SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended May 4, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-5400
FARAH INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-1061146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4171 N. Mesa, Bldg, D, Suite 500, El Paso, Texas 79902-1433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (915) 496-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
As of June 17, 1997 there were outstanding 10,278,989 shares of the
registrant's common stock, no par value, which is the only class of common or
voting stock of the registrant.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Quarter and Six Months Ended May 4, 1997 and May 5,1996
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Quarter Ended Six Months Ended
------------------------------------ --------------------------------
May 4, May 5, May 4, May 5,
1997 1996 1997 1996
------------------ -------------- --------------- --------------
(Thousands of dollars except per share data)
<S> <C> <C> <C> <C>
Net sales $ 70,771 64,058 132,709 115,568
Cost of sales 51,460 47,924 95,962 85,637
------------------ --------------- --------------- --------------
Gross profit 19,311 16,134 36,747 29,931
Selling, general and administrative expenses 16,881 15,792 32,882 29,581
Non-recurring charge - - 2,462 -
------------------ --------------- --------------- --------------
Operating income 2,430 342 1,403 350
------------------ --------------- --------------- --------------
Other income (expense):
Interest expense (921) (1,268) (1,628) (2,633)
Interest income 205 194 396 430
Foreign currency transaction gains 13 26 124 93
Other, net 82 754 124 964
------------------ --------------- --------------- --------------
(621) (294) (984) (1,146)
Income (loss) before income taxes 1,809 48 419 (796)
Income tax provision (benefit) (1,402) 224 (837) 369
------------------ --------------- --------------- --------------
Net income (loss) 3,211 (176) 1,256 (1,165)
Retained earnings:
Beginning 6,361 571 8,316 1,560
------------------ --------------- --------------- --------------
================== =============== =============== ==============
Ending $ 9,572 395 9,572 395
================== =============== =============== ==============
Net income (loss) per share $ 0.31 (0.02) 0.12 (0.11)
================== =============== =============== ==============
Weighted average shares of common stock
(all periods) and common stock equivalents
(income periods only) outstanding 10,434,026 10,161,647 10,312,565 10,155,290
================== =============== =============== ==============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 4, 1997 AND NOVEMBER 3, 1996
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
May 4, November 3,
1997 1996
----------------- ------------------
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,267 3,777
Trade receivables, net 38,643 41,671
Inventories:
Raw materials 14,218 11,404
Work in process 18,377 15,251
Finished goods 36,380 35,378
----------------- ------------------
68,975 62,033
Other current assets 11,867 10,857
----------------- ------------------
Total current assets 122,752 118,338
Notes receivable 7,636 5,260
Property, plant and equipment, net 27,005 25,370
Other non-current assets 6,083 4,895
----------------- ------------------
$ 163,476 153,863
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 29,146 20,744
Current installments of long-term debt 1,802 1,288
Trade payables 25,701 24,038
Other current liabilities 12,898 13,737
----------------- ------------------
Total current liabilities 69,547 59,807
Long-term debt, excluding current installments 5,549 4,706
Other non-current liabilities 3,135 3,992
Deferred gain on sale of building 2,202 3,218
Shareholders' equity:
Common stock, no par value, $.01 stated value,
authorized 20,000,000 shares; issued 10,200,586
in 1997 and 10,181,601 in 1996 46,026 46,024
Additional paid-in capital 30,590 29,894
Cumulative foreign currency
translation adjustment (1,793) (742)
Minimum pension liability adjustment (1,243) (1,243)
Retained earnings 9,572 8,316
----------------- ------------------
83,152 82,249
Less: Treasury stock, 36,275 shares in
1997 and 1996, at cost 109 109
----------------- ------------------
Total shareholders' equity 83,043 82,140
----------------- ------------------
$ 163,476 153,863
================= ==================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended May 4, 1997 and May 5, 1996
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
May 4, May 5,
1997 1996
---------------- -----------------
(Thousands of dollars)
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $ 1,256 ( 1,165)
Adjustments to reconcile net income (loss) to net cash from
(used in) operating activities:
Depreciation and amortization 2,531 2,699
Amortization of deferred gain on building sale (1,016) (1,016)
Amortization of deferred gain on subsidiary sale (1,322) -
Deferred income taxes (1,107) -
Non-recurring charge 2,462 -
Gain on sale of assets (19) (643)
Decrease (increase) in:
Trade receivables 3,028 3,328
Inventories (7,817) 13,384
Insurance proceeds from fire damage 1,070 -
Other current assets (594) 1,090
Increase (decrease) in:
Trade payables 1,663 27
Other current liabilities (2,894) (2,143)
---------------- -----------------
Net cash from (used in) operating (2,759) 15,561
activities
---------------- -----------------
Cash flows from (used in) investing activities:
Purchases of property, plant and equipment (3,271) (1,023)
Proceeds from sale of property, plant and equipment 19 1,059
---------------- -----------------
Net cash from (used in) investing activities (3,252) 36
---------------- -----------------
Cash flows from (used in) financing activities:
Net change in revolving credit facility 8,402 (14,084)
Proceeds from issuance of debt - 7
Repayment of long-term debt (785) (1,065)
Note receivable from joint venture (2,558)
Proceeds from sale of common stock 529 -
Other 206 (193)
---------------- -----------------
Net cash from (used in) financing activities 5,794 (15,335)
---------------- -----------------
Foreign currency translation adjustment (293) (218)
---------------- -----------------
Net increase (decrease) in cash (510) 44
Cash, beginning of period 3,777 3,657
---------------- -----------------
Cash, end of period $ 3,267 3,701
================ =================
Supplemental cash flow disclosures:
Interest paid $ 1,459 2,526
Income taxes paid 275 329
Assets acquired through direct financing
loans or capital leases 2,142 716
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The attached condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the disclosures made are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 1996 Annual Report on Form 10-K.
2. The foregoing financial information reflects all adjustments (which
consist only of normal recurring adjustments) which are, in the opinion of
management, necessary to present a fair statement of the financial position and
the results of operations and cash flows for the interim periods.
3. The Company reevaluated the realizability of its deferred tax assets
pursuant to the criteria of Statement of Financial Accounting Standards No.
109 and concluded it is more likely than not that the Company will realize tax
benefits associated with its domestic net operating losses, together with
certain other tax benefits, that were previously reserved. Accordingly, the
Company reversed approximately $1.1 million from its deferred tax valuation
allowance in the second quarter of fiscal 1997. The remaining valuation
allowance at May 4, 1997 is approximately $1.7 million. The Company continues
to believe that it is more likely than not that it will not realize the benefits
of its Irish net operating loss carry forwards and a portion of its foreign tax
credits totaling approximately $500,000.
Income (loss) before taxes for the six months ended May 4, 1997 and May 5,
1996 and income taxes for the same periods are shown below:
<TABLE>
<CAPTION>
Six months ended
--------------------------------------------
May 4, 1997 May 5, 1996
-------------------- -------------------
Thousands of dollars
<S> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES:
Domestic operations $ 2,559 (1,964)
Foreign operations (2,140) 1,168
==================== ===================
Total consolidated $ 419 (796)
==================== ===================
INCOME TAX PROVISION (BENEFIT):
Domestic operations
Current $ - (55)
Deferred (1,057) -
-------------------- -------------------
Total domestic (1,057) (55)
Foreign operations
Current 220 424
Deferred - -
-------------------- -------------------
Total foreign 220 424
-------------------- -------------------
Total consolidated $ (837) 369
==================== ===================
</TABLE>
<TABLE>
The effective tax rate differs from the U.S. statutory rate of 34% as summarized below:
<CAPTION>
Six months ended
--------------------------------------------
May 4, 1997 May 5, 1996
-------------------- -----------------
Thousands of dollars
<S> <C> <C>
Income tax provision (benefit) at
statutory rate $ 142 (271)
Non-deductible expenses 108 106
Effect of unused Irish net operating loss 225 -
Reversal of valuation allowance for deferred tax
benefits expected to be realized (1,107) -
Reversal of valuation allowance for deferred tax
benefits realized (1,020) -
Effect of unused domestic operating loss - 613
Effect of differing tax rates in foreign countries 550 (53)
Other 265 (26)
==================== =================
Income tax provision (benefit), as reported $ (837) 369
==================== =================
</TABLE>
4. On January 5, 1997, a fire occurred at the Company's leased garment
manufacturing plant in Galway, Ireland. The fire destroyed or damaged certain
inventory and manufacturing equipment owned by the Company. In addition, the
Company's other Irish facility located in Kiltimagh has been adversely affected
because of its dependency on the operations of the Galway facility. As a result
of the fire, the Company recorded a non-recurring charge (after tax and net of
insurance proceeds) of $2.5 million in the first quarter of fiscal 1997. During
the second quarter of 1997, the Company received $1.1 million of insurance
proceeds related to the fire.
5. On June 5, 1997, the Company entered into an Amended and Restated Credit
Agreement. The Credit Agreement provides up to $75 million of credit through
July 1, 2001 for the Company's United States and United Kingdom operations for
either borrowings or letters of credit. The Credit Agreement is collateralized
by substantially all assets of Farah U.S.A., Farah U.K., and Value Slacks and is
guaranteed by its parent company and each of Farah U.S.A.'s domestic affiliates.
Such guarantees are collateralized by substantially all of the assets of the
related affiliates. A term loan of $10 million is included in the $75 million of
credit provided by the Credit Agreement. The term loan is payable in 47 monthly
installments of $208,333, plus interest, with the 48th and final monthly
installment equal to the unpaid principal balance of the loan. The term loan
matures on July 1, 2001. The interest rate on the Credit Agreement is prime (8
1/2% at May 4, 1997) plus 1/2% for borrowings and 1/6% per month for letters of
credit. The Company may from time to time convert all or part of the loan
outstanding under the Credit Agreement into a loan based on the Libor Rate. Upon
conversion, the interest rate would be the Libor rate, plus 2.75%. The
conversion to and continued applicability of the Libor Rate is conditioned upon
specific notification requirements, a minimum of $5 million of Libor Rate loans
outstanding, and various other requirements. Under the Credit Agreement, an
unused credit line fee is charged on the unused portion of the line when
borrowings decrease below $17.5 million. The Credit Agreement restricts certain
additional indebtedness and requires the maintenance of minimum tangible net
worth, minimum working capital and maximum capital expenditures. Maximum capital
expenditures for fiscal 1997 under the Credit Agreement are $30 million.
<PAGE>
6. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share." SFAS 128 will supersede APB Opinion No. 15, "Earnings Per Share." SFAS
128 requires dual presentation of basic and diluted earnings per share on the
face of the income statement for entities with complex capital structures.
SFAS 128 is effective for annual and interim periods ending after December 15,
1997. Earlier application is not permitted. Implementation of SFAS 128 would
not have had a material impact on the Company's earnings per share for the
second quarter of fiscal 1997 or the six months ended May 4, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
<TABLE>
The following table sets forth, for the periods indicated, certain
financial data as percentages of net sales:
<CAPTION>
Second Quarter Ended Six Months Ended
----------------------------------- ----------------------------------
1997 1996 1997 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C>
Net sales:
Farah U.S.A. 77.6 % 74.5 % 77.2 % 73.6 %
Farah International 17.1 19.3 17.0 19.4
Value Slacks 5.3 6.2 5.8 7.0
------------ ----------- ----------- ------------
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 72.7 74.8 72.3 74.1
------------ ----------- ----------- ------------
Gross profit 27.3 25.2 27.7 25.9
Selling, general and
administrative expenses 23.9 24.7 24.8 25.6
Non-recurring charge - - 1.9 -
------------ ----------- ----------- ------------
Operating income (loss) 3.4 0.5 1.0 0.3
Other expense, net 0.9 0.5 0.7 1.0
------------ ----------- ----------- ------------
Income (loss) before income taxes 2.5 0.0 0.3 -0.7
Income tax provision (benefit) -2.0 0.3 -0.6 0.3
------------ ----------- ----------- ------------
Net income (loss) 4.5 % -0.3 % 0.9 % -1.0 %
============ =========== =========== ============
</TABLE>
Consolidated sales for the second quarter of fiscal 1997 increased by
$6.7 million (10.5%) compared to the second quarter of fiscal 1996. For the
first six months, sales increased $17.1 million (14.8%) in 1997 compared to the
same period in 1996. Sales increased during both periods at Farah U.S.A. and
decreased during both periods at Value Slacks. At Farah International, second
quarter sales decreased while sales for the first six months increased, compared
to 1996.
Farah U.S.A. sales for the second quarter of fiscal 1997 were $54.9
million compared to $47.7 million in the second quarter of fiscal 1996, a 15.1%
increase. Unit sales increased 14.5% while the average unit selling price
increased 0.5%. In the first six months of 1997, Farah U.S.A. sales were $102.4
million compared to $85.1 million in the same period of 1996, a 20.3% increase.
Units sales increased 19.9% and the average unit selling price increased 0.4%.
During the second quarter and first six months of 1997, sales of Savane
product increased approximately 25.6% and 20.4%, respectively, compared to the
same periods a year ago. This increase was attributable to a combination of
factors including growth in sales of women's casual wear, men's shirts and
Deep-Dye dress products.
Sales of John Henry product increased by $4.1 million and $5.3 million,
respectively during the second quarter and first six months of 1997 compared to
the same periods in 1996. During fiscal 1996, the Company was in the process of
repositioning the John Henry label by initially introducing it to Sears. As the
Company entered into this transition period, sales of John Henry product to
other customers declined. Initial shipments to Sears began in the third quarter
of 1996 and have continued to increase through the first six months of fiscal
1997.
Sales of private label product decreased 21.7% compared to the second
quarter of fiscal 1996 and increased 1.3% compared to the first six months of
fiscal 1996. The second quarter decrease in private label sales is primarily due
to a decrease in the number of private label customers as the Company began to
conduct less business with private label customers with lower gross margins. In
addition, during the second quarter of 1996, the Company reported significant
non-recurring private label sales in connection with the 1996 Summer Olympics in
Atlanta.
Sales of Farah product decreased 30.4% compared to the second quarter
of fiscal 1996 and increased 0.5% compared to the first six months of fiscal
1996. An on-going transition of the Farah product from department stores into
the mass-merchant distribution channel is the primary reason for the
decrease in Farah product sales versus the second quarter of 1996. Shipments
of Farah product to department stores began to decline significantly during
the third quarter of 1996, while initial shipments in the mass-merchant
distribution channel were just starting.
Beginning late in the second quarter of 1997, domestic retail department
store sales softened in certain market sectors. As a consequence, order
activity in May 1997 for Savane products was less than anticipated. Should
depressed retail sales activity continue in the third quarter, operating
results would be negatively affected. As soft sales at the retail level are
inconsistent with overall domestic economic conditions, the Company believes
such softening to be temporary. Based on indications from the Company's
department store customers, forecasts of sales order activity for the
fall season are encouraging, indicating that the Company should resume
increases in its Savane sales order activity in the fourth quarter.
Despite softening of department store retail sales, John Henry sales
continue to grow as the Company expands this product line to Sears. Furthermore,
transition of Farah label products in the mass-merchant distribution channel is
progressing and the Company expects sales within this market segment to continue
to increase during the remainder of the fiscal year.
Farah International sales for the second quarter of fiscal 1997 were
$12.1 million compared to $12.4 million for the second quarter of fiscal 1996, a
2.5% decrease. Unit sales decreased 3.2%, while the average unit selling price
increased 0.8%. In the first six months of fiscal 1997, Farah International
sales were $22.5 million compared to $22.4 million during the same period of
fiscal 1996. Unit sales decreased 4.9%, while the average unit selling price
increased 5.8%. Sales at Farah U.K. represented 62.0% of Farah International
sales for the first six months of 1997. Farah U.K. sales decreased by 2.0% over
that period. Inventory losses resulting from a fire at the Company's plant in
Ireland negatively impacted sales at Farah U.K. for the first six months of
fiscal 1997. Sales at Farah Australia and New Zealand during the first six
months of fiscal 1997 represented 36.6% of international sales and increased
5.7%, compared to the first six months of fiscal 1996; while 1997 second
quarter sales represented 34.2% of international sales and decreased by 3.1%
compared to the second quarter of 1996. The second quarter decrease is
primarily attributable to a softer retail market in Australia.
Value Slacks sales in the second quarter of 1997 were $3.7 million
compared to $3.9 million in the second quarter of 1996, a 4.6% decrease. For the
six month period, sales decreased 3.8% from $8.1 million in 1996 to $7.8 million
in 1997. Adjusting for an off-site satellite sale held during April 1996, the
overall store sales increased by .8% while operating 39 stores during 1997
versus 36 stores in 1996. Same store sales decreased 2.1% due to the shortened
Easter retail period and continued poor weather conditions in the Midwest and
Eastern United States.
As a percent of sales, consolidated gross profit was 27.3% in the
second quarter of 1997 compared to 25.2% in the second quarter of 1996. For the
six month period, gross profit as a percent of sales was 27.7% in 1997 compared
to 25.9% in the same period of 1996.
Farah U.S.A. gross profit as a percent of sales was 23.9% in the second
quarter of 1997 compared to 21.4% in the same period of 1996. For the first six
months of 1997 and 1996, gross profit as a percent of sales for Farah U.S.A. was
24.8% and 21.9% respectively. Farah International gross profit as a percent of
sales was 36.4% and 34.1%, in the second quarter and first six months of 1997,
respectively, compared with 33.0% and 33.3% for the same periods in fiscal 1996.
Cost reduction efforts, through better production planning and sourcing, as well
as a decrease in the number of promotional and closeout sales, have been the
principal factors contributing to the improvement in gross margins. To a lesser
extent, overall better pricing in Farah U.S.A. and Farah International also
helped improve gross profit margins.
Value Slacks gross profit as a percent of sales increased from 46.1%
in the second quarter of 1996 to 48.3% in the second quarter of 1997. For the
six month period, gross profit decreased from 47.8% in 1996 to 47.3% in 1997.
The elimination of the operating costs incurred by the 1996 satellite sale
in conjunction with a lower 1997 promotional markdown contributed to the
increase in second quarter gross profit. The slight decrease in year-to-date
gross profit at Value Slacks is attributable to the effects of inventory
shrinkage and a reduced mix of irregular and closeout sales during the first
quarter of 1997.
Selling, general and administrative expenses ("SG&A") as a percent of
sales decreased from 24.7% in the second quarter of 1996 to 23.9% in the second
quarter of 1997. For the six month period SG&A decreased from 25.6% in 1996 to
24.8% in 1997. SG&A as a percentage of sales decreased by 1.0% at Farah U.S.A.
for both the second quarter and the first six months of 1997 compared to the
same periods in 1996. Value Slacks SG&A as a percentage of sales decreased by
4.3% and 1.2%, respectively, during the second quarter and first six months of
1997, compared to the same periods in 1996. Cost reduction efforts at both Farah
U.S.A. and Value Slacks, combined with the favorable effects of fixed costs that
did not increase with higher sales levels at Farah U.S.A. are the primary
sources of the decrease in SG&A as a percentage of sales. Partially offsetting
the effects of cost reduction efforts and favorable trends in fixed costs were
advertising expense increases at Farah U.S.A.. SG&A as a percentage of sales
increased at Farah International by 4.0% and 3.2%, respectively during the
second quarter and first six months of 1997. The increase in SG&A as a
percentage of sales at Farah International resulted mainly from higher
concession and exhibition expenses at Farah U.K.
On January 5, 1997, a fire occurred at the Company's leased garment
manufacturing plant in Galway, Ireland, in which certain inventory and
manufacturing equipment owned by the Company were either destroyed or damaged.
In addition, the Company's other Irish facility located in Kiltimagh has been
adversely affected because of its dependency on the operations of the Galway
facility. As a result of the fire and its related impact, the Company recorded a
non-recurring charge (after tax and net of insurance proceeds) of $2.5 million
in the first quarter of fiscal 1997. There was some shortfall in sales in the
Company's United Kingdom operations during the first six months of fiscal 1997
because of the fire. Management believes the fire will not have a long term
material impact on Farah's United Kingdom operations.
The Company recorded a tax benefit on consolidated net income for the
second quarter of fiscal 1997 as a result of recognizing approximately $1.1
million of tax benefits previously not recognized. The Company expects to
recognize additional tax benefits during the remainder of fiscal 1997 as
the valuation allowance relating to deferred tax assets is further reduced,
offsetting deferred tax expense recognized in the third and fourth quarters. In
addition, in the first quarter of fiscal 1997 the Company did not record a tax
benefit on the loss in connection with the fire at the Irish facility.
Financial Condition
At May 4, 1997, the Company's primary Credit Agreement provided up to
$50 million of credit through July 1, 1998, for the Company's United States and
United Kingdom operations for either borrowings or letters of credit. Formulas
derived from accounts receivable and inventory limit availability under the
Credit Agreement. The interest rate under the Credit Agreement is equal to the
prime interest rate (8 1/2% at May 4, 1997) plus 1%, for borrowings and 1/6% per
month for letters of credit. At May 4, 1997, usage under the Agreement was $31.1
million and the excess credit line available was $18.6 million. The Credit
Agreement in effect at May 4, 1997 allowed for annual consolidated capital
expenditures of $6.5 million.
On June 5, 1997, the Company entered into an Amended and Restated
Credit Agreement with the same lender. The Credit Agreement provides up to $75
million of credit through July 1, 2001 for the Company's United States and
United Kingdom operations for either borrowings or letters of credit. The Credit
Agreement is collateralized by substantially all assets of Farah U.S.A., Farah
U.K., and Value Slacks and is guaranteed by its parent company and each of Farah
U.S.A.'s domestic affiliates. Such guarantees are collateralized by
substantially all of the assets of the related affiliates. A term loan of $10
million is included in the $75 million of credit provided by the Credit
Agreement. The term loan is payable in 47 monthly installments of $208,333, plus
interest, with the 48th and final monthly installment equal to the unpaid
principal balance of the loan. The term loan matures on July 1, 2001. The
interest rate on the Credit Agreement is prime (8 1/2% at May 4, 1997) plus 1/2%
for borrowings and 1/6% per month for letters of credit. The Company may from
time to time convert all or part of the loan outstanding under the Credit
Agreement into a loan based on the Libor Rate. Upon conversion, the interest
rate would be the Libor rate, plus 2.75%. The conversion to and continued
applicability of the Libor Rate is conditioned upon specific notification
requirements, a minimum of $5 million of Libor Rate loans outstanding, and
various other requirements. Under the Credit Agreement, as under the old Credit
Agreement, an unused credit line fee is charged on the unused portion of the
line when borrowings decrease below $17.5 million. The Credit Agreement
restricts certain additional indebtedness and requires the maintenance of
minimum tangible net worth, minimum working capital and maximum capital
expenditures. Maximum capital expenditures for fiscal 1997 under the Credit
Agreement are $30 million. As of May 4, 1997, the Company was in compliance with
all covenants pursuant to the Credit Agreement.
Net cash used in operations in the first six months of fiscal 1997 was
$2.8 million. The largest factor contributing to the use of cash was an increase
in inventories and capital expenditures. Production levels were increased in the
first six months of 1997 in an attempt to better match inventory levels with
current demand. Cash provided from earnings and a decrease in accounts
receivable partially offset the need for additional cash.
Capital expenditures through May 4, 1997 approximated $5.4 million.
Expenditures were mainly for manufacturing equipment and information systems. At
May 4, 1997, the Company had commitments for future capital expenditures of
approximately $1.4 million.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share." SFAS 128 will supersede APB Opinion No. 15, "Earnings Per Share." SFAS
128 requires dual presentation of basic and diluted earnings per share on the
face of the income statement for entities with complex capital structures. SFAS
128 is effective for annual and interim periods ending after December 15, 1997.
Earlier application is not permitted. Implementation of SFAS 128 would not have
had a material impact on the Company's earnings per share for the second quarter
of fiscal 1997 or the six months ended May 4, 1997.
Factors Affecting the Company's Business and Prospects
The Company cautions readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements made from time to time in news releases, reports,
proxy statements registration statements and other written communications
(including the preceding sections of this Management's Discussion and Analysis),
as well as oral statements made from time to time by representatives of the
Company. Except for historical information, matters discussed in such oral and
written communications are forward-looking statements that involve risks and
uncertainties, including, but not limited to, economic and business conditions
in the U.S. and abroad; the level of demand for apparel products and success of
planned marketing programs; the intensity of competition and the pricing
pressures that may result; changes in labor and import and export regulations;
the ability of the Company to timely and effectively manage production levels
and sourcing; the ability of the Company to access the credit market to finance
capital expenditures; and currency fluctuations.
<PAGE>
<TABLE>
Item 6. Exhibits and Reports on Form 8-K.
<S> <C> <C>
a) Exhibit 10.59 Amended and Restated Accounts Financing Agreement dated June 1, 1997 among
Congress Financial Corporation (Southwest) and Farah U.S.A., Inc., Value
Clothing Company, Inc. and Farah Manufacturing (U.K.) Limited
Exhibit 10.60 Exhibit No. 1 to Trademark Agreement dated June 1, 1997 by Farah Incorporated
in favor of Congress Financial Corporation (Southwest)
Exhibit 10.61 Amended and Restated Inventory and Equipment Security Agreement dated June 1,
1997
Exhibit 10.62 Farah (UK) Supplement to Accounts Financing Agreement dated June 1, 1997
Exhibit 10.63 Amended and Restated General Security Agreement (Multiple Farah Companies)
dated June 1, 1997
Exhibit 10.64 Amended and Restated General Security Agreement (Farah International, Inc.)
dated June 1, 1997
Exhibit 10.65 Trade Financing Agreement Supplement to Accounts Financing Agreement dated
June 1, 1997
Exhibit 10.66 General Security Agreement (Farah Incorporated) dated June 1, 1997
Exhibit 10.67 General Security Agreement (Value Clothing Company, Inc. and Value Slacks,
Inc.) dated June 1, 1997
Exhibit 10.68 Secured Promissory Note, in the original principal amount of $10,000,000,
dated June 1, 1997, made by Farah U.S.A., Inc. to the order of Lender
Exhibit 10.69 The Acknowledgment and Confirmation of Guaranty and Other Financing
Agreements, dated June 1, 1997, executed by Guarantors and Corporacion
Farah-Costa Rica, S.A. de C.V. for the benefit of Lender
Exhibit 11 Statement regarding computation of net income (loss) per share.
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
None
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FARAH INCORPORATED
Date: June 18, 1997
/s/ Russell G. Gibson
Russell G. Gibson
Executive Vice President
Principal Financial Officer
/s/ Polly H. Vaughn
Polly H. Vaughn
Principal Accounting Officer
<PAGE>
<TABLE>
FARAH INCORPORATED AND SUBSIDIARIES
FORM 10-Q INDEX TO EXHIBITS
May 4, 1997
<CAPTION>
Description Page
Number
<S> <C> <C>
Exhibit 10.59 Amended and Restated Accounts Financing Agreement dated June 1, 1997 among 16
Congress Financial Corporation (Southwest) and Farah U.S.A., Inc., Value
Clothing Company, Inc. and Farah Manufacturing (U.K.) Limited
Exhibit 10.60 Exhibit No. 1 to Trademark Agreement dated June 1, 1997 by Farah 42
Incorporated in favor of Congress Financial Corporation (Southwest)
Exhibit 10.61 Amended and Restated Inventory and Equipment Security Agreement dated June 48
1, 1997
Exhibit 10.62 Farah (UK) Supplement to Accounts Financing Agreement dated June 1, 1997 53
Exhibit 10.63 Amended and Restated General Security Agreement (Multiple Farah Companies) 72
dated June 1, 1997
Exhibit 10.64 Amended and Restated General Security Agreement (Farah International, Inc.) 89
dated June 1, 1997
Exhibit 10.65 Trade Financing Agreement Supplement to Accounts Financing Agreement dated 108
June 1, 1997
Exhibit 10.66 General Security Agreement (Farah Incorporated) dated June 1, 1997 116
Exhibit 10.67 General Security Agreement (Value Clothing Company, Inc. and Value Slacks, 141
Inc.) dated June 1, 1997
Exhibit 10.68 Secured Promissory Note, in the original principal 158
amount of $10,000,000, dated June 1, 1997, made by Farah
U.S.A., Inc. to the order of Lender
Exhibit 10.69 The Acknowledgment and Confirmation of Guaranty and Other Financing 163
Agreements, dated June 1, 1997, executed by Guarantors and Corporacion
Farah-Costa Rica, S.A. de C.V. for the benefit of Lender
Exhibit 11 Statement regarding computation of net income (loss) per share. 165
Exhibit 27 Financial Data Schedule 166
</TABLE>
EXHIBIT 10.59
AMENDED AND RESTATED
ACCOUNTS FINANCING AGREEMENT
[SECURITY AGREEMENT]
DATED AS OF JUNE 1, 1997
AMONG
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
1201 Main Street
Dallas, Texas 75202
AND
FARAH U.S.A., INC.
VALUE CLOTHING COMPANY, INC.
FARAH MANUFACTURING (U.K.) LIMITED
4171 NORTH MESA
BUILDING D
SUITE 500
EL PASO, TEXAS 79902-1433
<PAGE>
FARAH U.S.A., INC.
Dated as of June 1, 1997
[Amending and Restating Accounts
Financing Agreement [Security Agreement]
dated August 2, 1990
Congress Financial Corporation (Southwest)
1500 One Main Place
Dallas, Texas 75250
Gentlemen:
Congress Financial Corporation (Southwest) (sometimes called "Lender"),
Farah U.S.A., Inc. ("Farah USA"), Value Clothing Company, Inc. ("Value
Clothing"), Farah Manufacturing (U.K.) Limited ("Farah UK," and together with
Farah USA and Value Clothing, individually, sometimes called a "Borrower" or
collectively the "Borrowers") have entered into financing arrangements pursuant
to the Accounts Financing Agreement [Security Agreement], dated as of August 2,
1990, between Lender and Farah USA (the "Original Accounts Financing Agreement")
and various Supplements thereto, as amended pursuant to Amendment No. 1 to
Financing Agreements, dated November 5, 1990, Amendment No. 2 to Financing
Agreements, dated February 11, 1991, Amendment No. 3 to Financing Agreements,
dated January 29, 1992, Amendment No. 4 to Financing Agreements, dated June 25,
1992, Amendment No. 5 to Financing Agreements, dated August 31, 1992, Amendment
No. 6 to Financing Agreements, dated September 4, 1992, Amendment No. 7 to
Financing Agreements, dated September 16, 1992, Amendment No. 8 to Financing
Agreements, dated as of June 7, 1993, Amendment No. 9 to Financing Agreements,
dated July 16, 1993, Amendment No. 10 to Financing Agreements, dated November 3,
1993, Amendment No. 11 to Financing Agreements, dated as of February 9, 1994
("Amendment No. 11"), Amendment No. 12 to Financing Agreements, dated as of July
14, 1994, Amendment No. 13 to Financing Agreements, dated as of March 7, 1995,
Amendment No. 14 to Financing Agreements, dated as of April 5, 1995, and as
amended pursuant to the letter agreement dated as of October 28, 1992, Amendment
No. 15 to Financing Agreements, dated as of August 1, 1995 and Consent,
Amendment and Agreement dated as of June 5, 1996 (collectively, as so amended
and as amended hereby, the "Financing Agreement", and together with all
Supplements thereto, including, but not limited to, the Covenant Supplement to
Accounts Financing Agreement [Security Agreement], dated as of August 2, 1990,
the Trade Financing Agreement Supplement to Accounts Financing Agreement
[Security Agreement] dated as of August 2, 1990, (collectively, the "Original
Financing Agreements").
Borrower and Lender desire to amend and restate certain of the Original
Financing Agreements as of June 1, 1997 to clarify their existing agreements by
consolidating the foregoing amendments, to make certain new agreements and to
execute the Farah (UK) Supplement, dated as of June 1, 1997 (the "Farah (UK)
Supplement"), among Borrowers and Lender (amending and restating Amendment No.
11), and all other agreements, documents and instruments at any time executed
and/or delivered in connection with any of the foregoing or related thereto, as
the same exist as of June 1, 1997 and as the same may hereafter be further
amended, modified, supplemented, extended, renewed, restated, confirmed or
replaced, collectively, the "Financing Agreements").
The Original Financing Agreements include guarantees and related
security agreements by companies affiliated with the Borrowers. The Lender and
the Borrowers desire that each of Farah Incorporated, Farah International, Inc.,
Farah Manufacturing Company, Inc., Farah Manufacturing Company of New Mexico,
Inc., Farah Clothing Company, Inc., a Delaware corporation, Value Clothing
Company, Inc., FTX, Inc., Value Slacks, Inc., and Corporacion Farah-Costa Rica
S.A. (collectively the "Guarantors") confirm their respective guarantees and
related security agreements.
This Agreement amends and restates the terms and conditions of the
Original Accounts Financing Agreement (as so amended restated, and as the same
may hereafter be further amended, modified, supplemented, extended, renewed,
restated, confirmed or replaced, this "Agreement" or the "Amended and Restated
Accounts Financing Agreement") and effective as of the date of acceptance by
Lender, Borrowers may continue to obtain loans and the financial accommodations
from Lender for Borrowers' general corporate and business purposes and to
finance certain capital expenditure of Farah USA upon the terms and the security
referred to herein. We shall be jointly and severally bound hereunder.
Section I. DEFINITIONS.
1.1. All terms used herein which are defined in Article 1 or Article 9
of the Uniform Commercial Code ("UCC") shall have the meanings given therein,
unless otherwise defined in this Agreement or in a Supplement, and all
references to the plural herein shall also mean the singular.
1.2. "Accounts" shall mean all of our present and future accounts,
contract rights, general intangibles, chattel paper, documents and instruments,
as such terms are defined in the UCC, including, without limitation, all
obligations for the payment of money arising out of our sale, lease or other
disposition of good or other property or rendition of services.
1.3. "Account Debtor" shall mean each debtor or obligor in any
way obligated on or in connection with any Account.
1.4. "Annual Rate" shall have the meaning set forth in Section 3.1
hereof.
1.5. "Bank" shall mean CoreStates Bank, N.A. (or its successors) in
Philadelphia, Pennsylvania.
1.6. "Borrower(s)" shall mean, collectively, Farah USA, Value
Clothing and Farah UK.
1.7. "Collateral" shall have the meaning set forth in Section 4.1
hereof.
1.8. "Covenant Supplement" shall mean the Amended and Restated Covenant
Supplement, dated as of June 1, 1997, among Borrowers and Lender as amended,
modified, supplemented, extended, renewed, restated, confirmed or replaced from
time to time.
1.9. "Current Assets" shall mean the aggregate net book value of all
assets of any Person and its Subsidiaries, on a consolidated basis, calculating
the book value of inventory for this purpose on a first-in-first-out basis,
which would, in accordance with GAAP, be classified as current assets.
1.10. "Current Liabilities" shall mean all Indebtedness of any Person
and its Subsidiaries, on a consolidated basis, which would in accordance with
GAAP be classified as current liabilities; and in any event including
Indebtedness payable on demand or within one (1) year from the date of
determination without any option of the obligor to extend or renew beyond such
year, all accruals for federal or other taxes based on or measured by income and
payable within such year, and including the current portion of long-term debt
required to be paid within one (1) year.
1.11. "Eligible Accounts" shall mean Accounts created by us in the
ordinary course of business arising out of our sale of goods or rendition of
services, which are and at all times shall continue to be acceptable to you in
all respects. Standards of eligibility may be fixed and revised from time to
time solely by you in your exclusive judgment. In determining eligibility, you
may, but need not, rely on agings, reports and schedules of Accounts furnished
by us, but reliance by you thereon from time to time shall not be deemed to
limit your right to revise standards of eligibility at any time as to both our
present and future Accounts. In general, an Account shall be deemed eligible
unless: (a) the Account Debtor on such Account is and at all time continues to
be acceptable to you, (b) such Account complies in all respects with the
representations, covenants and warranties hereinafter set forth, and (c) no more
than 90 days have elapsed since the invoice date of such Account if the Account
by its terms is payable within 30 days of the invoice date and no more than 120
days have elapsed since the invoice date of such Account if the Account by its
terms is payable within more than 30 days of the invoice date.
1.12. "Eligible Inventory" shall mean Eligible Inventory of Farah USA
consisting of Finished Goods, Work-in-Process and Raw Materials acceptable to
Lender in all respects. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in its exclusive reasonable
judgment. In determining such acceptability, Lender may, but need not, rely on
report and schedules of Eligible Inventory furnished to Lender by Farah USA, but
reliance thereon by Lender from time to time shall not be deemed to limit its
right to revise standards of eligibility at any time. In general, except in
Lender's sole discretion, Eligible Inventory shall not include (A) components
which are not to be incorporated into Finished Goods, (B) spare parts, (C)
packaging and shipping materials, (D) supplies used or consumed in the business
of Farah USA, (E) Eligible Inventory subject to a security interest or lien in
favor of any third party, (F) bill and hold goods, (G) Eligible Inventory which
is not subject to the perfected security interest of Lender (other than
Work-in-Process located outside the United
<PAGE>
States of America), (H) defective goods, (I) obsolete, slow-moving and/or
discontinued goods, (J) "seconds" and (K) Eligible Inventory purchased on
consignment.
1.13. "Events of Default" shall have the meaning set forth in
Section 8.1 hereof.
1.14. "Excess" shall have the meaning set forth in Section 3.4
hereof.
1.15. "Farah USA" shall mean Farah U.S.A., Inc., a Texas corporation
and its successors and assigns.
1.16. "Farah Clothing" shall mean Farah Clothing Company, Inc., a
Delaware corporation, and its successors and assigns.
1.17. "Farah UK" shall mean Farah Manufacturing (U.K.) Limited, an
England corporation, and its successors and assigns.
1.18. "Finished Goods" shall mean Eligible Inventory of Borrowers
consisting of first quality finished goods held for resale to customers of Farah
USA in the ordinary course of our business.
1.19. "Governmental Agency" shall mean the government of any country,
or any province or state thereof or a local municipality or other political
subdivision thereof or any body, department, authority, agency, public
corporation or instrumentality of any of the foregoing.
1.20. "Interest Period" means, with respect to any Libor Rate loan,
each period commencing on the date such loan is established or converted from a
Prime Rate loan or the last day of the next preceding Interest Period with
respect to such Libor Rate loans, and ending on the numerically corresponding
day in the first, second, third or sixth calendar month thereafter, as we may
select, except that each such Interest Period which commences on the last
business day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last business day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would otherwise
end on a day which is not a business day shall end on the next succeeding
business day (or if such succeeding business day falls in the next succeeding
calendar month, on the next preceding business day); (b) any Interest Period
which would otherwise extend beyond the termination date of this Agreement as
set forth in Section 9.1 below applicable to a given loan shall end on such
termination date; (c) no more than five (5) Interest Periods shall be in effect
at the same time; (d) no Interest Period for any Libor Rate loan shall have a
duration of less than one (1) month and, if the Interest Period would otherwise
be a shorter period, the related Libor Rate loan shall not be available
hereunder; and (e) no Interest Period in respect of any term loan may extend
beyond a principal repayment date thereof unless, after giving effect thereto,
the aggregate principal amount of such loan subject to Libor Rate having
Interest Periods
<PAGE>
that end after such principal payment date shall be equal to or less than the
aggregate principal amount of such loan to be outstanding hereunder after such
principal payment date.
1.21. "Libor Rate" means, for any Libor Rate loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) offered to Bank at approximately 11:00 a.m. Eastern Standard
time (or as soon thereafter as practicable) two business days prior to the first
day of such Interest Period by leading banks in the London interbank market of
U.S. dollar deposits in immediately available funds having a term comparable to
such Interest Period and in an amount comparable to the principal amount of the
Libor loan applicable to such bank to which such Interest Period relates.
1.22. "Maximum Credit" shall mean, with respect to all Borrowers, the
aggregate amount of $75,000,000; provided, however, that such "Maximum Credit"
shall, except in Lender's sole discretion, have the following sublimits: (i)
with respect to Farah UK only, (A) the aggregate principal amount of loans at
any one time outstanding shall not exceed $5,000,000 in U.S. Dollars or U.S.
Dollar Equivalents; and (B) the aggregate principal amount of the loans
outstanding at any time based on the Eligible Inventory of Farah UK, regardless
of the amount of such inventory, shall not exceed $1,750,000 in U.S. Dollars or
U.S. Dollar Equivalents; (ii) with respect to Farah USA, Farah UK and Value
Clothing, the aggregate unpaid principal amount of the loans outstanding at any
time based on the Eligible Inventory of Farah USA and the Value Slacks Eligible
Inventory, regardless of the amounts of such Eligible Inventory or Value Slacks
Eligible Inventory, shall not exceed $35,000,000; (iii) with respect to Value
Clothing only, the aggregate unpaid principal amount of the loans outstanding at
any time based on the Value of the Value Slacks Eligible Inventory, regardless
of the amounts of the Value Slacks Eligible Inventory, shall notwithstanding
clause (ii) not exceed $3,000,000; and (iv) with respect to Farah USA only, the
aggregate amount of the term loan permitted under Section 2.1.1(e) shall not
exceed the principal sum of $10,000,000 and shall reduce the Maximum Credit by
the principal amount thereof which is outstanding from time to time.
1.23. "Maximum Legal Rate" shall have the meaning set forth in
Section 3.4 hereof.
1.24. "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less sales, excise or similar taxes, and less returns,
discounts, claims, credits and allowances of any nature at any time issued,
owing, granted, outstanding, available or claimed.
1.25. "Obligations" shall mean any and all loans, indebtedness,
liabilities and obligations of any kind owing by us to you, however evidenced,
whether as principal, guarantor or otherwise, whether arising under this
Agreement, any other Financing Agreement, any Supplement, or otherwise, whether
now existing or hereafter arising, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary liquidated or
unliquidated, secured or unsecured, original, renewed or extended, and whether
arising directly or acquired from others (including, without limitation, your
participations or interests in our obligations to others) and including, without
limitation, your charges, commissions, interest, expenses, costs and attorneys'
fees chargeable to us in connection with all of the foregoing.
1.26. "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including a business trust),
unincorporated association, joint stock corporation, trust, joint venture or
other entity or government or any agency or instrumentality or political
subdivision thereof.
1.27. "Prime Rate" shall mean the prime commercial interest rate
(presently 8.5% per annum) from time to time publicly announced by CoreStates
Bank, N.A. (or its successors) at its offices in Philadelphia, Pennsylvania
whether or not such announced rate is the best rate available at such bank.
1.28. "Raw Materials" shall mean Eligible Inventory of Farah USA
consisting of raw materials used by Farah USA to produce Work-in-Process and/or
Finished Goods (and including piece goods, major trim and minor trim).
1.29. "Records" shall have the meaning set forth in Section 4.1(f)
hereof.
1.30. "Renewal Date" shall mean July 1, 2001, subject to Section 9.1
hereof.
1.31. "Revolving Loans" shall mean all loans hereunder other than
the Term Loan.
1.32. "Subsidiary" shall mean any corporation, association or
organization, active or inactive, as to which more than fifty (50%) percent of
the outstanding voting stock or shares or interests shall now or hereafter be
owned or controlled, directly or indirectly by any Person, any Subsidiary of
such Person, or any Subsidiary of such Subsidiary.
1.33. "Supplements" shall mean, collectively, the Covenants Supplement,
the Trade Financing Supplement, the Farah UK Supplement, the Amended and
Restated Inventory and Equipment Security Agreement Supplement, dated as of June
1, 1997, by Farah USA and other Supplements to any Financing Agreements that may
exist from time to time, as any of the same may be amended, modified,
supplemented, extended, renewed, restated, confirmed or replaced from time to
time.
1.35. "Term Loan" or "term loan" shall mean the loan described in
Section 2.1.1(e) hereof.
1.36. "Trade Financing Supplement" shall mean the Amended and Restated
Trade Financing Supplement dated as of June 1, 1997, among Borrowers and Lenders
amended, modified, supplemented, extended, renewed, restated, confirmed and
replaced from time to time.
1.37. "Value" shall mean cost computed on a first-in-first-out basis
or market price, as determined by Lender, whichever is lower.
<PAGE>
1.38. "Value Clothing" shall mean Value Clothing Company, Inc., a
Texas corporation and wholly owned subsidiary of Value Slacks, and its
successors and assigns.
1.39. "Value Slacks" shall mean Value Slacks, Inc., a Texas
corporation, and its successors and assigns.
1.40. "Value Slack Companies" shall mean, individually and
collectively, Value Slacks and Value Clothing.
1.41. "Value Slacks Eligible Inventory" shall mean inventory of the
Value Slacks Companies consisting of finished goods which are located at the
premises of the Value Slacks Companies and acceptable to Lender in all respects.
General criteria for Value Slacks Eligible Inventory may be established and
revised from time to time by Lender in its exclusive reasonable judgment. In
determining such acceptability, Lender may, but need not, rely on reports and
schedules of such Eligible Inventory furnished to Lender by either or both of
the Value Slacks Companies or Farah USA, but reliance thereon by Lender from
time to time shall not be deemed to limit its right to revise standards of
eligibility at any time. In general, except in Lender's sole discretion, Value
Slacks Eligible Inventory shall not include (A) raw materials, (B)
work-in-process, (C) components which are not to be incorporated into finished
goods, (D) spare parts, (E) packaging and shipping materials, (F) supplies used
or consumed in the business of the Value Slacks Companies, (G) Eligible
Inventory subject to a security interest or lien in favor of any third party,
(H) bill and hold goods, (I) Eligible Inventory which is not subject to the
perfected security interest of Lender and (J) Eligible Inventory purchased on
consignment.
1.42. "We," "our," "us," or "Borrowers" shall collectively refer to
Farah USA, Value Clothing and Farah UK.
1.43. "Work-in-Process" shall mean Eligible Inventory of Farah USA
which is in the process of being converted from Raw Materials to Finished Goods.
1.44. "You," "you," "Your(s)," "your(s)" or "Lender" shall refer to
Congress Financial Corporation (Southwest).
Section 2. LOANS.
2.1. You shall, make loans to us from time to time, at our request,
up to the Maximum Credit, on the terms set forth below:
2.1.1. Lender shall make the Term Loan described in clause (e)
below and, in its discretion, make Revolving Loans to Farah USA from time to
time, at the request of Farah USA, described in clauses (a) to (e) below, as
follows:
<PAGE>
(a) Revolving Loans of up to eighty-five (85%)
percent of the Net Amount of Eligible Accounts (or such greater or lesser
percentage thereof as Lender may determine from time to time); plus
(b) Revolving Loans of up to sixty (60%) percent
of the Farah USA Eligible Inventory consisting of Finished Goods (or such
greater or lesser percentage thereof as Lender may determine from time to time);
plus
(c) Revolving Loans of up to ten (10%) percent
of the Farah USA Eligible Inventory consisting of Work-in-Process (or such
greater or lesser percentage thereof as Lender may determine from time to time);
plus
(d) Revolving Loans of up to fifty (50%) percent
of the Farah USA Eligible Inventory consisting of Raw Materials (or such
greater or lesser percentage thereof as Lender may determine from time to time);
plus
(e) The Term Loan of $10,000,000 in the
aggregate, with principal payments commencing as of August 1, 1997, payable:
(i) over a term of four (4) years, (ii) in installments of $208,333.33 per
month and (iii) at the Annual Rate or the Libor Rate selected and determined
as set forth in Section 3 below. Such term loans shall (A) be evidenced by
a term promissory note in form and substance satisfactory to Lender, (B) be
issued as of June 1, 1997, bearing that date, in the original principal amount
of $10,000,000, (C) have a maturity date of June 30, 2001, and (D) be secured
by all of the Collateral. Such term loan may not be reborrowed.
2.1.2 Value Clothing Loans.
(a) Lender shall, in its discretion, make loans to Value Clothing from time
to time, at the request of Value Clothing an amount equal to fifty (50%) percent
of the Value Slacks Eligible Inventory consisting of Finished Goods (or such
greater or lesser percentage thereof as Lender may determine from time to time)
up to aggregate loans of $3,000,000.
(b) All loans shall be charged to a loan account in the name of Value
Clothing on Lender's books. Lender shall render to Farah USA, as agent for the
Value Slacks Companies, each month a statement of its loan account which shall
be considered correct and deemed accepted by, and binding upon, the Value Slacks
Companies as an account stated, except to the extent that Lender receives a
written notice of any specific exceptions by Value Clothing thereto within
thirty (30) days after the date of such statement.
(c) At Lender's option, all principal, interest, fees, commissions, costs,
expenses or other charges payable by Value Clothing to Lender and any and all
loans and advances by Lender to Value Clothing may be charged directly to the
account of Value Clothing maintained by Lender.
(d) Until the authority of the Value Slacks Companies to do so is curtailed
or terminated at any time by Lender, the Value Slacks Companies shall, at their
expense and on behalf of Lender, collect, as the property of Lender and in trust
for Lender, all proceeds from the sale of the inventory of the Value Slacks
Companies, in whatever form, including, without limitation, all cash, checks,
credit or debt card transaction records, and all forms of daily retail store
receipts, as well as all proceeds of Collateral or any other cash proceeds. At
such time hereafter as Lender may request, the Value Slacks Companies shall not
commingle such collections with the Value Slacks Companies' own funds. Upon
Lender's request, the Value Slacks Companies shall on the day received deposit
all such proceeds into deposit accounts subject to the provisions set forth
below for the collection and transfer of sales proceeds. At such time as
proceeds of Collateral of the Value Slacks Companies are deposited into deposit
accounts subject to the provisions set forth below, such proceeds when received
by Lender at such place as Lender may designate from time to time shall be
credited to the loan account of Value Clothing after adding two (2) business
days for remittances by federal funds wire transfers and after adding two (2)
business days for collection, clearance and transfer of all other remittance, in
each instance conditional upon final payment to Lender.
(e) At such time as Lender may request, the Value Slacks Companies shall,
in a manner satisfactory to Lender from time to time, enter into deposit account
arrangements and merchant payment arrangements with respect to credit and debit
card sales, such that all proceeds of the sale of the inventory of the Value
Slacks Companies of every form, including, without limitation, cash, checks,
credit or debit card receipts and charge slips and other forms of daily store
receipts, or amounts payable upon letters of credits, bankers' acceptances and
other proceeds of such Collateral shall be deposited into a blocked account
under Lender's control or deposited into one of the deposit accounts that is
approved by Lender with respect to which irrevocable instructions from the Value
Slacks Companies have been accepted by the depository bank to transfer all
collected funds to a blocked account under the control of Lender. In connection
therewith, the Value Slacks Companies shall execute such instructions, blocked
account and other agreements as Lender, in its discretion, shall specify.
(f) The Value Slacks Companies shall immediately upon obtaining knowledge
thereof report to Lender all reclaimed, repossessed or returned goods (other
than returns in the ordinary course of business of the Value Slacks Companies
which shall only be reported to Lender with such frequency and in such manner as
Lender may reasonably require).
2.1.3 Lender shall, in its discretion, make Revolving Loans to
Farah UK from time to time, at the request of Farah UK, in accordance with the
Farah (UK) Supplement.
2.2. All loans shall be charged to a loan account in our name on your
books. You shall render to us each month a statement of our loan account which
shall be considered correct and deemed accepted by, and conclusively binding
upon, us as an account stated, except to the extent that you receive a written
notice of any specific exceptions by us thereto within thirty (30) days after
the date of such statement.
2.3. (a) Except in your sole discretion, the outstanding aggregate
principal amount of all loans by you to us hereunder or under any Supplement,
shall not exceed the Maximum Credit at any time. Without limiting your right to
demand payment of the Obligations, or any portion thereof, in accordance with
any other terms of this Agreement, or any Supplement, in the event that the
outstanding aggregate principal amount of loans by you to us exceeds the Maximum
Credit or the formulas set forth in Section 2.1 hereof or as contemplated in
Section 2.3(b), we shall remain liable therefor and the entire amount of such
excess(es) shall, at your option, become immediately due and payable, upon your
demand.
(b) You may, from time to time, permit the outstanding amount
of any components of the loans by you to us, or the aggregate amounts of such
outstanding loans to exceed the amounts available under the lending formulas or
sublimits provided for herein or otherwise applicable as to each of the
Borrowers or $75,000,000, as applicable; provided, that, should you so permit in
any one instance such event shall not operate to limit, waive or otherwise
affect any rights of yours on any future occasions. In such event, and without
limiting the right of yours to demand payment of the Obligations, or any portion
thereof, in accordance with any other terms of the Financing Agreements, we
shall remain liable therefor and we shall, upon demand by you, which may be made
at any time and from time to time, repay to you the entire amount of any such
excess(es) or in accordance with such other terms as you may agree to in writing
at the time, except, that, notwithstanding anything contained herein or in the
other Financing Agreement to the contrary, Farah UK shall not be required to
repay any such amounts arising as a result of loans by you to the other
Borrowers.
2.4. At your option, all principal, interest, fees, commissions, costs,
expenses or other charges with respect to this Agreement or any Supplement (all
of which shall be cumulative and not exclusive) and any and all loans and
advances by you to us may be charged directly to our account maintained by you.
2.5. All loans shall be payable at your office specified above or at
such other place as you may hereafter designate from time to time and at your
option and upon your request, we shall execute and deliver to you one or more
promissory notes in form and substance satisfactory to you to further evidence
such loans.
Section 3. INTEREST AND FEES.
3.1. (a) With respect to Prime Rate loans, interest shall be payable by
us to you on the first day of each month upon the closing daily balances in our
loan account for each day during the immediately preceding month, at a rate
equal to one-half percent (1/2%) per annum in excess of the Prime Rate (the
"Annual Rate"). With respect to Libor Rate loans, interest shall be payable on
the first day of each month on the principal amounts thereof at a rate equal to
two and three-quarters of one percent (2.75%) applicable thereto per annum in
excess of the Libor Rate. The Annual Rate shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime Rate,
effective on the first day of the month after any change in the
<PAGE>
Prime Rate based on the Prime Rate in effect on the last day of the month in
which any such change occurs. The Annual Rate in effect hereunder on the date
hereof, expressed in terms of simple interest, is eight and one-half of one
percent (8.5%) per annum.
(b) You shall have the right from time to time to convert all
or part of a loan based on the Prime Rate into a loan based on the Libor Rate or
to continue in effect any loan based on the Libor Rate; provided, that: (i) you
give us notice of such conversion or continuation, substantially in the form of
Exhibit B hereto (which may be given by facsimile with electronic confirmation
of receipt) (a "Libor Borrowing Notice"), within two (2) business days before
the end of an existing or new Interest Period, as the case may be, specifying
the term, amount and other information that we may request with respect to such
Libor Rate loan, (ii) a Libor Rate loan may not be converted to a Prime Rate
loan except on the last day of the applicable Interest Period, and (iii) the
requirements of Section 3.1(c), (d), (e) and (f) hereof shall have been met.
(c) Subject to the terms and conditions contained herein, two
(2) business days after receipt by Lender of a Libor Borrowing Notice, such
Prime Rate Loans shall be converted to Libor Rate loans or such Libor Rate loans
shall continue, as the case may be; provided, that, (i) no Event of Default, or
event which with notice of passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party hereto shall
have sent any notice of termination or non-renewal of this Agreement or the
other Financing Agreements, (iii) Borrowers shall have complied with such
customary procedures as are established by Lender and specified by Lender to
Borrower from time to time for requests by Borrower for Libor Rate loans, (iv)
no more than five (5) Interest Periods may be in effect at any one time, (v) the
aggregate amount of the Libor Rate loans outstanding must be in an amount not
less than Five Million Dollars ($5,000,000) or an integral multiple of One
Million Dollars ($1,000,000) in excess thereof, (vi) the maximum amount of the
Libor Rate loans at any time requested by Borrowers shall not exceed the amount
equal to (A) the principal amount of the Term Loan which it is anticipated will
be outstanding as of the last day of the applicable Interest Period plus (B)
ninety percent (90.0%) of the daily average of the principal amount of the
Revolving Loans which it is anticipated will be outstanding during the
applicable Interest Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii) Lender shall have
determined that the Interest Period or Libor Rate is available to Lender through
the Bank and can be readily determined as of the date of the request for such
Libor Rate loan by Borrower. Any Libor Borrowing Notice delivered by Borrower to
convert Prime Rate loans to Libor Rate loans or to continue any existing Libor
Rate loans shall be irrevocable. Notwithstanding anything to the contrary
contained herein, Lender and Bank shall not be required to purchase United
States dollar deposits in the London interbank market or other applicable Libor
Rate market to fund any Libor Rate loans, but the provisions hereof shall be
deemed to apply as if Lender and Bank had purchased such deposits to fund the
Libor Rate loans.
(d) Any Libor Rate loans shall automatically convert to Prime
Rate loans described in Section 2.1 hereof upon the last day of the applicable
Interest Period, unless Lender has received and approved a Libor Borrowing
Notice to continue such Libor Rate loan at least
<PAGE>
two (2) Business Days prior to such last day in accordance with the terms
hereof. Any Libor Rate loan shall, at Lender's option, upon notice by Lender to
Borrower, convert to Prime Rate loans in the event that (i) an Event of Default
shall exist, (ii) this Agreement shall terminate or not be renewed, or (iii) the
aggregate principal amount of the Prime Rate loans which have previously been
converted to Libor Rate loans or existing Libor Rate loans continued, as the
case may be, at the beginning of an Interest Period shall at any time during
such Interest Period exceed either (A) the aggregate principal amount of the
loans then outstanding, or (B) the sum of the then outstanding principal amount
of the Term Loan plus the Revolving Loans then available to Borrower under
Section 2 hereof with respect to the Libor Rate loans which, in any case, result
in such excess. Borrower shall pay to Lender, upon demand by Lender (or Lender
may, at its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Bank or any participant with Lender for any loss
(including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Libor Rate loans to Prime Rate loans
pursuant to any of the events set forth in the previous sentence.
(e) Notwithstanding anything to the contrary contained herein,
all Libor Rate loans shall, upon notice by Lender to Borrower, convert to Prime
Rate loans in the event that (i) any change in applicable law or regulation (or
the interpretation or administration thereof) shall either (A) make it unlawful
for Lender, Bank or any participant to make or maintain Libor Rate loans or to
comply with the terms hereof in connection with the Libor Rate loans, by an
amount deemed by Lender to be material, or (B) shall result in the increase in
the costs to Lender, the Bank or any participant of making or maintaining any
Libor Rate loans or (C) reduce the amounts received or receivable by Lender in
respect thereof, by an amount deemed by Lender to be material or (ii) the cost
to Lender, the Bank or any participant of making or maintaining any Libor Rate
loans affecting the Libor Rate on the London Interbank Market shall otherwise
increase by an amount deemed by Lender to be material. Borrower shall pay to
Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Bank or any
participant for any loss (including loss of anticipated profits), cost or
expense incurred by such person as a result of the foregoing, including, without
limitation, any such loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such person to make or
maintain the Libor Rate loans or any portion thereof. A certificate of Lender
setting forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrower and shall be
conclusive, absent manifest error.
(f) If any payments or prepayments in respect of the Libor
Rate loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
8 hereof or any other payments made with the proceeds of Collateral, Borrower
shall pay to Lender upon demand by Lender (or Lender may, at its option, charge
any loan account of Borrower) any amounts required to compensate Lender, the
Bank or any Participant for any additional loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of such prepayment
or payment, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such person to make or maintain such Libor Rate loans or any portion thereof.
3.2. Upon the occurrence and during the continuance of an Event of
Default or termination or non-renewal the interest rate on all outstanding
unpaid Obligations shall, at Lender's option, accrue at a rate equal to two
percent (2%) per annum in excess of the Annual Rate or four and three-quarters
of one percent (4.75%) in excess of the Libor Rate for Libor Rate loans, as the
case may be, from the date of such Event of Default or termination or
non-renewal, and all interest accruing hereunder shall thereafter be payable on
demand.
3.3. Interest shall be calculated on the basis of a 360-day year and
shall be included in each monthly statement of our loan account. You shall have
the right, at your option, to charge all interest to our loan account on the
first day of each month, in the case of loans based on the Annual Rate, and on
the last day of the applicable Interest Period, in the case of loans based on
the Libor Rate, and such interest shall be deemed to be paid by the first
amounts subsequently credited thereto.
3.4. No agreements, conditions, provisions or stipulations contained in
this Agreement or in any other agreement between you and us, or the occurrence
of an Event of Default hereunder, or the exercise by you of the right to
accelerate the payment of the maturity of principal and interest, or to exercise
any option whatsoever contained in this Agreement or any other agreement between
you and us, or the arising of any contingency whatsoever shall entitle you to
collect, in any event, interest exceeding the maximum rate of nonusurious
interest allowed from time to time by applicable state or federal laws as now or
as may hereafter be in effect (the "Maximum Legal Rate"), and in no event shall
we be obligated to pay interest exceeding such Maximum Legal Rate, and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel us to pay a rate of
interest exceeding the Maximum Legal Rate shall be without binding force or
effect at law or in equity, to the extent only of the excess of interest over
such maximum interest allowed by law. In the event any interest is charged in
excess of the Maximum Legal Rate (herein referred to as the "Excess"), we
acknowledge and stipulate that any such charge shall be the result of an
accidental and bona fide error, and such Excess shall be, first, applied to
reduce the principal of any Obligations due, and, second, returned to us, it
being the intention of the parties hereto not to enter at any time into an
usurious or otherwise illegal relationship. The parties hereto recognize that
with fluctuations in the Prime Rate and the Libor Rate such an unintentional
result could inadvertently occur. By the execution of this Agreement, we
covenant that (a) the credit or return of any Excess shall constitute the
acceptance by us of any such Excess, and (b) we shall not seek or pursue any
other remedy, legal or equitable, against you based, in whole or in part, upon
the charging or receiving or any interest in excess of the Maximum Legal Rate.
For the purpose of determining whether or not any Excess has been contracted
for, charged or received by you, all interest at any time contracted for,
charged or received by you in connection with our Obligations shall be
amortized, prorated, allocated and spread in equal parts during the entire term
of this Agreement.
3.5. Notwithstanding the provisions of Sections 3.1 or 3.2 hereof to
the contrary, (a) if at any time the amount of interest computed on the basis of
the Annual Rate or the Libor Rate, as the case may be, would exceed the amount
of such interest computed upon the basis of the Maximum Legal Rate, the interest
payable under this Agreement shall be computed upon the basis of the Maximum
Legal Rate, but any subsequent reduction in the Annual Rate or the Libor Rate,
as the case may be, shall not reduce such interest thereafter payable below the
amount computed on the basis of the Maximum Legal Rate until the aggregate
amount of such interest accrued and payable under this Agreement equals the
total amount of interest which would have accrued if such interest had been at
all time computed solely on the basis of the Annual Rate or the Libor Rate, as
the case may be; and (b) unless preempted by federal law, the Annual Rate or the
Libor Rate, as the case may be, from time to time in effect hereunder may not
exceed the "Indicated Ceiling Rate" from time to time in effect under Chapter 15
of the Texas Credit Code (Vernon's Texas Civil Statutes), Section (c), Article
5069-1.04, as amended.
3.6. The provisions of Sections 3.4 and 3.5 hereof shall be deemed to
be incorporated into every document or communication relating to the Obligations
which sets forth or preserves any account, right or claim or alleged account,
right or claim of you with respect to us (or any other obligor in respect of the
Obligations), whether or not any provision of Sections 3.4 or 3.5 is referred to
therein. All such documents and communications and all figures set forth therein
shall, for the sole purpose of computing the extent of the Obligations asserted
by you thereunder, be automatically recomputed by us or any other obligor, and
by any court considering the same, to give effect to the adjustments or credits
required by Sections 3.4 and 3.5 hereof.
3.7. If the applicable state or federal law is amended in the future to
allow greater rate of interest to be charged under this Agreement than in
presently allowed by applicable state or federal law, then the limitation of
interest hereunder shall be increased to the maximum rate of interest allowed by
applicable state or federal law as amended, which increase shall be effective
hereunder on the effective date of such amendment, and all interest charges
owing to you by reason thereof shall be payable upon demand.
3.8. The fees described in this Section 3.8 shall be payable if the
average outstanding daily principal balance of all loans and Credits by you to
us under the Financing Agreements is less than $17,500,000. With respect to each
month (or part thereof) that this Agreement is in effect or so long as any of
the Obligations are outstanding, Borrowers shall pay to Lender a fee at a rate
equal to one-half of one (1/2%) percent per annum calculated for such month and
payable monthly, in arrears, upon the excess, if any, of: (i) $17,500,000 over
(ii) the average of the daily principal balances of the loans outstanding to
Borrowers and the Credits outstanding for such month (or part thereof).
3.9. We shall pay to you a facility fee in an amount equal to
$125,000, payable simultaneously with the execution hereof.
Section 4. SECURITY INTEREST
4.1. As security for the prompt performance, observance and payment in
full of all Obligations, we hereby grant to you a continuing security interest
in, a lien upon and a right of setoff against, and we hereby assign, transfer,
pledge and set over to you the following (which together with any of our other
property in which you may at any time have a security interest or lien, whether
pursuant to any Supplement, or otherwise, are herein collectively referred to as
the "Collateral"): All present and future (a) Accounts; (b) moneys, securities
and other property and the proceeds thereof, now or hereafter held or received
by, or in transit to, you from or for us, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, and all of our deposits (general
or special), balances, sums and credits with you at any time existing; (c) all
of our right, title and interest, and all of our rights, remedies, security and
liens, in, to and in respect of the Accounts and other Collateral, including,
without limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lien or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any Account Debtor, and credit
and other insurance; (d) all of our right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in, Accounts
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Accounts or other Collateral, including, without limitation, all
returned, reclaimed or repossessed goods; (e) all deposit accounts; (f) all
books, records, ledger cards, computer programs, and other property and general
intangibles evidencing or relating to the Accounts and any other Collateral or
any Account Debtor, together with the file cabinets or containers in which the
foregoing are stored ("Records"); (g) all other general intangibles of every
kind and description, including, without limitation, trade names and trademarks,
and the goodwill of the business symbolized thereby, patents, copyrights,
licenses and Federal, State and local tax refund claims of all kinds and (h) all
proceeds of the foregoing, in any form, including, without limitation, any
claims against third parties for loss or damage to or destruction of any or all
of the foregoing.
4.2. We shall keep and maintain, at our cost and expense, satisfactory
and complete books and records of all Accounts, all payments received or credits
granted thereon, and all other dealings therewith. At any time on or after the
occurrence of an Event of Default, and at such times as you may request, we
shall deliver to you all original documents evidencing the sale and delivery of
goods or the performance of services which created any Accounts, including but
not limited to, all original contracts, orders, invoices, bills of lading,
warehouse receipts, delivery tickets and shipping receipts. Any such time as you
may request, we shall deliver to you schedules describing the Accounts and/or
written confirmatory assignments to you of each Account, in form and substance
satisfactory to you and duly executed by us, together with such other
information as you may request. You will return to us, at our expense, any
original documents evidencing the sale and delivery of goods which created any
Accounts delivered to you pursuant to this Section 4.2 and in your possession
when your actual or anticipated need therefor has ceased. In no event shall the
making or the failure to make or the content of any schedule or assignment or
our failure to comply with the provisions hereof be deemed or construed as a
waiver, limitation or modification of your security interest in, lien upon and
assignment of the Collateral or our representations, warranties or covenants
under this Agreement or any Supplement hereto.
Section 5. COLLECTION AND ADMINISTRATION.
5.1. Until our authority to do so is curtailed or terminated at any
time by you, we shall, at our expense and on your behalf, collect, as your
property and in trust for you, all remittances and all amounts unpaid on
Accounts, and we shall not commingle such collections with our own funds. We
shall on the day received remit all such collections to you in the form received
duly endorsed by us for deposit with you, unless you shall direct us otherwise.
All amounts collected on Accounts when received by you in your account
designated for such purpose shall be credited to our loan account, after adding
two (2) business days for federal funds, wire transfers and after adding two (2)
business days for collection, clearance and transfer of any other form of
remittances, conditional upon final payment to you.
5.2. You or your representatives shall at all times have free access to
and right of inspection of the Collateral and have full access to and the right
to examine and make copies of our Records, to confirm and verify all Accounts,
to perform general audits and to do whatever else you deem necessary to protect
your interests. You may at any time remove from our premises or require us or
any accountants and auditors employed by us to deliver any Records and you may,
without cost or expense to you, use such of our personnel, supplies, computer
equipment and space at our places of business as may be reasonably necessary for
the handling of collections.
5.3. We shall immediately upon obtaining knowledge thereof report to
you all reclaimed, repossessed or returned goods, Account Debtor claims and any
other matter affecting the value, enforceability or collectibility of Accounts
in excess of $25,000 and as to such matters for any amount, we shall report same
to you monthly prior to the occurrence of an Event of Default and immediately
upon obtaining knowledge thereof at any time on or after the occurrence of an
Event of Default. All claims and disputes relating to Accounts are to be
promptly adjusted within a reasonable time, at our own cost and expense. You
may, at your option, at any time on or after the occurrence and during the
continuance of an Event of Default, settle, adjust or compromise claims and
disputes relating to Accounts which are not adjusted by us within a reasonable
time.
5.4. We shall, in the manner requested by you from time to time, direct
that all proceeds of Accounts, letters of credit, bankers' acceptances and other
proceeds of Collateral shall be payable to a lock box or post office designated
by you and under your control and/or deposited into a blocked account under your
control and/or deposited into an account maintained in your name and under your
control and in connection therewith shall execute such lock box, blocked account
or other agreement as you in your sole discretion shall specify.
Section 6. REPRESENTATIONS, WARRANTIES AND COVENANTS
We jointly and severally hereby represent, warrant and covenant to you
the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which, or compliance with, being a
continuing condition of the making of loans hereunder by you or under any
Supplement:
6.1. We will not directly sell, lease, transfer, abandon or otherwise
dispose of all or any substantial portion of our property or assets or
consolidate or merge with or into any other entity to consolidate or merge with
or into us; provided that a wholly-owned Subsidiary of a Borrower may, on at
least ten (10) days prior written notice to you, merge with and into a Borrower;
provided that such Borrower is the surviving corporation and we provide you
copies of all merger documentation on your request. Each of us will at all times
preserve, renew and keep in full force and effect our existence as a corporation
and the rights and franchises with respect thereto and continue to engage in
business of the same type as we are engaged as of the date hereof. Each of us
shall give you thirty (30) days prior written notice of any proposed change in
our corporate name which notice shall set forth the new name.
6.2. Our Records and chief executive office are maintained at the
address referred to below. We shall not change such location without your prior
written consent and prior to making any such change, we agree to execute any
additional financing statements or other documents or notices which you may
require.
6.3. We shall maintain our shipping forms, invoices and other related
documents in a form satisfactory to you and shall maintain our books, records
and accounts in accordance with generally accepted accounting principles
consistently applied. We agree to furnish you monthly with accounts receivable
agings, inventory reports (if requested by you), and interim financial
statements (including balance sheet, statement of income and retained earnings,
and statement of changes in financial position), and to furnish you, at any time
or from time to time with such other information regarding our business affairs
and financial condition as you may reasonably request, including, without
limitation, balance sheets, statements of income, statements of cash flow,
projections, forecasts, schedules, agings and reports. We hereby irrevocably
authorize and direct all accountants, auditors or other third parties to deliver
to you, at our expense, copies of our financial statements, papers related
thereto, and other accounting records of any nature in their possession and to
disclose to you any information they may have regarding our business affairs and
financial conditions. We shall furnish you with audited financial statements on
an annual basis certified by independent public accountants selected by us and
acceptable to you. All such statements and information shall fairly present our
financial condition as of the dates and the results of our operations for the
periods, for which the same are furnished. Any documents, schedules, invoices or
other papers delivered to you may be destroyed or otherwise disposed of by you
one (1) year after the date the same are delivered to you, unless we make
written request therefor and pay all expenses attendant to their return, in
which event you shall return same when your actual or anticipated need therefor
has ceased, except as to certain originals as specified in Section 4.2 hereof.
6.4. Each Eligible Account represents a valid and legally enforceable
indebtedness based upon an actual and bona fide sale and delivery of goods or
rendition of services in the ordinary course of our business which has been
finally accepted by the Account Debtor and for which the Account Debtor is
unconditionally liable to make payment of the amount stated in each invoice,
document and instrument evidencing the Eligible Account in accordance with the
terms thereof, without offset, defense or counterclaim and to the best of our
knowledge will be paid in full at maturity.
6.5. All statements made and all unpaid balances appearing in the
invoices, documents and instruments evidencing each Eligible Account are true
and correct and are in all respects what they purport to be and all signatures
and endorsements that appear thereon are genuine and all signatories and
endorsers have full capacity to contract and at the time the Account arises,
each Account Debtor is solvent and financially able to pay in full the Eligible
Account when it matures. None of the transactions underlying or giving rise to
any Account shall violate any state or federal laws or regulations, and all
documents relating to the Accounts shall be legally sufficient under such laws
or regulations and shall be legally enforceable in accordance with their terms
and all recording, filing and other requirements of giving public notice under
any applicable law have been duly compiled with.
6.6. We shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against us or our properties or
assets prior to the date on which penalties attach thereto. We shall be liable
for any tax or penalty imposed upon any transaction under this Agreement or any
Supplement or giving rise to the Accounts or any other Collateral or which you
may be required to withhold or pay for any reason and we agree to indemnify and
hold you harmless with respect thereto, and to repay to you on demand the amount
thereof, and until paid by us such amount shall be added to and deemed part of
your loans to us.
6.7. Except as otherwise disclosed to you in writing and the
investigations of us by the Internal Revenue Service or other Governmental
Agency in accordance with their ordinary customs and past practices with us,
there is no present investigation by any governmental agency pending or
threatened against us and there is no action, suit, proceeding or claim pending
or threatened against us or our assets or goodwill, or affecting any
transactions contemplated by this Agreement, or any Supplement, or any
agreements, instruments or documents delivered in connection herewith or
therewith before any court, arbitrator, or governmental or administrative body
or agency which if adversely determined with respect to us would result in any
material adverse change in our business, properties, assets, goodwill, or
condition, financial or otherwise.
6.8. The execution, delivery and performance of this Agreement, any
Supplement, or any agreements, instruments and documents executed and delivered
in connection herewith, are within our corporate powers, have been duly
authorized, are not in contravention of law or the terms of our Charter, By-Laws
or other incorporation papers, or any material indenture, agreement or
undertaking to which we are a party or by which we are bound.
<PAGE>
6.9. We shall, at our expenses duly, execute and deliver, or shall
cause to be duly executed and delivered, such further agreements, instruments
and documents, including, without limitation, additional security agreements,
mortgages, deeds of trust, deeds to secure debt, collateral assignments, Uniform
Commercial Code financing statements or amendments or continuations thereof,
landlord's or mortgagee's waivers of liens except for the landlord's waivers
with respect to the stores of Value Slacks and Value Clothing and consents to
the exercise by you of all your rights and remedies hereunder, under any
Supplement or applicable law with respect to the Collateral, and do or cause to
be done such further acts as may be necessary or proper in your opinion to
evidence, perfect, maintain and enforce your security interest and the priority
thereof in the Collateral and to otherwise effectuate the provisions or purposes
of this Agreement or any Supplement. Where permitted by law, we hereby authorize
you to execute and file one or more Uniform Commercial Code financing statements
signed only by you.
Section 7. SPECIFIC POWERS.
7.1. We hereby constitute you and your agents and any designee, as our
attorney-in-fact, at our own cost and expense, to exercise at any time all or
any of the following powers which, being coupled with an interest, shall be
irrevocable until all Obligations have been paid in full: (a) to receive, take,
endorse, assign, deliver, accept and deposit, in your or our name, any and all
checks, notes, drafts, remittances and other instruments and documents relating
to the Collateral; (b) on or after the occurrence of an Event of Default to
receive open and dispose of all mail addressed to us and to notify postal
authorities to change the address for delivery thereof to such address as you
may designate; (c) to transmit to Account Debtors notice of your interest
therein and to request from such Account Debtors at any time, in your or our
name or that of your designee, information concerning the Accounts and the
amounts owing thereon; (d) on or after the occurrence of an Event of Default, to
notify Account Debtors to make payment directly to you; (e) on or after the
occurrence of an Event of Default, to take or bring, in your or our name, all
steps, actions, suits or proceedings deemed by you necessary or desirable to
effect collection of the Collateral; and (f) to execute in our name and on our
behalf any UCC financing statements or amendments thereto. We hereby release you
and your officers, employees and designees, from any liability arising from any
act or acts under this Agreement or in furtherance thereof, whether of omission
or commission, and whether based upon any error of judgment or mistake of law or
fact, except for your own willful misconduct or gross negligence.
<PAGE>
Section 8. EVENTS OF DEFAULT AND REMEDIES
8.1. All Obligations shall be, at your option, immediately due and
payable without notice or demand (notwithstanding any deferred or installment
payments allowed, if any, by any instrument evidencing or relating to the
Obligations) and any provision of this Agreement or any Supplement, as to future
loans and advances by you shall, at your option, terminate forthwith, upon the
termination or non-renewal of this Agreement or upon the occurrence of any one
or more of the Events of Default as defined in any Supplement (each an "Event of
Default").
8.2. Upon the occurrence of any Event of Default and at any time
thereafter, you shall have the right (in addition to any other rights you may
have under the Agreement, any Supplement or otherwise) without further notice to
us, to appropriate, set off and apply to the payment of any or all of the
Obligations, any or all Collateral, in such manner as you shall in your sole
discretion determine, to enforce payment of any Collateral, to settle,
compromise or release in whole or in part, any amounts owing on the Collateral,
to prosecute any action, suit or proceeding with respect to the Collateral, to
extend the time of payment of any and all Collateral, to make allowances and
adjustments with respect thereto, to issue credits in your or our name, to sell,
assign and deliver the Collateral (or any part thereof), at public or private
sale, at broker's board, for cash, upon credit or otherwise, at your sole option
and discretion, and you may bid or become purchaser any at such sale, if public,
free from any right of redemption which is hereby expressly waived.
8.3. In the event you seek to take possession of all or any portion of
the Collateral by judicial process, we irrevocably waive: (a) the posting of any
bond, surety or security with respect thereto which might otherwise be required,
(b) any demand for possession prior to the commencement of any suit or action to
recover the Collateral, and (c) any requirement that you retain possession and
not dispose of any Collateral until after trial or final judgment.
8.4. We agree that the giving of five (5) days notice by you, to our
address set forth below, designating the place and time of any public sale or of
the time after which any private sale or other intended disposition of the
Collateral is to be made, shall be deemed to be reasonable notice thereof and we
waive any other notice with respect thereto.
8.5. The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied to you to the payment of the
Obligations in such order as you may elect, and we shall remain liable to you
for any deficiency. Without limiting the generality of the foregoing, if you
enter into any credit transaction, directly or indirectly, in connection with
the disposition of any Collateral, you shall have the option, at any time, in
your sole discretion, to reduce the Obligations by the principal amount of such
credit transaction or to defer the reduction thereof until actual receipt by you
of cash or other immediately available funds in connection therewith.
<PAGE>
8.6. The enumeration of the foregoing rights and remedies is not
intended to be exclusive, and such rights and remedies are in addition to and
not by way of limitation of any other rights or remedies you may have under the
UCC or other applicable law. You shall have the right, in your sole discretion,
to determine which rights and remedies, and in which order any of the same,
are to be exercised, and to determine which Collateral is to be proceeded
against and in which order, and the exercise of any right or remedy shall not
preclude the exercise of any others, all of which shall be cumulative.
8.7. No act, failure or delay by you shall constitute a waiver of any
of your rights and remedies. No single or partial waiver by you of any provision
of this Agreement or any Supplement hereto, or breach or default thereunder, or
any right or remedy which you may have shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion.
8.8. We waive presentment, notice of dishonor, protest and notice of
all instruments included in or evidencing any of the Obligations or the
Collateral and any and all notices or demands whatsoever (except as expressly
provided herein). You may, at all times, proceed directly against us to enforce
payment of the Obligations and shall not be required to take any action of any
kind to preserve, collect or protect your or our rights in the Collateral.
Section 9. EFFECTIVE DATE; TERMINATION COSTS.
9.1. (a) This Agreement and the other Financing Agreements shall
continue in full force and effect for a term ending on the Renewal Date and from
year to year thereafter, unless sooner terminated pursuant to the terms hereof;
provided, that, (i) Lender or all Borrowers (as one group) (but not any one or
two Borrowers alone) may terminate this Agreement and the other Financing
Agreements effective on the Renewal Date or on the anniversary of the Renewal
Date in any year by giving to the other party at least sixty (60) days prior
written notice and (ii) all Borrowers (but not any one or two Borrowers alone)
may terminate this Agreement and the other Financing Agreements other than on
the Renewal Date in any year by giving to Lender at least sixty (60) days prior
written notice, subject to the terms hereof (including, without limitation,
Section 9.1(c) below and the payment to Lender of the early termination fee
provided for in Section 9.2 below); provided however, that, pursuant to Section
8 of the Farah UK Supplement, Farah UK may terminate its rights and obligations
under this Agreement, the Farah UK Supplement, the Farah UK Agreements and the
other Financing Agreements without penalty and without payment of the early
termination fee provided in Section 9.2 below. This Agreement and all other
Financing Agreements must be terminated simultaneously except as permitted under
Section 8 of the Farah UK Supplement.
(b) In addition, Lender shall have the right to terminate this
Agreement and the other Financing Agreements as to future loans and other
liabilities of Lender immediately at any time upon the occurrence of an Event of
Default or an act, condition or event which with notice or passage of time or
both would constitute an Event of Default.
<PAGE>
(c) Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrowers shall pay to Lender in full, all
outstanding and unpaid Obligations (including, but not limited to, the loans
and all interest, fees (including the early termination fee provided herein, if
applicable), charges, expenses and other amounts provided for hereunder,
under the other Financing Agreements or otherwise) and shall furnish cash
collateral to Lender for all undrawn amounts available pursuant to previously
issued and outstanding Credit, by wire transfer in federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing
to Borrowers for such purpose. Interest shall
be due until and including the next business day, if the amounts so paid by
Borrowers to the bank account designated by Lender are received in such bank
account later than 12:00 noon, New York, New York time.
(d) No termination of the Financing Agreements shall relieve
or discharge Borrowers of their duties, obligations and covenants under the
Financing Agreements until all Obligations have been fully indefeasibly
discharged and paid, and Lender's continuing security interests in the
Collateral shall remain in effect until all such Obligations have been fully and
indefeasibly discharged and paid.
9.2. (a) If Lender terminates any Financing Agreement other than the
Farah UK Supplement upon the occurrence of an Event of Default or, (b) if
Borrowers terminate (i) prior to the Renewal Date, or (ii) prior to any
subsequent anniversary of the Renewal Date, or (c) if any termination of the
Financing Agreements occurs by either Lender or Borrowers resulting from the
sale approved in writing by Lender of the capital stock of any Borrower or of
the assets of any Borrower, in view of the impracticability and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits as a result thereof,
Farah USA, Farah UK and Value Clothing hereby agree jointly and severally to pay
to Lender, upon the effective date of such termination, an early termination
fee, in an amount equal to the amounts set forth below opposite of the
applicable periods:
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
Prepayment as a Percentage of
Prepayment Date/Period Maximum Credit
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
From June 1, 1997 through December 31, 2000 1%, except .50% in the case of terminations
under Section 9.2(c)
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
January 1, 2001 through
June 30, 2001 0%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
July 1, 2001 and thereafter .50%
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
The early termination fees provided for in this Section 9.2 shall be deemed
included in the Obligations. Notwithstanding the foregoing or anything else
contained herein to the contrary, Farah UK may terminate its obligations under
this Agreement, the Farah UK Supplement, the Farah UK Agreements and the other
Financing Agreement without penalty and without payment of the termination fee
provided in this Section 9.2 in accordance with the terms and conditions of
Section 8 of the Farah UK Supplement.
9.3. This Agreement and the other Financing Agreements, any Supplement,
and any agreements, instruments or documents delivered or to be delivered in
connection herewith or therewith represent our entire agreement and
understanding concerning the subject matter hereof and thereof, and supersede
all other prior and contemporaneous agreements, understandings, negotiations and
discussions, representations, warranties, commitments, offers, contracts,
whether oral or written, including each Original Financing Agreement, which is
amended and restated as of the date hereof; provided, however, that each such
other Original Financing Agreement, executed and delivered as of August 2, 1990
which is not so amended and restated and is in full force and effect as of the
date hereof, is hereby confirmed, ratified and approved as so amended, ratified,
supplemented and confirmed to the date hereof as if each thereof were amended
and restated as of the date of this Agreement in connection with the execution
of the Financing Agreements.
9.4. No provision hereof shall be modified or amended orally or by
course of conduct but only by a written instrument expressly referring hereto
signed by both parties.
9.5. Upon your request we shall pay to you, or reimburse you for, all
sums, costs and expenses which you pay or incur in connection with or related to
the negotiation, preparation, consummation, administration and enforcement of
this Agreement, any Supplement, and all other agreements, instruments and
documents in connection herewith and therewith, and the transactions
contemplated hereunder and thereunder, together with any amendments,
supplements, consents or modifications which may be hereafter made or entered
into in respect hereto for thereof, and all efforts made to defend, protect or
enforce the security interest granted herein or therein or in enforcing payment
of the Obligations, including, without limitation, appraisal fees, filing fees
and taxes, title insurance premiums, recording taxes, expenses for searches,
expenses heretofore incurred by you and from time to time hereafter during the
course of periodic field examinations of the Collateral and our operations, wire
transfer fees, check dishonor fees, the fees and disbursements of counsel to
you, all fees and expenses for the service and filing of papers, premiums on
bonds and undertakings, fees of marshalls, sheriffs, custodians, auctioneers and
others, travel expenses and all court costs and collection charges, all of which
shall be part of the Obligations and shall accrue interest after demand thereof
at a rate equal to the highest rate then payable on any of the Obligations;
provided that the legal fees of Lender's counsel incurred in connection with the
preparation, negotiation and consummation of this Agreement and the other
Financing Agreements shall not exceed $20,000.
Section 10. NOTICES.
10.1. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been duly given or made as provided in
the Covenant Supplement.
<PAGE>
Section 11. WAIVER OF JURY TRAIL; JURISDICTION; CHOICE OF LAW.
11.1. WE AND YOU EACH HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING OF ANY KIND ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY SUPPLEMENT, THE OBLIGATIONS, THE COLLATERAL OR ANY SUCH OTHER
TRANSACTION. WE HEREBY WAIVE RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE
COUNTERCLAIMS IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER
CONNECTED WITH THIS AGREEMENT, ANY SUPPLEMENT, THE OBLIGATIONS, THE
COLLATERAL OR ANY OTHER TRANSACTION BETWEEN THE PARTIES EXCEPT COMPULSORY
COUNTERCLAIMS AND WE HEREBY IRREVOCABLY CONSENT AND SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE DISTRICT COURTS OF THE STATE OF TEXAS AND THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS IN CONNECTION WITH
ANY ACTION OR PROCEEDING OF ANY KIND ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY SUPPLEMENT, THE OBLIGATIONS, THE COLLATERAL OR ANY SUCH OTHER
TRANSACTION.
11.2. In any such litigation we waive personal service of any summons,
complaint or other process and agree that service thereof may be made by
certified or registered mail directed to us at our address set forth below.
11.3. This Agreement and all transactions thereunder shall be deemed to
be consummated in the State of Texas and shall be governed by and interpreted in
accordance with the laws of the State of Texas. If any part or provision of this
Agreement is invalid or in contravention of any applicable law or regulation,
such part or provision shall be severable without affecting the validity of any
other party or provision of the Agreement.
11.4. Nonapplicability of Article 5069-15.01 et seq. Borrowers and
Lender hereby agree that, except for Section 15.10(b) thereof, the provisions of
Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq. (Vernon 1987) (regulating
certain revolving credit loans and revolving tri-party accounts) shall not
apply to this Agreement or any of the other Financing Agreements.
11.5 WAIVER OF CONSUMER RIGHTS. EACH BORROWER HEREBY WAIVES ITS RIGHTS
UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET.
SEQ. BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF EACH BORROWER'S OWN
SELECTION, EACH BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. EACH BORROWER
EXPRESSLY WARRANTS AND REPRESENTS THAT SUCH BORROWER (a) IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (b) HAS BEEN
REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT.
EACH BORROWER HAS READ AND UNDERSTANDS
SECTION 11.4: /s/ RGG (INITIALS OF
OFFICER OF FARAH USA)
/s/ RGG (INITIALS OF
OFFICER OF VALUE CLOTHING)
<PAGE>
/s/ TBP (INITIALS OF
OFFICER OF FARAH UK)
11.6. THIS WRITTEN FINANCING AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Very truly yours,
FARAH U.S.A., INC.
VALUE CLOTHING COMPANY, INC.
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
Address:
4171 North Mesa
Building D
Suite 500
El Paso, Texas 79902-1433
FARAH MANUFACTURING (U.K.) LIMITED
By: /s/ Timothy B. Page
Title: Director
Address:
4171 North Mesa
Building D
Suite 500
El Paso, Texas 79902-1433
Accepted as of June 1, 1997 first written above:
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
By: /s/ Mark Galovic, Jr.
Title: Vice President
EXHIBIT 10.60
AMENDMENT NO. 1
TO
TRADEMARK AGREEMENT
AMENDMENT NO. 1 TO TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY
AGREEMENT made as of this 1st day of June, 1997 (this "Amendment"), by FARAH
INCORPORATED, a Texas corporation ("Debtor"), with its principal place of
business at 8889 Gateway West, El Paso, Texas 79925 to and in favor of CONGRESS
FINANCIAL CORPORATION (SOUTHWEST), a Texas corporation ("Secured Party"), having
an office at 1201 Main Street, Dallas, Texas 75202.
W I T N E S S E T H
WHEREAS, Debtor has adopted, used and is using, and is the owner of the
entire right, title and interest in and to the trademarks, trade names, terms,
designs and applications therefor described in Exhibit A to that certain
Trademark Collateral Assignment and Security Agreement dated as of August 2,
1990, between Secured Party and Debtor annexed thereto and made a part thereof
(the "Security Agreement"); and
WHEREAS, Secured Party and Debtor contemporaneously therewith entered
into financing arrangements pursuant to which Secured Party has made and may
continue to make loans and advances and provide other financial accommodations
to Debtor as set forth in the Accounts Financing Agreement [Security Agreement],
dated August 2, 1990, by and between Secured Party and Debtor and all
agreements, documents and instruments executed and/or delivered in connection
therewith or related thereto (all of the foregoing as the same may have been
amended, modified, supplemented, extended, renewed, restated or replaced prior
to the date hereof, being collectively referred to herein as the "Original
Financing Agreements"); and
WHEREAS, certain of the Original Financing Agreements are being amended
and/or restated or confirmed as of the date hereof (as so amended and/or
restated or confirmed, such agreements and all agreements, documents and
instruments that now exist or at any time hereafter may be executed and/or
delivered in connection therewith or are related thereto, as the same may have
been or may be amended, modified, supplemented, extended, renewed, restated,
replaced or confirmed are called the "Financing Agreements"); and
WHEREAS, in order to induce Secured Party to enter into the Financing
Agreements and make loans and advances and provide other financial
accommodations to Debtor pursuant thereto, Debtor desires to confirm its grant
to Secured Party of certain collateral security as set forth in the Security
Agreement and to supplement such Security Agreement by adding Exhibit A to this
Amendment to the Security Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor hereby agrees as follows:
1. Definitions. All capitalized terms used herein shall have the
meaning assigned thereto in the other Financing Agreements, unless otherwise
defined herein.
2. Amendment and Supplement to Exhibit A. Exhibit A to the
Security Agreement is hereby amended and supplemented by adding thereto Exhibit
A hereto (the "Exhibit A Supplement"), as if the Exhibit Supplement were set
forth and incorporated in Exhibit A to such Security Agreement and made an
integral part thereof. All references in the Security Agreement to Exhibit A
shall include the Exhibit A Supplement, as of the date hereof.
3. General Representations, Warranties and Covenants. In addition
to the continuing representations, warranties and covenants heretofore or
hereafter made by Borrowers and Guarantors to Secured Party pursuant to the
Financing Agreements, Debtor hereby represents, warrants and covenants with and
to Secured Party as follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof and shall be
incorporated into and made a part of the Financing Agreements):
(a) No Event of Default exists on the date of this
Amendment;
(b) This Amendment has been duly executed and delivered by
Debtor and is in full force and effect as of the date hereof, and the agreements
and obligations of Borrowers and Guarantors contained herein constitute legal,
valid and binding obligations of Debtor enforceable against Debtor in accordance
with their respective terms; and
(c) There is no lien, encumbrance, charge or security interest
in the Trademarks set forth in the Exhibit A Supplement other than the lien of
the Security Agreement.
4. Conditions Precedent. The effectiveness of the other terms and
conditions contained herein against Lender shall be subject to the satisfaction
of each of the following:
(a) receipt by Secured Party of each of the following, in
form and substance satisfactory to Secured Party and its counsel:
(i) an original of this Amendment, duly authorized,
executed and delivered by Debtor; and
(ii) such agreements from participants as may be
required to effectuate the terms and provisions of this Amendment; and
(b) all representations and warranties contained herein,
in the Accounts Agreement and in the other Financing Agreements shall be true
and correct in all respects; and
(c) no Event of Default shall have occurred and no event shall
have occurred or condition be existing which, with notice or passage of time or
both, would constitute an Event of Default.
5. General.
(a) The parties hereto acknowledge, confirm, and agree that
the failure of any of Borrowers or any of Guarantors to comply with the
covenants, conditions and agreements contained herein or in any other agreement,
document or instrument by any of such parties at any time executed in connection
herewith shall constitute an Event of Default under the Financing Agreements.
(b) Except as modified pursuant hereto and pursuant to all
Financing Agreements as amended and restated or confirmed as of the date hereof,
no other changes to the Financing Agreements are intended or implied and in all
other respects the Financing Agreements are hereby specifically ratified,
restated and confirmed by all parties hereto as of the effective date hereof. To
the extent of conflict between the terms of this Agreement and other Financing
Agreements with respect to the subject matter hereof, the terms of this
Agreement shall control as to the subject matter hereof.
(c) The parties hereto shall execute and deliver such
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written.
FARAH INCORPORATED
By: /s/ Russell G.
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
By: /s/ Mark Galovic, Jr.
Title: Vice President
<PAGE>
STATE OF TEXAS )
) SS.:
COUNTY OF EL PASO )
The foregoing instrument was acknowledged before me this 1st day of June,
1997, as Russell G. Gibson of FARAH INCORPORATED, a Texas corporation, on
behalf of each of said corporation.
/s/ Juan E. Portillo
Notary Public, State of Texas
STATE OF TEXAS )
) SS.:
COUNTY OF DALLAS )
The foregoing instrument was acknowledged before me this 1st day of
June, 1997, by Mark Galovic, Jr. , as Vice President
of CONGRESS FINANCIAL CORPORATION (SOUTHWEST), a Texas corporation, on behalf of
said corporation.
/s/ Marcy Chamberlain
Notary Public, State of Texas
<PAGE>
EXHIBIT 10.61
AMENDED AND RESTATED
INVENTORY AND EQUIPMENT SECURITY AGREEMENT
SUPPLEMENT TO ACCOUNTS FINANCING AGREEMENT
[SECURITY AGREEMENT]
Congress Financial Corporation (Southwest)
1201 Main Street
Dallas, Texas 75202
Gentlemen:
This Amended and Restated Inventory and Equipment Security Agreement,
dated as of June 1, 1997 (as so amended and restated, and as the same may
hereafter be further amended, modified, supplemented, extended, renewed,
restated, confirmed or replaced, this "Supplement"), amends and restates the
terms of the Inventory and Equipment Security Agreement, dated August 2, 1990,
between Farah U.S.A. and you and is a supplement to the Amended and Restated
Accounts Financing Agreement [Security Agreement] among you, Farah U.S.A., Inc.,
Value Clothing Company, Inc. and Farah Manufacturing (U.K.) Limited of even date
herewith (the "Agreement"). This Supplement is (a) hereby incorporated into the
Agreement, (b) made a part thereof and (c) subject to the terms, conditions,
covenants and warranties thereof. All terms (including capitalized terms) used
herein shall have the meanings ascribed to them respectively in the Agreement,
unless otherwise defined in this Supplement.
Section 1. ADDITIONAL SECURITY INTEREST.
As additional security for the prompt performance, observance and
payment in full of all Obligations, we hereby grant to you a continuing security
interest in, a lien upon, and a right of setoff against, and we hereby assign,
transfer, pledge and set over to you the following (which is and shall be deemed
part of the Collateral as defined and used in the Agreement):
1.1. All raw materials, work in process, finished goods, and all other
inventory of whatsoever kind or nature, wherever located, whether now owned or
hereafter existing or acquired by us ("Inventory"), including without
limitation, all wrapping, packaging, advertising, shipping materials, and all
other goods consumed in our business, all labels and other devices, names or
marks affixed or to be affixed thereto for purposes of selling or of identifying
the same or the seller or manufacturer thereof and all of our right, title and
interest therein and thereto;
1.2. All equipment, machinery, computers and computer hardware,
vehicles, tools, dies, jigs, furniture, trade fixtures and fixtures; all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, substitutions and replacements thereof, wherever located,
whether now owned or hereafter acquired by us ("Equipment");
1.3. All books, records, documents, other property and general
intangibles at any time relating to the Inventory and the Equipment; and
1.4. All products and proceeds of the foregoing, in any form,
including, without litigation, insurance proceeds and any claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
Section 2. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
We hereby represent, warrant and covenant to you the following (which
shall survive the execution and delivery of this Supplement), the truth and
accuracy of which, and compliance with, being a continuing condition of the
making of loans by you under the Agreement or any other supplement thereto:
2.1. We are and shall be, with respect to the Equipment, the owner of
such Equipment free from any lien, security interest, claim and encumbrance of
any kind, except in your favor, as and to the extent permitted in Section 2.6 of
the Covenant Supplement, and as set forth on Exhibit A if any, annexed hereto
and made a part hereof..
2.2. The only locations of any Collateral are those addresses listed on
Exhibit B annexed hereto and made a part hereof. Schedule B sets forth the owner
and/or operator of the premises at such addresses for all locations which we do
not own and operate and all mortgages, if any, with respect to the premises. We
shall not remove any Collateral from such locations, without your prior written
consent, except for sales of Inventory in the ordinary course of our business
and equipment with an appraised liquidation value of up to $15,000 as to any one
item and $75,000 in the aggregate for all items, which may be removed from such
locations in the ordinary course of our business.
2.3. We shall at all times maintain, with financially sound and
reputable insurers, casualty and hazard insurance with respect to the Collateral
for not less than its full market value and against all risks to which it may be
exposed except to the extent we are presently self insured for losses up to
$250,000. All such insurance policies shall be in such form, substance, amounts
and coverage as may be satisfactory to you and shall provide for 30 days'
minimum prior cancellation notice in writing to you. You may act as attorney for
us in obtaining, adjusting, settling, amending and canceling such insurance. We
shall promptly (a) obtain endorsements to all existing and future insurance
policies with respect to the Collateral specifying that the proceeds of such
insurance shall be payable to you and us as our interests may appear and further
specifying that you shall be paid regardless of any act, omission or breach of
warranty by us, (b) deliver to you an original executed copy of, or executed
certificate of the insurance carrier with respect to, such endorsement and, at
your request, the original or a certified duplicate copy of the underlying
insurance policy, and (c) deliver to you such other evidence which is
satisfactory to you of compliance with the provisions hereof.
2.4. We shall promptly notify you in writing of the details of any
material loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or which would result in any material adverse change in our
business, properties, assets, goodwill or condition, financial or otherwise.
2.5. At your option, you may apply any insurance monies received at any
time to the cost of repairs to or replacement for the Inventory and/or Equipment
and/or to payment of any of the Obligations, whether or not due, in any order
and in such manner as you in your sole discretion may determine.
2.6. Upon your request (on or after the occurrence of an Event of
Default, at any time and from time to time, but in no event prior to the
occurrence of an Event of Default, more than once in any twelve (12) consecutive
month period), we shall, at our sole cost and expense, execute and deliver to
you written reports or appraisals as to the inventory and Equipment listing all
items and categories thereof, describing the condition of same and setting forth
the value thereof (the lower of cost and market value of the Inventory and the
lower of net cost less depreciation, fair market value and/or liquidation value
of the Equipment), in such form as is satisfactory to you.
2.7. We shall, at our own expense, keep the Equipment in good order,
repair, running and marketable condition, ordinary wear and tear excepted and
except for Equipment which is not used or useful in our business as of the date
hereof.
2.8. We shall (a) use, store and maintain the Inventory and the
Equipment with all reasonable care and caution, and (b) use the Inventory and
Equipment for lawful purposes only and in conformity with applicable laws,
ordinances and regulations.
2.9. All Inventory shall be produced in accordance with the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto.
2.10. The Inventory and the Equipment are and shall be used in our
business and not for personal, family, household or farming use.
2.11. The Equipment is now and shall remain personal property and we
shall not permit any of the Equipment to be or becomes a part of or affixed to
real property without (a) prior written notice to you and your written consent
and (b) first making all arrangements, and delivering or causing to be delivered
to you, such agreements and other documentation requested by you for the
protection and preservation of your security interests and liens, in form and
satisfactory to you, including, without limitation, waivers and subordination
agreements by any landlords or mortgages of statutory and non-statutory liens
and rights of distraint.
2.12. We assume all responsibility and liability arising from or
relating to the use, sale or other disposition of the Inventory and the
Equipment as between you and us.
Section 3. ADDITIONAL REMEDIES.
Upon the occurrence of an Event of Default and at any time thereafter,
you shall have the right (in addition to any other rights you may have under the
Agreement, this Supplement or otherwise) without notice to us, at any time and
from time to time, in your discretion, with or without judicial process or the
aid or assistance of others and without cost to you:
3.1. To enter upon any premises on or in which any of the Inventory
or Equipment may be located and, without resistance or interference by us, take
possession of the Inventory and the Equipment;
3.2. To complete processing, manufacturing and repair of all or any
portion of the Inventory;
3.3. To sell, foreclose or otherwise dispose of any part to all of
the Inventory and the Equipment on or in any of our premises or premises of any
other party;
3.4. To require us, at our expense, to assemble and make available
to you any part or all of the Inventory and the Equipment at any place and time
designated by you; and
3.5. To remove any or all of the Inventory and the Equipment from any
premises on or in which the same may be located, for the purpose of effecting
the sale, foreclosure or other lawful purpose (and if any of the Inventory or
the Equipment consists of motor vehicles, you may use our registrations and
license plates).
<PAGE>
IN WITNESS WHEREOF, we have caused these presents to be duly executed
as of the 1st day of June, 1997.
FARAH U.S.A., INC.
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
By: /s/ Mark Galovic, Jr.
Title: Vice President
<PAGE>
EXHIBIT 10.62
[FARAH LETTERHEAD]
FARAH (UK) SUPPLEMENT TO
ACCOUNTS FINANCING AGREEMENT
[SECURITY AGREEMENT]
As of June 1, 1997
Congress Financial Corporation (Southwest)
1201 Main Street
Dallas, Texas 75250
Gentlemen:
This Farah (UK) Supplement ("Supplement"), dated as of June 1, 1997, is
a supplement to the Amended and Restated Accounts Financing Agreement [Security
Agreement], dated as of June 1, 1997, among Farah U.S.A., Inc., a Texas
corporation, Value Clothing Company, Inc. and Farah Manufacturing (U.K.) Limited
("Farah UK") (together with each of their respective successors and assigns,
collectively, "Borrowers") and Congress Financial Corporation (Southwest), a
Texas corporation (together with its successors and assigns, "Congress" or
"Lender"), amending and restating the Accounts Financing Agreement [Security
Agreement], dated as of August 2, 1990 (together with this Supplement, any and
all other supplements thereto, and all other agreements, documents and
instruments between Borrowers and Congress related thereto, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the "Amended and Restated Accounts Financing Agreement").
This Supplement is (a) hereby incorporated into the Amended and Restated
Accounts Financing Agreement, (b) made a part thereof and (c) subject to the
terms, conditions, covenants and warranties thereof, including the other
Supplements (as defined therein). All terms (including capitalized terms) used
herein shall have the meanings ascribed to them respectively in the Amended and
Restated Accounts Financing Agreement, unless otherwise defined in this
Supplement.
1.(a) Additional Definitions. As used herein, the following
terms shall have the respective meanings given to them below:
(i) "Eligible Farah UK Accounts" shall mean Farah UK Accounts in the
ordinary course of business arising out of Farah UK's sale of goods or rendition
of services, which are and at all times shall continue to be acceptable to
Lender in all respects. Standards of eligibility may be fixed and revised from
time to time solely by Lender in its exclusive reasonable judgment. In
determining eligibility, Lender may, but need not, rely on agings, reports and
schedules of Farah UK Accounts furnished to Lender by Farah USA or Farah UK, but
reliance by Lender thereon from time to time shall not be deemed to limit
Lender's right to revise standards of eligibility at any time as to both present
and future Farah UK Accounts. In general, a Farah UK Account shall not be deemed
eligible unless:
(A) the Farah UK Account Debtor on such Farah UK Account is and at all times
continues to be reasonably acceptable to Lender, (B) such Farah UK Account
complies in all respects with the representations, covenants and warranties set
forth herein and in the other Amended and Restated Accounts Financing Agreements
(as if such Farah UK Account was an Eligible Account of Farah USA under the
terms of the Financing Agreements, including, but not limited to, Sections 6.5
and 6.6 of the Amended and Restated Accounts Financing Agreement) and (C) no
more than sixty (60) days have elapsed since the due date of such Farah UK
Account but in no event more than one hundred twenty (120) days from the invoice
date thereof.
(ii) "Eligible Farah UK Inventory" shall mean Inventory of Farah UK
consisting of finished goods acceptable to Lender in all respects. General
criteria for Eligible Farah UK Inventory may be established and revised from
time to time by Lender in its exclusive reasonable judgment. In determining such
acceptability Lender may, but need not, rely on reports and schedules of
Inventory furnished to Lender by either Farah UK or Farah USA on behalf of Farah
UK, but reliance thereon by Lender from time to time shall not be deemed to
limit its right to revise standards of eligibility at any time. In general,
except in Lender's sole discretion, Eligible Farah UK Inventory shall not
include (A) raw materials, (B) work-in-process (C) spare parts, (D) packaging
and shipping materials, (E) supplies used or consumed in the business of Farah
UK, (F) Inventory subject to a security interest or lien in favor of any third
party or subject to a retention of title by any third party, (G) Inventory which
is not subject to the first priority perfected security interest of Lender, (H)
Inventory at premises which are not owned and operated by Farah UK; provided,
that, any Inventory of Farah UK which would otherwise be deemed Eligible Farah
UK Inventory at locations which are not owned and operated by Farah UK may
nevertheless be considered Eligible Farah UK Inventory if Lender shall have
received an agreement in writing, in form and substance satisfactory to Lender,
from the holder of such Inventory or the owner and/or operator of such location,
as the case may be, pursuant to which such holder, owner and/or operator, if
required by Lender, acknowledges the first priority lien on such Inventory of
Lender, agrees to waive any and all claims such holder, owner and/or operator
may, at any time, have against such Inventory, and permits Lender access to and
the right to remain on the premises so as to exercise Lender's rights and
remedies and otherwise deal with the Inventory of Farah UK, (I) bill and hold
goods, (J) defective goods, (K) obsolete, slow-moving and/or discontinued goods,
(L) "seconds" and (M) Inventory purchased on consignment.
(iii) "Farah UK" shall mean Farah Manufacturing (U.K.) Limited, a
corporation incorporated in England, and its successors and assigns.
(iv) "Farah UK Account Debtor" shall mean each debtor or obligor in any way
obligated on or in connection with any Farah UK Accounts.
(v) "Farah UK Accounts" shall mean all of Farah UK's present and future
accounts, contract rights, general intangibles, chattel paper, documents and
instruments, as such terms are defined in the UCC, including, without
limitation, all obligations for the payment of money arising out of Farah UK's
sale, lease or other disposition of goods or other property or rendition of
services.
(vi) "Farah UK Agreements" shall mean individually and collectively, the
Debenture, dated January 21, 1994, between Lender and Farah UK and all
agreements, documents and instruments at any time executed and/or delivered by
Farah UK to Lender in connection herewith or therewith, as the same now exist or
may hereafter be further amended, modified, supplemented, extended, renewed,
restated or replaced.
(vii) "Farah UK Collateral" shall mean all assets and properties of Farah
UK at any time subject to a mortgage, charge, assignment, pledge, lien, right of
set-off, encumbrance or other security interest (whether fixed or floating) in
favor of Lender and including, without limitation, all assets and properties of
Farah UK subject to a charge in favor of Lender pursuant to the Farah UK
Agreements.
(viii) "Farah UK Events of Default" shall have the meaning set forth in
Section 7 of this Supplement.
(ix) "Governmental Agency" shall mean the government of any country, or any
province or state thereof or a local municipality or other political subdivision
thereof or any body, department, authority, agency, public corporation or
instrumentality of any of the foregoing.
(x) "Net Amount of Eligible Farah UK Accounts" shall mean the gross amount
of Eligible Farah UK Accounts less sales, excise or similar taxes and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.
(xi) "Pounds Sterling" shall mean legal tender according to the laws of
England.
(xii) "U.S. Dollars" shall mean legal tender according to the laws of the
United States of America.
(xiii) "U.S. Dollar Equivalent" shall mean the number of U.S. Dollars which
Lender can purchase with the amount of the available currency, including,
without limitation, Pounds Sterling, at any time or from time to time in order
to perform any provision of this Supplement or the other Amended and Restated
Accounts Financing Agreements, provided that such determination shall be at the
buying rate of exchange available to Lender on such date, at such time, at any
branch in New York, New York or of any bank, chartered, incorporated or
qualified to do banking business under the laws of the United States of America,
the State of New York or as may be selected by Lender, in its discretion.
(b) Interpretation. All capitalized terms used herein shall
have the meaning assigned thereto in the other Amended and Restated Accounts
Financing Agreement, unless otherwise defined herein.
2. Farah UK Loans.
(a) Lender shall, in its discretion, make loans to Farah UK
from time to time, at the request of Farah UK or Farah USA on behalf of Farah
UK, of up to:
(i) seventy-five (75%) percent of the U.S. Dollar Equivalent of the Net
Amount of Eligible Farah UK Accounts (or such greater or lesser percentage
thereof as Lender may determine from time to time); plus
(ii) thirty-five (35%) percent of the Value (based on the U.S. Dollar
Equivalent) of Eligible Farah UK Inventory (or such greater or lesser percentage
thereof as Lender may determine from time to time) up to $1,750,000 in U.S.
Dollars or the U.S. Dollar Equivalent.
(b) All loans shall be charged to a loan account in the name
of Farah UK on Lender's books. Lender shall render to Farah USA, as agent for
Farah UK, each month a statement of its loan account which shall be considered
correct and deemed accepted by, and binding upon, Farah UK as an account stated,
except to the extent that Lender receives a written notice of any specific
exceptions by Farah UK thereto within thirty (30) days after the date of such
statement.
(c) At Lender's option, all principal, interest, fees,
commissions, costs, expenses or other charges payable by Farah UK to Lender and
any and all loans and advances by Lender to Farah UK may be charged directly to
the account of Farah UK maintained by Lender.
(d) All loans by Lender to Farah UK shall be payable at the
offices of Lender specified above or at such other place as Lender may hereafter
designate from time to time and at Lender's option and upon the request of
Lender, Farah UK shall execute and deliver to Lender one or more promissory
notes in form and substance satisfactory to Lender to further evidence such
loans.
(e) With respect to loans based on the Prime Rate, interest
shall be payable by Farah UK to Lender on the last day of each month upon the
closing daily balances in its account for each day during such month at a rate
equal to the Annual Rate. With respect to Libor Rate loans, interest shall be
payable on the last day of each month at a rate equal to 2.75% in excess of the
Libor Rate. The Annual Rate shall increase or decrease by an amount equal to
each increase or decrease, respectively, in the Prime Rate, effective on the
first day of the month after any change in the Prime Rate based on the Prime
Rate in effect on the last day of the month in which any such change occurs.
Interest based on the Libor Rate shall be selected, determined and charged in
accordance with Section 3.1 of the Amended and Restated Accounts Financing
Agreement. The Annual Rate in effect hereunder on the date hereof, expressed in
terms of simple interest is eight and one-half of one percent (8.5%) per annum.
Interest shall be calculated on the basis of a three hundred sixty (360) day
year and shall be included in each monthly statement of the loan account of
Farah UK. Lender shall have the right, at its option, to charge all interest to
the loan account of Farah UK on the first day of each month, and such interest
shall be deemed to be paid by the first amounts subsequently credited thereto.
(f) No agreements, conditions, provisions or stipulations
contained in this Supplement or in any of the other Amended and Restated
Accounts Financing Agreements or the occurrence of an Event of Default or the
exercise by Lender of the right to accelerate the payment of the maturity of
principal and interest, or to exercise any option whatsoever contained in this
Supplement or in any of the other Amended and Restated Accounts Financing
Agreements or the arising of any contingency whatsoever shall entitle Lender to
collect, in any event, interest exceeding the Maximum Legal Rate, and in no
event shall Farah UK be obligated to pay interest exceeding such Maximum Legal
Rate, and all agreements, conditions or stipulations, if any, which may in any
event or contingency whatsoever operate to bind, obligate or compel Farah UK to
pay a rate of interest exceeding such Maximum Legal Rate shall be without
binding force or effect at law or in equity, to the extent only of the excess of
interest over such maximum interest allowed by law. In the event any interest is
charged in excess of the Maximum Legal Rate (herein referred to as the
"Excess"), Farah UK and Lender acknowledge and stipulate that any such charge
shall be the result of an accidental and bona fide error, and such Excess shall
be, first, applied to reduce the principal of any Obligations due, and, second,
returned to Farah UK, it being the intention of the parties hereto not to enter
at any time into an usurious or otherwise illegal relationship. The parties
hereto recognize that with fluctuations in the Prime Rate and Libor Rate such an
unintentional result could inadvertently occur. By the execution of this
Supplement, Farah UK covenants that (i) the credit or return of any Excess shall
constitute the acceptance by Farah UK of any such Excess, and (ii) Farah UK
shall not seek or pursue any other remedy, legal or equitable, against Lender
based, in whole or in part, upon the charging or receiving of any interest in
excess of the Maximum Legal Rate. For the purpose of determining whether or not
any Excess has been contracted for, charged or received by Lender, all interest
at any time contracted for, charged or received by Lender in connection with the
Obligations of Farah UK shall be amortized, prorated, allocated and spread in
equal parts during the entire term of the financing arrangements of Lender with
Farah UK.
(g) If the applicable law is amended in the future to allow a
greater rate of interest to be charged to Farah UK under this Supplement than is
presently allowed by applicable state or federal law, then the limitation of
interest hereunder and under the Amended and Restated Accounts Financing
Agreement shall be increased to the maximum rate of interest allowed by
applicable law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to Lender by
reason thereof shall be payable upon demand.
(h) Until the authority of Farah UK to do so is curtailed or
terminated at any time by Lender, Farah UK shall, at its expense and on behalf
of Lender, collect, as the property of Lender and in trust for Lender, all
proceeds from the Farah UK Accounts and the sale of the Inventory of Farah UK,
in whatever form, including, without limitation, all cash, checks, drafts or
other instruments and all other proceeds of Collateral. At such time hereafter
as Lender may request, Farah UK shall not commingle such collections with Farah
UK's own funds. Upon Lender's request, Farah UK shall on the day received
deposit all such proceeds into deposit accounts subject to the provisions set
forth below for the collection and transfer of sales proceeds. At such time as
proceeds of Collateral of Farah UK are deposited into deposit accounts subject
to the provisions set forth below, such proceeds when received by Lender at such
place as Lender may designate from time to time shall be credited to the loan
account of Farah UK after adding two (2) business days for remittances by
federal funds wire transfers and after adding two (2) business days for
collection, clearance and transfer of all other remittances, in each instance
conditional upon final payment to Lender.
(i) At such time as Lender may request, Farah UK shall, in a
manner satisfactory to Lender from time to time, enter into deposit account
arrangements such that all proceeds of the sale of the inventory of Farah UK of
every form, or amounts payable upon letters of credit, bankers' acceptances and
other proceeds of such Collateral shall be deposited into a blocked account
under Lender's control or deposited into one of the deposit accounts that is
approved by Lender with respect to which irrevocable instructions from Farah UK
have been accepted by the depository bank to transfer all collected funds to a
blocked account under the control of Lender. In connection therewith, Farah UK
shall execute such instructions, blocked account and other agreements as Lender,
in its discretion, shall specify.
3. Farah UK Representations, Warranties and Covenants. Farah UK hereby
represents, warrants and covenants to Lender the following (which shall survive
the execution and delivery of this Supplement), the truth and accuracy of which,
or compliance with, being a continuing condition of the making of loans by
Lender to Farah UK hereunder:
(a) Farah UK shall at all times preserve, renew and keep in
full force and effect its existence as a corporation and the rights and
franchises with respect thereto and continue to engage in business of the same
type as it is engaged as of the date hereof. Farah UK shall give Lender thirty
(30) days prior written notice of any proposed change in its corporate name
which notice shall set forth the new name.
(b) The books and records and chief executive office of Farah
UK are maintained at Crittall Road, Witham, Essex CM8 3DJ England. Farah UK
shall not change such location without Lender's prior written consent and prior
to making any such change, Farah UK agrees to execute any additional documents
or notices which Lender may require. The only locations of any assets of Farah
UK are those addresses listed on Exhibit A hereto and made a part hereof.
Exhibit A sets forth the owner and/or operator of the premises at such addresses
for all locations which Farah UK does not own and operate and all mortgages, if
any, with respect to the premises. Farah UK shall not remove any Farah UK
Collateral from such locations, without Lender's prior written consent, except
for sales of Farah UK Inventory in the ordinary course of business of Farah UK.
(c) Farah UK shall maintain its shipping forms, invoices and
other related documents in a form satisfactory to Lender and shall maintain its
books, records and accounts in accordance with applicable accounting principles
consistently applied. Farah agrees to furnish Lender monthly with accounts
receivable agings, inventory reports (if requested by Lender) and interim
financial statements (including balance sheets, statements of income and
retained earnings and cash flow statements), and to furnish Lender, at any time
or from time to time with such other information regarding its business affairs
and financial condition as Lender may reasonably request, including, without
limitation, balance sheets, statements of income, statements of cash flows
projections, forecasts, schedules, agings and reports. Farah UK hereby
irrevocably authorizes and directs all accountants, auditors or other third
parties to deliver to Lender, at Farah UK's expense, copies of its financial
statements, papers related thereto, and other accounting records of any nature
in their possession and to disclose to Lender any information they may have
regarding its business affairs and financial conditions. All such statements and
information will fairly present Farah UK's financial condition as of the dates
and the results of Farah UK's operations for the periods, for which the same are
furnished. Any documents, schedules or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, unless Farah UK makes written request therefor and pays all
expenses attendant to their return, in which event Lender shall return same when
Lender's actual or anticipated need therefor has ceased.
(d) Farah UK shall keep and maintain, at its own cost and
expense, satisfactory and complete books and records of all Farah UK Accounts,
all payments received or credits granted thereon and all other dealings
therewith. At any time on or after the occurrence of an Event of Default, at
such times as Lender may request, Farah UK shall deliver to Lender all original
documents evidencing the sale and delivery of goods or the performance of
services which created any Accounts, including but not limited to all original
contracts, orders, invoices, bills of lading, warehouse receipts, delivery
tickets and shipping receipts. At any such time as Lender may request, Farah UK
shall deliver to Lender schedules describing the Accounts and/or written
confirmatory assignments to Lender of each Account, in form and substance
satisfactory to Lender and duly executed by Farah UK, together with such other
information as Lender may request. Lender will return to Farah UK, at Farah UK's
expense, any original documents evidencing the sale and delivery of goods which
created any Accounts delivered to Lender pursuant to this Section 3(d) and in
Lender's possession when Lender's actual or anticipated need therefor has
ceased. In no event shall the making or the failure to make or the content of
any schedule or assignment or Farah UK's failure to comply with the provisions
hereof be deemed or construed as a waiver, limitation or modification of
Lender's security interest therein, lien upon and assignment of the Farah UK
Collateral or Farah UK's representations, warranties or covenants under this
Supplement or any of the other Amended and Restated Accounts Financing
Agreements.
(e) Farah UK shall immediately upon obtaining knowledge
thereof report to Lender all reclaimed, repossessed or returned goods (other
than returns in the ordinary course of business of Farah UK which shall only be
reported to Lender with such frequency and in such manner as Lender may
reasonably require).
(f) Farah UK shall duly pay and discharge all taxes,
assessments, contributions and governmental charges upon or against Farah UK or
its properties or assets prior to the date on which penalties attach thereto.
Farah UK will be liable for any tax or penalty imposed upon any transaction
under this Supplement or any of the other Amended and Restated Accounts
Financing Agreements or giving rise to the Farah UK Accounts or any other assets
of Farah UK or which Lender may be required to withhold or pay for any reason
and Farah UK agrees to indemnify and hold Lender harmless with respect thereto,
and to repay to Lender on demand the amount thereof, and until paid by Farah UK
such amount shall be added to and deemed part of the Obligations.
(g) Except as otherwise disclosed to Lender in writing, there
is no present investigation by any Governmental Agency pending or threatened
against Farah UK and there is no action, suit, proceeding or claim pending or
threatened against Farah UK or its assets or goodwill, or affecting any
transactions contemplated by this Supplement or the other Amended and Restated
Accounts Financing Agreements, or any instruments or documents delivered in
connection herewith or therewith before any court, arbitrator or Governmental
Agency which if adversely determined with respect to Farah UK would result in
any material adverse change in Farah UK's business, properties, assets,
goodwill, or condition, financial or otherwise.
(h) Farah UK does not have any Subsidiaries as of the date
hereof except as set forth on Exhibit B hereto. Farah International, Inc., a
Texas corporation, is the direct and beneficial owner and holder of 9,999 shares
of the issued and outstanding shares of capital stock of Farah UK and Farah USA
is the direct and beneficial owner and holder of 1 share of the issued and
outstanding shares of capital stock of Farah UK, which 10,000 shares constitute
all of the issued and outstanding shares of capital stock of Farah UK. Farah UK
will not form or acquire any Subsidiary without the prior written consent of
Lender.
(i) Farah UK will not, and will not permit any Subsidiary to,
create, incur, assume or permit to exist, contingently or otherwise, any
Indebtedness, except:
(i) Indebtedness to Lender;
(ii) Indebtedness consisting of unsecured current liabilities incurred in
the ordinary course of its business which are not past due;
(iii) unsecured Indebtedness of Farah UK to Farah Exports (Ireland)
incurred by Farah UK in the ordinary course of business of Farah UK pursuant to
the purchase of Inventory by Farah UK from Farah Exports (Ireland), which
Indebtedness is, in all respects, subject and subordinate in right of payment to
the right of Lender to receive the prior indefeasible payment in full of all of
the Obligations; provided, that: (A) Farah UK shall not, directly or indirectly,
make any payments in respect of such Indebtedness, including, but not limited
to, any prepayments or other non-mandatory payments or any payments pursuant to
the purported acceleration thereof except, that, Farah UK may make payments from
time to time to Farah Exports (Ireland) in respect of such indebtedness
outstanding as of the date hereof, provided, that, each of the following
conditions is satisfied: (1) as of the date of each such payment and after
giving effect thereto, no Event of Default shall exist or have occurred and (2)
the aggregate amount of all such payments in any fiscal year of Farah UK shall
not exceed $500,000, and (B) Farah UK shall not, directly or indirectly, (1)
amend, modify, alter or change the terms of such Indebtedness or (2) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose;
(iv) Indebtedness incurred in the ordinary course of its business secured
only by liens permitted under Sections 3(j)(ii) and 3(j)(iii) hereof;
(v) Indebtedness owing to any one person existing on the date hereof in an
amount of less than $100,000 (or the foreign currency equivalent thereof as
determined by Lender) and any other Indebtedness existing on the date hereof
equal to or in excess of such amount which is described on Exhibit C hereto,
provided, that: (A) Farah UK and its subsidiaries may only make regularly
scheduled payments of principal and interest in respect of such Indebtedness as
set forth on Exhibit C, (B) Farah UK will not, directly or indirectly, (1) make
any prepayments or other non-mandatory payments in respect of any such
Indebtedness or (2) redeem, retire, defense, purchase or otherwise acquire such
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose or (3) amend, modify, alter or change the terms of the arrangements
relating thereto or any agreement or instrument evidencing such Indebtedness,
and (C) Farah UK and its subsidiaries will furnish to Lender all notices,
demands or other materials concerning such Indebtedness, promptly after receipt
thereof or concurrently with the sending thereof, as the case may be;
(vi) unsecured Indebtedness owing to a Borrower evidencing loans made by
such Borrower to Farah UK, provided that such Borrower collaterally assigns to
Lender the note and/or other agreements evidencing such Indebtedness in form and
substance satisfactory to Lender;
(vii) Indebtedness evidencing letter of credits issued by third parties on
behalf of Farah UK in an aggregate amount not to exceed 500,000 in British
Pounds Sterling at any time outstanding;
(viii) unsecured Indebtedness of Farah UK under custom guarantees in
respect of the payment of import duties in an aggregate amount not to exceed
250,000 in British Pounds Sterling; and
(ix) Indebtedness to third party lenders of Farah UK arising after Farah UK
terminates its obligations under the Amended and Restated Accounts Financing
Agreement, this Supplement, the Farah UK Agreements, and the other Financing
Agreements in accordance with the terms and conditions of Section 8 of this
Supplement.
(j) Farah UK will not, and will not permit any Subsidiary to,
create or suffer to exist any mortgage, pledge, security interest, lien,
encumbrance, defect in title or restriction upon the use of its real or personal
properties, whether now owned or hereafter acquired, except:
(i) the liens or security interests in favor of Lender;
(ii) tax, mechanics or other like statutory liens arising in the ordinary
course of Farah UK's business to the extent (A) such liens secure Indebtedness
which is not overdue or (B) until foreclosure or similar proceedings shall have
been commenced, such liens secure Indebtedness relating to claims or liabilities
which are being contested in good faith by appropriate proceedings available to
Farah UK prior to the commencement of foreclosure or other similar proceedings
and are adequately escrowed for or reserved against in Lender's judgment;
(iii) purchase money mortgages or other purchase money liens or security
interests upon any specific fixed assets now existing or hereafter acquired, or
mortgages, liens or security interests existing on any such fixed assets at the
time of acquisition thereof (including, without limitation, capitalized or
finance leases) or in connection with the refinancing of the existing
capitalized leases with respect to specific assets, provided, that, (A) no such
purchase money or other mortgages, liens or security interests (or capitalized
or finance lease, as the case may be) with respect to specific future fixed
assets or as refinanced shall extend to or cover any other property, other than
the specific fixed assets so acquired, or acquired or refinanced subject to such
mortgage, lien or security interest (or lease) and the proceeds thereof, (B)
such mortgage, lien or security interest secures the obligation to pay the
purchase price of such specific fixed assets only (or the obligations under the
capitalized or finance lease), and (C) the principal amount secured thereby
shall not exceed one hundred (100%) percent of the cost of the fixed assets so
acquired;
(iv) the existing liens, encumbrances or security interests described on
Exhibit D hereto; and
(v) Liens, security interests and charges against the assets of Farah UK
securing the Indebtedness described in Section 3(i)(ix) above.
(k) Farah UK will not, and will not permit any Subsidiary to,
directly or indirectly, make any loans or advance money or property to any
Person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or Indebtedness or all or a substantial part of
the assets or property of any Person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends or any Person or agree to do any of the
foregoing, except:
(i) guarantees in favor of Lender;
(ii) loans by Farah UK or any of its subsidiaries to any of the other
Borrowers or Farah Incorporated, provided that Farah UK collaterally assigns the
note and/or agreements evidencing such loan in form and substance satisfactory
to Lender;
(iii) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(iv) investments by Farah UK and its subsidiaries in the stock of any
Subsidiary existing as of the date hereof or hereafter approved by Lender; and
(v) after written notice thereof to Lender, investments in the following
instruments, which shall be pledged and delivered to Lender upon Lender's
request, (A) marketable obligations issued or guaranteed by the United States of
America or an instrumentality or agency thereof, maturing not more than one (1)
year after the date of acquisition thereof, (B) certificates of deposit or other
obligations maturing not more than one (1) year after the date of acquisition
thereof issued by any bank or trust company organized under the laws of and
located in the United States of America or any State thereof or any bank, trust
company, building society or other financial institution organized under the
laws of and located in England or Wales and having capital, surplus and
undivided profits of at least $100,000,000 or the foreign currency equivalent
thereof as determined by Lender (provided, that, upon Lender's request, Farah UK
or such Subsidiary, as the case may be, shall execute and deliver to Lender a
pledge agreement or memorandum of deposit with respect thereto, in form and
substance satisfactory to Lender) and (C) open market commercial paper with a
maturity date not in excess of two hundred seventy (270) days from the date of
acquisition thereof which have the highest credit rating by either Standard &
Poor's Corporation or Moody's Investors Service, Inc.
(l) Farah UK will not, and will not permit any Subsidiary to,
directly or indirectly, purchase, acquire or lease any property or receive any
services from, or sell, transfer or lease any property or services to any
Affiliate of Farah UK except on prices and terms no less favorable than would
have been obtained in an arm's length transaction with a non-affiliated person.
(m) Farah UK will permit representatives of Lender at any time
to inspect its inventory, equipment and other tangible Farah UK Collateral and
to have free access to and right of inspection of any papers, instruments an
records pertaining to any of the Farah UK Collateral and make abstracts or
photocopies from Farah UK's books and records, at the expense of Farah UK,
pertaining to inventory, accounts, contract rights, chattel paper, instruments,
documents and other collateral. The foregoing rights shall be in addition to and
shall not limit Lender's rights and remedies with respect to the Farah UK
Collateral upon or at any time after the occurrence of an Event of Default (as
provided hereunder).
(n) Upon Lender's request, on or after the occurrence of an
Event of Default at any time and from time to time, but in no event prior to the
occurrence of an Event of Default more than once in any twelve (12) consecutive
month period, Farah UK will, at its sole cost and expense, execute and deliver
to Lender written reports or appraisals of the Farah UK Collateral consisting of
inventory and equipment listing all items and categories thereof, describing the
condition of same and setting forth the value thereof (the lower if cost or
market value of the inventory and the lower of net cost less depreciation, fair
market value and/or liquidation value of the equipment), in such form as is
satisfactory to Lender.
(o) Farah UK will (i) use, store and maintain the Farah UK
Collateral consisting of inventory and equipment with all reasonable care and
caution, and (ii) use such Farah UK Collateral for lawful purposes only and in
conformity with applicable laws, ordinances and regulations.
(p) At its option, Lender may discharge taxes, liens or
security interests or other encumbrances at any time levied or placed on the
Farah UK Collateral and may pay for the maintenance and preservation of the
Farah UK Collateral and Farah UK agrees to reimburse Lender on demand, together
with interest therein at the rate specified herein, for any payment made or
expense incurred by Lender in connection with the foregoing and any such payment
or expense shall constitute a part of the Obligations.
4. Farah UK Inventory Loan Sublimits. Notwithstanding anything to the
contrary contained herein or in any of the other Amended and Restated Accounts
Financing Agreements, except in Lender's discretion, the aggregate unpaid
principal amount of the loans outstanding at any time based on the Eligible
Farah UK Inventory, regardless of the amounts of such Eligible Farah UK
Inventory, shall not exceed $1,750,000 in U.S. Dollars or U.S. Dollar
Equivalents.
5. Maximum Credit for Farah UK Loans. Except in Lender's discretion, the
aggregate unpaid principal amount of the loans or other financial accommodations
by Lender to Farah UK shall be made in U.S. Dollars and not exceed U.S.
$5,000,000 in U.S. Dollars or U.S. Dollar Equivalents.
6. Farah UK Financial Covenants.
(a) Net Worth. Farah UK will, at all times, maintain a Consolidated
Tangible Net Worth of not less than $750,000.
(b) Working Capital. Farah UK will, at all times, maintain a ratio of
Current Assets to Current Liabilities of not less than l.0:l.0.
7. Farah UK Events of Default. All Obligations shall be, at Lender's
option, immediately due and payable without notice or demand (notwithstanding
any deferred or installment payments allowed, if any, by any instrument
evidencing or relating to the Obligations) and any provision of this Supplement
or any of the other Amended and Restated Accounts Financing Agreements as to
future loans and advances by Lender to Borrowers shall, at Lender's option,
terminate forthwith, upon the occurrence of any one or more of the following
("Farah UK Events of Default"):
(a) Farah UK shall be in default in the payment of any of the
Obligations of Farah UK when due, which default shall continue for three (3)
days; or
(b) Farah UK shall fail to observe or perform any covenant or
agreement contained herein or in any of the other Amended and Restated Accounts
Financing Agreements other than as described in subsection (a) above and such
failure shall continue for seven (7) business days, provided, that, such seven
(7) business day period shall not apply in the case of: (i) any failure to
observe any such covenant or agreement which is not capable of being cured at
all or within such seven (7) business day period or which has been the subject
of a prior failure within a six (6) month period or (ii) an intentional breach
by Farah UK or its management of any such covenant or agreement; or
(c) any other guarantor, endorser or person liable on the
Obligations shall terminate or breach any of the terms, covenants, conditions or
provisions of any guarantee, endorsement or other agreement of such person with,
or in favor of, Lender; or
(d) any representation, warranty or statement of fact when made to Lender
at any time by or on behalf of Farah UK is false or misleading in any material
respect; or
(e) Farah UK or any other guarantor, endorser or person liable
on the Obligations shall become insolvent, generally unable to pay its debts as
they mature, call a meeting of creditors or have a creditors' committee
appointed, make a voluntary arrangement, make a general assignment for the
benefit of creditors, suspend or discontinue doing business for any reason, or
shall commence or have commenced against it any action or proceeding for the
winding up or dissolution or the appointment of any trustee, manager, receiver,
custodian, administrator or administrative receiver or liquidator of it or all
or any part of its properties or assets; or
(f) a judgment (including, without limitation, any attachment,
sequestration or distress) is rendered against Farah UK or any other guarantor,
endorser or person liable on the Obligations in excess of $250,000 or the
foreign currency equivalent thereof as determined by Lender in any one case or
in excess of $500,000 or the foreign currency equivalent thereof as determined
by Lender in the aggregate and the same shall remain undischarged for a period
in excess of thirty (30) days or execution shall at any time not be effectively
stayed; or
(g) Farah UK or any other guarantor, endorser or person liable
on the Obligations shall commence any action or proceeding for relief under the
U.S. Bankruptcy Code or any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the U.S.
Bankruptcy Code or any other present or future statute, law or regulation or an
application or petition shall be made by Farah UK or any other guarantor,
endorser or person liable on the Obligations or by any third person to an
English Court for an Administration Order or any other order under the United
Kingdom Insolvency Act 1986 (as amended or substituted from time to time) in
respect of Farah UK or its assets or Farah UK or any other guarantor, endorser
and person liable for the Obligations shall take any corporate action to
authorize any of such actions or proceedings; or
(h) Farah UK or any other guarantor, endorser or person liable
on the Obligations shall have commenced against it any action or proceeding for
relief under the U.S. Bankruptcy Code or any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
U.S. Bankruptcy Code or any other present or future statute, law or regulation
which is not dismissed within thirty (30) days of its commencement, or Farah UK,
any other guarantor, endorser or person shall file any answer admitting or not
contesting the allegations of a petition or application filed against it in any
such proceeding or by any act or omission indicates its consent to, acquiescence
in or approval of, any such action or proceeding or if the relief requested is
granted sooner; or
(i) there shall be a material adverse change in the business, assets or
condition (financial or otherwise) of Farah UK from the date hereof; or
(j) there is any change in the majority control or ownership of Farah UK;
or
(k) at any time, Lender shall, in its reasonable discretion,
consider the Obligations insecure or all or any part of the Collateral unsafe,
insecure or insufficient and Farah UK shall not on Lender's demand furnish other
Farah UK Collateral or make payment on account, reasonable satisfactory to
Lender; or
(l) Farah UK or any other guarantor, endorser or person liable
on the Obligations shall default in the payment of any amounts due on any
indebtedness owed by it or in the performance of any of the other terms or
covenants of any evidence of such indebtedness or of any material mortgage,
security agreement, indenture, debenture, pledge or other agreement relating
thereto or securing such indebtedness or with respect to any material contract,
lease, license or other agreement with any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto; or
(m) the occurrence of an Event of Default under any of the other Amended
and Restated Accounts Financing Agreements.
8. Alternate Farah UK Financing. Farah UK may, without Lender's prior
consent, but on prior written notice to Lender, seek financing as a partial
or complete replacement of the financing contemplated in this Supplement.
Prior to closing any such financing, Farah UK shall advise Lender of the
terms thereof and the expected termination date of this Supplement and the
other Farah UK Agreements. Lender agrees to execute and deliver to Borrower,
at Borrower's expense (including related attorneys fees and expenses), all
releases and terminations of Lender's liens, security interests and charges
it may have in the assets of Farah UK (including, without limitation, the
Farah UK Agreements) that Borrower may reasonably request, concurrently with
the termination of this Supplement in accordance with this Section 8.
9. Covenants Applicable to U.K. For the purposes of the application and
interpretation of the provisions of the Amended and Restated Accounts Financing
Agreement, this Supplement or the other Amended and Restated Accounts Financing
Agreements to the operations of Farah UK in England and to any of the Collateral
which may at any time or from time to time be located in England:
(a) all payments of principal, interest, fees and other
amounts to be made pursuant to the Amended and Restated Accounts Financing
Agreement, this Supplement or the other Amended and Restated Accounts Financing
Agreements in respect of all or any part of the Obligations shall be made free
and clear and without deduction for any and all present and future taxes,
withholdings, levies, duties, any charges of any Governmental Agency and all
liabilities with respect thereto (except for any taxes, duties or levies charged
on the income of Lender under the laws of the United States of America), and
without set-off, withholding or deduction of any kind whatsoever and, if with
regard to any payment to be made by Farah UK to Lender pursuant to the Amended
and Restated Accounts Financing Agreement, this Supplement, the other Amended
and Restated Accounts Financing Agreements or otherwise, any deduction for any
and all such present and future taxes, withholding, levies, duties, charges of a
Governmental Agency or any liability with respect thereto is required to be made
by Farah UK, Farah UK shall pay such additional amounts to Lender as may be
necessary in order that the net amount received by Lender after such deduction
shall equal such payment which would have been received by Lender in the absence
of such deduction; and
(b) Farah UK shall make all payments in respect of the
Obligations in U.S. Dollars and any payment on account of the Obligations made
in a currency other than U.S. Dollars, whether pursuant to a Judgment or order
of a Court or a Governmental Agency or otherwise, shall constitute a discharge
of the Obligations only to the extent of the U.S. Dollar Equivalent which Lender
is able to purchase and if the number of U.S. Dollars which Lender is so able to
purchase is less than the number of U.S. Dollars originally due to it, Farah UK
shall indemnify and save Lender harmless from and against any loss or damage
arising as a result of such deficiency and this indemnity shall:
(i) constitute an obligation separate and independent from the Obligations,
(ii) give rise to a separate and independent cause of action,
(iii) apply irrespective of any indulgence granted by Lender from time to
time,
(iv) be secured by the assignments, charges and security interests created
in respect of the Collateral by the Amended and Restated Accounts Financing
Agreement, this Supplement or the other Amended and Restated Accounts Financing
Agreements, and
(v) shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum in respect of an amount due under the Amended and
Restated Accounts Financing Agreement, this Supplement or the other Amended or
Restated Accounts Financing Agreements or any judgment or order or any payment
made under any judgment or order or the termination or non-renewal of the
Amended or Restated Accounts Financing Agreement, this Supplement and the other
Amended and Restated Financing Agreements.
10. Conditions Precedent. The effectiveness of the other terms and
conditions contained herein shall be subject to the satisfaction of each of the
following unless waived by Congress in writing:
(a) receipt by Lender of each of the following, in form and substance
satisfactory to Lender and its counsel:
(i) a confirmation of the absolute and unconditional guarantee of payment
of the Obligations of Borrowers to Lender and the general security agreement
granting to Lender a first and only lien upon its assets, or duly authorized,
executed and delivered by Farah Clothing;
(ii) certified copies of directors' resolutions or unanimous consent of
Farah UK, Farah USA, Value Clothing and the Guarantors evidencing the
authorization and approval of this Supplement, the confirmation of the
guarantees referred to above and as to Farah UK, the amendment and restatement
borrowing arrangements to be provided by Lender to Farah UK hereunder;
(iii) such agreements from participants as may be required to effectuate
the terms and provisions of this Supplement; and
(iv) an original of this Supplement, duly authorized, executed and
delivered by Farah UK, Farah USA, Value Clothing and Guarantors;
(b) all representations and warranties contained herein, in
the Amended and Restated Accounts Financing Agreement and in the other Amended
and Restated Accounts Financing Agreements shall be true and correct in all
respects; and
(c) no Event of Default shall have occurred and no event shall
have occurred or condition be existing which, with notice or passage of time or
both, would constitute an Event of Default.
11. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY
IN ANY ACTION OR PROCEEDING OF ANY KIND WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS AMENDED AND RESTATED ACCOUNTS FINANCING AGREEMENT, THE OTHER
AMENDED AND RESTATED ACCOUNTS FINANCING AGREEMENTS, THE OBLIGATIONS, THE
COLLATERAL OR ANY INSTRUMENT, DOCUMENT OR GUARANTY DELIVERED PURSUANT HERETO OR
TO ANY OF THE FOREGOING, OR THE VALIDITY, PROTECTION, INTERPRETATION,
ADMINISTRATION, COLLECTION OR ENFORCEMENT HEREOF OR THEREOF OR PURSUANT TO THE
OTHER AMENDED AND RESTATED ACCOUNTS FINANCING AGREEMENTS, OR ANY OTHER CLAIM OR
DISPUTE HOWSOEVER ARISING BETWEEN FARAH UK, FARAH USA, VALUE CLOTHING AND
GUARANTORS AND LENDER.
12. WAIVER OF COUNTERCLAIMS; JURISDICTION; SERVICE OF PROCESS. EACH OF
FARAH UK, FARAH USA, VALUE CLOTHING AND GUARANTORS HEREBY WAIVES ALL RIGHTS OF
SETOFF AND RIGHTS TO IMPOSE COUNTERCLAIMS IN THE EVENT OF ANY LITIGATION WITH
RESPECT TO ANY MATTER CONNECTED WITH THIS AMENDED AND RESTATED ACCOUNTS
FINANCING AGREEMENT, THE OTHER AMENDED AND RESTATED ACCOUNTS FINANCING
AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL, OR ANY TRANSACTION BETWEEN THE
PARTIES HERETO, AND IRREVOCABLY CONSENTS AND SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK IN NEW YORK CITY AND
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE
DISTRICT COURT OF THE STATE OF TEXAS AND THE UNITED STATES DISTRICT FOR THE
NORTHERN DISTRICT OF TEXAS AND THE COURTS OF ANY STATE IN WHICH ANY OF THE
COLLATERAL IS LOCATED AND OF ANY FEDERAL COURT LOCATED IN SUCH STATES IN
CONNECTION WITH ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
THIS AMENDED AND RESTATED ACCOUNTS FINANCING AGREEMENT, THE OTHER AMENDED AND
RESTATED ACCOUNTS FINANCING AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL OR ANY
DOCUMENT, INSTRUMENT OR GUARANTY DELIVERED PURSUANT HERETO OR TO ANY OF THE
FOREGOING. IN ANY SUCH LITIGATION, EACH OF FARAH UK, FARAH USA, VALUE CLOTHING
AND GUARANTORS WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS AND AGREES THAT THE SERVICE THEREOF MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED AND BY TELECOPIER, DIRECTED TO IT AT
ITS CHIEF EXECUTIVE OFFICE SET FORTH IN THE AMENDED AND RESTATED ACCOUNTS
FINANCING AGREEMENT OR THE OTHER AMENDED AND RESTATED ACCOUNTS FINANCING
AGREEMENTS, OR DESIGNATED IN WRITING PURSUANT TO THIS AMENDED AND RESTATED
ACCOUNTS FINANCING AGREEMENT, OR IN ANY OTHER MANNER PERMITTED BY THE RULES OF
SAID COURTS. WITHIN THIRTY (30) DAYS AFTER SERVICE, FARAH UK, FARAH USA, VALUE
CLOTHING AND GUARANTORS NAMED IN SUCH SUMMONS, COMPLAINT OR OTHER PROCESS
FAILING WHICH FARAH UK, FARAH USA, VALUE CLOTHING AND GUARANTORS, AS THE CASE
MAY BE, SHALL BE DEEMED IN DEFAULT AND JUDGMENT MAY BE ENTERED BY LENDER AGAINST
SUCH BORROWERS OR GUARANTORS FOR THE AMOUNT OF THE CLAIM AND OTHER RELIEF
REQUESTED THEREIN.
<PAGE>
FARAH U.S.A., INC.
By: /s/ Russell G. Gibson
Title: Vice President
FARAH MANUFACTURING (U.K.)
LIMITED
By: /s/ Timothy B. Page
Title: Director
VALUE CLOTHING COMPANY, INC.
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED AS OF JUNE 1, 1997:
FARAH INCORPORATED
FARAH INTERNATIONAL, INC.
VALUE CLOTHING COMPANY, INC.
VALUE SLACKS, INC.
FARAH MANUFACTURING COMPANY, INC.
FARAH MANUFACTURING COMPANY
OF NEW MEXICO, INC.
CORPORACION FARAH-COSTA RICA S.A.
FARAH CLOTHING COMPANY, a Delaware corporation
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ Mark Galovic, Jr.
Title: Vice President
FTX, INC.
By: Luis Segovia, Jr.
Title: President
<PAGE>
EXHIBIT 10.63
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT
[MULTIPLE FARAH COMPANIES]
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT dated as of 1st of
June, 1997, by the undersigned corporations (individually and collectively
"Guarantors") to and in favor of CONGRESS FINANCIAL CORPORATION (SOUTHWEST), a
Texas corporation ("Lender").
W I T N E S S E T H
WHEREAS, Lender has entered into financing arrangements with Farah
U.S.A., Inc., a Texas corporation, Value Clothing Company, Inc., a Texas
corporation ("Value Clothing") and Farah Manufacturing (U.K.) Limited, a
corporation incorporated under the laws of England ("Farah UK" and together with
Farah USA and Value Clothing, collectively, "Borrower"), pursuant to which
Lender may make loans and advances and provide other financial accommodations to
Borrower; and
WHEREAS, Guarantors originally entered into a General Security
Agreement, dated as of August 2, 1990, which Lender and Guarantors desire hereby
to amend and restate as of the date hereof; and
WHEREAS, Guarantors have executed and delivered Lender guarantees in
favor of Lender, dated as of August 2, 1990, which Guarantors are confirming as
of the date hereof, pursuant to which Guarantors intend, absolutely and
unconditionally, to guarantee to Lender the payment and performance of all now
existing and hereafter arising obligations, liabilities and indebtedness of
Borrower to Lender; and
WHEREAS, in order to induce Lender to enter into the Financing
Agreements and to make loans and advances and provide other financial
accommodations to Borrower pursuant thereto, each of Guarantors has agreed to
grant to Lender certain collateral security as set forth herein:
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, each of Guarantors hereby jointly and severally agrees as follows:
1. DEFINITIONS
As used above and in this General Security Agreement the following
terms shall have the respective meanings given to them below:
(a) All terms used herein which are defined in Article 1 or
Article 9 of the Uniform Commercial Code shall have the meanings set forth
therein unless otherwise defined in this Agreement and all references to the
plural herein shall also mean the singular and all references to the singular
shall also mean the plural.
(b) All references to the term "Guarantors" wherever used
herein shall be deemed to mean the signatories hereto, and each of them,
together with their respective successors and assigns, jointly and severally,
individually and collectively. All references to the term "Lender", and the term
"Borrower" wherever used herein shall be deemed to include their respective
successors and assigns.
(c) "Affiliate" shall mean, with respect to a specified
Person, any other Person (i) who, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
such Person, or (ii) who is a director, officer, shareholder or employee of such
Person.
(d) "Collateral" shall mean all of the now owned and hereafter
acquired property and assets of Guarantors, wherever located, of every kind and
description, mixed, real or personal, tangible or intangible, including, but not
limited to:
(i) all present and future: (A) accounts, contract rights, general
intangibles, chattel paper, documents and instruments (collectively,
"Accounts"), including, without limitation, all obligations for the payment of
money arising out of the sale, lease or other disposition of goods or other
property or rendition of services; (B) all monies, securities and other property
and the proceeds thereof, now or hereafter held or received by, or in transit
to, Lender or any participant from or for Guarantors, whether for safekeeping,
pledge, custody, transmission, collection or otherwise, and all of Guarantors'
deposits (general or special), balances, sums and credits with Lender or any
participant at any time existing; (C) all of Guarantors' right, title and
interest, and all of Guarantors' rights, remedies, security and liens, in, to
and in respect of the Accounts and other collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any account debtor, credit and
other insurance; (D) all of Guarantors' right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in Accounts,
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Account or other collateral, including, without limitation, all
returned, reclaimed or repossessed goods; (E) all deposit accounts; and (F) all
other general intangibles of every kind and description, including, without
limitation, (1) trade names and trademarks, and the goodwill of the business
symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) claims and
other choses in action, and (6) Federal, State, local and foreign tax refund
claims of all kinds;
(ii) all raw materials, work-in-process, finished goods and all other
inventory of whatsoever kind or nature, wherever located, whether now owned or
hereafter existing or acquired by Guarantors, including, without limitation, all
wrapping, packaging, advertising, shipping materials and all other goods
consumed in Guarantors' businesses, all labels and other devices, names or marks
affixed to or to be affixed thereto for purposes of selling or of identifying
the same or the seller or manufacturer thereof and all of Guarantors' right,
title and interest therein and thereto;
(iii) all equipment, machinery, computers and computer hardware, vehicles,
tool, dies, jigs, furniture, trade fixtures and fixtures, all attachments,
accessions and property now or hereafter affixed thereto or used in connection
therewith, substitutions and replacements thereof, wherever located, whether now
owned or hereafter acquired by Guarantors;
(iv) all right, title and interest of Guarantors, in, to and in respect of
any real property, including leasehold interests, together with all buildings,
structures, and other improvements located thereon and all licenses, easements
and appurtenances relating thereto, wherever located, whether now owned or
hereafter acquired;
(v) all present and future books, records, ledger cards, computer programs
and other property and general intangibles evidencing or relating to any of the
above, any other collateral or any account debtor, together with the file
cabinets or containers in which the foregoing are stored: and
(vi) all products and proceeds of the foregoing, in any form, including,
without limitation, any insurance proceeds and any claims against third persons
for loss or damage to or destruction of any or all of the foregoing.
(e) "Event of Default" shall mean the occurrence or existence
of any act, event or condition described in Section 4 hereof.
(f) "Financing Agreements" shall mean, collectively, the
Amended and Restated Accounts Financing Agreement [Security Agreement], dated of
even date, between Borrower and Lender and all agreements, documents and
instruments now or at any time hereafter executed and/or delivered in connection
therewith or related thereto, including, but not limited to, each Guarantee and
this Agreement, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced from time to
time.
(g) "Guarantee" shall mean the Guarantee and Waiver, dated as
of August 2, 1990 herewith, as confirmed as of the date hereof, by each of
Guarantors in favor of Lender absolutely and unconditionally guaranteeing all of
the now existing and hereafter arising obligations, liabilities and indebtedness
of Borrower to Lender, including, without limitation, those arising under,
related to or evidenced by the Financing Agreements (as the same may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced from
time to time).
(h) "Indebtedness" shall mean, as to any Person, all items
which, in accordance with generally accepted accounting principles as in effect
on the date hereof, consistently applied, would be included in determining total
liabilities shown on the liability side of its balance sheet as at the date such
Indebtedness is to be calculated and, in any event, shall include any
liabilities secured by any mortgage, pledge, lien or security interest existing
on such person's owned or acquired property.
(i) "Obligations" shall mean all now existing and hereafter
arising obligations, liabilities and indebtedness of each of Guarantors to
Lender and/or its affiliates and participants, of every kind and description,
however evidenced, including, without limitation, the Obligations, whether
direct or indirect, absolute or contingent, joint or several, secured or
unsecured, due or not due, primary or secondary, liquidated or unliquidated,
whether arising before, during or after the initial or any renewal term of the
Financing Agreements, or after the commencement of any case with respect to any
of Guarantors or Borrower under the Bankruptcy Code or any similar statute,
whether arising directly or acquired by Lender from any other person,
conditionally or as collateral security, by assignment, merger with any other
person, assumption, subrogation or otherwise (including, without limitation,
participations or interests of Lender in the obligations of any of Guarantors to
others), whether arising under this Agreement, the Guarantee, the other
Financing Agreements, by operation of law or otherwise, and whether incurred by
Guarantors as principal, surety, endorser, guarantor or otherwise and including,
without limitation, all principal, interest, financing charges, early
termination and other fees, commissions, costs, expenses and attorneys' and
accountants' fees and legal expenses incurred in connection with any of the
foregoing.
(j) "Person" or "person" shall mean an individual, a sole
proprietorship, a partnership, a corporation (including a business trust), a
joint stock company, a trust, an unincorporated association, a joint venture or
other entity or a government or any agency, instrumentality or political
subdivision thereof.
(k) "Subsidiary" or "subsidiary" shall mean any corporation,
association or organization, active or inactive, as to which more than fifty
(50%) percent of the outstanding voting stock or shares or interests shall now
or hereafter be owned or controlled, directly or indirectly by any Person, any
Subsidiary of such Person, or any Subsidiary of such Subsidiary.
2. GRANT OF SECURITY INTEREST
(a) As collateral security for the prompt performance,
observance and indefeasible payment in full of all of the Obligations, each of
Guarantors hereby grants to Lender a continuing security interest in and a lien
upon and hereby pledges, assigns and transfers to Lender all of the Collateral
and each of Guarantors hereby grants to Lender a right of setoff against any
Collateral consisting of money, securities and other property of Guarantors now
or hereafter in the possession of or on deposit with Lender or any other person,
whether held in a general or special account or deposit or for safekeeping or
otherwise. All Collateral shall be security for the performance, observance and
indefeasible payment in full of all of the Obligations notwithstanding the
maintenance, of separate accounts by Lender or the existence of any instruments
evidencing any of the Obligations.
(b) Each of Guarantors hereby constitutes Lender and its agent
and any designee of Lender as their attorney-in-fact and authorizes Lender or
such agent or designee, at Guarantors' cost and expense, to exercise at any time
or times in Lender's discretion all or any of the following powers, which
power-of-attorney being coupled with an interest shall be irrevocable until all
Obligations have been paid in full: (i) receive, take, endorse, assign, deliver,
accept and deposit, in the name of Lender or any of Guarantors, any and all
cash, checks, drafts, remittances and other instruments and documents relating
to the Collateral, (ii) on or after the occurrence of an Event of Default,
receive and open all mail addressed to any of Guarantors and notify postal
authorities to change the address for delivery thereof to such address as Lender
may designate, (iii) transmit to account debtors notice of the interest of
Lender in the Collateral or request from such account debtors at any time, in
the name of any of Guarantors, Lender or any designee of Lender, information
concerning the Collateral and any amounts owing with respect thereto, (iv) on or
after the occurrence of an Event of Default, notify account debtors to make
payment directly to Lender, (v) on or after the occurrence of an Event of
Default, take or bring, in the name of Lender or any of Guarantors, all steps,
actions, suits or proceedings deemed by Lender necessary or desirable to effect
collection of the Collateral, (vi) enter the premises of any of Guarantors for
the purpose of inspecting, verifying, auditing, maintaining, preserving,
protecting and removing the Collateral, and execute in the name and on behalf of
any of Guarantors one or more Uniform Commercial Code financing statements or
amendments with respect to the Collateral, naming any of Guarantors as debtor
and Lender as secured party and indicating and describing therein the types and
the items of Collateral. Each of Guarantors hereby releases Lender, its
officers, employees and designees, from any liability arising from any act or
acts taken under such power-of-attorney under the Guarantee, this Agreement, the
other Financing Agreements or in furtherance hereof or thereof, whether of
omission or commission, and whether based upon any error of judgment or mistake
of law or fact, except for Lender's own gross negligence or willful misconduct.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of Guarantors hereby jointly and severally represents, warrants
and covenants to Lender the following (which shall survive the execution and
delivery of this Agreement), the truth and accuracy of which, or compliance
with, being a continuing condition of the making of loans by Lender to Borrower
under the Financing Agreements:
(a) Guarantors will not directly or indirectly sell, lease,
transfer, abandon or otherwise dispose of all or any substantial portion of
their respective properties or assets or consolidate or merge with or into any
other entity or permit any other entity to consolidate or merge with or into it;
provided, however, that, on at least ten (10) days prior written notice to
Lender, (i) Guarantor may merge with and into a wholly-owned subsidiary of Farah
Incorporated or (ii) a wholly-owned subsidiary of Guarantor may merge with and
into another Guarantor, so long as the surviving corporation is a Borrower or
has executed an absolute and unconditional guaranty and other agreements
reasonably requested by Lender, in favor of, and in form and substance
satisfactory to, Lender. Each of Guarantors will at all times preserve, renew
and keep in full force and effect its existence as a corporation and the rights
and franchises with thereto and continue to engage in business of the same type
as they are engaged as of the date hereof. Guarantors will give Lender thirty
(30) days prior written notice of any proposed change in any of their corporate
names which notice shall set forth the new name.
(b) The addresses of the principal places of business and
chief executive offices of Guarantors are set forth on the signature page
hereof, which addresses are the mailing addresses for such principal places of
business and chief executive offices. The books and records relating to the
Collateral are located at such addresses.
(i) The only locations of any Collateral are those addresses listed on
Exhibit A hereto and those new locations which may hereafter be opened in
accordance with Section 3(b)(ii) hereof. Guarantors will not remove any
Collateral from such locations, without Lender's prior written consent, except
for sales of inventory in the ordinary course of Guarantors' businesses and
except to move Collateral directly to any other location listed on Exhibit A or
to a new location opened in accordance with Section 3(b)(ii) hereof.
(ii) Each of Guarantors may open any new location within the continental
United States provided it (A) gives Lender ten (10) days prior written notice of
the intended opening of any such new location and (B) executes and delivers, or
causes to be executed and delivered, to Lender such agreements, documents, and
instruments as Lender may deem reasonably necessary or desirable to protect its
interests in the Collateral to be located in such location, including, without
limitation, UCC financing statements and agreements from appropriate Persons
acknowledging Lender's liens on the Collateral to be located in such location,
waiving any lien or claim by such Person to the Collateral and permitting Lender
access to the premises to exercise its rights and remedies and otherwise deal
with the Collateral, in each case in form and substance satisfactory to Lender.
(c) Guarantors will maintain their books, records and accounts
in accordance with generally accepted accounting principles consistently
applied. Each of Guarantors agrees to furnish Lender with interim financial
statements (including balance sheets, statements of income and retained earnings
and cash flow statements), and to furnish Lender, at any time or from time to
time with such other information regarding its business affairs and financial
condition as Lender may reasonably request, including, without limitation,
balance sheets, statements of income, statements of cash flow projections,
forecasts, schedules, agings and reports. Each of Guarantors hereby irrevocably
authorizes and directs all accountants, auditors or other third parties to
deliver to Lender, at Guarantors' expense, copies of its financial statements,
papers related thereto, and other accounting records of any nature in their
possession and to disclose to Lender any information they may have regarding its
business affairs and financial conditions. Guarantors will furnish Lender with
audited financial statements on an annual basis certified by independent public
accounts selected by Guarantors and acceptable to Lender. All such statements
and information will fairly present Guarantors' financial condition as of the
dates and the results of Guarantors' operations for the periods, for which the
same are furnished. Any documents, schedules or other papers delivered to Lender
may be destroyed or otherwise disposed of by Lender one (1) year after the same
are delivered to Lender, unless Guarantors make written request therefor and pay
all expenses attendant to their return, in which event Lender shall return same
when Lender's actual or anticipated need therefor has ceased.
(d) Guarantors will duly pay and discharge all taxes,
assessments, contributions and governmental charges upon or against any of
Guarantors or its properties or assets prior to the date on which penalties
attach thereto. Guarantors will be liable for any tax or penalty imposed upon
any transaction under this Agreement or giving rise to the Accounts or any other
Collateral or which Lender may be required to withhold or pay for any reason and
each of Guarantors agrees to indemnify and hold Lender harmless with respect
thereto, and to repay to Lender on demand the amount thereof, and until paid by
Guarantors such amount shall be added to and deemed part of the Obligations.
(e) Except as otherwise disclosed to Lender in writing, there
is no present investigation by any governmental agency pending or threatened
against any of Guarantors and there is no action, suit, proceeding or claim
pending or threatened against any of Guarantors or its assets or goodwill, or
affecting any transactions contemplated by this Agreement or the other Financing
Agreements, or any instruments or documents delivered in connection herewith or
therewith before any court, arbitrator, or governmental or administrative body
or agency which if adversely determined with respect to Guarantors would result
in any material adverse change in Guarantors' businesses, properties, assets,
goodwill, or condition, financial or otherwise.
(f) The execution, delivery and performance of this Agreement
are within Guarantors' corporate powers, have been duly authorized, are not in
contravention of law or the terms of Guarantors' Charter, By-Laws or other
incorporation papers, or of any material indenture, agreement or undertaking to
which Guarantors are a party or by which Guarantors are bound.
(g) Guarantors do not have any Subsidiaries as of the date
hereof except as set forth on Exhibit B hereto. Each of Guarantors is a
wholly-owned subsidiary of Farah U.S.A., Inc., a Texas corporation. Guarantors
will not form or acquire any Subsidiaries without the prior written consent of
Lender.
(h) Guarantors will not, and will not permit any subsidiary
to, create, incur, assume or permit to exist, contingently or otherwise, any
Indebtedness, except:
(i) Indebtedness to Lender;
(ii) Indebtedness consisting of unsecured current liabilities incurred in
the ordinary course of its business which are not past due;
(iii) Indebtedness incurred in the ordinary course of its business secured
only by liens permitted under Sections 3(i)(ii) and 3(i)(iii) hereof;
(iv) Indebtedness owing to any one person existing on the date hereof in an
amount less than $100,000 and any other Indebtedness existing on the date hereof
equal to or in excess of such amount which is described on Exhibit C hereto,
provided, that: (A) Guarantors may only make regularly scheduled payments of
principal and interest in respect of such Indebtedness as set forth on Exhibit
C, (B) Guarantors will not, directly or indirectly, (1) make any prepayments or
other non-mandatory payments in respect of any such Indebtedness or (2) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose or (3) amend, modify,
alter or change the terms of the arrangements relating thereto or any agreement
or instrument evidencing such Indebtedness, and (C) Guarantors will furnish to
Lender all notices, demands or other materials concerning such Indebtedness,
promptly after receipt thereof or concurrently with the sending thereof, as the
case may be.
(i) Guarantors will not, and will not permit any subsidiary
to, create or suffer to exist any mortgage, pledge, security interest, lien,
encumbrance, defect in title or restriction upon the use of their real or
personal properties, whether now owned or hereafter acquired, except:
(i) the liens or security interests in favor of Lender;
(ii) tax, mechanics and other like statutory liens arising in the ordinary
course of Guarantors' businesses to the extent (A) such liens secure
Indebtedness which is not overdue or (B) until foreclosure or similar
proceedings shall have been commenced, such liens secure Indebtedness relating
to claims or liabilities which are being contested in good faith by appropriate
proceedings available to Guarantors prior to the commencement of foreclosure or
other similar proceedings and are adequately escrowed for or reserved against in
Lender's judgment;
(iii) purchase money mortgages or other purchase money liens or security
interests upon any specific fixed assets now existing or hereafter acquired, or
mortgages, liens or security interests existing on any such fixed assets at the
time of acquisition thereof (including, without limitation, capitalized or
finance leases) or in connection with the refinancing of the existing
capitalized leases with respect to specific assets, provided, that, (A) no such
purchase money or other mortgage, lien or security interest (or capitalized or
finance lease, as the case may be) with respect to specific future fixed assets
or as refinanced shall extend to or cover any other property, other than the
specific fixed assets so acquired, or acquired or refinanced subject to such
mortgage, lien or security interest (or lease) and the proceeds thereof, (B)
such mortgage, lien or security interest secures the obligation to pay the
purchase price of such specific fixed assets only (or the obligations under the
capitalized or finance lease), and (C) the principal amount secured thereby
shall not exceed one hundred (100%) percent of the cost of the fixed assets so
acquired; and
(iv) the existing liens, encumbrances or security interests described on
Exhibit D hereto.
(j) Guarantors will not, and will not permit any subsidiary
to, directly or indirectly, make any loans or advance money or property to any
Person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or Indebtedness or all or a substantial part of
the assets or property of any Person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the Indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, except:
(i) guarantees in favor of Lender;
(ii) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(iii) investments by Guarantors in the stock of any Subsidiary existing as
of the date hereof or hereafter approved by Lender;
(iv) after written notice thereof to Lender, investments in the following
instruments, which shall be pledged and delivered to Lender upon Lender's
request, (A) marketable obligations issued or guaranteed by the United States of
America or an instrumentality or agency thereof, maturing not more than one (1)
year after the date of acquisition thereof, (B) certificates of deposit or other
obligations maturing not more than one (1) year after the date of acquisition
thereof issued by any bank or trust company organized under the laws of and
located in the United States of America or any State thereof and having capital,
surplus and undivided profits of at least $100,000,000, and (C) open market
commercial paper with a maturity not in excess of two hundred seventy (270) days
from the date of acquisition thereof which have the highest credit rating by
either Standard & Poor's Corporation or Moody's Investors Service, Inc.
(k) Guarantors will not, and will not permit any subsidiary
to, directly or indirectly, purchase, acquire or lease any property or receive
any services from, or sell, transfer or lease any property or services to, any
Affiliate of any of Guarantors, except on prices and terms no less favorable
than would have been obtained in an arm's length transaction with a
non-affiliated person.
(l) Guarantors will permit representatives of Lender at any
time to inspect their inventory, equipment and other tangible Collateral and to
have free access to and right of inspection of any papers, instruments and
records pertaining to any of the Collateral and make abstracts or photocopies
from Guarantors' books and records, at the expense of Guarantors, pertaining to
inventory, accounts, contract rights, chattel paper, instruments, documents and
other Collateral. The foregoing rights shall be in addition to and shall not
limit Lender's rights and remedies with respect to the Collateral upon or at any
time after the occurrence of an Event of Default (as provided hereunder).
(m) Guarantors will at all times maintain, with financially
sound and reputable insurers, casualty and hazard insurance with respect to the
Collateral for not less than its full market value and against all risks to
which it may be exposed except to the extent Guarantors are self insured for
losses up to $250,000. All such insurance policies shall be in such form,
substance, amounts and coverage as may be satisfactory to Lender and shall
provide for thirty (30) days' minimum prior cancellation notice in writing to
Lender. Lender may act as attorney for Guarantors in obtaining, adjusting,
settling, amending and cancelling such insurance. Guarantors will promptly (i)
obtain endorsements to all existing and future insurance policies with respect
to the Collateral specifying that the proceeds of such insurance shall be
payable to Lender and Guarantors as their interests may appear and further
specifying that Lender shall be paid regardless of any act, omission or breach
of warranty by Guarantors, (ii) deliver to Lender an original executed copy of,
or executed certificate of the insurance carrier with respect to, such
endorsement and, at the Lender's request, the original or a certified duplicate
copy of the underlying insurance policy, and (iii) deliver to Lender such other
evidence which is satisfactory to Lender of compliance with the provisions
hereof. Guarantors will promptly notify Lender in writing of the details of any
material loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or which would result in any material adverse change in
Guarantors' businesses, properties, assets, goodwill or condition, financial or
otherwise. At Lender's option, Lender may apply any insurance monies received at
any time to the cost of repairs to or replacement for the Collateral and/or to
payment of any of the Obligations, whether or not due, in any order and in such
manner as Lender, in its discretion, may determine.
(n) Upon Lender's request, on or after the occurrence of an
Event of Default at any time and from time to time, but in no event prior to the
occurrence of an Event of Default more than once in any twelve (12) consecutive
month period, Guarantors will, at their sole cost and expense, execute and
deliver to Lender written reports or appraisals as to the Collateral consisting
of inventory and equipment listing all items and categories thereof, describing
the condition of same and setting forth the value thereof (the lower of cost or
market value of the inventory and the lower of net cost less depreciation, fair
market value and/or liquidation value of the equipment), in such form as is
satisfactory to Lender.
(o) Guarantors will, at their own expense, keep the Collateral
consisting of equipment in good order, repair, running and marketable condition
ordinary wear and tear excepted and except for Collateral consisting of
equipment which is not used or useful in the conduct of Guarantors' businesses
as of the date hereof.
(p) Guarantors will (i) use, store and maintain the Collateral
consisting of inventory and equipment with all reasonable care and caution, and
(ii) use such Collateral for lawful purposes only and in conformity with
applicable laws, ordinances and regulations.
(q) At its option, Lender may discharge taxes, liens or
security interests or other encumbrances at any time levied or placed on the
Collateral and may pay for the maintenance and preservation of the Collateral
and Guarantors agree to reimburse Lender on demand, together with interest
therein at the rate specified in the Financing Agreements, for any payment made
or expense incurred by Lender in connection with the foregoing and any such
payment or expense shall constitute a part of the Obligations secured hereby.
(r) All Collateral consisting of inventory shall be produced
in accordance with the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto. The
Collateral consisting of inventory and equipment is and will be used in
Guarantors' businesses and not for personal, family, household or farming use.
The Collateral consisting of equipment is now and will remain personal property
and Guarantors will not permit any of the equipment to be or become a part of or
affixed to real property without (i) prior written notice to Lender and Lender's
written consent and (ii) first making all arrangements, and delivering or
causing to be delivered to Lender, such agreements and other documentation
requested by Lender for the protection and preservation of Lender's security
interests and liens, in form and satisfactory to Lender, including, without
limitation, waivers and subordination agreements by any landlords or mortgagees
of statutory and non-statutory liens and rights of distraint. Guarantors assume
all responsibility and liability arising from or relating to the use, sale or
other disposition of its inventory and equipment as between Guarantors and
Lender.
(s) Guarantors will, at their expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
instruments and documents, including, without limitation, additional security
agreements, mortgages, deeds of trust, deeds to secure debt, collateral
assignments, Uniform Commercial Code financing statements or amendments or
continuations thereof, landlords or mortgagee's waivers of liens and consents to
the exercise by Lender of all Lender's rights and remedies hereunder, under any
of the other Financing Agreements or applicable law with respect to the
Collateral, and do or cause to be done such further acts as may be necessary or
proper in Lender's opinion to evidence, perfect, maintain and enforce Lender's
security interest and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of the other
Financing Agreements. Where permitted by law, each of Guarantors hereby
authorizes Lender to execute and file one or more Uniform Commercial Code
financing statements signed only by Lender.
(t) Guarantors will promptly pay Lender any and all sums,
costs and expenses which Lender may pay or incur in connection with the
preparation and negotiation of this Agreement, the Guarantee, any of the other
Financing Agreements, and any related agreements or instruments, or in
defending, protecting or enforcing the security interest granted herein or in
enforcing payment of the Obligations or otherwise in connection with the
provisions hereof, including, without limitation, all search, filing and
recording fees, taxes, and attorneys' fees and all fees and expenses for the
service and filing of papers, marshals, sheriffs, custodians, auctioneers and
others, and all court costs and collection charges, all of which shall be part
of the Obligations secured hereby and shall be payable on demand.
4. EVENTS OF DEFAULT
All Obligations shall be, at Lender's option, immediately due and
payable without notice or demand (notwithstanding any deferred or installment
payments allowed, if any, by any instrument evidencing or relating to the
Obligations) and any provision of the Financing Agreements as to future loans
and advances by Lender to Borrower shall, at Lender's option, terminate
forthwith, upon the occurrence of any one or more of the following ("Events of
Default"):
(a) Guarantors shall be in default in the payment of any of the Obligations
when due, which default shall continue for three (3) days; or
(b) Guarantors shall fail to observe or perform any covenant
or agreement contained herein or in any of the other Financing Agreements other
than as described in subsection (a) above and such failure shall continue for
five (5) business days, provided, that, such five (5) business day period shall
not apply in the case of: (i) any failure to observe any such covenant or
agreement which is not capable of being cured at all or within such five (5)
business day period or which has been the subject of a prior failure within a
six (6) month period or (ii) an intentional breach by Guarantors or their
management of any such covenant or agreement; or
(c) any other guarantor, endorser or person liable on the
Obligations shall terminate or breach any of the terms, covenants, conditions or
provisions of any guarantee, endorsement or other agreement of such person with,
or in favor of, Lender; or
(d) any representation, warranty or statement of fact when made to Lender
at any time by or on behalf of Guarantors is false or misleading in any material
respect; or
(e) Guarantors or any other guarantor, endorser or person
liable on the Obligations shall become insolvent, generally unable to pay its
debts as they mature, call a meeting of creditors or have a creditors' committee
appointed, make a general assignment for the benefit of creditors, suspend or
discontinue doing business for any reason, or shall commence or have commenced
against it any action or proceeding for the appointment of any trustee,
receiver, custodian or liquidator of it or all or any part of its properties or
assets; or
(f) a judgment is rendered against Guarantors or any other
guarantor, endorser or person liable on the Obligations in excess of $250,000 in
any one case or in excess of $500,000 in the aggregate and the same shall remain
undischarged for a period in excess of thirty (30) days or execution shall at
any time not be effectively stayed; or
(g) Guarantors or any other guarantor, endorser or person
liable on the Obligations shall commence any action or proceeding for relief
under the Bankruptcy Code or any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the Bankruptcy
Code or any other present or future statute, law or regulation or shall take any
corporate action to authorize any of such actions or proceedings; or
(h) Guarantors or any other guarantor, endorser or person
liable on the Obligations shall have commenced against it any action or
proceeding for relief under the Bankruptcy Code or any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the Bankruptcy Code or any other present or future statute, law or
regulation which is not dismissed within thirty (30) days of its commencement,
or Guarantors, any other guarantor, endorser or person shall file any answer
admitting or not contesting the allegations of a petition filed against it in
any such proceeding or by any act or omission indicates its consent to,
acquiescence in or approval of, any such action or proceeding or if the relief
requested is granted sooner; or
(i) there shall be a material adverse change in the business, assets or
condition (financial or otherwise) of Guarantors from the date hereof; or
(j) there is any change in the majority control or ownership of Guarantors;
or
(k) at any time, Lender shall, in its reasonable discretion,
consider the Obligations insecure or all or any part of the Collateral unsafe,
insecure or insufficient and Guarantors shall not on Lender's demand furnish
other Collateral or make payment on account, reasonably satisfactory to Lender;
or
(l) Guarantors or any other guarantor, endorser or person
liable on the Obligations shall default in the payment of any amounts at any
time due on any indebtedness owed by it or in the performance of any of the
other terms or covenants of any evidence of such indebtedness or of any material
mortgage, security agreement, indenture, pledge or other agreement relating
thereto or securing such indebtedness or with respect to any material contract,
lease, license or other agreement with any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto; or
(m) the occurrence of an event of default under any of the other Financing
Agreements.
5. RIGHTS AND REMEDIES
(a) Upon the occurrence of any Event of Default and at any
time thereafter, in addition to all other rights and remedies of Lender, whether
provided under the Uniform Commercial Code or other applicable law, this
Agreement, the Guarantee, the other Financing Agreements or otherwise, Lender
shall have the following rights and remedies which may be exercised, in its
discretion, at any time or times, with or without judicial process, with or
without the assistance of others and without notice to or consent by Guarantors
except as such notice or consent or judicial process is expressly provided for
hereunder or required by law:
(i) accelerate payment of all Obligations and demand immediate payment
thereof to Lender;
(ii) enter upon any premises on or in which any of the Collateral may be
located and, without resistance or interference by Guarantors, take possession
of the Collateral;
(iii) complete processing, manufacturing and repair of all or any portion
of the Collateral;
(iv) require any of Guarantors, at their expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender; and
(v) remove any or all of the Collateral from any premises on or in which
the same may be located, for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other lawful purpose;
(vi) appropriate, set off and apply to the payment of any or all of the
Obligations, any or all Collateral, in such manner as Lender shall in Lender's
sole discretion determine, and enforce payment of any Collateral, settle,
compromise or release in whole or in part any amounts owing on the Collateral,
prosecute any action, suit or proceeding with respect to the Collateral, extend
the time of payment of any and all Collateral, make allowances and adjustments
with respect thereto, and issue credits in Lender's or any of Guarantors' names;
and
(vii) sell, assign, foreclose or otherwise dispose of and deliver any or
all of the Collateral, at public or private sale, at broker's board, for cash,
upon credit or otherwise, at Lender's sole option and discretion, on or in any
of Guarantors' premises or premises of any other person, and Lender may bid or
become purchaser at any such sale, if public, free from any right of redemption
which is hereby expressly waived.
(b) In the event Lender seeks to take possession of all or any
portion of the Collateral by judicial process, each of Guarantors irrevocably
waives: (i) the posting of any bond, surety or security with respect thereto
which might otherwise be required, (ii) any demand for possession prior to the
commencement of any suit or action to recover the Collateral, and (iii) any
requirement that Lender retain possession and not dispose of any Collateral
until after trial or final judgment.
(c) Each of Guarantors agrees that the giving of five (5) days
notice by Lender to any of Guarantors' addresses set forth below, designating
the place and time of any public sale or of the time after which any private
sale or other intended disposition of the Collateral is to be made, shall be
deemed to be reasonable notice thereof and each of Guarantors waives any other
notice with respect thereto.
(d) The net cash proceeds resulting from the exercise of any
of the foregoing rights or remedies shall be applied by Lender to the payment of
the Obligations in such order as Lender may elect, and each of Guarantors shall
remain liable to Lender for any deficiency. Without limiting the generality of
the foregoing, if Lender enters into any credit transaction, directly or
indirectly, in connection with the disposition of any Collateral, Lender shall
have the option, at any time, in its sole discretion, to reduce the Obligations
by the principal amount of such credit transaction or to defer the reduction
thereof until actual receipt by Lender of cash or other immediately available
funds in connection therewith.
(e) The enumeration of the foregoing rights and remedies is
not intended to be exclusive, and such rights and remedies are in addition to
and not by way of limitation of any other rights or remedies Lender may have
under the Uniform Commercial Code or other applicable law. Lender shall have the
right, in Lender's sole discretion, to determine which rights and remedies, and
in which order any of the same, are to be exercised, and to determine which
Collateral is to be proceeded against and in which order, and the exercise of
any right or remedy shall not preclude the exercise of any others. Lender may at
any time pursue, relinquish, subordinate, modify or take any other action with
respect thereto, without in any way modifying or affecting any of the
Obligations. Lender may, at any time or times, proceed directly against any of
Guarantors or any other person liable on the Obligations to enforce payment of
the Obligations and shall not be required to take any action of any kind to
preserve, collect or protect Lender's or any of Guarantors' rights in the
Collateral.
(f) No act, failure or delay by Lender shall constitute a
waiver of any of Lender's rights and remedies. No single or partial waiver by
Lender of any provision of this Agreement or any supplement hereto, or breach or
default thereunder, or of any right or remedy which Lender may have shall
operate as a waiver of any other provision, breach, default, right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
(g) Each of Guarantors waives presentment, notice of dishonor,
protest and notice of protest of all instruments included in or evidencing any
of the Obligations or the Collateral and any and all notices or demands
whatsoever (except as expressly provided herein).
(h) All rights, remedies, powers and benefits granted to
Lender by any of Guarantors or any other person liable on or in respect of the
Obligations under this Agreement, the Guarantee, the other Financing Agreements,
or any other agreement, or granted by applicable law, whether expressly granted
or implied in law, are cumulative, not exclusive and enforceable alternatively,
successively, or concurrently on any one or more occasions and shall include,
without limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Guarantors or any other person liable
on or in respect of the Obligations of this Agreement, the Guarantee, the other
Financing Agreements or such other agreements
6. MISCELLANEOUS
(a) Notwithstanding that Lender, whether on its own behalf
and/or on behalf of others, may continue to hold Collateral, and regardless of
the value thereof, each of Guarantors and each other person liable on or in
respect of the Obligations shall be and remain jointly and severally liable for
the payment in full, including principal and interest, of any balance of the
Obligations and expenses hereunder at any time unpaid.
(b) Each of Guarantors and Lender waive all rights to trial by
jury in any action or proceeding instituted by either of them against the other
arising on, out of or by reason of this Agreement, the Guarantee, the other
Financing Agreements, the Obligations, the Collateral, any alleged tortious
conduct by either party hereto or in any way arising out of or related to the
relationship between any of Guarantors and Lender or Borrower and Lender. In no
event will Lender be liable for lost profits or other special or consequential
damages.
(c) Each of Guarantors waives all rights to interpose any
claims, defenses, deductions, setoffs or counterclaims of any kind, nature or
description in any action or proceeding instituted by Lender with respect to
this Agreement, the Guarantee, the other Financing Agreements, the Obligations,
the Collateral or any matter arising therefrom or relating hereto or thereto,
except compulsory counterclaims.
(d) Each of Guarantors hereby expressly submits and
irrevocably consents to the non-exclusive jurisdiction of the District Courts of
the State of Texas and the United States District Court for the Northern
District of Texas in connection with any action or proceeding arising out of or
relating to this Agreement, the Guarantee, the other Financing Agreements, the
Obligations, the Collateral or any document or instrument delivered pursuant
hereto or thereto. Each of Guarantors hereby waives personal service of the
summons and complaint or other process or notice of motion or other application
or papers issued therein, and agrees that the service of such summons and
complaint or other process or papers may be served: (i) inside or outside the
State of Texas by registered or certified mail, return receipt requested,
addressed to any of Guarantors at its chief executive office set forth below and
service or notice so served shall be deemed complete five (5) business days
after the same shall have been posted or (ii) in such other manner as may be
permissible under the rules of said Courts.
(e) All notices, requests and demands hereunder shall be in
writing and (i) made to Lender at 1201 Main Street, Dallas, Texas 75202 and to
Guarantors at their chief executive offices set forth below, or to such other
address as each party may designate by written notice to the other in accordance
with this provision, and (ii) deemed to have been given or made: if by hand,
telex, telecopy or telegram, immediately upon sending; if by Federal Express,
Express Mail or other overnight delivery service, one (1) day after dispatch;
and if by ordinary or certified mail, return receipt requested, five (5) days
after mailing.
(f) The provisions of this Agreement are severable, and if any
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall attach
only to such clause or provision in any such jurisdiction or part thereof, and
shall not in any manner affect such clause or provision in any other
jurisdiction or any other clause or provision in this Agreement or the other
Financing Agreements in any jurisdiction.
(g) Under no circumstances shall Lender be deemed to have
assumed any responsibility for or obligation or duty of any nature or kind with
respect to any Collateral, or any matter or proceedings arising out of or
relating thereto, but the same shall be at the sole risk of Guarantors at all
times. Each of Guarantors hereby releases Lender from any claims, causes of
action and demands at any time arising out of, relating to or with respect to
this Agreement, the Guarantee, the other Financing Agreements, the Obligations,
the Collateral and/or any actions taken or omitted to be taken by Lender with
respect thereto, and each of Guarantors hereby agrees to indemnify and hold
Lender harmless from and with respect to any and all such claims, causes of
action and demands by any person, other than Lender's own acts of gross
negligence or willful misconduct.
(h) This Agreement shall inure to the benefit of each of
Guarantors and Lender and their respective successors and assigns and shall be
binding upon each of Guarantors and its successors and assigns.
(i) This Agreement and any other agreement, document or
instrument delivered in connection herewith, and the obligations of the parties
hereunder or thereunder shall be governed by, and construed and interpreted in
accordance with the laws of the State of Texas, except to the extent that the
law of any other jurisdiction is required to be applied with respect to the
enforcement of Lender's rights in Collateral located in such jurisdiction.
IN WITNESS WHEREOF, each of Guarantors has caused these presents to be
duly executed and delivered on the day and year first above written.
FARAH MANUFACTURING COMPANY, INC.
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
FARAH MANUFACTURING COMPANY
OF NEW MEXICO, INC.
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
FTX, INC.
By: /s/ Luis Segovia, Jr.
Title: President
Chief Executive Office of Signatories
4171 North Mesa
Building D, Suite 500
El Paso, Texas 79902-1433
<PAGE>
EXHIBIT 10.64
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT
FARAH INTERNATIONAL, INC.
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT dated as of this 1st
day of June, 1997, by FARAH INTERNATIONAL, INC., a Texas corporation
("Guarantor") to and in favor of CONGRESS FINANCIAL CORPORATION (SOUTHWEST), a
Texas corporation ("Lender").
W I T N E S S E T H
WHEREAS, Lender has entered into financing arrangements with Farah
U.S.A., Inc. ("Farah USA"), a Texas corporation, Value Clothing Company, Inc., a
Texas corporation ("Value Clothing") and Farah Manufacturing (U.K.) Limited, a
corporation incorporated under the laws of England ("Farah UK" and together with
Farah USA and Value Clothing, collectively, "Borrower"), pursuant to which
Lender may make loans and advances and provide other financial accommodations to
Borrower; and
WHEREAS, Guarantor originally entered into a General Security
Agreement, dated as of August 2, 1990, which Lender and Guarantor desires hereby
to amend and restate as of the date hereof pursuant to this Agreement; and
WHEREAS, Guarantor has executed and delivered or is about to execute
and deliver to Lender a guarantee in favor of Lender, dated as of August 2,
1990, which Guarantor is confirming as of the date hereof, pursuant to which
Guarantor intend, absolutely and unconditionally, to guarantee to Lender the
payment and performance of all now existing and hereafter arising obligations,
liabilities and indebtedness of Borrower to Lender; and
WHEREAS, in order to induce Lender to enter into the Financing
Agreements and to make loans and advances and provide other financial
accommodations to Borrower pursuant thereto, Guarantor has agreed to grant to
Lender certain collateral security as set forth herein;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Guarantor hereby agrees as follows:
1. DEFINITIONS
As used above and in this General Security Agreement the following
terms shall have the respective meanings given to them below:
(a) All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings set forth therein unless
otherwise defined in this Agreement and all references to the plural herein
shall also mean the singular and all references to the singular shall also mean
the plural. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings given to them in the Amended and Restated Accounts Financing
Agreement [Security Agreement], dated as of June 1, 1997, among Lender, Farah
USA, Farah Clothing and Farah UK or in any Supplement (as defined therein).
(b) All references to the term "Guarantor" wherever used herein shall be
deemed to mean the signatory hereto and its successors and assigns. All
references to the term "Lender" and the term "Borrower" wherever used herein
shall be deemed to include their respective successors and assigns.
(c) "Affiliate" shall mean, with respect to a specified Person, any other
Person (i) who, directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with such Person, or
(ii) who is a director, officer, shareholder or employee of such Person.
(d) "Collateral" shall mean all of the now owned and hereafter acquired
property and assets of Guarantor, wherever located, of every kind and
description, mixed, real or personal, tangible or intangible, including, but not
limited to:
(i) all present and future: (A) accounts, contract rights, general
intangibles, chattel paper, documents and instruments (collectively,
"Accounts"), including, without limitation, all obligations for the payment of
money arising out of the sale, lease or other disposition of goods or other
property or rendition of services; (B) all monies, securities and other property
and the proceeds thereof, now or hereafter held or received by, or in transit
to, Lender or any participant from or for Guarantor, whether for safekeeping,
pledge, custody, transmission, collection or otherwise, and all of Guarantor's
deposits (general or special), balances, sums and credits with Lender or any
participant at any time existing; (C) all of Guarantor's right, title and
interest, and all of Guarantor's rights, remedies, security and liens, in, to
and in respect of the Accounts and other collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any account debtor, credit and
other insurance; (D) all of Guarantor's right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in Accounts,
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Account or other collateral, including, without limitation, all
returned, reclaimed or repossessed goods; (E) all deposit accounts; and (F) all
other general intangibles of every kind and description, including, without
limitation, (1) trade names and trademarks, and the goodwill of the business
symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) claims and
other choses in action, and (6) Federal, State, local and foreign tax refund
claims of all kinds;
(ii) all raw materials, work-in-process, finished goods and all other
inventory of whatsoever kind or nature, wherever located, whether now owned or
hereafter existing or acquired by Guarantor, including, without limitation, all
wrapping, packaging, advertising, shipping materials and all other goods
consumed in Guarantor's business, all labels and other devices, names or marks
affixed to or to be affixed thereto for purposes of selling or of identifying
the same or the seller or manufacturer thereof and all of Guarantor's right,
title and interest therein and thereto;
(iii) all equipment, machinery, computers and computer hardware, vehicles,
tool, dies, jigs, furniture, trade fixtures and fixtures, all attachments,
accessions and property now or hereafter affixed thereto or used in connection
therewith, substitutions and replacements thereof, wherever located, whether now
owned or hereafter acquired by Guarantor;
(iv) all right, title and interest of Guarantor, in, to and in respect of
any real property, including leasehold interests, together with all buildings,
structures, and other improvements located thereon and all licenses, easements
and appurtenances relating thereto, wherever located, whether now owned or
hereafter acquired;
(v) all present and future books, records, ledger cards, computer programs
and other property and general intangibles evidencing or relating to any of the
above, any other collateral or any account debtor, together with the file
cabinets or containers in which the foregoing are stored; and
(vi) all products and proceeds of the foregoing, in any form, including,
without limitation, any insurance proceeds and any claims against third persons
for loss or damage to or destruction of any or all of the foregoing.
(e) "Event of Default" shall mean the occurrence or existence of any act,
event or condition described in Section 4 hereof.
(f) "Financing Agreements" shall mean, collectively, the Amended and
Restated Accounts Financing Agreement [Security Agreement], dated of even date,
between Borrower and Lender and all agreements, documents and instruments now or
at any time hereafter executed and/or delivered in connection therewith or
related thereto, including, but not limited to, each Guarantee and this
Agreement, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced from time to
time.
(g) "Foreign Subsidiaries" shall mean, collectively, Farah UK, Farah
Offshore Sourcing Company, Farah (Australia) Pty. Limited, Farah Manufacturing
Company (Ireland) Limited, Farah Limited (Ireland), Farah (New Zealand) Limited
and their respective successors and assigns.
(h) "Guarantee" shall mean the Guarantee and Waiver, dated as of August 2,
1990, herewith, as confirmed as of the date hereof, by Guarantor in favor of
Lender absolutely and unconditionally guaranteeing all of the now existing and
hereafter arising obligations, liabilities and indebtedness of Borrower to
Lender, including, without limitation, those arising under, related to or
evidenced by the Financing Agreements (as the same may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced from time to
time).
(i) "Indebtedness" shall mean, as to any Person, all items which, in
accordance with, generally accepted accounting principles as in effect on the
date hereof, consistently applied, would be included in determining total
liabilities shown on the liability side of its balance sheet as at the date such
Indebtedness is to be calculated and, in any event, shall include any
liabilities secured by any mortgage, pledge, lien or security interest existing
on such person's owned or acquired property.
(j) "Obligations" shall mean all now existing and hereafter arising
obligations, liabilities and indebtedness of Guarantor to Lender and/or its
affiliates or participants, of every kind and description, however evidenced,
including, without limitation, the Obligations, whether direct or indirect,
absolute or contingent, joint or several, secured or unsecured, due or not due,
primary or secondary, liquidated or unliquidated, whether arising before, during
or after the initial or any renewal term of the Financing Agreements, or after
the commencement of any case with respect to Guarantor or Borrower under the
Bankruptcy Code or any similar statute, whether arising directly or acquired by
Lender from any other person, conditionally or as collateral security, by
assignment, merger with any other person, assumption, subrogation or otherwise
(including, without limitation, participations or interests of Lender in the
obligations of Guarantor to others), whether arising under this Agreement, the
Guarantee, other Financing Agreements, by operation of law or otherwise, and
whether incurred by Guarantor as principal, surety, endorser, guarantor or
otherwise and including, without limitation, all principal, interest, financing
charges, early termination and other fees, commissions, costs, expenses and
attorneys' and accountants' fees and legal expenses incurred in connection with
any of the foregoing.
(k) "Person" or "person" shall mean an individual, sole proprietorship, a
partnership, a corporation (including a business trust), a joint stock company,
a trust, an unincorporated association, a joint venture or other entity or a
government or any agency, instrumentality or political subdivision thereof.
(l) "Subsidiary" or "subsidiary" shall mean any corporation, association or
organization, active or inactive, as to which more than fifty (50%) percent of
the outstanding voting stock or shares or interests shall now or hereafter be
owned or controlled, directly or indirectly by any Person, any Subsidiary of
such Person, or any Subsidiary of such Subsidiary.
2. GRANT OF SECURITY INTEREST
(a) As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations, Guarantor hereby grants
to Lender a continuing security interest in and a lien upon and hereby pledges,
assigns and transfers to Lender all of the Collateral and Guarantor hereby
grants to Lender a right of setoff against any Collateral consisting of money,
securities and other property of Guarantor now or hereafter in the possession of
or on deposit with Lender or any other person, whether held in a general or
special account or deposit or for safekeeping or otherwise. All Collateral shall
be security for the performance, observance and indefeasible payment in full of
all of the Obligations notwithstanding the maintenance of separate accounts by
Lender or the existence of any instruments evidencing any of the Obligations.
(b) Guarantor hereby constitutes Lender and its agent and any designee of
Lender as Guarantor's attorney-in-fact and authorizes Lender or such agent or
designee, at Guarantor's cost and expense, to exercise at any time or times in
Lender's discretion all or any of the following powers, which power-of-attorney
being coupled with an interest shall be irrevocable until all Obligations have
been paid in full: (i) receive, take, endorse, assign, deliver, accept and
deposit, in the name of Lender or Guarantor, any and all cash, checks, drafts,
remittances and other instruments and documents relating to the Collateral, (ii)
on or after the occurrence of an Event of Default, receive and open all mail
addressed to Guarantor and notify postal authorities to change the address for
delivery thereof to such address as Lender may designate, (iii) transmit to
account debtors notice of the interest of Lender in the Collateral or request
from such account debtors at any time, in the name of Guarantor, Lender or any
designee of Lender, information concerning the Collateral and any amounts owing
with respect thereto, (iv) on or after the occurrence of an Event of Default,
notify account debtors to make payment directly to Lender, (v) on or after the
occurrence of an Event of Default, take or bring, in the name of Lender or
Guarantor, all steps, actions, suits or proceedings deemed by Lender necessary
or desirable to effect collection of the Collateral, (vi) enter Guarantor's
premises for the purpose of inspecting, verifying, auditing, maintaining,
preserving, protecting and removing the Collateral, and execute in the name and
on behalf of Guarantor one or more Uniform Commercial Code financing statements
or amendments with respect to the Collateral, naming Guarantor as debtor and
Lender as secured party and indicating and describing therein the types and the
items of Collateral. Guarantor hereby releases Lender, its officers, employees
and designees, from any liability arising from any act or acts taken under such
power-of-attorney under the Guarantee, this Agreement, the other Financing
Agreements or in furtherance hereof or thereof, whether of omission or
commission, and whether based upon any error of judgment or mistake of law or
fact, except for Lender's own gross negligence or willful misconduct.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) Guarantor hereby represents, warrants and covenants to Lender the
following (which shall survive the execution and delivery of this Agreement),
the truth and accuracy of which, or compliance with, being a continuing
condition of the making of loans by Lender to Borrower under the Financing
Agreements:
(b) Guarantor will not directly or indirectly sell, lease, transfer,
abandon or otherwise dispose of all or any substantial portion of its property
or assets or consolidate or merge with or into any other entity or permit any
other entity to consolidate or merge with or into it; provided that a
wholly-owned subsidiary of Guarantor (other than Farah UK) may, on at least ten
(10) days prior written notice to Lender, merge with and into Guarantor or
another wholly-owned subsidiary of Guarantor so long as Guarantor, Farah UK or
another wholly-owned subsidiary is a Borrower or has executed an absolute and
unconditional guarantee and other agreements reasonably requested by, and in
favor of, Lender and in form and substance satisfactory to Lender. Guarantor
will at all times preserve, renew and keep in full force and effect its
existence as a corporation and the rights and franchises with respect thereto
and continue to engage in business of the same type as it is engaged as of the
date hereof. Guarantor will give Lender thirty (30) days prior written notice of
any proposed change in its corporate name which notice shall set forth the new
name.
(c) Guarantor's books and records and chief executive office are maintained
at the address referred to below. Guarantor will not change such location
without Lender's prior written consent and prior to making any such change,
Guarantor agrees to execute any additional financing statements or other
documents or notices which Lender may require. The only locations of any
Collateral are those addresses listed on Exhibit A hereto and made a part
hereof. Exhibit A sets forth the owner and/or operator of the premises at such
addresses for all locations which Guarantor does not own and operate and all
mortgages, if any, with respect to the premises. Guarantor will not remove any
Collateral from such locations, without Lender's prior written consent, except
for sales of Inventory in the ordinary course of Guarantor's business.
(d) Guarantor will maintain its books, records and accounts in accordance
with generally accepted accounting principles consistently applied. Guarantor
agrees to furnish Lender with interim financial statements (including balance
sheets, statements of income and retained earnings and cash flow statements),
and to furnish Lender, at any time or from time to time with such other
information regarding its business affairs and financial condition as Lender may
reasonably request, including, without limitation, balance sheets, statements of
income, statements of cash flows projections, forecasts, schedules, agings and
reports. Guarantor hereby irrevocably authorizes and directs all accountants,
auditors or other third parties to deliver to Lender, at Guarantor's expense,
copies of its financial statements, papers related thereto, and other accounting
records of any nature in their possession and to disclose to Lender any
information they may have regarding its business affairs and financial
conditions. Guarantor will furnish Lender with audited financial statements on
an annual basis certified by independent public accounts selected by Guarantor
and acceptable to Lender. All such statements and information will fairly
present Guarantors financial condition as of the dates and the results of
Guarantors operations for the periods, for which the same are furnished. Any
documents, schedules or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, unless Guarantor makes written request therefor and pays all expenses
attendant to their return, in which event Lender shall return same when Lender's
actual or anticipated need therefor has ceased.
(e) Guarantor will duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against Guarantor or its
properties or assets prior to the date on which penalties attach thereto.
Guarantor will be liable for any tax or penalty imposed upon any transaction
under this Agreement or giving rise to the Accounts or any other Collateral or
which Lender may be required to withhold or pay for any reason and Guarantor
agrees to indemnify and hold Lender harmless with respect thereto, and to repay
to Lender on demand the amount thereof, and until paid by Guarantor such amount
shall be added to and deemed part of the Obligations.
(f) Except as otherwise disclosed to Lender in writing, there is no present
investigation by any governmental agency pending or threatened against Guarantor
and there is no action, suit, proceeding or claim pending or threatened against
Guarantor or its assets or goodwill, or affecting any transactions contemplated
by this Agreement or the other Financing Agreements, or any instruments or
documents delivered in connection herewith or therewith before any court,
arbitrator, or governmental or administrative body or agency which if adversely
determined with respect to Guarantor would result in any material adverse change
in Guarantor's business, properties, assets, goodwill, or condition, financial
or otherwise.
(g) The execution, delivery and performance of this Agreement are within
Guarantor's corporate powers, have been duly authorized, are not in
contravention of law or the terms of Guarantor's Charter, By-Laws or other
incorporation papers, or of any material indenture, agreement or undertaking to
which Guarantor is a party or by which Guarantor is bound.
(h) Guarantor does not have any Subsidiaries as of the date hereof except
as set forth on Exhibit B hereto. Guarantor is a wholly-owned Subsidiary of
Farah Incorporated, a Texas corporation. Guarantor will not form or acquire any
Subsidiaries without the prior written consent of Lender. In the event Lender so
consents, promptly upon such formation or acquisition:
(i) as to any Subsidiary incorporated or otherwise formed under the laws of
any jurisdiction in the United States of America, Guarantor shall cause any such
Subsidiary to execute and deliver to Lender, in form and substance satisfactory
to Lender and its counsel: (A) an absolute and unconditional guarantee of
payment of any and all present and future obligations of Borrower to Lender, (B)
a general security agreement granting to Lender a first and only lien (except as
otherwise consented to by Lender) upon all of such Subsidiary's assets, (C)
related Uniform Commercial Code Financing Statements, and (D) such other
agreements, documents and instruments as Lender may require, including, but not
limited to, supplements and amendments hereto and other loan agreements or
instruments evidencing indebtedness of such new Subsidiary to Lender; and
(ii) as to any Subsidiary incorporated or otherwise formed under the laws
of any jurisdiction outside the United States of America, Guarantor will execute
and deliver, or cause to be executed and delivered, to Lender, in form and
substance satisfactory to Lender and its counsel: (A) a pledge and security
agreement granting to Lender a first and only pledge of and security interest in
sixty-six (66%) percent of all of the issued and outstanding shares of capital
stock of such Subsidiary, (B) all original certificates and other evidence of
such shares of capital stock, together with stock powers duly executed in blank
with respect thereto, and (C) such other agreements, documents and instruments
as Lender may require, including, but not limited to, supplements and amendments
hereto.
(i) Guarantor will not, and will not permit any subsidiary to, create,
incur, assume or permit to exist, contingently or otherwise, any Indebtedness,
except:
(i) Indebtedness to Lender;
(ii) Indebtedness consisting of unsecured current liabilities incurred in
the ordinary course of its business which are not past due;
(iii) Indebtedness incurred in the ordinary course of its business secured
only by liens permitted under Sections 3(i)(ii) and 3(i)(iii) hereof;
(iv) Indebtedness, other than unsecured current liabilities, of any of the
Foreign Subsidiaries to persons other than Lender incurred in the ordinary
course of its business;
(v) Indebtedness owing to any one person existing on the date hereof in an
amount less than $100,000 and any other Indebtedness existing on the date hereof
equal to or in excess of such amount which is described on Exhibit C hereto,
provided, that: (A) Guarantor and its subsidiaries may only make regularly
scheduled payments of principal and interest in respect of such Indebtedness as
set forth on Exhibit C, (B) Guarantor will not, directly or indirectly, (1) make
any prepayments or other nonmandatory payments in respect of any such
Indebtedness or (2) redeem, retire, defease, purchase or otherwise acquire such
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose or (3) amend, modify, alter or change the terms of the arrangements
relating thereto or any agreement or instrument evidencing such Indebtedness,
and (C) Guarantor and its subsidiaries will furnish to Lender all notices,
demands or other materials concerning such Indebtedness, promptly after receipt
thereof or concurrently with the sending thereof, as the case may be;
(vi) unsecured Indebtedness evidencing loans by Farah (Australia) Pty.
Limited to Farah (New Zealand) Limited not to exceed $1,010,000 (Australia
Dollars);
(vii) unsecured Indebtedness evidencing advances made by Farah (Australia)
Pty. Limited to Farah (New Zealand) Limited in respect of trade payables
incurred in the ordinary course of business not to exceed in the aggregate at
any one time $500,000 (Australia Dollars);
(viii) Indebtedness to third party lenders of Farah (Australia) Pty.
Limited and/or Farah (New Zealand) Limited incurred after the date hereof;
(ix) unsecured Indebtedness owing to a Borrower evidencing loans made by
such Borrower to Farah UK, provided that such Borrower collaterally assigns to
Lender the note and/or other agreements evidencing such Indebtedness in form and
substance satisfactory to Lender;
(x) Indebtedness evidencing letter of credits issued by third parties on
behalf of Farah UK in an aggregate amount not to exceed 500,000 in British
Pounds Sterling at any time outstanding;
(xi) unsecured Indebtedness of Farah UK under custom guarantees in respect
of the payment of import duties in an aggregate amount not to exceed 250,000 in
British Pounds Sterling; and
(xii) Indebtedness to third party lenders of Farah UK if Farah UK
terminates its obligations under the Amended and Restated Accounts Financing
Agreement, the Farah UK Supplement, the Farah UK Agreements, and the other
Financing Agreements in accordance with the terms and conditions of Section 8 of
the Farah UK Supplement.
(j) Guarantor will not, and will not permit any subsidiary to, create or
suffer to exist any mortgage, pledge, security interest, lien, encumbrance,
defect in title or restriction upon the use of their real or personal
properties, whether now owned or hereafter acquired, except:
(i) the liens or security interests in favor of Lender;
(ii) tax, mechanics and other like statutory liens arising in the ordinary
course of Guarantor's or its subsidiary's respective businesses to the extent
(A) such liens secure Indebtedness which is not overdue or (B) until foreclosure
or similar proceedings shall have been commenced, such liens secure Indebtedness
relating to claims or liabilities which are being contested in good faith by
appropriate proceedings available to Guarantor or its subsidiaries prior to the
commencement of foreclosure or other similar proceedings and are adequately
escrowed for or reserved against in Lender's judgment;
(iii) purchase money mortgages or other purchase money liens or security
interests upon any specific fixed assets now existing or hereafter acquired, or
mortgages, liens or security interests existing on any such fixed assets at the
time of acquisition thereof (including, without limitation, capitalized or
finance leases) or in connection with the refinancing of the existing
capitalized leases with respect to specific assets, provided, that, (A) no such
purchase money or other mortgage, lien or security interest (or capitalized or
finance lease, as the case may be) with respect to specific future fixed assets
or as refinanced shall extend to or cover any other property, other than the
specific fixed assets so acquired, or acquired or refinanced subject to such
mortgage, lien or security interest (or lease) and the proceeds thereof, (B)
such mortgage, lien or security interest secures the obligation to pay the
purchase price of such specific fixed assets only (or the obligations under the
capitalized or finance lease), and (C) the principal amount secured thereby
shall not exceed one hundred (100%) percent of the cost of the fixed assets so
acquired;
(iv) the existing liens, encumbrances or security interests described on
Exhibit D hereto;
(v) liens, security interests and charges against the assets of Farah UK
securing the Indebtedness described in Section 3(i)(xii) above; and
(vi) liens, security interests and charges against the assets of Farah
(Australia) Pty. Limited and Farah (New Zealand) Limited securing Indebtedness
described in Section 3(i)(viii) above.
(k)______Guarantor will not, and will not permit any
subsidiary to, directly or indirectly, make any loans or advance money or
property to any Person, or invest in (by capital contribution, dividend or
otherwise) or purchase or repurchase the stock or Indebtedness or all or a
substantial part of the assets or property of any Person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
Indebtedness, performance, obligations or dividends of any Person or agree to do
any of the foregoing, except:
(i) guarantees in favor of Lender;
(ii) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(iii) investments by Guarantor and its subsidiaries in the stock of any
Subsidiary existing as of the date hereof or hereafter approved in writing by
Lender;
(iv) loans by Farah UK or any of its subsidiaries to any of the other
Borrowers or Farah Incorporated; provided that Farah UK collaterally assigns the
note and/or agreements evidencing such Loans to Lender in form and substance
satisfactory to Lender;
(v) the guarantee by Guarantor of the obligations of Farah (Australia) Pty.
Limited to Australia and New Zealand Banking Group Limited;
(vi) guarantee by Guarantor in favor of third party lenders of Farah
(Australia) Pty. Limited and Farah (New Zealand) Limited of the Indebtedness
described in Section 3(i)(viii) above;
(vii) after written notice thereof to Lender, investments in the following
instruments, which shall be pledged and delivered to Lender upon Lender's
request, (A) marketable obligations issued or guaranteed by the United States of
America or an instrumentality or agency thereof, maturing not more than one (1)
year after the date of acquisition thereof, (B) certificates of deposit or other
obligations maturing not more than one (1) year after the date of acquisition
thereof issued by any bank or trust company organized under the laws of and
located in the United States of America or any State thereof and having capital,
surplus and undivided profits of at least $100,000,000, and (C) open market
commercial paper with a maturity not in excess of two hundred seventy (270) days
from the date of acquisition thereof which have the highest credit rating by
either Standard & Poor's Corporation or Moody's Investors Service, Inc.;
(viii) investment by Farah Offshore Sourcing Company in 50% of the capital
of Global Sourcing Services, Inc.;
(ix) investment by Farah Offshore Sourcing Company in 50% of the capital of
JBRM Manufacturing Services, Inc.;
(x) unsecured loans by Farah (Australia) Pty. Limited (New Zealand) Limited
not to exceed $1,010,000 (Australia Dollars); and
(xi) unsecured advances by Farah (Australia) Pty. Limited to Farah (New
Zealand) Limited in respect of trade payables incurred in the ordinary course of
business not to exceed in the aggregate any one time $500,000 (Australian
Dollars).
(l) Guarantor will not, and will not permit any subsidiary to, directly or
indirectly, purchase, acquire or lease any property or receive any services
from, or sell, transfer or lease any property or services to, any Affiliate of
Guarantor, except on prices and terms no less favorable than would have been
obtained in an arm's length transaction with a non-affiliated person.
(m) Guarantor will permit representatives of Lender at any time to inspect
its inventory, equipment and other tangible Collateral and to have free access
to and right of inspection of any papers, instruments and records pertaining to
any of the Collateral and make abstracts or photocopies from Guarantor's books
and records, at the expense of Guarantor, pertaining to inventory, accounts,
contract rights, chattel paper, instruments, documents and other Collateral. The
foregoing rights shall be in addition to and shall not limit Lender's rights and
remedies with respect to the Collateral upon or at any time after the occurrence
of an Event of Default (as provided hereunder).
(n) Guarantor will at all times maintain, with financially sound and
reputable insurers, casualty and hazard insurance with respect to the Collateral
for not less than its full market value and against all risks to which it may be
exposed, except to the extent Guarantor is self insured for losses up to
$250,000. All such insurance policies shall be in such form, substance, amounts
and coverage as may be satisfactory to Lender and shall provide for thirty (30)
days' minimum prior cancellation notice in writing to Lender. Lender may act as
attorney for Guarantor in obtaining, adjusting, settling, amending and
cancelling such insurance. Guarantor will promptly (i) obtain endorsements to
all existing and future insurance policies with respect to the Collateral
specifying that the proceeds of such insurance shall be payable to Lender and
Guarantor as their interests may appear and further specifying that Lender shall
be paid regardless of any act, omission or breach of warranty by Guarantor, (ii)
deliver to Lender an original executed copy of, or executed certificate of the
insurance carrier with respect to, such endorsement and, at the Lender's
request, the original or a certified duplicate copy of the underlying insurance
policy, and (iii) deliver to Lender such other evidence which is satisfactory to
Lender of compliance with the provisions hereof. Guarantor will promptly notify
Lender in writing of the details of any material loss, damage, investigation,
action, suit, proceeding or claim relating to the Collateral or which would
result in any material adverse change in Guarantor's business, properties,
assets, goodwill or condition, financial or otherwise. At Lender's option,
Lender may apply any insurance monies received at any time to the cost of
repairs to or replacement for the Collateral and/or to payment of any of the
Obligations, whether or not due, in any order and in such manner as Lender, in
its discretion, may determine.
(o) Upon Lender's request, on or after the occurrence of an Event of
Default at any time and from time to time, but in no event prior to the
occurrence of an Event of Default more than once in any twelve (12) consecutive
month period, Guarantor will, at its sole cost and expense, execute and deliver
to Lender written reports or appraisals as to the Collateral consisting of
inventory and equipment listing all items and categories thereof, describing the
condition of same and setting forth the value thereof (the lower of cost or
market value of the inventory and the lower of net cost less depreciation, fair
market value and/or liquidation value of the equipment), in such form as is
satisfactory to Lender.
(p) Guarantor will, at its own expense, keep the Collateral consisting of
equipment in good order, repair, running and marketable condition ordinary wear
and tear excepted and except for Collateral consisting of equipment which is not
used or useful in the conduct of Guarantor's business as of the date hereof.
(q) Guarantor will (i) use, store and maintain the Collateral consisting of
inventory and equipment with all reasonable care and caution, and (ii) use such
Collateral for lawful purposes only and in conformity with applicable laws,
ordinances and regulations.
(r) At its option, Lender may discharge taxes, liens or security interests
or other encumbrances at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral and Guarantor agrees to
reimburse Lender on demand, together with interest therein at the rate specified
in the Financing Agreements, for any payment made or expense incurred by Lender
in connection with the foregoing and any such payment or expense shall
constitute a part of the Obligations secured hereby.
(s) All Collateral consisting of inventory shall be produced in accordance
with the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto. The Collateral
consisting of inventory and equipment is and will be used in Guarantor's
business and not for personal, family, household or farming use. The Collateral
consisting of equipment is now and will remain personal property and Guarantor
will not permit any of the equipment to be or become a part of or affixed to
real property without (i) prior written notice to Lender and Lender's written
consent and (ii) first making all arrangements, and delivering or causing to be
delivered to Lender, such agreements and other documentation requested by Lender
for the protection and preservation of Lender's security interests and liens, in
form and satisfactory to Lender, including, without limitation, waivers and
subordination agreements by any landlords or mortgagees of statutory and
non-statutory liens and rights of distraint. Guarantor assumes all
responsibility and liability arising from or relating to the use, sale or other
disposition of its inventory and equipment as between Guarantor and Lender.
(t) Guarantor will, at its expense, duly execute and deliver, or cause to
be duly executed and delivered, such further agreements, instruments and
documents, including, without limitation, additional security agreements,
mortgages, deeds of trust, deeds to secure debt, collateral assignments, Uniform
Commercial Code financing statements or amendments or continuations thereof,
landlord's or mortgagee's waivers of liens and consents to the exercise by
Lender of all Lender's rights and remedies hereunder, under any of the other
Financing Agreements or applicable law with respect to the Collateral, and do or
cause to be done such further acts as may be necessary or proper in Lender's
opinion to evidence, perfect, maintain and enforce Lender's security interest
and the priority thereof in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement or any of the other Financing
Agreements. Where permitted by law, Guarantor hereby authorizes Lender to
execute and file one or more Uniform Commercial Code financing statements signed
only by Lender.
(u) Guarantor will promptly pay Lender any and all sums, costs and expenses
which Lender may pay or incur in connection with the preparation and negotiation
of this Agreement, the Guarantee, any of the other Financing Agreements, and any
related agreements or instruments, or in defending, protecting or enforcing the
security interest granted herein or in enforcing payment of the Obligations or
otherwise in connection with the provisions hereof, including without
limitation, all search, filing and recording fees, taxes, and attorneys' fees
and all fees and expenses for the service and filing of papers, marshals,
sheriffs, custodians, auctioneers and others, and all court costs and collection
charges, all of which shall be part of the Obligations secured hereby and shall
be payable on demand.
4. EVENTS OF DEFAULT
All Obligations shall be, at Lender's option, immediately due and
payable without notice or demand (notwithstanding any deferred or installment
payments allowed, if any, by any instrument evidencing or relating to the
Obligations) and any provision of the Financing Agreements as to future loans
and advances by Lender to Borrower shall, at Lender's option, terminate
forthwith, upon the occurrence of any one or more of the following ("Events of
Default"):
(a) Guarantor shall be in default in the payment of any of the Obligations
when due, which default shall continue for three (3) days; or
(b) Guarantor shall fail to observe or perform any covenant or agreement
contained herein or in any of the other Financing Agreements other than as
described in subsection (a) above and such failure shall continue for five (5)
business days, provided, that, such five (5) business day period shall not apply
in the case of: (i) any failure to observe any such covenant or agreement which
is not capable of being cured at all or within such five (5) business day period
or which has been the subject of a prior failure within a six (6) month period
or (ii) an intentional breach by Guarantor or its management of any such
covenant or agreement; or
(c) any other guarantor, endorser or person liable on the Obligations shall
terminate or breach any of the terms, covenants, conditions or provisions of any
guarantee, endorsement or other agreement of such person with, or in favor of,
Lender; or
(d) any representation, warranty or statement of fact when made to Lender
at any time by or on behalf of Guarantor is false or misleading in any material
respect; or
(e) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall become insolvent, generally unable to pay its debts as they
mature, call a meeting of creditors or have a creditors' committee appointed,
make a general assignment for the benefit of creditors, suspend or discontinue
doing business for any reason, or shall commence or have commenced against it
any action or proceeding for the appointment of any trustee, receiver, custodian
or liquidator of it or all or any part of its properties or assets; or
(f) a judgment is rendered against Guarantor or any other guarantor,
endorser or person liable on the Obligations in excess of $250,000 in any one
case or in excess of $500,000 in the aggregate and the same shall remain
undischarged for a period in excess of thirty (30) days or execution shall at
any time not be effectively stayed; or
(g) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall commence any action or proceeding for relief under the
Bankruptcy Code or any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the Bankruptcy Code or any
other present or future statute, law or regulation or shall take any corporate
action to authorize any of such actions or proceedings; or
(h) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall have commenced against it any action or proceeding for relief
under the Bankruptcy Code or any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the Bankruptcy
Code or any other present or future statute, law or regulation which is not
dismissed within thirty (30) days of its commencement, or Guarantor, any other
guarantor, endorser or person shall file any answer admitting or not contesting
the allegations of a petition filed against it in any such proceeding or by any
act or omission indicates its consent to, acquiescence in or approval of, any
such action or proceeding or if the relief requested is granted sooner; or
(i) there shall be a material adverse change in the business, assets or
condition (financial or otherwise) of Guarantor from the date hereof; or
(j) there is any change in the majority control or ownership of Guarantor;
or
(k) at any time, Lender shall, in its reasonable discretion, consider the
Obligations insecure or all or any part of the Collateral unsafe, insecure or
insufficient and Guarantor shall not on Lender's demand furnish other Collateral
or make payment on account, reasonably satisfactory to Lender; or
(l) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall default in the payment of any amounts at any time due on any
indebtedness owed by it or in the performance of any of the other terms or
covenants of any evidence of such indebtedness or of any material mortgage,
security agreement, indenture, pledge or other agreement relating thereto or
securing such indebtedness or with respect to any material contract, lease,
license or other agreement with any person other than Lender, which default
continues for more than the applicable cure period, if any, with respect
thereto; or
(m) the occurrence of an event of default under any of the other Financing
Agreements.
5. RIGHTS AND REMEDIES
(a) Upon the occurrence of any Event of Default and at any time thereafter,
in addition to all other rights and remedies of Lender, whether provided under
the Uniform Commercial Code or other applicable law, this Agreement, the
Guarantee, the other Financing Agreements or otherwise, Lender shall have the
following rights and remedies which may be exercised, in its discretion, at any
time or times, with or without judicial process, with or without the assistance
of others and without notice to or consent by Guarantor except as such notice or
consent or judicial process is expressly provided for hereunder or required by
law:
(i) accelerate payment of all Obligations and demand immediate payment
thereof to Lender;
(ii) enter upon any premises on or in which any of the Collateral may be
located and, without resistance or interference by Guarantor, take possession of
the Collateral;
(iii) complete processing, manufacturing and repair of all or any portion
of the Collateral;
(iv) require Guarantor, at its expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender; and
(v) remove any or all of the Collateral from any premises on or in which
the same may be located, for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other lawful purpose;
(vi) appropriate, set off and apply to the payment of any or all of the
Obligations, any or all Collateral, in such manner as Lender shall in Lender's
sole discretion determine, and enforce payment of any Collateral, settle,
compromise or release in whole or in part any amounts owing on the Collateral,
prosecute any action, suit or proceeding with respect to the Collateral, extend
the time of payment of any and all Collateral, make allowances and adjustments
with respect thereto, and issue credits in Lender's or Guarantor's name; and
(vii) sell, assign, foreclose or otherwise dispose of and deliver any or
all of the Collateral, at public or private sale, at broker's board, for cash,
upon credit or otherwise, at Lender's sole option and discretion, on or in any
of Guarantor's premises or premises of any other person, and Lender may bid or
become purchaser at any such sale, if public, free from any right of redemption
which is hereby expressly waived.
(b) In the event Lender seeks to take possession of all or any portion of
the Collateral by judicial process, Guarantor irrevocably waives: (i) the
posting of any bond, surety or security with respect thereto which might
otherwise be required, (ii) any demand for possession prior to the commencement
of any suit or action to recover the Collateral, and (iii) any requirement that
Lender retain possession and not dispose of any Collateral until after trial or
final judgment.
(c) Guarantor agrees that the giving of five (5) days notice by Lender to
Guarantor's address set forth below, designating the place and time of any
public sale or of the time after which any private sale or other intended
disposition of the Collateral is to be made, shall be deemed to be reasonable
notice thereof and Guarantor waives any other notice with respect thereto.
(d) The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by Lender to the payment of the
Obligations in such order as Lender may elect, and Guarantor shall remain liable
to Lender for any deficiency. Without limiting the generality of the foregoing,
if Lender enters into any credit transaction, directly or indirectly, in
connection with the disposition of any Collateral, Lender shall have the option,
at any time, in its sole discretion, to reduce the Obligations by the principal
amount of such credit transaction or to defer the reduction thereof until actual
receipt by Lender of cash or other immediately available funds in connection
therewith.
(e) The enumeration of the foregoing rights and remedies is not intended to
be exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies Lender may have under the Uniform
Commercial Code or other applicable law. Lender shall have the right, in
Lender's sole discretion, to determine which rights and remedies, and in which
order any of the same, are to be exercised, and to determine which Collateral is
to be proceeded against and in which order, and the exercise of any right or
remedy shall not preclude the exercise of any others. Lender may at any time
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Obligations.
Lender may, at any time or times, proceed directly against Guarantor or any
other person liable on the Obligations to enforce payment of the Obligations and
shall not be required to take any action of any kind to preserve, collect or
protect Lender's or Guarantor's rights in the Collateral.
(f) No act, failure or delay by Lender shall constitute a waiver of any of
Lender's rights and remedies. No single or partial waiver by Lender of any
provision of this Agreement or any supplement hereto, or breach or default
thereunder, or of any right or remedy which Lender may have shall operate as a
waiver of any other provision, breach, default, right or remedy or of the same
provision, breach, default, right or remedy on a future occasion.
(g) Guarantor waives presentment, notice of dishonor, protest and notice of
protest of all instruments included in or evidencing any of the Obligations or
the Collateral and any and all notices or demands whatsoever (except as
expressly provided herein).
(h) All rights, remedies, powers and benefits granted to Lender by
Guarantor or any other person liable on or in respect of the Obligations under
this Agreement, the Guarantee, the other Financing Agreements, or any other
agreement, or granted by applicable law, whether expressly granted or implied in
law, are cumulative, not exclusive and enforceable alternatively, successively,
or concurrently on any one or more occasions and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Guarantor or any other person liable
on or in respect of the Obligations of this Agreement, the Guarantee, the other
Financing Agreements or such other agreements.
6. MISCELLANEOUS
(a) Notwithstanding that Lender, whether on its own behalf and/or on behalf
of others, may continue to hold Collateral, and regardless of the value thereof,
Guarantor and each other person liable on or in respect of the Obligations shall
be and remain jointly and severally liable for the payment in full, including
principal and interest, of any balance of the Obligations and expenses hereunder
at any time unpaid.
(b) Guarantor and Lender waive all rights to trial by jury in any action or
proceeding instituted by either of them against the other arising on, out of or
by reason of this Agreement, the Guarantee, the other Financing Agreements, the
Obligations, the Collateral, any alleged tortious conduct by either party hereto
or in any way arising out of or related to the relationship between Guarantor
and Lender or Borrower and Lender. In no event will Lender be liable for lost
profits or other special or consequential damages.
(c) Guarantor waives all rights to interpose any claims, defenses,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Guarantee, the other Financing Agreements, the Obligations, the Collateral or
any matter arising therefrom or relating hereto or thereto, except compulsory
counterclaims.
(d) Guarantor hereby expressly submits and irrevocably consents to the
non-exclusive jurisdiction of the District Courts of the State of Texas and the
United States District Court for the Northern District of Texas in connection
with any action or proceeding arising out of or relating to this Agreement, the
Guarantee, the other Financing Agreements, the Obligations, the Collateral or
any document or instrument delivered pursuant hereto or thereto. Guarantor
hereby waives personal service of the summons and complaint or other process or
notice of motion or other application or papers issued therein, and agrees that
the service of such summons and complaint or other process or papers may be
served: (i) inside or outside the State of Texas by registered or certified
mail, return receipt requested, addressed to Guarantor at its chief executive
office set forth below and service or notice so served shall be deemed complete
five (5) business days after the same shall have been posted or (ii) in such
other manner as may be permissible under the rules of said Courts.
(e) All notices, requests and demands hereunder shall be in writing and (i)
made to Lender at 1201 Main Street, Dallas, Texas 75202 and to Guarantor at its
chief executive office set forth below, or to such other address as each party
may designate by written notice to the other in accordance with this provision,
and (ii) deemed to have been given or made: if by hand, telex, telecopy or
telegram, immediately upon sending; if by Federal Express, Express Mail or other
overnight delivery service, one (1) day after dispatch; and if by certified
mail, return receipt requested, five (5) days after mailing.
(f) The provisions of this Agreement are severable, and if any clause or
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, then such invalidity or unenforceability shall attach only to
such clause or provision in any such jurisdiction or part thereof, and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Agreement or the other Financing Agreements in
any jurisdiction.
(g) Under no circumstances shall Lender be deemed to have assumed any
responsibility for or obligation or duty of any nature or kind with respect to
any Collateral, or any matter or proceedings arising out of or relating thereto,
but the same shall be at the sole risk of Guarantor at all times. Guarantor
hereby releases Lender from any claims, causes of action and demands at any time
arising out of, relating to or with respect to this Agreement, the Guarantee,
the other Financing Agreements, the Obligations, the Collateral and/or any
actions taken or omitted to be taken by Lender with respect thereto, and
Guarantor hereby agrees to indemnify and hold Lender harmless from and with
respect to any and all such claims, causes of action and demands by any person,
other than Lender's own acts of gross negligence or willful misconduct.
(h) This Agreement shall inure to the benefit of Guarantor and Lender and
their respective successors and assigns and shall be binding upon Guarantor and
its successors and assigns.
<PAGE>
(i) This Agreement and any other agreement, document or instrument
delivered in connection herewith, and the obligations of the parties hereunder
or thereunder shall be governed by, and construed and interpreted in accordance
with the laws of the State of Texas, except to the extent that the law of any
other jurisdiction is required to be applied with respect to the enforcement of
Lender's rights in Collateral located in such jurisdiction.
IN WITNESS WHEREOF, Guarantor has caused these presents to be duly
executed and delivered on the day and year first above written.
FARAH INTERNATIONAL, INC.
By: /s/ Timothy B. Page
Title: Director
Chief Executive Office of Signatory
4171 North Mesa
Building D
Suite 500
El Paso, Texas 79902-1433
<PAGE>
EXHIBIT 10.65
AMENDED AND RESTATED
TRADE FINANCING AGREEMENT
SUPPLEMENT TO ACCOUNTS FINANCING AGREEMENT
[SECURITY AGREEMENT]
As of: June 1, 1997
Congress Financial Corporation (Southwest)
1201 Main Street, Suite 1625
Dallas, Texas 75202
Gentlemen:
This Amended and Restated Trade Financing Agreement ("Supplement"),
dated as of June 1, 1997, between us, is an amendment and restatement of the
Trade Financing Agreement, dated August 2, 1990, between you and Farah U.S.A.,
and is a supplement to the Amended and Restated Accounts Financing Agreement
[Security Agreement] between you and Farah U.S.A., Inc., Value Clothing Company,
Inc. and Farah Manufacturing (U.K.) Limited dated of even date herewith (the
"Agreement"). This Supplement is (a) hereby incorporated into the Agreement, (b)
made a part thereof and (c) subject to the other terms, conditions, covenants
and warranties thereof. All terms, including capitalized terms, used herein
shall have the meanings ascribed to them respectively in the Agreement, unless
otherwise defined in this Supplement.
This Supplement will confirm the terms and conditions upon which you
may, from time to time in your sole discretion, assist us in establishing or
opening foreign or domestic letters of credit and extend other financial
accommodations for our account. Accordingly, each of us hereby agrees as
follows:
Section 1. CREDIT ACCOMMODATIONS
1.1. You may, in your sole discretion, from time to time, for our
account, at our request, provide one or more of the following financial
accommodations to us or our designee(s): (a) issue, open, or cause the issuance
or opening of letters of credit or purchase or other guaranties for the purchase
of goods and services in the ordinary course of our or any such designer's
business or for any other purpose approved by you, (b) assist us in establishing
or opening letters of credit for such purposes by indemnifying the issuer
thereof or guaranteeing our payment or performance to such issuer in connection
therewith, (c) make payments for our or such designee's account in connection
with such purchases and/or (d) issue or guarantee drafts and acceptances
relating to the foregoing or otherwise. All such letters of credit or purchase
or other guaranties and other financial accommodations are referred to herein
individually as a "Credit" and collectively as "Credits".
1.2. The opening or issuance of any Credit shall at all times and in
all respects be in your sole reasonable discretion. The amount and extent of any
Credit and the terms, conditions and provisions thereof shall in all respects be
determined solely by you and shall be subject to change, modification and
revision by you, in your sole discretion, at any time and from time to time. The
maturity of each Credit shall not exceed one hundred and eighty (180) days after
opening or issuance, except in your sole reasonable discretion and except for
certain standby Credits.
1.3. Our loan availability under the Agreement and any other
Supplements thereto shall be reduced by the amount of all outstanding Credits or
such lesser amount as you may elect in your discretion.
1.4. Our Obligations to you under all outstanding Credits shall be secured
by all Collateral in which you are now or hereafter granted a security interest
by us or any guarantor.
1.5. Except in your sole discretion, the amount of all Credits and all
other commitments and obligations made or incurred by you for our account in
connection therewith shall not exceed $7,000,000 in the aggregate at any time
outstanding; and such Credits and commitments, when combined with the sums
outstanding under the Agreement and the other Supplements, shall not exceed, at
any one time, the Maximum Credit.
1.6. All indebtedness, liabilities, expenses and obligations of any
kind paid, arising or incurred by you in connection with this Supplement, any
Credit or any documents, drafts and acceptances thereunder, whether present or
future, whether arising or incurred before or after termination or nonrenewal of
this Agreement shall be incurred solely as an accommodation to us and for our
account and constitute part of the Obligations, including without limitation:
(a) all amounts due or which may become due under any Credit or any drafts or
acceptances thereunder; (b) all amounts charged or chargeable to you or us by
any bank or other issuer of any Credit or any correspondent which opens, issues
or is otherwise involved with any Credit, including without limitation, all
fees, expenses and commissions; (c) your fees, expenses and commissions; (d)
duties, freight, terms, costs, insurance and all such other charges and expenses
which may pertain directly or indirectly to any Obligations or to the Credits or
goods or documents relating thereto; and (e) all other indebtedness and
obligations owed by us to you pursuant to, in connection with or arising from
this Supplement, the Credits or any drafts or acceptances relating thereto.
1.7. All such Obligations shall accrue interest at the rate provided
for in the Agreement, commencing on the date any payment is made, or obligations
incurred, by you and all such Obligations shall, together with interest thereon
and other sums owed by us to you hereunder, be payable and evidenced as provided
in the Agreement.
1.8. In addition to all other fees, charges and expenses payable under
the Agreement, this Supplement, and to any bank or other issuer or correspondent
in connection with any Credit, we agree to pay to you the following commissions
for your services hereunder, which shall be due and payable on the opening or
issuance of each Credit or, if the original term is extended, on the extension
thereof: (a) a charge of one-sixth percent (1/6%) of the face amount of any
Credit (other than drafts or acceptances) for each thirty (30) day period, or
any portion thereof, of the original term or any extension thereof and (b) in
addition to any bank charges, a charge for each thirty (30) day period, or any
portion thereof, of the original or any extended term of any outstanding drafts
or acceptances equal to one-sixth percent (1/6%) of the face amount thereof. We
also agree to pay to you, your and any bank's, other issuer's or correspondent's
customary charges for amendments, extensions and administration relating to any
Credit, which charges shall be due and payable on the first day of the month
following the date of incurrence and, at your option may be charged to any of
our account(s) maintained by you.
1.9. Nothing contained herein shall be deemed or construed to grant us
any right, power or authority to pledge your credit in any manner. You shall
have no liability of any kind with respect to any Credit opened or issued by a
bank or other issuer or any draft or acceptance with respect thereto unless and
until you shall have first duly executed and delivered your guarantee or
indemnification in writing with respect thereto, as provided herein.
Section 2. ADDITIONAL SECURITY INTEREST
2.1. As additional security for the prompt performance, observance and
payment in full of all Obligations, we hereby grant to you a continuing security
interest in, a lien upon, and a right to set off against, and we hereby assign,
transfer, pledge and set over to you all of the following property acquired by
us in connection with any Credit or otherwise owned by us, whether now owned or
hereafter acquired (which, is and shall be deemed a part of the Collateral as
defined and used in the Agreement): (a) all raw materials, work-in-process,
Finished Goods and all other inventory and goods of whatsoever kind or nature,
wherever located, including inventory or goods in transit ("Inventory"),
including, without limitation, all wrapping, packaging, advertising and shipping
materials, and all other goods consumed in our business, all labels and other
devices, names or marks affixed or to be affixed thereto for purposes of selling
or of identifying the same or the seller or manufacturer thereof and all of our
right, title and interest therein and thereto; (b) documents of payment,
transport and title or the equivalent thereof, including, without limitation,
original contracts, orders, invoices, checks, drafts, notes, letters of credit,
documents, warehouse receipts, bills of lading, shipping receipts, dock
receipts, delivery tickets and documents made available to us for the purpose of
ultimate sale or exchange of Inventory or for the purpose of loading, unloading,
storing, shipping, transshipping, manufacturing, processing or otherwise dealing
with Inventory in a manner preliminary to their sale or exchange; (c) all books,
records, other property and general intangibles relating to the foregoing; and
(d) all products and proceeds of the foregoing in any form, including without
limitation, insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
2.2. You may, on or after occurrence of any Event of Default, exercise
any or all of your rights of ownership, including the rights of possession and
sale or other disposition, with or without notice to us, without liability to
you and entirely at our expenses and without relieving us from any Obligations.
Section 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
We hereby represent, warrant and covenant to you the following (which
shall survive the execution and delivery of this Supplement), the truth and
accuracy of which, or compliance with, being a continuing condition of the
making of loans by you under the Agreement or any supplement thereto and the
extension by you of each Credit and other financial accommodations pursuant
hereto:
3.1. All sales of any Inventory shall be made by us only in the
ordinary course of business and the Accounts arising from such sales and
proceeds thereof shall be and are hereby transferred and assigned to you and we
confirm that your lien and security interest extends and attaches to those
Accounts and proceeds.
3.2. Except as you may otherwise specifically consent in writing prior
to the opening or issuance of any Credit, all Credits shall be opened or issued
to cover the actual purchase and delivery of Inventory solely for our account or
in connection with our workers compensation, automobile or liability insurance.
3.3. All shipments made under any Credit are in accordance with the
governmental laws and regulations of the countries in which the shipments
originate and terminate, and are not prohibited by any such laws and
regulations.
3.4. We assume all risk, liability and responsibility for, and agree to
pay and discharge, all present and future local, state, federal or foreign
taxes, duties, or levies relating to the Credits. Any embargo, restriction,
laws, customs or regulations of any country, state, city, or other political
subdivision, where the Collateral is or may be located, or wherein payments are
to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall
be solely our risk, liability and responsibility as between you and us.
3.5. All documents, instruments, notices and statements relating to any
Credit and/or the Collateral, if any, shall at your request, be promptly
delivered to you.
3.6. We shall procure promptly, or cause to be procured, any necessary
licenses for the shipping of goods and comply or cause any drawer under, or
beneficiary of, any Credit (or any transferee or assignee thereof), to comply
with all foreign and domestic governmental laws and regulations in regard to the
shipping of the Inventory, the financing thereof or payment therefor, including
governmental laws and regulations pertaining to transactions involving
designated foreign countries or their nationals and to furnish such certificates
in that respect as you or any bank or other issuer or correspondent may at any
time require.
3.7. The only locations of any Collateral are those addresses listed on
Exhibit A annexed hereto and made a part hereof. Exhibit A sets forth the owner
and/or operator of the premises at such addresses, for all locations which we do
not own and operate and all mortgages, if any, with respect to the premises. We
shall not remove any Collateral from such locations, without your prior written
consent, except for sales of Inventory in the ordinary course of business.
3.8. We shall at all times maintain, with financially sound and
reputable insurers, casualty and hazard insurance with respect to the Collateral
for not less than its full market value and against all risks to which it may be
exposed except to the extent we are presently self-insured for losses up to
$250,000. All such insurance policies shall be in such form, substance, amounts
and coverage as may be satisfactory to you and shall provide for 30 days'
minimum prior cancellation notice in writing to you. You may act as attorney for
us in obtaining, adjusting, settling, amending and canceling such insurance. We
shall promptly (a) obtain endorsements to all existing and future insurance
policies with respect to the Collateral specifying that the proceeds of such
insurance shall be payable to you as your interests may appear and further
specifying that you shall be paid regardless of any act, omission or breach of
warranty by us, (b) deliver to you an original executed copy of, or executed
certificate of the insurance carrier with respect to, such endorsement and, at
your request, the original or a certified duplicate copy of the underlying
insurance policy and (c) deliver to you such other evidence which is
satisfactory to you of compliance with the provisions hereof.
3.9. We shall promptly notify you in writing of the details of any
material loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or which would result in any material adverse change in our
business, assets, goodwill or condition, financial or otherwise.
3.10. At your option, you may apply any insurance monies received at
any time to the cost of repairs to or replacement for the Inventory and/or to
payment of any of the Obligations, whether or not due, in any order and in such
manner as you, in your sole discretion, may determine.
3.11. Upon your request (on or after the occurrence of an Event of
Default), at any time and from time to time, but in no event prior to the
occurrence of an Event of Default more than once in any twelve (12) month
period, we shall, at our sole cost and expense, execute and deliver to you
written reports or appraisals as to the Inventory listing all locations, items
and categories thereof, describing the condition of same and setting forth the
lower of cost or fair market value thereof, in such form as is satisfactory to
you.
3.12. We shall (a) use, store and maintain the Inventory with all
reasonable care and caution and (b) use the Inventory for lawful purposes only
and in conformity with applicable laws, ordinances, regulations and insurance
policies.
3.13. We assume all responsibility and liability arising from or
relating to the use, sale or other disposition of the Inventory and other
Collateral as between you and us.
Section 4. INDEMNIFICATION AND RELEASE.
4.1. We shall and do hereby indemnify you and hold you harmless from
and against, and agree to pay you or demand the amount of, any and all losses,
costs, claims, demands, causes of action, liabilities or expenses (collectively,
"Liabilities") which you may suffer or incur whether pursuant to negligence or
otherwise arising from or in connection with any transactions or occurrences
relating to any Credit, the Collateral and any documents, drafts or acceptances
thereunder or relating thereto, including, but not limited to, Liabilities due
to any action taken by any bank or other issuer or correspondent with respect to
any Credit. Notwithstanding anything to the contrary contained herein, if you
become liable to us hereunder we shall not be required to indemnify you pursuant
to this Section 4. We further agree to and do hereby release and hold you
harmless for any acts, waivers, errors, delays or omissions, whether caused by
you, by any bank or other issuer or correspondent or otherwise with respect to
or relating to any Credit. Our unconditional obligation to you hereunder shall
not be modified or diminished for any reason or in any manner whatsoever, except
for your willful misconduct or gross negligence. Any fees, commissions or other
charges made to you with respect to any Credit or other Obligations by any bank
or other issuer or correspondent thereof shall be conclusive and may be charged
by you to any of our account(s) maintained by you.
4.2. We assume all risk, loss, liabilities, charges and expenses with
respect to the acts or omissions of the drawer under or beneficiary for any
assignee or transferee thereof as between you or us.
4.3. If any Credit provides that payment is to be made by any bank,
other issuer or correspondent, you shall not be responsible for the failure of
any of the documents specified in any Credit to come into your possession or for
any delay in connection therewith, and our obligation to make reimbursement
shall not be affected by such failure or delay in the receipt by you of any such
documents.
4.4. We agree that any action taken by you, or any action taken by any
bank or other issuer or correspondent under or in connection with any Credit,
the Collateral and any documents, drafts or acceptances thereunder, shall,
notwithstanding any judgment or instructions we may or may not express to the
contrary or inconsistent therewith, be conclusive and binding on us and shall
not create any resulting liability to you, except for your own willful
misconduct or gross negligence. In furtherance thereof, you shall have the full
and sole right and authority to: (a) clear and resolve any questions of
non-compliance of documents; (b) give any instructions as to acceptance or
rejection of any documents or goods; (c) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders; (d) grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents; and (e) agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Credits, or documents, drafts or
acceptances thereunder or any letters of credit included in the Collateral; all
in your sole name, and any bank or other issuer or correspondent shall be
entitled to comply with and honor any and all such documents or instruments
executed by or received solely from you, all without any notice to or any
consent from us.
4.5. Without your express consent and endorsement in writing, we agree
not to: (a) approve or resolve any questions of non-compliance of documents; (b)
give any instructions as to acceptance or rejection of any documents or goods;
(c) execute any and all applications for steamship or airway guaranties,
indemnities or delivery orders; (d) grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances or
documents; or (e) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Credits, or documents, drafts or acceptances thereunder.
4.6. Any rights, remedies, duties or obligations granted or undertaken
by us to any bank or other issuer or correspondent in any application for any
Credit, or any outstanding agreement relating to the opening or issuance of any
Credit or acceptances or otherwise, shall be deemed to have been granted to you
and apply in all respects to you and shall be in addition to any rights,
remedies, duties or obligations contained herein.
4.7. Any duties or obligations undertaken by you to any bank or other
issuer or correspondent in any application for or in connection with any Credit,
including any outstanding agreement relating to the opening or issuance of any
Credit or otherwise, shall be deemed to have been undertaken by us and apply in
all respects to us and shall be in addition to the duties or obligations
contained herein.
Section 5. ADDITIONAL REMEDIES.
Upon the occurrence of any Event of Default and at any time thereafter,
you shall have the right (in addition to any other rights you may have under the
Agreement, this Supplement or otherwise), without notice to us, at any time and
from time to time, in your discretion, with or without judicial process or the
aid or assistance of others and without cost to you:
5.1. To enter upon any premises on or in which any of the Inventory may be
located and, without resistance or interference by us, take possession of the
Inventory;
5.2. To complete processing, manufacturing, repair and shipment to
customers of all or any portion of the Inventory;
5.3. To sell, foreclose or otherwise dispose of any part or all of the
Inventory on or in any of our premises or premises of any other party;
5.4. To require us, at our expense, to assemble and make available to you
any part or all of the Inventory at any place and time designated by you;
5.5. To remove any or all of the Inventory from any premises on or in which
the same may be located, for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other lawful purpose (and if any of the
Inventory consists of motor vehicles, you may use our registrations and license
plates).
IN WITNESS WHEREOF, we have caused these presents to be duly executed
as of the 1st day of June, 1997.
FARAH U.S.A., INC.
VALUE CLOTHING COMPANY, INC.
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
FARAH MANUFACTURING (U.K.) LIMITED
By: /s/ Timothy B. Page
Title: Director
ACCEPTED:
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
By: /s/ Mark Galovic, Jr.
Title: Vice President
EXHIBIT 10.66
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT
[FARAH INCORPORATED]
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT dated as of this 1st
day of June, 1997, by FARAH INCORPORATED, a Texas corporation ("Guarantor") to
and in favor of CONGRESS FINANCIAL CORPORATION (SOUTHWEST), a Texas corporation
("Lender").
W I T N E S S E T H
WHEREAS, Lender has entered or is about to enter into financing
arrangements with Farah U.S.A., Inc. ("Farah USA"), a Texas corporation, Value
Clothing Company, Inc., a Texas corporation ("Value Clothing") and Farah
Manufacturing (U.K.) Limited, a corporation incorporated under the law of
England ("Farah UK" and together with Farah USA and Value Clothing,
collectively, "Borrower"), pursuant to which Lender may make loans and advances
and provide other financial accommodations to Borrower; and
WHEREAS, Guarantor originally entered into a General Security
Agreement, dated as of August 2, 1990, which Lender and Guarantor desire hereby
to amend and restate as of the date hereof pursuant to this Agreement; and
WHEREAS, Guarantor has executed and delivered to Lender a guarantee in
favor of Lender, dated as of August 2, 1990, which Guarantor is confirming as of
the date hereof pursuant to which Guarantor intends, absolutely and
unconditionally, to guarantee to Lender the payment and performance of all now
existing and hereafter arising Obligations, liabilities and indebtedness of
Borrower to Lender; and
WHEREAS, in order to induce Lender to enter into the Financing
Agreements and to make loans and advances and provide other financial
accommodations to Borrower pursuant thereto, Guarantor has agreed to grant to
Lender certain collateral security as set forth herein;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Guarantor hereby agrees as follows:
1. DEFINITIONS
As used above and in this General Security Agreement the following
terms shall have the respective meanings given to them below:
(a) All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings set forth therein unless
otherwise defined in this Agreement and all references to the plural herein
shall also mean the singular and all references to the singular shall also mean
the plural.
(b) All references to the term "Guarantor" wherever used herein shall be
deemed to mean the signatory hereto and its successors and assigns. All
references to the term "Lender" and the term "Borrower" wherever used herein
shall be deemed to include their respective successors and assigns.
(c) "Affiliate" shall mean, with respect to a specified Person, any other
Person (i) who, directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with such Person, or
(ii) who is a director, officer, shareholder or employee of such Person.
(d) [INTENTIONALLY DELETED]
(e) [INTENTIONALLY DELETED]
(f) [INTENTIONALLY DELETED]
(g) "Borrower Foreign Subsidiary" shall mean Touche Industrial, S.A. de
C.V. and its respective successors and assigns.
(h) "Collateral" shall mean all of the now owned and hereafter acquired
property and assets of Guarantor, wherever located, of every kind and
description, mixed, real or personal, tangible or intangible, including, but not
limited to:
(i) all present and future: (A) accounts, contract rights, general
intangibles, chattel paper, documents and instruments (collectively,
"Accounts"), including, without limitation, all obligations for the payment of
money arising out of the sale, lease or other disposition of goods or other
property or rendition of services; (B) all monies, securities and other property
and the proceeds thereof, now or hereafter held or received by, or in transit
to, Lender or any participant from or for Guarantor, whether for safekeeping,
pledge, custody, transmission, collection or otherwise, and all of Guarantor's
deposits (general or special), balances, sums and credits with Lender or any
participant at any time existing; (C) all of Guarantor's right, title and
interest, and all of Guarantor's rights, remedies, security and liens, in, to
and in respect of the Accounts and other collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any account debtor, credit and
other insurance; (D) all of Guarantor's right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in Accounts,
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Account or other collateral, including, without limitation, all
returned, reclaimed or repossessed goods; (E) all deposit accounts; and (F) all
other general intangibles of every kind and description, including, without
limitation, (1) trade names and trademarks, and the goodwill of the business
symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) claims and
other choses in action, and (6) Federal, State, local and foreign tax refund
claims of all kinds;
(ii) all raw materials, work-in-process, finished goods and all other
inventory of whatsoever kind or nature, wherever located, whether now owned or
hereafter existing or acquired by Guarantor, including, without limitation, all
wrapping, packaging, advertising, shipping materials and all other goods
consumed in Guarantor's business, all labels and other devices, names or marks
affixed to or to be affixed thereto for purposes of selling or of identifying
the same or the seller or manufacturer thereof and all of Guarantor's right,
title and interest therein and thereto;
(iii) all equipment, machinery, computers and computer hardware, vehicles,
tool, dies, jigs, furniture, trade fixtures and fixtures, all attachments,
accessions and property now or hereafter affixed thereto or used in connection
therewith, substitutions and replacements thereof, wherever located, whether now
owned or hereafter acquired by Guarantor;
(iv) all right, title and interest of Guarantor, in, to and in respect of
any real property, including leasehold interests, together with all buildings,
structures, and other improvements located thereon and all licenses, easements
and appurtenances relating thereto, wherever located, whether now owned or
hereafter acquired;
(v) all present and future books, records, ledger cards, computer programs
and other property and general intangibles evidencing or relating to any of the
above, any other collateral or any account debtor, together with the file
cabinets or containers in which the foregoing are stored; and
(vi) all products and proceeds of the foregoing, in any form, including,
without limitation, any insurance proceeds and any claims against third persons
for loss or damage to or destruction of any or all of the foregoing.
(i) "Consolidated Tangible Net Worth" shall mean, as to any Person, at any
time, in accordance with GAAP, on a consolidated basis for such Person and its
Subsidiaries, the amount equal to the difference between: (i) the aggregate net
book value of all assets of such Person and its subsidiaries (excluding the book
value of patents, trademarks, licenses, good will and other intangible assets),
calculating the book value of inventory for this purpose on a first-in-first-out
basis, after deducting from such book values all appropriate reserves (including
all reserves for doubtful receivables, obsolescence, depreciation and
amortization) and (ii) the total aggregate Indebtedness of such Person and its
subsidiaries (including tax and other proper accruals).
(j) "Consolidated Working Capital" shall mean, as to any Person, at any
time, on a consolidated basis for such Person and its Subsidiaries, the amount
equal to the difference between: (i) the aggregate net book value of all assets
of such Person and its subsidiaries, on a consolidated basis, calculating the
book value of inventory for this purpose on a first-in-first-out basis, which
would, in accordance with GAAP, be classified as current assets and (ii) all
Indebtedness of such Person and its subsidiaries, on a consolidated basis, which
would in accordance with GAAP, be classified as current liabilities; and in any
event including Indebtedness payable on demand or within one (1) year from the
date of determination without any option of the obligor to extend or renew
beyond such year, all accruals for federal or other taxes based on or measured
by income and payable within such year, and including the current portion of
long term debt required to be paid within one (1) year.
(k) "Costa Rica Subsidiary" shall mean Corporacion Farah-Costa Rica S.A., a
wholly owned Subsidiary of Farah (Far East) Limited.
(l) "Event of Default" shall mean the occurrence or existence of any act,
event or condition described in Section 4 hereof.
(m) "Excess Availability" shall mean, at any time, an amount equal to the
excess availability pursuant to the advance formulas with respect to eligible
accounts and eligible inventory of Borrower, subject to the maximum credit or
any sublimits, after deducting the amount of all then outstanding Obligations
and reserves, less the aggregate amount of trade payables of Borrower
outstanding at such time which are more than thirty (30) days past due.
(n) "Financing Agreements" shall mean, collectively, the Amended and
Restated Accounts Financing Agreement [Security Agreement], dated of even date
herewith, between Borrower and Lender and all agreements, documents and
instruments now or at any time hereafter executed and/or delivered in connection
therewith or related thereto, including, but not limited to, each Guarantee and
this Agreement, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced from time to
time.
(o) "Foreign Subsidiaries" shall mean, collectively, Farah (Far East)
Limited, Farah UK, Farah (Australia) Pty. Limited, the Costa Rica Subsidiary,
Farah Limited (Ireland), Farah (New Zealand) Limited and their respective
successors and assigns.
(p) "GAAP" shall mean generally accepted accounting principles as in effect
on the date hereof consistently applied.
(q) "Guarantee" shall mean the Guarantee and Waiver, dated as of August 2,
1990, as confirmed as of the date hereof, of Guarantor in favor of Lender
absolutely and unconditionally guaranteeing all of the now existing and
hereafter arising Obligations, liabilities and indebtedness of Borrower to
Lender, including, without limitation, those arising under, related to or
evidenced by the Financing Agreements (as the same may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced from time to
time).
(r) "Indebtedness" shall mean, as to any Person, all items which, in
accordance with GAAP, would be included in determining total liabilities shown
on the liability side of its balance sheet as at the date such Indebtedness is
to be calculated (except any liability shown on the balance sheet for the
deferred gain from the sale of Borrower's premises at 8889 Gateway West, El
Paso, Texas) and, in any event, shall include any liabilities secured by any
mortgage, pledge, lien or security interest existing on such person's owned or
acquired property.
(s) "Obligations" shall mean all now existing and hereafter arising
obligations, liabilities and indebtedness of Guarantor to Lender and/or its
affiliates or participants, of every kind and description, however evidenced,
including, without limitation, the Obligations, whether direct or indirect,
absolute or contingent, joint or several, secured or unsecured, due or not due,
primary or secondary, liquidated or unliquidated, whether arising before, during
or after the initial or any renewal term of the Financing Agreements, or after
the commencement of any case with respect to Guarantor or Borrower under the
Bankruptcy Code or any similar statute, whether arising directly or acquired by
Lender from any other person, conditionally or as collateral security, by
assignment, merger with any other person, assumption, subrogation or otherwise
(including, without limitation, participations or interests of Lender in the
obligations of Guarantor to others), whether arising under this Agreement, the
Guarantee, the other Financing Agreements, by operation of law or otherwise, and
whether incurred by Guarantor as principal, surety, endorser, guarantor or
otherwise and including, without limitation, all principal, interest, financing
charges, early termination and other fees, commissions, costs, expenses and
attorneys' and accountants' fees and legal expenses incurred in connection with
any of the foregoing.
(t) "Person" or "person" shall mean an individual, a partnership, a
corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency, instrumentality or political subdivision thereof.
(u) "Subordinated Debentures" shall mean the 8.5% Convertible Subordinated
Debentures due February 1, 2004, issued by Guarantor, pursuant to the Indenture,
dated February 1, 1994, between Texas Commerce Bank N.A., as trustee, and
Guarantor.
(v) "Subsidiary" or "subsidiary", shall mean any corporation, association
or organization, active or inactive, as to which more than fifty (50%) percent
of the outstanding voting stock or shares or interests shall now or hereafter be
owned or controlled, directly or indirectly by a person, any Subsidiary of such
person, or any Subsidiary of such Subsidiary.
2. GRANT OF SECURITY INTEREST
(a) As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations, Guarantor hereby grants
to Lender a continuing security interest in and a lien upon and hereby pledges,
assigns and transfers to Lender all of the Collateral and Guarantor hereby
grants to Lender a right of setoff against any Collateral consisting of money,
securities and other property of Guarantor now or hereafter in the possession of
or on deposit with Lender or any other person, whether held in a general or
special account or deposit or for safekeeping or otherwise. All Collateral shall
be security for the performance, observance and indefeasible payment in full of
all of the Obligations notwithstanding the maintenance of separate accounts by
Lender or the existence of any instruments evidencing any of the Obligations.
(b) Guarantor hereby constitutes Lender and its agent and any designee of
Lender as Guarantor's attorney-in-fact and authorizes Lender or such agent or
designee, at Guarantor's cost and expense, to exercise at any time or times in
Lender's discretion all or any of the following powers, which power-of-attorney
being coupled with an interest shall be irrevocable until all Obligations have
been paid in full: (i) receive, take, endorse, assign, deliver, accept and
deposit, in the name of Lender or Guarantor, any and all cash, checks, drafts,
remittances and other instruments and documents relating to the Collateral, (ii)
on or after the occurrence of an Event of Default, receive and open all mail
addressed to Guarantor and notify postal authorities to change the address for
delivery thereof to such address as Lender may designate, (iii) transmit to
account debtors notice of the interest of Lender in the Collateral or request
from such account debtors at any time, in the name of Guarantor, Lender or any
designee of Lender, information concerning the Collateral and any amounts owing
with respect thereto, (iv) on or after the occurrence of an Event of Default,
notify account debtors to make payment directly to Lender, (v) on or after the
occurrence of an Event of Default, take or bring, in the name of Lender or
Guarantor, all steps, actions, suits or proceedings deemed by Lender necessary
or desirable to effect collection of the Collateral, (vi) enter Guarantor's
premises for the purpose of inspecting, verifying, auditing, maintaining,
preserving, protecting and removing the Collateral, and execute in the name and
on behalf of Guarantor one or more Uniform Commercial Code financing statements
or amendments with respect to the Collateral, naming Guarantor as debtor and
Lender as secured party and indicating and describing therein the types and the
items of Collateral. Guarantor hereby releases Lender, its officers, employees
and designees, from any liability arising from any act or acts taken under such
power-of-attorney under the Guarantee, this Agreement, the other Financing
Agreements or in furtherance hereof or thereof, whether of omission or
commission, and whether based upon any error of judgment or mistake of law or
fact, except for Lender's own gross negligence or willful misconduct.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Guarantor hereby represents, warrants and covenants to Lender the
following (which shall survive the execution and delivery of this Agreement),
the truth and accuracy of which, or compliance with, being a continuing
condition of the making of loans by Lender to Borrower under the Financing
Agreements:
(a) Guarantor will not directly or indirectly sell, lease, transfer,
abandon or otherwise dispose of all or any substantial portion of its property
or assets or consolidate or merge with or into any other entity or permit any
other entity to consolidate or merge with or into it; provided that a
wholly-owned subsidiary of Guarantor (other than Borrower) may, or at least ten
(10) days prior written notice to Lender, merge with and into Guarantor or
another wholly-owned Subsidiary of Guarantor so long as (i) Guarantor is the
surviving corporation, (ii) a Borrower is the surviving corporation, or (iii)
another wholly-owned Subsidiary of Guarantor is the surviving corporation and
has executed such agreements as reasonably requested by, and in favor of, Lender
and in form and substance satisfactory to Lender. Guarantor will at all times
preserve, renew and keep in full force and effect its existence as a corporation
and the rights and franchises with respect thereto and continue to engage in
business of the same type as it is engaged as of the date hereof. Guarantor will
give Lender thirty (30) days prior written notice of any proposed change in its
corporate name which notice shall set forth the new name.
(b) Guarantor's books and records and chief executive office are maintained
at the address referred to below. Guarantor shall not change such location
without Lender's prior written consent and prior to making any such change,
Guarantor agrees to execute any additional financing statements or other
documents or notices which Lender may require. The only locations of any
Collateral are those addresses listed on Exhibit A hereto and made a part
hereof. Exhibit A sets forth the owner and/or operator of the premises at such
addresses for all locations which Guarantor does not own and operate and all
mortgages, if any, with respect to the premises. Guarantor will not remove any
Collateral from such locations, without Lender's prior written consent, except
for sales of Inventory in the ordinary course of Guarantor's business.
(c) Guarantor will maintain its books, records and accounts in accordance
with GAAP. Guarantor agrees to furnish Lender with interim financial statements
(including balance sheets, statements of income and retained earnings and cash
flow statements), and to furnish Lender, at any time or from time to time with
such other information regarding its business affairs and financial condition as
Lender may reasonably request, including, without limitation, balance sheets,
statements of income, financial statements of cash flows and projections,
forecasts, schedules, agings and reports. Guarantor hereby irrevocably
authorizes and directs all accountants, auditors or other third parties to
deliver to Lender, at Guarantors expense, copies of its financial statements,
papers related thereto, and other accounting records of any nature in their
possession and to disclose to Lender any information they may have regarding its
business affairs and financial conditions. Guarantor will furnish Lender with
audited financial statements on an annual basis certified by independent public
accounts selected by Guarantor and acceptable to Lender. All such statements and
information will fairly present Guarantors financial condition as of the dates
and the results of Guarantor's operations for the periods, for which the same
are furnished. Any documents, schedules or other papers delivered to Lender may
be destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, unless Guarantor makes written request therefor and pays
all expenses attendant to their return, in which event Lender shall return same
when Lender's actual or anticipated need therefor has ceased.
(d) Guarantor will duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against Guarantor or its
properties or assets prior to the date on which penalties attach thereto.
Guarantor will be liable for any tax or penalty imposed upon any transaction
under this Agreement or giving rise to the Accounts or any other Collateral or
which Lender may be required to withhold or pay for any reason and Guarantor
agrees to indemnify and hold Lender harmless with respect thereto, and to repay
to Lender on demand the amount thereof, and until paid by Guarantor such amount
shall be added to and deemed part of the Obligations.
(e) Except as otherwise disclosed to Lender in writing and investigations
of Guarantor by the Internal Revenue Service or other governmental authorities
in accordance with their ordinary customs and past practice with respect to
Guarantor, there is no present investigation by any governmental agency pending
or threatened against Guarantor and there is no action, suit, proceeding or
claim pending or threatened against Guarantor or its assets or goodwill, or
affecting any transactions contemplated by this Agreement or the other Financing
Agreements, or any instruments or documents delivered in connection herewith or
therewith before any court, arbitrator, or governmental or administrative body
or agency which if adversely determined with respect to Guarantor would result
in any material adverse change in Guarantor's business, properties, assets,
goodwill, or condition, financial or otherwise.
(f) The execution, delivery and performance of this Agreement are within
Guarantor's corporate powers, have been duly authorized, are not in
contravention of law or the terms of Guarantor's Charter, By-Laws or other
incorporation papers, or of any material indenture, agreement or undertaking to
which Guarantor is a party or by which Guarantor is bound.
(g) Guarantor will, at all times, maintain a Consolidated Tangible Net
Worth of not less than $38,800,000.
(h) Guarantor will, at all times, maintain a Consolidated Working Capital
of not less than $22,500,000.
(i) Guarantor will not, and will not permit any Subsidiary to, in the
aggregate for all of them, directly or indirectly, expend or commit to expend
(through purchase, capital leases or otherwise) fixed or capital assets, or
incur Indebtedness to finance the acquisition of fixed or capital assets, on a
non-cumulative basis (such that expenditures not made or committed to be made in
any one fiscal year may not be made or committed to be made in any following
fiscal year) in excess of $30,000,000 in 1997 and $6,500,000 in any fiscal year
of Guarantor thereafter; provided, that in the event the $30,000,000 limitation
referenced above exceeds the amount of capital expenditures actually made in
1997 by all such Subsidiaries (including Farah USA), then, in addition to the
amount of capital expenditures which may otherwise be made in 1998, Guarantor
and its Subsidiaries, may make or commit to make capital expenditures in 1998 to
the extent of such excess (in addition to the aforesaid amount allowed in 1998)
for all such Subsidiaries and Guarantor.
(j) Guarantor does not have any Subsidiaries as of the date hereof except
as set forth on Exhibit B hereto. The common stock of Guarantor is publicly
traded and registered with the New York Stock Exchange and is publicly traded
(but not registered) with the Pacific Stock Exchange. Guarantor will not form or
acquire any Subsidiaries without the prior written consent of Lender. In the
event Lender so consents, promptly upon such formation or acquisition:
(i) as to any Subsidiary incorporated or otherwise formed under the laws of
any jurisdiction in the United States of America, Guarantor will cause any such
Subsidiary to execute and deliver to Lender, in form and substance satisfactory
to Lender and its counsel: (A) an absolute and unconditional guarantee of
payment of any and all present and future Obligations of Borrower to Lender, (B)
a general security agreement granting to Lender a first and only lien (except as
otherwise consented to by Lender) upon all of such Subsidiary's assets, (C)
related Uniform Commercial Code Financing Statements, and (D) such other
agreements, documents and instruments as Lender may require, including, but not
limited to, supplements and amendments hereto and other loan agreements or
instruments evidencing indebtedness of such new Subsidiary to Lender; and
(ii) as to any Subsidiary incorporated or otherwise formed under the laws
of any jurisdiction outside the United States of America, Guarantor will execute
and deliver, or cause to be executed and delivered, to Lender, in form and
substance satisfactory to Lender and its counsel: (A) a pledge and security
agreement granting Lender a first and only pledge of and security interest in
all of the issued and outstanding shares of capital stock of such Subsidiary,
(B) all original certificates and other evidence of such shares of capital
stock, together with stock powers duly executed in blank with respect thereto
and (C) such other agreements, documents and instruments as Lender may require,
including, but not limited to, supplements and amendments hereto.
(k) Guarantor will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist, contingently or otherwise, any Indebtedness,
except:
(i) Indebtedness to Lender;
(ii) Indebtedness consisting of unsecured current liabilities incurred in
the ordinary course of its business which are not past due;
(iii) Indebtedness incurred in the ordinary course of its business secured
only by liens permitted under Sections 3(l)(ii) and 3(l)(iii) hereof;
(iv) Indebtedness of the Borrower Foreign Subsidiary permitted under
Section 3(m)(v) hereof;
(v) Indebtedness other than unsecured current liabilities of any of the
Foreign Subsidiaries to persons other than Lender incurred in the ordinary
course of its business and Indebtedness other than unsecured current liabilities
of any indirect Subsidiary of Guarantor incorporated in a jurisdiction outside
the United States of America which is otherwise permitted by Lender;
(vi) unsecured Indebtedness owing to a Borrower evidencing loans made by
such Borrower to another Borrower, provided that such Borrower collaterally
assigns to Lender the note and/or other agreements evidencing such Indebtedness
in form and substance satisfactory to Lender;
(vii) Indebtedness evidencing letter of credits issued by third parties on
behalf of Farah UK in an aggregate amount not to exceed 500,000 in British
Pounds Sterling at any time outstanding;
(viii) unsecured Indebtedness of Farah UK under custom guarantees in
respect of the payment of import duties in an aggregate amount not to exceed
250,000 in British Pounds Sterling;
(ix) unsecured or secured Indebtedness of Borrower for borrowed money
received by Borrower in the form of cash or other immediately available funds
arising after the date hereof, which is in all respects subject and subordinate
in right of payment to the Indebtedness and other Obligations of Borrower to
Lender, provided that, (A) the terms and conditions of such Indebtedness,
including, without limitation, the terms of the subordination thereof, shall be,
in all respects, in form and substance satisfactory to Lender, (B) Lender shall
have received thirty (30) days prior written notice of Borrower's intention to
incur such Indebtedness and (C) prior to incurring such Indebtedness, the lender
or lenders with respect to such Indebtedness and Borrower shall duly and validly
execute and deliver to Lender a subordination agreement in favor of Lender with
respect to such Indebtedness, in form and substance satisfactory to Lender;
(x) Indebtedness owing to any one person existing on the date hereof in an
amount less than $100,000 and any other Indebtedness existing on the date hereof
equal to or in excess of such amount which is described on Exhibit C hereto,
provided, that: (A) Guarantor and its subsidiaries may only make regularly
scheduled payments of principal and interest in respect of such Indebtedness as
set forth on Exhibit C, (B) Guarantor will not, directly or indirectly, (1) make
any prepayments or other non-mandatory payments in respect of any such
Indebtedness or (2) redeem, retire, defease, purchase or otherwise acquire such
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose or (3) amend, modify, alter or change the terms of the arrangements
relating thereto or any agreement or instrument evidencing such Indebtedness,
and (C) Guarantor and its subsidiaries will furnish to Lender all notices,
demands or other materials concerning such Indebtedness, promptly after receipt
thereof or concurrently with the sending thereof, as the case may be;
(xi) Indebtedness of Guarantor existing on the date hereof pursuant to the
Subordinated Debentures and which is unsecured, provided, that: (i) no payments
of such Indebtedness will be made, except that unless and until the occurrence
of an Event of Default or an act, event or condition which with notice or
passage of time or both would constitute an Event of Default, Guarantor may make
regularly scheduled payments of principal and interest in respect of such
Indebtedness in accordance with the terms of the Subordinated Debentures as in
effect on the date hereof; (ii) Guarantor will not, directly or indirectly, (A)
make any prepayments or other non-mandatory payments in respect of the
Subordinated Debentures or any payments pursuant to the purported acceleration
of the Subordinated Debentures or (B) amend, modify, alter or change the terms
of the Subordinated Debentures or any agreement or instrument related thereto,
or (C) redeem, retire, defease, purchase or otherwise acquire such Indebtedness,
or act aside or otherwise deposit or invest any sums for such purpose, and (iii)
Guarantor will furnish to Lender all notices, demands or other materials
received concerning such Indebtedness, promptly after receipt thereof or
concurrently with the sending thereof, as the case may be;
(xii) unsecured Indebtedness of the Costa Rica Subsidiary owing to Farah
USA in respect of payments by the Costa Rica Subsidiary owing to Farah USA for
trade payables paid by Farah USA and incurred by the Costa Rica Subsidiary in
the ordinary course of business;
(xiii) unsecured Indebtedness of Farah USA under importer bond in respect
of payment of import duties in an amount not to exceed $500,000;
(xiv) unsecured Indebtedness of Farah USA in the Costa Rica Subsidiary in
respect of payments of trade payable incurred by the Costa Rica Subsidiary in
the ordinary course of business;
(xv) unsecured Indebtedness owing to a Borrower evidencing loans made by
such Borrower to another Borrower, provided that such Borrower collaterally
assigns the notes and/or agreements evidencing such loans to Lender in form and
substance satisfactory to Lender;
(xvi) Indebtedness arising, directly or indirectly, from the issuance of
industrial revenue bonds, in form and substance satisfactory to Lender, for the
sole purpose of providing Farah USA with funds to purchase the distribution
center to be located in New Mexico for Farah USA and equipment to be used
therein;
(xvii) Indebtedness of Farah USA owed to a third party lender secured by
liens permitted under Sections 3(l)(vii) and 3(l)(xi) hereof;
(xviii) Indebtedness to third party lenders of Farah UK if Farah UK
terminates its Obligations under the Amended and Restated Accounts Financing
Agreement, the Farah UK Supplement, the Farah UK Agreements, and the other
Financing Agreements in accordance with the terms and conditions of Section 8 of
the Farah UK Supplement;
(xix) unsecured Indebtedness evidencing loans by Farah (Australia) Pty.
Limited to Farah (New Zealand) Limited not to exceed $1,010,000 (Australia
Dollars);
(xx) unsecured Indebtedness evidencing advances made by Farah (Australia )
Pty. Limited to Farah (New Zealand) Limited in respect of trade payables
incurred in the ordinary course of business not to exceed in the aggregate at
any one time $500,000 (Australia Dollars); and
(xxi) Indebtedness to third party lenders of Farah (Australia) Pty. Limited
and/or Farah (New Zealand) Limited incurred after the date hereof.
(l) Guarantor will not, and will not permit any subsidiary to, create or
suffer to exist any mortgage, pledge, security interest, lien, encumbrance,
defect in title or restriction upon the use of their real or personal
properties, whether now owned or hereafter acquired, except:
(i) the liens or security interests in favor of Lender;
(ii) tax, mechanics and other like statutory liens arising in the ordinary
course of Guarantor's or its subsidiary's respective businesses to the extent
(A) such liens secure Indebtedness which is not overdue or (B) until foreclosure
or similar proceedings shall have been commenced, such liens secure Indebtedness
relating to claims or liabilities which are being contested in good faith by
appropriate proceedings available to Guarantor or its subsidiaries prior to the
commencement of foreclosure or other similar proceedings and are adequately
escrowed for or reserved against in Lender's judgment;
(iii) purchase money mortgages or other purchase money liens or security
interests upon any specific fixed assets now existing or hereafter acquired, or
mortgages, liens or security interests existing on any such fixed assets at the
time of acquisition thereof (including, without limitation, capitalized or
finance leases) or in connection with the refinancing of the existing
capitalized leases with respect to specific assets, provided, that, (A) no such
purchase money or other mortgage, lien or security interest (or capitalized or
finance lease, as the case may be) with respect to specific future fixed assets
or as refinanced shall extend to or cover any other property, other than the
specific fixed assets so acquired, or acquired or refinanced subject to such
mortgage, lien or security interest (or lease) and the proceeds thereof, (B)
such mortgage, lien or security interest secures the obligation to pay the
purchase price of such specific fixed assets only (or the obligations under the
capitalized or finance lease), and (C) the principal amount secured thereby
shall not exceed one hundred (100%) percent of the cost of the fixed assets so
acquired; and
(iv) the liens and security interests granted by Borrower and Guarantor to
the Banks to secure the Indebtedness permitted under Section 3(k)(viii), which
liens and security interests are, in all respects, subordinate and subject to
the liens and security interests in favor of Congress;
(v) the existing liens, encumbrances or security interests described on
Exhibit D hereto or on the title insurance policy issued in favor of Lender with
respect to the real property of Borrower, provided, that, such liens,
encumbrances or security interests with respect to the real property: (i) do not
interfere with the use of the real property or the ordinary conduct of Borrower,
business as currently conducted, or proposed to be conducted, thereon and (ii)
do not impair the value of the affected property;
(vi) liens and security interests securing Indebtedness described in
Section 3(k)(ix) hereof; provided that such liens and security interests are
subordinated pursuant to an subordination agreement acceptable to Lender;
(vii) liens and security interests upon the computer equipment of Farah USA
securing Indebtedness of Farah USA owed to a third party lender, provided that
the principal balance advanced to Farah USA by such third party lender in
respect of such computer equipment shall not exceed $750,000; and in furtherance
of the liens permitted under this Section 3(l)(vii) Lender shall, upon Farah
USA's request, execute and deliver to Farah USA such documents and UCC-3
Financing Statements evidencing the release of Lender's security interest in
such computer equipment as Farah USA may reasonably request;
(viii) liens, security interests and charges against the assets of Farah UK
securing the Indebtedness described in Section 3(k)(xviii) above;
(ix) liens, security interests and charges against the assets of Farah
(Australia) Pty. Limited and Farah (New Zealand) Limited securing Indebtedness
described in Section 3(k)(xxi) hereof;
(x) liens against the distribution center, equipment therein and real
property thereunder securing the Indebtedness referred to in Section 3(k)(xvi)
hereof; and
(xi) liens and security interests upon manufacturing equipment of Farah USA
to be located in Mexico securing Indebtedness of Farah USA owed to a third party
lender in connection with "Torreon Project," provided that the principal balance
advanced to Farah USA by such third party lender in respect of such equipment
shall not exceed $1,000,000. In furtherance of the liens permitted under this
Section 3(l)(xi) Lender shall, upon Farah USA's request, execute and deliver to
Farah USA such documents and UCC-3 Financing Statements evidencing the release
of Lender's security interest in such equipment as Farah USA may reasonably
request; and
(m) Guarantor will not, and will not permit any Subsidiary to, directly or
indirectly, make any loans or advance money or property to any Person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or Indebtedness or all or a substantial part of the assets or property
of any Person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the Indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except:
(i) guarantees in favor of Lender;
(ii) the guarantee by [Farah (Far East) Limited in favor of the Bank of New
Zealand of the obligations of Farah (Fiji) Limited in an amount up to $950,000
(Fiji Dollars) as in effect on the date hereof;
(iii) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(iv) investments by Guarantor and its subsidiaries in the stock of any
Subsidiary existing as of the date hereof or hereafter approved by Lender;
(v) unless and until the occurrence of an Event of Default, advances by
Borrower in the ordinary course of business from time to time for the account of
the Borrower Foreign Subsidiary for their working capital or otherwise in the
ordinary course of their respective businesses;
(vi) loans by a Borrower to any other Borrower, provided that such Borrower
collaterally assigns the note and agreements evidencing such loans to Lender in
form and substance satisfactory to Lender;
(vii) guarantee or assumption by Farah USA of the obligations of Global
Sourcing Services, L.L.C. to vendors of new machinery and equipment and/or
investment by Farah U.S.A. in Global Sourcing Services, L.L.C. by transfer of
new machinery and equipment of Farah USA to Global Sourcing Services, L.L.C.,
provided that the aggregate amount of such guaranty obligations and such
investments shall not exceed $3,500,000. In furtherance of the foregoing, in the
event Farah USA transfers any equipment described above to the capital of Global
Sourcing Services, L.L.C., Lender shall, upon Farah USA's request, execute and
deliver to Farah USA such documents and UCC-3 Financing Statements evidencing
the release of Lender's security interest in such equipment as Farah USA may
reasonably request; provided, however, that, prior to such release, Farah USA
shall have executed and delivered to Lender a pledge and security agreement of
Farah USA's member interest in such limited liability company in form and
substance satisfactory to Lender;
(viii) after written notice thereof to Lender, investments in the following
instruments, which shall be pledged and delivered to Lender upon Lender's
request, (A) marketable obligations issued or guaranteed by the United States of
America or an instrumentality or agency thereof, maturing not more than one (1)
year after the date of acquisition thereof, (B) certificates of deposit or other
obligations maturing not more than one (1) year after the date of acquisition
thereof issued by any bank or trust company organized under the laws of and
located in the United States of America or any State thereof and having capital,
surplus and undivided profits of at least $100,000,000, and (C) open market
commercial paper with a maturity not in excess of two hundred seventy (270) days
from the date of acquisition thereof which have the highest credit rating by
either Standard & Poor's Corporation or Moody's Investors Service, Inc.
(ix) investment by Farah USA in 50% of the capital of Global Sourcing
Services, L.L.C.;
(x) the guarantees by Guarantor of the obligations of Value Slacks, Inc.
and Value Clothing pursuant to certain real property leases, provided, that, (A)
in no event shall the aggregate liability of Guarantor thereunder exceed
$5,000,000; (B) Guarantor will not, and will not permit Value Slacks, Inc. and
Value Clothing to, amend, modify, alter or change the terms of such guarantees
or leases in any material respect so as to increase the liabilities of Guarantor
or Value Slacks, Inc. or Value Clothing thereunder; and (C) Guarantor will
furnish to Lender all material notices, demands or other materials concerning
such guarantees and leases, promptly after receipt thereof or concurrently with
the sending thereof, as the case may be;
(xi) the guarantees by Value Slacks, Inc. of the obligations of Value
Clothing pursuant to certain real property leases, provided, that (A) in no
event shall the aggregate liability of Guarantor thereunder exceed $4,000,000;
(B) Guarantor will not permit Value Clothing to, amend, modify, alter or change
the terms of such guarantees or leases in any material respect so as to increase
the liabilities of Value Slacks, Inc. or Value Clothing thereunder, and (C)
Guarantor will cause Value Slacks and Value Clothing to furnish to Lender all
material notices, demands or other materials concerning such guarantees and
leases, promptly after receipt thereof or concurrently with the sending thereof,
as the case may be;
(xii) investment by Farah Offshore Sourcing Company in 50% of the capital
of Global Sourcing Services, Inc., a Cayman Islands company;
(xiii) investment by Farah Offshore Sourcing Company in 50% of the capital
of JBRM Manufacturing Services, Inc., a Cayman Islands company;
(xiv) advances by Farah USA to the Costa Rica Subsidiary in respect of
payments of trade payables incurred by the Costa Rica Subsidiary in the ordinary
course of business;
(xv) Indebtedness of the Costa Rica Subsidiary owed to Farah USA in respect
of payments by the Costa Rica Subsidiary to Farah USA for trade payables
incurred by the Costa Rica Subsidiary in the ordinary course of business;
(xvi) guarantee by Farah International, Inc. and/or Guarantor of the
obligations described in Section 3(k)(xxii) hereof in favor of third party
lenders of Farah (Australia) Pty. Limited and Farah (New Zealand) Limited;
(xvii) the guarantee by Guarantor of the obligations of Farah (Australia)
Pty. Limited to Australia and New Zealand Banking Group Limited;
(xviii) guarantee by Guarantor and Farah USA pursuant to the
indemnification obligations under that certain Asset Purchase Agreement dated as
of May 20, 1996, among Galey & Lord, Inc., Galey and Lord Industries, Inc.,
Guarantor, Farah USA and Dimmit Industries, S.A. de C.V.
(xix) guarantee by Guarantor of real property lease obligations of Farah
USA under the terms of that certain Lease Agreement dated as of October 4, 1996,
between Farah USA and Orso Partners, Ltd., as amended from time to time;
(xx) guarantee by Guarantor of real property lease obligations of Farah USA
under the terms of that certain Standard Industrial/Commercial Single-Tenant
Lease-Net dated November 30, 1996, between Farah USA and Santa Teresa Limited
Partnership, as amended from time to time;
(xxi) advances made by Farah (Australia) Pty. Limited to Farah (New
Zealand) Limited in respect of trade payables incurred in the ordinary course of
business not to exceed in the aggregate at any one time $500,000 (Australia
Dollars);
(xxii) loans by Farah (Australia) Pty. Limited to Farah (New Zealand)
Limited not to exceed $1,010,000 (Australia Dollars);
(xxiii) the guarantees by Guarantor of the purchase money obligations of
its Subsidiaries to third party lenders which are permitted pursuant to Sections
3(l)(iii) hereof; and
(xxiv) investments of Farah (Far East) Limited in 50% of the capital stock
of each of Farah (Fiji) Limited and South Pacific Investments Limited;
(n) Guarantor will not, and will not permit any subsidiary to, directly or
indirectly:
(i) purchase, acquire or lease any property or receive any services from,
or sell, transfer or lease any property or services to, any Affiliate of
Guarantor, except on prices and terms no less favorable than would have been
obtained in an arm's length transaction with a non-affiliated person; or
(ii) make any payment of management fees or other or of the principal
amount of or interest on any Indebtedness owing to any shareholder, officer,
director or other Affiliate of Guarantor, except: (A) the Subsidiaries of
Guarantor (other than Borrower) may pay any management or other fees, and (B)
the Subsidiaries of Guarantor (other than Borrower) may repay any Indebtedness
owing to Guarantor or any of its other Subsidiaries and (C) Borrower may pay
consulting fees, salaries, director fees and expenses incurred in the ordinary
course of business to each member of the Board of Directors.
(o) Guarantor will not, and will not permit Borrower to, directly or
indirectly, during any fiscal year, commencing with the current fiscal year,
declare or pay any dividends on account of any shares of any class of capital
stock of Guarantor or Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than stock or apply or set apart any sums, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
(p) All notes receivable now or hereafter executed in favor of Guarantor
evidence a valid and legally enforceable indebtedness of the maker thereof and
the face amount of which is unconditionally owing to Guarantor, without offset,
defense or counterclaim of any kind, nature or description whatsoever.
Guarantor, as payee with respect to any promissory note, now existing or
hereafter arising, or with respect to which Guarantor is otherwise entitled to
payment, in either case as to which the original principal amount equals or
exceeds $10,000, will endorse, or cause to be endorsed, all such notes
receivable to the order of Lender and shall immediately upon receipt of any such
notes deliver the originals thereof so endorsed to Lender as additional
Collateral.
(q) Guarantor will permit representatives of Lender at any time to inspect
its inventory, equipment and other tangible Collateral and to have free access
to and right of inspection of any papers, instruments and records pertaining to
any of the Collateral and make abstracts or photocopies from Guarantor's books
and records, at the expense of Guarantor, pertaining to inventory, accounts,
contract rights, chattel paper, instruments, documents and other Collateral. The
foregoing rights shall be in addition to and shall not limit Lender's rights and
remedies with respect to the Collateral upon or at any time after the occurrence
of an Event of Default (as provided hereunder).
(r) Guarantor will at all times maintain, with financially sound and
reputable insurers, casualty and hazard insurance with respect to the Collateral
for not less than its full market value and against all risks to which it may be
exposed except to the extent Guarantor is self insured for losses up to
$250,000. All such insurance policies shall be in such form, substance, amounts
and coverage as may be satisfactory to Lender and shall provide for thirty (30)
days' minimum prior cancellation notice in writing to Lender. Lender may act as
attorney for Guarantor in obtaining, adjusting, settling, amending and canceling
such insurance. Guarantor will promptly (i) obtain endorsements to all existing
and future insurance policies with respect to the Collateral specifying that the
proceeds of such insurance shall be payable to Lender and Guarantor as their
interests may appear and further specifying that Lender shall be paid regardless
of any act, omission or breach of warranty by Guarantor, (ii) deliver to Lender
an original executed copy of, or executed certificate of the insurance carrier
with respect to, such endorsement and, at the Lender's request, the original or
a certified duplicate copy of the underlying insurance policy, and (iii) deliver
to Lender such other evidence which is satisfactory to Lender of compliance with
the provisions hereof. Guarantor will promptly notify Lender in writing of the
details of any material loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or which would result in any material adverse
change in Guarantor's business, properties, assets, goodwill or condition,
financial or otherwise. At Lender's option, Lender may apply any insurance
monies received at any time to the cost of repairs to or replacement for the
Collateral and/or to payment of any of the Obligations, whether or not due, in
any order and in such manner as Lender, in its discretion, may determine.
(s) Upon Lender's request, on or after the occurrence of an Event of
Default at any time and from time to time, but in no event prior to the
occurrence of an Event of Default more than once in any twelve (12) consecutive
month period, Guarantor will, at its sole cost and expense, execute and deliver
to Lender written reports or appraisals as to the Collateral consisting of
inventory and equipment listing all items and categories thereof, describing the
condition of same and setting forth the value thereof (the lower of cost or
market value of the inventory and the lower of net cost less depreciation, fair
market value and/or liquidation value of the equipment), in such form as is
satisfactory to Lender.
(t) Guarantor will, at its own expense, keep the Collateral consisting of
equipment in good order, repair, running and marketable condition, ordinary wear
and tear excepted and except for Collateral consisting of equipment which is not
used or useful in the conduct of Guarantors business as of the date hereof.
(u) Guarantor will (i) use, store and maintain the Collateral consisting of
inventory and equipment with all reasonable care and caution, and (ii) use such
Collateral for lawful purposes only and in conformity with applicable laws,
ordinances and regulations.
(v) At its option, Lender may discharge taxes, liens or security interests
or other encumbrances at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral and Guarantor agrees to
reimburse Lender on demand, together with interest therein at the rate specified
in the Financing Agreements, for any payment made or expense incurred by Lender
in connection with the foregoing and any such payment or expense shall
constitute a part of the Obligations secured hereby.
(w) All Collateral consisting of inventory shall be produced in accordance
with the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto. The Collateral
consisting of inventory and equipment is and will be used in Guarantor's
business and not for personal, family, household or farming use. The Collateral
consisting of equipment is now and will remain personal property and Guarantor
will not permit any of the equipment to be or become a part of or affixed to
real property without (i) prior written notice to Lender and Lender's written
consent and (ii) first making all arrangements, and delivering or causing to be
delivered to Lender, such agreements and other documentation requested by Lender
for the protection and preservation of Lender's security interests and liens, in
form and satisfactory to Lender, including, without limitation, waivers and
subordination agreements by any landlords or mortgagees of statutory and
non-statutory liens and rights of distraint. Guarantor assumes all
responsibility and liability arising from or relating to the use, sale or other
disposition of its inventory and equipment as between Guarantor and Lender.
(x) Guarantor will, at its expense, duly execute and deliver, or cause to
be duly executed and delivered, such further agreements, instruments and
documents, including, without limitation, additional security agreements,
mortgages, deeds of trust, deeds to secure debt, collateral assignments, Uniform
Commercial Code financing statements or amendments or continuations thereof,
landlords or mortgagee's waivers of liens and consents to the exercise by Lender
of all Lender's rights and remedies hereunder, under any of the other Financing
Agreements or applicable law with respect to the Collateral, and do or cause to
be done such further acts as may be necessary or proper in Lender's opinion to
evidence, perfect, maintain and enforce Lender's security interest and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Where
permitted by law, Guarantor hereby authorizes Lender to execute and file one or
more Uniform Commercial Code financing statements signed only by Lender.
(y) Guarantor will promptly pay Lender any and all sums, costs and expenses
which Lender may pay or incur in connection with the preparation and negotiation
of this Agreement, the Guarantee, any of the other Financing Agreements, and any
related agreements or instruments, or in defending, protecting or enforcing the
security interest granted herein or in enforcing payment of the Obligations or
otherwise in connection with the provisions hereof, including without
limitation, all search, filing and recording fees, taxes, and attorneys' fees
and all fees and expenses for the service and filing of papers, marshals,
sheriffs, custodians, auctioneers and others, and all court costs and collection
charges, all of which shall be part of the Obligations secured hereby and shall
be payable on demand.
4. EVENTS OF DEFAULT
All Obligations shall be, at Lender's option, immediately due and
payable without notice or demand (notwithstanding any deferred or installment
payments allowed, if any, by any instrument evidencing or relating to the
Obligations) and any provision of the Financing Agreements as to future loans
and advances by Lender to Borrower shall, at Lender's option, terminate
forthwith, upon the occurrence of any one or more of the following ("Events of
Default"):
(a) Guarantor shall be in default in the payment of any of the Obligations
when due, which default shall continue for three (3) days; or
(b) Guarantor shall fail to observe or perform any covenant or agreement
contained herein or in any of the other Financing Agreements other than as
described in subsection (a) above and such failure shall continue for five (5)
business days, provided, that, such five (5) business day period shall not apply
in the case of: (i) any failure to observe any such covenant or agreement which
is not capable of being cured at all or within such five (5) business day period
or which has been the subject of a prior failure within a six (6) month period
or (ii) an intentional breach by Guarantor or its management of any such
covenant or agreement; or
(c) any other guarantor, endorser or person liable on the Obligations shall
terminate or breach any of the terms, covenants, conditions or provisions of any
guarantee, endorsement or other agreement of such person with, or in favor of,
Lender; or
(d) any representation, warranty or statement of fact when made to Lender
at any time by or on behalf of Guarantor is false or misleading in any material
respect; or
(e) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall become insolvent, generally unable to pay its debts as they
mature, call a meeting of creditors or have a creditors' committee appointed,
make a general assignment for the benefit of creditors, suspend or discontinue
doing business for any reason, or shall commence or have commenced against it
any action or proceeding for the appointment of any trustee, receiver, custodian
or liquidator of it or all or any part of its properties or assets; or
(f) a judgment is rendered against Guarantor or any other guarantor,
endorser or person liable on the Obligations in excess of $250,000 in any one
case or in excess of $500,000 in the aggregate and the same shall remain
undischarged for a period in excess of thirty (30) days or execution shall at
any time not be effectively stayed; or
(g) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall commence any action or proceeding for relief under the
Bankruptcy Code or any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the Bankruptcy Code or any
other present or future statute, law or regulation or shall take any corporate
action to authorize any of such actions or proceedings; or
(h) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall have commenced against it any action or proceeding for relief
under the Bankruptcy Code or any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the Bankruptcy
Code or any other present or future statute, law or regulation which is not
dismissed within thirty (30) days of its commencement, or Guarantor, any other
guarantor, endorser or person shall file any answer admitting or not contesting
the allegations of a petition filed against it in any such proceeding or by any
act or omission indicates its consent to, acquiescence in or approval of, any
such action or proceeding or if the relief requested is granted sooner; or
(i) there shall be a material adverse change in the business, assets
or condition (financial or otherwise) of Guarantor from the date hereof; or
(j) there is any change in the majority control or ownership of Guarantor;
or
(k) at any time, Lender shall, in its reasonable discretion, consider the
Obligations insecure or all or any part of the Collateral unsafe, insecure or
insufficient and Guarantor shall not on Lender's demand furnish other Collateral
or make payment on account, reasonably satisfactory to Lender; or
(l) Guarantor or any other guarantor, endorser or person liable on the
Obligations shall default in the payment of any amounts at any time due on any
indebtedness owed by it or in the performance of any of the other terms or
covenants of any evidence of such indebtedness or of any material mortgage,
security agreement, indenture, pledge or other agreement relating thereto or
securing such indebtedness or with respect to any material contract, lease,
license or other agreement with any person other than Lender, which default
continues for more than the applicable cure period, if any, with respect
thereto; or
(m) the occurrence of an event of default under any of the other Financing
Agreements.
5. RIGHTS AND REMEDIES
(a) Upon the occurrence of any Event of Default and at any time thereafter,
in addition to all other rights and remedies of Lender, whether provided under
the Uniform Commercial Code or other applicable law, this Agreement, the
Guarantee, the other Financing Agreements or otherwise, Lender shall have the
following rights and remedies which may be exercised, in its discretion, at any
time or times, with or without judicial process, with or without the assistance
of others and without notice to or consent by Guarantor except as such notice or
consent or judicial process is expressly provided for hereunder or required by
law:
(i) accelerate payment of all Obligations and demand immediate payment
thereof to Lender;
(ii) enter upon any premises on or in which any of the Collateral may be
located and, without resistance or interference by Guarantor, take possession of
the Collateral;
(iii) complete processing, manufacturing and repair of all or any portion
of the Collateral;
(iv) require Guarantor, at its expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender; and
(v) remove any or all of the Collateral from any premises on or in which
the same may be located, for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other lawful purpose;
(vi) appropriate, set off and apply to the payment of any or all of the
Obligations, any or all Collateral, in such manner as Lender shall in Lender's
sole discretion determine, and enforce payment of any Collateral, settle,
compromise or release in whole or in part any amounts owing on the Collateral,
prosecute any action, suit or proceeding with respect to the Collateral, extend
the time of payment of any and all Collateral, make allowances and adjustments
with respect thereto, and issue credits in Lender's or Guarantor's name; and
(vii) sell, assign, foreclose or otherwise dispose of and deliver any or
all of the Collateral, at public or private sale, at broker's board, for cash,
upon credit or otherwise, at Lender's sole option and discretion, on or in any
of Guarantor's premises or premises of any other person, and Lender may bid or
become purchaser at any such sale, if public, free from any right of redemption
which is hereby expressly waived.
(b) In the event Lender seeks to take possession of all or any portion of
the Collateral by judicial process, Guarantor irrevocably waives: (i) the
posting of any bond, surety or security with respect thereto which might
otherwise be required, (ii) any demand for possession prior to the commencement
of any suit or action to recover the Collateral, and (iii) any requirement that
Lender retain possession and not dispose of any Collateral until after trial or
final judgment.
(c) Guarantor agrees that the giving of five (5) days notice by Lender to
Guarantor's address set forth below, designating the place and time of any
public sale or of the time after which any private sale or other intended
disposition of the Collateral is to be made, shall be deemed to be reasonable
notice thereof and Guarantor waives any other notice with respect thereto.
(d) The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by Lender to the payment of the
Obligations in such order as Lender may elect, and Guarantor shall remain liable
to Lender for any deficiency. Without limiting the generality of the foregoing,
if Lender enters into any credit transaction, directly or indirectly, in
connection with the disposition of any Collateral, Lender shall have the option,
at any time, in its sole discretion, to reduce the Obligations by the principal
amount of such credit transaction or to defer the reduction thereof until actual
receipt by Lender of cash or other immediately available funds in connection
therewith.
(e) The enumeration of the foregoing rights and remedies is not intended to
be exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies Lender may have under the Uniform
Commercial Code or other applicable law. Lender shall have the right, in
Lender's sole discretion, to determine which rights and remedies, and in which
order any of the same, are to be exercised, and to determine which Collateral is
to be proceeded against and in which order, and the exercise of any right or
remedy shall not preclude the exercise of any others. Lender may at any time
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Obligations.
Lender may, at any time or times, proceed directly against Guarantor or any
other person liable on the Obligations to enforce payment of the Obligations and
shall not be required to take any action of any kind to preserve, collect or
protect Lender's or Guarantor's rights in the Collateral.
(f) No act, failure or delay by Lender shall constitute a waiver of any of
Lender's rights and remedies. No single or partial waiver by Lender of any
provision of this Agreement or any supplement hereto, or breach or default
thereunder, or of any right or remedy which Lender may have shall operate as a
waiver of any other provision, breach, default, right or remedy or of the same
provision, breach, default, right or remedy on a future occasion.
(g) Guarantor waives presentment, notice of dishonor, protest and notice of
protest of all instruments included in or evidencing any of the Obligations or
the Collateral and any and all notices or demands whatsoever (except as
expressly provided herein).
(h) All rights, remedies, powers and benefits granted to Lender by
Guarantor or any other person liable on or in respect of the Obligations under
this Agreement, the Guarantee, the other Financing Agreements, or any other
agreement, or granted by applicable law, whether expressly granted or implied in
law, are cumulative, not exclusive and enforceable alternatively, successively,
or concurrently on any one or more occasions and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Guarantor or any other person liable
on or in respect of the Obligations of this Agreement, the Guarantee, the other
Financing Agreements or such other agreements.
6. MISCELLANEOUS
(a) Notwithstanding that Lender, whether on its own behalf and/or on behalf
of others, may continue to hold Collateral, and regardless of the value thereof,
Guarantor and each other person liable on or in respect of the Obligations shall
be and remain jointly and severally liable for the payment in full, including
principal and interest, of any balance of the Obligations and expenses hereunder
at any time unpaid.
(b) Guarantor and Lender waive all rights to trial by jury in any action or
proceeding instituted by either of them against the other arising on, out of or
by reason of this Agreement, the Guarantee, the other Financing Agreements, the
Obligations, the Collateral, any alleged tortious conduct by either party hereto
or in any way arising out of or related to the relationship between Guarantor
and Lender or Borrower and Lender. In no event will Lender be liable for lost
profits or other special or consequential damages.
(c) Guarantor waives all rights to interpose any claims, defenses,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Guarantee, the other Financing Agreements, the Obligations, the Collateral or
any matter arising therefrom or relating hereto or thereto, except compulsory
counterclaims.
(d) Guarantor hereby expressly submits and irrevocably consents in advance
to the non-exclusive jurisdiction of the District Courts of the State of Texas
and the United States District court for the Northern District of Texas in
connection with any action or proceeding arising out of or relating to this
Agreement, the Guarantee, the other Financing Agreements, the Obligations, the
Collateral or any document or instrument delivered pursuant hereto or thereto.
Guarantor hereby waives personal service of the summons and complaint or other
process or notice of motion or other application or papers issued therein, and
agrees that the service of such summons and complaint or other process or papers
may be served: (i) inside or outside the State of Texas by registered or
certified mail, return receipt requested, addressed to Guarantor at its chief
executive office set forth below and service or notice so served shall be deemed
complete five (5) business days after the same shall have been posted or (ii) in
such other manner as may be permissible under the rules of said Courts.
(e) All notices, requests and demands hereunder shall be in writing and (i)
made to Lender at 1201 Main Street, Dallas, Texas 75202 and to Guarantor at its
chief executive office set forth below, or to such other address as each party
may designate by written notice to the other in accordance with this provision,
and (ii) deemed to have been given or made: if by hand, telex, telecopy or
telegram, immediately upon sending; if by Federal Express, Express Mail or other
overnight delivery service, one (1) day after dispatch; and if by certified
mail, return receipt requested, five (5) days after mailing.
(f) The provisions of this Agreement are severable, and if any clause or
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, then such invalidity or unenforceability shall attach only to
such clause or provision in any such jurisdiction or part thereof, and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Agreement or the other Financing Agreements in
any jurisdiction.
(g) Under no circumstances shall Lender be deemed to have assumed any
responsibility for or obligation or duty of any nature or kind with respect to
any Collateral, or any matter or proceedings arising out of or relating thereto,
but the same shall be at the sole risk of Guarantor at all times. Guarantor
hereby releases Lender from any claims, causes of action and demands at any time
arising out of, relating to or with respect to this Agreement, the Guarantee,
the other Financing Agreements, the Obligations, the Collateral and/or any
actions taken or omitted to be taken by Lender with respect thereto, and
Guarantor hereby agrees to indemnify and hold Lender harmless from and with
respect to any and all such claims, causes of action and demands whether
pursuant to negligence or otherwise by any person, other than Lender's own acts
of gross negligence or willful misconduct.
(h) This Agreement shall inure to the benefit of Guarantor and Lender and
their respective successors and assigns and shall be binding upon Guarantor and
its successors and assigns.
(i) This Agreement and any other agreement, document or instrument
delivered in connection herewith, and the obligations of the parties hereunder
or thereunder shall be governed by, and construed and interpreted in accordance
with the laws of the State of Texas, except to the extent that the law of any
other jurisdiction is required to be applied with respect to the enforcement of
Lender's rights in Collateral located in such jurisdiction.
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused these presents to be duly
executed and delivered on the day and year first above written.
FARAH INCORPORATED
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
Chief Executive Office of Signatory
4171 North Mesa
Building D
Suite 500
El Paso, Texas 79925
<PAGE>
EXHIBIT 10.68
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT
[VALUE CLOTHING, VALUE SLACKS]
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT dated as of this 1st
day of June, 1997, by the undersigned corporations (individually and
collectively "Guarantors") to and in favor of CONGRESS FINANCIAL CORPORATION
(SOUTHWEST), a Texas corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Lender has entered into financing arrangements with Farah
U.S.A., Inc., a Texas corporation, Value Clothing Company, Inc., a Texas
corporation ("Value Clothing") and Farah Manufacturing (U.K.) Limited, a
corporation incorporated under the laws of England ("Farah UK" and together with
Farah USA and Value Clothing, collectively, "Borrower"), pursuant to which
Lender may make loans and advances and provide other financial accommodations to
Borrower; and
WHEREAS, Guarantors originally entered into a General Security
Agreement, dated as of August 2, 1990, which Lender and Guarantors desire hereby
to amend and restate as of the date hereof; and
WHEREAS, Guarantors have executed and delivered to Lender guarantees in
favor of Lender, dated as of August 2, 1990, which Guarantors are confirming as
of the date hereof, pursuant to which Guarantors intend, absolutely and
unconditionally, to guarantee to Lender the payment and performance of all now
existing and hereafter arising obligations, liabilities and indebtedness of
Borrower to Lender; and
WHEREAS, in order to induce Lender to enter into the Financing
Agreements and to make loans and advances and provide other financial
accommodations to Borrower pursuant thereto, each of Guarantors has agreed to
grant to Lender certain collateral security as set forth herein;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, each of Guarantors hereby jointly and severally agrees as follows:
1. DEFINITIONS
As used above and in this General Security Agreement the following
terms shall have the respective meanings given to them below:
(a) All terms used herein which are defined in Article 1 or
Article 9 of the Uniform Commercial Code shall have the meanings set forth
therein unless otherwise defined in this Agreement and all references to the
plural herein shall also mean the singular and all references to the singular
shall also mean the plural.
(b) All references to the term "Guarantors" wherever used
herein shall be deemed to mean the signatories hereto, and each of them,
together with their respective successors and assigns, jointly and severally,
individually and collectively. All references to the term "Lender" and the term
"Borrower" wherever used herein shall be deemed to include their respective
successors and assigns.
(c) "Affiliate" shall mean, with respect to a specified
Person, any other Person (i) who, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
such Person, or (ii) who is a director, officer, shareholder or employee of such
Person.
(d) "Collateral" shall mean all of the now owned and hereafter
acquired property and assets of Guarantors, wherever located, of every kind and
description, mixed, real or personal, tangible or intangible, including, but not
limited to:
(i) all present and future: (A) accounts, contract rights, general
intangibles, chattel paper, documents and instruments (collectively,
"Accounts"), including, without limitation, all obligations for the payment of
money arising out of the sale, lease or other disposition of goods or other
property or rendition of services; (B) all monies, securities and other property
and the proceeds thereof, now or hereafter held or received by, or in transit
to, Lender or any participant from or for Guarantors, whether for safekeeping,
pledge, custody, transmission, collection or otherwise, and all of Guarantors'
deposits (general or special), balances, sums and credits with Lender or any
participant at any time existing; (C) all of Guarantors' right, title and
interest, and all of Guarantors' rights, remedies, security and liens, in, to
and in respect of the Accounts and other collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any account debtor, credit and
other insurance; (D) all of Guarantors' right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in Accounts,
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Account or other collateral, including, without limitation, all
returned, reclaimed or repossessed goods; (E) all deposit accounts; and (F) all
other general intangibles of every kind and description, including, without
limitation, (1) trade names and trademarks, and the goodwill of the business
symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) claims and
other choses in action, and (6) Federal, State, local and foreign tax refund
claims of all kinds;
(ii) all raw materials, work-in-process, finished goods and all other
inventory of whatsoever kind or nature, wherever located, whether now owned or
hereafter existing or acquired by Guarantors, including, without limitation, all
wrapping, packaging, advertising, shipping materials and all other goods
consumed in Guarantors' businesses, all labels and other devices, names or marks
affixed to or to be affixed thereto for purposes of selling or of identifying
the same or the seller or manufacturer thereof and all of Guarantors' right,
title and interest therein and thereto;
(iii) all equipment, machinery, computers and computer hardware, vehicles,
tool, dies, jigs, furniture, trade fixtures and fixtures, all attachments,
accessions and property now or hereafter affixed thereto or used in connection
therewith, substitutions and replacements thereof, wherever located, whether now
owned or hereafter acquired by Guarantors;
(iv) all right, title and interest of Guarantors, in, to and in respect of
any real property, including leasehold interests, together with all buildings,
structures, and other improvements located thereon and all licenses, easements
and appurtenances relating thereto, wherever located, whether now owned or
hereafter acquired;
(v) all present and future books, records, ledger cards, computer programs
and other property and general intangibles evidencing or relating to any of the
above, any other collateral or any account debtor, together with the file
cabinets or containers in which the foregoing are stored; and
(vi) all products and proceeds of the foregoing, in any form, including,
without limitation, any insurance proceeds and any claims against third persons
for loss or damage to or destruction of any or all of the foregoing.
(e) "Event of Default" shall mean the occurrence or existence of any act,
event or condition described in Section 4 hereof.
(f) "Financing Agreements" shall mean, collectively, the
Amended and Restated Accounts Financing Agreement [Security Agreement], dated of
even date, between Borrower and Lender and all agreements, documents and
instruments now or at any time hereafter executed and/or delivered in connection
therewith or related thereto, including, but not limited to, each Guarantee and
this Agreement, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced from time to
time.
(g) "Guarantee" shall mean the Guarantee and Waiver, dated as
of August 2, 1990, herewith, as confirmed as of the date hereof, by each of
Guarantors in favor of Lender absolutely and unconditionally guaranteeing all of
the now existing and hereafter arising obligations, liabilities and indebtedness
of Borrower to Lender, including, without limitation, those arising under,
related to or evidenced by the Financing Agreements (as the same may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced from
time to time).
(h) "Indebtedness" shall mean, as to any Person, all items
which, in accordance with generally accepted accounting principles as in effect
on the date hereof, consistently applied, would be included in determining total
liabilities, shown on the liability side of its balance sheet as at the date
such Indebtedness is to be calculated and, in any event, shall include any
liabilities secured by any mortgage, pledge, lien or security interest existing
on such person's owned or acquired property.
(i) "Obligations" shall mean all now existing and hereafter
arising obligations, liabilities and indebtedness of each of Guarantors to
Lender and/or its affiliates or participants, of every kind and description,
however evidenced, including, without limitation, the Obligations, whether
direct or indirect, absolute or contingent, joint or several, secured or
unsecured, due or not due, primary or secondary, liquidated or unliquidated,
whether arising before, during or after the initial or any renewal term of the
Financing Agreements, or after the commencement of any case with respect to
either of Guarantors or Borrower under the Bankruptcy Code or any similar
statute, whether arising directly or acquired by Lender from any other person,
conditionally or as collateral security, by assignment, merger with any other
person, assumption, subrogation or otherwise (including, without limitation,
participations or interests of Lender in the obligations of any of Guarantors to
others), whether arising under this Agreement, the Guarantee, the other
Financing Agreements, by operation of law or otherwise, and whether incurred by
Guarantors as principal, surety, endorser, guarantor or otherwise and including,
without limitation, all principal, interest, financing charges, early
termination and other fees, commissions, costs, expenses and attorneys' and
accountants' fees and legal expenses incurred in connection with any of the
foregoing.
(j) "Person" or "person" shall mean an individual, a sole
proprietorship, a partnership, a corporation (including a business trust), a
joint stock company, a trust, an unincorporated association, a joint venture or
other entity or a government or any agency, instrumentality or political
subdivision thereof.
(k) "Subsidiary" or "subsidiary" shall mean any corporation,
association or organization, active or inactive, as to which more than fifty
(50%) percent of the outstanding voting stock or shares or interests shall now
or hereafter be owned or controlled, directly or indirectly by any Person, any
Subsidiary of such Person, or any Subsidiary of such Subsidiary.
2. GRANT OF SECURITY INTEREST
(a) As collateral security for the prompt performance,
observance and indefeasible payment in full of all of the Obligations, each of
Guarantors hereby grants to Lender a continuing security interest in and a lien
upon and hereby pledges, assigns and transfers to Lender all of the Collateral
and each of Guarantors hereby grants to Lender a right of setoff against any
Collateral consisting of money, securities and other property of Guarantors now
or hereafter in the possession of or on deposit with Lender or any other person,
whether held in a general or special account or deposit or for safekeeping or
otherwise. All Collateral shall be security for the performance, observance and
indefeasible payment in full of all of the Obligations notwithstanding the
maintenance of separate accounts by Lender or the existence of any instruments
evidencing any of the Obligations.
(b) Each of Guarantors hereby constitutes Lender and its agent
and any designee of Lender as their attorney-in-fact and authorizes Lender or
such agent or designee, at Guarantors' cost and expense, to exercise at any time
or times in Lender's discretion all or any of the following powers, which
power-of-attorney being coupled with an interest shall be irrevocable until all
Obligations have been paid in full: (i) receive, take, endorse, assign, deliver,
accept and deposit, in the name of Lender or any of Guarantors, any and all
cash, checks, drafts, remittances and other instruments and documents relating
to the Collateral, (ii) on or after the occurrence of an Event of Default,
receive and open all mail addressed to any of Guarantors and notify postal
authorities to change the address for delivery thereof to such address as Lender
may designate, (iii) transmit to account debtors notice of the interest of
Lender in the Collateral or request from such account debtors at any time, in
the name of any of Guarantors, Lender or any designee of Lender, information
concerning the Collateral and any amounts owing with respect thereto, (iv) on or
after the occurrence of an Event of Default, notify account debtors to make
payment directly to Lender, (v) on or after the occurrence of an Event of
Default, take or bring, in the name of Lender or any of Guarantors, all steps,
actions, suits or proceedings deemed by Lender necessary or desirable to effect
collection of the Collateral, (vi) enter the premises of any of Guarantors for
the purpose of inspecting, verifying, auditing, maintaining, preserving,
protecting and removing the Collateral, and execute in the name and on behalf of
any of Guarantors one or more Uniform Commercial Code financing statements or
amendments with respect to the Collateral, naming any of Guarantors as debtor
and Lender as secured party and indicating and describing therein the types and
the items of Collateral. Each of Guarantors hereby releases Lender, its
officers, employees and designees, from any liability arising from any act or
acts taken under such power-of-attorney under the Guarantee, this Agreement, the
other Financing Agreements or in furtherance hereof or thereof, whether of
omission or commission, and whether based upon any error of judgment or mistake
of law or fact, except for Lender's own gross negligence or willful misconduct.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of Guarantors hereby jointly and severally represents, warrants
and covenants to Lender the following (which shall survive the execution and
delivery of this Agreement), the truth and accuracy of which, or compliance
with, being a continuing condition of the making of loans by Lender to Borrower
under the Financing Agreements:
(a) Guarantors will not directly or indirectly sell, lease,
transfer, abandon or otherwise dispose of all or any substantial portion of
their respective properties or assets or consolidate or merge with or into any
other entity or permit any other entity to consolidate or merge with or into it;
provided, however, that, on at least ten (10) days prior written notice to
Lender, (i) Guarantor may merge with and into a wholly-owned subsidiary of Farah
Incorporated or (ii) a wholly-owned subsidiary of Guarantor may merge with and
into another Guarantor, so long as the surviving corporation is a Borrower or
has executed an absolute and unconditional guaranty and other agreements
reasonably requested by Lender, in favor of, and in form and substance
satisfactory to, Lender. Each of Guarantors will at all times preserve, renew
and keep in full force and effect its existence as a corporation and the rights
and franchises with thereto and continue to engage in business of the same type
as they are engaged as of the date hereof. Guarantors will give Lender thirty
(30) days prior written notice of any proposed change in any of their corporate
names which notice shall set forth the new name.
(b) The addresses of the principal places of business and
chief executive offices of Guarantors are set forth on the signature page
hereof, which addresses are the mailing addresses for such principal places of
business and chief executive offices. The books and records relating to the
Collateral are located at such addresses.
(i) The only locations of any Collateral are those addresses listed on
Exhibit A hereto and those new locations which may hereafter be opened in
accordance with Section 3(b)(ii) hereof. Guarantors will not remove any
Collateral from such locations, without Lender's prior written consent, except
for sales of inventory in the ordinary course of Guarantors' businesses and
except to move Collateral directly to any other location listed on Exhibit A or
to a new location opened in accordance with Section 3(b)(ii)hereof.
(ii) Each of Guarantors may open any new location within the continental
United States provided it (A) gives Lender ten (10) days prior written notice of
the intended opening of any such new location, and (B) executes and delivers, or
causes to be executed and delivered, to Lender such agreements, documents, and
instruments as Lender may deem reasonably necessary or desirable to protect its
interests in the Collateral to be located in such location, (except for landlord
waivers with respect to the stores of Value Clothing and Value Slacks)
including, without limitation, UCC financing statements and agreements from
appropriate Persons acknowledging Lender's liens on the Collateral to be located
in such location, in each case in form and substance satisfactory to Lender.
(c) Guarantors will maintain their books, records and accounts
in accordance with generally accepted accounting principles consistently
applied. Each of Guarantors agrees to furnish Lender with interim financial
statements (including balance sheets, statements of income and retained earnings
and cash flow statements), and to furnish Lender, at any time or from time to
time with such other information regarding its business affairs and financial
condition as Lender may reasonably request, including, without limitation,
balance sheets, statements of income, financial statements of cash flow,
projections, forecasts, schedules, agings and reports. Each of Guarantors hereby
irrevocably authorizes and directs all accountants, auditors or other third
parties to deliver to Lender, at Guarantors' expense, copies of its financial
statements, papers related thereto, and other accounting records of any nature
in their possession and to disclose to Lender any information they may have
regarding its business affairs and financial conditions. Guarantors will furnish
Lender with audited financial statements on an annual basis certified by
independent public accounts selected by Guarantors and acceptable to Lender. All
such statements and information will fairly present Guarantors' financial
condition as of the dates and the results of Guarantors' operations for the
periods, for which the same are furnished. Any documents, schedules or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, unless Guarantors make
written request therefor and pay all expenses attendant to their return, in
which event Lender shall return same when Lender's actual or anticipated need
therefor has ceased.
(d) Guarantors will duly pay and discharge all taxes,
assessments, contributions and governmental charges upon or against either of
Guarantors or its properties or assets prior to the date on which penalties
attach thereto. Guarantors will be liable for any tax or penalty imposed upon
any transaction under this Agreement or giving rise to the Accounts or any other
Collateral or which Lender may be required to withhold or pay for any reason and
each of Guarantors agrees to indemnify and hold Lender harmless with respect
thereto, and to repay to Lender on demand the amount thereof, and until paid by
Guarantors such amount shall be added to and deemed part of the Obligations.
(e) Except as otherwise disclosed to Lender in writing, there
is no present investigation by any governmental agency pending or threatened
against any of Guarantors and there is no action, suit, proceeding or claim
pending or threatened against either of Guarantors or its assets or goodwill, or
affecting any transactions contemplated by this Agreement or the other Financing
Agreements, or any instruments or documents delivered in connection herewith or
therewith before any court, arbitrator, or governmental or administrative body
or agency which if adversely determined with respect to Guarantors would result
in any material adverse change in Guarantors' businesses, properties, assets,
goodwill, or condition, financial or otherwise.
(f) The execution, delivery and performance of this Agreement
are within Guarantors' corporate powers, have been duly authorized, are not in
contravention of law or the terms of Guarantors' Charter, By-Laws or other
incorporation papers, or of any material indenture, agreement or undertaking to
which Guarantors are a party or by which Guarantors are bound.
(g) Guarantors do not have any Subsidiaries as of the date hereof except as
set forth on Exhibit B hereto. Value Slacks, Inc. is a wholly-owned subsidiary
of Farah Incorporated, a Texas corporation. Value Clothing Company, Inc. is a
wholly-owned Subsidiary of Value Slacks, Inc. Guarantors will not form or
acquire any Subsidiaries without the prior written consent of Lender.
(h) Guarantors will not, and will not permit any subsidiary
to, create, incur, assume or permit to exist, contingently or otherwise, any
Indebtedness, except:
(i) Indebtedness to Lender;
(ii) Indebtedness consisting of unsecured current liabilities incurred in
the ordinary course of its business which are not past due;
(iii) Indebtedness incurred in the ordinary course of its business secured
only by liens permitted under Sections 3(i)(ii) and 3(i)(iii) hereof;
(iv) Indebtedness owing to any one person existing on the date hereof in an
amount less than $100,000 and any other Indebtedness existing on the date hereof
equal to or in excess of such amount which is described on Exhibit C hereto,
provided, that: (A) Guarantors may only make regularly scheduled payments of
principal and interest in respect of such Indebtedness as set forth on Exhibit
C, (B) Guarantors will not, directly or indirectly, (1) make any prepayments or
other non-mandatory payments in respect of any such Indebtedness or (2) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose or (3) amend, modify,
alter or change the terms of the arrangements relating thereto or any agreement
or instrument evidencing such Indebtedness, and (C) Guarantors will furnish to
Lender all notices, demands or other materials concerning such Indebtedness,
promptly after receipt thereof or concurrently with the sending thereof, as the
case may be.
(i) Guarantors will not, and will not permit any subsidiary to, create or
suffer to exist any mortgage, pledge, security interest, lien, encumbrance,
defect in title or restriction upon the use of their real or personal
properties, whether now owned or hereafter acquired, except:
(i) the liens or security interests in favor of Lender;
(ii) tax, mechanics and other like statutory liens arising in the ordinary
course of Guarantors' businesses to the extent (A) such liens secure
Indebtedness which is not overdue or (B) until foreclosure or similar
proceedings shall have been commenced, such liens secure Indebtedness relating
to claims or liabilities which are being contested in good faith by appropriate
proceedings available to Guarantors prior to the commencement of foreclosure or
other similar proceedings and are adequately escrowed for or reserved against in
Lender's judgment;
(iii) purchase money mortgages or other purchase money liens or security
interests upon any specific fixed assets now existing or hereafter acquired, or
mortgages, liens or security interests existing on any such fixed assets at the
time of acquisition thereof (including, without limitation, capitalized or
finance leases) or in connection with the refinancing of the existing
capitalized leases with respect to specific assets, provided, that, (A) no such
purchase money or other mortgage, lien or security interest (or capitalized or
finance lease, as the case may be) with respect to specific future fixed assets
or as refinanced shall extend to or cover any other property, other than the
specific fixed assets so acquired, or acquired or refinanced subject to such
mortgage, lien or security interest (or lease) and the proceeds thereof, (B)
such mortgage, lien or security interest secures the obligation to pay the
purchase price of such specific fixed assets only (or the obligations under the
capitalized or finance lease), and (C) the principal amount secured thereby
shall not exceed one hundred (100%) percent of the cost of the fixed assets so
acquired; and
(iv) the existing liens, encumbrances or security interests described on
Exhibit D hereto.
(j) Guarantors will not, and will not permit any subsidiary to, directly or
indirectly, make any loans or advance money or property to any Person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or Indebtedness or all or a substantial part of the assets or property
of any Person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the Indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except:
(i) guarantees in favor of Lender;
(ii) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(iii) investments by Guarantors in the stock of any Subsidiary existing as
of the date hereof or as otherwise approved by Lender;
(iv) after written notice thereof to Lender, investments in the following
instruments, which shall be pledged and delivered to Lender upon Lender's
request, (A) marketable obligations issued or guaranteed by the United States of
America or an instrumentality or agency thereof, maturing not more than one (1)
year after the date of acquisition thereof, (B) certificates of deposit or other
obligations maturing not more than one (1) year after the date of acquisition
thereof issued by any bank or trust company organized under the laws of and
located in the United States of America or any State thereof and having capital,
surplus and undivided profits of at least $100,000,000, and (C) open market
commercial paper with a maturity not in excess of two hundred seventy (270) days
from the date of acquisition thereof which have the highest credit rating by
either Standard & Poor's Corporation or Moody's Investors Service, Inc.; and
(v) the guarantees by Value Slacks, Inc. of the obligations of Value
Clothing, pursuant to certain real property leases, provided, that, (A) in no
event shall the aggregate liability of Value Slacks, Inc. thereunder exceed
$4,000,000; (B) Value Slacks, Inc. will not, and will not permit Value Clothing
to, amend, modify, alter or change the terms of such guarantees or leases in any
material respect so as to increase the liabilities of Value Slacks, Inc. or
Value Clothing thereunder; and (C) Value Slacks, Inc. will furnish to Lender all
material notices, demands or other materials concerning such guarantees and
leases, promptly after receipt thereof or concurrently with the sending thereof,
as the case may be.
(k) Guarantors will not, and will not permit any subsidiary
to, directly or indirectly, purchase, acquire or lease any property or receive
any services from, or sell, transfer or lease any property or services to, any
Affiliate of any of Guarantors, except on prices and terms no less favorable
than would have been obtained in an arm's length transaction with a
non-affiliated person.
(1) Guarantors will permit representatives of Lender at any
time to inspect their inventory, equipment and other tangible Collateral and to
have free access to and right of inspection of any papers, instruments and
records pertaining to any of the Collateral and make abstracts or photocopies
from Guarantors' books and records, at the expense of Guarantors, pertaining to
inventory, accounts, contract rights, chattel paper, instruments, documents and
other Collateral. The foregoing rights shall be in addition to and shall not
limit Lender's rights and remedies with respect to the Collateral upon or at any
time after the occurrence of an Event of Default (as provided hereunder).
(m) Guarantors will at all times maintain, with financially
sound and reputable insurers, casualty and hazard insurance with respect to the
Collateral for not less than its full market value and against all risks to
which it may be exposed except to the extent Guarantors are self insured for
losses up to $250,000. All such insurance policies shall be in such form,
substance, amounts and coverage as may be satisfactory to Lender and shall
provide for thirty (30) days' minimum prior cancellation notice in writing to
Lender. Lender may act as attorney for Guarantors in obtaining, adjusting,
settling, amending and cancelling such insurance. Guarantors will promptly (i)
obtain endorsements to all existing and future insurance policies with respect
to the Collateral specifying that the proceeds of such insurance shall be
payable to Lender and Guarantors as their interests may appear and further
specifying that Lender shall be paid regardless of any act, omission or breach
of warranty by Guarantors, (ii) deliver to Lender an original executed copy of,
or executed certificate of the insurance carrier with respect to, such
endorsement and, at the Lender's request, the original or a certified duplicate
copy of the underlying insurance policy, and (iii) deliver to Lender such other
evidence which is satisfactory to Lender of compliance with the provisions
hereof. Guarantors will promptly notify Lender in writing of the details of any
material loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or which would result in any material adverse change in
Guarantors' businesses, properties, assets, goodwill or condition, financial or
otherwise. At Lender's option, Lender may apply any insurance monies received at
any time to the cost of repairs to or replacement for the Collateral and/or to
payment of any of the Obligations, whether or not due, in any order and in such
manner as Lender, in its discretion, may determine.
(n) Upon Lender's request, on or after the occurrence of an
Event of Default at any time and from time to time, but in no event prior to the
occurrence of an Event of Default more than once in any twelve (12) consecutive
month period, Guarantors will, at their sole cost and expense, execute and
deliver to Lender written reports or appraisals as to the Collateral consisting
of inventory and equipment listing all items and categories thereof, describing
the condition of same and setting forth the value thereof (the lower of cost or
market value of the inventory and the lower of net cost less depreciation, fair
market value and/or liquidation value of the equipment), in such form as is
satisfactory to Lender.
(o) Guarantors will, at their own expense, keep the Collateral
consisting of equipment in good order, repair, running and marketable condition,
ordinary wear and tear excepted and except for Collateral consisting of
equipment which is not used or useful in the conduct of Guarantors' businesses
as of the date hereof.
(p) Guarantors will (i) use, store and maintain the Collateral
consisting of inventory and equipment with all reasonable care and caution, and
(ii) use such Collateral for lawful purposes only and in conformity with
applicable laws, ordinances and regulations.
(q) At its option, Lender may discharge taxes, liens or
security interests or other encumbrances at any time levied or placed on the
Collateral and may pay for the maintenance and preservation of the Collateral
and Guarantors agree to reimburse Lender on demand, together with interest
therein at the rate specified in the Financing Agreements, for any payment made
or expense incurred by Lender in connection with the foregoing and any such
payment or expense shall constitute a part of the Obligations secured hereby.
(r) All Collateral consisting of inventory shall be produced
in accordance with the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto. The
Collateral consisting of inventory and equipment is and will be used in
Guarantors' businesses and not for personal, family, household or farming use.
The Collateral consisting of equipment is now and will remain personal property
and Guarantors will not permit any of the equipment to be or become a part of or
affixed to real property without (i) prior written notice to Lender and Lender's
written consent and (ii) first making all arrangements, and delivering or
causing to be delivered to Lender, such agreements and other documentation
requested by Lender for the protection and preservation of Lender's security
interests and liens, in form and satisfactory to Lender, including, without
limitation, waivers and subordination agreements by any landlords or mortgagees
of statutory and non-statutory liens and rights of distraint. Guarantors assume
all responsibility and liability arising from or relating to the use, sale or
other disposition of its inventory and equipment as between Guarantors and
Lender.
(s) Guarantors will, at their expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
instruments and documents, including, without limitation, additional security
agreements, mortgages, deeds of trust, deeds to secure debt, collateral
assignments, Uniform Commercial Code financing statements or amendments or
continuations thereof, landlords or mortgagee's waivers of liens (except for
landlords waivers as to the retail stores of Guarantors) and consents to the
exercise by Lender of all Lender's rights and remedies hereunder, under any of
the other Financing Agreements or applicable law with respect to the Collateral,
and do or cause to be done such further acts as may be necessary or proper in
Lender's opinion to evidence, perfect, maintain and enforce Lender's security
interest and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements. Where permitted by law, each of Guarantors hereby authorizes Lender
to execute and file one or more Uniform Commercial Code financing statements
signed only by Lender.
(t) Guarantors will promptly pay Lender any and all sums,
costs and expenses which Lender may pay or incur in connection with the
preparation and negotiation of this Agreement, the Guarantee, any of the other
Financing Agreements, and any related agreements or instruments, or in
defending, protecting or enforcing the security interest granted herein or in
enforcing payment of the Obligations or otherwise in connection with the
provisions hereof, including, without limitation, all search, filing and
recording fees, taxes, and attorneys' fees and all fees and expenses for the
service and filing of papers, marshals, sheriffs, custodians, auctioneers and
others, and all court costs and collection charges, all of which shall be part
of the Obligations secured hereby and shall be payable on demand.
4. EVENTS OF DEFAULT
All Obligations shall be, at Lender's option, immediately due and
payable without notice or demand (notwithstanding any deferred or installment
payments allowed, if any, by any instrument evidencing or relating to the
Obligations) and any provision of the Financing Agreements as to future loans
and advances by Lender to Borrower shall, at Lender's option, terminate
forthwith, upon the occurrence of any one or more of the following ("Events of
Default"):
(a) Guarantors shall be in default in the payment of any of the Obligations
when due, which default shall continue for three (3) days; or
(b) Guarantors shall fail to observe or perform any covenant or agreement
contained herein or in any of the other Financing Agreements other than as
described in subsection (a) above and such failure shall continue for five (5)
business days, provided, that, such five (5) business day period shall not apply
in the case of: (i) any failure to observe any such covenant or agreement which
is not capable of being cured at all or within such five (5) business day period
or which has been the subject of a prior failure within a six (6) month period
or (ii) an intentional breach by Guarantors or their management of any such
covenant or agreement; or
(c) any other guarantor, endorser or person liable on the Obligations shall
terminate or breach any of the terms, covenants, conditions or provisions of any
guarantee, endorsement or other agreement of such person with, or in favor of,
Lender; or
(d) any representation, warranty or statement of fact when made to Lender
at any time by or on behalf of Guarantors is false or misleading in any material
respect: or
(e) Guarantors or any other guarantor, endorser or person liable on the
Obligations shall become insolvent, generally unable to pay its debts as they
mature, call a meeting of creditors or have a creditors' committee appointed,
make a general assignment for the benefit of creditors, suspend or discontinue
doing business for any reason, or shall commence or have commenced against it
any action or proceeding for the appointment of any trustee, receiver, custodian
or liquidator of it or all or any part of its properties or assets; or
(f) a judgment is rendered against Guarantors or any other
guarantor, endorser or person liable on the Obligations in excess of $250,000 in
any one case or in excess of $500,000 in the aggregate and the same shall remain
undischarged for a period in excess of thirty (30) days or execution shall at
any time not be effectively stayed; or
(g) Guarantors or any other guarantor, endorser or person
liable on the Obligations shall commence any action or proceeding for relief
under the Bankruptcy Code or any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the Bankruptcy
Code or any other present or future statute, law or regulation or shall take any
corporate action to authorize any of such actions or proceedings; or
(h) Guarantors or any other guarantor, endorser or person
liable on the Obligations shall have commenced against it any action or
proceeding for relief under the Bankruptcy Code or any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the Bankruptcy Code or any other present or future statute, law or
regulation which is not dismissed within thirty (30) days of its commencement,
or Guarantors, any other guarantor, endorser or person shall file any answer
admitting or not contesting the allegations of a petition filed against it in
any such proceeding or by any act or omission indicates its consent to,
acquiescence in or approval of, any such action or proceeding or if the relief
requested is granted sooner; or
(i) there shall be a material adverse change in the business, assets or
condition (financial or otherwise) of Guarantors from the date hereof; or
(j) there is any change in the majority control or ownership of Guarantors;
or
(k) at any time, Lender shall, in its reasonable discretion,
consider the Obligations insecure or all or any part of the Collateral unsafe,
insecure or insufficient and Guarantors shall not on Lender's demand furnish
other Collateral or make payment on account, reasonably satisfactory to Lender;
or
(1) Guarantors or any other guarantor, endorser or person
liable on the Obligations shall default in the payment of any amounts at any
time due on any indebtedness owed by it or in the performance of any of the
other terms or covenants of any evidence of such indebtedness or of any material
mortgage, security agreement, indenture, pledge or other agreement relating
thereto or securing such indebtedness or with respect to any material contract,
lease, license or other agreement with any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto; or
(m) the occurrence of an event of default under any of the other Financing
Agreements.
5. RIGHTS AND REMEDIES
(a) Upon the occurrence of any Event of Default and at any
time thereafter, in addition to all other rights and remedies of Lender, whether
provided under the Uniform Commercial Code or other applicable law, this
Agreement, the Guarantee, the other Financing Agreements or otherwise, Lender
shall have the following rights and remedies which may be exercised, in its
discretion, at any time or times, with or without judicial process, with or
without the assistance of others and without notice to or consent by Guarantors
except as such notice or consent or judicial process is expressly provided for
hereunder or required by law:
(i) accelerate payment of all Obligations and demand immediate payment
thereof to Lender;
(ii) enter upon any premises on or in which any of the Collateral may be
located and, without resistance or interference by Guarantors, take possession
of the Collateral;
(iii) complete processing, manufacturing and repair of all or any portion
of the Collateral;
(iv) require any of Guarantors, at their expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender; and
(v) remove any or all of the Collateral from any premises on or in which
the same may be located, for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other lawful purpose;
(vi) appropriate, set off and apply to the payment of any or all of the
Obligations, any or all Collateral, in such manner as Lender shall in Lender's
sole discretion determine, and enforce payment of any Collateral, settle,
compromise or release in whole or in part any amounts owing on the Collateral,
prosecute any action, suit or proceeding with respect to the Collateral, extend
the time of payment of any and all Collateral, make allowances and adjustments
with respect thereto, and issue credits in Lender's or either of Guarantor's
names; and
(vii) sell, assign, foreclose or otherwise dispose of and deliver any or
all of the Collateral, at public or private sale, at broker's board, for cash,
upon credit or otherwise, at Lender's sole option and discretion, on or in any
of Guarantor's premises or premises of any other person, and Lender may bid or
become purchaser at any such sale, if public, free from any right of redemption
which is hereby expressly waived.
(b) In the event Lender seeks to take possession of all or any
portion of the Collateral by judicial process, each of Guarantors irrevocably
waives: (i) the posting of any bond, surety or security with respect thereto
which might otherwise be required, (ii) any demand for possession prior to the
commencement of any suit or action to recover the Collateral, and (iii) any
requirement that Lender retain possession and not dispose of any Collateral
until after trial or final judgment.
(c) Each of Guarantors agrees that the giving of five (5) days
notice by Lender to either of Guarantors' addresses set forth below, designating
the place and time of any public sale or of the time after which any private
sale or other intended disposition of the Collateral is to be made, shall be
deemed to be reasonable notice thereof and each of Guarantors waives any other
notice with respect thereto.
(d) The net cash proceeds resulting from the exercise of any
of the foregoing rights or remedies shall be applied by Lender to the payment of
the Obligations in such order as Lender may elect, and each of Guarantors shall
remain liable to Lender for any deficiency. Without limiting the generality of
the foregoing, if Lender enters into any credit transaction, directly or
indirectly, in connection with the disposition of any Collateral, Lender shall
have the option, at any time, in its sole discretion, to reduce the Obligations
by the principal amount of such credit transaction or to defer the reduction
thereof until actual receipt by Lender of cash or other immediately available
funds in connection therewith.
(e) The enumeration of the foregoing rights and remedies is
not intended to be exclusive, and such rights and remedies are in addition to
and not by way of limitation of any other rights or remedies Lender may have
under the Uniform Commercial Code or other applicable law. Lender shall have the
right, in Lender's sole discretion, to determine which rights and remedies, and
in which order any of the same, are to be exercised, and to determine which
Collateral is to be proceeded against and in which order, and the exercise of
any right or remedy shall not preclude the exercise of any others. Lender may at
any time pursue, relinquish, subordinate, modify or take any other action with
respect thereto, without in any way modifying or affecting any of the
Obligations. Lender may, at any time or times, proceed directly against any of
Guarantors or any other person liable on the Obligations to enforce payment of
the Obligations and shall not be required to take any action of any kind to
preserve, collect or protect Lender's or, any of Guarantor's rights in the
Collateral.
(f) No act, failure or delay by Lender shall constitute a
waiver of any of Lender's rights and remedies. No single or partial waiver by
Lender of any provision of this Agreement or any supplement hereto, or breach or
default thereunder, or of any right or remedy which Lender may have shall
operate as a waiver of any other provision, breach, default, right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
(g) Each of Guarantors waives presentment, notice of dishonor,
protest and notice of protest of all instruments included in or evidencing any
of the Obligations or the Collateral and any and all notices or demands
whatsoever (except as expressly provided herein).
(h) All rights, remedies, powers and benefits granted to
Lender by any of Guarantors or any other person liable on or in respect of the
Obligations under this Agreement, the Guarantee, the other Financing Agreements,
or any other agreement, or granted by applicable law, whether expressly granted
or implied in law, are cumulative, not exclusive and enforceable alternatively,
successively, or concurrently on any one or more occasions and shall include,
without limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Guarantors or any other person liable
on or in respect of the Obligations of this Agreement, the Guarantee, the other
Financing Agreements or such other agreements.
6. MISCELLANEOUS
(a) Notwithstanding that Lender, whether on its own behalf
and/or on behalf of others, may continue to hold Collateral, and regardless of
the value thereof, each of Guarantors and each other person liable on or in
respect of the Obligations shall be and remain jointly and severally liable for
the payment in full, including principal and interest, of any balance of the
Obligations and expenses hereunder at any time unpaid.
(b) Each of Guarantors and Lender waive all rights to trial by
jury in any action or proceeding instituted by either of them against the other
arising on, out of or by reason of this Agreement, the Guarantee, the other
Financing Agreements, the Obligations, the Collateral, any alleged tortious
conduct by either party hereto or in any way arising out of or related to the
relationship between either of Guarantors and Lender or Borrower and Lender. In
no event will Lender be liable for lost profits or other special or
consequential damages.
(c) Each of Guarantors waives all rights to interpose any
claims, defenses, deductions, setoffs or counterclaims of any kind, nature or
description in any action or proceeding instituted by Lender with respect to
this Agreement, the Guarantee, the other Financing Agreements, the Obligations,
the Collateral or any matter arising therefrom or relating hereto or thereto,
except compulsory counterclaims.
(d) Each of Guarantors hereby expressly submits and
irrevocably consents to the non-exclusive jurisdiction of the District Courts of
the State of Texas and the United States District Court for the Northern
District of Texas in connection with any action or proceeding arising out of or
relating to this Agreement, the Guarantee, the other Financing Agreements, the
Obligations, the Collateral or any document or instrument delivered pursuant
hereto or thereto. Each of Guarantors hereby waives personal service of the
summons and complaint or other process or notice of motion or other application
or papers issued therein, and agrees that the service of such summons and
complaint or other process or papers may be served: (i) inside or outside the
State of Texas by registered or certified mail, return receipt requested,
addressed to either of Guarantors at its chief executive office set forth below
and service or notice so served shall be deemed complete five (5) business days
after the same shall have been posted or (ii) in such other manner as may be
permissible under the rules of said Courts.
(e) All notices, requests and demands hereunder shall be in
writing and (i) made to Lender at 1201 Main Street, Dallas, Texas 75202 and to
Guarantors at their chief executive offices set forth below, or to such other
address as each party may designate by written notice to the other in accordance
with this provision, and (ii) deemed to have been given or made: if by hand,
telex, telecopy or telegram, immediately upon sending; if by Federal Express,
Express Mail or other overnight delivery service, one (1) day after dispatch;
and if by certified mail, return receipt requested, five (5) days after mailing.
(f) The provisions of this Agreement are severable, and if any
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall attach
only to such clause or provision in any such jurisdiction or part thereof, and
shall not in any manner affect such clause or provision in any other
jurisdiction or any other clause or provision in this Agreement or the other
Financing Agreements in any jurisdiction.
(g) Under no circumstances shall Lender be deemed to have
assumed any responsibility for or obligation or duty of any nature or kind with
respect to any Collateral, or any matter or proceedings arising out of or
relating thereto, but the same shall be at the sole risk of Guarantors at all
times. Each of Guarantors hereby releases Lender from any claims, causes of
action and demands at any time arising out of, relating to or with respect to
this Agreement, the Guarantee, the other Financing Agreements, the Obligations,
the Collateral and/or any actions taken or omitted to be taken by Lender with
respect thereto, and each of Guarantors hereby agrees to indemnify and hold
Lender harmless from and with respect to any and all such claims, causes of
action and demands by any person, other than Lender's own acts of gross
negligence or willful misconduct.
(h) This Agreement shall inure to the benefit of each of
Guarantors and Lender and their respective successors and assigns and shall be
binding upon each of Guarantors and its successors and assigns.
(i) This Agreement and any other agreement, document or
instrument delivered in connection herewith, and the obligations of the parties
hereunder or thereunder shall be governed by, and construed and interpreted in
accordance with the laws of the state of Texas, except to the extent that the
law of any other jurisdiction is required to be applied with respect to the
enforcement of Lender's rights in Collateral located in such jurisdiction.
IN WITNESS WHEREOF, each of Guarantors has caused these presents to be
duly executed and delivered on the day and year first above written.
VALUE SLACKS, INC.
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
VALUE CLOTHING COMPANY, INC.,
a Texas corporation
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
Chief Executive Office of Signatories
4171 North Mesa
Building D
Suite 500
El Paso, Texas 79902-1433
<PAGE>
EXHIBIT 10.68
SECURED TERM PROMISSORY NOTE
$10,000,000.00
Dallas, Texas June 1, 1997
FOR VALUE RECEIVED, FARAH U.S.A., INC., a Texas corporation
(collectively, "Debtor"), hereby unconditionally promises to pay to the order of
CONGRESS FINANCIAL CORPORATION (SOUTHWEST), a Texas corporation ("Payee"), at
the offices of Payee at 1201 Main Street, Suite 1625, Dallas, Texas 75250 or at
such other place as Payee or any holder hereof may from time to time designate,
the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) in lawful
money of the United States of America and in immediately available funds, in
forty-eighty (48) consecutive monthly principal installments on the first day of
each month (or earlier as hereinafter provided) commencing August 1, 1997, of
which the first forty-seven installments shall each be in the amount of TWO
HUNDRED AND EIGHT THOUSAND THREE HUNDRED AND THIRTY-THREE AND 33/100 DOLLARS
($208,333.33), and the final installment in the amount of the entire unpaid
balance of this Note. This Note shall be subject to mandatory payment upon the
earlier of (i) the occurrence or any Event of Default on Payee's demand, or (ii)
any termination of the Financing Agreements pursuant to the Accounts Financing
Agreement. Early payments will not, unless agreed in writing, relieve Debtor of
Debtor's obligation to make a final principal payment as provided herein or
constitute payment in full until the entire principal balance and all accrued
interest hereon have been paid in full. This Note may be prepaid in whole or in
part subject to Section 9.2 of the Accounts Financing Agreement.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Applicable Annual Rate as provided in
Section 3 of the Accounts Financing Agreement. With respect to loans based on
the Prime Rate or on the Libor Rate, such interest shall be paid in U.S. Dollars
at said office or place from the date hereof, commencing July 1, 1997 and on the
first day of each month thereafter until the indebtedness evidenced by this Note
is paid in full. Interest payable upon and after an Event of Default or
termination or non-renewal of the Accounts Financing Agreement shall be payable
upon demand For purposes hereof, (a) the term "Applicable Annual Rate" shall
mean, as to Prime Rate loans, a rate of one half of one percent (0.50%) per
annum in excess of the Prime Rate, and as to Libor Rate loans, a rate of two and
three-quarters percent (2.75%) per annum in excess of the Libor Rate as
described in the Accounts Financing Agreement; provided, that, at Payee's
option, Debtor shall pay interest on the unpaid principal balance hereof at the
rate of two percent (2.0%) per annum in excess of the Applicable Annual Rate
upon and after an Event of Default or termination or non-renewal of the Accounts
Financing Agreement; (b) the term "Prime Rate" shall mean the rate from time to
time publicly announced by Philadelphia National Bank, incorporated as
CoreStates Bank, N.A., its successors and assigns, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank;, (c) the term "Event of Default"
shall mean an Event of Default as such term is defined in the Accounts Financing
Agreement; and (d) the term "Accounts Financing Agreement" shall mean the
Amended and Restated Accounts Financing [Security Agreement], dated as June 1,
1997, among Debtor, Value Clothing Company, Inc. and Farah Manufacturing (U.K.)
Limited, and Payee, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced. Unless
otherwise defined herein, all capitalized terms used herein shall have the
meaning assigned thereto in the Accounts Financing Agreement.
With respect to any portion of this Note based on the Libor Rate,
Debtor shall provide Payee with Libor Borrowing Notices in accordance with the
provision set forth in Section 3.1 of the Accounts Financing Agreement, and
otherwise follow such customary procedures of Payee for Libor Rate loans as
Payee shall reasonably request.
The Applicable Annual Rate applicable to Prime Rate loans payable
hereunder shall increase or decrease by an amount equal to each increase or
decrease, respectively, in the Prime Rate, effective on the first day of the
month after any change in the Prime Rate, based on the Prime Rate in effect on
the last day of the month in which any such change occurs. Interest shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. No agreements, conditions, provisions or stipulations contained in this
Note or any other instrument, document or agreement between Debtor and Payee or
default of Debtor, or the exercise by Payee of the right to accelerate the
payment of the maturity of principal and interest, or to exercise any option
whatsoever contained in this Note or any other financing agreement, or the
arising of any contingency whatsoever, shall entitle Payee to contract for,
charge, or receive, in any event, interest exceeding the maximum rate of
interest permitted by applicable state or federal law in effect from time to
time (the "Maximum Legal Rate"). In no event shall Debtor be obligated to pay
interest exceeding such Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel Debtor to pay a rate of interest exceeding the
Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged or received in excess
of the Maximum Legal Rate (`"Excess"), Debtor acknowledges and stipulates that
any such contract, charge, or receipt shall be the result of an accident and
bona fide error, and that any Excess received by Payee shall be applied, first,
to reduce the obligations owing to Payee, and then, returned to Debtor, it being
the intention of the parties hereto not to enter at any time into a usurious or
otherwise illegal relationship. Debtor recognizes that, with fluctuations in the
Prime Rate, the Libor Rate and the Maximum Legal Rate, such a result could
inadvertently occur. For the purpose of determining whether or not any Excess
has been contracted for, charged or received by Payee, all interest at any time
contracted for, charged or received by Payee in connection with this Note shall
be amortized, prorated, allocated and spread in equal parts during the entire
term of this Note.
This Note is issued pursuant to the terms and provisions of the
Accounts Financing Agreement to evidence the term loan by Payee to Debtor. This
Note is secured by the Collateral described in the Accounts Financing Agreement
and all notes, guarantees, security agreements, deeds of trust, mortgages,
Supplements and other agreements, documents and instruments, including, without
limitation, the Financing Agreements, now or at any time hereafter executed
and/or delivered by Debtor or any other party in connection therewith (all of
the foregoing, together with the Accounts Financing Agreement, as the same now
exist or may hereafter be amended, modified, supplemented, renewed, extended,
restated or replaced, being collectively referred to herein as the "Financing
Agreements"), and is entitled to all of the benefits and rights thereof and of
the other Financing Agreements. At the time any payment is due hereunder, at its
option, Payee may charge the amount thereof to any account of Debtor maintained
by Payee.
If any payment of principal or interest is not made when due hereunder,
or if any other Event of Default shall occur for any reason, or if any Financing
Agreement (other than the Farah UK Supplement) shall be terminated or not
renewed for any reason whatsoever, then and in any such event, in addition to
all rights and remedies of Payee under the Financing Agreements, under
applicable law or otherwise, all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently, Payee
may, at its option, declare any or all of Debtor's obligations, liabilities and
indebtedness owing to Payee under the Accounts Financing Agreement and the other
Financing Agreements (together with all other "Obligations" under the Accounts
Financing Agreement, collectively, the "Obligations"), including, without
limitation, all amounts owing under this Note, to be due and payable, whereupon
the then unpaid balance hereof, together with all interest accrued thereon,
shall forthwith become due and payable, together with interest accruing
thereafter at the then applicable Applicable Annual Rate stated above until the
indebtedness evidenced by this Note is paid in full, plus the costs and expenses
of collection hereof, including, but not limited to, attorneys' fees and legal
expenses.
Debtor shall make all payments to Payee on the Obligations free and
clear of, and without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Payee is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Note shall
continue in full force and effect as if such payment or proceeds had not been
received by Payee.
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, including, without limitation, notice of intent to accelerate and
notice of acceleration, (ii) agrees that it will not be necessary for Payee to
first institute suit in order to enforce payment of this Note and (iii) consents
to any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. The pleading of any statute of
limitations as a defense to any demand against Debtor is expressly hereby waived
by Debtor. Upon any Event of Default or termination or non-renewal of any
Financing Agreement (other than the Farah UK Supplement), Payee shall have the
right, but not the obligation, to setoff against this Note all money owed by
Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS NOTE AND THE OTHER
FINANCING AGREEMENTS AND ANY DISPUTE ARISING IN CONNECTION HEREWITH OR
THEREWITH, WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW).
DEBTOR IRREVOCABLY CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF THE DISTRICT COURT OF DALLAS COUNTY, TEXAS OR, AT PAYEE'S
OPTION, THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS,
DALLAS DIVISION AND WAIVES ANY OBJECTION ON VENUE OR FORUM NON CONVENIENS WITH
RESPECT TO ANY ACTION INSTITUTED THEREIN ARISING UNDER THIS NOTE OR ANY OF THE
OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF DEBTOR AND PAYEE IN RESPECT OF THIS NOTE OR ANY OF THE OTHER
FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY
OR OTHERWISE, AND AGREES THAT ANY DISPUTE WITH RESPECT TO SUCH MATTERS SHALL BE
HEARD ONLY IN THE COURTS DESCRIBED ABOVE (EXCEPT THAT PAYEE SHALL HAVE THE RIGHT
TO BRING ANY ACTION OR PROCEEDING AGAINST DEBTOR OR ITS PROPERTY IN THE COURTS
OF ANY OTHER JURISDICTION WHICH PAYEE DEEMS NECESSARY OR APPROPRIATE IN ORDER TO
REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE ITS RIGHTS AGAINST DEBTOR OR
ITS PROPERTY).
DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL
(RETURN RECEIPT REQUESTED) DIRECTED TO IT AND SERVICE SO MADE SHALL BE DEEMED TO
BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE
U.S. MAILS, OR, AT PAYEE'S OPTION, BY SERVICE UPON DEBTOR IN ANY OTHER MANNER
PROVIDED UNDER THE RULES OF ANY SUCH COURTS. WITHIN THIRTY (30) DAYS AFTER SUCH
SERVICE, DEBTOR SHALL APPEAR IN ANSWER TO SUCH PROCESS, FAILING WHICH DEBTOR
SHALL BE DEEMED IN DEFAULT AND JUDGMENT MAY BE ENTERED BY PAYEE AGAINST DEBTOR
FOR THE AMOUNT OF THE CLAIM AND OTHER RELIEF REQUESTED.
DEBTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE OR ANY OF THE OTHER FINANCING
AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
BETWEEN DEBTOR AND PAYEE IN RESPECT OF THIS NOTE OR ANY OF THE OTHER FINANCING
AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. DEBTOR AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the
Board of Directors of Debtor and by any necessary vote or consent of the
stockholders of Debtor. Debtor hereby authorizes Payee to complete this Note in
any particulars according to the terms of the loan evidenced hereby.
This Note shall be binding upon the successors and assigns of Debtor
and inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Debtor" shall be deemed to include its
successors and assigns and the term "Payee" shall be deemed to include its
successors, endorsees and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
FARAH U.S.A., INC.,
a Texas corporation
By: /s/ Russell G. Gibson
Name: Russell G. Gibson
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.69
Acknowledgment and Confirmation of Guaranty and Other Financing Agreements
Each of the undersigned, by execution of this Acknowledgment and
Confirmation of Guaranty and Other Financing Agreements, acknowledges and agrees
that it is fully aware of, accepts and approves, the terms and conditions of:
(i) the Amended and Restated Accounts Financing Agreement [Security Agreement],
dated as of June 1, 1997 (the "Accounts Agreement"), among Farah U.S.A., Inc.,
Value Clothing Company, Inc. and Farah Manufacturing (U.K.) Limited, and
Congress Financial Corporation (Southwest) ("Lender"), amending and restating
the Accounts Financing Agreement [Security Agreement], dated August 2, 1990 (the
"Original Accounts Agreement"), between Farah U.S.A., Inc. and Lender and (ii)
all other documents, instruments, supplements and agreements in connection with
the Original Account Agreement and the Accounts Agreement, including, without
limitation, (A) each Guaranty and Waiver, dated August 2, 1990, by various
affiliates of Farah U.S.A., Inc., (B) each Supplement (as defined in the
Accounts Agreement), (C) the ten million ($10,000,000) Secured Term Promissory
Note, dated June 1, 1997, issued or to be issued to Lender by Farah U.S.A., Inc.
pursuant to Section 2.1.1(e) of the Accounts Agreement, (D) Inventory and
Equipment Financing Agreement Supplement [Security Agreement], dated August 2,
1990, between Farah U.S.A., Inc. and Lender, (E) each Pledge and Security
Agreement by Farah U.S.A., Inc., in favor of Lender, (F) each Collateral
Assignment of License, dated August 2, 1990, by Farah U.S.A., Inc., in favor of
Lender, (G) each Collateral Assignment of Agreement, dated August 2, 1990, by
Farah Inc. and its affiliates, in favor of Lender, (H) each Pledge and Security
Agreement, dated August 2, 1990, by Farah Inc. and its affiliates, in favor of
Lender, (I) the Subordination Agreement, dated August 2, 1990, among Farah Inc.,
Farah U.S.A., Inc. and Lender, (J) Trademark Collateral Assignment and Security
Agreement, dated August 1, 1990 and August 2, , by Farah Inc. in favor of
Lender, (K) each Patent Collateral Assignment and Security Agreement, dated
August 1, 1990, by Farah Inc., in favor of Lender, (L) each Amended and Restated
General Security Agreement, dated as of June 1, 1997, by Farah Inc. and its
affiliates in favor of Lender, (M) each intercreditor and other ancillary
document, dated August 2, 1990, as each of the foregoing may have been or may be
amended, modified, restated, supplemented and confirmed from time to time, (N)
the General Security Agreement, dated as of February 9, 1994 and the Guarantee
and Waiver, dated February 9, 1994, each by Farah Licensing Company (now known
as Farah Clothing Company, Inc.), (O) each Guarantee and Waiver, dated February
9, 1994, in favor of Lender, by certain of the undersigned entities (and others)
for the benefit of Farah UK, (P) the Subordination Agreement, dated as of
February 9, 1994, among Farah UK, Farah Exports (Ireland) and Lender for the
benefit of Farah UK, and (Q) the Debenture, dated January 24, 1994, between
Farah UK and Lender for the benefit of Farah UK (collectively, the "Financing
Agreements"). Each of the undersigned further understands that certain of the
Financing Agreements, but not all of them, are being amended and/or restated as
of June 1, 1997, and, notwithstanding that the other Financing Agreements shall
be or remain dated August 2, 1990 (or another date other than the date hereof)
and shall not be so amended and/or restated, the undersigned expressly confirms,
ratifies and approves in all respects all of its "Obligations" under such
Financing Agreements to which it is a party and all of its other liabilities,
indemnities, agreements and other obligations to Lender, whether now existing or
hereafter arising, under or in respect of such Financing Agreements.
Dated as of June 1, 1997:
GUARANTORS
FARAH INCORPORATED
FARAH INTERNATIONAL, INC.
VALUE SLACKS, INC.
FARAH MANUFACTURING COMPANY, INC.
FARAH MANUFACTURING COMPANY
OF NEW MEXICO, INC.
VALUE CLOTHING COMPANY, INC.
CORPORACION FARAH-COSTA RICA S.A.
FARAH CLOTHING COMPANY, INC., a
Delaware corporation (previously known as Farah
Licensing Company, Inc.)
By: /s/ Russell G. Gibson
Title: Chief Financial Officer
FTX, INC.
By: /s/ Luis Segovia, Jr.
Title: President
<PAGE>
EXHIBIT 11
FARAH INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income per share is based on weighted average shares of common stock and
common stock equivalents outstanding. Stock options are included as common stock
equivalents under the treasury stock method, where dilutive. Additional dilution
from the Company's convertible subordinated debentures, which are not common
stock equivalents, is not material. Net loss per share is based only on weighted
average shares of common stock outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS
128 superseded APB Opinion No. 15, "Earnings Per Share." SFAS 128 requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for entities with complex capital structures. SFAS 128 is effective
for annual and interim periods ending after December 15, 1997. Earlier
application is not permitted. Implementation of SFAS 128 would not have had a
material impact on the Company's earnings per share for the second quarter of
fiscal 1997 or the six months ended May 4, 1997.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000034501
<NAME> FDS2Q97
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-END> MAY-04-1997
<EXCHANGE-RATE> 1
<CASH> 3,267
<SECURITIES> 0
<RECEIVABLES> 39,588
<ALLOWANCES> 945
<INVENTORY> 68,975
<CURRENT-ASSETS> 122,752
<PP&E> 60,258
<DEPRECIATION> 30,296
<TOTAL-ASSETS> 163,875
<CURRENT-LIABILITIES> 69,694
<BONDS> 1,663
0
0
<COMMON> 46,026
<OTHER-SE> 37,017
<TOTAL-LIABILITY-AND-EQUITY> 163,875
<SALES> 132,709
<TOTAL-REVENUES> 132,709
<CGS> 95,962
<TOTAL-COSTS> 131,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,628
<INCOME-PRETAX> 419
<INCOME-TAX> (837)
<INCOME-CONTINUING> 1,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,256
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
