed to
the parties at the following addresses, or such other addresses as may from
time to time be designated by written notice given as herein required:
to the Grantor:
Ridgeview, Inc.
Post Office Box 8
2101 North Main Street
Newton, North Carolina 28658
Attn: Walter Bost
to the Trustee:
Christopher C. Kupec
Moore & Van Allen, PLLC
100 N. Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
to the Lender:
NationsBank, N.A. (Carolinas)
P.O. Box 2408
Hickory, North Carolina 28601-2408
6.4 Invalidation of any one or more of the provisions of this Deed of
Trust shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect.
6.5 The captions and headings herein are inserted only as a matter of
convenience and for reference and in no way define, limit, or describe the
scope of this Deed of Trust nor the intent of any provision hereof.
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<PAGE> 13
IN WITNESS WHEREOF, the Grantor hereto has executed this Deed of Trust
under seal as of the day and year first above written.
RIDGEVIEW, INC.
ATTEST:
By: /s/ Susan Gaither Jones By: /s/ Hugh R. Gaither
-------------------------------- ------------------------------
Susan Gaither Jones, Asst. Secretary Hugh R. Gaither, President
- -------------------- ----------------
(Corporate Seal)
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<PAGE> 14
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Jamie O. Hoyle, a Notary Public of the County and State aforesaid,
certify that Susan Gaither Jones personally came before me this day and
acknowledged that (s)he is Assistant Secretary of RIDGEVIEW, INC., a North
Carolina corporation, and that by authority duly given and as the act of the
corporation, the foregoing instrument was signed in its name by its ____________
President, sealed with its corporate seal and attested by Susan Gaither Jones as
its Assistant Secretary.
WITNESS my hand and official stamp or seal, this 10th day of
January, 1995.
/s/ Jamie O. Hoyle
-----------------------------------
Notary Public
My Commission Expires:
2-3-97
- --------------------------
(Notary Public)
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<PAGE> 15
EXHIBIT A
[Legal Description]
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<PAGE> 1
EXHIBIT 10.14
Drawn By and Return To:
Moore & Van Allen (CCK)
100 N. Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
STATE OF NORTH CAROLINA DEED OF TRUST
AND
COUNTY OF CATAWBA SECURITY AGREEMENT
COLLATERAL IS OR INCLUDES FIXTURES
THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Deed of Trust") is
made and entered into as of the _____ day of January, 1995, by and among
RIDGEVIEW, INC., a North Carolina corporation (the "Grantor"); and
CHRISTOPHER C. KUPEC, a resident of North Carolina (the "Trustee"); and
NATIONSBANK OF GEORGIA, N.A., a national banking association organized
and existing under the laws of the United States, having its principal place of
business in Atlanta, Georgia (the "Lender").
W I T N E S S E T H:
The Grantor, in consideration of the indebtedness herein recited,
irrevocably grants and conveys to the Trustee and the Trustee's successors and
assigns, all of the following described land, real property interests,
buildings, improvements, fixtures, furniture and appliances and other personal
property (all hereafter referred to collectively as the "Property"):
(a) All those tracts or parcels of land and other real property
interests in Catawba County, North Carolina more particularly described in
Exhibit A attached hereto and made a part hereof; and
(b) All buildings and improvements of every kind and description
now or hereafter erected or placed on the aforesaid land and all materials
intended for construction, reconstruction, alteration and repair of such
improvements now or hereafter erected thereon, all of which materials shall be
deemed to be included within the premises hereby conveyed immediately upon the
delivery thereof to the aforesaid land, and all fixtures now or
<PAGE> 2
hereafter owned by the Grantor and attached to or contained in and used in
connection with the aforesaid land and improvements including, but not limited
to, all furniture, furnishings, apparatus, machinery, motors, elevators,
fittings, radiators, ranges, refrigerators, awnings, shades, screens, blinds,
carpeting, office equipment and other furnishings and all plumbing, heating,
lighting, cooking, laundry, ventilating, refrigerating, incinerating, air
conditioning and sprinkler equipment and fixtures and appurtenances thereto and
all renewals or replacements thereof or articles in substitution thereof,
whether or not the same are or shall be attached to said land and improvements
in any manner;
TO HAVE AND HOLD the same, together with all privileges,
hereditaments, easements and appurtenances thereunto belonging, to the Trustee
and the Trustee's successors and assigns to secure the indebtedness herein
recited and upon this special trust: that should the indebtedness secured
hereby be paid according to the tenor and effect thereof when the same shall be
due and payable and should the Grantor timely and fully discharge its
obligations secured hereunder, then the Property shall be reconveyed to the
Grantor or the title thereto shall be revested according to the provisions of
law;
And, as additional security for said indebtedness, the Grantor hereby
conditionally assigns to the Lender all the security deposits, rents, issues,
profits and revenues of the Property from time to time accruing reserving only
the right to the Grantor to collect and use the same as long as the Grantor is
not in default hereunder.
All the fixtures which comprise a part of the Property shall, as far
as permitted by law, be deemed to be affixed to the aforesaid land and conveyed
therewith. As to the balance of the fixtures, this Deed of Trust shall be
considered a security agreement which creates a security interest in such
fixtures for the benefit of Lender. In that regard, the Grantor grants to the
Lender all of the rights and remedies of a secured party under the North
Carolina Uniform Commercial Code.
As additional collateral and further security for the indebtedness,
the Grantor does hereby assign to the Lender the interest of the Grantor in and
to any and all leases, rental agreements, management contracts, construction
contracts, licenses and permits now or hereafter affecting the Property, or any
part thereof, and the Grantor agrees to execute and deliver to the Lender such
additional instruments, in form and substance satisfactory to the Lender, as
may hereafter be reasonably requested by the Lender to evidence and confirm
said assignment; provided, however, that acceptance of any such assignment
shall not be construed as a consent by the Lender to any lease, rental
agreement, franchise agreement, management contract, construction
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<PAGE> 3
contract, or other contract, license or permit, or to impose upon the Lender
any obligation with respect thereto. Without first obtaining on each occasion
the written approval of the Lender (which approval shall not be unreasonably
withheld), the Grantor shall not cancel or permit the cancellation of any such
lease, rental agreement, franchise agreement, management contract, construction
contract, or other contract, license or permit, or modify any of said
instruments, or accept or permit to be made, any prepayment of any installment
of rent or fees thereunder except to the extent permitted in Section 2.15
hereof. The Grantor shall faithfully keep and perform, or cause to be kept and
performed, all of the covenants, conditions, and agreements contained in each
of said instruments, now or hereafter existing, on the part of the Grantor to
be kept and performed and shall at all times do all things reasonably necessary
and reasonably appropriate to compel performance by each other party to said
instruments of all obligations, covenants and agreements by such other party to
be performed thereunder.
The Grantor, the Trustee and the Lender covenant, represent and agree
as follows:
ARTICLE I
The Loans
1.1 The indebtedness secured by this Deed of Trust is the result
of revolving loans of up to $10,000,000.00 (the "Revolving Loans") made from
time to time by the Lender to the Grantor pursuant to that certain Loan and
Security Agreement of even date herewith executed by the Grantor and the Lender
(the "Loan Agreement") and as evidenced by the terms of the Revolving Credit
Promissory Note of even date herewith executed by Grantor in favor of the
Lender in the principal amount of $10,000,000.00 (the "Note") (hereinafter the
obligations of the Grantor to the Lender under the Loan Agreement and the Note
may be referred to as the "Obligations").
1.2 Payment by the Grantor of the Obligations will be in
accordance with the Loan Agreement, the Note and this Deed of Trust which
require payment on the terms set forth therein.
1.3 This Deed of Trust secures the obligations of the Grantor to
repay the Revolving Loans to the Lender under the Loan Agreement and the Note
and all other obligations from time to time owing to the Lender under the Loan
Agreement. The amount of the present disbursement secured hereby is Zero
Dollars ($0) and the maximum amount which may be secured hereby at any one time
is Ten Million Dollars ($10,000,000.00). The time period within which future
disbursements under the Loan Agreement are to be made is the period between the
date hereof and the date fifteen
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<PAGE> 4
(15) years from the date hereof. The making of future disbursements under the
Loan Agreement is non-obligatory within the meaning of such term in Section
45-70(a), North Carolina General Statutes. Disbursements secured hereby shall
not be required to be evidenced by a "written instrument or notation" as
described in Section 45-68(2) of the North Carolina General Statutes, it being
the intent of the parties that the requirements of Section 45-68(2) for a
"written instrument or notation" for each advance shall not be applicable to
disbursements made under the Loan Agreement and the Note.
ARTICLE II
Grantor's Covenants, Representations and Agreements
2.1 The Grantor represents and covenants that it is seised of the
Property in fee and has the right to convey the same, that the title to the
Property is free and clear of all encumbrances except for liens and
encumbrances in favor of the Lender and any matters shown as specific
exceptions in the policy of title insurance accepted by the Lender in
connection with this Deed of Trust, and that it will warrant and defend the
title to the Property against the claims of all persons or parties except for
the matters shown as specific exceptions in the policy of title insurance
accepted by the Lender in connection with this Deed of Trust.
2.2 The Grantor will punctually pay all sums secured hereby at the
time and place and in the manner specified in the Loan Agreement and the Note.
2.3 The Grantor will pay as they become due all taxes, general and
special assessments, insurance premiums, permit fees, inspection fees, license
fees and all water and sewer charges against it or the Property, and the
Grantor, upon request of the Lender, will submit to the Lender receipts
evidencing said payments.
2.4 The Grantor covenants to keep the Property insured against
loss or damage by fire and the risks embraced within the term "extended
coverage" and insured against such other hazards and risks as may be reasonably
required by the Lender.
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<PAGE> 5
2.5 The Grantor covenants to maintain or cause to be maintained
general accident and public liability insurance against all claims for bodily
injury, death or property damage occurring upon, in or about any part of the
Property.
2.6 Upon the request of the Lender, the Grantor shall, at its own
cost, keep the value of all buildings now or hereafter comprising a part of the
Property insured against loss or damage by fire and such other insurable risks,
casualties and hazards as the Lender may from time to time specify.
2.7 The Grantor agrees to deliver to the Lender, as additional
security hereto, copies of the original policies of such insurance as is
required by the Lender pursuant to Sections 2.4, 2.5 and 2.6 hereof and of any
additional insurance which shall be taken out upon the Property while any part
of the Revolving Loans shall remain unpaid. Renewals of such policies shall be
so delivered at least ten (10) days before any such insurance shall expire.
The insurance policies are to designate the Lender as mortgagee in a standard
mortgagee endorsement, provided that such policies may not be cancelled without
thirty (30) days prior written notice to the Lender, and are to be for such
amounts and from such insurance companies as are reasonably satisfactory to the
Lender. The Grantor hereby assigns the proceeds of any such insurance policies
to the Lender and hereby directs and authorizes each insurance company to make
payment for such loss directly to the Lender as its interests may appear. The
proceeds of any insurance or any part thereof may be applied by the Lender, at
its option, either to the reduction of the Revolving Loans or to restoration or
repair of the property damaged.
2.8 Upon the request of the Lender, the Grantor shall submit to
the Lender such receipts and other statements which shall evidence, to the
satisfaction of Lender, that all taxes, assessments and insurance premiums have
been paid in full.
2.9 The Grantor agrees that if it shall fail to pay when due any
tax, assessment or charge levied or assessed against the Property or any
utility charge, whether public or private, or any insurance premium or if it
shall fail to procure the insurance coverage and the delivery of the insurance
certificates required hereunder, then the Lender, at its option, may pay or
procure the same. The Grantor will reimburse the Lender immediately and
without demand for any sums of money paid by the Lender pursuant to this
Section, together with interest on each such payment at the default rate set
forth in the Loan Agreement and all such sums and interest thereon shall be
secured hereby.
2.10 The Grantor agrees to execute and deliver to the Lender,
concurrently with the execution of this Deed of Trust and upon the request of
the Lender from time to time hereafter, all financing statements and other
documents reasonably required to
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<PAGE> 6
perfect and maintain the security interest created hereby. The Grantor hereby
irrevocably (as long as any of the Obligations remain unpaid) makes,
constitutes and appoints the Lender as the true and lawful attorney of the
Grantor to sign the name of the Grantor (after the Grantor has failed or
refused to timely execute such documents upon request of the Lender) on any
financing statement, continuation of financing statement or similar document
required to perfect or continue such security interests.
2.11 The Grantor will not sell, encumber or otherwise dispose of
the fixtures and articles of personal property comprising part of the Property
except to incorporate such into the improvements on the land or replace such
with goods of quality and value at least equal to that replaced.
2.12 The Grantor assigns to the Lender any proceeds or awards which
may become due by reason of any condemnation or other taking for public use of
the whole or any part of the Property or any rights appurtenant thereto, and
the Lender may, at its option, either apply the same to the Obligations secured
hereby or release the same to the Grantor without thereby incurring any
liability to any other person. The Grantor agrees to execute such further
assignments and agreements as may be reasonably required by the Lender to
assure the effectiveness of this Section.
2.13 The Grantor will pay or reimburse the Lender for all
reasonable attorneys' fees, costs and expenses incurred by the Lender in any
action, legal proceeding or dispute of any kind which affects any of the
Obligations, the interest created herein, or the Property, including but not
limited to, any foreclosure of this Deed of Trust, enforcement of payment of
amounts due under the Loan Agreement and the Note, any condemnation action
involving the Property or any action to protect the security hereof. Any such
amounts paid by the Lender shall be added to the indebtedness secured hereby
and shall bear interest at the default rate specified in the Loan Agreement.
2.14 The Grantor shall perform all covenants to be performed by
the lessor under any and all leases of the Property or any part thereof and
shall not, without the written consent of the Lender (which consent shall not
be unreasonably withheld), cancel, surrender or modify any lease in which the
Grantor has assigned any rights or interest to the Lender. Upon demand the
Grantor will furnish the Lender with copies of any lease of the Property or any
part thereof.
2.15 The Grantor will not accept any prepayment of rent or
installments of rent for more than one month in advance without the prior
written consent of the Lender (which consent shall not be unreasonably
withheld).
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<PAGE> 7
2.16 The Grantor will abstain from and will not permit the
commission of waste by the Grantor in or about the Property and will maintain
the Property in good condition and repair, reasonable wear and tear excepted.
2.17 The Grantor covenants and agrees with the Lender that the
Grantor shall not sell, transfer, convey, mortgage (except for mortgages
permitted by the Loan Agreement), encumber (except for encumbrances permitted
by the Loan Agreement), lease or otherwise dispose of the Property or any part
thereof or any interest therein or engage in secondary financing with respect
thereto during the term of this Deed of Trust without the prior written consent
of the Lender.
2.18 The Grantor will do, or cause to be done, all such things as
may be required by law in order fully to protect the security and all rights of
the Lender under this Deed of Trust. The Grantor shall not cause or permit the
lien of this Deed of Trust to be impaired in any way provided the foregoing is
within the control of the Grantor.
2.19 The Grantor will permit the Lender, or its agents, at all
reasonable times and with advance notice to enter and pass through or over the
Property for the purpose of inspecting same.
2.20 The Grantor agrees that no release by the Lender of any of the
Grantor's successors in title from liability on any of the Obligations secured
hereby, no release by the Lender of any portion of the Property, no
subordination of lien, no forbearance on the part of the Lender to collect on
the Obligations, or any part thereof, no waiver of any right granted or remedy
available to the Lender and no action taken or not taken by the Lender shall in
any way diminish the Grantor's obligation to the Lender or have the effect of
releasing the Grantor or any successor to the Grantor from full responsibility
to the Lender for the complete discharge of each and every of the Grantor's
obligations hereunder, or under the Loan Agreement or the Note or under any
other document submitted by the Grantor to the Lender in connection with the
Obligations.
2.21 The Grantor will maintain full and correct books and records
showing in detail the earnings and expenses of the Property and will permit the
Lender and its representatives to examine said books and records and all
supporting vouchers and data at any time and from time to time during normal
business hours upon reasonable prior request by the Lender. When so requested,
the Grantor will also submit to the Lender statements of income and expenses
accurately setting forth the operation of its interest in the Property for each
fiscal year. Such statements shall be in such form and forms as are acceptable
to the Lender.
-7-
<PAGE> 8
2.22 (a) The Grantor represents that it is in compliance with
all federal, state, and local requirements relating to protection of health or
the environment in connection with the operation of the Grantor's business on
the Property;
(b) The Grantor represents and warrants that (i) Grantor has not,
and (ii) to the best of Grantor's knowledge no third party has disposed of
Hazardous Materials on, under or about the Property in such a manner as would
give rise to a liability which would have a material adverse effect on the
Grantor, and that to the best of the Grantor's knowledge, to the extent that
the Grantor generated, stored or transported Hazardous Materials, such
activities were done in such a manner as would not give rise to a liability for
failure to comply with any applicable federal, state and local laws, ordinances
and regulations which would have a material adverse effect on the Grantor. For
purposes hereof, "Hazardous Materials" shall be defined as "hazardous
substances" or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq.; Hazardous Materials Transportation Act, 42 U.S.C. Section 6901 et seq.;
and those substances defined as "hazardous substances or wastes" in any state
or local laws, rules or regulations applicable to the Grantor.
(c) The Grantor covenants that it will (i) comply with or contest
in good faith all statutes and governmental regulations, specifically including
without limitation all federal, state and local environmental laws, rules and
regulations, the noncompliance with which would have a material adverse effect
on the financial condition of the Grantor; and (ii) pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent and any other obligation
which, if unpaid, might become a lien against any of its properties except
liabilities being contested in good faith and against which, if reasonably
requested by the Lender, reserves satisfactory to the Lender will be
established;
(d) The Grantor covenants and agrees that it will (i) conduct and
complete all investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to clean up and remove all Hazardous
Materials on, from, or affecting the Property (A) in accordance with all
applicable federal, state, and local laws, regulations, rules, and policies,
(B) to the reasonable satisfaction of the Lender, and (C) in accordance with
the orders and directives of all federal, state and local governmental
authorities, and (ii) defend, indemnify, and hold harmless the Lender, its
employees, agents, officers, and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or
expenses (including, without limit, attorney and consultant fees, investigation
and laboratory fees, court costs, and litigation expenses) of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of or in any way
related to (A) the presence, disposal, release, or threatened release of any
Hazardous Materials which are on, from, or affecting the soil, water,
vegetation, buildings, personal property, persons,
-8-
<PAGE> 9
animals, or otherwise; (B) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to such Hazardous
Materials; (C) any lawsuit brought or threatened, settlement reached, or
government order relating to such Hazardous Materials, and/or (D) any violation
of laws, orders, regulations, requirements, or demands of government
authorities, or any policies or requirements of the Lender, which are based
upon or in any way related to such Hazardous Materials; provided, however, the
foregoing indemnity shall not be applicable to liabilities incurred by the
Lender as a result of the Lender's actions..
2.23 Upon the reasonable request of the Lender, provide the Lender
(at the Grantor's expense) with a current environmental assessment of the
Property within a reasonable time after such request. Such assessment shall be
in a form reasonably satisfactory to the Lender and from an environmental
engineer or consultant satisfactory to the Lender. If the Lender requests any
such environmental assessment on account of a directive received by any
governmental agency having regulatory authority over the Lender, the Grantor
agrees that such request shall be deemed to be reasonable.
2.24 Upon the reasonable request of the Lender, provide the Lender
(at the Grantor's expense) with a current appraisal of the Property within a
reasonable time after such request. Such appraisal shall be by a qualified
appraiser reasonably satisfactory to the Lender and must be reasonably
satisfactory to the Lender in form and substance. If the Lender requests any
such appraisal on account of a directive received by any governmental agency
having regulatory authority over the Lender, the Grantor agrees that such
request shall be deemed to be reasonable.
ARTICLE III
Events of Default
An "Event of Default" shall exist under the terms of this Deed of
Trust upon the existence of an Event of Default under the terms of the Note,
the Loan Agreement or any other documents executed in connection with the
Obligations.
ARTICLE IV
Foreclosure
4.1 Upon the occurrence of an Event of Default all of the
Obligations secured hereby, including all accrued interest, shall, at the
option of the Lender, become immediately due and payable. Thereupon the Lender
may foreclose the lien of this Deed of Trust pursuant to the power of sale
hereby granted or by judicial proceeding.
-9-
<PAGE> 10
4.2 The Trustee is hereby granted a power of sale and may sell the
Property, or such part or parts thereof or interests therein as the Lender may
select after having first given such notice of hearing as to commencement of
foreclosure proceedings and obtained such findings or leave of court as may
then be required by law and giving such notice and advertising the time and
place of such sale in such manner as may be then provided by law, and upon such
and any resale and upon compliance with the then law relating to foreclosure
proceedings, to convey title to the purchaser in fee simple.
4.3 Following a foreclosure sale, the Trustee shall deliver to the
purchaser the Trustee's deed conveying the property so sold without any
covenant or warranty, expressed or implied. The recitals in the Trustee's deed
shall be prima facie evidence of the statements made therein. The Trustee
shall apply the proceeds of such sale in the following order: (a) to all costs
and expenses of the sale, including but not limited to, reasonable Trustee's
fees of not more than three percent (3%) of the gross sales price and costs of
title evidence; (b) to all sums secured by this Deed of Trust; and (c) the
excess, if any, to the person or persons legally entitled thereto.
4.4 If a foreclosure proceeding is commenced by the Trustee but
terminated prior to its completion, the Trustee's fees will be reasonable but
not more than one percent (1%) of the Obligations if the termination occurs
prior to the first public auction sale and not more than two percent (2%) of
the Obligations if the termination occurs after the first public auction sale.
ARTICLE V
Additional Rights and Remedies of the Lender
5.1 Upon the occurrence of an Event of Default, the Lender,
immediately and without additional notice and without liability therefor to the
Grantor, except for gross negligence or willful misconduct, may do or cause to
be done any or all of the following: (a) take physical possession of the
Property; (b) exercise its right to collect the rents and profits derived from
the Property; (c) enter into contracts for the completion, repair and
maintenance of the improvements thereon; (d) expend funds under the Revolving
Loans and any rents, income and profits derived from the Property for payment
of any taxes, insurance premiums, assessments and charges for completion,
repair and maintenance of the improvements, preservation of the lien of this
Deed of Trust and satisfaction and fulfillment of any liabilities or
obligations of the Grantor arising out of or in any way connected with the
construction of improvements on the Property whether or not such liabilities
and obligations in any way affect, or may affect, the lien of this Deed of
Trust; (e) enter into leases demising the Property or any part thereof; (f)
take such steps to protect and enforce the specific performance of any
covenant, condition or agreement in the Note, this Deed of Trust,
-10-
<PAGE> 11
the Loan Agreement or any other document executed in connection with the
Obligations, or to aid the execution of any power herein granted; and (g)
generally, supervise, manage, and contract with reference to the Property as if
the Lender were equitable owner of the Property. The Lender shall also have
the continuing right to pay money for the purposes described in Sections 2.2,
2.3, 2.4, 2.5 and 2.6 hereof, and all such sums and interest thereon shall be
secured hereby. The Grantor also agrees that any of the foregoing rights and
remedies of the Lender may be exercised at any time independently of the
exercise of any other such rights and remedies, and the Lender may continue to
exercise any or all such rights and remedies until the default or defaults of
the Grantor are cured with the consent of the Lender or until foreclosure and
the conveyance of the Property to the high bidder or until the Obligations are
otherwise satisfied or paid in full.
5.2 Upon the occurrence of an Event of Default, the Lender shall
be entitled, without additional notice and without regard to the adequacy of
any security for the Obligations and the solvency of any party bound for its
payment, to seek the appointment of a receiver to take possession of and to
operate the Property, and to collect the rents, issues, profits, and income
thereof, all expenses of which shall be added to the Obligations and secured
hereby.
5.3 No waiver of any Event of Default shall at any time thereafter
be held to be a waiver of any rights of the Lender stated anywhere in the Note,
the Loan Agreement, this Deed of Trust, or any other document executed in
connection with the Obligations, nor shall any waiver of a prior Event of
Default operate to waive any subsequent Event of Default or Events of Default.
All remedies provided in this Deed of Trust, the Note, the Loan Agreement, or
in any other document executed in connection with the Obligations are
cumulative and may, at the election of the Lender, be exercised alternatively,
successively, or in any manner and are in addition to any other rights provided
by law.
ARTICLE VI
General Conditions
6.1 If, for any reason, the Lender shall elect to substitute for
the trustee herein named (or for any successor to said trustee), the Lender
shall have the right to appoint successor Trustee(s) by duly acknowledged
written instruments, and each new Trustee immediately upon recordation of the
instrument so appointing him shall become successor in title to the Property
for the uses and purposes of this Deed of Trust, with all the powers, duties
and obligations conferred on the Trustee in the same manner and to the same
effect as though he were named herein as the Trustee.
6.2 The singular used herein shall be deemed to include the
plural; the masculine deemed to include the feminine and neuter;
-11-
<PAGE> 12
and the named parties deemed to include their heirs, successors and assigns.
The term "Lender" shall include any payee of the indebtedness hereby secured or
any transferee thereof whether by operation of law or otherwise.
6.3 All notices required to be given hereunder shall be in writing
and shall be deemed served twenty-four (24) hours after deposit in registered,
certified or first-class United States mail, postage prepaid, and addressed to
the parties at the following addresses, or such other addresses as may from
time to time be designated by written notice given as herein required:
to the Grantor:
Ridgeview, Inc.
Post Office Box 8
2101 North Main Street
Newton, North Carolina 28658
Attn: Mr. Walter Bost
to the Trustee:
Christopher C. Kupec
Moore & Van Allen, PLLC
100 N. Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
to the Lender:
NationsBank of Georgia, N.A.
c/o NationsBank Business Credit
600 Peachtree Street, 13th Floor
Atlanta, Georgia 30308
6.4 Invalidation of any one or more of the provisions of this Deed of
Trust shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect.
6.5 The captions and headings herein are inserted only as a matter of
convenience and for reference and in no way define, limit, or describe the
scope of this Deed of Trust nor the intent of any provision hereof.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Grantor hereto has executed this Deed of Trust
under seal as of the day and year first above written.
RIDGEVIEW, INC.
ATTEST:
By: /s/ Susan Gaither Jones By: /s/ Hugh R. Gaither
------------------------------------ ------------------------------
Susan Gaither Jones, Asst. Secretary Hugh R. Gaither, President
------------------- ---------------
(Corporate Seal)
-13-
<PAGE> 14
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Jamie O. Hoyle, a Notary Public of the County and State aforesaid,
certify that Susan Gaither Jones personally came before me this day and
acknowledged that (s)he is Assistant Secretary of RIDGEVIEW, INC., a North
Carolina corporation, and that by authority duly given and as the act of the
corporation, the foregoing instrument was signed in its name by its ____________
President, sealed with its corporate seal and attested by Susan Gaither Jones as
its Assistant Secretary.
WITNESS my hand and official stamp or seal, this 10th day of
January, 1995.
/s/ Jamie O. Hoyle
-------------------------------------
Notary Public
My Commission Expires:
2-3-97
- --------------------------
(Notary Public)
-14-
<PAGE> 15
EXHIBIT A
[Legal Description]
-15-
<PAGE> 1
EXHIBIT 10.15
Drawn By and Return To:
Moore & Van Allen (CCK)
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
FIRST AMENDMENT
STATE OF NORTH CAROLINA TO
DEED OF TRUST
COUNTY OF CATAWBA AND
SECURITY AGREEMENT
THIS FIRST AMENDMENT TO DEED OF TRUST AND SECURITY AGREEMENT, is made
and entered into as of June 11, 1996, by and among
RIDGEVIEW, INC., a North Carolina corporation (the "Grantor");
CHRISTOPHER C. KUPEC, a resident of Charlotte, North Carolina (the
"Trustee"); and
NATIONSBANK, National Association (SOUTH), a national banking
association organized and existing under the laws of the United States, having
an office in Atlanta, Georgia (hereinafter the "Lender").
RECITALS:
A. The Grantor has previously executed a Deed of Trust and
Security Agreement, dated January 10, 1995, in favor of the Lender, recorded in
Book 1914, Page 1234, of the Catawba County, North Carolina Registry (the "Deed
of Trust").
B. The Grantor has agreed to amend the Deed of Trust as set forth
herein.
NOW, THEREFORE, the Grantor, the Trustee and the Lender hereby agree
as follows:
1. The Deed of Trust is hereby amended in the following respects:
a. The first four introductory paragraphs are amended to
read in their entirety as follows:
THIS DEED OF TRUST AND SECURITY AGREEMENT
(the "Deed of Trust"), made and entered into as of
<PAGE> 2
the 10th day of January, 1995, as amended as of June
11, 1996, by and among
RIDGEVIEW, INC., a North Carolina corporation
(the "Grantor");
CHRISTOPHER C. KUPEC, a resident of
Charlotte, North Carolina (the "Trustee"); and
NATIONSBANK, National Association (SOUTH), a
national banking association organized and existing
under the laws of the United States, having an office
in Atlanta, Georgia (the "Lender").
b. Sections 1.1, 1.2 and 1.3 are amended in their
entirety so that such Sections now read as follows:
1.1 The indebtedness secured by this Deed of
Trust is the result of revolving loans of up to $17,000,000.00
(the "Revolving Loans") made from time to time by the Lender
to the Grantor pursuant to that certain Loan and Security
Agreement, dated January 10, 1995, as amended (the "Loan
Agreement") and as evidenced by the terms of the Revolving
Credit Promissory Note, dated June 11, 1996, executed by
Grantor in favor of the Lender in the principal amount of
$17,000,000.00 (the "Note") (hereinafter the obligations of
the Grantor to the Lender under the Loan Agreement and the
Note may be referred to as the Obligations").
1.2 Payment by the Grantor of the Obligations
will be in accordance with the Loan Agreement, the Note and
this Deed of Trust which require payment on the terms set
forth therein.
1.3 This Deed of Trust secures the obligations of
the Grantor to repay the Revolving Loans to the Lender under
the Loan Agreement and the Note and all other obligations from
time to time owing to the Lender under the Loan Agreement.
The amount of the present disbursement secured hereby is Zero
Dollars ($0) and the maximum amount which may be secured
hereby at any one time is Seventeen Million Dollars
($17,000,000.00). The time period within which future
disbursements under the Loan Agreement are to be made is the
period between the date hereof and the date fifteen (15) years
from the date hereof. The making of future disbursements
under the Loan Agreement is non-obligatory within the
- 2-
<PAGE> 3
meaning of such term in Section 45-70(a), North Carolina
General Statutes. Disbursements secured hereby shall not be
required to be evidenced by a "written instrument or notation"
as described in Section 45-68(2) of the North Carolina General
Statutes, it being the intent of the parties that the
requirements of Section 45-68(2) for a "written instrument or
notation" for each advance shall not be applicable to
disbursements made under the Loan Agreement and the Note.
2. Except as hereby modified, the terms and conditions of the
Deed of Trust (and Exhibit) remain in full force and effect.
3. This First Amendment shall be deemed to be a contract under,
and for all purposes construed in accordance with, the internal laws and
judicial decisions of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Grantor, Trustee and Lender have
caused these presents to be executed under seal as of the day and year first
above written.
RIDGEVIEW, INC.
ATTEST:
By /s/ Susan Gaither Jones By /s/ Hugh R. Gaither
----------------------- ----------------------------
Title Asst. Secretary Title President & CEO
-------------------- -------------------------
(Corporate Seal)
/s/ Christopher C. Kupec (SEAL)
--------------------------
Christopher C. Kupec
NATIONSBANK, National Association
(SOUTH)
ATTEST:
By /s/ Brian R. O'Fallon By /s/ Scott Goldstein
---------------------- ----------------------------
Title Assistant Secretary Title VP
------------------- -------------------------
(Corporate Seal)
- 3 -
<PAGE> 4
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Jamie O. Hoyle, a Notary Public of the State
and County aforesaid, certify that Susan Gaither Jones personally came
before me this day and acknowledged that (s)he is the Asst. Secretary of
RIDGEVIEW, INC., a North Carolina corporation, and that by authority duly given
and as the act of the corporation, the foregoing instrument was signed in its
name by its _____ President, sealed with its corporate seal and attested by
Susan Gaither Jones as its Asst. Secretary.
Witness my hand and official stamp or seal, this 13th day of
June, 1996.
/s/ Jamie O. Hoyle
------------------------
Notary Public
My Commission Expires:
2-3-97
- -----------------------
(Notary Public)
- 4 -
<PAGE> 5
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, Martha Jane Swetka, a Notary Public of the aforesaid County and
State, do hereby certify that Christopher C. Kupec, Trustee, personally
appeared before me this day and acknowledged the execution of the foregoing
instrument.
Witness my hand and notarial seal this 24th day of June, 1996.
/s/ Martha Jane Swetka
--------------------------------------
Notary Public
My Commission Expires:
14 March 1998
- 5 -
<PAGE> 6
STATE OF GEORGIA
COUNTY OF FULTON
I, Ellen D. Black, a Notary Public of the State and County aforesaid,
certify that Brian R. O'Fallon personally came before me this day and
acknowledged that (s)he is the Asst. Secretary of NATIONSBANK, National
Association (SOUTH), a national banking association and that by authority duly
given and as the act of the national bank, the foregoing instrument was signed
in its name by its Vice President, sealed with its corporate seal and attested
by Brian R. O'Fallon as its Asst. Secretary.
Witness my hand and official stamp or seal, this 17th day of
June, 1996.
/s/ Ellen D. Black
--------------------------------
Notary Public
My Commission Expires:
5-8-00
- ---------------------------
(Notary Public)
- 6 -
<PAGE> 1
EXHIBIT 10.16
===============================================================================
LOAN AND SECURITY AGREEMENT
Dated as of _______________, 199__
Between
____________________________
(the Borrower)
and
[NATIONSBANK OF GEORGIA, N.A.]
(the Lender)
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Referential Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.3 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 2 - FACILITIES
A. REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.1 Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2A.2 Manner of Borrowing Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2A.3 Repayment of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2A.4 Revolving Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2A.5 Extension of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2A.6 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
B. TERM LOAN FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.1 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.2 Manner of Borrowing and Disbursing Term Loan . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.3 Repayment of Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2B.4 Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2B.5 Prepayment of Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 3 - GENERAL LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.2 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.3 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.4 Statements of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.5 Reduction of Revolving Credit Facility; Termination of Agreement . . . . . . . . . . . . 25
Section 3.6 Increased Costs and Reduced Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4 - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1 Conditions Precedent to Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2 All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.2 Survival of Representations and Warranties, Etc . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 6 - SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.1 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.2 Continued Priority of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 7 - COLLATERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.1 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.2 Verification and Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.3 Disputes, Returns and Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.4 Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.5 Delivery of Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.6 Sales of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
Section 7.7 Returned Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.8 Ownership and Defense of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.9 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.10 Location of Offices and Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.11 Records Relating to Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.12 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.13 Maintenance of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.14 Information and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.15 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.16 Mortgages of Newly Acquired Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 8 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.1 Preservation of Corporate Existence and Similar Matters . . . . . . . . . . . . . . . . . 45
Section 8.2 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.3 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.4 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.5 Accounting Methods and Financial Records . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.7 Hazardous Waste and Substances; Environmental Requirements . . . . . . . . . . . . . . . 46
Section 8.8 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.9 Revisions or Updates to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 9 - INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.2 Accountants' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.4 Copies of Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.5 Notice of Litigation and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 10 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.1 Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.3 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.4 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.5 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.6 Restricted Distributions and Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.7 Merger, Consolidation and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.9 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.10 Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.11 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.12 Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.13 Amendments of the Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.14 Minimum Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 11 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.3 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 11.4 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.5 Miscellaneous Provisions Concerning Remedies . . . . . . . . . . . . . . . . . . . . . . 59
Section 11.6 Trademark License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 12 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 12.3 Stamp and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 12.4 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 12.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 12.6 Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.7 Reversal of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.8 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.9 Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.10 Assignment; Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.12 Performance of Borrower's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.13 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.14 All Powers Coupled with Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.15 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.16 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.17 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.18 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.19 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
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<PAGE> 5
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
EXHIBIT A-1 FORM OF REVOLVING CREDIT NOTE
EXHIBIT A-2 FORM OF TERM NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
[EXHIBIT C FORM OF CERTIFICATE OF CHIEF FINANCIAL OFFICER]
SCHEDULE 1.1 Letter of Credit Fees
SCHEDULE 5.1(a) Jurisdictions in Which Borrower is Qualified as a Foreign Corporation
SCHEDULE 5.1(b) Borrower's Capital Stock
SCHEDULE 5.1(e) Borrower's Business
SCHEDULE 5.1(f) Exceptions to Governmental Approvals
SCHEDULE 5.1(g) Non Lien Title Exceptions and Defects and Property
Disposed of Out of Ordinary Course of
Business
SCHEDULE 5.1(h) Liens
SCHEDULE 5.1(i) Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1(j) Litigation
SCHEDULE 5.1(k) Tax Returns and Payments
SCHEDULE 5.1(o) ERISA
SCHEDULE 5.1(t) Location of Chief Executive Office
SCHEDULE 5.1(u) Locations of Inventory
SCHEDULE 5.1(v) Locations of Equipment
SCHEDULE 5.1(w) Real Property
SCHEDULE 5.1(x) Corporate and Fictitious Names
SCHEDULE 5.1(aa) Employee Relations
SCHEDULE 5.1(ab) Proprietary Rights
SCHEDULE 8.6 Use of Proceeds
</TABLE>
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<PAGE> 6
SECURITY AGREEMENT
Dated as of June 28, 1995
SENECA KNITTING MILLS CORPORATION, a New York corporation and
NATIONSBANK OF GEORGIA, N.A., a national banking association, agree as follows:
ARTICLE 1 - DEFINITIONS
Section 1.1 Definitions. For the purposes of this Agreement:
"Account Debtor" means a Person who is obligated on a Receivable.
"Acquire" or "Acquisition", as applied to any Business Unit or
Investment, means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
"Affiliate" means, with respect to a Person, (a) any officer,
director, employee or managing agent of such Person, (b) any spouse, parents,
brothers, sisters, children and grandchildren of such Person, (c) any
association, partnership, trust, entity or enterprise in which such Person is a
director, officer or general partner, (d) any other Person that, (i) directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such given Person, (ii) directly or
indirectly beneficially owns or holds 10% or more of any class of voting stock
or partnership or other interest of such Person or any Subsidiary of such
Person, or (iii) 10% or more of any class of the voting stock or partnership or
other interest of which is directly or indirectly beneficially owned or held by
such Person or a Subsidiary of such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities or partnership or other interests, by contract or
otherwise.
"Agency Account" means an account of the Guarantor maintained by it
with a Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among the Guarantor, the
Lender and a Clearing Bank (if other than the Lender) concerning the collection
of payments which represent the proceeds of Receivables or of any other
Collateral.
"Agreement" means this Agreement, including the Exhibits and Schedules
hereto, and all amendments, modifications and supplements hereto and thereto
and restatements hereof and thereof.
<PAGE> 7
"Agreement Date" means the date as of which this Agreement is dated.
"Benefit Plan" means an employee benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which a Person
or any Related Company is, or within the immediately preceding 6 years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
"Business Day" means any day other than a Saturday, Sunday or other
day on which banks in the city in which the principal office of the Lender is
located are authorized to close.
"Business Unit" means the assets constituting the business, or a
division or operating unit thereof, of any Person.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than assets which constitute a Business Unit) which are not, in accordance with
GAAP, treated as expense items for such Person in the year made or incurred or
as a prepaid expense applicable to a future year or years.
"Capitalized Lease" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Clearing Bank" means the Lender and any other banking institution
with which an Agency Account has been established pursuant to an Agency Account
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" means and includes all of the Guarantor's right, title
and interest in and to each of the following, wherever located and whether now
or hereafter existing or now owned or hereafter acquired or arising:
(a) all Receivables,
(b) all Inventory,
(c) all Equipment,
(d) all Contract Rights,
(e) all General Intangibles,
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<PAGE> 8
(f) all Deposit Accounts,
(g) all Real Estate,
(h) all goods and other property, whether or not delivered, (i)
the sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
(i) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(j) all documents of title, policies and certificates of
insurance, securities, chattel paper and other documents and instruments
evidencing or pertaining to any and all items of Collateral,
(k) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the
amounts thereof or payments thereon or otherwise necessary or helpful in the
realization thereon or the collection thereof,
(l) all cash deposited with the Lender or any Affiliate thereof or
which the Lender is entitled to retain or otherwise possess as collateral
pursuant to the provisions of this Agreement or any of the Security Documents,
and
(m) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to
in this definition and any claims against third parties for loss of, damage to
or destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
"Contract Rights" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, to the extent that the same may lawfully be assigned.
"Controlled Disbursement Account" means the account maintained by and
in the name of the Guarantor with the Lender
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<PAGE> 9
for the purpose of disbursing amounts credited thereto pursuant to SECTION
4.1(b)(ii).
"Default" means any of the events specified in SECTION 8.1 that, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
"Deposit Accounts" means any demand, time, savings, passbook or like
account maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of deposit
that is an instrument under the UCC.
"Dollar" and "$" means freely transferable United States dollars.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time, and any successor statute.
"Effective Date" means the Agreement Date.
"Environmental Laws" means all federal, state, local and foreign laws
now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including without
limitation, ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any and all
regulations, notices or demand letters issued, entered, promulgated or approved
thereunder.
"Equipment" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings,
fixtures and other tangible personal property (other than Inventory) of every
kind and description used in such Person's business operations or owned by such
Person or in which such Person has an interest and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
"Event of Default" means any of the events specified in SECTION 8.1.
"Financing Statements" means the Uniform Commercial Code financing
statements executed and delivered by the Guarantor to the Lender, naming the
Lender as secured party and the Guarantor as debtor, in connection with this
Agreement.
"GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period
- 4 -
<PAGE> 10
indicated and consistent with the prior financial practice of the Person
referred to.
"General Intangibles" means, as to any Person, all of such Person's
then owned or existing and future acquired or arising general intangibles,
choses in action and causes of action and all other intangible personal
property of such Person of every kind and nature (other than Receivables),
including, without limitation, Intellectual Property, corporate or other
business records, inventions, designs, blueprints, plans, specifications, trade
secrets, goodwill, computer software, customer lists, registrations, licenses,
franchises, tax refund claims, reversions or any rights thereto and any other
amounts payable to such Person from any Benefit Plan, Multiemployer Plan or
other employee benefit plan, rights and claims against carriers and shippers,
rights to indemnification, business interruption insurance and proceeds
thereof, property, casualty or any similar type of insurance and any proceeds
thereof, proceeds of insurance covering the lives of key employees on which
such Person is beneficiary and any letter of credit, guarantee, claims,
security interest or other security held by or granted to such Person to secure
payment by an Account Debtor of any of the Receivables.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all governmental bodies, whether federal, state, local, foreign
national or provincial, and all agencies thereof.
"Governmental Authority" means any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Guarantor" means Seneca Knitting Mills Corporation, a New York
corporation, and its successors and assigns.
"Guaranty", "Guaranteed" or to "Guarantee," as applied to any
obligation of another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation of such other
Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by (i) the purchase of securities or obligations, (ii) the purchase,
sale or lease (as lessee or lessor) of property or the purchase or sale of
services primarily for the purpose of enabling the obligor with respect to such
obligation to make any payment or
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<PAGE> 11
performance (or payment of damages in the event of nonperformance) of or on
account of any part or all of such obligation or to assure the owner of such
obligation against loss, (iii) the supplying of funds to, or in any other
manner investing in, the obligor with respect to such obligation, (iv)
repayment of amounts drawn down by beneficiaries of letters of credit, or (v)
the supplying of funds to or investing in a Person on account of all or any
part of such Person's obligation under a guaranty of any obligation or
indemnifying or holding harmless, in any way, such Person against any part or
all of such obligation.
"Indebtedness" of any Person means, without duplication, (a)
Liabilities, (b) all obligations for money borrowed or for the deferred
purchase price of property or services or in respect of reimbursement
obligations under letters of credit, (c) all obligations represented by bonds,
debentures, notes and accepted drafts that represent extensions of credit, (d)
Capitalized Lease Obligations, (e) all obligations (including, during the
non-cancellable term of any lease in the nature of a title retention agreement,
all future payment obligations under such lease discounted to their present
value in accordance with GAAP) secured by any Lien to which any property or
asset owned or held by such Person is subject, whether or not the obligation
secured thereby shall have been assumed by such Person, (f) all obligations of
other Persons which such Person has Guaranteed, including, but not limited to,
all obligations of such Person consisting of recourse liability with respect to
accounts receivable sold or otherwise disposed of by such Person, and (g) in
the case of the Guarantor (without duplication) the Loans.
"Intellectual Property" means, as to any Person, all of such Person's
then owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals,
reissues, divisions, continuations and continuations-in-part of any of the
foregoing and all rights to sue for past, present and future infringements of
any of the foregoing.
"Inventory" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) goods intended for
sale or lease or for display or demonstration, (b) work in process, (c) raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or otherwise used or
consumed in the conduct of business, and (d) documents evidencing and general
intangibles relating to any of the foregoing.
"Investment" means, with respect to any Person: (a) the direct or
indirect purchase or acquisition of any beneficial
- 6 -
<PAGE> 12
interest in, any share of capital stock of, evidence of Indebtedness of or
other security issued by any other Person, (b) any loan, advance or extension
of credit to, or contribution to the capital of, any other Person, excluding
advances to employees in the ordinary course of business for business expenses,
(c) any Guaranty of the obligations of any other Person, or (d) any commitment
or option to take any of the actions described in CLAUSES (a), (b) or (c)
above.
"Lender" means NationsBank of Georgia, N.A., a national banking
association, and its successors and assigns.
"Lender's Office" means the office of the Lender specified in or
determined in accordance with the provisions of SECTION 9.1(c).
"Liabilities" means all liabilities of a Person determined in
accordance with GAAP and includable on a balance sheet of such Person prepared
in accordance with GAAP.
"Lien" as applied to the property of any Person means: (a) any
mortgage, deed to secure debt, deed of trust, lien, pledge, charge, lease
constituting a Capitalized Lease Obligation, conditional sale or other title
retention agreement, or other security interest, security title or encumbrance
of any kind in respect of any property of such Person or upon the income or
profits therefrom, (b) any arrangement, express or implied, under which any
property of such Person is transferred, sequestered or otherwise identified for
the purpose of subjecting the same to the payment of Indebtedness or
performance of any other obligation in priority to the payment of the general,
unsecured creditors of such Person, (c) any Indebtedness which is unpaid more
than 30 days after the same shall have become due and payable and which if
unpaid might by law (including, but not limited to, bankruptcy and insolvency
laws) or otherwise be given any priority whatsoever over general unsecured
creditors of such Person, and (d) the filing of, or any agreement to give, any
financing statement under the UCC or its equivalent in any jurisdiction.
"Lockbox" means the U.S. Post Office Box(es) specified in, or pursuant
to, an Agency Account Agreement.
"Materially Adverse Effect" means any act, omission, event or
undertaking which would, singly or in the aggregate, have a materially adverse
effect upon (a) the business, assets, properties, liabilities, condition
(financial or otherwise), results of operations or business prospects of the
Guarantor or any of its Subsidiaries, (b) upon the respective ability of the
Guarantor or any of its Subsidiaries to perform any obligations under this
Agreement or any other Loan Document to which it is a party, or (c) the
legality, validity, binding effect, enforceability or admissibility into
evidence of any Loan Document or the ability of Lender to enforce any rights or
remedies under or in connection with any Loan Document; in any
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<PAGE> 13
case, whether resulting from any single act, omission, situation, status,
event, or undertaking, together with other such acts, omissions, situations,
statuses, events, or undertakings.
"Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness
for money borrowed, (b) Indebtedness, whether or not in any such case the same
was for money borrowed, (i) represented by notes payable and drafts accepted,
that represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than trade Indebtedness) or that was issued
or assumed as full or partial payment for property, (c) Indebtedness that
constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is such
by virtue of clause (f) of the definition thereof, but only to the extent that
the obligations Guaranteed are obligations that would constitute Indebtedness
for Money Borrowed.
"Mortgages" means and includes any and all of the mortgages, deeds of
trust, deeds to secure debt and other instruments executed and delivered by the
Guarantor to or for the benefit of the Lender by which the Lender acquires a
Lien on the Guarantor's Real Estate and all amendments, modifications and
supplements thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Guarantor or a Related Company is
required to contribute or has contributed within the immediately preceding 6
years.
"Net Income" or "Net Loss" means, as applied to any Person, the net
income (or net loss) of such Person for the period in question after giving
effect to deduction of or provision for all operating expenses, all taxes and
reserves (including reserves for deferred taxes and all other proper
deductions), all determined in accordance with GAAP, provided that there shall
be excluded: (a) the net income (or net loss) of any Person accrued prior to
the date it becomes a Subsidiary of, or is merged into or consolidated with,
the Person whose Net Income is being determined or a Subsidiary of such Person,
(b) the net income (or net loss) of any Person in which the Person whose Net
Income is being determined or any Subsidiary of such Person has an ownership
interest, except, in the case of net income, to the extent that any such income
has actually been received by such Person or such Subsidiary in the form of
cash dividends or similar distributions, (c) any restoration of any contingency
reserve, except to the extent that provision for such reserve was made out of
income during such period, (d) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments, Business
Units and other capital assets, provided that there shall also be excluded any
related charges for taxes thereon, (e) any net gain arising from the collection
of the proceeds of any insurance policy, (f) any write-up of any asset, and (g)
any other extraordinary item.
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"Operating Lease" means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Permitted Indebtedness for Money Borrowed" means existing
Indebtedness disclosed by Guarantor to Lender.
"Permitted Investments" means: Investments of the Guarantor in: (i)
negotiable certificates of deposit, time deposits and banker's acceptances
issued by the Lender or any Affiliate of the Lender or by any United States
bank or trust company having capital, surplus and undivided profits in excess
of $250,000,000, (ii) any direct obligation of the United States of America or
any agency or instrumentality thereof which has a remaining maturity at the
time of purchase of not more than one year and repurchase agreements relating
to the same, (iii) sales on credit in the ordinary course of business on terms
customary in the industry, and (iv) notes, accepted in the ordinary course of
business, evidencing overdue accounts receivable arising in the ordinary course
of business.
"Permitted Liens" means: (a) Liens securing taxes, assessments and
other governmental charges or levies (excluding any Lien imposed pursuant to
any of the provisions of ERISA) or the claims of materialmen, mechanics,
carriers, warehousemen or landlords for labor, materials, supplies or rentals
incurred in the ordinary course of business, but (i) in all cases, only if
payment shall not at the time be required to be made in accordance with SECTION
5.4, and (ii) in the case of warehousemen or landlords controlling locations
where Inventory is located, only if such liens have been waived or subordinated
to the Security Interest in a manner satisfactory to the Lender; (b) Liens
consisting of deposits or pledges made in the ordinary course of business in
connection with, or to secure payment of, obligations under workers'
compensation, unemployment insurance or similar legislation or under surety or
performance bonds, in each case arising in the ordinary course of business; (c)
Liens constituting encumbrances in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of the Real Estate, which in
the sole judgment of the Lender do not materially detract from the value of
such Real Estate or impair the use thereof in the business of the Guarantor;
(d) Liens of the Lender arising under this Agreement and the other Loan
Documents; and (e) Liens arising out of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which shall not
have expired, or in respect of which the Guarantor is fully protected by
insurance or in respect of which the Guarantor shall at any time in good faith
be prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review shall have been
secured, and as to which appropriate reserves have been established on the
books of the Guarantor.
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"Person" means an individual, corporation, partnership, association,
trust or unincorporated organization or a government or any agency or political
subdivision thereof.
"Purchase Money Indebtedness" means Indebtedness created to finance
the payment of all or any part of the purchase price (not in excess of the fair
market value thereof) of any tangible asset (other than Inventory) and incurred
at the time of or within 10 days prior to or after the acquisition of such
tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money
Indebtedness, but only if such Lien shall at all times be confined solely to
the tangible asset (other than Inventory) the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness secured by
such Lien.
"Real Estate" means all of the Guarantor's now owned or hereafter
acquired estates in real property, including, without limitation, all fees,
leaseholds, future interests and easements, together with all of the
Guarantor's now owned or hereafter acquired interests in the improvements and
emblements thereon, the fixtures attached thereto and the easements appurtenant
thereto.
"Receivables" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising (a) rights to
the payment of money or other forms of consideration of any kind (whether
classified under the UCC as accounts, contract rights, chattel paper, general
intangibles or otherwise) including, but not limited to, accounts receivable,
letters of credit and the right to receive payment thereunder, chattel paper,
tax refunds, insurance proceeds, Contract Rights, notes, drafts, instruments,
documents, acceptances and all other debts, obligations and liabilities in
whatever form from any Person and guaranties, security and Liens securing
payment thereof, (b) goods, whether now owned or hereafter acquired, and
whether sold, delivered, undelivered, in transit or returned, which may be
represented by, or the sale or lease of which may have given rise to, any such
right to payment or other debt, obligation or liability, and (c) cash and
non-cash proceeds of any of the foregoing.
"Related Company" means, as to any Person, any (a) corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Code) with such Person, or (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in CLAUSE (A) above or any
partnership, trade or business described in CLAUSE (B) above.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value
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of any capital stock or other equity securities or partnership interests issued
by such Person, (b) the declaration or payment of any dividend or distribution
on or with respect to any such securities or partnership interests, (c) any
loan or advance by such Person to, or other investment by such Person in, the
holder of any of such securities or partnership interests, and (d) any other
payment by such Person in respect of such securities or partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or
prepayment or other retirement, prior to the stated maturity thereof or prior
to the due date of any regularly scheduled installment or amortization payment
with respect thereto, of any Indebtedness of a Person (other than the Secured
Obligations and trade debt), and (b) the payment by any Person of the principal
amount of or interest on any Indebtedness (other than trade debt) owing to an
Affiliate of such Person.
"Schedule of Equipment" means a schedule delivered by the Guarantor to
the Lender pursuant to the provisions of SECTION 4.14(C).
"Schedule of Inventory" means a schedule delivered by the Guarantor to
the Lender pursuant to the provisions of SECTION 4.14(B).
"Schedule of Receivables" means a schedule delivered by the Guarantor
to the Lender pursuant to the provisions of SECTION 4.14(A).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising, (a) obligations, indebtedness and liabilities under the
Subsidiary Guaranty and (b) all other indebtedness, liabilities, obligations,
overdrafts, covenants and duties of the Guarantor to the Lender or any
Affiliate of the Lender of every kind, nature and description, direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated.
"Security Documents" means each of (a) the Financing Statements, (b)
the Mortgages, and (c) each other writing executed and delivered by any Person
securing the Secured Obligations or evidencing such security.
"Security Interest" means the Liens of the Lender on and in the
Collateral effected hereby or by any of the Security Documents or pursuant to
the terms hereof or thereof.
"Subsidiary" when used to determine the relationship of a Person to
another Person, means a Person of which an aggregate of 50% or more of the
stock of any class or classes or 50% or more of other ownership interests is
owned of record or beneficially by such other Person or by one or more
Subsidiaries of such other Person or by such other Person and one or more
subsidiaries of such Person, (i) if the holders of such stock or other
ownership
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<PAGE> 17
interests (A) are ordinarily, in the absence of contingencies, entitled to vote
for the election of a majority of the directors (or other individuals
performing similar functions) of such Person, even though the right so to vote
has been suspended by the happening of such a contingency, or (B) are entitled,
as such holders, to vote for the election of a majority of the directors (or
individuals performing similar functions) of such Person, whether or not the
right so to vote exists by reason of the happening of a contingency, or (ii) in
the case of such other ownership interests, if such ownership interests
constitute a majority voting interest.
"Subsidiary Guaranty" means the Subsidiary Guaranty of even date
herewith executed by the Guarantor in favor of the Lender.
"Termination Event" means (a) a "Reportable Event" as defined in
Section 4043(b) of ERISA, but excluding any such event as to which the
provision for 30 days' notice to the PBGC is waived under applicable
regulations, (b) the filing of a notice of intent to terminate a Benefit Plan
or the treatment of a Benefit Plan amendment as a termination under Section
4041 of ERISA, or (c) the institution of proceedings to terminate a Benefit
Plan by the PBGC under Section 4042 of ERISA or the appointment of a trustee to
administer any Benefit Plan.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Georgia.
"Unfunded Vested Accrued Benefits" means, with respect to any Benefit
Plan at any time, the amount (if any) by which (a) the present value of all
vested nonforfeitable benefits under such Benefit Plan exceeds (b) the fair
market value of all Benefit Plan assets allocable to such benefits, as
determined using such reasonable actuarial assumptions and methods as are
specified in the Schedule B (Actuarial Information) to the most recent Annual
Report (Form 5500) filed with respect to such Benefit Plan.
Section 1.2 Other Referential Provisions.
(a) All terms in this Agreement, the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan Documents,
unless the context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting
terms not specifically defined or specified herein shall have the meanings
generally attributed to such terms under GAAP including, without limitation,
applicable statements and interpretations issued by the Financial Accounting
Standards Board and bulletins, opinions, interpretations and statements issued
by the American Institute of Certified Public Accountants or its committees.
(c) All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include
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<PAGE> 18
all other genders; the singular shall include the plural, and the plural shall
include the singular.
(d) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit
nor amplify the provisions of this Agreement, and all references in this
Agreement to Articles, Sections, Subsections, paragraphs, clauses, subclauses,
Schedules or Exhibits shall refer to the corresponding Article, Section,
Subsection, paragraph, clause or subclause of, or Schedule or Exhibit attached
to, this Agreement, unless specific reference is made to the articles, sections
or other subdivisions or divisions of, or to schedules or exhibits to, another
document or instrument.
(f) Each definition of a document in this Agreement shall include
such document as amended, modified, supplemented or restated from time to time
in accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to
a Loan Document includes that party and its successors and assigns permitted
hereunder or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is
referred to in this Agreement or in any other Loan Document, such time shall be
the local time in the city in which the principal office of Lender is located.
(i) Whenever the phrase "to the knowledge of the Guarantor" or
words of similar import relating to the knowledge of the Guarantor are used
herein, such phrase shall mean and refer to (i) the actual knowledge of the
President or chief financial officer or (ii) the knowledge that such officers
would have obtained if they had engaged in good faith in the diligent
performance of their duties, including the making of such reasonable specific
inquiries as may be necessary of the appropriate persons in a good faith
attempt to ascertain the accuracy of the matter to which such phrase relates.
(j) The terms accounts, chattel paper, documents, equipment,
instruments, general intangibles and inventory, as and when used (without being
capitalized) in this Agreement or the Security Documents, shall have the
meanings given those terms in the UCC.
Section 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
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<PAGE> 19
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR
Section 2.1 Representations and Warranties. The Guarantor represents
and warrants to the Lender as follows:
(a) Organization; Power; Qualification. The Guarantor is a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which failure to be so qualified and
authorized would have a Materially Adverse Effect. The jurisdictions in which
the Guarantor is qualified to do business as a foreign corporation are listed
on SCHEDULE 2.1(a).
(b) Subsidiaries and Ownership of the Guarantor. The Guarantor
has no Subsidiaries EXCEPT AS LISTED ON SCHEDULE 2.1(b-1). The outstanding
stock of the Guarantor has been duly and validly issued and is fully paid and
nonassessable by the Guarantor and the number and owners of such shares of
capital stock of the Guarantor are set forth on SCHEDULE 2.1(b-2).
(c) Authorization of Agreement and Guaranty. The Guarantor has
the right and power and has taken all necessary action to authorize it to
execute, deliver and perform this Agreement and the Guaranty in accordance with
their respective terms. This Agreement and the Guaranty have been duly
executed and delivered by the duly authorized officers of the Guarantor and
each is, or when executed and delivered in accordance with this Agreement will
be, a legal, valid and binding obligation of the Guarantor, enforceable in
accordance with its terms.
(d) Compliance of Agreement and Guaranty. The execution, delivery
and performance of this Agreement and the Guaranty in accordance with their
respective terms do not and will not, by the passage of time, the giving of
notice or otherwise,
(i) require any Governmental Approval or violate any
applicable law relating to the Guarantor or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a
default under (A) the articles or certificate of incorporation or
by-laws of the Guarantor, (B) any indenture, agreement or other
instrument to which the Guarantor is a party or by which any of its
property may be bound or (C) any Governmental Approval relating to the
Guarantor, or,
(iii) result in or require the creation or imposition of any Lien
upon or with respect to any property now owned or hereafter acquired by
the Guarantor other than the Security Interest.
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<PAGE> 20
(e) Business. The Guarantor is engaged principally in the
business described on SCHEDULE 2.1(e).
(f) Compliance with Law; Governmental Approvals. Except as set
forth in SCHEDULE 2.1(e), the Guarantor (i) has all Governmental Approvals,
including permits relating to federal, state and local Environmental Laws,
ordinances and regulations required by any applicable law for it to conduct its
business, each of which is in full force and effect, is final and not subject
to review on appeal and is not the subject of any pending or, to the knowledge
of the Guarantor, threatened attack by direct or collateral proceeding, and
(ii) is in compliance with each Governmental Approval applicable to it and in
compliance with all other applicable laws relating to it, including, without
being limited to, all Environmental laws and all occupational health and safety
laws applicable to the Guarantor or its properties, except for instances of
noncompliance which would not, singly or in the aggregate, cause a Default or
Event of Default or have a Materially Adverse Effect and in respect of which
adequate reserves have been established on the books of the Guarantor.
(g) Titles to Properties. Except as set forth in SCHEDULE 2.1(g),
the Guarantor has good and marketable title to or a valid leasehold interest in
all its Real Estate and valid and legal title to or a valid leasehold interest
in all personal property and assets used in or necessary to the conduct of the
Guarantor's business, including, but not limited to, those reflected on the
balance sheet of the Guarantor delivered pursuant to SECTION 2.1(M)(II).
(h) Liens. Except as set forth in SCHEDULE 2.1(g), none of the
properties and assets of the Guarantor is subject to any Lien, except Permitted
Liens. Other than the Financing Statements, no financing statement under the
Uniform Commercial Code of any state which names the Guarantor as debtor and
which has not been terminated has been filed in any state or other
jurisdiction, and the Guarantor has not signed any such financing statement or
any security agreement authorizing any secured party thereunder to file any
such financing statement, except to perfect those Liens listed in SCHEDULE
2.1(i) and Permitted Liens.
(i) Indebtedness and Guaranties. Set forth on SCHEDULE 2.1(i) is
a complete and correct listing of all of the Guarantor's (i) Indebtedness for
Money Borrowed and (ii) Guaranties. The Guarantor is not in default of any
material provision of any agreement evidencing or relating to such any such
Indebtedness or Guaranty.
(j) Litigation. Except as set forth on SCHEDULE 2.1(j), there are
no actions, suits or proceedings pending (nor, to the knowledge of the
Guarantor, are there any actions, suits or proceedings threatened, nor is there
any basis therefor) against or in any other way relating adversely to or
affecting the
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<PAGE> 21
Guarantor or any of its property in any court or before any arbitrator of any
kind or before or by any governmental body.
(k) Tax Returns and Payments. Except as set forth on SCHEDULE
2.1(k), all United States federal, state and local and foreign national,
provincial and local and all other tax returns of the Guarantor required by
applicable law to be filed have been duly filed, and all United States federal,
state and local and foreign national, provincial and local and all other taxes,
assessments and other governmental charges or levies upon the Guarantor and its
property, income, profits and assets which are due and payable have been paid,
except any such nonpayment which is at the time permitted under SECTION 5.4.
The charges, accruals and reserves on the books of the Guarantor in respect of
United States federal, state and local taxes and foreign national, provincial
and local taxes for all fiscal years and portions thereof since the
organization of the Guarantor are in the judgment of the Guarantor adequate,
and the Guarantor knows of no reason to anticipate any additional assessments
for any of such years which, singly or in the aggregate, might have a
Materially Adverse Effect.
(l) Burdensome Provisions. The Guarantor is not a party to any
indenture, agreement, lease or other instrument, or subject to any charter or
corporate restriction, Governmental Approval or applicable law, compliance with
the terms of which might have a Materially Adverse Effect.
(m) Financial Statements. The Guarantor has furnished to the
Lender a copy of its audited balance sheet as at April 1, 1995, and the related
statements of income, cash flow and retained earnings for the twelve-month
period then ended. Such financial statements are complete and correct and
present fairly and in all material respects in accordance with GAAP, the
financial position of the Guarantor as at the dates thereof and the results of
operations of the Guarantor for the periods then ended. Except as disclosed or
reflected in such financial statements, the Guarantor had no material
liabilities, contingent or otherwise, and there were no material unrealized or
anticipated losses of the Guarantor.
(n) Adverse Change. Since the date of the financial statements
described in CLAUSE (i) of SECTION 2.1(m), (i) no change in the business,
assets, liabilities, condition (financial or otherwise), results of operations
or business prospects of the Guarantor has occurred that has had, or may have,
a Materially Adverse Effect, and (ii) no event has occurred or failed to occur
which has had, or may have, a Materially Adverse Effect.
(o) ERISA. Neither the Guarantor nor any Related Company
maintains or contributes to any Benefit Plan other than those listed on
SCHEDULE 2.1(o). Each Benefit Plan is in substantial compliance with ERISA,
and neither the Guarantor nor any Related Company has received any notice
asserting that a Benefit Plan is not in compliance with ERISA. No material
liability to the PBGC
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<PAGE> 22
or to a Multiemployer Plan has been, or is expected by the Guarantor to be,
incurred by the Guarantor or any Related Company.
(p) Absence of Defaults. The Guarantor is not in default under
its articles or certificate of incorporation or by-laws, and no event has
occurred which has not been remedied, cured or waived (i) that constitutes a
Default or an Event of Default or (ii) that constitutes or that, with the
passage of time or giving of notice, or both, would constitute a default or
event of default by the Guarantor under any material agreement (other than this
Agreement) or judgment, decree or order to which the Guarantor is a party or by
which the Guarantor or any of its properties may be bound or which would
require the Guarantor to make any payment thereunder prior to the scheduled
maturity date therefor.
(q) Accuracy and Completeness of Information. All written
information, reports and other papers and data produced by or on behalf of the
Guarantor and furnished to the Lender were, at the time the same were so
furnished, complete and correct in all material respects to the extent
necessary to give the recipient a true and accurate knowledge of the subject
matter, no fact is known to the Guarantor which has had, or may in the future
have (so far as the Guarantor can foresee), a Materially Adverse Effect which
has not been set forth in the financial statements or disclosure delivered
prior to the Effective Date, in each case referred to in SECTION 2.1(m), or in
such written information, reports or other papers or data or otherwise
disclosed in writing to the Lender prior to the Effective Date. No document
furnished or written statement made to the Lender by the Guarantor in
connection with the negotiation, preparation or execution of this Agreement or
the Guaranty contains or will contain any untrue statement of a fact material
to the creditworthiness of the Guarantor or omits or will omit to state a
material fact necessary in order to make the statements contained therein not
misleading.
(r) Solvency. In each case after giving effect to the
Indebtedness represented by the Guaranty and the transactions contemplated by
this Agreement, the Guarantor is solvent, having assets of a fair value which
exceeds the amount required to pay its debts (including contingent,
subordinated, unmatured and unliquidated liabilities) as they become absolute
and matured, and the Guarantor is able to and anticipates that it will be able
to meet its debts as they mature and has adequate capital to conduct the
business in which it is or proposes to be engaged.
(s) Chief Executive Office. The chief executive office of the
Guarantor and the books and records relating to the Receivables are located at
the address or addresses set forth on SCHEDULE 2.1(s); except as set forth
SCHEDULE 2.1(s), the Guarantor has not maintained its chief executive office or
the books and records relating to any Receivables at any other
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<PAGE> 23
address at any time during the five years immediately preceding the Agreement
Date.
(t) Status of Inventory. All Inventory is in good condition,
meets all standards imposed by any governmental agency or department or
division thereof having regulatory authority over such goods, their use or
sale, and is currently either usable or saleable in the normal course of the
Guarantor's business, except to the extent reserved against in the financial
statements delivered pursuant to ARTICLE 6 or as disclosed on a Schedule of
Inventory delivered to the Lender pursuant to SECTION 4.14(b). Set forth on
SCHEDULE 2.1(t) is the (i) address (including street, city, county and state)
of each facility at which Inventory is located, (ii) the approximate quantity
in Dollars of the Inventory customarily located at each such facility, and
(iii) if the facility is leased or is a third party warehouse or processor
location, the name of the landlord or such third party warehouseman or
processor. All Inventory is located on the premises set forth on SCHEDULE
2.1(t) or is in transit to one of such locations, except as otherwise disclosed
in writing to the Lender; the Guarantor has not located Inventory at premises
other than those set forth on SCHEDULE 2.1(t) at any time during the twelve
months immediately preceding the Agreement Date.
(u) Equipment. All Equipment is in good order and repair in all
material respects. Set forth on SCHEDULE 2.1(u) is the (i) address (including
street, city, county and state) of each facility at which Equipment (other than
motor vehicles) is located, (ii) the approximate value of Equipment located at
such facility; and (iii) if such facility is leased, the name of the landlord.
Except as set forth on SECTION 2.1(u), within the past twelve months no
Equipment has been located at any other location.
(v) Real Property. Set forth on SCHEDULE 2.1(v) is the (i)
address (street, city, county and state) of each parcel of Real Estate owned or
leased by the Guarantor; and (ii) the name of the lessor of each leased parcel.
(w) Corporate and Fictitious Names; Trade Names. Except as
otherwise disclosed on SCHEDULE 2.1(w), during the one-year period preceding the
Agreement Date, the Guarantor has not been known as or used any corporate or
fictitious name other than the corporate name of the Guarantor on the Effective
Date. All trade names or styles under which the Guarantor sells Inventory or
Equipment or creates Receivables, or to which instruments in payment of
Receivables are made payable, are listed on SCHEDULE 2.1(w).
(x) Federal Regulations. The Guarantor is not engaged,
principally or as one of its important activities, in the business of extending
credit for tile purpose of "purchasing" or "carrying" any "margin stock" (as
each of the quoted terms is
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<PAGE> 24
defined or used in Regulations G and U of the Board of Governors of the Federal
Reserve System).
(y) Investment Company Act. The Guarantor is not an "investment
company" or a company "controlled" by an "investment company" (as each of the
quoted terms is defined or used in the Investment Company Act of 1940, as
amended).
(z) Employee Relations. The Guarantor is not, except as set forth
on SCHEDULE 2.1(z), party to any collective bargaining agreement nor has any
labor union been recognized as the representative of the Guarantor's employees;
the Guarantor knows of no pending, threatened or contemplated strikes, work
stoppage or other labor disputes involving its employees or those of its
Subsidiaries.
(aa) Intellectual Property. The Guarantor owns or possesses all
Intellectual Property required to conduct its business as now and presently
planned to be conducted without, to its knowledge, conflict with the rights of
others, and SCHEDULE 2.1(aa) lists all Intellectual Property owned by the
Guarantor.
Section 2.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this ARTICLE 2 and all statements
contained in any certificate, financial statement or other instrument delivered
by or on behalf of the Guarantor pursuant to or in connection with this
Agreement or the Guaranty (including, but not limited to, any such
representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date, at and as
of the Effective Date and at and as of the date of each loan under the Loan
Agreement, except that representations and warranties which, by their terms are
applicable only to one such date shall be deemed to be made only at and as of
such date. All representations and warranties made or deemed to be made under
this Agreement shall survive and not be waived by the execution and delivery of
this Agreement, any investigation made by or on behalf of the Lender or any
borrowing hereunder.
ARTICLE 3 - SECURITY INTEREST
Section 3.1 Security Interest. (a) To secure the payment, observance
and performance of the Secured Obligations, the Guarantor hereby mortgages,
pledges and assigns all of the Collateral to the Lender for itself and as agent
for any Affiliate of the Lender and grants to the Lender for itself and as
agent for any Affiliate of the Lender a continuing security interest in, and a
continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations, the
Guarantor grants to the Lender for itself and as agent for any Affiliate of the
Lender a security interest in, and
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assigns to the Lender for itself and as agent for any Affiliate of the Lender
all of the Guarantor's right, title and interest in and to, any deposits or
other sums at any time credited by or due from the Lender and each Affiliate of
the Lender to the Guarantor, with the same rights therein as if the deposits or
other sums were credited by or due from the Lender.
Section 3.2 Continued Priority of Security Interest. (a) The
Security Interest granted by the Guarantor shall at all times be valid,
perfected and enforceable against the Guarantor and all third parties in
accordance with the terms of this Agreement, as security for the Secured
Obligations, and the Collateral shall not at any time be subject to any Liens
that are prior to, on a parity with or junior to the Security Interest, other
than Permitted Liens.
(b) The Guarantor shall, at its sole cost and expense, take all
action that may be necessary or desirable, or that the Lender may request, so
as at all times to maintain the validity, perfection, enforceability and rank
of the Security Interest in the Collateral in conformity with the requirements
of SECTION 3.2(a) or to enable the Lender to exercise or enforce its rights
hereunder, including, but not limited to: (i) paying all taxes, assessments and
other claims lawfully levied or assessed on any of the Collateral, except to
the extent that such taxes, assessments and other claims constitute Permitted
Liens, (ii) diligently seeking to obtain, after the Agreement Date, landlords',
mortgagees' or mechanics' releases, subordinations or waivers, (iii) delivering
to the Lender, endorsed or accompanied by such instruments of assignment as the
Lender may specify, and stamping or marking in such manner as the Lender may
specify, any and all chattel paper, instruments, letters and advices of
guaranty and documents evidencing or forming a part of the Collateral, and (iv)
executing and delivering financing statements, pledges, designations,
hypothecations, notices and assignments, in each case in form and substance
satisfactory to the Lender, relating to the creation, validity, perfection,
maintenance or continuation of the Security Interest under the UCC or other
applicable law.
(c) The Lender is hereby authorized to file one or more financing
or continuation statements or amendments thereto without the signature of or in
the name of the Guarantor for any purpose described in SECTION 3.2(b). A
carbon, photographic or other reproduction of this Agreement or of any of the
Security Documents or of any financing statement filed in connection with this
Agreement is sufficient as a financing statement, to the extent permitted by
applicable law.
(d) The Guarantor shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect the Security Interest
and shall cause its financial statements to reflect the Security Interest.
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ARTICLE 4 - COLLATERAL COVENANTS
Until the Loan Agreement has been terminated and all the Secured
Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner provided in SECTION 9.11:
Section 4.1 Collection of Receivables. (a) The Guarantor will cause
all moneys, checks, notes, drafts and other payments relating to or
constituting proceeds of Receivables, or of any other Collateral, to be
forwarded to a Lockbox for deposit in an Agency Account in accordance with the
procedures set out in the corresponding Agency Account Agreement and in
particular the Guarantor will (i) advise each Account Debtor to address all
remittances with respect to amounts payable on account of any Receivables to a
specified Lockbox, and (ii) stamp all invoices relating to any such amounts
with a legend satisfactory to the Lender indicating that payment is to be made
to the Guarantor via a specified Lockbox.
(b) The Guarantor and the Lender shall cause all collected
balances in each Agency Account to be transmitted daily by wire transfer or
depository transfer check or Automated Clearing House transfer in accordance
with the procedures set forth in the corresponding Agency Account Agreement to
the Lender at the Lender's Office (i) for application, on account of the
Secured Obligations, as provided in SECTION 8.2 and 8.3, such credits to be
entered on the second Business Day following receipt and to be conditioned upon
final payment in cash or solvent credits of the items giving rise to them, and
(ii) with respect to any balance remaining after such application, so long as
no Default or Event of Default has occurred and is continuing, for transfer to
the Controlled Disbursement Account or such other account of the Guarantor as
the Guarantor and the Lender may agree.
(c) Any moneys, checks, notes, drafts or other payments referred
to in CLAUSE (a) of this SECTION 4.1 which are received by or on behalf of the
Guarantor will be held in trust for the Lender and will be delivered to the
Lender at the Lender's Office as promptly as possible in the exact form
received, together with any necessary endorsements.
Section 4.2 Verification and Notification. The Lender shall have the
right (a) at any time and from time to time, in the name of the Lender or in
the name of the Guarantor, to verify the validity, amount or any other matter
relating to any Receivables by mail, telephone, telegraph or otherwise, and (b)
after an Event of Default, to notify the Account Debtors or obligors under any
Receivables of the assignment of such Receivables to the Lender and to direct
such Account Debtor or obligors to make payment of all amounts due or to become
due thereunder directly to the Lender and, upon such notification and at the
expense of the Guarantor, to enforce collection of any such Receivables and to
adjust, settle or compromise the amount
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or payment thereof, in the same manner and to the same extent as the Guarantor
might have done.
Section 4.3 Disputes, Returns and Adjustments. (a) In the event
amounts due and owing under any Receivable in excess of $25,000.00 are in
dispute between the Account Debtor and the Guarantor, the Guarantor shall
provide the Lender with prompt written notice thereof.
(b) The Guarantor shall notify the Lender promptly of all material
returns and credits in excess of $25,000.00 in respect of any Receivable, which
notice shall specify the Receivables affected.
(c) The Guarantor may, in the ordinary course of business and
prior to a Default or an Event of Default, grant any extension of time for
payment of any Receivable or compromise, compound or settle the same for less
than the full amount thereof or release wholly or partly any Person liable for
the payment thereof or allow any credit or discount whatsoever thereon;
PROVIDED that (i) no such action results in the reduction of more than
$75,000.00 in the amount payable with respect to any Receivable or of more than
$300,000.00 with respect to all Receivables in any fiscal year of the
Guarantor, and (ii) the Lender is promptly notified of the amount of such
adjustments and the Receivable(s) affected thereby.
Section 4.4 Invoices. (a) The Guarantor will not use any invoices
except invoices in the forms delivered to the Lender prior to the Agreement
Date, unless the Guarantor shall have given the Lender 45 days' prior notice of
the intended use of a different form of invoice together with a copy of such
different form.
(b) Upon the request of the Lender, the Guarantor shall deliver to
the Lender, at the Guarantor's expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, the original copy of all documents, including, without
limitation, repayment histories and present status reports, relating to
Receivables and such other documents and information relating to the
Receivables as the Lender shall specify.
Section 4.5 Delivery of Instruments. In the event any Receivable in
an amount in excess of $25,000.00 is, or Receivables in excess of $25,000.00 in
the aggregate are, at any time evidenced by a promissory note or notes, trade
acceptance or any other instrument for the payment of money, the Guarantor will
immediately thereafter deliver such instruments to the Lender, appropriately
endorsed to the Lender.
Section 4.6 Sales of Inventory. All sales of Inventory will be made
in compliance with all requirements of applicable law.
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Section 4.7 Returned Goods. The Security Interest in the Inventory
shall, without further act, attach to the cash and non-cash proceeds resulting
from the sale or other disposition thereof and to all Inventory which is
returned to the Guarantor by customers or is otherwise recovered.
Section 4.8 Ownership and Defense of Title. (a) Except for
Permitted Liens, the Guarantor shall at all times be the sole owner of each and
every item of Collateral and shall not create any Lien on, or sell, lease,
exchange, assign, transfer, pledge, hypothecate, grant a security interest or
security title in or otherwise dispose of, any of the Collateral or any
interest therein, except for sales of Inventory in the ordinary course of
business, for cash or on open account or on terms of payment ordinarily
extended to its customers and except as otherwise expressly contemplated
herein. The inclusion of "proceeds" of the Collateral under the Security
Interest shall not be deemed a consent by the Lender to any other sale or other
disposition of any part or all of the Collateral.
(b) The Guarantor shall defend its title in and to the Collateral
and shall defend the Security Interest in the Collateral against the claims and
demands of all Persons.
(c) In addition to, and not in derogation of, the foregoing and the
requirements of any of the Security Documents, the Guarantor shall (i) protect
and preserve all properties material to its business, including Intellectual
Property and maintain all tangible property in good and workable condition in
all material respects, with reasonable allowance for wear and tear, and (ii)
from time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements and additions to such properties necessary for the
conduct of its business, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
Section 4.9 Insurance. (a) The Guarantor shall at all times maintain
insurance on the Inventory, Equipment and the improvements on all Real Estate
against loss or damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as the Lender shall reasonably specify, in amounts and under
policies issued by insurers acceptable to the Lender. All premiums on such
insurance shall be paid by the Guarantor and copies of the policies delivered
to the Lender. The Guarantor will not use or permit the Inventory, Equipment
or such improvements to be used in violation of any applicable law or in any
manner which might render inapplicable any insurance coverage.
(b) All insurance policies required under SECTION 4.9(a) shall name
the Lender as an additional named insured and shall contain "New York standard"
loss payable clauses in the form submitted to the Guarantor by the Lender, or
otherwise in form and substance satisfactory to the Lender, naming the Lender
as loss payee as its interests may appear, and providing that (i)
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all proceeds thereunder shall be payable to the Lender, (ii) no such insurance
shall be affected by any act or neglect of the insured or owner of the property
described in such policy, and (iii) such policy and loss payable clauses may
not be cancelled, amended or terminated unless at least ten days' prior written
notice is given to the Lender.
(c) Any proceeds of insurance referred to in this SECTION 4.9
which are paid to the Lender shall be, at the option of the Lender in its sole
discretion, either (i) applied to rebuild, restore or replace the damaged or
destroyed property, or (ii) applied to the payment or prepayment of the Secured
Obligations.
(d) The Guarantor shall at all times maintain, in addition to the
insurance required by SECTION 4.9(a) or any of the Security Documents,
insurance with responsible insurance companies against such risks and in such
amounts as is customarily maintained by similar businesses or as may be
required by applicable law, including such public liability, products
liability, third party property damage and business interruption insurance as
is consistent with reasonable business practices, and from time to time deliver
to the Lender upon its request a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of the expiration thereof and the properties and risks
covered thereby.
Section 4.10 Location of Offices and Collateral. (a) The Guarantor
will not change the location of its chief executive office or the place where
it keeps its books and records relating to the Collateral or change its name,
identity or corporate structure without giving the Lender 30 days' prior
written notice thereof.
(b) All Inventory, other than Inventory in transit to any such
location, and all Equipment, other than motor vehicles, will at all times be
kept by the Guarantor at one of the locations set forth in SCHEDULES 2.1(t) and
2.1(u), respectively, and shall not, without the prior written consent of the
Lender, be removed therefrom except, so long as no Event of Default shall have
occurred and be continuing, for sales of Inventory permitted under SECTION 4.8.
(c) If any Inventory is in the possession or control of any of the
Guarantor's agents or processors, the Guarantor shall notify such agents or
processors of the Security Interest and, upon the occurrence of an Event of
Default, shall instruct them (and cause them to acknowledge such instruction)
to hold all such Inventory for the account of the Lender, subject to the
instructions of the Lender.
Section 4.11 Records Relating to Collateral. (a) The Guarantor will
at all times (i) keep complete and accurate records of Inventory on a basis
consistent with past practices of the Guarantor, itemizing and describing the
kind, type and
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quantity of Inventory and the Guarantor's cost therefor and a current price
list for such Inventory, and (ii) keep complete and accurate records of all
other Collateral.
(b) The Guarantor will take a physical listing of all Inventory,
wherever located, at least annually.
Section 4.12 Inspection. The Lender (by any of its officers,
employees or agents) shall have the right, to the extent that the exercise of
such right shall be within the control of the Guarantor, at any time or times
to (a) visit the properties of the Guarantor, inspect the Collateral and the
other assets of the Guarantor and its Subsidiaries and inspect and make
extracts from the books and records of the Guarantor and its Subsidiaries,
including, but not limited to, management letters prepared by independent
accountants, all during customary business hours at such premises, (b) discuss
the Guarantor's business, assets, liabilities, financial condition, results of
operations and business prospects, insofar as the same are reasonably related
to the rights of the Lender hereunder or under any of the Loan Documents, with
the Guarantor's and its Subsidiaries' (i) principal officers, (ii) independent
accountants and other professionals providing services to the Guarantor, and
(iii) any other Person (except that any such discussion with any third parties
shall be conducted only in accordance with the Lender's standard operating
procedures relating to the maintenance of confidentiality of confidential
information of borrowers), and (c) verify the amount, quantity, value and
condition of, or any other matter relating to, any of the Collateral and in
this connection to review, audit and make extracts from all records and files
related to any of the Collateral. The Guarantor will deliver to the Lender any
instrument necessary to authorize an independent accountant or other
professional to have discussions of the type outlined above with the Lender or
for the Lender to obtain records from any service bureau maintaining records on
behalf of the Guarantor.
Section 4.13 Maintenance of Equipment. The Guarantor shall maintain
all physical property that constitutes Equipment in good and workable condition
in all material respects, with reasonable allowance for wear and tear, and
shall exercise proper custody over all such property.
Section 4.14 Information and Reports.
(a) Schedule of Receivables. The Guarantor shall deliver to the
Lender (i) on or before the Effective Date, a Schedule of Receivables as of a
date not more than three Business Days prior to the Effective Date setting
forth a detailed aged trial balance of all of its then existing Receivables,
specifying the name of and the balance due from (and any rebate due to) each
Account Debtor obligated on a Receivable so listed, and (ii) no later than 10
days after the end of each accounting month of the Guarantor, a Schedule of
Receivables as of the last Business Day of the Guarantor's immediately
preceding accounting month setting
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forth (A) a detailed aged trial balance of all the Guarantor's then existing
Receivables, specifying the name of and the balance due from (and any rebate
due to) each Account Debtor obligated on a Receivable so listed and (B) a
reconciliation to the Schedule of Receivables delivered in respect of the next
preceding accounting month.
(b) Schedule of Inventory. The Guarantor shall deliver to the
Lender on or before the Effective Date and no later than the first day of each
accounting month of the Guarantor thereafter a Schedule of Inventory as of the
last Business Day of the immediately preceding accounting month of the
Guarantor, itemizing and describing the kind, type, quantity and location of
Inventory and the cost thereof.
(c) Schedule of Equipment. The Guarantor shall deliver to the
Lender on or before the Effective Date and thereafter on such subsequent dates
as may be requested by the Lender, a Schedule of Equipment, describing each
item of such Equipment and the location, cost and then current book value
thereof.
(d) Notice of Diminution of Value. The Guarantor shall give
prompt notice to the Lender of any matter or event which has resulted in, or
may result in, the actual or potential diminution in excess of $75,000.00 in
the value of any of its Collateral, except for any diminution in the value of
any Receivables or Inventory in the ordinary course of business which has been
appropriately reserved against, as reflected in the financial statements
previously delivered to the Lender pursuant to ARTICLE 6.
(e) Certification. Each of the schedules delivered to the Lender
pursuant to this SECTION 4.14 shall be certified by the Chief Financial Officer
of the Guarantor to be true, correct and complete as of the date indicated
thereon.
(f) Other Information. The Lender may, in its discretion, from
time to time require the Guarantor to deliver the schedules described in
SECTION 6.14(a), (b) and (c) more or less often and on different schedules than
specified in such Section, and the Guarantor will comply with such requests.
The Guarantor shall also furnish to the Lender such other information with
respect to the Collateral as the Lender may from time to time reasonably
request.
Section 4.15 Power of Attorney. The Guarantor hereby appoints the
Lender as its attorney, with power (a) to endorse the name of the Guarantor on
any checks, notes, acceptances, money orders, drafts or other forms of payment
or security that may come into the Lender's possession, and (b) to sign the
name of the Guarantor on any invoice or bill of lading relating to any
Receivables, Inventory or other Collateral, on any drafts against customers
related to letters of credit, on schedules and assignments of Receivables
furnished to the Lender by the Guarantor, on notices of assignment, financing
statements and
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other public records relating to the perfection or priority of the Security
Interest or verifications of account and on notices to or from customers.
Section 4.16 Mortgages of Newly Acquired Real Estate. Promptly upon
the acquisition by the Guarantor of Real Estate, the Guarantor will execute and
deliver in favor of the Lender a Mortgage, in form and substance satisfactory
to the Lender, conveying to the Lender a Lien on such Real Estate, subject only
to such prior Liens as the Lender shall consent to in writing and, if requested
by the Lender, the Guarantor shall, at the expense of the Guarantor, obtain
mortgagee title insurance in favor of the Lender insuring such Mortgage to
create and convey such Lien, subject only to such exceptions.
ARTICLE 5 - AFFIRMATIVE COVENANTS
Until the Loan Agreement has been terminated and all the Secured
Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner provided for in SECTION 9.11, the Guarantor
will:
Section 5.1 Preservation of Corporate Existence and Similar Matters.
Preserve and maintain its corporate existence, rights, franchises, licenses and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
Section 5.2 Compliance with Applicable Law. Comply with all
applicable laws relating to the Guarantor.
Section 5.3 Conduct of Business. Engage only in businesses in
substantially the same fields as the businesses conducted on the Effective
Date.
Section 5.4 Payment of Taxes and Claims. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or upon any properties belonging to it, and (b)
all lawful claims of materialmen, mechanics, carriers, warehousemen and
landlords for labor, materials, supplies and rentals which, if unpaid, might
become a Lien on any properties of the Guarantor or such Subsidiary, EXCEPT
that this SECTION 5.4 shall not require the payment or discharge of any such
tax, assessment, charge, levy or claim which is being contested in good faith
by appropriate proceedings and for which adequate reserves have been
established on the appropriate books.
Section 5.5 Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP consistently
applied.
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Section 5.6 Hazardous Waste and Substances; Environmental
Requirements. (a) In addition to, and not in derogation of, the requirements
of SECTION 5.2 and of the Security Documents, comply with all laws,
governmental standards and regulations applicable to the Guarantor or to any of
its assets in respect of occupational health and safety laws, rules and
regulations and Environmental Laws, promptly notify the Lender of its receipt
of any notice of a violation of any such law, rule, standard or regulation and
indemnify and hold the Lender harmless from all loss, cost, damage, liability,
claim and expense incurred by or imposed upon the Lender on account of the
Guarantor's failure to perform its obligations under this SECTION 5.6.
(b) Whenever the Guarantor gives notice to the Lender pursuant to
this SECTION 5.6 with respect to a matter that reasonably could be expected to
result in liability to the Guarantor in excess of $250,000.00 in the
aggregate, the Guarantor shall, at the Lender's request and the Guarantor's
expense, (i) cause an independent environmental engineer acceptable to the
Lender to conduct such tests of the site where the noncompliance or alleged
noncompliance with Environmental Laws has occurred and prepare and deliver to
the Lender a report setting forth the results of such tests, a proposed plan to
bring the Guarantor into compliance with such Environmental Laws and an
estimate of the costs thereof, and (ii) provide to the Lender a supplemental
report of such engineer whenever the scope of the noncompliance or the response
thereto or the estimated costs thereof shall materially change.
Section 5.7 Accuracy of Information. All written information,
reports, statements and other papers and data furnished to the Lender, whether
pursuant to ARTICLE 6 or any other provision of this Agreement or the Guaranty,
shall be, at the time the same is so furnished, complete and correct in all
material respects to the extent necessary to give the Lender true and accurate
knowledge of the subject matter.
Section 5.8 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, the Guarantor
shall provide promptly to the Lender such revisions or updates to such
Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s); PROVIDED that no such revisions or updates to any Schedule(s)
shall be deemed to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule(s) unless
and until the Lender, in its sole discretion, shall have accepted in writing
such revisions or updates to such Schedule(s).
ARTICLE 6 - INFORMATION
Until the Loan Agreement has been terminated and all the Secured
Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner set forth in
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SECTION 9.11, the Guarantor will furnish to the Lender at the Lender's Office:
Section 6.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in any
event within 90 days after the end of each fiscal year of the Guarantor, copies
of the consolidated and consolidating balance sheet of the Guarantor as at the
end of such fiscal year and the related statements of income, shareholders'
equity and cash flow for such fiscal year, in each case setting forth in
comparative form the figures for the previous year of the Guarantor and
reported on, without qualification, by Whisnant Company or other independent
certified public accountants selected by the Guarantor and acceptable to the
Lender.
(b) Monthly Financial Statements. As soon as available, but in
any event within 45 days after the end of each accounting month of the
Guarantor, copies of (i) the unaudited unconsolidated balance sheet of the
Guarantor as at the end of such month and the related unaudited income
statement for the Guarantor for such month and for the portion of the fiscal
year of the Guarantor through such month, certified by the chief financial
officer of the Guarantor to the best of his knowledge as presenting fairly the
financial condition and results of operations of the Guarantor as at the date
thereof and for the periods ended on such date, subject to normal year end
adjustments and (ii) the unaudited balance sheet of Ridgeview, Ltd. as at the
end of such month and the related unaudited income statement for Ridgeview,
Ltd. for such month and for the portion of the fiscal year of Ridgeview, Ltd.
through such month, certified by the chief financial officer of the Guarantor
to the best of his knowledge as presenting fairly the financial condition and
results of operations of Ridgeview, Ltd. as at the date thereof and for the
periods ended on such date, subject to normal year end adjustments.
All such financial statements shall be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of footnotes) applied consistently
throughout the periods reflected therein.
Section 6.2 Accountants' Certificate. Together with each
delivery of financial statements required by SECTION 6.1(a), a certificate of
the accountants who performed the audit in connection with such statements (a)
stating that they have reviewed this Agreement and that, in making the audit
necessary to the issuance of a report on such financial statements, they have
obtained no knowledge of any Default or Event of Default or, if such
accountants have obtained knowledge of a Default or Event of Default,
specifying the nature and period of existence thereof, and (b) setting forth
the calculations necessary to establish whether or not the Guarantor was in
compliance with the
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covenant contained in SECTION 7.1 as of the date of such statements.
The Guarantor authorizes the Lender to discuss the financial condition of the
Guarantor with the Guarantor's independent certified public accountants and
agrees that such discussion or communication shall be without liability to
either the Lender or the Guarantor's independent certified public accountants.
The Guarantor shall deliver a letter addressed to such accountants authorizing
them to comply with the provisions of this SECTION 6.2.
Section 6.3 Officer's Certificate. Together with each delivery of
financial statements required by SECTION 6.1(a) and (b), a certificate of the
Guarantor's President or chief financial officer (a) stating that, based on an
examination sufficient to enable him to make an informed statement, no Default
or Event of Default exists or, if such is not the case, specifying such Default
or Event of Default and its nature, when it occurred, whether it is continuing
and the steps being taken by the Guarantor with respect to such Default or
Event of Default, and (b) setting forth the calculations necessary to establish
whether or not the Guarantor was in compliance with the covenant contained in
SECTION 7.1 as of the date of such statements.
Section 6.4 Copies of Other Reports. (a) Promptly upon receipt
thereof, copies of all reports, if any, submitted to the Guarantor or its Board
of Directors by its independent public accountants, including, without
limitation, all management reports.
(b) From time to time and promptly upon each request, such forecasts,
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities, financial
condition, results of operations or business prospects of the Guarantor as the
Lender may reasonably request. The rights of the Lender under this SECTION
6.4(b) are in addition to and not in derogation of its rights under any other
provision of this Agreement or any Loan Document.
(c) If requested by the Lender, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred to in Regulations G
and U, respectively, of the Board of Governors of the Federal Reserve System.
Section 6.5 Notice of Litigation and Other Matters. Prompt notice
of:
(a) the commencement, to the extent the Guarantor is aware of the
same, of all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating adversely to, or adversely
affecting, the Guarantor or any Affiliate of the Guarantor or any of their
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respective property, assets or businesses which might, singly or in the
aggregate, cause a Default or an Event of Default or have a Materially Adverse
Effect,
(b) any amendment of the articles of incorporation or by laws of
the Guarantor,
(c) any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of the Guarantor or any
Affiliate of the Guarantor which has had or may have any Materially Adverse
Effect and any change in the executive officers of the Guarantor, and
(d) any (i) Default or Event of Default, or (ii) event that
constitutes or that, with the passage of time or giving of notice or both,
would constitute a default or event of default by the Guarantor under any
material agreement (other than this Agreement) to which the Guarantor is a
party or by which the Guarantor or any of its property may be bound if the
exercise of remedies thereunder by the other party to such agreement would
have, either individually or in the aggregate, a Materially Adverse Effect.
Section 6.6 ERISA. As soon as possible and in any event within 30
days after the Guarantor knows, or has reason to know, that:
(a) any Termination Event with respect to a Benefit Plan has
occurred or will occur,
(b) the aggregate present value of the Unfunded Vested Accrued
Benefits under all Plans has increased to an amount in excess of $0, or
(c) the Guarantor is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan required
by reason of its complete or partial withdrawal (as described in Section 4203
or 4205 of ERISA) from such Multiemployer Plan, a certificate of the President
or the chief financial officer of the Guarantor setting forth the details of
such of the events described in CLAUSES (a) through (c) as applicable and the
action which is proposed to be taken with respect thereto and, simultaneously
with the filing thereof, copies of any notice or filing which may be required
by the PBGC or other agency of the United States government with respect to
such of the events described in CLAUSES (a) through (c) as applicable.
ARTICLE 7 - NEGATIVE COVENANTS
Until the Loan Agreement has been terminated and all the Secured
Obligations have been indefeasibly paid in full, unless the Lender shall
otherwise consent in the manner set forth in SECTION 9.11, the Guarantor will
not directly or indirectly:
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Section 7.1 Indebtedness. Create, assume, or otherwise become or
remain obligated in respect of, or permit or suffer to exist or to be created,
assumed or incurred or to be outstanding any Indebtedness for Money Borrowed,
except for Permitted Indebtedness for Money Borrowed.
Section 7.2 Guaranties. Become or remain liable with respect to any
Guaranty of any obligation of any other Person except for the Subsidiary
Guaranty.
Section 7.3 Investments. Acquire, after the Agreement Date, any
Business Unit or Investment or, after such date, permit any Investment to be
outstanding, other than Permitted Investments.
Section 7.4 Restricted Distributions and Payments, Etc. Declare
or make any Restricted Distribution or Restricted Payment other than (i) loans
to officers, directors, shareholders, subsidiaries and Affiliates not to exceed
$25,000.00 at any time outstanding or (ii) dividends paid to the shareholders
of the Guarantor.
Section 7.5 Merger, Consolidation and Sale of Assets. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person.
Section 7.6 Transactions with Affiliates. Effect any transaction
with any Affiliate on a basis less favorable to the Guarantor than would be the
case if such transaction had been effected with a Person not an Affiliate.
Section 7.7 Liens. Create, assume or permit or suffer to exist or to
be created or assumed any Lien on any of the property or assets of the
Guarantor, real, personal or mixed, tangible or intangible, except for
Permitted Liens.
Section 7.8 Operating Leases. Enter into any lease other than a
Capitalized Lease which would cause the annual payment obligations of the
Guarantor under all leases (other than leases of real property listed on
SCHEDULE 2.1(u) and Capitalized Leases) to exceed $175,000.00 in the
aggregate.
Section 7.9 Benefit Plans. Permit, or take any action which
would result in, the aggregate present value of the Unfunded Vested Accrued
Benefits under all Benefit Plans of the Guarantor to exceed $0.
Section 7.10 Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing from such Person of real or personal
property which has been or is to be sold or transferred, directly or
indirectly, by the Guarantor to such Person.
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Section 7.11 Amendments of Other Agreements. Amend in any way the
interest rate or principal amount or schedule of payments of principal and
interest with respect to any Indebtedness (other than the Secured Obligations)
other than to reduce the interest rate or extend the schedule of payments with
respect thereto.
ARTICLE 8 - DEFAULT
Section 8.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any governmental or nongovernmental body:
(a) Default in Payment of Subsidiary Guaranty. The Guarantor
shall default in any payment under the Subsidiary Guaranty.
(b) Other Payment Default. The Guarantor shall default in the
payment, as and when due, of principal of or interest on, any other Secured
Obligation, and such default shall continue for five days after written notice
thereof has been given to the Guarantor by the Lender.
(c) Misrepresentation. Any representation or warranty made or
deemed to be made by the Guarantor under this Agreement or any other Loan
Document or any amendment hereto or thereto shall at any time prove to have
been incorrect or misleading in any material respect when made.
(d) Default in Performance. The Guarantor shall default in the
performance or observance of any term, covenant, condition or agreement
contained in (i) ARTICLES 3, 4, 5, 6 or 7 or (ii) this Agreement (other than is
specifically provided for otherwise in this SECTION 8.1) and such default shall
continue for a period of 10 days after written notice thereof has been given to
the Guarantor by the Lender.
(e) Indebtedness Cross-Default. (i) The Guarantor shall fail to
pay when due and payable the principal of or interest on any Indebtedness
(other than the Subsidiary Guaranty) where the principal amount of such
Indebtedness is in excess of $100,000.00, or (ii) the maturity of any such
Indebtedness shall have (A) been accelerated in accordance with the provisions
of any indenture, contract or instrument providing for the creation of or
concerning such Indebtedness, or (B) been required to be prepaid prior to the
stated maturity thereof, or (iii) any event shall have occurred and be
continuing which, with or without the passage of time or the giving of notice,
or both, would permit any holder or holders of such Indebtedness, any trustee
or agent acting on behalf of such holder or holders or any other Person so to
accelerate such maturity.
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(f) Other Cross-Defaults. The Guarantor shall default in the
payment when due or in the performance or observance of any material obligation
or condition of any agreement, contract or lease (other than the Security
Documents or any such agreement, contract or lease relating to Indebtedness),
if the exercise of remedies thereunder by the other party to such agreement
could have a Materially Adverse Effect.
(g) Voluntary Bankruptcy Proceeding. The Guarantor shall (i)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (ii) commence a proceeding seeking to take advantage of
any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts, (iii)
consent to or fail to contest in a timely and appropriate manner any petition
filed against it in an involuntary case under such bankruptcy laws or other
laws, (iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of a substantial part
of its property, domestic or foreign, (v) admit in writing its inability to pay
its debts as they become due, (vi) make a general assignment for the benefit of
creditors, or (vii) take any corporate action for the purpose of authorizing
any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against the Guarantor in any court of competent jurisdiction
seeking (i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts, or (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of the
Guarantor or of all or any substantial part of the assets, domestic or foreign,
of the Guarantor, and such case or proceeding shall continue undismissed or
unstayed for a period of 60 consecutive calendar days, or an order granting the
relief requested in such case or proceeding against the Guarantor (including,
but not limited to, an order for relief under such federal bankruptcy laws)
shall be entered.
(i) Loan Documents. Any event of default or Event of Default
under the Subsidiary Guaranty shall occur or the Guarantor shall default in the
performance or observance of any material term, covenant, condition or
agreement contained in, or the payment of any other sum covenanted to be paid
by the Guarantor under the Subsidiary Guaranty or any provision of this
Agreement, or of the Subsidiary Guaranty after delivery thereof hereunder,
shall for any reason cease to be valid and binding, other than a nonmaterial
provision rendered unenforceable by operation of law, or the Guarantor or other
party thereto (other than the Lender) shall so state in writing, or this
Agreement or the Subsidiary Guaranty, after delivery thereof hereunder, shall
for any reason (other than any action taken independently by the Lender and
except to the extent permitted by the terms thereof) cease to create a valid,
perfected and, except as otherwise
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expressly permitted herein, first priority Lien on, or security interest in,
any of the Collateral purported to be covered thereby.
(j) Judgment. A judgment or order for the payment of money which
exceeds $250,000.00 in amount not covered by insurance shall be entered against
the Guarantor by any court and such judgment or order shall continue
undischarged or unstayed for 30 days.
(k) Attachment. A warrant or writ of attachment or execution or
similar process which exceeds $250,000.00 in value shall be issued against any
property of the Guarantor and such warrant or process shall continue
undischarged or unstayed for 30 days.
(l) ERISA. (i) Any Termination Event with respect to a Benefit
Plan shall occur that, after taking into account the excess, if any, of (A) the
fair market value of the assets of any other Benefit Plan with respect to which
a Termination Event occurs on the same day (but only to the extent that such
excess is the property of the Guarantor) over (B) the present value on such day
of all vested nonforfeitable benefits under such other Benefit Plan, results in
an Unfunded Vested Accrued Benefit in excess of $0, (ii) any Benefit Plan shall
incur an "accumulated funding deficiency" (as defined in Section 412 of the
Code or Section 302 of ERISA) for which a waiver has not been obtained in
accordance with the applicable provisions of the Code and ERISA, or (iii) the
Guarantor is in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan resulting from the Guarantor's
complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA)
from such Multiemployer Plan.
(m) Qualified Audits. The independent certified public
accountants retained by the Guarantor shall refuse to deliver an opinion in
accordance with SECTION 6.1(a) with respect to the annual financial statements
of the Guarantor.
(n) Change of Control. There occurs any change in ownership with
respect to the Guarantor.
(o) Material Adverse Change. There occurs any act, omission,
event, undertaking or circumstance or series of acts, omissions, events,
undertakings or circumstances which have, or in the sole judgment of the Lender
would have, either individually or in the aggregate, a Materially Adverse
Effect.
(p) Ridgeview. A Default or an Event of Default shall occur under
any loan agreement to which Ridgeview, Inc. and the Lender are now or hereafter
parties.
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Section 8.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon
the occurrence of an Event of Default specified in SECTION 8.1(g) or (h), the
Subsidiary Guaranty and all other amounts owed to the Lender under this
Agreement or the Subsidiary Guaranty and all other Secured Obligations, shall
thereupon become due and payable without presentment, demand, protest or other
notice of any kind, all of which are expressly waived, anything in this
Agreement or the Subsidiary Guaranty to the contrary notwithstanding.
(b) Other Remedies. If any Event of Default (other than as
specified in SECTION 8.1(g) or (h)) shall have occurred and be continuing, the
Lender, in its sole and absolute discretion, may do any of the following:
(i) declare the Subsidiary Guaranty and all other amounts owed
to the Lender under this Agreement or the Subsidiary Guaranty and all
other Secured Obligations, to be forthwith due and payable, whereupon
the same shall immediately become due and payable without presentment,
demand, protest or other notice of any kind, all of which are expressly
waived, anything in this Agreement or the Subsidiary Guaranty to the
contrary notwithstanding;
(ii) notify, or request the Guarantor to notify, in writing or
otherwise, any Account Debtor or obligor with respect to any one or
more of the Receivables to make payment to the Lender or any agent or
designee of the Lender, at such address as may be specified by the
Lender, and, if, notwithstanding the giving of any notice, any Account
Debtor or other such obligor shall make payments to the Guarantor, the
Guarantor shall hold all such payments it receives in trust for the
Lender, without commingling the same with other funds or property of,
or held by, the Guarantor and shall deliver the same to the Lender or
any such agent or designee immediately upon receipt by the Guarantor in
the identical form received, together with any necessary endorsements;
(iii) settle or adjust disputes and claims directly with Account
Debtors and other obligors on Receivables for amounts and on terms
which the Lender considers advisable and in all such cases only the net
amounts received by the Lender in payment of such amounts, after
deductions of costs and attorneys' fees, shall constitute Collateral,
and the Guarantor shall have no further right to make any such
settlements or adjustments or to accept any returns of merchandise;
(iv) enter upon any premises on which Inventory or Equipment
may be allocated and, without resistance or interference by the
Guarantor, take physical possession of any or all thereof and maintain
such possession on such
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premises or move the same or any part thereof to such other place or
places as the Lender shall choose, without being liable to the
Guarantor on account of any loss, damage or depreciation that may
occur as a result thereof, so long as the Lender shall act reasonably
and in good faith;
(v) require the Guarantor to and the Guarantor shall, without
charge to the Lender, assemble the Inventory and Equipment and
maintain or deliver it into the possession of the Lender or any agent
or representative of the Lender at such place or places as the Lender
may designate;
(vi) at the expense of the Guarantor, cause any of the
Inventory and Equipment to be placed in a public or field warehouse,
and the Lender shall not be liable to the Guarantor on account of any
loss, damage or depreciation that may occur as a result thereof, so
long as the Lender shall act reasonably and in good faith;
(vii) without notice, demand or other process, and without
payment of any rent or any other charge, enter any of the Guarantor's
premises and, without breach of the peace, until the Lender completes
the enforcement of its rights in the Collateral, take possession of
such premises or place custodians in exclusive control thereof, remain
on such premises and use the same and any of the Guarantor's equipment,
for the purpose of (A) completing any work in process, preparing any
Inventory for disposition and disposing thereof, and (B) collecting any
Receivable, and the Lender is hereby granted a license or sublicense
and all other rights as may be necessary, appropriate or desirable to
use the Intellectual Property in connection with the foregoing, and the
rights of the Guarantor under all licenses and franchise agreements
shall inure to the Lender's benefit (provided, however, that any use of
any federally registered trademarks as to any goods shall be subject to
the control as to the quality of such goods of the owner of such
trademarks and the goodwill of the business symbolized thereby);
(viii) exercise any and all of its rights under any and all of
the Security Documents;
(ix) apply any cash Collateral to the payment of the Secured
Obligations in any order in which the Lender may elect or use such cash
in connection with the exercise of any of its other rights hereunder or
under any of the Security Documents;
(x) establish or cause to be established one or more Lockboxes
or other arrangement for the deposit of proceeds of Receivables, and,
in such case, the Guarantor shall cause to be forwarded to the Lender
at the Lender's Office, on a daily basis, copies of all checks and
other items of payment and deposit slips related thereto deposited in
such
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Lockboxes, together with collection reports in form and substance
satisfactory to the Lender; and
(xi) exercise all of the rights and remedies of a secured party
under the UCC (whether or not the UCC is applicable) and under any
other applicable law, including, without limitation, the right,
without notice except as specified below and with or without taking
the possession thereof, to sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any location chosen
by the Lender, for cash, on credit or for future delivery and at such
price or prices and upon such other terms as the Lender may deem
commercially reasonable. The Guarantor agrees that, to the extent
notice of sale shall be required by law, at least 10 days' notice to
the Guarantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notice, but notice given in any other reasonable manner or at any
other reasonable time shall also constitute reasonable notification.
The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so
adjourned.
Section 8.3 Application of Proceeds. All proceeds from each sale
of, or other realization upon, all or any part of the Collateral following an
Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including attorneys' fees,
(b) Second: to the payment of the Secured Obligations (with the
Guarantor remaining liable for any deficiency) in any order which the Lender
may elect, and
(c) Third: the balance (if any) of such proceeds shall be paid to
the Guarantor or, subject to any duty imposed by law or otherwise, to
whomsoever is entitled thereto.
THE GUARANTOR SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
Section 8.4 Power of Attorney. In addition to the authorizations
granted to the Lender under SECTION 4.15 or under any other provision of this
Agreement or any of the Loan Documents, upon and after an Event of Default, the
Guarantor hereby irrevocably designates, makes, constitutes and appoints
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the Lender (and all Persons designated by the Lender from time to time) as the
Guarantor's true and lawful attorney and agent in fact, and the Lender or any
agent of the Lender may, without notice to the Guarantor, and at such time or
times as the Lender or any such agent in its sole discretion may determine, in
the name of the Guarantor or the Lender,
(a) demand payment of the Receivables, enforce payment thereof by
legal proceedings or otherwise, settle, adjust, compromise, extend or renew any
or all of the Receivables or any legal proceedings brought to collect the
Receivables, discharge and release the Receivables or any of them and exercise
all of the Guarantor's rights and remedies with respect to the collection of
Receivables,
(b) prepare, file and sign the name of the Guarantor on any proof
of claim in bankruptcy or any similar document against any Account Debtor or
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral,
(c) endorse the name of the Guarantor upon any chattel paper,
document, instrument, notice, freight bill, bill of lading or similar document
or agreement relating to the Receivables, the Inventory or any other
Collateral,
(d) use the stationery of the Guarantor, open the Guarantor's
mail, notify the post office authorities to change the address for delivery of
the Guarantor's mail to an address designated by the Lender and sign the name
of the Guarantor to verifications of the Receivables and on any notice to the
Account Debtors,
(e) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Receivables, Inventory or other Collateral to which the Guarantor or any
Subsidiary of the Guarantor has access.
Section 8.5 Miscellaneous Provisions Concerning Remedies.
(a) Right Cumulative. The rights and remedies of the Lender under
this Agreement, the Subsidiary Guaranty shall be cumulative and not exclusive
of any rights or remedies which it or they would otherwise have. In exercising
such rights and remedies, the Lender may be selective and no failure or delay
by the Lender in exercising any right shall operate as a waiver of such right
nor shall any single or partial exercise of any power or right preclude its
other or further exercise or the exercise of any other power or right.
(b) Waiver of Marshalling. The Guarantor hereby waives any right
to require any marshalling of assets and any similar right.
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(c) Limitation. Nothing contained in this ARTICLE 8 or elsewhere
in this Agreement or in the Subsidiary Guaranty shall be construed as requiring
or obligating the Lender or any agent or designee of the Lender to make any
demand or to make any inquiry as to the nature or sufficiency of any payment
received by it or to present or file any claim or notice or take any action
with respect to any Receivable or any other Collateral or the moneys due or to
become due thereunder or in connection therewith or to take any steps necessary
to preserve any rights against prior parties, and neither the Lender nor any of
its agents or designees shall have any liability to the Guarantor for actions
taken pursuant to this ARTICLE 8, any other provision of this Agreement or the
Subsidiary Guaranty, so long as the Lender or such agent or designee shall act
reasonably and in good faith.
(d) Appointment of Receiver. In any action under this ARTICLE 8,
the Lender shall be entitled to the appointment of a receiver, without notice
of any kind whatsoever, to take possession of all or any portion of the
Collateral and to exercise such power as the court shall confer upon such
receiver.
Section 8.6 Trademark License. The Guarantor hereby grants to
the Lender the nonexclusive right and license to use the trademarks described
on SCHEDULE 8.6 and any other trademark then used by the Guarantor, for the
purposes set forth in SECTION 8.2(b)(vii) and for the purpose of enabling the
Lender to realize on the Collateral and to permit any purchaser of any portion
of the Collateral through a foreclosure sale or any other exercise of the
Lender's rights and remedies under the Loan Documents to use, sell or otherwise
dispose of the Collateral bearing any such trademark. Such right and license
is granted free of charge, without the requirement that any monetary payment
whatsoever be made to the Guarantor or any other Person by the Lender. The
Guarantor hereby represents, warrants, covenants and agrees that it presently
has, and shall continue to have, the right, without the approval or consent of
others, to grant the license set forth in this SECTION 8.6.
ARTICLE 9 - MISCELLANEOUS
Section 9.1 Notices.
(a) Method of Communication. Except as specifically provided in
this Agreement or in the Subsidiary Guaranty, all notices and the
communications hereunder and thereunder shall be in writing or by telephone
subsequently confirmed in writing. Notices in writing shall be delivered
personally or sent by overnight courier service, by certified or registered
mail, postage pre-paid, or by facsimile transmission and shall be deemed
received, in the case of personal delivery, when delivered, in the case of
overnight courier service, on the next Business Day after delivery to such
service, in the case of mailing, on the third day after mailing (or, if such
day is a day on which deliveries of mail are not made, on the next succeeding
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day on which deliveries of mail are made) and, in the case of facsimile
transmission, upon transmittal; provided that in the case of notices to the
Lender, the Lender shall be charged with knowledge of the contents thereof only
when such notice is actually received by the Lender. A telephonic notice to
the Lender as understood by the Lender will be deemed to be the controlling and
proper notice in the event of a discrepancy with or failure to receive a
confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to
it at the following addresses, or any other address of which all the other
parties are notified in writing.
If to the Guarantor: c/o Ridgeview, Inc.
Post Office Box 8
Newton, NC 28658
Attention: Walter Bost
Facsimile No.: 704-464-2994
With a copy to: Isenhower, Wood & Cilley, P.A.
Post Office Box 145
Newton, NC 28658-0145
Attention: David L. Isenhower
Facsimile No.: 704-465-3707
If to the Lender: NationsBank of Georgia, N.A.
c/o NationsBank Business Credit
600 Peachtree Street, 13th Floor
Atlanta, Georgia 30308
Attention: Scott Goldstein
Facsimile No.: (404) 607-6439
(c) Lender's Office. The Lender hereby designates its office
located at 600 Peachtree Street, 13th Floor, Atlanta, Georgia 30308, or any
subsequent office which shall have been specified for such purpose by written
notice to the Guarantor, as the office to which payments due are to be made and
at which Loans will be disbursed.
Section 9.2 Expenses. The Guarantor agrees to pay or reimburse
on demand all costs and expenses incurred by the Lender, including, without
limitation, the reasonable fees and disbursements of counsel, in connection
with (a) the negotiation, preparation, execution, delivery, administration,
enforcement and termination of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including,
without limitation, (i) the out-of-pocket costs and expenses incurred in
connection with the administration and interpretation of this Agreement and the
Subsidiary Guaranty, (ii) the costs and expenses of appraisals of the
Collateral, (iii) the costs and expenses of lien and title searches and title
insurance, (iv) the costs and expenses of environmental reports with respect to
the Real Estate, (v) taxes, fees and other charges of recording the Mortgages,
filing the Financing Statements and continuations and the costs and expenses of
taking
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other actions to perfect, protect, and continue the Security Interest; (b) the
preparation, execution and delivery of any waiver, amendment, supplement or
consent by the Lender relating to this Agreement or the Subsidiary Guaranty;
(c) sums paid or obligations incurred in connection with the payment of any
amount or taking any action required of the Guarantor under the Subsidiary
Guaranty that the Guarantor fails to pay or take; (d) costs of inspections and
verifications of the Collateral, including, without limitation, standard per
diem fees charged by the Lender, travel, lodging, and meals for inspections of
the Collateral and the Guarantor's operations and books and records by the
Lender's agents up to four times per year and whenever an Event of Default
exists; (e) costs and expenses of forwarding loan proceeds, collecting checks
and other items of payment, and establishing and maintaining each Controlled
Disbursement Account, Agency Account and Lockbox; (f) costs and expenses of
preserving and protecting the Collateral; (g) after the occurrence of a
Default, consulting with and obtaining opinions and appraisals from one or more
Persons, including real estate and personal property appraisers, accountants
and lawyers, concerning the value of any Collateral, including Real Estate, for
the Secured Obligations or related to the nature, scope or value of any right
or remedy of the Lender hereunder or under any of the Loan Documents, including
any review of factual matters in connection therewith, which expenses shall
include the fees and disbursements of such Persons; and (h) costs and expenses
paid or incurred to obtain payment of the Secured Obligations, enforce the
Security Interest, sell or otherwise realize upon the Collateral, including
Real Estate, and otherwise enforce the provisions of the Loan Documents, or to
prosecute or defend any claim in any way arising out of, related to or
connected with, this Agreement or any of the Loan Documents, which expenses
shall include the reasonable fees and disbursements of counsel and of experts
and other consultants retained by the Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Guarantor.
Section 9.3 Stamp and Other Taxes. The Guarantor will pay any
and all stamp, registration, recordation and similar taxes, fees or charges and
shall indemnify the Lender against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges, which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any
of the Loan Documents or the perfection of any rights or security interest
thereunder.
Section 9.4 Setoff. In addition to any rights now or hereafter
granted under applicable law, and not by way of limitation of any such rights,
upon and after the occurrence of any Default or Event of Default, the Lender
and any participant with the Lender in the Loans are hereby authorized by the
Guarantor at any time or from time to time, without notice to the
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Guarantor or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits
(general or special, time or demand, including, but not limited to,
indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by the Lender
or any participant to or for the credit or the account of the Guarantor against
and on account of the Secured Obligations irrespective or whether or not (a)
the Lender shall have made any demand under this Agreement or any of the Loan
Documents, or (b) the Lender shall have declared any or all of the Secured
Obligations to be due and payable as permitted by SECTION 8.2 and although such
Secured Obligations shall be contingent or unmatured.
Section 9.5 Litigation. EACH OF THE LENDER AND THE Guarantor
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY
BE COMMENCED BY OR AGAINST THE Guarantor OR THE LENDER ARISING OUT OF THIS
AGREEMENT, THE COLLATERAL OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER
CAUSE OR DISPUTE WHATSOEVER BETWEEN THE Guarantor AND THE LENDER OF ANY KIND OR
NATURE. THE Guarantor AND THE LENDER HEREBY AGREE THAT THE FEDERAL COURT OF
THE NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE LENDER, ANY COURT IN
WHICH THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND WHICH SITS IN A
JURISDICTION IN WHICH THE Guarantor TRANSACTS BUSINESS SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE Guarantor
AND THE LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE LOAN
DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE Guarantor EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE
OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE Guarantor AND ITS COUNSEL AT THE
RESPECTIVE ADDRESSES SET FORTH IN SECTION 9.1(B), WHICH SERVICE SHALL BE DEEMED
MADE UPON RECEIPT THEREOF. THE NON-EXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS
SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION.
Section 9.6 Waiver of Rights. THE Guarantor HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH THE Guarantor HAS UNDER
CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR
PROVISION OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE
ISSUANCE OF A WRIT OF POSSESSION ENTITLING THE LENDER, ITS SUCCESSORS AND
ASSIGNS TO POSSESSION OF THE COLLATERAL UPON DEFAULT OR EVENT OF DEFAULT.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER
RIGHT WHICH THE LENDER MAY HAVE, THE Guarantor CONSENTS THAT, IF THE LENDER
FILES A PETITION FOR AN IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH
SECTIONS 44-14-
- 43 -
<PAGE> 49
261 AND 44-14-262 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR
PROVISION OF APPLICABLE LAW AND THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH
PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED
MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE
FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH CHAPTER 14 OF
TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE WITH ANY SIMILAR
PROVISION OF APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND AS
OTHERWISE REQUIRED BY SECTION 44-14-263 OF THE OFFICIAL CODE OF GEORGIA OR IN
ACCORDANCE WITH ANY SIMILAR PROVISION OF APPLICABLE LAW. THE Guarantor HEREBY
ACKNOWLEDGES THAT IT HAS READ AND FULLY UNDERSTANDS THE TERMS OF THIS WAIVER
AND THE EFFECT HEREOF.
Section 9.7 Reversal of Payments. To the extent the Guarantor
makes a payment or payments to the Lender or the Lender receives any payment or
proceeds of the Collateral for the Guarantor's benefit, which payment(s) or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, the Lender shall have the continuing
and exclusive right to apply, reverse and re-apply any and all payments to any
portion of the Secured Obligations, and, to the extent of such payment or
proceeds received, the Secured Obligations or part thereof intended to be
satisfied shall be revived and continued in full force and effect, as if such
payment or proceeds had not been received by the Lender.
Section 9.8 Injunctive Relief. The Guarantor recognizes that, in
the event the Guarantor fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy of law may prove to
be inadequate relief to the Lender; therefore, the Guarantor agrees that the
Lender, at the Lender's option, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 9.9 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Guarantor to determine whether it is in compliance with any covenant contained
herein, shall, unless there is an express written direction or consent by the
Lender to the contrary, be performed in accordance with GAAP.
Section 9.10 Assignment; Participation. All the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Guarantor
may not assign or transfer any of its rights under the Agreement. The Lender
may assign to one or more Persons, or sell participations to one or more
Persons in, all or a portion of its rights and obligations
- 44 -
<PAGE> 50
hereunder and under the Note and, in connection with any such assignment or
sale of a participation, may assign its rights and obligations under the
Security Documents. The Lender may, in connection with any assignment or
proposed assignment or sale or proposed sale of a participation, disclose to
the assignee or proposed assignee or participant or proposed participant any
information relating to the Guarantor furnished to the Lender by or on behalf
of the Guarantor.
Section 9.11 Amendments. Any term, covenant, agreement or
condition of this Agreement or any of the other Loan Documents may be amended
or waived and any departure therefrom may be consented to if, but only if, such
amendment, waiver or consent is in writing signed by the Lender and, in the
case of an amendment, by the Guarantor. Unless otherwise specified in such
waiver or consent, a waiver or consent given hereunder shall be effective only
in the specific instance and for the specific purpose for which given.
Section 9.12 Performance of Guarantor's Duties. The Guarantor's
obligations under this Agreement and each of the Loan Documents shall be
performed by the Guarantor at its sole cost and expense. If the Guarantor
shall fail to do any act or thing which it has covenanted to do under this
Agreement or any of the Loan Documents, the Lender may (but shall not be
obligated to) do the same or cause it to be done either in the name of the
Lender or in the name and on behalf of the Guarantor, and the Guarantor hereby
irrevocably authorizes the Lender so to act.
Section 9.13 Indemnification. The Guarantor agrees to reimburse
the Lender for all reasonable costs and expenses, including counsel fees and
disbursements, incurred and to indemnify and hold the Lender harmless from and
against all losses suffered by the Lender, other than losses resulting from the
Lender's gross negligence or willful misconduct, in connection with (a) the
exercise by the Lender of any right or remedy granted to it under this
Agreement or any of the Loan Documents, (b) any claim, and the prosecution or
defense thereof, arising out of or in any way connected with this Agreement or
any of the Loan Documents, except in the case of a dispute between the
Guarantor and the Lender in which the Guarantor prevails in a final unappealed
or unappealable judgment, and (c) the collection or enforcement of the Secured
Obligations or any of them.
Section 9.14 All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to the Lender and any Persons
designated by the Lender pursuant to any provisions of this Agreement or any of
the Loan Documents shall be deemed coupled with an interest and shall be
irrevocable so long as any of the Secured Obligations remain unpaid or
unsatisfied or the Revolving Credit Facility has not been terminated.
Section 9.15 Survival. Notwithstanding any termination of this
Agreement, (a) until all Secured Obligations have been paid in full and the
Loan Agreement terminated, the Lender shall
- 45 -
<PAGE> 51
retain its Security Interest and shall retain all rights under this Agreement
and each of the Security Documents with respect to the Collateral as fully as
though this Agreement had not been terminated, and (b) the indemnities to which
the Lender is entitled under the provisions of this ARTICLE 9 and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Lender against events arising after such
termination as well as before.
Section 9.16 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 9.17 Governing Law. This Agreement and the Note shall be
construed in accordance with and governed by the law of the State of Georgia.
Section 9.18 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
Section 9.19 Reproduction of Documents. This Agreement, each of
the Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Lender, and (c) financial statements,
certificates and other information previously or hereafter furnished to the
Lender, may be reproduced by the Lender by any photographic, photostatic,
microcard, microfilm, miniature photographic or other similar process, and the
Lender may destroy any original document so reproduced. Each party hereto
stipulates that, to the extent permitted by applicable laws any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be in
existence and whether or not such reproduction was made by such Lender in the
regular course of business), and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
- 46 -
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers in several counterparts all as of
the day and year first written above.
GUARANTOR:
SENECA KNITTING MILLS CORPORATION
[CORPORATE SEAL]
Attest: By: /s/ Hugh R. Gaither
---------------------------
Name:
----------------------
By: /s/ Walter L. Bost, Jr. Title: President
---------------------------
Name: Walter L. Bost, Jr.
Title: Secretary
LENDER:
NATIONSBANK OF GEORGIA, N.A.
By: /s/ Scott Goldstein
---------------------------
Name: Scott Goldstein
Title: VP
- 47 -
<PAGE> 1
EXHIBIT 10.17
CORPORATE GUARANTY AGREEMENT
TO: CLARA G. SOUHAN
Seneca Falls, N.Y. 13148
June 28, 1996
Dear Mrs. Souhan:
On June 28, 1995, we executed a Corporate Guaranty Agreement for your
benefit with respect to two Promissory Notes dated July 1, 1993 and September
9, 1993, made by Seneca Knitting Mills Corporation ("Seneca Knitting"). This
Guaranty was given pursuant to an Agreement For Sale of Capital Stock (the
"Stock Agreement"), dated April 27, 1995, between us and the owners of all of
the outstanding stock of Seneca Knitting. The transactions contemplated by the
Stock Agreement were closed on June 28, 1995, and Seneca Knitting is now our
wholly-owned subsidiary. Seneca Knitting has requested an extension of the
maturity dates of the existing notes and a New Note for the combined principal
amount of the existing notes ($350,000.00) is to be given by Seneca Knitting to
reflect the new terms. In order to induce you to accept the New Note and new
payment terms, we hereby agree to guarantee payment of this New Note as
provided herein.
For value received, receipt of which is acknowledged, we absolutely
and unconditionally, guarantee you, your successors and assigns, the payment in
full and in accordance with its terms of the Promissory Note of even date from
Seneca Knitting to you in the principal amount of Three Hundred Fifty Thousand
Dollars ($350,000.00) (the "New Note"), together with interest and the costs of
enforcement or collection, including reasonable attorneys' fees. A copy of the
New Note is attached as Exhibit A.
You may at any time without notice or demand of any kind, the receipt
of which are expressly waived, and without impairing or releasing our
obligations under this Guaranty or incurring any liability to us, extend the
time of payment or agree to a new due date; waive, release, delay in the
exercise of, or refrain from exercising, any of your rights relating to the New
Note; fail to give notice to us of an event of default with respect to the New
Note; or take or fail to take any other action, or engage in a course of
conduct, which might constitute a legal or equitable discharge or defenses of a
surety or guarantor or which might otherwise limit your recourse against us.
This Guaranty is a guarantee of payment and not of collection. You
are not required, as a condition of payment or performance by us, to enforce
any remedies against Seneca Knitting or any other party liable to you; nor are
you required to seek to enforce or resort to any remedies with respect to any
<PAGE> 2
security interest, lien or encumbrance given to you by Seneca Knitting or any
other party. To the extent permitted by law, we hereby waive all defenses we
may have to liability under this Guaranty, including, but not limited to,
failure to consideration, breach of warranty, statute of limitations, accord
and satisfaction, and usuary, and agree that our obligations under this
Guaranty shall only be discharged upon payment of the New Note in full.
This Guaranty shall be construed and enforced under the laws of the
State of New York, and we agree that any action involving this Guaranty may be
brought in any Federal or New York State Court in Seneca or Onondaga County,
New York, and we consent to the jurisdiction of these courts. Further, we
consent that service of process upon us may be made by registered or certified
mail, return receipt requested, and addressed to as follow:
Ridgeview, Inc.
P.O. Box 8
Newton, N.C. 28658
Attention: Hugh R. Gaither, President
This Guaranty shall be binding upon Ridgeview, Inc. and its successors
and assigns and it shall inure to the benefit of you and your heirs, personal
representatives, successors and assigns.
This Guaranty contains our entire agreement and cannot be changed
orally. No failure by you to exercise any right under this Guaranty shall be
deemed a waiver, nor shall any single or partial exercise by you of any right
preclude any other or further exercise thereof, and no waiver by you of any
right shall operate as a waiver of any other right.
RIDGEVIEW, INC.
By:/s/ Hugh R. Gaither
--------------------------------------------
Hugh R. Gaither, President
(SEAL)
-2-
<PAGE> 3
STATE OF NORTH CAROLINA )
COUNTY OF CATAWBA )
On this 28th day of June, 1996, before me personally appeared Hugh R.
Gaither, to me personally known, who did depose and say that he is President of
Ridgeview, Inc., the corporation described in and which executed the foregoing
instrument, and that he executed the same by Order of the Board of Directors of
said Corporation.
/s/ Jamie O. Hoyle
------------------------------------------------
Notary Public
-3-
<PAGE> 1
EXHIBIT 10.18
AGREEMENT FOR SALE OF CAPITAL STOCK
THIS AGREEMENT is made on April 27, 1995, between GEORGE G.
SOUHAN, SUSAN C. SOUHAN, GEB F. SOUHAN, ELIZABETH M. SOUHAN, and TIMOTHY J. J.
SOUHAN (hereinafter referred to individually and collectively as "Sellers"),
and RIDGEVIEW, INC., a North Carolina Corporation (hereinafter referred to as
"Buyer")
Sellers jointly and severally agree to sell to Buyer, and
Buyer agrees to purchase from Sellers, all of the outstanding, issued shares of
capital stock of SENECA KNITTING MILLS CORPORATION ("Seneca Knitting"), a New
York Corporation, at the price and on the terms and conditions herein set
forth.
1. Purchase Price
Subject to adjustment as hereafter provided in paragraph 3
hereof, the purchase price to be paid by Buyer to Sellers for said capital
stock shall be Seven Million and NO/100 ($7,000,000.00) Dollars (the "Purchase
Price"), or $190.61 per share for all 36,725 shares outstanding. The Purchase
Price shall be paid as set forth in Paragraph 2 below.
2. Delivery of Stock and Payment of Purchase Price
(a) The delivery to Buyer of certificates for the
shares of capital stock sold hereunder by Sellers, and the payment of the
initial installment of the Purchase Price by Buyer to Sellers, shall take place
at the offices of Bond, Schoeneck & King, attorneys for Seneca Knitting and the
Sellers, One Lincoln Center, Syracuse, New York 13202 on or before June 30,
1995 (hereinafter called the "closing date"), at or such other location as the
parties may mutually agree.
(b) On the closing date, Sellers shall deliver to
Buyer the certificate or certificates evidencing all of the outstanding, issued
shares of the capital stock of Seneca Knitting
<PAGE> 2
duly endorsed for transfer, and Buyer shall pay Sellers the sum of Three
Million and NO/100 ($3,000,000.00) Dollars by wire transfer of immediately
available funds to an account to be designated by Sellers, representing the
initial installment of the Purchase Price to be paid for said shares by Buyer.
This first installment of the Purchase Price shall be applied first to pay in
full the amounts due Susan C. Souhan, Geb F. Souhan, Elizabeth M. Souhan, and
Timothy J.J. Souhan. The remaining balance shall be applied against amounts
due George G. Souhan for his shares.
(c) The balance of Four Million and NO/1OO
($4,000,000.00) Dollars due on the purchase price will be paid by Buyer to
George G. Souhan within ninety days after the aforementioned closing date.
This obligation shall be evidenced by Buyer's promissory note ("Buyer's Note")
in the form of the attached Exhibit A. Buyer's Note shall bear interest until
paid in full at the rate of seven percent (7%) per annum. Payment of Buyer's
Note for the balance of the purchase price shall be secured by a stand-by
letter of credit for that amount to be issued by NationsBank of Georgia, N.A.
and/or NationsBank (Carolinas), N.A. The Letter of Credit shall be reasonably
satisfactory in form and substance to Sellers' attorneys.
3. F.Y. 1995 Results. Mengel, Metzger, Barr & Co.,
independent certified public accountants for Seneca Knitting and its
subsidiaries, are in the process of preparing their Auditor's report for Seneca
Knitting's fiscal year ended April 1, 1995 (the "1995 Auditor's Report").
Sellers have advised Buyer that they expect such report to show income before
income taxes to be approximately $1,235,000. (In calculating such income,
inventory shall be valued on a FIFO basis.) Sellers and Buyer that if pre-tax
net income as computed by these accountants, proves to be less than $1,185,000,
the purchase price for the shares shall be reduced by an amount equal to the
shortfall. If, on the other hand, such pre-tax audited income
- 2 -
<PAGE> 3
exceeds $1,235,000,there shall be no adjustment of the purchase price. The
determination of pretax net income by Mengel, Metzger, Barr & Co. shall be
conclusive on all parties.
4. Pre-Closing Transactions.
(a) Buyer acknowledges that it has been advised
that in March, 1995, GPM sold certain real estate not used in the hosiery
manufacturing business of Seneca Knitting to George J. Souhan, as agent for a
limited liability company to be formed, for a purchase price of $453,000 which
remains due to GPM. George G. Souhan shall repay this indebtedness of $453,000
at Closing without interest. A list of the property so conveyed by GPM is
attached as Exhibit B.
(b) Seneca Knitting and GPM are owners of certain
life insurance policies listed on the attached Exhibit D on the life of George
G. Souhan. At the closing hereunder, George G. Souhan shall purchase all of
these life insurance policies for the amount of the cash surrender value of the
policies as shown on Exhibit C, plus any increases in cash surrender value
since April 2, 1994, the balance sheet date used in the preparation of Exhibit
C. The purchase price shall be paid in cash or equivalent at the closing.
5. Warranties and Representations of Sellers
Sellers jointly and severally hereby warrant, represent, and
agree to and with Buyer as follows:
(a) Sellers each have full, complete, and
absolute title to the following number of shares of capital stock of Seneca
Knitting Mills Corporation:
- 3 -
<PAGE> 4
<TABLE>
<CAPTION>
Name No. of Shares
Class A Class B
------- -------
<S> <C> <C>
George G. Souhan 16,596 16,913
Susan C. Souhan -- 804
Geb F. Souhan -- 804
Elizabeth M. Souhan -- 804
Timothy J.J. Souhan 129 675
------ ------
Total 16,725 20,000
</TABLE>
(b) The title of each of Sellers to said shares
is free and clear of any lien, charge, or encumbrance, and said aforementioned
shares constitute all of the outstanding capital stock of Seneca Knitting, and
by sale of said shares of stock hereunder, Buyer will receive good and absolute
title thereto, free from any liens, charges, encumbrances or transfer
restrictions thereon;
(c) Seneca Knitting is a corporation duly
organized and existing under and by virtue of the laws of the State of New
York, and is in good standing under the laws of that state; the aforementioned
outstanding shares of the capital stock of said corporation have heretofore
duly been issued; all of said issued and outstanding shares are valid, fully
paid and nonassessable, and no assessment is outstanding against the same or
any part thereof; before the closing of the sale of stock hereunder, Sellers
will deliver to Buyer the opinion of Sellers' counsel, addressed to Buyer,
stating that the aforementioned shares of capital stock of Seneca Knitting now
issued and outstanding have been lawfully and validly issued under the laws of
the State of New York, and that upon the closing hereunder, Buyer will have
full and absolute title to said shares free and clear of all liens, charges,
encumbrances, and stock transfer restrictions;
- 4 -
<PAGE> 5
(d) The present directors and officers of Seneca
Knitting are the following:
Directors: George G. Souhan, Leonard M. Hornung, Aaron
C. Chuley, Susan C. Souhan and Timothy J. J.
Souhan.
Officers: George G. Souhan, President Leonard M.
Hornung, Treasurer and CFO Aaron T. Chuley,
Vice-President Timothy J.J. Souhan,
Vice-President Susan C. Souhan, Secretary
and the written resignations of said officers and directors to be effective
upon acceptance will be delivered to Buyer concurrently with the delivery of
certificates representing the capital stock sold hereunder;
(e) Seneca Knitting has two wholly-owned
subsidiaries, GPM Corporation ("GPM") and Seneca Knitting International Sales,
Inc. ("International"); GPM is a corporation duly organized and existing by
virtue of the laws of the State of New York and is in good standing under the
laws of that state; International is a corporation duly organized and existing
by virtue of the laws of the U.S. Virgin Islands, and is in good standing under
the laws of that jurisdiction; and that upon the closing hereunder Seneca
Knitting will have full and absolute title to the outstanding shares of GPM and
International free and clear of all liens, charges, or encumbrances;
(f) (i) The present directors and officers of GPM
are the following:
Directors: George G. Souhan, Leonard M. Hornung and
Susan C. Souhan
Officers: George G. Souhan, President Leonard M.
Hornung, Treasurer Susan C. Souhan, Secretary
and the written resignations of said officers and directors to be effective
upon acceptance will be delivered to Buyer at the closing, hereunder;
- 5 -
<PAGE> 6
(ii) The present directors and officers of
International are the following:
Directors: George G. Souhan, Leonard M. Hornung, Timothy
J.J. Souhan, and Gabi S. Rivera
Officers: Timothy J.J. Souhan, President
Leonard M. Hornung, Vice President,
Secretary and Treasurer
and that, written resignations of said officers and directors (except
Gabi S. Rivera) to be effective upon acceptance shall be delivered to
Buyer at Closing;
(g) Attached hereto and marked Exhibits " D-1 "
and " D-2 " and made a part hereof are consolidated balance sheets and income
statements of Seneca Knitting and its subsidiaries, GPM and International as of
April 2, 1994 (audited) and December 31, 1994 (unaudited); said financial
statements present fairly, in all material respects, the consolidated financial
condition of Seneca Knitting, GPM, and International as of said dates; title to
all assets referred to and shown on said balance sheets was vested in Seneca
Knitting, GPM and International as of the respective dates of such balance
sheets, free of any liens, charges, or encumbrances except those shown in the
footnotes accompanying the balance sheets or in the attached Exhibit E-1, E-2,
and J; and their books of account, records, and files correctly reflect all
operations and transactions and all assets and liabilities in all material
respects; notwithstanding the foregoing, it is agreed that the December 31,
1994 financial statement is subject to customary adjustments on year-end audit;
(h) As of April 2, 1994, the Shareholders' Equity
of Seneca Knitting and its subsidiary was $2,842,698. Sellers represent and
warrant that since April 2, 1994, Seneca Knitting and its subsidiaries have not
accrued or paid dividends to the shareholders or bonuses to any employees
except as listed on the attached Exhibit F.
- 6 -
<PAGE> 7
(i) Between the date of this Agreement and the
closing date, unless approved by Buyer or otherwise permitted hereunder, Seneca
Knitting, GPM, and International will not (1) transfer, sell, or otherwise
dispose of any corporate property or assets, including all real property,
material to the operation of their business other than in the ordinary and
usual course of their business as heretofore conducted, save and except such
items as shall have become no longer useful, obsolete, worn out, or rendered of
no further use and, if theretofore useful in the conduct of their business and
operations, as may have been replaced with other items of substantially the
same value and utility as the items transferred, sold, exchanged, or otherwise
disposed of; (2) create, participate in, or agree to the creation of, any liens
or encumbrances on their corporate property; (3) enter into any leases,
contracts, or agreements of any kind or character or incur any liabilities,
save and except those to which they are presently committed and which are
disclosed herein or in the exhibits hereto, purchase orders placed for raw
materials and supplies, agreements to sell products to customers, and other
liabilities and commitments arising in the ordinary and usual course of
business as heretofore conducted; (4) make any payments or distributions to any
of their officers, stockholders, or employees, save and except wages and
salaries made to employees in the ordinary and usual course of business as
heretofore conducted including therein contributions pursuant to health,
insurance, and pension plans presently in effect; (5) amend or repeal their
articles of incorporation or by-laws nor issue any shares of capital stock in
addition to, and other than, the shares heretofore issued, or reissue any
treasury stock;
(j) Attached hereto, marked Exhibit "G." and made
a part hereof, is a schedule of all accounts and notes receivable of Seneca
Knitting and its subsidiaries as of April 1, 1995 (Exhibit G is subject to
normal audit adjustments and a final, revised exhibit will be attached
following completion of the audit); said accounts and notes receivable and all
other
- 7 -
<PAGE> 8
accounts and notes receivable accruing in the ordinary and usual course of
business as heretofore conducted from April 1, 1995 to the closing date arose,
or will have arisen, from bona fide transactions and in the ordinary course of
business. Subject to normal audit adjustments, all accounts receivable were
and will be properly booked in accordance with generally accepted accounting
principles, and reserves for uncollectibles were duly established. The
foregoing notwithstanding, Sellers make no warranty as to the collectibility of
its accounts receivable or as to the adequacy of any allowance for
uncollectibles.
(k) Attached hereto, marked Exhibit "H" and made
a part hereof, is a schedule of all the notes and accounts payable, accrued
taxes, and other material liabilities (other than accrued taxes) of Seneca
Knitting and its subsidiaries as of April 1, 1995 (Exhibit H is subject to
normal audit adjustments and a final, revised exhibit will be attached
following completion of the audit); except as disclosed in Exhibit H or
elsewhere in this Agreement and except for accounts payable incurred in the
ordinary course of business since April 1, 1995, there are no material
undisclosed or contingent liabilities of Seneca Knitting, GPM, or International
(l) Attached hereto, marked Exhibit "I" and made
a part hereof, is an itemized depreciation schedule dated April 1, 1995 of the
fixtures and equipment located on the plant premises of Seneca Knitting at its
manufacturing, warehouse and distribution locations. the fixtures and equipment
reflected in this Exhibit are the property of said Corporation.
(m) Attached hereto, marked Exhibit "J" and made
a part hereof, is a list of all real estate owned or leased by Seneca Knitting,
GPM, and International. The owned properties described in Exhibit J constitute
the manufacturing plant property of Seneca Knitting. The physical address of
this property is One Canal Street, Seneca Falls, New York.
- 8 -
<PAGE> 9
(n) Attached hereto, marked Exhibit "K" and made
a part hereof, is a list of the insurance policies presently in effect with
respect to the corporate property and business of Seneca Knitting, GPM, and
International; said policies, policies procured in lieu thereof providing at
least equal coverage and issued by a carrier having at least equal financial
responsibility with that of the prior carrier, shall be in effect on the
closing date and will be delivered to Buyer concurrently with the delivery of
certificates representing the capital stock sold hereunder;
(o) Except as set forth on Exhibit L, there is no
litigation or other legal proceeding pending against Seneca Knitting, GPM
and/or International, and none of the Sellers is aware of any threatened
litigation or legal proceeding; and at closing, counsel for Seneca Knitting and
its subsidiaries will deliver to Buyer the written opinion of such counsel that
counsel has no knowledge of any pending or threatened litigation or legal
proceedings against Seneca Knitting and its subsidiaries;
(p) All tax returns required to be made by Seneca
Knitting Mills, GPM, and International have been or will be properly prepared,
executed, and duly filed pursuant to applicable laws and regulations
(q) To the best of the knowledge of Sellers,
Seneca Knitting, GPM and International have not violated in any material
respect any federal, state, or municipal law, statute, rule, or regulation, on
any executive order or presidential directive, required by it to be observed or
performed;
(r) All patent or patent rights, brand names
(except as hereafter provided, specifically including the names "Seneca" and
"Oyster Bay"), trademarks, service marks, trade formulas, secret formulas, and
technical information used or useful in the business of Seneca Knitting, and
owned by, or known to or held in the name of any of Sellers, or anyone
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<PAGE> 10
controlled by any of Sellers, will be transferred to and vested in Seneca
Knitting and/or disclosed to Buyer before the closing date or as soon
thereafter as practicable, and in any event within thirty (30) days after the
closing date. The foregoing notwithstanding, it is agreed that at Closing
Seneca Knitting may assign to George G. Souhan the exclusive right to use the
name "Oyster Bay" in connection with non-hosiery business and products;
(s) To the best of the knowledge of the Sellers,
none of the products manufactured and sold by Seneca Knitting infringe upon any
patents, patented formulas, or private trademarks; Seneca Knitting has not in
the past manufactured or sold any products which infringe upon such patents or
trademarks, and the continued production and sale of such products in
accordance with presently used formulas and technical procedures and methods of
manufacture and under presently used trade names will not infringe upon
existing United States patents or trademarks or state trademarks.
(t) To the best of the knowledge of Sellers, (i)
Seneca Knitting, GPM, and International are in compliance with all federal,
state, and local requirements relating to the protection of health or the
environment in connection with the operation of the textile business presently
being conducted on the Premises owned or occupied by said companies; (ii)
neither Seneca, GPM nor International or any third party have disposed of
Hazardous Materials on or under any Premises now or heretofore owned or
occupied by said companies in such a manner as would give rise to a liability
which would have a material adverse effect on said companies; and (iii) to the
extent that Hazardous Materials, if any, were generated on, stored or
transported from any Premises now or heretofore owned or occupied by these
companies, such activities were done in such a manner as would not give rise to
a liability or failure to comply with any applicable federal, state and local
laws, ordinances and regulations which would have a material adverse effect on
these companies. For purposes hereof, "Hazardous Materials" shall be defined
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<PAGE> 11
as "hazardous substances" or "toxic substances" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
the Hazardous Materials Transportation Act, as amended; and those substances
defined as "hazardous wastes" in any state or local laws, rules or regulations
applicable to Seneca Knitting and its subsidiaries.
(u) Attached hereto, marked Exhibit C and made a
part hereof is a list of all life insurance policies covering "key" employees
of which Seneca Knitting is the owner and/or beneficiary and which were in
effect as of April 2, 1994. All life insurance policies referred to in the
consolidated balance sheet are still in full force and effect and there have
been no cash withdrawals, policy loans, policy surrenders, change in ownership
or beneficiary for any of said policies since April 2, 1994. The cash value of
said policies as of April 2, 1994 (net of an existing policy loan) was
$270,882.65, and the cash value of said policies (net of an existing policy
loan) at closing shall be $270,882.65 plus any additional cash value which has
accrued between April 2, 1994 and the closing date.
(u) As of April 2, 1994, Seneca Knitting's
inventory, using the LIFO accounting method, was $2,078,550. A more detailed
break-down of the inventory is contained in Note B to the April 2, 1994
financial statement attached as Exhibit D-1. The fiscal year 1995 inventory
calculation is incomplete, but there have been no changes other than in the
ordinary course of business. A schedule of Seneca Knitting's inventory as of
April 1, 1995 will be furnished to Buyer when the audit is completed.
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<PAGE> 12
6. Continuing Warranties
The warranties, representations, and agreements set forth
herein shall be continuous and shall survive the delivery by Sellers and the
receipt by Buyer of the capital stock to be sold hereunder.
7. Indemnity
(a) Subject to the limitations contained herein,
Sellers agree, jointly and severally, to indemnify and hold Buyer harmless
against any loss or damage (including expenses) suffered by Buyer resulting
from or arising out of (a) any material breach by Sellers in the performance of
any of their respective obligations or covenants under this Agreement, (b) any
material breach of any of the representations or warranties made by Sellers in
this Agreement and (c) all actions, suits, proceedings, claims, demands,
assessments or judgments incident to any of the foregoing. Notwithstanding the
foregoing, Sellers shall not have any indemnification obligation with respect
to any breaches or misrepresentations waived by Buyer prior to the Closing.
Sellers shall not be liable individually or in the aggregate, for any
misrepresentation, breach of warranty or breach of covenant except to the
extent that the resulting losses, damages, and expenses exceed $50,000.
(b) Minimization of Damages and Notice of Claims.
The party seeking indemnification under this section 7 (an "Indemnified Party")
shall use reasonable efforts to minimize any loss or damage for which
indemnification may be sought under this section 7 and shall give prompt
written notice to the other party (the "Indemnifying Party") of any matter with
respect to which it seeks to be indemnified. Such notice shall state the
nature of the claim and, if known, the amount of the loss or damage. All
indemnification obligations under this section 7 shall expire one year from the
closing date except for claims set forth in a written notice to
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<PAGE> 13
the Indemnifying Party delivered prior to 5:00 p.m. E.S.T. on the first
anniversary of the closing date.
(c) If any third person asserts any claim against
an Indemnified Party for which indemnification is sought pursuant to the
provisions of this section 7, such Indemnified Party shall afford the
Indemnifying Party a reasonable opportunity to participate in the defense
against such claim; and the Indemnifying Party may assume the defense against
such claim, in the name of the Indemnifying Party or the Indemnified Party, at
the Indemnifying Party's expense and with counsel selected by the Indemnifying
Party. The Indemnified Party shall have the right, if it elects, to
participate in the defense against any such claim through counsel of its own
choice and at its own expense; provided, however, that the Indemnifying Party
shall bear the expense of counsel for the Indemnified Party if the Indemnifying
Party shall not have assumed the defense against such claim. In the event of
any litigation with a third person in connection with any such claim, the
Indemnified Party agrees to cooperate with the Indemnifying Party and to make
all books, records and documents in its possession available to the
Indemnifying Party, or its counsel, upon request, for inspection and copying.
(d) Exclusive Remedies. The provisions of this
section 7, as well as all available pre-closing equitable remedies, shall be
the sole and exclusive remedies for any alleged misrepresentation, breach of
warranty, or failure to fulfill a covenant or agreement on the part of Sellers.
Except for the indemnification obligations of the Sellers, no director,
officer, employee, agent or shareholder of Seneca Knitting and its subsidiaries
shall have any personal liability whatsoever under this Agreement or in
connection with the transactions contemplated hereunder, or otherwise.
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<PAGE> 14
8. Expenses
Sellers shall pay the cost of revenue stamps, transfer fees or
other taxes required to be affixed to this agreement by the provisions of the
Internal Revenue Code, the laws of the State of New York or any political
subdivisions thereof. All other fees and expenses of the counsel and
accountants for Sellers and Seneca Knitting up to a maximum of $50,000, shall
be paid by Seneca Knitting. Seneca Knitting and Buyer shall be responsible for
compliance with the New York State real property gains tax.
9. Waiver of Stock Transfer Restrictions
Sellers hereby waive all preemptive rights and restrictions on
the sale and transfer of the capital stock sold hereunder and agree to hold
Buyer harmless from and against all liability, loss, damage, or claims arising
directly or indirectly from Buyer's failure to obtain hereunder absolute,
entire, and unconditional ownership of the entire outstanding capital stock of
Seneca Knitting and through Seneca Knitting, the stock of GPM and
International, free and clear of all restrictions, liens, charges, or
encumbrances.
10. Investigation and Confidentiality
(a) During the period prior to the closing date,
the Seller shall cause the Buyer to have access to the records, files, books of
account and copies of tax returns of Seneca Knitting, GPM, and International
for the purposes of conducting an investigation of their financial condition,
corporate status, liabilities, contracts, business operations, property and
title thereto, litigation, patents, trademarks, copyrights and all other
matters relating to their business, properties and assets; provided, however,
that such investigation shall be conducted in a confidential manner. The
Seller shall cause the Company to make its counsel, accountants, President,
Vice President and Treasurer available for such purposes. During such
investigation the Buyer shall have the right to make copies of such records,
files, tax returns and other
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<PAGE> 15
materials as it may deem advisable. The Buyer and its representatives shall
treat all information originally obtained in such investigation and not
otherwise known to it or already in the public domain as confidential and shall
not use such information in the conduct of its business, and shall return to
the Seller all copies received or made of material belonging to the Seller as
follows:
(i) As to tax documents and matters, the same
shall be confidential forever and shall be
returned if the transaction is not
consummated.
(ii) As to all other matters, if this transaction
is not consummated, the same shall be
confidential forever and the same shall be
returned; if it is consummated, the same
shall remain confidential.
(b) Buyer shall have the right, at Buyer's sole
cost and expense, to obtain a satisfactory Environmental Phase I Liability
Assessment (the "Audit") of all of the Premises showing no material adverse
environmental conditions on the Premises. The Audit shall be completed within
60 days of the acceptance date of this Agreement. Failure by the Buyer to
notify the Sellers in writing within the 60-day period of any unacceptable
environmental condition shall be deemed an acceptance by the Buyer of all of
the Premises "as is". Buyer shall (i) defend, indemnity and hold the Sellers
harmless from any and all claims of whatsoever nature arising out of the
Buyer's or its agent's performance of the Audit, and (ii) provide the Sellers
with a copy of all Audit reports within 5 days of receipt by the Buyer. If the
Buyer or its agent believes that a notification obligation to a governmental
agency arises during the conduct of the Audit, the Buyer shall first notify the
Sellers. In the event the Audit determines that remediation of any of the
Premise required, the Sellers shall have the option to perform the remediation
in accordance with applicable law or terminate this Agreement.
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<PAGE> 16
11. Notes and Guaranties.
(a) Notes Due Related Party. Seneca Knitting
is indebted to Clara G. Souhan on the following promissory Notes:
(i) Promissory Note dated July 1, 1993 in the
principal amount of $200,000, due June 1, 1996, with
interest only payable monthly at the rate of 10% per
annum;
(ii) Promissory Note dated September 9,
1993, in the principal amount of $150,000 due
September 8, 1996, with interest only payable monthly
at 8% per annum.
Buyer agrees that at the closing it will guarantee payment of these promissory
notes by entering into a Guaranty Agreement which shall be reasonably
satisfactory in form and substance to the attorneys for Seneca Knitting and
Buyer.
(b) Personal Guarantees. George G. Souhan has
personally guaranteed payment of the following promissory notes or obligations
of Seneca Knitting:
(i) Promissory Note to Seneca County
dated February 27, 1995 in the
principal amount of $395,000;
(ii) All indebtedness to Fleet Bank;
(iii) Equipment Lease dated January 20,
1994 with Eaton Financial
Corporation, Lessor, Lease No.
376483;
(iv) Equipment Lease dated May 10, 1994
with Eaton Financial Corporation
("Lessor'), Lease No. 397317.
Susan C. Souhan has also guaranteed payment of the promissory
note to Seneca County and the Fleet Bank debt. Prior to the closing, Buyer
shall arrange to have George G. Souhan, Susan C. Souhan, and Leonard M. Hornung
relieved from any and all liability with respect to all personal guarantees of
indebtedness of Seneca Knitting.
Buyer will also provide George G. Souhan with a UCC
termination statement of a UCC filing (#141,537, filed September 8, 1982) in
favor of Fleet Bank (as successor to State
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<PAGE> 17
Bank of Seneca Falls), securing payment of Seneca Knitting's indebtedness to
Fleet Bank referenced at (ii) above.
12. Miscellaneous Provisions
(a) As part of the consideration for this
transaction, Buyer agrees that upon closing George G. Souhan shall become a
member of the Board of Directors of Buyer. George G. Souhan agrees that if and
when Buyer has a public offering of its common shares, he will purchase
$100,000 of the shares.
(b) At the Closing, of this transaction, Buyer
will cause Seneca Knitting to enter three (3) year employment contracts in the
form of the attached Exhibits M, N, and 0 with Leonard M. Hornung, Timothy J.
J. Souhan and Aaron T. Chuley.
(c) At the Closing Buyer will cause Seneca
Knitting to employ George G. Souhan as operational consultant from the closing
date through December 31, 1995 at his current salary, pro-rated, of $100,000.
It is agreed that Buyer will cause Seneca Knitting, at its expense, to provide
Mr. Souhan and his family with group medical insurance under the Blue Choice
Plan of Blue Cross/Blue Shield of Rochester through December 31, 1996. Mr.
Souhan and his family may continue this group coverage after December 31, 1996
at his expense. To assist Mr. Souhan in performing his duties through December
31, 1995, Seneca Knitting will continue to provide him with his current
automobile at company expense. After December 31, 1995, the expense of this
automobile will be Mr. Souhan's if he continues to use it.
13. Agreement For Covenants Not to Compete
In consideration of this Agreement, Sellers agree to refrain
from carrying on a similar business to that sold hereunder in the State of New
York, for a period of five (5) years from the date of the transfer of
possession hereunder, except that in the case of Timothy J.J.
- 17 -
<PAGE> 18
Souhan, the duration of the covenant shall be limited to the duration of his
employment agreement under paragraph 9(b) hereof. For the purpose of this
paragraph, a business shall be deemed carried on by Seller if carried on as a
sole proprietorship, by a partnership of which he/she is a general or limited
partner, or by a corporation or association of which he is a stockholder or
member. Each Seller shall sign a more detailed covenant not to compete at
closing which shall be negotiated by the parties prior to closing.
14. Termination
This Agreement may be terminated by the Buyer under any of the
following circumstances by notice in writing if during the period from the date
hereof to the closing date any of the following shall occur:
(a) (1) The assets of Seneca Knitting, GPM, or
International shall suffer any loss from fire, flood, explosion or other
casualty which materially and adversely affects the ability of the business
taken as a whole to continue without substantial interruption; or
(2) The Buyer shall learn of any fact or
condition with respect to the business; of Seneca Knitting, GPM, or
International or their assets which is substantially at variance with one or
more of the representations or warranties as set forth above, and which
materially and adversely affects the business and assets of Seneca Knitting and
its subsidiaries taken as a whole, and after written notice thereof Sellers
shall be unable to furnish reasonable assurance satisfactory to the Buyer.
(b) Notwithstanding the foregoing, it is agreed
that this Agreement may not be terminated by either party because of breach by
the other party except upon thirty days prior written notice and opportunity to
cure such breach.
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<PAGE> 19
(c) The simultaneous closing of Buyer's purchase
of the warehouse-distribution center from Timothy J.J. Souhan is a condition
precedent to both Seller's and Buyer's obligation to close under this
Agreement. Accordingly, if Buyer's Purchase Contract of even date with Timothy
J.J. Souhan is terminated in accordance with its terms, either Sellers or Buyer
may terminate this Agreement.
15. Agreement Binding on Heirs and Assigns
The provisions of this agreement shall inure to the benefit of
and bind the successors and assigns of Seller and Buyer and the executors,
administrators, heirs, successors and assigns of Sellers. This Agreement may
not be assigned by a party without the prior written consent of the other
parties.
16. Notices
All notices required or permitted to be given hereunder shall
be sufficiently given if delivered personally or by a recognized overnight
courier service, or sent by registered or certified mail, postage prepaid,
addressed as follows:
To Buyer: Ridgeview, Inc.
P.O. Box 8
Newton, North Carolina 28658
Attn: Hugh R. Gaither
President
Telephone: (704) 464-2972
With a copy to: Isenhower, Wood & Cilley, P.A.
7 East Second Street
P.O. Box 145
Newton, North Carolina 28658
Attention: Allen W. Wood, III, Esq.
Telephone: (704) 465-2100
To Sellers: c/o George G. Souhan
5102 Route 89
Romulus, New York 14151
Telephone: (315) 568-0515
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<PAGE> 20
With a copy to: Bond, Schoeneck & King, LLP
One Lincoln Center
Syracuse, New York 13202-1355
Attn: Wallace J. McDonald, Esq.
Telephone: (315) 422-0121
Either party may by written notice to the other change the address for notices
to be sent to it.
17. Governing Law, Jurisdiction and Venue. This
Agreement is made and governed by and shall be construed in accordance with the
laws of the State of New York. Any disputes, causes of actions or claims
arising under or relating to this Agreement shall be brought in Federal or
State Court sitting in either Seneca or Onondaga County, New York, and all
parties consent to the jurisdiction of these Courts.
18. Entire Agreement. This Agreement constitutes the
entire agreement among the parties hereto with respect to the matters contained
herein, and supersedes all prior agreements and understandings between the
parties with respect thereto.
19. Amendment. This Agreement may not be amended or
modified except by a written agreement specifically referring to this Agreement
and signed by all of the parties.
20. Attorneys' Fees. If any party defaults in its
obligations under this Agreement (the "Defaulting Party") and, as a result
thereof, the other party (the "Nondefaulting Party") seeks to legally enforce
its rights under this Agreement, then, in additional to all of the damages and
remedies to which the Nondefaulting Party is entitled by reason of the default,
the Defaulting Party shall promptly pay the Nondefaulting Party an amount equal
to its costs and expenses, including reasonable attorneys' fees, paid or
incurred by the Nondefaulting Party in connection with such enforcement.
21. Information Provided in Exhibits. Information
provided in any exhibit or schedule hereto shall be deemed provided in all
without the necessity of replication.
- 20 -
<PAGE> 21
22. Counterpart. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
23. Personal Property. It is agreed that the personal
property listed on the attached Exhibit P belongs to George G. Souhan or
Timothy J.J. Souhan and not to Seneca Knitting, and that such property may be
removed by either Mr. Souhan prior to the closing.
24. Employees. Non-management employees of Seneca
Knitting are represented by the International Ladies' Garment Workers Union
("ILGWU"). Seneca Knitting has been a party to a collective bargaining
agreement with ILGWU for many years. A new collective bargaining agreement was
recently concluded and was ratified by the ILGWU employees April 6, 1995. A
new contract to document the new agreement is in the process of preparation.
As set forth in Note F to Seneca Knitting's audited fiscal
statements for its year ended April 2, 1994, Seneca Knitting is obligated to
contribute to various ILGWU multi-employer benefit plans. These obligations
will continue under the new collective bargaining agreement. Sellers represent
and warrant that Seneca Knitting has paid or accrued all contributions
currently due to the benefit plans described in Note F to the financial
statements and that Seneca Knitting will be current in its payments due to
these plans as of the closing date. Buyer acknowledges that it is aware of the
potential for withdrawal liabilities with respect to multi-employer pension
plans.
25. Representations and Warranties of Buyer.
(a) Buyer represents and warrants to Seller as follows:
(1) Buyer is a corporation duly organized and
existing under the laws of the State of North Carolina, and is in good standing
under the laws of that state.
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<PAGE> 22
(2) Buyer has all requisite corporate power and
authority to enter into this Agreement and all agreements, documents and
instruments to be executed and delivered by Buyer hereunder and in connection
herewith, and to perform its obligations under this Agreement. The execution
and delivery of this Agreement by Buyer and the consummation of the
transactions described herein have been duly authorized by the duly constituted
Boards of Director of Buyer, and no shareholder authorization is required. The
execution, delivery, and performance of this Agreement will not violate any
agreement, covenant, law or regulation by which Buyer is bound. This Agreement
constitutes the legal, valid, binding and enforceable obligation of Buyer,
except as may be limited by bankruptcy, insolvency,reorganization, moratorium
or other laws relating to or affecting creditors' rights generally and by
general principles of equity.
(b) At Closing Buyer shall furnish Sellers with
certified copies of corporate resolutions authorizing the performance of
Buyer's obligations under this Agreement including, but not limited to, the
execution and delivery of Buyer's Note pursuant to Section 2(c) of this
Agreement. Further, Buyer's counsel shall furnish Sellers with their legal
opinion confirming that Buyer has all requisite corporate power and authority
to execute and deliver Buyer's Note, that no other authorization or approval is
required, and that to the best of the knowledge of counsel, the execution and
delivery of Buyer's Note will not violate any agreement, covenant, law or
regulation applicable to Buyer; that Buyer's Note has been duly and properly
executed and that upon delivery to Sellers, Buyer's Note will constitute the
legal, valid, and binding obligation of Buyer, enforceable in accordance with
its terms, subject only to the customary exceptions for bankruptcy and
equitable principles affecting remedies.
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<PAGE> 23
26. No Broker.
Sellers and Buyer each represent to the other that they have
not engaged any broker of finder with respect to this Agreement or any
transaction contemplated under it, and neither Sellers nor Buyer are obligated
to pay any broker's or finder's fee in connection with the transactions
contemplated by this Agreement.
27. Press Releases.
No press release or public announcement or statement relating
to this Agreement shall be issued by any party prior to closing without the
prior approval of the other party.
28. Confidentiality Agreement.
Except as otherwise expressly provided herein, this Agreement
does not supersede a Confidentiality Agreement between the parties dated as of
September 1, 1994, and the provisions of that Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the day and year first above-written.
SELLERS: BUYER:
RIDGEVIEW, INC.
/s/ George G. Souhan By /s/ Hugh R. Gaither
- --------------------------------------- --------------------------------
George G. Souhan, individually and as President
Attorney-in-fact for Geb F. Souhan and
Elizabeth M. Souhan
/s/ Susan C. Souhan (SEAL)
- ---------------------------------------
Susan C. Souhan
/s/ Timothy J.J. Souhan
- ---------------------------------------
Timothy J.J. Souhan
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<PAGE> 1
EXHIBIT 10.19
AGREEMENT FOR SALE OF CAPITAL STOCK
AMENDMENT NO. 1
Dated: June 28, 1995
This Amendment No. 1 is agreed to as of June 28, 1995 between
GEORGE G. SOUHAN, SUSAN C. SOUHAN, GEB F. SOUHAN, ELIZABETH M. SOUHAN, and
TIMOTHY J. J. SOUHAN ("Sellers"), and RIDGEVIEW, INC., a North Carolina
Corporation ("Buyer").
RECITALS
Sellers and Buyer are parties to an Agreement for Sale of
Capital Stock dated April 27, 1995 (the "Agreement"), relating to the purchase
by Buyer of all of the outstanding capital stock of Seneca Knitting Mills
Corporation. Buyer has requested that Sellers agree to defer payment of
$500,000.00 of the Purchase Price for the stock for one year, and Sellers are
willing to agree to this postponement. The parties wish to amend the Agreement
accordingly.
AGREEMENT
NOW, THEREFORE, in consideration of the matters recited and
the mutual promises contained herein, the parties hereby amend Section 2 of the
Agreement to read as follows:
"2. Delivery of Stock and Payment of Purchase Price
(a) The delivery to Buyer of certificates for the shares
of capital stock sold hereunder by Sellers, and the payment of the initial
installment of the Purchase Price by Buyer to Sellers, shall take place at the
offices of Bond, Schoeneck & King, attorneys for Seneca Knitting and the
Sellers, One Lincoln Center, Syracuse, New York 13202 on or before June 30,
<PAGE> 2
1995 (hereinafter called the "closing date"), at or such other location as the
parties may mutually agree.
(b) On the closing date, Sellers shall deliver to Buyer
the certificate or certificates evidencing all of the outstanding, issued
shares of the capital stock of Seneca Knitting duly endorsed for transfer, and
Buyer shall pay Sellers the sum of Three Million and NO/100 ($3,000,000.00)
Dollars by wire transfer of immediately available funds to an account to be
designated by Sellers, representing the initial installment of the Purchase
Price to be paid for said shares by Buyer. This first installment of the
Purchase Price shall be applied first to pay in full the amounts due Susan C.
Souhan, Geb F. Souhan, Elizabeth M. Souhan, and Timothy J.J. Souhan. The
remaining balance shall be applied against amounts due George G. Souhan for his
shares.
(c) Three Million Five Hundred Thousand and NO/100
($3,500,000.00) Dollars of the balance due on the Purchase Price will be paid
by Buyer to George G. Souhan within ninety days after the aforementioned
closing date. This obligation shall be evidenced by Buyer's promissory note
("Note No. 1 ") in the form of the attached Exhibit A-1. Note No. 1 shall bear
interest until paid in full at the rate of seven percent (7%) per annum.
Payment in full of Note No. 1 shall be secured by a stand-by letter of credit
for $3,500,000.00 to be issued by NationsBank of Georgia, N.A. and/or
NationsBank (Carolinas), N.A. The Letter of Credit shall be reasonably
satisfactory in form and substance to Sellers' attorneys.
(d) The remaining balance of the Purchase Price in the
amount of $500,000.00 shall be paid by Buyer to George G. Souhan one year after
the closing date together with interest at the rate of 7% per annum, payable
monthly. Buyer's payment obligation shall be evidenced by Buyer's promissory
note in the form of the attached Exhibit A-2 ("Note No.2") which will be
executed and delivered to George G. Souhan at the closing."
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<PAGE> 3
Except as hereby amended, all terms and provisions of the
Agreement remain in full force and effect.
The foregoing is established by the following signatures of the parties.
SELLERS: BUYER:
RIDGEVIEW, INC.
/s/ George G. Souhan By /s/ Hugh R. Gaither
- --------------------------------------- --------------------------
George G. Souhan, individually and as President
attorney-in-fact for Geb F. Souhan and
Elizabeth M. Souhan
/s/ Susan C. Souhan (SEAL)
- ---------------------------------------
Susan C. Souhan
/s/ Timothy J.J. Souhan
- ---------------------------------------
Timothy J.J. Souhan
- 3 -
<PAGE> 4
PROMISSORY NOTE
$3,500,000.00 Syracuse, New York
June 28, 1995
FOR VALUE RECEIVED, RIDGEVIEW, INC., a North Carolina
corporation, with a mailing address of P.O. Box 8, Newton, North Carolina 28658
("Maker"), hereby promises to pay to the order of GEORGE G. SOUHAN, ("Holder"),
or his successors or assigns, the principal sum of THREE MILLION FIVE HUNDRED
THOUSAND DOLLARS, ($3,500,000), together with interest from the date hereof at
a rate equal to seven percent (7%) per annum. This Note including all
principal and accrued interest shall be due and payable in full on September
26, 1995.
All payments hereunder shall be made to Holder at 5102 Route
89, Romulus, New York 14541, or at such other address as may hereafter be
designated by the Holder.
This Note may be prepaid at any time without premium or
penalty, provided that interest to the date of the prepayment is also tendered.
Any partial prepayment shall be applied first to accrued interest, and then to
principal installments coming due on this Note in inverse order of maturity.
No delay or omission on the part of Holder in exercising any
right hereunder shall operate as a waiver of any such right or of any other
right under this Note. A waiver on any one occasion shall not be construed as
a waiver of any right or remedy on any future occasion. None of the terms or
provisions of this Note may be waived, altered, modified or amended except as
Holder may consent thereto in writing duly signed for and on its behalf.
Maker hereby expressly waives presentment, protest, demand,
notice of dishonor or default, and notice of any kind except as hereinabove
required with respect to this Note or the performance of its obligations under
this Note.
This Note shall be governed by the laws of the State of New
York in all respects, including matters of construction, validity and
performance.
If this Note is not paid within ten days of its due date, this
Note shall thereafter bear interest at a default rate of twelve percent (12%)
per annum until paid in full. Further, Maker shall pay on demand all costs of
collection, legal expenses and attorneys' fees incurred or paid by Holder in
enforcing this Note on default.
EXHIBIT A-2
<PAGE> 5
Payment of this Note is secured by a stand-by letter of credit
issued by NationsBank of Georgia, N.A.
RIDGEVIEW, INC.
By:
------------------------------------
Hugh R. Gaither, President
(SEAL)
<PAGE> 6
PROMISSORY NOTE
$500,000.00 Syracuse, New York
June 28, 1995
FOR VALUE RECEIVED, RIDGEVIEW, INC., a North Carolina
corporation, with a mailing address of P.O. Box 8, Newton, North Carolina 28658
("Maker"), hereby promises to pay to the order of GEORGE G. SOUHAN, ("Holder"),
or his successors or assigns, the principal sum of FIVE HUNDRED THOUSAND
DOLLARS and NO/100, ($500,000.00), together with interest from the date hereof
at a rate equal to seven percent (7%) per annum. Interest shall be due and
payable monthly on the first day of each month commencing August 1, 1995. This
Note including all principal and accrued interest shall be due and payable in
full on June 28, 1996.
All payments hereunder shall be made to Holder at 5102 Route
89, Romulus, New York 14541, or at such other address as may hereafter be
designated by the Holder.
This Note may be prepaid at any time without premium or
penalty, provided that interest to the date of the prepayment is also tendered.
Any partial prepayment shall be applied first to accrued interest, and then to
principal installments coming due on this Note in inverse order of maturity.
No delay or omission on the part of Holder in exercising any
right hereunder shall operate as a waiver of any such right or of any other
right under this Note. A waiver on any one occasion shall not be construed as a
waiver of any right or remedy on any future occasion. None of the terms or
provisions of this Note may be waived, altered, modified or amended except as
Holder may consent thereto in writing duly signed for and on its behalf.
Maker hereby expressly waives presentment, protest, demand,
notice of dishonor or default, and notice of any kind except as hereinabove
required with respect to this Note or the performance of its obligations under
this Note.
This Note shall be governed by the laws of the State of New
York in all respects, including matters of construction, validity and
performance.
If this Note is not paid within ten days of its due date, this
Note shall thereafter bear interest at a default rate of twelve percent (12%)
per annum until paid in full. Further, Maker shall pay on demand all costs of
collection, legal expenses and attorneys' fees incurred or paid by Holder in
enforcing this Note on default.
RIDGEVIEW, INC.
By:
-----------------------------------
Hugh R. Gaither, President
(SEAL)
EXHIBIT A-2
<PAGE> 1
EXHIBIT 10.20
AMENDED AND RESTATED
PROMISSORY NOTE
$500,000.00 Syracuse, New York
June 28, 1996
This amends and restates that certain Promissory Note from Maker to
Holder dated June 28, 1995.
FOR VALUE RECEIVED, RIDGEVIEW, INC., a North Carolina corporation,
with a mailing address of P.O. Box 8, Newton, North Carolina 28658 ("Maker"),
hereby promises to pay to the order of GEORGE G. SOUHAN or his successors or
assigns ("Holder"), the principal sum of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00), together with interest from the date hereof at a rate equal to
seven percent (7%) per annum. Interest shall be due and payable monthly on the
first day of each month. This Note including all principal and all accrued
interest shall be due and payable in full on September 1, 1997.
The foregoing notwithstanding, this Note shall become due and payable
in full if Maker successfully completes a public offering for its shares.
All payments hereunder shall be made to Holder at 5102 Route 89,
Romulus, New York 14541, or at such other address as may hereafter be
designated by the Holder.
This Note may be prepaid at any time without premium or penalty,
provided that interest to the date of the prepayment is also tendered. Any
partial prepayment shall be applied first to accrued interest, and then to
principal.
No delay or omission on the part of Holder in exercising any right
hereunder shall operate as a waiver of any such right or of any other right
under this Note. A waiver on any one occasion shall not be construed as a
waiver of any right or remedy on any future occasion. None of the terms or
provisions of this Note may be waived, altered, modified or amended except as
Holder may consent thereto in a writing duly signed by Holder.
Maker hereby expressly waives presentment, protest, demand, notice of
dishonor or default, and notice of any kind with respect to this Note or the
performance of its obligations under this Note.
This Note shall be governed by the laws of the State of New York in
all respects, including matters of construction, validity and performance.
Make agrees that this Note arises from a transaction made in the State of New
York and hereby consents to the jurisdiction of any federal or state court
sitting in Seneca or Onondaga County, New York for any action or proceeding
arising
<PAGE> 2
under or relating to this Note. Further, Maker hereby consents that service of
process upon it may be made by registered or certified mail addressed to Maker
as provided above.
This Note shall, at the option of the Holder, become due and payable,
without notice or demand, upon the happening of any one of the following
events: (1) failure to pay any installment of interest by the tenth day of the
month when payment is due; (2) insolvency of Maker (however evidenced) or the
commission of any act of insolvency; (3) the making of an assignment for the
benefit of creditors; (4) the filing of any petition or the commencement of any
proceeding by or against the Maker for any relief under any bankruptcy or
insolvency laws, or any other laws relating to the relief of debtors; or (5)
suspension of the transaction of the usual business of the Maker.
If this Note is not paid within ten days of its original maturity
date, or if payment of the Note is accelerated by reason of a default as
previously provided, this Note shall thereafter bear interest at a default rate
of twelve percent (12%) per annum until paid in full. Further, Maker shall pay
on demand all costs of collection, legal expenses and attorneys' fees incurred
or paid by Holder in enforcing this Note on default.
RIDGEVIEW, INC.
By:/s/ Hugh R. Gaither
---------------------------------------------
Hugh R. Gaither, President
(SEAL)
STATE OF NORTH CAROLINA )
) ss.:
COUNTY OF CATAWBA )
On this 28th day of June, 1996, before me personally came Hugh R.
Gaither to me known, who, being duly sworn, did depose and say that he resides
in Catawba County, North Carolina, that he is the President of Ridgeview, Inc.,
the corporation described in and which executed the above instrument, and that
he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Jamie O. Hoyle
------------------------------------------------
Notary Public
-2-
<PAGE> 1
EXHIBIT 10.21
STATE OF NORTH CAROLINA :
: SALARY CONTINUATION AGREEMENT
COUNTY OF CATAWBA :
THIS AGREEMENT is made and entered into this 1st day of March, 1983,
by and between Ridgeview Mills, Inc., a domestic corporation, having its
principal office in Newton, North Carolina, hereinafter called "the
Corporation", and Albert C. Gaither, a resident of Newton, North Carolina,
hereinafter called "the Employee";
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Corporation for 27
years and is currently employed by the Corporation in the capacity of
President; and
WHEREAS, the Corporation is motivated to retain the valuable services
and business counsel of the Employee and to induce the Employee to remain in
the executive capacity with the Corporation; and
WHEREAS, the Corporation wishes to retain the Employee in order to
prevent the substantial financial loss which the Corporation would incur if the
Employee were to leave and were to enter the employment of a competitor; and
WHEREAS, the Employee is willing to continue in the employment of the
Corporation, provided the Corporation will agree to provide an additional
fringe benefit in the form of certain payments in the event of the Employee's
retirement, disability, or death; and
WHEREAS, the Employee is considered a highly compensated employee;
NOW, THEREFORE, the parties agree as follows:
1. CONDITIONS.
A. The payment of benefits to the Employee or his
designated recipient under this Agreement is
conditioned upon the continuous employment of the
Employee with the Corporation (including periods of
disability and authorized leaves of absence as
described in this Agreement) until his 65th birthday
or retirement, whichever comes later, or his death,
whichever is the sooner, and upon the Employee's
compliance with the terms of this Agreement.
B. Payment of benefits is further conditioned upon the
Employee's rendering such reasonable business,
consulting, and advisory services as the
Corporation's Board of Directors may call upon him to
provide, and as his health may permit, for a
<PAGE> 2
period from his retirement to his death or until
prior disability.
1. It is understood that such services shall not
require the Employee to be active in the
Corporation's day-to-day activities and that
the Employee shall perform such services as
an independent contractor.
2. It is further understood that the Employee
shall be compensated for such services in an
amount to be then agreed upon and shall be
reimbursed for all expenses incurred in
performing such services.
C. Payment of benefits is further conditioned upon the
Employee's not acting in any similar employment
capacity for any business enterprise which competes
to a substantial degree with the Corporation or
engaging in any activity involving substantial
competition with the Corporation during his
employment with the Corporation, after his retirement
from the Corporation, or after his prior disability
while he is receiving benefits without the prior
written consent of the Corporation.
2. DEATH BENEFIT.
A. If the Employee dies during the period of his active
employment or during a disability as defined under
Section 3 of this Agreement, a payment shall be made
as provided in the attached Schedule A made a part
hereof. Such payment shall be made by the Corporation
to such person as the Employee shall designate in
writing prior to this death. The Employee shall have
the right to change the designated recipient(s) of
these payments by presenting a written amendment to
the Corporation prior to his death in a form as
provided in Schedule B attached hereto and made a
part hereof. In the event the Employee shall fail to
designate a recipient prior to his death, the
payments shall be made to the Employee's living
spouse; otherwise, to the personal representative of
the Employee's estate.
B. This benefit shall not be payable if the Employee's
death results from suicide, whether sane or insane,
within two years after the execution of this
Agreement.
3. DISABILITY BENEFIT. If Employee becomes totally and
permanently disabled prior to his retirement as the result of
an injury or a sickness and such total disability prevents the
Employee from performing all of
- 2 -
<PAGE> 3
the substantial and material duties of his regular occupation,
the Corporation agrees to pay the Employee's regular salary
during his absence for personal illness according to the
following schedule:
First 30 days of absence Full pay
during a calendar year
Second 30 days of absence 75% of pay
Third 30 days of absence 50% of pay
If after the 90-day period of disability the Employee is
unable to perform all of the substantial and material duties
of any occupation for which he is reasonably fitted by
education, training, or experience and such disability is the
result of injury or sickness, the Corporation will commence
monthly payments as provided in the attached Schedule C made a
part hereof.
4. SALARY CONTINUATION. If the Employee is still in the employ of
the Corporation at retirement under this Agreement, whether or
not disabled, the Corporation shall, within 30 days after the
Employee's retirement, commence monthly payments as provided
in the attached Schedule C made a part hereof. In the event
Employee should die after the payments have begun but before
the end of the last payment month, the unpaid balance of the
payments due shall be continued to be paid by the Corporation
to the recipient as designated in Section 2 herein.
5. NAMED FIDUCIARY AND CLAIMS PROCEDURE.
A. The named Fiduciary of the plan and for purposes of
the claim procedure under this Agreement is the
President of the Corporation, Albert C. Gaither.
1. The business address and telephone number of
the named Fiduciary under this Agreement is
Post Office Box 8, Newton, North Carolina
28658, (704) 464-2972.
2. The Corporation shall have the right to
change the named Fiduciary of the plan
created under this Agreement. The Corporation
shall also have the right to change the
address and telephone number of the named
Fiduciary. The Corporation shall give the
Employee written notice of any change of the
named Fiduciary or any change in the address
and telephone number of the named Fiduciary.
B. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee or a
- 3 -
<PAGE> 4
designated recipient or any other person claiming
through the Employee (hereinafter collectively
referred to as "the Claimant") shall make a written
request for the benefits provided under this
Agreement. This written claim shall be mailed or
delivered to the named Fiduciary.
C. If the claim is denied, either wholly or partially,
notice of the decision shall be mailed to the
Claimant within a reasonable time period. This time
period shall not exceed more than 90 days after the
receipt of the claim by the named Fiduciary.
D. The named Fiduciary shall provide a written notice to
every Claimant who is denied a claim for benefits
under this Agreement. The notice shall set forth the
following information:
1. The specific reasons for the denial;
2. The specific reference to pertinent plan
provisions on which the denial is based;
3. A description of any additional material or
information necessary for the Claimant to
perfect the claim and an explanation of why
such material or information is necessary;
and
4. Appropriate information and explanation of
the claims procedure under this Agreement to
permit the Claimant to submit his claim for
review.
All of this information shall be set forth in the
notice in a manner calculated to be understood by the
Claimant.
E. The claims procedure under this Agreement shall allow
the Claimant reasonable opportunity to appeal a
denied claim and to get a full and fair review of
that decision from the named Fiduciary.
1. The Claimant shall exercise his right of
appeal by submitting written request for a
review of the denied claim to the named
Fiduciary. This written request for review
must be submitted to the named Fiduciary
within 60 days of receipt by the Claimant of
the written notice of denial.
2. The Claimant shall have the following rights
under this appeal procedure:
- 4 -
<PAGE> 5
a. To request a review upon written
application to the named Fiduciary;
b. To review pertinent documents with
regard to the employee benefit plan
created under this Agreement;
c. To submit issues and comments in
writing;
d. To request an extension of time and
make a written submission of issues
and comments; and
e. To request that a hearing be held
to consider the Claimant's appeal.
F. The decision on the review of the denied claim shall
promptly be made by the named Fiduciary:
1. Within 60 days after the receipt of the
request for review if no such hearing is
held; or
2. Within 120 days after the receipt of the
request for review if an extension of time is
necessary in order to hold a hearing.
a. If an extension of time is necessary
in order to hold a hearing, the
named Fiduciary shall give the
Claimant written notice of the
extension of time and of the
hearing. This notice shall be given
prior to any extension.
b. The written notice of extension
shall indicate that an extension of
time will occur in order to hold a
hearing on Claimant's appeal. The
notice shall also specify the place,
date, and time of that hearing and
the Claimant's opportunity to
participate in the hearing. It may
also include any other information
the named Fiduciary believes may be
important or useful to the Claimant
in connection with the appeal.
G. The decision to hold a hearing to consider the Claimant's
appeal of the denied claim shall be within the sole discretion
of the named Fiduciary, whether or not the Claimant requests
such a hearing.
H. The named Fiduciary's decision on review shall be made in
writing and provided to the claimant within the specified time
periods in Paragraph F. This written decision on review shall
contain the following information:
- 5 -
<PAGE> 6
1. The decision(s);
2. The reasons for the decision(s); and
3. Specific references to the plan provisions of the
Agreement on which the decision(s) is/are based.
All of this information shall be written in a manner
calculated to be understood by the Claimant.
6. FUNDING.
A. The Corporation's obligations under this Agreement
shall be an unfunded and unsecured promise to pay.
The Corporation shall not be obligated under any
circumstances to fund its obligations under this
Agreement. The Corporation may, however, at its sole
and exclusive option, informally fund this Agreement
in whole or in part.
B. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, the manner of
such informal funding and the continuance or
discontinuance of such informal funding shall be the
sole and exclusive decision of the Corporation.
C. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, by procuring as
owner life insurance for its own benefit on the life
of the Employee, the form of such insurance and the
amounts shall be the sole and exclusive decision of
the Corporation. The employee hereby agrees to submit
to medical examinations, supply such information, and
execute such documents as may be required by the
insurance company or companies to whom the
Corporation may have applied for such insurance if
the Corporation shall determine to informally fund
this Agreement with life insurance.
7. EMPLOYMENT RIGHTS.
A. This Agreement shall not be deemed to create a
contract of employment between the Corporation and
the Employee and shall create no right in the
Employee to continue in the Corporation's employ for
any specific period of time or create any other
rights in the Employee or obligations on the part of
the Corporation except as are set forth in this
Agreement. This Agreement shall not restrict the
right of the Corporation to terminate the Employee
for cause or restrict the right of the Employee to
terminate his employment.
- 6 -
<PAGE> 7
B. "Cause" as defined in this Agreement shall include,
but not be limited to, any of the following:
Incompetence; insubordination; conviction or a plea
of nolo contendre in a felony case; alcoholism;
and/or drug addition.
8. EMPLOYEE RIGHT TO ASSETS. The rights of the Employee, any
designated recipient of the Employee, or any other person
claiming through the Employee under this Agreement shall be
solely those of an unsecured general creditor of the
Corporation. The Employee, the designated recipient of the
Employee, or any other person claiming through the Employee
shall only have the right to receive from the Corporation
those payments as specified under this Agreement. The Employee
agrees that he, his designated recipient, or any other person
claiming through him shall have no rights or interests
whatsoever in any asset of the Corporation, including any
insurance policies or contracts which the Corporation may
possess or obtain to informally fund this Agreement. Any asset
used or acquired by the Corporation in connection with the
liabilities it has assumed under this Agreement, except as
expressly provided, shall not be deemed to be held under any
trust for the benefit of the Employee or his recipients, nor
shall it be considered security for the performance of the
obligations of the Corporation. It shall be and remain a
general, unpledged, and unrestricted asset of the Corporation.
9. INDEPENDENCE OF BENEFITS. The benefits payable under this
Agreement shall be independent of and in addition to any other
benefits or compensation, whether by salary or bonus or
otherwise, payable under any other employment agreements that
now exist or may hereafter exist from time to time between the
Corporation and the Employee. This Agreement between the
Corporation and the Employee does not involve a reduction in
salary or foregoing of an increase in future salary by the
Employee, nor does the Agreement in any way affect or reduce
the existing and future compensation and other benefits of the
Employee.
10. ACCELERATION OF PAYMENTS. The Corporation reserves the right
to accelerate the payment of any benefits payable under this
Agreement without the consent of the Employee, his estate, his
designated recipient, or any other person claiming through the
Employee.
11. LEAVES OF ABSENCE. The Corporation may, in its sole
discretion, permit the Employee to take a leave of absence for
a period not to exceed one year. During such leave, the
Employee will still be considered to be in the continuous
employment of the Corporation for the purposes of this
Agreement.
- 7 -
<PAGE> 8
12. VESTED INTERESTS. Anything to the contrary herein
notwithstanding, the Employee shall have a vested interest in
his retirement benefits in accordance with the following
schedule:
<TABLE>
<CAPTION>
Age & Years of Employment Percentage of Retirement Pay
<S> <C> <C> <C>
50 & 5 or more 25 percent
55 & 10 or more 50 percent
60 & 15 or more 100 percent
</TABLE>
In the event a vested employee is discharged by the
Corporation for any reason except for cause, said Employee
shall be entitled to the percentage of retirement pay set
forth above at his retirement date, provided said Employee
does not become employed or affiliated in a business which
competes with the Corporation. In the event an Employee is
discharged for cause or enters into the employ of a competing
firm, the Employee shall forfeit his retirement pay. No
employee shall have any vested interest in his retirement pay
unless he is in the employ of the Corporation for a period of
five years from the date hereof.
13. MERGER OR CONSOLIDATION. The Corporation agrees that it will
not merge or consolidate with any other corporation or
organization or permit its business activities to be taken
over by any other organization unless and until the
succeeding, continuing, or new corporation or other
organization shall expressly assume all the rights and
obligations of the Corporation set forth in this Agreement.
14. ASSIGNABILITY. Except insofar as this provision may be
contrary to applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by
the Corporation.
15. AMENDMENT. During the lifetime of the Employee, this Agreement
may be amended or revoked at any time, in whole or in part, by
the mutual written agreement of the parties.
16. LAW GOVERNING. This Agreement shall be governed by the laws of
the State of North Carolina.
- 8 -
<PAGE> 9
This Agreement is solely between the Corporation and the Employee.
Further, the Employee, his designated recipient, or other persons claiming
through the Employee shall only have recourse against the Corporation for
enforcement of the Agreement. However, it shall be binding upon the designated
recipients, beneficiaries, heirs, executors, and administrators of the Employee
and upon the successors and assigns of the Corporation.
RIDGEVIEW MILLS, INC.
(CORPORATE SEAL)
BY /s/ Hugh R. Gaither
------------------------------
Vice President
ATTEST:
/s/ Pauline H. Setzer
- -------------------------------
Assistant Secretary
/s/ Albert C. Gaither
-------------------------------
ALBERT C. GAITHER, Employee
- 9 -
<PAGE> 10
SCHEDULE A
It is agreed this ____ day of __________, 1983, that the Corporation
shall make payment at death to the designated recipient(s) as follows:
$3,000.00 per month, beginning within 30 days of death, continuing for
a period of 15 years.
<PAGE> 11
SCHEDULE B
DESIGNATION OF SALARY CONTINUATION
AND DEATH BENEFIT RECIPIENT
I, Albert Gaither, request that the Corporation mark/change its
records to reflect Ann H. Gaither as the designated recipient(s) of the Salary
Continuation Benefit payable under Provision 4 and the Death Benefit payable
under Provision 2 of a Salary Continuation Agreement dated March 1, 1983, and
to make payment of the Salary Continuation Benefit and the Death Benefit to the
above designated recipient(s) as provided under the terms of the Agreement. You
are instructed to retain the above designated recipient(s) until such time as
you receive a new "Designation of Salary Continuation and Death Benefit
Recipient" from me which makes a change.
March 1, 1983 /s/ Albert C. Gaither
- ----------------------------- ---------------------------------
DATE EMPLOYEE
<PAGE> 12
SCHEDULE C
It is agreed this 1st day of March, 1983, that the Corporation shall
make monthly payments of $3,000.00 each to the Employee for a period of 15
years, aggregating cumulative payment of $540,000.00.
<PAGE> 1
EXHIBIT 10.22
STATE OF NORTH CAROLINA :
: SALARY CONTINUATION AGREEMENT
COUNTY OF CATAWBA :
THIS AGREEMENT is made and entered into this 1st day of March, 1983,
by and between Ridgeview Mills, Inc., a domestic corporation, having its
principal office in Newton, North Carolina, hereinafter called "the
Corporation", and Hugh R. Gaither, a resident of Newton, North Carolina,
hereinafter called "the Employee";
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Corporation for 8
years and is currently employed by the Corporation in the capacity of Vice
President; and
WHEREAS, the Corporation is motivated to retain the valuable services
and business counsel of the Employee and to induce the Employee to remain in
the executive capacity with the Corporation; and
WHEREAS, the Corporation wishes to retain the Employee in order to
prevent the substantial financial loss which the Corporation would incur if the
Employee were to leave and were to enter the employment of a competitor; and
WHEREAS, the Employee is willing to continue in the employment of the
Corporation, provided the Corporation will agree to provide an additional
fringe benefit in the form of certain payments in the event of the Employee's
retirement, disability, or death; and
WHEREAS, the Employee is considered a highly compensated employee;
NOW, THEREFORE, the parties agree as follows:
1. CONDITIONS.
A. The payment of benefits to the Employee or his
designated recipient under this Agreement is
conditioned upon the continuous employment of the
Employee with the Corporation (including periods of
disability and authorized leaves of absence as
described in this Agreement) until his 65th birthday
or retirement, whichever comes later, or his death,
whichever is the sooner, and upon the Employee's
compliance with the terms of this Agreement.
B. Payment of benefits is further conditioned upon the
Employee's rendering such reasonable business,
consulting, and advisory services as the
Corporation's Board of Directors may call upon him to
provide, and as his health may permit, for a
<PAGE> 2
period from his retirement to his death or until
prior disability.
1. It is understood that such services shall not
require the Employee to be active in the
Corporation's day-to-day activities and that
the Employee shall perform such services as
an independent contractor.
2. It is further understood that the Employee
shall be compensated for such services in an
amount to be then agreed upon and shall be
reimbursed for all expenses incurred in
performing such services.
C. Payment of benefits is further conditioned upon the
Employee's not acting in any similar employment
capacity for any business enterprise which competes
to a substantial degree with the Corporation or
engaging in any activity involving substantial
competition with the Corporation during his
employment with the Corporation, after his retirement
from the Corporation, or after his prior disability
while he is receiving benefits without the prior
written consent of the Corporation.
2. DEATH BENEFIT.
A. If the Employee dies during the period of his active
employment or during a disability as defined under
Section 3 of this Agreement, a payment shall be made
as provided in the attached Schedule A made a part
hereof. Such payment shall be made by the Corporation
to such person as the Employee shall designate in
writing prior to this death. The Employee shall have
the right to change the designated recipient(s) of
these payments by presenting a written amendment to
the Corporation prior to his death in a form as
provided in Schedule B attached hereto and made a
part hereof. In the event the Employee shall fail to
designate a recipient prior to his death, the
payments shall be made to the Employee's living
spouse; otherwise, to the personal representative of
the Employee's estate.
B. This benefit shall not be payable if the Employee's
death results from suicide, whether sane or insane,
within two years after the execution of this
Agreement.
3. DISABILITY BENEFIT. If Employee becomes totally and
permanently disabled prior to his retirement as the result of
an injury or a sickness and such total disability prevents the
Employee from performing all of
- 2 -
<PAGE> 3
the substantial and material duties of his regular occupation,
the Corporation agrees to pay the Employee's regular salary
during his absence for personal illness according to the
following schedule:
First 30 days of absence Full pay
during a calendar year
Second 30 days of absence 75% of pay
Third 30 days of absence 50% of pay
If after the 90-day period of disability the Employee is
unable to perform all of the substantial and material duties
of any occupation for which he is reasonably fitted by
education, training, or experience and such disability is the
result of injury or sickness, the Corporation will commence
monthly payments as provided in the attached Schedule C made a
part hereof.
4. SALARY CONTINUATION. If the Employee is still in the employ of
the Corporation at retirement under this Agreement, whether or
not disabled, the Corporation shall, within 30 days after the
Employee's retirement, commence monthly payments as provided
in the attached Schedule C made a part hereof. In the event
Employee should die after the payments have begun but before
the end of the last payment month, the unpaid balance of the
payments due shall be continued to be paid by the Corporation
to the recipient as designated in Section 2 herein.
5. NAMED FIDUCIARY AND CLAIMS PROCEDURE.
A. The named Fiduciary of the plan and for purposes of
the claim procedure under this Agreement is the
President of the Corporation, Albert C. Gaither.
1. The business address and telephone number of
the named Fiduciary under this Agreement is
Post Office Box 8, Newton, North Carolina
28658, (704) 464-2972.
2. The Corporation shall have the right to
change the named Fiduciary of the plan
created under this Agreement. The Corporation
shall also have the right to change the
address and telephone number of the named
Fiduciary. The Corporation shall give the
Employee written notice of any change of the
named Fiduciary or any change in the address
and telephone number of the named Fiduciary.
B. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee or a
- 3 -
<PAGE> 4
designated recipient or any other person claiming
through the Employee (hereinafter collectively
referred to as "the Claimant") shall make a written
request for the benefits provided under this
Agreement. This written claim shall be mailed or
delivered to the named Fiduciary.
C. If the claim is denied, either wholly or partially,
notice of the decision shall be mailed to the
Claimant within a reasonable time period. This time
period shall not exceed more than 90 days after the
receipt of the claim by the named Fiduciary.
D. The named Fiduciary shall provide a written notice to
every Claimant who is denied a claim for benefits
under this Agreement. The notice shall set forth the
following information:
1. The specific reasons for the denial;
2. The specific reference to pertinent plan
provisions on which the denial is based;
3. A description of any additional material or
information necessary for the Claimant to
perfect the claim and an explanation of why
such material or information is necessary;
and
4. Appropriate information and explanation of
the claims procedure under this Agreement to
permit the Claimant to submit his claim for
review.
All of this information shall be set forth in the
notice in a manner calculated to be understood by the
Claimant.
E. The claims procedure under this Agreement shall allow
the Claimant reasonable opportunity to appeal a
denied claim and to get a full and fair review of
that decision from the named Fiduciary.
1. The Claimant shall exercise his right of
appeal by submitting written request for a
review of the denied claim to the named
Fiduciary. This written request for review
must be submitted to the named Fiduciary
within 60 days of receipt by the Claimant of
the written notice of denial.
2. The Claimant shall have the following rights
under this appeal procedure:
- 4 -
<PAGE> 5
a. To request a review upon written
application to the named Fiduciary;
b. To review pertinent documents with
regard to the employee benefit plan
created under this Agreement;
c. To submit issues and comments in
writing;
d. To request an extension of time and
make a written submission of issues
and comments; and
e. To request that a hearing be held
to consider the Claimant's appeal.
F. The decision on the review of the denied claim shall
promptly be made by the named Fiduciary:
1. Within 60 days after the receipt of the
request for review if no such hearing is
held; or
2. Within 120 days after the receipt of the
request for review if an extension of time is
necessary in order to hold a hearing.
a. If an extension of time is necessary
in order to hold a hearing, the
named Fiduciary shall give the
Claimant written notice of the
extension of time and of the
hearing. This notice shall be given
prior to any extension.
b. The written notice of extension
shall indicate that an extension of
time will occur in order to hold a
hearing on Claimant's appeal. The
notice shall also specify the place,
date, and time of that hearing and
the Claimant's opportunity to
participate in the hearing. It may
also include any other information
the named Fiduciary believes may be
important or useful to the Claimant
in connection with the appeal.
G. The decision to hold a hearing to consider the Claimant's
appeal of the denied claim shall be within the sole discretion
of the named Fiduciary, whether or not the Claimant requests
such a hearing.
H. The named Fiduciary's decision on review shall be made in
writing and provided to the claimant within the specified time
periods in Paragraph F. This written decision on review shall
contain the following information:
- 5 -
<PAGE> 6
1. The decision(s);
2. The reasons for the decision(s); and
3. Specific references to the plan provisions of the
Agreement on which the decision(s) is/are based.
All of this information shall be written in a manner
calculated to be understood by the Claimant.
6. FUNDING.
A. The Corporation's obligations under this Agreement
shall be an unfunded and unsecured promise to pay.
The Corporation shall not be obligated under any
circumstances to fund its obligations under this
Agreement. The Corporation may, however, at its sole
and exclusive option, informally fund this Agreement
in whole or in part.
B. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, the manner of
such informal funding and the continuance or
discontinuance of such informal funding shall be the
sole and exclusive decision of the Corporation.
C. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, by procuring as
owner life insurance for its own benefit on the life
of the Employee, the form of such insurance and the
amounts shall be the sole and exclusive decision of
the Corporation. The employee hereby agrees to submit
to medical examinations, supply such information, and
execute such documents as may be required by the
insurance company or companies to whom the
Corporation may have applied for such insurance if
the Corporation shall determine to informally fund
this Agreement with life insurance.
7. EMPLOYMENT RIGHTS.
A. This Agreement shall not be deemed to create a
contract of employment between the Corporation and
the Employee and shall create no right in the
Employee to continue in the Corporation's employ for
any specific period of time or create any other
rights in the Employee or obligations on the part of
the Corporation except as are set forth in this
Agreement. This Agreement shall not restrict the
right of the Corporation to terminate the Employee
for cause or restrict the right of the Employee to
terminate his employment.
- 6 -
<PAGE> 7
B. "Cause" as defined in this Agreement shall include,
but not be limited to, any of the following:
Incompetence; insubordination; conviction or a plea
of nolo contendre in a felony case; alcoholism;
and/or drug addition.
8. EMPLOYEE RIGHT TO ASSETS. The rights of the Employee, any
designated recipient of the Employee, or any other person
claiming through the Employee under this Agreement shall be
solely those of an unsecured general creditor of the
Corporation. The Employee, the designated recipient of the
Employee, or any other person claiming through the Employee
shall only have the right to receive from the Corporation
those payments as specified under this Agreement. The Employee
agrees that he, his designated recipient, or any other person
claiming through him shall have no rights or interests
whatsoever in any asset of the Corporation, including any
insurance policies or contracts which the Corporation may
possess or obtain to informally fund this Agreement. Any asset
used or acquired by the Corporation in connection with the
liabilities it has assumed under this Agreement, except as
expressly provided, shall not be deemed to be held under any
trust for the benefit of the Employee or his recipients, nor
shall it be considered security for the performance of the
obligations of the Corporation. It shall be and remain a
general, unpledged, and unrestricted asset of the Corporation.
9. INDEPENDENCE OF BENEFITS. The benefits payable under this
Agreement shall be independent of and in addition to any other
benefits or compensation, whether by salary or bonus or
otherwise, payable under any other employment agreements that
now exist or may hereafter exist from time to time between the
Corporation and the Employee. This Agreement between the
Corporation and the Employee does not involve a reduction in
salary or foregoing of an increase in future salary by the
Employee, nor does the Agreement in any way affect or reduce
the existing and future compensation and other benefits of the
Employee.
10. ACCELERATION OF PAYMENTS. The Corporation reserves the right
to accelerate the payment of any benefits payable under this
Agreement without the consent of the Employee, his estate, his
designated recipient, or any other person claiming through the
Employee.
11. LEAVES OF ABSENCE. The Corporation may, in its sole
discretion, permit the Employee to take a leave of absence for
a period not to exceed one year. During such leave, the
Employee will still be considered to be in the continuous
employment of the Corporation for the purposes of this
Agreement.
- 7 -
<PAGE> 8
12. VESTED INTERESTS. Anything to the contrary herein
notwithstanding, the Employee shall have a vested interest in
his retirement benefits in accordance with the following
schedule:
<TABLE>
<CAPTION>
Age & Years of Employment Percentage of Retirement Pay
<S> <C> <C> <C>
50 & 5 or more 25 percent
55 & 10 or more 50 percent
60 & 15 or more 100 percent
</TABLE>
In the event a vested employee is discharged by the
Corporation for any reason except for cause, said Employee
shall be entitled to the percentage of retirement pay set
forth above at his retirement date, provided said Employee
does not become employed or affiliated in a business which
competes with the Corporation. In the event an Employee is
discharged for cause or enters into the employ of a competing
firm, the Employee shall forfeit his retirement pay. No
employee shall have any vested interest in his retirement pay
unless he is in the employ of the Corporation for a period of
five years from the date hereof.
13. MERGER OR CONSOLIDATION. The Corporation agrees that it will
not merge or consolidate with any other corporation or
organization or permit its business activities to be taken
over by any other organization unless and until the
succeeding, continuing, or new corporation or other
organization shall expressly assume all the rights and
obligations of the Corporation set forth in this Agreement.
14. ASSIGNABILITY. Except insofar as this provision may be
contrary to applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by
the Corporation.
15. AMENDMENT. During the lifetime of the Employee, this Agreement
may be amended or revoked at any time, in whole or in part, by
the mutual written agreement of the parties.
16. LAW GOVERNING. This Agreement shall be governed by the laws of
the State of North Carolina.
- 8 -
<PAGE> 9
This Agreement is solely between the Corporation and the Employee.
Further, the Employee, his designated recipient, or other persons claiming
through the Employee shall only have recourse against the Corporation for
enforcement of the Agreement. However, it shall be binding upon the designated
recipients, beneficiaries, heirs, executors, and administrators of the Employee
and upon the successors and assigns of the Corporation.
RIDGEVIEW MILLS, INC.
(CORPORATE SEAL)
BY /s/ Albert C. Gaither
------------------------------
President
ATTEST:
/s/ Pauline H. Setzer
- -------------------------------
Assistant Secretary
/s/ Hugh R. Gaither
-------------------------------
HUGH R. GAITHER, Employee
- 9 -
<PAGE> 10
SCHEDULE A
It is agreed this ____ day of __________, 1983, that the Corporation
shall make payment at death to the designated recipient(s) as follows:
$3,000.00 per month, beginning within 30 days of death, continuing for
a period of 15 years.
<PAGE> 11
SCHEDULE B
DESIGNATION OF SALARY CONTINUATION
AND DEATH BENEFIT RECIPIENT
I, Hugh R. Gaither, request that the Corporation mark/change its
records to reflect Julie H. Gaither as the designated recipient(s) of the Salary
Continuation Benefit payable under Provision 4 and the Death Benefit payable
under Provision 2 of a Salary Continuation Agreement dated March 1, 1983, and
to make payment of the Salary Continuation Benefit and the Death Benefit to the
above designated recipient(s) as provided under the terms of the Agreement. You
are instructed to retain the above designated recipient(s) until such time as
you receive a new "Designation of Salary Continuation and Death Benefit
Recipient" from me which makes a change.
March 1, 1983 /s/ Hugh R. Gaither
- ----------------------------- ---------------------------------
DATE EMPLOYEE
<PAGE> 12
SCHEDULE C
It is agreed this 1st day of March, 1983, that the Corporation shall
make monthly payments of $3,000.00 each to the Employee for a period of 15
years, aggregating cumulative payment of $540,000.00.
<PAGE> 1
EXHIBIT 10.23
STATE OF NORTH CAROLINA )
) FIRST AMENDMENT TO
COUNTY OF CATAWBA ) SALARY CONTINUATION AGREEMENT
This first Amendment to the Salary Continuation Agreement entered into
this the 8th day of June, 1992, by and between Ridgeview, Inc., a North
Carolina Corporation, (hereinafter Ridgeview), and Hugh R. Gaither, a resident
of Newton, County of Catawba, State of North Carolina (hereinafter Employee).
WHEREAS, the parties entered into that Salary Continuation Agreement
dated March 1, 1983, (a copy of which is attached hereto and incorporated by
reference), and wish to amend the same by increasing the benefit payable under
said agreement and to make certain administrative changes and consistent
benefit formula changes.
NOW THEREFORE, the parties agree as follows:
1. That the retirement benefit payable under said Agreement shall
be sixty percent (60%) of the highest base salary of Employee during his employ
with Ridgeview, payable monthly for fifteen (15) years.
2. That the death benefit payable under said Agreement shall be
sixty (60%) of the highest base salary paid Employee during his employ with
Ridgeview, payable monthly for fifteen (15) years and payable to the person or
persons as prescribed in that Agreement.
3. That Paragraph 3 of said Agreement is deleted and the
following Paragraph 3 is inserted therein:
DISABILITY BENEFIT. If Employee becomes totally and
permanently disabled prior to his retirement as the result of
an injury or a sickness and such total disability prevents the
Employee from performing all of the substantial and material
duties of his regular occupation, the Corporation agrees to
pay the Employee's regular salary during his absence for
personal illness according to the following schedule:
<TABLE>
<S> <C>
First 30 days of absence Full pay
during a calendar year
Second 30 days of absence 80% of pay
Third 30 days of absence 70% of pay
</TABLE>
If after the 90-day period of disability the Employee is
unable to perform all of the substantial and material duties
of any occupation for which he is reasonable fitted by
education, training, or experience and such disability is the
result of the injury or sickness, the
<PAGE> 2
Corporation will commence monthly payments as provided in the
attached Schedule C made a part hereof.
4. Paragraph 5 of said Agreement is amended to change the Named
Fiduciary to Walter L. Bost, Jr.
5. That Schedules "A" and "C" of the Agreement are amended as set
forth in paragraphs one and two above.
6. That all other provisions of said Agreement are hereby
ratified and affirmed.
RIDGEVIEW, INC.
By: /s/ Hugh R. Gaither
-------------------------------
Hugh R. Gaither, President
ATTEST:
/s/ J. Michael Gaither
- ---------------------------
J. Michael Gaither
Secretary
(Corporate Seal)
/s/ Hugh R. Gaither
-----------------------------
Hugh R. Gaither, Employee
- 2 -
<PAGE> 1
EXHIBIT 10.24
STATE OF NORTH CAROLINA :
: SALARY CONTINUATION AGREEMENT
COUNTY OF CATAWBA :
THIS AGREEMENT is made and entered into this 1st day of March, 1983,
by and between Ridgeview Mills, Inc., a domestic corporation, having its
principal office in Newton, North Carolina, hereinafter called "the
Corporation", and William D. Durrant, a resident of Newton, North Carolina,
hereinafter called "the Employee";
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Corporation for 7
years and is currently employed by the Corporation in the capacity of
Vice President--Sales; and
WHEREAS, the Corporation is motivated to retain the valuable services
and business counsel of the Employee and to induce the Employee to remain in
the executive capacity with the Corporation; and
WHEREAS, the Corporation wishes to retain the Employee in order to
prevent the substantial financial loss which the Corporation would incur if the
Employee were to leave and were to enter the employment of a competitor; and
WHEREAS, the Employee is willing to continue in the employment of the
Corporation, provided the Corporation will agree to provide an additional
fringe benefit in the form of certain payments in the event of the Employee's
retirement, disability, or death; and
WHEREAS, the Employee is considered a highly compensated employee;
NOW, THEREFORE, the parties agree as follows:
1. CONDITIONS.
A. The payment of benefits to the Employee or his
designated recipient under this Agreement is
conditioned upon the continuous employment of the
Employee with the Corporation (including periods of
disability and authorized leaves of absence as
described in this Agreement) until his 65th birthday
or retirement, whichever comes later, or his death,
whichever is the sooner, and upon the Employee's
compliance with the terms of this Agreement.
B. Payment of benefits is further conditioned upon the
Employee's rendering such reasonable business,
consulting, and advisory services as the
Corporation's Board of Directors may call upon him to
provide, and as his health may permit, for a
<PAGE> 2
period from his retirement to his death or until
prior disability.
1. It is understood that such services shall not
require the Employee to be active in the
Corporation's day-to-day activities and that
the Employee shall perform such services as
an independent contractor.
2. It is further understood that the Employee
shall be compensated for such services in an
amount to be then agreed upon and shall be
reimbursed for all expenses incurred in
performing such services.
C. Payment of benefits is further conditioned upon the
Employee's not acting in any similar employment
capacity for any business enterprise which competes
to a substantial degree with the Corporation or
engaging in any activity involving substantial
competition with the Corporation during his
employment with the Corporation, after his retirement
from the Corporation, or after his prior disability
while he is receiving benefits without the prior
written consent of the Corporation.
2. DEATH BENEFIT.
A. If the Employee dies during the period of his active
employment or during a disability as defined under
Section 3 of this Agreement, a payment shall be made
as provided in the attached Schedule A made a part
hereof. Such payment shall be made by the Corporation
to such person as the Employee shall designate in
writing prior to this death. The Employee shall have
the right to change the designated recipient(s) of
these payments by presenting a written amendment to
the Corporation prior to his death in a form as
provided in Schedule B attached hereto and made a
part hereof. In the event the Employee shall fail to
designate a recipient prior to his death, the
payments shall be made to the Employee's living
spouse; otherwise, to the personal representative of
the Employee's estate.
B. This benefit shall not be payable if the Employee's
death results from suicide, whether sane or insane,
within two years after the execution of this
Agreement.
3. DISABILITY BENEFIT. If Employee becomes totally and
permanently disabled prior to his retirement as the result of
an injury or a sickness and such total disability prevents the
Employee from performing all of
- 2 -
<PAGE> 3
the substantial and material duties of his regular occupation,
the Corporation agrees to pay the Employee's regular salary
during his absence for personal illness according to the
following schedule:
First 30 days of absence Full pay
during a calendar year
Second 30 days of absence 75% of pay
Third 30 days of absence 50% of pay
If after the 90-day period of disability the Employee is
unable to perform all of the substantial and material duties
of any occupation for which he is reasonably fitted by
education, training, or experience and such disability is the
result of injury or sickness, the Corporation will commence
monthly payments as provided in the attached Schedule C made a
part hereof.
4. SALARY CONTINUATION. If the Employee is still in the employ of
the Corporation at retirement under this Agreement, whether or
not disabled, the Corporation shall, within 30 days after the
Employee's retirement, commence monthly payments as provided
in the attached Schedule C made a part hereof. In the event
Employee should die after the payments have begun but before
the end of the last payment month, the unpaid balance of the
payments due shall be continued to be paid by the Corporation
to the recipient as designated in Section 2 herein.
5. NAMED FIDUCIARY AND CLAIMS PROCEDURE.
A. The named Fiduciary of the plan and for purposes of
the claim procedure under this Agreement is the
President of the Corporation, Albert C. Gaither.
1. The business address and telephone number of
the named Fiduciary under this Agreement is
Post Office Box 8, Newton, North Carolina
28658, (704) 464-2972.
2. The Corporation shall have the right to
change the named Fiduciary of the plan
created under this Agreement. The Corporation
shall also have the right to change the
address and telephone number of the named
Fiduciary. The Corporation shall give the
Employee written notice of any change of the
named Fiduciary or any change in the address
and telephone number of the named Fiduciary.
B. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee or a
- 3 -
<PAGE> 4
designated recipient or any other person claiming
through the Employee (hereinafter collectively
referred to as "the Claimant") shall make a written
request for the benefits provided under this
Agreement. This written claim shall be mailed or
delivered to the named Fiduciary.
C. If the claim is denied, either wholly or partially,
notice of the decision shall be mailed to the
Claimant within a reasonable time period. This time
period shall not exceed more than 90 days after the
receipt of the claim by the named Fiduciary.
D. The named Fiduciary shall provide a written notice to
every Claimant who is denied a claim for benefits
under this Agreement. The notice shall set forth the
following information:
1. The specific reasons for the denial;
2. The specific reference to pertinent plan
provisions on which the denial is based;
3. A description of any additional material or
information necessary for the Claimant to
perfect the claim and an explanation of why
such material or information is necessary;
and
4. Appropriate information and explanation of
the claims procedure under this Agreement to
permit the Claimant to submit his claim for
review.
All of this information shall be set forth in the
notice in a manner calculated to be understood by the
Claimant.
E. The claims procedure under this Agreement shall allow
the Claimant reasonable opportunity to appeal a
denied claim and to get a full and fair review of
that decision from the named Fiduciary.
1. The Claimant shall exercise his right of
appeal by submitting written request for a
review of the denied claim to the named
Fiduciary. This written request for review
must be submitted to the named Fiduciary
within 60 days of receipt by the Claimant of
the written notice of denial.
2. The Claimant shall have the following rights
under this appeal procedure:
- 4 -
<PAGE> 5
a. To request a review upon written
application to the named Fiduciary;
b. To review pertinent documents with
regard to the employee benefit plan
created under this Agreement;
c. To submit issues and comments in
writing;
d. To request an extension of time and
make a written submission of issues
and comments; and
e. To request that a hearing be held
to consider the Claimant's appeal.
F. The decision on the review of the denied claim shall
promptly be made by the named Fiduciary:
1. Within 60 days after the receipt of the
request for review if no such hearing is
held; or
2. Within 120 days after the receipt of the
request for review if an extension of time is
necessary in order to hold a hearing.
a. If an extension of time is necessary
in order to hold a hearing, the
named Fiduciary shall give the
Claimant written notice of the
extension of time and of the
hearing. This notice shall be given
prior to any extension.
b. The written notice of extension
shall indicate that an extension of
time will occur in order to hold a
hearing on Claimant's appeal. The
notice shall also specify the place,
date, and time of that hearing and
the Claimant's opportunity to
participate in the hearing. It may
also include any other information
the named Fiduciary believes may be
important or useful to the Claimant
in connection with the appeal.
G. The decision to hold a hearing to consider the Claimant's
appeal of the denied claim shall be within the sole discretion
of the named Fiduciary, whether or not the Claimant requests
such a hearing.
H. The named Fiduciary's decision on review shall be made in
writing and provided to the claimant within the specified time
periods in Paragraph F. This written decision on review shall
contain the following information:
- 5 -
<PAGE> 6
1. The decision(s);
2. The reasons for the decision(s); and
3. Specific references to the plan provisions of the
Agreement on which the decision(s) is/are based.
All of this information shall be written in a manner
calculated to be understood by the Claimant.
6. FUNDING.
A. The Corporation's obligations under this Agreement
shall be an unfunded and unsecured promise to pay.
The Corporation shall not be obligated under any
circumstances to fund its obligations under this
Agreement. The Corporation may, however, at its sole
and exclusive option, informally fund this Agreement
in whole or in part.
B. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, the manner of
such informal funding and the continuance or
discontinuance of such informal funding shall be the
sole and exclusive decision of the Corporation.
C. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, by procuring as
owner life insurance for its own benefit on the life
of the Employee, the form of such insurance and the
amounts shall be the sole and exclusive decision of
the Corporation. The employee hereby agrees to submit
to medical examinations, supply such information, and
execute such documents as may be required by the
insurance company or companies to whom the
Corporation may have applied for such insurance if
the Corporation shall determine to informally fund
this Agreement with life insurance.
7. EMPLOYMENT RIGHTS.
A. This Agreement shall not be deemed to create a
contract of employment between the Corporation and
the Employee and shall create no right in the
Employee to continue in the Corporation's employ for
any specific period of time or create any other
rights in the Employee or obligations on the part of
the Corporation except as are set forth in this
Agreement. This Agreement shall not restrict the
right of the Corporation to terminate the Employee
for cause or restrict the right of the Employee to
terminate his employment.
- 6 -
<PAGE> 7
B. "Cause" as defined in this Agreement shall include,
but not be limited to, any of the following:
Incompetence; insubordination; conviction or a plea
of nolo contendre in a felony case; alcoholism;
and/or drug addition.
8. EMPLOYEE RIGHT TO ASSETS. The rights of the Employee, any
designated recipient of the Employee, or any other person
claiming through the Employee under this Agreement shall be
solely those of an unsecured general creditor of the
Corporation. The Employee, the designated recipient of the
Employee, or any other person claiming through the Employee
shall only have the right to receive from the Corporation
those payments as specified under this Agreement. The Employee
agrees that he, his designated recipient, or any other person
claiming through him shall have no rights or interests
whatsoever in any asset of the Corporation, including any
insurance policies or contracts which the Corporation may
possess or obtain to informally fund this Agreement. Any asset
used or acquired by the Corporation in connection with the
liabilities it has assumed under this Agreement, except as
expressly provided, shall not be deemed to be held under any
trust for the benefit of the Employee or his recipients, nor
shall it be considered security for the performance of the
obligations of the Corporation. It shall be and remain a
general, unpledged, and unrestricted asset of the Corporation.
9. INDEPENDENCE OF BENEFITS. The benefits payable under this
Agreement shall be independent of and in addition to any other
benefits or compensation, whether by salary or bonus or
otherwise, payable under any other employment agreements that
now exist or may hereafter exist from time to time between the
Corporation and the Employee. This Agreement between the
Corporation and the Employee does not involve a reduction in
salary or foregoing of an increase in future salary by the
Employee, nor does the Agreement in any way affect or reduce
the existing and future compensation and other benefits of the
Employee.
10. ACCELERATION OF PAYMENTS. The Corporation reserves the right
to accelerate the payment of any benefits payable under this
Agreement without the consent of the Employee, his estate, his
designated recipient, or any other person claiming through the
Employee.
11. LEAVES OF ABSENCE. The Corporation may, in its sole
discretion, permit the Employee to take a leave of absence for
a period not to exceed one year. During such leave, the
Employee will still be considered to be in the continuous
employment of the Corporation for the purposes of this
Agreement.
- 7 -
<PAGE> 8
12. VESTED INTERESTS. Anything to the contrary herein
notwithstanding, the Employee shall have a vested interest in
his retirement benefits in accordance with the following
schedule:
<TABLE>
<CAPTION>
Age & Years of Employment Percentage of Retirement Pay
<S> <C> <C> <C>
50 & 5 or more 25 percent
55 & 10 or more 50 percent
60 & 15 or more 100 percent
</TABLE>
In the event a vested employee is discharged by the
Corporation for any reason except for cause, said Employee
shall be entitled to the percentage of retirement pay set
forth above at his retirement date, provided said Employee
does not become employed or affiliated in a business which
competes with the Corporation. In the event an Employee is
discharged for cause or enters into the employ of a competing
firm, the Employee shall forfeit his retirement pay. No
employee shall have any vested interest in his retirement pay
unless he is in the employ of the Corporation for a period of
five years from the date hereof.
13. MERGER OR CONSOLIDATION. The Corporation agrees that it will
not merge or consolidate with any other corporation or
organization or permit its business activities to be taken
over by any other organization unless and until the
succeeding, continuing, or new corporation or other
organization shall expressly assume all the rights and
obligations of the Corporation set forth in this Agreement.
14. ASSIGNABILITY. Except insofar as this provision may be
contrary to applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by
the Corporation.
15. AMENDMENT. During the lifetime of the Employee, this Agreement
may be amended or revoked at any time, in whole or in part, by
the mutual written agreement of the parties.
16. LAW GOVERNING. This Agreement shall be governed by the laws of
the State of North Carolina.
- 8 -
<PAGE> 9
This Agreement is solely between the Corporation and the Employee.
Further, the Employee, his designated recipient, or other persons claiming
through the Employee shall only have recourse against the Corporation for
enforcement of the Agreement. However, it shall be binding upon the designated
recipients, beneficiaries, heirs, executors, and administrators of the Employee
and upon the successors and assigns of the Corporation.
RIDGEVIEW MILLS, INC.
(CORPORATE SEAL)
BY /s/ Albert C. Gaither
------------------------------
President
ATTEST:
/s/ Pauline H. Setzer
- -------------------------------
Assistant Secretary
/s/ William D. Durrant
-------------------------------
WILLIAM D. DURRANT, Employee
- 9 -
<PAGE> 10
SCHEDULE A
It is agreed this ____ day of __________, 1983, that the Corporation
shall make payment at death to the designated recipient(s) as follows:
$3,000.00 per month, beginning within 30 days of death, continuing for
a period of 15 years.
<PAGE> 11
SCHEDULE B
DESIGNATION OF SALARY CONTINUATION
AND DEATH BENEFIT RECIPIENT
I, William D. Durrant, request that the Corporation mark/change its
records to reflect Ethel Durrant as the designated recipient(s) of the Salary
Continuation Benefit payable under Provision 4 and the Death Benefit payable
under Provision 2 of a Salary Continuation Agreement dated March 1, 1983, and
to make payment of the Salary Continuation Benefit and the Death Benefit to the
above designated recipient(s) as provided under the terms of the Agreement. You
are instructed to retain the above designated recipient(s) until such time as
you receive a new "Designation of Salary Continuation and Death Benefit
Recipient" from me which makes a change.
March 1, 1983 /s/ William D. Durrant
- ----------------------------- ---------------------------------
DATE EMPLOYEE
<PAGE> 12
SCHEDULE C
It is agreed this 1st day of March, 1983, that the Corporation shall
make monthly payments of $3,000.00 each to the Employee for a period of 15
years, aggregating cumulative payment of $540,000.00.
<PAGE> 1
EXHIBIT 10.25
STATE OF NORTH CAROLINA )
) FIRST AMENDMENT TO
COUNTY OF CATAWBA ) SALARY CONTINUATION AGREEMENT
This first Amendment to the Salary Continuation Agreement entered into
this the 8th day of June, 1992, by and between Ridgeview, Inc., a North
Carolina Corporation, (hereinafter Ridgeview), and William D. Durrant, a
resident of Conover, County of Catawba, State of North Carolina (hereinafter
Employee).
WHEREAS, the parties entered into that Salary Continuation Agreement
dated March 1, 1983, (a copy of which is attached hereto and incorporated by
reference), and wish to amend the same by increasing the benefit payable under
said agreement and to make certain administrative changes and consistent
benefit formula changes.
NOW THEREFORE, the parties agree as follows:
1. That the retirement benefit payable under said Agreement shall
be sixty percent (60%) of the highest base salary of Employee during his employ
with Ridgeview, payable monthly for fifteen (15) years.
2. That the death benefit payable under said Agreement shall be
sixty (60%) of the highest base salary paid Employee during his employ with
Ridgeview, payable monthly for fifteen (15) years and payable to the person or
persons as prescribed in the that Agreement.
3. That Paragraph 3. of said Agreement is deleted and the
following Paragraph 3. is inserted therein:
DISABILITY BENEFIT. If Employee becomes totally and
permanently disabled prior to his retirement as the result of
an injury or a sickness and such total disability prevents the
Employee from performing all of the substantial and material
duties of his regular occupation, the Corporation agrees to
pay the Employee's regular salary during his absence for
personal illness according to the following schedule:
First 30 days of absence Full pay
during a calendar year
Second 30 days of absence 80% of pay
Third 30 days of absence 70% of pay
If after the 90-days period of disability the Employee is
unable to perform all of the substantial and material duties
of any occupation for which he is reasonable fitted by
education, training, or experience and such disability is the
result of the injury or sickness, the
<PAGE> 2
Corporation will commence monthly payments as provided in the
attached Schedule C made a part hereof.
4. Paragraph 5. of said Agreement is amended to change the Named
Fiduciary to Hugh R. Gaither, President of the Corporation.
5. That Schedules "A" and "C" of the Agreement are amended as set
forth in paragraphs one and two above.
6. That all other provisions of said Agreement are hereby
ratified and affirmed.
RIDGEVIEW, INC.
By: /s/ Hugh R. Gaither
--------------------------------
Hugh R. Gaither, President
(Corporate Seal)
ATTEST:
/s/ J. Michael Gaither
- ---------------------------------
J. Michael Gaither
Secretary
/s/ William D. Durrant
-------------------------------
William D. Durrant, Employee
- 2 -
<PAGE> 3
SCHEDULE A
It is agreed this the _____ day of ___________________ 19___, that the
Corporation shall make payment at death to the designated recipient(s) as
follow:
Monthly payments equal to 60% of the highest base salary of
the Employee (per month), beginning within thirty (30) days of
death, for a period of fifteen (15) years.
- 3 -
<PAGE> 4
SCHEDULE C
It is agreed this the _____ day of ________________, 19__, that the
Corporation shall make monthly payments equal to 60% of the highest base salary
of the Employee (per month) for a period of fifteen (15) years.
- 4 -
<PAGE> 1
EXHIBIT 10.26
STATE OF NORTH CAROLINA :
: SALARY CONTINUATION AGREEMENT
COUNTY OF CATAWBA :
THIS AGREEMENT is made and entered into this 8th day of June, 1992, by
and between Ridgeview Inc., a domestic corporation, having its principal office
in Newton, North Carolina, hereinafter called "the Corporation", and Susan
Gaither Jones, a resident of North Carolina, hereinafter called "the Employee";
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Corporation for 19
years and is currently employed by the Corporation in the capacity of Vice
President; and
WHEREAS, the Corporation is motivated to retain the valuable services
and business counsel of the Employee and to induce the Employee to remain in
the executive capacity with the Corporation; and
WHEREAS, the Corporation wishes to retain the Employee in order to
prevent the substantial financial loss which the Corporation would incur if the
Employee were to leave and were to enter the employment of a competitor; and
WHEREAS, the Employee is willing to continue in the employment of the
Corporation, provided the Corporation will agree to provide an additional
fringe benefit in the form of certain payments in the event of the Employee's
retirement, disability, or death; and
WHEREAS, the Employee is considered a highly compensated employee;
NOW, THEREFORE, the parties agree as follows:
1. CONDITIONS.
A. The payment of benefits to the Employee or his
designated recipient under this Agreement is
conditioned upon the continuous employment of the
Employee with the Corporation (including periods of
disability and authorized leaves of absence as
described in this Agreement) until his 65th birthday
or retirement, whichever comes later, or his death,
whichever is the sooner, and upon the Employee's
compliance with the terms of this Agreement.
B. Payment of benefits is further conditioned upon the
Employee's rendering such reasonable business,
consulting, and advisory services as the
Corporation's Board of Directors may call upon him to
provide, and as his health may permit, for a
<PAGE> 2
period from his retirement to his death or until
prior disability.
1. It is understood that such services shall not
require the Employee to be active in the
Corporation's day-to-day activities and that
the Employee shall perform such services as
an independent contractor.
2. It is further understood that the Employee
shall be compensated for such services in an
amount to be then agreed upon and shall be
reimbursed for all expenses incurred in
performing such services.
C. Payment of benefits is further conditioned upon the
Employee's not acting in any similar employment
capacity for any business enterprise which competes
to a substantial degree with the Corporation or
engaging in any activity involving substantial
competition with the Corporation during his
employment with the Corporation, after his retirement
from the Corporation, or after his prior disability
while he is receiving benefits without the prior
written consent of the Corporation.
2. DEATH BENEFIT.
A. If the Employee dies during the period of his active
employment or during a disability as defined under
Section 3 of this Agreement, the corporation shall
make a payment equal to sixty (60%) percent of the
highest annual base salary of Employee during his
employment with the Corporation. Said sum shall be
payable in equal monthly installments over a fifteen
(15) year period. Such payment shall be made by the
Corporation to such person as the Employee shall
designate in writing prior to his death on the
attached Schedule A. The Employee shall have the
right to change the designated recipient(s) of these
payments by presenting a written amendment to the
Corporation prior to his death in a form as provided
in Schedule B attached hereto and made a part hereof.
In the event the Employee shall fail to designate a
recipient prior to his death, the payments shall be
made to the Employee's living spouse, otherwise, to
the personal representative of the Employee's estate.
B. This benefit shall not be payable if the Employee's
death results from suicide, whether sane or insane,
within two years after the execution of this
Agreement.
- 2 -
<PAGE> 3
3. DISABILITY BENEFIT. If Employee becomes totally and
permanently disabled prior to his retirement as the result of
an injury or a sickness and such total disability prevents the
Employee from performing all of the substantial and material
duties of his regular occupation, the Corporation agrees to
pay the Employee's regular salary during his absence for
personal illness according to the following schedule:
<TABLE>
<S> <C>
First 30 days of absence Full pay
during a calendar year
Second 30 days of absence 80% of pay
Third 30 days of absence 70% of pay
</TABLE>
If after the 90-day period of disability the Employee is
unable to perform all of the substantial and material duties
of any occupation for which he is reasonably fitted by
education, training, or experience and such disability is the
result of injury or sickness, the Corporation will commence
monthly payments as provided in the attached Schedule B made a
part hereof.
4. SALARY CONTINUATION. If the Employee is still in the employ
of the Corporation at retirement under this Agreement, whether
or not disabled, the Corporation shall, within 30 days after
the Employee's retirement, commence monthly payments which
shall equal sixty (60%) percent of employees highest base
salary during employ with Corporation. Said benefit shall be
payable for fifteen (15) years. In the event Employee should
die after the payments have begun but before the end of the
last payment month, the unpaid balance of the payments due
shall be continued to be paid by the Corporation to the
recipient as designated on attached Schedule A.
5. NAMED FIDUCIARY AND CLAIMS PROCEDURE.
A. The named Fiduciary of the plan and for purposes of
the claim procedure under this Agreement is Hugh R.
Gaither, President of the Corporation.
1. The business address and telephone number of
the named Fiduciary under this Agreement is
Post Office Box 8, Newton, North Carolina
28658, (704) 464-2972.
2. The Corporation shall have the right to
change the named Fiduciary of the plan
created under this Agreement. The
Corporation shall also have the right to
change the address and telephone number of
the named Fiduciary. The Corporation shall
give the Employee written notice of any
change of the named Fiduciary or
- 3 -
<PAGE> 4
any change in the address and telephone
number of the named Fiduciary.
B. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee or a
designated recipient or any other person claiming
through the Employee (hereinafter collectively
referred to as "the Claimant") shall make a written
request for the benefits provided under this
Agreement. This written claim shall be mailed or
delivered to the named Fiduciary.
C. If the claim is denied, either wholly or partially,
notice of the decision shall be mailed to the
Claimant within a reasonable timer period. This time
period shall not exceed more than 90 days after the
receipt of the claim by the named Fiduciary.
D. The named Fiduciary shall provide a written notice to
every Claimant who is denied a claim for benefits
under this Agreement. The notice shall set forth the
following information:
1. The specific reasons for the denial;
2. The specific reference to pertinent plan
provisions on which the denial is based;
3. A description of any additional material or
information necessary for the Claimant to
perfect the claim and an explanation of why
such material or information is necessary;
and
4. Appropriate information and explanation of
the claims procedure under this Agreement to
permit the Claimant to submit his claim for
review.
E. The claims procedure under this Agreement shall allow
the Claimant reasonable opportunity to appeal a
denied claim and to get a full and fair review of
that decision from the named Fiduciary.
1. The Claimant shall exercise his right of
appeal by submitting written request for a
review of the denied claim to the named
Fiduciary. This written request for review
must be submitted to the named Fiduciary
within 60 days of receipt by the Claimant of
the written notice of denial.
2. The Claimant shall have the following rights
under this appeal procedure:
- 4 -
<PAGE> 5
a. To request a review upon written
application to the named Fiduciary;
b. To review pertinent documents with
regard to the employee benefit plan
created under this Agreement;
c. To submit issues and comments in
writing;
d. To request an extension of time and
make a written submission of issues
and comments; and
e. To request that a hearing be held to
consider the Claimant's appeal.
F. The decision on the review of the denied claim shall
promptly be made by the named Fiduciary:
1. Within 60 days after the receipt of the
request for review if no such hearing is
held; or
2. Within 120 days after the receipt of the
request for review if an extension of time is
necessary in order to hold a hearing.
a. If an extension of time is necessary
in order to hold a hearing, the
named Fiduciary shall give the
Claimant written notice of the
extension of time and of the
hearing. This notice shall be given
prior to any extension.
b. The written notice of extension
shall indicate that an extension of
time will occur in order to hold a
hearing on Claimant's appeal. The
notice shall also specify the place,
date, and time of that hearing and
the Claimant's opportunity to
participate in the hearing. It may
also include any other information
the named Fiduciary believes may be
important or useful to the Claimant
in connection with the appeal.
G. The decision to hold a hearing to consider the Claimant's
appeal of the denied claim shall be within the sole discretion
of the named Fiduciary, whether or not the Claimant requests
such a hearing.
H. The named Fiduciary's decision on review shall be made in
writing and provided to the Claimant within the specified time
periods in Paragraph F. This written decision on review shall
contain the following information:
- 5 -
<PAGE> 6
1. The decision(s);
2. The reasons for the decision(s); and
3. Specific references to the plan provisions of the
Agreement on which the decision(s) is/are based.
All of this information shall be written in a manner
calculated to be understood by the Claimant.
6. FUNDING.
A. The Corporation's obligations under this Agreement
shall be an unfunded and unsecured promise to pay.
The Corporation shall not be obligated under any
circumstances to fund its obligations under this
Agreement. The Corporation may, however, at its sole
and exclusive option, informally fund this Agreement
in whole or in part.
B. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, the manner of
such informal funding and the continuance or
discontinuance of such informal funding shall be the
sole and exclusive decision of the Corporation.
C. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, by procuring as
owner life insurance for its own benefit on the life
of the Employee, the form of such insurance and the
amounts shall be the sole and exclusive decision of
the Corporation. The employee hereby agrees to
submit to medical examinations, supply such
information, and execute such documents as may be
required by the insurance company or companies to
whom the Corporation may have applied for such
insurance if the Corporation shall determine to
informally fund this Agreement with life insurance.
7. EMPLOYMENT RIGHTS.
A. This Agreement shall not be deemed to create a
contract of employment between the Corporation and
the Employee and shall create no right in the
Employee to continue in the Corporation's employ for
any specific period of time or create any other
rights in the Employee or obligations on the part of
the Corporation except as are set forth in this
Agreement. This Agreement shall not restrict the
right of the Corporation to terminate the Employee
for cause or restrict the right of the Employee to
terminate his employment.
- 6 -
<PAGE> 7
B. "Cause" as defined in this Agreement shall include,
but not be limited to, any of the following:
Incompetence; insubordination; conviction or a plea
of nolo contendre in a felony case; alcoholism;
and/or drug addition.
8. EMPLOYEE RIGHT TO ASSETS. The rights of the Employee, any
designated recipient of the Employee, or any other person
claiming through the Employee under this Agreement shall be
solely those of an unsecured general creditor of the
Corporation. The Employee, the designated recipient of the
Employee, or any other person claiming through the Employee
shall only have the right to receive from the Corporation
those payments as specified under this Agreement. The
Employee agrees that he, his designated recipient, or any
other person claiming through him shall have no rights or
interests whatsoever in any asset of the Corporation,
including any insurance policies or contracts which the
Corporation may possess or obtain to informally fund this
Agreement. Any asset used or acquired by the Corporation in
connection with the liabilities it has assumed under this
Agreement, except as expressly provided, shall not be deemed
to be held under any trust for the benefit of the Employee or
his recipients, nor shall it be considered security for the
performance of the obligations of the Corporation. It shall
be and remain a general, unpledged, and unrestricted asset of
the Corporation.
9. INDEPENDENCE OF BENEFITS. The benefits payable under this
Agreement shall be independent of and in addition to any other
benefits or compensation, whether by salary or bonus or
otherwise, payable under any other employment agreements that
now exist or may hereafter exist from time to time between the
Corporation and the Employee. This Agreement between the
Corporation and the Employee does not involve a reduction in
salary or foregoing of an increase in future salary by the
Employee, nor does the Agreement in any way affect or reduce
the existing and future compensation and other benefits of the
Employee.
10. ACCELERATION OF PAYMENTS. The Corporation reserves the right
to accelerate the payment of any benefits payable under this
Agreement without the consent of the Employee, his estate, his
designated recipient, or any other person claiming through the
Employee.
11. LEAVES OF ABSENCE. The Corporation may, in its sole
discretion, permit the Employee to take a leave of absence for
a period not to exceed one year. During such leave, the
Employee will still be considered to be in the continuous
employment of the Corporation for the purposes of this
Agreement.
- 7 -
<PAGE> 8
12. VESTED INTERESTS. Anything to the contrary herein
notwithstanding, the Employee shall have a vested interest in
his retirement benefits in accordance with the following
schedule:
<TABLE>
<CAPTION>
Age & Years of Employment Percentage of Retirement Pay
--- ------------------- ----------------------------
<S> <C> <C> <C>
50 & 5 or more 25 percent
55 & 10 or more 50 percent
60 & 15 or more 100 percent
</TABLE>
In the event a vested employee is discharged by the
Corporation for any reason except for cause, said Employee
shall be entitled to the percentage of retirement pay set
forth above at his retirement date, provided said Employee
does not become employed or affiliated in a business which
competes with the Corporation. In the event an Employee is
discharged for cause or enters into the employ of a competing
firm, the Employee shall forfeit his retirement pay. No
employee shall have any vested interest in his retirement pay
unless he is in the employ of the Corporation for a period of
five years from the date hereof.
13. MERGER OR CONSOLIDATION. The Corporation agrees that it will
not merge or consolidate with any other corporation or
organization or permit its business activities to be taken
over by any other organization unless and until the
succeeding, continuing, or new corporation or other
organization shall expressly assume all the rights and
obligations of the Corporation set forth in this Agreement.
14. ASSIGNABILITY. Except insofar as this provision may be
contrary to applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by
the Corporation.
15. AMENDMENT. During the lifetime of the Employee, this
Agreement may be amended or revoked at any time, in whole or
in part, by the mutual written agreement of the parties.
16. LAW GOVERNING. This Agreement shall be governed by the laws
of the State of North Carolina.
- 8 -
<PAGE> 9
This Agreement is solely between the Corporation and the Employee.
Further, the Employee, his designated recipient, or other persons claiming
through the Employee shall only have recourse against the Corporation for
enforcement of the Agreement. However, it shall be binding upon the designated
recipients, beneficiaries, heirs, executors, and administrators of the Employee
and upon the successors and assigns of the Corporation.
RIDGEVIEW, INC.
By /s/ Hugh R. Gaither
----------------------------
ATTEST:
/s/ J. Michael Gaither
- ---------------------------------
(Corporate Seal)
/s/ Susan Gaither Jones
------------------------------
SUSAN GAITHER JONES, Employee
- 9 -
<PAGE> 10
SCHEDULE A
DESIGNATION OF SALARY CONTINUATION
AND DEATH BENEFIT RECIPIENT
I, Susan Gaither Jones, request that the Corporation mark/change its
records to reflect Thomas R. Jones as the designated recipient(s) of the Salary
Continuation Benefit payable under Provision 4 and the Death Benefit payable
under Provision 2 of the Salary Continuation Agreement dated
______________________, 19_____________, and to make payment of the Salary
Continuation Benefit and the Death Benefit to the above designated recipient(s)
as provided under the terms of the Agreement. You are instructed to retain the
above designated recipient(s) until such time as you receive a new "Designation
of Salary Continuation and Death Benefit Recipient" from me which makes a
change.
6/8/92 /s/ Susan Gaither Jones
- ----------------------- ----------------------------
Date Employee
<PAGE> 11
SCHEDULE B
It is agreed this ____ day of ___________, 19____, that the Corporation
shall make monthly payments of $_______ each to the Employee for a period of
______________ years, aggregating cumulative payment of $____________________.
<PAGE> 1
EXHIBIT 10.27
STATE OF NORTH CAROLINA
SALARY CONTINUATION AGREEMENT
COUNTY OF CATAWBA
THIS AGREEMENT is made and entered into this 1st day of July, 1996, by
and between Ridgeview Inc., a domestic corporation, having its principal office
in Newton, North Carolina, hereinafter called "the Corporation", and Walter L.
Bost, Jr., a resident of North Carolina, hereinafter called "the Employee";
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Corporation for 8 years
and is currently employed by the Corporation in the capacity of Vice President;
and
WHEREAS, the Corporation is motivated to retain the valuable services
and business counsel of the Employee and to induce the Employee to remain in
the executive capacity with the Corporation; and
WHEREAS, the Corporation wishes to retain the Employee in order to
prevent the substantial financial loss which the Corporation would incur if the
Employee were to leave and were to enter the employment of a competitor; and
WHEREAS, the Employee is willing to continue in the employment of the
Corporation, provided the Corporation will agree to provide an additional
fringe benefit in the form of certain payments in the event of the Employee's
retirement, disability, or death; and
WHEREAS, the Employee is considered a highly compensated employee;
NOW, THEREFORE, the parties agree as follows:
1. CONDITIONS.
A. The payment of benefits to the Employee or his
designated recipient under this Agreement is
conditioned upon the continuous employment of the
Employee with the Corporation (including periods of
disability and authorized leaves of absence as
described in this Agreement) until his 65th birthday
or retirement, whichever comes later, or his death,
whichever is the sooner, and upon the Employee's
compliance with the terms of this Agreement.
B. Payment of benefits is further conditioned upon the
Employee's rendering such reasonable business,
consulting, and advisory services as the
Corporation's Board of Directors may call upon him to
provide, and as his health may permit, for a
<PAGE> 2
period from his retirement to his death or until
prior disability.
1. It is understood that such services shall not
require the Employee to be active in the
Corporation's day-to-day activities and that
the Employee shall perform such services as
an independent contractor.
2. It is further understood that the Employee
shall be compensated for such services in an
amount to be then agreed upon and shall be
reimbursed for all expenses incurred in
performing such services.
C. Payment of benefits is further conditioned upon the
Employee's not acting in any similar employment
capacity for any business enterprise which competes
to a substantial degree with the Corporation or
engaging in any activity involving substantial
competition with the Corporation during his
employment with the Corporation, after his retirement
from the Corporation, or after his prior disability
while he is receiving benefits without the prior
written consent of the Corporation.
2. DEATH BENEFIT.
A. If the Employee dies during the period of his active
employment or during a disability as defined under
Section 3 of this Agreement, the corporation shall
make a payment equal to sixty percent (60%) of the
highest annual base salary of Employee during his
employment with the Corporation. Said sum shall be
payable in equal monthly installments over a fifteen
(15) year period. Such payment shall be made by the
Corporation to such person as the Employee shall
designate in writing prior to his death on the
attached Schedule A. The Employee shall have the
right to change the designated recipient(s) of these
payments by presenting a written amendment to the
Corporation prior to his death in a form as provided
in Schedule B attached hereto and made a part hereof.
In the event the Employee shall fail to designate a
recipient prior to this death, the payments shall be
made to the Employee's living spouse, otherwise, to
the personal representative of the Employee's estate.
B. This benefit shall not be payable if the Employee's
death results from suicide, whether sane or insane,
within two years after the execution of this
Agreement.
- 2 -
<PAGE> 3
3. DISABILITY BENEFIT. If Employee becomes totally and
permanently disabled prior to his retirement as the result of
an injury or a sickness, and if such total disability prevents
the Employee from performing all of the substantial and
material duties of his regular occupation, the Corporation
agrees to pay the Employee's regular salary during his absence
for personal illness according to the following schedule:
<TABLE>
<S> <C>
First 30 days of absence Full pay
during a calendar year
Second 30 days of absence 80% of pay
Third 30 days of absence 70% of pay
</TABLE>
If after the 90 day period of disability the Employee is
unable to perform all of the substantial and material duties
of any occupation for which he is reasonably fitted by
education, training, or experience and such disability is the
result of injury or sickness, the Corporation will commence
monthly payments as provided in the attached Schedule B made a
part hereof.
4. SALARY CONTINUATION. If the Employee is still in the employ
of the Corporation at retirement under this Agreement, whether
or not disabled, the Corporation shall, within 30 days after
the Employee's retirement, commence monthly payments which
shall equal sixty (60%) percent of employees highest base
salary during his employ with Corporation. Said benefit shall
be payable for fifteen (15) years. In the event Employee
should die after the payments have begun but before the end of
the last payment month, the unpaid balance of the payments due
shall be continued to be paid by the Corporation to the
recipient as designated on attached Schedule A.
5. NAMED FIDUCIARY AND CLAIMS PROCEDURE.
A. The named Fiduciary of the plan and for purposes of
the claim procedure under this Agreement is Hugh R.
Gaither, President of the Corporation.
1. The business address and telephone number of
the named Fiduciary under this Agreement is
Post Office Box 8, Newton, North Carolina
28658, (704) 464-2972.
2. The Corporation shall have the right to
change the named Fiduciary of the plan
created under this Agreement. The
Corporation shall also have the right to
change the address and telephone number of
the named Fiduciary. The Corporation shall
give the Employee written notice of any
change of the named Fiduciary or
- 3 -
<PAGE> 4
any change in the address and telephone
number of the named Fiduciary.
B. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee or a
designated recipient or any other person claiming
through the Employee (hereinafter collectively
referred to as "the Claimant") shall make a written
request for the benefits provided under this
Agreement. This written claim shall be mailed or
delivered to the named Fiduciary.
C. If the claim is denied, either wholly or partially,
notice of the decision shall be mailed to the
Claimant within a reasonable timer period. This time
period shall not exceed more than 90 days after the
receipt of the claim by the named Fiduciary.
D. The named Fiduciary shall provide a written notice to
every Claimant who is denied a claim for benefits
under this Agreement. The notice shall set forth the
following information:
1. The specific reasons for the denial;
2. The specific reference to pertinent plan
provisions on which the denial is based;
3. A description of any additional material or
information necessary for the Claimant to
perfect the claim and an explanation of why
such material or information is necessary;
and
4. Appropriate information and explanation of
the claims procedure under this Agreement to
permit the Claimant to submit his claim for
review.
E. The claims procedure under this Agreement shall allow
the Claimant reasonable opportunity to appeal a
denied claim and to get a full and fair review of
that decision from the named Fiduciary.
1. The Claimant shall exercise his right of
appeal by submitting written request for a
review of the denied claim to the named
Fiduciary. This written request for review
must be submitted to the named Fiduciary
within 60 days of receipt by the Claimant of
the written notice of denial.
2. The Claimant shall have the following rights
under this appeal procedure:
- 4 -
<PAGE> 5
a. To request a review upon written
application to the named Fiduciary;
b. To review pertinent documents with
regard to the employee benefit plan
created under this Agreement;
c. To submit issues and comments in
writing;
d. To request an extension of time and
make a written submission of issues
and comments; and
e. To request that a hearing be held to
consider the Claimant's appeal.
F. The decision on the review of the denied claim shall
promptly be made by the named Fiduciary:
1. Within 60 days after the receipt of the
request for review if no such hearing is
held; or
2. Within 120 days after the receipt of the
request for review if an extension of time is
necessary in order to hold a hearing.
a. If an extension of time is necessary
in order to hold a hearing, the
named Fiduciary shall give the
Claimant written notice of the
extension of time and of the
hearing. This notice shall be given
prior to any extension.
b. The written notice of extension
shall indicate that an extension of
time will occur in order to hold a
hearing on Claimant's appeal. The
notice shall also specify the place,
date, and time of that hearing and
the Claimant's opportunity to
participate in the hearing. It may
also include any other information
the named Fiduciary believes may be
important or useful to the Claimant
in connection with the appeal.
G. The decision to hold a hearing to consider the Claimant's
appeal of the denied claim shall be within the sole discretion
of the named Fiduciary, whether or not the Claimant requests
such a hearing.
H. The named Fiduciary's decision on review shall be made in
writing and provided to the claimant within the specified time
periods in Paragraph F. This written decision on review shall
contain the following information:
- 5 -
<PAGE> 6
1. The decision(s);
2. The reasons for the decision(s); and
3. Specific references to the plan provisions of the
Agreement on which the decision(s) is/are based.
All of this information shall be written in a manner
calculated to be understood by the Claimant.
6. FUNDING.
A. The Corporation's obligations under this Agreement
shall be an unfunded and unsecured promise to pay.
The Corporation shall not be obligated under any
circumstances to fund its obligations under this
Agreement. The Corporation may, however, at its sole
and exclusive option, informally fund this Agreement
in whole or in part.
B. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, the manner of
such informal funding and the continuance or
discontinuance of such informal funding shall be the
sole and exclusive decision of the Corporation.
C. If the Corporation shall determine to informally fund
this Agreement, in whole or in part, by procuring as
owner life insurance for its own benefit on the life
of the Employee, the form of such insurance and the
amounts shall be the sole and exclusive decision of
the Corporation. The employee hereby agrees to
submit to medical examinations, supply such
information, and execute such documents as may be
required by the insurance company or companies to
whom the Corporation may have applied for such
insurance if the Corporation shall determine to
informally fund this Agreement with life insurance.
7. EMPLOYMENT RIGHTS.
A. This Agreement shall not be deemed to create a
contract of employment between the Corporation and
the Employee and shall create no right in the
Employee to continue in the Corporation's employ for
any specific period of time or create any other
rights in the Employee or obligations on the part of
the Corporation except as are set forth in this
Agreement. This Agreement shall not restrict the
right of the Corporation to terminate the Employee
for cause or restrict the right of the Employee to
terminate his employment.
- 6 -
<PAGE> 7
B. "Cause" as defined in this Agreement shall include,
but not be limited to, any of the following:
Incompetence; insubordination; conviction or a plea
of nolo contendre in a felony case; alcoholism;
and/or drug addition.
8. EMPLOYEE RIGHT TO ASSETS. The rights of the Employee, any
designated recipient of the Employee, or any other person
claiming through the Employee under this Agreement shall be
solely those of an unsecured general creditor of the
Corporation. The Employee, the designated recipient of the
Employee, or any other person claiming through the Employee
shall only have the right to receive from the Corporation
those payments as specified under this Agreement. The
Employee agrees that he, his designated recipient, or any
other person claiming through him shall have no rights or
interests whatsoever in any asset of the Corporation,
including any insurance policies or contracts which the
Corporation may possess or obtain to informally fund this
Agreement. Any asset used or acquired by the Corporation in
connection with the liabilities it has assumed under this
Agreement, except as expressly provided, shall not be deemed
to be held under any trust for the benefit of the Employee or
his recipients, nor shall it be considered security for the
performance of the obligations of the Corporation. It shall
be and remain a general, unpledged, and unrestricted asset of
the Corporation.
9. INDEPENDENCE OF BENEFITS. The benefits payable under this
Agreement shall be independent of and in addition to any other
benefits or compensation, whether by salary or bonus or
otherwise, payable under any other employment agreements that
now exist or may hereafter exist from time to time between the
Corporation and the Employee. This Agreement between the
Corporation and the Employee does not involve a reduction in
salary or foregoing of an increase in future salary by the
Employee, nor does the Agreement in any way affect or reduce
the existing and future compensation and other benefits of the
Employee.
10. ACCELERATION OF PAYMENTS. The Corporation reserves the right
to accelerate the payment of any benefits payable under this
Agreement without the consent of the Employee, his estate, his
designated recipient, or any other person claiming through the
Employee.
11. LEAVES OF ABSENCE. The Corporation may, in its sole
discretion, permit the Employee to take a leave of absence for
a period not to exceed one year. During such leave, the
Employee will still be considered to be in the continuous
employment of the Corporation for the purposes of this
Agreement.
- 7 -
<PAGE> 8
12. VESTED INTERESTS. Anything to the contrary herein
notwithstanding, the Employee shall have a vested interest in
his retirement benefits in accordance with the following
schedule:
<TABLE>
<CAPTION>
Age & Years of Employment Percentage of Retirement Pay
--- ------------------- ----------------------------
<S> <C> <C> <C>
50 & 5 or more 25 percent
55 & 10 or more 50 percent
60 & 15 or more 100 percent
</TABLE>
In the event a vested employee is discharged by the
Corporation for any reason except for cause, said Employee
shall be entitled to the percentage of retirement pay set
forth above at his retirement date, provided said Employee
does not become employed or affiliated in a business which
competes with the Corporation. In the event an Employee is
discharged for cause or enters into the employ of a competing
firm, the Employee shall forfeit his retirement pay. No
employee shall have any vested interest in his retirement pay
unless he is in the employ of the Corporation for a period of
five years from the date hereof.
13. MERGER OR CONSOLIDATION. The Corporation agrees that it will
not merge or consolidate with any other corporation or
organization or permit its business activities to be taken
over by any other organization unless and until the
succeeding, continuing, or new corporation or other
organization shall expressly assume all the rights and
obligations of the Corporation set forth in this Agreement.
14. ASSIGNABILITY. Except insofar as this provision may be
contrary to applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by
the Corporation.
15. AMENDMENT. During the lifetime of the Employee, this
Agreement may be amended or revoked at any time, in whole or
in part, by the mutual written agreement of the parties.
16. LAW GOVERNING. This Agreement shall be governed by the laws
of the State of North Carolina.
- 8 -
<PAGE> 9
This Agreement is solely between the Corporation and the Employee.
Further, the Employee, his designated recipient, or other persons claiming
through the Employee shall only have recourse against the Corporation for
enforcement of the Agreement. However, it shall be binding upon the designated
recipients, beneficiaries, heirs, executors, and administrators of the Employee
and upon the successors and assigns of the Corporation.
RIDGEVIEW MILLS, INC.
BY /s/ Hugh R. Gaither
----------------------------
Vice President
ATTEST:
/s/ J. Michael Gaither
- ----------------------------
(Corporate Seal)
/s/ Walter L. Bost, Jr.
-------------------------------
WALTER L. BOST, JR., Employee
- 9 -
<PAGE> 10
SCHEDULE A
DESIGNATION OF SALARY CONTINUATION
AND DEATH BENEFIT RECIPIENT
I, Walter L. Bost, Jr., request that the Corporation mark/change its
records to reflect Lesley R. Bost as the designated recipient(s) of the Salary
Continuation Benefit payable under Provision 4 and the Death Benefit payable
under Provision 2 of the Salary Continuation Agreement dated July 1, 1996, and
to make payment of the Salary Continuation Benefit and the Death Benefit to the
above designated recipient(s) as provided under the terms of the Agreement. You
are instructed to retain the above designated recipient(s) until such time as
you receive a new "Designation of Salary Continuation and Death Benefit
Recipient" from me which makes a change.
7-1-96 /s/ Walter L. Bost, Jr.
- ---------------------- -------------------------------
Date Employee
<PAGE> 11
SCHEDULE B
It is agreed this ____ day of ___________, 19____, that the Corporation
shall make monthly payments of $_______ each to the Employee for a period of
______________ years, aggregating cumulative payment of $_____________________.
<PAGE> 1
EXHIBIT 10.28
RIDGEVIEW, INC.
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is made this the 1st day of January, 1992, by and
between RIDGEVIEW, INC., 2101 North Main Avenue, Catawba County, Newton, North
Carolina, and ALBERT C. GAITHER, 821 Woodson Drive, Newton, Catawba County,
North Carolina.
The Corporation highly values the efforts, abilities, and
accomplishments of the Employee, ALBERT C. GAITHER, and
The Employee is deemed a member of a select group of management and/or
one of the highly compensated employees of the Corporation; and,
The Corporation, as an inducement to such continued employment, wishes
to assist the Employee with his personal life insurance program; and
The Employee agrees to participate in such program to the extent
hereinafter provided.
NOW, THEREFORE, the parties named above agree as follows:
1. Life Insurance Policy
(a) In furtherance of the purposes of this Agreement,
life insurance, hereinafter referred to as the Policy, has been applied for on
the life of ALBERT C. GAITHER, hereinafter called Insured, from General
American Life Insurance Company, hereinafter called Insurer. See Schedule A
attached hereto for particulars on the Policy and any other life insurance
policies issued in connection with this Plan.
(b) This Agreement is effective as to a particular Policy
upon execution, or upon issuance and acceptance of such Policy, whichever is
later.
2. Ownership Rights and Duties Under the Policy
(a) The Corporation shall be the owner of and possess all
incidents of ownership in the Policy. The Employee shall have the right to
designate the beneficiary of Part Two of the proceeds of such Policy (see
Paragraph 9 and 10) through the Corporation.
(b) The Corporation shall be responsible for safeguarding
the Policy.
(c) The Parties to this Agreement shall execute and
forward promptly and without unreasonable delay, changes in beneficiary
designation forms and documents, including the Policy,
1
<PAGE> 2
as required by the Insurer, to facilitate the exercise of any rights of the
Parties hereto. The Corporation agrees to designate the beneficiary of Part Two
of such Policy in accordance with the written direction of the Employee. The
Parties hereto shall not be required to execute any documents or take any
action that would impair their own interests under the Policy and any
assignment of that Policy.
3. Policy Loans
The Corporation shall have the right to obtain both loans
secured by the Policy and withdrawals. The amount of such withdrawals or loans
together with the unpaid interest thereon shall at no time exceed that amount
the Corporation would be entitled to as determined by Paragraph (10) herein.
The interest due on such Policy loans shall be a debt of the Corporation owed
to the Insurer.
4. Policy Contributions
The contributions made to this Policy shall be made by the
Corporation. This annual contribution shall not be less than the amount needed
to carry the Policy through the Policy year.
5. Use of Dividends
Annual dividends declared on any Policy anniversary shall be
applied as the parties elect on the Policy application and as is permitted by
the Insurer at the time that the dividends are declared.
6. Payment of Proceeds
On the Insured's death:
(a) The Corporation shall receive Part One of the Policy,
and
(b) Such Party or Parties as designated by the Employee
in writing shall be the beneficiary of Part Two of the Policy.
7. Definitions
(a) Part One is the amount of the total contributions made by
the Corporation to the Policy as defined in this Agreement less loans or
withdrawals made. This amount defines the Corporations interest in the Policy.
All payments of proceeds will be net of policy loans or
withdrawals made to the Corporation.
The Corporation shall properly certify, as required
by the Insurer, the extent of its interest in the Policy and payment of such
amount shall release the Insurer from any liability to the Corporation.
2
<PAGE> 3
(b) Part Two is an amount equal to the balance of the
insurance proceeds in excess of the amount receivable by the corporation as
Part One above.
8. Termination of Agreement
This Agreement shall terminate for any of the following
reasons:
(a) Performance of its terms, following death of the
Insured;
(b) Termination of the Insured's employment with the
Corporation for reasons other than death and disability;
(c) Any action by one Party that would defeat or impair
the interest of such other Party other than death or termination of employment.
Such action shall include, but is not limited to, failure to make contributions
as agreed upon; cancellation of the Policy by any Party hereto. Termination of
Agreement because of death or termination of employment shall be effective
immediately. All other terminations shall be effective 30 days from any such
action.
9. Repayment For Reasons Other Than Death
(a) In all instances of termination other than by death,
the Corporation shall certify as required by the Insurer the extent of its
interest in the Policy, and payment of such amount shall release the Insurer
from any liability to the Corporation.
(b) Such repayment to the Corporation of the amounts owed
it under this Agreement shall be made from the total cash values of the Policy.
All parties shall execute the documents necessary to facilitate such use of the
total cash values, regardless of any rights any party may have in such total
cash values.
(c) The amounts owed to the Corporation in the event of
termination other than by death shall be as designated in Paragraph 7 of this
Agreement.
10. Purchase of Policy Upon Termination of Agreement For Reasons
Other Than Death
Upon termination of this Agreement for any reason other than
death, the Employee shall have the right to purchase the Policy from the
Corporation, except that no transfer of ownership shall take place if the
Corporation has not certified that its interest in the Policy has been
satisfied or released.
The purchase price of the Policy shall be the value of the
Corporation's interest in the Policy as defined in Paragraph 7 of this
Agreement.
3
<PAGE> 4
11. Named Fiduciary
The Secretary of the Corporation, J. MICHAEL GAITHER, is
hereby designated as the NAMED FIDUCIARY of this Split Dollar Insurance Plan,
in accordance with the Employee Retirement Income Security Act of 1974 and
shall serve in such capacity until resignation or removal by the Board of
Directors of the Corporation and appointment of a successor by the duly adopted
resolution of the Board. The business address and telephone number of the
Fiduciary are:
J. Michael Gaither
RIDGEVIEW, INC.
Post Office Box 8
Newton, North Carolina 28658
(704) 464-2972
The NAMED FIDUCIARY shall have the authority to control and
manage the operation and administration of this Plan. However, the NAMED
FIDUCIARY may allocate his responsibilities for the operation and
administration of this Plan, including the designation of persons who are not
Named Fiduciaries to carry out fiduciary responsibilities. The NAMED FIDUCIARY
shall effect such allocation of his responsibilities by delivering to the
Corporation a written instrument signed by him that specifies the nature and
extent of the responsibilities allocated, including, if appropriate, the
persons, not Named Fiduciaries, who are designated to carry out fiduciary
responsibilities under this Plan. The NAMED FIDUCIARY of this Plan shall be
responsible for make timely delivery of any required premiums to the Insurer.
All Plan documents shall be retained by the NAMED FIDUCIARY and made available
for examination at the above indicated business address. Upon written request,
the Plan document and other information shall be provided to the parties of
this Plan.
12. Claims Procedure
Benefits shall be payable in accordance with the Plan
provisions. Should the Employee or beneficiary fail to receive benefits to
which such Employee or beneficiary believes he is entitled, a claim may be
filed. Any claim for a plan benefit hereunder shall be filed by the Employee or
beneficiary (claimant) of this Plan by written communication which is made by
the claimant or the claimant's authorized representative which is reasonably
calculated to bring the claim to the attention of the Named Fiduciary.
If a claim for a plan benefit is wholly or partially denied, a
written notice of the decision shall be furnished to the claimant by the Named
Fiduciary or his designee within a reasonable period of time after receipt of
the claim by the Plan, which notice shall include the following information:
(a) The specific reason or reasons for the denial;
4
<PAGE> 5
(b) Specific reference to the pertinent Plan provisions
upon which the denial is based;
(c) A description of any additional material or
information necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(d) An explanation of the Plan's claim review procedures.
In order that a claimant may appeal a denial of a claim, a
claimant or his duly authorized representative:
(a) May request a review by written application to the
Named Fiduciary or his designee not later than 60 days after receipt by the
claimant of written notification of denial of a claim;
(b) May review pertinent documents; and
(c) May submit issues and comments in writing.
A decision on review of a denied claim shall be made not later
than 60 days after the Plan's receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered within a reasonable period of time, but not later
than 120 days after receipt of a request for review. The decision on review
shall be in writing and shall include the specific reason(s) for the decision
and the specific reference(s) to the pertinent plan provisions on which the
decision is based.
Notwithstanding anything contained in this Article to the
contrary, any claim for a death benefit under an insurance policy under this
Plan shall be filed with the Insurer by the claimant or his authorized
representative on the form or forms prescribed for such purpose by the Insurer.
The Insurer shall have sole authority for determining whether a death claim
shall or shall not be paid, either in whole or in part, in accordance with the
terms of such insurance contract which may have been purchased on the life of
the Employee.
13. Amendment of Agreement
This Agreement may be altered, amended, or modified, including
the addition of any extra policy provisions, by a written agreement signed by
the Corporation and Employee. The law of the State of North Carolina shall
govern this Agreement. It shall be the obligation of the Corporation to notify
the Insurer of any amendments or changes to this Agreement.
5
<PAGE> 6
14. Interpretation of Agreement
Where appropriate in this Agreement, words used in the
singular shall include the plural and words used in the masculine shall include
the feminine and vice versa.
15. Liability of Insurer
General American Life Insurance Company is not a party to this
Agreement. With respect to any Policy of insurance issued pursuant to this
Agreement, General American Life Insurance Company shall have no liability
except as set forth in the Policy. Such Insurer shall not be bound to inquire
into or take notice of any of the covenants herein contained as to Policies of
life insurance, or as to the application of the proceeds of such Policies.
The Insurer shall be discharged from all liability in making
payments of the proceeds, and in permitting rights and privileges under a
policy to be exercised pursuant to the provisions of the Policy.
16. Binding Agreement
This Agreement shall bind all parties, their successors and
assigns and any Policy beneficiary.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year stated earlier.
6
<PAGE> 7
RIDGEVIEW, INC.
By: /s/ J. Michael Gaither
--------------------------------
Secretary
Employer
Identification
Number: 56-0377410
/s/ J. Michael Gaither
--------------------------------
J. Michael Gaither, Fiduciary
/s/ Albert C. Gaither
--------------------------------
ALBERT C. GAITHER
WITNESS:
/s/ Jamie O. Hoyle
- ------------------------------
7
<PAGE> 8
SCHEDULE A
GENERAL AMERICAN LIFE INSURANCE COMPANY
INSURED: ALBERT C. GAITHER
<TABLE>
<CAPTION>
DATE
OF CORPORATE
INSURING COMPANY POLICY # FACE AMOUNT ISSUE CONTRIBUTION
---------------- -------- ----------- ----- ------------
<S> <C> <C> <C> <C>
Northwestern 8,410,848 25,000
General American 1,947,450 81,100 1/22/83 3,238.18
General American 6,121,949 270,000 1/22/92 8,768.49
Transamerica Life 93,041,540 95,147 11/04/58 2,714.00
Sun Life 31,121 50,000
</TABLE>
<PAGE> 1
EXHIBIT 10.29
RIDGEVIEW, INC.
1995 OMNIBUS STOCK PLAN
AS AMENDED AND RESTATED
AS OF AUGUST 15, 1996
<PAGE> 2
RIDGEVIEW, INC.
1995 OMNIBUS STOCK PLAN
AS AMENDED AND RESTATED
AS OF AUGUST 15, 1996
Table of Contents
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE I - NAME, PURPOSE AND DEFINITIONS
1.1 Name 1
1.2 Purpose 1
1.3 Definitions 1
ARTICLE II - ELIGIBILITY 4
ARTICLE III - AWARDS 4
3.1 General 4
3.2 Stock Options 4
3.3 Stock Appreciation Rights 5
3.4 Restricted Stock 6
3.5 Performance Awards 6
3.6 Other Awards 6
ARTICLE IV - AWARD AGREEMENTS 7
4.1 General 7
4.2 Required Terms 7
4.3 Optional Terms 7
ARTICLE V - SHARES OF STOCK SUBJECT TO THE PLAN 8
5.1 General 8
5.2 Additional Shares 8
5.3 Computation Rules 8
5.4 Shares to be Used 9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI - ADMINISTRATION 9
6.1 General 9
6.2 Duties 9
6.3 Powers 9
6.4 Intent to Avoid Insider Trading 10
ARTICLE VII - ADJUSTMENTS UPON CHANGES IN CAPITALIZATION 10
ARTICLE VIII - CHANGES OF CONTROL 10
8.1 General 10
8.2 Definition of Change of Control 11
ARTICLE IX - AMENDMENT AND TERMINATION 12
9.1 Amendment of Plan 12
9.2 Termination of Plan 12
9.3 Effective Date and Procedure for Amendment or Termination 12
ARTICLE X - MISCELLANEOUS 12
10.1 Rights of Employees 12
10.2 Compliance with Law 13
10.3 Unfunded Status 13
10.4 Limits On Liability 13
10.5 Section References 13
ARTICLE XI - EFFECTIVE DATE OF PLAN 13
</TABLE>
-ii-
<PAGE> 4
RIDGEVIEW, INC.
1995 OMNIBUS STOCK PLAN
AS AMENDED AND RESTATED
AS OF AUGUST 15, 1996
ARTICLE I
NAME, PURPOSE, AND DEFINITIONS
SECTION 1.1. NAME. The Plan shall be known as the "Ridgeview,
Inc. 1995 Omnibus Stock Plan as Amended and Restated as of August 15, 1996"
(the "Plan").
SECTION 1.2. PURPOSE. The purpose of the Plan is to benefit the
Company, Subsidiaries, and their shareholders by encouraging and enabling key
Employees of the Company or Subsidiaries to acquire a financial interest in the
Company. The Plan is intended to aid the Company and Subsidiaries in
attracting and retaining officers and key employees, to stimulate the efforts
of those individuals, and to strengthen their desire to remain in the office or
in the employ of the Company and Subsidiaries.
SECTION 1.3. DEFINITIONS. Whenever used in the Plan, unless the
context clearly indicates otherwise, the following terms shall have the
following meanings:
(a) "AWARD" or "AWARDS" means an award granted pursuant
to Article III.
(b) "AWARD AGREEMENT" means an agreement described in
Article IV hereof entered into between the Company and a Participant,
setting forth the terms, conditions, and limitations applicable to the
Award granted to the Participant.
(c) "BENEFICIARY," with respect to a Participant, means
(i) one or more persons as the Participant may designate as primary or
contingent beneficiary in a writing delivered to the Company or
Committee or, (ii), if there is no such valid designation in effect at
the Participant's death, the Participant's spouse or, (iii) if the
Participant is not married at the date of the Participant's death, the
Participant's estate. This definition shall not, however, supersede
or adversely affect, nor shall it be subject to, any definition or
designation of beneficiary which may be included in any Award.
(d) "BOARD" means the Board of Directors of the Company
as it may be comprised from time to time.
(e) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute, and applicable
regulations.
-1-
<PAGE> 5
(f) "COMMITTEE" means the committee appointed by the
Board from among its members and shall be comprised of not less than
two (2) persons. Unless and until otherwise appointed, the Committee
shall be the Compensation Committee of the Board or any successor
committee with substantially the same responsibilities if the members
of that committee satisfy the requirements of the following sentence.
A member of the Committee must not be an Employee and must otherwise
satisfy Rule 16b-3 with respect to grants to executive officers and
directors. If at any time there shall be no Compensation Committee of
the Board or any successor committee with substantially the same
responsibilities whose members satisfy the requirements of the
foregoing sentence or the Board shall not have otherwise appointed a
committee to administer the Plan, the Board shall have the
responsibilities assigned to the Committee herein.
(g) "COMPANY" means Ridgeview, Inc., a North Carolina
corporation, and any successor corporation.
(h) "DIRECTOR" means any individual who is a member of
the Board.
(i) "DISABILITY" shall mean the inability, in the opinion
of the Company's group health insurance carrier (or claims processor,
if applicable), of a Participant, because of injury or sickness, to
work at a reasonable occupation which is available with the
Participant's employer (the Company or a Subsidiary) or at any gainful
occupation for which the Participant is or may become fitted.
(j) "EMPLOYEE" means any individual who is a salaried
employee of the Company or any Subsidiary, whether or not he is a
Director.
(k) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended and in effect from time to time, or any successor
statute.
(l) "FAIR MARKET VALUE" in reference to the Stock of the
Company means as of a given date
(i) the closing price of a share of Stock on the
National Market System or national securities exchange on
which the Stock is then trading as of the day immediately
prior to such date, or if Stock was not traded on that day,
then on the next preceding trading day during which a sale
occurred; or
(ii) if the Stock is not traded on the National
Market System or listed on a national securities exchange, the
mean between the bid and asked prices per share last reported
by the National Association of Securities Dealers, Inc., for
the over-the-counter market on the day immediately prior to
such date, or in the absence of any bid and asked prices on
that day, the mean of the bid and asked prices per share of
such Stock quoted on the next preceding day for which there
were such quotations; or
-2-
<PAGE> 6
(iii) if the Stock is not traded on the National
Market System or listed on a national securities exchange, and
quotations for the Stock are not reported by the National
Association of Securities Dealers, Inc., the fair market value
determined by the Committee on the day immediately preceding
such date on the basis of available prices for the Stock or in
such manner as the Committee shall agree.
The Committee shall determine the Fair Market Value of any security
that is not publicly traded, using such criteria as it shall
determine, in its sole discretion, to be appropriate for such
valuation.
(m) "INSIDER" means any person who is subject to Section
16 of the Exchange Act.
(n) "PARTICIPANT" means an Employee or other person
designated by the Committee to be eligible for an Award pursuant to
this Plan.
(o) "RESTRICTED STOCK" means shares of Stock which have
certain restrictions attached to the ownership thereof, which may be
issued under Section 3.4.
(p) "RETIREMENT" means termination of employment with the
Company or a Subsidiary for any reason other than death or Disability
on or after age 65.
(q) "RULE 16B-3" means Rule 16b-3 as promulgated by the
Securities and Exchange Commission on May 31, 1996, effective August
15, 1996, or as such regulation or successor regulation shall be
hereafter amended.
(r) "SECTION 16" means Section 16 of the Exchange Act or
any successor regulation and the rules promulgated thereunder as they
may be amended from time to time.
(s) "STOCK" means shares of the common stock of the
Company.
(t) "STOCK APPRECIATION RIGHT" means a right, the value
of which is determined relative to the appreciation in value of shares
of Stock, which may be issued under Section 3.3.
(u) "STOCK OPTION" means a right to purchase shares of
Stock granted pursuant to Section 3.2 and includes Incentive Stock
Options and Non-Qualified Stock Options as defined in Section 3.2(a).
(v) "SUBSIDIARY" means any corporation (other than the
Company), in an unbroken chain of corporations beginning with the
Company in which each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or
more of the total combined voting power of all classes of stock in one
of the other corporations in that chain.
-3-
<PAGE> 7
(w) "SUBSTANTIAL STOCKHOLDER" means an Employee who is,
at the time of the grant to the Employee of an Award, an "owner" (as
defined in Section 422(b)(6) of the Code, modified as provided in
Section 424 of the Code) of more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Subsidiary.
ARTICLE II
ELIGIBILITY
Awards may be granted to any Employee who is or class of Employees who are
designated as Participants from time to time by the Committee and to such other
person, such as a consultant, whose relationship with the Company or a
Subsidiary is deemed by the Committee to be sufficiently important to the
Company or Subsidiary as to warrant receipt by such person of an Award or such
person that the Company or a Subsidiary or the Committee wishes to employ as a
key employee of the Company or a Subsidiary for whom the grant of an Award
will, in the Committee's judgment, act as an inducement to such person to
accept such employment; provided, however, that no member of the Committee
shall be eligible to participate. The Committee shall determine which
Employees or other eligible persons shall be Participants, the types of Awards
to be made to Participants, and the terms, conditions, and limitations
applicable to the Awards.
ARTICLE III
AWARDS
SECTION 3.1. GENERAL. Awards may include, but are not limited to,
those described in this Article III, including its sections. The Committee may
grant Awards singly, in tandem, or in combination with other Awards, as the
Committee may in its sole discretion determine. Subject to the other
provisions of this Plan, Awards also may be granted in combination or in tandem
with, in replacement of, or as alternatives to, grants or rights under this
Plan and any other employee plan of the Company.
SECTION 3.2. STOCK OPTIONS. A Stock Option is a right to purchase
a specified number of shares of Stock at a specified price during such
specified time as the Committee shall determine, subject to the following:
(a) An option granted may be either of a type that
complies with the requirements of incentive stock options as defined
in Section 422 of the Code ("Incentive Stock Option") or of a type
that does not comply with such requirements ("Non-Qualified Option").
An Incentive Stock Option may be granted only to an Employee.
(b) The exercise price per share of any Incentive Stock
Option shall be no less than the Fair Market Value per share of the
Stock subject to the option on the date such Stock Option is granted,
except that, if an Incentive Stock Option is granted to a Substantial
Stockholder, the exercise price per share shall be no less than one
hundred ten percent (110%) of the Fair Market Value per share of Stock
subject to the option on the date such Stock Option is granted. No
Incentive Stock Option shall
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<PAGE> 8
be exercisable after the expiration of ten (10) years from the date on
which the Incentive Stock Option is granted, except that, if an
Incentive Stock Option is granted to a Substantial Stockholder, such
Stock Option shall not be exercisable after the expiration of five (5)
years from the date on which the Incentive Stock Option is granted.
(c) The exercise price per share of any Non-Qualified
Option may be less than the Fair Market Value per share of Stock
subject to the option on the date such Stock Option is granted.
(d) A Stock Option may be exercised, in whole or in part,
by giving written notice of exercise to the Company specifying the
number of shares of Stock to be purchased and complying with such
other terms and conditions as the Committee may specify.
(e) The exercise price of the Stock subject to the Stock
Option may be paid in cash or, at the discretion of the Committee, may
also be paid by the tender of shares of Stock already owned by the
Participant, or through a combination of cash and shares of Stock, or
through such other means that the Committee determines are consistent
with the Plan's purpose and applicable law. No fractional shares of
Stock will be issued or accepted.
(f) The exercise price of the Stock subject to the Stock
Option may be paid, at the discretion of the Committee, by delivery to
the Company or its designated agent of an irrevocable written notice
of exercise form together with irrevocable instructions to a
broker-dealer to sell or margin a sufficient portion of the shares of
stock and deliver the sale or margin loan proceeds directly to the
Company to pay the exercise price.
SECTION 3.3. STOCK APPRECIATION RIGHTS. A Stock Appreciation
Right is a right to receive, upon surrender of the right, but without payment,
an amount payable in cash and/or shares of Stock under such terms and
conditions as the Committee shall determine, subject to the following:
(a) A Stock Appreciation Right may be granted in tandem
with part or all of, in addition to, or completely independent of a
Stock Option or any other Award under this Plan. A Stock Appreciation
Right issued in tandem with a Stock Option may be granted at the time
of grant of the related Stock Option or at any time thereafter during
the term of the Stock Option.
(b) The amount payable in cash and/or shares of Stock
with respect to each right shall be equal in value to a percent of the
amount by which the Fair Market Value per share of Stock on the
exercise date exceeds the exercise price of the Stock Appreciation
Right. The applicable percent shall be established by the Committee.
The amount payable in shares of Stock, if any, is determined with
reference to the Fair Market Value on the date of exercise.
-5-
<PAGE> 9
(c) Stock Appreciation Rights issued in tandem with Stock
Options shall be exercisable only to the extent that the Stock Options
to which they relate are exercisable. Upon the exercise of the Stock
Appreciation Right, the Participant shall surrender to the Company the
underlying Stock Option. Stock Appreciation Rights issued in tandem
with Stock Options shall automatically terminate upon the exercise of
such Stock Options.
(d) A Stock Appreciation Right may be a "limited" Stock
Appreciation Right, such as, for example, a Stock Appreciation Right
exercisable upon the occurrence of a certain event or certain events.
SECTION 3.4. RESTRICTED STOCK. Restricted Stock is shares of
Stock that are issued to a Participant or awarded to a Participant as "phantom
stock" and are subject to such terms, conditions, and restrictions as the
Committee deems appropriate, which may include, but are not limited to,
restrictions upon the sale, assignment, transfer, or other disposition of the
Restricted Stock and the requirement of forfeiture of the Restricted Stock upon
termination of employment under certain specified conditions. The Committee
may provide for the lapse of any such term or condition based on such factors
or criteria as the Committee may determine. If the shares subject to a
Restricted Stock Award are issued to a Participant, the Participant shall have,
with respect to the Restricted Stock, all of the rights of a shareholder of the
Company, including the right to vote the Restricted Stock and the right to
receive any cash or stock dividends on such Stock.
SECTION 3.5 PERFORMANCE AWARDS. Performance Awards may be
granted under this Plan from time to time based on such terms and conditions as
the Committee deems appropriate provided that such Awards shall not be
inconsistent with the terms and purposes of this Plan. Performance Awards are
Awards which are contingent upon the performance of all or a portion of the
Company and/or subsidiaries or which are contingent upon the individual
performance of the Participant. Performance Awards may be in the form of
performance units, performance shares, and such other forms of performance
Awards which the Committee shall determine. The Committee shall determine the
performance measurements and criteria for such performance Awards.
SECTION 3.6 OTHER AWARDS. The Committee may from time to time
grant other Stock and Stock-based Awards under the Plan, including without
limitation, those Awards pursuant to which shares of Stock are or may in the
future be acquired, Awards denominated in Stock units, securities convertible
into shares of Stock, and dividend equivalents. The Committee shall determine
the terms and conditions of such other Stock and Stock-based Awards provided
that such Awards shall not be inconsistent with the terms and purpose of this
Plan.
-6-
<PAGE> 10
ARTICLE IV
AWARD AGREEMENTS
SECTION 4.1 GENERAL. Each Award under this Plan shall be
evidenced by an Award Agreement setting forth the number of shares of Stock or
other security, Stock Appreciation Rights, or units subject to the Award and
such other terms and conditions applicable to the Award as are determined by
the Committee.
SECTION 4.2 REQUIRED TERMS. In any event, Award Agreements shall
include, at a minimum, explicitly or by reference, the following terms:
(a) Non-assignability. If and to the extent required by
the Code or other law, a provision that an Award under the Plan shall
not be assigned, pledged, or otherwise transferred except by will or
by the laws of descent and distribution and that, during the lifetime
of a Participant, the Award shall be exercised only by such
Participant or by the Participant's guardian or legal representative.
(b) Termination of Employment. A provision describing
the treatment of an Award in the event of the Retirement, Disability,
death, or other termination of a Participant's employment with the
Company, including but not limited to terms relating to the vesting,
time for exercise, forfeiture, or cancellation of an Award in such
circumstances.
(c) Rights of Shareholder. A provision that a
Participant shall have no rights as a shareholder with respect to any
securities covered by an Award until the date the Participant becomes
the holder of record. Except as provided in Article VII hereof, no
adjustment shall be made for dividends or other rights, unless the
Award Agreement specifically requires such adjustment, in which case
grants of dividend equivalents or similar rights shall not be
considered to be a grant of any other shareholder right.
(d) Withholding. A provision requiring the withholding
of applicable taxes required by law from all amounts paid in
satisfaction of an Award. In the case of an Award paid in cash, the
withholding obligation shall be satisfied by withholding the
applicable amount and paying the net amount in cash to the
Participant. In the case of Awards paid in shares of Stock or other
securities of the Company, a Participant may satisfy the withholding
obligation by paying the amount of any taxes in cash or, with the
approval of the Committee, shares of Stock or other securities may be
deducted from the payment to satisfy the obligation in full or in part
as long as such withholding of shares does not violate any applicable
laws, rules or regulations of federal, state, or local authorities.
The number of shares to be deducted shall be determined by reference
to the Fair Market Value of such shares of Stock on the applicable
date (the "given" date of Section 1.3(l)).
SECTION 4.3 OPTIONAL TERMS. Award Agreements may include the
following terms:
-7-
<PAGE> 11
(a) Replacement, Substitution, and Reloading. Any
provisions
(i) permitting the surrender of outstanding
Awards or securities held by the Participant in order to
exercise or realize rights under other Awards, under similar
or different terms (including the grant of reload
options), or,
(ii) requiring holders of Awards to surrender
outstanding Awards as a condition precedent to the new
Awards under the Plan.
(b) Other Terms. Such other terms as are necessary and
appropriate to effect an Award to the Participant including but not
limited to the term of the Award, vesting provisions, deferrals, any
requirements for continued employment with the Company or a
Subsidiary, any other restrictions or conditions (including
performance requirements) on the Award and the method by which
restrictions or conditions lapse, the effect on the Award of a Change
of Control as defined in Article VIII, or the price, amount, or value
of Awards.
ARTICLE V
SHARES OF STOCK
SUBJECT TO THE PLAN
SECTION 5.1 GENERAL. Subject to the adjustment provisions of
Article VII hereof, the number of shares of Stock for which Awards may be
granted under the Plan shall not exceed three hundred thousand (300,000)
shares. Notwithstanding the provisions of Article VII hereof, the foregoing
number shall not be adjusted on account of and in connection with a stock
dividend declared at the meeting of the Board on September 19, 1995, to be
effective as of the date on which the underwriting agreement with respect to an
initial public offering of Company stock is signed.
SECTION 5.2 ADDITIONAL SHARES. Any unexercised or undistributed
portion of the terminated, expired, exchanged, or forfeited Award or Awards
settled in cash in lieu of shares of Stock shall be available for further
Awards in addition to those available under Section 5.1 hereof.
SECTION 5.3 COMPUTATION RULES. For the purpose of computing the
total number of shares of Stock granted under the Plan, the following rules
shall apply to Awards payable in shares of Stock or other securities, where
appropriate:
(a) except as provided in subsection (e) hereof, each
Stock Option shall be deemed to be the equivalent of the maximum
number of shares that may be issued upon exercise of the particular
Stock Option;
(b) except as provided in subsection (e) hereof, each
other Stock-based Award payable in some other security shall be deemed
to be equal to the number of shares to which it relates;
-8-
<PAGE> 12
(c) except as provided in subsection (e) hereof, where
the number of shares available under the Award is variable on the date
it is granted, the number of shares shall be deemed to be the maximum
number of shares that could be received under that particular Award;
(d) where one or more types of Awards (both of which are
payable in shares of Stock or another security) are granted in tandem
with each other, such that the exercise of one type of Award with
respect to a number of shares cancels an equal number of shares of the
other, each joint Award shall be deemed to be the equivalent of the
number of shares under the other; and
(e) each share awarded or deemed to be awarded under the
preceding subsections shall be treated as share(s) of Stock, even if
the Award is for a security other than Stock.
Additional rules for determining the number of shares of Stock granted under
the Plan may be made by the Committee, as it deems necessary or appropriate.
SECTION 5.4 SHARES TO BE USED. The shares of Stock which may be
issued pursuant to an Award under the Plan may be authorized but unissued Stock
or Stock that may be acquired, subsequently or in anticipation of the
transaction, in the open market to satisfy the requirements of the Plan.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 GENERAL. The Plan and all Awards pursuant thereto
shall be administered by the Committee so as to permit the Plan to comply with
Rule 16b-3. A majority of the members of the Committee shall constitute a
quorum. The vote of a majority of a quorum shall constitute action by the
Committee.
SECTION 6.2 DUTIES. The Committee shall have the duty to
administer the Plan, and to determine periodically the Participants in the Plan
and the nature, amount, pricing, timing, and other terms of Awards to be made
to such individuals.
SECTION 6.3 POWERS. The Committee shall have all powers
necessary to enable it to carry out its duties under the Plan properly,
including without limitation the power to interpret and administer the Plan.
All questions of interpretation with respect to the Plan, the number of shares
of Stock or other security, Stock Appreciation Rights, or units granted, and
the terms of any Award Agreements shall be determined by the Committee, and its
determination shall be final and conclusive upon all parties in interest. In
the event of any conflict between an Award Agreement and the Plan, the terms of
the Plan shall govern. In addition, the Committee may delegate to the officers
or employees of the Company the authority to execute and deliver such
instruments and documents, to do all such acts and things, and to take all such
other steps deemed necessary, advisable or convenient for the effective
administration of the Plan in accordance with its terms and purpose, except
that the
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<PAGE> 13
Committee may not delegate any discretionary authority with respect to
substantive decisions or functions regarding the Plan or Awards thereunder as
those relate to Insiders including but not limited to decisions regarding the
timing, eligibility, pricing, amount or other material term of such Awards.
The Committee may, in its discretion and consistent with the terms of the Plan,
the requirements of Section 16b and Rule 16b-3 with respect to Insiders, the
requirements of other applicable law, and the terms of an Award Agreement,
amend, modify, or waive the provisions of an Award Agreement or grant a new
Award with respect to or in replacement of an existing Award; provided,
however, that no such amendment, modification, or waiver shall, without the
Participant's consent, alter or impair any rights or obligations under an Award
Agreement unless that is specifically permitted by the Award Agreement.
SECTION 6.4 INTENT TO AVOID INSIDER TRADING. It is the intent of
the Company that the Plan and Awards hereunder satisfy and be interpreted in a
manner, that, in the case of Participants who are or may be Insiders, satisfies
the applicable requirements of Rule 16b-3, so that such persons will be
entitled to the benefits of Rule 16b-3 or other exemptive rules under Section
16 and will not be subjected to avoidable liability thereunder. If any
provision of the Plan or of any Award would otherwise frustrate or conflict
with the intent expressed in this Section 6.4, that provision to the extent
possible shall be interpreted and deemed amended so as to avoid such conflict.
To the extent of any remaining irreconcilable conflict with such intent, the
provision shall be deemed void as applicable to insiders.
ARTICLE VII
ADJUSTMENTS UPON CHANGES
IN CAPITALIZATION
In the event of a reorganization, recapitalization, Stock split, Stock
dividend, exchange of Stock, combination of Stock, merger, consolidation or any
other change in corporate structure of the Company affecting the Stock, or in
the event of a sale by the Company of all or a significant part of its assets,
or any distribution to its shareholders other than a normal cash dividend, the
Committee shall make appropriate adjustment in the number, kind, price and
value of shares of Stock authorized by this Plan and any adjustments to
outstanding Awards as it determines appropriate so as to prevent dilution or
enlargement of rights, unless the Award provides otherwise.
ARTICLE VIII
CHANGES OF CONTROL
SECTION 8.1 GENERAL. In the event of a Change of Control of the
Company, in addition to any action required or authorized by the terms of an
Award Agreement, the Committee may, in its discretion, recommend that the Board
of Directors take any of the following actions as a result of, or in
anticipation of, any such event to assure fair and equitable treatment of the
Plan Participants:
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<PAGE> 14
(a) accelerate time periods for purposes of vesting in,
or realizing gain from, any outstanding Award made pursuant to the
Plan;
(b) offer to purchase any outstanding Award made pursuant
to this Plan from the holder for its equivalent cash value, as
determined by the Committee, as of the date of the Change of Control;
or
(c) make adjustments or modifications to outstanding
Awards as the Committee deems appropriate to maintain and protect the
rights and interests of Plan Participants following such Change of
Control.
Any such action approved by the Board of Directors shall be conclusive and
binding on the Company, a Subsidiary, and all Plan Participants.
SECTION 8.2 DEFINITION OF CHANGE OF CONTROL. For the purposes of
this Section, a "Change of Control" shall mean the earliest date on which one
of the following events shall occur:
(a) An individual, entity, or group (other than lineal
descendants of Joseph Albert Gaither, the founder of the Company, or
entities controlled by his lineal descendants) shall acquire after the
date this Plan is approved by the Board, otherwise than directly from
the Company, beneficial ownership of 25% or more of the outstanding
common stock or voting power of the Company, provided that no such
individual, entity or group shall be deemed to beneficially own any
securities held by:
(i) the Company or any of its subsidiaries; or
(ii) any employee benefit plan of the Company or any
of its subsidiaries,
or
(b) The Company shall be merged into another corporation
and shall not be the surviving corporation or shall be consolidated
with another corporation, or
(c) The Company shall sell substantially all of its
assets to another corporation which is not a wholly-owned subsidiary,
or
(d) The persons who were directors of the Company on the
date 30 days after the effective date of the Plan (Article XI),
together with those who subsequently became directors of the Company
and whose election, or nomination for election by the Company's
shareholders, was approved by the vote of at least a majority of the
directors who were directors on the date 30 days after the effective
date of the Plan (Article XI), or directors whose nomination or
election was approved as provided above (the "Continuing Directors"),
shall cease to constitute a majority of the Board or of its successor
by merger, consolidation or sale of assets.
-11-
<PAGE> 15
However, a majority of the Continuing Directors may approve any event described
in Sections 8.2(a), (b) and (c) and determine that, for purposes of this Plan,
a Change of Control has not occurred.
ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.1 AMENDMENT OF PLAN. The Company expressly reserves the
right, at any time and from time to time, to amend in whole or in part any of
the terms and provisions of the Plan and any or all Award Agreements under the
Plan to the extent permitted by law for whatever reason(s) the Company may deem
appropriate; provided,however, no amendment may be effective, without the
approval of the shareholders of the Company, if approval of such amendment is
required in order that transactions in Company securities under the Plan be
exempt from the operation of Section 16(b) of the Securities Exchange Act of
1934 or if such amendment, with respect to the issuance of Incentive Stock
Options,
(a) materially increases the number of shares of Stock
which may be issued under the Plan, except as provided for in Article
VII; or
(b) materially modifies the requirements as to
eligibility for participation in the Plan (unless designed to comport
with the Code, the Employee Retirement Security Act of 1974, or other
laws).
SECTION 9.2 TERMINATION OF PLAN. The Company expressly reserves the
right, at any time, to suspend or terminate the Plan and any or all Award
Agreements under the Plan to the extent permitted by law for whatever reason(s)
the Company may deem appropriate, including, without limitation, suspension or
termination as to any participating Subsidiary, Employee, or class of
Employees.
SECTION 9.3. EFFECTIVE DATE AND PROCEDURE FOR AMENDMENT OR
TERMINATION. Any amendment to the Plan or termination of the Plan may be
retroactive to the extent not prohibited by applicable law. Any amendment to
the Plan or termination of the Plan shall be made by the Company by resolution
of the Board and shall not require the approval or consent of any Subsidiary,
Participant, or Beneficiary in order to be effective to the extent permitted by
law.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 RIGHTS OF EMPLOYEES. Status as an eligible Employee
shall not be construed as a commitment that any Award will be made under the
Plan to such eligible Employee or to eligible Employees generally. Nothing
contained in the Plan (or in any other documents related to this Plan or to any
Award) shall confer upon any Employee or Participant any right to continue in
the employ or other service of the Company or constitute any contract or limit
in any way the right of the Company to change such person's
-12-
<PAGE> 16
compensation or other benefits or to terminate the employment of such person
with or without cause.
SECTION 10.2 COMPLIANCE WITH LAW. No certificate for Stock
distributable pursuant to this Plan shall be issued and delivered unless the
issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended from time to time
or any successor statute, the Exchange Act and the requirements of the market
systems or exchanges on which the Company's Stock may, at the time, be traded
or listed.
SECTION 10.3 UNFUNDED STATUS. The Plan shall be unfunded.
Neither the Company nor the Board of Directors shall be required to segregate
any assets that may at any time be represented by Awards made pursuant to the
Plan. Neither the Company, the Committee, nor the Board of Directors shall be
deemed to be a trustee of any amounts to be paid under the Plan.
SECTION 10.4 LIMITS ON LIABILITY. Any liability of the Company to
any Participant with respect to an Award shall be based solely upon contractual
obligations created by the Plan and the Award Agreement. Neither the Company
nor any member of the Board of Directors or the Committee, nor any other person
participating in any determination of any question under the Plan, or in the
interpretation, administration or application of the Plan, shall have any
liability to any party for any action taken or not taken, in good faith under
the Plan and that do not constitute willful misconduct. To the extent
permitted by applicable law, the Company shall indemnify and hold harmless each
member of the Board of Directors and the Committee from and against any and all
liability, claims, demands, costs, an expenses (including the costs and
expenses of attorneys incurred in connection with the investigation or defense
of claims) in any manner connected with or arising out of any actions or
inactions in connection with the administration of the Plan except for such
actions or inactions which are not in good faith or which constitute willful
misconduct.
SECTION 10.5 SECTION REFERENCES. All references in this Plan to
sections or articles shall refer to sections and articles of this Plan unless
specifically noted otherwise.
ARTICLE XI
EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date of its adoption by the Board;
provided, however, the effectiveness of this Plan is subject to its approval
and ratification by the shareholders of the Company within one year from the
date of adoption hereof by the Board. The Committee shall have authority to
grant Awards hereunder until one day before the ten year anniversary of the
date of adoption of the Plan by the Board, subject to the ability of the
Company to terminate the Plan as provided in Article IX.
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<PAGE> 1
EXHIBIT 10.30
[NationsBank Letterhead]
August 28, 1996
VIA TELECOPIER: (704) 339-0060
Mr. Walter Bost
Ridgeview, Inc.
2101 North Main Ave.
Newton, North Carolina 28658
Re: Loan and Security Agreement (Revolving Loans), dated as of
January 10, 1995, by and between Ridgeview, Inc., and
NationsBank N.A., as amended, ("Revolving Loan Agreement") and
Loan and Security Agreement (Term Loan) dated as of
January 10, 1995, by and between Ridgeview, Inc., and
NationsBank N.A., as amended, ("Term Loan Agreement").
Dear Walter:
This letter is to notify you that the Bank's credit process has approved
waivers of violations under the following Sections of its agreements:
1. 10B.1(a), 10B.1(b), 10B.1(c), and 10B.1(d) of the Revolving Loan Agreement
existing as of June 30, 1996.
2. 10B.1(a), 10B.1(b), 10B.1(C), and 10B.1(d) of the Term Loan Agreement
existing as of June 30, 1996.
The Bank also approved a number of other changes, including increasing the
Revolving Line of Credit to $20 million and amending the financial covenants
as follows:
<TABLE>
<CAPTION>
From: Now 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
To: 12/30/96 3/30/97 6/29/97 9/29/97 12/30/97 thereafter
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10B.1(a)--Liabilities to TNW
Existing Required Minimum 6.50 4.50 4.50 4.50 4.00 3.50
- ----------------------------------------------------------------------------------------------------------
New Proposed Minimum 9.50 8.00 8.25 8.00 7.25 6.25
- ----------------------------------------------------------------------------------------------------------
10B.1(b)--Minimum TNW
Existing Required Minimum 4,200 4,934 4,934 4,934 4,934 6,544
- ----------------------------------------------------------------------------------------------------------
New Proposed Minimum 3,500 4,350 4,350 4,800 4,800 6,500
- ----------------------------------------------------------------------------------------------------------
10B.1(c)--Fixed Charge Ratio
Existing Required Minimum 1.25 1.25 1.25 1.25 1.25 1.25
- ----------------------------------------------------------------------------------------------------------
New Proposed Minimum N/A 1.20 1.25 1.25 1.25 1.25
- ----------------------------------------------------------------------------------------------------------
10B.1(d)--Current Ratio
Existing Required Maximum 1.00 1.00 1.00 1.00 1.00 1.00
- ----------------------------------------------------------------------------------------------------------
New Proposed Maximum 0.95 1.10 1.10 1.10 1.10 1.10
==========================================================================================================
</TABLE>
<PAGE> 2
Mr. Walter Bost
August 28, 1996
Page 2 of 2
The efficacy of these changes remains subject to execution of the appropriate
documents; this should be accomplished during the next week. Please call me
with any questions you may have.
Sincerely,
NATIONSBANK, N.A. (SOUTH)
/s/ Scott K. Goldstein
Scott K. Goldstein
Vice President
SKG/dbm
cc: credit / chrono
<PAGE> 1
Exhibit 10.31
PROMISSORY NOTE
---------------
$350,000.00 Syracuse, New York
June 28, 1996
FOR VALUE RECEIVED, SENECA KNITTING MILLS CORPORATION, a New York
corporation with its offices located at Seneca Falls, New York ("Maker"),
hereby promises to pay to the order of CLARA G. SOUHAN or her successors or
assigns ("Holder"), the principal sum of THREE HUNDRED FIFTY THOUSAND DOLLARS
($350,000.00), together with interest from the date hereof at a rate equal to
nine percent (9%) per annum. Principal shall be paid in thirty-five consecutive
monthly installments of ten thousand dollars ($10,000.00) each, payable on
the first day of each month beginning July 1, 1996, with a final installment
due and payable on May 1, 1999. Accrued interest shall be due and payable on
each principal payment date.
Notwithstanding the foregoing, this Note shall become due and payable
in full on December 31, 1996, if Clara G. Souhan dies prior to that date. If
Clara G. Souhan dies after December 31, 1996, this Note shall become due and
payable in full ninety days after the date of her death. Further, this Note
shall also become due and payable in full if Maker's parent, Ridgeview, Inc.,
successfully completes a public offering for its shares.
All payments hereunder shall be made to Holder c/o George G. Souhan,
5102 Route 89, Romulus, New York 14541, or at such other address as may
hereafter be designated by the Holder.
This Note may be prepaid at any time without premium or penalty,
provided that interest to the date of the prepayment is also tendered. Any
partial prepayment shall be applied first to accrued interest and then to
principal.
No delay or omission on the part of Holder in exercising any right
hereunder shall operate as a waiver of any such right or of any other right
under this Note. A waiver on any one occasion shall not be construed as a
waiver of any right or remedy on any future occasion. None of the terms or
provisions of this Note may be waived, altered, modified or amended except as
Holder may consent thereto in writing duly signed on her behalf.
Maker hereby expressly waives presentment, protest, demand, notice of
dishonor or default, and notice of any kind with respect to this Note or the
performance of its obligations under this Note.
<PAGE> 2
This Note shall be governed by the laws of the State of New York in all
respects, including matters of construction, validity and performance.
This Note shall, at the option of the Holder by written notice to
Maker, immediately become due and payable, without notice or demand, upon the
happening of any one of the following events: (1) failure to pay any installment
of principal or interest by the tenth day of the month when payment is due; (2)
insolvency of Maker (however evidenced) or the commission of any act of
insolvency; (3) the Maker making of an assignment for the benefit of creditors;
(4) the filing of any petition or the commencement of any proceeding by or
against the Maker for any relief under any bankruptcy or insolvency laws, or
any other laws relating to the relief of debtors; or (5) suspension of the
transaction of the usual business of Maker.
If this Note is not paid within ten days of its original maturity date,
or if payment of the Note is accelerated by reason of a default as previously
provided, this Note shall thereafter bear interest at a default rate of twelve
percent (12%) per annum until paid in full. Further, Maker shall pay on demand
all costs of collection, legal expenses and attorneys' fees incurred or paid by
Holder in enforcing this Note on default.
This Note replaces two existing Promissory Notes from Maker to Holder
dated July 1, 1993, and September 1, 1993, in the principal amounts of,
respectively, $200,000.00 and $150,000.00.
SENECA KNITTING MILLS CORPORATION
By: /s/ Hugh R. Gaither
----------------------------------
Hugh R. Gaither, President
(SEAL)
STATE OF NORTH CAROLINA}
} ss.:
COUNTY OF CATAWBA }
On this 28th day of June, 1996, before me personally came Hugh R.
Gaither to me known, who, being duly sworn, did depose and say that he resides
in Catawba County, North Carolina, that he is the President of * the
corporation described in and which executed the above instrument, and that he
signed his name thereto by order of the Board of Directors of said corporation.
*SENECA KNITTING MILLS CORP.
Jamie O. Hoyle
------------------------------------
Notary Public
<PAGE> 1
EXHIBIT 10.32
DESCRIPTION OF INCENTIVE BONUS ARRANGEMENTS
FOR NAMED EXECUTIVE OFFICERS
In 1996, the Company implemented a new incentive bonus program for its
executive officers. Bonuses under the program will be paid in cash at the end of
each fiscal year. The target bonus for each Named Executive Officer is 50% of
his or her base salary. Named Executive Officers other than Susan Gaither Jones
will be awarded bonuses according to the following schedule:
<TABLE>
<CAPTION>
Pre-bonus, Pre-tax Percentage of
Profit as a Percentage Target Bonus
of Net sales Payable
---------------------- -------------
<S> <C>
Less than 5.5% ---
5.5% to 6.5% 25%
6.5% to 7.5% 50%
7.5% to 8.5% 75%
8.5% to 9.5% 100%
9.5% to 10.5% 125%
More than 10.5% 150%
</TABLE>
Because her responsibilities are wholly within the sales area, Susan Gaither
Jones's bonus program is a function of (i) the Company's pre-bonus, pre-tax
profit as a percentage of net sales and (ii) the extent to which she has met,
exceeded or has failed to meet her individual sales quota. Ms. Jones will be
awarded bonuses according to the following schedule:
<TABLE>
<CAPTION>
Percentage of Quota Met
Pre-bonus, Pre-tax ---------------------------------
Profit as a Percentage Less Than 95% to 100 % or
of Net Sales 95% 100% More
---------------------- --------- ------ --------
<S> <C> <C> <C>
Less than 4.5% --- --- ---
4.5% to 8.5% --- 25.0% 50.0%
8.5% to 9.5% --- 50.0% 100.0%
9.5% to 10.5% --- 62.5% 125.0%
More than 10.5% --- 75.0% 150.0%
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF RIDGEVIEW, INC.
Name Jurisdiction of Incorporation
Ridgeview Ltd. Cayman Island
Interknit, Inc.* Alabama
Seneca Knitting Mills Corporation New York
GPM Corporation New York
Seneca Knitting Mills, International United States Virgin
Sales, Inc. Islands
A Child's View, Inc. North Carolina
Ridgeview Foundation, Inc. North Carolina
- ----------
* Upon consummation of the Share Exchange Agreement dated August 27, 1996, by
and among the shareholders of this corporation and Ridgeview, Inc., this
corporation will become a subsidiary of Ridgeview, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Ridgeview, Inc.
Newton, North Carolina
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 2, 1996, except for Note 10
which is as of October , 1996, relating to the consolidated financial
statements of Ridgeview, Inc., which is contained in that Prospectus, and of our
report dated February 2, 1996, relating to the schedule, which is contained in
Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Greensboro, North Carolina
August 29, 1996
<PAGE> 1
EXHIBIT 23.2
29 August 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
Ridgeview Limited (Irish Branch)
Tralee, the Republic of Ireland
We consent to the inclusion in the registration statement and prospectus to be
filed on Form S-1 with the Securities and Exchange Commission (SEC) of our
report on the audits of the Irish Branch of Ridgeview Limited dated 29 August
1996 for the years ended 31 December 1993, 1994 and 1995 and of references
thereto and to ourselves as KPMG in the form and context in which they appear.
KPMG
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We have issued our reports dated May 11, 1995 and January 31, 1996 on the
consolidated balance sheets of Seneca Knitting Mills Corporation (a wholly-owned
subsidiary of Ridgeview, Inc. for the six months ended December 31, 1995) as of
April 1, 1995 and April 2, 1994, and as of December 31, 1995 and the related
consolidated statements of income and retained earnings and cash flows for the
years ended April 1, 1995 and April 2, 1994 and the six months ended December
31, 1995, contained in the Registration Statement and Prospectus. We consent to
the use of the aforementioned reports in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
Mengel, Metzger, Barr & Co. LLP
Rochester, New York
August 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 144
<SECURITIES> 0
<RECEIVABLES> 12,009
<ALLOWANCES> 379
<INVENTORY> 19,075
<CURRENT-ASSETS> 31,313
<PP&E> 21,887
<DEPRECIATION> 11,645
<TOTAL-ASSETS> 44,445
<CURRENT-LIABILITIES> 16,201
<BONDS> 17,516
0
0
<COMMON> 14
<OTHER-SE> 8,092
<TOTAL-LIABILITY-AND-EQUITY> 8,106
<SALES> 31,799
<TOTAL-REVENUES> 31,799
<CGS> 25,656
<TOTAL-COSTS> 25,656
<OTHER-EXPENSES> 4,901
<LOSS-PROVISION> 115
<INTEREST-EXPENSE> 1,064
<INCOME-PRETAX> 207
<INCOME-TAX> 78
<INCOME-CONTINUING> 129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
