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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934
COMMISSION FILE NUMBER: 0-18054
BRAZOS SPORTSWEAR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1770931
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3860 VIRGINIA AVENUE, CINCINNATI, OHIO 45227
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 513-272-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.001 par value Nasdaq National Market
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 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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 17, 1997 was $19,823,100. As of March 17, 1997, there
were 4,319,166 shares of the registrant's Common Stock, $.001 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Certain portions of the registrant's
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders are
incorporated in Part III by reference.
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<PAGE>
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business..............................................................1
Item 2. Properties............................................................5
Item 3. Legal Proceedings.....................................................5
Item 4. Submission of Matters to a Vote of Security Holders...................5
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters..................................................5
Item 6. Selected Financial Data...............................................6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................7
Item 8. Financial Statements and Supplementary Data..........................10
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................28
PART III
Item 10. Directors and Executive Officers of the Registrant...................28
Item 11. Executive Compensation...............................................28
Item 12. Security Ownership of Certain Beneficial Owners and Management.......28
Item 13. Certain Relationships and Related Transactions.......................28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......29
(i)
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Brazos Sportswear, Inc. ("Brazos" or the "Company") designs, sources, prints
and markets moderately-priced sportswear, including sportswear featuring various
licensed character images, such as fictional cartoon characters and collegiate
logos. Brazos also markets sportswear decorated with its proprietary designs and
creates private label programs for its major retail customers. In addition,
Brazos distributes undecorated garments to over 12,000 customers, which
typically decorate the product for later sale.
The Company was formerly named Sun Sportswear, Inc. ("Sun"). On March 14,
1997, the Company completed a merger (the "Merger") with BSI Holdings, Inc.
("BSI") and was reincorporated in Delaware under the name Brazos Sportswear,
Inc. The Merger was consummated in an effort to increase sales and profitability
through the benefits that may be obtained from a combination of the two
company's sales forces, customer bases, license portfolio, design and graphic
art functions, manufacturing operations and sourcing capabilities. All incumbent
officers and directors resigned under the terms of the Merger, and as of the
closing of the transaction, persons formerly associated with BSI filled all
Brazos board and executive officer positions. ALL REFERENCES TO "SUN" IN THIS
ANNUAL REPORT ON FORM 10-K ARE MADE TO INDICATE THAT THE INFORMATION DISCLOSED
RELATES TO THE OPERATIONS OF THE COMPANY PRIOR TO THE MERGER, WITHOUT REGARD TO
ANY OPERATIONS OF BSI OR THE ENTERPRISE ON A COMBINED BASIS.
Pursuant to the terms of the Merger, BSI developed and with its assistance,
Sun began implementing a business plan designed to accomplish three primary
objectives: (i) reduce operating expenses and improve operating efficiencies
through the elimination of redundant positions and a realignment of Sun's
employee base with its then-existing sales and operating levels, (ii) reduce
inventory levels and the number of inventory types and styles to levels
commensurate with then-existing sales levels, and (iii) integrate Sun's combined
sales, marketing and licensing activities with those of BSI in an effort to
maximize the sales and operating profit of the Company's products.
Prior to the Merger, BSI had grown significantly through acquisitions. BSI
completed five acquisitions of complementary businesses since 1990, which
included a contract screen printer, a provider of uniform and other specialty
apparel products, an apparel maker specializing in licensed character and
decorated sportswear sales, a provider of embroidery services, and an apparel
maker specializing in proprietary and private label markets.
The Company was incorporated in Delaware in March 1997 in connection with the
reincorporation completed pursuant to the Merger. The Company's principal
executive offices are located at 3860 Virginia Avenue, Cincinnati, Ohio 45227,
and its telephone number is (513) 272-3600.
HISTORICAL FINANCIAL INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K
RELATES ONLY TO THE OPERATIONS OF SUN PRIOR TO THE MERGER WITH BSI AND DOES NOT
INCLUDE ANY RESULTS OF OPERATIONS OR FINANCIAL DATA OF BSI FOR ANY PRIOR PERIOD.
THE FOLLOWING DESCRIPTION OF THE COMPANY'S BUSINESS INCLUDES THE OPERATIONS OF
THE COMBINED COMPANY RESULTING FROM THE MERGER.
PRODUCTS
Brazos' principal products are T-shirts and fleecewear, in youth and adult
sizes. Presently, Brazos' products consist of four distinct lines: (i) licensed
character, (ii) collegiate logo, (iii) private label and (iv) proprietary. A
variety of decorating techniques are used to decorate blank garments with
graphic designs. The techniques include screen printing in up to 14 colors, belt
printing, direct embroidery, applique, combination applique and screen print and
flock transfer. A significant portion of the graphic designs involve creative
enhancements of fictional cartoon characters, collegiate logos and other
identifying marks made available under license agreements from licensors,
including Disney Enterprises, Inc. ("Disney"), Warner Bros., Chic by H.I.S.,
Major League Baseball(R) and most major colleges and universities.
Brazos' products are available in a wide variety of colors, styles and fabric
weights. T-shirts are available in solid, stripe, roll sleeve, weathered natural
and micro-stripe styles, and range in fiber content from 50 percent cotton/50
percent polyester to 100 percent cotton. Brazos' fleecewear products range from
seven ounces to 12 ounces in weight. Garments are sourced from domestic and
foreign mills and are decorated at Brazos' facilities in Cincinnati, Ohio,
Staten Island, New York, Millersburg, Pennsylvania, College Station, Texas, and
Kent, Washington. In addition to basic sportswear, products offered by Brazos
include windsuits, denim jackets, parkas, canvas shorts and knit shirts.
1
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Screen print designs are developed by the Company after taking into
consideration industry trends, visits to fashion and trade shows, and most
significantly, frequent meetings with apparel label owners and major customers.
Sales managers work closely with Brazos' merchandisers, designers and artists to
develop appropriate styles and color shades. The design process is interactive,
requiring the creation and delivery of numerous samples for customer feedback
and further changes. For larger customers, the design staff typically
incorporates minor styling changes to a basic design to create a unique product
line for the customer.
Brazos devotes considerable resources to ensure that its products are of a
high quality. The quality control department is responsible for monitoring all
phases of screen print production and ensuring that purchased garments meet the
Company's quality standards. Brazos believes that its product quality is among
the highest in its market segment.
Brazos' blank distribution operations are conducted under the name Gulf Coast
Sportswear ("Gulf Coast"). Gulf Coast sells basic T-shirts and sweatshirts, golf
shirts, baseball shirts, athletic jackets, athletic jerseys and shorts to screen
printers, embroiderers, advertising and specialty companies, retailers, sporting
good outlets and uniform suppliers, which in turn typically decorate the product
for later sale. Gulf Coast purchases its inventory in bulk quantities and
distributes products to over 12,000 customers from eight warehouses. Brazos
believes that its blank distribution operation offers one of the broadest
product lines in the industry.
LICENSES AND TRADEMARKS
Brazos obtains rights through licenses to manufacture and market products
with recognizable cartoon character images. These license agreements include the
rights to use fictional character images and trade names such as Disney's Mickey
Mouse, Disney's Winnie the Pooh and various Warner Bros. Looney Tunes(C)
characters (including Bugs Bunny(C) and the Tazmanian Devil(C)). In addition,
Brazos has entered into license agreements with respect to the manufacturing and
marketing of collegiate apparel for most major colleges and universities, as
well as Major League Baseball(R).
Many of Brazos' license agreements limit sales of products to certain market
categories. Brazos' licenses are typically for a term of one-to-two years but
are terminable on 30 days notice. These license agreements generally require
minimum annual payments and certain quality control procedures. Further, these
license agreements give the licensor the right to approve licensed products by
Brazos and to terminate the license if Brazos does not satisfy its contractual
obligations in any material respect. Royalties under these license agreements
generally range from 7% to 13% of net sales for products sold.
Brazos has registered and owns a variety of trademarks under which a number
of Brazos' products are sold. Brazos believes that its trademarks have
significant value in the marketing and sale of its proprietary products.
SALES AND MARKETING
Brazos utilizes approximately 45 independent sales representatives that sell
one or more of its product lines. In addition, 14 in-house key account
executives concentrate on national retail accounts, including Wal-Mart, Kmart,
J.C. Penney, Target, Hills Stores Co. and Venture Stores, Inc. Management
believes that a combination of key account sales representatives and independent
sales representatives gives Brazos a thorough penetration of the retail
marketplace. Independent sales representatives are compensated on a
commission-only basis with rates averaging 6% and ranging from 1% to 10% of net
sales. Key account sales representatives are salaried employees with bonus
incentives tied to sales and profitability. Territories for independent sales
representatives are determined by geographical location, markets covered and
products sold.
In addition to sales activities through its independent sales
representatives, Brazos maintains a presence in New York City's garment
district. Brazos has a 4,200 square foot showroom, specializing in women's,
men's and boy's apparel, located at 1411 Broadway, and a 1900 square foot
showroom, specializing in children's apparel, located at 112 West 34th Street.
Brazos' products are presented at a number of trade shows, including the
semi-annual MAGIC Show.
In 1996, Sun's sales to Wal-Mart, Kmart and Target, accounted for
approximately 41%, 10% and 26%, respectively of its gross sales. The loss of, or
significantly decreased sales to, significant customers could have a material
adverse effect on Brazos' financial condition and results of operations.
2
<PAGE>
SOURCING OF GARMENTS
Brazos sources each of its product lines based on the individual design,
style and quality specifications of such products. Brazos sources the majority
of its products through large domestic mills and independently owned contractors
with manufacturing facilities primarily in the United States, China, Guatemala,
Pakistan, Mexico and Syria. Brazos believes that outsourcing the manufacture of
blank garments allows it to enhance production flexibility and capacity while
substantially reducing expenditures and avoiding the expense of managing a large
production work force.
Brazos contracts for the manufacture and sewing of its products with numerous
domestic and overseas contractors. During 1996, approximately 77% of Sun's
products sold were manufactured by domestic suppliers. The balance of Sun's
products were manufactured in foreign countries. Brazos anticipates that the
percentage of garments which are imported will increase primarily due to its
increased focus on decorated sportswear sales.
Brazos utilizes sourcing agents which assist in selecting and overseeing
foreign third-party contractors and monitoring quotas and other trade
regulations. Brazos' production staff and sourcing agents oversee all aspects of
apparel manufacturing and production. Brazos and its sourcing agents separately
negotiate with suppliers for the purchase of fabrics which are then purchased
either by Brazos or its contractors.
Brazos generally orders products from foreign sources in situations where the
magnitude of the order and the amount of lead time prior to delivery of the
order are sufficient. Since many customers orders change with respect to colors,
sizes, allotments or assortments prior to the delivery date, in certain
situations, Brazos must estimate production requirements in order to secure
necessary fabrics and manufacturing capacity.
There are no formal arrangements between Brazos and any of its contractors or
suppliers; however, Brazos believes that its relationships with its contractors
and suppliers are good.
Brazos' quality control program is designed to ensure that all goods bearing
Brazos', its customers' or its licensors' trademarks meet its standards. With
respect to its products, Brazos develops and inspects prototypes of each product
type, establishes fittings based on the prototype, inspects samples and, through
its employees or sourcing agents, inspects fabric prior to cutting. Brazos or
its sourcing agents inspect the final product prior to shipment to Brazos'
facilities.
COMPETITION
The apparel industry is highly competitive. Several of Brazos' competitors
have substantially greater financial, distribution, marketing and other
resources, including greater brand awareness. Brazos competes with numerous
apparel vendors, including those whose merchandise displays licensed characters,
and colors and symbols of professional sports teams and colleges and
universities. Competitive factors include product quality, price, ability to
meet delivery requirements and other aspects of customer service, changes in
styles and consumer preferences, and the limited availability of customer shelf
and rack space.
BACKLOG
Brazos typically receives information from customers concerning projected
purchases several months in advance of delivery, with written purchase orders
for particular garments being submitted shortly before shipment. In addition,
customers may cancel or reschedule orders with little or no penalty. Typically,
the backlog of firm orders at any point in time is not representative of
expected sales for the upcoming 12 months. For these reasons, Brazos does not
believe that backlog at any time is a meaningful indicator of sales for future
periods. At December 31, 1996, Sun's backlog of firm orders was approximately
$7.7 million. At December 31, 1995, Sun's backlog of firm orders was
approximately $8.6 million.
EMPLOYEES
As of March 31, 1997, Brazos had approximately 1,400 full time employees.
Brazos believes relations with its employees are good.
3
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF BRAZOS
The table below sets forth certain information regarding the executive
officers and directors of Brazos:
NAME AGE POSITION(S)
---- --- -----------
Randall B. Hale................ 34 Director and Chairman
J. Ford Taylor................. 39 Director, chief executive officer,
and president
Nolan Lehmann.................. 52 Director
Michael S. Chadwick............ 45 Director
Alan Elenson................... 47 Director and president of Plymouth
Mills operations
F. Clayton Chambers............ 37 Director, vice president, chief
financial officer, treasurer and
secretary
RANDALL B. HALE. Mr. Hale has been a director and chairman of the board of
Brazos since March 1997 and previously served as a director and chairman of the
board of BSI. He has served as a vice president of Equus II and Equus Capital
Management Co. ("Equus") since November 1992 and a director of Equus since
February 1996. From June 1985 to October 1992, he was employed by Andersen
Worldwide. Mr. Hale is a director of American Residential Services, Inc. and is
also a director of numerous privately-owned companies. Mr. Hale is a certified
public accountant.
J. FORD TAYLOR. Mr. Taylor has been a director, president and the chief
executive officer of Brazos since March 1997, and previously served in those
capacities with BSI. From August 1990 to December 1993 he served as president of
BSI's Red Oak/CC Creations facility in College Station, Texas. In December 1993,
he was promoted to vice president -- operations of the decorated sportswear
operations of BSI. In August 1995, Mr. Taylor was promoted to chief operating
officer of the decorated sportswear operations and in August 1996, he was
elected as president and chief executive officer of BSI.
NOLAN LEHMANN. Mr. Lehmann has been a director of Brazos since March 1997 and
was previously a director of BSI. He has served as a director and president of
Equus since 1980, and as a director and president of Equus II since inception.
Prior to joining Equus, Mr. Lehmann served in a number of executive management
positions with Service Corporation International from 1973 to 1980. Mr. Lehmann
is also a director of Allied Waste Industries, Inc., American Residential
Services, Inc., Drypers Corporation and Garden Ridge Corporation. In addition,
he serves as a director of numerous privately-owned companies. Mr. Lehmann is a
certified public accountant.
MICHAEL S. CHADWICK. Mr. Chadwick has been a director of Brazos since March
1997 and was previously a director of BSI. He is a senior vice president and a
managing director of the corporate finance department of Sanders Morris Mundy, a
Houston-based financial services and investment banking firm. From 1988 to
August 1994, Mr. Chadwick served as president of Chadwick, Chambers &
Associates, Inc., an investment and merchant banking firm specializing in
corporate finance services. Mr. Chadwick presently serves on the Board of
Directors of Watermarc Food Management Company and Blue Dolphin Energy Company,
publicly traded corporations, and Moody-Price, Inc. a privately held
corporation.
ALAN ELENSON. Mr. Elenson has been a director of Brazos since March 1997 and
was previously a director of BSI. He founded Plymouth Mills, Inc. ("Plymouth")
in 1975 and owned and operated Plymouth prior to its acquisition by BSI in
August 1996. Mr. Elenson is president of Brazos' Plymouth Mills operations.
F. CLAYTON CHAMBERS. Mr. Chambers has been a director and vice president,
chief financial officer, treasurer and secretary of Brazos since March 1997, and
previously served as a corporate officer of BSI beginning in November 1994. Mr.
Chambers was a principal in the firm of Chadwick, Chambers & Associates, Inc.,
an investment banking firm located in Houston, Texas, from June 1988 until
October 1994.
4
<PAGE>
ITEM 2. PROPERTIES
Brazos' printing and embroidery operations are performed from six leased
facilities aggregating approximately 620,000 square feet located in Cincinnati,
Ohio, Staten Island, New York, Millersburg, Pennsylvania, College Station,
Texas, and Kent, Washington. The distribution of undecorated blank apparel is
conducted from nine warehouses with an aggregate of approximately 205,000 square
feet located throughout the southern United States. Brazos also maintains a cut
and sew facility in Dallas, Texas, two showrooms in the garment district of New
York City, and an administrative office in Clute, Texas.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit is pending in the Supreme Court of the State of New York, County of
Oneida, against the Company, E.R.O. Industries, Inc., Toys "R" Us, Inc., Grace
International Apparel, Inc., and Bradlees Department Store. The plaintiff is a
child who was severely burned while allegedly lying in a polyester slumber sack
(manufactured by E.R.O. Industries, Inc. and sold by Toys "R Us, Inc.), watching
television and playing with a butane lighter. He was allegedly wearing a flannel
shirt (manufactured by Grace International Apparel, Inc. and sold by Bradlees
Department Store) over a T-shirt (printed by the Company and sold by Bradlees
Department Stores). In July of 1995, Bradlees Department Stores filed for
Chapter 11 protection.
The plaintiff seeks compensatory damages of $150 million and punitive damages
of $50 million against all defendants under various tort law theories, including
false labeling and flammability of the slumber sack against its manufacturer and
for negligence against all defendants together. The Company has tendered the
defense of this suit to its insurance carrier, which is opposing the suit
vigorously. The Company believes its coverage is sufficient in the event it is
held liable for compensatory damages. While its coverage may not extend to
punitive damages awards, the Company believes there are no grounds for such
damages. Although it cannot predict with certainty the outcome of this suit, the
Company believes its disposition should not result in a material adverse effect
on the results of operations or the financial condition of the Company.
The Company is subject to other legal proceedings in the ordinary course of
business. While the outcome of lawsuits or other proceedings cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "BRZS." After giving effect to the one-for-five reverse stock split
effected in connection with the Company's reincorporation in Delaware in March
1997, the high and low sales prices per share for the periods indicated were as
follows:
HIGH LOW
1995 ------ ------
First Quarter...................................... 25 5/8 21 1/4
Second Quarter..................................... 22 1/2 18 3/4
Third Quarter...................................... 25 21 1/4
Fourth Quarter..................................... 23 1/8 12 13/16
1996
First Quarter...................................... 15 5/8 12 1/2
Second Quarter..................................... 18 1/8 13 1/8
Third Quarter...................................... 17 1/2 10
Fourth Quarter..................................... 14 3/8 8 3/4
5
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On March 17, 1997, the last reported sale price for the Common Stock, as
quoted by the Nasdaq National Market, was $12.00 per share. As of the same date,
there were approximately 142 holders of record of the Common Stock, and the
Company estimates that there are over 1,500 beneficial owners of Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on the Common Stock.
The Company intends to retain any future earnings for reinvestment in its
business and does not intend to pay cash dividends in the foreseeable future.
Furthermore, the Company is prohibited from declaring or paying cash dividends
on its capital stock under the terms of certain of the Company's indebtedness.
ITEM 6. SELECTED FINANCIAL DATA
The following data reflects the historical operating results of Sun prior to
the Merger, and insofar as it relates to each of the years 1992 to 1996, has
been derived from audited financial statements of Sun, including the balance
sheets at December 31, 1996 and 1995, the related statements of income and of
cash flows for the years ended December 31, 1996, 1995, and 1994, and notes
thereto appearing elsewhere herein. THE FOLLOWING DATA DOES NOT INCLUDE ANY
INFORMATION WITH RESPECT TO THE HISTORICAL OPERATIONS, ASSETS OR LIABILITIES OF
BSI FOR ANY PERIOD. The data should be read in conjunction with the financial
statements, related notes and other financial information included herein.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net sales $65,535 $93,965 $113,213 $104,773 $70,645
Operating (loss) income (5,296) (4,569) 4,242 4,522 (92)
Net (loss) income (5,836) (3,736) 2,449 2,737 (517)
Net (loss) income per share (1.02) (0.65) 0.43 0.49 (0.09)
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets $ 28,434 $ 47,315 $ 62,384 $ 42,247 $ 40,278
Working capital 16,695 21,419 25,031 22,981 19,418
Long-term debt, including
current portion -0- 338 715 3,273 3,259
Shareholder's equity 20,182 26,018 29,750 26,820 23,902
</TABLE>
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE HEREIN. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THE FOLLOWING
DISCUSSION REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY, AND
PLANS OF MANAGEMENT FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
GENERAL
On March 14, 1997, Sun merged with BSI Holdings, Inc. ("BSI") and was
reincorporated as a Delaware corporation. Except for Seafirst Bank, shareholders
of Sun prior to the Merger who did not elect to retain their shares received
$2.20 per share ($11.00 per share as adjusted for the effective one-for-five
reverse stock split (the "Reverse Split") in the reincorporation merger) for 50%
of such shares and the remaining shares were converted into Company common
stock. Seafirst Bank received $2.20 per share ($11.00 per share as adjusted for
the Reverse Split) for 59.5% of its shares in a combination of a note and cash,
with its remaining shares being converted into Company common stock. The
stockholders of BSI received approximately 18.65 million shares of the Company's
common stock (3.73 million shares as adjusted for the Reverse Split) for all
issued and outstanding shares of BSI common stock. The Merger was accounted for
as a purchase, and the following discussion of results of operations relates
only to the operations of Sun prior to the Merger. The results of operations of
BSI during the periods discussed are not included.
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
NET SALES
Net sales for the year ended December 31, 1996 decreased 30% to $65.5 million
from $94.0 million in 1995. The decrease in sales is primarily attributable to a
decline in licensed character product sales, which resulted from (i) the
continued impact of the loss of key sales personnel (particularly in the men's
and boys' mass merchant category), (ii) increased competition in certain market
segments and (iii) a reduction in film property sales during 1996.
GROSS MARGIN
Gross margin as a percentage of net sales increased to 12% in 1996 from 10%
in 1995, primarily as a result of (i) reduced production costs from the
employment of fewer manufacturing personnel and improved operating efficiencies,
(ii) improved domestic and international sourcing, resulting in lower blank
garment costs and (iii) a reduction in the amount of valuation reserves required
for obsolete or slow-moving inventory in 1996 as compared to 1995.
OPERATING EXPENSES
Operating expenses decreased to $13.1 million (or 20% of net sales) in 1996
from $14.0 million (or 14.9% of net sales) in 1995. The decrease in operating
expenses was primarily attributable to lower royalty and commission expense,
partially offset by one-time severance and merger expenses of approximately $1.2
million in 1996. The increase in operating expenses as percentage of net sales
resulted from lower sales volume in 1996 compared with 1995.
INTEREST EXPENSE
Interest expense decreased 54% to $584,000 in 1996 from $1.3 million in 1995
as a result of lower borrowing levels in 1996.
INCOME TAX BENEFIT
The tax benefit derived from losses incurred was offset by a valuation
allowance of $1,567,000 and a $326,000 tax effect of non-deductible merger
expenses. (See Note 9 to Financial Statements).
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1995 COMPARED WITH 1994
NET SALES
Net sales for the year ended December 31, 1995 decreased 17% to $94.0 million
from $113.2 million in 1994, primarily as a result of decreases in sales of
men's and boys' products, which the Company believes was caused by the Major
League Baseball strike and the non-renewal of the Company's joint Looney Tunes
(C)/National Football League(R) license. The decline in sales was partially
offset by an increase in sales of garments bearing Pocahontas ((C) Disney) and
Winnie the Pooh ((C) Disney) designs.
GROSS MARGIN
Gross margin as percentage of net sales decreased to 10% in 1995 from 15.3%
in 1994, primarily as a result of (i) a $2.0 million inventory charge taken in
the third quarter in 1995 arising from expected losses on the sale of surplus
inventory, (ii) low margins in 1995 because of the Company's efforts to reduce
men's inventory, (iii) $350,000 in charges taken in the third quarter of 1995 to
cover minimum royalty commitments and (iv) the impact of reduced sales in 1995,
and the Company's resulting higher fixed costs as a percentage of net sales.
OPERATING EXPENSES
Operating expenses increased to $14.0 million (or 14.9% of net sales) in 1995
from $13.1 million (or 11.6% of net sales) in 1994. The increase was primarily
attributable to general and administrative expenses which increase to $7.7
million (or 8.2% of net sales) in 1995 from $6.7 million (or 5.9% of net sales)
in 1994, as a result of costs associated with the Company's management
information system and $747,000 in consulting costs incurred in the Company's
restructuring efforts.
INTEREST EXPENSE
Interest expense increased 87% to $1.3 million in 1995 from $677,000 million
in 1994 as a result of higher borrowing levels and interest rates in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital resources consist of cash balances, cash
provided by its operating activities and funds available under its line of
credit. Cash provided by operations in 1996 was $9.9 million, which was
primarily provided by a decrease in accounts receivable and inventory. During
1996, Sun made net repayments of $10.5 million under its credit facility. The
Company's cash requirements consist of its general working capital needs,
capital expenditures, obligations under its leases and promissory notes, and
capital required for future acquisitions.
Prior to the Merger, Sun maintained a credit agreement with Heller Financial,
Inc. ("Heller"). The Heller agreement provided for a line of credit (including
commercial letters of credit) of up to $24 million, and at December 31, 1996,
approximately $8.9 million was available for borrowing under that facility. The
Heller facility was secured by all of Sun's assets, including accounts
receivable and inventory. In connection with the consummation of the Merger, the
Heller facility was terminated, and the Company became a party to a new credit
facility, consisting of a $12 million term loan and a $73.2 million revolving
line of credit. As of March 17, 1997, $7.0 million was available for future
borrowings under the line of credit, based on existing collateral. Advances
under the line of credit are based on a percentage of the Company's inventory
and receivables. Interest on the line of credit is payable at prime plus .5% or
the Eurodollar base rate plus 2.75%. The term loan facility requires principal
payments of $0.2 million per month and had an outstanding balance of $11.6
million on March 17, 1997. Interest on the term loan facility is payable at
prime plus 1.5% or the Eurodollar base rate plus 3.5%. Additionally, in
connection with BSI's acquisition of Plymouth Mills, the Company's principal
operating subsidiary issued $3.5 million in subordinated debentures to two
institutional lenders. The subordinated debentures bear interest at 13% per
annum and provide for quarterly principal payments beginning in September 2001.
The Company's principal credit facility and the subordinated debentures
require the Company to maintain certain levels of working capital and
stockholders' equity and contain other restrictive covenants. Such instruments
limit the ability of the Company to incur additional indebtedness, pay dividends
and to make acquisitions and certain investments.
8
<PAGE>
Management believes that funds available under its principal credit facility,
together with cash generated from operations, will be sufficient to meet the
Company's anticipated cash requirements for 1997, including its anticipated
capital expenditures of approximately $1.0 million. The Company is continually
evaluating opportunities for growth, including acquisitions of businesses which
distribute complementary apparel products. Management believes that the Company
could obtain additional capital to make acquisitions primarily through either
issuances of common or preferred stock or debt financing, although no assurance
can be given with respect to whether such financing will be available when
required or whether such financing can be obtained on terms acceptable to the
Company.
SEASONALITY
The Company's sales levels are higher in the second and third quarters of
each year. During these periods, spring, summer, back-to-school and pre-holiday
season products are produced and sold. The Company expects that the seasonable
nature of apparel sales will continue in future periods.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
and Stockholders of
Brazos Sportswear, Inc.
In our opinion, the accompanying balance sheets and related statements of
income, of changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Brazos Sportswear, Inc.
(formerly Sun Sportswear, Inc.) at December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Seattle, Washington
February 12, 1997, except for Note 1 ("Merger and Subsequent Reincorporation")
for which the date is March 14, 1997
10
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
BALANCE SHEETS
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash ................................ $ 84,532 $ 2,006,633
Accounts receivable, net of allowance
for doubtful accounts of $33,930 and
$46,317, respectively (Note 11) ..... 7,180,833 13,102,275
Inventories, net (Note 3) ........... 15,760,393 23,631,358
Prepaid expenses and other
current assets ................... 847,641 959,872
Deferred income taxes (Note 9) ...... 19,740 788,332
Federal income tax receivable ....... 1,033,985 1,979,535
----------- -----------
Total current assets ................ 24,927,124 42,468,005
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net:
(Note 4) ............................ 3,492,013 4,831,994
OTHER ASSETS: .......................... 14,506 15,107
----------- -----------
Total assets ........................ $28,433,643 $47,315,106
=========== ===========
(continued)
See accompanying notes to financial statements
11
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
BALANCE SHEETS
(CONTINUED)
DECEMBER 31,
---------------------------
1996 1995
------------ -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (note 5) .......... $ 2,960,513 $13,500,000
Accounts payable ................ 3,592,365 4,985,953
Accrued royalties payable ....... 1,061,597 1,753,745
Accrued wages and taxes payable . 591,971 512,078
Accrued interest payable ........ 25,381 51,263
Current portion of
long-term debt (Note 6) ....... -0- 245,652
------------ -----------
total current liabilities ....... 8,231,827 21,048,691
------------ -----------
NONCURRENT LIABILITIES:
Long-term debt,
net of current portion (Note 6) -0- 92,354
Deferred income taxes (Note 9) .. 19,740 155,642
------------ -----------
Total noncurrent liabilities .... 19,740 247,996
------------ -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value,
20,000,000 shares authorized;
5,748,500 shares issued
and outstanding ............... 21,618,339 21,618,339
Retained (deficit) earnings ..... (1,436,263) 4,400,080
------------ -----------
Total shareholders' equity ...... 20,182,076 26,018,419
------------ -----------
COMMITMENTS AND
CONTINGENCIES (Note 2 and Note 10)
Total liabilities and
shareholders' equity .......... $ 28,433,643 $47,315,106
============ ===========
See accompanying notes to financial statements
12
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------ ------------ -------------
Net sales (note 8) ........... 65,534,545 93,965,325 113,212,896
Cost of goods sold ........... 57,679,610 84,569,855 95,878,764
------------ ------------ -------------
Gross margin ................. 7,854,935 9,395,470 17,334,132
------------ ------------ -------------
Operating expenses:
Selling ................ 3,342,014 3,649,256 3,781,116
Design and pattern ..... 2,503,370 2,492,222 2,527,013
General and
administrative ....... 7,210,176 7,690,321 6,712,365
Provision for doubtful
accounts and factoring
fees (Note 11) ....... 95,694 132,284 71,586
------------ ------------ -------------
13,151,254 13,964,083 13,092,080
------------ ------------ -------------
Operating (loss) income (5,296,319) (4,568,613) 4,242,052
------------ ------------ -------------
Other expense (income):
Interest expense ....... 584,046 1,267,442 676,612
Other, net ............. (37,114) (200,981) (111,236)
------------ ------------ -------------
546,932 1,066,461 565,376
------------ ------------ -------------
(Loss) income before provision
for income taxes ........... (5,843,251) (5,635,074) 3,676,676
(Benefit) provision for
income taxes (Note 9) ...... (6,908) (1,898,620) 1,228,000
------------ ------------ -------------
Net (loss) income ............ $ (5,836,343) $ (3,736,454) $ 2,448,676
============ ============ =============
(Loss) earnings per share: ... $ (1.02) $ (0.65) $ 0.43
============ ============ =============
Weighted average shares
outstanding ................ 5,748,500 5,748,249 5,722,121
See accompanying notes to financial statements
13
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
---------------------- (DEFICIT)
SHARES AMOUNT EARNINGS TOTAL
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1993 ............. 5,637,500 $21,132,521 $ 5,687,858 $ 26,820,379
Exercise of stock options
including tax benefit of $109,498 109,625 481,170 -- 481,170
Net income for the
year ended
December 31, 1994 ............. -- -- 2,448,676 2,448,676
--------- ----------- ----------- ------------
Balance,
December 31, 1994 ............. 5,747,125 21,613,691 8,136,534 29,750,225
Exercise of stock options, -0-
tax benefit ..................... 1,375 4,648 -- 4,648
Net loss for the
year ended
December 31, 1995 ............. -- -- (3,736,454) (3,736,454)
--------- ----------- ----------- ------------
Balance,
December 31, 1995 ............. 5,748,500 21,618,339 4,400,080 26,018,419
Net loss for the
year ended
December 31, 1996 ............. -- -- (5,836,343) (5,836,343)
--------- ----------- ----------- ------------
Balance,
December 31, 1996 ............. 5,748,500 $21,618,339 $(1,436,263) $ 20,182,076
========= =========== =========== ============
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ............................. $ (5,836,343) $ (3,736,454) $ 2,448,676
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
depreciation and amortization ............... 1,723,025 1,526,015 1,225,139
Loss (gain) on disposal
of equipment ......................... 18,609 (18,054) 1,025
Decrease (increase) in
accounts receivable ................... 5,921,442 11,322,559 (10,644,227)
Decrease (increase) in inventories .......... 7,870,965 6,524,260 (8,094,570)
Decrease (increase) in federal
income tax receivable,
and net deferred tax assets ............... 1,578,240 (2,189,620) 92,158
Decrease (increase) in other assets ......... 112,832 (366,117) (84,790)
(Decrease) increase in
accounts payable .......................... (880,571) (6,754,384) 5,925,735
(Decrease) increase in
accrued liabilities ....................... (638,137) (238,914) 938,153
------------ ------------ ------------
Net cash provided by (used in)
operating activities ......................... 9,870,062 6,069,291 (8,192,701)
------------ ------------ ------------
Cash flows from investing activities:
capital expenditures .......................... (416,199) (1,169,168) (1,953,218)
proceeds from sale of equipment ............... 14,545 46,133 70,956
------------ ------------ ------------
Net cash used in investing activities (401,654) (1,123,035) (1,882,262)
------------ ------------ ------------
Cash flows from financing activities:
(Decrease) increase in outstanding
checks in excess of funds on deposit......... (513,015) (1,297,807) 186,329
Net (repayments) borrowings
under line of credit agreement .............. (10,539,488) (2,487,000) 12,534,000
Principal payments under
long-term debt .............................. (338,006) (376,635) (2,558,454)
Proceeds from issuance of common
stock for employee stock options ............ -0- 4,648 481,171
------------ ------------ ------------
Net cash (used in) provided by
financing activities ........................ (11,390,509) (4,156,794) 10,643,046
------------ ------------ ------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Net (decrease) increase in cash.................. (1,922,101) 789,462 568,083
Cash at beginning of period ..................... 2,006,633 1,217,171 649,088
----------- ---------- ----------
Cash at end of period ........................... $ 84,532 $2,006,633 $1,217,171
=========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .................................. $ 609,927 $1,269,992 $ 688,174
Income taxes .............................. $ 137,607 $ 291,000 $1,251,000
</TABLE>
16
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
MERGER AND SUBSEQUENT REINCORPORATION
On March 14, 1997, Sun Sportswear, Inc. (the "Company") merged with BSI
Holdings, Inc. ("BSI") and was reincorporated as a Delaware corporation which
was renamed Brazos Sportswear, Inc. The merger was accounted for as a reverse
acquisition with the Company being the surviving legal entity and BSI being the
predecessor entity for accounting purposes. The merger will be accounted for as
a purchase. In connection with the reincorporation, a one for five reverse stock
split was implemented.
Except for Seafirst Bank, shareholders of the Company prior to the merger who
did not elect to retain their shares received $2.20 per share ($11.00 per share
as adjusted for the effective one-for-five reverse stock split (the "Reverse
Split")) for 50% of such shares and the remaining shares were converted into
common stock of Brazos Sportswear, Inc. Seafirst Bank received $2.20 per share
($11.00 per share as adjusted for the Reverse Split) for 59.5% of its shares in
a combination of a note and cash, with its remaining shares being converted into
shares of Brazos Sportswear, Inc.
The Company underwent a change in a control as of the effective date of the
merger. As of March 14, 1997, all the former directors of the Company resigned
and six directors designated by BSI became the directors of Brazos Sportswear,
Inc. In addition, on or before the effective date of the merger, the president,
executive vice president, and two senior vice presidents resigned. The financial
statements of the Company for the year ended December 31, 1996 include the costs
associated with these resignations as well as the merger related charges
incurred by the Company through December 31, 1996, which totaled $1.2 million.
The merger, including the Reverse Split, was not otherwise reflected in the
December 31, 1996 financial statements.
OPERATIONS
The Company is engaged in designing, sourcing, printing and marketing
moderately priced apparel. Products consist primarily of garments printed with
designs which are subject to licenses or distributor agreements with third
parties, and proprietary designs developed by the Company. Revenues from
operations are principally generated in the United States.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform to
the presentation of the December 31, 1996 financial statements.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method. Cost includes the purchase price of
unprinted garments, the cost of manufacturing "cut-and-sewn" garments and the
cost of production of printed garments.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, vehicles, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the respective assets for furniture, vehicles and
equipment and over the lease term or useful life for leasehold improvements.
ACCOUNTS PAYABLE
Outstanding checks in excess of funds on deposit of $490,000 and $1,003,000
at December 31, 1996 and 1995, respectively, have been classified as accounts
payable.
17
<PAGE>
ACCRUED ROYALTIES PAYABLE
Royalties are accrued when the related licensed garments are shipped.
Additionally, the Company periodically reviews its royalty agreements, which
contain guaranteed minimum payments, and accrues the amount of the guaranteed
minimum royalties not expected to be met by sales of the licensed product.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (FAS 109), ACCOUNTING FOR INCOME TAXES.
Deferred taxes have been provided on income and expense items that are reported
in different periods for financial and tax reporting purposes, net of
appropriate valuation allowance.
REVENUE RECOGNITION
Sales are recognized when finished garments are shipped from the Company's
facilities.
SALES DEDUCTIONS
Sales discounts and allowances are accrued as sales are recorded. Sales
returns, the other component of sales deductions, are accrued when the Company
believes sales returns will occur.
ESTIMATES BY MANAGEMENT
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NET (LOSS) INCOME PER SHARE
Net (loss) income per share has been computed based upon the weighted average
number of shares outstanding for all periods presented. Fully diluted per share
amounts do not differ materially from primary per share amounts.
NOTE 2 - COMMITMENTS:
The Company has historically leased office, warehouse and manufacturing space
in Kent, Washington from a company owned by David Sabey, the majority
shareholder until December 1992 (at which time Mr. Sabey divested himself of all
his shares in the Company). The current lease requires monthly payments of
$115,000 plus operating and maintenance expense of the facility. Rent expense
for leases with Sabey totaled $1,392,000, $1,389,000 and $1,386,000 in 1996,
1995 and 1994, respectively. The Company has an option to purchase the facility
it presently occupies during the five year period October 6, 1994 through
October 5, 1999 for a mutually agreeable fair market price. This lease expires
in 1999.
The Company also leases warehouse space in Kent, Washington from a third
party. The lease expires in June 1997. Rent expense for this third party lease,
and other expired leases, in 1996, 1995 and 1994 totaled $227,000, $181,000 and
$89,000, respectively.
Future minimum rent commitments under all operating leases for periods after
December 31, 1996 are as follows:
RENT COMMITMENTS
1997 1,437,300
1998 1,380,000
1999 1,035,000
-----------
$ 3,852,300
===========
Sun acquires rights to use trademarks and characters on specified types of
garments, under license agreements from third parties. At December 31, 1996, the
Company was party to approximately 28 such license agreements. Under these
license agreements, the Company pays royalties of between 4% and 14% of the
sales price of products sold displaying the licensed character or trademark.
Royalty expense for Sun's license agreements totaled $5,917,049, $9,004,513 and
18
<PAGE>
$9,354,684 in 1996, 1995 and 1994, respectively. These license agreements
typically require that the Company guarantee a minimum royalty payment. Unmet
guaranteed minimum royalty commitments under all licensing agreements in place
at December 31, 1996, are as follows:
ROYALTY COMMITMENTS
1997 $ 900,000
1998 3,600,000
------------
$ 4,500,000
============
At December 31, 1996, the Company had an allowance of $198,753 recorded on its
balance sheet primarily to cover 1997 and 1998 minimum royalty commitments which
are not anticipated to be recovered through licensed product sales.
(See "Note 11 - Valuation and Qualifying Accounts")
NOTE 3 - INVENTORIES:
Inventories are composed of:
December 31,
-----------------------------------
1996 1995
--------------- --------------
Garments in process $ 1,480,782 $ 2,244,781
Unprinted finished garments 14,542,492 19,827,823
Printed finished garments 1,096,859 5,617,347
Supplies 651,978 407,064
Lower of cost or market allowance (2,011,718) (4,465,657)
--------------- --------------
$15,760,393 $23,631,358
=============== ==============
NOTE 4 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are summarized by major classifications
as follows:
<TABLE>
<CAPTION>
December 31,
Estimated --------------------------------
useful lives 1996 1995
------------ --------------- -------------
<S> <C> <C> <C>
Production equipment 5-7 $ 3,707,247 $ 3,658,352
Leasehold improvements 5-10 2,369,882 2,380,317
Design system hardware and software 3-5 967,294 851,056
Information system hardware and software 3-5 1,837,237 2,145,582
Furniture and fixtures 5 937,675 1,116,112
Distribution equipment 5-10 371,033 343,941
Warehouse equipment 5-7 357,814 395,797
Vehicles 5 12,417 12,417
--------------- -------------
10,560,599 10,903,574
Construction in progress -0- 509
LESS - Accumulated depreciation (7,068,586) (6,072,089)
--------------- -------------
$ 3,492,013 $ 4,831,994
=============== =============
</TABLE>
19
<PAGE>
NOTE 5 - NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
Interest rate at
December 31, December 31,
--------------- -----------------------------------
1996 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Heller line of credit,
Prime based 8.50% $ 2,960,513 $ -0-
Bank line of credit,
LIBOR based - - -0- 13,500,000
$ 2,960,513 $ 13,500,000
=============== ===============
</TABLE>
At December 31, 1996, the Company's credit agreement with a Heller Financial,
Inc. provided for a line of credit (including commercial letters of credit) of
up to $24,000,000. The borrowing rate for the revolving portion of the line is
the prime rate and all the Company's assets, including accounts receivable and
inventories, are pledged as security for borrowings under the Heller credit
agreement. The Heller credit agreement requires compliance with certain
financial covenants principally relating to working capital, tangible net worth,
ratio of debt to equity, expenditures for fixed assets, minimum earnings (before
taxes, interest and depreciation), interest coverage, restrictions on the
payment of dividends and restrictions on the incurrence of long-term debt. At
December 31, 1996, approximately $8.9 million was available for borrowing.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of the following:
December 31,
--------------------------------
1996 1995
-------------- --------------
Notes payable to GE Capital
in monthly installments of $25,694 $ -0- $ 338,006
-------------- --------------
338,006
Less - Current installments -0- (245,652)
-------------- --------------
Long-term debt $ -0- $ 92,354
============== ==============
The notes payable to GE Capital were repaid in February 1996.
NOTE 7 - CASH PROFIT SHARING, 401-K PROFIT SHARING PLAN, STOCK OPTION PLANS, AND
RETIREMENT BENEFITS:
CASH PROFIT SHARING AND SALES BONUS PLAN. The Company has a Cash Profit Sharing
and Sales Bonus Plan for its employees ("Cash Plan"). Under the Cash Plan, the
Board of Directors determines, at its discretion, a percentage of the Company's
net profits to be distributed to employees on an annual basis. The amount of the
distribution to any employee is based upon the employee's compensation level or
sales performance and in some instances, length of service with the Company. The
Cash Plan is administered by a committee of senior management employees
appointed by the
20
<PAGE>
Board of Directors. The amount charged to expense under the Cash Plan totaled
$63,000, $94,000 and $194,000 in 1996, 1995 and 1994, respectively.
401-K PROFIT SHARING PLAN. Effective January 1, 1992, the Company established a
401-K profit sharing plan for qualifying employees. Employee contributions to
the 401-K plan are matched by the Company dollar for dollar on the first $200
contributed to the plan; then $.25 for every $1 up to 6.0% of the employee's
gross earnings. Employees are fully vested in the 401-K plan after three years
of service. The 401-K plan is administered by a non-related, third party. The
amount charged to expense under the 401-K plan totaled $55,000, $66,000 and
$57,000 in 1996, 1995 and 1994, respectively.
FASB 123 - EFFECT ON NET INCOME AND EARNINGS PER SHARE. At December 31, 1996,
the Company has two stockbased compensation plans, which are described below. In
October 1995, the Financial Accounting Standards Board issued FASB 123,
"Accounting for Stock-Based Compensation", which established financial
accounting and reporting standards for stock-based employee compensation plans
and for the issuance of equity instruments to acquire goods and services from
non-employees. The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation expense cost has been
recognized for its fixed stock option plans. Had compensation cost for the
Company's two stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the method
of FASB Statement 123, the Company's net income and earnings per share would
have been reduced to the amounts indicated below:
1996 1995
---------------- ---------------
Net Income As reported $ (5,836,343) $ (3,736,454)
Pro forma (5,886,443) (3,780,796)
Primary earnings per share As reported $(1.02) $ (0.65)
Pro forma (1.02) (0.66)
The pro forma effect on net income and primary earnings per share resulting from
the compensation expense attributed to stock options as calculated under FASB
Statement 123 may not be representative of the effects on future years as
options vest over several years and additional awards may be granted in the
future.
STOCK OPTION PLANS. In October 1989, the Board of Directors approved stock
option plans for Company employees and directors coincident with the completion
of the public offering of common stock of the Company. The plans provide for the
issuance of options to purchase common stock to employees and non-employee
directors of the Company, at an exercise price in most cases equal to the fair
market value at the date of grant. The maximum term of options granted is ten
years, vesting from one to five years depending on the specific grant. Options
to employees are granted at the discretion of the Compensation Committee of the
Board of Directors. Options granted to non-employee directors are granted in
accordance with a formula set forth in the director plan. A total of 660,000
common stock shares have been reserved for issuance under these plans.
21
<PAGE>
A summary of the status of the Company's stock option plans as of December
31, 1995 and 1996, and changes during the years then ended are presented below.
The stock option exercise prices do not reflect the Reverse Split described in
Note 1.
<TABLE>
<CAPTION>
Employee Plan Director Plan
----------------------------- ---------------------------
Weighted- Weighted-
Average Average
Stock Options Shares Exercise Price Shares Exercise Price
- ------------------------------ -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 321,250 $4.32 18,000 $4.61
Options granted 54,500 $4.13 2,000 $4.13
Options exercised (1,375) $3.38 -- - -
Options canceled (8,875) $5.44 (1,000) $4.13
------------- -------
Outstanding at December 31, 1995 365,500 $4.27 19,000 $4.84
Options granted 10,500 $2.88 - - - -
Options exercised -0- - - - - - -
Options canceled (111,437) $4.13 (11,000) $4.97
-------------- -----------
Outstanding at December 31, 1996 264,563 $4.27 8,000 $4.06
============== ===========
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995 and 1996, respectively: expected volatility
of 70% and 64%, risk-free interest rates of 6.49% and 6.5%, and expected lives
of 6 years and 5.98 years. The Company does not anticipate declaring dividends
during the expected lives of the options.
At December 31, 1996, 254,063 options were exercisable under the Employee
Plan, and 8,000 options were exercisable under the Director Plan The
weighted-average fair value of options granted during the calendar year 1996 was
$1.54 under the Employee Plan. No options were granted in the calendar year 1996
under the Director Plan. At December 31, 1995, 268,541 options were exercisable
under the Employee Plan and 18,000 options were exercisable under the Director
Plan. The weighted fair market value of options granted during calendar year
1995 was $2.34 for both plans.
22
<PAGE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ---------------------------
Weighted-Average
Number Remaining Weighted- Number Weighted-
Range of Exercise Outstanding at Contractual Life Average Exercisable at Average
Prices 12/31/96 Exercise Price 12/31/96 Exercise Price
- ----------------- ------------ ---------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
EMPLOYEE PLAN
$2.88 to $3.38 112,750 5.44 years $3.28 102,250 $3.30
$4.25 to $4.50 83,313 6.59 years $4.30 83,313 $4.30
$5.88 68,500 7.42 years $5.88 68,500 $5.88
DIRECTOR PLAN
$3.75 to $5.88 8,000 1.79 years $4.06 8,000 $4.06
</TABLE>
NOTE 8 - INDUSTRY PROFILE AND MAJOR CUSTOMERS:
The Company operates almost exclusively in one industry, which is the
wholesale distribution of imprinted, dyed and decorated casual apparel. The
Company's customers consist of large retail mass merchants. A substantial
portion of the Company's customers' ability to honor their obligations is
dependent on the retail apparel economic sector.
The Company has three major customers who are mass merchants. The percentage
of gross sales for each customer and the total percentage of gross sales for the
three customers are as follows:
PERCENTAGE OF GROSS SALES FOR TOTAL PERCENTAGE
KMART, TARGET AND WAL-MART, OF GROSS SALES FOR
RESPECTIVELY THE THREE CUSTOMERS
------------------------ -------------------
For the year ended December 31,
1996 10%, 26% and 41% 77%
1995 17%, 24% and 47% 88%
1994 19%, 29% and 40% 88%
23
<PAGE>
NOTE 9 - INCOME TAXES:
The (benefit) provision for income taxes was as follows:
For the year ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Current................. $ (896,378) $(1,854,594) $ 1,554,000
Deferred................ 889,470 (44,026) (326,000)
----------- ----------- -----------
$ (6,908) $(1,898,620) $ 1,228,000
=========== =========== ===========
Federal Income Tax Rate Schedule:
For the year ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Income taxes (benefit) at
federal rate .................... $(1,986,705) $(1,915,925) $ 1,250,070
Non-deductible merger expenses .... 325,962 -0- -0-
Change in valuation allowance ..... 1,567,237 -0- -0-
Other ............................. 86,598 17,305 (22,070)
----------- ----------- -----------
Income tax (benefit) provision .... $ (6,908) $(1,898,620) $ 1,228,000
=========== =========== ===========
Deferred tax assets (liabilities) at December 31 comprised the following:
1996 1995
------------- -------------
Inventory capitalization $ 583,897 $ 463,749
Allowance for doubtful accounts 11,537 15,748
Accrued expenses 28,365 39,116
Accrued royalties 136,065 235,077
AMT credits 78,203 -0-
Net operating loss carry forward 673,552 -0-
Other 119,623 78,907
------------- -------------
Gross deferred tax assets 1,631,242 832,597
Less - Depreciation (64,005) (199,907)
Valuation Allowance (1,567,237) -0-
------------- -------------
$ -0- $ 632,690
============= =============
24
<PAGE>
1996 1995
-------- ---------
Net current deferred tax asset ....... $ 19,740 $ 788,332
Net noncurrent deferred tax liability (19,740) (155,642)
-------- ---------
$ -0- $ 632,690
======== =========
Due to uncertainty in the realization of certain tax assets, including those
representing the net operating loss and alternative minimum tax credit
carryforwards, the Company has established a valuation allowance of $1,567,237
in the quarter and fiscal year ended December 31, 1996. At December 31, 1996,
the Company had net operating loss carryforwards of approximately $2.0 million
for federal tax purposes which begin to expire in 2010. Due to changes in the
ownership structure of the Company, the availability of certain net operating
loss carryforwards may be limited.
NOTE 10 - CONTINGENCIES
The Company is involved in litigation arising in the ordinary course of
business, which in the opinion of management, will not have a material effect on
the Company's financial position or results of operations.
NOTE 11 - VALUATION AND QUALIFYING ACCOUNTS
Activity of the Company's allowance for doubtful accounts follows:
For the year ended December 31,
-------------------------------------------
1996 1995 1994
------------ ------------ ------------
Balance, beginning of the year $ 46,317 $ 46,524 $ 88,000
Provision for doubtful accounts -0- -0- -0-
Chargeoffs/collections (12,387) (207) (41,476)
------------ ------------ ------------
Balance, end of the year $ 33,930 $ 46,317 $ 46,524
============ ============ ============
During 1994, 1995 and 1996, the Company had an agreement with Heller
Financial, Inc. intended to transfer the collection risk to Heller for Sun's
accounts receivable for essentially all of its customers other than Target,
Kmart and Wal-Mart. Under the agreement, Heller assumed 100% of the collection
risk associated with the Company's covered receivables. Heller received a fee
equal to .55% of the gross amount of covered receivables for assuming such
collection risk. The amount charged to expense for factoring fees was $119,000,
$48,000, and $80,000 in 1996, 1995 and 1994, respectively. This agreement
expired in March 1997.
In February 1996, Sun amended the risk-transfer agreement with Heller,
whereby Heller also assumes 70% of the collection risk associated with the Kmart
receivables for a fee equal to .65% of the gross amount of such receivables.
Activity of the Company's lower of cost or market inventory reserves follows:
For the year ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
Balance, beginning of the year $4,465,657 $3,080,755 $1,501,876
Accruals 1,938,999 3,773,078 2,470,097
Chargeoffs (4,392,938) (2,388,176) (891,218)
------------ ------------ ------------
Balance, end of the year $2,011,718 $4,465,657 $3,080,755
============ ============ ============
25
<PAGE>
Activity of the Company's unmet guaranteed minimum royalty reserves follows:
For the year ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
Balance, beginning of the year $ 691,403 $ 301,085 $ 147,333
Accruals 173,315 693,643 350,000
Chargeoffs (665,965) (303,325) (196,248)
------------ ------------ ------------
Balance, end of the year $ 198,753 $ 691,403 $ 301,085
============ ============ ============
NOTE 12 - RELATED PARTY TRANSACTIONS
During 1995, Sun hired the consulting firm of Wiley, Pene and Company to
assist in the Company's re-engineering efforts. Wiley, Pene and Company was paid
$243,000 from March to October 1995 for its services. Wiley, Pene and Company is
owned by Robert Pene, a former director of Sun, who resigned from the Company's
Board of Directors in September 1995; and by William S. Wiley, who was appointed
as the Company's Chief Executive Officer, President and Director in October
1995, and subsequently resigned as Chief Executive Officer in January of 1997.
Mr. Wiley remained as Chairman and Director through March 14, 1997, the date of
the merger.
26
<PAGE>
NOTE 13 - SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Quarterly financial information for the years ended December 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
Net sales .................. $24,433,440 $20,034,565 $ 9,133,714 $ 11,932,826 $ 65,534,545
Cost of goods sold ......... 20,623,529 16,871,903 9,101,063 11,083,115 57,679,610
----------- ----------- ----------- ------------ ------------
Gross margin ............... 3,809,911 3,162,662 32,651 849,711 7,854,935
Operating expenses ......... 3,181,998 2,984,052 3,333,181 3,652,023 13,151,254
Other expenses ............. 223,187 149,338 68,373 106,034 546,932
----------- ----------- ----------- ------------ ------------
(Loss) income before
provision for income taxes 404,726 29,272 (3,368,903) (2,908,346) (5,843,251)
(Benefit) provision for ... 138,000 9,000 (1,145,000) 991,092 (6,908)
income taxes
----------- ----------- ----------- ------------ ------------
Net (loss) income .......... $ 266,726 $ 20,272 $(2,223,903) $ (3,899,438) $ (5,836,343)
=========== =========== =========== ============ ============
Net (loss) income per share $ 0.05 $ 0.00 $ (0.39) $ (0.68) $ (1.02)
</TABLE>
During the fourth quarter of 1996, the Company reevaluated the likely
realization of its deferred tax assets given its continuing pre-tax losses.
Accordingly, a charge of $1,567,237 was recorded to write-off the net deferred
tax asset.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1995
Net sales .................. $ 25,720,562 $30,581,505 $ 16,224,578 $ 21,438,680 $ 93,965,325
Cost of goods sold ......... 22,522,498 25,310,087 17,097,761 19,639,509 84,569,855
------------ ----------- ------------ ------------ ------------
Gross margin ............... 3,198,064 5,271,418 (873,183) 1,799,171 9,395,470
Operating expenses ......... 3,627,428 3,662,095 3,504,743 3,169,817 13,964,083
Other expense .............. 330,034 314,033 152,794 269,600 1,066,461
------------ ----------- ------------ ------------ ------------
(Loss) income before
provision for income taxes (759,398) 1,295,290 (4,530,720) (1,640,246) (5,635,074)
(Benefit) provision for
income taxes ............. (258,000) 440,000 (1,540,500) (540,120) (1,898,620)
------------ ----------- ------------ ------------ ------------
Net (loss) income .......... $ (501,398) $ 855,290 $ (2,990,220) $ (1,100,126) $ (3,736,454)
============ =========== ============ ============ ============
Net (loss) income per share $ (0.09) $ 0.15 $ (0.52) $ (0.19) $ (0.65)
</TABLE>
The sum of quarterly earnings per share will not necessarily equal the earnings
per share reported for the entire year, due to rounding.
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Part III (Items 10 through 13) is omitted since the Company expects to file
with the Securities and Exchange Commission within 120 days following December
31, 1996, definitive proxy materials pursuant to Regulation 14A under the
Securities Exchange Act of 1934 involving the annual election of directors and
certain other matters. If for any reason such a statement is not so filed, this
Report will be appropriately amended.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See financial statements at pages 10 to 27
(A)(3)EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 -- Agreement and Plan of Merger ("Merger Agreement") dated as of
November 13, 1996, as amended, by and between the Registrant and
BSI Holdings, Inc. (filed as an appendix to Form S-4
Registration Statement (No. 333-17871) and incorporated herein
by reference.)
2.2 -- Plan and Agreement of Merger with respect to reincorporation
in Delaware (filed as an appendix to Form S-4 Registration
Statement (No. 333-17871) and incorporated herein by reference.)
*3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
*3.2 -- Bylaws of the Registrant, as amended.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining the rights
of holders of common and preferred stock.
10.1 -- 1989 Employee Stock Option Plan of the Registrant (filed as an
exhibit to Form S-1 Registration Statement (No. 33-31688) and
incorporated herein by reference.)
10.2 -- 1989 Director Stock Option Plan of the Registrant as amended
(filed as an exhibit to Form 10- Q for the quarter ended June
30, 1995 and incorporated herein by reference.)
*10.3 -- 1995 Incentive Stock Option Plan assumed pursuant to Merger
Agreement.
*10.4 -- Annual Incentive Compensation Plan - Brazos, Inc.
10.5 -- Industrial Lease, dated April 3, 1989, between the Registrant
and Sabey Corporation (filed as an exhibit to Form S-1
Registration Statement (No. 33-31688) and incorporated herein by
reference.)
10.6 -- Tax Claims and Access Agreement, dated as of October 6, 1989,
between the Registrant and David A. Sabey (filed as an exhibit
to Form S-1 Registration Statement (No. 33-31688) and
incorporated herein by reference.)
10.7 -- Form of Indemnification Agreement between the Company and its
directors (filed as an exhibit to Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.)
*10.8 -- Employment Agreement dated October 1, 1996, between Brazos,
Inc. and J. Ford Taylor.
*10.9 -- Employment Agreement dated October 1, 1996, between Brazos,
Inc. and F. Clayton Chambers.
29
<PAGE>
*10.10 -- Employment Agreement, dated August 2, 1996, between Brazos,
Inc. and Alan Elenson.
*10.11 -- Asset Purchase Agreement dated August 2, 1996, with respect to
acquisition of Plymouth Mills, Inc.
*10.12 -- Junior Subordinated Debenture, dated as of August 2, 1996,
payable to Plymouth Mills, Inc. in the principal amount of $4
million.
*10.13 -- Second Amended and Restated Loan and Security Agreement dated
August 9, 1996, as amended, by and between Brazos, Inc., The
First National Bank of Boston and Fleet Capital.
*10.14 -- Investment Agreement dated as of August 9, 1996, as amended, by
and between Brazos, Inc., the Registrant, Equus II Incorporated,
Allied Investment Corporation and Allied Investment Corporation
II.
*10.15 -- Loan Agreement assumed by Brazos Embroidery, Inc.
*10.16 -- Convertible Subordinated Note Agreement with Seafirst Bank.
*21.1 -- Subsidiaries of the Registrant.
*23.1 -- Consent of Price Waterhouse LLP.
*27.1 -- Financial Data Schedule
*Filed herewith.
(B) REPORTS ON FORM 8-K
None.
30
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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, ON THE DAY 11TH OF
APRIL, 1997.
BRAZOS SPORTSWEAR, INC.
BY /s/ J. FORD TAYLOR
J. FORD TAYLOR,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES INDICATED ON THE 11TH DAY OF APRIL, 1997.
SIGNATURE TITLE
--------- -----
/s/ RANDALL B. HALE Director and Chairman of the Board
Randall B. Hale
/s/ J. FORD TAYLOR Director, President and Chief Executive
J. Ford Taylor Officer
/s/ F. CLAYTON CHAMBERS Director, Principal Financial and
F. Clayton Chambers Accounting Officer
/s/ MICHAEL S. CHADWICK Director
Michael S. Chadwick
/s/ NOLAN LEHMANN Director
Nolan Lehmann
Director
Alan Elenson
31
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
BRAZOS SPORTSWEAR, INC.
I. NAME
The name of the corporation is Brazos Sportswear, Inc.
II. DURATION
The corporation is organized under the General Corporation Law of Delaware
and shall have perpetual existence.
III. REGISTERED OFFICE AND AGENT
The corporation's registered office in the state of Delaware shall be
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Zip Code 19801. The registered agent in charge
thereof shall be The Corporation Trust Company.
IV. PURPOSE
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
V. STOCK AND STOCKHOLDERS
5.1 The aggregate number of shares of stock that the corporation is
authorized to issue is forty million (40,000,000), consisting of fifteen million
(15,000,000) shares of Common Stock with a par value of one-tenth of one cent
($.001) per share (the "Common Stock") and twenty-five million (25,000,000)
shares of Preferred Stock with a par value of one-tenth of one cent ($.001) per
share (the "Preferred Stock"), consisting of 650,000 shares of Series A-1
Preferred Stock, par value $.001 per share, 300,000 shares of Series A-2
Preferred Stock, par value $.001 per share, 8,000,000 shares of Series B-1
Convertible Preferred Stock, par value $.001 per share, 4,000,000 shares of
Series B-2 Convertible Preferred Stock, par value $.001 per share, and 3,500,000
shares of Series B-3 Convertible Preferred Stock, par value $.001 per share,
having such voting powers,
1
<PAGE>
preferences and relative, participating, optional and other rights, and the
qualifications, limitations or restrictions set forth in Section VI below.
The corporation may issue one or more series of Preferred Stock. The
Preferred Stock of each such series shall have such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional, redemption, conversion, exchange or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed by the Board of Directors in the resolution or resolutions
providing for the issuance of such series of Preferred Stock pursuant to the
authority to do so which is hereby expressly vested in the Board of Directors.
Except as otherwise provided in any resolution or resolutions of the Board
of Directors providing for the issuance of any series of Preferred Stock, the
number of shares of stock of any such series set forth in such resolution or
resolutions may be increased or decreased (but not below the number of shares of
such series then outstanding) by a resolution or resolutions of the Board of
Directors.
Except as otherwise provided in any resolution or resolutions of the Board
of Directors providing for the issuance of any series of Preferred Stock,
Preferred Stock redeemed or otherwise acquired by the corporation shall assume
the status of authorized but unissued Preferred Stock and shall be unclassified
as to series and may thereafter, subject to the provisions of this Article V and
to any restrictions contained in any resolution or resolutions of the Board of
Directors providing for the issuance of any such series of Preferred Stock, be
reissued in the same manner as other authorized but unissued Preferred Stock.
Except as otherwise required by law or as provided in any resolution or
resolutions of the Board of Directors providing for the issuance of any series
of Preferred Stock, the voting power of the corporation shall be vested in the
Common Stock of the corporation and the holders of the Preferred Stock shall
have no right or power to vote on any question or in any proceeding involving
the corporation. Each share of Common Stock entitles the holder thereof to one
vote at all meetings of the stockholders of the corporation.
5.2 Stockholders of the corporation shall not have the right to cumulate
votes with respect to elections of directors in the manner prescribed by Title
8, Section 214, of the General Corporation Law of Delaware.
5.3 A quorum shall exist at any meeting of stockholders if a majority of
the votes entitled to be cast is represented in person or by proxy. In the case
of
2
<PAGE>
any meeting of stockholders that is adjourned more than once because of the
failure of a quorum to attend, those who attend the third convening of such
meeting, although less than a quorum, shall nevertheless constitute a quorum for
the purpose of electing directors, provided that the percentage of shares
represented at the third convening of such meeting shall not be less than one
third of the shares entitled to vote.
5.4 Except in circumstances where special stockholder voting requirements
are prescribed by applicable law or as otherwise provided in this Certificate,
any contract, transaction, or act of the corporation or of any director or
officer of the corporation that shall be authorized, approved or ratified by the
affirmative vote of a majority of shares shall, insofar as permitted by law, be
as valid and as binding as though ratified by every stockholder of the
corporation.
5.5 No stockholder of the corporation shall have, solely by reason of
being a stockholder, any preemptive or preferential right or subscription right
to any stock of the corporation or to any obligations convertible into stock of
the corporation, or to any warrant or option for the purchase thereof, except to
the extent provided by written agreement with the corporation or as otherwise
provided in this Certificate.
5.6 Special meetings of the stockholders for any purpose or purposes may
be called at any time only by a majority of the Board of Directors or the
Chairman of the Board (if one be appointed) or the President or one or more
stockholders holding not less than twenty-five percent (25%) of all the shares
entitled to be cast on any issue proposed to be considered at that meeting.
5.7 The Board of Directors shall have the authority to issue shares of the
capital stock of the corporation and the certificates therefor subject to such
transfer restrictions and other limitations as it may deem necessary to promote
compliance with applicable federal and state securities laws, and to regulate
the transfer thereof in such manner as may be calculated to promote such
compliance or for any other reasonable purpose.
VI. PREFERRED STOCK
6.1 DESIGNATION. Six Hundred Fifty Thousand (650,000) shares of Preferred
Stock shall be designated "Series A-1 Preferred Stock" (herein referred to as
"Series A-1 Preferred Stock), each of the par value of $.001 per share, and
having the voting powers, preferences and relative, participating, optional and
other rights, and the qualifications, limitations or restrictions set forth
below:
3
<PAGE>
6.1.1 DEFINITIONS. For purposes of Section 6.1 hereof, the following
terms shall have the following definitions or shall be subject to the following
rules of construction:
a. "Board of Directors" means the Board of Directors of the
Corporation.
b. "Common Stock" means shares of the Corporation's Common
Stock, no par value per share.
c. "Major Transaction" means a single transaction or a series
of transactions having the effect of (i) the sale, transfer, lease or conveyance
of all or substantially all of the properties and assets of the Corporation to
any other corporation or corporations or other person or persons (other than a
subsidiary of the Corporation), (ii) the sale, transfer or conveyance (other
than in a merger or consolidation of the Corporation) of all or substantially
all of the issued and outstanding voting securities of the Corporation to any
other corporation or corporations or other person or persons or (iii) the merger
or consolidation of the Corporation with or into any other corporation or
corporations or entity or entities in which the Corporation is not the sole
surviving corporation or continuing corporation, other than a consolidation or
merger in which the holders of shares of the Common Stock immediately preceding
such consolidation or merger receive, directly or indirectly, (A) 50% or more of
the common stock of the sole surviving or continuing corporation outstanding
immediately following the consummation of such merger or consolidation and (B)
securities representing 50% or more of the combined voting power of the voting
stock of the sole surviving or continuing corporation outstanding immediately
following the consummation of such merger or consolidation.
d. "Mandatory Redemption Date" means the later of (i) the
redemption or conversion of all of the shares of Senior Preferred Stock or (ii)
December 31, 2003.
e. The term "outstanding", when used with reference to shares
of capital stock, shall mean issued shares, excluding shares held by the
Corporation or a subsidiary of the Corporation.
f. "Preferred Stock" means shares of any series of the
Corporation's Preferred Stock, $.001 par value per share.
4
<PAGE>
g. "Qualified Public Offering" means the underwritten public
offering of Common Stock by the Corporation for cash for its own account
pursuant to a registration statement filed under the Securities Act (other than
any registration statement relating to warrants, options or shares of capital
stock of the Corporation granted or to be granted or sold primarily to
employees, directors, or officers of the Corporation, a registration statement
filed pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to employee benefit plans or interests therein
or any registration statement covering securities issued in connection with any
debt financing of the Corporation), in which the net offering proceeds to be
received by the Corporation are at least $15,000,000.
h. "Securities Act" means the Securities Act of 1933, as
amended.
i. "Senior Loan Agreement" means (i) any loan, credit or other
similar agreement, together with all notes, debentures, security agreements and
other loan documents executed and delivered in connection therewith, evidencing
any indebtedness of the Corporation or any successor entity for money
heretofore, now or hereafter borrowed by the Corporation or any successor entity
(or by any subsidiary of the Corporation or any successor entity and guaranteed
by the Corporation or any successor entity) from one or more banks, financial
institutions or other institutional lenders and (ii) upon consummation of the
merger contemplated under that certain Plan and Agreement of Merger dated
November 13, 1996 ("Merger Agreement"), between the Corporation and BSI
Holdings, Inc. ("BSI"), (A) any item set forth in clause (i) above with respect
to BSI or any successor entity (or by any subsidiary of BSI or any successor
entity and guaranteed by BSI) including, without limitation, (x) the Second
Amended and Restated Loan and Security Agreement dated as of August 9, 1996,
among Brazos Sportswear, Inc., a Texas corporation and subsidiary of BSI
("Brazos") and Fleet Capital Corporation, as agent for itself and The First
National Bank of Boston, as such Agreement may thereafter from time to time be
amended, supplemented or restated and (y) those certain Debentures of Brazos
dated August 9, 1996, payable to Allied Investment Corporation and Allied
Investment Corporation II, in the original maximum principal amount of
$3,500,000, (B) the Company's Junior Subordinated Debenture dated as of August
2, 1996, payable to the order of Plymouth Mills, Inc., in the original principal
balance of $4,000,000 and (C) the Company's Junior Subordinated Debenture dated
as of September 30, 1996, payable to the order of Plymouth Mills, Inc., with
respect to 50% of the Earnout Amount determined pursuant to Section 1.2(d) of
that certain Asset Purchase Agreement, dated August 2, 1996, between, among
others, Brazos and Plymouth Mills, Inc.
5
<PAGE>
j. "Senior Preferred Stock" means, collectively, the Series
B-1 Preferred Stock, the Series B-2 Preferred Stock and the Series B-3 Preferred
Stock.
k. "Series A-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-1 Preferred Stock, $.001 par
value per share.
l. "Series A-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-2 Preferred Stock, $.001 par
value per share.
m. "Series B-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-1 Preferred Stock, $.001 par
value per share.
n. "Series B-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-2 Preferred Stock, $.001 par
value per share.
o. "Series B-3 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-3 Preferred Stock, $.001 par
value per share.
6.1.2 DIVIDENDS. The holders of shares of Series A-1 Preferred Stock
shall be entitled to receive dividends on account of such shares only when and
as declared by the Board of Directors out of funds legally available therefor.
The declaration or payment of dividends in respect of any other class or series
of the Corporation's stock by authority of the Board of Directors shall not
confer upon the holders of the Series A-1 Preferred Stock any right or
preference to receive any dividend in respect of such shares. If the Corporation
declares or pays any dividend in respect of any shares of its Series A-2
Preferred Stock, the Corporation shall simultaneously therewith declare or pay a
dividend in respect of the Series A-1 Preferred Stock in the same form and the
same amount per share as declared or paid in respect of the Series A-2 Preferred
Stock.
6.1.3 REDEMPTION.
a. MANDATORY REDEMPTION. On the earliest to occur of (i)
consummation of (x) a Major Transaction or (y) a Qualified Public Offering or
(ii) the
6
<PAGE>
Mandatory Redemption Date, the Corporation shall redeem, out of funds legally
available therefor, all of the shares of Series A-1 Preferred Stock then
outstanding, at a redemption price of $1.00 per share.
b. OPTIONAL REDEMPTION. At any time while any shares of Series
A-1 Preferred Stock are outstanding, and provided that no shares of Series A-2
Preferred Stock or Senior Preferred Stock are then outstanding, the Corporation,
at the option of the Board of Directors, may redeem from the holders of Series
A-1 Preferred Stock, out of funds legally available therefor, at a redemption
price of $1.00 per share, all or any portion of the shares of Series A-1
Preferred Stock outstanding on such date. Written notice of such redemption of
the shares of Series A-1 Preferred Stock to be so redeemed shall be mailed,
postage prepaid, to the holders of record of the shares to be so redeemed at
their respective addresses then appearing on the stock books of the Corporation,
not less than ten nor more than 60 days prior to the date designated for such
redemption. In case less than all of the outstanding shares of Series A-1
Preferred Stock are to be redeemed under this Section 6.1.3(b), the
Corporation's notice shall state and such redemption shall be made on a pro rata
basis in accordance with each holder's respective holdings of Series A-1
Preferred Stock. Notwithstanding any provision contained in this Section
6.1.3(b) to the contrary, in no event shall the Corporation redeem any shares of
Series A-1 Preferred Stock under this Section 6.1.3(b), nor shall any holders of
such shares accept payment upon such redemption, if at the time of such
redemption there exists a default or event of default within the meaning of any
Senior Loan Agreement or such redemption would cause a default or event of
default under any Senior Loan Agreement.
c. GENERAL. From and after the effective date of redemption
and the setting aside of the funds necessary for redemption, notwithstanding
that any certificate for shares of Series A-1 Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares to be
redeemed shall no longer be deemed outstanding, and the holders of certificates
representing such shares shall have with respect to such shares no rights in or
with respect to the Corporation except the right to receive, upon the surrender
of such certificates, the redemption price therefor. Shares of Series A-1
Preferred Stock redeemed by the Corporation pursuant to this Section 6.1.3, or
shares of Series A-1 Preferred Stock otherwise purchased by the Corporation,
shall not be reissued and shall be canceled and retired.
6.1.4 PREFERENCE ON LIQUIDATION, DISSOLUTION OR WINDING UP.
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a. DEFINITION. A consolidation or merger of the Corporation, a
sale or transfer of substantially all of its assets as an entirety, or any
purchase or redemption of capital stock of the Corporation of any class, shall
not be regarded as "liquidation, dissolution or winding up of the affairs of the
Corporation" within the meaning of this Section 6.1.4.
b. SERIES A-1 PREFERRED STOCK. During any proceedings for the
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation and subject to the rights of the Senior Preferred Stock, the
holders of the Series A-1 Preferred Stock shall be entitled to receive, PARI
PASSU with the holders of the Series A-2 Preferred Stock in accordance with
their respective interests (subject to offset as provided under the Purchase
Agreement as defined in Section 6.1.8), but before any distribution of the
assets of the Corporation shall be made in respect of the outstanding Common
Stock, an amount in cash for each share of Series A-1 Preferred Stock equal to
$1.00, or funds necessary for such payment shall have been set aside in trust
for the account of the holders of the outstanding Series A-1 Preferred Stock so
as to be and continue available therefor. If upon such liquidation, dissolution
or winding up, the assets distributable to the holders of the Series A-1
Preferred Stock as aforesaid shall be insufficient to permit the payment to them
of $1.00 per share and the payment to the holders of the Series A-2 Preferred
Stock as aforesaid, the assets of the Corporation shall be distributed to the
holders of the Series A-1 Preferred Stock and the Series A-2 Preferred Stock
ratably (subject to such offset provisions) until they shall have received the
full amount to which they would otherwise be entitled. If the assets of the
Corporation are sufficient to permit the payment of such amounts to the holders
of the Series A-1 Preferred Stock and the Series A-2 Preferred Stock as
aforesaid, the remainder of the assets of the Corporation, if any, after the
distribution as aforesaid shall be distributed and divided ratably among the
holders of the Common Stock then outstanding according to their respective
shares.
6.1.5 NO CONVERSION. The Series A-1 Preferred Stock shall not be
convertible into Common Stock or any other stock or other securities of the
Corporation.
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6.1.6 VOTING RIGHTS.
a. The Corporation shall not, without the consent of the
holders of at least a majority of the shares of the outstanding Series A-1
Preferred Stock, adopt any amendment to this Certificate which would alter or
change the powers, preferences or special rights of the Series A-1 Preferred
Stock so as to affect them adversely, PROVIDED that no such consent shall be
required with respect to (i) any amendment to this Certificate that increases or
decreases the number of shares of Series A-1 Preferred Stock which the
Corporation is authorized to issue (provided that no such amendment shall reduce
the number of authorized shares to below the number of shares then outstanding),
or (ii) the establishment or issuance of any other series of Preferred Stock or
any other class of stock of the Corporation that has any powers, preferences or
rights that are different from, greater than, superior to or in preference of
the Series A-1 Preferred Stock.
b. Except as provided in paragraph (a) above or otherwise
required by law, the holders of Series A-1 Preferred Stock shall have no right
or power to vote on the election of directors or on any other question or in any
proceedings involving the Corporation.
6.1.7 FINANCIAL STATEMENTS. For so long as any shares of Series A-1
Preferred Stock are outstanding, the Corporation shall deliver to each holder of
Series A-1 Preferred Stock, at such holder's address then appearing on the books
of the Corporation, a copy of the following financial statements of the
Corporation:
a. Within 45 days after the end of each fiscal quarter of the
Corporation, the unaudited interim consolidated financial statements of the
Corporation and its consolidated subsidiaries at the end of such fiscal quarter
and for the period of operations then ended; and
b. Within 120 days after the end of each fiscal year of the
Corporation, the audited consolidated financial statements of the Corporation
and its consolidated subsidiaries at the end of such fiscal year and for the
period of operations then ended, together with the audit report of the
Corporation's independent certified public accountants thereon.
6.1.8 OFFSET. All shares of Series A-1 Preferred Stock shall (unless
otherwise expressly indicated in any resolution of the Board of Directors
authorizing the issuance of any such shares, which fact shall be noted on any
certificate representing such shares) be issued pursuant to an Asset Purchase
Agreement dated effective December 1, 1995 (the "Purchase Agreement") among
Brazos
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Embroidery, Inc., a Pennsylvania corporation, Needleworks, Inc., a Pennsylvania
corporation, and Old Mill Holdings, Inc., a Delaware corporation, reference to
which is made herein for all pertinent purposes. The redemption price per share
determined pursuant to Section 6.1.3 of this Certificate, and the amount per
share to which each holder of the Series A-1 Preferred Stock is entitled to
receive upon any liquidation, dissolution or winding up of the affairs of the
Corporation pursuant to Section 6.1.4 of this Certificate, are subject to a
right of offset in favor of the Corporation to the extent and in the manner set
forth in Section 10.4 of the Purchase Agreement.
6.1.9 EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law,
the shares of Series A-1 Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth herein.
6.2 DESIGNATION. Three Hundred Thousand (300,000) shares of Preferred
Stock shall be designated "Series A-2 Preferred Stock" (herein referred to as
"Series A-2 Preferred Stock"), each of the par value of $.001 per share, and
having the voting powers, preferences and relative, participating, optional and
other rights, and the qualifications, limitations or restrictions set forth
below:
6.2.1 DEFINITIONS. For purposes of Section 6.2 hereof, the following
terms shall have the following definitions or shall be subject to the following
rules of construction:
(a) "Board of Directors" means the Board of Directors of the
Corporation.
b. "Common Stock" means shares of the Corporation's Common
Stock, no par value per share.
c. "Major Transaction" means a single transaction or a series
of transactions having the effect of (i) the sale, transfer, lease or conveyance
of all or substantially all of the properties and assets of the Corporation to
any other corporation or corporations or other person or persons (other than a
subsidiary of the Corporation), (ii) the sale, transfer or conveyance (other
than in a merger or consolidation of the Corporation) of all or substantially
all of the issued and outstanding voting securities of the Corporation to any
other corporation or corporations or other person or persons or (iii) the merger
or consolidation of the Corporation with or into any other corporation or
corporations or entity or entities in which the Corporation is not the sole
surviving corporation or continuing
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corporation, other than a consolidation or merger in which the holders of shares
of the Common Stock immediately preceding such consolidation or merger receive,
directly or indirectly, (A) 50% or more of the common stock of the sole
surviving or continuing corporation outstanding immediately following the
consummation of such merger or consolidation and (B) securities representing 50%
or more of the combined voting power of the voting stock of the sole surviving
or continuing corporation outstanding immediately following the consummation of
such merger or consolidation.
d. "Mandatory Redemption Date" means the later of (i) the
redemption or conversion of all of the shares of Senior Preferred Stock or (ii)
December 31, 2003.
e. The term "outstanding", when used with reference to shares
of capital stock, shall mean issued shares, excluding shares held by the
Corporation or a subsidiary of the Corporation.
f. "Preferred Stock" means shares of any series of the
Corporation's Preferred Stock, $.001 par value per share.
g. "Qualified Public Offering" means the underwritten public
offering of Common Stock by the Corporation for cash for its own account
pursuant to a registration statement filed under the Securities Act (other than
any registration statement relating to warrants, options or shares of capital
stock of the Corporation granted or to be granted or sold primarily to
employees, directors, or officers of the Corporation, a registration statement
filed pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to employee benefit plans or interests therein
or any registration statement covering securities issued in connection with any
debt financing of the Corporation), in which the net offering proceeds to be
received by the Corporation are at least $15,000,000.
h. "Securities Act" means the Securities Act of 1933, as
amended.
i. "Senior Preferred Stock" means, collectively, the Series
B-1 Preferred Stock, the Series B-2 Preferred Stock and the Series B-3 Preferred
Stock.
j. "Senior Loan Agreement" means (i) any loan, credit or other
similar agreement, together with all notes, debentures, security agreements
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and other loan documents executed and delivered in connection therewith,
evidencing any indebtedness of the Corporation or any successor entity for money
heretofore, now or hereafter borrowed by the Corporation or any successor entity
(or by any subsidiary of the Corporation or any successor entity and guaranteed
by the Corporation or any successor entity) from one or more banks, financial
institutions or other institutional lenders and (ii) upon consummation of the
merger contemplated under that certain Plan and Agreement of Merger dated
November 13, 1996 ("Merger Agreement"), between the Corporation and BSI
Holdings, Inc. ("BSI"), (A) any item set forth in clause (i) above with respect
to BSI or any successor entity (or by any subsidiary of BSI or any successor
entity and guaranteed by BSI) including, without limitation, (x) the Second
Amended and Restated Loan and Security Agreement dated as of August 9, 1996,
among Brazos Sportswear, Inc., a Texas corporation and subsidiary of BSI
("Brazos") and Fleet Capital Corporation, as agent for itself and The First
National Bank of Boston, as such Agreement may thereafter from time to time be
amended, supplemented or restated and (y) those certain Debentures of Brazos
dated August 9, 1996, payable to Allied Investment Corporation and Allied
Investment Corporation II, in the original maximum principal amount of
$3,500,000, (B) the Company's Junior Subordinated Debenture dated as of August
2, 1996, payable to the order of Plymouth Mills, Inc., in the original principal
balance of $4,000,000 and (C) the Company's Junior Subordinated Debenture dated
as of September 30, 1996, payable to the order of Plymouth Mills, Inc., with
respect to 50% of the Earnout Amount determined pursuant to Section 1.2(d) of
that certain Asset Purchase Agreement, dated August 2, 1996, between, among
others, Brazos and Plymouth Mills, Inc.
k. "Series A-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-1 Preferred Stock, $.001 par
value per share.
l. "Series A-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-2 Preferred Stock, $.001 par
value per share.
m. "Series B-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-1 Preferred Stock, $.001 par
value per share.
n. "Series B-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-2 Preferred Stock, $.001 par
value per share.
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o. "Series B-3 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-3 Preferred Stock, $.001 par
value per share.
6.2.2 DIVIDENDS. The holders of shares of Series A-2 Preferred Stock
shall be entitled to receive dividends on account of such shares only when and
as declared by the Board of Directors out of funds legally available therefor.
The declaration or payment of dividends in respect of any other class or series
of the Corporation's stock by authority of the Board of Directors shall not
confer upon the holders of the Series A-2 Preferred Stock any right or
preference to receive any dividend in respect of such shares. If the Corporation
declares or pays any dividend in respect of any shares of its Series A-1
Preferred Stock, the Corporation shall simultaneously therewith declare or pay a
dividend in respect of the Series A-2 Preferred Stock in the same form and the
same amount per share as declared or paid in respect of the Series A-1 Preferred
Stock.
6.2.3 REDEMPTION.
a. MANDATORY REDEMPTION. On the earliest to occur of (i)
consummation of a (x) Major Transaction or (y) a Qualified Public Offering or
(ii) the Mandatory Redemption Date, the Corporation shall redeem, out of funds
legally available therefor, all of the shares of Series A-2 Preferred Stock then
outstanding, at a redemption price of $1.00 per share.
b. OPTIONAL REDEMPTION. At any time while any shares of Series
A-2 Preferred Stock are outstanding, and provided that no shares of Senior
Preferred Stock are then outstanding, the Corporation, at the option of the
Board of Directors, may redeem from the holders of Series A-2 Preferred Stock,
out of funds legally available therefor, at a redemption price of $1.00 per
share, all or any portion of the shares of Series A-2 Preferred Stock
outstanding on such date. Written notice of such redemption of the shares of
Series A-2 Preferred Stock to be so redeemed shall be mailed, postage prepaid,
to the holders of record of the shares to be so redeemed at their respective
addresses then appearing on the stock books of the Corporation, not less than
ten nor more than 60 days prior to the date designated for such redemption. In
case less than all of the outstanding shares of Series A-2 Preferred Stock are
to be redeemed under this Section 6.2.3(b), the Corporation's notice shall state
and such redemption shall be made on a pro rata basis in accordance with each
holder's respective holdings of Series A-2 Preferred Stock. Notwithstanding any
provision contained in this Section 6.2.3(b) to the contrary, in no event shall
the Corporation redeem any shares of Series A-2 Preferred Stock under this
Section 6.2.3(b), nor shall any holders of such shares
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accept payment upon such redemption, if at the time of such redemption there
exists a default or event of default within the meaning of any Senior Loan
Agreement or such redemption would cause a default or event of default under any
Senior Loan Agreement.
c. GENERAL. From and after the effective date of redemption
and the setting aside of the funds necessary for redemption, notwithstanding
that any certificate for shares of Series A-2 Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares to be
redeemed shall no longer be deemed outstanding, and the holders of certificates
representing such shares shall have with respect to such shares no rights in or
with respect to the Corporation except the right to receive, upon the surrender
of such certificates, the redemption price therefor. Shares of Series A-2
Preferred Stock redeemed by the Corporation pursuant to this Section 6.2.3, or
shares of Series A-2 Preferred Stock otherwise purchased by the Corporation,
shall not be reissued and shall be canceled and retired.
6.2.4 PREFERENCE ON LIQUIDATION, DISSOLUTION OR WINDING UP.
a. DEFINITION. A consolidation or merger of the Corporation, a
sale or transfer of substantially all of its assets as an entirety, or any
purchase or redemption of capital stock of the Corporation of any class, shall
not be regarded as "liquidation, dissolution or winding up of the affairs of the
Corporation" within the meaning of this Section 6.2.4.
b. SERIES A-2 PREFERRED STOCK. During any proceedings for the
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation and subject to the rights of the Senior Preferred Stock, the
holders of the Series A-2 Preferred Stock shall be entitled to receive, PARI
PASSU with the holders of the Series A-1 Preferred Stock in accordance with
their respective interests (subject to offset as provided under the Purchase
Agreement as defined in Section 6.2.8), but before any distribution of the
assets of the Corporation shall be made in respect of the outstanding Common
Stock, an amount in cash for each share of Series A-2 Preferred Stock equal to
$1.00, or funds necessary for such payment shall have been set aside in trust
for the account of the holders of the outstanding Series A-2 Preferred Stock so
as to be and continue available therefor. If upon such liquidation, dissolution
or winding up, the assets distributable to the holders of the Series A-2
Preferred Stock as aforesaid shall be insufficient to permit the payment to them
of $1.00 per share and the payment to the holders of the Series A-1 Preferred
Stock as aforesaid, the assets of the Corporation shall be distributed to the
holders of the Series A-2 Preferred Stock and the Series A-1 Preferred Stock
ratably (subject to such offset provisions) until they shall have received the
full amount to which they would otherwise be entitled. If the assets of the
Corporation are sufficient to permit the payment of such amounts to the holders
of the Series A-2 Preferred Stock and the Series A-1
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Preferred Stock as aforesaid, the remainder of the assets of the Corporation, if
any, after the distribution as aforesaid shall be distributed and divided
ratably among the holders of the Common Stock then outstanding according to
their respective shares.
6.2.5 NO CONVERSION. The Series A-2 Preferred Stock shall not be
convertible into Common Stock or any other stock or other securities of the
Corporation.
6.2.6 VOTING RIGHTS.
a. The Corporation shall not, without the consent of the
holders of at least a majority of the shares of the outstanding Series A-2
Preferred Stock, adopt any amendment to this Certificate which would alter or
change the powers, preferences or special rights of the Series A-2 Preferred
Stock so as to affect them adversely, PROVIDED that no such consent shall be
required with respect to (i) any amendment to this Certificate that increases or
decreases the number of shares of Series A-2 Preferred Stock which the
Corporation is authorized to issue (provided that no such amendment shall reduce
the number of authorized shares to below the number of shares then outstanding),
or (ii) the establishment or issuance of any other series of Preferred Stock or
any other class of stock of the Corporation that has any powers, preferences or
rights that are different from, greater than, superior to or in preference of
the Series A-2 Preferred Stock.
b. Except as provided in paragraph (a) above or otherwise
required by law, the holders of Series A-2 Preferred Stock shall have no right
or power to vote on the election of directors or on any other question or in any
proceedings involving the Corporation.
6.2.7 FINANCIAL STATEMENTS. For so long as any shares of Series A-2
Preferred Stock are outstanding, the Corporation shall deliver to each holder of
Series A-2 Preferred Stock, at such holder's address then appearing on the books
of the Corporation, a copy of the following financial statements of the
Corporation:
a. Within 45 days after the end of each fiscal quarter of the
Corporation, the unaudited interim consolidated financial statements of the
Corporation and its consolidated subsidiaries at the end of such fiscal quarter
and for the period of operations then ended; and
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b. Within 120 days after the end of each fiscal year of the
Corporation, the audited consolidated financial statements of the Corporation
and its consolidated subsidiaries at the end of such fiscal year and for the
period of operations then ended, together with the audit report of the
Corporation's independent certified public accountants thereon.
6.2.8 OFFSET. All shares of Series A-2 Preferred Stock shall (unless
otherwise expressly indicated in any resolution of the Board of Directors
authorizing the issuance of any such shares, which fact shall be noted on any
certificate representing such shares) be issued pursuant to an Asset Purchase
Agreement dated effective December 1, 1995 (the "Purchase Agreement") among
Brazos Embroidery, Inc., a Pennsylvania corporation, Needleworks, Inc., a
Pennsylvania corporation, and Old Mill Holdings, Inc., a Delaware corporation,
reference to which is made herein for all pertinent purposes. The redemption
price per share determined pursuant to Section 6.2.3 of this Certificate, and
the amount per share to which each holder of the Series A-2 Preferred Stock is
entitled to receive upon any liquidation, dissolution or winding up of the
affairs of the Corporation pursuant to Section 6.2.4 of this Certificate, are
subject to a right of offset in favor of the Corporation to the extent and in
the manner set forth in Section 10.4 of the Purchase Agreement.
6.2.9 EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law,
the shares of Series A-2 Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth herein.
6.3 DESIGNATION. Eight Million (8,000,000) shares of Preferred Stock shall
be designated "Series B-1 Preferred Stock" (herein after referred to as "Series
B-1 Preferred Stock"), each of the par value of $.001 per share, and having the
voting powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations or restrictions set forth below:
6.3.1 DEFINITIONS. For purposes of Section 6.3 hereof, the following
terms shall have the following definitions or shall be subject to the following
rules of construction:
a. "Board of Directors" means the Board of Directors of the
Corporation.
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b. "Brazos" means Brazos Sportswear, Inc., a Texas corporation
and subsidiary of the Corporation.
c. "Common Stock" means shares of the Corporation's Common
Stock, no par value per share.
d. "Junior Stock" means, collectively, the Common Stock, the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock.
e. "Mandatory Redemption Date" means the earlier to occur of
(i) the date of consummation of a Qualified Public Offering, but only to the
extent the offering price per share of Common Stock is less than $17.50 (as
adjusted for stock splits, combinations and other similar corporate events),
(ii) the date of consummation of a Sale, or (iii) December 31, 2003.
f. "Market Price" of a share of Common Stock on any given date
means (i) the closing sales price of a share of Common Stock as reported on the
principal securities exchange on which shares of Common Stock are then listed or
admitted to trading or (ii) if not so reported, the average of the closing bid
and asked prices for a share of Common Stock as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii)
if not quoted on NASDAQ, the average of the closing bid and asked prices for a
share of Common Stock as quoted by the National Quotation Bureau's "Pink Sheets"
or the National Association of Securities Dealers OTC Bulletin Board System. If
the price of a share of Common Stock shall not be so reported, the Market Price
of a share of Common Stock shall be determined by the Board in its absolute
discretion.
g. The term "outstanding," when used with reference to shares
of capital stock, shall mean issued shares, excluding shares held by the
Corporation or a subsidiary of the Corporation.
h. "Preferred Stock" means shares of any series of the
Corporation's Preferred Stock, $.001 par value per share.
i. "Qualified Public Offering" means the underwritten public
offering of Common Stock by the Corporation for cash for its own account
pursuant to a registration statement filed under the Securities Act (other than
any registration statement relating to warrants, options or shares of capital
stock of the Corporation granted or to be granted or sold primarily to
employees, directors, or officers of the Corporation, a registration statement
filed pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to
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employee benefit plans or interests therein or any registration statement
covering securities issued in connection with any debt financing of the
Corporation), in which the net offering proceeds to be received by the
Corporation are at least $15,000,000.
j. "Quarterly Dividend Date" means the last day of each March,
June, September and December in each year in which any shares of Series B-1
Preferred Stock are outstanding.
k. "Sale" means a single transaction or a series of related
transactions having the effect of (i) the sale, transfer, lease or conveyance of
all or substantially all of the properties and assets of the Corporation to any
other corporation or corporations or other person or persons (other than a
subsidiary of the Corporation), (ii) the sale, transfer or conveyance (other
than in a merger or consolidation of the Corporation) of all or substantially
all of the issued and outstanding voting securities of the Corporation to any
other corporation or corporations or other person or persons or (iii) the merger
or consolidation of the Corporation with or into any other corporation or
corporations or entity or entities in which the Corporation is not the sole
surviving corporation or continuing corporation, other than a consolidation or
merger in which the holders of shares of the Common Stock immediately preceding
such consolidation or merger receive, directly or indirectly, (A) 50% or more of
the common stock of the sole surviving or continuing corporation outstanding
immediately following the consummation of such merger or consolidation and (B)
securities representing 50% or more of the combined voting power of the voting
stock of the sole surviving or continuing corporation outstanding immediately
following the consummation of such merger or consolidation.
l. "Securities Act" means the Securities Act of 1933, as
amended.
m. "Senior Loan Agreement" means (i) any loan, credit or other
similar agreement, together with all notes, debentures, security agreements and
other loan documents executed and delivered in connection therewith, evidencing
any indebtedness of the Corporation or any successor entity for money
heretofore, now or hereafter borrowed by the Corporation or any successor entity
(or by any subsidiary of the Corporation or any successor entity and guaranteed
by the Corporation or any successor entity) from one or more banks, financial
institutions or other institutional lenders and (ii) upon consummation of the
merger contemplated under that certain Plan and Agreement of Merger dated
November 13, 1996 ("Merger Agreement"), between the Corporation and BSI
Holdings, Inc.
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("BSI"), (A) any item set forth in clause (i) above with respect to BSI or any
successor entity (or by any subsidiary of BSI or any successor entity and
guaranteed by BSI) including, without limitation, (x) the Second Amended and
Restated Loan and Security Agreement dated as of August 9, 1996, among Brazos
Sportswear, Inc., a Texas corporation and subsidiary of BSI ("Brazos") and Fleet
Capital Corporation, as agent for itself and The First National Bank of Boston,
as such Agreement may thereafter from time to time be amended, supplemented or
restated and (y) those certain Debentures of Brazos dated August 9, 1996,
payable to Allied Investment Corporation and Allied Investment Corporation II,
in the original maximum principal amount of $3,500,000, (B) the Company's Junior
Subordinated Debenture dated as of August 2, 1996, payable to the order of
Plymouth Mills, Inc., in the original principal balance of $4,000,000 and (C)
the Company's Junior Subordinated Debenture dated as of September 30, 1996,
payable to the order of Plymouth Mills, Inc., with respect to 50% of the Earnout
Amount determined pursuant to Section 1.2(d) of that certain Asset Purchase
Agreement, dated August 2, 1996, between, among others, Brazos and Plymouth
Mills, Inc.
n. "Senior Preferred Stock" means, collectively, the Series
B-2 Preferred Stock and the Series B-3 Preferred Stock.
o. "Series A-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-1 Preferred Stock, $.001 par
value per share.
p. "Series A-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-2 Preferred Stock, $.001 par
value per share.
q. "Series B-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-1 Preferred Stock, $.001 par
value per share.
r. "Series B-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-2 Preferred Stock, $.001 par
value per share.
s. "Series B-3 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-3 Preferred Stock, $.001 par
value per share.
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t. All accounting terms used herein and not expressly defined
herein shall have the meanings given to them in accordance with generally
accepted accounting principles consistently applied and in effect as of the date
of the relevant calculation.
6.3.2 DIVIDENDS. The holders of Series B-1 Preferred Stock, in
preference to the holders of Junior Stock, shall be entitled to receive, but
only to the extent of funds legally available therefor, cumulative, preferential
dividends at the annual rate of $.08 per share, payable as hereafter described.
Such dividends shall commence to accrue on the shares of Series B-1 Preferred
Stock and be cumulative from and after the date of issuance of such shares of
Series B-1 Preferred Stock and shall be deemed to accumulate and accrue from day
to day thereafter. Dividends under this Section 6.3.2 shall be payable quarterly
in arrears so long as the Series B-1 Preferred Stock is outstanding, on or
before each Quarterly Dividend Date. Other than dividends payable incident to a
redemption of the Series B-1 Preferred Stock under Section 6.3.3 below or a
conversion of the Series B-1 Preferred Stock under Section 6.3.5 below or in
respect of fractional shares as described below, all dividends on the Series B-1
Preferred Stock hereunder shall be payable not in cash, but rather by the
Corporation's issuance and delivery to each record holder of Series B-1
Preferred Stock of a number of additional shares of Series B-1 Preferred Stock
determined by dividing the amount of each such dividend by $1.00. Within 30 days
after each Quarterly Dividend Date, the Corporation shall issue and deliver to
each record holder of Series B-1 Preferred Stock on such Quarterly Dividend Date
one or more certificates evidencing the number of whole shares of Series B-1
Preferred Stock payable as a dividend to such holder as provided above, and such
shares, when so issued and delivered, shall be deemed fully paid and
nonassessable shares of the Corporation's Series B-1 Preferred Stock. No
fractional shares of Series B-1 Preferred Stock or scrip will be issued in
respect of fractional interests resulting from any dividend hereunder; in lieu
of any fractional shares of Series B-1 Preferred Stock which may be issued as
aforesaid, the holders thereof instead shall receive a cash payment in an amount
equal to the product of such fraction multiplied by $1.00. So long as any of the
Series B-1 Preferred Stock remains outstanding, no dividends or distributions
(other than dividends or distributions on Common Stock payable in Common Stock)
shall be paid upon, or declared or set apart for, any Junior Stock, nor shall
any Junior Stock (other than Common Stock acquired in exchange for, or out of
the cash proceeds of, the issue of other Common Stock or out of cash
contributions to the capital of the Corporation) be purchased, redeemed, retired
or otherwise acquired by the Corporation, unless and until in either case all
cumulative dividends on the then outstanding shares of Series B-1 Preferred
Stock shall have been or concurrently shall be paid.
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6.3.3 REDEMPTION.
a. MANDATORY REDEMPTION. Subject to the provisions of Section
6.3.3(d), on the Mandatory Redemption Date, the Corporation shall redeem, out of
funds legally available therefor, all of the shares of Series B-1 Preferred
Stock then outstanding, at a redemption price of $1.00 per share (plus all
accrued and unpaid dividends thereon through such date as provided in Section
6.3.3(c) below).
b. OPTIONAL REDEMPTION.
i. Subject to the provisions of Section 6.3.3(d) and
provided no shares of Senior Preferred Stock are then outstanding, at any time
while any shares of Series B-1 Preferred Stock are outstanding, the Corporation,
at the option of the Board of Directors, may redeem from the holders of the
Series B-1 Preferred Stock, at a redemption price of $1.00 per share (plus all
accrued and unpaid dividends thereon through the date designated for redemption
as provided in Section 6.3.3(c) below), all or any portion of Series B-1
Preferred Stock outstanding on the date designated for such redemption. In case
less than all of the outstanding shares of Series B-1 Preferred Stock are to be
redeemed under this Section 6.3.3(b)(i), such redemption shall be made on a pro
rata basis in accordance with each holder's respective holdings of such shares
as of the date designated for redemption.
ii. In addition to the optional redemption pursuant to
Section 6.3.3(b)(i) and subject to the provisions of Section 6.3.3(d), at any
time while any shares of Series B-1 Preferred Stock are outstanding, the
Corporation, at the option of the Board of Directors, may redeem from the
holders of Series B-1 Preferred Stock, out of funds legally available therefor,
at a redemption price of $.001 per share (plus all accrued and unpaid dividends
thereon through the date designated for redemption as provided in Section
6.3.3(c) below), all but not less than all, of the shares of Series B-1
Preferred Stock outstanding on the date set for redemption, provided that the
right of the Corporation to redeem the shares of Series B-1 Preferred Stock
under this Section 6.3.3(b)(ii) is subject to the Company mailing the redemption
notice in accordance with Section 6.3.3(d) within 30 days following any period
of 20 consecutive trading days during which the Market Price per share of the
Common Stock is at or above $17.50 per share (as adjusted for stock splits,
combinations and other similar corporate events).
iii. Notwithstanding any provision contained in this
Section 6.3.3(b) to the contrary, in no event shall the Corporation redeem any
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shares of Series B-1 Preferred Stock under this Section 6.3.3(b), nor shall any
holders of such shares accept payment upon such redemption, if at the time of
such redemption there exists a default or event of default within the meaning of
any Senior Loan Agreement or such redemption would cause a default or event of
default under any Senior Loan Agreement.
c. ACCRUED DIVIDENDS. Upon any mandatory or optional
redemption under paragraph (a) or (b) above, the Corporation shall,
simultaneously with the making of any such redemption, pay to the holders of the
Series B-1 Preferred Stock being redeemed all dividends accrued and unpaid on
the shares being redeemed through the date of redemption; provided, however,
that in case of the payment of dividends under this paragraph (c), such
dividends shall be paid in cash, and not in shares of Series B-1 Preferred Stock
as provided in Section 6.3.2 above.
d. GENERAL.
i. The Corporation shall provide written notice of any
mandatory or optional redemption under this Section 6.3.3, not less than 30 days
prior to the date fixed or designated for such redemption, to the holders of
record as of the relevant record date of the shares of Series B-1 Preferred
Stock to be so redeemed at their respective addresses then appearing on the
stock books of the Corporation. Each redemption notice to be provided under this
Section 6.3.3 shall be by certified mail, return receipt requested and shall
specify (i) the redemption date, (ii) the redemption price per share and (iii)
the place for payment and for delivering necessary transfer instruments to be
executed by the holder in order for the holder to receive the redemption price.
No holder of shares of Series B-1 Preferred Stock redeemed in accordance with
this Section 6.3.3 shall be entitled to receive payment of the redemption price
for such shares until such holder causes to be delivered in accordance with the
redemption notice the stock certificate representing the shares so redeemed and
transfer instructions satisfactory to the Company.
ii. From and after the effective date of redemption and
the setting aside of the funds necessary for redemption, notwithstanding that
any certificate for shares of Series B-1 Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares to be
redeemed shall no longer be deemed outstanding, and the holders of certificates
representing such shares shall have with respect to such shares no rights in or
with respect to the Corporation except the right to receive, upon the surrender
of such certificates, the redemption price therefor. Shares of Series B-1
Preferred Stock redeemed by the
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Corporation pursuant to this Section 6.3.3 shall not be reissued and shall be
canceled and retired.
6.3.4 PREFERENCE ON LIQUIDATION, DISSOLUTION OR WINDING UP.
a. DEFINITION. A consolidation or merger of the Corporation, a
sale or transfer of substantially all of its assets as an entirety, or any
purchase or redemption of capital stock of the Corporation of any class, shall
not be regarded as "liquidation, dissolution or winding up of the affairs of the
Corporation" within the meaning of this Section 6.3.4.
b. SERIES B-1 PREFERRED STOCK. During any proceedings for the
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation and subject to the rights of the Senior Preferred Stock, the
holders of the Series B-1 Preferred Stock shall be entitled to receive $1.00 in
cash for each share of Series B-1 Preferred Stock (together with all accrued and
unpaid dividends on each share of Series B-1 Preferred Stock), before any
distribution of the assets of the Corporation shall be made in respect of the
outstanding Junior Stock, or funds necessary for such payment shall have been
set aside in trust for the account of the holders of the outstanding Series B-1
Preferred Stock so as to be and continue available therefor. If upon such
liquidation, dissolution or winding up, the assets distributable to the holders
of the Series B-1 Preferred Stock as aforesaid shall be insufficient to permit
the payment to them of such $1.00 per share (plus such accrued and unpaid
dividends), the assets of the Corporation shall be distributed to the holders of
the Series B-1 Preferred Stock ratably until they shall have received the full
amount to which they would otherwise be entitled. If the assets of the
Corporation are sufficient to permit the payment of such amounts to the holders
of the Series B-1 Preferred Stock, the remainder of the assets of the
Corporation, if any, after the distribution as aforesaid shall be distributed
and divided ratably among the holders of the Junior Stock then outstanding
according to their respective shares, interests and priorities.
6.3.5 CONVERSION RIGHTS. The Series B-1 Preferred Stock shall be
convertible as follows:
a. OPTIONAL CONVERSION. Subject to and upon compliance with
the provisions of this Section 6.3.5, the holder of any shares of Series B-1
Preferred Stock shall have the right at such holder's option, at any time prior
to the close of business on the date fixed for redemption, and without the
payment of any additional consideration therefor, to convert any of such shares
of Series B-1 Preferred Stock into fully paid and nonassessable shares of Common
Stock at the
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Conversion Ratio (as defined in Section 6.3.5(d) below) in effect on any
Conversion Date (as defined in Section 6.3.5(e) below) upon the terms
hereinafter set forth.
b. AUTOMATIC CONVERSION. Each outstanding share of Series B-1
Preferred Stock shall automatically convert, without any further act of the
Corporation or its stockholders, at the Conversion Ratio then in effect, into
fully paid and nonassessable shares of Common Stock upon the consummation of a
Qualified Public Offering, provided that the per share offering price to the
public is not less than $3.50 per share (as adjusted for stock splits,
combinations and similar corporate events).
c. ACCRUED DIVIDENDS. Upon any optional or automatic
conversion under paragraph (a) or (b) above, the Corporation shall
simultaneously with such conversion, pay to the holders of the Series B-1
Preferred Stock being converted all dividends accrued and unpaid on the shares
being converted through the date of conversion; provided, however, that in case
of payment of dividends under this paragraph (c), such dividends shall be paid
in cash, and not in shares of Series B-1 Preferred Stock as provided in Section
6.3.2 above.
d. CONVERSION RATIO. Each share of Series B-1 Preferred Stock
shall be convertible pursuant to Sections 6.3.5(a) and 6.3.5(b) into a number of
shares of Common Stock determined by dividing (x) $1.00 (the liquidation value
per share) by (y) the Conversion Factor in effect on any Conversion Date (the
"Conversion Ratio"). For the purposes of this Section 6.3.5, the term
"Conversion Factor" initially shall mean $11.00.
e. MECHANICS OF CONVERSION. The holder of any shares of Series
B-1 Preferred Stock may exercise the conversion right specified in Section
6.3.5(a) by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be converted.
Upon the occurrence of automatic conversion pursuant to Section 6.3.5(b), the
outstanding shares of Series B-1 Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided that the Corporation shall not be
obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of Series B-1 Preferred Stock are delivered either to the Corporation or any
transfer agent of the Corporation. Conversion shall be deemed to have been
effected on the date when delivery of notice of an election to convert and of
certificates for shares being converted is
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made or on the date specified in Section 6.3.5(b), as the case may be, and such
date is referred to herein as the "Conversion Date." Subject to the provisions
of Section 6.3.5(g)(iii), as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing shares of Series B-1
Preferred Stock to the Corporation or any transfer agent of the Corporation in
the case of conversion pursuant to Section 6.3.5(b)) the Corporation shall issue
and deliver to or upon the written order of such holder a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check or cash with respect to any fractional interest in a
share of Common Stock as provided in Section 6.3.5(f). Subject to the provisions
of Section 6.3.5(g)(iii), the person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of record of such Common Stock on the applicable Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Series B-1 Preferred Stock surrendered for conversion (in
the case of conversion pursuant to Section 6.3.5(a)), the Corporation shall
issue and deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series B-1 Preferred Stock
representing the unconverted portion of the certificate so surrendered.
f. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued upon conversion of shares of Series B-1 Preferred Stock.
If more than one share of Series B-1 Preferred Stock is surrendered for
conversion at any one time by the same holder or is held by the same holder at
the time of any automatic conversion, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares so surrendered or held, as the case may be. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series B-1 Preferred Stock, the Corporation shall
pay out of funds legally available therefor a cash adjustment in respect of such
fractional interest, rounded to the nearest one hundredth (1/100th) of a share,
in an amount equal to that fractional interest of the then Market Price, rounded
to the nearest cent ($.01), of one share of Common Stock.
g. CONVERSION FACTOR ADJUSTMENTS. The Conversion Factor shall
be subject to adjustment from time to time as follows:
i. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS
OR COMBINATIONS. If the Corporation shall (x) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (y) subdivide or
reclassify the
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outstanding shares of Common Stock into a greater number of shares of Common
Stock or (z) combine or reclassify the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, the Conversion Factor in effect at the
time of the record date for such dividend or distribution or the effective date
of such subdivision, combination or reclassification shall be adjusted to that
number determined by multiplying the Conversion Factor in effect by a fraction
(x) the numerator of which shall be the total number of issued and outstanding
shares of Common Stock immediately prior to such dividend, distribution,
subdivision, combination or reclassification and (y) the denominator of which
shall be the total number of issued and outstanding shares of Common Stock
immediately after such dividend, distribution, subdivision, combination or
reclassification. Successive adjustments in the Conversion Factor shall be made
whenever any event specified above shall occur.
ii. ROUNDING OF CALCULATIONS: MINIMUM ADJUSTMENT.
All calculations under this Section 6.3.5(g) shall be made to the nearest cent
($.01) or to the nearest one hundredth (1/100th) of a share, as the case may be.
Any provision of this Section 6.3.5 to the contrary notwithstanding, no
adjustment in the Conversion Factor shall be made if the amount of such
adjustment would be less than 1% of the then current Conversion Factor until the
end of one year after such adjustment otherwise would have been required; but
any such amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate 1% of the then current Conversion Factor or more, provided that
if the events giving rise to such adjustments occur within three months of each
other, then such adjustments shall be calculated as if the events giving rise to
them had occurred simultaneously on the date of the first such event.
iii. TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK
UPON CERTAIN ADJUSTMENTS. In any case in which the provisions of this Section
6.3.5(g) provide that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of such
event (x) issuing to the holder of any share of Series B-1 Preferred Stock
converted after such record date and before the occurrence of such event, the
additional shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Common Stock
issuable upon such conversion before giving effect to such adjustment and (y)
paying to such holder any amount of cash in lieu of a fractional share of Common
Stock pursuant to Section 6.3.5(f); provided that the Corporation upon request
shall deliver to such holder a due bill or other appropriate instrument
evidencing
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such holder's right to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.
h. COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any shares of Series B-1 Preferred
Stock; provided that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in the name other than that of the
holder of the shares of Series B-1 Preferred Stock in respect of which such
shares are being issued.
6.3.6 VOTING RIGHTS.
a. The Corporation shall not, without the consent of the
holders of at least a majority of the shares of the outstanding Series B-1
Preferred Stock, adopt any amendment to this Certificate which would alter or
change the powers, preferences or special rights of the Series B-1 Preferred
Stock so as to affect them adversely, PROVIDED that except as otherwise required
by law, no such consent shall be required with respect to (i) any amendment to
this Certificate that increases or decreases the number of shares of Series B-1
Preferred Stock which the Corporation is authorized to issue (provided that no
such amendment shall reduce the number of authorized shares to below the number
of shares then outstanding), or (ii) the establishment or issuance of any other
series of Preferred Stock or any other class of stock of the Corporation that
has any powers, preferences or rights that are different from, greater than,
superior to or in preference of the Series B-1 Preferred Stock.
b. Except as provided in paragraph (a) above or otherwise
required by law, the holders of Series B-1 Preferred Stock shall have no right
or power to vote on the election of directors or on any other question or in any
proceedings involving the Corporation.
6.3.7 RIGHT OF FIRST REFUSAL. If any holder of Series B-1 Preferred
Stock desires to sell, assign, transfer or otherwise dispose of any shares of
Series B-1 Preferred Stock, then such holder (for purposes of this Section
6.3.7, the "Selling Stockholder"), prior to making any such sale, shall first
offer such shares of Series B-1 Preferred Stock (for purposes of this Section
6.3.7, the "Option Shares") for sale to the Corporation and then to the other
holders of the Series B-1 Preferred Stock on a pro rata basis as hereafter
provided, in accordance with the following provisions of this Section 6.3.7.
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a. OPTION PRICE, TERMS; OFFERING NOTICES. The price per Option
Share at which the Selling Stockholder shall be required to offer the Option
Shares (for purposes of this Section 6.3.7, the "Option Price") and the terms of
such offer, shall be the price at which and the terms upon which any proposed
third party purchaser shall have offered to purchase the Option Shares from the
Selling Stockholder and which the Selling Stockholder is prepared to accept.
Each offer required to be made by the Selling Stockholder pursuant to this
Section 6.3.7 shall be made by a written notice (for purposes of this Section
6.3.7, the "Offering Notice") which shall state that the offer is being made
pursuant to this Section 6.3.7 and which shall set forth the number of Option
Shares, the name or names of the proposed purchaser or purchasers of the Option
Shares, the price per share offered by such proposed purchaser or purchasers for
the Option Shares, the method of payment of the purchase price and the scheduled
date of consummation of such proposed sale. A copy of the written offer from any
proposed third-party purchaser shall be attached to each Offering Notice.
b. OFFER TO THE CORPORATION. The Selling Stockholder shall
offer the option Shares to the Corporation by delivering an offering Notice to
the Corporation. Within 30 days following the Corporation's receipt of such
Offering Notice, the Corporation shall deliver to the Selling Stockholder a
reply notice accepting the offer of the Selling Stockholder with respect to all
(but not less than all) of the Option Shares or rejecting such offer. If by such
reply notice the Corporation accepts the offer made by the Selling Stockholder,
the reply notice shall constitute an agreement binding on the Selling
Stockholder and the Corporation to sell and purchase the option Shares at a
price per share equal to the option Price. If within such 30-day period, the
Corporation shall have failed to deliver a reply notice accepting the offer of
the Selling Stockholder as to all of the Option Shares, the Corporation shall be
deemed to have rejected such offer. If the Corporation rejects or intends to
reject such offer, it shall mail a notice to such effect to every record holder
(other than the Selling Stockholder) of the Series B-1 Preferred Stock as of the
date of the Corporation's receipt of the Offering Notice. (collectively,
"Remaining Stockholders"); which notice of the Corporation shall also include a
copy of the Offering Notice.
c. OFFER TO REMAINING STOCKHOLDERS. If the Corporation rejects
or is deemed to have rejected the foregoing offer under paragraph (b) above,
then the Selling Stockholder shall thereupon be deemed to have offered the
Option Shares to the Remaining Stockholders on the same price and terms set
forth in the Offering Notice. Such offer shall be made on a pro rata basis in
accordance with each Remaining Stockholder's holdings of Series B-1 Preferred
Stock on the date of
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the Offering Notice; provided, however, that prior to acceptance of such offer,
any one or more Remaining Stockholders may agree among themselves as to a
different allocation for purposes of accepting such offer. Within 30 days
following the date of the Corporation's notice referred to in paragraph (b)
above, each Remaining Stockholder desiring to accept such offer shall deliver to
the Selling Stockholder a reply notice accepting the offer of the Selling
Stockholder with respect to all (but not less than all) of such Remaining
Stockholder's pro rata portion of the Option Shares, or rejecting such offer;
provided, however, that prior to expiration of such 30-day period, the Selling
Stockholder shall have received reply notices from Remaining Stockholders as to
all (but not less than all) of all Option Shares being offered. If by such reply
notice(s) the Remaining Stockholders collectively accept the offer made by the
Selling Stockholder, such reply notice(s) shall constitute an agreement binding
on the Selling Stockholder and each such Remaining Stockholder (severally, but
not jointly) to sell and purchase the Option Shares at a price per share equal
to the Option Price. If within such 30-day period, the Remaining Stockholders
collectively shall have failed to deliver one or more reply notices accepting
the offer of the Selling Stockholder as to all of the Option Shares, the
Remaining Stockholders shall be deemed to have rejected such offer.
d. LAPSE OF OPTION. If the foregoing offer to sell Option
Shares has been made by the Selling Stockholder and has not been accepted by the
Corporation or the Remaining Stockholders, then the Selling Stockholder may sell
not less than all of the Option Shares at any time within, but not subsequent
to, 60 days after the lapse of the option granted pursuant to this Section
6.3.7; provided, however, that no sale of the option Shares shall be made at any
price lower than the Option Price or on terms materially different from those
specified in the Offering Notice or to any person or persons other than the
persons specified in the Offering Notice. If after the lapse of such 60-day
period the Option Shares shall not have been sold, all of the provisions of this
Section 6.3.7 shall apply to any future sale or other disposition of shares of
Series B-1 Preferred Stock owned by the Selling Stockholder.
e. CONSUMMATION OF PURCHASES. Each transaction of purchase and
sale of Option Shares pursuant to this Section 6.3.7 shall be completed by
delivery of the stock certificates representing the Option Shares endorsed in
blank, or accompanied by duly executed stock powers, and by actual registration
of the transfer of the Option Shares on the books of the Corporation upon
payment of the purchase price to the Selling Stockholder. Any such transaction
shall be closed at such time and place as shall be agreed upon by the parties
thereto, or, if no such agreement is reached, at the principal office of the
Corporation on the 30th day following the date of delivery of the last reply
notice
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given in connection with such transaction or, if such day shall not be a
business day, on the first business day thereafter during normal business hours.
6.3.8 EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law,
the shares of Series B-1 Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth herein.
6.4 DESIGNATION. Four Million (4,000,000) shares of Preferred Stock shall
be designated "Series B-2 Preferred Stock" (herein referred to as "Series B-2
Preferred Stock"), each of the par value of $.001 per share, and having the
voting powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations or restrictions set forth below:
6.4.1 DEFINITIONS. For purposes of Section 6.4 hereof, the following
terms shall have the following definitions or shall be subject to the following
rules of construction:
(a) "Board of Directors" means the Board of
Directors of the Corporation.
b. "Brazos" means Brazos Sportswear, Inc., a Texas corporation
and subsidiary of the Corporation.
c. "Common Stock" means shares of the Corporation's Common
Stock, no par value per share.
d. "Junior Stock" means, collectively, the Common Stock, the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Series B-1
Preferred Stock.
e. "Mandatory Redemption Date" means the earlier to occur of
(i) the date of consummation of a Qualified Public Offering, but only to the
extent the offering price per share of Common Stock is less than $17.50 (as
adjusted for stock splits, combinations and other similar corporate events),
(ii) the date of consummation of a Sale, or (iii) December 31, 2003.
f. "Market Price" of a share of Common Stock on any given date
means (i) the closing sales price of a share of Common Stock as reported on the
principal securities exchange on which shares of Common Stock are then listed or
admitted to trading or (ii) if not so reported, the average of the closing bid
and asked prices for a share of Common Stock as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii)
if not quoted on NASDAQ, the average of the closing bid
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and asked prices for a share of Common Stock as quoted by the National Quotation
Bureau's "Pink Sheets" or the National Association of Securities Dealers OTC
Bulletin Board System. If the price of a share of Common Stock shall not be so
reported, the Market Price of a share of Common Stock shall be determined by the
Board in its absolute discretion.
g. The term "outstanding," when used with reference to shares
of capital stock, shall mean issued shares, excluding shares held by the
Corporation or a subsidiary of the Corporation.
h. "Preferred Stock" means shares of any series of the
Corporation's Preferred Stock, $.001 par value per share.
i. "Qualified Public Offering" means the underwritten public
offering of Common Stock by the Corporation for cash for its own account
pursuant to a registration statement filed under the Securities Act (other than
any registration statement relating to warrants, options or shares of capital
stock of the Corporation granted or to be granted or sold primarily to
employees, directors, or officers of the Corporation, a registration statement
filed pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to employee benefit plans or interests therein
or any registration statement covering securities issued in connection with any
debt financing of the Corporation), in which the net offering proceeds to be
received by the Corporation are at least $15,000,000.
j. "Quarterly Dividend Date" means the last day of each March,
June, September and December in each year in which any shares of Series B-2
Preferred Stock are outstanding.
k. "Sale" means a single transaction or a series of related
transactions having the effect of (i) the sale, transfer, lease or conveyance of
all or substantially all of the properties and assets of the Corporation to any
other corporation or corporations or other person or persons (other than a
subsidiary of the Corporation), (ii) the sale, transfer or conveyance (other
than in a merger or consolidation of the Corporation) of all or substantially
all of the issued and outstanding voting securities of the Corporation to any
other corporation or corporations or other person or persons or (iii) the merger
or consolidation of the Corporation with or into any other corporation or
corporations or entity or entities in which the Corporation is not the sole
surviving corporation or continuing
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corporation, other than a consolidation or merger in which the holders of shares
of the Common Stock immediately preceding such consolidation or merger receive,
directly or indirectly, (A) 50% or more of the common stock of the sole
surviving or continuing corporation outstanding immediately following the
consummation of such merger or consolidation and (B) securities representing 50%
or more of the combined voting power of the voting stock of the sole surviving
or continuing corporation outstanding immediately following the consummation of
such merger or consolidation.
l. "Securities Act" means the Securities Act of 1933, as
amended.
m. "Senior Loan Agreement" means (i) any loan, credit or other
similar agreement, together with all notes, debentures, security agreements and
other loan documents executed and delivered in connection therewith, evidencing
any indebtedness of the Corporation or any successor entity for money
heretofore, now or hereafter borrowed by the Corporation or any successor entity
(or by any subsidiary of the Corporation or any successor entity and guaranteed
by the Corporation or any successor entity) from one or more banks, financial
institutions or other institutional lenders and (ii) upon consummation of the
merger contemplated under that certain Plan and Agreement of Merger dated
November 13, 1996 ("Merger Agreement"), between the Corporation and BSI
Holdings, Inc. ("BSI"), (A) any item set forth in clause (i) above with respect
to BSI or any successor entity (or by any subsidiary of BSI or any successor
entity and guaranteed by BSI) including, without limitation, (x) the Second
Amended and Restated Loan and Security Agreement dated as of August 9, 1996,
among Brazos Sportswear, Inc., a Texas corporation and subsidiary of BSI
("Brazos") and Fleet Capital Corporation, as agent for itself and The First
National Bank of Boston, as such Agreement may thereafter from time to time be
amended, supplemented or restated and (y) those certain Debentures of Brazos
dated August 9, 1996, payable to Allied Investment Corporation and Allied
Investment Corporation II, in the original maximum principal amount of
$3,500,000, (B) the Company's Junior Subordinated Debenture dated as of August
2, 1996, payable to the order of Plymouth Mills, Inc., in the original principal
balance of $4,000,000 and (C) the Company's Junior Subordinated Debenture dated
as of September 30, 1996, payable to the order of Plymouth Mills, Inc., with
respect to 50% of the Earnout Amount determined pursuant to Section 1.2(d) of
that certain Asset Purchase Agreement, dated August 2, 1996, between, among
others, Brazos and Plymouth Mills, Inc.
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n. "Series A-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-1 Preferred Stock, $.001 par
value per share.
o. "Series A-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-2 Preferred Stock, $.001 par
value per share.
p. "Series B-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-1 Preferred Stock, $.001 par
value per share.
q. "Series B-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-2 Preferred Stock, $.001 par
value per share.
r. "Series B-3 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-3 Preferred Stock, $.001 par
value per share.
s. All accounting terms used herein and not expressly defined
herein shall have the meanings given to them in accordance with generally
accepted accounting principles consistently applied and in effect as of the date
of the relevant calculation.
6.4.2 DIVIDENDS. The holders of Series B-2 Preferred Stock, in
preference to the holders of Series A-2 Preferred Stock, Series A-1 Preferred
Stock and the Common Stock, shall be entitled to receive, but only to the extent
of funds legally available therefor, cumulative, preferential dividends at the
annual rate of $.08 per share, payable as hereafter described. Such dividends
shall commence to accrue on the shares of Series B-2 Preferred Stock and be
cumulative from and after the date of issuance of such shares of Series B-2
Preferred Stock and shall be deemed to accumulate and accrue from day to day
thereafter. Dividends under this Section 6.4.2 shall be payable quarterly in
arrears so long as the Series B-2 Preferred Stock is outstanding, on or before
each Quarterly Dividend Date. Other than dividends payable incident to a
redemption of the Series B-2 Preferred Stock under Section 6.4.3 below or a
conversion of the Series B-2 Preferred Stock under Section 6.4.5 below or in
respect of fractional shares as described below, all dividends on the Series B-2
Preferred Stock hereunder shall be payable not in cash, but rather by the
Corporation's issuance and delivery to each record holder of Series B-2
Preferred Stock of a number of additional shares of Series B-2 Preferred
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Stock determined by dividing the amount of each such dividend by $1.00. Within
30 days after each Quarterly Dividend Date, the Corporation shall issue and
deliver to each record holder of Series B-2 Preferred Stock on such Quarterly
Dividend Date one or more certificates evidencing the number of whole shares of
Series B-2 Preferred Stock payable as a dividend to such holder as provided
above, and such shares, when so issued and delivered, shall be deemed fully paid
and nonassessable shares of the Corporation's Series B-2 Preferred Stock. No
fractional shares of Series B-2 Preferred Stock or scrip will be issued in
respect of fractional interests resulting from any dividend hereunder; in lieu
of any fractional shares of Series B-2 Preferred Stock which may be issued as
aforesaid, the holders thereof instead shall receive a cash payment in an amount
equal to the product of such fraction multiplied by $1.00. So long as any of the
Series B-2 Preferred Stock remains outstanding, no dividends or distributions
(other than dividends or distributions on Common Stock payable in Common Stock)
shall be paid upon, or declared or set apart for, any Series A-2 Preferred
Stock, Series A-1 Preferred Stock and Common Stock, nor shall any of such stock
(other than Common Stock acquired in exchange for, or out of the cash proceeds
of, the issue of other Common Stock or out of cash contributions to the capital
of the Corporation) be purchased, redeemed, retired or otherwise acquired by the
Corporation, unless and until in either case all cumulative dividends on the
then outstanding shares of Series B-2 Preferred Stock shall have been or
concurrently shall be paid.
6.4.3 REDEMPTION.
a. MANDATORY REDEMPTION. Subject to the provisions of Section
6.4.3(d), on the Mandatory Redemption Date, the Corporation shall redeem, out of
funds legally available therefor, all of the shares of Series B-2 Preferred
Stock then outstanding, at a redemption price of $1.00 per share (plus all
accrued and unpaid dividends thereon through such date as provided in Section
6.4.3(c) below).
b. OPTIONAL REDEMPTION.
i. Subject to the provisions of Section 6.4.3(d) and
provided no shares of Series B-3 Preferred Stock are then outstanding, at any
time while any shares of Series B-2 Preferred Stock are outstanding, the
Corporation, at the option of the Board of Directors, may redeem from the
holders of the Series B-2 Preferred Stock, at a redemption price of $1.00 per
share (plus all accrued and unpaid dividends thereon through the date designated
for redemption as provided in Section 6.4.3(c) below), all or any portion of
Series B-2 Preferred Stock outstanding on the date designated for such
redemption. In case less than all of the
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outstanding shares of Series B-2 Preferred Stock are to be redeemed under this
Section 6.4.3(b)(i), such redemption shall be made on a pro rata basis in
accordance with each holder's respective holdings of such shares as of the date
designated for redemption.
ii. In addition to the optional redemption pursuant to
Section 6.4.3(b)(i) and subject to the provisions of Section 6.4.3(d), at any
time while any shares of Series B-2 Preferred Stock are outstanding, the
Corporation, at the option of the Board of Directors, may redeem from the
holders of Series B-2 Preferred Stock, out of funds legally available therefor,
at a redemption price of $.001 per share (plus all accrued and unpaid dividends
thereon through the date designated for redemption as provided in Section
6.4.3(c) below), all but not less than all, of the shares of Series B-2
Preferred Stock outstanding on the date set for redemption, provided that the
right of the Corporation to redeem the shares of Series B-2 Preferred Stock
under this Section 6.4.3(b)(ii) is subject to the Company mailing the redemption
notice in accordance with Section 6.4.3(d) within 30 days following any period
of 20 consecutive trading days during which the Market Price per share of the
Common Stock is at or above $17.50 per share (as adjusted for stock splits,
combinations and other similar corporate events).
iii. Notwithstanding any provision contained in this
Section 6.4.3(b) to the contrary, in no event shall the Corporation redeem any
shares of Series B-2 Preferred Stock under this Section 6.4.3(b), nor shall any
holders of such shares accept payment upon such redemption, if at the time of
such redemption there exists a default or event of default within the meaning of
any Senior Loan Agreement or such redemption would cause a default or event of
default under any Senior Loan Agreement.
c. ACCRUED DIVIDENDS. Upon any mandatory or optional
redemption under paragraph (a) or (b) above, the Corporation shall,
simultaneously with the making of any such redemption, pay to the holders of the
Series B-2 Preferred Stock being redeemed all dividends accrued and unpaid on
the shares being redeemed through the date of redemption; provided, however,
that in case of the payment of dividends under this paragraph (c), such
dividends shall be paid in cash, and not in shares of Series B-2 Preferred Stock
as provided in Section 6.4.2 above.
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d. GENERAL.
i. The Corporation shall provide written notice of any
mandatory or optional redemption under this Section, not less than 30 days prior
to the date fixed or designated for such redemption, to the holders of record as
of the relevant record date of the shares of Series B-2 Preferred Stock to be so
redeemed at their respective addresses then appearing on the stock books of the
Corporation. Each redemption notice to be provided under this Section 6.4.3
shall be by certified mail, return receipt requested and shall specify (i) the
redemption date, (ii) the redemption price per share and (iii) the place for
payment and for delivering necessary transfer instruments to be executed by the
holder in order for the holder to receive the redemption price. No holder of
shares of Series B-2 Preferred Stock redeemed in accordance with this Section
6.4.3 shall be entitled to receive payment of the redemption price for such
shares until such holder causes to be delivered in accordance with the
redemption notice the stock certificate representing the shares so redeemed and
transfer instructions satisfactory to the Company.
ii. From and after the effective date of redemption and
the setting aside of the funds necessary for redemption, notwithstanding that
any certificate for shares of Series B-2 Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares to be
redeemed shall no longer be deemed outstanding, and the holders of certificates
representing such shares shall have with respect to such shares no rights in or
with respect to the Corporation except the right to receive, upon the surrender
of such certificates, the redemption price therefor. Shares of Series B-2
Preferred Stock redeemed by the Corporation pursuant to this Section 6.4.3 shall
not be reissued and shall be canceled and retired.
6.4.4 PREFERENCE ON LIQUIDATION, DISSOLUTION OR WINDING UP.
a. DEFINITION. A consolidation or merger of the Corporation, a
sale or transfer of substantially all of its assets as an entirety, or any
purchase or redemption of capital stock of the Corporation of any class, shall
not be regarded as "liquidation, dissolution or winding up of the affairs of the
Corporation" within the meaning of this Section 6.4.4. a.
b. SERIES B-2 PREFERRED STOCK. During any proceedings for the
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation and subject to the rights of the Series B-3 Preferred Stock,
the
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holders of the Series B-2 Preferred Stock shall be entitled to receive $1.00 in
cash for each share of Series B-2 Preferred Stock (together with all accrued and
unpaid dividends on each share of Series B-2 Preferred Stock), before any
distribution of the assets of the Corporation shall be made in respect of the
outstanding Junior Stock, or funds necessary for such payment shall have been
set aside in trust for the account of the holders of the outstanding Series B-2
Preferred Stock so as to be and continue available therefor. If upon such
liquidation, dissolution or winding up, the assets distributable to the holders
of the Series B-2 Preferred Stock as aforesaid shall be insufficient to permit
the payment to them of such $1.00 per share (plus such accrued and unpaid
dividends), the assets of the Corporation shall be distributed to the holders of
the Series B-2 Preferred Stock ratably until they shall have received the full
amount to which they would otherwise be entitled. If the assets of the
Corporation are sufficient to permit the payment of such amounts to the holders
of the Series B-2 Preferred Stock, the remainder of the assets of the
Corporation, if any, after the distribution as aforesaid shall be distributed
and divided ratably among the holders of the Junior Stock then outstanding
according to their respective shares, interests and priorities.
6.4.5 CONVERSION RIGHTS. The Series B-2 Preferred Stock shall be
convertible as follows:
a. OPTIONAL CONVERSION. Subject to and upon compliance with
the provisions of this Section 6.4.5, the holder of any shares of Series B-2
Preferred Stock shall have the right at such holder's option, at any time prior
to the close of business on the date fixed for redemption, and without the
payment of any additional consideration therefor, to convert any of such shares
of Series B-2 Preferred Stock into fully paid and nonassessable shares of Common
Stock at the Conversion Ratio (as defined in Section 6.4.5(d) below) in effect
on any Conversion Date (as defined in Section 6.4.5(e) below) upon the terms
hereinafter set forth.
b. AUTOMATIC CONVERSION. Each outstanding share of Series B-2
Preferred Stock shall automatically convert, without any further act of the
Corporation or its stockholders, at the Conversion Ratio then in effect, into
fully paid and nonassessable shares of Common Stock upon the consummation of a
Qualified Public Offering, provided that the per share offering price to the
public is not less than $3.50 per share (as adjusted for stock splits,
combinations and similar corporate events).
c. ACCRUED DIVIDENDS. Upon any optional or automatic
conversion under paragraph (a) or (b) above, the Corporation shall
simultaneously with such conversion, pay to the holders of the Series B-2
Preferred Stock being converted all dividends accrued and unpaid on the shares
being converted through
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the date of conversion; provided, however, that in case of payment of dividends
under this paragraph (c), such dividends shall be paid in cash, and not in
shares of Series B-2 Preferred Stock as provided in Section 6.4.2 above.
d. CONVERSION RATIO. Each share of Series B-2 Preferred Stock
shall be convertible pursuant to Sections 6.4.5(a) and 6.4.5(b) into a number of
shares of Common Stock determined by dividing (x) $1.00 (the liquidation value
per share) by (y) the Conversion Factor in effect on any Conversion Date (the
"Conversion Ratio"). For the purposes of this Section 6.4.5, the term
"Conversion Factor" initially shall mean $11.00.
e. MECHANICS OF CONVERSION. The holder of any shares of Series
B-2 Preferred Stock may exercise the conversion right specified in Section
6.4.5(a) by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be converted.
Upon the occurrence of automatic conversion pursuant to Section 6.4.5(b), the
outstanding shares of Series B-2 Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided that the Corporation shall not be
obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of Series B-2 Preferred Stock are delivered either to the Corporation or any
transfer agent of the Corporation. Conversion shall be deemed to have been
effected on the date when delivery of notice of an election to convert and of
certificates for shares being converted is made or on the date specified in
Section 6.4.5(b), as the case may be, and such date is referred to herein as the
"Conversion Date." Subject to the provisions of Section 6.4.5(g)(iii), as
promptly as practicable thereafter (and after surrender of the certificate or
certificates representing shares of Series B-2 Preferred Stock to the
Corporation or any transfer agent of the Corporation in the case of conversion
pursuant to Section 6.4.5(b)) the Corporation shall issue and deliver to or upon
the written order of such holder a certificate or certificates for the number of
full shares of Common Stock to which such holder is entitled and a check or cash
with respect to any fractional interest in a share of Common Stock as provided
in Section 6.4.5(f). Subject to the provisions of Section 6.4.5(g)(iii), the
person in whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of record of such Common Stock on
the applicable Conversion Date. Upon conversion of only a portion of the number
of shares covered by a certificate representing shares of Series B-2 Preferred
Stock surrendered for conversion (in the case of conversion pursuant to Section
6.4.5(a)),
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the Corporation shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Series B-2
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
f. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued upon conversion of shares of Series B-2 Preferred Stock.
If more than one share of Series B-2 Preferred Stock is surrendered for
conversion at any one time by the same holder or is held by the same holder at
the time of any automatic conversion, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares so surrendered or held, as the case may be. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series B-2 Preferred Stock, the Corporation shall
pay out of funds legally available therefor a cash adjustment in respect of such
fractional interest, rounded to the nearest one hundredth (1/100th) of a share,
in an amount equal to that fractional interest of the then Market Price, rounded
to the nearest cent ($.01), of one share of Common Stock.
g. CONVERSION FACTOR ADJUSTMENTS. The Conversion Factor shall
be subject to adjustment from time to time as follows:
i. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Corporation shall (x) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (y) subdivide or
reclassify the outstanding shares of Common Stock into a greater number of
shares of Common Stock or (z) combine or reclassify the outstanding shares of
Common Stock into a smaller number of shares of Common Stock, the Conversion
Factor in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted to that number determined by multiplying the
Conversion Factor in effect by a fraction (x) the numerator of which shall be
the total number of issued and outstanding shares of Common Stock immediately
prior to such dividend, distribution, subdivision, combination or
reclassification and (y) the denominator of which shall be the total number of
issued and outstanding shares of Common Stock immediately after such dividend,
distribution, subdivision, combination or reclassification. Successive
adjustments in the Conversion Factor shall be made whenever any event specified
above shall occur.
ii. ROUNDING OF CALCULATIONS: MINIMUM ADJUSTMENT. All
calculations under this Section 6.4.5(g) shall be made to the nearest cent
($.01)
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or to the nearest one hundredth (1/100th) of a share, as the case may be. Any
provision of this Section 6.4.5 to the contrary notwithstanding, no adjustment
in the Conversion Factor shall be made if the amount of such adjustment would be
less than 1% of the then current Conversion Factor until the end of one year
after such adjustment otherwise would have been required; but any such amount
shall be carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
1% of the then current Conversion Factor or more, provided that if the events
giving rise to such adjustments occur within three months of each other, then
such adjustments shall be calculated as if the events giving rise to them had
occurred simultaneously on the date of the first such event.
iii. TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON
CERTAIN ADJUSTMENTS. In any case in which the provisions of this Section
6.4.5(g) provide that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of such
event (x) issuing to the holder of any share of Series B-2 Preferred Stock
converted after such record date and before the occurrence of such event, the
additional shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Common Stock
issuable upon such conversion before giving effect to such adjustment and (y)
paying to such holder any amount of cash in lieu of a fractional share of Common
Stock pursuant to Section 6.4.5(f); provided that the Corporation upon request
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and such cash,
upon the occurrence of the event requiring such adjustment.
h. COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any shares of Series B-2 Preferred
Stock; provided that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in the name other than that of the
holder of the shares of Series B-2 Preferred Stock in respect of which such
shares are being issued.
6.4.6 VOTING RIGHTS. Such share of Series B-2 Preferred Stock shall
have the right to one vote for each share of Common Stock into which such share
of Series B-2 Preferred Stock could then be converted (with any fractional
shares determined on an aggregate conversion basis being rounded to the nearest
whole
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share), and with respect to such vote such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock,
and shall be entitled to notice of any stockholders' meeting in accordance with
the bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any questions or action upon which
holders of Common Stock have the right to vote and shall not vote as a separate
class except as required by law.
6.4.7 RIGHT OF FIRST REFUSAL. If any holder of Series B-2 Preferred
Stock desires to sell, assign, transfer or otherwise dispose of any shares of
Series B-2 Preferred Stock, then such holder (for purposes of this Section
6.4.7, the "Selling Stockholder"), prior to making any such sale, shall first
offer such shares of Series B-2 Preferred Stock (for purposes of this Section
6.4.7, the "Option Shares") for sale to the Corporation and then to the other
holders of the Series B-2 Preferred Stock on a pro rata basis as hereafter
provided, in accordance with the following provisions of this Section 6.4.7.
a. OPTION PRICE, TERMS; OFFERING NOTICES. The price per Option
Share at which the Selling Stockholder shall be required to offer the Option
Shares (for purposes of this Section 6.4.7, the "Option Price") and the terms of
such offer, shall be the price at which and the terms upon which any proposed
third party purchaser shall have offered to purchase the Option Shares from the
Selling Stockholder and which the Selling Stockholder is prepared to accept.
Each offer required to be made by the Selling Stockholder pursuant to this
Section 6.4.7 shall be made by a written notice (for purposes of this Section
6.4.7, the "Offering Notice") which shall state that the offer is being made
pursuant to this Section 6.4.7 and which shall set forth the number of Option
Shares, the name or names of the proposed purchaser or purchasers of the Option
Shares, the price per share offered by such proposed purchaser or purchasers for
the Option Shares, the method of payment of the purchase price and the scheduled
date of consummation of such proposed sale. A copy of the written offer from any
proposed third-party purchaser shall be attached to each Offering Notice.
b. OFFER TO THE CORPORATION. The Selling Stockholder shall
offer the option Shares to the Corporation by delivering an offering Notice to
the Corporation. Within 30 days following the Corporation's receipt of such
Offering Notice, the Corporation shall deliver to the Selling Stockholder a
reply notice accepting the offer of the Selling Stockholder with respect to all
(but not less than all) of the Option Shares or rejecting such offer. If by such
reply notice the Corporation accepts the offer made by the Selling Stockholder,
the reply notice shall constitute an agreement binding on the Selling
Stockholder and the
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Corporation to sell and purchase the option Shares at a price per share equal to
the option Price. If within such 30-day period, the Corporation shall have
failed to deliver a reply notice accepting the offer of the Selling Stockholder
as to all of the Option Shares, the Corporation shall be deemed to have rejected
such offer. If the Corporation rejects or intends to reject such offer, it shall
mail a notice to such effect to every record holder (other than the Selling
Stockholder) of the Series B-2 Preferred Stock as of the date of the
Corporation's receipt of the Offering Notice. (collectively, "Remaining
Stockholders"); which notice of the Corporation shall also include a copy of the
Offering Notice.
c. OFFER TO REMAINING STOCKHOLDERS. If the Corporation rejects
or is deemed to have rejected the foregoing offer under paragraph (b) above,
then the Selling Stockholder shall thereupon be deemed to have offered the
Option Shares to the Remaining Stockholders on the same price and terms set
forth in the Offering Notice. Such offer shall be made on a pro rata basis in
accordance with each Remaining Stockholder's holdings of Series B-2 Preferred
Stock on the date of the Offering Notice; provided, however, that prior to
acceptance of such offer, any one or more Remaining Stockholders may agree among
themselves as to a different allocation for purposes of accepting such offer.
Within 30 days following the date of the Corporation's notice referred to in
paragraph (b) above, each Remaining Stockholder desiring to accept such offer
shall deliver to the Selling Stockholder a reply notice accepting the offer of
the Selling Stockholder with respect to all (but not less than all) of such
Remaining Stockholder's pro rata portion of the Option Shares, or rejecting such
offer; provided, however, that prior to expiration of such 30-day period, the
Selling Stockholder shall have received reply notices from Remaining
Stockholders as to all (but not less than all) of all Option Shares being
offered. If by such reply notice(s) the Remaining Stockholders collectively
accept the offer made by the Selling Stockholder, such reply notice(s) shall
constitute an agreement binding on the Selling Stockholder and each such
Remaining Stockholder (severally, but not jointly) to sell and purchase the
Option Shares at a price per share equal to the Option Price. If within such
30-day period, the Remaining Stockholders collectively shall have failed to
deliver one or more reply notices accepting the offer of the Selling Stockholder
as to all of the Option Shares, the Remaining Stockholders shall be deemed to
have rejected such offer.
d. LAPSE OF OPTION. If the foregoing offer to sell Option
Shares has been made by the Selling Stockholder and has not been accepted by the
Corporation or the Remaining Stockholders, then the Selling Stockholder may sell
not less than all of the Option Shares at any time within, but not subsequent
to, 60 days after the lapse of the option granted pursuant to this Section
6.4.7; provided, however, that no sale of the option Shares shall be made at any
price lower than
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the Option Price or on terms materially different from those specified in the
Offering Notice or to any person or persons other than the persons specified in
the Offering Notice. If after the lapse of such 60-day period the Option Shares
shall not have been sold, all of the provisions of this Section 6.4.7 shall
apply to any future sale or other disposition of shares of Series B-2 Preferred
Stock owned by the Selling Stockholder.
e. CONSUMMATION OF PURCHASES. Each transaction of purchase and
sale of Option Shares pursuant to this Section 6.4.7 shall be completed by
delivery of the stock certificates representing the Option Shares endorsed in
blank, or accompanied by duly executed stock powers, and by actual registration
of the transfer of the Option Shares on the books of the Corporation upon
payment of the purchase price to the Selling Stockholder. Any such transaction
shall be closed at such time and place as shall be agreed upon by the parties
thereto, or, if no such agreement is reached, at the principal office of the
Corporation on the 30th day following the date of delivery of the last reply
notice given in connection with such transaction or, if such day shall not be a
business day, on the first business day thereafter during normal business hours.
6.4.8 EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law,
the shares of Series B-2 Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth herein.
6.5 DESIGNATION. Three Million Five Hundred Thousand (3,500,000) shares of
Preferred Stock shall be designated "Series B-3 Preferred Stock" (herein
referred to as "Series B-3" Preferred Stock"), each of the par value of $.001
per share, and having the voting powers, preferences and relative,
participating, optional and other rights, and the qualifications, limitations or
restrictions set forth below:
6.5.1 DEFINITIONS. For purposes of Section 6.5 hereof, the following
terms shall have the following definitions or shall be subject to the following
rules of construction:
(a) "Board of Directors" means the Board of Directors of the
Corporation.
b. "Brazos" means Brazos Sportswear, Inc., a Texas corporation
and subsidiary of the Corporation.
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c. "Common Stock" means shares of the Corporation's Common
Stock, no par value per share.
d. "Junior Stock" means, collectively, the Common Stock, the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B-1
Preferred Stock and the Series B-2 Preferred Stock.
e. "Mandatory Redemption Date" means the earlier to occur of
(i) the date of consummation of a Qualified Public Offering, but only to the
extent the offering price per share of Common Stock is less than $17.50 (as
adjusted for stock splits, combinations and other similar corporate events),
(ii) the date of consummation of a Sale, or (iii) December 31, 2003.
f. "Market Price" of a share of Common Stock on any given date
means (i) the closing sales price of a share of Common Stock as reported on the
principal securities exchange on which shares of Common Stock are then listed or
admitted to trading or (ii) if not so reported, the average of the closing bid
and asked prices for a share of Common Stock as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii)
if not quoted on NASDAQ, the average of the closing bid and asked prices for a
share of Common Stock as quoted by the National Quotation Bureau's "Pink Sheets"
or the National Association of Securities Dealers OTC Bulletin Board System. If
the price of a share of Common Stock shall not be so reported, the Market Price
of a share of Common Stock shall be determined by the Board in its absolute
discretion.
g. The term "outstanding," when used with reference to shares
of capital stock, shall mean issued shares, excluding shares held by the
Corporation or a subsidiary of the Corporation.
h. "Preferred Stock" means shares of any series of the
Corporation's Preferred Stock, $.001 par value per share.
i. "Qualified Public Offering" means the underwritten public
offering of Common Stock by the Corporation for cash for its own account
pursuant to a registration statement filed under the Securities Act (other than
any registration statement relating to warrants, options or shares of capital
stock of the Corporation granted or to be granted or sold primarily to
employees, directors, or officers of the Corporation, a registration statement
filed pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to employee benefit plans or interests therein
or any registration statement covering securities issued in connection with any
debt financing of the Corporation), in
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which the net offering proceeds to be received by the Corporation are at least
$15,000,000.
j. "Quarterly Dividend Date" means the last day of each March,
June, September and December in each year in which any shares of Series B-3
Preferred Stock are outstanding.
k. "Sale" means a single transaction or a series of related
transactions having the effect of (i) the sale, transfer, lease or conveyance of
all or substantially all of the properties and assets of the Corporation to any
other corporation or corporations or other person or persons (other than a
subsidiary of the Corporation), (ii) the sale, transfer or conveyance (other
than in a merger or consolidation of the Corporation) of all or substantially
all of the issued and outstanding voting securities of the Corporation to any
other corporation or corporations or other person or persons or (iii) the merger
or consolidation of the Corporation with or into any other corporation or
corporations or entity or entities in which the Corporation is not the sole
surviving corporation or continuing corporation, other than a consolidation or
merger in which the holders of shares of the Common Stock immediately preceding
such consolidation or merger receive, directly or indirectly, (A) 50% or more of
the common stock of the sole surviving or continuing corporation outstanding
immediately following the consummation of such merger or consolidation and (B)
securities representing 50% or more of the combined voting power of the voting
stock of the sole surviving or continuing corporation outstanding immediately
following the consummation of such merger or consolidation.
l. "Securities Act" means the Securities Act of 1933, as
amended.
m. "Senior Loan Agreement" (i) any loan, credit or other
similar agreement, together with all notes, debentures, security agreements and
other loan documents executed and delivered in connection therewith, evidencing
any indebtedness of the Corporation or any successor entity for money
heretofore, now or hereafter borrowed by the Corporation or any successor entity
(or by any subsidiary of the Corporation or any successor entity and guaranteed
by the Corporation or any successor entity) from one or more banks, financial
institutions or other institutional lenders and (ii) upon consummation of the
merger contemplated under that certain Plan and Agreement of Merger dated
November 13, 1996 ("Merger Agreement"), between the Corporation and BSI
Holdings, Inc. ("BSI"), (A) any item set forth in clause (i) above with respect
to BSI or any successor entity (or by any subsidiary of BSI or any successor
entity and
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guaranteed by BSI) including, without limitation, (x) the Second Amended and
Restated Loan and Security Agreement dated as of August 9, 1996, among Brazos
Sportswear, Inc., a Texas corporation and subsidiary of BSI ("Brazos") and Fleet
Capital Corporation, as agent for itself and The First National Bank of Boston,
as such Agreement may thereafter from time to time be amended, supplemented or
restated and (y) those certain Debentures of Brazos dated August 9, 1996,
payable to Allied Investment Corporation and Allied Investment Corporation II,
in the original maximum principal amount of $3,500,000, (B) the Company's Junior
Subordinated Debenture dated as of August 2, 1996, payable to the order of
Plymouth Mills, Inc., in the original principal balance of $4,000,000 and (C)
the Company's Junior Subordinated Debenture dated as of September 30, 1996,
payable to the order of Plymouth Mills, Inc., with respect to 50% of the Earnout
Amount determined pursuant to Section 1.2(d) of that certain Asset Purchase
Agreement, dated August 2, 1996, between, among others, Brazos and Plymouth
Mills, Inc.
n. "Series A-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-1 Preferred Stock, $.001 par
value per share.
o. "Series A-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series A-2 Preferred Stock, $.001 par
value per share.
p. "Series B-1 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-1 Preferred Stock, $.001 par
value per share.
q. "Series B-2 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-2 Preferred Stock, $.001 par
value per share.
r. "Series B-3 Preferred Stock" means the series of Preferred
Stock designated by the Corporation as its Series B-3 Preferred Stock, $.001 par
value per share.
s. All accounting terms used herein and not expressly defined
herein shall have the meanings given to them in accordance with generally
accepted accounting principles consistently applied and in effect as of the date
of the relevant calculation.
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6.5.2 DIVIDENDS. The holders of Series B-3 Preferred Stock, in
preference to the holders of Series A-2 Preferred Stock, Series A-1 Preferred
Stock and the Common Stock, shall be entitled to receive, but only to the extent
of funds legally available therefor, cumulative, preferential dividends at the
annual rate of $.08 per share, payable as hereafter described. Such dividends
shall commence to accrue on the shares of Series B-3 Preferred Stock and be
cumulative from and after the date of issuance of such shares of Series B-3
Preferred Stock and shall be deemed to accumulate and accrue from day to day
thereafter. Dividends under this Section 6.5.2 shall be payable quarterly in
arrears so long as the Series B-3 Preferred Stock is outstanding, on or before
each Quarterly Dividend Date. Other than dividends payable incident to a
redemption of the Series B-3 Preferred Stock under Section 6.5.3 below or a
conversion of the Series B-3 Preferred Stock under Section 6.5.5 below or in
respect of fractional shares as described below, all dividends on the Series B-3
Preferred Stock hereunder shall be payable not in cash, but rather by the
Corporation's issuance and delivery to each record holder of Series B-3
Preferred Stock of a number of additional shares of Series B-3 Preferred Stock
determined by dividing the amount of each such dividend by $1.00. Within 30 days
after each Quarterly Dividend Date, the Corporation shall issue and deliver to
each record holder of Series B-3 Preferred Stock on such Quarterly Dividend Date
one or more certificates evidencing the number of whole shares of Series B-1
Preferred Stock payable as a dividend to such holder as provided above, and such
shares, when so issued and delivered, shall be deemed fully paid and
nonassessable shares of the Corporation's Series B-3 Preferred Stock. No
fractional shares of Series B-3 Preferred Stock or scrip will be issued in
respect of fractional interests resulting from any dividend hereunder; in lieu
of any fractional shares of Series B-3 Preferred Stock which may be issued as
aforesaid, the holders thereof instead shall receive a cash payment in an amount
equal to the product of such fraction multiplied by $1.00. So long as any of the
Series B-3 Preferred Stock remains outstanding, no dividends or distributions
(other than dividends or distributions on Common Stock payable in Common Stock)
shall be paid upon, or declared or set apart for, any Series A-2 Preferred
Stock, Series A-1 Preferred Stock and Common Stock, nor shall any of such stock
(other than Common Stock acquired in exchange for, or out of the cash proceeds
of, the issue of other Common Stock or out of cash contributions to the capital
of the Corporation) be purchased, redeemed, retired or otherwise acquired by the
Corporation, unless and until in either case all cumulative dividends on the
then outstanding shares of Series B-3 Preferred Stock shall have been or
concurrently shall be paid.
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6.5.3 REDEMPTION.
a. MANDATORY REDEMPTION. Subject to the provisions of Section
6.5.3(d), on the Mandatory Redemption Date, the Corporation shall redeem, out of
funds legally available therefor, all of the shares of Series B-3 Preferred
Stock then outstanding, at a redemption price of $1.00 per share (plus all
accrued and unpaid dividends thereon through such date as provided in Section
6.5.3(c) below).
b. OPTIONAL REDEMPTION.
i. Subject to the provisions of Section 6.5.3(d), at any
time while any shares of Series B-3 Preferred Stock are outstanding, the
Corporation, at the option of the Board of Directors, may redeem from the
holders of the Series B-3 Preferred Stock, at a redemption price of $1.00 per
share (plus all accrued and unpaid dividends thereon through the date designated
for redemption as provided in Section 6.5.3(c) below), all or any portion of
Series B-3 Preferred Stock outstanding on the date designated for such
redemption. In case less than all of the outstanding shares of Series B-3
Preferred Stock are to be redeemed under this Section 6.5.3(b)(i), such
redemption shall be made on a pro rata basis in accordance with each holder's
respective holdings of such shares as of the date designated for redemption.
ii. In addition to the optional redemption pursuant to
Section 6.5.3(b)(i) and subject to the provisions of Section 6.5.3(d), at any
time while any shares of Series B-3 Preferred Stock are outstanding, the
Corporation, at the option of the Board of Directors, may redeem from the
holders of Series B-3 Preferred Stock, out of funds legally available therefor,
at a redemption price of $.001 per share (plus all accrued and unpaid dividends
thereon through such date as provided in Section 6.5.3(c) below), all but not
less than all, of the shares of Series B-3 Preferred Stock outstanding on the
date set for redemption provided that the right of the Corporation to redeem the
shares of Series B-3 Preferred Stock under this Section 6.5.3(b)(ii) is subject
to the Company mailing the redemption notice in accordance with Section 6.5.3(d)
within 30 days following any period of 20 consecutive trading days during which
the Market Price per share of the Common Stock is at or above $17.50 per share
(as adjusted for stock splits, combinations and other similar corporate events).
iii. Notwithstanding any provision contained in this
Section 6.5.3(b) to the contrary, in no event shall the Corporation redeem any
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shares of Series B-3 Preferred Stock under this Section 6.5.3(b), nor shall any
holders of such shares accept payment upon such redemption, if at the time of
such redemption there exists a default or event of default within the meaning of
any Senior Loan Agreement or such redemption would cause a default or event of
default under any Senior Loan Agreement.
c. ACCRUED DIVIDENDS. Upon any mandatory or optional
redemption under paragraph (a) or (b) above, the Corporation shall,
simultaneously with the making of any such redemption, pay to the holders of the
Series B-3 Preferred Stock being redeemed all dividends accrued and unpaid on
the shares being redeemed through the date of redemption; provided, however,
that in case of the payment of dividends under this paragraph (c), such
dividends shall be paid in cash, and not in shares of Series B-3 Preferred Stock
as provided in Section 6.5.2 above.
d. GENERAL.
i. The Corporation shall provide written notice of any
mandatory or optional redemption under this Section 6.5.3 not less than 30 days
prior to the date fixed or designated for such redemption, to the holders of
record as of the relevant record date of the shares of Series B-3 Preferred
Stock to be so redeemed as the case may be, at their respective addresses then
appearing on the stock books of the Corporation. Each redemption notice to be
provided under this Section 6.5.3 shall be by certified mail, return receipt
requested and shall specify (i) the redemption date, (ii) the redemption price
per share and (iii) the place for payment and for delivering necessary transfer
instruments to be executed by the holder in order for the holder to receive the
redemption price. No holder of shares of Series B-3 Preferred Stock redeemed in
accordance with this Section 6.5.3 shall be entitled to receive payment of the
redemption price for such shares until such holder causes to be delivered in
accordance with the redemption notice the stock certificate representing the
shares so redeemed and transfer instructions satisfactory to the Company.
ii. From and after the effective date of redemption and
the setting aside of the funds necessary for redemption, notwithstanding that
any certificate for shares of Series B-3 Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares to be
redeemed shall no longer be deemed outstanding, and the holders of certificates
representing such shares shall have with respect to such shares no rights in or
with respect to the Corporation except the right to receive, upon the surrender
of such certificates, the redemption price therefor. Shares of Series B-3
Preferred Stock redeemed by the
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Corporation pursuant to this Section 6.5.3 shall not be reissued and shall be
canceled and retired.
6.5.4 PREFERENCE ON LIQUIDATION, DISSOLUTION OR WINDING UP.
a. DEFINITION. A consolidation or merger of the Corporation, a
sale or transfer of substantially all of its assets as an entirety, or any
purchase or redemption of capital stock of the Corporation of any class, shall
not be regarded as "liquidation, dissolution or winding up of the affairs of the
Corporation" within the meaning of this Section 6.5.4.
b. SERIES B-3 PREFERRED STOCK. During any proceedings for the
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of the Series B-3 Preferred Stock shall be
entitled to receive $1.00 in cash for each share of Series B-3 Preferred Stock
(together with all accrued and unpaid dividends on each share of Series B-3
Preferred Stock), before any distribution of the assets of the Corporation shall
be made in respect of the outstanding Junior Stock, or funds necessary for such
payment shall have been set aside in trust for the account of the holders of the
outstanding Series B-3 Preferred Stock so as to be and continue available
therefor. If upon such liquidation, dissolution or winding up, the assets
distributable to the holders of the Series B-3 Preferred Stock as aforesaid
shall be insufficient to permit the payment to them of such $1.00 per share
(plus such accrued and unpaid dividends), the assets of the Corporation shall be
distributed to the holders of the Series B-3 Preferred Stock ratably until they
shall have received the full amount to which they would otherwise be entitled.
If the assets of the Corporation are sufficient to permit the payment of such
amounts to the holders of the Series B-3 Preferred Stock, the remainder of the
assets of the Corporation, if any, after the distribution as aforesaid shall be
distributed and divided ratably among the holders of the Junior Stock then
outstanding according to their respective shares, interests and priorities.
6.5.5 CONVERSION RIGHTS. The Series B-3 Preferred Stock shall be
convertible as follows:
a. OPTIONAL CONVERSION. Subject to and upon compliance with
the provisions of this Section 6.5.5, the holder of any shares of Series B-3
Preferred Stock shall have the right at such holder's option, at any time prior
to the close of business on the date fixed for redemption, and without the
payment of any additional consideration therefor, to convert any of such shares
of Series B-3 Preferred Stock into fully paid and nonassessable shares of Common
Stock at the Conversion Ratio (as defined in Section 6.5.5(d) below) in effect
on any
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Conversion Date (as defined in Section 6.5.5(e) below) upon the terms
hereinafter set forth.
b. AUTOMATIC CONVERSION. Each outstanding share of Series B-3
Preferred Stock shall automatically convert, without any further act of the
Corporation or its stockholders, at the Conversion Ratio then in effect, into
fully paid and nonassessable shares of Common Stock upon the consummation of a
Qualified Public Offering, provided that the per share offering price to the
public is not less than $3.50 per share (as adjusted for stock splits,
combinations and similar corporate events).
c. ACCRUED DIVIDENDS. Upon any optional or automatic
conversion under paragraph (a) or (b) above, the Corporation shall
simultaneously with such conversion, pay to the holders of the Series B-3
Preferred Stock being converted all dividends accrued and unpaid on the shares
being converted through the date of conversion; provided, however, that in case
of payment of dividends under this paragraph (c), such dividends shall be paid
in cash, and not in shares of Series B-3 Preferred Stock as provided in Section
6.5.2 above.
d. CONVERSION RATIO. Each share of Series B-3 Preferred Stock
shall be convertible pursuant to Sections 6.5.5(a) and 6.5.5(b) into a number of
shares of Common Stock determined by dividing (x) $1.00 (the liquidation value
per share) by (y) the Conversion Factor in effect on any Conversion Date (the
"Conversion Ratio"). For the purposes of this Section 6.5.5, the term
"Conversion Factor" initially shall mean $11.00.
e. MECHANICS OF CONVERSION. The holder of any shares of Series
B-3 Preferred Stock may exercise the conversion right specified in Section
6.5.5(a) by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be converted.
Upon the occurrence of automatic conversion pursuant to Section 6.5.5(b), the
outstanding shares of Series B-3 Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided that the Corporation shall not be
obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of Series B-3 Preferred Stock are delivered either to the Corporation or any
transfer agent of the Corporation. Conversion shall be deemed to have been
effected on the date when delivery of notice of an election to convert and of
certificates for shares being converted is
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made or on the date specified in Section 6.5.5(b), as the case may be, and such
date is referred to herein as the "Conversion Date." Subject to the provisions
of Section 6.5.5(g)(iii), as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing shares of Series B-3
Preferred Stock to the Corporation or any transfer agent of the Corporation in
the case of conversion pursuant to Section 6.5.5(b)) the Corporation shall issue
and deliver to or upon the written order of such holder a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check or cash with respect to any fractional interest in a
share of Common Stock as provided in Section 6.5.5(f). Subject to the provisions
of Section 6.5.5(g)(iii), the person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of record of such Common Stock on the applicable Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Series B-3 Preferred Stock surrendered for conversion (in
the case of conversion pursuant to Section 6.5.5(a)), the Corporation shall
issue and deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series B-3 Preferred Stock
representing the unconverted portion of the certificate so surrendered.
f. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued upon conversion of shares of Series B-3 Preferred Stock.
If more than one share of Series B-3 Preferred Stock is surrendered for
conversion at any one time by the same holder or is held by the same holder at
the time of any automatic conversion, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares so surrendered or held, as the case may be. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series B-3 Preferred Stock, the Corporation shall
pay out of funds legally available therefor a cash adjustment in respect of such
fractional interest, rounded to the nearest one hundredth (1/100th) of a share,
in an amount equal to that fractional interest of the then Market Price, rounded
to the nearest cent ($.01), of one share of Common Stock.
g. CONVERSION FACTOR ADJUSTMENTS. The Conversion Factor shall
be subject to adjustment from time to time as follows:
i. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Corporation shall (x) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (y) subdivide or
reclassify the outstanding shares of Common
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Stock into a greater number of shares of Common Stock or (z) combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Conversion Factor in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted to that number
determined by multiplying the Conversion Factor in effect by a fraction (x) the
numerator of which shall be the total number of issued and outstanding shares of
Common Stock immediately prior to such dividend, distribution, subdivision,
combination or reclassification and (y) the denominator of which shall be the
total number of issued and outstanding shares of Common Stock immediately after
such dividend, distribution, subdivision, combination or reclassification.
Successive adjustments in the Conversion Factor shall be made whenever any event
specified above shall occur.
ii. ROUNDING OF CALCULATIONS: MINIMUM ADJUSTMENT. All
calculations under this Section 6.5.5(g) shall be made to the nearest cent
($.01) or to the nearest one hundredth (1/100th) of a share, as the case may be.
Any provision of this Section 6.5.5 to the contrary notwithstanding, no
adjustment in the Conversion Factor shall be made if the amount of such
adjustment would be less than 1% of the then current Conversion Factor until the
end of one year after such adjustment otherwise would have been required; but
any such amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate 1% of the then current Conversion Factor or more, provided that
if the events giving rise to such adjustments occur within three months of each
other, then such adjustments shall be calculated as if the events giving rise to
them had occurred simultaneously on the date of the first such event.
iii. TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON
CERTAIN ADJUSTMENTS. In any case in which the provisions of this Section
6.5.5(g) provide that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of such
event (x) issuing to the holder of any share of Series B-3 Preferred Stock
converted after such record date and before the occurrence of such event, the
additional shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Common Stock
issuable upon such conversion before giving effect to such adjustment and (y)
paying to such holder any amount of cash in lieu of a fractional share of Common
Stock pursuant to Section 6.5.5(f); provided that the Corporation upon request
shall deliver to such holder a due bill or other appropriate instrument
evidencing
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such holder's right to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.
h. COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any shares of Series B-3 Preferred
Stock; provided that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in the name other than that of the
holder of the shares of Series B-3 Preferred Stock in respect of which such
shares are being issued.
6.5.6 VOTING RIGHTS.
a. The Corporation shall not, without the consent of the
holders of at least a majority of the shares of the outstanding Series B-3
Preferred Stock, adopt any amendment to this Certificate which would alter or
change the powers, preferences or special rights of the Series B-3 Preferred
Stock so as to affect them adversely, PROVIDED that except as otherwise required
by law, no such consent shall be required with respect to (i) any amendment to
this Certificate that increases or decreases the number of shares of Series B-3
Preferred Stock which the Corporation is authorized to issue (provided that no
such amendment shall reduce the number of authorized shares to below the number
of shares then outstanding), or (ii) the establishment or issuance of any other
series of Preferred Stock or any other class of stock of the Corporation that
has any powers, preferences or rights that are different from, greater than,
superior to or in preference of the Series B-3 Preferred Stock.
b. Except as provided in paragraph (a) above or otherwise
required by law, the holders of Series B-3 Preferred Stock shall have no right
or power to vote on the election of directors or on any other question or in any
proceedings involving the Corporation.
6.5.7 RIGHT OF FIRST REFUSAL. If any holder of Series B-3 Preferred
Stock desires to sell, assign, transfer or otherwise dispose of any shares of
Series B-3 Preferred Stock, then such holder (for purposes of this Section
6.5.7, the "Selling Stockholder"), prior to making any such sale, shall first
offer such shares of Series B-3 Preferred Stock (for purposes of this Section
6.5.7, the "Option Shares") for sale to the Corporation and then to the other
holders of the Series B-3 Preferred Stock on a pro rata basis as hereafter
provided, in accordance with the following provisions of this Section 6.5.7.
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a. OPTION PRICE, TERMS; OFFERING NOTICES. The price per Option
Share at which the Selling Stockholder shall be required to offer the Option
Shares (for purposes of this Section 6.5.7, the "Option Price") and the terms of
such offer, shall be the price at which and the terms upon which any proposed
third party purchaser shall have offered to purchase the Option Shares from the
Selling Stockholder and which the Selling Stockholder is prepared to accept.
Each offer required to be made by the Selling Stockholder pursuant to this
Section 6.5.7 shall be made by a written notice (for purposes of this Section
6.5.7, the "Offering Notice") which shall state that the offer is being made
pursuant to this Section 6.5.7 and which shall set forth the number of Option
Shares, the name or names of the proposed purchaser or purchasers of the Option
Shares, the price per share offered by such proposed purchaser or purchasers for
the Option Shares, the method of payment of the purchase price and the scheduled
date of consummation of such proposed sale. A copy of the written offer from any
proposed third-party purchaser shall be attached to each Offering Notice.
b. OFFER TO THE CORPORATION. The Selling Stockholder shall
offer the option Shares to the Corporation by delivering an offering Notice to
the Corporation. Within 30 days following the Corporation's receipt of such
Offering Notice, the Corporation shall deliver to the Selling Stockholder a
reply notice accepting the offer of the Selling Stockholder with respect to all
(but not less than all) of the Option Shares or rejecting such offer. If by such
reply notice the Corporation accepts the offer made by the Selling Stockholder,
the reply notice shall constitute an agreement binding on the Selling
Stockholder and the Corporation to sell and purchase the option Shares at a
price per share equal to the option Price. If within such 30-day period, the
Corporation shall have failed to deliver a reply notice accepting the offer of
the Selling Stockholder as to all of the Option Shares, the Corporation shall be
deemed to have rejected such offer. If the Corporation rejects or intends to
reject such offer, it shall mail a notice to such effect to every record holder
(other than the Selling Stockholder) of the Series B-3 Preferred Stock as of the
date of the Corporation's receipt of the Offering Notice. (collectively,
"Remaining Stockholders"); which notice of the Corporation shall also include a
copy of the Offering Notice.
c. OFFER TO REMAINING STOCKHOLDERS. If the Corporation rejects
or is deemed to have rejected the foregoing offer under paragraph (b) above,
then the Selling Stockholder shall thereupon be deemed to have offered the
Option Shares to the Remaining Stockholders on the same price and terms set
forth in the Offering Notice. Such offer shall be made on a pro rata basis in
accordance with each Remaining Stockholder's holdings of Series B-3 Preferred
Stock on the date of
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the Offering Notice; provided, however, that prior to acceptance of such offer,
any one or more Remaining Stockholders may agree among themselves as to a
different allocation for purposes of accepting such offer. Within 30 days
following the date of the Corporation's notice referred to in paragraph (b)
above, each Remaining Stockholder desiring to accept such offer shall deliver to
the Selling Stockholder a reply notice accepting the offer of the Selling
Stockholder with respect to all (but not less than all) of such Remaining
Stockholder's pro rata portion of the Option Shares, or rejecting such offer;
provided, however, that prior to expiration of such 30-day period, the Selling
Stockholder shall have received reply notices from Remaining Stockholders as to
all (but not less than all) of all Option Shares being offered. If by such reply
notice(s) the Remaining Stockholders collectively accept the offer made by the
Selling Stockholder, such reply notice(s) shall constitute an agreement binding
on the Selling Stockholder and each such Remaining Stockholder (severally, but
not jointly) to sell and purchase the Option Shares at a price per share equal
to the Option Price. If within such 30-day period, the Remaining Stockholders
collectively shall have failed to deliver one or more reply notices accepting
the offer of the Selling Stockholder as to all of the Option Shares, the
Remaining Stockholders shall be deemed to have rejected such offer.
d. LAPSE OF OPTION. If the foregoing offer to sell Option
Shares has been made by the Selling Stockholder and has not been accepted by the
Corporation or the Remaining Stockholders, then the Selling Stockholder may sell
not less than all of the Option Shares at any time within, but not subsequent
to, 60 days after the lapse of the option granted pursuant to this Section
6.5.7; provided, however, that no sale of the option Shares shall be made at any
price lower than the Option Price or on terms materially different from those
specified in the Offering Notice or to any person or persons other than the
persons specified in the Offering Notice. If after the lapse of such 60-day
period the Option Shares shall not have been sold, all of the provisions of this
Section 6.5.7 shall apply to any future sale or other disposition of shares of
Series B-3 Preferred Stock owned by the Selling Stockholder.
e. CONSUMMATION OF PURCHASES. Each transaction of purchase and
sale of Option Shares pursuant to this Section 6.5.7 shall be completed by
delivery of the stock certificates representing the Option Shares endorsed in
blank, or accompanied by duly executed stock powers, and by actual registration
of the transfer of the Option Shares on the books of the Corporation upon
payment of the purchase price to the Selling Stockholder. Any such transaction
shall be closed at such time and place as shall be agreed upon by the parties
thereto, or, if no such agreement is reached, at the principal office of the
Corporation on the 30th day following the date of delivery of the last reply
notice
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given in connection with such transaction or, if such day shall not be a
business day, on the first business day thereafter during normal business hours.
6.5.8 EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law,
the shares of Series B-3 Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth herein.
1. BOARD OF DIRECTORS
7.1 The initial Board of Directors of the corporation shall consist of the
following persons, who shall serve as the directors until the first annual
meeting of stockholders or until their successors are elected and qualified:
NAME MAILING ADDRESS
Kevin C. James 6520 South 190th Street
Kent, Washington 98032
7.2 The number of directors of the corporation shall be fixed as provided
in the Bylaws and may be changed from time to time by amending the Bylaws.
7.3 The election of directors need not be by written ballot unless the
Bylaws so provide.
7.4 Subject to the limitations of the General Corporation Law of Delaware,
and subject to the power of the stockholders of the corporation to change or
repeal the Bylaws, the Board of Directors is expressly authorized to make,
amend, or repeal the Bylaws of the corporation unless the stockholders in
adopting, amending or repealing a particular bylaw have provided expressly that
the Board of Directors may not amend or repeal that bylaw.
II. INDEMNIFICATION
8.1 The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director or officer of the corporation, or if
such director or officer is or was serving at the request of the corporation as
a director, officer, trustee, employee or
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agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner in which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
8.2 The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he or she is or was a director or
officer of the corporation, or if such director or officer is or was serving at
the request of the corporation as a director, officer, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action, suit or proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action, suit or proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
8.3 To the extent that a director or officer of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 8.1 and 8.2, or in defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
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8.4 Any indemnification under Section 8.1 or 8.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director or officer is proper
in the circumstances because he or she has met the applicable standard of
conduct set forth in Section 8.1 or 8.2. Such determination shall be made (a) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (b) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
8.5 Expenses (including attorneys' fees) incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in Section 8.4 upon receipt of
an undertaking by or on behalf of such officer or director to repay such amount
if it should be ultimately determined that such person is not entitled to be
indemnified by the corporation as authorized in this Article or otherwise. Such
expenses incurred by other employees and agents shall be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
8.6 The indemnification and advancement of expenses provided by or granted
pursuant to the other Sections of this Article shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. The indemnification powers of the corporation shall be as broad as is
allowed under applicable law.
8.7 Upon the majority vote of a quorum of the Board of Directors, the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director or officer of the corporation, or if such director or officer
is or was serving at the request of the corporation as a director, officer,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her status
as such, whether or not the corporation shall have indemnified him or her
against such liability under the provisions of this Article. Upon a majority
vote of a quorum of the Board of Directors, the corporation may indemnify a
person who is or was an employee or agent of the corporation, or if such
employee or agent is or was serving at the
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request of the corporation as a director, officer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
pursuant to and in accordance with the provisions of this Article.
IX. DIRECTOR LIABILITY
To the fullest extent permitted by the General Corporation Law of
Delaware, as it exists on the date hereof or may hereafter be amended, a
director of this corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Any amendment to or repeal of this Article shall not adversely affect
a director of the corporation with respect to any conduct of such director
occurring prior to such amendment or repeal.
X. TRANSACTIONS WITH INTERESTED STOCKHOLDERS
The corporation hereby elects not to be governed by Section 203 of Title 8
of the General Corporation Law of Delaware.
XI. INCORPORATOR
The name and mailing address of the incorporator is Kevin C. James, 6520
South 190th Street, Kent, Washington 98032. The powers and liabilities of the
incorporator shall terminate upon the filing of the Certificate of
Incorporation.
XII. MISCELLANEOUS
12.1 Except as otherwise provided in this Certificate, as amended from
time to time, the corporation reserves the right to amend, alter, change, or
repeal any provision contained in this Certificate in any manner now or
hereafter prescribed or permitted by statute. All rights, powers, privileges and
discretionary authority granted or conferred upon stockholders or directors in
this Certificate are granted subject to this reservation. A stockholder of the
corporation does not have a vested property right resulting from any provision
of this Certificate of Incorporation.
12.2 The corporation shall have authority to correct clerical errors in
any documents filed with the Secretary of State of Delaware, including this
Certificate or any amendments hereto, without the necessity of special
stockholder approval of such corrections.
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THE UNDERSIGNED, for the purpose of forming a corporation under the laws
of the State of Delaware, does make, file and record this Certificate, and does
certify that the facts herein stated are true, and have accordingly hereunto set
his hand this _____ day of February, 1997.
_____________________________________
Kevin C. James
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EXHIBIT 3.2
BYLAWS
OF
BRAZOS SPORTSWEAR, INC.
I
STOCKHOLDERS' MEETINGS
(1) MEETING PLACE: All meetings of the stockholders shall
be held at the principal office of the corporation, or at such other place as
shall be determined from time to time by the Board of Directors, and the place
at which any such meeting shall be held shall be stated in the notice and call
of the meeting.
(2) ANNUAL MEETING TIME: The annual meeting of the
stockholders for the election of directors and for the transaction of such other
business as may properly come before the meeting, shall be held each year on a
day and at a time to be set by the Board of Directors. The time and place of
holding any annual meeting may be changed by resolution of the Board of
Directors, provided that notification of such change shall meet the notice
requirements pursuant to Section (6) hereof. If the annual meeting is not held
on the date designated therefor, the Board shall cause the meeting to be held as
soon thereafter as may be convenient.
(3) BUSINESS CONDUCTED AT ANNUAL MEETING:
(a) At an annual meeting of stockholders, an item of
business may be conducted, and a proposal may be considered and acted upon, only
if such item or proposal is brought before the meeting (i) by, or at the
direction of, the Board of Directors, or (ii) by any stockholder of the
corporation who is entitled to vote at the meeting and who complies with the
procedures set forth in the remainder of this Section (3). This Section (3)
shall not apply to matters of procedure.
(b) For an item of business or proposal to be
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered to, or mailed and received
at, the principal office of the corporation not less than seventy (70) days
prior to the date scheduled for the meeting (regardless of any postponements,
deferrals or adjournments of that meeting to a later date), or, if notice or
public disclosure of the date scheduled for the meeting is not given or made at
least eighty (80) days prior thereto, not more than ten (10) days following the
day on which notice of the date scheduled for the
<PAGE>
meeting is mailed or the day on which disclosure of that date is made, whichever
is earlier.
(c) A stockholder's notice to the Secretary under
subsection (b) hereof shall set forth, as to each item of business or proposal
the stockholder intends to bring before the meeting (i) a brief description of
the item of business or proposal and the reasons for bringing it before the
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder and of any other stockholders that the stockholder knows or
anticipates will support the item of business or proposal, (iii) the number and
class of shares of stock of the corporation that are beneficially owned on the
date of such notice by the stockholder and by any such other stockholders, and
(iv) any financial interest of the stockholder or any such other stockholders in
such item of business or proposal.
(d) The Board of Directors, or a designated
committee thereof, may reject a stockholder's notice that is not timely given in
accordance with the terms of subsection (b) hereof. If the Board of Directors,
or a designated committee thereof, determines that the information provided in a
stockholder's notice does not satisfy the requirements of subsection (c) hereof
in any material respect, the Secretary of the corporation shall notify the
stockholder of the deficiency in the notice. The stockholder shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within such period of time, not to exceed five (5) days from the date
such deficiency notice is given to the stockholder, as the Board of Directors or
such committee shall reasonably determine. If the deficiency is not cured within
such period, or if the Board of Directors or such committee determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of subsection (c) hereof
in any material respect, then the Board of Directors or such committee may
reject the stockholder's notice.
(e) Notwithstanding the procedures set forth in
subsection (d) hereof, if a stockholder desires to bring an item of business or
proposal before an annual meeting, and neither the Board of Directors nor any
committee thereof has made a prior determination of whether the stockholder has
complied with the procedures set forth in this Section (3) in connection with
such item of business or proposal, then the chairman of the meeting shall
determine and declare at the meeting whether the stockholder has so complied. If
the chairman determines that the stockholder has so complied, then the chairman
shall so state and ballots shall be provided for use at the meeting with respect
to such item of business or proposal. If the chairman determines that the
stockholder has not so complied, then, unless the chairman, in his sole and
absolute discretion, determines to waive
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such compliance, the chairman shall state that the stockholder has not so
complied and the item of business or proposal shall not be brought before the
meeting.
(f) This Section (3) shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees of the Board of Directors, but, in connection
with such reports, no item of business may be conducted, and no proposal may be
considered and acted upon, unless there has been compliance with the procedures
set forth in this Section (3) in connection therewith.
(4) ANNUAL MEETING - ORDER OF BUSINESS: At the annual
meeting of stockholders, the order of business shall be as follows unless
otherwise determined by the presiding officer:
(a) Calling the meeting to order.
(b) Proof of notice of meeting (or filing
waiver) and proxy report.
(c) Reading of minutes of last annual
meeting.
(d) Reports of officers.
(e) Reports of committees.
(f) Confirmation of selection of
independent accountants.
(g) Election of directors.
(h) Miscellaneous business.
(2) SPECIAL MEETINGS:
(a) Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board, the President,
the Board of Directors, or the holder or holders of not less than twenty-five
percent (25%) of all shares entitled to vote at the meeting.
(b) Subject to the requirements of Section (4) of
Article III if the purpose of the special meeting is the election of directors,
if a special meeting is called by any person or person other than the Board of
Directors, the Chairman of the Board or the President, the request shall be in
writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice President, or the Secretary of
the corporation. No business may be transacted at such special meeting otherwise
than specified in such notice. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Section (6) hereof, that a meeting will be
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held not less than thirty-five (35) nor more than sixty (60) days after the
receipt of the request. If the notice is not given within twenty (20) days after
the receipt of the request, the person or persons requesting the meeting may
give the notice. Nothing contained in this subsection (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
(3) NOTICE OF MEETINGS:
(a) Except as otherwise provided by law or the
Certificate of Incorporation, written notice of the place, date, and time of the
annual meeting of stockholders shall be given at least ten (10) days, and not
more than sixty (60) days, prior to the meeting to each stockholder of record
entitled to vote at such meeting.
(b) Except as otherwise provided by law or the
Certificate of Incorporation, written notice of the place, date, time, and
purpose of each special meeting of stockholders shall be given at least ten (10)
days, and not more than sixty (60) days, prior to the meeting to each
stockholder of record entitled to vote at such meeting.
(4) VOTING LIST: At least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares held by each stockholder. This
list shall be kept open at such meeting for the inspection of any stockholder
and shall also be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of ten days
prior to such meeting either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held.
(5) QUORUM: Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, a quorum shall exist at any
meeting of stockholders if a majority of the votes entitled to be cast is
represented in person or by proxy. Any shares, the voting of which at said
meeting has been enjoined, or which for any reason cannot be lawfully voted at
such meeting, shall not be counted to determine a quorum at such meeting. If
less than a majority of the outstanding shares entitled to vote are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. If a quorum is present or represented
at a reconvened meeting following such an
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adjournment, any business may be transacted that might have been transacted at
the meeting as originally called. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. In the case of any meeting of stockholders that is adjourned more than
once because of the failure of a quorum to attend, those who attend the third
convening of such meeting, although less than a quorum, shall nevertheless
constitute a quorum for the purpose of electing directors, provided that the
percentage of votes represented at the third convening of such meeting shall not
be less than one-third of the votes entitled to be cast.
(6) MANNER OF ACTING: If a quorum is present, the affirmative
vote of the majority of the votes represented at the meeting and entitled to be
cast on the subject matter shall be the act of the stockholders, unless the vote
of a greater number is required by these Bylaws, the Certificate of
Incorporation, or the General Corporation Law of Delaware.
(7) VOTING OF SHARES: Except as otherwise provided in these
Bylaws or to the extent that voting rights of the shares of any class or classes
are limited or denied by the Certificate of Incorporation, each stockholder, on
each matter submitted to a vote at a meeting of stockholders, shall have one
vote for each share of stock registered in his or her name in the books of the
corporation. Stockholders of this corporation shall not have the right to
cumulate votes with respect to elections of directors in the manner prescribed
by Title 8, Section 214, of the General Corporation Law of Delaware.
(8) BENEFICIAL OWNERS:
(a) If shares or other securities having voting
power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter each faction may
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vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the Secretary shows that
any such tenancy is held in unequal interests, a majority or even-split for the
purpose of this subsection (a) shall be a majority or even-split in interest.
(b) Persons holding stock in a fiduciary capacity
shall be entitled to vote the shares so held. Persons whose stock is pledged
shall be entitled to vote, unless in the transfer by the pledgor on the books of
the corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
(9) FIXING OF RECORD DATE:
(a) For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board, for such determination of stockholders, such date to be
not more than sixty (60) days and not less than ten (10) days prior to the date
of such meeting. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the corporation's
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registered office in Delaware shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
and prior action by the Board is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto.
(10) PROXIES: A stockholder may vote either in person or by
proxy executed in writing by the stockholder or his or her duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. A proxy shall become invalid
three years after the date of its execution, unless otherwise provided in the
proxy. A proxy with respect to a specified meeting shall entitle the holder
thereof to vote at any reconvened meeting following adjournment of such meeting
but shall not be valid after the final adjournment thereof.
(14) ACTION BY STOCKHOLDERS WITHOUT A MEETING:
(a) Any action required or which may be taken at a
meeting of stockholders of the corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of
signature of each stockholder who signs the consent, and no written consent
shall be effective to take the corporate action referred to therein unless,
within sixty (60) days of the earliest dated consent delivered to the
corporation in the manner herein required, written consents signed by a
sufficient number of stockholders to take action are
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delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(2) WAIVER OF NOTICE: A waiver of any notice required to be
given any stockholder, signed by the person or persons entitled to such notice,
whether before or after the time stated therein for the meeting, shall be
equivalent to the giving of such notice. The attendance of a stockholder at a
meeting shall constitute a waiver of notice of such meeting, except when a
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given.
(3) ACTION OF STOCKHOLDERS BY COMMUNICATIONS EQUIPMENT:
Stockholders may participate in a meeting of stockholders by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
ARTICLE II
STOCK
(5) ISSUANCE OF SHARES: No shares of the corporation shall be
issued unless authorized by the Board of Directors, which authorization shall
include the maximum number of shares to be issued and the consideration to be
received for each share.
(6) CERTIFICATES: Certificates for the shares of stock of the
corporation shall be in such form, not inconsistent with the Certificate of
Incorporation, as the Board of Directors may from time to time prescribe.
Certificates of stock shall be issued in numerical order and shall be signed by
the President or any Vice President and the Secretary or an Assistant Secretary,
and may be sealed with the seal of the corporation or a facsimile thereof. The
signatures of such officers may be facsimiles if the certificate is manually
signed on behalf of a transfer agent, or registered by a registrar, other than
the corporation itself or an employee of the corporation. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be such officer
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before the certificate is issued, it may be issued by the corporation with the
same effect as if the person were an officer on the date of issue. All
certificates shall include conspicuous written notice of any restrictions which
may be imposed on the transferability of such shares.
Each certificate of stock shall state:
(a) that the corporation is organized under the laws
of the State of Delaware;
(b) the name of the person to whom issued; and
(c) the number and class of shares and the
designation of the series, if any, which such certificate represents.
(2) STOCK RECORDS: The stock transfer books shall be kept at
the principal place of business of the corporation or at the office of the
transfer agent or registrar of the corporation. The name and address of the
person to whom the shares represented thereby are issued, together with the
class, number of shares and date of issue, shall be entered on the stock
transfer books of the corporation.
(3) LEGENDS AND RESTRICTIONS ON TRANSFER: As long as the
corporation is authorized to issue more than one class of stock or more than one
series of any class, the powers, designations, preferences, and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations, or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of Title 8, General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences, and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations, or restrictions of such
preferences and/or rights.
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(4) TRANSFERS: Transfers of stock shall be made only upon the
stock transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
(5) REGISTERED OWNER: Registered stockholders shall be treated
by the corporation as the holders in fact of the stock standing in their
respective names and the corporation shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
expressly provided below or by the laws of the State of Delaware. The Board of
Directors may adopt by resolution a procedure whereby a stockholder of the
corporation may certify in writing to the corporation that all or a portion of
the shares registered in the name of such stockholder are held for the account
of a specified person or persons. The resolution shall set forth:
(a) The classification of stockholder who may
certify;
(b) The purpose or purposes for which the
certification may be made;
(c) The form of certification and information to be
contained therein;
(d) If the certification is with respect to a record
date or closing of the stock transfer books, the date within which the
certification must be received by the corporation; and
(e) Such other provisions with respect to the
procedure as are deemed necessary or desirable.
Upon receipt by the corporation of a certification complying
with the procedure, the persons specified in the certification shall be deemed,
for the purpose or purposes set forth in the certification, to be the holders of
record of the number of shares specified in place of the stockholder making the
certification.
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(7) MUTILATED, LOST OR DESTROYED CERTIFICATES: In case of any
mutilation, loss or destruction of any certificate of stock, another may be
issued in its place upon proof of such mutilation, loss or destruction or
receipt of an affidavit of such fact. The Board of Directors may impose
conditions on such issuance and may require the giving of a satisfactory bond or
indemnity to the corporation in such sum as they might determine or establish
such other procedures as they deem necessary.
(8) FRACTIONAL SHARES OR SCRIP: The corporation may: (a) issue
fractions of a share which shall entitle the holder to exercise voting rights,
to receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation; (b) arrange for the disposition of
fractional interests by those entitled thereto; (c) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
shares are determined; or (d) issue scrip in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip aggregating a full share.
II
BOARD OF DIRECTORS
(1) NUMBER AND POWERS: The management of all the affairs,
property and interests of the corporation shall be vested in a Board of
Directors. The number of persons constituting the Board of Directors may be
fixed from time to time by resolution of the Board of Directors adopted by the
affirmative vote of a majority of the entire Board of Directors. Each director
shall hold office until the next annual meeting of stockholders and until his
successor is elected and qualified. Directors need not be stockholders or
residents of the State of Delaware. In addition to the powers and authorities
expressly conferred upon the Board of Directors by these Bylaws and the
Certificate of Incorporation, the Board may exercise all such powers of the
corporation and do all such lawful acts as are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
(2) CHANGE OF NUMBER: Notwithstanding the power and authority
of the Board of Directors to amend these Bylaws, including, without limitation,
provisions relating to the number of directors, the number of directors may at
any time be increased or decreased by a vote of the majority of the voting stock
issued and outstanding, at any regular or special meeting of stockholders, if
the notice of such meeting contains a statement of the proposed increase or
decrease; and, in case of any such increase, the Board of Directors or the
stockholders at any regular
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or special meeting held before the Board of Directors takes action, shall have
power to elect such additional directors, to hold office until the next annual
meeting of the stockholders and until their successors are elected and
qualified.
(3) ELECTION AND TERM OF OFFICE: At each annual meeting of
stockholders, the stockholders shall elect directors. Directors may also be
elected at a special meeting of stockholders called specifically for that
purpose. Each director so elected shall hold office until the next annual
meeting of stockholders and until his successor shall have been elected and
qualified.
(4) NOMINATIONS FOR DIRECTORS:
(a) Nominations of candidates for election as
directors at an annual or special meeting of stockholders may only be made (i)
by, or at the direction of, the Board of Directors, or (ii) by any stockholder
of the corporation who is entitled to vote at the meeting and who complies with
the procedures set forth in the remainder of this Section (4).
(b) If a stockholder proposes to nominate one or
more candidates for election as directors at an annual or special meeting, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal office of the corporation not less than
seventy (70) days prior to the date scheduled for the meeting (regardless of any
postponements, deferrals or adjournments of that meeting to a later date), or,
if notice or public disclosure of the date scheduled for the meeting is not
given or made at least eighty (80) days prior thereto, not more than ten (10)
days following the day on which notice of the date scheduled for the meeting is
mailed or the day on which disclosure of that date is made, whichever is
earlier.
(c) A stockholder's notice to the Secretary under
subsection (b) hereof shall set forth, as to each person whom the stockholder
proposes to nominate for election as a director (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the number and class of shares of stock of the
corporation that are beneficially owned on the date of such notice by such
person, and (iv) if the corporation at such time has any security registered
pursuant to Section 12 of the Exchange Act, any other information relating to
such person required to be disclosed in solicitations of proxies with respect to
nominees for election as directors pursuant to Regulation 14A under the Exchange
Act, including but not limited to information required to be disclosed by
Schedule 14A of Regulation 14A,
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and any other information that the stockholder would be required to file with
the Securities and Exchange Commission in connection with the stockholder's
nomination of such person as a candidate for director or the stockholder's
opposition to any candidate for director nominated by, or at the direction of,
the Board of Directors. In addition to the above information, a stockholder's
notice to the Secretary under subsection (b) hereof shall (A) set forth (i) the
name and address, as they appear on the corporation's books, of the stockholder
and of any other stockholders that the stockholder knows or anticipates will
support any candidate or candidates nominated by the stockholder, and (ii) the
number and class of shares of stock of the corporation that are beneficially
owned on the date of such notice by the stockholder and by any such other
stockholders, and (B) be accompanied by a written statement, signed and
acknowledged by each candidate nominated by the stockholder, that the candidate
agrees to be so nominated and to serve as a director of the corporation if
elected at the meeting.
(d) The Board of Directors, or a designated
committee thereof, may reject any stockholder's nomination of one or more
candidates for election as directors if the nomination is not made pursuant to a
stockholder's notice timely given in accordance with the terms of subsection (b)
hereof. If the Board of Directors, or a designated committee thereof, determines
that the information provided in a stockholder's notice does not satisfy the
requirements of subsection (c) hereof in any material respect, the Secretary of
the corporation shall notify the stockholder of the deficiency in the notice.
The stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five (5) days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee determines that the additional information provided
by the stockholder, together with information previously provided, does not
satisfy the requirements of subsection (c) hereof in any material respect, then
the Board of Directors or such committee may reject the stockholder's notice.
(e) Notwithstanding the procedures set forth in
subsection (d) hereof, if a stockholder proposes to nominate one or more
candidates for election as directors at an annual or special meeting, and
neither the Board of Directors nor any committee thereof has made a prior
determination of whether the stockholder has complied with the procedures set
forth in this Section (4) in connection with such nomination, then the chairman
of the meeting shall determine and declare at the meeting whether the
stockholder has so complied. If the chairman determines that the stockholder has
so complied, then the chairman shall so state and ballots
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shall be provided for use at the meeting with respect to such nomination. If the
chairman determines that the stockholder has not so complied, then, unless the
chairman, in his sole and absolute discretion, determines to waive such
compliance, the chairman shall state that the stockholder has not so complied
and the defective nomination shall be disregarded.
(5) VACANCIES: All vacancies in the Board of Directors, whether
caused by resignation, death or otherwise, may, except as otherwise provided in
the Certificate of Incorporation, be filled by the affirmative vote of a
majority of the remaining directors attending a regular or special meeting
called for that purpose, even though less than a quorum of the Board of
Directors be present, or by a sole remaining director, or by the stockholders at
any regular or special meeting held prior to the filling of such vacancies by
the Board of Directors as above provided. A director thus elected to fill any
vacancy shall hold office for the unexpired portion of the term of the director
whose place shall be vacant and until his successor is elected and qualified.
Any directorship to be filled by reason of an increase in the number of
directors may be filled by the Board of Directors for a term of office
continuing only until the next election of directors by the stockholders.
(6) RESIGNATION: Any director may resign at any time by
delivering written notice to the Chairman of the Board, the President, the
Secretary, or the Board, or to the registered office of the corporation in
Delaware. Any such resignation shall take effect at the time specified therein,
or if the time is not specified, upon delivery thereof and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
(7) REMOVAL OF DIRECTORS: At a meeting of stockholders called
expressly for that purpose, subject to any limitations imposed by law or the
Certificate of Incorporation, the entire Board of Directors, or any member
thereof, may be removed by a vote of the holders of a majority of shares then
entitled to vote at an election of such directors. However, if any stockholders
have the right to cumulate their votes in the election of certain directors, if
less than the entire Board is to be removed, no such director may be removed
without cause if the votes cast against his or her removal would be sufficient
to elect him or her if then cumulatively voted at an election of the entire
Board, or, if there be classes of directors, at an election of the class of
directors of which he or she is a part.
(8) REGULAR MEETINGS: Regular meetings of the Board of
Directors or any committee may be held without notice at the principal office of
the corporation or at such other place or places, either within or without the
State of Delaware, as the Board of Directors or such committee, as the case may
be, may from time to
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time designate. The annual meeting of the Board of Directors shall be held
without notice immediately after the adjournment of the annual meeting of
stockholders.
(9) SPECIAL MEETINGS:
(a) Special meetings of the Board of Directors may
be called at any time by the Chairman of the Board, the President, the
Secretary, or by any one or more directors, to be held at the principal office
of the corporation or at such other place or places as the Board of Directors or
the person or persons calling such meeting may from time to time designate.
Written notice of the time and place of all special meetings of the Board of
Directors shall be given at least one (1) day before the date of the meeting.
(b) Special meetings of any committee may be called
at any time by such person or persons and with such notice as shall be specified
for such committee by the Board of Directors, or in the absence of such
specification, in the manner and with the notice required for special meetings
of the Board of Directors.
(2) QUORUM:
(a) Except as provided in subsection (b) hereof or
in the Certificate of Incorporation, a majority of the whole Board of Directors
shall be necessary at all meetings to constitute a quorum for the transaction of
business, but, if less than a majority are present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice.
(b) At each meeting of the Board at which a quorum
is present, the act of a majority of the directors present at the meeting shall
be the act of the Board of Directors, unless the vote of a greater number is
required by these Bylaws, the Certificate of Incorporation, or the General
Corporation Law of Delaware.
(c) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes a contract or transaction between the
corporation and one or more of its directors or officers, or between the
corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest.
(3) WAIVER OF NOTICE: Attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends for the express purpose of objecting, at the beginning of the meeting,
to the
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transaction of any business because the meeting is not lawfully called or
convened. Whenever any notice is required to be given to any director under the
provisions of these Bylaws, the Certificate of Incorporation, or the General
Corporation Law of Delaware, a waiver of notice signed by the director or
directors entitled to such notice, whether before or after the time stated for
the meeting, shall be equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors or any committee appointed by the Board need be
specified in the waiver of notice of such meeting.
(4) REGISTERING DISSENT: A director who is present at a meeting
of the Board of Directors at which action on a corporate matter is taken shall
be presumed to have assented to such action unless his or her dissent shall be
entered in the minutes of the meeting, or unless he or she shall file his or her
written dissent to such action with the person acting as the secretary of the
meeting, before the adjournment thereof, or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
(5) EXECUTIVE AND OTHER COMMITTEES: The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an Executive Committee and one or more other standing or
special committees. The Executive Committee shall have and may exercise all the
authority of the Board of Directors, and other standing or special committees
may be invested with such powers, subject to such conditions, as the Board of
Directors shall see fit; PROVIDED THAT, notwithstanding the above, no committee
of the Board of Directors shall have the authority to amend the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in the Certificate of Incorporation and by
law, fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopt an agreement of merger or consolidation under Section 251 or
252 of the General Corporation Law of Delaware, recommend to the stockholders
the sale, lease, or exchange of all or substantially all of the corporation's
property and assets, recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, amend the Bylaws of the
corporation, declare a dividend, authorize the issuance of stock,
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or adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware. All committees so appointed shall keep
regular minutes of their meetings and shall cause them to be recorded in books
kept for that purpose in the office of the corporation and shall report the same
to the Board of Directors at its next meeting. The designation of any such
committee and the delegation of authority thereto shall not relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
(6) REMUNERATION: By resolution of the Board of Directors, a
fixed sum and attendance fee, together with expenses of attendance, if any, may
be allowed the directors who are not salaried by the corporation for their
services and for attendance at each regular or special meeting of such Board;
provided, that nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of standing or special committees may be allowed
like compensation for attending committee meetings.
(7) LOANS AND GUARANTEES: The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiary, including any officer or employee who
is a director of the corporation or of its subsidiary, whenever, in the judgment
of the directors, such loan, guaranty, or assistance may reasonably be expected
to benefit the corporation. The loan, guaranty, or other assistance may be with
or without interest, and may be unsecured or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation.
(8) ACTION BY DIRECTORS WITHOUT A MEETING: Any action required
or permitted to be taken at a meeting of the directors, or of a committee
thereof, may be taken without a meeting if a consent in writing, setting forth
the action so taken or to be taken, shall be signed by all of the directors, or
all of the members of the committee, as the case may be, and filed with the
minutes of the proceedings of such board or committee. Such consent shall have
the same effect as a unanimous vote.
(9) ACTION OF DIRECTORS BY COMMUNICATIONS EQUIPMENT: Any action
required or which may be taken at a meeting of directors, or of a committee
thereof, may be taken by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
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ARTICLE II
OFFICERS
(10) DESIGNATIONS: The officers of the corporation shall be a
Chairman of the Board, a President, one or more Vice-Presidents (one or more of
whom may be Executive Vice-Presidents), a Secretary and a Chief Financial
Officer or Treasurer, and such Assistant Secretaries, Assistant Treasurers and
other officers and agents as the Board may designate, who shall be elected for
one year by the directors at their first meeting after the annual meeting of
stockholders, and who shall hold office until their successors are elected and
qualified. Any two or more offices may be held by the same person.
(11) THE CHAIRMAN OF THE BOARD: The Chairman of the Board (if
such an officer be appointed) shall be a director and shall perform such duties
as shall be assigned to him or her by the Board of Directors and in any
employment agreement. The Chairman shall be the chief executive officer of the
corporation and, subject to the control of the Board and the Executive Committee
(if one be established), shall supervise and control all of the assets,
business, and affairs of the corporation. The Chairman shall preside at all
meetings of the stockholders and at all meetings of the Board. The Chairman may
sign certificates for shares of the corporation, deeds, mortgages, bonds,
contracts, or other instruments, except when the signing and execution thereof
have been expressly delegated by the Board or by these Bylaws to some other
officer or agent of the corporation or are otherwise required by law to be
signed or executed by some other officer or in some other manner. If there is no
President or if the President dies or becomes unable to act, the Chairman shall
also serve as the Chief Executive Officer and shall perform the duties of the
President, except as may be limited by resolution of the Board of Directors,
with all the powers of and subject to all the restrictions upon the President.
(12) THE PRESIDENT: The President shall be the chief operating
officer of the corporation, and, if no Chairman of the Board has been appointed,
shall also be the chief executive officer of the corporation. The President may
sign deeds, mortgages, bonds, contracts, or other instruments, except when the
signing and execution thereof have been expressly delegated by the Board or by
these Bylaws to some other officer or agent of the corporation or are otherwise
required by law to be signed or executed by some other officer or in some other
manner. The President shall vote the shares owned by the corporation in other
corporations, domestic or foreign, unless otherwise prescribed by law or
resolution of the Board.
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In general, the President shall perform all such duties as shall be assigned to
him or her by the Board and in any employment agreement, subject at all times,
however, to the direction and supervision of the Board of Directors. In the
absence of the Chairman of the Board, the President, if a director, shall
preside over all meetings of the stockholders and over all meetings of the Board
of Directors. The President shall have the authority to appoint one or more
Assistant Secretaries and Assistant Treasurers, as he or she deems necessary.
(13) THE VICE PRESIDENTS: If no Chairman of the Board has been
appointed, in the absence or disability of the President, the Vice Presidents,
if any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board shall perform all the duties of
the President and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President; provided that no such Vice President
shall assume the authority to preside as Chairman of meetings of the Board
unless such Vice President is a member of the Board. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
respectively prescribed for them by the Board, these Bylaws, the President, or
the Chairman of the Board (if one be appointed).
(14) THE SECRETARY: The Secretary shall:
(a) have responsibility for preparing minutes of
meetings of the stockholders and the Board of Directors and for authenticating
records of the corporation;
(b) see that all notices (except as otherwise
provided in these Bylaws) are duly given in accordance with the provisions of
these Bylaws and as required by law;
(c) be custodian of the corporate records and seal
of the corporation, if one be adopted;
(d) keep a register of the post office address of
each stockholder and director;
(e) sign certificates for shares of the corporation;
(f) have general charge of the stock transfer books
of the corporation;
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(g) when required by law or authorized by resolution
of the Board of Directors, sign with the President, or other officer authorized
by the President or the Board, deeds, mortgages, bonds, contracts, or other
instruments; and
(h) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
by the President or the Board of Directors.
In the absence of the Secretary, an Assistant Secretary may perform the
duties of the Secretary.
(15) THE CHIEF FINANCIAL OFFICER OR TREASURER: If required
by the Board of Directors, the Chief Financial Officer or Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board shall determine. The Chief Financial Officer or
Treasurer shall:
(a) have charge and custody of and be responsible
for all funds and securities of the corporation;
(b) receive and give receipts for moneys due and
payable to the corporation from any source whatsoever and deposit all such
moneys in the name of the corporation in banks, trust companies, or other
depositories selected in accordance with the provisions of these Bylaws; and
(c) in general, perform all of the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned by the President or the Board of Directors.
In the absence of the Chief Financial Officer or Treasurer, an
Assistant Treasurer may perform the duties of the Chief Financial Officer or
Treasurer.
(16) DELEGATION: In the case of absence or inability to act of
any officer of the corporation and of any person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may select.
(17) OTHER OFFICERS AND AGENTS: One or more Vice Presidents and
such other officers and assistant officers as may be deemed necessary or
advisable may be appointed by the Board of Directors or, to the extent provided
in Section (3) hereof, by the President. Such other officers and assistant
officers shall hold office for such periods, have such authorities, and perform
such duties as are provided in
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these Bylaws or as may be provided by resolution of the Board. Any officer may
be assigned by the Board any additional title that the Board deems appropriate.
The Board may delegate to any officer or agent the power to appoint any such
assistant officers or agents and to prescribe their respective terms of office,
authorities, and duties.
(18) VACANCIES: Vacancies in any office arising from any cause
may be filled by the Board of Directors at any regular or special meeting of the
Board. The appointee shall hold office for the unexpired term and until his
successor is duly selected and qualified.
(19) RESIGNATION: Any officer may resign at any time by
delivering written notice to the Chairman of the Board, the President, the
Secretary, or the Board of Directors. Any such resignation shall take effect at
the time specified therein, or if the time is not specified, upon delivery
thereof and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
(20) TERM AND REMOVAL: The officers of the corporation shall
hold office until their successors are appointed and qualified. Any officer or
agent may be removed by the Board with or without cause. An officer empowered to
appoint another officer or assistant officer also has the power to remove any
officer he or she would have the power to appoint whenever in his or her
judgment the best interests of the corporation would be served thereby. The
removal of an officer or agent shall be without prejudice to the contract
rights, if any, of the corporation or the person so removed. Appointment of an
officer or agent shall not of itself create contract rights.
(21) BONDS: The Board of Directors may, by resolution, require
any and all of the officers to give bonds to the corporation, with sufficient
surety or sureties, conditioned for the faithful performance of the duties of
their respective offices, and to comply with such other conditions as may from
time to time be required by the Board of Directors.
(22) SALARIES: The salaries of all officers and agents of the
corporation shall be fixed from time to time by the Board of Directors or by any
person or persons to whom the Board has delegated such authority. No officer
shall be prevented from receiving such salary by reason of the fact that such
officer is also a director of the corporation.
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III
CONTRACTS, LOANS, CHECKS AND DEPOSITS
(1) The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, except where
otherwise provided by law or these Bylaws. Such authority may be general or
confined to specific instances.
(2) No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
or ratified by a resolution of the Board. Such authority may be general or
confined to specific instances. The corporation may lend money to, or guarantee
any obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty, or assistance may reasonably be expected to
benefit the corporation.
(3) All checks, drafts, or other orders for the payment of
money, notes, or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, or agent or agents, of
the corporation and in such manner as is from time to time determined by
resolution of the Board.
(4) All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the Board may elect.
(5) No contract or transaction between the corporation and one
or more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are counted for such
purpose, if:
(a) The material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or
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(b) The material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved, or ratified, by the Board
of Directors, a committee thereof, or the stockholders.
ARTICLE II
DIVIDENDS AND FINANCE
(6) DIVIDENDS: Dividends may be declared by the Board of
Directors and paid out of the annual net profits of the corporation, or out of
its net assets in excess of its capital, subject to the conditions and
limitations imposed by the Certificate of Incorporation and the laws of the
State of Delaware.
(7) RESERVES: Before making any distribution of profits, there
may be set aside out of the net profits of the corporation such sum or sums as
the directors from time to time in their absolute discretion deem expedient as a
reserve fund to meet contingencies, or for equalizing dividends, or for
maintaining any property of the corporation, or for any other purposes. Any
profits of any year not distributed as dividends shall be deemed to have been
thus set apart until otherwise disposed of by the Board of Directors.
(8) DEPOSITORIES: The moneys of the corporation shall be
deposited in the name of the corporation in such bank or banks or trust company
or trust companies as the Board of Directors shall designate, and shall be drawn
out only by instrument signed by such persons and in such manner as may be
determined by resolution of the Board of Directors.
IV
NOTICES
(1) Whenever, under any provisions of these Bylaws, notice is
required to be given to any stockholder, unless provided otherwise in these
Bylaws, it shall be given in writing, timely and duly deposited in the United
States mail,
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postage prepaid, and addressed to his last known post office address as shown by
the stock record of the corporation or its transfer agent.
(2) Any notice required to be given to any director may be
given by the method stated in Section (1) hereof, or by facsimile, telex or
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such director.
(3) If no address of a stockholder or director be known, notice
may be sent to the principal place of business of the corporation.
(4) An affidavit of mailing, executed by a duly authorized and
competent employee of the corporation or its transfer agent appointed with
respect to the class of stock affected, specifying the name and address or the
names and addresses of the stockholder or stockholders, or director or
directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall be conclusive evidence of the statements
therein contained.
(5) All notices given by mail, as above provided, shall be
deemed to have been given as at the time of mailing and all notices given by
facsimile, telex or telegram shall be deemed to have been given as of the
sending time recorded at time of transmission.
(6) It shall not be necessary that the same method of giving
notice be employed in respect of all directors, but one permissible method may
be employed in respect of any one or more, and any other permissible method or
methods may be employed in respect of any other or others.
(7) The period or limitation of time within which any
stockholder may exercise any option or right, or enjoy any privilege or benefit,
or be required to act, or within which any director may exercise any power or
right, or enjoy any privilege, pursuant to any notice sent him in the manner
above provided, shall not be affected or extended in any manner by the failure
of such stockholder or such director to receive such notice.
(8) Whenever notice is required to be given, under any
provision of law or of the Certificate of Incorporation or Bylaws of the
corporation, to any person with whom communication is unlawful, the giving of
such notice to such person shall not be required and there shall be no duty to
apply to any governmental authority or agency for a license or permit to give
such notice to such
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person. Any action or meeting which shall be taken or held without notice to any
such person with whom communication is unlawful shall have the same force and
effect as if such notice had been duly given. In the event that the action taken
by the corporation is such as to require the filing of a certificate under any
provision of the General Corporation Law of Delaware, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
(9) Whenever notice is required to be given, under any
provision of law or the Certificate of Incorporation or Bylaws of the
corporation, to any stockholder to whom (i) notice of two consecutive annual
meetings, and all notices of meetings or of the taking of action by written
consent without a meeting to such person during the period between such two
consecutive annual meetings, or (ii) all, and at least two, payments (if sent by
first class mail) of dividends or interest on securities during a twelve month
period, have been mailed addressed to such person at his address as shown on the
records of the corporation and have been returned undeliverable, the giving of
such notice to such person shall not be required. Any action or meeting which
shall be taken or held without notice to such person shall have the same force
and effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the General
Corporation Law of Delaware, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
V
SEAL
The corporate seal of the corporation shall be in such form and
bear such inscription as may be adopted by resolution of the Board of Directors,
or by usage of the officers on behalf of the corporation. Said seal may be used
by causing it or a facsimile thereof to be impressed, affixed or reproduced.
VI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS
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(1) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director or officer of the
corporation, or if such director or officer is or was serving at the request of
the corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner in which
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(2) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he or she is or was a
director or officer of the corporation, or if such director or officer is or was
serving at the request of the corporation as a director, officer, trustee,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action, suit or proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
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(3) To the extent that a director or officer of the corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections (1) and (2) hereof, or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
(4) Any indemnification under Sections (1) or (2) hereof
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Sections (1) or (2) hereof. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders.
(5) Expenses (including attorneys' fees) incurred by an officer
or director in defending a civil or criminal action, suit or proceeding may be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding as authorized in the manner provided in Section (4) hereof upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if it should be ultimately determined that such person is not
entitled to be indemnified by the corporation as authorized in this Article or
otherwise. Such expenses incurred by other employees and agents shall be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(6) The indemnification and advancement of expenses provided by
or granted pursuant to the other Sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. The indemnification powers of the corporation
shall be as broad as is allowed under applicable law.
(7) Upon the majority vote of a quorum of the Board of
Directors, the corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation, or if such
director or officer is or was serving at the request of the corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
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against any liability asserted against him or her and incurred by him or her in
any such capacity, or arising out of his or her status as such, whether or not
the corporation shall have indemnified him or her against such liability under
the provisions of this Article. Upon a majority vote of a quorum of the Board of
Directors, the corporation may indemnify a person who is or was an employee or
agent of the corporation, or if such employee or agent is or was serving at the
request of the corporation as a director, officer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
pursuant to and in accordance with the provisions of this Article.
VII
BOOKS AND RECORDS
The corporation shall keep correct and complete books and
records of account and shall keep minutes of the proceedings of its stockholders
and Board of Directors, and shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of its stockholders, giving the names and addresses of all stockholders and the
number and class of the shares held by each. Any books, records, and minutes may
be in written form or any other form capable of being converted into written
form within a reasonable time.
VIII
AMENDMENTS
These Bylaws may be altered, amended or repealed by the
affirmative vote of a majority of the voting stock issued and outstanding at any
regular or special meeting of the stockholders. The Board of Directors shall
have power to make, alter, amend and repeal the Bylaws of this corporation,
unless the stockholders in adopting, amending or repealing a particular Bylaw
have provided expressly that the Board of Directors may not amend or repeal that
Bylaw. Any such Bylaws made or adopted by the Board of Directors, or any
alteration, amendment or repeal of the Bylaws by the Board of Directors, may be
changed or repealed by the holders of a majority of the stock entitled to vote
at any stockholders' meeting.
ARTICLE XIIXII
AUTHENTICATION
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The foregoing Bylaws were read, approved, and duly adopted by the Board
of Directors of Brazos Sportswear, Inc. on the 12th day of March, 1997, and the
President and Secretary of the corporation were empowered to authenticate such
Bylaws by their signatures below.
_________________________________
President
_________________________________
Secretary
29
EXHIBIT 10.3
================================================================================
BSI HOLDINGS, INC.
1995 STOCK INCENTIVE PLAN
NOVEMBER 30, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. GENERAL........................................................ 1
Section 1.1. PURPOSE................................................ 1
Section 1.2. ADMINISTRATION......................................... 1
Section 1.3. ELIGIBILITY FOR PARTICIPATION.......................... 2
Section 1.4. TYPES OF AWARDS UNDER PLAN............................. 2
Section 1.5. AGGREGATE LIMITATION ON AWARDS......................... 2
Section 1.6. EFFECTIVE DATE AND TERM OF PLAN........................ 3
ARTICLE II. STOCK OPTIONS................................................. 3
Section 2.1. AWARD OF STOCK OPTIONS................................. 3
Section 2.2. STOCK OPTION AGREEMENTS................................ 3
Section 2.3. STOCK OPTION PRICE..................................... 3
Section 2.4. TERM AND EXERCISE...................................... 4
Section 2.5. MANNER OF PAYMENT...................................... 4
Section 2.6. DELIVERY OF SHARES..................................... 4
Section 2.7. DEATH, RETIREMENT AND TERMINATION OF
EMPLOYMENT OF OPTIONEE................................. 4
Section 2.8. TAX ELECTION........................................... 5
Section 2.9. EFFECT OF EXERCISE..................................... 5
ARTICLE III. INCENTIVE STOCK OPTIONS ..................................... 5
Section 3.1. AWARD OF INCENTIVE STOCK OPTIONS....................... 5
Section 3.2. INCENTIVE STOCK OPTION AGREEMENTS...................... 5
Section 3.3. INCENTIVE STOCK OPTION PRICE........................... 5
Section 3.4. TERM AND EXERCISE...................................... 5
Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT......... 6
Section 3.6. DEATH OF OPTIONEE...................................... 6
Section 3.7. RETIREMENT OR DISABILITY............................... 6
Section 3.8. TERMINATION FOR OTHER REASONS.......................... 6
Section 3.9. APPLICABILITY OF STOCK OPTIONS SECTIONS................ 6
ARTICLE IV. RELOAD OPTIONS ............................................... 6
Section 4.1. AUTHORIZATION OF RELOAD OPTIONS........................ 6
Section 4.2. RELOAD OPTION AMENDMENT................................ 7
Section 4.3. RELOAD OPTION PRICE.................................... 7
Section 4.4. TERM AND EXERCISE...................................... 7
Section 4.5. TERMINATION OF EMPLOYMENT.............................. 7
Section 4.6. APPLICABILITY OF STOCK OPTIONS SECTIONS................ 7
ARTICLE V. ALTERNATE APPRECIATION RIGHTS ................................. 7
Section 5.1. AWARD OF ALTERNATE APPRECIATION RIGHTS................. 7
Section 5.2. ALTERNATE APPRECIATION RIGHTS AGREEMENT................ 7
Section 5.3. EXERCISE............................................... 7
Section 5.4. AMOUNT OF PAYMENT...................................... 7
Section 5.5. FORM OF PAYMENT........................................ 7
Section 5.6. EFFECT OF EXERCISE..................................... 8
Section 5.7. TERMINATION OF EMPLOYMENT, RETIREMENT,
DEATH OR DISABILITY.................................... 8
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ARTICLE VI. LIMITED RIGHTS ............................................... 8
Section 6.1. AWARD OF LIMITED RIGHTS................................ 8
Section 6.2. LIMITED RIGHTS AGREEMENT............................... 8
Section 6.3. EXERCISE PERIOD........................................ 8
Section 6.4. AMOUNT OF PAYMENT...................................... 9
Section 6.5. FORM OF PAYMENT........................................ 9
Section 6.6. EFFECT OF EXERCISE..................................... 9
Section 6.7. RETIREMENT OR DISABILITY............................... 9
Section 6.8. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS..... 9
Section 6.9. TERMINATION RELATED TO A CHANGE IN CONTROL............. 9
ARTICLE VII. BONUS STOCK AWARDS........................................... 9
Section 7.1. AWARD OF BONUS STOCK................................... 9
Section 7.2. STOCK BONUS AGREEMENTS................................. 10
Section 7.3. TRANSFER RESTRICTION................................... 10
ARTICLE VIII. MISCELLANEOUS .............................................. 10
Section 8.1. GENERAL RESTRICTION.................................... 10
Section 8.2. NON-ASSIGNABILITY...................................... 10
Section 8.3. WITHHOLDING TAXES...................................... 10
Section 8.4. RIGHT TO TERMINATE EMPLOYMENT.......................... 10
Section 8.5. NON-UNIFORM DETERMINATIONS............................. 10
Section 8.6. RIGHTS AS A SHAREHOLDER................................ 10
Section 8.7. DEFINITIONS............................................ 10
Section 8.8. LEAVES OF ABSENCE...................................... 11
Section 8.9. NEWLY ELIGIBLE EMPLOYEES............................... 11
Section 8.10. ADJUSTMENTS............................................ 11
Section 8.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE............. 11
Section 8.12. AMENDMENT OF THIS PLAN................................. 13
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<PAGE>
BSI HOLDINGS, INC.
1995 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
Section 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) closely associate the interests of the management of BSI
Holdings, Inc., a Delaware corporation (the "Company"), and its subsidiaries and
affiliates (the Company, together with its subsidiaries and affiliates, being
hereafter collectively referred to as "Brazos") with the shareholders of the
Company to generate an increased incentive to contribute to the Company's future
success and prosperity, thus enhancing the value of the Company for the benefit
of its shareholders; (2) provide management with a proprietary ownership
interest in the Company commensurate with Brazos' performance, as reflected in
increased shareholder value; (3) maintain competitive compensation levels
thereby attracting and retaining highly competent and talented directors and
employees; and (4) provide an incentive to management for continuous employment
with Brazos.
Section 1.2. ADMINISTRATION.
(a) This Plan shall be administered by a Committee of disinterested
persons appointed by the Board of Directors of the Company (the
"Committee"), as constituted from time to time. The Committee shall
consist of at least one member of the Board of Directors. During the
one-year period prior to commencement of service on the Committee, the
Committee members will not have participated in, and while serving and for
one year after serving on the Committee, such members shall not be
eligible for selection as, persons to whom stock may be allocated or to
whom stock options or stock appreciation rights may be granted under this
Plan or any other discretionary plan of the Company under which
participants are entitled to acquire stock, stock options, or stock
appreciation rights of the Company other than the automatic grant of
non-discretionary awards as provided in Article VII.
(b) The Committee shall have the authority, in its sole discretion
and from time to time to:
(i) designate the employees or classes of employees of
Brazos eligible to participate in this Plan;
(ii) grant awards ("Awards") provided in this Plan in such
form and amount as the Committee shall determine;
(iii) impose such limitations, restrictions, and conditions,
not inconsistent with this Plan, upon any such Award as the
Committee shall deem appropriate; and
(iv) interpret this Plan and any agreement, instrument, or
other document executed in connection with this Plan; adopt,
amend, and rescind rules and regulations relating to this Plan;
and make all other determinations and take all other action
necessary or advisable for the implementation and administration
of this Plan.
(c) Decisions and determinations of the Committee on all matters
relating to this Plan shall be in its sole discretion and shall be final,
conclusive, and binding upon all persons, including the Company, any
participant, any shareholder of the Company, and any employee of Brazos. A
majority of the members of the Committee may determine its actions and fix
the time and place of its meetings. No member of the Committee shall be
liable for any action taken or decision made in good faith relating to
this Plan or any Award thereunder.
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Section 1.3. ELIGIBILITY FOR PARTICIPATION. Participants in this Plan
("Participants") shall be selected by the Committee from the directors,
executive officers and other employees of Brazos who are responsible for or
contribute to the management, growth, success and, profitability of Brazos. In
making this selection and in determining the form and amount of Awards, the
Committee shall consider any factors deemed relevant, including the individual's
functions, responsibilities, value of services to Brazos, and past and potential
contributions to Brazos' profitability and growth.
Section 1.4. TYPES OF AWARDS UNDER PLAN. Awards under this Plan may be
in the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
(iii) Reload Options, as described in Article IV;
(iv) Alternate Appreciation Rights, as described in Article V;
(v) Limited Rights, as described in Article VI; and/or
(vi) Stock Bonus Awards,as described in Article VII.
Awards under this Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award ("Award Agreement"), in form and
substance satisfactory to the Committee, and not inconsistent with this Plan.
Section 1.5. AGGREGATE LIMITATION ON AWARDS.
(a) Shares of stock which may be issued under this Plan shall be
authorized and unissued or treasury shares of Common Stock $.01 par value,
of the Company ("Common Stock"). The maximum number of shares of Common
Stock which may be issued under this Plan shall be 60,000.
(b) For purposes of calculating the maximum number of shares of
Common Stock that may be issued under this Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when
cash is used as full payment for shares issued upon exercise of a
Stock Option, Incentive Stock Option, or Reload Option;
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an
exercise of Alternate Appreciation Rights shall be counted; and
(iii) only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when
shares of Common Stock or another Award under this Plan are used or
withheld as full or partial payment for shares issued upon exercise
of a Stock Option, Incentive Stock Option, or Reload Option.
(c) In addition to shares of Common Stock actually issued pursuant
to the exercise of Stock Options, Incentive Stock Options, Reload Options,
or Alternate Appreciation Rights, there shall be deemed to have been
issued a number of shares equal to the number of shares of Common Stock in
respect of which Limited Rights (as described in Article VI) shall have
been exercised.
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(d) Shares tendered by a participant or withheld as payment for
shares issued upon exercise of a Stock Option, Incentive Stock Option, or
Reload Option shall be available for issuance under this Plan. Any shares
of Common Stock subject to a Stock Option, Incentive Stock Option, or
Reload Option that for any reason is terminated unexercised or expires
shall again be available for issuance under this Plan, but shares subject
to a Stock Option, Incentive Stock Option, or Reload Option that are not
issued as a result of the exercise of Limited Rights shall not again be
available for issuance under this Plan.
Section 1.6. EFFECTIVE DATE AND TERM OF PLAN.
(a) This Plan shall become effective on the date approved by the
holders of a majority of the shares of Common Stock pursuant to one or
more written consents or at an annual or special meeting of shareholders
of the Company, in either event within twelve (12) months after this Plan
is adopted by its Board of Directors.
(b) No Awards shall be made under this Plan after the tenth
anniversary of the effective date of this Plan; provided, however, that
this Plan and all Awards made under this Plan prior to such date shall
remain in effect until such Awards have been satisfied or terminated in
accordance with this Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. AWARD OF STOCK OPTIONS. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in this Plan one or
more options to purchase the number of shares of Common Stock ("Stock Options")
allotted by the Committee. The date a Stock Option is granted shall mean the
date selected by the Committee as of which the Committee allots a specific
number of shares to a participant pursuant to this Plan.
Section 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall be
evidenced by a written Award Agreement, executed by the Company and the holder
of a Stock Option (the "Optionee"), stating the number of shares of Common Stock
subject to the Stock Option evidenced thereby, and in such form as the Committee
may from time to time determine.
Section 2.3. STOCK OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be an amount
selected by the Committee and shall not be less than 100% of the fair market
value of a share of Common Stock on the date the Stock Option is granted.
Section 2.4. TERM AND EXERCISE. A Stock Option shall not be exercisable
prior to six months from the date of its grant and unless a shorter period is
provided by the Committee or by another Section of this Plan, may be exercised
during a period of ten years from the date of grant thereof (the "Option Term").
No Stock Option shall be exercisable after the expiration of its Option Term.
Section 2.5. MANNER OF PAYMENT. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that, upon such exercise in respect of any
shares of Common Stock subject thereto, the Optionee shall pay to the Company,
in full, the option price for such shares with cash, or with previously owned
Common Stock, or at the discretion of the Committee, in whole or in part with,
the surrender of another Award under this Plan, the withholding of shares of
Common Stock issuable upon exercise of such Stock Option, other property, or any
combination thereof (each based on the fair market value of such Common Stock,
Award or other property on the date the Stock Option is exercised as determined
by the Committee).
Section 2.6. DELIVERY OF SHARES. As soon as practicable after receipt of
payment, the Company shall deliver to the Optionee a certificate or certificates
for such shares of Common Stock. The Optionee shall become
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a shareholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a shareholder.
Section 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF OPTIONEE.
Unless otherwise provided in an Award Agreement or otherwise agreed to by the
Committee:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires the right to exercise such Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
effective term of the Stock Option and one year after the Optionee's
death. The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but
only to the extent of any rights exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the
Committee), the Optionee may, within up to a maximum of 36 months from the
date of termination (or such shorter period of time as may be determined
by the Committee in any instance, as reflected in each Optionee's Award
Agreement), exercise any Stock Options to the extent such options are
exercisable during such 36-month period.
(c) Except as provided in Subsections (a) and (b) of this Section
2.7, or except as otherwise determined by the Committee, all Stock Options
shall terminate three months after the date of the termination of the
Optionee's employment (or such shorter period of time as may be determined
by the Committee in any instance, as reflected in each Optionee's Award
Agreement).
Section 2.8. TAX ELECTION. Provided that the Company is a "reporting
company" under the Securities Exchange Act of 1934, as amended, at the time of
exercise of a Stock Option, recipients of Stock Options who are directors or
executive officers of the Company or who own more than 10% of the Common Stock
of the Company ("Section 16(a) Option Holders") at the time of exercise of a
Stock Option may elect, in lieu of paying to the Company an amount required to
be withheld under applicable tax laws in connection with the exercise of a Stock
Option in whole or in part, to have the Company withhold shares of Common Stock
having a fair market value equal to the amount required to be withheld. Such
election may not be made prior to six months following the grant of the Stock
Option, except in the event of a Section 16(a) Option Holder's death or
disability. The election may be made at the time the Stock Option is exercised
by notifying the Company of the election, specifying the amount of such
withholding and the date on which the number of shares to be withheld is to be
determined ("Tax Date"), which shall be either (i) the date the Stock Option is
exercised or (ii) a date six months after the Stock Option was granted, if
later. The number of shares of Common Stock to be withheld to satisfy the tax
obligation shall be the amount of such tax liability divided by the fair market
value of the Common Stock on the Tax Date (or if not a business day, on the next
closest business day). If the Tax Date is not the exercise date, the Company may
issue the full number of shares of Common Stock to which the Section 16(a)
Option Holder is entitled, and such option holder shall be obligated to tender
to the Company on the Tax Date a number of such shares necessary to satisfy the
withholding obligation. Certificates representing such shares of Common Stock
shall bear a legend describing such Section 16(a) Option Holders obligation
hereunder.
Section 2.9. EFFECT OF EXERCISE. The exercise of any Stock Option shall
cancel that number of related Alternate Appreciation Rights and/or Limited
Rights, if any, that is equal to the number of shares of Common Stock purchased
pursuant to said option unless otherwise agreed by the Committee in an Award
Agreement or otherwise.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Committee may, from
time to time and subject to the provisions of this Plan and such other terms and
conditions as the Committee may prescribe, grant to any
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participant in this Plan one or more "incentive stock options" (intended to
qualify as such under the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") ("Incentive Stock Options") to purchase the
number of shares of Common Stock allotted by the Committee. The date an
Incentive Stock Option is granted shall mean the date selected by the Committee
as of which the Committee allots a specific number of shares to a participant
pursuant to this Plan.
Section 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an Incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, and in such form as the Committee may from time to time
determine.
Section 3.3. INCENTIVE STOCK OPTION PRICE. Subject to Section 2.3(b), the
option price per share of Common Stock deliverable upon the exercise of an
Incentive Stock Option shall be at least 100% of the fair market value of a
share of Common Stock on the date the Incentive Stock Option is granted;
provided, however, the option price per share of Common Stock deliverable upon
the exercise of an Incentive Stock Option granted to any owner of 10% or more of
the total combined voting power of all classes of stock of the Company and its
subsidiaries shall be at least 110% of the fair market value of a share of
Common Stock on the date the Incentive Stock Option is granted.
Section 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall not be
exercisable prior to six months from the date of its grant and unless a shorter
period is provided by the Committee or another Section of this Plan, may be
exercised during a period of ten years from the date of grant thereof (the
"Option Term"). No Incentive Stock Option shall be exercisable after the
expiration of its Option Term.
Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The aggregate
fair market value (determined on the date the option is granted) of Common Stock
subject to an Incentive Stock Option granted to an Optionee by the Committee in
any calendar year shall not exceed $100,000.
Section 3.6. DEATH OF OPTIONEE.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
option term of the Incentive Stock Option and one year after the
Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death,
but only to the extent of any Incentive Stock Options exercisable on the
date of death.
Section 3.7. RETIREMENT OR DISABILITY. Upon the termination of the
Optionee's employment by reason of permanent disability or retirement (as each
is determined by the Committee), the Optionee may, within 36 months from the
date of such termination of employment (or such shorter period of time as may be
determined by the Committee in any instance, as reflected in each Optionee's
Award Agreement), exercise any Incentive Stock Options to the extent such
Incentive Stock Options were exercisable at the date of such termination of
employment. Notwithstanding the foregoing, the tax treatment available pursuant
to Section 422 of the Code upon the exercise of an Incentive Stock Option will
not be available to an Optionee who exercises any Incentive Stock Options more
than (i) 12 months after the date of termination of employment due to permanent
disability or (ii) three months after the date of termination of employment due
to retirement.
Section 3.8. TERMINATION FOR OTHER REASONS. Except as provided in Sections
3.6 and 3.7 or except as otherwise determined by the Committee, all Incentive
Stock Options shall terminate three months after the date of
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the termination of the Optionee's employment (or such shorter period of time as
may be determined by the Committee in any instance, as reflected in each
Optionee's Award Agreement).
Section 3.9. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5, Manner
of Payment; 2.6, Delivery of Shares; 2.8, Tax Elections and 2.9, Effect of
Exercise, applicable to Stock Options, shall apply equally to Incentive Stock
Options. Such Sections are incorporated by reference in this Article III as
though fully set forth herein.
ARTICLE IV. RELOAD OPTIONS
Section 4.1. AUTHORIZATION OF RELOAD OPTIONS. Concurrently with or
subsequent to the award of Stock Options and/or the award of Incentive Stock
Options to any participant in this Plan, the Committee may authorize reload
options ("Reload Options") to purchase shares of Common Stock. The number of
Reload Options shall equal (i) the number of shares of Common Stock used to pay
the exercise price of the underlying Stock Options or Incentive Stock Options
and (ii) to the extent authorized by the Committee, the number of shares of
Common Stock withheld by the Company in payment of the exercise price underlying
the Stock Option or Incentive Stock Option or used to satisfy any tax
withholding requirement incident to the exercise of the underlying Stock Options
or Incentive Stock Options. The grant of a Reload Option will become effective
upon the exercise of underlying Stock Options, Incentive Stock Options, or
Reload Options through the use of shares of Common Stock held by the Optionee or
the withholding of shares by the Company in payment of the exercise price of the
underlying Stock Option or Incentive Stock Option held by the Optionee.
Notwithstanding the fact that the underlying option may be an Incentive Stock
Option, a Reload Option is not intended to qualify as an "incentive stock
option" under Section 422 of the Code.
Section 4.2. RELOAD OPTION AMENDMENT. Each Award Agreement shall state
whether the Committee has authorized Reload Options with respect to the Stock
Options and/or Incentive Stock Options covered by such Agreement. Upon the
exercise of an underlying Stock Option, Incentive Stock Option, or other Reload
Option, the Reload Option will be evidenced by an amendment to the underlying
Award Agreement in such form as the Committee shall approve.
Section 4.3. RELOAD OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Reload Option shall be the fair market
value of a share of Common Stock on the date the grant of the Reload Option
becomes effective.
Section 4.4. TERM AND EXERCISE. Each Reload Option is fully exercisable
six months from the effective date of grant. The term of each Reload Option
shall be equal to the remaining option term of the underlying Stock Option
and/or Incentive Stock Option.
Section 4.5. TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee in an Award Agreement or otherwise, no additional Reload Options shall
be granted to Optionees when Stock Options, Incentive Stock Options, and/or
Reload Options are exercised pursuant to the terms of this Plan following
termination of the Optionee's employment.
Section 4.6. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5, Manner
of Payment; 2.6 Delivery of Shares; 2.7, Death, Retirement and Termination of
Employment of Optionee; 2.8, Tax Elections; and 2.9, Effect of Exercise,
applicable to Stock Options, shall apply equally to Reload Options. Such
Sections are incorporated by reference in this Article IV as though fully set
forth herein.
ARTICLE V. ALTERNATE APPRECIATION RIGHTS
Section 5.1. AWARD OF ALTERNATE APPRECIATION RIGHTS. Concurrently with or
subsequent to the award of any Stock Option, Incentive Stock Option, or Reload
Option to purchase one or more shares of Common Stock,
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the Committee may, subject to the provisions of this Plan and such other terms
and conditions as the Committee may prescribe, award to the Optionee with
respect to each share of Common Stock covered by an Option, a related alternate
appreciation right permitting the Optionee to be paid the appreciation on the
Option in lieu of exercising the Option ("Alternate Appreciation Right").
Section 5.2. ALTERNATE APPRECIATION RIGHTS AGREEMENT. Alternate
Appreciation Rights shall be evidenced by written Award Agreements in such form
as the Committee may from time to time determine.
Section 5.3. EXERCISE. An Optionee who has been granted Alternate
Appreciation Rights may, from time to time, in lieu of the exercise of an equal
number of Options, elect to exercise one or more Alternate Appreciation Rights
and thereby become entitled to receive from the Company payment in Common Stock
of the number of shares determined pursuant to Sections 5.4 and 5.5. Alternate
Appreciation Rights shall be exercisable only to the same extent and subject to
the same conditions as the Options related thereto are exercisable, as provided
in this Plan. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any Alternate Appreciation Rights.
Section 5.4. AMOUNT OF PAYMENT. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Alternate Appreciation Right shall
be equal to 100% of the amount, if any, by which the fair market value of a
share of Common Stock on the exercise date exceeds the option price per share on
the Option related to such Alternate Appreciation Right. A Section 16(a) Option
Holder may elect to withhold shares of Common Stock issued under this Section to
pay taxes as described in Section 2.8.
Section 5.5. FORM OF PAYMENT. The number of shares to be paid shall be
determined by dividing the amount of payment determined pursuant to Section 5.4
by the fair market value of a share of Common Stock on the exercise date of such
Alternate Appreciation Rights. As soon as practicable after exercise, the
Company shall deliver to the Optionee a certificate or certificates for such
shares of Common Stock.
Section 5.6. EFFECT OF EXERCISE. Unless otherwise provided in an Award
Agreement or agreed to by the Committee, the exercise of any Alternate
Appreciation Rights shall cancel an equal number of Stock Options, Incentive
Stock Options, Reload Options, and Limited Rights, if any, related to said
Alternate Appreciation Rights.
Section 5.7. TERMINATION OF EMPLOYMENT, RETIREMENT, DEATH OR DISABILITY.
Unless otherwise provided in an Award Agreement or agreed to by the Committee:
(a) Upon termination of the Optionee's employment (including
employment as a director of the Company after an Optionee terminates
employment as an officer or key employee of the Company) by reason of
permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within six months from the date of such
termination (or such shorter period of time as may be determined by the
Committee in any instance, as reflected in each Optionee's Award
Agreement), exercise any Alternate Appreciation Rights to the extent such
Alternate Appreciation Rights are exercisable during such period.
(b) Except as provided in Section 5.7(a), all Alternate Appreciation
Rights shall terminate three months after the date of the termination of
the Optionee's employment or upon the death of the Optionee.
ARTICLE VI. LIMITED RIGHTS
Section 6.1. AWARD OF LIMITED RIGHTS. Concurrently with or subsequent to
the award of any Stock Option, Incentive Stock Option, Reload Option, or
Alternate Appreciation Right, the Committee may, subject to the provisions of
this Plan and such other terms and conditions as the Committee may prescribe,
award to the Optionee
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with respect to each share of Common Stock covered by an Option, a related
limited right permitting the Optionee, during a specified limited time period,
to be paid the appreciation on the option in lieu of exercising the option
("Limited Right").
Section 6.2. LIMITED RIGHTS AGREEMENT. Limited Rights granted under this
Plan shall be evidenced by written Award Agreements in such form as the
Committee may from time to time determine.
Section 6.3. EXERCISE PERIOD. Limited Rights are exercisable in full for a
period of seven months following the date of a Change in Control of the Company
(the "Exercise Period"); provided, however, that Limited Rights may not be
exercised under any circumstances until the expiration of the six-month period
following the date of grant.
As used in this Plan, a "Change in Control" shall be deemed to have
occurred if:
(a) individuals who were directors of the Company immediately prior
to a Control Transaction shall cease, within one year of such Control
Transaction, to constitute a majority of the Board of Directors of the
Company (or of the Board of Directors of any successor to the Company or
to all or substantially all of its assets), or
(b) any entity, person, or Group other than the Company or the
current directors or executive officers of the Company acquires shares of
the Company in a transaction or series of transactions that result in such
entity, person or Group directly or indirectly owning beneficially 51% or
more of the outstanding shares.
As used herein, "Control Transaction" shall be (i) any tender offer for or
acquisition of capital stock of the Company, (ii) any merger, consolidation, or
sale of all or substantially all of the assets of the Company which has been
approved by the shareholders, (iii) any contested election of directors of the
Company, or (iv) any combination of the foregoing which results in a change in
voting power sufficient to elect a majority of the Board of Directors of the
Company. As used herein, "Group" shall mean persons who act in concert as
described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of
1934, as amended.
Section 6.4. AMOUNT OF PAYMENT. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Limited Right shall be equal to 100%
of the amount, if any, which is equal to the difference between the option price
per share of Common Stock covered by the related option and the Market Price of
a share of such Common Stock. "Market Price" is defined to be the greater of (i)
the highest price per share of the Company's Common Stock paid in connection
with any Change in Control and (ii) the fair market value per share of the
Company's Common Stock determined in accordance with Section 8.7(c).
Section 6.5. FORM OF PAYMENT. Payment of the amount to which an Optionee
is entitled upon the exercise of Limited Rights, as determined pursuant to
Section 6.4, shall be made solely in cash.
Section 6.6. EFFECT OF EXERCISE. If Limited Rights are exercised, the
Stock Options, Incentive Stock Options, Reload Options, and Alternate
Appreciation Rights, if any, related to such Limited Rights shall cease to be
exercisable to the extent of the number of shares with respect to which the
Limited Rights were exercised. Upon the exercise or termination of the Stock
Options, Incentive Stock Options, Reload Options, and Alternate Appreciation
Rights, if any, related to such Limited Rights, the Limited Rights granted with
respect thereto terminate to the extent of the number of shares as to which the
related options and Alternate Appreciation Rights were exercised or terminated.
Section 6.7. RETIREMENT OR DISABILITY. Upon termination of the Optionee's
employment (including employment as a director of the Company after an Optionee
terminates employment as an officer or key employee of the Company) by reason of
permanent disability or retirement (as each is determined by the Committee), the
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Optionee may, within six months from the date of termination, exercise any
Limited Right to the extent such Limited Right is exercisable during such
six-month period.
Section 6.8. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS. Except as
provided in Sections 6.7 and 6.9, or except as otherwise determined by the
Committee, all Limited Rights granted under this Plan shall terminate upon the
termination of the Optionee's employment or upon the death of the Optionee.
Section 6.9. TERMINATION RELATED TO A CHANGE IN CONTROL. The requirement
that an Optionee be terminated by reason of retirement or permanent disability
or be employed by Brazos at the time of exercise pursuant to Sections 6.7 and
6.8 respectively, is waived during the Exercise Period as to an Optionee who (i)
was employed by Brazos at the time of the Change in Control and (ii) is
subsequently terminated by Brazos other than for just cause or who voluntarily
terminates if such termination was the result of a good faith determination by
the Optionee that as a result of the Change in Control he is unable to
effectively discharge his present duties or the duties of the position which he
occupied just prior to the Change in Control. As used herein "just cause" shall
mean willful misconduct or dishonesty or conviction of or failure to contest
prosecution for a felony, persistent failure or refusal to attend to duties or
follow Company policy, or excessive absenteeism unrelated to illness.
ARTICLE VII. BONUS STOCK AWARDS
Section 7.1. AWARD OF BONUS STOCK. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in this Plan shares of
Common Stock ("Stock Bonus").
Section 7.2. STOCK BONUS AGREEMENTS. The grant of a Stock Bonus shall be
evidenced by a written Award Agreement, executed by the Company and the
recipient of a Stock Bonus, in such form as the Committee may from time to time
determine, providing for the terms of such grant, including any vesting
schedule, restrictions on the transfer of such Common Stock or other matters.
Section 7.3. TRANSFER RESTRICTION. Any Award Agreement providing for the
issuance of Bonus Stock to any person who, at the time of grant, is a person
described in Section 16(a) under the Securities Exchange Act of 1934 shall
provide that such Common Stock cannot be resold for a period of six months
following the grant of such Bonus Stock.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. GENERAL RESTRICTION. Each Award under this Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration, or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the grantee of an Award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with, the granting of such Award or the issue or purchase
of shares of Common Stock thereunder, such Award may not be consummated in whole
or in part unless such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
Section 8.2. NON-ASSIGNABILITY. No Award under this Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.
Section 8.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under this Plan, the
Company shall have the right to require the grantee to remit to the Company an
amount sufficient to satisfy any Federal, state, and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue or transfer such
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shares of the Company net of the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares of Common
Stock shall be valued on the date the withholding obligation is incurred.
Section 8.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any
agreement entered into pursuant to this Plan shall confer upon any participant
the right to continue in the employment of Brazos or effect any right which
Brazos may have to terminate the employment of such participant.
Section 8.5. NON-UNIFORM DETERMINATIONS. The Committee's determinations
under this Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under this Plan, whether or not such persons are
similarly situated.
Section 8.6. RIGHTS AS A SHAREHOLDER. The recipient of any Award under
this Plan shall have no rights as a shareholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him or her.
Section 8.7. DEFINITIONS. In this Plan the following definitions shall
apply:
(a) "Subsidiary" means any corporation of which, at the time more
than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by the Company or any
subsidiary thereof.
(b) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with the Company.
(c) "Fair market value" as of any date and in respect or any share
of Common Stock means (i) until such time as the Common Stock is traded on
a national securities exchange or over-the-counter and reported on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), then the price per share determined in good faith by the
Committee, taking into consideration all factors it deems relevant,
including liquidity, priority, minority interest discount, and the price
per share at which other securities of the Company have been issued; (ii)
if the Common Stock is traded on a national securities exchange, then the
closing price on such date or on the next business day, if such date is
not a business day, of a share of Common Stock reflected in the
consolidated trading tables of THE WALL STREET JOURNAL or any other
publication selected by the Committee; or (iii) if the Common Stock is
traded over-the-counter and reported on NASDAQ, then the average of the
high and low sales prices on such trading day as reported in such
publication or, if not so published, then as reported by NASDAQ, and if
the Common Stock is not in the NASDAQ National Market System on such
trading day, then the representative bid and asked prices at the end of
such trading day in such market as reported by NASDAQ. In no event shall
the fair market value of any share of Common Stock be less than its par
value.
(d) "Option" means Stock Option, Incentive Stock Option, or Reload
Option.
(e) "Option price" means the purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option, Incentive Stock
Option, or Reload Option.
Section 8.8. LEAVES OF ABSENCE. The Committee shall be entitled to make
such rules, regulations, and determinations as it deems appropriate under this
Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of this
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Plan and (ii) the impact, if any, of any such leave of absence on Awards under
this Plan theretofore made to any recipient who takes such leave of absence.
Section 8.9. NEWLY ELIGIBLE EMPLOYEES. The Committee shall be entitled to
make such rules, regulations, determinations and awards as it deems appropriate
in respect of any employee who becomes eligible to participate in this Plan or
any portion thereof after the commencement of an award or incentive period.
Section 8.10. ADJUSTMENTS. In any event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Committee may appropriately adjust the number of shares of Common Stock that
may be issued under this Plan, the number of shares of Common Stock subject to
Options theretofore granted under this Plan, and any and all other matters
deemed appropriate by the Committee.
Section 8.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options, Alternative Appreciation
Rights, or Limited Rights shall not affect in any way the right or power
of the Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or
otherwise.
(b) If, while there are outstanding Options, the Company shall
effect a subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then (a)
in the event of an increase in the number of such shares outstanding, the
number of shares of Common Stock then subject to Options hereunder shall
be proportionately increased; and (b) in the event of a decrease in the
number of such shares outstanding the number of shares then available for
Option hereunder shall be proportionately decreased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, which transaction alters
the outstanding capital structure of the Company, then each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by shareholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock or other securities
to which such holder would have been entitled to receive pursuant to the
terms of the agreement of merger or consolidation if, immediately prior to
such merger or consolidation, such holder had been the holder of record of
a number of shares of the Company equal to the number of shares as to
which such Option had been exercisable.
(d) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the Company is not
the surviving corporation, or if the Company sells or otherwise disposes
of substantially all of its assets to another corporation or other entity
while unexercised Options remain outstanding, then the Committee may
direct that any of the following shall occur:
(i) If the successor entity is willing to assume the
obligation to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of assets, as
the case may be, each holder of an outstanding Option shall be
entitled to receive, upon the exercise of such Option and payment of
the option price, in lieu of shares of Common Stock, such shares of
stock or other securities as the holder of such Option would have
been entitled to receive had such Option been exercised immediately
prior to the consummation of such merger,
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consolidation or sale, and any related Alternate Appreciation Right
and Limited Right associated with such Option shall apply as nearly
as practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such merger,
consolidation or sale of assets.
(ii) The Committee may waive any limitations set forth in or
imposed pursuant to this Plan or any Award Agreement with respect to
such Option and any related Alternate Appreciation Right or Limited
Option such that such Option and related Alternate Appreciation
Right and Limited Right shall become exercisable prior to the record
or effective date of such merger, consolidation or sale of assets.
(iii) The Committee may cancel all outstanding Options and
Alternate Appreciation Rights (but not Limited Rights) as of the
effective date of any such merger, consolidation, or sale of assets
provided that prior notice of such cancellation shall be given to
each holder of an Option at least 30 days prior to the effective
date of such merger, consolidation, or sale of assets, and each
holder of an Option shall have the right to exercise such Option and
any related Alternate Appreciation Right in full during a period of
not less than 30 days prior to the effective date of such merger,
consolidation, or sale of assets. No action taken by the Committee
under this subsection shall have the effect of terminating, and
nothing in this subsection shall permit the Committee to terminate,
any Limited Right held by an Optionee.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
then subject to outstanding Options.
Section 8.12. AMENDMENT OF THIS PLAN.
(a) The Committee may, without further action by the shareholders
and without receiving further consideration from the participants, amend
this Plan or condition or modify Awards under this Plan in response to
changes in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend this Plan in any respect, except that without shareholder
approval the Committee may not (i) increase the maximum number of shares
of Common Stock which may be issued under this Plan (other than increases
pursuant to Section 8.10), (ii) extend the period during which any Award
may be granted or exercised, or (iii) extend the term of this Plan. The
termination or any modification or amendment of this Plan, except as
provided in subsection (a), shall not, without the consent of a
participant, affect his or her rights under an Award previously granted to
him or her.
(c) Notwithstanding Sections 8.12(a) and (b), the provisions of
Article VII of this Plan may not be amended more than once every six
months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, or the rules thereunder.
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EXHIBIT 10.4
BRAZOS SPORTSWEAR, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
PLAN SUMMARY
DECEMBER 1995
<PAGE>
BRAZOS SPORTSWEAR, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
PAGE
PURPOSE ..................................................................... 1
DEFINITION .................................................................. 1
ADMINISTRATION .............................................................. 2
PARTICIPATION/ELIGIBILITY ................................................... 2
TIMING OF AWARD PAYMENTS .................................................... 3
AWARD DETERMINATION ......................................................... 3
DURATION OF PLAN ............................................................ 4
TERMINATION OF PLAN ......................................................... 4
MISCELLANEOUS PLAN PROVISIONS ............................................... 4
EFFECTIVE DATE .............................................................. 5
1996 PLAN PARAMETERS (ATTACHMENT A) ......................................... 6
BENEFICIARY DESIGNATION (ATTACHMENT B) ...................................... 7
<PAGE>
PURPOSE
Brazos Sportswear, Inc. (the "Company") has approved an Annual Incentive
Compensation Plan (the "Plan") to reward employees for enhancing the value of
the Company. The purpose of this Plan is to motivate employees to think and act
like owners. The Plan is intended to reward the Participants in the Plan for the
Company's financial performance which exceeds a predetermined threshold level of
performance.
The Plan is an annual plan which coincides with the fiscal year of the Company.
Awards made under the Plan are in addition to base salary and base salary
adjustments to maintain market competitiveness.
The Plan is a nonqualified plan and is, therefore, not subject to ERISA and
Internal Revenue Service reporting required for certain qualified deferred
compensation plans.
The Board of Directors (the "Board") of the Company reserves the right to amend,
modify or revoke the Plan at its discretion, without prior notice to
participants, provided however, any amendments, modifications or revocation
shall not be retroactive. No contractual right to any benefit described herein
is intended to be created by this document or any related action of the Company
and none should be inferred from the descriptions of this Plan.
DEFINITIONS
AFTER-TAX NET INCOME (LOSS)--The consolidated net income after income taxes
of the Company for a given Plan Year, determined in accordance with
generally accepted accounting principles.
ANNUAL INCENTIVE POOL--Represents the excess of adjusted after-tax income
over a predetermined threshold level of performance multiplied by the
incentive pool percentage.
AWARD--Total cash awarded to a Plan Participant due to the Company's
performance and results achieved under the Plan.
BASE PAY--Regular W-2 earnings, excluding incentive compensation, bonuses,
benefits, pension and profit-sharing contributions.
<PAGE>
COMPENSATION COMMITTEE--A committee comprised of Company employees or
directors as appointed by the Board of Directors.
INCENTIVE POOL PERCENTAGE--A percentage determined annually by the Board
that is used to calculate the annual incentive pool.
PLAN--The Company Annual Incentive Compensation Plan as set forth in this
document and as amended by the Compensation Committee from time to time.
PLAN PARTICIPANT--Any full-time employee of the Company if approved for
participation by the Compensation Committee.
PLAN YEAR--The fiscal year of the Company.
THRESHOLD--The minimum required return determined annually by the Board
that must be achieved by the Company before an incentive pool is created.
UNUSUAL/NONRECURRING INCOME OR EXPENSE--Items which may be excluded from
financial statement net income, net of the income tax effect. Such items
may include, but are not limited to the effect of changes in accounting
principles and gains on dispositions of assets. It is intended that these
items represent items outside the influence of management and employees of
the Company. The Board shall have the discretion to determine which items
shall be defined as Unusual/Non recurring Items.
ADMINISTRATION
The Board shall establish the following for each Plan Year:
o Threshold
o Unusual/non-recurring items that may be excluded/included in financial
statement net income.
The Compensation Committee shall establish the following for each Plan Year:
o Participants
o Group classification of Participants
The above parameters are set forth in Attachment A.
<PAGE>
The Compensation Committee will be responsible for Plan administration.
The following guidelines and procedures will be followed by the Compensation
Committee with respect to Plan operation.
PARTICIPATION/ELIGIBILITY
The Board shall establish the following for each Plan Year.
o Threshold
o Unusual/non-recurring items that may be excluded/included in financial
statement net income
The Compensation Committee shall establish the following for each Plan Year:
o Participants
o Group classification of Participants
The above parameters are set forth in Attachment A.
The Compensation Committee will be responsible for Plan administration.
The following guidelines and procedures will be followed by the Compensation
Committee with respect to Plan operation.
PARTICIPATION/ELIGIBILITY
All full-time employees of the Company will be eligible to participate in the
Plan. Participants whose Employment is terminated due to death, disability, or
retirement on or after attaining age 65, shall be eligible for an Award for the
Plan Year in which such termination occurred. Participants whose Employment is
terminated for any other reason during a Plan Year shall not be entitled to an
Award for such Plan Year, unless otherwise determined by the Compensation
Committee in its discretion as exercised on a case-by-case basis taking into
account such factors that the Compensation Committee deems to be relevant. The
Compensation Committee shall determine whether a termination of Employment was
voluntary, for cause or for any other reason, in its discretion.
<PAGE>
TIMING OF AWARD PAYMENTS
After the annual financial results have been finalized, the Incentive Pool
generated will be determined and Awards will be allocated to Plan Participants.
Awards for the Plan Year will be paid to Plan Participants as soon as
administratively practicable after the end of the Plan year for which the Award
was made.
AWARD DETERMINATION
The annual incentive pool for each Plan Year shall be calculated by the
Compensation committee as follows:
After-tax Financial Statement Net Income plus accrued Incentive Plan
Bonuses +/- Adjustments for Unusual/Non recurring Items
Threshold
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Amount Available for Incentive Pool
x Incentive Pool Percentages
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Annual Incentive Pool Generated
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The Threshold shall be determined by the Board in its discretion based on return
on invested capital. The Threshold and Incentive Pool Percentage will be set
annually and communicated to Participants prior to the beginning of the Plan
Year.
If no Incentive Pool is generated, then any incentive awarded is discretionary
based on achievement of individual performance criteria and other factors as
determined by the Compensation Committee.
<PAGE>
If an Annual Incentive Pool is generated, the pool will be allocated to the
group classes and then allocated to Participants within each group based on
relative base pay of Plan Participants assigned to that group at the beginning
of the Plan Year or for the portion of the Plan Year for which the participant
was an employee if not an employee at the beginning of the Plan Year.
Plan Progress Reports
Plan progress reports summarizing performance to date will be posted on a
periodic basis.
DURATION OF PLAN
The Plan is an integral part of the company's compensation plan. The Board
reserves the owner and the right at any time, and from time to time, to modify,
amend or terminate (in whole or in part) any or all of the provisions of the
Plan; provided, however, that no such modification or amendment shall be
retroactive to reduce or affect any awards otherwise due and payable under the
provisions of the Plan for any Plan Year during which the Plan was in effect.
TERMINATION OF PLAN
The incentive computation for the year in which termination of the Plan occurs,
will be based on the period ending on the last business day immediately prior to
the effective date of the plan termination. All performance calculations (e.g.,
threshold, financial performance, etc.) will be adjusted to coincide with such
period.
MISCELLANEOUS PLAN PROVISIONS
o A Participant's right and interest under the Plan may not be assigned or
transferred except in the event of the participant's death. Upon the death
of a Participant who was entitled to an Award at the date of his death, such
Award (and only such Award) shall become payable, pursuant to the Plan, to
the Participant's beneficiary. Unless otherwise noted, the Participant's
beneficiary will be the same as the beneficiary designated under the
Company's group life insurance program. If the Participant does not
participate in the Company's group life insurance program, the
Participant's beneficiary will be the beneficiary designated on the
Beneficiary Designated Form (see Attachment B).
o The Company shall deduct all minimum required federal tax and any required
state tax withholding from the Awards.
o The administrative expense of the Plan will be borne by the Company.
o Should a participant terminate employment (either voluntarily or
involuntarily) for causes other than death, disability, or retirement, any
Award that the Participant forfeited as a result of such termination will not
be reallocated to the remaining Participants for any Plan Year.
o Neither the establishment of the Plan nor the making of awards hereunder
shall be deemed to create a trust. The Plan shall constitute an unfunded,
unsecured liability of the Company to make payments in accordance with the
provisions of the Plan, and no individual shall have any security or other
interest in any assets of the Company.
<PAGE>
EFFECTIVE DATE
This Plan is effective December 30, 1995 and shall continue until terminated.
ATTACHMENT A
BRAZOS SPORTSWEAR, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
1996 PLAN PARAMETERS
I. PARTICIPANT GROUP CLASSIFICATIONS
(TO BE ADDED)
II. THRESHOLD
750,000.00
III. INCENTIVE POOL PERCENTAGE
10% OF EACH DOLLAR GREATER THAN $750 THOUSAND UP TO $1 MILLION
20% OF EACH DOLLAR GREATER THAN $1 MILLION UP TO $1.5 MILLION
30% OF EACH DOLLAR GREATER THAN $1.5 MILLION UP TO $2.3 MILLION
40% OF EACH DOLLAR GREATER THAN $2.3 MILLION UP TO $2.5 MILLION
50% OF EACH DOLLAR GREATER THAN $2.5 MILLION UP TO $8.17 MILLION
IV. UNUSUAL/NON-RECURRING ITEMS
(TO BE ADDED)
ATTACHMENT B
BRAZOS SPORTSWEAR, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
BENEFICIARY DESIGNATION
In the event of my death, I hereby designate the following as beneficiary for
all interest I hold in the Annual Incentive Compensation Plan of the Company.
----- The same as indicated for my group life insurance provided by
the Company.
Or
----- Primary beneficiary
Name ____________________________
Relationship ____________________
Address _________________________
----- Secondary beneficiary
Name ____________________________
Relationship ____________________
Address _________________________
Signed _______________________________________ Date ___________________
<PAGE>
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Highlights
ANNUAL INCENTIVE COMPENSATION PLAN
Group A & B
PURPOSE OF THE PROGRAM
-- Reward employees for enhancing the value of the Company.
-- Motivate employees to think and act like owners.
ADMINISTRATION
-- Board of Directors will establish each year the percentage of net income
allocated for bonus payment.
PARTICIPATION
-- All full time employees of all divisions of Brazos Sportswear, Inc. who
have completed ninety (90) days of service with the Company. Payout will
be prorated for employees with more than ninety (90) days of service but
less than one (1) year. Employees hired in the 4th quarter are not
eligible to participate until the following year.
PAYOUT
-- Maximum payout potential will be between 20% to 50% of base annual
earnings if the net income of the Company is in excess of the retained
threshold level and is sufficient to "max-out" employees. If not,
employees will receive a reduced percentage of the maximum.
DETERMINATION OF THRESHOLD PAYOUT
-- Each year, Brazos' Board of Directors will determine how much net income
will be made available for bonus payouts. For year 1996, the Board has
determined an incremental % of every $1.00 of net income above an amount
to be set aside to reward the investors of the Company.
DETERMINATION OF THRESHOLD PAYOUT CONTINUED
For example, let's assume the net income for 1996 is as follows:
1996 net income $2,000,000
Amount to be retained by the Company $ 750,000
Amount in excess of $750,000 $1,250,000
10% of each dollar up to $1 million $ 25,000
20% of each dollar up to $1.5 million $ 100,000
30% of each dollar up to $2.3 million $ 150,000
Total available for Bonus $ 275,000
$275,000 is then available for distribution to all full time employees of
Brazos Sportswear, Inc.
<PAGE>
PAYOUT FORMULA
To arrive at how much each employee will receive, the following steps will
be used.
STEP 1
All employees will be grouped into three (3) categories based on their
annual compensation.
Group A - annual base salary = $60,000 Group B - annual base
salary = 20,000 Group C - annual base salary = 20,000
For each group the maximum payout will be as follows:
Group A - 50% Group B - 30% Group C - 20%
At the close of the fiscal year (December 28, 1996) and fiscal audit, the
net income will be finalized and payout computations will be made.
STEP 2
The maximum bonus dollars available for distribution to employees in each
group will be determined by adding the total base earnings of the
individuals in the group and multiplying this total figure by the percent
of maximum bonus. Example:
Total
Group Salaries % Max. Bonus Max
A $1,112,443 50 $ 556,221
B 354,780 30 106,434
C 8,426,496 20 1,685,300
---------- ----------
Total 9,893,719 2,347,995
PAYOUT FORMULA CONTINUED
In our example, the $275,000 net income dollars available for bonus would
not be enough to give every employee the maximum payout of $2,347,995.
Each employee in each group would get a percent of their maximum payout as
follows;
For each employee in all groups, the payout percentage they would receive
is determined by dividing the maximum bonus amount of $2,347,995 into each
individual's maximum bonus opportunity. Thus, an employee with a maximum
bonus of $75,000 would get 3.4% of the bonus dollars of $275,000 or
$9,350. We would continue to do this until all employees in all groups
have their bonus calculated.
The details of this program can be found in the Plan Description. Feel
free to ask Clayton Chambers, Steve Ratterman or Dick Nordloh any
questions you may have.
RAN/cts
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 1st day of January, 1997,
between BRAZOS SPORTSWEAR, INC., a Texas corporation (the "Company"), and J.
FORD TAYLOR, a resident of Brazos County, Texas (the "Employee");
1. EMPLOYMENT TERM. The Company hereby employs the Employee for a
term commencing on date hereof and, subject to earlier termination as provided
in Section 5 hereof, ending on December 31, 1999 (such term being herein
referred to as the "term of this Agreement"). The Employee agrees to accept such
employment and to perform the services specified herein, all upon the terms and
conditions hereinafter stated.
2. DUTIES. The Employee shall serve the Company in an executive
capacity and shall report to and be subject to the general direction and control
of the Board of Directors of the Company or its Chairman (the "Board"). The
Employee shall perform the executive, management and administrative duties of
President and Chief Executive Officer of the Company. The Employee shall also
serve as President and Chief Executive Officer of each of BSI Holdings, Inc., a
Delaware corporation ("BSI"), and Brazos Embroidery, Inc., a Pennsylvania
corporation ("BEI"), and shall perform such other executive, management and
administrative functions that are consistent with the foregoing and assigned to
him by the Board. The Company agrees that it will assign the Employee those
duties, and only those duties, of the type, nature and dignity that are normally
assigned to an employee of his position in a corporation of the size, stature
and nature of the Company.
3. EXTENT OF SERVICE. The Employee shall devote his full business
time and attention to the business of the Company, and, except as may be
specifically permitted by the Company, shall not be engaged in any other
business activity during the term of this Agreement. The foregoing shall not be
construed as preventing the Employee from making passive investments in other
businesses or enterprises, provided, however, that such investments will not
require services on the part of the Employee which would in any way impair the
performance of his duties under this Agreement.
4. SALARY AND BENEFITS. (a) The Company shall pay the Employee a
base salary of $20,833.33 per full calendar month of service completed during
the term of this Agreement, appropriately prorated for partial months at the
beginning and end of the term of this Agreement. Such salary shall be payable in
accordance with the normal payroll policies of the Company from time to time in
effect. The Company shall have the right to deduct from any payment of all
compensation to the Employee hereunder (x) any federal, state or local taxes
required by law to be withheld with respect to such payments, and (y) any other
amounts specifically authorized to be withheld or deducted by the Employee.
<PAGE>
(b) During the term of this Agreement, the Employee shall be
entitled to receive the following benefits:
(i) The Employee shall be entitled to participate in the
Company's Key Employee Incentive Plan, and may receive benefits
under such Plan in an amount of up to 100% of the Employee's base
salary under paragraph (a) above.
(ii) For each calendar year during the term of this
Agreement, the Employee:
(A) shall receive a minimum cash bonus of $15,000 for
the calendar year ending December 31, 1997, $17,500 for the
calendar year ending December 31, 1998 and $20,000 for the
calendar year ending December 31, 1999; and
(B) may receive such additional bonuses for such
calendar years as may be awarded by the Board's Compensation
Committee in its sole discretion, taking into account such
factors it deems relevant, which may include the Company's
actual financial performance in each of those years in
relation to its business plan for such years.
Each bonus for a calendar year under this subparagraph (ii) shall be
payable by no later than March 31 of the following year.
(iii) The Employee shall be entitled to reim- bursement for
country club dues in an amount not to exceed $200 per month.
(iv) The Employee agrees to relocate from his present home
in College Station, Texas in the event the Board determines that his
duties are such that such relocation would be in the Company's best
interests. In such event, the Company agrees to pay the reasonable
cost of travel and transportation associated with such relocation,
and to provide the Employee and his family with temporary living
quarters in the area to which he is being relocated, for up to a
maximum of six months, until the Employee obtains permanent living
arrangements (all of the foregoing being collectively referred to as
"Relocation Expenses"). In addition, in the event of such
relocation, the Company agrees to pay or reimburse the Employee for
the reasonable expense of obtaining an appraisal of his existing
residence in College Station, Texas, and if in connection with the
Employee's sale of such residence incident to his relocation the
gross sales price is less than the fair market value determined by
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<PAGE>
such appraisal (the Company having the right to be consulted about,
and a right of reasonable approval over, such sales price), then the
Company shall pay the Employee the amount of the difference.
Moreover, if during the term of this Agreement the Company requests
the Employee to make a second relocation because the Board has
determined that it would be in the Company's best interests, the
Employee agrees to make such relocation and the Company will pay his
Relocation Expenses. In addition, if such relocation is requested
within three years after the date of this Agreement, and if in
connection with the Employee's sale of his residence incident to the
second relocation the net sales price (after deducting brokers'
commissions and other reasonable out-of-pocket expenses incurred
pursuant to the sale) is less than his original purchase price
thereof (the Company having the same right of consultation and
reasonable approval as aforesaid), then the Company shall pay the
Employee the amount of the difference.
(v) The Employee shall also be entitled to receive such
other benefits as are generally available to employees of the
Company.
5. TERMINATION.
(a) DEATH. If the Employee dies during the term of this Agreement
and while in the employ of the Company, this Agreement shall automatically
terminate and the Company shall have no further obligation to the Employee
or his estate, except that the Company shall pay the Employee's estate
that portion of the Employee's salary accrued through the end of the month
in which the Employee's death occurred.
(b) DISABILITY. If during the term of this Agreement, the Employee
shall be prevented from performing his duties hereunder by reason of
disability, and such disability shall continue for a period of twelve
weeks, then the Company may terminate this Agreement at any time after the
expiration of such twelve-week period while such disability is continuing.
For purposes of this Agreement, the Employee shall be deemed to have
become disabled when the Company, upon the advice of a qualified
physician, shall have determined that the Employee has become physically
or mentally incapable (excluding infrequent and temporary absences due to
ordinary illness) of performing his duties under this Agreement. In the
event of a termination pursuant to this paragraph (b), the Company shall
be relieved of all its obligations under this Agreement, except that the
Company shall pay to the Employee his base salary through the end of the
month during which such termination shall have occurred, less any benefits
received by the
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<PAGE>
Employee during such period of disability under any disability benefits
plan maintained by the Company.
(c) CERTAIN DISCHARGES.
(i) DISCHARGE WITHOUT CAUSE. Prior to the end of the term of
this Agreement, the Company, on 30 days' prior written notice to the
Employee, may discharge the Employee for any reason, without Cause
(as defined in subparagraph (ii) below), in which case the Company
may terminate this Agreement without further liability to the
Employee or his estate in the event of his subsequent death, other
than to pay to the Employee or to his estate the Employee's base
salary and minimum guaranteed bonuses pursuant to Section 4 for the
remainder of the term of this Agreement. Such payments to the
Employee shall be made in the same manner and at the same times as
they would have been paid had the Employee not been discharged.
(ii) DISCHARGE WITH CAUSE. Prior to the end of the term of
this Agreement, the Company may discharge the Employee with Cause
(as hereinafter defined) without prior written notice, and terminate
this Agreement without any further liability hereunder to the
Employee or his estate other than to pay to the Employee his base
salary accrued to the date of discharge. For purposes of this
Agreement, the Company shall have "Cause" to discharge the Employee
or terminate the Employee's employment hereunder upon (i) the
Employee's commission of any felony or other crime involving moral
turpitude, (ii) the Employee's willful or persistent failure or
refusal to follow policies or directives established by the Company,
(iii) the Employee's commission of acts amounting to gross
negligence or willful misconduct to the detriment of the Company or
its affiliates or (iv) the Employee's breach of this Agreement.
6. CONFIDENTIAL INFORMATION. The Employee acknowledges that in the
course of his employment by the Company and its affiliates he has received and
will receive certain trade secrets, programs, lists of customers and other
confidential information and knowledge concerning the business of the Company
and its predecessor (hereinafter collectively referred to as "Information")
which the Company desires to protect. The Employee understands that the
Information is confidential and he agrees not to reveal the Information to
anyone outside the Company so long as the confidential or secret nature of the
Information shall continue. The Employee further agrees that he will at no time
use the Information in competing with the Company. Upon termination of this
Agreement, the Employee shall surrender to the Company all papers, documents,
writings and other property produced by him or coming into his pos-
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<PAGE>
session by or through his employment or relating to the Information and the
Employee agrees that all such materials will at all times remain the property of
the Company. The provisions of this Section 6 shall survive any termination of
this Agreement.
7. RESTRICTIVE COVENANTS. During the term of this Agreement and for
a period of two (2) years thereafter, the Employee shall not: (i) engage, as
principal, agent, trustee or through the agency of any corporation, partnership,
association or agent or agency, anywhere within the United States (hereafter the
"Territory"), in the business of the design, manufacture, sale, marketing or
distribution of blank, printed or embroidered apparel products (the "Industry");
(ii) own or hold any beneficial interest of more than the Applicable Percentage
of the voting securities in any corporation, partnership or other business
entity which conducts its operations, in whole or in part, within the Industry
and within the Territory; or (iii) become an employee of or consultant to, or
serve in any similar capacity with, any business within the Industry which
conducts its operations in whole or in part within the Territory. In addition,
in any such event and during such period, the Employee further agrees that he
shall not, either directly or indirectly, through any person, firm, association
or corporation with which the Employee is now or may hereafter become
associated, cause or induce any present or future employee of the Company to
leave the employ of the Company to accept employment with the Employee or with
such person, firm, association or corporation. For purposes of the foregoing,
"Applicable Percentage" means (x) one percent (1%), in the case of corporations,
partnerships and other business entities having a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or
(y) five percent (5%) in all other cases. The foregoing covenants shall not be
held invalid or unenforceable because of the scope of the territory or actions
subject thereto or restricted thereby, or the period of time within which such
covenants are operative; but any judgment of a court of competent jurisdiction
may define the maximum territory and actions subject to and restricted by this
Section 7 and the period of time during which such covenants are enforceable.
The provisions of this Section 7 shall survive any termination of this
Agreement. The two-year period referred to above shall commence and be effective
regardless of the reason for any termination of this Agreement, including
(without limitation) the Employee's voluntary resignation or discharge without
Cause, provided that in case of a discharge without Cause, this Section 7 shall
remain in effect for only so long (if less than two years) after such
termination that the Company is continuing to make payments to the Employee
pursuant to Section 5(c)(i).
8. NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return
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<PAGE>
receipt requested, or telegraphed and confirmed if addressed to the respective
parties as follows:
If to the Employee: Mr. J. Ford Taylor
4583 Sandpiper Cove
College Station, Texas 77840
If to the Company: Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227-3487
Attention: Chairman of the Board
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
9. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such provision or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10. ASSIGNMENT. This Agreement may not be assigned by the Employee.
Neither the Employee nor his estate shall have any right to commute, encumber or
dispose of any right to receive payments hereunder, it being agreed that such
payments and the right thereto are nonassignable and nontransferable.
11. BINDING EFFECT. Subject to the provisions of Sec- tion 10 of
this Agreement, this Agreement shall be binding upon and inure to the benefit of
the parties hereto, the Employee's heirs and personal representatives, and the
successors and assigns of the Company.
12. CAPTIONS. The section and paragraph headings in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13. COMPLETE AGREEMENT. This Agreement represents the entire
agreement between the parties concerning the subject hereof and supersedes all
prior agreements between the parties concerning the subject thereof. Without
limiting the generality of the foregoing, this Agreement supersedes all
preexisting Employment Agreements between the Company and the Employee which may
have heretofore been in effect.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
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<PAGE>
15. COUNTERPARTS. This Agreement may be executed in multiple
original counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the date and year first above written.
THE COMPANY:
BRAZOS SPORTSWEAR, INC.
By: ________________________
RANDALL B. HALE,
Chairman of the Board
THE EMPLOYEE:
____________________________
J. FORD TAYLOR
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 1st day of January, 1997,
between BRAZOS SPORTSWEAR, INC., a Texas corporation (the "Company"), and F.
CLAYTON CHAMBERS, a resident of Hamilton County, Ohio (the "Employee");
1. EMPLOYMENT TERM. The Company hereby employs the Employee for a
term commencing on date hereof and, subject to earlier termination as provided
in Section 5 hereof, ending on December 31, 1999 (such term being herein
referred to as the "term of this Agreement"). The Employee agrees to accept such
employment and to perform the services specified herein, all upon the terms and
conditions hereinafter stated.
2. DUTIES. The Employee shall serve the Company in an executive
capacity and shall be subject to the general direction and control of the Board
of Directors of the Company or its Chairman (the "Board"). The Employee shall
report to the President and Chief Executive Officer of the Company and shall
perform the executive, management and administrative duties of Vice President
and Chief Financial Officer of the Company. The Employee shall also serve as
Vice President and Chief Financial Officer of each of BSI Holdings, Inc., a
Delaware corporation ("BSI"), and Brazos Embroidery, Inc., a Pennsylvania
corporation ("BEI"), and shall perform such other executive, management and
administrative functions that are consistent with the foregoing and assigned to
him by the Board. The Company agrees that it will assign the Employee those
duties, and only those duties, of the type, nature and dignity that are normally
assigned to an employee of his position in a corporation of the size, stature
and nature of the Company.
3. EXTENT OF SERVICE. The Employee shall devote his full business
time and attention to the business of the Company, and, except as may be
specifically permitted by the Company, shall not be engaged in any other
business activity during the term of this Agreement. The foregoing shall not be
construed as preventing the Employee from making passive investments in other
businesses or enterprises, provided, however, that such investments will not
require services on the part of the Employee which would in any way impair the
performance of his duties under this Agreement.
4. SALARY AND BENEFITS. (a) The Company shall pay the Employee a
base salary of $12,500.00 per full calendar month of service completed during
the term of this Agreement, appropriately prorated for partial months at the
beginning and end of the term of this Agreement. Such salary shall be payable in
accordance with the normal payroll policies of the Company from time to time in
effect. The Company shall have the right to deduct from any payment of all
compensation to the Employee hereunder (x) any federal, state or local taxes
required by law to be withheld with respect to such payments, and (y) any other
amounts specifically authorized to be withheld or deducted by the Employee.
<PAGE>
(b) During the term of this Agreement, the Employee shall be
entitled to receive the following benefits:
(i) The Employee shall be entitled to participate in the
Company's Key Employee Incentive Plan, and may receive benefits
under such Plan in an amount of up to 100% of the Employee's base
salary under paragraph (a) above.
(ii) For each calendar year during the term of this
Agreement, the Employee:
(A) shall receive a minimum cash bonus of $5,000 for the
calendar year ending December 31, 1997, $7,500 for the
calendar year ending December 31, 1998 and $10,000 for the
calendar year ending December 31, 1999; and
(B) may receive such additional bonuses for such
calendar years as may be awarded by the Board's Compensation
Committee in its sole discretion, taking into account such
factors it deems relevant, which may include the Company's
actual financial performance in each of those years in
relation to its business plan for such years.
Each bonus for a calendar year under this subparagraph (ii) shall be
payable by no later than March 31 of the following year.
(iii) The Employee shall be entitled to reimbursement for
country club dues in an amount not to exceed $200 per month.
(iv) The Employee agrees to relocate from his present home in
Cincinnati, Ohio in the event the Board determines during the term
of this Agreement that his duties are such that such relocation
would be in the Company's best interests. In such event, the Company
agrees to pay the reasonable cost of travel and transportation
associated with such relocation, and to provide the Employee and his
family with temporary living quarters in the area to which he is
being relocated, for up to a maximum of six months, until the
Employee obtains permanent living arrangements. If the Company
requests such relocation within three years after the date of this
Agreement, and if in connection with the Employee's sale of his
residence incident to such relocation the net sales price (after
deducting brokers' commissions and other reasonable out-of-pocket
expenses incurred pursuant to the sale) is less than his original
purchase price thereof (the Company having the right to be consulted
-2-
<PAGE>
about, and a right of reasonable approval over, such sales price),
then the Company shall pay to the Employee the amount of the
difference.
(v) The Employee shall also be entitled to receive such other
benefits as are generally available to employees of the Company.
5. TERMINATION.
(a) DEATH. If the Employee dies during the term of this Agreement
and while in the employ of the Company, this Agreement shall automatically
terminate and the Company shall have no further obligation to the Employee
or his estate, except that the Company shall pay the Employee's estate
that portion of the Employee's salary accrued through the end of the month
in which the Employee's death occurred.
(b) DISABILITY. If during the term of this Agreement, the Employee
shall be prevented from performing his duties hereunder by reason of
disability, and such disability shall continue for a period of twelve
weeks, then the Company may terminate this Agreement at any time after the
expiration of such twelve-week period while such disability is continuing.
For purposes of this Agreement, the Employee shall be deemed to have
become disabled when the Company, upon the advice of a qualified
physician, shall have determined that the Employee has become physically
or mentally incapable (excluding infrequent and temporary absences due to
ordinary illness) of performing his duties under this Agreement. In the
event of a termination pursuant to this paragraph (b), the Company shall
be relieved of all its obligations under this Agreement, except that the
Company shall pay to the Employee his base salary through the end of the
month during which such termination shall have occurred, less any benefits
received by the Employee during such period of disability under any
disability benefits plan maintained by the Company.
(c) CERTAIN DISCHARGES.
(i) DISCHARGE WITHOUT CAUSE. Prior to the end of the term of
this Agreement, the Company, on 30 days' prior written notice to the
Employee, may discharge the Employee for any reason, without Cause
(as defined in subparagraph (ii) below), in which case the Company
may terminate this Agreement without further liability to the
Employee or his estate in the event of his subsequent death, other
than to pay to the Employee or to his estate the Employee's base
salary and minimum guaranteed bonuses pursuant to Section 4 for the
remainder of the term of this Agreement. Such payments to the
Employee shall be made in the same manner and at the same times as
they
-3-
<PAGE>
would have been paid had the Employee not been discharged.
(ii) DISCHARGE WITH CAUSE. Prior to the end of the term of
this Agreement, the Company may discharge the Employee with Cause
(as hereinafter defined) without prior written notice, and terminate
this Agreement without any further liability hereunder to the
Employee or his estate other than to pay to the Employee his base
salary accrued to the date of discharge. For purposes of this
Agreement, the Company shall have "Cause" to discharge the Employee
or terminate the Employee's employment hereunder upon (i) the
Employee's commission of any felony or other crime involving moral
turpitude, (ii) the Employee's willful or persistent failure or
refusal to follow policies or directives established by the Company,
(iii) the Employee's commission of acts amounting to gross
negligence or willful misconduct to the detriment of the Company or
its affiliates or (iv) the Employee's breach of this Agreement.
6. CONFIDENTIAL INFORMATION. The Employee acknowledges that in the
course of his employment by the Company and its affiliates he has received and
will receive certain trade secrets, programs, lists of customers and other
confidential information and knowledge concerning the business of the Company
and its predecessor (hereinafter collectively referred to as "Information")
which the Company desires to protect. The Employee understands that the
Information is confidential and he agrees not to reveal the Information to
anyone outside the Company so long as the confidential or secret nature of the
Information shall continue. The Employee further agrees that he will at no time
use the Information in competing with the Company. Upon termination of this
Agreement, the Employee shall surrender to the Company all papers, documents,
writings and other property produced by him or coming into his possession by or
through his employment or relating to the Information and the Employee agrees
that all such materials will at all times remain the property of the Company.
The provisions of this Section 6 shall survive any termination of this
Agreement.
7. RESTRICTIVE COVENANTS. During the term of this Agreement and for
a period of two (2) years thereafter, the Employee shall not: (i) engage, as
principal, agent, trustee or through the agency of any corporation, partnership,
association or agent or agency, anywhere within the United States (hereafter the
"Territory"), in the business of the design, manufacture, sale, marketing or
distribution of blank, printed or embroidered apparel products (the "Industry");
(ii) own or hold any beneficial interest of more than the Applicable Percentage
of the voting securities in any corporation, partnership or other business
entity which conducts its operations, in whole or in part, within the Industry
and within the Territory; or (iii) become an employee of or consultant
-4-
<PAGE>
to, or serve in any similar capacity with, any business within the Industry
which conducts its operations in whole or in part within the Territory. In
addition, in any such event and during such period, the Employee further agrees
that he shall not, either directly or indirectly, through any person, firm,
association or corporation with which the Employee is now or may hereafter
become associated, cause or induce any present or future employee of the Company
to leave the employ of the Company to accept employment with the Employee or
with such person, firm, association or corporation. For purposes of the
foregoing, "Applicable Percentage" means (x) one percent (1%), in the case of
corporations, partnerships and other business entities having a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, or (y) five percent (5%) in all other cases. The foregoing
covenants shall not be held invalid or unenforceable because of the scope of the
territory or actions subject thereto or restricted thereby, or the period of
time within which such covenants are operative; but any judgment of a court of
competent jurisdiction may define the maximum territory and actions subject to
and restricted by this Section 7 and the period of time during which such
covenants are enforceable. The provisions of this Section 7 shall survive any
termination of this Agreement. The two-year period referred to above shall
commence and be effective regardless of the reason for any termination of this
Agreement, including (without limitation) the Employee's voluntary resignation
or discharge without Cause, provided that in case of a discharge without Cause,
this Section 7 shall remain in effect for only so long (if less than two years)
after such termination that the Company is continuing to make payments to the
Employee pursuant to Section 5(c)(i).
8. NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, or telegraphed and
confirmed if addressed to the respective parties as follows:
If to the Employee: Mr. F. Clayton Chambers
7910 Greylock
Cincinnati, Ohio 45243
If to the Company: Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227-3487
Attention: Chairman of the Board
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
9. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be ef-
-5-
<PAGE>
fective and valid under applicable law but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such provision or invalidity, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
10. ASSIGNMENT. This Agreement may not be assigned by the Employee.
Neither the Employee nor his estate shall have any right to commute, encumber or
dispose of any right to receive payments hereunder, it being agreed that such
payments and the right thereto are nonassignable and nontransferable.
11. BINDING EFFECT. Subject to the provisions of Sec- tion 10 of
this Agreement, this Agreement shall be binding upon and inure to the benefit of
the parties hereto, the Employee's heirs and personal representatives, and the
successors and assigns of the Company.
12. CAPTIONS. The section and paragraph headings in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13. COMPLETE AGREEMENT. This Agreement represents the entire
agreement between the parties concerning the subject hereof and supersedes all
prior agreements between the parties concerning the subject thereof.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Ohio.
15. COUNTERPARTS. This Agreement may be executed in multiple
original counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the date and year first above written.
THE COMPANY:
BRAZOS SPORTSWEAR, INC.
By: _____________________________
RANDALL B. HALE,
Chairman of the Board
THE EMPLOYEE:
_________________________________
F. CLAYTON CHAMBERS
-7-
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 2nd day of August, 1996,
between BRAZOS SPORTSWEAR, INC., a Texas corporation (the "Company"), and ALAN
ELENSON, a resident of New York County, New York (the "Employee");
1. EMPLOYMENT TERM. The Company hereby employs the Employee for a
term commencing on date hereof and, subject to earlier termination as provided
in Section 5 hereof, ending on the third anniversary thereof (such term being
herein referred to as the "term of this Agreement"). The Employee agrees to
accept such employment and to perform the services specified herein, all upon
the terms and conditions hereinafter stated.
2. DUTIES. The Employee shall serve the Company in an executive
capacity and shall report to and be subject to the general direction and control
of the President of the Company's Printed Division (the "Division"). The
Employee shall perform the executive, management and administrative duties of
President of the Division's Plymouth Mills Operations in Staten Island, New
York. The Company agrees that it will assign the Employee those duties, and only
those duties, of the type, nature and dignity that are normally assigned to an
employee of his position in a corporation of the size, stature and nature of the
Company.
3. EXTENT OF SERVICE. The Employee shall devote his full business
time and attention to the business of the Company, and, except as may be
specifically permitted by the Company, shall not be engaged in any other
business activity during the term of this Agreement. The foregoing shall not be
construed as preventing the Employee from making passive investments in other
businesses or enterprises, provided, however, that such investments will not
require services on the part of the Employee which would in any way impair the
performance of his duties under this Agreement.
4. SALARY AND BENEFITS. (a) The Company shall pay the Employee a
base salary of $12,500.00 per full calendar month of service completed during
the term of this Agreement, appropriately prorated for partial months at the
beginning and end of the term of this Agreement. Such salary shall be payable in
accordance with the normal payroll policies of the Company from time to time in
effect. The Company shall have the right to deduct from any payment of all
compensation to the Employee hereunder (x) any federal, state or local taxes
required by law to be withheld with respect to such payments, and (y) any other
amounts specifically authorized to be withheld or deducted by the Employee.
(b) During the term of this Agreement, the Employee shall be
entitled to receive the following benefits:
<PAGE>
(i) reimbursement of out-of-pocket expenses incurred in the
course or scope of employment, subject to Company policy regarding
such matters;
(ii) the use of a Company automobile, including payment or
reimbursement of gasoline, maintenance and other similar expenses;
(iii) four weeks paid vacation each year, and time off for
Company holidays;
(iv) group health, hospitalization and other medical benefits
equivalent to those enjoyed by the Employee immediately prior to
commencement of employment hereunder, as an employee of Plymouth
Mills, Inc. ("PMI") and disclosed pursuant to the Asset Purchase
Agreement dated August 2, 1996 among the Company, PMI, the Employee
and the other shareholder of PMI: and
(v) such other benefits as are generally available to
employees of the Company.
5. TERMINATION.
(a) DEATH. If the Employee dies during the term of this Agreement
and while in the employ of the Company, this Agreement shall automatically
terminate and the Company shall have no further obligation to the Employee
or his estate, except that the Company shall pay the Employee's estate
that portion of the Employee's salary accrued through the end of the month
in which the Employee's death occurred.
(b) DISABILITY. If during the term of this Agreement, the Employee
shall be prevented from performing his duties hereunder by reason of
disability, and such disability shall continue for a period of twelve
weeks, then the Company may terminate this Agreement at any time after the
expiration of such twelve-week period while such disability is continuing.
For purposes of this Agreement, the Employee shall be deemed to have
become disabled when the Company, upon the advice of a qualified
physician, shall have determined that the Employee has become physically
or mentally incapable (excluding infrequent and temporary absences due to
ordinary illness) of performing his duties under this Agreement. In the
event of a termination pursuant to this paragraph (b), the Company shall
be relieved of all its obligations under this Agreement, except that the
Company shall pay to the Employee his base salary through the end of the
month during which such termination shall have occurred, less any benefits
received by the Employee during such period of disability under any
disability benefits plan maintained by the Company.
-2-
<PAGE>
(c) CERTAIN DISCHARGES.
(i) DISCHARGE WITHOUT CAUSE. Prior to the end of the term of
this Agreement, the Company, on 30 days' prior written notice to the
Employee, may discharge the Employee for any reason, without Cause
(as defined in subparagraph (ii) below), in which case the Company
may terminate this Agreement without further liability to the
Employee or his estate in the event of his subsequent death, other
than to pay to the Employee or to his estate the Employee's base
salary pursuant to Section 4 for the remainder of the term of this
Agreement. Such payments to the Employee shall be made in the same
manner and at the same times as they would have been paid had the
Employee not been discharged.
(ii) DISCHARGE WITH CAUSE. Prior to the end of the term of
this Agreement, the Company may discharge the Employee with Cause
(as hereinafter defined) without prior written notice, and terminate
this Agreement without any further liability hereunder to the
Employee or his estate other than to pay to the Employee his base
salary accrued to the date of discharge. For purposes of this
Agreement, the Company shall have "Cause" to discharge the Employee
or terminate the Employee's employment hereunder upon (i) the
Employee's commission of any felony or other crime involving moral
turpitude, (ii) the Employee's willful or persistent failure or
refusal to follow policies or directives established by the Company,
(iii) the Employee's commission of acts amounting to gross
negligence or willful misconduct to the detriment of the Company or
its affiliates or (iv) the Employee's breach of this Agreement.
6. CONFIDENTIAL INFORMATION. The Employee acknowledges that in the
course of his employment by Plymouth Mills, Inc. he has received, and in the
course of his employment by the Company he will receive, certain trade secrets,
programs, lists of customers and other confidential information and knowledge
concerning the business of the Company and its predecessor (hereinafter
collectively referred to as "Information") which the Company desires to protect.
The Employee understands that the Information is confidential and he agrees not
to reveal the Information to anyone outside the Company so long as the
confidential or secret nature of the Information shall continue. The Employee
further agrees that he will at no time use the Information in competing with the
Company. Upon termination of this Agreement, the Employee shall surrender to the
Company all papers, documents, writings and other property produced by him or
coming into his possession by or through his employment or relating to the
Information and the Employee agrees that all such materials will at all times
remain
-3-
<PAGE>
the property of the Company. The provisions of this Section 6
shall survive any termination of this Agreement.
7. RESTRICTIVE COVENANTS. During the term of this Agreement and for
a period of two (2) years thereafter, the Employee shall not: (i) engage, as
principal, agent, trustee or through the agency of any corporation, partnership,
association or agent or agency, anywhere within the United States (hereafter the
"Territory"), in the business of the design, manufacture, sale, marketing or
distribution of printed or embroidered apparel products (the "Industry"); (ii)
own or hold any beneficial interest of more than the Applicable Percentage of
the voting securities in any corporation, partnership or other business entity
which conducts its operations, in whole or in part, within the Industry and
within the Territory; or (iii) become an employee of or consultant to, or serve
in any similar capacity with, any business within the Industry which conducts
its operations in whole or in part within the Territory. In addition, in any
such event and during such period, the Employee further agrees that he shall
not, either directly or indirectly, through any person, firm, association or
corporation with which the Employee is now or may hereafter become associated,
cause or induce any present or future employee of the Company to leave the
employ of the Company to accept employment with the Employee or with such
person, firm, association or corporation. For purposes of the foregoing,
"Applicable Percentage" means (x) one percent (1%), in the case of corporations,
partnerships and other business entities having a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or
(y) five percent (5%) in all other cases. The foregoing covenants shall not be
held invalid or unenforceable because of the scope of the territory or actions
subject thereto or restricted thereby, or the period of time within which such
covenants are operative; but any judgment of a court of competent jurisdiction
may define the maximum territory and actions subject to and restricted by this
Section 8 and the period of time during which such covenants are enforceable.
The provisions of this Section 7 shall survive any termination of this
Agreement.
8. NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, or telegraphed and
confirmed if addressed to the respective parties as follows:
If to the Employee: Mr. Alan Elenson
377 Ocean Terrace Drive
Staten Island, New York 10301
-4-
<PAGE>
If to the Company: Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227-3487
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
9. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such provision or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10. ASSIGNMENT. This Agreement may not be assigned by the Employee.
Neither the Employee nor his estate shall have any right to commute, encumber or
dispose of any right to receive payments hereunder, it being agreed that such
payments and the right thereto are nonassignable and nontransferable.
11. BINDING EFFECT. Subject to the provisions of Sec- tion 10 of
this Agreement, this Agreement shall be binding upon and inure to the benefit of
the parties hereto, the Employee's heirs and personal representatives, and the
successors and assigns of the Company.
12. CAPTIONS. The section and paragraph headings in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13. COMPLETE AGREEMENT. This Agreement represents the entire
agreement between the parties concerning the subject hereof and supersedes all
prior agreements between the parties concerning the subject thereof.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
15. COUNTERPARTS. This Agreement may be executed in multiple
original counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the date and year first above written.
THE COMPANY:
BRAZOS SPORTSWEAR, INC.
By:
RANDALL B. HALE, President
THE EMPLOYEE:
ALAN ELENSON
-6-
EXHIBIT 10.11
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of August 2, 1996, among BRAZOS SPORTSWEAR,
INC., a Texas corporation (the "Purchaser"), PLYMOUTH MILLS, INC., a New York
corporation (the "Company"), and ALAN ELENSON and JOANN ELENSON (together, the
"Shareholders");
W I T N E S S E T H:
WHEREAS, the parties desire that the Purchaser acquire substantially
all of the assets, rights and properties of the Company, on the terms and
subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 TRANSFER OF ASSETS BY THE COMPANY. Subject to the
provisions of this Agreement, the Company agrees to sell and the
Purchaser agrees to purchase, at the Closing referred to in Section
2.1, all of the properties, assets, rights and business of the
Company of every kind and description, tangible and intangible,
wherever located, as they shall exist as of the Effective Date,
including, but not limited to, all of the following- described
assets and rights but excluding those described in Section 1.2:
(i) accounts and notes receivable;
(ii) goods and inventories, including raw materials,
work-in-process and finished goods;
(iii) machinery, equipment, motor vehicles, furniture,
fixtures, supplies, tools and other fixed assets and property,
plant and equipment;
(iv) the rights of the Company under the Real Property
Subleases described on Schedule 3.7, the Product Licenses
described on Schedule 3.12, all of the other Contracts
described on Schedule 3.13 which are identified thereon as
being assumed by the Purchaser, and all of the Contracts of
the Company of the type described in clauses (iii) through
(vi) of Section 3.13 (collectively, the "Assumed Contracts");
(v) all rights to the name "Plymouth Mills," as well as
all other products and brand names used by the Company, and
all trademarks, trade names, patents, processes, copyrights,
know-
<PAGE>
how and similar intangible rights, and all goodwill
associated with the foregoing;
(vi) all permits, licenses, customer lists, books,
records, brochures and literature, rights in unemployment
compensation, industrial accident and other similar funds, and
prepaid items (including, without limitation, prepaid
royalties); and
(vii) all other assets, rights and properties owned or
held by the Company as of the Effective Date, excluding those
described in Section 1.2.
All of the foregoing-described assets, rights and properties of the
Company to be sold, assigned and transferred to the Purchaser are
herein collectively referred to as the "Assets."
It is specifically intended that the Assets shall include, but shall
not be limited to, all assets of the Company in existence on the
Effective Date that, in accordance with GAAP, would properly be
reflected in a balance sheet on the Effective Date. At the Closing,
the Company shall convey to the Purchaser all of the Assets, free
and clear of any and all Liens.
1.2 RETAINED ASSETS. Notwithstanding Section 1.1 above, the
following properties, assets, rights and interests (the "Retained
Assets") are hereby excluded from the purchase and sale contemplated
hereby and are therefore not included in the Assets:
(i) cash and cash equivalents;
(ii) the personal items described on Schedule 1.2(ii)
hereto;
(iii) the corporate records, minutes of proceedings,
stock records and corporate seal of the Company, and any
shares of capital stock held in the treasury of the Company;
(iv) any prepaid federal, state and local income taxes
of the Company, and any rights to or claims for federal, state
and local income tax refunds; and
(v) the rights of the Company under this Agreement.
-2-
<PAGE>
1.3 PURCHASE PRICE. The purchase price for the
Assets (the "Purchase Price") shall, subject to
adjustment as provided in paragraph (e) below, be the SUM
of (i) $25,000,000 PLUS (ii) the Earnout Amount (as
defined in paragraph (d) below). Of the Purchase Price:
(a) The sum of $18,000,000 shall be payable to the
Company in cash at the Closing, by wire transfer to such
account or accounts in the United States as the Company shall
designate in writing at least three (3) business days prior to
the Closing.
(b) The sum of $4,000,000 shall be represented by the
Junior Subordinated Debenture of BSI Holdings, Inc., a
Delaware corporation and the Purchaser's corporate parent
("Parent"), dated the Effective Date payable to the Company in
the principal amount of such sum, such Debenture to be in
substantially the form of Exhibit A-1 attached hereto, with
the blanks completed as appropriate (the "Purchase
Debenture").
(c) The sum of $3,000,000 shall be represented by the
Junior Subordinated Debenture of Parent dated the Effective
Date payable to the Company in the principal amount of such
sum, such Debenture to be in substantially the form of Exhibit
A-2 attached hereto, with the blanks completed as appropriate
(the "Rolling Debenture"). At all times while the Rolling
Debenture is outstanding, up to (but not exceeding) $1,000,000
of the outstanding principal amount thereunder shall be
guaranteed by Equus, pursuant to the Guaranty Agreement to be
dated the Effective Date from Equus in favor of the Company
and in substantially the form of Exhibit A-4 hereto (the
"Guaranty").
(d) If the cumulative EBITDA of the Operations for the
twelve-month period of operations ending September 30, 1996 is
more than $4,500,000 ("Baseline EBITDA"), then, as additional
Purchase Price, the Purchaser shall pay the Company an amount
(the "Earnout Amount") equal to the product of (i) 2.5
MULTIPLIED BY (ii) the amount by which such cumulative EBITDA
exceeds the Baseline EBITDA. Of the Earnout Amount:
(I) Fifty percent (50%) thereof shall be paid to
the Company in cash by wire transfer to such account or
accounts in the United
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<PAGE>
States as the Company shall designate in writing to the
Purchaser; and
(II) Fifty percent (50%) thereof shall be
represented by Parent's Junior Subordinated Debenture
dated September 30, 1996 payable to the Company in the
principal amount of such sum (in two equal annual
installments due on or before March 31, 1998 and 1999),
such Debenture to bear interest and otherwise be in
substantially the form of Exhibit A-3 attached hereto,
with the blanks completed as appropriate (the "Earnout
Debenture").
The Purchaser shall, at its own expense, cause the financial
statements of the Operations for the twelve-month period
ending September 30, 1996 to be audited by Mahoney Cohen
Rashba & Pokart, CPA, P.C., New York, New York ("Mahoney"), or
another certified public accounting firm reasonably acceptable
to the parties, and the parties shall jointly instruct such
accounting firm to deliver to the parties its calculation as
to the amount of the Earnout Amount under this paragraph (d),
calculated in accordance with such audited financial
statements. In connection with such audit, the Purchaser may
have its own accounting firm, Arthur Andersen LLP, review the
audit work of the accounting firm performing such audit. The
calculation by Mahoney of the Earnout Amount shall be final
and binding on the parties unless the Company receives, within
30 days after the date of Mahoney's calculation, a written
notice from the Purchaser stating with particularity any
disagreements it has with such calculation of the Earnout
Amount. Any disagreements between the parties with respect to
the calculation of the Earnout Amount shall be resolved in
accordance with paragraph (f) below. The Purchaser's
obligation to pay the cash portion of the Earnout Amount shall
also be covered by the Guaranty, to the extent and in the
manner described in Exhibit A-4. If and to the extent the cash
portion of the Earnout Amount under clause (I) above is not
paid within ten business days after final resolution of the
calculation of the Earnout Amount, such unpaid portion shall
bear interest from and after such date at the rate of seven
and three quarters percent (7.75%) per annum, provided that
such rate shall increase, as of the last day of the full
calendar month following the month in which such interest
begins to accrue and on the last day of
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each calendar month thereafter, by one percent (1%) per annum,
up to (but not exceeding) a maximum of eighteen percent (18%)
per annum, until such cash portion of the Earnout Amount has
been paid in full.
(e) In addition to the foregoing, if the Effective Date
Net Worth is other than $11,847,150 (the "Baseline Net
Worth"), then (i) if the Effective Date Net Worth is more than
the Baseline Net Worth, the Purchaser shall pay the amount of
the difference to the Company, and (ii) if the Effective Date
Net Worth is less than the Baseline Net Worth, the Company
shall pay the amount of the difference to the Purchaser. Any
such amount payable under this paragraph (e) shall be payable
in cash by wire transfer to such account or accounts in the
United States as the payee shall designate in writing. Within
30 days after the Closing Date, the Company shall, at its own
expense, cause Mahoney, or another certified public accounting
firm reasonably acceptable to the parties, to perform a review
of the balance sheet of the Operations as of the Effective
Date, and the parties shall jointly instruct such accounting
firm to deliver to the parties its calculation as to the
amount of the Effective Date Net Worth under this paragraph
(e), calculated in accordance with such reviewed balance
sheet. For purposes of determining Effective Date Net Worth,
there shall be no allowance for doubtful accounts, except for
the reserve in the amount of $150,907.62 for Doubtful Accounts
as shown on Schedule 3.9. In connection with such review, the
Purchaser may have its own accounting firm, Arthur Andersen
LLP, oversee the work of the accounting firm performing such
review. The calculation by Mahoney of the Effective Date Net
Worth shall be final and binding on the parties unless the
Company receives, within 30 days after the date of Mahoney's
calculation, a written notice from the Purchaser stating with
particularity any disagreements it has with such calculation
of the Effective Date Net Worth. Any disagreements between the
parties with respect to the calculation of the Effective Date
Net Worth shall be resolved in accordance with paragraph (e)
below.
(f) If the Purchaser does not dispute the calculation of
the Earnout Amount under paragraph (d) above or the amount of
the Effective Date Net Worth under paragraph (e) above, as
applicable,
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then the appropriate amount shall be paid within ten business
days after the Purchaser's acceptance or deemed acceptance of
such calculation. However, in case of any disagreement between
the parties with respect to either such calculation, as
applicable, the parties shall meet in person in New York, New
York to attempt to resolve any and all differences, but if any
disagreement remains after 30 days following the date of the
Purchaser's protest letter, then either party may submit the
disputes to a partner in the New York, New York office of a
"big six" certified public accounting firm, other than Arthur
Andersen LLP, who, acting as an expert and not as a
consultant, taking into account such materials, information
and factors as such partner deems advisable, shall resolve all
such disputes and whose decision shall be final and binding
upon the parties. The fees and disbursements of such expert
shall be borne equally between the parties. All payments under
paragraphs (d) and (e) above (including the delivery of the
Earnout Debenture, if applicable) shall occur within ten
business days following final resolution under this paragraph
(f).
(g) At or prior to Closing the parties shall negotiate
in good faith regarding, and shall agree upon, the allocation
of the Purchase Price among the Assets in accordance with
Section 1060 of the Code, and shall file their respective
federal income Tax returns in accordance therewith.
1.4 ASSUMPTION OF LIABILITIES. The Purchaser, upon the sale
and purchase of the Assets, shall, subject to Section 1.5 below,
assume and agree to pay or discharge only the following liabilities
and obligations of the Company (collectively, the "Assumed
Liabilities"):
(i) trade and accounts payable incurred in the ordinary
course of business, and accrued expenses; and
(ii) obligations of the Company arising on or after the
Effective Date under Assumed Contracts.
The assumption by the Purchaser of the Assumed Liabilities
shall not enlarge any rights or remedies of any third parties under
any Contracts with the Company. Nothing herein shall prevent the
Purchaser from contesting in good faith any of the Assumed
Liabilities. At the Closing, the Purchaser shall deliver to the Com-
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pany an instrument, dated as of the Effective Date and reasonably
satisfactory in form and substance to the Company, pursuant to which
the Purchaser will assume the Assumed Liabilities.
1.5 LIMITATIONS ON ASSUMPTION. Notwithstanding Section 1.4
above, the Purchaser will not assume and does not agree to pay or
discharge any obligations or liabilities of the Company not
specifically included in the Assumed Liabilities and, in particular,
the Purchaser shall not assume or agree to pay or discharge any of
the following:
(i) liabilities and obligations for borrowed money
(including, without limitation, any obligations under letters
of credit issued for the account of the Company);
(ii) liabilities or obligations with respect to all
Taxes based on income or profits including, without
limitation, all Taxes of the Company arising out of or
relating to any of the transactions contemplated hereby;
(iii) liabilities of the Company or the Shareholders for
costs and expenses incurred in connection with the
preparation, negotiation, execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby;
(iv) liabilities or obligations of the Company under
this Agreement or the Documents contemplated hereby;
(v) any losses, costs, damages or expense based upon or
arising from any claims, litigation, legal proceedings or
other actions against the Company based upon any set of facts
occurring prior to the Closing;
(vi) all personal injury, product liability claims,
claims of environmental damage, claims of hazards to health,
strict liability, toxic torts, enforcement proceedings,
cleanup orders and other similar actions or claims instituted
by private parties or any Governmental Authority, with respect
to the operation of the Company prior to Closing; or
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(vii) any other liability or obligation not specifically
included within the Assumed Liabilities.
1.6 INSTRUMENTS OF TRANSFER. At the Closing, the Company shall
deliver to the Purchaser such instruments of transfer, assignment
and conveyance, including (without limitation) bills of sale,
Contract assignments and assignments of motor vehicle registrations,
all dated as of the Effective Date, transferring title to the Assets
to the Purchaser as may reasonably be requested by the Purchaser.
Such instruments shall be reasonably satisfactory in form and
substance to the Purchaser and shall vest in the Purchaser good and
marketable title to all the Assets, free and clear of all Liens.
1.7 DELIVERY OF RECORDS AND CONTRACTS. At the Closing, the
Company will deliver to the Purchaser all of the Contracts of the
Company constituting a portion of the Assets, with such assignments
thereof and consents to assignment as the Purchaser shall deem
necessary to assure the Purchaser of their full benefit.
Simultaneously with such deliveries, the Company shall take all
requisite steps to put the Purchaser in actual possession and
operating control of the Assets and all of the Com- pany's business
records, books and other data.
1.8 TAXES. Any sales or transfer taxes which may be payable in
connection with the sale of the Assets under this Agreement shall be
borne by the Purchaser.
1.9 FURTHER ASSURANCES. The Company and the Shareholders shall
from time to time after the Closing, without further consideration,
execute and deliver such instruments of transfer, conveyance and
assignment (in addition to those delivered pursuant to Section 1.6),
and shall take such other action, as the Purchaser may reasonably
request to more effectively transfer, convey and assign to and vest
in the Purchaser, and to put the Purchaser in actual possession and
control of, each of the Assets.
2. THE CLOSING.
2.1 TIME AND PLACE. The Closing shall occur at the offices of
Parker Chapin Flauttau & Klimpl, L.L.P., at 9:00 a.m. on August 9,
1996, or on such other date thereafter as may be designated by the
Purchaser upon at least two business days' advance notice to the
Company, but in no event later than August 31, 1996. The date and
time of the Closing is herein called the "Closing Date". All action
to be taken at the Closing as hereinafter set
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forth, and all documents and instruments executed and delivered, and
all payments made with respect thereto, shall be considered to have
been taken, delivered or made simultaneously, and no such action or
delivery or payment shall be considered as complete until all action
incident to the Closing has been completed.
2.2 EFFECTIVE DATE. Notwithstanding any other provision of
this Agreement or any Exhibit or Schedule hereto or Document
executed in connection herewith, the Closing shall be deemed to
occur, for Tax, accounting and all other purposes, effective as of
the close of business on the Effective Date. From the Effective Date
through the Closing Date and thereafter, all operations, revenues
and assets of the Operations shall be for the account of and shall
belong to the Purchaser. During such interim period, the Operations
shall be conducted in the ordinary course and, in particular, no
principal amortization shall be made, no extraordinary payments
shall be made, and no transactions entered into or commitments made
outside the ordinary course.
2.3 RELATED TRANSACTIONS. In addition to the pur-
chase and sale of the Assets, the following transactions
shall take place at the Closing:
(i) the Purchaser shall cause Parent to issue and
deliver to the Company a Warrant, in substantially the form of
Exhibit B attached hereto (the "Effective Date Warrant"), to
purchase an aggregate of 30,000 shares of Common Stock, $.01
par value ("Common Stock"), of Parent;
(ii) the Purchaser, as tenant, and the Shareholders, as
landlord, shall execute and deliver to the other a Lease
Agreement to be dated the Effective Date and in substantially
the form of Exhibit C hereto (the "Lease Agreement"), covering
all of the Leased Real Property and improvements thereon as
described on Schedule 3.6;
(iii) the Purchaser and the Shareholders shall execute
and deliver to each other a Non- Competition Agreement to be
dated the Effective Date and in substantially the form of
Exhibit D hereto (the "Non-Competition Agreement");
(iv) the Purchaser and each Shareholder shall each
execute and deliver to the other an Employment Agreement to be
dated the Effective Date and in substantially the forms of
Exhibits E-1 and
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E-2 hereto (collectively, the "Employment Agreements"); and
(v) Parent shall cause to be executed by all of the
members of its Board of Directors a unanimous written consent
under which (x) the number of directors constituting the whole
Board of Directors of Parent shall be increased by one, and
(y) whomever of the Shareholders as they shall direct prior to
the Closing shall be elected as a member of the Board of
Directors to fill the vacancy created by such increase in the
number of directors, to serve in such position for so long as
the Shareholders shall desire until the Debentures are no
longer outstanding, provided that the person occupying such
Board position shall, if requested by Parent, immediately
resign upon payment in full of the Debentures.
The parties agree that all Warrants issued or issuable under this
Agreement shall be deemed to be issued for a value of $.01 per share
of Common Stock covered by each such Warrant.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS. The Company and the Shareholders jointly and severally
represent and warrant to and agree with the Purchaser that:
3.1 ORGANIZATION AND EXISTENCE. The Company is a corporation
duly organized, validly existing and in good standing under the laws
of the State of New York, and has all requisite corporate power to
enter into and perform its obligations under this Agreement.
3.2 OWNERSHIP OF THE COMPANY. The Shareholders collectively
own and hold all of the issued and outstanding capital stock of the
Company.
3.3 FINANCIAL STATEMENTS. The Company and the Shareholders
have delivered to the Purchaser true and complete copies of the
Financial Statements. The Financial Statements are correct and
complete, have been prepared in accordance with the books and
records of the Company and present fairly the financial positions of
the Company at the dates thereof and the results of its operations
for the periods then ended, in each case in accordance with GAAP.
3.4 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
the Company Balance Sheet, the Company has no, and none of its
assets and properties is subject to
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any, liabilities or obligations of any kind or nature, other than
unsecured trade accounts payable and accrued expenses arising in the
ordinary course of business since the date of the Company Balance
Sheet.
3.5 TITLE TO AND STATUS OF PROPERTIES. All assets, rights and
properties required in the conduct of the business of the Company
are owned by it and are included within the Assets or are validly
leased by it under Assumed Contracts, except for the showroom office
lease described in Section 7.12. The Company is in actual possession
and control of all properties (including Real Property) owned or
leased by it which are required in the conduct of its business, and
as of the Effective Date will have good and marketable title to all
of the Assets, including without limitation, all properties and
assets reflected in the Company Balance Sheet (other than properties
and assets reflected in such balance sheet that have been sold or
otherwise disposed of in the ordinary course of business subsequent
to the date of the Company Balance Sheet), free and clear of all
Liens, other than (i) Liens to be fully released and discharged at
or prior to Closing, or (ii) as otherwise described on Schedule 3.5.
3.6 REAL PROPERTY. The Company has no ownership interest in
any Real Property. Schedule 3.6 sets forth a legal description of
each parcel of the Leased Real Property. In addition, Schedule 3.6
briefly describes each building and major structure and improvement
thereon. All of the Leased Real Property described on Schedule 3.6
is all the Real Property necessary for the conduct of the Company's
business as presently conducted. The Company has not granted any
sublease, license or right to the use or possession over any portion
of any Leased Real Property to any other Person, other than under
the Real Property Subleases described on Schedule 3.6, true and
complete copies of which have been delivered to the Purchaser. Each
such Real Property Sublease is in full force and effect, and neither
the Company nor, to the Company's knowledge, the sublessee
thereunder is in default thereof. There is not pending nor, to the
knowledge of the Company, threatened any proceeding for the taking
or condemnation of the Leased Real Property or any portion thereof.
None of the buildings, structures or improvements located on any
parcel of the Leased Real Property, or the operation or maintenance
thereof as now operated or maintained, contravenes any zoning
ordinance or other administrative regulation or violates any
restrictive covenant or any provision of law, the effect of which
would interfere with or prevent their continued use for the purposes
for
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which they are now being used. None of the Leased Real Property is
located within an area that has been designated by the Federal
Insurance Administration, the Army Corp of Engineers or any other
governmental agency as being subject to special flooding hazards.
The Company is not a "foreign person" (as defined in Section
1445(f)(3) of the Code, and the regulations issued thereunder), and
the Company shall deliver at Closing a non-foreign affidavit in
recordable form containing such information as shall be required by
Code Section 1445(b)(2) and the regulations issued thereunder.
3.7 ABSENCE OF CHANGES OR EVENTS. Since the date of the
Company Balance Sheet, the Company has not, except as described on
Schedule 3.7:
(i) experienced any material adverse change in its
condition (financial or otherwise), business, assets,
liabilities or prospects;
(ii) borrowed or agreed to borrow any funds or incurred,
or become subject to, any absolute or contingent obligation or
liability, except obligations and liabilities incurred in the
ordinary course of business;
(iii) paid any obligation or liability other than
current liabilities reflected in the Company Balance Sheet and
current liabilities incurred since the date thereof in the
ordinary course of business;
(iv) except in the ordinary course of business and
consistent with the past practices of the Company, sold,
transferred or otherwise disposed of, or agreed to sell,
transfer or otherwise dispose of, any of its assets,
properties or rights, or canceled or otherwise terminated, or
agreed to cancel or otherwise terminate, any debts or claims;
(v) entered or agreed to enter into any Contract
granting any preferential rights to purchase any of its
assets, properties or rights, or requiring the consent of any
party to the transferor assignment of any of such assets,
properties or rights;
(vi) suffered any damages, destruction or physical
losses, or waived or surrendered any rights of value;
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(vii) made, directly or indirectly, any accrual or
arrangement for or payment of bonuses or special compensation
of any kind or any severance or termination pay to any present
or former officer or employee of the Company or increased or
agreed to increase the rate of compensation payable by it to
any of its employees;
(viii) terminated or otherwise made any changes in any
key employees of the Company;
(ix) experienced any labor strike or labor dispute or
entered into any collective bargaining agreement;
(x) incurred or received notice of any claim or
liability for any damages or alleged damages for (x) any
actual or alleged negligence or other tort, or (y) breach of
contract;
(xi) made any capital expenditures (or commitment
therefor) which, in the aggregate, exceed $25,000; or
(xii) entered into any other transaction other than in
the ordinary course of business.
3.8 TAX MATTERS. All Taxes due and payable by the Company on
or before the date of this Agreement have been paid. The Company has
filed all Tax returns and reports required to be filed by it with
all Governmental Authorities, and all such Tax returns and reports
are true and complete. True and complete copies of all such Tax
returns for the preceding three years have been delivered to the
Purchaser. The Company has elected, at all times since April 1,
1991, to be taxed under the provisions of Subchapter S of the Code
and the corresponding provisions of the New York Franchise Tax law,
has maintained such election for all years not closed by statute,
and there exists no basis for overturning such election for any
period prior to the date hereof. The liabilities for Taxes reflected
in the Company Balance Sheet represent adequate provision for the
payment of all accrued or unpaid or deferred Taxes of the Company,
for all periods ended on and prior to the date of the Company
Balance Sheet. No assessments of deficiencies have been made against
the Company which are presently pending or outstanding, and no
agreements, waivers or extensions of time are in effect for the
assessment of deficiencies against it. The Company has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor,
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independent contractor or other third party. The Assumed Liabilities
do not include any obligation to make any payment that will be
non-deductible under Section 280G of the Code (or any corresponding
provision of state, local or foreign Tax law).
3.9 ACCOUNTS RECEIVABLE. All accounts receivable reflected on
the Company Balance Sheet were as of the date thereof, and all
accounts receivable of the Company as the Effective Date will be,
(i) bona fide claims against debtors for services rendered and/or
materials supplied, (ii) subject to no defenses, set-offs or
counter-claims, except for returns of merchandise in the ordinary
course of the Company's business consistent with its past
experience, and (iii) subject to the provisions of Section 10.5 and,
as to those accounts receivable listed on Schedule 3.9
(collectively, the "Doubtful Accounts"), subject to the reserves for
Doubtful Accounts as shown on such Schedule 3.9, current and
collectible in the full face amount thereof.
3.10 INVENTORY. The inventories reflected on the Company
Balance Sheet and all items placed in inventory since such date are
accounted for at the lower of cost or market using the first-in,
first-out method in accordance with GAAP. All such inventories are
accounted for net of reserves established in accordance with GAAP.
3.11 FIXED ASSETS. All of the Company's equipment, machinery,
leasehold improvements and other fixed assets are in good operating
condition, ordinary wear and tear excepted.
3.12 PRODUCT LICENSES. Schedule 3.12 lists all Product
Licenses held by the Company as of the date of this Agreement. Such
Schedule includes the name of the licensor, the identity of the
licensed subject matter, the date of expiration of the license, and
the amount of or formula for calculating any minimum royalties. True
and complete copies of each Product License (including all
amendments thereto) have been provided to the Purchaser. Each
Product License is in full force and effect, and neither the Company
nor, to the Company's knowledge, the licensor thereunder is in
default thereunder. Without limiting the generality of the
foregoing, the Company has complied in all material respects with
all use restrictions and royalty payment provisions under the terms
of each Product License. Except as described on Schedule 3.12, the
Company's products sold under license from a single licensor under
the Product Licenses did not account for more than 10% of the
Company's revenues during the twelve months ended
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December 31, 1995 or the three months ended March 31, 1996.
3.13 CONTRACTS. Schedule 3.13 sets forth a complete
description of every Contract of the Company, other than (i) Real
Property Subleases, which are described on Schedule 3.7; (ii)
Product Licenses, which are listed on Schedule 3.12; (iii) personal
property leases which require annual payments of less than $10,000
in the case of one such lease or $50,000 in the aggregate; (iv)
Contracts for the purchase of capital assets which do not exceed
$10,000 individually or $50,000 in the aggregate; (v) purchase
orders for the purchase of materials, and confirmations or invoices
for the sale of inventory, on open account in the ordinary course of
business, excluding those granting discounts, preferences or
extended payment terms, and (vi) Contracts which by their terms
involve an obligation on its part of less than $10,000 individually
or $50,000 in the aggregate. Each Contract described in Schedule
3.12 is valid and in full force and effect, and neither the Company,
nor, to its knowledge, any of the other parties thereto, are in
default in any material respect thereunder. A true and complete copy
of each document listed on Schedule 3.13 has been delivered to the
Purchaser by the Company.
3.14 INTANGIBLE RIGHTS. Schedule 3.14 sets forth a correct and
complete list of all patents, patent applications, patent licenses,
trademarks, trademark applications or trademark licenses, brand
names, product names or trade names, and registered copyrights
(collectively, "Intangible Rights"), owned, used by or licensed to
the Company (other than Product Licenses). The Company is not
charged with infringement of any Intangible Rights of any other
Person, nor does the Company know of any such infringement, whether
or not claimed by any person. Each license of Intangible Rights
listed on Schedule 3.14 is in full force and effect, the Company is
in compliance in all material respects with the terms thereof, and
neither the Company nor, to its knowledge, the licensor thereof, is
in default thereunder. The Company is not aware of any other person
who is infringing upon the Intangible Rights of the Company.
3.15 INSURANCE. Schedule 3.15 lists and describes all policies
of insurance held by the Company, including, without limitation, all
insurance policies that are for the benefit of, or the proceeds of
which are payable to, employees of the Company or their respective
designees. Valid policies for such insurance, true and complete
copies of which have been provided to the Purchaser, will
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be outstanding and duly in force at all times prior to the Closing.
Such policies are in such amounts, and insure against such losses
and risks, as are generally maintained for comparable businesses and
properties.
3.16 LICENSES, PERMITS, ETC. Section 3.16 lists all licenses,
franchises, permits, certificates, consents, rights and privileges
issued by any Governmental Authority that are owned or held by the
Company, which are all that are necessary for the conduct of the
Company's business as presently conducted, except for any such
license, franchise, permit, certificate, consent, right or privilege
the absence of which would not have a material adverse effect on the
condition, business, assets, liabilities or prospects of the
Company. All such items are in full force and effect and, except as
described on Schedule 3.16, are freely transferrable to the
Purchaser.
3.17 LITIGATION. Except as described on Schedule 3.17, there
is no Claim or currently effective Order pending or, to the
Company's knowledge, threatened against or affecting the Company or
any of the Assets, or that challenges the legality of this Agreement
or any action to be taken in connection therewith.
3.18 COMPLIANCE WITH LAWS. The Company has complied and is in
compliance in all material respects with all Laws.
3.19 ENVIRONMENTAL MATTERS. Subject to Section 10.6:
(a) The Company has complied and is in compliance in all
material respects with all Environmental Laws.
(b) Without limiting the generality of the foregoing,
the Company has obtained, and has complied and is in
compliance in all material respects with, all permits,
licenses and other authorizations that may be required
pursuant to Environmental Laws for the occupation of the
Leased Real Property and the operation of the Company's
business.
(c) The Company has not received any written or oral
notice, report or other information regarding any liabilities
(whether accrued, absolute, contingent, unliquidated or
otherwise) or investigatory, remedial or corrective
obligations, relating to the Company's business, any of the
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Assets or any of the Leased Real Property arising under
Environmental Laws.
(d) Except as set forth on Schedule 3.19, none of the
following exists on any portion of the Leased Real Property:
(i) Underground storage tanks or surface
impoundments;
(ii) Asbestos-containing material in any form or
condition; or
(iii) Materials or equipment containing
polychlorinated biphenyls.
(e) The Company has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported,
handled, or Released any substance, including without
limitation any Hazardous Materials, or owned or operated any
facility or property, so as to give rise to liabilities for
response costs, natural resource damages or attorneys fees
pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), as amended,
or similar state Environmental Laws.
(f) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result
in any obligations for site investigation or cleanup, or
notification to or consent of any Governmental Authority or
third parties, pursuant to any so-called
"transaction-triggered" or "responsible property transfer"
Environmental Laws.
(g) Without limiting the foregoing, no facts, events or
conditions relating to the past or present facilities,
properties or operations of the Company will prevent, hinder
or limit continued compliance with Environmental Laws, give
rise to any investigatory, remedial or corrective obligations
pursuant to Environmental Laws, or give rise to any other
liabilities (whether accrued absolute, contingent,
unliquidated or otherwise) pursuant to Environmental Laws,
including without limitation any relating to onsite or offsite
Releases or threatened Releases of Hazardous Materials,
substances or wastes, personal injury, property damage or
natural resource damage.
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3.20 EMPLOYEES. Schedule 3.20 correctly and completely lists
the names and annual rates of salary and other compensation of all
non-hourly employees of the Company. Schedule 3.20 also sets forth
the date of the last salary increase for each employee listed
thereon, and the outstanding balances of all loans and advances made
by the Company to any such employee. No employee of the Company is
covered by any union or collective bargaining Contract. There are
not pending or threatened against the Company any general labor
disputes, strikes or concerted work stoppages, and there are no
discussions, negotiations, demands or proposals that are pending or
have been conducted or made with or by any labor union or
association with respect to any employees of the Company. The
Company believes its relations with its employees are good, and it
is not aware that any key management employee is about to terminate
his employment with the Company or would refuse to be hired by the
Purchaser in connection with the transfer of the Assets.
3.21 EMPLOYEE BENEFIT PLANS. Schedule 3.21 lists all plans,
Contracts, programs and policies (including, without limitation,
defined pension, defined contribution, profit sharing, thrift,
bonus, deferred compensation, severance, retirement, disability,
medical, life, dental and accidental insurance, vacation, sick
leave, death benefit and other similar employee benefit plans and
policies) maintained by the Company providing benefits to any
employee or former employee of the Company (collectively, the
"Plans"). The Company has delivered to the Purchaser true and
complete copies of all documents embodying the Plans. None of the
Plans constitutes a Multiemployer Plan (as defined in Section
4001(a)(3) of ERISA), any other employee benefit plan covered by
Title IV of ERISA, or any defined benefit pension plan or defined
contribution plan within the meaning of ERISA. The Company has
complied with ERISA in connection with the establishment and
administration of each Plan described on Schedule 3.21, and there
has been no prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) with respect thereto.
3.22 CUSTOMERS AND SUPPLIERS. Schedule 3.22 lists, by dollar
volume paid for the twelve-month period ended on September 30, 1995
and the six-month period ended on March 31, 1996, the ten largest
suppliers and the ten largest customers of the Company. The Company
believes that its relationship with its significant customers and
suppliers is good, and the Company is unaware that any such customer
or supplier is about to terminate such
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relationship or would terminate such relationship in the event of
the sale contemplated hereunder.
3.23 AFFILIATED PARTY TRANSACTIONS. Except as described on
Schedule 3.23, no Affiliate of the Company (i) is a party to or has
any interest in any Contract with the Company, (ii) has any
outstanding loan to or receivable from the Company, or (iii) has any
ownership interest, directly, indirectly or beneficially, in any
competitor or supplier of the Company. All Contracts, arrangements
and interests described on Schedule 3.23 have been entered into in
arms-length transactions on terms not materially less favorable to
the Company than would have been obtained from unaffiliated Persons.
3.24 BOOKS AND RECORDS. All books and records of the Company
are true, correct and complete in all material respects, have been
maintained by the Company in accordance with good business practice
and in accordance with all Laws applicable to the Company.
3.25 FINDERS. Except as described in Section 14.1, neither the
Company nor either Shareholder is a party to or in any way obligated
under any Contract, and there are no outstanding claims against any
of them, for the payment of any broker's or finder's fee in
connection with the origin, negotiation, execution or performance of
this Agreement.
3.26 AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement and the Documents to
which it is a party have been duly authorized by its Board of
Directors. This Agreement has been duly executed and delivered by
the Company. This Agreement is, and such Documents upon their
execution and delivery as herein provided will be, legally binding
and enforceable against the Company in accordance with their
respective terms. Neither the execution, delivery nor performance by
the Company of this Agreement or such Documents, nor consummation of
the transactions contemplated hereby or thereby, will result in a
violation or breach of, nor constitute a default or accelerate the
performance required under, or require the consent of any other
Person pursuant to, (i) the Articles of Incorporation or bylaws of
the Company, (ii) any material term contained in any Contract to
which the Company is a party or by which it or any of the Assets are
bound, except for those Contracts for which consent is required as
described on Schedule 3.26, or (iii) any Order applicable to the
Company or any of the Assets.
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3.27 AUTHORITY OF THE SHAREHOLDERS. Each Shareholder has full
authority to enter into this Agreement and the Documents to which he
or she is a party and to perform his or her obligations hereunder
and thereunder, and neither the execution, delivery nor performance
of this Agreement or such other Documents by such Shareholder will
result in a violation or breach of any material term or provision
of, nor constitute a default under, any Contract to which such
Shareholder is a party or by which he, she or any of the Assets are
bound, or violate any Order. This Agreement is, and such other
Documents upon their execution and delivery as herein provided will
be, valid and binding obligations of the Shareholders enforceable
against each of them in accordance with their respective terms.
3.28 ACQUISITION OF THE SECURITIES. The Securities to be
acquired by the Company hereunder will be acquired by it for
investment purposes only and not with the present intention or view
to, or resale in connection with, any distribution thereof within
the meaning of the Securities Act of 1933, as amended, except that
the Company intends to distribute the Securities to the Shareholders
following the Closing, and the Shareholders have no such present
intention or view for resale. The Company and the Shareholders
understand that none of the Securities is registered under such
Securities Act or any state securities or blue sky laws, and that
the Purchaser is under no obligation to register any of the
Securities under any such laws. The Company and the Shareholders
further understand that transferability of the Securities will be
restricted in accordance with applicable state and federal
securities laws, and that a restrictive legend to such effect will
be inscribed thereon. The Company and the Shareholders have had full
opportunity to receive such information and ask such questions of
representatives of the Purchaser concerning the Purchaser and its
business, operations, assets and prospects, and concerning an
investment in the Securities, as the Company and the Shareholders
have deemed appropriate in order to make an informed investment
decision with respect to the Securities.
3.29 FULL DISCLOSURE. The representations and war- ranties
made by the Company and the Shareholders hereunder or in any
Schedules, certificates or other Documents furnished to the
Purchaser pursuant hereto or thereto, do not and will not contain
any untrue statement of a fact or omit to state a fact required to
be stated herein or therein or necessary to make the representations
or warranties herein or therein, in light of the circumstances in
which they are made, not misleading.
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3.30 SCHEDULES. The various Schedules referred to in this
Section 3 have been prepared as of the date hereof (unless the
information contained therein is required to be presented as of a
specific date), have been delivered to the Purchaser in a separate
binder or volume contemporaneously with the execution of this
Agreement and have been signed for identification by the Company and
the Shareholders.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to and agrees with the
Company and the Shareholders that:
4.1 ORGANIZATION AND EXISTENCE. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Texas, and has all requisite corporate power to
enter into and perform its obligations under this Agreement and the
Documents to which it is a party. The Purchaser is duly qualified as
a foreign corporation in the State of New York. Parent is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
4.2 AUTHORITY OF THE PURCHASER AND PARENT. The execution,
delivery and performance by the Purchaser of this Agreement and the
Documents to which it is a party have been duly authorized by its
Board of Directors. This Agreement is, and upon execution and
delivery as herein provided such other Documents will be, valid and
binding upon the Purchaser and enforceable against the Purchaser in
accordance with their respective terms. Neither the execution,
delivery or performance by the Purchaser of this Agreement or such
other Documents will conflict with or result in a violation or
breach of any term or provision of, nor constitute a default under,
the Articles of Incorporation or bylaws of the Purchaser or under
any Contract to which it is a party or by which it or its property
is bound (except for any such Contracts for which it has obtained
valid consents), or violate any Order. The issuance and delivery by
Parent of the Securities have been duly authorized by its Board of
Directors. Upon execution and delivery as herein provided, each of
the Securities will be valid and binding upon Parent and enforceable
against Parent in accordance with their respective terms. The
issuance by Parent of the Securities will not conflict with or
result in a violation or breach of any term or provision of, nor
constitute a default under, the Certificate of Incorporation or
bylaws of Parent or under any Contract to which it is a party or by
which it or its property is bound
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(except for any such Contracts for which it has obtained valid
consents), or violate any Order.
4.3 FINDERS. The Purchaser is not a party to or in any way
obligated under any contract or other agreement, and there are not
outstanding claims against it, for the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution
or performance of this Agreement.
4.4 CAPITALIZATION. The authorized capital stock of the Parent
consists of (i) 1,000,000 shares of Common Stock, $.01 par value, of
which 330,555 shares are presently issued and outstanding as of the
date hereof; and (ii) 2,000,000 shares of Preferred Stock, $.01 par
value, of which (x) 650,000 shares have been designated as Series
A-1 Preferred Stock, all of which shares are issued and outstanding,
and (y) 300,000 shares have been designated as Series A-2 Preferred
Stock, all of which shares are issued and outstanding. The
outstanding shares of Common Stock, Series A-1 Preferred Stock and
Series A-2 Preferred Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. Except as disclosed on
Schedule 4.4, Parent does not have any outstanding capital stock or
securities convertible into or exchangeable for any shares of its
capital stock, or any outstanding rights (either preemptive or
other) to subscribe for or to purchase, or any outstanding rights or
options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any outstanding calls,
commitments or claims of any character relating to, any capital
stock or any stock or securities convertible into or exchangeable
for any capital stock of Parent.
4.5 FINANCIAL STATEMENTS. The Purchaser has delivered to the
Company true and complete copies of its balance sheets at December
30, 1995 and December 31, 1994 and the related statements of
operations, shareholders' equity (deficit) and cash flows for the
years then ended, together with the audit report thereon of Arthur
Andersen LLP dated April 22, 1996. Such financial statements are
correct and complete, have been prepared in accordance with the
books and records of the Purchaser and present fairly the financial
positions of the Purchaser at the dates thereof and the results of
its operations for the periods then ended, in each case in
accordance with GAAP.
4.6 FULL DISCLOSURE. The representations and warranties made
by the Purchaser hereunder or in any Schedule, certificates or other
Documents furnished to the Company and the Shareholders pursuant
hereto or
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thereto, do not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
herein or therein or necessary to make the representations or
warranties herein or therein, in light of the circumstances in which
they are made, not misleading.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PENDING CLOSING.
The Company and the Shareholders jointly and severally covenant with the
Purchaser that:
5.1 CONDUCT OF BUSINESS. From the date of this Agreement to
the Closing Date, the Company will be operated only in the ordinary
course of business, and, in particular, without the prior written
consent of the Purchaser, the Company will not, and the Shareholders
will not cause or permit the Company to:
(i) cancel or permit any insurance to lapse or
terminate, unless renewed or replaced by like coverage;
(ii) enter into any Contract outside the ordinary course
of business; or
(iii) hire, fire, reassign or make any other change in
key personnel of the Company, or increase the rate of
compensation of or declare or pay any bonuses to any employee
in excess of that listed on Schedule 3.20;
(iv) cause or permit any of the events or conditions
described in Section 3.7 to occur or exist; or
(v) take any other action which would cause any of the
representations and warranties made in Section 3 hereof not to
be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if the same had
been made on and as of the Closing Date.
5.2 ACCESS TO INFORMATION. Prior to Closing, the Shareholders
and the Company will give to the Purchaser and its counsel,
accountants and other representatives, full and free access to all
of the properties, books, Contracts and records of the Company so
that the Purchaser may have full opportunity to make such
investigation as it shall desire to make of the affairs of the
Company.
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5.3 PRESERVATION OF GOODWILL. Prior to the Closing, the
Company and the Shareholders will use their best efforts to preserve
the business organization of the Company, to keep available to the
Purchaser the services of the employees of the Company and to
preserve for the Purchaser the goodwill of all suppliers, customers
and others having business relations with the Company.
5.4 CONSENTS AND APPROVALS. The Company and the Shareholders
will use their best efforts to obtain the necessary consents and
approvals of other Persons which may be required to be obtained on
their part to consummate the transactions contemplated by this
Agreement. Such consents shall include, without limitation, the
written consent, in a form reasonably acceptable to the Purchaser,
of (i) the licensors under those Product Licenses which are noted on
Schedule 3.27 as requiring consent as a condition to the Closing
hereunder, and (ii) the parties to the other Contracts listed on
Schedule 3.27 (collectively, the "Required Consents").
5.5 NO SHOP. Prior to the Closing, neither the Company nor
either Shareholder shall directly or indirectly enter into any
Contract, or initiate, solicit or encourage any offers, proposals or
expressions of interest, or otherwise hold any discussions with any
potential buyers, investment bankers or finders, with respect to the
possible sale or other disposition of all or any substantial portion
of the Assets, the sale of all or a controlling interest in the
stock of the Company, or the merger or consolidation of the Company,
other than with the Purchaser. If the Company or either Shareholder
receive any offer or expressions of interest for such a transaction,
the Company or such Shareholder shall promptly advise the Purchaser
thereof.
5.6 HSR ACT FILING. The Shareholders shall promptly prepare
and cause to be filed a premerger notification and report as the
acquired person under the HSR Act and shall request early
termination in connection therewith. The Company and the
Shareholders shall promptly respond to any inquiries of the Federal
Trade Commission or Department of Justice in connection with such
filing and shall coordinate the foregoing with the Purchaser.
5.7 SUBORDINATION. In connection with the financing to be
provided to the Purchaser as described in Section 7.10, the Company
agrees to execute and deliver in favor of the Company's lender(s)
such subordination agreements, relating to the Debentures and the
payment of
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any Earnout Amount pursuant to Section 1.3, as such lender(s) may
reasonably request.
6. COVENANTS OF THE PURCHASER PENDING CLOSING. The Pur- chaser
covenants with the Company and the Shareholders that:
6.1 CONSENTS AND APPROVALS. The Purchaser will use its best
efforts to obtain the necessary consents and approvals of other
Persons which may be required to be obtained on its part to
consummate the transactions contemplated in this Agreement.
6.2 CONFIDENTIALITY. Prior to the Closing, the Purchaser and
its representatives will hold in confidence any data and information
obtained with respect to the Company from any representative,
officer, director or employee of the Company, including their
accountants or legal counsel, or from any books or records of any of
them, in connection with the transactions contemplated by this
Agreement. If the transactions contemplated hereby are not
consummated, neither the Purchaser nor its representatives shall use
such data or information or disclose the same to others, except as
such data or information is published or is a matter of public
knowledge or is required by Law to be disclosed. If this Agreement
is terminated for any reason, all written data and information
obtained by the Purchaser from the Company or its representatives in
connection with the transactions contemplated by this Agreement
shall be returned to the Company.
6.3 HSR ACT FILING. The Purchaser shall promptly cause Equus,
the ultimate parent entity of the acquiring person, to prepare and
file a premerger notification and report for the acquiring person
under the HSR Act and shall request early termination in connection
therewith. The Purchaser shall be responsible for paying the
statutory filing fee in connection therewith. The Purchaser shall
promptly respond to any inquiries of the Federal Trade Commission or
Department of Justice in connection with such filing and shall
coordinate the foregoing with the Company and the Shareholders.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of
the Purchaser under this Agreement shall be subject to the following
conditions, any of which may be expressly waived by it in writing:
7.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Purchaser shall not have discovered any material error,
misstatement or omission in the repre- sentations and warranties
made by the Company and the
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Shareholders in this Agreement; the representations and warranties
made by the Company and the Shareholders herein shall be deemed to
have been made again at and as of the time of Closing and shall then
be true and correct; the Company and the Shareholders shall have
performed and complied with all agreements and conditions required
by this Agreement to be performed or complied with by them at or
prior to the Closing; and the Purchaser shall have received a
certificate, signed by the Shareholders and an executive officer of
the Company, to the effect of the foregoing provisions of this
Section 7.1.
7.2 OPINION OF COUNSEL. The Company and the Shareholders shall
have caused to be delivered to the Purchaser an opinion of Parker
Chapin Flauttau & Klimpl, L.L.P., counsel for the Company and the
Shareholders, dated the Closing Date substantially in the form of
Exhibit F hereto.
7.3 CONSENTS AND APPROVALS. The Shareholders and the Company
shall have obtained all of the Required Consents.
7.4 NO LOSS OR DAMAGE. Prior to the Closing there shall not
have occurred any loss or damage to any material portion of the
Assets (regardless of whether such loss or damage was insured).
7.5 APPROVAL BY COUNSEL. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal
matters shall have been approved by counsel for the Purchaser, and
such counsel shall have been furnished with such certified copies of
actions and proceedings and other instruments and documents as they
shall have reasonably requested.
7.6 NO MATERIAL ADVERSE CHANGE. Prior to the Closing, there
shall have occurred no material adverse change in the condition
(financial or otherwise), business, assets, liabilities or prospects
of the Company since the date of the Company Balance Sheet, nor
shall the Company have lost any material customer or have received
notice of cancellation or intent to cancel from any other party to a
Product License, Real Property Sublease, or other material Assumed
Contract.
7.7 HSR ACT FILING. Any Person required in connection with the
transactions contemplated hereby to file a notification and report
form in compliance with the HSR Act shall have filed such form and
the applicable waiting period with respect to each such form
(including
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any extension thereof by reason of a request for additional
information) shall have expired or been terminated.
7.8 RELATED TRANSACTIONS. The Shareholders shall have executed
and delivered to the Purchaser the Lease Agreement, the
Non-Competition Agreement and their respective Employment
Agreements.
7.9 ENVIRONMENTAL REPORT. Provided that there shall have been
conducted prior to execution of this Agreement, at Purchaser's
expense, a Phase I (and, if deemed necessary by Purchaser, a Phase
II) environmental site assessment of the Company and the Leased Real
Property by an environmental consulting firm selected by Purchaser,
then the results of the report of such firm (together with the
remedial action, if any, taken by the Company in response thereto)
shall be satisfactory to Purchaser in its sole discretion.
7.10 FINANCING COMMITMENT. The Purchaser shall have received a
written commitment from a financial institution reasonably
acceptable to it, containing such terms and conditions and otherwise
in form and substance acceptable to the Purchaser, providing for the
extension of financing in order to provide the portion of the
Purchase Price for the Assets not furnished by the Purchaser or
obtained by the Purchaser from other sources, and such commitment
shall have been funded in such amount contemporaneously with the
Closing, subject to the satisfaction of any conditions set forth in
such commitment.
7.11 BUILDING INSPECTION. There shall have been conducted, at
the Purchaser's expense, a building inspection of the buildings and
improvements located on the Leased Real Property, and the results of
such inspection shall be satisfactory to the Purchaser in its sole
discretion.
7.12 PLYMOUTH, INC.. Plymouth, Inc., a New York corporation of
which the Shareholders are the sole shareholders, shall have sold
and assigned to the Purchaser all of its assets and properties,
consisting of rights under a showroom office lease in Manhattan, New
York, in form and substance acceptable to the Purchaser.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS.
The obligations of the Company and the Shareholders under this Agreement
shall be subject to the following conditions, any of which may be
expressly waived by the Company and the Shareholders in writing:
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8.1 REPRESENTATIONS AND WARRANTIES TRUE; COVENANTS PERFORMED.
The Company and the Shareholders shall not have discovered any
material error, misstatement or omission in the representations and
warranties made by the Purchaser in this Agreement; the
representations and warranties made by the Purchaser herein shall be
deemed to have been made again at and as of the time of Closing and
shall then be true and correct; the Purchaser shall have performed
and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it at or prior to the
Closing; and the Company and the Shareholders shall have received a
certificate, signed by an executive officer of the Purchaser, to the
effect of the foregoing provisions of this Section 8.1.
8.2 OPINION OF COUNSEL. The Purchaser shall have caused to be
delivered to the Company and the Shareholders an opinion of Snell &
Smith, A Professional Corporation, counsel for Purchaser, in
substantially the form of Exhibit G hereto.
8.3 CONSENTS AND APPROVALS. The Purchaser shall have obtained
all consents and approvals of other persons and governmental
authorities to the transactions contemplated by this Agreement.
8.4 RELATED TRANSACTIONS. Parent shall have issued and
delivered the Effective Date Warrant to the Company and shall have
elected to its Board of Directors whomever of the Shareholders as
they direct as described in Section 2.3(v), and the Purchaser shall
have executed and delivered to the Shareholders the Lease Agreement,
the Non-Competition Agreement and their respective Employment
Agreements.
8.5 APPROVAL BY COUNSEL. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal
matters shall have been approved by counsel for the Company and the
Shareholders, and such counsel shall have been furnished with such
certified copies of actions and proceedings and other instruments
and documents as they shall have reasonably requested.
8.6 HSR ACT FILING. Any Person required in connection with the
transactions contemplated hereby to file a notification and report
form in compliance with the HSR Act shall have filed such form and
the applicable waiting period with respect to each such form
(including any extension thereof by reason of a request for
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additional information) shall have expired or been terminated.
8.7 BACK-TO-BACK LETTERS OF CREDIT. The Purchaser shall have
caused Fleet National Bank, or another financial institution
reasonably acceptable to the Company, to issue and deliver to the
Company or its lender a standby letter of credit in favor of the
Company or its lender as beneficiary with respect to each
documentary letter of credit described on Schedule 3.13 hereto (true
and correct copies of which have been provided to the Purchaser,
collectively the "Company Letters of Credit"), in an amount equal to
the aggregate outstanding balance thereof as of the Closing Date,
with the same expiry dates and otherwise on substantially the same
terms as each Company Letter of Credit; or the Purchaser and its
lender shall have otherwise entered into financial accommodations
reasonably satisfactory to the Company and the issuer of Company
Letters of Credit to enable such issuer to release its Liens against
the Assets which secure the Company's reimbursement obligations
under the Company Letters of Credit.
8.8 EQUUS. Equus shall have executed and delivered to the
Shareholders (i) the Guaranty and (ii) its written agreement,
mutually acceptable in form and substance to the parties, under
which Equus agrees to vote its shares of Common Stock of Parent in
favor of the election to Parent's Board of Directors whomever of the
Shareholders may be directed by them, for so long as the Debentures
are outstanding.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRAN- TIES.
9.1 NATURE OF STATEMENTS. All statements contained herein or
in any Schedule, certificate or other Document delivered by or on
behalf of any party pursuant to this Agreement, shall be deemed
representations and warranties by such party.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of
any investigation made at any time by or on behalf of any party
hereto, all covenants, representations and warranties made hereunder
or pursuant hereto by any party shall not terminate on the Closing
Date but shall survive the Closing and continue in full force and
effect (i) until expiration of the applicable tax statute of
limitations under federal or state Law, as applicable, with respect
to representations and warranties under Section 3.8, (ii) for the
term of the Lease Agreement, with respect to representations and
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warranties under Section 3.19, (iii) until expiration of the
applicable state statute of limitations, with respect to
representations and warranties, under Sections 3.1, 3.2, 3.5 and
3.25 through 3.29, and (iv) until June 30, 1998, in the case of all
other representations and warranties under this Agreement, at which
time (as applicable) the same shall terminate except for any such
representation or warranty as to which a Claim has been asserted
prior to such termination, which shall survive until such Claim is
finally resolved.
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS.
Subject to the remaining provisions of this Section 10, the Company
and the Shareholders jointly and severally agree to indemnify and
hold harmless the Purchaser and its successors and assigns from and
against any and all losses, damages, liabilities, obligations, costs
or expenses (any one such item being herein called a "Loss" and all
such items being herein collectively called "Losses") which are
caused by or arise out of (i) any breach or default in the
performance by the Company and either Shareholder of any of their
respective covenants or agreements contained in this Agreement, (ii)
any breach of warranty or inaccurate or erroneous representation
made by the Company and either Shareholder herein, in any Schedule
delivered to the Purchaser pursuant hereto or in any certificate or
other Document delivered by or on behalf of any of them pursuant
hereto, (iii) any Claim made against the Purchaser in respect of any
liabilities or obligations of the Company (whether absolute or
contingent) other than the Assumed Liabilities, and (iv) any and all
actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees) incident to any of the
foregoing.
10.2 INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless the Company and the Shareholders and
their respective heirs, successors and assigns from and against any
Losses which are caused by or arise out of (i) any breach or default
in the performance by the Purchaser of any covenant or agreement of
the Purchaser contained in this Agreement, (ii) any breach of
warranty or inaccurate or erroneous representation made by the
Purchaser herein or in any certificate or other Document delivered
by or on behalf of the Purchaser pursuant hereto, (iii) any Claim
made against the Company in respect of the Assumed Liabilities, (iv)
any Claim asserted against the Company in respect of the conduct of
the Operations after the
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Closing, and (v) any and all actions suits, proceedings, claims,
demands, judgments, costs and expenses (including reasonable legal
fees) incident to any of the foregoing.
10.3 THIRD PARTY CLAIMS. If any third person asserts a Claim
against an indemnified party hereunder that, if successful, might
result in a claim for indemnification against an indemnifying party
hereunder, the indemnifying party shall be given prompt written
notice thereof and shall have the right (i) to participate in the
defense thereof and be represented, at his, her or its own expense,
by advisory counsel selected by him, her or it, and (ii) to approve
any settlement if the indemnifying party is, or will be, required to
pay any amounts in connection therewith. Notwithstanding the
foregoing, if within ten business days after delivery of the
indemnified party's notice described above, the indemnifying party
indicates in writing to the indemnified party that, as between such
parties, such claims shall be fully indemnified for by the
indemnifying party as provided herein, then the indemnifying party
shall have the right to control the defense of such claim, provided
that the indemnified party shall have the right (i) to participate
in the defense thereof and be represented, at his, her or its own
expenses, by advisory counsel selected by him, her or it, and (ii)
to approve any settlement if the indemnified party's interests are,
or would be, affected thereby.
10.4 OFFSET. If the Company or either Shareholder becomes
obligated to indemnify the Purchaser pursuant to this Section 10 at
any time when either the Purchase Debenture or the Earnout Debenture
is or may become outstanding, Parent may set-off all or any part of
the amount of such indemnification obligations against the unpaid
principal balance of and unpaid accrued interest on either or both
of such Debentures. The exercise of such right of set-off by Parent
hereunder shall be evidenced by means of a written notice to such
effect given by the Purchaser or Parent to the Company and the
Shareholders. Upon the exercise by the Parent of its right of
set-off, the amount which the Parent is entitled to set-off against
such Debentures hereinabove provided, shall be, and shall be deemed
to be, applied in reduction of, and shall constitute a payment or
prepayment of, the accrued and unpaid interest then outstanding and
then to the next maturing installments of principal. The Company and
the Shareholders hereby agree, and all subsequent holders of the
Purchase and Earnout Debentures by acceptance thereof will thereby
agree, to endorse the amount of such reduction or payment or
prepayment on the reverse side of each Debenture as a credit against
the
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unpaid balance of principal of and unpaid accrued interest thereon.
Unless otherwise specified in such notice, any such offset shall be
applied on a pro rata basis among the Purchase and Earnout
Debentures in accordance with their respective outstanding balances
of principal and interest.
10.5 COLLECTION OF ACCOUNTS. Notwithstanding any other
provision of this Agreement, the Purchaser's remedy in respect of
the collectibility of the accounts receivable included in the
Assets, including any claims arising under clause (iii) of Section
3.9, shall be governed by the provisions of this Section 10.5. If,
as of December 31, 1997 (the "Receivables Reconciliation Date"),
there remain uncollected any accounts receivable included in the
Assets, other than the Doubtful Accounts (collectively, "Effective
Date Receivables"), then upon the Purchaser's written certification
to such effect given to the Company and the Shareholders, the
Company and the Shareholders shall, jointly and severally, pay to
the Purchaser the amount by which those Effective Date Receivables
which then remain uncollected ("Uncollected Effective Date
Receivables") exceed the sum of (I) the amount (if any) by which
collections on Doubtful Accounts from the Effective Date through the
Receivables Reconciliation Date exceed $150,907.62, PLUS (II)
$100,000 (the "Receivables Basket"). For purposes of this Section
10.5, an account (the "Receivables Basket Account") shall be
maintained, which on the Effective Date shall be zero, shall be
increased by any application of the Receivables Basket against
Uncollected Effective Date Receivables, and shall be reduced by the
amount of any collections on those uncollected accounts for which
there has been a prior addition thereto. For purposes hereof, if the
Purchaser factors or otherwise sells any of the accounts receivable
included in the Assets, the Company shall be given full credit for
the face amount thereof (regardless of the amount of the net
proceeds from such factoring actually received by the Purchaser),
unless the Company otherwise agrees. If and to the extent that the
Purchaser receives any collections on Effective Date Receivables
after the Receivables Reconciliation Date, then such collections
shall be applied (i) first, to the reduction of any positive balance
in the Receivables Basket Account as described above, and such
collections may therefore be retained by the Purchaser, until the
Receivables Basket Account has been reduced to zero, and (ii)
second, after the Receivables Basket Account has been reduced to
zero, any collections thereafter shall promptly be paid to the
Company. Likewise, if, as of December 31, 1998, there remain
uncollected any of the Doubtful Accounts, then
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upon the Purchaser's written certification to such effect given to
the Company and the Shareholders, the Company and the Shareholders
shall, jointly and severally, pay to the Purchaser the amount by
which those Doubtful Accounts which then remain uncollected
("Uncollected Doubtful Accounts") exceed the sum of (i) $150,907.62
PLUS (ii) the amount (if any) by which the Receivables Basket
exceeds the remaining balance, if any, in the Receivables Basket
Account. There shall be no further payments or reconciliations after
the reconciliation on December 31, 1998 as described above. The
foregoing shall in no event apply to claims in respect of clauses
(i) or (ii) of Section 3.9.
10.6 ENVIRONMENTAL INDEMNITY. Notwithstanding any other
provision of this Agreement, the Purchaser's remedy in respect of
the environmental condition of the Leased Real Property and the
Company's compliance with Environmental Laws, including any claims
arising under Section 3.19, shall be governed by the provisions of
this Section 10.6. The Company and the Shareholders jointly and
severally agree to indemnify and hold harmless the Purchaser and its
successors and assigns from and against any and all Losses which are
caused by or arise out of (i) any breach of warranty or inaccurate
or erroneous representation made by the Company and either
Shareholder in Section 3.19, (ii) any of the environmental hazards,
conditions, exposure or contingencies described on Schedule 3.19,
and (iii) any and all actions suits, proceedings, claims, demands,
judgments, costs and expenses (including reasonable legal fees)
incident to any of the foregoing; provided, however, that the
indemnification obligations of the Company and the Shareholders
under this Section 10.6 shall be limited to the extent such Losses
exceed $75,000 in the aggregate.
11. TERMINATION.
11.1 BEST EFFORTS TO SATISFY CONDITIONS. The Company and the
Shareholders agree to use their best efforts to bring about the
satisfaction of the conditions specified in Section 7 hereof and the
Purchaser agrees to use its best efforts to bring about the
satisfaction of the conditions specified in Section 8 hereof.
11.2 TERMINATION. This Agreement may be terminated prior to
Closing by:
(a) the mutual consent of the Company, the Shareholders
and the Purchaser;
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(b) the Purchaser if a material default shall be made by
the Company or the Shareholders in the observance or in the
due and timely performance by any of their covenants herein
contained, or if there shall have been a breach or
misrepresentation by the Company or the Shareholders of any of
their warranties and representations herein contained, or if
the conditions of this Agreement to be complied with or
performed by the Company or the Shareholders at or before the
Closing shall not have been complied with or performed at the
time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly
waived by the Purchaser in writing;
(c) the Company and the Shareholders if a material
default shall be made by the Purchaser in the observance or in
the due and timely performance by the Purchaser of any of the
covenants of the Purchaser herein contained, or if there shall
have been a material breach or misrepresentation by the
Purchaser of any of its warranties and representations herein
contained, or if the conditions of this Agreement to be
complied with or performed by the Purchaser at or before the
Closing shall not have been complied with or performed at the
time required for such compliance or performance and such
noncompliance or nonperformance shall not have been expressly
waived by the Company and the Shareholders in writing;
(d) the Company, the Shareholders or the Purchaser, if
the Closing has not occurred by August 31, 1996.
11.3 LIABILITY UPON TERMINATION. If this Agreement is
terminated under paragraph (a) or (d) of Section 11.2, then no party
shall have any liability to any other party hereunder. If this
Agreement is terminated under paragraph (b) or (c) of Section 11.2,
then (i) the party so terminating this Agreement shall not have any
liability to any other party hereto, provided the terminating party
has not breached any representation or warranty or failed to comply
with any of its covenants in this Agreement, and (ii) such
termination shall not prejudice the rights and remedies of the
terminating party against any other party which has breached any of
its representations, warranties or covenants herein prior to such
termination.
12. COVENANTS FOLLOWING CLOSING.
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12.1 CHANGE OF NAME. Promptly following the Closing (but in no
event later than 30 days thereafter), the Shareholders shall cause
the Articles of Incorporation of the Company to be amended so as to
change its name to one wholly dissimilar to "Plymouth Mills," and
will furnish the Purchaser with written evidence of such amendment.
12.2 EMPLOYEE MATTERS.
(a) CONTINUED EMPLOYMENT. Upon the Closing, the
Purchaser shall offer employment to all employees of the
Company at not less than their same salaries and wages as are
in effect immediately prior to the Closing, except for any
such employees identified by the Purchaser prior to the
Closing who will not be so offered employment. Each such
employee shall be entitled to all benefits available generally
to employees of the Purchaser. The foregoing shall not
prohibit the Purchaser from terminating the employment of any
such employee following the Closing, modifying or terminating
any benefits following the Closing, or changing the terms of
any employee's employment, to the extent permitted by Law and
by Contract.
(b) WELFARE PLANS. The Purchaser shall not assume any of
the Company's "employee welfare benefit plans" as that term is
defined in Section 3(1) of ERISA. The Purchaser shall,
however, provide such employees the same benefits as are
provided generally to other employees of the Purchaser. The
Purchaser agrees that all such personnel who are to be
employed by the Purchaser following the Closing as provided in
paragraph (a) above shall, to the extent allowed under any
applicable plan or insurance policy maintained by Purchaser
with respect to any of its employee welfare benefit plans, be
given credit for all years of service with the Company for
purposes of determining eligibility for, and duration and
amount of, all benefits to be extended under all employee
welfare benefit plans provided by the Purchaser (including
without limitation life insurance, medical, dental and
disability benefits and paid vacation). The Purchaser shall
assume the Company's obligations as of the Effective Date for
accrued vacation pay and sick pay.
The Company shall provide all continuation medical or
dental coverage required to be provided under any federal,
state or local law, including the Consolidated Omnibus Budget
Reconciliation Act
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of 1985 ("COBRA"), to any employees not employed by the
Purchaser under paragraph (a) above (to the extent such
employees elect such coverage), and shall continue to provide
such coverage which the Company is then providing to any
former covered employee, or to any qualified beneficiary of
any former covered employee, as of the Closing. The terms
"continuation coverage," "covered employee," "qualified
beneficiary," and "qualifying event" shall have the meanings
given such terms in Section 4980B of the Code or Sections 601
through 608 of ERISA.
(c) EMPLOYEE WITHHOLDING. With respect to withholding,
F.I.C.A. and similar tax collections applicable to employees
of the Company, the Company and the Purchaser agree to adopt
the alternative procedure described in Section 5 of Revenue
Procedure 84-77 promulgated by the Internal Revenue Service
("IRS").
12.3 TAXES. The Company and the Shareholders shall be fully
responsible for paying all income Taxes, and for preparing and
filing all income Tax returns and reports, for all periods prior to
the Closing. If, as a result of any step-up in the federal income
Tax basis of property, plant and equipment included within the
Assets as a result of the allocation of the Purchase Price among the
Assets as contemplated in Section 1.3(g), the Company becomes
subject to additional federal income Tax liability that it would not
otherwise had become subject to if no step-up in basis of such
property had occurred, then promptly following the Company's filing
of its federal income Tax return in respect of such Tax liability
and payment of such additional Taxes, the Purchaser shall reimburse
the Company for the amount of such additional federal income Tax so
due. As a condition to such payment, the Company and the
Shareholders shall deliver to the Purchaser their written
certification of the additional federal income Tax payment to which
the Purchaser's reimbursement obligation hereunder applies, and if
the Purchaser disagrees with any portion of such certification, then
the parties shall observe the same procedures for resolving such
dispute that are outlined in Section 1.3(f). In no event shall the
Purchaser's obligations under this Section 12.3 apply to any tax on
net recognized built-in gains which may be imposed pursuant to Code
Section 1374.
12.4 ADDITIONAL WARRANTS. If, as provided in the Rolling
Debenture, the "Maturity Date" (as defined therein) is extended for
any of the twelve-month periods
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described therein, then promptly following each such extension the
Purchaser shall cause Parent to issue and deliver to the Company (or
to the Shareholders, if they are then the "Holders," as defined in
the Rolling Debenture, of the Rolling Debenture) Warrants to
purchase shares of Common Stock of Parent (herein referred to as
"Additional Warrants"), each Additional Warrant having the same
exercise price, term and other general provisions and conditions of
the Effective Date Warrant, substantially in the form of Exhibit B
hereto, except that the number of shares of Parent's Common Stock
covered by each Additional Warrant upon each such extension of the
Maturity Date shall be equal to the product of (i) a fraction, the
numerator of which is the outstanding principal balance of the
Rolling Debenture on the date of such extension and the denominator
of which is $3,000,000, MULTIPLIED BY (ii) the number of shares
shown below applicable to such extension:
Then the Number of
Shares to be Covered
If Maturity Date by the Additional
is Extended Past Warrant To Then Be
December 31, Issued Is
---------------- --------------------
1997 6,000
1998 6,000
1999 6,000
2000 6,000
2001 6,000
2002 6,000
12.5 SKY-LITE LITIGATION. The Purchaser agrees that, if the
Purchaser receives in cash any settlement, judgment or other similar
proceeds from any claim, proceeding or litigation arising from the
Sky-Lite Fashion matter described under Item 3 on Schedule 3.17, the
Purchaser will pay 100% of the net proceeds therefrom (after
deducting unreimbursed expenses, fees and other costs associated
therewith) to the Company, PROVIDED THAT (i) the Company and the
Elensons jointly and severally agrees to be fully responsible for,
and shall indemnify the Purchaser in respect of, all such costs,
fees and expenses of maintaining any such action or proceedings,
(ii) the Purchaser shall have a reasonable right of control over the
conduct of such action or proceedings, and (iii) the Company and the
Shareholders jointly and severally shall indemnify the Purchaser for
any Losses (as defined in Section 10.1) arising from any
counterclaim or cross claim asserted against the Purchaser in
connection therewith.
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<PAGE>
13. DEFINITIONS. For purposes of this Agreement:
"1994 ANNUAL FINANCIAL STATEMENTS" means the audited Balance
Sheets of the Company at September 30, 1994 and 1993 and the related
audited Statements of Income, Retained Earnings and Cash Flows for
the respective twelve-month periods of operations then ended,
together with the footnotes and other supplementary information
thereto and the audit report thereon of Mahoney dated December 9,
1994.
"1995 ANNUAL FINANCIAL STATEMENTS" means the audited Balance
Sheets of the Company at September 30, 1995 and 1994 and the related
audited Statements of Income, Retained Earnings and Cash Flows for
the respective twelve-month periods of operations then ended,
together with the footnotes and other supplementary information
thereto and the audit report thereon of Mahoney dated November 17,
1995.
"ADDITIONAL WARRANTS" means all Warrants, if any, which may be
issued by Parent to the Company pursuant to Section 12.4.
"AFFILIATE," with respect to any Person, means any Person
directly or indirectly controlling, controlled by or under common
control with such Person.
"AGREEMENT" means this Asset Purchase Agreement, as amended or
supplemented in accordance with the provisions hereof, together with
all Schedules and Exhibits hereto.
"ASSETS" means all of the assets, rights and properties
described in Section 1.1.
"ASSUMED CONTRACTS" means the Real Property Subleases, the
Product Licenses and the other Contracts referred to in Section
1.1(v).
"ASSUMED LIABILITIES" means the liabilities and obligations of
the Company to be assumed by the Purchaser pursuant to Section 1.4,
subject to Section 1.5.
"BASELINE EBITDA" has the meaning given such term in Section
1.3(d).
"BASELINE NET WORTH" has the meaning given such term in
Section 1.3(e).
"CLAIM" means any action, suit, claim or legal, administrative
or arbitral proceeding or investigation.
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<PAGE>
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means shares of Common Stock, $.01 par value,
of the Purchaser.
"COMPANY" means Plymouth Mills, Inc., a New York corporation.
"COMPANY BALANCE SHEET" means the Balance Sheet of the Company
at September 30, 1995 that is included in the 1995 Annual Financial
Statements.
"CONTRACT" means any contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sale contract, mortgage,
license (including, without limitation, any trademark license),
trust, joint venture, franchise, sales order, purchase order,
commitment or other binding arrangement, whether or not in writing.
"DEBENTURES" means, collectively, the Purchase Debenture, the
Rolling Debenture and (if and when issued) the Earnout Debenture.
"DOCUMENT" means any instrument or document required or
contemplated by this Agreement to be executed and delivered by any
party at or prior to the Closing for the purposes of consummating
the transactions contemplated by this Agreement.
"EARNOUT AMOUNT" has the meaning given such term in Section
1.3(d).
"EARNOUT DEBENTURE" means Parent's Junior Subordinated
Debenture issued to the Company pursuant to Section 1.3(d),
substantially in the form of Exhibit A-3 hereto.
"EBITDA" means net income calculated in accordance with GAAP
and consistent with the 1995 Annual Financial Statements, PLUS to
the extent deducted for purposes of determining such net income,
without duplication, interest, federal income taxes, depreciation
and amortization, all cash compensation paid to the Shareholders
during the period in question in excess of $200,000, and all legal
fees, accounting fees and fees paid to CoView Capital, Inc., but
only to the extent that it can be demonstrated that such fees are
directly attributable to the transactions contemplated by this
Agreement.
"EFFECTIVE DATE" means August 2, 1996.
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<PAGE>
"EFFECTIVE DATE NET WORTH" means the sum of (i) amount by
which the total Assets of the Company that are acquired by the
Purchaser pursuant to this Agreement exceeds the total of the
Assumed Liabilities assumed by the Purchaser pursuant to this
Agreement, both as of the close of business on the Effective Date
and both determined in accordance with GAAP and consistent with the
Company's March 31, 1995 balance sheet, including in such
determination employee bonus accruals (even though not included in
such balance sheet) but excluding vacation accruals; PLUS (ii)
eleven percent (11%) of the net revenues (gross revenues LESS
returns and allowances) of the Operations from the close of business
on the Effective Date through the commencement of business on the
Closing Date.
"EFFECTIVE DATE WARRANT" means the Warrant to be issued by
Parent pursuant to Section 2.3(i), substantially in the form of
Exhibit B, representing the right to purchase an aggregate of 30,000
shares of Common Stock of Parent.
"EMPLOYMENT AGREEMENTS" has the meaning given such term in
Section 2.3(iv).
"ENVIRONMENTAL LAWS" means all Laws concerning pollution or
protection of the environment (including without limitation all
those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release,
threatened Release, control or cleanup of any Hazardous Materials,
substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or
radiation).
"EQUUS" means Equus II Incorporated, a Delaware corporation.
"ERISA" means the Employee Retirement and Income Security Act
of 1974, as amended.
"FINANCIAL STATEMENTS" means the 1994 Annual Financial
Statements, the 1995 Annual Financial Statements and the Company's
unaudited Balance Sheet at March 31, 1995.
"GAAP," as applied to the preparation of any financial
statements, means generally accepted accounting principles in the
United States applied on a consistent basis.
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"GOVERNMENTAL AUTHORITY" means (i) any government or political
subdivision thereof, whether federal, state, local or foreign, and
(ii) any agency, department, division, court, tribunal or
instrumentality of any such government or political subdivision.
"GUARANTY" means the Guaranty Agreement to be executed by
Equus in favor of the Company pursuant to Section 1.3(c), in
substantially the form of Exhibit A-4 hereto.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"HAZARDOUS MATERIALS" means any hazardous, toxic, dangerous or
other waste, substance of material defined as such in, regulated by
or for purposes of any Environmental Law.
"LAW" means any applicable law, statute, code, ordinance,
rule, regulation or other requirement, of any Governmental
Authority, or any Order.
"LEASE AGREEMENT" has the meaning given such term in Section
2.3(ii).
"LEASED REAL PROPERTY" means all of the Real Property covered
by the Lease Agreement.
"LIEN" means any lien, pledge, mortgage, deed of trust,
security interest, lease, charge, option, right of first refusal,
easement, servitude, restrictive covenant, encroachment or other
survey defect, transfer restriction under any shareholder or other
agreement or other encumbrance of any nature whatsoever.
"NON-COMPETITION AGREEMENT" has the meaning given such term in
Section 2.3(iii).
"OPERATIONS" means (i) for all periods prior to the Effective
Date, the Company, and (ii) for all periods on and after the
Effective Date, the business, assets and operations as a going
concern which are acquired by the Purchaser from the Company
pursuant to this Agreement and are thereafter operated by the
Purchaser as a division or unit of operations.
"ORDER" means any order, directive, writ, injunction,
judgment, ruling, award, edict, or decree, of any Governmental
Authority.
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"PARENT" means BSI Holdings, Inc., a Delaware corporation.
"PERSON" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust,
unincorporated organization, or other organization, whether or not a
legal entity, and any Governmental Authority.
"PLAN" means an employee benefit plan of the type described in
Section 3.21.
"PRODUCT LICENSE" means a license to use names, logos,
insignia, mascots, cartoon and animated characters and other images
for decorating items of apparel. The term includes, but is not
limited to, character licenses, professional and college sports
teams licenses, and cross-licenses.
"PURCHASE DEBENTURE" means the Junior Subordinated Debenture
of Parent to be issued to the Company in the original principal
amount of $4,000,000 pursuant to Section 1.3(b), substantially in
the form of Exhibit A-1.
"PURCHASER" means Brazos Sportswear, Inc., a Texas
corporation.
"REAL PROPERTY" means all interests in real property,
including (without limitation) fee simple title, leasehold, license
and any rights in and to any easements, rights-of-way or other
similar rights and interests.
"REAL PROPERTY SUBLEASES" means all leases under which the
Company subleases any of the Leased Real Property to any other
Person.
"RELEASE" has the meaning set forth in CERCLA.
"REQUIRED CONSENTS" means those consents described in Section
5.4.
"RETAINED ASSETS" means the assets and properties to be
retained by the Company pursuant to Section 1.2.
"ROLLING DEBENTURE" means Parent's Junior Subordinated
Debenture issued to the Company pursuant to Section 1.3(c),
substantially in the form of Exhibit A-2 hereto.
"SECURITIES" means, collectively, the Debentures and the
Warrants.
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"SHAREHOLDERS" means Alan Elenson and Joann Elenson.
"TAXES" means all federal, state, local or foreign taxes,
including income taxes, estimated taxes, excise taxes, sales taxes,
use taxes, gross receipts taxes, franchise taxes, employment and
payroll related taxes, property taxes and import duties, whether or
not measured by income, and all deficiencies, additions to tax,
interest and penalties in connection with such tax.
"WARRANTS" means, collectively, the Effective Date Warrant and
all Additional Warrants which may be issued pursuant to Section
12.4.
14. MISCELLANEOUS.
14.1 EXPENSES. The parties shall each pay its or his own
legal, accounting and other expenses in connection with the
negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated herein. All
commissions, finder's fees and other sums due CoView Capital, Inc.
in connection with the transactions hereunder shall be paid by the
Company on the Shareholders, and the same shall not be the
responsibility of the Purchaser. In no event shall any such fees or
expenses be included within the Assumed Liabilities under Section
1.4.
14.2 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been given on the date personally delivered or mailed, first
class, registered or certified mail, postage prepaid, or when sent
by telex or the telecopy and receipt is confirmed, as follows:
(i) if to the Company or either Shareholder, to:
Plymouth Mills, Inc.
330 Tompkins Avenue
Staten Island, New York 10304
Attention: Mr. Alan Elenson
with a copy to:
Parker Chapin Flauttau & Klimpl, L.L.P.
1211 Avenue of the Americas
New York, New York 10036
Attention: Mr. Jordan A. Horvath
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<PAGE>
(ii) if to the Purchaser, to:
Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227
Attention: President
with a copy to:
Snell & Smith, A Professional Corporation
1000 Louisiana, Suite 3650
Houston, Texas 77002
Attention: Mr. W. Christopher Schaeper
or to such other address as shall be given in writing by any party
to the other parties hereto.
14.3 ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties,
provided, however, that following the Closing the Purchaser may
assign its rights hereunder without the consent of the Company or
either Shareholder to a successor-in-interest to the Purchaser
(whether by merger, sale of assets or otherwise). Nothing in this
Agreement, express or implied, is intended to confer upon any
person, other than the parties to this Agreement and their
respective heirs, successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
14.4 SUCCESSORS BOUND. Subject to the provisions of Section
14.3, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns,
heirs and personal representatives.
14.5 SECTION AND PARAGRAPH HEADINGS. The section and paragraph
headings in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
14.6 BULK SALES LAWS. The transactions contemplated by this
Agreement shall be consummated without compliance with the bulk
sales laws of any state. If by reason of any applicable bulk sales
law any claims are asserted by creditors of the Company, such claims
shall be the responsibility of the Purchaser in the case of claims
arising under any of the Assumed Liabilities, or the responsibility
of the Company in the case of claims arising under any other
liabilities of the Company.
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14.7 SHAREHOLDER CONSENT. The Shareholders, by their execution
hereof, hereby give their consent to the sale and transfer of the
Assets to the Purchaser, in accordance with Chapter 302A, Section
202 of the New York Business Corporation Law.
14.8 AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by both parties hereto.
14.9 ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and other documents referred to herein
constitute the entire agreement of the parties hereto, and supersede
all prior understandings with respect to the subject matter hereof
and thereof (including, without limitation, the letter of intent
among the Purchaser, the Shareholders and the Company dated March
21, 1996).
14.10 GOVERNING LAW. This Agreement shall be construed and
enforced under and in accordance with and governed by the law of the
State of New York.
14.11 CONSTRUCTION. As the context requires or permits:
pronouns used herein shall include the masculine, the feminine and
neuter; terms used in plural shall include the singular, and
singular terms shall include the plural; "hereof", "herein",
"hereunder" and "hereto" shall refer to this Agreement; and section
and paragraph references, when not expressly referring to another
agreement or document, shall mean sections or paragraphs in this
Agreement.
14.12 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered
as of the date first above written.
THE PURCHASER:
BRAZOS SPORTSWEAR, INC.
By: _______________________________
RANDALL B. HALE, President
THE COMPANY:
PLYMOUTH MILLS, INC.
By: _______________________________
JOANN ELENSON, President
THE SHAREHOLDERS:
___________________________________
ALAN ELENSON
___________________________________
JOANN ELENSON
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EXHIBIT DESCRIPTION
- ------- -----------
A-1 Form of Purchase Debenture
A-2 Form of Rolling Debenture
A-3 Form of Earnout Debenture
A-4 Guaranty
B Form of Warrant
C Lease Agreement
D Non-Competition Agreement
E-1 Employment Agreement (Alan Elenson)
E-2 Employment Agreement (Joann Elenson)
F Opinion of Counsel for the Company and the Shareholders
G Opinion of Counsel for the Purchaser
SCHEDULE DESCRIPTION
- -------- -----------
1.2(ii) Retained Assets
3.5 Permitted Liens
3.6 Real Property
3.7 Changes
3.9 Doubtful Accounts
3.12 Product Licenses
3.13 Contracts
3.14 Intangible Rights
3.15 Insurance
3.16 Licenses, Permits
3.17 Litigation
3.19 Environmental Matters
3.20 Employees
3.21 Employee Benefit Plans
3.22 Customer and Suppliers
3.23 Affiliated Party Transactions
3.26 Consents
4.4 Parent Capitalization
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EXHIBIT 10.12
BSI HOLDINGS, INC.
Junior Subordinated Debenture
$4,000,000.00 August 2, 1996
FOR VALUE RECEIVED, the undersigned, BSI HOLDINGS, INC., a Delaware
corporation (the "Company"), hereby promises to pay to the order of PLYMOUTH
MILLS, INC., a New York corporation (together with any and all other holders of
this Debenture, the "Holder"), at the address of the Holder designated pursuant
to Paragraph 8 hereof, on or before December 31, 2003, the principal sum of FOUR
MILLION AND NO/100 DOLLARS ($4,000,000.00), together with interest thereon, in
cash or currency of the United States of America which at the time of payment is
legal tender for the payment of public and private debts, in installments, all
as is hereinafter provided.
1. INTEREST AND PRINCIPAL PAYMENTS. The unpaid principal amount of
this Debenture shall bear interest from the date hereof at a fixed rate per
annum prior to maturity equal to the lesser of seven and three-quarters percent
(7.75%), or the maximum rate permitted under applicable law. Accrued and unpaid
interest on the principal portion of this Debenture shall be payable quarterly,
on or before the last day of each September, December, March and June while this
Debenture is outstanding. The entire principal amount of this Debenture is
payable on or before December 31, 2003, subject to Paragraph 2 below.
All past due principal and interest on this Debenture shall bear
interest from and after maturity until paid at a fixed rate per annum equal to
the lesser of eighteen percent (18%) or the highest rate permitted by applicable
law.
2. PREPAYMENTS.
(a) MANDATORY PREPAYMENTS. Subject to the subordination
provisions of Paragraph 3, if while this Debenture remains
outstanding there occurs either a Sale (as hereafter defined)
or an Initial Public Offering (as hereafter defined), then the
entire outstanding principal amount of and interest on this
Debenture shall immediately become due and payable. For
purposes hereof:
"Sale" shall mean a single transactions or a series of related
transactions having the effect of (i) the sale of all or
substantially all of the assets, rights and properties of the
Company, (ii) the merger or consolidation of the Company with or
into another
Page 1 of a 10 Page Note
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corporation or other business entity, or (iii) the sale of all or
substantially all of the issued and outstanding voting securities of
the Company, in any such case to one or more persons unaffiliated
with the Company and those persons who are shareholders on the date
of issuance of this Debenture.
"Initial Public Offering" shall mean an underwritten public
offering of the Company's Common Stock pursuant to a registration
statement filed under the Securities Act of 1933, as amended (other
than any registration statement relating to warrants, options or
shares of capital stock of the Company granted or to be granted or
sold primarily to employees, directors, or officers of the Company,
a registration statement filed pursuant to Rule 145 under the
Securities Act or any successor rule, a registration statement
relating to employee benefit plans or interests therein, or any
registration statement covering securities issued in connection with
any debt financing of the Company).
(b) OPTIONAL PREPAYMENTS. Subject to the subordination provisions of
Paragraph 3 below, this Debenture may be prepaid prior to maturity, at the
option of the Company, as a whole at any time or in part from time to
time, without premium or penalty. Prepayments shall be applied first to
payment of all accrued and unpaid interest on the unpaid principal of this
Debenture and then to installments of principal in inverse order of
maturity.
3. SUBORDINATION.
(a) SUBORDINATION IN GENERAL. Notwithstanding anything in this
Debenture to the contrary, the payment of all indebtedness evidenced by
this Debenture is subordinated to all Senior Indebtedness (as hereinafter
defined) of the Company, whether such Senior Indebtedness is outstanding
on the date hereof or is hereafter created, and all extensions, renewals
or refundings of such Senior Indebtedness, unless, by the terms of the
instrument creating or evidencing such Senior Indebtedness, it is
specifically provided that such Senior Indebtedness is not superior in
right of payment to the indebtedness evidenced by this Debenture. For
purposes of this Debenture, the term "Senior Indebtedness" shall mean and
include (i) indebtedness of the Company for money heretofore, now or
hereafter borrowed by the Company (or by any subsidiary of the Company and
guaranteed by the Company) from one or more banks, financial institutions
or other institutional lenders, together with all interest, charges,
expenses, fees, attorneys' fees, reimbursement obligations and other sums
chargeable in respect of such indebtedness arising under any loan, credit
or security document relating to such
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indebtedness; (ii) any modifications, renewals, extensions or refundings
of indebtedness of the kind described in the preceding clause (i); and
(iii) such other indebtedness of the Company as may be consented to in
writing by the Holder of this Debenture. Without limiting the generality
of the foregoing, the term "Senior Indebtedness" specifically includes (I)
all "Obligations" of Brazos Sportswear, Inc., a Texas corporation and
wholly owned subsidiary of the Company ("Brazos"), to Fleet Capital
Corporation, as Agent for itself and The First National Bank of Boston,
and their successors, assigns and participants, within the meaning of the
Second Amended and Restated Loan and Security Agreement dated as of August
__, 1996 among Brazos and such lenders, as such Agreement may thereafter
from time to time to amended, supplemented or restated (the "Fleet Loan
Agreement"), and (II) those certain Debentures of Brazos dated August __,
1996 payable to Allied Investment Corporation and Allied Investment
Corporation II in the original maximum principal amount of $3,500,000. The
foregoing description of "Senior Indebtedness" is not intended to alter or
affect the relative rights and priorities among the holders of the Senior
Indebtedness, as their interests may be in effect.
(b) SUBORDINATION UPON DISTRIBUTION OF ASSETS. Upon any distribution
of the assets of the Company in any dissolution, winding up, liquidation
or reorganization of the Company (whether in bankruptcy, insolvency or
receivership proceedings, or upon an assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of the
Company or otherwise), the holders of all Senior Indebtedness shall first
be entitled to receive payment in full, in accordance with the terms of
such Senior Indebtedness, of all Senior Indebtedness (including, without
limitation, any interest accruing after the commencement of any such
dissolution, winding up, liquidation or reorganization) before the Holder
of this Debenture is entitled to receive any payment upon the principal,
interest or any other amount owing under this Debenture; and, upon any
such dissolution, winding up, liquidation or reorganization, any payment
or distribution of assets of the Company of any kind or character, whether
in cash, property or securities (other than shares of stock of the Company
as reorganized or adjusted or readjusted or securities of the Company or
any other corporation provided for by its plan of reorganization or
readjustment, the payment of which is subordinate to the payment of all
Senior Indebtedness that may at the time be outstanding and which are
provided for by a plan of reorganization or readjustment that does not
alter the rights of the holders of Senior Indebtedness at the time
outstanding and under which such other corporation, if any, assumes all
Senior Indebtedness at the time outstanding), to which the Holder of this
Debenture would be entitled except for the provisions of this paragraph
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(b) shall be made by the liquidating trustee or agent or other persons
making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the holders of
Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which such instruments
evidencing any of such Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness held or represented by each, to the extent necessary
to pay in full all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.
(c) MATURITY OF OTHER INDEBTEDNESS. Upon the maturity of any Senior
Indebtedness by lapse of time, acceleration or otherwise, all Senior
Indebtedness shall first be paid in full before any payment on account of
any amount owing under this Debenture is made.
(d) DEFAULT ON SENIOR INDEBTEDNESS. Upon a default in the payment of
any portion of any Senior Indebtedness, or any other event or condition
which constitutes a default or event of default within the meaning of any
instrument evidencing or relating to any Senior Indebtedness (including,
without limitation, the Fleet Loan Agreement), no amount shall be paid by
the Company, and the Holder of this Debenture shall not be entitled to
receive, any amount owing under this Debenture unless and until such
default shall have been remedied or waived.
(e) STANDSTILL: LIMITATION ON REMEDIES. Notwithstanding any other
provision of this Debenture, for so long as any Senior Indebtedness is
outstanding, the Holder of this Debenture shall not (x) accelerate all or
any portion of the indebtedness represented by this Debenture, unless the
maturity of the Senior Indebtedness shall then have been accelerated in
accordance with its terms, (y) bring, or join with any other person in
bringing, any proceeding in dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or
receivership proceedings, or upon an assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of the
Company or otherwise), or (z) institute any action, suit or proceeding in
the enforcement or collection of any amount owing under this Debenture.
(f) IMPROPER DISTRIBUTIONS. Notwithstanding any other provision of
this Debenture if any payment or distribution of assets of the Company of
any kind or character, whether in cash or property, shall be received by a
Holder of this Debenture before all Senior Indebtedness is paid in full,
and
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such payment is made in violation, or made with the proceeds of any
distribution made in violation, of any instrument evidencing the Senior
Indebtedness (including, without limitation, the Fleet Loan Agreement) or
is otherwise prohibited by the provisions of this Paragraph 3, then such
payment or distribution shall be paid over to the holders of such Senior
Indebtedness or their representative or representatives or to the trustee
in any such proceeding under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably
among the holders of the Senior Indebtedness, for application to the
payment of all Senior Indebtedness remaining unpaid until all of such
Senior Indebtedness shall have been paid in full, after giving effect to
the concurrent payment or distribution (or provision therefor), if any, to
the holders of any of such Senior Indebtedness. Notwithstanding the
foregoing, the Holder shall not be required to pay over under this
subparagraph (f) any such payments that are received by the Holder more
than 90 days prior to receipt by the Holder of written notice from any
holder of Senior Indebtedness certifying as to the existence of any event
or condition at the time such payment was received which would have
prevented such payment pursuant to the subordination provisions contained
in this Paragraph 3.
(g) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness, the Holder of this Debenture shall be subrogated to the
rights of the holders of all Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior
Indebtedness until this Debenture shall be paid in full and none of the
payments or distributions to holders of the Senior Indebtedness to which
the Holder of this Debenture would be entitled except for the provisions
of the foregoing paragraphs (b) through (f) of this Debenture shall, as
between the Company, its creditors, and the Holder of this Debenture, be
deemed to be a payment by the Company to, or on account of, Senior
Indebtedness of the Company; it being understood that the subordination
provisions of this Debenture are and are intended solely for the purpose
of defining the relative rights of the Holder of this Debenture, on the
one hand, and the holders of the Senior Indebtedness on the other hand,
and nothing contained in this Debenture is intended to or shall impair, as
between the Company, its creditors, and the Holder of this Debenture, the
obligation of the Company, which is unconditional and absolute, to pay to
the Holder of this Debenture all amounts owing under this Debenture as and
when the same shall become due and payable in accordance with its terms,
or to affect the relative rights of the Holder of this Debenture and
creditors of the Company other than holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Holder of this Debenture from
exercising all remedies otherwise permitted by applicable law
Page 5 of a 10 Page Note
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upon default hereunder, subject to the rights, if any, under the
subordination provisions of this Debenture, of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company
received on the exercise of any such remedy.
(h) RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS. The Holder of this
Debenture agrees that each holder of Senior Indebtedness, whether
outstanding at the date of this Debenture or incurred hereafter, shall
have purchased or accepted or will purchase or accept such Senior
Indebtedness in reliance upon the subordination provisions contained in
this Debenture. Without limiting the generality of the foregoing, the
Holder agrees to execute and deliver in favor of the holders of the Senior
Indebtedness any such further instruments of subordination as may be
reasonably requested of it in order to further evidence and carry out the
subordination provisions hereof.
4. COVENANTS OF THE COMPANY. For so long as this Debenture is
outstanding, the Company agrees with the Holder that it will comply with the
following covenants, unless the Holder otherwise agrees in writing:
(a) FINANCIAL STATEMENTS. The Company shall furnish the Holder with
the following financial statements, all prepared in accordance with
generally accepted accounting principles consistently applied (except to
the extent of any changes in accounting principles with which the
Company's outside public accountants concur, and except, in the case of
unaudited financial statements, for the absence of footnotes and normal
year-end adjustments):
(i) Within 120 days following the end of each fiscal year of
the Company, the audited balance sheet of the Company as of the last
day of such fiscal year and its audited statements of income,
stockholders' equity and cash flows for such fiscal year, together
with the unqualified (except for qualifications as to changes in
accounting principles permitted as described above) audit report
thereon by the Company's outside public accounting firm; and
(ii) Within 30 days after the end of each month, the unaudited
(interim) balance sheet of the Company as of the end of such month
and the related unaudited statements of income and cash flows for
such month, together with a certificate of the Company's chief
financial officer that such financial statements have been prepared
in accordance with the books and records of the Company and fairly
present the Company's financial position and results of operations
in accordance with
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generally accepted accounting principles consistently applied,
subject to the exceptions noted above.
(b) DIVIDENDS. The Company shall not (i) declare or pay any dividend
or other distribution on any shares of its capital stock (other than
dividends payable solely in shares of its capital stock), (ii) purchase or
redeem any of its shares of capital stock, other than purchases approved
by the Company's Board of Directors at prices no greater than fair market
value in accordance with written buy/sell agreements from shareholders of
the Company who acquired such shares in connection with their full-time
employment with the Company, or (iii) pay any salaries, bonuses or other
cash distributions to Equus II Incorporated or its principals, except for
annual board fees in an amount not to exceed $100,000 in the aggregate.
(c) BOARD RIGHTS. The Company shall use its best efforts to cause to
be elected to one position on its Board of Directors, at all times desired
by the Holder until this Debenture is no longer outstanding, of either
(but not both) of Alan or Joann Elenson, whomever shall be designated by
the Holder to the Company. When this Debenture and the other Debentures
(as defined in the Asset Purchase Agreement referred to in Paragraph 7
below) have been paid in full, such Board member shall, if requested by
the Company, resign from his or her position as such. In addition to the
foregoing, whomever of Mr. or Ms. Elenson shall not be so elected to the
Board shall have the right to attend regular and special meetings of the
Board of Directors, but without any voting rights. The Holder shall also
have the right to receive copies of all minutes of such meetings and also
of any written consents of resolutions adopted by the Company's board of
directors without a meeting. The Holder shall (and shall cause Mr. and Ms.
Elenson to) maintain the absolute confidentiality of all information
acquired by them as a result of attending meetings of the Board of
Directors or receiving information in connection therewith. The foregoing
rights shall be exclusive to Mr. and Ms. Elenson (whether as Holders
hereunder or as representatives of Plymouth Mills, Inc.) and may not be
exercised by any other Holder.
5. EVENTS OF DEFAULT. The occurrence or existence of any one of the
following events or conditions shall constitute an "Event of Default":
(i) any installment of the principal of, or interest on, this
Debenture shall not have been paid when the same shall have become due and
payable, and such default shall have continued for a period of five days;
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(ii) failure by the Company to perform, keep or observe any of its
covenants set forth in this Debenture, and the continuance of any such
failure for a period of 30 days following receipt by the Company of
written notice of such default from the Holder;
(iii) the Company makes an assignment for the benefit of creditors
or becomes insolvent or unable to pay its debts as they mature, or applies
to any tribunal for the appointment of a trustee or receiver of a
substantial part of the assets of the Company, or commences any
proceedings relating to the Company under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debts, dissolution or other
liquidation law of any jurisdiction; or any such application is filed, or
any such proceedings are commenced against the Company and the Company
indicates its consent to such proceedings, or an order is entered
appointing such trustee or receiver, or adjudicating the Company bankrupt
or insolvent, or approving the petition in any such proceedings, and such
order remains in effect for sixty (60) days; or
6. REMEDIES. Subject to the subordination provisions in Paragraph 3
of this Debenture, in case of an Event of Default, the Holder of this Debenture
may declare the entire unpaid principal of this Debenture, and all accrued
unpaid interest thereon, to be due and payable immediately, and upon any such
declaration the principal of this Debenture and such accrued unpaid interest
shall become and be immediately due and payable, and the Holder of this
Debenture may thereupon proceed to protect and enforce its rights either by suit
in equity or by action at law or by other appropriate proceedings, whether for
specific performance (to the extent permitted by law) of any covenant or
agreement contained herein or in aid of the exercise of any power granted
herein, or proceed to enforce the payment of this Debenture or to enforce any
other legal or equitable right of the Holder.
If an Event of Default shall occur or exist and this Debenture is
placed in the hands of an attorney for collection, or suit is filed herein, or
proceedings are had in bankruptcy, probate, receivership, reorganization or
other judicial proceedings for the establishment or collection of any amount
called for hereunder or any amount payable or to be payable hereunder is
collected through any such proceedings, the Company agrees to pay to the Holder
hereof a reasonable amount as costs, including attorney's or collection fees.
7. OFFSET. Payment of this Debenture is subject to a right of offset
in favor of the Company, pursuant to the Asset Purchase Agreement dated August
__, 1996 among Brazos, the Holder and Alan and Joann Elenson. This Debenture is
the "Purchase Debenture" referred to in such Asset Purchase Agreement. Reference
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to such Asset Purchase Agreement is made herein for all pertinent purposes.
8. NOTICES, MISCELLANEOUS. All notices, requests, consents and other
communications required or permitted under this Debenture shall be in writing
and shall be deemed to have been delivered on the date mailed, postage prepaid,
by certified mail, return receipt requested, or on the date personally
delivered:
(i) If to the initial Holder, to:
Plymouth Mills, Inc.
377 Ocean Terrace Drive
Staten Island, New York 10301
Attention: Mr. Alan Elenson
(ii) If to the Company, to:
BSI Holdings, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227-3487
Attention: Chief Executive Officer
(iii) If to any other Holder other than the original Holder,
to such address as shall appear on the record books of
the Company.
The Company or the Holder hereof may designate a different address
by notice given in accordance with the foregoing.
The Company and all sureties, endorsers and guarantors of this
Debenture waive demand, presentment for payment, notice of nonpayment, protest,
notice of protest, notice of intent to accelerate, all other notices, filing of
suit and diligence in collecting this Debenture or enforcing any security given
therefor, and agree to any substitution, exchange, or release of any security,
with or without consideration, now or hereafter given for this Debenture or the
release of any party primarily or secondarily liable hereon. The Company and all
sureties, endorsers or guarantors of this Debenture further agree that it will
not be necessary for the Holder hereof, in order to enforce payment of this
Debenture, to first institute or exhaust its remedies against any maker or any
other party liable therefor or to enforce its rights against any securities for
this Debenture.
The Company acknowledges that Plymouth Mills, Inc., as the initial
Holder of this Debenture, may (i) assign this Debenture to its shareholders,
Alan and Joann Elenson and (ii) assign up to a two and three-quarters percent
(2-3/4%) interest in this Debenture to CoView Capital, Inc. This Debenture is
not otherwise assignable to any other person (including by any such permitted
assignees) except (in the case of Mr. and Ms. Elenson) under the
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laws of descent and distribution. Upon any assignment of this Debenture, the
assignee shall take this Debenture subject to the subordination provisions in
Paragraph 3 of this Debenture.
THIS DEBENTURE HAS BEEN EXECUTED AND DELIVERED IN THE SATE OF NEW
YORK. THIS DEBENTURE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND APPLICABLE FEDERAL LAW.
The Company and the Holder (by its acceptance hereof) agree not to
amend, alter, supplement or change, without the prior written consent of the
Holders of the Senior Indebtedness, (i) any of the subordination provisions of
Paragraph 3 of this Debenture, or (ii) any other provision of this Debenture
which would increase the amount or rate of any principal interest or other sums
due hereunder or accelerate the time by which any such sums are payable.
IN WITNESS WHEREOF, the Company has authorized this Debenture to be
executed in its corporate name by a duly authorized officer effective as of the
2nd day of August, 1996.
BSI HOLDINGS, INC.
By:_________________________________
Randall B. Hale, President
Page 10 of a 10 Page Note
EXHIBIT 10.13
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is executed
as of this 9th day of August, 1996, by and among FLEET CAPITAL CORPORATION
("FLEET"), a Rhode Island corporation, successor-in-interest by merger to Fleet
Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a
Connecticut corporation, being formerly known as Shawmut Capital Corporation,
and being the successor-in-interest by assignment to Barclays Business Credit,
Inc., a Connecticut corporation), with an office at 2711 Haskell Avenue, Suite
2100, LB21, Dallas, Texas 75204, THE FIRST NATIONAL BANK OF BOSTON ("BOSTON"), a
national banking association, with an office at 100 Federal Street, Boston,
Massachusetts 02110 (Fleet and Boston are collectively referred to as "LENDERS"
or each individually a "LENDER"), FLEET, as Agent for Lenders (Fleet, in such
capacity, the "AGENT"), and BRAZOS SPORTSWEAR, INC. ("BORROWER"), a Texas
corporation, with its chief executive offices at 3860 Virginia Avenue,
Cincinnati, Ohio 45227.
A. Borrower and Fleet, as the sole Lender, entered into that certain
Loan and Security Agreement, dated as of May 6, 1992, as thereafter amended from
time to time, including, without limitation, as amended by (i) that certain
First Amendment Agreement, dated as of November 30, 1993, executed by Fleet and
Borrower (the "FIRST AMENDMENT Agreement"), (ii) that certain Second Amendment
to Loan and Security Agreement, dated as of June 20, 1994, executed by Borrower
and Fleet, and (iii) that certain Third Amendment to Loan and Security
Agreement, dated as of July 1, 1994, executed by Borrower and Fleet (as amended,
"ORIGINAL LOAN AGREEMENT").
B. Borrower and Fleet, as the sole Lender, amended, restated and
modified (but did not extinguish) the Original Loan Agreement by entering into
that certain Amended and Restated Loan and Security Agreement dated as of
November 10, 1994, as amended by (i) that certain First Amendment to Amended and
Restated Loan and Security Agreement, dated as of June 2, 1995, (ii) that
certain Second Amendment to Amended and Restated Loan and Security Agreement,
dated as of January 11, 1996, (iii) that certain Third Amendment to Amended and
Restated Loan and Security Agreement, dated as of April 22, 1996 and (iv) that
certain Fourth Amendment to Amended and Restated Loan and Security Agreement,
dated as of May 2, 1996 (as amended, "RESTATED LOAN AGREEMENT").
C. Borrower has requested that Fleet (i) increase the revolving credit
facility to $53,000,000, (ii) increase the term loan facility to $12,000,000 and
(iii) extend its relationship with the Borrower, and Fleet is willing to do so
upon the terms and conditions set forth herein.
D. In connection with the increase and extension of the relationship
between the Borrower and Fleet and the formation of the relationship between the
Borrower and Boston, the parties hereto wish to completely amend, restate and
modify (but not extinguish) the Restated
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Loan Agreement through the execution of this Agreement, which will supersede all
prior agreements among the parties hereto.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
SECTION 1. GENERAL DEFINITIONS
1.1. DEFINED TERMS. When used herein, the following terms shall have the
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa):
ACCOUNT DEBTOR - any Person who is or may become obligated under or on
account of an Account.
ACCOUNTS - all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquires any interest.
ACQUISITION - the acquisition by Borrower of the assets of the Seller
pursuant to the provisions of the Asset Purchase Agreement.
ADJUSTED NET EARNINGS FROM OPERATIONS - with respect to any fiscal
period, means the net earnings (or loss) after provision for income taxes for
such fiscal period of Borrower, all as reflected on the financial statement of
Borrower supplied to Agent and Lenders pursuant to SECTION 9.1(J) hereof, but
excluding:
(a) any gain or loss arising from the sale of capital assets;
(b) any gain arising from any write-up of assets;
(c) earnings of any Subsidiary accrued prior to the date it
became a Subsidiary;
(d) earnings of any corporation, substantially all the assets of
which have been acquired in any manner by Borrower, realized by such corporation
prior to the date of such acquisition;
(e) net earnings of any business entity (other than a Subsidiary)
in which Borrower has an ownership interest unless such net earnings shall have
actually been received by Borrower in the form of cash distributions;
(f) any portion of the net earnings of any Subsidiary which, at
the time of determination, the Subsidiary is prohibited (by contract or charter)
from paying as dividends to Borrower;
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(g) the earnings of any Person to which any assets of Borrower
shall have been sold, transferred or disposed of, or into which Borrower shall
have merged, or been a party to any consolidation or other form of
reorganization, prior to the date of such transaction;
(h) any gain or loss arising from the acquisition of any
Securities of Borrower; and
(i) any gain or loss arising from extraordinary or non-recurring
items.
ADJUSTED NET WORTH - for Borrower at any date means a sum equal to:
(a) the total shareholder's equity (including capital stock,
additional paid-in capital and retained earnings after deducting treasury stock)
which would be shown on a balance sheet of Borrower at such date in accordance
with GAAP;
PLUS
(b) without duplication, the aggregate amount of the Designated
Preferred Stock which would be shown on a balance sheet of Borrower at such date
in accordance with GAAP;
MINUS
(c) the aggregate book value of Intangible Assets which would be
shown on such balance sheet of Borrower at such date in accordance with GAAP;
PLUS
(d) Borrower Subordinated Debt at such date.
ADVANCE - the disbursement by a Lender (or by Agent on behalf of
Lenders) of a Loan to Borrower pursuant to this Agreement.
AFFILIATE - a Person (other than a Subsidiary): (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, Borrower; (b) which beneficially owns or holds 10%
or more of any class of the Voting Stock of Borrower; or (c)10% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 10% or more
of the equity interest) of which is beneficially owned or held by Borrower or a
Subsidiary of Borrower. For purposes hereof, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of Voting
Stock, by contract or otherwise.
AGENT - as defined in the preamble of this Agreement, and any successor
Agent appointed pursuant to the terms of this Agreement.
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AGREEMENT - this Second Amended and Restated Loan and Security
Agreement, including all Exhibits hereto, as the same may be modified,
supplemented, extended, amended, or restated from time to time.
APPLICABLE ANNUAL RATE - as defined in SECTION 3.1(A) of this Agreement.
ASSET PURCHASE AGREEMENT - Asset Purchase Agreement executed as of
August 2 1996, by and among Borrower, Seller, and the Seller Shareholders.
AVERAGE DAILY LOAN BALANCE - for any relevant period of time, the amount
obtained by adding the unpaid balance of the Loans owing by Borrower to Lenders
at the end of each day for each day during the time period in question and by
dividing such sum by the number of days in such time period.
AVERAGE MONTHLY LOAN BALANCE - the amount obtained by adding the unpaid
balance of Loans owing by Borrower to Lenders at the end of each day for each
day during the month in question and by dividing such sum by the number of days
in such month.
BANK - Fleet National Bank and its successors and assigns.
BASE RATE - the rate of interest announced or quoted by Bank from time
to time as its prime rate for commercial loans, whether or not such rate is the
lowest rate charged by Bank to its most preferred borrowers; and, if the prime
rate for commercial loans is discontinued by Bank as a standard, a comparable
reference rate designated by Bank as a substitute therefor shall be the Base
Rate.
BASE RATE LOANS - all Base Rate Term Loans and Base Rate Revolving
Credit Loans.
BASE RATE REVOLVING CREDIT LOANS - all Revolving Credit Loans other than
Eurodollar Revolving Credit Loans.
BASE RATE TERM LOANS - any portion of the Term Loan which bears interest
at a rate based on the Base Rate in accordance with SECTION 2 hereof.
BORROWER SUBORDINATED DEBT - Indebtedness of Borrower that is expressly
subordinated to the Obligations upon terms satisfactory to Lenders, including,
without limitation, (i) the Indebtedness of Borrower described on EXHIBIT O
attached hereto and (ii) the Earnout Cash Payment.
BORROWING - the combined Advances made to Borrower on a single date.
BORROWING BASE - as at any date of determination thereof, an amount
equal to the lesser of:
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(a) (i) the Revolving Credit Commitment; MINUS (ii) 100% of the
face amount of all standby Letters of Credit issued by Agent or covered by the
provisions of an LC Risk Participation Agreement which are outstanding at such
date; MINUS (iii) 45% of the face amount of all documentary Letters of Credit
issued by Agent or covered by the provisions of an LC Risk Participation
Agreement which are outstanding at such date; MINUS (iv) any reserves for
accrued and unpaid royalty payments established by Agent and/or Lenders from
time to time pursuant to SECTION 2.1(A) (based on the amount of such accrued and
unpaid royalty payments which are shown on Borrower's financial statements);
MINUS (v) the Net Worth Adjustment Reserve; MINUS (vi) the Earnout Cash Payment
Reserve; or
(b) an amount equal to:
(i) (A) 85% (or such lesser percentage as Lenders may in
their discretion determine from time to time after the occurrence of a
Default) of the net amount of Eligible Accounts outstanding at such date
PLUS (B) the lesser of $500,000 or 85% (or such lesser percentage as
Lenders may in their discretion determine from time to time after the
occurrence of a Default) of the net amount of Eligible Dated Accounts
outstanding at such date;
PLUS
(ii) the lesser of (A) $25,000,000 or (B) the sum of: (1)
(x) the LESSER of (I) $8,000,000 or (II) 55% (or such lesser percentage
as Lenders may in their discretion determine from time to time after the
occurrence of a Default) of the value of Eligible Finished Goods
Inventory consisting of "printed" finished goods at such date PLUS (y)
55% (or such lesser percentage as Lenders may in their discretion
determine from time to time after the occurrence of a Default) of the
value of Eligible Inventory (other than Eligible Finished Goods
Inventory consisting of "printed" finished goods), plus (2) the Seasonal
Inventory Overadvance Amount.
MINUS
(subtract from the sum of clauses (i) and (ii) above)
(iii) the sum of: (a) 100% of the face amount of all
standby Letters of Credit issued by Agent or covered by the provisions
of an LC Risk Participation Agreement which are outstanding at such
date, (b) 45% of the face amount of all documentary Letters of Credit
issued by Agent or covered by the provisions of an LC Risk Participation
Agreement which are outstanding at such date (c) any reserves for
accrued and unpaid royalty payments established by Agent and/or Lenders
from time to time pursuant to SECTION 2.1(A) hereof and based on the
amount of such accrued and unpaid royalty payments which are
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shown on Borrower's financial statements, (d) the Net Worth Adjustment
Reserve, and (e) the Earnout Cash Payment Reserve.
For purposes of CLAUSE (B)(I) above, the net amount of Eligible Accounts
or Eligible Dated Accounts, as the case may be, at any time shall be the face
amount of such Eligible Accounts or such Eligible Dated Accounts, as the case
may be, less any and all returns, rebates, discounts (which may, at Agent's
option, be calculated on shortest terms), credits, allowances or excise taxes of
any nature at any time issued, owing, claimed by Account Debtors, granted,
outstanding or payable in connection with such Accounts at such time.
For purposes of CLAUSE (B)(II) above and the definition of "Seasonal
Inventory Overadvance Amount," the value of Eligible Inventory on a date shall
be calculated on the basis of the lower of cost or market. Cost shall be
calculated on a first-in, first-out basis.
Without limiting Lenders' discretion to adjust advance rates from time
to time after the occurrence of a Default as provided above, Borrower
acknowledges that Lenders may from time to time before or after the occurrence
of a Default reduce the Inventory advance rate if Lenders determine that the
size mix of Borrower's finished goods has materially changed from the size mix
as of the Closing Date.
BOSTON - as defined in the preamble to this Agreement.
BUSINESS DAY - any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of Texas or is a day on which banking
institutions located in such state are closed; PROVIDED, HOWEVER, if any
determination of a "Business Day" shall relate to a Eurodollar Loan, the term
"Business Day" shall in addition exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
CAPITAL EXPENDITURES - expenditures made and liabilities incurred
(including the principal portion of Capitalized Lease Obligations, but excluding
capitalized interest) for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a useful life of
more than one year, including the direct or indirect acquisition of such assets
by way of increased product or service charges, offset items or otherwise.
CAPITALIZED LEASE OBLIGATION - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
CASH FLOW - for any period means for Borrower the amount calculated as
follows: (i) Adjusted Net Earnings from Operations during such period, PLUS (ii)
amortization and depreciation during such period to the extent the same were
deducted in calculating the Adjusted Net Earnings from Operations during such
period; MINUS (iii) Unfinanced Capital Expenditures during such period, MINUS
(iv) any and all scheduled principal payments, mandatory principal payments
actually paid pursuant to SECTION 2.2(D)(II) hereof, and voluntary principal
actually
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paid, on Borrower's long-term Indebtedness during such period, including,
without limitation, payments on the current maturities thereof, but in no event
to include principal payments on the Revolving Credit Loans (unless such
payments are made pursuant to acceleration or termination of the Revolving
Credit Loans); MINUS (v) the aggregate amount of any Distributions paid to
Holdings during such period which are permitted pursuant to SECTION 9.2(J)
hereof (other than Distributions made pursuant to SECTION 9.2(J)(I) hereof to
the extent such amounts are already reflected as a tax expense of Borrower, in
the calculation of Borrower's Adjusted Net Earnings From Operations) hereof.
CHANGE IN CONTROL - the first date that those Persons who on the date of
this Agreement hold all of the outstanding voting Securities of the Borrower
(including options, warrants and other Securities convertible into or
exchangeable with such voting Securities), together with their respective
Affiliates, hold less than fifty percent (50%) of the outstanding voting
Securities of the Borrower determined on a fully diluted basis (assuming full
conversion or exchange of all options, warrants, or other Securities which are
convertible into or exchangeable with such voting Securities).
CLOSING DATE - August 9, 1996.
CODE - the Uniform Commercial Code as adopted and in force in the State
of Texas, as from time to time in effect.
COLLATERAL - all of the Property and interests in Property described in
SECTION 4 hereof, and all other Property and interests in Property that now or
hereafter secure the payment and performance of any of the Obligations.
COMMITMENT - the obligation of each Lender to extend credit to Borrower
under this Agreement in an aggregate principal amount not to exceed such
Lender's Committed Sum.
COMMITTED SUM - with respect to each Lender, an amount equal to such
Lender's Total Commitment Percentage multiplied by the Total Commitment.
CONSOLIDATED - the consolidation in accordance with GAAP of the accounts
or other items as to which such term applies.
CURRENT ASSETS - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets on a
balance sheet at such date in accordance with GAAP, except that amounts due from
Affiliates and investments in Affiliates shall be excluded therefrom.
CURRENT LIABILITIES - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities on a balance sheet at such date in accordance with GAAP, excluding
the Loans, current maturities of any long-term indebtedness, and further
excluding any amounts due Affiliates.
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CURRENT RATIO - at any date means the ratio for Borrower of (i) Current
Assets, to (ii) the sum of Current Liabilities, PLUS (without duplication) the
outstanding principal balance of the Revolving Loans as at such date.
DEBENTURES - the Purchase Debenture, the Rolling Debenture and the
Earnout Debenture.
DEFAULT - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
DEFAULT RATE - as defined in SECTION 3.1(B) of this Agreement.
DESIGNATED PREFERRED STOCK - at any date (i) the 8% PIK preferred stock
of the Borrower issued on the Closing Date (the "INITIAL PREFERRED"), the rights
and designations of the Initial Preferred being described on EXHIBIT T attached
hereto, (ii) any preferred stock of the Borrower issued after the Closing Date
on terms no more favorable to the holders than the Initial Preferred and (iii)
any other preferred stock of the Borrower issued after the Closing Date, on
terms satisfactory to Lenders.
DISTRIBUTION - in respect of any corporation means and includes: (a) the
payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (b) the redemption or
acquisition of its capital stock (or any rights, warrants or options relating to
the acquisition of Borrower's capital stock) unless made contemporaneously from
the net proceeds of the sale of Securities.
DOMINION ACCOUNT - a special account of Lenders established by Borrower
pursuant to this Agreement at a bank selected by Borrower, but acceptable to
Agent, and over which Agent, for the benefit of Lenders, shall have sole and
exclusive access and control for withdrawal purposes.
EARNOUT AMOUNT - as defined in the Asset Purchase Agreement.
EARNOUT CASH PAYMENT - such amount, if any, payable by Borrower to
Seller pursuant to SECTION 1.3(D) of the Asset Purchase Agreement as the cash
portion of the Earnout Amount, which amount is to be equal to 50% of the Earnout
Amount.
EARNOUT CASH PAYMENT RESERVE - $1,000,000. Upon payment by Borrower to
Seller in cash of $1,000,000 of the Earnout Cash Payment pursuant to and in
compliance with the Subordination Agreement among Seller, Lenders and Agent
regarding the Earnout Cash Payment, there shall no longer be an Earnout Cash
Payment Reserve.
EARNOUT DEBENTURE - if issued pursuant to SECTION 1.3(D) of the Asset
Purchase Agreement, the Junior Subordinated Debenture of Holdings to Seller,
dated September 30, 1996, to be in the amount equal to 50% of the Earnout
Amount.
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ELIGIBLE ACCOUNT - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services which Agent,
in its credit judgment, deems to be an Eligible Account. Without limiting the
generality of the foregoing, no Account shall be an Eligible Account if: (a) it
arises out of a sale made by Borrower to a Subsidiary or an Affiliate of
Borrower or to a Person controlled by an Affiliate of Borrower; or (b) it is
unpaid for more than 60 days after the original due date shown on the invoice;
or (c) it is due or unpaid more than 90 days after the original invoice date; or
(d) 20% or more of the Accounts from the Account Debtor are not deemed Eligible
Accounts or Eligible Dated Accounts hereunder; or (e) any covenant,
representation or warranty contained in this Agreement with respect to such
Account has been breached; or (f) the Account Debtor is also Borrower's creditor
or supplier, or has disputed liability with respect to such Account, or has made
any claim with respect to any other Account due from such Account Debtor to
Borrower, or the Account otherwise is subject to any right of setoff by the
Account Debtor, to the extent of any offset, dispute or claim; or (g) the
Account Debtor has commenced a voluntary case under the federal bankruptcy laws,
as now constituted or hereafter amended, or made an assignment for the benefit
of creditors, or a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an involuntary
case under the federal bankruptcy laws, as now constituted or hereafter amended,
or any other petition or other application for relief under the federal
bankruptcy laws has been filed against the Account Debtor, or if the Account
Debtor has failed, suspended business, ceased to be Solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed for it or
for all or a significant portion of its assets or affairs; or (h) it arises from
a sale to an Account Debtor outside the United States, unless a documentary
Letter of Credit has been issued with respect to such Account, by an issuer and
in form and substance satisfactory to Lenders, or the Lenders otherwise approve
such Account; or (i) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or
any other repurchase or return basis; or (j) Agent in good faith believes that
collection of such Account is insecure or that payment thereof is doubtful or
will be delayed by reason of the Account Debtor's financial condition; or (k)
the Account Debtor is the United States of America or any department, agency or
instrumentality thereof, unless Borrower assigns its right to payment of such
Account to Agent, on behalf of Lenders, in form and substance satisfactory to
Agent, so as to comply with the Assignment of Claims Act of 1940, as amended (31
U.S.C. Sub-Section 203 ET SEQ.); or (l) the Account Debtor is located in either
the state of New Jersey, the state of Minnesota, the state of Indiana, the state
of West Virginia or any other state requiring the filing of a Business Activity
Report or similar document in order for Borrower to bring suit or otherwise
enforce its remedies against such Account Debtor in the courts or through any
judicial process of such state, unless Borrower has qualified to do business as
a foreign corporation or has filed a Notice of Business Activities Report or
similar required report with the appropriate officials in those states for the
then current year; or (m) the Account is subject to a Lien other than a
Permitted Lien (which Permitted Lien, if so required by Lenders, has been
satisfactorily subordinated to Agent's Lien, for the benefit of Lenders, in such
Account pursuant to an intercreditor agreement or similar document acceptable in
form and substance to Lenders, in their sole discretion); or (n) the goods
giving rise to such Account have not been delivered to and accepted by the
Account Debtor or the services giving rise to such Account have not been
performed by Borrower and accepted by the Account Debtor or the Account
otherwise does not represent a final sale; or (o) the total unpaid Accounts of
the Account Debtor exceed a credit limit
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determined by Agent to the extent such Account exceeds such limit; or (p) the
Account is evidenced by chattel paper or an instrument of any kind, or has been
reduced to judgment; or (q) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or allowances which are
made in the ordinary course of business for prompt payment and which discounts
or allowances for prompt payment are reflected in the calculation of the face
value of each invoice related to such Account, to the extent of such deduction;
or (r) Borrower has made an agreement with the Account Debtor to extend the time
of payment thereof; or (s) the Account arises from a retail sale of goods to a
Person who is purchasing same primarily for personal, family or household
purposes or (t) the Account is an Eligible Dated Account; or (u) Lenders do not
have a perfected first priority Lien in the Account.
ELIGIBLE DATED ACCOUNTS - an Account arising in the ordinary course of
Borrower's business (i) as to which the relevant Account Debtor is given payment
terms of greater than sixty (60) days, but not greater than one hundred eighty
(180) days after the invoice date, (ii) which is not an Eligible Account because
it has been outstanding for more than ninety (90) days, and (iii) which Agent,
in its credit judgment, deems to be an Eligible Dated Account. Without limiting
the generality of the foregoing, no such dated Account of Borrower shall be an
Eligible Dated Account if such Account (i) is described in any of the lettered
clauses of the definition of an 'Eligible Account' contained in this Agreement
(other than CLAUSES (B), (C), (D), and (T) of such definition), (ii) it is
unpaid for more than sixty (60) days after the original due date shown on the
invoice or more than one hundred eighty (180) days after the invoice date or
(iii) 20% or more of the dated Accounts from the Account Debtor are not deemed
Eligible Dated Accounts hereunder.
ELIGIBLE FINISHED GOODS INVENTORY - Eligible Inventory consisting of
"blank" or "printed" finished goods of Borrower's "Blank" division, Borrower's
"Printed" division or Borrower's "Plymouth" division, or finished goods of
Borrower's "Garment" division.
ELIGIBLE INVENTORY - such Inventory of Borrower (other than packaging
materials and supplies) which Agent, in its credit judgment, deems to be
Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory unless, in Agent's opinion, it (a) is (i)
cloth rolls, piece goods and other raw materials acceptable to Agent or (ii)
"blank" or "printed" finished goods of Borrower's "Blank" division, Borrower's
"Printed" division or Borrower's "Plymouth" division, or finished goods of
Borrower's "Garment" division, (b) work in process of Borrower (other than work
in process of Borrower's "Garment" division), (c) is in good, new and saleable
condition, (d) is not obsolete or unmerchantable, (e) meets all standards
imposed by any governmental agency or authority, (f) conforms in all respects to
the warranties and representations set forth in SECTION 6.1 hereof, (g) is at
all times subject to Agent's, for the benefit of Lenders, duly perfected, first
priority security interest and no other Lien except a Permitted Lien, (h) is
situated at a location in compliance with SECTION 4.4 hereof and is not
in-transit; PROVIDED, HOWEVER, in-transit inventory of Borrower shall be
included within Eligible Inventory so long as a documentary Letter of Credit has
been issued in connection with the purchase of such Inventory by Borrower, such
Inventory satisfies the other requirements herein and title thereto is in the
name of Borrower; PROVIDED, FURTHER, Inventory which is situated at the location
of a processor of such Inventory shall not be included within Eligible Inventory
unless such processor has entered into a written agreement with Agent, on behalf
of and for the benefit
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of Lenders, in form and substance satisfactory to Lenders, in their sole
discretion, providing, among other things, that such processor will not assert
any lien with respect to any Collateral for unpaid processing or storage
charges, and (i) is not consigned by a Person to Borrower or by Borrower to any
Person.
EMBROIDERY - Brazos Embroidery, Inc., a Pennsylvania corporation.
ENVIRONMENTAL LAWS - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
EQUIPMENT - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations and owned
by Borrower or in which Borrower has an interest, whether now owned or hereafter
acquired and wherever located, and all parts, accessories and special tools and
all increases and accessions thereto and substitutions and replacements
therefor.
EQUUS - Equus II Incorporated, a Delaware corporation.
ERISA - the Employee Retirement Income Security Act of 1974 and all
rules and regulations promulgated thereunder.
EURODOLLAR BASE RATE - with respect to a Eurodollar Loan for the
relevant Eurodollar Interest Period, a rate per annum equal to the quotient of
the following: (a) the rate at which deposits in U.S. dollars in immediately
available funds are offered by Bank to first-class banks in the London interbank
market at approximately 11:00 a.m. (London, England time) two (2) Business Days
prior to the first day of such Eurodollar Interest Period, in the approximate
amount of the Eurodollar Loan and having a maturity approximately equal to the
Eurodollar Interest Period divided by (b) the difference of 1.00 minus the
Eurodollar Reserve Requirement.
EURODOLLAR BORROWING NOTICE - as defined in SECTION 2.4(A) of this
Agreement.
EURODOLLAR INTEREST PERIOD - with respect to a Eurodollar Loan, a period
of one (1), two (2), three (3) or six (6) months commencing on a Business Day
selected by Borrower pursuant to this Agreement. Such Eurodollar Interest Period
shall end on (but exclude) the day which corresponds numerically to such date
one (1), two (2), three (3) or six (6) months thereafter, PROVIDED, HOWEVER,
that if there is no such numerically corresponding day in such first (1st),
second (2nd), third (3rd) or sixth (6th) succeeding month, such Eurodollar
Interest Period shall end on the last Business Day of such first (1st), second
(2nd), third (3rd) or sixth (6th) succeeding month. If a Eurodollar Interest
Period would otherwise end on a day which is not a Business Day, such Eurodollar
Interest Period shall end on the next succeeding Business Day; PROVIDED,
HOWEVER, that if said next succeeding Business Day falls in a new month, such
Eurodollar Interest Period shall end on the immediately preceding Business Day.
EURODOLLAR LOANS - all Eurodollar Revolving Credit Loans and all
Eurodollar Term Loans.
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EURODOLLAR RESERVE REQUIREMENT - on any day, means that percentage
(expressed as a decimal fraction) which is in effect on such day, as provided by
the Board of Governors of the Federal Reserve System (or any successor
governmental body) applied for determining the maximum reserve requirements
(including without limitation, basic, supplemental, marginal and emergency
reserves) under Regulation D with respect to "eurocurrency liabilities" as
currently defined in Regulation D, or under any similar or successor regulation
with respect to eurocurrency liabilities or eurocurrency funding. Each
determination by Agent of the Eurodollar Reserve Requirement shall, in the
absence of manifest error, be conclusive and binding.
EURODOLLAR REVOLVING CREDIT LOAN - a Revolving Credit Loan which bears
interest at a rate based on the Eurodollar Base Rate in accordance with SECTION
2 hereof.
EURODOLLAR TERM LOAN - any portion of the Term Loan which bears interest
at a rate based on the Eurodollar Base Rate in accordance with SECTION 2 hereof.
EVENT OF DEFAULT - as defined in SECTION 11.1 of this Agreement.
EXCESS - as defined in SECTION 3.1(D) of this Agreement.
EXCESS CASH FLOW - for any period means for Borrower the amount
calculated as follows: (i) Adjusted Net Earnings from Operations for such
period, PLUS (ii) amortization and depreciation for such period to the extent
the same were deducted in calculating the Adjusted Net Earnings from Operations
for such period, MINUS (iii) Unfinanced Capital Expenditures for such period,
MINUS (iv) scheduled principal payments with respect to Indebtedness (excluding
payments on the Revolving Credit Loans unless such payments are made pursuant to
acceleration or termination of the Revolving Credit Loans), MINUS (v) the
aggregate amount of any Distributions to Holdings which are permitted pursuant
to SECTION 9.2(J) hereof (other than Distributions made pursuant to SECTION
9.2(J)(I) hereof to the extent such amounts are already reflected as a tax
expense of Borrower, in the calculation of Borrower's Adjusted Net Earnings From
Operations), MINUS (vi) any portion of the Earnout Cash Payment paid during such
period to the extent such payment does not violate this Agreement or any
subordination agreement relating thereto.
EXISTING SENIOR SUBORDINATED NOTES - each of (i) that certain 12% Senior
Subordinated Promissory Note, in the original principal amount of $3,350,000,
executed on or about November 10, 1994, executed by Borrower, and payable to the
order of Equus, (ii) that certain 10% Senior Subordinated Promissory Note, in
the original principal amount of $178,500, executed by Borrower, and payable to
the order of Equus, (iii) that certain 12% Senior Subordinated Promissory Note,
in the original principal amount of $75,000, executed on or about November 10,
1994, executed by Borrower, and payable to the order of Michael S. Chadwick,
(iv) that certain 10% Senior Subordinated Promissory Note, in the original
principal amount of $29,750, executed by Borrower, and payable to the order of
Michael S. Chadwick, (v) that certain 12% Senior Subordinated Promissory Note,
in the original principal amount of $75,000, executed on or about November 10,
1994, executed by Borrower, and payable to the order of F. Clayton Chambers,
(vi) that certain 10% Senior Subordinated Promissory Note, in the original
principal
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amount of $29,750, executed by Borrower, and payable to the order of F. Clayton
Chambers, (vii) that certain 12% Senior Subordinated Promissory Note, in the
original principal amount of $234,392.50, executed by Borrower, and payable to
the order of S.T. McKnight, (viii) that certain 10% Senior Subordinated
Promissory Note, in the original principal amount of $29,750, executed by
Borrower, and payable to the order of S.T. McKnight, (ix) that certain 12%
Senior Subordinated Promissory Note, in the original principal amount of
$234,392.50, executed by Borrower, and payable to the order of George Warny, (x)
that certain 10% Senior Subordinated Promissory Note, in the original principal
amount of $29,750, executed by Borrower, and payable to the order of George
Warny and (xi) that certain 10% Senior Subordinated Promissory Note, in the
original principal amount of $190,000, executed by Borrower, and payable to the
order of Ford and Sandra Taylor.
EXISTING TERM LOAN A - the Loan described in SECTION 2.2(A) of this
Agreement.
EXISTING TERM LOAN B - the Loan described in SECTION 2.2(A) of this
Agreement.
EXISTING TERM LOAN C - the Loan described in SECTION 2.2(B) of this
Agreement.
EXISTING TERM NOTE A - that certain Amended and Restated Secured
Promissory Note, dated November 30, 1993, in the original principal amount of
$534,000.00, executed by Borrower, payable to the order of Fleet, as renewed,
extended, modified and restated from time to time.
EXISTING TERM NOTE B - that certain Secured Promissory Note B, dated
November 10, 1994, in the original principal amount of $568,900.00, executed by
Borrower, payable to the order of Fleet, as renewed, extended, modified, and
restated from time to time.
EXISTING TERM NOTE C - that certain Amended and Restated Secured
Promissory Note C, dated June 2, 1995, in the original principal amount of
$3,416,666.69, executed by Borrower, payable to the order of Fleet, as renewed,
extended, modified, and restated from time to time.
FIRST AMENDMENT AGREEMENT - as defined in the preamble of this
Agreement.
FIXED CHARGE RATIO - for any period means the ratio for Borrower of (i)
Adjusted Net Earnings from Operations for such period PLUS amortization expense
and depreciation expense for such period (to the extent deducted in calculating
Adjusted Net Earnings from Operations) PLUS Interest Expense for such period, to
(ii) Interest Expense for such period PLUS Unfinanced Capital Expenditures made
during such period, PLUS scheduled principal payments on Funded Indebtedness
during such period, PLUS Distributions paid during such period to Holdings
pursuant to the provisions of SECTION 9.2(J) of this Agreement (other than
Distributions made pursuant to SECTION 9.2(J)(I) hereof to the extent such
amounts are already reflected as a tax expense of Borrower, in the calculation
of Borrower's Adjusted Net Earnings From Operations).
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FLEET BANK RISK PARTICIPATION AGREEMENT - the LC Risk Participation
Agreement executed by and between Fleet and Bank on the Closing Date, a copy of
which is attached hereto as EXHIBIT S.
FUNDED INDEBTEDNESS - means Indebtedness for Money Borrowed of Borrower
having a final maturity (or which is renewable or extendible at the option of
Borrower for a period ending) more than one year after the date of creation
thereof.
GAAP - generally accepted accounting principles in the United States of
America in effect from time to time.
GENERAL INTANGIBLES - all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, deposit accounts, inventions, designs, patents, patent applications,
trademarks, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, tax refund claims, computer programs, all
claims under guaranties, security interests or other security held by or granted
to Borrower to secure payment of any of the Accounts by an Account Debtor, all
rights to indemnification and all other intangible property of every kind and
nature (other than Accounts).
GUARANTOR - Holdings and any other Person who may hereafter guarantee
payment of or performance of the whole or any part of the Obligations.
GUARANTY AGREEMENT - the Continuing Guaranty Agreement which is to be
executed on the Closing Date by Holdings, in favor of Agent, for the benefit of
Lenders, in form and substance satisfactory to Agent.
HOLDINGS - BSI Holdings, Inc., a Delaware corporation, the parent of
Borrower.
INDEBTEDNESS - as applied to a Person means, without duplication (a) all
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Indebtedness is to be determined, including, without
limitation, Capitalized Lease Obligations, (b) all obligations of other Persons
which such Person has guaranteed and (iii) in the case of Borrower (without
duplication), the portion of the Obligations which would be shown on the
liability side of a balance sheet of Borrower as at the date of determination.
INITIAL PUBLIC OFFERING - an underwritten public offering of the
Borrower's capital stock or rights, warrants or options to acquire any of
Borrower's capital stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended (other than any registration statement
relating to warrants, options or shares of capital stock of the Borrower granted
or to be granted or sold primarily to employees, directors, or statement filed
pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to employee benefit plans or interests therein,
or any registration statement covering securities issued in connection with any
debt financing of the Borrower).
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INTANGIBLE ASSETS - All assets of a Person which in accordance with GAAP
would be included as an intangible asset on a balance sheet of such Person.
INTEREST EXPENSE - means for any period, the interest charges paid or
accrued by a Person during such period (including imputed interest on
Capitalized Lease Obligations, but excluding amortization of debt discount and
expense) on Indebtedness.
INVENTORY - all of Borrower's inventory, whether now owned or hereafter
acquired and wherever located, including, but not limited to, all goods intended
for sale or lease by Borrower, or for display or demonstration; all work in
process; all raw materials and other materials and supplies of every nature and
description used or which might be used in connection with the manufacture,
printing, packing, shipping, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in Borrower's business; and all documents
evidencing and General Intangibles relating to any of the foregoing.
LC PAYMENT - as defined in SECTION 2.3(A) of this Agreement.
LC RISK PARTICIPATION AGREEMENT - an agreement, in form and substance
satisfactory to Lenders, executed by Agent with a Person who has issued one or
more Letters of Credit for the account of Borrower, pursuant to which Agent
agrees to purchase a one hundred percent (100%) participation in any payments
made by the issuing Person under such Letter(s) of Credit which are not
immediately reimbursed to such Person by Borrower, PROVIDED, HOWEVER, that if
the issuing Person is not Bank, such Letters of Credit must be standby Letters
of Credit.
LETTER OF CREDIT - a standby or documentary Letter of Credit, as the
case may be, at any time issued by Agent, Bank or another Person for the account
of Borrower.
LIEN - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and including, but not limited
to, the security interest, security title or lien arising from a security
agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes.
LOAN ACCOUNT - the loan account established on the books of Agent
pursuant to SECTION 2.8 hereof.
LOAN DOCUMENTS - this Agreement, the Other Agreements and the Security
Documents.
LOANS - all loans and advances made by Lenders pursuant to this
Agreement, including, without limitation, all Revolving Credit Loans and the
Term Loan.
MAXIMUM LEGAL RATE - as defined in SECTION 3.1(C) of this Agreement.
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MONEY BORROWED - as applied to Indebtedness, means (a) Indebtedness for
borrowed money; (b) Indebtedness, whether or not in any such case the same was
for borrowed money, (i) which is represented by notes payable or drafts accepted
that evidence extensions of credit, (ii) which constitutes obligations evidenced
by bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than accounts payable) or that was issued or
assumed as full or partial payment for Property; (c) Indebtedness that
constitutes a Capitalized Lease Obligation; and (d) Indebtedness under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (a) through (c) hereof.
MULTI-EMPLOYER PLAN - has the meaning set forth in SECTION 4001(A)(3) of
ERISA.
NET WORTH - the total shareholders' equity (including capital stock,
additional paid-in capital and retained earnings after deducting treasury stock)
which would be shown on a balance sheet of Borrower at such date in accordance
with GAAP, plus (without duplication) the aggregate amount of the Designated
Preferred Stock which would be shown on a balance sheet of Borrower at such date
in accordance with GAAP.
NET WORTH ADJUSTMENT RESERVE - the amount of the cash payment to be made
by Borrower to Seller pursuant to the provisions of SECTION 1.3(E) of the Asset
Purchase Agreement, the estimated amount of which as of the Closing Date is
$2,566,000; PROVIDED, HOWEVER, that upon determination of the actual amount of
such cash payment pursuant to the provisions of SECTION 1.3(E) of the Asset
Purchase Agreement, such actual amount shall become the amount of the Net Worth
Adjustment Reserve. Upon payment in full by Borrower of the cash payment
required by SECTION 1.3(E) of the Asset Purchase Agreement, there shall no
longer be a Net Worth Adjustment Reserve.
NOTES - the Revolving Credit Notes and the Term Notes executed by
Borrower and delivered pursuant to the terms of this Agreement, together with
any renewals, extensions or modifications thereof.
OBLIGATIONS - all Loans and all other advances, reimbursement
obligations under Letters of Credit, LC Payments, debts, liabilities,
obligations, covenants and duties arising under this Agreement or any of the
other Loan Documents owing, arising, due or payable from Borrower to Agent
and/or Lenders of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether direct or indirect
(including those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising and however
acquired. The term includes, without limitation, all interest, charges,
expenses, fees, attorneys' fees and any other sums chargeable to Borrower under
any of the Loan Documents.
ORIGINAL LOAN AGREEMENT - as defined in the preamble of this Agreement.
ORIGINAL TERM - as defined in SECTION 3.2 of this Agreement.
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OSHA - the Occupational Safety and Health Act and all rules and
regulations from time to time promulgated thereunder.
OTHER AGREEMENTS - any and all agreements, instruments, certificates,
and documents (other than this Agreement and the Security Documents),
heretofore, now or hereafter executed by Borrower or delivered to Agent and/or
Lenders in respect to the transactions contemplated by this Agreement,
including, without limitation, the Term Notes and the Revolving Credit Notes,
all as amended, renewed, modified, extended or restated from time to time.
OVERADVANCE - the amount, if any, by which the outstanding principal
amount of the Revolving Credit Loans exceeds the Borrowing Base.
PERMITTED INSURER - an insurance company rated AA+, AA or higher by
Standard and Poors Corporation and AA or higher by Moody's Investor Services,
Inc. and which is otherwise reasonably satisfactory to Agent.
PERMITTED LIENS - any Lien of a kind specified in CLAUSES (I) THROUGH
(X) of SECTION 9.2(H) of this Agreement.
PERMITTED PAYMENT - a regularly scheduled payment of principal and/or
interest due and payable in accordance with the terms of Borrower Subordinated
Debt as such terms are in effect as of the Closing Date, IF AND ONLY IF (i) no
Default or Event of Default would be caused thereby, (ii) such payment would not
violate the terms of this Agreement, and (iii) such payment would not violate
the terms of any subordination agreement executed in connection with such
Borrower Subordinated Debt. In no event shall the definition of "Permitted
Payment" include any prepayment of any Borrower Subordinated Debt.
PERSON - an individual, partnership, corporation, joint stock company,
land trust, business trust or unincorporated organization, or a government or
agency or political subdivision thereof.
PLAN - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
PROHIBITED TRANSACTION - any transaction set forth in SECTION 406 of
ERISA or SECTION 4975 of the Internal Revenue Code of 1986.
PROJECTIONS - Borrower's forecasted (a) balance sheets, (b) profit and
loss statements, (c) cash flow statements, and (d) capitalization statements,
all prepared on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
PROPERTY - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
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PURCHASE DEBENTURE - the $4,000,000 Junior Subordinated Debenture of
Holdings to Seller to be issued pursuant to SECTION 1.3(B) of the Asset Purchase
Agreement in connection with the purchase price payable to Seller in connection
with the Acquisition.
RENEWAL TERM - as defined in SECTION 3.2 of this Agreement.
RENTALS - as defined in SECTION 9.2(X) of this Agreement.
REPORTABLE EVENT - any of the events set forth in SECTION 4043(B) of
ERISA which is required to be reported to the PBGC.
RESTATED LOAN AGREEMENT - as defined in the preamble of this Agreement.
RESTRICTED INVESTMENT - any investment in cash or by delivery of
Property to any Person including without limitation, Embroidery and Holdings,
whether by acquisition of stock, Indebtedness or other obligation or Security,
or by loan, advance or capital contribution, or otherwise, or in any Property
except the following: (a) Property to be used in the ordinary course of
business; (b) Current Assets arising from the sale of goods and services in the
ordinary course of business of Borrower and its Subsidiaries; (c) investments in
direct obligations of the United States of America, or any agency thereof or
obligations guaranteed by the United States of America, provided that such
obligations mature within one year from the date of acquisition thereof; (d)
demand deposit accounts maintained in the ordinary course of business with
federally insured financial institutions; (e) investments in certificates of
deposit fully insured by the Federal Deposit Insurance Corporation maturing
within one year from the date of acquisition; and (f) investments in commercial
paper given the highest rating by a national credit rating agency and maturing
not more than 270 days from the date of creation thereof.
REVOLVING CREDIT AVAILABILITY - means, at any particular date, the
excess of the Borrowing Base over the amount of the Revolving Credit Loans then
outstanding.
REVOLVING CREDIT COMMITMENT - $53,000,000.00.
REVOLVING CREDIT LOAN - a Loan made by a Lender as provided in SECTION
2.1(A) of this Agreement.
REVOLVING CREDIT NOTES - the Revolving Credit Notes to be executed by
Borrower in favor of each Lender to evidence Borrower's indebtedness to such
Lender for its Revolving Credit Percentage, the Revolving Credit Note in favor
of Fleet to be in the form of EXHIBIT A-1 attached hereto, and the Revolving
Credit Note in favor of Boston to be in the form of EXHIBIT A-2 attached hereto
as the same may be amended, renewed, modified, extended or restated from time to
time.
REVOLVING CREDIT PERCENTAGE - as defined in SECTION 2.1(A) of this
Agreement.
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ROLLING DEBENTURE - the $3,000,000 Junior Subordinated Debenture of
Holdings to Seller to be issued pursuant to SECTION 1.3(C) of the Asset Purchase
Agreement in connection with the purchase price payable to Seller in connection
with the Acquisition.
SCHEDULE OF ACCOUNTS - as defined in SECTION 5.2 of this Agreement.
SEASONAL INVENTORY OVERADVANCE AMOUNT - during the period (BUT ONLY
DURING THE period) beginning April 1 and continuing through September 30 of each
year during the term of this Agreement, the lesser of (a) $4,500,000 or (b) 10%
(or such lesser percentage as Lenders may in their discretion determine from
time to time after the occurrence of a Default) of the value of Eligible
Inventory at such date. Beginning October 1 of each year and continuing through
March 31 of the following year, the Seasonal Inventory Overadvance Amount shall
be $0.00.
SECURITY - shall have the same meaning as in SECTION 2(1) of the
Securities Act of 1933, as amended.
SECURITY DOCUMENTS - the Trademark Security Agreement, the Guaranty
Agreement, the Stock Pledge Agreement, and all other instruments and agreements
now or at any time hereafter securing the whole or any part of the Obligations,
all as amended, renewed, modified, extended or restated from time to time.
SELLER - Plymouth Mills Inc., a New York corporation.
SELLER SHAREHOLDERS - Alan Elenson and Joann Elenson.
SELLER SHAREHOLDERS NON-COMPETE PAYMENTS - The payments to be made by
Borrower to the Seller Shareholders pursuant to the provisions of that certain
Non-Competition Agreement executed by Borrower and the Seller Shareholders in
connection with the Acquisition, as such provisions are in effect as of the
Closing Date.
SOLVENT - as to any Person, such Person (a) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (b) is able to pay all of its
Indebtedness as such Indebtedness matures and (c) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
STOCK PLEDGE AGREEMENT - the Stock Pledge Agreement which is to be
executed by Holdings on the Closing Date, in favor of Agent, for the benefit of
Lenders, in form and substance satisfactory to Lenders, pursuant to which
Holdings shall pledge all of its right, title and interest in and to the stock
of Borrower.
SUBSIDIARY - as to any Person, any corporation of which such Person
owns, directly or indirectly through one or more intermediaries, more than 50%
of the Voting Stock at the time of determination.
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TAX EXPENSE - means for any period, the tax expense paid or accrued by a
Person during such period.
TAX SHARING AGREEMENT - the Tax Sharing Agreement entered into by
Holdings, Borrower and Embroidery, provided that Lenders and Agent have been
supplied a copy of such Tax Sharing Agreement.
TERM LOAN - the Loan described in SECTION 2.2(D) of this Agreement,
which Loan is, in part, in renewal, extension, consolidation, restatement, and
modification, but not in extinguishment or novation, of Existing Term Loan A,
Existing Term Loan B, and Existing Term Loan C.
TERM LOAN PERCENTAGE - each Lender's percentage of the Term Loan, which
is such Lender's Total Commitment Percentage of the Term Loan.
TERM NOTES - those certain Secured Promissory Notes, to be executed by
Borrower, on or about the Closing Date, in favor of each Lender, to evidence
Borrower's Indebtedness to such Lender for its Term Loan Percentage, the Secured
Promissory Note in favor of Fleet to be in the form of EXHIBIT A-3 attached
hereto, and the Secured Promissory Note in favor of Boston to be in the form of
EXHIBIT A-4 attached hereto, as the same may be amended, renewed, extended,
modified or restated from time to time, the provisions of which Secured
Promissory Notes are in renewal, extension, modification, and restatement of and
in substitution for, the provisions of Existing Term Note A, Existing Term Note
B, and Existing Term Note C.
TOTAL COMMITMENT - $65,000,000.
TOTAL COMMITMENT PERCENTAGE - with respect to each Lender, the
percentage set forth opposite the signature of such Lender on the signature
pages hereof.
TRADEMARK SECURITY AGREEMENT - that certain Amended and Restated
Trademark Security Agreement, dated as of the Closing Date, executed by Borrower
in favor of Agent, for the benefit of Lenders, and as the same may be further
amended, modified, renewed and restated from time to time.
UNFINANCED CAPITAL EXPENDITURES - Capital Expenditures by Borrower to
the extent NOT financed pursuant to Funded Indebtedness of Borrower (other than
the Loans).
VOTING STOCK - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
1.2. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistent with that applied
in preparation of the financial statements referred to in SECTION 9.1(J), and
all financial data pursuant to the Agreement shall be prepared in accordance
with such principles.
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1.3. OTHER TERMS. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for by the Code to
the extent the same are used or defined therein.
1.4. CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of this Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements, including, without
limitation, references to any of the Loan Documents, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof.
SECTION 2. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, each Lender agrees to make a total credit facility of up to such
Lender's Total Commitment Percentage of the Total Commitment available upon
Borrower's request therefor, as follows:
2.1. REVOLVING CREDIT LOANS.
(A) Subject to all of the terms and conditions of this Agreement,
Lenders agree, for so long as no Default or Event of Default exists, to make
Revolving Credit Loans to Borrower from time to time, as requested by Borrower
in accordance with the terms of SECTION 2.3 hereof, up to a maximum principal
amount at any time outstanding equal to the Borrowing Base at such time, as
evidenced by the Revolving Credit Notes; PROVIDED, HOWEVER, that (i) no Lender
shall be obligated to make Advances in excess of such Lender's Total Commitment
Percentage of the Revolving Credit Commitment (the "REVOLVING CREDIT
PERCENTAGE") and (ii) each Borrowing shall be made ratably by all Lenders in
accordance with their respective Revolving Credit Percentages. It is expressly
understood and agreed that Agent may use the Borrowing Base as a maximum ceiling
on Revolving Credit Loans outstanding to Borrower at any time. If the unpaid
balance of the Revolving Credit Loans should exceed the Borrowing Base or any
other limitation set forth in this Agreement, such Revolving Credit Loans shall
nevertheless constitute Obligations that are secured by the Collateral and
entitled to all the benefits thereof. In no event shall Borrower be authorized
to request a Loan at any time that there exists a Default or an Event of
Default. Notwithstanding the foregoing provisions of this SECTION 2.1(A),
Borrower and Lenders agree that for so long as no Default or Event of Default
exists, Agent shall have the right to establish and/or eliminate reserves in
such amounts, and with respect to such matters, as Agent shall in good faith
deem necessary or appropriate, against the amount of Revolving Credit Loans
which Borrower may otherwise request under this SECTION 2.1(A), including,
without limitation, with respect to (i) price adjustments, damages, unearned
discounts, returned products or other matters for which credit memoranda are
issued in the ordinary course of Borrower's
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business; (ii) shrinkage, spoilage and obsolescence of Inventory; (iii) slow
moving Inventory; (iv) other sums chargeable against Borrower's Loan Account as
Revolving Credit Loans under any section of this Agreement; (v) tax liabilities
and (vi) such other matters, events, conditions or contingencies as to which
Agent, in its credit judgment, determines reserves should be established from
time to time hereunder. In addition to the foregoing, at any time, Lenders shall
have the right to establish and/or eliminate reserves against the amount of
Revolving Credit Loans for accrued and unpaid royalty payments based on the
amount of such accrued and unpaid payments which is shown on Borrower's
financial statements at such time. Upon the occurrence of a Default or Event of
Default, no reserves shall be eliminated by Agent without the consent of the
Lenders.
(B) The Revolving Credit Loans shall be used solely for the
purchase price and other costs and expenses related to consummation of the
Acquisition and for Borrower's general operating capital needs to the extent not
inconsistent with the provisions of this Agreement.
2.2. TERM LOAN.
(A) EXISTING TERM LOANS A AND B. Lenders and Borrower hereby
acknowledge that (i) on May 6, 1992, Fleet, as the sole Lender, made a $300,000
term loan to Borrower, (ii) as of the date of the First Amendment Agreement, the
unpaid principal balance of such term loan was $210,000.00 and (iii) on the date
of the First Amendment Agreement, Fleet, as the sole Lender, made an additional
term loan to Borrower in the amount of $324,000, such term loan and such
additional term loan being on the date of the First Amendment Agreement combined
into a single term loan of $534,000, ("EXISTING TERM LOAN A"), repayable in
accordance with the terms of the Existing Term Note A and secured by the
Collateral. Borrower and Lenders hereby acknowledge that on November 10, 1994,
Fleet, as the sole Lender, made an additional term loan to Borrower in the
principal amount of $568,900 ("EXISTING TERM LOAN B"), repayable in accordance
with the terms of Existing Term Note B and secured by the Collateral. Borrower
hereby acknowledges that on the Closing Date, the aggregate combined unpaid
principal balance of Existing Term Loan A and Existing Term Loan B is
$649,300.00, and that such amount is unconditionally owed by Borrower to Fleet,
as the sole Lender, without offset, defense or counterclaim of any kind, nature
or description whatsoever.
(B) EXISTING TERM LOAN C. Borrower and Lenders hereby acknowledge
that on or about November 10, 1994, Fleet, as the sole Lender, made a term loan
to Borrower in the principal amount of $3,000,000 ("ORIGINAL TERM LOAN C"), and
that as of the date of the First Amendment to Amended and Restated Loan and
Security Agreement, the aggregate unpaid principal balance of such term loan was
$2,416,666.69. On or about the date of the First Amendment to Amended and
Restated Loan and Security Agreement, (i) Fleet, as the sole Lender, made an
additional term loan to Borrower in the amount of $1,000,000.00, and (ii) such
additional term loan and the Original Term Loan C were combined into a single
term loan of $3,416,666.69 (the "EXISTING TERM LOAN C"), repayable in accordance
with the terms of the Existing Term Note C and secured by the Collateral.
Borrower acknowledges that on the Closing Date, the unpaid principal balance of
Existing Term Loan C is $1,783,328.69, and that such
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amount is unconditionally owed by Borrower to Fleet, as the sole Lender, without
offset, defense or counterclaim of any kind, nature or description whatsoever.
(C) TERM LOAN. Subject to the terms and conditions of this
Agreement, (i) Lenders agree to make an additional term loan to Borrower in the
principal amount of $9,567,370.31 and (ii) such additional term loan, Existing
Term Loan A, Existing Term Loan B and Existing Term Loan C shall be combined and
consolidated into a single term loan of $12,000,000 (the "TERM LOAN"), which
shall be repayable in accordance with the terms of the Term Notes and shall be
secured by the Collateral. The additional portion of the Term Loan shall be
funded in connection with the consummation of the Acquisition, and the proceeds
of such additional term loan shall be used by Borrower solely for the purchase
price and other costs and expenses related to the consummation of the
Acquisition and for such other purposes for which the proceeds of the Revolving
Credit Loans are authorized to be used. The Term Loan shall be made ratably by
all Lenders in accordance with their respective Term Loan Percentage.
(D) MANDATORY PREPAYMENTS.
(i) If Borrower sells any of the Equipment, or if any of
the Collateral is taken by condemnation, Borrower shall pay to Agent, for the
account of Lenders, unless otherwise agreed by Lenders, as and when received by
Borrower and as a mandatory prepayment, of the Term Loan, a sum equal to the net
cash proceeds received by Borrower from such sale or condemnation; PROVIDED,
HOWEVER, so long as no Default or Event of Default exists, Borrower shall not be
obligated to pay over either (x) the first $100,000 in proceeds received during
any fiscal year of Borrower or (y) any proceeds received which are reinvested in
replacement Equipment pursuant to SECTION 7.4 hereof as a prepayment on the Term
Loan (and such proceeds shall in that event be applied to the Revolving Credit
Loans). Each such prepayment shall be applied to the installments of principal
due under the Term Loan in the inverse order of their maturities until payment
thereof in full.
(ii) In addition to the mandatory prepayments set forth
above, Borrower shall pay to Agent, for the account of Lenders, as a mandatory
prepayment of the Term Loan an amount equal to twenty-five percent (25%) of
Borrower's Excess Cash Flow with respect to each fiscal year of Borrower,
beginning with the fiscal year of Borrower ending on December 31, 1997. Such
prepayments shall be made within ten (10) Business Days following the delivery
by Borrower to Agent and Lenders of the annual financial statements required by
SECTION 9.1(J)(I) hereof and each such prepayment shall be applied to the
installments of principal due under the Term Loan in the inverse order of their
maturities until payment thereof in full.
(iii) In addition to the mandatory prepayments set forth
above, immediately upon the consummation by Borrower of an Initial Public
Offering, Borrower shall pay to Agent, for the account of Lenders, as and when
received by Borrower, the amount equal to the lesser of (i) the outstanding
principal amount of the Term Loan or (ii) the net proceeds from such Initial
Public Offering, such payment to be a mandatory prepayment on the Term Loan.
Each such prepayment shall be applied to the installments and principal due
under the Term Loan in the inverse order of their maturities until payment
thereof in full. In addition to the foregoing,
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Borrower shall immediately prepay the Term Loan in full if a Change in Control
occurs as the result of the consummation of an Initial Public Offering.
2.3. MANNER OF BORROWING REVOLVING CREDIT LOANS. Borrowings under the
credit facility established pursuant to SECTION 2.1 hereof shall be as follows:
(A) A request for a Revolving Credit Loan shall be made, or shall
be deemed to be made, in the following manner: (i) Borrower may give Agent
notice of its intention to borrow, in which notice Borrower shall specify the
amount of the proposed borrowing and the proposed borrowing date; (ii) the
becoming due of any amount required to be paid under this Agreement, the
Revolving Credit Notes or the Term Notes as interest shall be deemed irrevocably
to be a request for a Revolving Credit Loan on the due date in the amount
required to pay such interest; (iii) the becoming due of any amount required to
be paid under the Term Notes or the Revolving Credit Notes as principal shall be
deemed irrevocably to be a request for a Revolving Credit Loan on the due date
for the amount required to pay such principal; (iv) any payment made by Agent
pursuant to a Letter of Credit issued by Agent or pursuant to the Fleet Bank
Risk Participation Agreement or any other LC Risk Participation Agreement which
is not immediately reimbursed by Borrower (each such unreimbursed payment made
by Agent being referred to individually as an "LC PAYMENT") shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the date such LC
Payment was made; and (v) the becoming due of any other Obligations shall be
deemed irrevocably to be a request for a Revolving Credit Loan on the due date
in the amount then so due.
(B) Borrower hereby irrevocably authorizes Agent to disburse the
proceeds of each Revolving Credit Loan requested, or deemed to be requested,
pursuant to this SECTION 2.3 as follows: (i) the proceeds of each Revolving
Credit Loan requested under SECTION 2.3(A)(I) shall be disbursed by Agent in
lawful money of the United States of America in immediately available funds, in
the case of the initial borrowing, in accordance with the terms of the written
disbursement letter from Borrower, and in the case of each subsequent borrowing,
by wire transfer to such bank account as may be agreed upon by Borrower and
Agent from time to time; and (ii) the proceeds of each Revolving Credit Loan
requested under SECTION 2.3(A)(II), (III) OR (IV) shall be disbursed by Agent by
way of direct payment of the relevant Obligation.
(C) SETTLEMENT. On or about 10:00 A.M. (Dallas, Texas time) on
Friday of each week during the term of this Agreement (or, if any such Friday is
not a Business Day, the next preceding Business Day), Agent shall notify each
Lender by telephone (confirmed immediately by facsimile or cable), facsimile or
cable of (i) the terms of Borrower's Borrowings at the time of such notice and
the amount of such Lender's Revolving Credit Percentage of such Borrowings and
(ii) the aggregate principal amount of all Letters of Credit, issued in
connection with this Agreement and outstanding at the end of such week, the
aggregate amount of any LC Payments made by Agent, such Lender's participation
therein and the total amount of commissions paid to the Lenders with respect
thereto. Contemporaneously with the giving of such notice, Agent shall deliver
to each Lender copies of any Letters of Credit which were issued during such
week and any LC Risk Participation Agreements which were executed during such
week. Each Lender shall, before 2:00 P.M. (Dallas, Texas time) on the day of
such notice,
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deposit with Agent the amount of such Lender's Revolving Credit Percentage of
such Borrowings and/or LC Payments in immediately available funds. In the event
of any failure by a Lender to make an Advance required hereunder, the other
Lenders may (but shall not be required to) purchase (on a pro rata basis,
according to their respective Revolving Credit Percentages) such Lender's
Revolving Credit Percentage of such Borrowings and/or LC Payments. Upon the
failure of a Lender to make an Advance required to be made by it hereunder,
Agent shall use good faith efforts to obtain one or more banks, acceptable to
the Lenders, to replace such Lender, but neither Agent nor any other Lender
shall have any liability or obligation whatsoever as a result of the failure to
obtain a replacement for such Lender.
Lenders hereby agree with Borrower and Agent, and hereby direct Agent,
that Agent may assume that each notified Lender will make such Lender's
Revolving Credit Percentage of the Borrowings and/or LC Payments available to
Agent in accordance with the terms of this SECTION 2.3(C) and Agent shall, in
reliance upon such assumption, make available a corresponding amount to or on
behalf of Borrower on the requested date of each Borrowing or make the LC
Payment, subject to the terms and conditions of this Agreement. If and to the
extent any Lender shall not make its Revolving Credit Percentage of any
Borrowing or LC Payment available to Agent, Borrower agrees to repay to Agent
forthwith on demand such corresponding amount. Each Lender shall be solely
responsible for its Revolving Credit Percentage of any Borrowing or LC Payment
hereunder and in no event shall Agent or any Lender (including Agent in its
capacity as a Lender) bear any financial risk for the failure of any other
Lender to make an Advance required hereunder.
2.4. ADDITIONAL PROVISIONS REGARDING EURODOLLAR LOANS.
(A) MANNER OF BORROWING A EURODOLLAR LOAN. Borrower shall give
Agent notice of its intention to either (i) borrow a Eurodollar Loan or (ii)
designate a portion of the Base Rate Loans to bear interest based upon the
Eurodollar Base Rate, in the form of EXHIBIT R attached hereto (a "EURODOLLAR
BORROWING NOTICE"), in which notice Borrower shall specify (x) the aggregate
amount of such Eurodollar Loan, (y) the requested date of such Eurodollar Loan,
and (z) the Eurodollar Interest Period applicable thereto. Borrower shall give
Agent the Eurodollar Borrowing Notice by 11:00 A.M. (Dallas, Texas time) on the
date which is at least three (3) Business Days prior to the requested date of
the Eurodollar Loan. With respect to such Eurodollar Loans, (I) each Eurodollar
Loan shall be in an integral multiple of $1,000,000, (II) no more than four (4)
Eurodollar Interest Periods may be in existence at any one time, and (III)
Borrower may not request a Eurodollar Loan if there exists a Default or Event of
Default. Borrower shall select Eurodollar Interest Periods with respect to
Eurodollar Loans so that no Eurodollar Interest Period expires after the end of
the Original Term, or if extended pursuant to SECTION 3.2, any Renewal Term. An
outstanding Revolving Credit Loan may be converted to a Eurodollar Loan at any
time subject to the provisions of this SECTION 2.4. Agent shall advise the
Lenders of any notice given pursuant to this SECTION 2.4(A) and of each Lender's
portion of the requested borrowing by 2:00 P.M. (Dallas, Texas time) on the date
the notice was given to Agent by Borrower.
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(B) INTEREST ON EURODOLLAR LOANS. Each Eurodollar Loan shall bear
interest from and including the first day of the Eurodollar Interest Period
applicable thereto (but not including the last day of such Eurodollar Interest
Period) at the interest rate determined as applicable to such Eurodollar Loan,
but interest on such Eurodollar Loan shall be payable as provided in SECTION
3.1(A). If at the end of a Eurodollar Interest Period for an outstanding
Eurodollar Loan, Borrower has failed to deliver to Agent a new Eurodollar
Borrowing Notice with respect to such Eurodollar Loan or to pay such Eurodollar
Loan, then such Eurodollar Loan shall be converted to a Base Rate Loan, and
shall be subject to all other terms and conditions of this Agreement, applicable
to Base Rate Loans on and after the last day of such Eurodollar Interest Period
until paid or until the effective date of a new Eurodollar Borrowing Notice with
respect thereto.
(C) AVAILABILITY OF EURODOLLAR LOANS. If Agent or any Lender
determines that maintenance of any Eurodollar Loans would violate any applicable
law, rule, regulation or directive, whether or not having the force of law,
Agent shall, upon receipt of notice of such violation, suspend the availability
of Eurodollar Loans and require any Eurodollar Loans outstanding to be repaid;
or if Agent or any Lender determines that (x) deposits of a type or maturity
appropriate to match fund Eurodollar Loans are not available or (y) the
Eurodollar Base Rate does not accurately reflect the cost of making a Eurodollar
Loan, then Agent shall suspend the availability of Eurodollar Loans after the
date it receives notice of any such determination.
(D) FUNDING INDEMNIFICATION. If any payment of a Eurodollar Loan
occurs on a date which is not the last day of the applicable Eurodollar Interest
Period, whether because of acceleration, prepayment or otherwise, or a
Eurodollar Loan is not made on the date specified by Borrower because Borrower
has not satisfied the conditions precedent to such Eurodollar Loan contained in
this Agreement or has otherwise breached the terms of this Agreement, Borrower
will indemnify Agent and Lenders for any loss or cost incurred by them resulting
therefrom, including without limitation any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Eurodollar Loan.
(E) LENDER STATEMENTS: SURVIVAL OF INDEMNITY. Within sixty (60)
days of the date upon which Agent suspends the availability of Eurodollar Loans
under SECTION 2.4(C) hereof or learns of any loss or cost for which Borrower has
indemnified Agent and/or a Lender under SECTION 2.4(D) hereof, Agent and/or such
Lender shall deliver a written statement as to the amount due under SECTION
2.4(C) or SECTION 2.4(D). Such written statement shall set forth in reasonable
detail the calculations upon which Agent and/or such Lender determined such
amount and shall be final, conclusive and binding on Borrower in the absence of
manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Loan shall be calculated as though Agent and/or
such Lender funded its Eurodollar Loan through the purchase of a deposit of the
type and maturity corresponding to the deposit used as a reference in
determining the Eurodollar Base Rate applicable to such Eurodollar Loan whether
in fact that is the case or not. Unless otherwise provided herein, the amount
specified in the written statement shall be payable on demand after receipt by
Borrower of the written statement.
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2.5. YIELD PROTECTION. If either (i) the adoption after the date hereof
of any applicable law, rule or regulation, or any change after the date hereof
therein, or any change after the date hereof in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by a Lender with any request or directive (whether or not having the force of
law) after the date hereof of any such authority, central bank or comparable
agency shall subject any Lender to any additional tax (including without
limitation any United States interest equalization or similar tax, however
named), duty or other charge with respect to any Eurodollar Loan or a Lender's
obligation to compute interest on the principal balance of any Eurodollar Loan
at a rate based upon the Eurodollar Base Rate, or shall change after the date
hereof the basis of taxation of payments to a Lender of the principal of or
interest on any Eurodollar Loan or any other amounts due under this Agreement in
respect of any Eurodollar Loan or a Lender's obligation to compute the interest
on the principal balance of any Eurodollar Loan at a rate based upon the
Eurodollar Base Rate, or (ii) any governmental authority, central bank or other
comparable authority shall at any time after the date hereof impose, modify or
deem applicable any reserve (other than the Eurodollar Reserve Requirement),
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, a Lender, or shall impose on a Lender (or
its eurodollar lending office) or any relevant interbank eurodollar market any
other condition affecting any Eurodollar Loan or a Lender's obligation to
compute the interest on the principal balance of any Eurodollar Loan at a rate
based upon the Eurodollar Base Rate; and the result of any of the foregoing is
to increase the cost to a Lender of maintaining any Eurodollar Loans, or to
reduce the amount of any sum received or receivable by a Lender under this
Agreement by an amount deemed by such Lender to be material, then upon demand by
such Lender, Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender for such increased cost or reduction. Such Lender
will promptly notify Borrower and Agent of any event of which it has knowledge,
occurring after the date hereof, which will entitle such Lender to compensation
pursuant to this SECTION 2.5. A certificate of such Lender claiming compensation
under this SECTION 2.5 and setting forth the additional amount or amounts to be
paid to such Lender hereunder shall be conclusive in the absence of manifest
error.
2.6. LETTERS OF CREDIT, LC RISK PARTICIPATION AGREEMENTS. If requested
to do so by Borrower and subject to the terms of this Agreement and any
documents executed in connection with any Letter of Credit, the Fleet Bank Risk
Participation Agreement, or any other LC Risk Participation Agreement, Agent
shall issue its, or cause Bank to issue Letters of Credit for the account of
Borrower or, in connection with a standby Letter of Credit (but in no event in
connection with a documentary Letter of Credit) issued by another Person for the
account of Borrower, execute an LC Risk Participation Agreement, PROVIDED THAT
no Event of Default then exists. The aggregate face amount of all standby
Letters of Credit issued by Agent and Bank and the aggregate face amount of all
standby Letters of Credit which are covered by an LC Risk Participation
Agreement (other than the Fleet Bank Risk Participation Agreement) at any time
shall not exceed $1,000,000. The aggregate face amount of all documentary
Letters of Credit issued by Agent and Bank outstanding at any time shall not
exceed $15,000,000. No Letter of Credit issued by Agent or Bank or covered by an
LC Risk Participation Agreement may have an expiry date that is after the last
day of the Original Term, or, if this Agreement remains in effect after the
Original Term, after the last day of any Renewal Term then in effect; PROVIDED,
HOWEVER,
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that so long as no Default or Event of Default exists, a Letter of Credit may
have an expiry date up to one hundred eighty (180) days after the last day of
the Original Term or after the last day of the Renewal Term then in effect IF
Borrower provides to Agent, for the benefit of Lenders, on or before the last
day of the Original Term or the Renewal Term then in effect, cash collateral
equal to the face amount of such Letter of Credit. Further, no documentary
Letter of Credit issued by Agent or Bank shall have a term exceeding 180 days,
and no standby Letter of Credit issued by Agent or Bank or standby Letter of
Credit covered by an LC Risk Participation Agreement (other than the Fleet Bank
Risk Participation Agreement) shall have a term exceeding one year. A
documentary Letter of Credit may only be issued by Agent or Bank if such
documentary Letter of Credit is issued in connection with the purchase of
inventory by Borrower. By the issuance of a Letter of Credit hereunder by Agent
and without further action on the part of the Agent or the Lenders, each Lender
hereby accepts from the Agent an undivided participation (which participation
shall be nonrecourse to the Agent) in such Letter of Credit and in each LC
Payment equal to such Lender's pro rata (based on its Revolving Credit
Percentage) share of such LC Payment under such Letter of Credit, effective upon
the issuance of such Letter of Credit and, in addition, without further action
on the part of the Agent or the Lenders, each Lender agrees to purchase, and
Agent agrees to sell, an undivided participation equal to such Lender's pro rata
(based on its Revolving Credit Percentage) share, in any LC Payment made
pursuant to the Fleet Bank Risk Participation Agreement or any other LC Risk
Participation Agreement. Each Lender hereby absolutely and unconditionally
assumes, as primary obligor and not as a surety, and agrees to pay and
discharge, and to indemnify and hold the Agent harmless from liability in
respect of such Lender's pro rata share of the amount of any LC Payment. Each
Lender acknowledges and agrees that its obligation to acquire participations in
either (x) each Letter of Credit issued by Agent or (y) each LC Payment made by
Agent and its obligation to make the payments specified herein, and the right of
the Agent to receive the same, in the manner specified herein, are absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including, without limitation, the occurrence and continuance of an Event of
Default hereunder, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
2.7. ALL LOANS TO CONSTITUTE ONE OBLIGATION. All Loans shall constitute
one general obligation of Borrower, and shall be secured by Agent's security
interest, for the benefit of Lenders, in and Lien upon all of the Collateral,
and by all other security interests and Liens heretofore, now or at any time or
times hereafter granted by Borrower to Agent, for the benefit of Lenders.
2.8. LOAN ACCOUNT. Agent shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on the Loans and all proceeds of Collateral which are finally paid to Lenders,
and may record therein, in accordance with customary accounting practice, all
charges and expenses properly chargeable to Borrower hereunder.
2.9. SHARING OF SETOFFS. Each Lender agrees that if it shall, through
the exercise of a right of banker's lien, setoff or counterclaim against the
Borrower, including, but not limited to, a secured claim under Section 506 of
Title 11 of the United States Code or other security or interest arising from,
or in lieu of, such secured claim, received by such Lender under any
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applicable bankruptcy, insolvency or other similar law or otherwise, obtain
payment (voluntary or involuntary) in respect of any Loan made by it or in
respect of a participation held by it in a Letter of Credit or an LC Payment as
a result of which the unpaid principal portion of the Loans made by it plus the
participations held by it in Letters of Credit and LC Payments shall be
proportionately less than the unpaid principal portion of the Loans made by any
other Lender plus outstanding participations held by such other Lender in
Letters of Credit and LC Payments, it shall be deemed to have simultaneously
purchased from such other Lender a participation in the Loans made by such other
Lender and outstanding participations held by such Lender in Letters of Credit
and LC Payments, so that (a) the aggregate unpaid principal amount of the Loans
and participations in Loans made by it plus the outstanding participations held
by it in Letters of Credit and LC Payments shall be in the same proportion to
(b) the sum of the aggregate unpaid principal amount of the Loans plus the
aggregate participations held by all Lenders in Letters of Credit and LC
Payments then outstanding as (i) the sum of the principal amount of the Loans
and participations in the Loans held by it plus participations held by it in the
Letters of Credit and LC Payments prior to such exercise of banker's lien,
setoff or counterclaim was to (ii) the sum of the aggregate unpaid principal
amount of the Loans outstanding plus the aggregate participations held by all
Lenders in the Letters of Credit and LC Payments prior to such exercise of
banker's lien, setoff or counterclaim; PROVIDED, HOWEVER, that if any such
purchase or purchases or adjustments shall be made pursuant to this SECTION 2.9
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustments restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in a Loan or another Lender's participating
interest in any Letters of Credit and LC Payments deemed to have been so
purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by Borrower to such Lender
as fully as if such Lender held a Loan or direct participation in a Letter of
Credit or LC Payment in the amount of such participation.
SECTION 3. INTEREST, FEES, TERM AND REPAYMENT
3.1. INTEREST, FEES AND CHARGES.
(A) INTEREST. Outstanding principal on the Loans shall bear
interest, calculated daily (computed on the actual days elapsed over a year of
360 days), at the following rates per annum (individually called, as applicable,
an "APPLICABLE ANNUAL Rate"): (i) Eurodollar Term Loans shall bear interest at a
rate per annum equal to three and one-half percent (3.50%) above the Eurodollar
Base Rate for the Eurodollar Interest Period applicable thereto, (ii) Eurodollar
Revolving Credit Loans shall bear interest at a rate per annum equal to two and
three-quarters percent (2.75%) above the Eurodollar Base Rate for the Eurodollar
Interest Period applicable thereto, (iii) Base Rate Term Loans shall bear
interest at a fluctuating rate per annum equal to one and one-half percent
(1.50%) above the Base Rate, and (iv) Base Rate Revolving Credit Loans shall
bear interest at a fluctuating rate per annum equal to one-half percent (0.50%)
above the Base Rate. Unless the Borrower provides a Eurodollar Borrowing Notice
to the Agent in accordance with SECTION 2.4 irrevocably electing that all or a
portion of the Loans are to be designated as Eurodollar Loans, all Loans shall
be considered Base Rate Loans. The Applicable
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Annual Rate for all Base Rate Loans shall be increased or decreased, as the case
may be, by an amount equal to any increase or decrease in the Base Rate, with
such adjustments to be effective as of the opening of business on the day that
any such change in the Base Rate becomes effective. The Base Rate in effect on
the date hereof shall be the Base Rate effective as of the opening of business
on the date hereof, but if this Agreement is executed on a day that is not a
Business Day, the Base Rate in effect on the date hereof shall be the Base Rate
effective as of the opening of business on the last Business Day immediately
preceding the date hereof. For the purpose of computing interest, all items of
payment received by Agent, for the benefit of Lenders, shall be applied by Agent
(subject to final payment of all drafts and other items received in form other
than immediately available funds) against the Obligations on the second Business
Day after receipt. The determination of when a payment is received by Agent will
be made in accordance with SECTION 3.5.
(B) DEFAULT RATE OF INTEREST. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the principal amount of
the Loans and other Obligations shall bear interest, calculated daily (computed
on the actual days elapsed over a year of 360 days), at 2.00% above the
Applicable Annual Rate or other applicable rate of interest (a "DEFAULT RATE").
(C) MAXIMUM RATE OF INTEREST. Notwithstanding the foregoing, (i)
if at any time the amount of interest computed as provided in the Loan Documents
would exceed the amount of such interest computed upon the basis of the maximum
rate of interest permitted by applicable state or federal law in effect from
time to time hereafter (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 Applicable Annual Rate, Default Rate or other
rate, as applicable, shall not reduce such interest thereafter payable hereunder
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 times computed solely as provided in the Loan Documents; and
(ii) unless preempted by federal law, the Applicable Annual Rate, Default Rate
or other rate, as applicable, from time to time in effect hereunder may not
exceed the "indicated ceiling rate" from time to time in effect under Tex. Rev.
Civ. Stat. Ann. art 5069-1.04(c) (Vernon 1987). If the applicable state or
federal law is amended in the future to allow a greater rate of interest to be
charged under this Agreement than is 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 Lenders by reason thereof shall be
payable upon demand.
(D) EXCESS INTEREST. No agreements, conditions, provisions or
stipulations contained in this Agreement or any other instrument, document or
agreement between Borrower, Agent and/or any Lender, or default of Borrower, or
the exercise by Agent or Lenders 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 Loan Document, or the arising of any
contingency whatsoever, shall entitle Agent or any Lender to contract for,
charge, or receive, in
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any event, interest exceeding the Maximum Legal Rate. In no event shall Borrower
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 Borrower 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"),
Borrower 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 Agent and/or any Lender shall be applied, first, to reduce the
principal then unpaid hereunder; second, to reduce the other Obligations; and
third, returned to Borrower, it being the intention of the parties hereto not to
enter at any time into a usurious or otherwise illegal relationship. Borrower
recognizes that, with fluctuations in the Base Rate and the Maximum Legal Rate,
such a result could inadvertently occur. By the execution of this Agreement,
Borrower covenants that the credit or return of any Excess shall constitute the
acceptance by Borrower of such Excess. For the purpose of determining whether or
not any Excess has been contracted for, charged or received by Agent and/or
Lender, all interest at any time contracted for, charged or received by Agent
and/or Lender in connection with the Loan Documents shall be amortized,
prorated, allocated and spread in equal parts during the entire term of this
Agreement and the Loans.
(E) INCORPORATION BY THIS REFERENCE. The provisions of SECTIONS
3.1(C) AND 3.1(D) shall be deemed to be incorporated into every document or
communication relating to the Obligations which sets forth or prescribes any
account, right or claim or alleged account, right or claim of Agent and/or any
Lender with respect to Borrower (or any other obligor in respect of
Obligations), whether or not any provision of SECTION 3.1 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 and
obligations of the Borrower (or other obligor) asserted by Agent and/or any
Lender thereunder, be automatically re-computed by any Borrower or obligor, and
by any court considering the same, to give effect to the adjustments or credits
required by SECTION 3.1(D).
(F) UNUSED FACILITY FEE. From the date hereof, Borrower agrees to
pay to Agent, for the account of Lenders, in accordance with their respective
Revolving Credit Percentages, a monthly unused facility fee, equal to
one-quarter of one percent (0.25%) per annum (calculated on the basis of a year
of 360 days) of the difference between the Revolving Credit Commitment and the
sum of (i) the Average Monthly Loan Balance for the Revolving Credit Loans for
such month, PLUS (ii) the average face amount of outstanding Letters of Credit
issued by Agent, PLUS (iii) the average face amount of outstanding Letters of
Credit which are covered by an LC Risk Participation Agreement for such month
(the sum of CLAUSES (I), (II) and (III) above being referred to as the "AVERAGE
MONTHLY REVOLVING CREDIT LOANS USAGE"), payable in arrears with the first
payment being due on September 1, 1996 and continuing regularly thereafter
during the term of this Agreement, and upon the termination hereof. In no event,
however, shall any charge be payable for any month for which the Average Monthly
Revolving Credit Loans Usage was less than the Revolving Credit Commitment by
reason of any Lender's declining to extend Revolving Credit Loans to Borrower in
amounts equal to the Borrowing Base, to the
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extent of such refusal, for any month for which the Average Monthly Revolving
Credit Loans Usage was less than the Revolving Credit Commitment by reason of
Agent's determination to reduce applicable advance rates under the Borrowing
Base, to the extent of such reduction, or for any month during which or after
Agent or Lenders accelerate the maturity or demands payment of the Obligations
by reason of the occurrence of any Event of Default.
(G) CAPITAL ADEQUACY CHARGE. In the event that Agent or any
Lender shall have determined that the adoption after the date hereof of any law,
rule or regulation regarding capital adequacy, or any change therein or in the
interpretation or application thereof or compliance by Agent or any Lender with
any request or directive regarding capital adequacy (whether or not having the
force of law) from any central bank or governmental authority, does or shall
have the effect of reducing the rate of return on Agent or any Lenders' capital
as a consequence of its obligations hereunder to a level below that which Agent
or such Lender could have achieved but for such adoption, change or compliance
(taking into consideration Agent's and each Lender's policies with respect to
capital adequacy) by an amount deemed by Agent or such Lender, in its sole
discretion, to be material, then from time to time, after submission by Agent or
such Lender to Borrower of a written demand therefor, the Borrower shall pay to
Agent or such Lender such additional amount or amounts as will compensate Agent
or such Lender for such reduction. A certificate of Agent or any Lender claiming
entitlement to payment as set forth above shall be conclusive in the absence of
manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such payment, the additional amount or amounts to be paid to
Agent or such Lender, and the method by which such amounts were determined. In
determining such amount, Agent or such Lender may use any reasonable averaging
and attribution method.
(H) LETTER OF CREDIT; LC FEES. As additional consideration for
Agent's issuing its or causing Bank to issue its Letters of Credit for
Borrower's account or for entering into LC Risk Participation Agreements at
Borrower's request pursuant to SECTION 2.6 hereof, Borrower agrees to pay Agent,
for the account of Lenders in accordance with their respective Revolving Credit
Percentages, fees equal to (i) two percent (2.00%) per annum of the face amount
of each standby Letter of Credit issued by Agent or Bank for the account of
Borrower, and each standby Letter of Credit issued by a Person and covered by an
LC Risk Participation Agreement which fee shall be deemed fully earned upon
issuance of each such standby Letter of Credit, and shall be due and payable
upon the issuance of each such standby Letter of Credit, and (ii) the greater of
(a) $150.00 or (b) one and one-half percent (1.50%) per annum of the face amount
of each documentary Letter of Credit issued by Agent or Bank for Borrower's
account, which fee shall be deemed fully earned and shall be due and payable
upon issuance of each such documentary Letter of Credit. Such fees shall be in
addition to any fees charged by Bank or any other Person issuing a Letter of
Credit. In addition, Borrower shall pay to Agent any out-of-pocket costs
incurred by Agent in connection with the issuance of any Letter of Credit or the
execution of any LC Risk Participation Agreement or the payment of any LC
Payment. No fee payable by Borrower under this SECTION 3.1(H) shall be subject
to rebate or proration upon the termination of this Agreement for any reason.
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(I) AGENCY FEE. Borrower agrees to pay to Agent an annual agency
fee in the amount of $50,000, first payable on the Closing Date and subsequently
payable on each anniversary thereafter during the term of this Agreement. Each
such fee shall be deemed fully earned and nonrefundable as of its due date, and
no fee payable under this SECTION 3.1(I) shall be subject to rebate or proration
upon the termination of this Agreement for any reason. Upon demand therefor by
Agent, Borrower shall promptly reimburse Agent for all out-of-pocket costs
incurred by Agent in connection with any and all collateral monitoring functions
deemed necessary or appropriate by Agent, in its sole discretion.
(J) CLOSING FEE. Borrower agrees to pay to Agent on the Closing
Date, for the account of Lenders, an amount equal to $681,250.00, which fee
shall be deemed fully earned and non-refundable as of the Closing Date. Agent
shall then pay to Boston $218,750.00 of such fee.
3.2. TERM OF AGREEMENT. Subject to Lenders' right to cease making Loans
to Borrower at any time upon or after the occurrence of a Default or Event of
Default, this Agreement shall be in effect for the period of time from the date
hereof, through and including the date which is three (3) years after the
Closing Date (the "ORIGINAL TERM") and, unless any party hereto elects to
terminate this Agreement by giving notice of such election not less than ninety
(90) days before the end of the Original Term, this Agreement shall
automatically be extended for an additional one-year period (the "RENEWAL
TERM"), through and including the date which is four years after the Closing
Date, whereupon the maturity of each of the Notes shall be extended for an
additional one-year period upon the same terms (including, as to the Term Notes,
the same principal amortization) as are in existence on the date of such
renewal.
3.3. EARLY TERMINATION BY BORROWER.
(A) Upon at least forty-five (45) days prior written notice to
Agent, Borrower may, at its option, terminate this Agreement; PROVIDED, HOWEVER,
no such termination shall be effective until Borrower has paid all of the
Obligations in immediately available funds and all Letters of Credit have
expired or been confirmed by another Person satisfactory to Lenders, in their
credit judgment.
(B) At the effective date of any such termination by Borrower,
Borrower shall pay to Agent, for the benefit of Lenders, in accordance with
their respective Total Commitment Percentage (in addition to the then
outstanding principal, accrued interest and other charges owing under the terms
of this Agreement and any of the other Loan Documents), as liquidated damages
for the loss of the bargain and not as a penalty, an amount equal to three
percent (3.00%) of the Average Daily Loan Balance for the one year period
preceding the date of termination if the termination occurs during the period
from the Closing Date to and including the day immediately prior to the first
anniversary of the Closing Date; two percent (2.00%) of the Average Daily Loan
Balance for the one year period preceding the date of termination if termination
occurs during the period from the first anniversary of the Closing Date to and
including the day immediately prior to the second anniversary of the Closing
Date; and one percent (1.00%) of the Average Daily Loan Balance for the one year
period preceding the date of termination if termination occurs on or after the
second anniversary of the Closing Date, unless
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such termination occurs at the end of the Original Term or at the end of a
Renewal Term. The foregoing provisions of SECTION 3.3(A) and this SECTION 3.3(B)
shall not apply to any voluntary prepayment of the Term Loan in accordance with
the provisions of the Term Notes or to any mandatory prepayment of the Term Loan
under SECTION 2.2(D) hereof.
(C) All of the Obligations shall be forthwith due and payable
upon any termination of this Agreement. Except as otherwise expressly provided
for in this Agreement or the other Loan Documents, no termination or
cancellation (regardless of cause or procedure) of this Agreement or any of the
other Loan Documents shall in any way affect or impair the rights, powers or
privileges of Agent and/or any Lender or the obligations, duties or liabilities
of Borrower or Agent and/or any Lender in any way relating to (i) any
transaction or event occurring prior to such termination or cancellation or (ii)
any of the undertakings, agreements, covenants, warranties or representations of
Borrower contained in this Agreement or any of the other Loan Documents. All
such undertakings, agreements, covenants, warranties and representations of
Borrower shall survive such termination or cancellation and Agent, for the
benefit of Lenders, shall retain its Liens in the Collateral and all of its
rights and remedies under this Agreement and the other Loan Documents
notwithstanding such termination or cancellation until all of the Obligations
have been paid in full, in immediately available funds.
(D) It is understood that Borrower may not terminate the
Revolving Credit Loans facility without also terminating the Term Loan.
3.4. PAYMENTS. Principal and interest on the Term Loan shall be payable
as provided in the Term Notes, PROVIDED, HOWEVER, that Borrower hereby
irrevocably authorizes Agent, in Agent's sole discretion, to advance to
Borrower, and to charge to Borrower's Loan Account, hereunder as a Revolving
Credit Loan, a sum sufficient each month to pay all principal and all interest
due and payable from time to time on the Term Loan. Except where evidenced by
notes or other instruments issued or made by Borrower to Agent or any Lender
specifically containing payment provisions which are in conflict with this
SECTION 3.4 (in which event the conflicting provisions of said notes or other
instruments shall govern and control), the Obligations shall be payable as
follows:
(A) Principal payable on account of Revolving Credit Loans made
by Lenders to Borrower pursuant to SECTION 2.1 of this Agreement shall be
payable by Borrower to Agent, for the account of Lenders, immediately upon the
earliest of (i) the receipt by Agent or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds (less any amount applied against the
portion of the Term Loan then due), (ii) the occurrence of an Event of Default
in consequence of which Agent or Lenders elect to accelerate the maturity and
payment of such Loans, or (iii) termination of this Agreement pursuant to
SECTION 3.3 hereof; PROVIDED, HOWEVER, that if the principal balance of
Revolving Credit Loans outstanding at any time shall exceed the Borrowing Base
at such time, Borrower shall, on demand, repay the Revolving Credit Loans in an
amount sufficient to reduce the aggregate unpaid principal amount of such
Revolving Credit Loans by an amount equal to such excess.
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(B) Interest accrued on the Revolving Credit Loans shall be due
and payable to Agent, for the account of Lenders, on the earliest of (i) the
first day of each month (for the immediately preceding month), computed through
the last calendar day of the preceding month, (ii) the occurrence of an Event of
Default in consequence of which Agent or Lenders elect to accelerate the
maturity and payment of the Obligations or (iii) termination of this Agreement
pursuant to SECTION 3.3 hereof; PROVIDED, HOWEVER, that Borrower hereby
irrevocably authorizes Agent, in Agent's sole discretion, to advance to
Borrower, and to charge to Borrower's Loan Account hereunder as a Revolving
Credit Loan, a sum sufficient each month to pay all interest accrued on the
Obligations during the immediately preceding month.
(C) Costs, fees and expenses payable pursuant to this Agreement
shall be payable by Borrower, on demand by Agent, to Agent, for its benefit and
the benefit of Lenders, or to any other Person designated by Lenders in writing.
Agent will promptly provide Borrower with written notice detailing any such
costs, fees and expenses payable by Borrower.
(D) The balance of the Obligations requiring the payment of
money, if any, shall be payable by Borrower to Agent and/or to Lenders as and
when provided in the Loan Documents, or, if no provision is made in the Loan
Documents for payment of any such Obligations, such Obligations shall be payable
on demand.
Borrower hereby irrevocably authorizes Agent, in Agent's good faith
discretion, to advance to Borrower and to charge to the Loan Account as a
Revolving Credit Loan, sums sufficient to pay all amounts due and payable at
that time under the Term Notes under SECTIONS 3.4(B), (C) and (D), whether or
not any such advance would cause the outstanding Revolving Credit Loans to
exceed the Borrowing Base.
3.5. APPLICATION OF PAYMENTS AND COLLECTIONS. Borrower irrevocably
waives the right to direct the application of any and all payments and
collections at any time or times hereafter received by Agent or any Lender from
or on behalf of Borrower, provided such payments and collections are first
applied to the portion of the Obligations then due. Notwithstanding the
foregoing, any mandatory payments received by Agent, for the account of Lenders,
pursuant to SECTION 2.2(D) hereof shall be applied against the Obligations as
provided in SECTION 2.2(D). Except as provided in the preceding sentence,
Borrower does hereby irrevocably agree that Agent shall have the continuing
exclusive right to apply and reapply any and all such payments and collections
received at any time or times hereafter by Agent or its agent against the
Obligations, in such manner as Agent may deem advisable, notwithstanding any
entry by Agent upon any of its books and records, so long as such payments and
collections are first applied to the portion of the Obligations then due. If as
the result of collections of Accounts as authorized by SECTION 5.4 hereof a
credit balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower, but shall be available to Borrower at any time or
times for so long as no Default or Event of Default exists. In no event shall
such credit balance be applied or be deemed to have been applied as a prepayment
of the Term Loan unless so requested by Borrower, but Agent may offset such
credit balance against the Obligations upon or after the occurrence of an Event
of Default. Payments and collections received by Agent, for the benefit of
Lenders, from the Dominion Account or otherwise in Chicago, Illinois (a) before
2:00 p.m. (Dallas, Texas time)
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on a Business Day shall be deemed received on such Business Day, and (b) after
2:00 p.m. (Dallas, Texas time) on a Business Day shall be deemed received on the
next succeeding Business Day, in each case for purposes of determining the
amount of Revolving Credit Loans available for borrowing hereunder and for
purposes of computing interest on the Loans (subject in each case to final
payment of all items and collections received in form other than immediately
available funds).
3.6. STATEMENTS OF ACCOUNT. Agent will account to Borrower monthly with
a statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Agent absent manifest error shall be deemed final,
binding and conclusive upon Borrower unless Agent is notified by Borrower in
writing to the contrary within sixty (60) days after the date each account is
mailed to Borrower. Such notice shall only be deemed an objection to those items
specifically objected to therein.
SECTION 4. COLLATERAL: GENERAL TERMS
4.1. SECURITY INTEREST IN COLLATERAL. To secure the prompt payment and
performance to Lenders of the Obligations, Borrower hereby grants to Agent, for
the benefit of Lenders, a continuing security interest in and Lien upon all of
the Property and interests in Property of Borrower, whether now owned or
existing or hereafter created, acquired or arising and wheresoever located,
including, without limitation, the following:
(A) Accounts;
(B) Inventory;
(C) Equipment;
(D) General Intangibles;
(E) all investment property (as defined in Section 9.115 of the
Code);
(F) all monies and other Property of any kind, now or at any time
or times hereafter, in the possession or under the control of Agent or any
Lender or a bailee of Agent or any Lender;
(G) all accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), (C), (D), (E), and (F)
above, including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and
(H) all books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (A), (B), (C), (D), (E),
(F) or (G) above.
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The security interests in the Collateral are given in renewal, extension
and modification of the security interests previously granted to Fleet, as the
sole Lender, by Borrower (including, without limitation, the security interests
granted pursuant to the Restated Loan Agreement); such existing security
interests are not extinguished hereby; and the making, perfection and priority
of such existing security interests shall continue in full force and effect.
4.2. REPRESENTATIONS, WARRANTIES AND COVENANTS -- COLLATERAL. To induce
Agent and Lenders to enter into this Agreement, Borrower represents, warrants,
and covenants to Agent and Lenders:
(A) The Collateral is now and, so long as any of the Obligations
are outstanding, will continue to be owned solely by Borrower. No other Person
has or will have any right, title, interest, claim, or Lien therein, thereon or
thereto other than a Permitted Lien.
(B) Except for Liens permitted by SECTION 9.2(H) hereof and as
otherwise specifically consented to in writing by Lenders, the Liens granted to
Agent, for the benefit of Lenders, shall be first and prior on the Collateral
and as to the Accounts and proceeds, including insurance proceeds, resulting
from the sale, disposition, or loss thereof. No further action need be taken to
perfect the Liens granted to Agent, for the benefit of Lenders, other than the
filing of continuation statements under the Code or other applicable law,
continued possession by Agent, for the benefit of Lenders, of that portion of
the Collateral constituting instruments or documents and the processing of Lien
notations on motor vehicle title certificates.
(C) All the Collateral constituting chattel paper, documents or
instruments, the possession of which has been given to Agent, are owned by
Borrower and the same are free and clear of any prior Lien. Borrower further
warrants and guarantees the value, quantities, sound condition, grades and
qualities of the goods and services which gave rise to such chattel paper,
documents or instruments. Borrower shall pay and discharge when due all taxes,
levies, and other charges upon said Collateral and upon the goods evidenced by
any documents constituting Collateral and shall defend Agent and Lenders against
and save them harmless from all claims of any Person with respect to the
Collateral. This indemnity shall include reasonable attorneys' fees and legal
expenses.
4.3. LIEN PERFECTION. Borrower agrees to execute the UCC-1 financing
statements provided for by the Code or otherwise together with any and all other
instruments, assignments or documents and shall take such other action as may be
required to perfect or to continue the perfection of Agent's security interest,
for the benefit of Lenders, in the Collateral, including, without limitation,
the execution at Agent's request of all documents deemed necessary by Agent to
cause Agent's Lien, for the benefit of Lenders, to be noted on any motor vehicle
title certificates for motor vehicles forming a part of the Collateral. Unless
prohibited by applicable law, Borrower hereby authorizes Agent to execute and
file any such financing statement on Borrower's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement and may be filed in any appropriate office in lieu
thereof.
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4.4. LOCATION OF COLLATERAL. All Collateral, other than Inventory in
transit and motor vehicles, will at all times be kept by Borrower at one or more
of the business locations set forth in EXHIBIT B or other locations permitted
pursuant to SECTION 9.2(M) hereof and shall not, without the prior written
approval of Agent, be moved therefrom except, prior to an Event of Default, for
(A) sales of Inventory in the ordinary course of business; (B) the storage of
Inventory at locations within the continental United States other than those
shown on EXHIBIT B if (i) Borrower gives Agent written notice of the new storage
location prior to storing Inventory at such location, (ii) Agent's security
interest, for the benefit of Lenders, in such Inventory is and continues to be a
duly perfected, first priority Lien thereon, (iii) neither Borrower's nor
Agent's nor any Lender's right of entry upon the premises where such Inventory
is stored, or its right to remove the Inventory therefrom, is in any way
restricted, (iv) the owner of such premises agrees with Agent and/or Lenders not
to assert any landlord's, bailee's or other Lien in respect of the Inventory for
unpaid rent or storage charges, and (v) all negotiable documents and receipts in
respect of any Collateral maintained at such premises are promptly delivered to
Agent; (C) temporary transfers (for periods not to exceed three months in any
event) of Equipment from a location set forth on EXHIBIT B to another location
if done for the limited purpose of repairing, refurbishing or overhauling such
Equipment in the ordinary course of Borrower's business; (D) temporary transfers
of Inventory from a location set forth on EXHIBIT B to another location if done
for the limited purpose of additional processing to such Inventory in the
ordinary course of Borrower's business; and (E) removals in connection with
dispositions of Equipment that are authorized by SECTION 7.4 hereof.
4.5. INSURANCE OF COLLATERAL. Borrower agrees to maintain and pay for
insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts and with a Permitted
Insurer to insure Agent's and Lenders' interest in the Collateral. Borrower
shall deliver the originals or certified copies of such policies to Lender with
satisfactory endorsements naming Agent, for the benefit of Lenders, as loss
payee and as mortgagee pursuant to a standard mortgagee clause. Each policy of
insurance or endorsement shall contain a clause requiring the insurer to give
not less than 30 days prior written notice to Agent in the event of cancellation
of the policy for any reason whatsoever and a clause that the interest of Agent
and Lenders shall not be impaired or invalidated by any act or neglect of
Borrower or owner of the Property nor by the occupation of the premises for
purposes more hazardous than are permitted by said policy. If Borrower fails to
provide and pay for such insurance, Agent may, at Borrower's expense, procure
the same, but shall not be required to do so. Borrower agrees to deliver to
Agent, promptly as rendered, true copies of all reports made in any reporting
forms to insurance companies. Borrower will maintain, with Permitted Insurers,
insurance with respect to its Properties and business against such casualties
and contingencies of such type (including public liability, product liability,
larceny, embezzlement, or other criminal misappropriation insurance) and in such
amounts as is customary in the business or as otherwise reasonably required by
Agent.
4.6. PROTECTION OF COLLATERAL. All insurance expenses and all expenses
of protecting, storing, warehousing, insuring, handling, maintaining and
shipping the Collateral, any and all excise, property, sales, and use taxes
imposed by any state, federal, or local authority on any of the Collateral or in
respect of the sale thereof shall be borne and paid by Borrower. If Borrower
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fails to promptly pay any portion thereof when due, Agent may, at its option,
but shall not be required to, pay the same and charge the Loan Account therefor.
Borrower agrees to reimburse Agent promptly for any amounts not charged to the
Loan Account with interest accruing thereon daily at the Default Rate. All sums
so paid or incurred by Agent for any of the foregoing and all costs and expenses
(including reasonable attorneys' fees, legal expenses, and court costs) which
Agent may incur in enforcing or protecting its Lien on or rights and interest in
the Collateral or any of its rights or remedies under any Loan Document or in
respect of any of the transactions to be had hereunto, together with interest at
the Default Rate, shall be considered Obligations hereunder secured by all
Collateral. Neither Agent nor any Lender shall be liable or responsible in any
way for the safekeeping of any of the Collateral or for any loss or damage
thereto (except for reasonable care in the custody thereof while any Collateral
is in Agent's or any Lender's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
SECTION 5. PROVISIONS RELATING TO ACCOUNTS
5.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to all
Accounts, Borrower represents and warrants to Agent and Lenders that Agent and
Lenders may rely, in determining which Accounts are Eligible Accounts, on all
statements and representations made by Borrower with respect to any Account or
Accounts, and, unless otherwise indicated in writing to Agent, that with respect
to each Account which is represented by Borrower to be an Eligible Account:
(A) it is genuine and in all respects what it purports to be, and
it is not evidenced by a judgment;
(B) it arises out of a completed, BONA FIDE sale and delivery of
goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts or other documents relating thereto and forming a part of the contract
between Borrower and the Account Debtor;
(C) it is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy of which
has been furnished or is available to Agent;
(D) such Account, and Agent's security interest, for the benefit
of Lenders, therein, is not, and will not be in the future, subject to any
offset, Lien, deduction, defense, dispute, counterclaim or any other adverse
condition except for disputes resulting in returned goods where the amount in
controversy is deemed by Agent to be immaterial, and each such Account is
absolutely owing to Borrower and is not contingent in any respect or for any
reason;
(E) Borrower has made no agreement with any Account Debtor
thereunder for any deduction therefrom, except discounts or allowances which are
granted by Borrower in the
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ordinary course of its business for prompt payment and which are reflected in
the calculation of the net amount of each respective invoice related thereto;
(F) there are no facts, events or occurrences which in any way
impair the validity or enforceability thereof or tend to reduce the amount
payable thereunder from the face amount of the invoice and statements delivered
to Agent with respect thereto;
(G) to the best of Borrower's knowledge, the Account Debtor
thereunder (i) is Solvent and (ii) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed; and
(H) Borrower has no knowledge of any fact or circumstance which
would impair the validity or collectability of the Account, and to the best of
Borrower's knowledge there are no proceedings or actions which are threatened or
pending against any Account Debtor thereunder which might result in any material
adverse change in such Account Debtor's financial condition or the
collectability of such Account.
5.2. ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. If so requested by
Agent, Borrower shall execute and deliver to Agent formal written assignments of
all of its Accounts weekly or, if requested by Agent, daily, which shall include
all Accounts that have been created since the date of the last assignment,
together with copies of invoices or invoice registers related thereto. Borrower
shall keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Agent on a daily basis a sales and
collections report for the preceding day, in form satisfactory to Agent. On or
before the fifteenth day of each month from and after the date hereof, Borrower
shall deliver to Agent, in form satisfactory to Agent, a detailed aged trial
balance of all Accounts existing as of the last day of the preceding month,
specifying the names, addresses, face value, dates of invoices and due dates for
each Account Debtor obligated on an Account so listed ("SCHEDULE OF ACCOUNTS"),
and, upon Agent's request therefor, copies of proof of delivery and the original
copy of all documents, including, without limitation, repayment histories and
present status reports relating to the Accounts so scheduled and such other
matters and information relating to the status of then existing Accounts as
Agent shall reasonably request.
5.3. ADMINISTRATION OF ACCOUNTS.
(A) Upon the granting of any discounts, allowances or credits by
Borrower that are not shown on the face of the invoice for the Account involved,
Borrower shall promptly report such discounts, allowances or credits, as the
case may be, to Agent and in no event later than the time of its submission to
Agent of the next Schedule of Accounts as provided in SECTION 5.2. Upon and
after the occurrence of an Event of Default, Agent shall have the right to
settle or adjust all disputes and claims directly with the Account Debtor and to
compromise the amount or extend the time for payment of the Accounts upon such
terms and conditions as Agent may deem advisable, and to charge the
deficiencies, costs and expenses thereof, including reasonable attorney's fees,
to Borrower.
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(B) If an Account includes a charge for any tax payable to any
governmental taxing authority, Agent is authorized, in its sole discretion, to
pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge the Loan Account therefor. Borrower shall notify Agent if
any Account includes any tax due to any governmental taxing authority and, in
the absence of such notice, Agent, for the benefit of Lenders, shall have the
right to retain the full proceeds of the Account and shall not be liable for any
taxes to any governmental taxing authority that may be due by Borrower by reason
of the sale and delivery creating the Account.
(C) Whether or not a Default or an Event of Default has occurred,
any of Agent's officers, employees or agents shall have the right, at any time
or times hereafter, in the name of Agent, any designee of Agent or Borrower, to
verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Agent in an effort to facilitate and promptly conclude any such verification
process.
5.4. COLLECTION OF ACCOUNTS.
(A) To expedite collection, Borrower shall endeavor in the first
instance to make collection of its Accounts for Agent and Lenders. All
remittances received by Borrower on account of Accounts shall be held as
Lenders' property by Borrower as trustee of an express trust for Lenders'
benefit and Borrower shall immediately deposit or cause to be deposited same in
the Dominion Account. Agent shall have the right at any time after the
occurrence of a Default or an Event of Default to notify Account Debtors that
Accounts have been assigned to Agent and Lenders and to collect Accounts
directly in its own and Lenders' name and to charge the collection costs and
expenses, including reasonable attorneys' fees, to Borrower. Neither Agent nor
any Lender has any duty to protect, insure, collect or realize upon the Accounts
or preserve rights in them.
(B) Borrower shall deposit all proceeds of the Collateral or
cause the same to be deposited in kind in a Dominion Account pursuant to a
lockbox arrangement with such banks as may be selected by Borrower and be
acceptable to Agent. Borrower shall issue to any such banks, an irrevocable
letter of instruction directing such banks to deposit all payments or other
remittances received in the lockbox to the Dominion Account for application on
account of the Obligations. All funds deposited in the Dominion Account shall
immediately become the property of Lenders and Borrower shall obtain the
agreement by such banks to waive any offset rights against the funds so
deposited. Neither Agent nor any Lender assumes any responsibility for such
lockbox arrangement, including, without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder.
SECTION 6. PROVISIONS RELATING TO INVENTORY
6.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to
Inventory, Borrower represents and warrants to Agent and Lenders that Agent and
Lenders may rely, in determining
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which items of Inventory constitute Eligible Inventory, on all statements and
representations made by Borrower with respect to any Inventory and that:
(A) all Inventory is presently and will continue to be located at
Borrower's places of business listed on EXHIBIT B and will not be removed
therefrom except as authorized by SECTION 4.4 of this Agreement or in connection
with changes in business locations permitted under SECTION 9.2(M) of this
Agreement;
(B) no Inventory is now, nor shall any Inventory at any time or
times hereafter be, stored with a bailee, warehouseman or similar party without
Agent's prior written consent and, if Agent gives such consent, Borrower will
concurrently therewith cause any such bailee, warehouseman, or similar party to
issue and deliver to Agent, in form and substance acceptable to Agent, warehouse
receipts therefor in Agent's name, for the benefit of Lenders;
(C) no Inventory is or will be consigned to any Person without
Agent's prior written consent, and, if such consent is given, Borrower shall,
prior to the delivery of any Inventory on consignment, (i) provide Agent with
all consignment agreements to be used in connection with such consignment, all
of which shall be acceptable to Agent, (ii) prepare, execute and file
appropriate financing statements with respect to any consigned Inventory,
showing Agent, for the benefit of Lenders, as assignee, (iii) conduct a search
of all filings made against the consignee in all jurisdictions in which any
consigned Inventory is to be located and deliver to Agent copies of the results
of all such searches, and (iv) notify, in writing, all the creditors of the
consignee which are or may be holders of Liens in the Inventory to be consigned
that Borrower expects to deliver certain Inventory to the consignee, all of
which Inventory shall be described in such notice by item or type;
(D) to the best of Borrower's knowledge, no Inventory is or will
be produced by Borrower in violation of the Fair Labor Standards Act or in
violation of any international law prohibiting child labor; and
(E) to the best of Borrower's knowledge, all Inventory is
presently and will continue to be produced in conformity with the terms of all
applicable licenses of Borrower.
6.2. INVENTORY REPORTS. Subject to SECTION 9.1(K) of this Agreement,
Borrower agrees to furnish Agent with Inventory reports at such times as Agent
may request, but at least once each week. Such reports shall be in form and
detail satisfactory to Agent. Borrower shall conduct a physical count of
Inventory no less frequently than semi-annually and shall provide to Agent a
report based on each such physical count of Inventory promptly thereafter,
together with such supporting information as Agent shall in its discretion
request.
6.3. RETURNS OF INVENTORY. If at any time or times hereafter any Account
Debtor returns any Inventory to Borrower the shipment of which generated an
Account on which such Account Debtor is obligated in excess of $250,000,
Borrower shall notify Agent of the same immediately, specifying the reason for
such return and the location and condition of the returned Inventory. After the
occurrence of an Event of Default, Borrower shall hold all returned Inventory in
trust
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for each Lender, shall segregate all returned Inventory from all other Property
owned by Borrower or in its possession and shall conspicuously label such
Inventory as the Property of Agent and each Lender.
SECTION 7. PROVISIONS RELATING TO EQUIPMENT
7.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to the
Equipment, Borrower represents, warrants and covenants to and with Agent and
Lenders that:
(A) in all material respects, the Equipment is in good operating
condition and repair, reasonable wear and tear excepted, and all necessary
replacements of and repairs thereto shall be made so that the value and
operating efficiency of the Equipment shall be maintained and preserved,
reasonable wear and tear excepted; and
(B) Borrower will not permit any of the Equipment to become
affixed to any real Property leased to Borrower so that an interest arises
therein under the real estate laws of the applicable jurisdiction unless the
landlord of such real Property has executed a landlord waiver or leasehold
mortgage in favor of Agent, for the benefit of Lenders, and Borrower will not
permit any of the Equipment to become an accession to any personal Property
other than Equipment subject to first priority Liens in favor of Agent, for the
benefit of Lenders, or subject to Permitted Liens.
7.2. EVIDENCE OF OWNERSHIP OF EQUIPMENT. Immediately on request therefor
by Agent, Borrower shall deliver to Agent any and all evidence of ownership, if
any, of any of the Equipment (including, without limitation, certificates of
title and applications for title).
7.3. RECORDS AND SCHEDULES OF EQUIPMENT. Borrower shall maintain
accurate records itemizing and describing the kind, type, quality, quantity and
value of its Equipment and all dispositions made in accordance with SECTION 7.4
hereof, and shall furnish Agent with a current schedule containing the foregoing
information on at least an annual basis and more often if requested by Agent.
7.4. DISPOSITIONS OF EQUIPMENT. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lenders; PROVIDED, HOWEVER, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (A) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, have a fair market value or book value,
whichever is less, of $100,000 or less, or (B) replacements of Equipment that is
substantially worn, damaged or obsolete with Equipment of like kind, function
and value, provided that the replacement Equipment shall be acquired within
ninety (90) days of any disposition of the Equipment that is to be replaced, the
replacement Equipment shall be free and clear of Liens other than Permitted
Liens, Borrower shall give Agent and each Lender at least five days prior
written notice of such disposition, and Borrower shall turn over to Agent, for
the account of Lenders, all net cash proceeds realized from any such
disposition, such proceeds to be applied first to installments of
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principal due under the Term Loan, if required by SECTION 2.2(D), and then to
the Revolving Credit Loans.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. GENERAL REPRESENTATIONS AND WARRANTIES. To induce Agent and Lenders
to enter into this Agreement and to induce Lenders to make advances hereunder,
Borrower warrants, represents and covenants to Agent and Lenders as follows:
(A) ORGANIZATION AND QUALIFICATION. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas. Borrower has duly qualified and is authorized to do business and
is in good standing as a foreign corporation in each state or jurisdiction
listed on EXHIBIT C attached hereto and made a part hereof and in all other
states and jurisdictions where the character of its Properties or the nature of
its activities make such qualification necessary.
(B) CORPORATE NAMES. During the preceding seven years, Borrower
has not been known as or used any corporate, fictitious or trade names except as
disclosed on EXHIBIT D attached hereto and made a part hereof. Except as set
forth on EXHIBIT D, Borrower has not, during the preceding seven years, been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
(C) CORPORATE POWER AND AUTHORITY. Borrower has the right and
power and is duly authorized and empowered to enter into, execute, deliver and
perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of the
other Loan Documents have been duly authorized by all necessary corporate action
on the part of Borrower and do not and will not (i) require any consent or
approval of the shareholders of Borrower that has not been obtained; (ii)
contravene Borrower's charter, articles of incorporation or by-laws; (iii)
violate, or cause Borrower to be in default under, any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award in effect having applicability to Borrower; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which it
or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than Permitted Liens) upon or with
respect to any of the Properties now owned or hereafter acquired by Borrower.
(D) SUBSIDIARIES. Borrower has no Subsidiaries except Stadium
Apparel, Inc., a [Texas] corporation, which is a dormant Subsidiary with no
assets or operations.
(E) LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, a legal,
valid and binding obligation of Borrower and each other Person party thereto,
enforceable against them in accordance with their respective terms, except to
the extent that such enforcement may be limited
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by applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally or by principles of equity pertaining to the availability of
equitable remedies.
(F) USE OF PROCEEDS. Borrower's uses of the proceeds of any Loans
pursuant to this Agreement are, and will continue to be, legal and proper
corporate uses, duly authorized by its Board of Directors, and such uses will
not violate any applicable laws, including, without limitation, the Foreign
Assets Control Regulations, the Foreign Funds Control Regulations and the
Transaction Control Regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended).
(G) MARGIN STOCK. Borrower is not engaged principally, or as one
of its important activities, in the business of purchasing or carrying "margin
stock" (within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Loans to Borrower
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or be used for any
purpose which violates or is inconsistent with the provisions of Regulation G,
T, U or X of said Board of Governors.
(H) GOVERNMENTAL CONSENTS. Borrower has, and is in good standing
with respect to, all governmental consents, approvals, authorizations, permits,
certificates, inspections, and franchises necessary to continue to conduct its
business as heretofore or proposed to be conducted by it and to own or lease and
operate its Properties as now owned or leased by it.
(I) PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. Borrower owns
or possesses all the patents, trademarks, service marks, trade names, copyrights
and licenses necessary for the present and planned future conduct of its
business without any known conflict with the rights of others. All such patents,
trademarks, service marks, trade names, copyrights, licenses and other similar
rights owned or possessed as of the date of this Agreement are listed on EXHIBIT
E attached hereto and made a part hereof.
(J) CAPITAL STRUCTURE. EXHIBIT F attached hereto and made a part
hereof states (i) the correct name of each of the Subsidiaries of Borrower, the
jurisdiction of incorporation and the percentage of its Voting Stock owned by
Borrower, (ii) the name of each of Borrower's corporate or joint venture
Affiliates and the nature of the affiliation, (iii) the number, nature and
holder of all outstanding Securities of Borrower and each Subsidiary of
Borrower, and (iv) the number of authorized, issued and treasury shares of
Borrower and each Subsidiary of Borrower. Borrower has good title to all of the
shares it purports to own of the stock of each Subsidiary, free and clear in
each case of any Lien other than Permitted Liens. All such shares have been duly
issued and are fully paid and nonassessable. Except as set forth on EXHIBIT F
attached hereto, there are not outstanding any options to purchase, or any
rights or warrants to subscribe for, or any commitments or agreements to issue
or sell, or any Securities or obligations convertible into, or any powers of
attorney relating to, shares of the capital stock of Borrower. There are not
outstanding any agreements or instruments binding upon any of Borrower's
shareholders relating to the ownership of its shares of capital stock.
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(K) SOLVENT FINANCIAL CONDITION. Borrower is now and, after
giving effect to initial Loans to be made hereunder, will be, Solvent.
(L) RESTRICTIONS. Borrower is not a party or subject to any
contract, agreement, or charter or other corporate restriction, which materially
and adversely affects its business or the use or ownership of any of its
Properties. Borrower is not a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on EXHIBIT G attached hereto, none of which prohibit the execution of or
compliance with this Agreement by Borrower. Neither Borrower nor any of its
Subsidiaries has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its Property, whether now owned
or hereafter acquired, to be subject to a Lien that is not a Permitted Lien.
(M) LITIGATION. Except as set forth on EXHIBIT H attached hereto
or otherwise disclosed in writing and made a part hereof, there are no actions,
suits, proceedings or investigations pending, or to the knowledge of Borrower,
threatened, against or affecting Borrower or any of its Subsidiaries, or the
business, operations, Properties, prospects, profits or condition of Borrower or
any of its Subsidiaries, in any court or before any governmental authority or
arbitration board or tribunal which involves the possibility of materially and
adversely affecting the Properties, business, prospects, profits or financial
condition of Borrower or the ability of Borrower to perform this Agreement.
Neither Borrower nor any of its Subsidiaries is in default with respect to any
order, writ, injunction, judgment, decree or rule of any court, governmental
authority or arbitration board or tribunal.
(N) TITLE TO PROPERTIES. Borrower and its Subsidiaries each has
good, indefeasible title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real Property, and good title to all of its
other Property, in each case, free and clear of all Liens except Permitted
Liens.
(O) FINANCIAL STATEMENTS; FISCAL YEAR. The Consolidated and
consolidating balance sheets of Borrower and such other Persons described
therein as of December 30, 1995, and the related statements of operations,
stockholder's equity and cash flows for the period ended on such date, have been
prepared in accordance with GAAP (except for changes in application in which
Borrower's independent certified public accountants concur), and present fairly,
in all material respects, the financial positions of Borrower and its
Subsidiaries at such dates and the results of Borrower's operations for such
periods. Since December 30, 1995, there has been no material adverse change in
the condition, financial or otherwise, of Borrower or Borrower's Subsidiaries
and such other Persons as shown on the Consolidated balance sheet as of such
date and no change in the aggregate value of Equipment and real Property owned
by Borrower or Borrower's Subsidiaries or such other Persons, except changes in
the ordinary course of business, none of which individually or in the aggregate
has been materially adverse. The fiscal year of Borrower and each of its
Subsidiaries ends on the last Saturday in December of each year.
(P) FULL DISCLOSURE. The financial statements referred to in
SECTION 8.1(N) above, do not, nor does this Agreement or any other written
statement of Borrower to Agent
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and/or any Lender, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein not
misleading. There is no fact which Borrower has failed to disclose to Agent or
any Lender in writing which materially affects adversely or, so far as Borrower
can now foresee, will materially affect adversely the Properties, business,
prospects, profits, or condition (financial or otherwise) of Borrower or any of
its Subsidiaries or the ability of Borrower or its Subsidiaries to perform this
Agreement.
(Q) PENSION PLANS. Except as disclosed on EXHIBIT I attached
hereto and made a part hereof, neither Borrower nor any of its Subsidiaries has
any Plan. Neither Borrower nor any of its Subsidiaries has received any notice
to the effect that it is not in full compliance with any of the requirements of
ERISA and the regulations promulgated thereunder. No fact or situation that
could result in a material adverse change in the financial condition of Borrower
(including, but not limited to, any Reportable Event or Prohibited Transaction)
exists in connection with any Plan. Neither Borrower nor any of its Subsidiaries
has any withdrawal liability in connection with a Multi-Employer Plan.
(R) TAXES. Borrower's federal tax identification number is
74-1897317. Borrower and its Subsidiaries each has filed all federal, state and
local tax returns and other reports it is required by law to file and has paid,
or made provision for the payment of, all taxes, assessments, fees and other
governmental charges that are due and payable. The provision for taxes on the
books of Borrower and its Subsidiaries are adequate for all years not closed by
applicable statutes, and for its current fiscal year. EXHIBIT P contains an
accurate list of all taxing authorities to which Borrower and its Subsidiaries
and their respective Properties are subject. No Properties of Borrower or its
Subsidiaries are or could become subject to any Lien in favor of any such taxing
authorities for nonpayment of taxes, except for inchoate liens for taxes not yet
due and payable and as specified on EXHIBIT P.
(S) LABOR RELATIONS. Except as described on EXHIBIT J attached
hereto and made a part hereof, neither Borrower nor any of its Subsidiaries is a
party to any collective bargaining agreement, and there are no material
grievances, disputes or controversies with any union or any other organization
of Borrower's employees, or threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or organization.
(T) COMPLIANCE WITH LAWS. Borrower has duly complied in all
material respects with, and its Properties, business operations and leaseholds
are in compliance in all material respects with, the provisions of all federal,
state and local laws, rules and regulations applicable to Borrower, its
Properties or the conduct of its business, including, without limitation, OSHA
and all Environmental Laws, and there have been no citations, notices or orders
of noncompliance issued to Borrower or any of its Subsidiaries under any such
law, rule or regulation.
(U) SURETY OBLIGATIONS. Except for its indemnity obligations
under the Asset Purchase Agreement, Borrower is not obligated as surety or
indemnitor under any surety or similar bond or other contract issued or entered
into any agreement to assure payment, performance or completion of performance
of any undertaking or obligation of any Person.
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(V) NO DEFAULTS. No event has occurred and no condition exists
which would, upon the execution and delivery of this Agreement or Borrower's
performance hereunder, constitute a Default or an Event of Default. None of
Borrower nor any of Borrower's Subsidiaries is in default, and no event has
occurred and no condition exists which constitutes, or which with the passage of
time or the giving of notice or both would constitute, a default in the payment
of any Indebtedness to any Person for Money Borrowed.
(W) BROKERS. There are no claims for brokerage commissions,
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement, for which Borrower is responsible.
(X) MANAGEMENT FEES. Borrower is not now required and will not in
the future be required to pay any management fees to Equus or to any other
Person.
(Y) BUSINESS LOCATIONS; AGENT FOR PROCESS. During the preceding
seven year period, Borrower has had no office, place of business or agent for
service of process located in any state or county other than as shown on EXHIBIT
B.
(Z) TRADE RELATIONS. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially affect
adversely Borrower or prevent Borrower from conducting such business after the
consummation of the transaction contemplated by this Agreement in substantially
the same manner in which it has heretofore been conducted.
(AA) LEASES. EXHIBIT K attached hereto is a complete listing of
all capitalized leases of Borrower and EXHIBIT L attached hereto is a complete
listing of all operating leases of Borrower (excluding any operating leases for
copiers and other office equipment).
(BB) INVESTMENT COMPANY ACT. Borrower is not an "investment
company" and is not "controlled" by any "investment company", (within the
meaning of the Investment Company Act of 1940, as amended) except Equus, which
is a "business development company."
8.2. REAFFIRMATION. Each request for a Loan made by Borrower pursuant to
this Agreement or any of the other Loan Documents shall constitute (i) an
automatic representation and warranty by Borrower to Agent and Lenders that
there does not then exist any Default or Event of Default and (ii) a
reaffirmation as of the date of said request that all of the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents
are true in all material respects except for any changes in the nature of
Borrower's business or operations that would render the information contained in
any exhibit (other than EXHIBIT H) attached hereto either inaccurate or
incomplete, so long as Lenders have consented to such changes or such changes
are not restricted or prohibited by this Agreement.
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8.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower covenants,
warrants and represents to Agent and Lenders that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance thereof by Agent, Lenders and the parties thereto and the closing of
the transactions described therein or related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. AFFIRMATIVE COVENANTS. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or to any Lender,
Borrower covenants that, unless otherwise consented to by Lenders in writing, it
shall:
(A) TAXES AND LIENS. Pay and discharge, and cause each Subsidiary
to pay and discharge, all taxes, assessments and governmental charges upon it,
its income and Properties as and when such taxes, assessments and charges are
due and payable (and, if requested by any Lender, provide Agent and each Lender
with proof that Borrower or such Subsidiary has done so), except and to the
extent only that such taxes, assessments and charges are being actively
contested in good faith and by appropriate proceedings, Borrower maintains
adequate reserves on its books therefor and the nonpayment of such taxes,
assessments and charges does not result in a Lien upon any Properties or
Borrower other than a Permitted Lien. Borrower shall also pay and discharge any
lawful claims which, if unpaid, might become a Lien against any of Borrower's
Properties except for Permitted Liens.
(B) TAX RETURNS. File, and cause each Subsidiary to file, all
federal, state and local tax returns and other reports Borrower or such
Subsidiary is required by law to file and maintain adequate reserves for the
payment of all taxes, assessments, governmental charges, and levies imposed upon
it, its income, or its profits, or upon any Property belonging to it.
(C) PAYMENT OF BANK CHARGES. Pay to Agent and/or Lenders, on
demand, any and all fees, costs or expenses which Agent or any Lender pays to a
bank or other similar institution arising out of or in connection with (i) the
forwarding to Borrower or any other Person on behalf of Borrower proceeds of
loans made by any Lender to Borrower pursuant to this Agreement and (ii) the
depositing for collection, by any Lender, of any check or item of payment
received or delivered to Agent or any Lender on account of the Obligations.
(D) BUSINESS AND EXISTENCE. Preserve and maintain, and cause each
Subsidiary to preserve and maintain, its separate corporate existence and all
rights, privileges, and franchises in connection therewith, and maintain, and
cause each Subsidiary to maintain, its qualification and good standing in all
states in which such qualification is necessary.
(E) MAINTAIN PROPERTIES. Maintain, and cause each Subsidiary to
maintain, its Properties in good condition and make, and cause each Subsidiary
to make, all necessary
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renewals, repairs, replacements, additions and improvements thereto, reasonable
wear and tear excepted.
(F) COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply, with all laws, ordinances, governmental rules and regulations to which
it is subject, including, without limitation, all OSHA and Environmental Laws,
and obtain and keep in force any and all licenses, permits, franchises, or other
governmental authorizations necessary to the ownership of its Properties or to
the conduct of its business, which violation or failure to obtain might
materially and adversely affect the business, prospects, profits, Properties, or
financial condition of Borrower.
(G) ERISA COMPLIANCE. (i) At all times make prompt payment of
contributions required to meet the minimum funding standards set forth in ERISA
with respect to each Plan; (ii) promptly after the filing thereof, furnish to
Agent copies of any annual report required to be filed pursuant to ERISA in
connection with each Plan and any other employee benefit plan of it and its
Affiliates subject to said Section; (iii) notify Agent as soon as practicable of
any Reportable Event and of any additional act or condition arising in
connection with any Plan which Borrower believes might constitute grounds for
the termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States district court of a trustee to
administer the Plan; and (iv) furnish to Agent, promptly upon Agent's request
therefor, such additional information concerning any Plan or any other such
employee benefit plan as may be reasonably requested.
(H) BUSINESS RECORDS. Keep, and cause each Subsidiary to keep,
adequate records and books of account with respect to its business activities in
which proper entries are made in accordance with GAAP reflecting all its
financial transactions.
(I) VISITS AND INSPECTIONS. Permit representatives of Agent and
Lenders, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the Properties of Borrower,
inspect and make extracts from its books and records, and discuss with its
officers, its employees and its independent accountants, Borrower's business,
assets, liabilities, financial condition, business prospects and results of
operations.
(J) FINANCIAL STATEMENTS. Cause to be prepared and furnished to
Agent and each Lender the following (all to be kept and prepared in accordance
with GAAP applied on a consistent basis, unless Borrower's certified public
accountants concur in any change therein and such change is disclosed to Agent
and each Lender and is consistent with GAAP):
(i) as soon as possible, but not later than one hundred twenty
(120) days after the close of each fiscal year of Borrower, audited Consolidated
financial statements of Holdings and its Consolidated Subsidiaries as of the end
of such year consisting of a Consolidated balance sheet, income statement and
statement of cash flows, accompanied by the unmodified report of independent
certified public accountants of recognized national standing or otherwise
acceptable to Agent (except for a modification for a change in accounting
principles with which the independent public accountants concur) together with
consolidating financial statements of
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Holdings and its Consolidated Subsidiaries as of the end of such year,
consisting of balance sheets, income statements and statements of cash flows,
certified by the principal financial officer of Borrower as prepared in
accordance with GAAP and fairly presenting in all material respects the
Consolidated financial position and results of operations of Holdings and its
Consolidated Subsidiaries for such period (except for any change in accounting
principles with which the independent public accountants concur);
(ii) as soon as possible, but not later than thirty (30) days
after the end of each month hereafter (including the calendar month ending on
the last day of the fiscal year), unaudited interim Consolidated financial
statements of Holdings and its Consolidated Subsidiaries, consisting of a
Consolidated balance sheet, income statement and statement of cash flows,
together with consolidating financial statements of Holdings and its
Consolidated Subsidiaries as of the end of such month and of the portion of
Holdings' fiscal year then elapsed, consisting of balance sheets, income
statements and statements of cash flows, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting in
all material respects the Consolidated financial position and results of
operations of Holdings and its Consolidated Subsidiaries for such month and
period subject only to changes from audit and year-end adjustments and except
that such statements need not contain notes;
(iii) as soon as possible, but not later than ninety (90) days
after the Closing Date, an invoice date aging as to Accounts purchased as part
of the Acquisition;
(iv) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements or reports which
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower files
with the Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or any national securities exchange;
(v) when available, the audited balance sheet and audited
financial statements of operations to be furnished to Borrower in connection
with the Asset Purchase Agreement; and
(vi) such other data and information (financial and otherwise) as
Agent and Lenders, from time to time, may reasonably request, bearing upon or
related to the Collateral, Borrower's financial condition or results of
operations, including, without limitation, federal income tax returns of
Borrower, accounts payable ledgers, and bank statements.
Concurrently with the delivery of the financial statements described in CLAUSE
(I) of this SECTION 9.1(J), Borrower shall forward or cause to be forwarded to
Agent and each Lender a copy of the accountant's letter to Borrower's management
that is prepared in connection with such financial statements. Concurrently with
the delivery of the financial statements described in CLAUSES (I) AND (II) of
this SECTION 9.1(J), Borrower shall cause to be prepared and furnished to Agent
and each Lender a certificate from the principal financial officer of Borrower
certifying to Agent and each Lender that, to the best of his knowledge, Borrower
has kept, observed, performed and fulfilled each and every covenant, obligation
and agreement binding upon Borrower in this Agreement and
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the other Loan Documents and that no Default or Event of Default has occurred,
or, if such Default or Event of Default has occurred, specifying the nature
thereof.
(K) INVENTORY SYSTEM. As soon as possible, but not later than one
hundred eighty (180) days after the Closing Date, establish a perpetual
inventory system at Borrower's new location acquired pursuant to the
Acquisition. Until such time as a perpetual inventory system is in place,
Borrower shall conduct monthly cycle counts of blanks and finished goods at such
new location, and promptly deliver to Agent and Lenders the results of such
monthly cycle counts. In addition, Borrower (i) will conduct a physical count of
all Inventory to be acquired as part of the Acquisition prior to the Closing
Date, confirmed by its public accountants, and (ii) will conduct an additional
physical count of blanks and finished goods Inventory at locations of Seller
purchased by Borrower pursuant to the Acquisition as soon as possible, but not
later than ninety (90) days after the Closing Date, and (iii) will promptly
deliver to Agent and Lenders the results of each such physical count of
Inventory.
(L) NOTICES TO AGENT AND LENDERS. Notify Agent and each Lender in
writing: (i) promptly after Borrower's learning thereof, of the commencement of
any litigation affecting Borrower or any of its Properties, whether or not the
claim is considered by Borrower to be covered by insurance, and of the
institution of any administrative proceeding which may materially and adversely
affect Borrower's operations, financial condition, Properties or business or
Agent's Lien, for the benefit of Lenders, upon any of the Collateral; (ii) at
least sixty (60) days prior thereto, of Borrower's opening of any new office or
place of business or Borrower's closing of any existing office or place of
business; (iii) promptly after Borrower's learning thereof, of any labor dispute
to which Borrower may become a party, any strikes or walkouts relating to any of
its plants or other facilities, and the expiration of any labor contract to
which it is a party or by which it is bound; (iv) promptly after Borrower's
learning thereof, of any material default by Borrower under any note, indenture,
loan agreement, mortgage, lease, deed, guaranty or other similar agreement
relating to any Indebtedness of Borrower exceeding $50,000; (v) promptly after
the occurrence thereof, of any Default or Event of Default; (vi) promptly after
the occurrence thereof, of any default by any obligor under any note or other
evidence of Indebtedness payable to Borrower; and (vii) promptly after the
rendition thereof, of any judgment rendered against Borrower or any of its
Subsidiaries.
(M) LANDLORD AND STORAGE AGREEMENTS. Provide Agent with copies of
all agreements between Borrower and any landlord or warehouseman which owns any
premises at which any Inventory or other Collateral may, from time to time, be
kept.
(N) SUBORDINATIONS. Provide Agent and each Lender with a debt
subordination agreement in form and substance satisfactory to Lenders, executed
by Borrower and any Person who is an officer, director or Affiliate of Borrower
to whom Borrower is or hereafter becomes indebted for Money Borrowed,
subordinating in right of payment and claim all of such Indebtedness and any
future advances thereon to the full and final payment and performance of the
Obligations.
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(O) FURTHER ASSURANCES. At Agent's request, promptly execute or
cause to be executed and deliver to Agent any and all documents, instruments and
agreements deemed necessary by Agent to give effect to or carry out the terms or
intent of this Agreement or any of the other Loan Documents. Without limiting
the generality of the foregoing, if any of the Accounts, the face value of which
exceeds $50,000, arises out of a contract with the United States of America, or
any department, agency, subdivision or instrumentality thereof, Borrower shall
promptly notify Agent thereof in writing and shall execute any instruments and
take any other action required or requested by Agent to comply with the
provisions of the Federal Assignment of Claims Act.
(P) COMPLIANCE CERTIFICATE. As soon as possible, but not later
than thirty (30) days after the end of each month, beginning with the month
ending September 30, 1996, or more frequently if requested by Agent, cause the
principal financial officer of Borrower to prepare and deliver to Agent and
Lenders a Compliance Certificate in the form of EXHIBIT N attached hereto, with
appropriate insertions and accompanied by detail showing the required
calculations.
(Q) PROJECTIONS. As soon as available, and in any event no later
than (i) thirty (30) days prior to the end of each fiscal year of Borrower,
deliver to Agent and Lenders preliminary three-year Projections of Borrower and
(ii) January 15 of each fiscal year of Borrower, deliver to Agent and Lenders
final board approved three-year Projections of Borrower, each of which shall be
in form and substance satisfactory to Lenders and which for the current fiscal
year shall be month by month, and for the following two years shall be year by
year.
(R) TAX CERTIFICATE. Within ninety (90) days after the end of
each fiscal year of Borrower, or more frequently if requested by Agent, cause
the chief financial officer of Borrower to prepare and deliver to Agent a
certificate in the form of EXHIBIT Q attached hereto, with appropriate
insertions.
(S) LIFE INSURANCE POLICIES. As soon as possible, and in any
event by September 30, 1996, provide evidence satisfactory to Agent, in Agent's
sole discretion, that Borrower has purchased and that there remain in full force
and effect, the following insurance policies, each issued by a life insurance
company reasonably acceptable to Agent:
(i) Life insurance policy in the amount of $2,000,000.00, on
the life of Randall Hale;
(ii) Life insurance policy in the amount of $2,000,000.00, on
the life of Jerry Ford Taylor; and
(iii) Life insurance policy in the amount of $2,000,000.00, on
the life of Alan Elenson;
In addition, no later than September 30, 1996, Borrower shall have duly executed
and delivered to Agent, for the benefit of Lenders, collateral assignments of
each such life insurance policy, such collateral assignments to be in form and
substance satisfactory to Agent, in its sole discretion.
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Borrower shall keep such life insurance policies in full force and effect at all
times during the term of this Agreement.
(T) LEASEHOLD MORTGAGE. As soon as possible, and in any event no
later than ninety (90) days after the Closing Date, deliver to Agent, for the
benefit of Lenders, leasehold mortgages for Borrower's locations in Staten
Island, New York, College Station, Texas and Cincinnati, Ohio, each to be in
form and substance satisfactory to Lenders.
9.2. NEGATIVE COVENANTS. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or any Lender,
Borrower covenants that, unless Lenders have first consented thereto in writing,
it will not:
(A) MERGERS; CONSOLIDATIONS; ACQUISITIONS. Merge or consolidate,
or permit any Subsidiary to merge or consolidate, with any Person, except a
consolidation or merger involving only Borrower and one or more wholly owned
Subsidiaries; nor acquire all or any substantial part of the Properties of any
Person.
(B) LOANS. Make, or permit any Subsidiary to make, any loans or
other advances of money to any Person, including, without limitation, any of
Borrower's Affiliates, officers or employees, other than salary, travel
advances, advances against commissions and other similar advances in the
ordinary course of business; PROVIDED, however, Borrower may make loans or
similar advances of money to its officers or employees in an aggregate amount
not to exceed $150,000 at any particular date.
(C) TOTAL INDEBTEDNESS. Create, incur, assume, or suffer to
exist, or permit any Subsidiary to create incur or suffer to exist, any
Indebtedness, except: (i) Obligations owing to Agent or any Lender; (ii)
Borrower Subordinated Debt; (iii) with consent of Lenders, Indebtedness of any
Subsidiary to Borrower; (iv) unsecured accounts payable to trade creditors which
are not aged more than one hundred eighty (180) days from billing date and
current operating expenses (other than for Money Borrowed) which are not more
than sixty (60) days past due, in each case incurred in the ordinary course of
business and paid within such time period, unless the same are actively being
contested in good faith and by appropriate and lawful proceedings and Borrower
shall have set aside such reserves, if any, with respect thereto as are required
by generally accepted accounting principles and deemed adequate by Borrower and
its independent public accountants; (v) Capitalized Lease Obligations or
purchase money Indebtedness incurred to finance Capital Expenditures permitted
by SECTION 9.2(L); (vi) Obligations to pay Rentals permitted by SECTION 9.2(X);
(vii) contingent liabilities arising out of endorsements of checks and other
negotiable instruments for deposit or collection in the ordinary course of
business; (viii) accruals (including interest accruals) in accordance with GAAP
in the normal course of Borrower's business and (ix) Indebtedness not included
in CLAUSES (I) THROUGH (VIII) above which does not exceed at any time, in the
aggregate, the sum of $25,000.
(D) AFFILIATE TRANSACTIONS. Enter into, or be a party to, or
permit any Subsidiary to enter into or be a party to, any transaction with any
Affiliate or stockholder, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's or such
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Subsidiary's business and upon fair and reasonable terms which are fully
disclosed to Agent and each Lender and are no less favorable to Borrower than
would obtain in a comparable arm's length transaction with a Person not an
Affiliate or stockholder of Borrower or such Subsidiary.
(E) PARTNERSHIPS OR JOINT VENTURES. Become or agree to become a
general or limited partner in any general or limited partnership or a joint
venturer in any joint venture.
(F) ADVERSE TRANSACTIONS. Enter into any transaction, or permit
any Subsidiary to enter into any transaction, which materially and adversely
affects or may materially and adversely affect the Collateral or Borrower's
ability to repay the Obligations or permit or agree to any material extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
other than discounts, compromises, settlements and allowances in the ordinary
course of business, all of which shall be reflected in the Schedules of Accounts
submitted to Agent pursuant to SECTION 5.2 of this Agreement.
(G) GUARANTIES. Guarantee, assume, endorse or otherwise, in any
way, become directly or contingently liable with respect to the Indebtedness of
any Person except by endorsement of instruments or items of payment for deposit
or collection.
(H) LIMITATION ON LIENS. Create or suffer to exist, or permit any
Subsidiary to create or suffer to exist, any Lien upon any of its Property,
income or profits, whether now owned or hereafter acquired, except: (i) Liens at
any time granted in favor of Agent or any Lender; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet
due or being contested as permitted by SECTION 9.1(A) hereof, but only if in
Agent's judgment such Lien does not affect adversely Lenders' rights or the
priority of Agent's Lien, for the benefit of Lenders, in the Collateral; (iii)
Liens securing the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons for labor, materials, supplies or
rentals incurred in the ordinary course of Borrower's business, but only if the
payment thereof is not at the time required or is being actively contested in
good faith and by appropriate proceedings (with adequate reserves maintained on
Borrower's books to cover the amount of such payment) and only if such Liens are
junior to the Liens in favor of Agent, for the benefit of Lenders, on terms
satisfactory to Lenders; (iv) Liens resulting from deposits made in the ordinary
course of business in connection with workmen's compensation, unemployment
insurance, social security and other like laws; (v) attachment, judgment and
other similar non-tax Liens arising in connection with court proceedings, but
only if and for so long as the execution or other enforcement of such Liens is
and continues to be effectively stayed and bonded on appeal in a manner
satisfactory to Lenders for the full amount thereof, the validity and amount of
the claims secured thereby are being actively contested in good faith and by
appropriate lawful proceedings and such Liens do not, in the aggregate,
materially detract, in the judgment of Agent, from the value of the Property of
Borrower or materially impair the use thereof in the operation of Borrower's
business; (vi) reservations, exceptions, easements, rights of way, and other
similar encumbrances affecting real Property, provided that, in Agent's
judgment, they do not in the aggregate materially detract from the value of said
Properties or materially interfere with their use in the ordinary conduct of
Borrower's business and, if said real Property constitutes Collateral,
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Lender has consented thereto; (vii) Liens securing Indebtedness of a Subsidiary
to Borrower or another Subsidiary; (viii) such other Liens as appear on EXHIBIT
M attached hereto; (ix) Capital Lease Obligations or purchase money Liens
securing Indebtedness incurred to finance Capital Expenditures permitted by
SECTION 9.2(L); and (x) such other Liens as Lenders may hereafter approve in
writing.
(I) SUBORDINATED DEBT. Make, or permit any Subsidiary to make,
any prepayment of any part or all of any Borrower Subordinated Debt, except for
on or following the 30th Business Day following delivery of the audited
financial statements of Borrower described at SECTION 9.1(J)(I) hereof with
respect to any fiscal year (beginning with the audited financial statements of
Borrower for the fiscal year of Borrower ending on December 31, 1997), a
prepayment on the Borrower Subordinated Debt in an aggregate amount up to, but
not greater than, 100% of the calculated amount of the Cash Flow for period
commencing January 1, 1997, and ending on the last day of the fiscal year
covered in such audited financial statements MINUS any Distributions previously
made to Holdings pursuant to SECTION 9.2(J)(IV) hereof during the fiscal year in
which such prepayment is to be made, PROVIDED THAT AT THE DATE OF SUCH
PREPAYMENT (i) all of the Term Loans shall have been paid off in full in cash,
(ii) no Default or Event of Default shall exist hereunder or be caused by such
prepayment, (iii) the Revolving Credit Availability on such date exceeds
$5,000,000 after giving effect to such prepayment, (iv) average Revolving Credit
Availability for the 30 day period ending on such payment date exceeds
$5,000,000 after giving effect to such prepayment, (v) Borrower shall have given
Agent ten (10) Business Days prior written notice of Borrower's intent to make
such prepayment, and (vi) such prepayment would not violate the terms of any
subordination agreement executed in connection with such Borrower Subordinated
Debt; or otherwise repurchase, redeem or retire any instrument evidencing any
such Borrower Subordinated Debt prior to maturity; or enter into any agreement
(oral or written) which could in any way be construed to amend, modify, alter or
terminate any one or more instruments or agreements evidencing or relating to
any Borrower Subordinated Debt.
(J) DISTRIBUTIONS. Declare or make, or permit any Subsidiary to
declare or make, any Distributions, except (i) Borrower may make Distributions
to Holdings pursuant to the Tax Sharing Agreement, but only insofar as such
Distributions do not exceed the income tax liability for which Borrower would
otherwise have been responsible for as if it were not a member of the
consolidated group for federal income tax purposes of Holdings, Embroidery and
Borrower, (ii) Borrower may make Distributions to Holdings up to an aggregate
amount of $200,000 per fiscal year to cover annual operating expenses of
Holdings incurred in the normal course of Holdings' business (iii) Borrower may
make Distributions to Holdings equal in amount to regularly scheduled interest
payments at such time required to be paid by Holdings to Seller pursuant to the
Debentures, provided that (x) no Default or Event of Default shall exist
hereunder, either before or after giving effect to such Distribution, and (y)
such payment would not violate the subordination provisions contained in such
Debentures, (iv) Borrower may make Distributions to Holdings equal in amount to
regularly scheduled principal payments at such time required to be paid by
Holdings to Seller pursuant to the Earnout Debenture, provided that (w) no
Default or Event of Default shall exist hereunder, either before or after giving
effect to such Distribution, (x) such payment would not violate the
subordination provisions of the Earnout
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Debenture, (y) the Revolving Credit Availability on such date exceeds $5,000,000
after giving effect to such Distribution, and (z) average Revolving Credit
Availability for the 30 day period ending on such payment date exceeds
$5,000,000 after giving effect to such Distribution and (v) Borrower may make
Distributions to Holdings to be applied to prepayment of the Debentures on or
following the 30th Business Day following delivery of the audited financial
statements of Borrower described at SECTION 9.1(J)(I) hereof with respect to any
fiscal year (beginning with the audited financial statements of Borrower for the
fiscal year of Borrower ending on December 31, 1997), in an aggregate amount up
to, but not greater than, 100% of the calculated amount of Cash Flow for period
commencing on January 1, 1997, and ending on the last day of the fiscal year
covered in such audited financial statements MINUS any prepayments previously
made on Borrower Subordinated Debt pursuant to SECTION 9.2(I) hereof during the
fiscal year in which such Distribution is to be made, PROVIDED THAT AT THE DATE
OF SUCH DISTRIBUTION (v) all of the Term Loans shall have been paid off in full
in cash, (w) no Default or Event of Default shall exist hereunder or be caused
by such Distribution, (x) the Revolving Credit Availability on such date exceeds
$5,000,000 after giving effect to such Distribution (y) average Revolving Credit
Availability for the 30 day period ending on such payment date exceeds
$5,000,000 after giving effect to such Distribution and (z) Borrower shall have
given Agent ten (10) Business Days prior written notice of Borrower's intent to
make such Distribution.
(K) SUBSIDIARIES. Hereafter create any Subsidiary or divest
itself of any material assets by transferring them to any Subsidiary to whose
existence Lenders have consented.
(L) CAPITAL EXPENDITURES. Make Capital Expenditures which, in the
aggregate, as to Borrower and its Subsidiaries, exceed $1,000,000 during any
fiscal year of Borrower.
(M) BUSINESS LOCATIONS. Transfer its principal place of business
or chief executive office, or open new manufacturing plants, or transfer
existing manufacturing plants, or maintain warehouses or records with respect to
Accounts or Inventory, to or at any locations other than those at which the same
are presently kept or maintained, as set forth on EXHIBIT B hereto (which shall
be updated quarterly so long as no Default or Event of Default exists and,
during the existence of a Default or Event of Default, as frequently as shall be
requested by Lenders), except upon at least 30 days prior written notice to
Agent and at least 30 days after the delivery to Agent of financing statements,
if required by Agent, in form satisfactory to Agent to perfect or continue the
perfection of Agent's Lien, for the benefit of Lenders, and security interest
hereunder.
(N) CHANGE OF BUSINESS. Enter into any new business or make any
material change in any of Borrower's business objectives, purposes and
operations.
(O) DISPOSITION OF ASSETS. Sell, lease or otherwise dispose of
any of its Properties, including any disposition of Property as part of a sale
and leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of Borrower's business for so long as no Event
of Default exists hereunder, (ii) transfers of monies from Borrower's operating
account in the ordinary course of Borrower's business for so long as no Event of
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Default exists hereunder, (iii) a transfer of Property to Borrower by a
Subsidiary, or (iv) dispositions expressly authorized by this Agreement.
(P) NAME OF BORROWER. Use any corporate name (other than its own)
or any fictitious name, tradestyle or "d/b/a" except for the names disclosed on
EXHIBIT D attached hereto, unless Borrower shall have given Agent and each
Lender sixty days prior written notice of such new corporate name, fictitious
name, tradestyle or d/b/a.
(Q) BILL-AND-HOLD SALES, ETC. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
(R) EXECUTIVE COMPENSATION. Permit the total annual compensation
(including, without limitation, salaries, fees, commissions, bonuses and other
payments, whether direct or indirect, in money or otherwise) of Borrower's
executive officers to exceed the amounts provided or contemplated by (i)
existing employment agreements, copies of which shall be provided to Agent and
Lenders, or (ii) employment agreements or compensation plans considered and
approved by the Board of Directors of Borrower from time to time, copies of
which shall be provided to Agent and Lenders.
(S) USE OF AGENT'S OR A LENDER'S NAME. Without the prior written
consent of Agent or such Lender, use the name of Agent or such Lender or the
name of any Affiliates of Lender in connection with any of Borrower's business
or activities, except in connection with internal business matters, as required
in dealings with governmental agencies and financial institutions and to trade
creditors of Borrower solely for credit reference purposes.
(T) MARGIN SECURITIES. Own, purchase or acquire (or enter into
any contract to purchase or acquire) any "margin security" as defined by any
regulation of the Federal Reserve Board as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, Agent shall have received an opinion of counsel
satisfactory to Agent to the effect that such purchase or acquisition will not
cause this Agreement to violate Regulations G, T, U or X or any other regulation
of the Federal Reserve Board then in effect.
(U) RESTRICTED INVESTMENT. Make or have, or permit any Subsidiary
to make or have, any Restricted Investment.
(V) FISCAL YEAR. Change, or permit any Subsidiary to change, its
fiscal year, or permit any Subsidiary to have a fiscal year different from that
of Borrower.
(W) STOCK OF SUBSIDIARY, ETC. Sell or otherwise dispose of any
shares of capital stock of any Subsidiary, except in connection with a
transaction permitted under SECTION 9.2(A), or permit any Subsidiary to issue
any additional shares of its capital stock except director's qualifying shares.
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(X) LEASES. Become a lessee under any operating lease (other than
a lease under which Borrower is lessor) of Property if the aggregate Rentals
payable during any current or future period of twelve consecutive months under
the lease in question and all other leases under which Borrower is then lessee
would exceed $2,500,000.00. The term "RENTALS" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease.
(Y) TAX CONSOLIDATION. File or consent to the filing of any
consolidated income tax return with any Person other than its Subsidiaries;
PROVIDED; HOWEVER; that notwithstanding the foregoing, Agent and Lenders hereby
agree that Borrower has with Embroidery and Holdings become a member of a
consolidated group of corporations (consisting of Borrower, Embroidery and
Holdings) for accounting and federal income tax purposes, and that in connection
therewith, Borrower has entered into the Tax Sharing Agreement under which
Borrower will be responsible to pay to Holdings no more than Borrower's
proportionate share of the consolidated federal income tax liability that it
would otherwise have been required to pay as if Borrower was not a member of
such consolidated group of corporations.
9.3. SPECIFIC FINANCIAL COVENANTS. During the term of this Agreement,
and thereafter for so long as there are any obligations to Agent and/or any
Lender, Borrower covenants that, unless otherwise consented to by Lenders in
writing, it shall:
(A) ADJUSTED NET WORTH. At the end of each fiscal quarter of
Borrower during the term hereof, maintain an Adjusted Net Worth of Borrower of
not less than the amount shown below for the fiscal quarter corresponding
thereto:
Fiscal Quarter
Ending Closest To: Amount
----------------------------- ------------------
(i) September 30, 1996 (i) $2,200,000
(ii) December 31, 1996 (ii) $2,200,000
(iii) March 31, 1997 (iii) $2,200,000
(iv) June 30, 1997 (iv) $3,000,000
(v) September 30, 1997 (v) $5,500,000
(vi) December 31, 1997 (vi) $6,000,000
(vii) At the end of each (vii) $6,000,000
thereafter occurring
fiscal quarter
(B) CURRENT RATIO. As of the end of each fiscal quarter of
Borrower during the term hereof, beginning with the fiscal quarter ending
closest to September 30, 1996, maintain a Current Ratio of not less than 0.9 to
1.00.
(C) INDEBTEDNESS TO NET WORTH RATIO. As of the end of each fiscal
quarter of Borrower ending closest to the date indicated below, maintain a ratio
of Borrower's Indebtedness to Borrower's Net Worth of no more than the ratio
indicated below:
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Fiscal Quarter Ending
Closest to: Ratio
----------------------------- ------------------
(i) September 30, 1996 (i) 6.0 to 1.0
(ii) December 31, 1996 (ii) 5.0 to 1.0
(iii) March 31, 1997 (iii) 4.0 to 1.0
(iv) June 30, 1997 (iv) 4.0 to 1.0
(v) September 30, 1997 (v) 4.0 to 1.0
(vi) December 31, 1997 (vi) 4.0 to 1.0
(vii) At the end of each (vii) 3.0 to 1.0
thereafter occurring
fiscal quarter
(D) FIXED CHARGE RATIO. As of the end of each fiscal month of
Borrower ending closest to the date indicated below, maintain a Fixed Charge
Ratio of not less than the ratio indicated below for the time period indicated
below:
RELEVANT TIME PERIOD RATIO
------------------------------------ --------------------
(i) One month period ending (i) 1.1 to 1.00
August 31, 1996
(ii) Two month period ending (ii) 1.1 to 1.00
September 30, 1996
(iii) Three month period ending (iii) 1.1 to 1.00
October 31, 1996
(iv) Four month period ending (iv) 1.1 to 1.00
November 30, 1996
(v) Five month period ending (v) 1.1 to 1.00
December 31, 1996
(vi) Six month period ending (vi) 1.1 to 1.00
January 31, 1997
(vii) Seven month period ending (vii) 1.1 to 1.00
February 28, 1997
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(viii) Eight month period ending (viii) 1.1 to 1.00
March 31, 1997
(ix) Nine month period ending (ix) 1.1 to 1.00
April 30, 1996
(x) Ten month period ending (x) 1.1 to 1.00
May 31, 1996
(xi) Eleven month period ending (xi) 1.1 to 1.00
June 30, 1997
(xii) Twelve month period ending (ii) 1.2 to 1.00
July 31, 1997
(xiii) Twelve month period ending (iii) 1.2 to 1.00
on the last day of each
thereafter occurring fiscal
month
9.4. RELEASE. Upon the funding of the initial Loans hereunder on the
Closing Date, Lenders hereby release that certain Unconditional Guaranty, dated
as of January 11, 1996, executed by Equus, in favor of Fleet, relating to
Indebtedness of Borrower to Fleet, and Fleet shall return each original, signed
copy of such Unconditional Guaranty to Equus on the Closing Date, each marked
"Satisfied in Full."
SECTION 10. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Agent
and Lenders under the other Sections of this Agreement, it is understood and
agreed that Lenders will not make any Loan under SECTION 2 of this Agreement
unless and until each of the following conditions has been and continues to be
satisfied or waived, all in form and substance satisfactory to Agent and its
counsel:
10.1. DOCUMENTATION. Agent shall have received the following documents,
each to be in form and substance satisfactory to Agent and its counsel:
(A) This Agreement, duly executed by Borrower;
(B) (i) Revolving Credit Note in favor of Fleet, duly executed by
Borrower, in the form of EXHIBIT A-1 attached hereto, (ii) Revolving Credit Note
in favor of Boston, duly
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executed by Borrower, in the form of EXHIBIT A-2 attached hereto, (iii) Term
Note in favor of Fleet, duly executed by Borrower, in the form of EXHIBIT A-3
attached hereto, and (iv) Term Note in favor of Boston, duly executed by
Borrower, in the form of EXHIBIT A-4 attached hereto;
(C) The Guaranty Agreement, duly executed by Holdings;
(D) The Trademark Security Agreement, duly executed by Borrower;
(E) The Stock Pledge Agreement, duly executed by Holdings;
(F) copies of all filing receipts or acknowledgments issued by
any governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Agent, for the benefit of Lenders, in the Collateral
(including the assets acquired in the Acquisition) and evidence to Agent and
Lenders that such Liens constitute valid and perfected security interests and
Liens, having the Lien priority specified in SECTION 4.2(B) hereof;
(G) landlord consent letters from such of the landlords as shall
be required by Agent, in form and substance satisfactory to Lenders, as to each
new location of Borrower resulting from the Acquisition;
(H) good standing certificates for Borrower, issued within 15
days before the Closing Date by the Secretary of State or other appropriate
official of Borrower's jurisdiction of incorporation and each jurisdiction where
the conduct of Borrower's business activities or the ownership of its Properties
necessitates qualification;
(I) a closing certificate signed by the President and Chief
Financial Officer of Borrower dated as of the Closing Date, stating that (i) the
representations and warranties set forth in SECTION 8 hereof are true and
correct on and as of such date, (ii) Borrower is on such date in compliance with
all the terms and provisions set forth in this Agreement, and (iii) on such date
no Default or Event of Default has occurred or is continuing;
(J) satisfaction (or waiver by Borrower) of all conditions
precedent to the Asset Purchase Agreement, and a copy thereof, duly executed by
the parties thereto;
(K) a collateral assignment of the Asset Purchase Agreement,
executed by Borrower, in favor of Agent, for the benefit of Lenders and
consented to by Seller;
(L) a letter from Seller's counsel stating that Agent and Lenders
may rely on such counsel's opinion to Borrower issued in connection with the
Acquisition, in form and substance satisfactory to Lenders;
(M) a letter from Seller and Seller Shareholders to Agent,
whereby Seller and Seller Shareholders indemnify Agent and Lenders against all
claims and losses Agent and Lenders may incur due to the failure of Seller and
Borrower to comply with applicable bulk sales laws in connection with the
Acquisition;
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(N) certifications, documentation and such other evidence and
materials satisfactory to Agent of the consummation of the Acquisition;
(O) Releases and UCC-3 Terminations, in form and substance
satisfactory to Agent, in its sole discretion, duly executed by Equus, releasing
all of Equus' security interests and Liens in the assets of Borrower;
(P) the written opinion of Porter & Hedges, L.L.P., counsel to
Borrower, regarding Borrower, and the execution of this Agreement and the Other
Agreements executed in connection with this Agreement, and the transactions
contemplated hereby, to be in form and substance satisfactory to Lenders, in
their sole discretion;
(Q) written instructions from Borrower directing the application
of proceeds of the Loans to be made on the Closing Date;
(R) certified copies of Borrower's casualty insurance policies,
together with endorsements naming Agent, for the benefit of Lenders, as loss
payee and as mortgagee pursuant to a standard mortgagee clause, and certified
copies of Borrower's liability insurance policies, together with endorsements
naming Agent, for the benefit of Lenders, as a co-insured;
(S) copies of the physical count of Inventory performed pursuant
to SECTION 9.1(K) hereof; and
(T) such other documents, instruments and agreements as Lenders
or their legal counsel shall reasonably request.
10.2. OTHER CONDITIONS. The following conditions have been and shall
continue to be satisfied:
(A) No Default or Event of Default shall have occurred and be
continuing unless such Default or Event of Default shall have been specifically
waived in writing by Lenders;
(B) The representations and warranties contained herein and the
Loan Documents shall be true and correct as of the date hereof, as if made on
the date hereof;
(C) Borrower shall have paid to Agent, for its account and the
account of Lenders, in immediately available funds, the closing fee set forth in
SECTION 3.1(J), which closing fee is non-refundable and shall be deemed fully
earned as of the date of execution of this Agreement;
(D) Borrower shall have paid to Agent, for its account, in
immediately available funds, the initial agency fee as set forth in SECTION
3.1(I), which initial agency fee is nonrefundable and shall be deemed fully
earned as of the date of execution of this Agreement;
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(E) On the date of the funding to Borrower of the Loans relevant
to the consummation of the Acquisition, the amount of the Borrowing Base after
giving effect to the Loans made on such date, shall exceed the aggregate amount
of the outstanding Revolving Credit Loans by at least $4,500,000, and Borrower
shall have provided Agent with a Borrowing Base Certificate to the foregoing
effect;
(F) Agent shall have received satisfactory reference checks from
such licensors as shall be required by Agent as to licenses of Seller being
transferred to Borrower in connection with the Acquisition or replacement
licenses Borrower is to obtain in connection therewith, including, without
limitation, satisfactory responses from such licensors as to the Lien of Agent,
for the benefit of Lenders, in the relevant licenses and the future prospects
for renewal by such licensors of such licenses; PROVIDED, HOWEVER, Agent hereby
acknowledges that it will not be able to obtain any written letter from Walt
Disney Company or its affiliates consenting to Agent's security interest, for
the benefit of Lenders, in any licenses from Walt Disney Company or its
affiliates;
(G) Agent shall have received a satisfactory reference check from
such vendors as shall be required by Lenders, including, without limitation, a
satisfactory response from Russell Corporation;
(H) A minimum of an additional $2,500,000 of equity shall have
been contributed to Borrower through the purchase of Borrower's Designated
Preferred Stock by Equus and certain other investors (Equus to have contributed
at least $1,500,000 of such amount), the rights, terms and provisions of such
Designated Preferred Stock, and the purchase thereof by such parties, to be
satisfactory to Lenders, in their sole discretion;
(I) All of existing Borrower Subordinated Debt (as defined in the
Restated Loan Agreement) (including, without limitation, all the indebtedness
evidenced by the Existing Senior Subordinated Notes) shall have been converted
into an investment in Holding's preferred stock, the rights, terms and
provisions of such preferred stock, and the conversion into such preferred
stock, to be satisfactory to Lenders, in their sole discretion;
(J) Allied Investment Corporation and Allied Investment
Corporation II or another lender to be determined shall have advanced an
aggregate amount of $3,500,000 of Subordinated Debt to Borrower, on terms and
pursuant to documentation satisfactory to Lenders, in their sole discretion;
(K) The terms, provisions and conditions of the Purchase
Debenture, the Rolling Debenture and of the form of the Earnout Debenture shall
each be satisfactory to Lenders, in their sole discretion;
(L) All Indebtedness of Borrower which Lenders require be
Borrower Subordinated Debt, shall be subordinated in a manner and pursuant to
terms and conditions acceptable to Lenders, in their sole discretion, and
Borrower shall have delivered to Lenders all required subordination agreements,
including, without limitation, (i) a debt subordination
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agreement, in form and substance satisfactory to Lenders, executed by Borrower
and Allied Investment Corporation and Allied Investment Corporation II and (ii)
a debt subordination agreement in form and substance satisfactory to Lenders,
executed by Borrower and Seller, subordinating in right of payment and claim the
Earnout Cash Payment, in accordance with the terms thereof; and
(M) All corporate proceedings taken in connection with the
transactions contemplated by this Agreement and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Lenders and their
legal counsel.
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(A) PAYMENT OF NOTES. Borrower shall fail to pay any installment
of principal, interest or premium, if any, owing on any Note on the due date of
such installment.
(B) PAYMENT OF OTHER OBlIGATIONS. Borrower shall fail to pay any
of the Obligations that are not evidenced by the Term Notes on the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).
(C) MISREPRESENTATIONS. Any warranty, representation, or other
statement made or furnished to Agent and/or Lenders by or on behalf of Borrower
or Guarantor or in any instrument, certificate or financial statement furnished
in compliance with or in reference to this Agreement or any of the other Loan
Documents proves to have been false or misleading in any material respect when
made or furnished.
(D) BREACH OF COVENANTS. Borrower shall fail or neglect to
perform, keep or observe (i) any covenant contained in SECTIONS 4.3, 4.4, 4.5,
5.4(B), 9.1(F), 9.2 (other than 9.2(H)) or 9.3 of this Agreement, or (ii) any
covenant contained in SECTIONS 5.2, 9.1(A), 9.1(J), 9.1(O), 9.1(P) or 9.2(H) and
the breach of such covenant is not cured to Lenders' satisfaction within 10 days
after the sooner to occur of Borrower's receipt of notice of such breach from
Agent or the date on which such failure or neglect becomes known to any
executive officer of Borrower, or (iii) any other covenant contained in this
Agreement (other than a covenant a default in the performance or observance of
which is dealt with specifically elsewhere in this SECTION 11.1) and the breach
of such other covenant is not cured to Lenders' satisfaction within 15 days
after the sooner to occur of Borrower's receipt of notice of such breach from
Agent or the date on which such failure or neglect becomes known to any
executive officer of Borrower.
(E) DEFAULT UNDER OTHER AGREEMENTS. Any event of default shall
occur under, or Borrower shall default in the performance or observance of any
term, covenant, condition or agreement contained in, any of the Other Agreements
and such default shall continue beyond any applicable period of grace.
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(F) DEFAULT UNDER SECURITY DOCUMENTS. Any event of default shall
occur under, or Borrower or any other Person party thereto shall default in the
performance or observance of any term, covenant, condition or agreement
contained in, any of the Security Documents and such default shall continue
beyond any applicable period of grace.
(G) OTHER DEFAULTS. There shall occur any default or event of
default on the part of Borrower (including specifically, but without limitation,
due to nonpayment) under any agreement, document or instrument to which Borrower
is a party or by which Borrower or any of their respective Property is bound,
creating or relating to any Indebtedness (other than the Obligations) in excess
of $50,000 if the payment or maturity of such Indebtedness is accelerated in
consequence of such event of default or demand for payment of such Indebtedness
is made.
(H) UNINSURED LOSSES; UNAUTHORIZED DISPOSITIONS. Any material
loss, theft, damage or destruction not fully covered by insurance (as required
by this Agreement and subject to such deductibles as Agent shall have agreed to
in writing), or sale, lease or encumbrance of any of the Collateral or the
making of any levy, seizure, or attachment thereof or thereon except in all
cases as may be specifically permitted by other provisions of this Agreement.
(I) ADVERSE CHANGES. There shall occur any material adverse
change in the financial condition or business prospects of Borrower.
(J) INSOLVENCY, ETC. Borrower or Guarantor shall cease to be
Solvent or shall suffer the appointment of a receiver, trustee, custodian or
similar fiduciary, or shall make an assignment for the benefit of creditors, or
any petition for an order for relief shall be filed by or against Borrower or
Guarantor under the Bankruptcy Code (if against Borrower or Guarantor, the
continuation of such proceeding for more than 30 days), or Borrower or Guarantor
shall make any offer of settlement, extension or composition to their respective
unsecured creditors generally.
(K) BUSINESS DISRUPTION; CONDEMNATION. There shall occur a
cessation of a substantial part of the business of Borrower for a period which
significantly affects Borrower's capacity to continue its business, on a
profitable basis; or Borrower shall suffer the loss or revocation of any license
or permit now held or hereafter acquired by Borrower which is necessary to the
continued or lawful operation of its business; or Borrower shall be enjoined,
restrained or in any way prevented by court, governmental or administrative
order from conducting all or any material part of its business affairs; or any
material lease or agreement pursuant to which Borrower leases, uses or occupies
any Property shall be canceled or terminated prior to the expiration of its
stated term; or any part of the Collateral shall be taken through condemnation
or the value of such Property shall be impaired through condemnation.
(L) ERISA. A Reportable Event shall occur which Lenders shall
determine in good faith constitutes grounds for the termination by the Pension
Benefit Guaranty Corporation of any Plan or for the appointment by the
appropriate United States district court of a trustee for any Plan, or if any
Plan shall be terminated or any such trustee shall be requested or appointed, or
if Borrower is in "default" (as defined in SECTION 4219(C)(5) of ERISA) with
respect to payments
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to a Multi-Employer Plan resulting from Borrower's complete or partial
withdrawal from such Plan.
(M) LITIGATION. Borrower or any Affiliate of Borrower, shall
challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Agent, for the benefit of Lenders.
(N) JUDGMENTS. Any money judgment, writ of attachment or similar
process is entered or filed against Borrower or any of its Property and results
in the creation or imposition of any Lien that is not a Permitted Lien or any
money judgment or writ of attachment or similar process of greater than $500,000
is filed against Borrower or any of its Property and remains undischarged or
unstayed for more than thirty (30) days.
(O) SUBORDINATED DEBT. Borrower shall make any payment on account
of Borrower Subordinated Debt other than (i) a Permitted Payment, or (ii) a
prepayment permitted pursuant to SECTION 9.2(I) hereof.
(P) CHANGE IN CONTROL. A Change in Control shall occur, unless
such Change in Control occurs as a result of the consummation of an Initial
Public Offering.
(Q) DEFAULT UNDER SUBORDINATED DEBT DOCUMENTS. Any event of
default shall occur under, or any Person shall default in the performance or
observance of any term, covenant, condition or agreement contained in any
instrument or document evidencing or executed in connection with any
Subordinated Debt, including, without limitation, any subordination agreement.
(R) REPUDIATION OF OR DEFAULT UNDER GUARANTY AGREEMENT. Guarantor
shall revoke or attempt to revoke the Guaranty Agreement to which it is a party
or shall repudiate its liability thereunder or shall be in default under the
terms thereof.
(S) REVOCATION OF DISNEY LICENSES. Walt Disney Company and/or its
affiliates shall revoke all or substantially all of the licenses granted to
Borrower by such entity.
11.2. ACCELERATION OF THE OBLIGATIONS. Without in any way limiting the
right of Agent and/or Lenders to demand payment of any portion of the
Obligations payable on demand in accordance with SECTION 3.4 hereof, upon or at
any time after the occurrence of an Event of Default as above provided, all or
any portion of the Obligations due or to become due from Borrower to Agent
and/or any Lender (whether under this Agreement, or any of the other Loan
Documents or otherwise) shall, at Lenders' option, become at once due and
payable without presentment, demand, protest, notice of dishonor, notice of
default, notice of intent to accelerate, notice of acceleration, or any other
notice whatsoever, and Borrower shall forthwith pay to Agent, for the account of
Lenders, in addition to any and all sums and charges due, the entire principal
of and interest accrued on the Obligations.
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11.3. REMEDIES. Upon and after the occurrence of an Event of Default,
Agent, with the prior consent of Lenders and on behalf of Lenders, shall have
and may exercise from time to time the following rights and remedies:
(A) All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights to
which Agent or any Lender may be entitled, all of which rights and remedies
shall be cumulative, and none of which shall be exclusive, and shall be in
addition to any other rights or remedies contained in this Agreement or any of
the other Loan Documents.
(B) The right to take immediate possession of the Collateral, and
(i) to require Borrower to assemble the Collateral, at Borrower's expense, and
make it available to Agent at a place designated by Agent which is reasonably
convenient to both parties, and (ii) to enter any of the premises of Borrower or
wherever any of the Collateral shall be located, and to keep and store the same
on said premises until sold (and if said premises be the Property of Borrower,
Borrower agrees not to charge Lender for storage thereof).
(C) The right to sell or otherwise dispose of all or any
Inventory or Equipment in its then condition, or after any further manufacturing
or processing thereof, at public or private sale or sales, with such notice as
may be required by law, in lots or in bulk, for cash or on credit, all as Agent,
in its discretion, may deem advisable. Borrower agrees that ten days written
notice to Borrower of any public or private sale or other disposition of such
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Agent shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Agent shall have the right to sell, lease or otherwise dispose of such
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Agent or any Lender may purchase all or any part of such Collateral at
public or, if permitted by law, private sale and, in lieu of actual payment of
such purchase price, may set off the amount of such price against the
Obligations.
(D) Lenders are hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Agent's and Lenders' benefit.
(E) The proceeds realized from the sale of any Collateral may be
applied, after allowing two Business Days for collection, first to the costs,
expenses and reasonable attorneys' fees incurred by Agent in collecting the
Obligations, in enforcing the rights of Agent and Lenders under the Loan
Documents and in collecting, retaking, completing, protecting, removing,
storing, advertising for sale, selling and delivery any of the Collateral;
secondly, to interest due upon any of the Obligations; and thirdly, to the
principal of the Obligations and fourthly, at the option of Agent, to the
establishment of a cash collateral fund to be held as a reserve to fund future
drawings made under Letters of Credit issued by Agent or Bank and future LC
Payments. If any deficiency shall arise, Borrower shall remain liable to Agent
and Lenders therefor.
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11.4. REMEDIES CUMULATIVE; NO WAIVER. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Agent and/or any Lender or contained in any other
agreement between Agent or any Lender and Borrower, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of
Borrower herein contained. The failure or delay of Agent or any Lender to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such Liens, rights, powers and remedies, but
all such Liens, rights, powers, and remedies shall continue in full force and
effect until all Loans and all other Obligations owing or to become owing from
Borrower to Agent and/or any Lender shall have been fully satisfied, and all
Liens, rights, powers, and remedies herein provided for are cumulative and none
are exclusive.
SECTION L2. THE AGENT
12.1. APPOINTMENT AND AUTHORIZATION. Each Lender hereby irrevocably
appoints and authorizes Agent to take such action on its behalf and to exercise
such powers under the Loan Documents as are delegated to Agent by the terms
thereof, together with such powers as are reasonably incidental thereto. With
respect to its Commitment, the Advances made by it, and the Term Note issued to
it, Agent shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not Agent; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include the
Agent, in its capacity as a Lender. The Agent and its affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, Borrower and its Affiliates, and any Person
which may do business with Borrower or its Affiliates, all as if Agent were not
Agent hereunder and without any duty to account therefor to Lenders.
12.2. NOTE HOLDERS. Agent may treat the payee of any Term Note as the
holder thereof until written notice of transfer shall have been filed with it
signed by such payee and in form satisfactory to Agent.
12.3. CONSULTATION WITH COUNSEL. Lenders agree that Agent may consult
with legal counsel selected by it and shall not be liable for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.
12.4. DOCUMENTS. Agent shall not be under a duty to examine or pass upon
the validity, effectiveness, enforceability, genuineness or value of any of the
Loan Documents or any other instrument or document furnished pursuant thereto or
in connection therewith, and Agent shall be entitled to assume that the same are
valid, effective, enforceable and genuine and what they purport to be.
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12.5. RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving written notice thereof to Lenders and Borrower and the Agent may
be removed at any time with or without cause by any number of Lenders whose
Total Commitment Percentages total at least 51%. Upon any such resignation or
removal, Lenders shall have the right to appoint a successor Agent reasonably
acceptable to Borrower. If no successor Agent shall have been so appointed by
Lenders and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation or Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent reasonably acceptable to Borrower. Upon the acceptance by any
Person of any appointment as successor Agent hereunder, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this SECTION 12
shall continue in effect for its benefit with respect to any actions taken or
omitted to be taken by it while it was acting as Agent.
12.6. RESPONSIBILITY OF AGENT. It is expressly understood and agreed
that the obligations of Agent under the Loan Documents are only those expressly
set forth in the Loan Documents and that Agent shall be entitled to assume that
no Default or Event of Default has occurred and is continuing, unless Agent has
actual knowledge of such fact or has received notice from Borrower or a Lender
that a Default or an Event of Default has occurred and is continuing and
specifying the nature thereof. Neither Agent nor any of its directors, officers
or employees shall be liable for any action taken or omitted to be taken by it
under or in connection with the Loan Documents, except for its own gross
negligence or willful misconduct. Agent shall incur no liability under or in
respect of any of the Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument believed by it to be genuine
or authentic or to be signed by the proper party or parties, or with respect to
anything which it may do or refrain from doing in the reasonable exercise of its
judgment or discretion, or which may seem to it to be necessary or desirable in
the premises.
Agent shall not be responsible to Lenders for any recitals, statements,
representations or warranties contained in this Agreement, or in any certificate
or other document referred to or provided for in, or received by any Lender
under, this Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any document referred to or
provided for herein or for any failure by Borrower to perform any of its
obligations hereunder. Agent may employ agents and attorneys-in-fact and shall
not be answerable, except as to money or securities received by it or its
authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
The relationship between Agent and each of the Lenders is only that of
agent and principal and has no fiduciary aspects. Nothing in this Agreement or
elsewhere contained shall be construed to impose on Agent any duties or
responsibilities other than those for which express provision is herein made. In
performing its duties and functions hereunder, Agent does not assume and shall
not be deemed to have assumed, and hereby expressly disclaims, any obligation or
responsibility toward or any relationship of agency or trust with or for
Borrower. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Term Notes),
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to
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refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of Lenders and such instructions shall be
binding upon all Lenders and all holders of Term Notes; PROVIDED, HOWEVER, that
Agent shall not be required to take any action which exposes Agent to personal
liability or which is contrary to this Agreement or applicable law.
12.7. NOTICES OF EVENT OF DEFAULT. In the event that Agent shall have
acquired actual knowledge of any Event of Default or of an event which, with the
giving of notice or the lapse of time, or both, would constitute an Event of
Default, Agent shall promptly give notice thereof to the Lenders.
12.8. REQUESTS FOR INFORMATION. In the event that Agent shall have
received any information, notices, or documents of any kind which are not
required to be provided to Lenders pursuant to the terms of this Agreement,
Agent shall, upon any Lender's request, use its best efforts to provide copies
of the same to such Lender. In addition, contemporaneously with the giving of
the settlement notice pursuant to SECTION 2.3(C) hereof, Agent shall deliver to
each Lender an analysis of Borrower's Borrowing Base and availability as of the
preceding Business Day, detailed to show Collateral categories and ineligibles.
12.9. INDEPENDENT INVESTIGATION. Each of the Lenders severally
represents and warrants to Agent that it has made its own independent
investigation and assessment of the financial condition and affairs of the
Borrower in connection with the making and continuation of its participation in
the Loans hereunder and has not relied exclusively on any information provided
to such Lender by Agent in connection herewith, and each Lender represents,
warrants and undertakes to Agent that it shall continue to make its own
independent appraisal of the creditworthiness of Borrower while the Loans are
outstanding or its Commitment hereunder is in force.
12.10. INDEMNIFICATION. Lenders agree to indemnify Agent (to the extent
not reimbursed by Borrower), ratably according to their Total Commitment
Percentages, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Agent in any way relating to or arising out of the Loan
Documents or any action taken or omitted by Agent under the Loan Documents,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Agent's gross negligence or willful
misconduct.
12.11. BENEFIT OF SECTION 12. The agreements contained in SECTION 12
hereof are solely for the benefit of Agent and Lenders, and are not for the
benefit of, or to be relied upon by, Borrower, or any third party.
SECTION 13. MISCELLANEOUS
13.1. POWER OF ATTORNEY. Borrower hereby irrevocably designates, makes,
constitutes and appoints Agent (and all Persons designated by Agent) as
Borrower's true and lawful attorney (and agent-in-fact) and Agent, or Agent's
agent, may, without notice to Borrower and in either Borrower's or Agent's name,
but at the cost and expense of Borrower:
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(A) At such time or times hereafter as Agent or said agent may
determine, endorse Borrower's name on any checks, notes, acceptances, drafts,
money orders or any other evidence of payment or proceeds of the Collateral
which come into the possession of Agent or any Lender or under Agent's or any
Lender's control; and
(B) At such time or times upon or after the occurrence of an
Event of Default as Agent or its agent may determine: (i) demand payment of the
Accounts from the Account Debtors, enforce payment of the Accounts by legal
proceedings or otherwise, and generally exercise all of Borrower's rights and
remedies with respect to the collection of the Accounts; (ii) settle, adjust,
compromise, discharge or release any of the Accounts or other Collateral or any
legal proceedings brought to collect any of the Accounts or other Collateral;
(iii) sell or assign any of the Accounts and other Collateral upon such terms,
for such amounts and at such time or times as Agent deems advisable; (iv) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in
bankruptcy or similar document against any Account Debtor or to any notice of
lien, assignment or satisfaction of lien or similar document in connection with
any of the Collateral; (vi) receive, open and dispose of all mail addressed to
Borrower and to notify postal authorities to change the address for delivery
thereof to such address as Agent may designate; (vii) endorse the name of
Borrower upon any of the items of payment or proceeds relating to any Collateral
and deposit the same to the account of Lenders on account of the Obligations;
(viii) endorse the name of Borrower upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to the Accounts, Inventory and any other Collateral; (ix) use
Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to Account Debtors; (x) use the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Accounts, Inventory, Equipment and any other
Collateral and to which Borrower has access; (xi) make and adjust claims under
policies of insurance; and (xii) do all other acts and things necessary, in
Agent's determination, to fulfill Borrower's obligations under this Agreement.
13.2. INDEMNITY. BORROWER HEREBY INDEMNIFIES, HOLDS HARMLESS, AND SHALL
DEFEND AGENT, LENDERS AND THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS, COUNSEL
AND EMPLOYEES ("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL LOSSES,
LIABILITIES, DAMAGES, COSTS, EXPENSES, SUITS, ACTIONS AND PROCEEDINGS EVER
SUFFERED OR INCURRED BY ANY INDEMNIFIED PERSON ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER TRANSACTION CONTEMPLATED HEREBY, INCLUDING, WITHOUT
LIMITATION, ANY LOSSES CAUSED BY THE NEGLIGENCE OF SUCH INDEMNIFIED PERSON, BUT
NOT INCLUDING ANY LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNIFIED PERSON, AND BORROWER SHALL REIMBURSE THE AGENT, LENDERS AND
EACH OTHER INDEMNIFIED PERSON FOR ANY EXPENSES (INCLUDING IN CONNECTION WITH THE
INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED CLAIM,
ACTION OR PROCEEDING ARISING THEREFROM, INCLUDING ANY SUCH COSTS OF RESPONDING
TO DISCOVERY REQUESTS OR SUBPOENAS,
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REGARDLESS OF WHETHER AGENT, SUCH LENDER OR SUCH OTHER INDEMNIFIED PERSON IS A
PARTY THERETO). WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS INDEMNITY
SHALL EXTEND TO ANY CLAIMS ASSERTED AGAINST AGENT, ANY LENDER OR ANY OTHER
INDEMNIFIED PERSON BY ANY PERSON UNDER ANY ENVIRONMENTAL LAWS OR SIMILAR LAWS BY
REASON OF BORROWER'S OR ANY OTHER PERSON'S FAILURE TO COMPLY WITH LAWS
APPLICABLE TO SOLID OR HAZARDOUS WASTE MATERIALS OR OTHER TOXIC SUBSTANCES. EACH
INDEMNIFIED PERSON MAY SELECT ITS OWN COUNSEL WITH RESPECT TO ANY LOSSES, IN
ADDITION TO BORROWER'S COUNSEL, AND SHALL BE INDEMNIFIED THEREFOR HEREUNDER.
NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS AGREEMENT, THE OBLIGATION OF
BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE THE PAYMENT IN FULL OF THE LOANS
AND THE TERMINATION OF THIS AGREEMENT.
13.3. MODIFICATION OF AGREEMENT. All modifications, consents, amendments
or waivers of any provision of any Loan Document, or consent to any departure by
Borrower therefrom, shall be effective only if the same shall be in writing and
concurred in by Lenders, and then shall be effective only in the specific
instance and for the purpose for which given.
13.4. REIMBURSEMENT OF EXPENSES. Without limiting Borrower's obligations
for payment of expenses as provided elsewhere in this Agreement or in any other
Loan Document, if, at any time or times prior or subsequent to the date hereof,
regardless of whether or not an Event of Default then exists or any of the
transactions contemplated hereunder are concluded, Agent or any Lender employs
counsel for advice or other representation, or incurs legal expenses or other
costs or out-of-pocket expenses in connection with: (A) the negotiation and
preparation of this Agreement or any of the other Loan Documents or any
amendment of or modification of this Agreement or any of the other Loan
Documents; or (B) the administration of this Agreement or any of the other Loan
Documents and the transactions contemplated hereby and thereby; (C) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Agent, any Lender, Borrower or any other Person) in any way relating to the
Collateral, this Agreement or any of the other Loan Documents, or Borrower's
affairs (but excluding any litigation by Borrower against Agent, any Lender in
which Borrower is the prevailing party); (D) any attempt to enforce any rights
of Agent or any Lender against Borrower or any other Person which may be
obligated to Agent or any Lender by virtue of this Agreement or any of the other
Loan Documents, including, without limitation, the Account Debtors; (E) the
exercise or enforcement of any rights, remedies or privileges of Agent or any
Lender under the Loan Documents or applicable law; (F) the analysis of
information received in connection with any Loan Documents; (G) the audit of any
Collateral or Borrower's books and records; (H) the granting of any consents or
waivers requested in connection with the Loan Documents; (I) the collection of
any Obligation; or (J) any attempt to inspect, verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral; then, in any such event, the reasonable attorneys' fees arising from
such services and all expenses, costs, charges and other fees of such counsel or
of Agent or any Lender or relating to any of the events or actions described in
this SECTION 13.4 shall be payable, on demand and upon presentation of an
itemized statement, by Borrower to Agent or such
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Lender, as the case may be, and shall be additional Obligations hereunder
secured by the Collateral. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include appraisal fees; audit fees;
accountants' fees, costs and expenses; court costs and expenses; photocopying
and duplicating expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges; secretarial overtime
charges; consulting fees, costs and expenses; and expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal or
other services, and Agent or such Lender shall not be obligated to give Borrower
any notice prior to incurring any such expenses. Additionally, if any taxes
(excluding taxes imposed upon or measured by the net income of Agent or any
Lender) shall be payable on account of the execution or delivery of this
Agreement, or the execution, delivery, issuance or recording of any of the other
Loan Documents, or the creation of any of the Obligations hereunder, by reason
of any existing or hereafter enacted federal or state statute, Borrower will pay
all such taxes, including, but not limited to, any interest and penalties
thereon, and will indemnify and hold Agent or such Lender harmless from and
against liability in connection therewith.
13.5. INDULGENCES NOT WAIVERS. Agent's and/or Lenders' failure, at any
time or times hereafter, to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
Agent or any Lender thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by Agent or any Lender of an Event of
Default under this Agreement or any of the other Loan Documents shall not
suspend, waive or affect any other Event of Default under this Agreement or any
of the other Loan Documents, whether the same is prior or subsequent thereto and
whether of the same or of a different type. None of the undertakings,
agreements, warranties, covenants and representations contained in this
Agreement or any of the other Loan Documents and no Event of Default under this
Agreement or any of the other Loan Documents shall be deemed to have been
suspended or waived by Agent and/or Lenders, unless such suspension or waiver is
by an instrument in writing specifying such suspension or waiver and is signed
by a duly authorized representative of Agent and directed to Borrower.
13.6. SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
13.7. SUCCESSORS AND ASSIGNS; PARTICIPATIONS BY LENDER. This Agreement
and the other Loan Documents shall be binding upon and inure to the benefit of
the successors and assigns of Borrower, Agent and Lenders; PROVIDED, HOWEVER,
that Borrower may not sell, assign or transfer any interest in this Agreement or
any other Loan Document, or any portion thereof, including, without limitation,
Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Any purported assignment by Borrower in violation of this SECTION
13.7 shall be void, without Lenders' prior written consent. Borrower hereby
consents to Agent's and/or any Lender's participation, sale, assignment,
transfer or of the disposition, at any time or times hereafter, of this
Agreement, any other Loan Document, or any other Obligations, or of any
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portion hereof or thereof, including, without limitation, Agent's and Lenders'
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
In the case of an assignment, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would have if it
were the original "Agent" or "Lender" (as the case may be) hereunder, Agent or
Lender (as the case may be) shall be relieved of all obligations hereunder upon
any such assignment. In the case of a participation, (i) each participating
lender shall be entitled to receive all information received by Agent regarding
the creditworthiness of Borrower, including, without limitation, information
required to be disclosed to a participant pursuant to Banking Circular 181
(Rev., August 2, 1984), issued by the Comptroller of the Currency (whether such
participating lender is subject to the circular or not), (ii) Borrower shall
execute new Revolving Credit Notes and Term Notes, if applicable, in favor of
each Lender and (iii) each Lender's pro rata share of the Loans shall be
adjusted accordingly.
13.8. CUMULATIVE EFFECT; CONFLICT OF TERMS. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in SECTION 3.4 of
this Agreement and except as otherwise provided in any of the other Loan
Documents by specific reference to the applicable provision of this Agreement,
if any provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
13.9. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
13.10. NOTICE. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto shall be in writing and shall be
sent by certified or registered mail return receipt requested, by personal
delivery against receipt, or by telegraph or telex and, unless otherwise
expressly provided herein, shall be deemed to have been validly served, given or
delivered when delivered against receipt or one Business Day after deposit in
the U.S. mail postage prepaid, or, in the case of telegraphic notice, when
delivered to the telegraph company, or, in the case of telex notice, when sent,
answerback received, addressed as follows:
(A) If to Agent: Fleet Capital Corporation
2711 North Haskell, Suite 2100
Dallas, Texas 75204
Attention: Loan Administration Manager
with a courtesy
copy to: Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: Kenneth M. Vesledahl, Esq.
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(B) If to Borrower: Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227
Attention: President
with a courtesy
copy to: Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attention: William W. Wiggins, Jr., Esq.
(C) If to Lenders: Fleet Capital Corporation
2711 North Haskell, Suite 2100
Dallas, Texas 75204
Attention: Loan Administration Manager
Bank of Boston
115 Perimeter Circle Place, N.E., Suite 500
Atlanta, Georgia 30346
Attention: Patrick A. Morris
Stephen Y. McGehee
with a courtesy
copy to: Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: Kenneth M. Vesledahl, Esq.
or to such other address as each party may designate for itself by like notice
given in accordance with this SECTION 13.10; PROVIDED, HOWEVER, that any notice,
request or demand to or upon Agent or any Lender pursuant to SECTIONS 2.3 or 3.3
shall not be effective until received by Agent or such Lender. Any written
notice that is not sent in conformity with the provisions hereof shall
nevertheless be effective on the date that such notice is actually received by
the noticed party.
13.11. AGENT'S OR LENDERS' CONSENT. Whenever Agent's or Lenders' consent
is required to be obtained under this Agreement, any of the Other Agreements or
any of the Security Documents as a condition to any action, inaction, condition
or event, Agent or Lenders shall be authorized to give or withhold such consent
in its sole and absolute discretion (unless otherwise specifically provided
herein) and to condition its consent upon the giving of additional collateral
security for the Obligations, the payment of money or any other matter.
13.12. DEMAND OBLIGATIONS. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Agent's and/or Lenders' requiring payment of such Obligations.
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13.13. TIME OF ESSENCE. Time is of the essence of the Loan Documents.
13.14. ENTIRE AGREEMENT. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
13.15. INTERPRETATION. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.
13.16. NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ. Borrower and
Lenders 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 Loan Documents.
13.17. NO PRESERVATION OR MARSHALING. Borrower agrees that neither Agent
nor any Lender shall have any obligation to preserve rights to the Collateral
against prior parties or to marshal any Collateral for the benefit of any
Person.
13.18. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
DALLAS, TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN TEXAS, THE LAWS OF
SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF AGENT'S LIEN, FOR THE BENEFIT OF LENDERS, UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF AGENT'S OR ANY LENDER'S OTHER REMEDIES IN RESPECT OF SUCH
COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM
OR INCONSISTENT WITH THE LAWS OF TEXAS. AS PART OF THE CONSIDERATION FOR NEW
VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL
PLACE OF BUSINESS OF BORROWER OR AGENT OR ANY LENDER, BORROWER HEREBY CONSENTS
AND AGREES THAT THE DISTRICT COURT OF DALLAS COUNTY, TEXAS, OR, AT AGENT'S
OPTION, THE UNITED STATES DISTRICT COURT FOR THE U.S. DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND AGENT OR ANY
LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT. BORROWER EXPRESSLY
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SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY AGENT OR ANY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY
OTHER APPROPRIATE FORM OR JURISDICTION.
13.19. WAIVERS BY BORROWER. BORROWER WAIVES (A) THE RIGHT TO TRIAL BY
JURY (WHICH AGENT AND LENDERS HEREBY ALSO WAIVE) IN ANY ACTION, SUIT, PROCEEDING
OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (B) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, INTENT TO
ACCELERATE, ACCELERATION, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION
OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY AGENT AND LENDERS
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER AGENT OR ANY LENDER MAY DO IN THIS REGARD; (C) NOTICE PRIOR TO TAKING
POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT OR ANY LENDER TO EXERCISE ANY OF
AGENT'S OR ANY LENDER'S REMEDIES; (D) THE BENEFIT OF ALL VALUATION, APPRAISEMENT
AND EXEMPTION LAWS; (E) ANY RIGHT BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE
OBLIGATIONS TO REQUIRE AGENT AND/OR ANY LENDER TO TERMINATE ITS SECURITY
INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER UNTIL
TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY
BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWER IS USED IN WHOLE OR IN PART
TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING AGENT AND
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LENDERS FROM ANY LOSS OR DAMAGE AGENT AND EACH LENDER MAY INCUR AS THE RESULT OF
DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY AGENT OR ANY LENDER FROM
BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS; AND (F) NOTICE OF
ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A
MATERIAL INDUCEMENT TO AGENT'S AND EACH LENDER'S ENTERING INTO THIS AGREEMENT
AND THAT AGENT AND EACH LENDER ARE RELYING UPON THE FOREGOING WAIVERS IN ITS
FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
13.20. RELEASE. BORROWER HEREBY AGREES AND ACKNOWLEDGES THAT (A) IT HAS
NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND
OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART
OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR
DAMAGES OF ANY KIND OR NATURE FROM AGENT OR ANY LENDER, OR (B) IF IT HAS ANY
SUCH DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND, IN
CONSIDERATION OF AGENT'S AND LENDERS' EXECUTION AND DELIVERY OF THIS AGREEMENT
AND THE LOANS MADE IN CONNECTION WITH THE ACQUISITION, BORROWER HEREBY
VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES AGENT AND EACH LENDER,
EACH OF THEIR RESPECTIVE AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL
POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES,
AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AGREEMENT IS
EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST AGENT, ANY
LENDER, EACH OF THEIR RESPECTIVE AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF
ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS",
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR
OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AGREEMENT.
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13.21. WAIVER OF CONSUMER RIGHTS. BORROWER HEREBY WAIVES ITS RIGHTS
UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET
SEQ., BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF BORROWER'S OWN SELECTION,
BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY WARRANTS AND
REPRESENTS THAT BORROWER (A) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION RELATIVE TO AGENT AND/OR LENDERS, AND (B) HAS BEEN REPRESENTED BY LEGAL
COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
BORROWER HAS READ AND UNDERSTANDS SECTION 13.21: ______(INITIALS)
13.22. ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME 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.
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IN WITNESS WHEREOF, this Agreement has been duly executed and effective
as of the day and year specified at the beginning hereof.
"BORROWER"
BRAZOS SPORTSWEAR, INC.
By: _______________________________
Name: Randall B. Hale
Title: Chief Executive Officer
"AGENT"
FLEET CAPITAL CORPORATION
as Agent
By: _______________________________
Name: Hance VanBeber
Title: Vice President
TOTAL COMMITMENT
PERCENTAGE ON
CLOSING DATE "LENDERS"
61.538% FLEET CAPITAL CORPORATION,
in its individual capacity
By: _______________________________
Name: Hance VanBeber
Title: Vice President
38.462% THE FIRST NATIONAL BANK OF
BOSTON
By: _______________________________
Name: William C. Purinton
Title: Vice President
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<PAGE>
December 11, 1996
Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227
Re: Revision to and Waiver of Violation of SECTION 9.3(A) of the
Second Amended and Restated Loan and Security Agreement with
Fleet Capital Corporation and The First National Bank of Boston
Gentlemen:
Reference is hereby made to that certain Second Amended and Restated
Loan and Security Agreement, dated August 9, 1996, executed by Fleet Capital
Corporation, a Rhode Island corporation ("FLEET"), The First National Bank of
Boston, a national banking association ("BOSTON") (Fleet and Boston being
hereinafter collectively referred to as "LENDERS"), and Fleet, as Agent for the
Lenders, and Brazos Sportswear, Inc., a Texas corporation ("BORROWER") (as
amended from time to time, the "LOAN AGREEMENT"). Unless otherwise indicated,
all terms used herein shall have the same meanings as in the Loan Agreement.
The Borrower has informed Lenders that the Borrower has failed for the
quarter ending September 30, 1996, to achieve the minimum Adjusted Net Worth
required by SECTION 9.3(A) of the Loan Agreement, and such failure constitutes a
violation of SECTION 9.3(A) of the Loan Agreement. Borrower has requested that
Lenders waive such violation of SECTION 9.3(A) of the Loan Agreement.
In addition, Borrower hereby agrees and acknowledges that it has
requested, effective as of the date hereof, that Lenders agree to the following
amendments to the Loan Agreement:
(i) A new definition, "Earn-Out Adjustment Amount", is hereby
added to SECTION 1.1 of the Loan Agreement, to be inserted in its proper
alphabetical order and to read in its entirety as follows:
"EARN-OUT ADJUSTMENT AMOUNT -- in the calculation of the Adjusted
Net Worth of Borrower for the respective fiscal quarter of
Borrower ending closest to December 31, 1996, and March 31, 1997,
in order to determine whether Borrower is in compliance as of the
end of each such respective fiscal quarter with the financial
covenant specified in SECTION 9.3(A) of the Loan Agreement, the
amount of $1,125,000. Except for the purposes and dates described
in the preceding sentence, the Earn-Out Adjustment Amount shall
otherwise be zero."
(ii) The definition of "Adjusted Net Worth" contained in SECTION
1.1 of the Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"ADJUSTED NET WORTH - for Borrower at any date means a sum
equal to:
(a) the total shareholder's equity
(including capital stock, additional paid-in capital and
retained earnings after deducting
<PAGE>
Brazos Sportswear, Inc.
December 11, 1996
Page 2
treasury stock) which would be shown on a balance sheet of
Borrower at such date in accordance with GAAP;
PLUS
(b) without duplication, the aggregate
amount of the Designated Preferred Stock which would be
shown on a balance sheet of Borrower at such date in
accordance with GAAP;
MINUS
(c) the aggregate book value of Intangible
Assets which would be shown on such balance sheet of
Borrower at such date in accordance with GAAP;
PLUS
(d) Borrower Subordinated Debt at such date;
PLUS
(e) the Earn-Out Adjustment Amount at such
date."
Lenders hereby waive the violation set forth above and agree to the
revisions to the Loan Agreement set forth above; PROVIDED, HOWEVER, that (i)
such agreement to the above-described revisions to the Loan Agreement and such
waiver shall not apply to or constitute a consent to any future amendment to any
other provisions of the Loan Agreement or a waiver of any other past, present or
future violation or violations of any other provision of the Loan Agreement, and
(ii) Lenders' agreement to the above-described revisions to the Loan Agreement
and their failure to exercise any right, privilege or remedy as a result of the
violation set forth above shall not directly or indirectly in any way whatsoever
either: (a) impair, prejudice or otherwise adversely affect Lenders' right at
any time to exercise any right, privilege, or remedy in connection with the Loan
Agreement, any other agreement, or any other contract or instrument, or (b)
amend or alter any provision of the Loan Agreement, any other agreement, or any
other contract or instrument, or (c) constitute any course of dealing or other
basis for altering any obligation of Borrower or any rights, privilege, or
remedy of Lender under the Loan Agreement, any other agreement, or any other
contract or instrument, or constitute any consent to any other transaction
involving Borrower.
Except as expressly set forth herein, all of the other terms, provisions
and conditions of the Loan Agreement and other agreements shall remain and
continue in full force and effect.
<PAGE>
Brazos Sportswear, Inc.
December 11, 1996
Page 3
Except as expressly stated herein, Lenders reserve all of their rights,
privileges and remedies under the Loan Agreement, each other agreement and any
other contracts or instruments executed by Borrower and/or for the benefit of
Lenders. In order to induce Lenders to execute this letter, Borrower accepts and
agrees to each provision of this letter.
Notwithstanding any provision of this letter to the contrary, this
letter shall not be directly or indirectly effective against Lenders for any
purpose unless and until Lenders receive a copy of this letter which has been
duly signed by Borrower.
Yours very truly,
FLEET CAPITAL CORPORATION
By: ______________________________
Its: ________________________
THE FIRST NATIONAL BANK OF BOSTON
By: ______________________________
Its: ________________________
AGREED AND ACCEPTED:
BRAZOS SPORTSWEAR, INC.
By: ___________________________
Its: _____________________
<PAGE>
February 4, 1997
Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227
Re: Revision to SECTION 9.1(K) of the Second Amended and Restated
Loan and Security Agreement with Fleet Capital Corporation and
The First National Bank of Boston
Gentlemen:
Reference is hereby made to that certain Second Amended and Restated
Loan and Security Agreement, dated August 9, 1996, executed by Fleet Capital
Corporation, a Rhode Island corporation ("FLEET"), The First National Bank of
Boston, a national banking association ("BOSTON") (Fleet and Boston being
hereinafter collectively referred to as "LENDERS"), and Fleet, as Agent for the
Lenders, and Brazos Sportswear, Inc., a Texas corporation ("BORROWER") (as
amended from time to time, the "LOAN AGREEMENT"). Unless otherwise indicated,
all terms used herein shall have the same meanings as in the Loan Agreement.
Borrower hereby agrees and acknowledges that it has requested, effective
as of the date hereof, that Lenders agree to amend and restate the first
sentence of SECTION 9.1(K) of the Loan Agreement to read as follows:
"As soon as possible, but not later than March 31, 1997, establish a
perpetual inventory system at Borrower's new location acquired pursuant
to the Acquisition."
Lenders hereby agree to the revision to the Loan Agreement set forth
above; PROVIDED, HOWEVER, that (i) such agreement to the above-described
revision to the Loan Agreement shall not apply to or constitute a consent to any
future amendment to any other provisions of the Loan Agreement or a waiver of
any past, present or future violation or violations of any other provision of
the Loan Agreement, and (ii) Lenders' agreement to the above-described revision
to the Loan Agreement shall not directly or indirectly in any way whatsoever
either: (a) impair, prejudice or otherwise adversely affect Lenders' right at
any time to exercise any right, privilege, or remedy in connection with the Loan
Agreement, any other agreement, or any other contract or instrument, or (b)
amend or alter any provision of the Loan Agreement, any other agreement, or any
other contract or instrument, or (c) constitute any course of dealing or other
basis for altering any obligation of Borrower or any rights, privilege, or
remedy of Lender under the Loan Agreement, any other agreement, or any other
contract or instrument, or constitute any consent to any other transaction
involving Borrower.
Except as expressly set forth herein, all of the other terms, provisions
and conditions of the Loan Agreement and other agreements shall remain and
continue in full force and effect.
Except as expressly stated herein, Lenders reserve all of their rights,
privileges and remedies under the Loan Agreement, each other agreement and any
other contracts or instruments executed by Borrower and/or for the benefit of
Lenders. In order to induce Lenders to execute this letter, Borrower accepts and
agrees to each provision of this letter.
<PAGE>
Brazos Sportswear, Inc.
February 4, 1997
Page 2
Notwithstanding any provision of this letter to the contrary, this
letter shall not be directly or indirectly effective against Lenders for any
purpose unless and until Lenders receive a copy of this letter which has been
duly signed by Borrower.
Yours very truly,
FLEET CAPITAL CORPORATION
By: ______________________________
Its: ________________________
THE FIRST NATIONAL BANK OF BOSTON
By: ______________________________
Its: ________________________
AGREED AND ACCEPTED:
BRAZOS SPORTSWEAR, INC.
By: ___________________________
Its: _____________________
<PAGE>
MARCH 1997 AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS MARCH 1997 AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "AMENDMENT") is made and entered into this 14th day of
March, 1997, by and among FLEET CAPITAL CORPORATION ("FLEET"), a Rhode Island
corporation, with an office at 2711 Haskell Avenue, Suite 2100, LB21, Dallas,
Texas 75204, THE FIRST NATIONAL BANK OF BOSTON ("Boston"), a national banking
association, with an office at 100 Federal Street, Boston, Massachusetts 02110
(Fleet and Boston are collectively referred to as "LENDERS" or each individually
a "LENDER"), FLEET, as agent for Lenders (Fleet, in such capacity, the "Agent"),
and BRAZOS, INC. ("BORROWER"), a Texas corporation formerly known as Brazos
Sportswear, Inc., with its chief executive offices at 3860 Virginia Avenue,
Cincinnati, Ohio 45227.
RECITALS
A. Borrower, Agent and Lenders entered into that certain Second Amended
and Restated Loan and Security Agreement, dated as of August 9, 1996, as amended
by (i) that certain letter agreement, dated December 11, 1996, between Borrower
and Lenders, and (ii) that certain letter agreement, dated February 3, 1997,
between Borrower and Lenders (as amended from time to time, the "LOAN
AGREEMENT").
B. BSI Holdings, Inc., a Delaware corporation and owner of 100% of the
issued and outstanding common stock of Borrower ("BSI"), Sun Sportswear, Inc., a
Washington corporation ("SUN"), and Borrower desire to enter into the following
simultaneous transactions (collectively, the "TRANSACTION"):
(i) contribution by Equus II Incorporated, a Delaware
corporation, and others of at least $2,000,000 to BSI;
(ii) merger of BSI into Sun and the reincorporation of the
surviving corporation as a Delaware corporation (such reincorporated
corporation shall be hereinafter referred to as "HOLDINGS");
(iii) retirement of that certain Junior Subordinated Debenture,
dated as of August 2, 1996, executed by BSI and payable to Plymouth
Mills, Inc., in the original principal amount of $3,000,000;
(iv) payoff and termination of the aggregate unpaid principal
balance of and accrued but unpaid interest on the indebtedness of Sun to
Heller Financial, Inc.;
(v) contribution by Holdings to Borrower of all the assets of
Holdings owned by Sun prior to the Transaction; and
MARCH 1997 AMENDMENT 1
<PAGE>
(vi) issuance by Borrower to Bank of America NW, N.A., doing
business as Seafirst Bank of up to $1,500,000 in unsecured subordinated
debt, which unsecured subordinated debt shall be expressly subordinated
to the Obligations (as defined in the Loan Agreement) upon terms
satisfactory to Lenders, in their sole discretion.
C. In connection with the Transaction, Borrower has requested that
Lenders and Agent amend the Loan Agreement in the manner set forth in this
Amendment, and Lenders and Agent are willing to do so upon the terms and
conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS
2.01 AMENDMENT TO PREAMBLE OF THE LOAN AGREEMENT; AMENDMENT TO
DEFINITION OF BORROWER. The preamble of the Loan Agreement is hereby amended by
deleting the reference therein to "BRAZOS SPORTSWEAR, INC. ("BORROWER"), a Texas
corporation" and substituting therefor "BRAZOS, INC. ("BORROWER"), a Texas
corporation formerly known as Brazos Sportswear, Inc.".
2.02 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; AMENDMENT TO
DEFINITION OF BORROWING BASE. The definition of "Borrowing Base" set forth in
SECTION 1.1 of the Loan Agreement is hereby amended by:
(i) inserting immediately after the reference in CLAUSE (A)
therein to "(vi) the Earnout Cash Payment Reserve;" a reference to
"MINUS (vii) the FX Amount;";
(ii) deleting the reference therein to the dollar amount
"$500,000" and substituting therefor the dollar amount "$1,000,000";
(iii) inserting immediately after the reference in CLAUSE (B)(I)
therein to "net amount of Eligible Dated Accounts outstanding at such
date" a reference to "PLUS (C) 85% (or such lesser percentage as Lenders
may in their discretion determine from time to time after the occurrence
of a Default) of the lesser of (a) $3,000,000 or (b) the net amount of
Japanese Accounts outstanding on such date";
MARCH 1997 AMENDMENT 2
<PAGE>
(iv) deleting the reference therein to the dollar amount
"$25,000,000" and substituting therefor the dollar amount "$35,000,000";
and
(v) deleting the reference therein to the dollar amount
"$8,000,000" and substituting therefor the dollar amount "$9,000,000".
2.03 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; AMENDMENT AND
RESTATEMENT OF CERTAIN DEFINITIONS. The definitions of "Adjusted Net Worth",
"Change of Control", "Designated Preferred Stock", "Guaranty Agreement",
"Holdings", "Revolving Credit Commitment", "Revolving Credit Notes", "Revolving
Credit Percentage", "Stock Pledge Agreement", "Term Loan", "Term Loan
Percentage", and "Term Notes" set forth in SECTION 1.1 of the Loan Agreement are
hereby amended and restated in their entirety to read as follows:
"ADJUSTED NET WORTH - for Borrower at any date means a sum equal
to:
(a) the total shareholder's equity (including capital
stock, additional paid-in capital and retained earnings after
deducting treasury stock) which would be shown on a balance
sheet of Borrower at such date in accordance with GAAP;
PLUS
(b) without duplication, the aggregate amount of the
Designated Preferred Stock which would be shown on a balance
sheet of Borrower at such date in accordance with GAAP;
MINUS
(c) the aggregate book value of Intangible Assets which
would be shown on such balance sheet of Borrower at such date in
accordance with GAAP;
PLUS
(d) Borrower Subordinated Debt at such date;
PLUS
(e) the unpaid Earnout Cash Payment at such date."
"CHANGE IN CONTROL - the first date that those Persons who on
the date of the March 1997 Amendment (after consummation of the
transaction contemplated by the March 1997 Amendment) hold all of the
outstanding voting Securities of the Borrower (including options,
warrants and other Securities convertible into or exchangeable with such
voting Securities), together with their respective Affiliates, hold less
than fifty percent (50%) of the outstanding voting Securities of the
Borrower determined on a fully
MARCH 1997 AMENDMENT 3
<PAGE>
diluted basis (assuming full conversion or exchange of all options,
warrants, or other Securities which are convertible into or exchangeable
with such voting Securities)."
"DESIGNATED PREFERRED STOCK - at any date (i) the preferred
stock of the Borrower issued and outstanding on the effective date of
the consummation of the Sun Sportswear Transaction (the "Initial
Preferred"), (ii) any preferred stock of the Borrower issued after the
effective date of the consummation of the Sun Sportswear Transaction on
terms no more favorable to the holders than the Initial Preferred, and
(iii) any other preferred stock of the Borrower issued after the
effective date of the consummation of the Sun Sportswear Transaction, on
terms satisfactory to Lenders. "
"GUARANTY AGREEMENT - the Amended and Restated Unconditional
Guaranty Agreement, dated as of the date of the March 1997 Amendment,
executed by Holdings, in favor of Agent, for the benefit of Lenders, in
form and substance satisfactory to Agent."
"HOLDINGS - Brazos Sportswear, Inc., a Delaware corporation,
successor-in-interest by merger to BSI Holdings, Inc., and parent of
Borrower."
"REVOLVING CREDIT COMMITMENT - $73,200,000."
"REVOLVING CREDIT NOTES - those certain Amended and Restated
Revolving Credit Notes, to be executed by Borrower on or about the date
of the March 1997 Amendment, in favor of each Lender, to evidence
Borrower's indebtedness to such Lender for its Revolving Credit
Percentage, the Amended and Restated Revolving Credit Note in favor of
Fleet to be in the form of ANNEX I attached to the March 1997 Amendment,
as the same may be amended, renewed, extended, modified or restated from
time to time, the provisions of which are in amendment and restatement
of, and in replacement for, the provisions of the Existing Fleet
Revolving Credit Note, and the Amended and Restated Revolving Credit
Note in favor of Boston to be in the form of ANNEX II attached to the
March 1997 Amendment, as the same may be amended, renewed, modified,
extended or restated from time to time, the provisions of which are in
amendment and restatement of, and in replacement for, the provisions of
the Existing Boston Revolving Credit Note."
"REVOLVING CREDIT PERCENTAGE - each Lender's percentage of the
Revolving Credit Commitment, which as to Fleet is 58.80%, and which as
to Boston is 41.20%."
"STOCK PLEDGE AGREEMENT - the Amended and Restated Pledge and
Security Agreement, dated as of the date of the March 1997 Amendment,
executed by Holdings, in favor Agent, for the benefit of Lenders, in
form and substance satisfactory to Lenders."
"TERM LOAN- the Loan described in SECTION 2.2(C) of this
Agreement, which Loan is, in part, in renewal, extension, consolidation,
restatement, and modification, but not in extinguishment or novation, of
the Existing Fleet Term Loan and Existing Boston Term Loan."
MARCH 1997 AMENDMENT 4
<PAGE>
"TERM LOAN PERCENTAGE - each Lender's percentage of the Term
Loan, which as to Fleet is 58.80%, and which as to Boston is 41.20%."
"TERM NOTES - those certain Amended and Restated Secured
Promissory Notes, to be executed by Borrower on or about the date of the
March 1997 Amendment, in favor of each Lender, to evidence Borrower's
Indebtedness to such Lender for its Term Loan Percentage, the Amended
and Restated Secured Promissory Note in favor of Fleet to be in the form
of ANNEX III attached to the March 1997 Amendment, as the same may be
amended, renewed, extended, modified or restated from time to time, the
provisions of which are in amendment and restatement of, and replacement
for, the provisions of the Existing Fleet Term Note, and the Amended and
Restated Secured Promissory Note in favor of Boston to be in the form of
ANNEX IV attached to the March 1997 Amendment, as the same may be
amended, renewed, extended, modified or restated from time to time, the
provisions of which are in renewal, extension, modification, and
restatement of and in substitution for, the provisions of the Existing
Boston Term Note."
2.04 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; AMENDMENT TO
DEFINITION OF OBLIGATIONS. The definition of "Obligations" set forth in SECTION
1.1 of the Loan Agreement is hereby amended by adding immediately after the
phrase "LC Payments" and immediately before the word "debts", the phrase "FX
Payments, obligations under FX Guaranties".
2.05 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; AMENDMENT TO
DEFINITION OF ELIGIBLE ACCOUNTS. The definition of "Eligible Accounts" set forth
in SECTION 1.1 of the Loan Agreement is hereby amended by adding immediately
after the phrase "(u) Lenders do not have a perfected first priority Lien in the
Account" the phrase "; or (v) the Account is a Japanese Account".
2.06 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; ADDITION OF CERTAIN
DEFINITIONS. SECTION 1.1 of the Loan Agreement is hereby amended by adding
thereto in alphabetical order the following definitions:
"DOLLAR - lawful currency of the United States of America."
"EXISTING BOSTON REVOLVING CREDIT NOTE - that certain Revolving
Credit Note, dated August 9, 1996, in the original principal amount of
$20,384,860.00, executed by Borrower, and payable to the order of
Boston, as renewed, extended, modified and restated from time to time."
"EXISTING BOSTON TERM LOAN - as defined in SECTION 2.2(C) of
this Agreement."
"EXISTING BOSTON TERM NOTE - that certain Secured Promissory
Note, dated August 9, 1996, in the original principal amount of
$4,615,440.00, executed by Borrower, and payable to the order of Boston,
as renewed, extended, modified and restated from time to time."
MARCH 1997 AMENDMENT 5
<PAGE>
"EXISTING FLEET REVOLVING CREDIT NOTE - that certain Revolving
Credit Note, dated August 9, 1996, in the original principal amount of
$32,615,140.00, executed by Borrower, and payable to the order of Fleet,
as renewed, extended, modified and restated from time to time."
"EXISTING FLEET TERM LOAN - as defined in SECTION 2.2(C) of this
Agreement."
"EXISTING FLEET TERM NOTE - that certain Secured Promissory
Note, dated August 9, 1996, in the original principal amount of
$7,384,560.00, executed by Borrower and payable to the order of Fleet,
as renewed, extended, modified and restated from time to time."
"FX AMOUNT - at any time, the sum of (i) 10% of the aggregate
amount of the U.S. Dollar Equivalent of all FX Contracts consisting of
foreign currency forward purchase contracts or foreign currency forward
sale contracts then outstanding with a settlement date more than two (2)
Business Days after the date of determination, PLUS (ii) 100% of the
aggregate amount of the U.S. Dollar Equivalent of all FX Contracts
consisting of foreign currency forward purchase contracts or foreign
currency forward sale contracts then outstanding with a settlement date
two (2) or less Business Days from the date of determination PLUS (iii)
100% of the aggregate amount of the U.S. Dollar Equivalent of all FX
Contracts consisting of foreign currency spot purchase contracts or
foreign currency sale spot contracts then outstanding(not including such
FX Contracts which have been fully cash collateralized by the Borrower),
"FX CONTRACT - any foreign currency forward or spot purchase
contract or foreign currency forward sale or spot contract entered into
by Bank and Borrower in the ordinary course of Borrower's business, in
compliance with the terms of SECTION 2.10 of this Agreement, the term of
which shall not exceed 150 days."
"FX GUARANTY - any guaranty, in form and substance satisfactory
to Fleet, executed by Agent and Bank in connection with an FX Contract,
pursuant to which Agent shall guaranty the payment or performance by
Borrower of its obligations to Bank under any such FX Contract."
"FX PAYMENT - as defined in SUBSECTION 2.3(A) of this
Agreement."
"JAPANESE ACCOUNTS - An Account arising in the ordinary course
of the Japanese Subsidiary's business which has been assigned to
Borrower in a manner acceptable to Agent and Lenders; PROVIDED, HOWEVER,
that no such Account shall be a Japanese Account if (i) it is due or
unpaid for more than 120 days after the original invoice date, (ii) the
Japanese Subsidiary incurs any Indebtedness other than royalty payments
and normal operating expenses incurred in the ordinary course of
business (provided such operating expenses do not exceed $200,000 at any
time), (iii) the Japanese Subsidiary has failed to grant Borrower a
valid, perfected first priority Lien (as determined under applicable
law) in all assets of the Japanese Subsidiary in a manner and pursuant
to executed documentation satisfactory to the Lenders,
MARCH 1997 AMENDMENT 6
<PAGE>
(iv) there is any restriction under Japanese law preventing the transfer
of funds to Borrower as to payment of such Account (whether directly
from the Account Debtor, indirectly through the Japanese Subsidiary or
otherwise), (v) the Account Debtor (other than Jupiter Trading) fails to
obtain a documentary Letter of Credit issued by a financial institution
satisfactory to Lenders, (vi) in the case of Accounts as to which
Jupiter Trading is the Account Debtor, Jupiter Trading fails to obtain
FCIA insurance which names Agent as the loss payee, and (vii) such
Account is described in any of the lettered clauses of the definition of
an `Eligible Account' contained in this Agreement (other than CLAUSES
(H) AND (V) of such definition); PROVIDED, further, HOWEVER, that,
notwithstanding the foregoing, in the case of Accounts as to which
Jupiter Trading is the Account Debtor, no more than $2,000,000 of such
Accounts shall be deemed Japanese Accounts."
"JAPANESE SUBSIDIARY - Brazos Sportswear Japan, KK, a
corporation organized under the laws of Japan and a wholly-owned
subsidiary of Borrower."
"JUPITER TRADING - Jupiter Trading Company, a corporation
organized under the laws of Japan."
"MARCH 1997 AMENDMENT - that certain March 1997 Amendment to
Second Amended and Restated Loan and Security Agreement, dated as of
March 14, 1997, executed by Borrower, Lenders and Agent."
"SUN SPORTSWEAR TRANSACTION - shall mean, collectively, the
simultaneous consummation of each of the following events:
a. merger of BSI Holdings, Inc. into Sun Sportswear, Inc., a
Washington corporation, and the reincorporation of the surviving
corporation as a Delaware corporation;
b. retirement of that certain Junior Subordinated Debenture,
dated as of August 2, 1996, executed by BSI Holdings, Inc. and payable
to Seller in the original principal amount of $3,000,000.
c. payoff and termination of the aggregate unpaid principal
balance of and accrued but unpaid interest on the indebtedness of Sun
Sportswear, Inc. to Heller Financial, Inc.; and
d. contribution by Holdings to Borrower of all the assets of
Holdings owned by Sun Sportswear, Inc. prior to the Sun Sportswear
Transaction."
"U.S. DOLLAR EQUIVALENTS - with respect to any monetary amount
in any currency other than Dollars, at any time, the amount of Dollars
obtained by converting such currency into Dollars at the spot rate for
such transaction as quoted by Bank on such date."
MARCH 1997 AMENDMENT 7
<PAGE>
2.07 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; DELETION OF CERTAIN
DEFINITIONS. SECTION 1.1 of the Loan Agreement is hereby amended by deleting
therefrom the definitions of "Total Commitment Percentage", "Total Commitment"
and "Earn-Out Adjustment Amount".
2.08 AMENDMENT TO THE LEAD-IN WORDING TO SECTION 2.1 OF THE LOAN
AGREEMENT. The lead-in wording to SECTION 2.1 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and the other
Loan Documents, Fleet agrees to make a total credit facility of up to
$49,862,400, and Boston agrees to make a total credit facility of up to
$34,937,600, available upon Borrower's request therefor, as described as
follows (PROVIDED, HOWEVER, that no Lender shall be obligated to make
any Revolving Credit Loans in excess of its respective Revolving Credit
Percentage and that no Lender shall be obligated to advance to Borrower
more than such Lender's respective Term Loan Percentage of the Term
Loan):".
2.09 AMENDMENT TO SUBSECTION 2.1(A) OF THE LOAN AGREEMENT. SUBSECTION
2.1(A) of the Loan Agreement is amended by deleting therefrom the words "Total
Commitment Percentage of the Revolving Credit Commitment (the `REVOLVING CREDIT
PERCENTAGE')" and substituting therefor the words "Revolving Credit Percentage".
2.10 AMENDMENT TO SUBSECTION 2.1(B) OF THE LOAN AGREEMENT. SUBSECTION
2.1(B) of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
"(B) The Revolving Credit Loans shall be used solely for (i) the
purchase price and other costs and expenses related to the consummation
of the Acquisition, (ii) the consideration and other costs and expenses
related to the consummation of the Sun Sportswear Transaction and (iii)
Borrower's general operating capital needs to the extent not
inconsistent with the provisions of this Agreement."
2.11 AMENDMENT TO SUBSECTION 2.2(C) OF THE LOAN AGREEMENT. SUBSECTION
2.2(C) of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
"(C) TERM LOAN.
(i) Borrower and Lenders hereby acknowledge that on or
about Closing Date, Lenders made a term loan to Borrower in the
principal amount of $9,567,370.31, and such term loan, Existing
Term Loan A, Existing Term Loan B and Existing Term Loan C were
combined and consolidated into a single term loan of
$12,000,000, with $7,384,560.00 of such term loan being advanced
by Fleet to Borrower (the `EXISTING FLEET TERM LOAN'), and being
repayable in accordance with the terms of Existing Fleet Term
Note and secured by the Collateral, and with $4,615,440.00 of
such term loan being advanced by Boston to Borrower (the
MARCH 1997 AMENDMENT 8
<PAGE>
`EXISTING BOSTON TERM LOAN'), and being repayable in accordance
with the terms of the Existing Boston Term Note and secured by
the Collateral. Borrower acknowledges that on the date of the
March 1997 Amendment, (x) the unpaid principal balance of the
Existing Fleet Term Loan is $6,523,028.00, and that such amount
is unconditionally owed by Borrower to Fleet without offset,
defense or counterclaim of any kind, nature or description
whatsoever, and (y) the unpaid principal balance of the Existing
Boston Term Loan is $4,076,972.00, and that such amount is
unconditionally owed by Borrower to Boston without offset,
defense or counterclaim of any kind, nature or description
whatsoever.
(ii) Subject to the terms and conditions of this
Agreement and the March 1997 Amendment, Lenders agree to make an
additional term loan to Borrower in the principal amount of
$1,000,000 and such additional term loan, the Existing Fleet
Term Loan and the Existing Boston Term Loan shall be combined
and consolidated into a single term loan of $11,600,000.00 (the
`TERM LOAN'), which shall be repayable in accordance with the
terms of the Term Notes and shall be secured by the Collateral.
The additional portion of the Term Loan shall be funded in
connection with the consummation of the Sun Sportswear
Transaction, and the proceeds of such additional term loan shall
be used by Borrower solely for the costs and expenses related to
the consummation of the Sun Sportswear Transaction and for such
other purposes for which the proceeds of the Revolving Credit
Loans are authorized to be used. The Term Loan shall be made
ratably by all Lenders in accordance with their respective Term
Loan Percentage, such that on the date of the funding of the
additional $1,000,000 term loan, Fleet shall advance to Borrower
$588,000.00 of such additional $1,000,000 term loan and Boston
shall advance to Borrower $412,000.00 of such additional
$1,000,000 term loan."
2.12 AMENDMENT TO SUBSECTION 2.3 OF THE LOAN AGREEMENT. SUBSECTION 2.3
of the Loan Agreement is hereby amended and restated in its entirety to read as
follows:
"2.3. MANNER OF BORROWING REVOLVING CREDIT LOANS. Borrowings
under the credit facility established pursuant to SECTION 2.1 hereof
shall be as follows:
(A) A request for a Revolving Credit Loan shall be made,
or shall be deemed to be made, in the following manner: (i)
Borrower may give Agent notice of its intention to borrow, in
which notice Borrower shall specify the amount of the proposed
borrowing and the proposed borrowing date; (ii) the becoming due
of any amount required to be paid under this Agreement, the
Revolving Credit Notes or the Term Notes as interest shall be
deemed irrevocably to be a request for a Revolving Credit Loan
on the due date in the amount required to pay such interest;
(iii) the becoming due of any amount required to be paid under
the Term Notes or the Revolving Credit Notes as principal shall
be deemed irrevocably to be a request for a Revolving Credit
Loan on the due date for the amount required to pay such
principal; (iv) any payment made by Agent pursuant to a Letter
of Credit
MARCH 1997 AMENDMENT 9
<PAGE>
issued by Agent or pursuant to the Fleet Bank Risk Participation
Agreement or any other LC Risk Participation Agreement which is
not immediately reimbursed by Borrower (each such unreimbursed
payment made by Agent being referred to individually as an "LC
PAYMENT") shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the date such LC Payment was made; (v)
any payment made by Agent pursuant to an FX Guaranty or FX
Contract which is not immediately reimbursed by Borrower (each
such unreimbursed payment made by Agent being referred to
individually as a "FX PAYMENT") shall be deemed irrevocably to
be a request for a Revolving Credit Loan on the date such FX
Payment was made; and (vi) the becoming due of any other
Obligations shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount then so due.
(B) Borrower hereby irrevocably authorizes Agent to
disburse the proceeds of each Revolving Credit Loan requested,
or deemed to be requested, pursuant to this SECTION 2.3 as
follows: (i) the proceeds of each Revolving Credit Loan
requested under SECTION 2.3(A)(I) shall be disbursed by Agent in
lawful money of the United States of America in immediately
available funds, in the case of the initial borrowing, in
accordance with the terms of the written disbursement letter
from Borrower, and in the case of each subsequent borrowing, by
wire transfer to such bank account as may be agreed upon by
Borrower and Agent from time to time; and (ii) the proceeds of
each Revolving Credit Loan requested under SECTION 2.3(A)(II),
(III) or (IV) shall be disbursed by Agent by way of direct
payment of the relevant Obligation.
(C) SETTLEMENT. On or about 10:00 A.M. (Dallas, Texas
time) on Friday of each week during the term of this Agreement
(or, if any such Friday is not a Business Day, the next
preceding Business Day), Agent shall notify each Lender by
telephone (confirmed immediately by facsimile or cable),
facsimile or cable of (i) the terms of Borrower's Borrowings at
the time of such notice and the amount of such Lender's
Revolving Credit Percentage of such Borrowings, (ii) the
aggregate principal amount of all Letters of Credit, issued in
connection with this Agreement and outstanding at the end of
such week, the aggregate amount of any LC Payments made by
Agent, such Lender's participation therein and the total amount
of commissions paid to the Lenders with respect thereto, and
(iii) the aggregate amount of U.S. Dollar Equivalents of all FX
Contracts outstanding, the aggregate amount of any FX Payments
made by Agent, Fleet's participation therein and the total
amount of commissions paid to Fleet with respect thereto.
Contemporaneously with the giving of such notice, Agent shall
deliver to each Lender copies of (i) any Letters of Credit which
were issued during such week, (ii) any LC Risk Participation
Agreements which were executed during such week, and (iii) any
FX Contracts and FX Guaranties which were issued during such
week. Each Lender shall, before 2:00 P.M. (Dallas, Texas time)
on the day of such notice, deposit with Agent the amount of such
Lender's Revolving Credit Percentage of such Borrowings and/or
LC Payments and Fleet shall, before
MARCH 1997 AMENDMENT 10
<PAGE>
2:00 P.M. (Dallas, Texas time) on the day of such notice,
deposit with Agent 100% of such FX Payments in immediately
available funds. FX Payments in immediately available funds. In
the event of any failure by a Lender to make an Advance required
hereunder, the other Lenders may (but shall not be required to)
purchase (on a pro rata basis, according to their respective
Revolving Credit Percentages) such Lender's Revolving Credit
Percentage of such Borrowings and/or LC Payments. Upon the
failure of a Lender to make an Advance required to be made by it
hereunder, Agent shall use good faith efforts to obtain one or
more banks, acceptable to the Lenders, to replace such Lender,
but neither Agent nor any other Lender shall have any liability
or obligation whatsoever as a result of the failure to obtain a
replacement for such Lender.
Lenders hereby agree with Borrower and Agent, and hereby
direct Agent, that Agent may assume (i) that each notified
Lender will make such Lender's Revolving Credit Percentage of
the Borrowings and/or LC Payments, and (ii) that Fleet will make
its 100% portion of the FX Payments available to Agent in
accordance with the terms of this SECTION 2.3(C) and Agent
shall, in reliance upon such assumption, make available a
corresponding amount to or on behalf of Borrower on the
requested date of each Borrowing or make the LC Payment or FX
Payment, subject to the terms and conditions of this Agreement.
If and to the extent any Lender shall not make its Revolving
Credit Percentage of any Borrowing or LC Payment or Fleet shall
not make its 100% portion of the FX Payment available to Agent,
Borrower agrees to repay to Agent forthwith on demand such
corresponding amount. Each Lender shall be solely responsible
for its Revolving Credit Percentage of any Borrowing or LC
Payment hereunder, and Fleet shall be solely responsible for its
100% portion of any FX Payment hereunder, and in no event shall
Agent or any Lender (including Agent in its capacity as a
Lender) bear any financial risk for the failure of any other
Lender to make an Advance required hereunder."
2.13 AMENDMENT TO SECTION 2 OF THE LOAN AGREEMENT; ADDITION OF NEW
SUBSECTION 2.10. SECTION 2 of the Loan Agreement is hereby amended by adding
thereto a new SUBSECTION 2.10 which shall read as follows:
"2.10 FX CONTRACTS AND FX GUARANTIES.
(A) FX CONTRACTS. Agent agrees, for so long as no Default or
Event of Default exists and if requested by Borrower, to cause Bank to
enter into FX Contracts with Borrower, so long as the aggregate amount
of all FX Contracts entered into with Borrower does not exceed
$2,000,000 in U.S. Dollar Equivalents. Each FX Contract shall be in form
and substance satisfactory to Agent and Bank and, without limiting the
generality of the foregoing, no FX Contract shall have a settlement date
that is beyond the earlier to occur of (i) 150 days from the effective
date thereof or (ii) the last day of the Original Term; PROVIDED,
HOWEVER, that if this Agreement is renewed in accordance with SECTION
3.2 of the this Agreement then the Renewal Term. Borrower shall repay
all of its
MARCH 1997 AMENDMENT 11
<PAGE>
obligations to Bank under each FX Contract in accordance with the terms
of the confirmation of such FX Contract.
(B) FX GUARANTIES. Agent agrees, for so long as no Default or
Event of Default exists and if requested by Borrower, to execute and
deliver to Bank one or more FX Guaranties by which Agent shall guarantee
the payment and performance of Borrower's obligations to Bank under each
FX Contract; provided, that the aggregate amount of Agent's obligations
under the FX Guaranties shall not exceed $2,000,000 in U.S. Dollar
Equivalents, plus costs and expenses of Bank incurred in connection with
such FX Contracts. In no event shall Agent have any liability with
respect to any FX Contract that is entered into by Borrower and Bank
after the date on which Bank and Borrower each has received notice from
Agent that a Default or Event of Default exists or would result as a
consequence of Agent's guaranteeing the payment and performance of
Borrower's obligations under such FX Contract. Any amounts paid by Agent
under any FX Guaranty, including without limitation any costs or
expenses incurred by Agent or Bank due to the failure of Borrower to
perform its duties under the FX Contracts, shall be treated as Revolving
Credit Loans, shall be secured by all of the Collateral and shall bear
interest and be payable at the same rate and in the same manner as Base
Rate Revolving Credit Loans. In the event that Revolving Credit Loans
are not, for any reason, promptly made to satisfy all then existing such
Obligations, Fleet hereby agrees to pay Agent, on demand, an amount
equal to such Obligations, and until so paid, such amount shall be
secured by the Collateral and shall bear interest and be payable at the
same rate and in the same manner as Base Rate Revolving Credit Loans.
(C) FLEET'S PARTICIPATION. Immediately upon the execution of
each FX Contract or FX Guaranty under this Agreement, Fleet shall be
deemed to have irrevocably and unconditionally purchased and received
from Agent, without recourse or warranty, a 100% undivided interest and
participation in such FX Contract, FX Guaranty and in each FX Payment
made in respect to such FX Contract to the extent of Fleet's 100%
portion of such FX Payment. Fleet hereby absolutely and unconditionally
assumes, as primary obligor and not as a surety, and agrees to pay and
discharge, and to indemnify and hold the Agent harmless from liability
in respect of Fleet's 100% share of the amount of any FX Payment. Fleet
acknowledges and agrees that its obligation to acquire participations in
either (x) each FX Guaranty issued by Agent or (y) each FX Payment made
by Agent and its obligation to make the payments specified herein, and
the right of the Agent to receive the same, in the manner specified
herein, are absolute and unconditional and shall not be affected by any
circumstance whatsoever, including, without limitation, the occurrence
and continuance of an Event of Default hereunder, and that each such
payment shall be made without any offset, abatement, withholding or
reduction whatsoever.
(D) FX CONTRACT REQUESTS. A request for an FX Contract shall be
made in the following manner: Borrower may make a request for a
telephone quote from Bank with respect to a proposed FX Contract in a
specified amount of a specified foreign currency and with a specific
settlement date. Borrower may make a request for such FX Contract not
later than 2:00 p.m. Dallas, Texas time on the Business Day on which
Borrower
MARCH 1997 AMENDMENT 12
<PAGE>
proposes that such FX Contract become effective; provided, that no such
request may be made at a time when there exists a Default or Event of
Default. Prior to, or at the time of, such request Borrower shall have
delivered to Bank corporate resolutions authorizing Borrower to enter
into such FX Contract (which authorization may be general rather than
specific to such FX Contract), an indemnity agreement with respect to
electronically transmitted instructions relating to such FX Contract
(which indemnity may be general rather than specific to such FX
Contract) and such other customary documentation as Bank shall
reasonably require, all in form and substance reasonably satisfactory to
Bank. In no event shall Bank enter into an FX Contract unless Bank has
received from Agent an FX Guaranty covering such FX Contract."
2.14 AMENDMENT TO SUBSECTION 3.1(F) OF THE LOAN AGREEMENT. SUBSECTION
3.1(F) of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
"(F) UNUSED FACILITY FEE. From the date hereof, Borrower agrees
to pay to Agent, for the account of Lenders, in accordance with their
respective Revolving Credit Percentages, a monthly unused facility fee,
equal to one-quarter of one percent (0.25%) per annum (calculated on the
basis of a year of 360 days) of the difference between the Revolving
Credit Commitment and the sum of (i) the Average Monthly Loan Balance
for the Revolving Credit Loans for such month, PLUS (ii) the average
face amount of outstanding Letters of Credit issued by Agent, PLUS (iii)
the average face amount of outstanding Letters of Credit which are
covered by an LC Risk Participation Agreement for such month, (the sum
of CLAUSES (I), (II), and (III) above being referred to as the "AVERAGE
MONTHLY REVOLVING CREDIT LOANS USAGE"), payable in arrears with the
first payment being due on April 1, 1997 and continuing regularly
thereafter during the term of this Agreement, and upon the termination
hereof. In no event, however, shall any charge be payable for any month
for which the Average Monthly Revolving Credit Loans Usage was less than
the Revolving Credit Commitment by reason of any Lender's declining to
extend Revolving Credit Loans to Borrower in amounts equal to the
Borrowing Base, to the extent of such refusal, for any month for which
the Average Monthly Revolving Credit Loans Usage was less than the
Revolving Credit Commitment by reason of Agent's determination to reduce
applicable advance rates under the Borrowing Base, to the extent of such
reduction, or for any month during which or after Agent or Lenders
accelerate the maturity or demands payment of the Obligations by reason
of the occurrence of any Event of Default."
2.15 AMENDMENT TO SUBSECTION 3.1(H) OF THE LOAN AGREEMENT. SUBSECTION
3.1(H) of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
"(H) LETTER OF CREDIT; LC FEES; FX GUARANTY FEES.
(I) As additional consideration for Agent's issuing its or
causing Bank to issue its Letters of Credit for Borrower's account or
for entering into LC Risk Participation Agreements at Borrower's request
pursuant to SECTION 2.6 hereof, Borrower agrees to pay Agent, for the
account of Lenders in accordance with their respective
MARCH 1997 AMENDMENT 13
<PAGE>
Revolving Credit Percentages, fees equal to (i) two percent (2.00%) per
annum of the face amount of each standby Letter of Credit issued by
Agent or Bank for the account of Borrower, and each standby Letter of
Credit issued by a Person and covered by an LC Risk Participation
Agreement which fee shall be deemed fully earned upon issuance of each
such standby Letter of Credit, and shall be due and payable upon the
issuance of each such standby Letter of Credit, and (ii) the greater of
(a) $150.00 or (b) one and one-half percent (1.50%) per annum of the
face amount of each documentary Letter of Credit issued by Agent or Bank
for Borrower's account, which fee shall be deemed fully earned and shall
be due and payable upon issuance of each such documentary Letter of
Credit. Such fees shall be in addition to any fees charged by Bank or
any other Person issuing a Letter of Credit. In addition, Borrower shall
pay to Agent any out-of-pocket costs incurred by Agent in connection
with the issuance of any Letter of Credit or the execution of any LC
Risk Participation Agreement or the payment of any LC Payment. No fee
payable by Borrower under this SECTION 3.1(H) shall be subject to rebate
or proration upon the termination of this Agreement for any reason.
(II) Borrower shall pay to Agent, for the account of
Fleet, for FX Guaranties and FX Contracts, a fee equal to 2.50% per
annum of the FX Amount, payable monthly in arrears on the first day of
each calendar month hereafter, which fees and charges shall be fully
earned and due and payable upon issuance of each FX Guaranty or FX
Contract and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason. Borrower shall also pay to
Agent, for the account of Agent or Bank, as applicable, its respective
normal and customary charges associated with the execution of FX
Guaranties and FX Contracts, payable monthly in arrears on the first day
of each calendar month hereafter."
2.16 AMENDMENT TO SUBSECTION 3.3(A) OF THE LOAN AGREEMENT. SUBSECTION
3.3(A) of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
"(A) Upon at least forty-five (45) days prior written notice to
Agent, Borrower may, at its option, terminate this Agreement; PROVIDED,
HOWEVER, no such termination shall be effective until (i) Borrower has
paid all of the Obligations in immediately available funds, (ii) all
Letters of Credit have expired or been confirmed by another Person
satisfactory to Lenders, in their credit judgment, and (iii) all FX
Contracts and FX Guaranties have settled or been terminated by the
parties thereto."
2.17 AMENDMENT TO SUBSECTION 3.3(B) OF THE LOAN AGREEMENT. SUBSECTION
3.3(B) of the Loan Agreement is hereby amended by deleting therefrom the
reference to "Total Commitment Percentage" and substituting therefor "Revolving
Credit Percentage and their respective Term Loan Percentage".
2.18 AMENDMENT TO SECTION 9.3 OF THE LOAN AGREEMENT. SECTION 9.3 of the
Loan Agreement is hereby amended and restated in its entirety to read as
follows:
MARCH 1997 AMENDMENT 14
<PAGE>
"9.3. SPECIFIC FINANCIAL COVENANTS. During the term of this
Agreement, and thereafter for so long as there are any obligations to
Agent and/or any Lender, Borrower covenants that, unless otherwise
consented to by Lenders in writing, it shall:
(A) ADJUSTED NET WORTH. At the end of each fiscal quarter
of Borrower during the term hereof, maintain an Adjusted Net Worth of
Borrower of not less than the amount shown below for the fiscal quarter
corresponding thereto:
Fiscal Quarter Ending
Closest To: Amount
-------------------- -----------
March 31, 1997 $ 8,000,000
--------------------
June 30, 1997 $ 8,000,000
--------------------
September 30, 1997 $10,500,000
--------------------
December 31, 1997 $11,000,000
--------------------
At the end of each
thereafter occurring
fiscal quarter $11,000,000
--------------------
(B) CURRENT RATIO. As of the end of each fiscal quarter of
Borrower during the term hereof, (i) beginning with the fiscal quarter
ending closest to March 31, 1997 and ending with the fiscal quarter
ending closest to December 31, 1997, maintain a Current Ratio of not
less than .9 to 1.00 and (ii) thereafter, maintain a Current Ratio of
not less than 1.00 to 1.00.
(C) INDEBTEDNESS TO NET WORTH RATIO. As of the end of each
fiscal quarter of Borrower ending closest to the date indicated below,
maintain a ratio of Borrower's Indebtedness to Borrower's Net Worth of
no more than the ratio indicated below:
Fiscal Quarter Ending
Closest To: Ratio
------------------------ ---------------
March 31, 1997 4.0 to 1.00
------------------------
June 30, 1997 4.0 to 1.00
------------------------
September 30, 1997 4.0 to 1.00
------------------------
December 31, 1997 4.0 to 1.00
------------------------
At the end of each
thereafter occurring
fiscal quarter 3.0 to 1.00
------------------------
(D) FIXED CHARGE RATIO. As of the end of each fiscal month
of Borrower ending closest to the date indicated below, maintain a Fixed
Charge Ratio of not less than the ratio indicated below for the time
period indicated below:
MARCH 1997 AMENDMENT 15
<PAGE>
Relevant Time Period Ratio
------------------------ -----------------
Seven month period
ending February 28,
1997 1.0 to 1.0
------------------------
Eight month period
ending March 31, 1997 1.0 to 1.0
------------------------
Nine month period
ending April 30, 1997 1.0 to 1.0
------------------------
Ten month period
ending May 31, 1997 1.1 to 1.0
------------------------
Eleven month period
ending June 30, 1997 1.1 to 1.0
------------------------
Twelve month period
ending July 31, 1997 1.1 to 1.0
------------------------
Twelve month period
ending August 31, 1997 1.1 to 1.0
------------------------
Twelve month period
ending September 30,
1997 1.1 to 1.0
------------------------
Twelve month period
ending on the last day
of each thereafter
occurring fiscal month 1.2 to 1.0
------------------------
2.19 AMENDMENT TO SUBSECTION 11.3(E) OF THE LOAN AGREEMENT. SUBSECTION
11.3(E) of the Loan Agreement is hereby amended and restated to read as follows:
"(E) The proceeds realized from the sale of any Collateral
may be applied, after allowing two Business Days for collection, first
to the costs, expenses and reasonable attorneys' fees incurred by Agent
in collecting the Obligations, in enforcing the rights of Agent and
Lenders under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling
and delivery any of the Collateral; secondly, to interest due upon any
of the Obligations; and thirdly, to the principal of the Obligations
(including, without limitation, payments then due to Agent in connection
with FX Contracts) and fourthly, at the option of Agent, to the
establishment of a cash collateral fund to be held as a reserve to fund
future drawings made under Letters of Credit issued by Agent or Bank,
future LC Payments, and future FX Payments. If any deficiency shall
arise, Borrower shall remain liable to Agent and Lenders therefor. In
connection with the foregoing, Lenders hereby agree that in connection
with determining the pro rata portion of such proceeds which should
respectively be applied to Obligations owing to Boston and to the
Obligations owing to Fleet, BOSTON'S PRO RATA SHARE SHALL BE EQUAL TO
the sum of (i) the outstanding principal amount of the Loans made by
Boston, PLUS (ii) Boston's Revolving Credit Percentage of the aggregate
undrawn amount of all
MARCH 1997 AMENDMENT 16
<PAGE>
outstanding Letters of Credit covered by an LC Risk Participation
Agreement, DIVIDED BY the sum of (i) the aggregate outstanding principal
amount of all Loans made by the Lenders, PLUS (ii) the aggregate undrawn
amount of all outstanding Letters of Credit covered by an LC Risk
Participation Agreement, PLUS (iii) the obligations at that time due
Bank in connection with the FX Contracts which are covered by FX
Guaranties, and FLEET'S PRO RATA SHARE SHALL BE EQUAL TO the sum of (i)
the outstanding principal amount of the Loans made by Fleet, PLUS (ii)
Fleet's Revolving Credit Percentage of the aggregate undrawn amount of
all outstanding Letters of Credit covered by an LC Risk Participation
Agreement, PLUS (iii) the obligations at that time due Bank in
connection with the FX Contracts which are covered by FX Guaranties,
DIVIDED BY the sum of (i) the aggregate outstanding principal amount of
all Loans made by the Lenders, PLUS (ii) the aggregate undrawn amount of
all outstanding Letters of Credit covered by an LC Risk Participation
Agreement, PLUS (iii) the obligations at that time due Bank in
connection with the FX Contracts which are covered by FX Guaranties."
2.20 AMENDMENT TO SECTION 12.5 OF THE LOAN AGREEMENT. SECTION 12.5 of
the Loan Agreement is hereby amended by deleting therefrom the reference to
"whose Total Commitment Percentages total at least 51%" and substituting
therefor "whose Revolving Credit Percentages total at least 51% and whose Term
Loan Percentages total at least 51%".
2.21 AMENDMENT TO SECTION 12.10 OF THE LOAN AGREEMENT. SECTION 12.10 of
the Loan Agreement is hereby amended by deleting therefrom "Total Commitment
Percentages" and substituting therefor "Revolving Credit Percentages and their
Term Loan Percentages".
2.22 AMENDMENT TO SIGNATURE PAGE OF THE LOAN AGREEMENT. The signature
page of the Loan Agreement is hereby amended by (i) deleting the reference
therein to the words "TOTAL COMMITMENT PERCENTAGE ON CLOSING DATE", (ii)
deleting the reference therein to the percentage "61.538%", and (iii) deleting
the reference therein to the percentage "38.462%".
2.23 AMENDMENT TO EXHIBIT B OF THE LOAN AGREEMENT. EXHIBIT B of the Loan
Agreement, the Borrower's business locations, is hereby deleted in its entirety
and replaced with EXHIBIT B attached hereto as ANNEX V.
2.24 AMENDMENT TO EXHIBIT C OF THE LOAN AGREEMENT. EXHIBIT C of the Loan
Agreement, the jurisdictions in which Borrower is authorized to do business, is
hereby deleted in its entirety and replaced with EXHIBIT C attached hereto as
ANNEX VI.
2.25 AMENDMENT TO EXHIBIT D OF THE LOAN AGREEMENT. EXHIBIT D of the Loan
Agreement, the corporate names of Borrower, is hereby deleted in its entirety
and replaced with EXHIBIT D attached hereto as ANNEX VII.
2.26 AMENDMENT TO EXHIBIT E OF THE LOAN AGREEMENT. EXHIBIT E of the Loan
Agreement, the Borrower's patents, trademarks, copyrights and licenses, is
hereby deleted in its entirety and replaced with EXHIBIT E attached hereto as
ANNEX VIII.
MARCH 1997 AMENDMENT 17
<PAGE>
2.27 AMENDMENT TO EXHIBIT F OF THE LOAN AGREEMENT. EXHIBIT F of the Loan
Agreement, the Borrower's capital structure, is hereby deleted in its entirety
and replaced with EXHIBIT F attached hereto as ANNEX IX.
2.28 AMENDMENT TO EXHIBIT I OF THE LOAN AGREEMENT. EXHIBIT I of the Loan
Agreement, the pension plans to which Borrower is subject, is hereby deleted in
its entirety and replaced with EXHIBIT I attached hereto as ANNEX X.
2.29 AMENDMENT TO EXHIBIT J OF THE LOAN AGREEMENT. EXHIBIT J of the Loan
Agreement, the labor contracts to which Borrower is subject, is hereby deleted
in its entirety and replaced with EXHIBIT J attached hereto as ANNEX XI.
2.30 AMENDMENT TO EXHIBIT K OF THE LOAN AGREEMENT. EXHIBIT K of the Loan
Agreement, the Borrower's capitalized leases, is hereby deleted in its entirety
and replaced with EXHIBIT K attached hereto as ANNEX XII.
2.31 AMENDMENT TO EXHIBIT L OF THE LOAN AGREEMENT. EXHIBIT L of the Loan
Agreement, the Borrower's operating leases, is hereby deleted in its entirety
and replaced with EXHIBIT L attached hereto as ANNEX XIII.
2.32 AMENDMENT TO EXHIBIT M OF THE LOAN AGREEMENT. EXHIBIT M of the Loan
Agreement, the permitted liens, is hereby deleted in its entirety and replaced
with EXHIBIT M attached hereto as ANNEX XIV.
2.33 AMENDMENT TO EXHIBIT O OF THE LOAN AGREEMENT. EXHIBIT O of the Loan
Agreement, the Borrower's subordinated debt, is hereby deleted in its entirety
and replaced with EXHIBIT O attached hereto as ANNEX XV.
2.34 AMENDMENT TO EXHIBIT P OF THE LOAN AGREEMENT. EXHIBIT P of the Loan
Agreement, the taxing authorities to which Borrower is subject, is hereby
deleted in its entirety and replaced with EXHIBIT P attached hereto as ANNEX
XVI.
2.35 DELETION OF EXHIBIT T OF THE LOAN AGREEMENT. EXHIBIT T of the Loan
Agreement, resolutions of the board of directors of Borrower establishing the
Series A Preferred Stock of Borrower, is hereby deleted in its entirety.
2.36 RESERVE AGAINST SUN INVENTORY. In addition to, and not in
limitation of, Agent's and/or Lenders' right under SECTION 2.1(A) of the Loan
Agreement to establish reserves against the amount of Revolving Credit Loans
which Borrower may request under SECTION 2.1(A) of the Loan Agreement, Agent
and/or Lenders may establish a reserve with respect to Inventory acquired by
Borrower as part of the Transaction which is as of September 30, 1997 over
twelve (12) months old.
MARCH 1997 AMENDMENT 18
<PAGE>
2.37 FINANCIAL INFORMATION REGARDING JUPITER TRADING COMPANY. Upon the
request of Agent and/or Lenders, Borrower hereby agrees to promptly deliver to
Agent and Lenders current financial information regarding Jupiter Trading
Company.
2.38 ELECTION UNDER JAPANESE LAW. Borrower agrees to give Senior Lender
30 days prior written notice before Borrower makes any election under Japanese
law or effectuates any other action which could prevent or otherwise interfere
with the flow of monies or payments from the Japanese Subsidiary to Borrower.
ARTICLE III
CONDITIONS
3.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent, unless
specifically waived in writing by Lenders and Agent:
(a) Lenders shall have received each of the following, each of
which shall be in form and substance satisfactory to Lenders, in their sole
discretion:
(i) this Amendment, duly executed by Borrower;
(ii) (a) the Amended and Restated Revolving Credit Note,
in the form of ANNEX I attached hereto, duly executed by Borrower, in
favor of Fleet, (b) the Amended and Restated Revolving Credit Note, in
the form of ANNEX II attached hereto, duly executed by Borrower in favor
of Boston, (c) the Amended and Restated Secured Promissory Note, in the
form of ANNEX III attached hereto, duly executed by Borrower in favor of
Fleet, and (d) the Amended and Restated Secured Promissory Note, in the
form of ANNEX IV attached hereto, duly executed by Borrower, in favor of
Boston;
(iii) the Amended and Restated Guaranty Agreement, in the
form of ANNEX XVII attached hereto, duly executed by Holdings;
(iv) the Amended and Restated Stock Pledge Agreement, in
the form of ANNEX XVIII attached hereto, duly executed by Holdings,
together with a stock power duly executed in blank by Holdings, and all
of the original stock certificates of Borrower;
(v) the written opinion of Porter & Hedges, L.L.P.,
counsel to Borrower, regarding Borrower, the execution of this
Amendment, the other Loan Documents executed in connection herewith, the
Transaction and the other transactions contemplated hereby, to be in
form and substance satisfactory to Lenders, in their sole discretion;
(vi) the Subordination Agreement, in the form of ANNEX XIX
attached hereto, duly executed by Bank of America, N.T. and S.A., doing
business as Seafirst Bank;
MARCH 1997 AMENDMENT 19
<PAGE>
(vii) a certificate executed by the Vice President or
Chief Financial Officer of Borrower, setting forth in reasonable detail
the sources and uses of funds in the transactions contemplated herein
and in the Transaction;
(viii) a certificate regarding the Solvency of Borrower,
which includes a pro forma balance sheet and cash flow projections and
analyses for Borrower, executed by the Vice President and Chief
Financial Officer of Borrower;
(ix) a closing certificate signed by the Vice President or
Chief Financial Officer of Borrower, dated as of the date of this
Amendment, stating that (A) the representations and warranties set forth
in SECTION 8 of the Loan Agreement, as amended by this Amendment, are
true and correct as of such date, other than for such representations
and warranties which relate to a specific date, (B) Borrower is on such
date in compliance with all the terms and provisions set forth in the
Loan Agreement, as amended by this Amendment, and (C) on such date no
Default or Event of Default has occurred or is continuing, except for
such Defaults or Events of Default as have been specifically disclosed
in writing by Borrower to Agent,
(x) a company general certificate, certified by the
Secretary or Assistant Secretary of the Borrower, acknowledging (A) that
the Borrower's Board of Directors has met and has adopted, approved,
consented to and ratified resolutions which authorize the execution,
delivery and performance by the Borrower of this Amendment and all other
Loan Documents to which the Borrower is or is to be a party, and (B) the
names of the officers of the Borrower authorized to sign this Amendment
and each of the other Loan Documents to which the Borrower is or is to
be a party hereunder (including the certificates contemplated herein)
together with specimen signatures of such officers;
(xi) a company general certificate, certified by the
Secretary or Assistant Secretary of Holdings, acknowledging (A) that
Holdings' Board of Directors has met and has adopted, approved,
consented to and ratified resolutions which authorize the execution,
delivery and performance by Holdings of the Amended and Restated
Guaranty Agreement, the Amended and Restated Stock Pledge Agreement and
all other documents, instruments and agreements to be executed by
Holdings in connection therewith, and (B) the names of the officers of
Holdings authorized to sign the Amended and Restated Guaranty Agreement,
the Amended and Restated Stock Pledge Agreement and any and all other
documents, instruments and agreements to be executed by Holdings in
connection therewith (including the certificates contemplated herein)
together with specimen signatures of such officers;
(xii) written instructions from Borrower directing the
application of proceeds of the Loans to be made on the date the
Transaction is consummated;
MARCH 1997 AMENDMENT 20
<PAGE>
(xiii) releases and UCC-3 Termination Statements, in form
and substance satisfactory to Agent, in its sole discretion, duly
executed by Heller Financial, Inc., releasing all of Heller Financial,
Inc.'s security interest and Liens in the assets of Sun;
(xiv) Lenders shall have received such certifications,
documentation and such other evidence and materials satisfactory to
Lenders, in their sole discretion, of the consummation of the
Transaction, and the Transaction shall have been consummated upon the
terms and conditions previously described to Lenders;
(xv) satisfaction of all conditions precedent to that
certain Plan and Agreement of Merger, dated as of November 13, 1996, by
and between BSI and Sun, and a copy thereof, duly executed by the
parties thereto;
(xvi) copies of all filing receipts or acknowledgments
issued by any governmental authority to evidence any filing or
recordation necessary to perfect the Liens of Agent, for the benefit of
Lenders, in the Collateral (including the assets acquired in the
Transaction) and evidence to Agent and Lenders that such Liens
constitute valid and first-priority perfected security interests and
Liens;
(xvii) landlord consent letters, in form and substance
satisfactory to Lenders, for each of the following locations: (i) 21255
76th Avenue South, Kent, Washington, (ii) 6520 South 190th Street, Kent,
Washington, (iii) 764 Thomas Drive, Bensenville, Illinois and (iv) 4422
West 12th Street, Houston, Texas;
(xviii) good standing certificates for Borrower, issued
within 15 days before the date hereof by the Secretary of State or other
appropriate official of Borrower's jurisdiction of incorporation and
each jurisdiction where the conduct of Borrower's business activities or
the ownership of its Properties necessitates qualification;
(xix) a letter from Sun's counsel stating that Agent and
Lenders may rely on such counsel's opinion to Borrower issued in
connection with the Transaction, in form and substance satisfactory to
Lenders;
(xx) certificates of Borrower's casualty insurance
policies naming Agent, for the benefit of Lenders, as loss payee and as
mortgagee pursuant to a standard mortgagee clause, and certificates of
Borrower's liability insurance policies naming Agent, for the benefit of
Lenders, as a co-insured;
(xxi) leasehold mortgages, duly executed by Borrower, in
favor of Agent, for the benefit of Lenders, covering Borrower's
locations in Staten Island, New York, College Station, Texas,
Cincinnati, Ohio, and each new location resulting from the Transaction
as shall be required by Agent, in form and substance satisfactory to
Lenders, accompanied by lessor's consents to such leasehold mortgages,
in form and substance satisfactory to Agent, duly executed by the
relevant lessor of each such location.
MARCH 1997 AMENDMENT 21
<PAGE>
(xxii) an amendment to that certain Subordination
Agreement, dated as of August 9, 1996, executed by Allied Investment
Corporation and Allied Investment Corporation II (collectively,
"ALLIED"), pursuant to which Allied agrees to increase the amount of
"Senior Debt" covered by such Subordination Agreement to an amount
acceptable to Lenders and to amend such other provisions of such
Subordination Agreement as shall be required by Lenders; and
(xxiii) such additional documents, instruments and
information as Lenders or their legal counsel may request.
(b) Lenders shall have received such evidence of the financial
condition of Borrower and Sun as Lenders shall require, showing a financial
condition satisfactory to Lenders, and Lenders shall have made such other audits
or investigations of Borrower and Sun (the results of which must be satisfactory
to Lenders) as they deem appropriate.
(c) The capital, organizational, ownership and legal structure of
Borrower and Holdings shall be satisfactory to Lenders, in their sole
discretion, and Lenders shall have received all relevant documentation and
materials relating thereto.
(d) Except with respect to any material adverse change in the
financial condition of Sun resulting from the implementation of BSI's business
plan as contemplated by the merger agreement entered into with respect to the
Transaction, there shall be no material adverse change in the financial
condition of Borrower or Sun since September 30, 1996.
(e) Lenders shall have received evidence satisfactory to them, in
their sole discretion, that Allied has consented to the Transaction.
(f) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been specifically
disclosed in writing by Borrower to Lender.
(g) On the date of the funding to Borrower of the Loans relevant
to the consummation of the Transaction, the amount of the Borrowing Base after
giving effect to Loans made on such date, shall exceed the aggregate amount of
the outstanding Revolving Credit Loans by at least $5,000,000, and Borrower
shall have provided Agent with a Borrowing Base Certificate to the foregoing
effect.
(h) Lenders shall have completed their audit of Sun, and Lenders
shall be satisfied that there has been no material deterioration in Borrower's
or Sun's financial performance or in the value of the Collateral.
(i) Certain of the existing shareholders of BSI shall have made
an equity investment in BSI in the aggregate amount of at least $2,000,000, upon
terms and conditions, and pursuant to documentation, satisfactory to Lenders and
the respective legal counsel of each Lender.
MARCH 1997 AMENDMENT 22
<PAGE>
(j) Borrower shall have paid to Agent, for the account of the
Lenders, in immediately available funds, a funding fee of $50,000 ($25,000 to
Fleet and $25,000 to Boston).
(k) All conditions precedent in the Loan Agreement to the making
of a Loan pursuant to the Loan Agreement shall have been fully satisfied or
waived in writing by Agent and each Lender.
(l) The representations and warranties contained herein and in
the Loan Agreement and the other Loan Documents, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date hereof,
other than for such representations and warranties which relate to a specific
date.
(m) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Lenders and Agent
and their legal counsel.
ARTICLE IV
LIMITED WAIVER
By execution of this Amendment and upon satisfaction of the conditions
set forth in SECTION 3.01 of this Amendment, Agent and Lenders hereby waive any
Default and/or Event of Default arising under the Loan Agreement solely by
reason of (i) Borrower's violation of SECTION 9.2(A) of the Loan Agreement
resulting from the Transaction and (ii) Borrower's violation of the financial
covenant set forth in SECTION 9.3(D)(VI) of the Loan Agreement resulting from
Borrower maintaining a Fixed Charge Ratio of 1.03 to 1.00 for the period
specified therein. Except as specifically provided in this ARTICLE IV, nothing
contained in this Amendment shall be construed as a waiver by Lenders or Agent
of any covenant or provision of the Loan Agreement, the other Loan Documents,
this Amendment, or of any other contract or instrument between Borrower, Agent
and/or any Lender, and the failure of Agent and/or any Lender at any time or
times hereafter to require strict performance by Borrower of any provision
thereof shall not waive, affect or diminish any right of Agent and/or any Lender
to thereafter demand strict compliance therewith. Lenders and Agent hereby
reserve all rights granted under the Loan Agreement, the other Loan Documents,
this Amendment and any other contract or instrument between Borrower, Agent
and/or any Lender.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the other Loan Documents, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the other Loan Documents are ratified and confirmed and shall
continue in full force and effect. Borrower, Lenders and Agent agree that the
Loan Agreement and the other Loan Documents, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with their respective
terms.
MARCH 1997 AMENDMENT 23
<PAGE>
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lenders and Agent that (a) the execution, delivery and performance
of this Amendment and any and all other Loan Documents executed and/or delivered
in connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any other Loan Document are true and correct
on and as of the date hereof and on and as of the date of execution hereof, as
though made on and as of each such date, other than representations and
warranties which relate to a specific date; (c) no Default or Event of Default
under the Loan Agreement, as amended hereby, has occurred and is continuing,
unless such Default or Event of Default has been specifically waived in writing
by Lenders or has been specifically disclosed in writing by Borrower to Lenders;
and (d) Borrower is in full compliance with all covenants and agreements
contained in the Loan Agreement and the other Loan Documents, as amended hereby,
except as has been otherwise specifically disclosed in writing by Borrower to
Lenders.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in the Loan Agreement or any other Loan Document, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by any Lender or Agent or any closing shall
affect the representations and warranties or the right of any Lender or Agent to
rely upon them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the
other Loan Documents, and any and all other agreements, documents or instruments
now or hereafter executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Loan Agreement, as amended hereby, are hereby amended so
that any reference in the Loan Agreement and such other Loan Documents to the
Loan Agreement shall mean a reference to the Loan Agreement, as amended hereby.
6.03 EXPENSES OF LENDERS AND AGENT. As provided in the Loan Agreement,
Borrower agrees to pay on demand all costs and expenses incurred by Lenders and
Agent in connection with the preparation, negotiation, and execution of this
Amendment and the other Loan Documents executed pursuant hereto and any and all
amendments, modifications, and supplements thereto, including, without
limitation, the costs and fees of Lenders' and Agent's legal counsel, and all
costs and expenses incurred by Lenders and Agent in connection with the
enforcement or preservation of any rights under the Loan Agreement, as amended
hereby, or any other Loan Documents, including, without, limitation, the costs
and fees of Lenders' and Agent's legal counsel.
MARCH 1997 AMENDMENT 24
<PAGE>
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lenders, Agent and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations hereunder without the prior written consent of Lenders
and Agent.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by any
Lender or Agent to or for any breach of or deviation from any covenant or
condition by Borrower shall be deemed a consent to or waiver of any other breach
of the same or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER,
LENDERS AND AGENT.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM ANY LENDER OR AGENT. BORROWER HEREBY VOLUNTARILY AND
KNOWINGLY
MARCH 1997 AMENDMENT 25
<PAGE>
RELEASES AND FOREVER DISCHARGES LENDERS AND AGENT, ITS PREDECESSORS,
AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER,
KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR
HEREAFTER HAVE AGAINST ANY LENDER OR AGENT, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND
ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER
THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF
THIS AMENDMENT.
MARCH 1997 AMENDMENT 26
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of the date
first above-written, to be effective as of the respective date indicated above.
BRAZOS, INC., a Texas
corporation formerly
known as Brazos Sportswear, Inc.
By: ________________________________
F. Clayton Chambers,
Vice President and Chief
Financial Officer
FLEET CAPITAL CORPORATION,
as Agent
By: ________________________________
Hance VanBeber,
Vice President
FLEET CAPITAL CORPORATION,
in its individual capacity
By: ________________________________
Hance VanBeber,
Vice President
THE FIRST NATIONAL BANK OF
BOSTON
By: ________________________________
Name: ______________________________
Title: _____________________________
MARCH 1997 AMENDMENT 1
<PAGE>
ANNEXES:
I Form of Amended and Restated Revolving Credit Note (Fleet)
II Form of Amended and Restated Revolving Credit Note (Boston)
III Form of Amended and Restated Term Note (Fleet)
IV Form of Amended and Restated Term Note (Boston)
V Business Locations
VI Jurisdictions in which Borrower is authorized to do business
VII Corporate Names
VIII Patents, Trademarks, Copyrights and Licenses
IX Capital Structure
X Pension Plans
XI Labor Contracts
XII Capitalized Leases
XIII Operating Leases
XIV Permitted Liens
XV Subordinated Debt
XVI Taxing authorities to which Borrower is subject
XVII Form of Amended and Restated Guaranty Agreement
XVIII Form of Amended and Restated Stock Pledge Agreement
XIX Form of Subordination Agreement
MARCH 1997 AMENDMENT 2
EXHIBIT 10.14
BRAZOS SPORTSWEAR, INC.
BSI HOLDINGS, INC.
Cincinnati, Ohio
$ 3,500,000
INVESTMENT AGREEMENT
August 9, 1996
Financing provided by
ALLIED INVESTMENT CORPORATION
ALLIED INVESTMENT CORPORATION II
<PAGE>
TABLE OF CONTENTS
Page
PREAMBLE
Parties
Recitals
ARTICLE 1 - LOAN
Section 1.1 Funding
Section 1.2 Collateral
Section 1.3 Senior Debt
Section 1.4
Section 1.5 No Preferential Payments; Payover
ARTICLE 2 - EQUITY
Section 2.1 Stock Purchase Warrants
Section 2.2 Conditional Warrants
Section 2.3 Redemption Rights
Section 2.4 Valuation of Warrants
ARTICLE 3 - INVESTOR EXIT
Section 3.1 Registration Rights
(a) Take-Me-Along Rights
(b) Expenses . Consent
(c) Demand Registration
Section 3.2 Unlocking
(a) Text
(b) Definition
Section 3.3 "Put" Rights
(a) Price
(b) Appraised Value
Section 3.4 Personal Gain Upon Sale
i
<PAGE>
Page
ARTICLE 4 - UNDERTAKINGS BY THE PRINCIPALS
Section 4.1 Residence; Commitment
Section 4.2 Non-Competition; Non-Disclosure
Section 4.3 Continued Control
Section 4.4 Personal Financials; Access to Information
Section 4.5 Equity Injection
Section 4.6 Holders' Director Nominee
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
Section 5.1 Due Organization; Authority; Binding Obligation; Opinion of
Counsel
Section 5.2 Principal Business; Title To Assets
Section 5.3 Litigation
Section 5.4 Taxes
(a) Generally
(b) No Open Returns
(c) Excess Parachute Payments
(d) Deferred Intercompany Transactions
(e) True Copies of Returns
Section 5.5 Financial Statements
Section 5.6 Leases; Material Contracts
(a) Leases
(b) Material Contracts
Section 5.7 Disclosure
Section 5.8 Management History
Section 5.9 Subsidiaries
Section 5.10 Incumbency
Section 5.11 No Material Change
Section 5.12 No Side Agreements
Section 5.13 Non-Contravention
Section 5.14 Fee & Brokerage
Section 5.15 Other Debts; Sources and Uses
ii
<PAGE>
Page
Section 5.16 Capital Structure
Section 5.17 Solvency
Section 5.18 SBA Representations
Section 5.19 Investment Company Act Representations
Section 5.20 Regulatory Compliance
Section 5.21 Employee Benefit Matters
Section 5.22 Collective Bargaining
Section 5.23 Employees
Section 5.24 No Competing Business Interest
Section 5.25 No Conflicting Non-Competition Agreements
ARTICLE 6 - AFFIRMATIVE COVENANTS
Section 6.1 Monthly Financials
Section 6.2 Certification of Non-Default
Section 6.3 Annual Audit
Section 6.4 Projected Financials
Section 6.5 Regularly Filings
Section 6.6 Notice of Litigation
Section 6.7 Notice of Defaults of Judgments
Section 6.8 Board Meetings
Section 6.9 Insurance
Section 6.10 Use of Proceeds; Certification
Section 6.11 First Refusal for Future Financings
Section 6.12 Access to Records
Section 6.13 Financial Covenants
Section 6.14 Payments and other Debts
Section 6.15 Maintain Copies; Financing Statements
Section 6.16 Information Requests
Section 6.17 Protect the Collateral
iii
<PAGE>
Page
ARTICLE 7 - NEGATIVE COVENANTS
Section 7.1 Change of Ownership or Organization
Section 7.2 Equity Issuance or Redemption
Section 7.3 Dividends
Section 7.4 Transfers
Section 7.5 Mergers, Etc.
Section 7.6 Capital Expenditures
Section 7.7 Employee Compensation
Section 7.8 Fees
Section 7.9 Affiliate Transactions
Section 7.10 Change of Site or Business
Section 7.11 Change in Company, etc.
Section 7.12 New Debt Provisions
Section 7.13 Judgments
Section 7.14 Cross-Default
Section 7.15 Diversion of Proceeds
ARTICLE 8 - SUSPENSION OF CERTAIN COVENANTS
ARTICLE 9 - DEFAULT
Section 9.1 Events of Default
(a) Principal and Interest Payments
(b) Representations and Warranties
(c) Covenants
(d) Loan Documents
(e) Other Debt to Holders
(f) Cross Default to Other Obligations
(g) Involuntary Bankruptcy or Receivership Proceedings
(h) Voluntary Petitions
(i) Assignments for Benefit of Creditors
(j) Undischarged Judgments
iv
<PAGE>
Page
(k) Attachment
(l) No Assumption
(m) Loss of Key Employees
Section 9.2 Remedies
Section 9.3
ARTICLE 11 - FEES AND COSTS
ARTICLE 12 - INDEMNIFICATION; ENVIRONMENTAL LIABILITY
ARTICLE 13 - REMEDIES
Section 13.1 Cumulation. Receivership
Section 13.2 No Implied Waiver
ARTICLE 14 - PARTIES
ARTICLE 15 - NOTICE
ARTICLE 16 - HOLDERS' DUTY TO COMPANY
ARTICLE 17 - RELATIONSHIP OF THE PARTIES
ARTICLE 18 - CONTROLLING LAW; VENUE AND JURISDICTION; SERVICE OF PROCESS
ARTICLE 19 - WAIVER OF TRIAL BY JURY
ARTICLE 20 - NOTICE OF CLAIM; WAIVER
ARTICLE 21 - CAPTIONS; SEVERANCE
ARTICLE 22 - COUNTERPARTS; ENTIRE AGREEMENT
v
<PAGE>
Page
ARTICLE 23 - DEFINITIONS AND RULES OF CONSTRUCTION
Section 23.1 Definitions
Section 23.2 Rules of Construction
TABLE OF EXHIBITS
vi
<PAGE>
THIS INVESTMENT AGREEMENT is made by and among (i) Brazos Sportswear,
Inc., a Texas corporation ("Brazos") and BSI Holdings, Inc. ("BSI") a Delaware
corporation (Brazos and BSI, collectively with successors and assigns, being
hereinafter referred to as the "Company"), (ii) Equus II Incorporated, a
Delaware corporation, sometimes hereinafter being referred to as "Shareholder",
and (iii) Allied Investment Corporation and Allied Investment Corporation II,
each a Maryland corporation (collectively with successors and assigns,
"Holders").
RECITALS
A. Brazos is engaged in the manufacture and distribution of apparel, with
its principal office in Cincinnati, Ohio. BSI is the sole stockholder of Brazos,
and is a holding company with no operations and no assets other than common
stock and subordinated debentures previously issued by Brazos and equity
securities of one other subsidiary. The Shareholder is the majority stockholder
of BSI.
B. Under terms of an Asset Purchase Agreement dated as of August 2nd, 1996
(the "Acquisition Agreement"), a copy of which is attached hereto as Exhibit B,
Plymouth Mills, Inc., a New York corporation ("Seller"), with principal office
at 330 Tompkins Avenue, Staten Island, N.Y. engaged in the manufacture and sale
of garments, has agreed to sell, and Brazos has agreed to buy, substantially all
of the assets of the Seller. Such assets, and the operations associated
therewith, are hereinafter referred to as the "Business".
C. Under terms of a letter dated July 26, 1996, Brazos is to issue to
Holders certain subordinated debentures and BSI is to issue certain warrants to
purchase shares of its common stock, in consideration for a loan in the
aggregate principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000) (collectively with all modifications, renewals, extensions and
replacements thereof and therefor, the "Loan") and the other consideration set
forth herein, the proceeds of which are to be used to pay a portion of the
purchase price for the Business.
D. Under terms of the Acquisition Agreement, BSI is to issue to the Seller
two (2) subordinated debentures dated this date, in the principal amounts of
Four Million Dollars ($4,000,000) and Three Million Dollars ($3,000,000)
respectively, and a third subordinated debenture in a principal amount to be
determined under terms of the Acquisition Agreement; all as set out as Exhibit D
hereto, as payment of a portion of the purchase price for the Business.
E. Under terms of a Credit Agreement dated this date set out as Exhibit E
hereto, Fleet Capital Corporation and The First National Bank of Boston are
providing to Brazos a revolving credit facility in the maximum principal amount
of Fifty-three Million Dollars ($53,000,000) and term loans in the maximum
principal amount of Twelve Million Dollars ($12,000,000), to be used to replace
previous loans to Brazos, to fund a portion of the purchase price for the
Business, and for working capital.
<PAGE>
F. In connection with the transactions described above, the Shareholder
and certain other persons are to exchange their subordinated debentures
previously issued by Brazos, for certain preferred stock of BSI, pursuant to the
documents set out as Exhibit F hereto.
G. Also in connection with the above transactions, Equus and certain other
persons are to purchase Two and One-Half Million (2,500,000) shares of
redeemable, non-convertible and non-participating eight percent (8%) preferred
stock of Brazos for a price of Two Million Five Hundred Thousand Dollars
($2,500,000), the proceeds of which are to be used to pay a portion of the
purchase price for the Business.
PROVISIONS
In consideration of the premises and the covenants herein, Holders, the
Shareholders, Brazos and BSI agree as set forth below.
ARTICLE 1
Loan
Section 1.1 Funding. On the date hereof, each Holder will fund that portion
of the Loan to Brazos set out next to its name on Exhibit 1.01 hereof. The Loan
will be evidenced by, and repaid according to the terms of two (2) Subordinated
Debentures (collectively, with all modifications, extensions, renewals and
replacements thereof and therefor, the "Debentures"), each of which will be
issued by Brazos to a Holder at Closing.
Section 1.2 Collateral. Subject to the prior liens described in Section 1.3
below and other Permitted Lens, the Debentures and the other Obligations shall
be secured pari passu by a security interest and lien upon the Collateral. At
Closing the Company shall execute and deliver to Holders each of the following
documents (collectively, with all modifications, extensions, renewals and
replacements thereof and therefor, the "Collateral Documents"):
(a) a Security Agreement;
(b) certain UCC-1 Financing Statements;
(c) a collateral assignment of rights arising under the Acquisition
Agreement, pursuant to a Collateral Assignment of Contract Rights;
(d) a Grant of Security Interest in Intellectual Property of Brazos;
and
(e) an unconditional guaranty of the Loan by BSI.
2
<PAGE>
The Collateral Documents, this Agreement and the Debentures, collectively with
all modifications, extensions, renewals and replacements thereof and therefor,
are sometimes hereinafter referred to as the "Loan Documents".
Section 1.3 Senior Debt. The indebtedness under the Debentures and the
Holders' rights herein and in the Collateral shall be subordinate to the rights
of Fleet Capital Corporation and the First National Bank of Boston in respect to
their financings provided under terms of Exhibit E hereto, up to an aggregate
principal balance at any time outstanding of Eighty Million Dollars
($80,000,000), according to the terms of a Subordination Agreement being signed
herewith. The Holders will further subordinate to such replacements or
refinancings as Brazos may obtain for such financings including any such
replacements or refinancings which increase the principal amount due thereunder
but do not exceed the aforementioned Eighty Million Dollar ($80,000,000) limit,
provided that such further subordinations are on the same terms as the present
such items in all material respects. Such financings, and any replacements or
refinancings meeting the foregoing terms are hereinafter collectively referred
to as the "Senior Debt".
ARTICLE 2
Equity
Section 2.1 Stock Purchase Warrants. At Closing, BSI will issue and sell to
each Holder a Stock Purchase Warrant (collectively the "Stock Purchase
Warrants") to acquire shares of BSI's common stock ("Shares") which will entitle
the Holders to receive an aggregate of Forty-five Thousand, Two Hundred
Twenty-eight (45,228) authorized but unissued Shares, with such number being
subject to certain anti-dilution adjustments as provided in such Warrants. The
aggregate purchase price for the Stock Purchase Warrants shall be One Hundred
Dollars ($100), which the Holders shall pay to BSI at Closing. The aggregate
exercise price for the Stock Purchase Warrants shall be Four Hundred Fifty-Three
and 28/100Dollars ($453.28), expressed for the entire Stock Purchase Warrants,
not on a per-share basis.
Section 2.2 Conditional Warrants. At Closing, BSI will issue and sell to each
Holder (in addition to the Stock Purchase Warrants), a Conditional Stock
Purchase Warrant (collectively the "Conditional Warrants") to acquire Shares.
Such Conditional Warrants shall be exercisable only upon certain conditions
described therein. The Conditional Warrants shall entitle Holders to acquire, in
the circumstances where such Warrants become exercisable, between Four Thousand
(4,000) and Twenty Thousand (20,000) shares in the aggregate. The aggregate
purchase price for the Conditional Warrants shall be One Hundred Dollars ($100),
which Holders shall pay to BSI at Closing. The exercise price for the
Conditional Warrants shall be Thirty Dollars ($30) per share, with such price
being subject to certain anti-dilution reduction as provided in such Conditional
Warrants.
Section 2.3 Redemption Rights. The Holders shall be entitled to share ratably
in any redemption of Shares by BSI. If BSI shall make a general
3
<PAGE>
redemption of all or any portion of its Shares prior to full exercise of any of
the Warrants, each of the relevant Holders, at its option, may receive, at the
time of such redemption, the same proceeds it would have been entitled to
receive if its Warrant had been exercised in full prior to such redemption.
Section 2.4 Valuation of Warrants. The Holders and BSI hereby agree that as
of the Closing, the fair market value of the Warrants shall be as set out in
Exhibit 2.04 hereto, and that they shall prepare and maintain their books of
account, financial statements and tax returns in a manner consistent therewith.
Section 2.5 Exercise of Warrants at Subsidiary Level. It is the intent of the
parties that, so long as a Holder owns a Warrant or any equity security of the
Company issued directly or indirectly in exchange for, or pursuant to provisions
of a Warrant, BSI shall own one hundred percent (100%) of the common equity of
Brazos and all other securities of Brazos having rights to participate in its
profits, to the end that the proportion of BSI's Shares actually or potentially
owned by the Holders shall at all times provide the Holders, indirectly, with an
identical proportion of the common and other participating equity of Brazos. In
the event that, in violation of this Agreement, Brazos shall issue common stock
or participating securities or BSI shall sell, transfer or otherwise dispose of
any equity or convertible securities of Brazos in any manner whatsoever (other
then in connection with a foreclosure of a security interest in capital stock of
Brazos securing the Senior Debt or in connection with a sale of capital stock of
Brazos in lieu of foreclosure where the proceeds are paid against the Senior
Debt, or in the case of a sale of one hundred percent [100%] of the capital
stock of Brazos), then in addition to all other remedies available to Holders,
the Holders may at their option exchange the Warrants, at the time of exercise
thereof, not for Shares of BSI but for that number of common shares of Brazos
corresponding to the percentage of equity ownership in Brazos, calculated on a
fully diluted basis, which the Warrants and resulting Shares would otherwise
provide in BSI. In such case the Warrants shall be binding on Brazos as fully
and effectively as if issued by Brazos in the first instance, except that the
numbers of resulting shares shall be adjusted to provide the percentage of
equity ownership described in the preceding sentence, and any per-share exercise
price shall be adjusted as may be necessary to provide an unchanged aggregate
exercise price for the subject Warrant.
Section 2.6 Shareholders Agreement. Transfer Restrictions. The Shares issued
under the Warrants, and the Holders' rights therein, will be subject to the
terms of a Shareholders Agreement, a true copy of which is attached as Exhibit
2.06 hereto, and to which the Holders will become a party. The Holders shall not
transfer the Warrants without the written approval of BSI (which approval shall
not be unreasonably withheld) except to a.) affiliates of the Holders, and b.)
as part of a sale, pledge or other transfer of portfolio securities of the
relevant Holder in bulk to an institutional investor or financial institution,
and c.) to existing shareholders of BSI.
4
<PAGE>
ARTICLE 3
Investor Exit
Section 3.1 Registration Rights.
(a) Piggy-Back Rights. If Brazos or BSI shall at any time prepare
and file a registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the public offering of any class of
equity of the Company, or of any other commonly-controlled entity, the Company
shall give thirty (30) days prior written notice thereof to each Holder and
shall, upon the written request of a Holder, include in the registration
statement such number of the said Holder's Shares or Warrants as such Holder may
request. If the managing underwriter for the Company indicates in writing its
reasonable belief that including all or part of such Holder's Shares in the
coverage of such registration statement will materially and adversely affect the
sale of shares of Common Stock proposed to be sold by the Company (which
statement of the managing underwriter shall also state the maximum number of
shares, if any, which can be sold by such Holder without materially adversely
affecting the sale of the shares proposed to be sold by the Company), then the
number of such Holder's Shares which the Holder shall have the right to include
in such registration statement shall be reduced to the maximum number of shares
specified by the managing underwriter, provided, however, that the number of
such Holder's Shares included in such registration statement shall be at least
proportionate to the number of shares of Common Stock included in such
registration statement by the Shareholder. The Company will keep such
registration statement effective and current under the Securities Act permitting
the sale of the said Holder's Shares or Warrants included therein for the same
period that the registration is maintained effective in respect of Shares of
other persons (including the Company). In any underwritten offering the Holder's
Shares or Warrants to be included will be sold at the same time and the same
per-share price as the Company's securities. In the event the Company fails to
receive a written inclusion request from a Holder within thirty (30) days after
the mailing of its written notice, then the Company shall have no obligation to
include any of such Holders' Shares or Warrants in the offering. In connection
with any registration statement or subsequent amendment or similar document
filed and subject hereto, the Company shall take all reasonable steps to make
the Holders' securities covered thereby eligible for public offering and sale
under the securities or blue sky laws of such jurisdictions as may be specified
by the relevant Holders by the effective date of such registration statement;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not so qualified at the time of filing
such documents, or to take any action which would subject it to unlimited
service of process in any jurisdiction where it is not so subject at such time.
The Company shall keep such blue-sky filings current for the length of time it
must keep any registration statement, post-effective amendment, prospectus or
offering circular effective pursuant hereto.
(b) Expenses. Consent. In connection with any registration
statement or other filing described herein, and in connection with making and
5
<PAGE>
keeping such filings effective as provided herein, the Company shall bear all
the reasonable expenses and professional fees of the Company and Holders (except
for the Holder's pro rata share of any underwriters discount) and shall also
provide Holder with a reasonable number of printed copies of the prospectus,
offering circulars and/or supplemental prospectuses or amended prospectuses in
final and preliminary form. The Company consents to the use of each such
prospectus or offering circular in connection with the sale of Holders' Shares
or Warrants.
(c) Demand Registration. At the written request of Holders after a
public offering and sale of Shares has occurred, the Company shall:
(i) file a registration statement and related documents with the
Securities and Exchange Commission, and all other applicable
securities agencies or exchanges, for the public offering and
sale of all or a portion of the Holders' Shares or Warrants;
(ii) use its best efforts to cause such registration statements to
be declared effective; and
(iii) offer publicly all of such Shares or Warrants in accordance
with the terms and procedures of paragraphs (a) and (b) above.
The Company shall be obliged to make such a filing and offering only
in cases where the selling price of the Holder's subject Shares is reasonably
estimated to exceed Two Million Dollars ($2,000,000) unless at least fifty
percent (50%) of all Shares held by the Holders and subject to the Warrants are
included in the offering. The Company shall be obliged to make such a filing and
offering only once in any case, unless upon such a request less than all of the
requested number of Shares or Warrants shall have successfully been sold, in
which case the Company shall make subsequent filings and offerings as requested
until all of the specified Shares or Warrants are successfully sold.
Section 3.2 Co-Sale Rights. Except for Exempt Transfers (as defined below),
the Shareholder shall not sell, assign or transfer any shares of stock or other
equity interest in the Company which it owns. "Exempt Transfer" means any of the
following sales, assignments or transfers by Shareholder of the capital stock or
equity interests of the Company or any interest therein (each, a "transfer"):
(a) any transfer pursuant to the prior written consent of
Holders;
(b) a transaction wherein the buyer or other transferee, upon
thirty (30) days written notice, offered to purchase from Holders a number of
their Shares, or (at Holders' option) their Warrants, proportionate to Holders'
actual or potential (as the case may be) share of ownership of BSI's equity
stock, and consummated such a purchase to the extent requested by Holders; and
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(c) a sale pursuant to a Qualifying IPO.
Section 3.3 "Put" Rights.
(a) Price. At any time beginning five (5) years after Closing and
prior to the occurrance of a Qualified IPO, the Holders may by written demand
require the Company to re-purchase all but not less than all the Warrants or the
Shares issued thereunder at the highest of the following prices, determined at
the time of the exercise of this right:
(i) the product of (x) the book value of BSI and its subsidiaries
on a consolidated basis as reflected on their then most recent
monthly or year end Consolidated Balance Sheet and (y) the
Holder's percentage of actual or potential equity ownership of
BSI's capital stock (as the case may be), determined on a
fully diluted basis and expressed as a decimal fraction;
(ii) the product of (x) the sum of six (6) times the EBIT of BSI
and its subsidiaries on a consolidated basis for the most
recent twelve (12) month period ending prior to the date of
exercise of this Put right, plus cash reflected on the
Consolidated Balance Sheet of BSI and its subsidiaries for the
last month of such period, less the aggregate balance of
interest-bearing debt obligations reflected on such
Consolidated Balance Sheetand less the higher of the
liquidation preference or the redemption value applicable to
any redeemable preferred stock of the Company not having
rights of conversion which may be outstanding at the end of
such twelve (12) month period, and (y) the Holder's percentage
of actual or potential equity ownership of the Company's
capital stock (as the case may be), determined on a fully
diluted basis and expressed as a decimal fraction;
(iii) the product of (x) the Appraised Value of BSI and its
subsidiaries, on a consolidated basis, determined pursuant to
Section 3.3(b) below, which appraisal shall be based on the
consolidated earnings and book value of such entities and
other appropriate items, and (y) the Holder's percentage of
actual or potential equity ownership of BSI's capital stock
(as the case may be), determined on a fully diluted basis and
expressed as a decimal fraction
In any case where any portion of the Holders' percentage of equity
ownership calculated above arises from unexercised Warrants, the exercise price
of such Warrants shall be deducted from any Put price provided above. The
parties affirm that in all calculations of book value, the redemption value of
all nonconvertible and non-participating preferred stock shall be treated as
debt.
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(b) Appraised Value. The Appraised Value of BSI and its
subsidiaries, on a consolidated basis, shall be determined, at the Company's
cost, by the following method:
(i) the Company, and the Holders as a group, shall each select an
appraiser who shall each determine the value of the Company;
(ii) if the values determined by such two (2) appraisers are the
same or within One Hundred Thousand Dollars ($100,000) of each
other, then the average of such two (2) values shall be the
Appraised Value;
(iii) if the foregoing two (2) values differ by more than One
Hundred Thousand Dollars ($100,000), then the appraisers shall
together select a third appraiser to determine the value of
the Company;
(iv) if the value determined by the said third appraiser is greater
than the larger of the values determined by the first two (2)
appraisers above-referenced, or less than the smaller of the
said two (2) values, then the average of the values determined
by the said first two appraisers shall be the Appraised Value;
or
(v) if the value determined by the third appraiser is between the
first two (2) values in amount, then the average of the value
determined by the third appraiser and the one of the first two
(2) values which is closest to the said third value shall be
the Appraised Value.
Section 3.4 Personal Gain Upon Sale.
(a) In the event of a Company Sale (as defined in Section 3.4(b)
below), then any emoluments or profits relating to such Company Sale and flowing
to the Shareholder, otherwise than through direct payment for their equity
ownership in BSI or through dividends or return of capital paid in respect
thereof, shall be added to the direct consideration for such sale in calculating
the total sale price for purposes of determining any part thereof which the
Holders may be entitled to receive in respect to any equity ownership in the
Company. Such emoluments or profits shall include (without limitation) any
management or consulting fees payable in connection with the Company's
operations after such Company Sale, and any points or fees paid to induce such a
sale. Where such emoluments or profits are payable in kind they will be valued
at the fair market value for purposes of this Section.
(b) As used in this Section, "Company Sale" means a single
transaction or series of related transactions wherein one or more persons who,
prior to the transaction in question, did not own more than five percent (5%)
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of any class of capital stock of BSI or Brazos ("Independent Third Parties"),
directly or indirectly either:
(i) acquire (by merger, consolidation, transfer or issuance of
capital stock or otherwise) capital stock of BSI or Brazos (or
any surviving or resulting corporation or entity) possessing
the voting power to elect a majority of the Board of Directors
of BSI or Brazos (or such surviving or resulting corporation
or entity); or
(ii) acquire assets constituting fifty percent (50%) or more of the
assets of BSI or Brazos (other than inventory sold in the
ordinary course of business).
ARTICLE 4
Undertakings by the Shareholders
Section 4.1 This Section intentionally deleted.
Section 4.2 This Section intentionally deleted.
Section 4.3 Ownership. No Amendments. The Shareholder represents that
Section 5.16 below accurately sets forth itsr stock ownership in BSI as of the
date of Closing, and that it has paid full and fair consideration for its
Shares .
Section 4.4 Equity Injection. The Shareholder represents that prior to or
simultaneously herewith, it and certain other persons have purchased callable
non-convertible, non-participating preferred stock from Brazos for no less than
Two Million Five Hundred Thousand Dollars ($2,500,000), which sum is not
currently reflected on the audited financial statements of Brazos described
below, all as evidenced by the materials set forth in Exhibit 4.04 hereto.
Section 4.5 Holders' Director Nominee. The Shareholder shall exercise all
voting rights it may enjoy, directly or indirectly, in respect to the Company's
securities to elect to the Company's Board of Directors any person designated by
Holders pursuant to Section 6.8 below.
ARTICLE 5
Representations and Warranties
To induce Holders to enter the transactions contemplated herein and
purchase the Debentures and Warrants, Brazos and BSI represent and warrant as
set out below. All representations and warranties in this Article shall refer to
facts as they exist at Closing, shall survive the Closing, and shall
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continue to survive until the Debentures are indefeasibly repaid in full, and so
long as a Holder owns a Warrant or any equity security of the Company issued,
directly or indirectly, in exchange for, or pursuant to provisions of, a
Warrant.
Section 5.1 Due Organization. Authority. Binding Obligation. Opinion of
Counsel. Brazos and BSI are duly incorporated, validly existing and in good
standing under the laws of the states of Texas and Delaware, respectively,
having Articles of Incorporation, as amended, or a Certificate of
Incorporation, as amended, and By-Laws, (all terms of which are in full force
and effect) as previously furnished to Holders, and true copies of which, are
attached hereto as part of Exhibit 5.01A; Brazos is duly qualified to conduct
business as proposed and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its business or location of its properties
require such qualification; evidence of which qualification and good standing
is attached hereto as Exhibit 5.01B; the Company has full power and authority
to enter into this Agreement, and to carry out the provisions hereof; the
Company has taken all corporate action necessary for the execution and
performance of this Agreement as evidenced by the resolutions set forth in
Exhibit 5.01A; this Agreement and each document to be executed by the Company
herewith will constitute a valid and binding obligation of the Company,
enforceable in accordance with their respective terms when executed and
delivered except as limited by bankruptcy, insolvency or similar laws limiting
creditors' rights generally; and the Company has caused its counsel to deliver
a letter opining as to the above-referenced such authority and related matters
in the form set forth in Exhibit 5.01C.
Section 5.2 Principal Business; Title to Assets. Brazos is engaged in
manufacturing and distributing apparel; Brazos has good and marketable title to
and ownership of all real and personal property it purports to own, including
the assets acquired under the Acquisition Agreement, free and clear of all
liens, claims, security interests and encumbrances except for Permitted Liens..
Section 5.3 Litigation. The Company has not been made a party to or (to the
knowledge of the Company) threatened by any suits, actions, claims,
investigations by governmental bodies or legal, administrative or arbitrational
proceedings, except as set out in the litigation schedule attached hereto as
Exhibit 5.03 (hereinafter "Litigation Schedule"); neither the Company nor its
officers or directors know of any basis or grounds for any such suit or
proceeding; there are no outstanding orders, judgments, writs, injunctions or
decrees or any court, government agency or arbitrational tribunal against or
affecting the Company it or its properties, assets or business.
Section 5.4 Taxes.
(a) Generally. The Company has filed all tax returns, federal,
state and local, which are required to be filed, and has duly paid or fully
reserved for all taxes or installments thereof (including any interest or
penalties), which have or may become due pursuant thereto or pursuant to any
assessment received by the Company.
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(b) Open Returns. No federal, state, local, foreign or other
return of the Company for tax years that remain open under any applicable
statute of limitations, has been examined by the Internal Revenue Service or
other tax authorities; or, if any such return has been so examined, no material
deficiencies have been asserted or assessments made as a result of such
examinations (including all penalties and interest); there are no waivers,
agreements or other arrangements providing for any extension of time with
respect to the assessment or collection of any unpaid tax, interest or penalties
relating to the Company; no issues have been raised by (or are currently pending
before) the Internal Revenue Service or any other taxing authority in connection
with any return of the Company, which could reasonably be expected to have a
material adverse effect on the financial condition of the Company if decided
adversely to the Company, nor, to the knowledge of the Company are there any
such issues which have not been so raised but if so raised by the Internal
Revenue Service, or any other taxing authority, could, in the aggregate,
reasonably be expected to have such a material adverse effect.
(c) Excess Parachute Payments. The Company has not made, has not
become obligated to make, nor will, as a result of the transactions contemplated
by this Agreement, make or become obligated to make, any "excess parachute
payment" as defined in Internal Revenue Code Section 280G.
(d) Deferred Intercompany Transactions. The Company and its
affiliates have not engaged in any "deferred intercompany transactions" within
the meaning of Section 1.1502-13 of the regulations promulgated under the
Internal Revenue Code.
(e) True Copies of Returns. The Company has delivered to Lender
true, correct and complete copies of all Federal income tax returns for each of
the Company's most recent three (3) full taxable years as of Closing, and all
information set forth on such returns is true, complete and accurate in all
material respects.
Section 5.5 Financial Statements. The audited consolidated financial
statements of BSI and its subsidiaries dated April 22, 1996 for the twelve (12)
months ending December 30, 1995, and the unaudited financial statements for the
six (6) month period ending June 29, 1996, attached as Exhibit 5.05(A) are
prepared in accordance with GAAP, are true and correct in all material respects,
and fairly present the results of the operations of such entities and their
consolidated financial position at such dates and for the periods stated. The
audited financial statements of the Seller for the twelve (12) month period
ending September 30, 1995 are prepared in accordance with GAAP, are true and
correct in all material respects and fairly present the results of the
operations of the Seller and its financial position at such date and for such
periods.
Section 5.6 Leases; Material Contracts.
(a) Leases. True copies of all real property leases to which
Brazos is a party have been provided to Holders, and are attached hereto as
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Exhibit 5.06(a); its possession of its leased property has not been disturbed,
and no material claim has been asserted against Brazos adverse to its leasehold
interests. All rent and other lease obligations of Brazos are current in all
material respects.
(b) Material Contracts and Accounts Payable. All material
contracts to which the Company is a party are valid and binding agreements,
enforceable according to their terms, except as enforcement may be limited by
bankruptcy and insolvency laws generally, Brazos is current on all its material
contract obligations and no party is in default thereunder; the Company's rights
thereunder are not subject to any offset or counterclaim; and all such contracts
are listed in Exhibit 5.06(b) hereto.
Section 5.7 Disclosure. All representations made by the Company, its
officers, directors or shareholders regarding the Company or the Business, in
the Due Diligence Questionnaires provided to Holders , and in all other
documents described herein or previously supplied to any Holder in regard to
this financing, are true and correct in all material respects as of this date,
and all projections provided in such documents are reasonable; no
representation, covenant or warranty made by the Company herein or in any such
document statement or writing furnished to any Holder in connection with the
transactions contemplated herein contains or will contain any untrue statement
of material fact, or omits to state a material fact necessary to make a
statement therein not misleading.
Section 5.8 Management History. During the past ten (10) years no officer or
director of the Company, has been arrested for or convicted of any criminal
offense, petitioned or been granted any relief in bankruptcy; neither Mr. Ford
Taylor Nor Mr. Alan Elenson has served as an officer or director of any company
or other entity which has petitioned or been granted relief in bankruptcy.
Section 5.9 Subsidiaries. The Company has no subsidiaries, , partners or any
other commonly controlled entities, except as expressly disclosed to Holders in
writing.
Section 5.10 Incumbency. Attached hereto as Exhibit 5.10 is a true and
complete list of officers and, directors of the Company.
Section 5.11 No Material Change. Since June 29, 1996 except as may be
occasioned by the transactions contemplated herein,, the Company has not (a)
suffered any material adverse change in its condition (financial or otherwise)
or its overall business prospects, nor (b) entered into any material
transactions, or incurred any material debt, obligation or liability, absolute
or contingent outside the ordinary course of its business, nor (c) sustained any
material loss or damage to its property, whether or not insured, nor (d)
suffered any material interference with its business or operations, present or
proposed; and there has been no sale, lease, abandonment or other disposition by
the Company of any of its property, real or personal, or any interest therein or
relating thereto, except for sales of inventory in the ordinary course of
business, that is material to the financial position of the Company.
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Section 5.12 No Side Agreements. Except as set forth on Exihibit 5.12A hereto,
neither the Company nor any of its officers, directors or shareholders are party
to any agreement with any Holder except for this Agreement and the other
documents mentioned herein or listed as exhibits hereto; except for this
Agreement and such other documents, the Company is not party to any agreement
calling for any action by the Company outside the ordinary course of its
business; to the knowledge of the Company, there exists no agreement or
understanding calling for any payment or consideration from a customer or
supplier of the Company to an officer, director or shareholder of the Company in
respect of any transaction between the Company and such supplier or customer; no
affiliate of the Company, directly or through any business concern affiliated
with such affiliate, transacts any business with the Company other than
employment complying with the terms of Section 7.7 below and as set out in
Exhibit 5.12B hereto.
Section 5.13 Non-Contravention. Except for matters set out in the Litigation
Schedule described below, the Company is not in breach of, default under, or in
violation of any applicable law, decree, order, rule or regulation which may
materially and adversely affect it; or any indenture, contract, agreement, deed,
lease, loan agreement, commitment, bond, note, deed of trust, restrictive
covenant, license or other instrument or obligation to which it is a party, or
by which it is bound, or to which any of its assets are subject, in any case
where such breach, default or violation could materially and adversely affect
the financial position of the Company; the execution, delivery and performance
of this Agreement and the other documents mentioned herein will not constitute
any such breach, default or violation, or require consent or approval of any
court, governmental agency or body, except as expressly provided contemplated
herein.
Section 5.14 Fees & Brokerage. No brokerage or similar fees are due to any
party in respect to the transactions contemplated herein, except fees and points
in respect to financing and brokerage payable by the Seller.
Section 5.15 Other Debts; Sources and Uses. Except for the Senior Debt
described in paragraph 1.3 above, the matters set out in the Litigation
Schedule, debts described in the financial statements included herein as Exhibit
5.05, other liabilities, debts and obligations incurrred subsequent to June 29,
1996 in the ordinary course of business, and liabilities incurred in the
Acquisition Agreement and the related transactions contemplated thereby and
herein and debts and obligations incurred in the ordinary course of business not
required to be reflected in such statements by GAAP, the Company has no debts,
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, arising out of any transaction entered into or any state of facts
existing prior hereto, including without limitation, liabilities or obligations
on account of taxes or government charges, penalties, interest or fines thereon
or in respect thereof; the Company does not know, and has no reasonable grounds
to know, of any basis for any claim against it as of the date of this Agreement,
or of any debt, liability or obligation other than those mentioned herein;
Exhibit 5.15 hereto correctly states the sources and uses of loan proceeds being
used to consummate the Acquisition Agreement.
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Section 5.16 Capital Structure. BSI is a holding company which conducts no
active business operations and is engaged solely in the ownership of debt and
equity securities of its two subsidiaries, Brazos and Brazos Embroidery, Inc., a
Pennsylvania corporation. No person owns any equity securities of Brazos,
beneficially or otherwise, except BSI. The authorized capital stock of the
Company prior to the transactions contemplated herein is as set forth below, and
all such stock has been duly issued in accordance with applicable laws including
federal and state securities laws:
Par Shares Shares Shares
Class Value Authorized Issued Outstanding
Brazos Preferred ... $ .01 10,000,000 0 0
Common ...... $ .01 10,000,000 265,840 265,840
BSI Preferred
Series A-1 .. $ .01 650,000 650,000 650,000
Series A-2 .. $ .01 300,000 300,000 300,000
Series B .... $ .01 8,000,000 0 0
Reserved .... $ .01 1,050,000 0 0
Common ...... $ .01 10,000,000 330,555 330,555
Except as set out in Exhibit 5.16 hereto,there are no options, warrants or other
securities which are convertible or exchangeable for capital stock of the
Company. There are no preemptive rights in respect to capital stock of the
Company.
Section 5.17 Intentionally deleted.
Section 5.18 Solvency. As of the date hereof, and giving effect to the
transactions contemplated by this Agreement and the Acquisition Agreement, the
present fair saleable value of the Company's assets is greater than the amount
required to pay the Company's total indebtedness (contingent or otherwise), and
is greater than the amount that will be required to pay such indebtedness as it
matures and as it becomes absolute and matured; the transactions contemplated
hereby are being effectuated without intent to hinder, delay or defraud present
or future creditors of the Company; it is the Company's intention that it will
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maintain the above-referenced solvent financial condition, giving effect to the
debt incurred hereunder, as long as the Company is obligated to Holders under
this Agreement or in any other manner whatsoever; the Company has sufficient
capital to carry on its previous operations and the Business, as they are now
conducted, and to consummate the transactions as now conducted and as
contemplated herein.
Section 5.19 SBA Representations. The statements set forth in the Size Status
Declaration (SBA Form 480), Assurance of Compliance for Non-Discrimination (SBA
Form 652-D) and Portfolio Financing Report (SBA Form 1031), as previously
provided and set forth as Exhibits 5.19A, 5.19B and 5.19C, respectively, are
complete and accurate; the Company is a small business concern as defined in the
SBA Act, and the rules and regulations of the Small Business Administration
(SBA) thereunder; there exists no agreement expressed or implied, no condition,
state of facts or relationship between the Company and any other entity or
entities which would prevent it from qualifying as a small business concern; and
neither the Company nor any of its officers, directors, partners or controlling
persons is an "associate" of any Holder, as such terms are defined in Section
107.3 of the amended Regulations promulgated under the SBA Act.
Section 5.20 Investment Company Act Representations. The Company is not, and
does not intend to become, an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended, and neither the Company nor any
of its officers, directors, partners or controlling persons is an "affiliated
person" of any Holder, as such terms are defined in Section 2(a)(3) of the
Investment Company Act of 1940, as amended.
Section 5.21 Regulatory Compliance. The Company has complied in all material
respects with all laws, ordinances and regulations applicable to it and to its
business, including without limitation laws, ordinances and regulations relating
to securities, zoning, labor, food and drug, the Occupational Safety & Health
Act, the Employees Retirement Income Security Act, and all federal and state
environmental laws and regulations.
Section 5.22 Employee Benefit Matters. Except as described in Exhibit 5.22
hereto, there is no existing single-employer plan defined in Section 4021(a) of
ERISA in respect of which the Company is, or immediately after the consummation
of the Acquisition Agreement will be, an "employer" or a "substantial employer"
as defined in Sections 3(5) and 4001(a)(2) of ERISA, respectively; the Company
has delivered to the Holders copies, as listed on Exhibit 5.22 , of each plan
described in Section 4021(a) of ERISA, in respect of which the Company will be
liable to make contributions or pay benefits; to the Company's knowledge there
have been no reportable events as set forth in Section 4043(b) of ERISA in
respect of any such plan, and no termination of any such plan since the
effective date of ERISA, which could result in any material tax, penalty or
liability being imposed upon the Company; neither the Company nor, to the best
of the Company's knowledge, the Seller or any of its predecessors in interest,
has participated in, nor will the purchase of the Debentures or the Warrants by
the Holders involve, any "prohibited transaction" (as defined in Section 4975 of
the Internal Revenue Code of 1986, as amended) that could subject the Company or
any Holder to any tax or penalty imposed by
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said Section 4975; since the effective date of ERISA, neither the Company nor,
to the best of the Company's knowledge, the Seller or any of its predecessors in
interest has incurred any "accumulated funding deficiency", as such term is
defined in Section 302 of ERISA, to which the Company could be subject or for
which it might be liable; the Company is not, and immediately after the Closing
will not be, a party to, and none of the operations of the Company is or after
the Closing will be covered by, a multi-employer plan, as defined in Section
3(37) of ERISA.
Section 5.23 Collective Bargaining. The Company is not, and immediately after
the closing under the Acquisition Agreement will not be, a party to or subject
to any collective bargaining agreements or union contracts, except as set out in
Exhibit 5.23. There are no labor disputes pending or threatened against the
Company or, to the best of the Company's knowledge, against the Business which
have affected, or so far as the Company can reasonably foresee may affect,
materially and adversely the Business or the condition of the Company.
Section 5.24 Employees. The Company has delivered to Holders copies of all
employment and compensation contracts, including all retirement benefit
agreements and union contracts not disclosed on Exhibit 5.23, between the
Company and officers and executives of the Company, and all such contracts are
listed on Exhibit 5.24; no officer or key employee of the Company has advised
the Company (orally or in writing) that he or she intends to terminate
employment with the Company.
Section 5.25 No Competing Business Interests. Except as described in Exhibit
5.25 hereto, neither the Shareholder nor any of the Company's officers or
directors, has any direct or indirect interest, including, but not limited to,
the ownership of stock in any corporation, in any business, that competes with,
or conducts any business similar to any business conducted by the Company,
except through ownership of less than five percent (5%) of the similar or
competing business.
Section 5.26 No Conflicting Non-Competition Agreements. Neither the Company
nor any of the its officers or directorss are subject to any contract or
agreement purporting to limit their rights to compete in any market in which the
Company presently provides, or proposes to provide, goods or services; or
purporting to restrict their rights to disclose information in respect to such
competition.
ARTICLE 6
Affirmative Covenants
Subject to Article 8 hereto, until the Debentures are indefeasibly
repaid in full, and so long as a Holder owns a Warrant or any equity security of
the Company issued directly or indirectly in exchange for, or pursuant to
provisions of a Warrant, Brazos and BSI shall:
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Section 6.1 Monthly Financials. Maintain standard modern systems of
accounting in accordance with GAAP; make full, true and correct entries in such
systems of all dealings and transactions in relation to their business and
affairs; forward, or cause to be forwarded to Holders the monthly year-to-date
financial statements of Brazos prepared in accordance with GAAP (including a
monthly and year-to-date balance sheet, profit and loss statement and cash flow
statement), within thirty (30) days from the end of each month, together with a
monthly one (1)-page management summary description of operations and a list of
any capital expenditures made during the month in excess of Ten Thousand Dollars
($10,000);
Section 6.2 Certification of Non-Default. Provide to Holders in writing each
quarter a written certification by the President or Chief Financial Officer of
the Company, that no material default has occurred under the Debentures or this
Agreement, or any debt or obligation senior to the debt hereunder; or if any
such default exists, stating the nature of such default;
Section 6.3 Year End Statements. Annual Audit. Within one hundred twenty
(120) days of each fiscal year-end, provide consolidated and consolidating
year-end financial statements for BSI and its subsidiaries, and cause a public
accounting firm acceptable to provide to Holders its unqualified written opinion
that such statements for such year fairly present in all material respects such
entities' financial positions and the results of their operations according to
generally accepted accounting principles consistently applied; all national
public accounting firms shall be acceptable to Holders in this respect; the
subject financial statements shall be accompanied by statements of cash flow and
management compensation and a list of any capital expenditures made during the
year in excess of Ten Thousand Dollars ($10,000) but such accounting firm's
opinion need not address such matters;
Section 6.4 Projected Financials. Prior to each accounting year-end, provide
Holders with projected financial statements of Brazos and BSI for the coming
three (3) years and monthly projections for the coming year, in the same format
as used for Section 6.1;
Section 6.5 Regulatory Filings. Within thirty (30) days of filing, provide
Holders with copies of all annual federal income tax returns and documents filed
with the Securities & Exchange Commission;
Section 6.6 Notice of Litigation. Notify Holders of any litigation to which
the Company is a party by mailing to Holders, by registered mail, within thirty
(30) days of receipt thereof, a copy of the Complaint or other such initiating
pleadings served on or by the Company; and any litigation to which the Company
is not a party but which could substantially affect operation of the Company's
business or the collateral pledged under this Agreement, including collateral
securing any guarantees, by mailing to Holders, by registered mail, a letter
setting out the facts known about the litigation within thirty (30) days of
receipt thereof; the Company shall not be obliged by this paragraph to give
notice of suits wherein the Company is a creditor seeking collection of account
debts or suits where the damages sought are less than $100,000;
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Section 6.7 Notice of Defaults or Judgments. Give Holders notice of material
default declared in regard to any loan or lease of the Company or any judgment
entered against the Company by mailing a copy to Holders within ten (10) days of
receipt thereof;
Section 6.8 Board Meetings. Director's Fee Equivalent. Hold a meeting of its
Board of Directors at least quarterly; give Holders at least two (2) weeks prior
notice of such meeting; allow one designee of Holders (who shall, upon written
request of Holders, be elected to the Company's Board) to attend such meeting at
the Company's expense, provided however, that the Company shall be obliged to
meet only the reasonable expenses of such attendance; notwithstanding the
foregoing, if the Company's Board of Directors desire to take appropriate action
by means of a unanimous consent in lieu of meeting, they may do so provided that
the Holders are sent a copy of the relevant corporate resolutions to be adopted
at the same time they are provided to the directors of the Company; as and where
any fee may be paid to any of the Company's directors in respect to such office,
an equivalent sum shall be paid to the Holders as an additional fee in respect
to the financing herein if Holders have no designee serving as a director of the
Company;
Section 6.9 Insurance. Maintain all-risk hazard insurance on its assets, with
a mortgagee clause in favor of Holders, in such reasonable amounts and forms as
acceptable to Holders; this shall include federal flood insurance if any assets
are in a designated flood plain; and supply Holders annually with a
certification of such insurance from the relevant insurers in the form set forth
as Exhibit 6.09;
Section 6.10 Use of Proceeds; Certification.. Use the proceeds of the loans
only to fund the purchase of assets under the Acquisition Agreement; and provide
written evidence of such use to Holders within ninety (90) days of Closing;
Section 6.11 First Refusal for Future Financings. Offer to issue Holders all
equity, potential equity, or convertible securities proposed to be issued by the
Company, and allow Holders to participate in any purchase of Company Securities
offered for sale by any third party ratably in proportion to the Holders' actual
or potential equity holdings in the Company, on the most favorable terms to be
offered to any party; such offers may be accepted in whole or in part by one or
more of the Holders who must respond to such offer within thirty (30) days of
receipt thereof; failure to respond within such time shall be construed as a
decline of the offer by the relevant Holder;
Section 6.12 Access to Records. Permit any authorized representative of any
Holder, and Holders' attorneys and accountants, to obtain credit and other
background information on the Company and its management, and to inspect,
examine and make copies and abstracts of the books of account and records of the
Company at reasonable times during normal business hours; allow Holders or their
agents to interview the Company's outside accountants who are by this covenant
irrevocably instructed to respond to such inquiries as fully as if the inquiries
were made by the Company itself;
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Section 6.13 Financial Covenants. Cause Brazos to meet the following
financial ratios.
(a) Adjusted Net Worth. At the end of each fiscal quarter, maintain
an Adjusted Net Worth of Brazos not less than the amount shown below for the
fiscal quarter
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corresponding thereto:
Fiscal Quarter Amount
Ending Closest to:
--------------------------------------
(i) 9/30/96 (i) $1,760,000
(ii) 12/31/96 (ii) $1,760,000
(iii) 3/31/97 (iii) $1,760,000
(iv) 6/30/97 (iv) $2,400,000
(v) 9/30/97 (v) $4,400,000
(vi) At the end of (v) $4,800,000
each
thereafter
occurring
Calendar
Quarter
(b) Current Ratio. As of the end of each fiscal quarter, beginning
with the quarter ending closest to September 30, 1996, maintain a Current Ratio
of not less than 0.8 to 1.00.
(c) Debt to Net Worth Ratio. As of the end of each fiscal quarter
indicated below, maintain a ratio of Debt to Net Worth of no more than the
ratio indicated below:
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Fiscal Quarter Ratio
Ending Closest to
----------------------------------------------
(i) 9/30/96 (i) 7.5 = 1.0
(ii) 12/31/96 (ii) 6.25 = 1.0
(iii) 3/31/97 (iii) 5.0 = 1.0
(iv) 6/30/97 (iv) 5.0 = 1.0
(v) 9/30/97 (v) 5.0 = 1.0
(vi) 12/31/97 (v) 5.0 = 1.0
(vii) Quarters after 1997 (vii) 3.75 = 1.0
(d) Fixed Charge Ratio. As of the end of each fiscal month of
Brazos ending closest to the dates indicated below, maintain a Fixed Charge
Ratio of not less than the ratio
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indicated below .
Relevant Time Ratio
Period
-----------------------------------------------------
(i) One month (i) 1.0 to 1.00
period ending
August 31, 1996
(ii) Two month (ii) 1.0 to 1.00
period ending
September 30, 1996
(iii) Three month (iii) 1.0 to 1.00
period ending
October 31, 1996
(iv) Four month (iv) 1.0 to 1.00
period ending
November 30, 1996
(v) Five month (v) 1.0 to 1.00
period ending
December 31, 1996
(vi) Six month (vi) 1.0 to 1.00
period ending
January 31, 1997
(vii) Seven month (vii) 1.0 to 1.00
period ending
February 28, 1997
(viii) Eight month (viii) 1.0 to 1.00
period ending
March 31, 1997
(ix) Nine month (ix) 1.0 to 1.00
period ending
April 30, 1997
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(x) Ten month (x) 1.0 to 1.00
period ending
May 31, 1997
(xii) Eleven month (xii) 1.0 to 1.00
period ending
June 30, 1997
(xiii) Twelve month (xiii) 1.1 to 1.00
period ending
on the last day
of each thereafter
occurring fiscal month
Section 6.14 Payments and Other Debts. Make all payments of principal,
interest and expenses as and when due under the Debentures, without setoff and
regardless of any claim the Company may have against Holders; and comply in all
respects with all terms, conditions and covenants relating to other debt
obligations of the Company provided, however that this Section shall not be
construed to require compliance with any obligations arising under the Senior
Debt;
Section 6.15 Maintain Copies; Financing Statements. Maintain an original or a
true copy of this Agreement and any modifications hereof, which shall be
available for inspection as called for herein or in the Debentures; and pay the
taxes and costs of, or incidental to, any recording or filing of any financing
statements concerning any collateral for the Debentures;
Section 6.16 Information Requests. Furnish from time to time to any Holder at
the Company's expense all information a Holder may reasonably request to enable
such Holder to prepare and file any report or form required of Holder by SBA,
the Securities and Exchange Commission or any other regulatory authority;
Section 6.17 Protect the Collateral. Take all reasonable steps to administer,
supervise, preserve and protect the Collateral and to perfect and maintain the
Holders' security interest in such Collateral; regardless of any action taken by
Holders, there shall be no duty upon Holders in this respect;
Section 6.18 Maintenance of Holding-Company Status. Cause BSI to remain a
holding company engaged solely in the ownership of equity and debt securities
of subsidiary entities; and
Section 6.19 Post Closing Collateral. Within ninety (90) days after Closing,
provide Holders with a fully-executed leasehold mortgage in respect to its
leaseholds in Cincinnati, Ohio, Staten Island, New York and College Station,
Texas, in the form of Exhibit 1.02(e) hereof.
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ARTICLE 7
Negative Covenants.
Subject to Article 8, until the Debentures are indefeasibly repaid in full,
and so long as a Holder owns a Warrant or an equity security of the Company
issued, directly or indirectly, in exchange for, or pursuant to provisions of a
Warrant, neither Brazos nor BSI shall, without the prior written consent of the
Holders:
Section 7.1 Change of Ownership or Organization. Make or suffer any material
change in the ownership of Brazos, or its, organization (including amendments to
its charter or bylaws) or the manner in which its business is conducted; or
establish any parent or additional subsidiary entities;
Section 7.2 Equity Issuance or Redemption. Permit Brazos to sell, authorize,
issue or redeem any capital stock of any class or any convertible debt or other
equity security except as required herein; or expend over One Million Dollars
($1,000,000) in the aggregate, for the redemption of equity securities of BSI;
Section 7.3 Dividends. Declare or pay any dividend of any type on any class
of their equity securities except for eight percent (8%) preferred stock
dividends payable in respect to the preferred stock of BSI and Brazos referenced
in Recital F and G, above.
Section 7.4 Transfers.
(a) Transfer, sell, lease, lend or in any other manner dispose
of any of their the assets necessary to continue the operations of Brazos; or
(b) Allow to exist on their assets any Liens other than
Permitted Liens;
Section 7.5 Mergers, Etc.. Become a party to any merger or consolidation
with any other corporation, company or entity, or dispose of assets necessary
to continue its present or proposed business operations;
Section 7.6 Capital Expenditures. Make Capital Expenditures in any
fiscal year in excess of One Million Seven Hundred Fifty Thousand Dollars
($1,750,000);
Section 7.7 Employee Loans. Loan any employee in excess of One Hundred
Thousand Dollars ($100,000) per annum ;
Section 7.8 Affiliate Transactions. Purchase or sell any property or
services or borrow or lend money or property from or to, or co-invest in any
material transaction with, any officer, director, employee or other affiliate
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of the Company, or any affiliate of any such officer, director, employee or
affiliate, except for employment arrangements with officers and employees,
travel advances, advances against commissions and other similar advances in the
ordinary course of business, loans or similar advances of money to its officers
or employees in an aggregate amount not to exceed $150,000 at any time
outstanding, customary fees to directors (so long as the provisions of Section
6.8 are complied with) and transactions wherein the terms are no less favorable
to the Company than the best terms available from an unaffiliated person;
Section 7.9 Change of Site or Business. Change the physical location of
its principal office in Cincinnati, Ohio, or the nature of its current
business, or expend or invest any funds in any other line of business;
Section 7.10 Change in Organization of Brazos or Two-Tier Structure. Alter
Brazo's charter, bylaws or other constituent documents in a manner which reduces
the rights and preferences of the Warrants or the Shares, or to establish any
class or series of preferred stock with participating or conversion rights, or
any additional class or series of common stock; establish any subsidiaries of
Brazos or invest funds of Brazos in any affiliates or other entities; cause any
existing or hereafter-acquired assets relating to the present or future
operations of Brazos to be transferred to, or be acquired by or in the name of
BSI; or cause or allow any active business operations whatsoever to be conducted
by BSI; or allow or cause any equity or convertible securities of Brazos held by
BSI to be sold, transferred or disposed of in any manner whatsoever;
Section 7.11 New Debt Provisions. Enter any lease or Debt agreement which
precludes any Holder from curing monetary defaults thereunder; regardless of
this provision no Holder shall be obliged to cure any such defaults; or incur
any Debt, contingent liability outside the ordinary course of its business, or
guaranty obligation except:
(a) Senior Debt described in Section 1.3 above, up to an aggregate
balance of Eighty Million Dollars ($80,000,000); the subordinated debentures
issued to the Seller pursuant to the Acquisition Agreement and described in
Recital D above;
(b) The Obligations and any subsequent debts to Holders; and
(c) Purchase money financing obligations;
Section 7.12 Judgments. Permit any judgment in excess of Five Hundred Thousand
Dollars ($500,000) obtained against the Company to remain unpaid for over thirty
(30) days without obtaining a stay of execution or bond;
Section 7.13 Cross-Default. Incur any declared default under any lease, any
loan or other agreement pertaining to another debt or material obligation of
the Company except the Senior Debt; or
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Section 7.14 Diversion of Proceeds. Divert any proceeds of the Debentures
from the purposes set out in Section 6.10, above.
ARTICLE 8
Termination and Suspension of Certain Covenants
Section 8.1 Debt Repayment. If the Obligations shall be fully and
indefeasibly paid then, the following parts of this Agreement shall terminate:
Sections 6.2, 6.6, 6.7, 6.9, 6.10, 6.13, 6.14, 6.17, 6.19, 7.2, 7.3,
7.4 and 7.6
Section 8.2 Public Market for Shares; Large Share Holding.
In any case when
(a) Holders either own 25,000 Shares or more, in the aggregate,
or hold Warrants exerciseable for at least such number of Shares;
(b) the Company makes a Qualified Public Offering;
(c) the Shares issued or issuable under the Warrants are part
of a class of securities of the Company which is regularly traded on a national
or regional stock exchange or in the National Association of Securities
Dealers, Inc. National Market System;
(d) the Company complies with all reporting requirements under
the Securities Exchange Act of 1934 (as amended), and the regulations
thereunder; and
(e) the Obligations have been fully and indefeasibly paid; then,
for the period of time such conditions continue to be met, only the following
Sections of Articles 6 and 7 shall be in effect:
Sections 6.8, 6.16, 6.18, 7.8 and 7.10 .
Section 8.3 Public Market for Shares; Small Share Holdings. If the conditions
listed in Section 8.2 are met, except that the aggregate number of Shares owned
by Holders or subject to the Warrants is less than 25,000, then for the period
of time such conditions continue to be met, only the following Sections of
Articles 6 and 7 hereof shall be in effect: Sections 6.16, 7.8 and 7.10.
26
<PAGE>
ARTICLE 9
Default
Section 9.1 Events of Default. Any of the following events shall be an "Event
of Default" as that term is used herein:
(a) Principal and Interest Payments. The Company fails to make
payment within fifteen (15) days of the due date of any principal or interest
installment on the Debentures;
(b) Representations and Warranties. Any representation or warranty
made by the Company or the Shareholder proves to have been incorrect in any
material respect as of the date thereof; or any representation, statement
(including financial statements), certificate or data furnished or made by the
Company (or any officer, accountant or attorney of the Company) under this
Agreement, proves to have been untrue in any material respect, as of the date as
of which the facts therein set forth were stated or certified;
(c) Covenants. The Company defaults in the observance or
performance of any of the covenants or agreements contained in this Agreement
(other than a default under any other subsections of this Section 9.1), and such
default continues unremedied for a period of thirty (30) days (or one hundred
twenty [120] days in the case of Section 6.13) after the earlier of (i) notice
thereof being given by Holders to the Company, or (ii) such default otherwise
becoming known to the chief financial officer of Brazos;
(d) Loan Documents. The Company defaults in the observance or
performance of any of the covenants or agreements contained in any Loan
Document to which it is a party which continues beyond the expiration of any
notice and cure period pertaining thereto;
(e) Other Debt to Holders. The Company defaults in the payment of
any amounts due to Holders, or Holders declare a default by the Company (which
has not been cured within any applicable cure periods), in connection with the
observance or performance of any of the covenants or agreements contained in any
credit agreements, notes, collateral or other documents relating to any
indebtedness of the Company to Holders, other than the Debentures;
(f) Cross Default to Other Loans. Without implying that such other
indebtedness is permitted, the Company defaults in the payment of any amounts
due to any person (other than Holders or in respect to the Senior Debt), or in
the observance or performance of any of the covenants or agreements contained in
any credit agreements, notes, collateral or other loan documents relating to any
obligation of the Company for borrowed money in excess of Five Hundred Thousand
Dollars ($500,000) to any person other than Holders, after any grace period
applicable to such default has elapsed, and after the maturity thereof) has been
accellerated;
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<PAGE>
(g) Involuntary Bankruptcy or Receivership Proceedings. A
receiver, conservator, liquidator or trustee of the Company or of their property
is appointed by order or decree of any court or agency or supervisory authority
having jurisdiction; or an order for relief is entered against the Company under
the U.S. Bankruptcy Code; or the Company is adjudicated bankrupt or insolvent;
or any material portion of the properties of the Company is sequestered by court
order and such order remains in effect for more than fifty (50) days after the
Company obtains knowledge thereof; or a petition is filed against the Company
under any state, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or receivership law of any jurisdiction, whether now or
hereafter in effect, and such petition is not dismissed within sixty (60) days;
(h) Voluntary Petitions. The Company files a petition under the
U.S. Bankruptcy Code or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any case or petition against it under any such law;
(i) Assignments for Benefit of Creditors. The Company makes a
general assignment for the benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become due, or consents to the
appointment of a receiver, trustee or liquidator of all or any part of its
property;
(j) Undischarged Judgments. Judgment for the payment of money in
excess of Five Hundred Thousand Dollars ($500,000), which is not covered by
insurance, is rendered by any court or other governmental body against the
Company, and the Company does not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution thereof
within thirty (30) days from the date of entry thereof, and within said period
of thirty (30) days from the date of entry thereof or such longer period during
which execution of such judgment shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal while providing such
reserves therefor as may be required under generally accepted accounting
principles;
(k) Attachment. A writ or warrant of attachment, seizure or any
similar process shall be issued by any court against all or any material portion
of the property of the Company, and such writ or warrant of attachment or any
similar process is not released or bonded within twenty (20) days after its
entry;
(l) No Assumption. Substantially all of the ownership interest
in the Company, or the Company's assets, are sold, exchanged or transferred;
Section 9.2 Remedies. Upon the occurrence of any Event of Default, Holders
may
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(a) by written notice to the Company, declare the entire principal
amount of the Loan then outstanding, including interest accrued thereon,
together with all other fees and charges payable in connection with the Loan, to
be immediately due and payable without presentment, demand, protest, notice of
protest or dishonor or other notice of default of any kind, all of which are
hereby expressly waived by the Company; and
(b) exercise any of the rights or remedies provided in the
Collateral Documents or avail themselves of any other rights or remedies
provided by applicable law; andset-off any funds of the Company in the
possession of Holders against any amounts then due by the Company to Holders
pursuant to this Agreement.
ARTICLE 10
Fees and Costs
The Company shall pay:
Section 10.1 All closing costs, brokerage commissions, due diligence costs and
other fees and expenses incurred by the Company or the Holders in connection
with the transactions contemplated by this Agreement;
Section 10.2 A fixed origination fee of Seventy Thousand Dollars ($70,000) of
which Thirty Thousand ($30,000) has been paid previously and Forty Thousand
($40,000) is payable at Closing;
Section 10.3 An hourly fee for work done in connection with the transactions
contemplated by this Agreement for Holders by Holders' attorneys and legal
counsel , plus out-of-pocket expenses incurred in respect of such work;
Section 10.4 All of Holders' expenses of any nature which may be reasonably
necessary, whether or not an Event of Default has occurred, and whether or not
the maturity of the Debentures has been accelerated, for the enforcement or
preservation of Holders' rights under this Agreement, the Debentures, the
Warrants, or any other agreement of the Company mentioned herein, including but
not limited to reasonable attorneys' fees, appellate costs and fees, and costs
incurred by any Holder as a participant in any bankruptcy proceeding, workout,
debt restructuring, extension of maturity or document amendment, involving the
Company or any other obligor under the Debentures;
Section 10.5 All costs and fees, including attorneys' fees and expenses,
incurred by any of Holders or their affiliates in connection with:
(a) any suit, action or claim of Holders to enforce the
provisions of this Agreement or any other document related hereto; and
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<PAGE>
(b) any suit, action, claim or other liability asserted against
any of Holders or their affiliates by the Company or the Shareholder, in either
case, in which such parties do not prevail with respect to substantially all of
their claims; likewise, the Shareholder shall reimburse Holders for all costs
and fees described above in connection with the suits, actions, claims and
liabilities described above, asserted by or against the Shareholder in case the
Shareholder does not prevail with respect to substantially all of the disputed
matters.
ARTICLE 11
Indemnification. Environmental Liability
The Company will indemnify Holders and their directors, officers,
employees, agents and controlling persons (hereinafter "Indemnitees") against,
and hold Holders and each such Indemnitee harmless from, any and all losses,
claims, damages, liabilities and related expenses (including attorneys' fees and
expenses) incurred by or asserted against Holders or any such Indemnitee arising
out of, in any way connected with, or resulting from the following:
(a) this Agreement, the other documents contemplated hereby, the
performance by the parties hereto and thereto of their respective obligations
hereunder and thereunder, or consummation of the transactions contemplated
hereby and thereby;
(b) any and all liability and loss with respect to or resulting
from any and all claims for or on account of any broker's finder's fees or
commissions with respect to this transaction as may have been created by the
Company or its officers, partners, employees or agents together with any stamp
or excise taxes which may become payable in connection with this transaction or
the issuance of stock hereunder;
(c) the spilling, leaking, pumping, pouring, unsettling,
discharging, leaching or releasing of hazardous substances on property owned by
the Company or any violations by the Company of CERCLA, the Federal Clean Water
Act or any other Federal, state or local environmental law, regulation or
ordinance; and
(d) any claim, litigation investigation or proceeding relating
to any of the foregoing, whether or not Holders or any such person is a party
thereto;
PROVIDED, HOWEVER, that any such indemnity shall not apply to any such
losses, claims, damages, liabilities or related expenses arising from Holders'
gross negligence or willful misconduct.
The provisions of this Section shall remain operative and in full force
and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of the
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Debentures, the invalidity or unenforceability of any term or provision of this
Agreement, the Debentures or any Collateral Documents, or any investigation made
by or on behalf of Holders. All amounts due under this Article shall be payable
on written demand therefor.
ARTICLE 12
Interpretation of Remedies
Section 12.1 Cumulation. Receivership. None of the rights or remedies of the
Holders provided herein shall be exclusive, but each shall be cumulative with
and in addition to every other right or remedy of Holders, now or hereafter
existing, at law or in equity, by statute, agreement or otherwise. In any action
under this Agreement, the Debentures or the Warrants, the Holders shall be
entitled to appointment of a receiver to administer the Company, or all or any
portion of its assets as may be subject to Holders' claims.
Section 12.2 No Implied Waver. No course of dealing between a Holder and any
other party hereto, or any failure or delay on the part of a Holder in
exercising any rights or remedies hereunder, shall operate as a waiver of any
rights or remedies of any Holder under this or any other applicable agreement.
No single or partial exercise of any rights or remedies hereunder shall operate
as a waiver or preclude the exercise of any other rights or remedies hereunder.
ARTICLE 13
Parties
This Agreement will bind and accrue to the benefit of the Company, the
shareholders, the Holders, any holders of the Warrants or the Debentures, and
their successors and assigns. Any purchaser, assignee, transferee or pledgee of
the Warrants or Debentures, or any document arising in connection with the
transaction subject to this Agreement (or any of them), sold, assigned,
transferred, pledged or repledged by a Holder shall forthwith become vested with
and entitled to exercise all rights and remedies provided herein to Holders, as
if said purchaser, assignee, transferee or pledgee were originally named in this
Agreement in place of the Holders.
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ARTICLE 14
Notice
All notices or communications under this Agreement or the Warrants or
Debentures shall be mailed, postage prepaid, or delivered as follows:
To Holders: Allied Capital
1666 K Street, N.W., 9th Floor
Washington, D.C. 20006
Attn: Mr. Philip A. McNeill,
Senior Vice President
and to
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attn: David P. Parker, Esquire
To the Company: Brazos Sportswear, Inc.,
3860 Virginia Avenue
Cincinnati, OH 45227
Attn: Messieurs Ford Taylor
and Clayton Chambers
and to
Porter & Hedges, LLP
700 Louisiana Street, 35th
Floor
Houston, TX 77002
Attn: William W. Wiggins, Jr.
Esquire
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or, to such subsequent addresses as may hereafter be specified by the parties.
Rejection or other refusal to accept, or the inability to deliver because of a
changed address of which no notice was given, shall not affect the date of such
notice sent in accordance with the foregoing provisions. Each such notice,
request or other communication shall be deemed sufficiently given, served, sent
and received for all purposes at such time as it is delivered to the addressee
(with the return receipt, the delivery receipt, the affidavit of the messenger
or the answer back being deemed conclusive [but not exclusive] evidence of such
delivery), or at such time as delivery is refused by addressee upon
presentation.
ARTICLE 15
Holders' Duty to Company
Holders shall adhere to a standard of good faith in all matters coming
under this Agreement and any related documents; that standard shall be as set
out in Uniform Commercial Code Section 1-203. Holders shall have no duty toward
the Company, any other signatories hereto or any related parties, to observe any
higher standard of dealing except to the extent applicable law may expressly
impose such higher standards on particular activities falling under this
Agreement; and in such event the higher standards shall apply only to the
particular activities so affected.
ARTICLE 16
Relationship of the Parties
This Agreement provides, among other things, for the making, of loans by
Holders, in their capacity as lenders, to the Company, in its capacity as a
borrower, and for the payment of interest and repayment of principal by the
Company to Holders. The provisions herein for compliance with financial
covenants and delivery of financial statements are intended solely for the
benefit of Holders to protect their interests as lenders in assuring, payments
of interest and repayment of principal, and as warrant or stock holders in
preserving their equity stake in the Company. Nothing contained in this
Agreement shall be construed as permitting or obligating Holders to act as
financial or business advisors or consultants to the Company, as permitting or
obligating Holders to control the Company or to conduct the Company's
operations, as creating any fiduciary obligation on the part of Holders to the
Company, or as creating any joint venture, agency or other relationship between
the parties, other than as explicitly and specifically stated in this Agreement.
A Holder is not, and shall not be construed as, a partner, joint venturer,
alter-ego, manager, controlling person, operator or other business participant
of any kind of the Company; neither Holders nor the Company intend Holders to
assume such status, and, accordingly, Holders shall not be deemed responsible
for or a participant in any acts or omissions of the Company. The Company and
the Shareholder represent that they have had the advice of experienced counsel
of their own choosing in connection with the negotiation and execution of this
Agreement and with respect to all matters contained herein.
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ARTICLE 17
Controlling Law; Venue and Jurisdiction; Service of Process.
This Agreement shall be interpreted, and the rights and liabilities of
the parties hereto determined, in accordance with the laws of the District of
Columbia, without regard to its principles of conflicts of law. Venue for any
adjudication hereof shall be only in the courts of the District of Columbia or
the Federal courts in the State of Maryland, to the jurisdiction of which courts
all undersigned parties hereby submit as the agreement of such parties, as not
inconvenient, and as not subject to review by any court other than such courts
in such district. All parties intend and agree that the courts of jurisdictions
in which the Company is incorporated and conducts its business shall afford full
faith and credit to any judgment rendered by a court of the District of Columbia
against the Company or other obligees hereunder, and that such District of
Columbia and federal courts shall have in personam jurisdiction to enter a valid
judgment against the Company or other obligees hereunder. Service of any summons
and/or complaint and any other process which may be served on the Company in any
action in respect hereto, may be made by mailing via registered mail, or
delivering a copy of such process to the Company at its address specified above.
The parties hereto agree that this submission to jurisdiction and consent to
service of process are reasonable and made for the express benefit of Holders.
ARTICLE 18
Waiver of Trial by Jury
Each party to this Agreement waives all right to trial by jury of all
claims, defenses counterclaims and suits of any kind directly or indirectly
arising from or relating to this Agreement or the Loan Documents or the dealings
of the parties in respect thereto. The parties hereto acknowledge and agree that
this Article is a material term of this Agreement and that the Holders would not
extend any funds under this Agreement if this waiver of jury trial were not a
part of this Agreement. Each party hereto acknowledges that this is a waiver of
a legal right and that it makes this waiver voluntarily and knowingly after
consultation with, or the opportunity to consult with, counsel of its choice.
Each party hereto agrees that all such claims, defenses, counterclaims and suits
shall be tried before a judge of competent jurisdiction, without a jury.
ARTICLE 19
Notice of Claim; Waiver
To allow Holders to mitigate any breach of this Agreement, of the other
documents executed herewith, or of any other duties to the Company which Holders
may owe, the Company shall give Holders written notice of any claim or
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defense the Company may have against Holders, whether in tort, contract or
otherwise, relating to any act or omission by Holders under this Agreement, the
other documents executed herewith or the transactions contemplated herein, or of
any defense to claims for payment of the Debentures or other obligations
hereunder and thereunder for any reason. The Company hereby agrees to provide
such notice to Holders within sixty (60) days after the Company has knowledge of
any such claim or defense. If the Company does not timely deliver such notice to
Holders, then the Company shall not assert and shall be deemed to have waived
any such claim or defense.
ARTICLE 20
Captions; Severance.
The captions in this Agreement and the Warrants and Debentures are
inserted for reference only and shall be construed neither to limit nor amplify
the meaning of the other text of such documents. To the extent any provision
herein violates any applicable law, such provision shall be void and the balance
of this Agreement shall remain unchanged.
ARTICLE 21
Counterparts; Entire Agreement
This Agreement may be executed in as many counterpart copies and
counterpart signature pages as may be convenient. It shall not be necessary that
the signature of, or on behalf of, each party appear on each counterpart, but it
shall be sufficient that the signature of, or on behalf of, each party appear on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties. This Agreement
supercedes all terms of the commitment letter of July 26, 1996. This Agreement,
the Warrants, the Debentures, the exhibits hereto and the documents mentioned
herein (other than the Commitment Letter of 7/26/96) set forth the entire
agreements and understandings of the parties hereto in respect of this
transaction. Any verbal agreements in respect of this transaction are hereby
terminated. The terms herein may not be changed verbally but only by a writing
signed by the party against which enforcement of the change is sought.
ARTICLE 22
Definitions and Rules of Construction
Section 22.1 Definitions. As used in this Agreement, and unless the
context requires
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a different meaning, the following terms shall have the meanings as follow:
(a) "Accumulated Funding Deficiency" shall have the definition
for such term in Section 302 of the Employee Retirement Income Security Act of
1974;
(b) "Acquisition Agreement" shall have the definition set out
in Recital A hereof;
(c) Adjusted Net Earnings From Operations" is defined, with
respect to any fiscal period as the net earnings (or loss) after provision for
income taxes for such fiscal period, but excluding:
(i) earnings of any subsidiary of the subject entity accrued
prior to the date it became a subsidiary;
(ii) earnings of any corporation, substantially all the
assets of which have been acquired in any manner,
realized prior to the date of such acquisition;
(iii) net earnings of any business entity (other than a
subsidiary) in which has an ownership interest unless
such net earnings shall have actually been received by
in the form of cash distributions;
(iv) any portion of the net earnings of any subsidiary which,
at the time of determination, the subsidiary is
prohibited (by contract or charter) from paying as
dividends to;
(v) the earnings of any person to which any assets of the
subject entity shall have been sold, transferred or
disposed of, or into which the subject entity shall have
merged, or been a party to any consolidation or other
form of reorganization, prior to the date of such
transaction;
(vi) any gain or loss arising from the acquisition of any
securities of the subject entity; and
(vii) any gain or loss arising from extraordinary or
non-recurring items.
(d) "Adjusted Net Worth" is defined as a sum equal to:
(i) total shareholder's equity (including capital stock,
additional paid-in capital and retained earnings after
deducting treasury stock) which would be shown on a
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balance sheet in accordance with GAAP;
PLUS
(ii) without duplication, the aggregate amount of the
Designated Preferred Stock which would be shown on such
balance sheet in accordance with GAAP;
MINUS
(iii) the aggregate book value of intangible assets which
would be shown on such balance sheet in accordance with
GAAP;
PLUS
(iv) Subordinated Debt.
(e) "Affiliated Person" shall have the definition for such term
set out in section 2(a)(3) of the Investment Company Act of 1940, as amended;
(f) "Agreement" is defined as this Investment Agreement and the
Exhibits and Schedules hereto, as the same may be amended, supplemented,
extended, modified or replaced in accordance with the terms hereof;
(g) "Appraised Value" shall have the meaning set forth in
Section 3.3(b) hereof;
(h) "Associate" shall have the definition for such term set out in
section 107.3 of the amended Regulations promulgated under the SBA Act;
(i) "Business" shall have the meaning set out in Recital A
hereof;
(j) "Closing" is defined as the consummation of this Agreement;
(k) "Collateral" means all property and interests in property
that now or hereafter secure payment and performance of the Obligations,
including the security interests granted in the Collateral Documents.
(l) "Collateral Documents" shall have the definition set out in
Section 1.2 hereof;
(m) "Commitment Letter" is defined as the letter dated July 26,
1996 from Philip A. McNeill to the Company;
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(n) "Company" shall have the definition set out in the preamble
hereof;
(o) "Company Sale" shall have the meaning set forth in Section
3.4(b) hereof;
(p) "Conditional Warrants" is defined as the Conditional Stock
Purchase Warrants being signed herewith, collectively with all modifications,
extensions, renewals and replacements thereof and therefor;
(q) "Current Ratio" is defined as the ratio of (i) current assets,
to (ii) the sum of current liabilities, plus the outstanding principal balance
of the revolving portion of the Senior Debt.
(r) "Debt" is defined as all obligations for borrowed money,
obligations arising from installment purchases of property or services,
capitalized lease obligations, and the face amounts of letters of credit and
(without duplication) all sums drawn thereunder;
(s) "Debt to Net Worth Ratio" is defined as the quotient obtained
by dividing (a) aggregate Debt, both current and long-term, as dividend, by (b)
Net Worth, as divisor;
(t) "Designated Preferred Stock" at any date (i) the 8% preferred
stock of Brazos issued at Closing (the "Initial Preferred"), (ii) any preferred
stock of Brazos issued after Closing on terms no more favorable to the Holders
than the Initial Preferred and (iii) any other preferred stock of Brazos issued
after Closing, on terms satisfactory to Holders.
(u) "Debentures" shall have the definition set out in Section
1.1 hereof;
(v) "EBIT" is defined as earnings before interest, taxes and
extraordinary items, all calculated in accordance with GAAP;
(w) "Employer" and "Substantial Employer" shall have the
definitions set out therefor in Sections 3(5) and 4001(a)(2) of ERISA,
respectively;
(x) "ERISA" is defined as the Employee Retirement Income
Security Act of 1974;
(y) "Exempt Transfer" shall have the meaning set forth in
Section 4.3 hereof;
(z) "Fixed Charge Ratio" is defined as the ratio of (i) Adjusted
Net Earnings from Operations plus amortization expense and depreciation expense
(to the extent deducted in calculating Adjusted Net
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Earnings from Operations) plus interest expense, to (ii) interest expense plus
capital expenditures not financed by Funded Indebtedness, plus scheduled
principal payments on Funded Indebtedness, plus distributionspaid to parent
entities (other than distributions pursuant to a tax sharing agreement in cases
where the amount of such distributions have already been deducted as a tax
expense in the calculation of Adjusted Net Earnings from Operations);
(aa) "Fully diluted basis" shall mean, in respect to a corporation
or other legal entity, the condition wherein all outstanding options, warrants
and other securities of such entity which are exercisable or exchangeable for
capital stock or other equity interests in the entity, are, for the purpose of
calculating relative ownership rights, presumed to have been exercised or
exchanged in full;
(ab) "Funded Indebtedness" means Debt for money borrowed having a
final maturity (or which is renewable or extendible at the option of the obligor
for a period ending) more than one year after the date of creation thereof;
(ac) "GAAP" is defined as generally accepted accounting principles
as set down by the Financial Accounting Standards Board, consistently applied
and maintained throughout the period indicated;
(ad) "Holders" shall have the definition set out in the preamble
hereof;
(ae) "Indemnitees" is defined as Holders and their directors,
officers, employees, agents and controlling persons;
(af) "Independent Third Parties" shall have the meaning set
forth in Section 3.4(b) hereof;
(ag) "Investment Company" shall have the definition for such
term set out in the Investment Company Act of 1940, as amended;
(ah) "Liens" is defined as any interest in property securing an
obligation owed to, or a claim by, a person other than the owner of the
property, whether such interest is based on the common law, statute or contract,
and including, but not limited to, the security interest, security title or lien
arising from a security agreement, mortgage, deed of trust, deed to secure debt,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes.
(ai) "Litigation Schedule" shall have the meaning set forth in
Section 5.3 hereof;
(aj) "Loan" shall have the definition set out in Recital B
hereof;
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(ak) "Loan Documents" shall have the definition set out in
Section 1.2 hereof;
(al) "Net Worth" total shareholders' equity (including capital
stock, additional paid-in capital and retained earnings after deducting treasury
stock) which would be shown on a balance sheet in accordance with GAAP, plus
(without duplication) the aggregate amount of the Designated Preferred Stock
which would be shown on a balance sheet in accordance with GAAP;;
(am) "Obligations" means the Loan and all other liabilities,
obligations, covenants and duties arising under this Investment Agreement or any
of the other Loan Documents due or payable from the Company to the Holders
whether or not evidenced by the Debentures, a guaranty or other instrument. The
term includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and any other sums chargeable to Company under any of the Loan
Documents;
(an) "Offeree" shall have the meaning set forth in Section
3.2(a) hereof;
(ao) "Permitted Liens" means (i) Liens at any time granted in favor
of Holders or the holders of the Senior Debt; (ii) Liens for taxes (excluding
any Lien imposed pursuant to any of the provisions of ERISA) which not yet due
or are being contested in good faith and by appropriate proceedings (with
adequate reserves maintained in accordance with GAAP); (iii) Liens securing the
claims or demands of materialmen, mechanics, carriers, warehousemen, landlords
and other like persons for labor, materials, supplies or rentals incurred in the
ordinary course of Company's business, but only if the payment thereof is not at
the time required or is being contested in good faith and by appropriate
proceedings (with adequate reserves maintained in accordance with GAAP); (iv)
Liens resulting from deposits made in the ordinary course of business in
connection with workmen's compensation, unemployment insurance, social security
and other like laws; (v) attachment, judgment and other similar non-tax Liens
arising in connection with court proceedings, but only if and for so long as the
execution or other enforcement of such Liens is and continues to be effectively
stayed and bonded on appeal in a manner satisfactory to Holders for the full
amount thereof, the validity and amount of the claims secured thereby are being
contested in good faith and by appropriate lawful proceedings; (vi)
reservations, exceptions, easements, rights of way, and other similar
encumbrances affecting real property, provided that, they do not in the
aggregate materially detract from the value of said properties or materially
interfere with their use in the ordinary conduct of Company's business; (vii)
capital lease obligations or purchase money Liens securing Debt incurred to
finance capital expenditures; and (x) such other Liens as Holders may hereafter
approve in writing;
(ap) "Prohibited Transaction" shall have the definition for such
term set out in Section 4975 of the Internal Revenue Code of 1986, as amended;
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(aq) "Qualified IPO" means a public offering and sale of Shares in
which the aggregate sale price (determined before underwriter's discounts and
selling commissions) for such Shares equals or exceeds Fifteen Million Dollars
($15,000,000);
(ar) "The Securities Act" is defined as the Securities Act of
1933, as amended;
(as) "Seller" shall have the definition set out in Recital A
hereof;
(at) "Senior Debt" shall have the meaning set forth in Section
1.3 hereof;
(au) "Shareholder" shall have the definition set out in the
preamble hereof;
(av) "Shares" is defined as Common Stock of BSI;
(aw) "Stock Purchase Warrants" is defined as the Stock Purchase
Warrants being signed herewith, collectively with all modifications, extensions,
renewals and replacements thereof and therefor;
(ax) "The SBA Act" is defined as the Small Business Investment
Act of 1958, as amended; and
(ay) "Warrants" is defined as the Stock Purchase Warrants and the
Conditional Warrants, collectively with all modifications, extensions, renewals
and replacements thereof and therefor.
Section 22.2 Rules of Construction. The rule of ejusdem generis shall not be
applicable herein to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned. Unless the context otherwise requires:
(a) A term has the meaning assigned to it;
(b) "Or" is not exclusive;
(c) Provisions apply to successive events and transactions;
(d) "Herein", "Hereof", "Hereto", "Hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision unless otherwise so provided;
(e) The word "person" shall mean any natural person, partnership,
corporation, nation, state, government, union, association,
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agency, tribunal, board, bureau and any other form of business or legal entity;
and
(f) All words or terms used in this Agreement, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the date first above written.
[Seal] BRAZOS SPORTSWEAR, INC.
By: /s/ RANDALL B. HALE
Randall B. Hale, President
[Seal] BSI HOLDINGS, INC.
By: /s/ RANDALL B. HALE
Randall B. Hale, President
[Seal] ALLIED INVESTMENT CORPORATION
By: /s/ PHILIP A. MCNEILL
Philip A. McNeill, Senior Vice President
[Seal] ALLIED INVESTMENT CORPORATION II
By: /s/ PHILIP A. MCNEILL
Philip A. McNeill, Senior Vice President
[Seal] ALLIED CAPITAL CORPORATION
By: /s/ PHILIP A. MCNEILL
Philip A. McNeill, Senior Vice President
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[Seal] ALLIED CAPITAL CORPORATION II
By: /s/ PHILIP A. MCNEILL
Philip A. McNeill, Senior Vice President
AGREED as to Section 3.2, Article 4, Sub-Section 10.5(b) and
Articles 12 through 22 (inclusive), only.
EQUUS II INCORPORATED
By: /s/ RANDALL B. HALE
Randall B. Hale, Vice President
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EXHIBITS
Document Number
- -------- ------
Asset Purchase Agreement, with exhibits B
Documents for three (3) Subordinated Debenture
Financings by Plymouth Mills, Inc. for BSI D
Second Amended and Restated Loan and Security
Agreement of Fleet Capital Corporation and The First E
National Bank of Boston
Amendment to Brazos Articles of Incorporation re: F
Preferred Stock
Allocation Schedule 1.01
Valuation of Equity Securities 2.04
Shareholders Agreement of November 30, 1995 2.06
Evidence of Equity Injection of $2,500,000 4.04
General Certificates, with Exhibits 5.01A
Certificates of Authority as Foreign Corporation 5.01B
Opinion of Company's Counsel 5.01C
Litigation Schedule 5.03
Audited 12/30/95 and unaudited 6/29/96 Consolidated 5.05A
Financial Statements
Audited 9/30/95 Financial Statements of Plymouth 5.5B
Size Status Declaration (SBA 480) 5.19A
Assurance of Compliance (SBA 652-D) 5.19B
Portfolio Financing Report (SBA 1031) 5.19C
Schedule of Leases 6.06(a)
Incumbency Certificates 5.10
Schedule of other Agreements 5.12A
Schedule of Affiliated Transaction 5.12B
Schedule of Equity Ownership (BSI) 5.16
Schedule of Employee Benefit Plans 5.21
Schedule of Union Contracts 5.23
Schedule of Employment Contracts 5.24
Schedule of Conflicting Interests 5.25
Hazard and Liability Insurance Certificate 6.09
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AMENDMENT TO INVESTMENT AGREEMENT
THIS AMENDMENT TO INVESTMENT AGREEMENT (this "AMENDMENT") is entered into
as of August 9, 1996, among BRAZOS SPORTSWEAR, INC., a Texas corporation
("BRAZOS") and BSI HOLDINGS, INC., a Delaware corporation ("BSI"), EQUUS II
INCORPORATED, a Delaware corporation (the "SHAREHOLDER"), and ALLIED INVESTMENT
CORPORATION and ALLIED INVESTMENT CORPORATION II, each a Maryland corporation
(collectively, the "HOLDERS," and each individually, a "HOLDER").
RECITALS
A. Brazos, BSI and Holders (and, as to certain specified sections only,
Shareholder) entered into that certain Investment Agreement dated as of August
9, 1996 (the "INVESTMENT AGREEMENT"), pursuant to which Holders agreed to make
loans to Brazos in the aggregate principal amount of $3,500,000 and BSI issued
to Holders warrants to purchase shares of BSI's Common Stock (the "WARRANTS"),
in consideration for a loan.
B. Concurrently with the execution of the Investment Agreement, Brazos
entered into that certain Second Amended and Restated Loan and Security
Agreement dated as of August 9, 1996 (the "CREDIT AGREEMENT"), with Fleet
Capital Corporation, a Rhode Island corporation ("FLEET"), and The First
National Bank of Boston, a national banking association ("BOSTON") (Fleet and
Boston are referred to collectively in this Amendment as the "LENDERS," and
Fleet in its capacity as agent for Lenders is referred to as the "AGENT"), under
which the Lenders provided to Brazos a revolving credit facility in the maximum
principal amount of $53,000,000 and term loans in the maximum principal amount
of $12,000,000.
C. On August 9, 1996, Brazos, BSI and Holders entered into a letter
agreement under which they agreed to amend the Investment Agreement to amend,
replace or add defined terms relating to financial covenants so that the defined
terms used in the financial covenants in the Investment Agreement would be
identical to the defined terms used in the financial covenants in the Credit
Agreement.
D. In addition, Brazos, BSI and Holders have agreed to amend the
Investment Agreement and the Warrants to clarify certain rights of the Holders
under the Warrants in the event of a redemption by BSI of its Common Stock.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agree as follows:
1. INVESTMENT AGREEMENT. The Investment Agreement is hereby amended as
follows:
A. DEFINITIONS AND RULES OF CONSTRUCTION. Article 22 of the
Investment Agreement is amended by adding a new Section 22.3, as follows:
"Section 22.3 DEFINITIONS FOR FINANCIAL COVENANTS.
Notwithstanding anything in this Article 22 or any other provision
of this Agreement to the contrary, each capitalized term used in
Section 6.13 of this Agreement (and all defined terms which comprise
part of the definition of any such capitalized term) shall have the
definition given such term in Exhibit "I" to this Agreement (that
certain Second Amended and Restated Loan and Security Agreement
among Senior Lenders and Brazos); provided that, (a) the term
"Brazos" as used in Section 6.13 shall have the meaning given that
term in this Agreement, and (b) the term "Borrower" as used in
Exhibit "I" shall mean "Brazos" when used in Section 6.13 of this
Agreement."
B. Section 2.3 of the Investment Agreement shall be deleted and
replaced with the following:
"Section 2.3 REDEMPTION RIGHTS. The Holders shall be entitled
to share ratably in any redemption of Shares by BSI. If BSI makes a
general redemption of all or part of its Shares prior to full
exercise of the Warrants, each Holder, at its option, may receive at
the time of such redemption, the same proceeds (less the exercise
price of the related Warrant) it would be entitled to receive if its
Warrant had been exercised prior to such redemption and BSI had
redeemed from such Holder the number of Shares
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equal to the product obtained by multiplying (a) the total number of
Shares subject to the Warrants at the time of such redemption and
(b) a fraction the numerator of which is the number of Shares which
are so redeemed and the denominator of which is the number of Shares
(fully diluted) at such time. Upon any Holder's election to
participate in any such redemption, as herein provided, the number
of Shares with respect to which the Warrants may be exercised, shall
be reduced accordingly."
C. INDEBTEDNESS TO NET WORTH RATIO. The introductory clause of
Section 6.13(c) is deleted and replaced by the following:
"(c) INDEBTEDNESS TO NET WORTH RATIO. As of the end of each
fiscal quarter of Brazos ending closest to the date indicated below,
maintain an Indebtedness to Net Worth Ratio of no more than the
ratio indicated below:"
2. NO WAIVER OF DEFAULTS. This Amendment does not constitute a waiver of,
or a consent to any existing or future violation of or default under, any
provision of the Loan Documents, or a waiver of Holders' right to insist upon
future compliance with each term, covenant, condition, and provision of the Loan
Documents, and the Loan Documents shall continue to be binding upon, and inure
to the benefit of, Brazos, BSI, Shareholder and Holders.
3. FURTHER ASSURANCES. Brazos shall deliver to Holders such other
documents as Holders may reasonably request in connection with this Amendment.
4. REPRESENTATIONS AND WARRANTIES. Brazos and BSI hereby represent and
warrant to Holders that the execution and delivery of this Amendment have been
authorized by all requisite action on the part of Brazos and BSI and will not
violate any of their respective organizational documents. Brazos and BSI further
represent and warrant to Holders that the representations and warranties of each
in each Loan Document (as affected by this Amendment) are true and correct in
all material respects on and as of the effective date of this Amendment as
though made on and as of such date.
5. INCONSISTENCY. Except as affected by this Amendment, the Loan Documents
are unchanged and continue in full force and effect. In the event of any
inconsistency between the terms of the Investment Agreement as hereby modified
(the "AMENDED AGREEMENT") and any other Loan Document, the terms of the Amended
Agreement shall control and such other Loan Document shall be deemed to be
amended hereby to conform to the terms of the Amended Agreement.
6. MULTIPLE COUNTERPARTS. This Amendment may be executed in more than one
counterpart, each of which shall be deemed an original, and all of which
constitute, collectively, one instrument, however, in making proof of this
Amendment, it shall not be necessary to produce or account for more than one
such counterpart. It shall not be necessary for Brazos, BSI and Holders to
execute the same counterpart of this Amendment so long as Brazos, BSI and
Holders execute a counterpart of this Amendment.
7. GOVERNING LAW. This Amendment shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the laws of
District of Columbia, without regard to its principals of conflicts of law.
EXECUTED as of the date set out above.
BRAZOS SPORTSWEAR, INC.
By: __________________________
Randall B. Hale, President
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BSI HOLDINGS, INC.
By: __________________________
Randall B. Hale, President
ALLIED INVESTMENT CORPORATION
By: __________________________
Philip A. McNeill,
Senior Vice President
ALLIED INVESTMENT CORPORATION II
By: __________________________
Philip A. McNeill,
Senior Vice President
The Amendment is acknowledged and the undersigned's agreement as to
Section 3.2, Article 4, Sub-Section 10.5(b) and Articles 12 through 22
(inclusive) is not adversely affected by this Amendment.
EQUUS II INCORPORATED
By: __________________________
Randall B. Hale, Vice President
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SECOND AMENDMENT TO INVESTMENT AGREEMENT
THIS SECOND AMENDMENT TO INVESTMENT AGREEMENT (this "AMENDMENT") is
entered into as of March 14, 1997, among BRAZOS SPORTSWEAR, INC., a Texas
corporation ("BRAZOS"), and BSI HOLDINGS, INC., a Delaware corporation ("BSI"),
EQUUS II INCORPORATED, a Delaware corporation (the "SHAREHOLDER"), SUN
SPORTSWEAR, INC., a Washington corporation ("SUN SPORTSWEAR"), and ALLIED
INVESTMENT CORPORATION and ALLIED INVESTMENT CORPORATION II, each a Maryland
corporation (collectively, the "HOLDERS," and each individually, a "HOLDER").
Hereinafter, words and phrases used but not defined herein which are defined in
the Existing Investment Agreement (as hereinafter defined) are used herein as
therein defined.
RECITALS
A. Brazos, BSI and Holders (and, as to certain specified sections only,
Shareholder) entered into that certain Investment Agreement dated as of August
9, 1996 (the "ORIGINAL INVESTMENT AGREEMENT"), pursuant to which Holders agreed
to make loans to Brazos in the aggregate principal amount of $3,500,000 and BSI
issued to Holders warrants to purchase shares of BSI's Common Stock (the
"WARRANTS"), in consideration for the loans.
B. Pursuant to the Amendment to Investment Agreement dated as of August 9,
1996 (the "FIRST AMENDMENT"), among Brazos, BSI, Equus and the Holders, the
Original Investment Agreement was amended in certain respects.
C. Concurrently with the execution of the Investment Agreement, Brazos
entered into that certain Second Amended and Restated Loan and Security
Agreement dated as of August 9, 1996 (the "ORIGINAL CREDIT AGREEMENT"), with
Fleet Capital Corporation, a Rhode Island corporation ("FLEET"), and The First
National Bank of Boston, a national banking association ("BOSTON") (Fleet and
Boston are referred to collectively in this Amendment as the "LENDERS," and
Fleet in its capacity as agent for Lenders is referred to as the "AGENT"), under
which the Lenders provided to Brazos a revolving credit facility in the maximum
principal amount of $53,000,000 and term loans in the maximum principal amount
of $12,000,000.
D. Pursuant to the Plan and Agreement of Merger dated November 13, 1996
(the "MERGER AGEEMENT"), between BSI and Sun Sportswear, BSI and Sun Sportswear
have agreed that, subject to the satisfaction of certain conditions, BSI will be
merged into Sun Sportswear and that, immediately following the consummation of
that merger, Sun Sportswear will merge into a Delaware corporation ("NEW
BRAZOS") which is a wholly owned subsidiary of Sun Sportswear and such
subsidiary will change its name to "Brazos Sportswear, Inc." In addition, in
connection with consummation of said transactions, Brazos will change its name
to "Brazos, Inc.", Equus and certain other shareholders of BSI will contribute
$2 million to BSI, the Junior Subordinated Debenture dated as of August 2, 1996,
in the original principal amount of $3 million (the "$3 MILLION DEBENTURE")
executed by BSI and payable to the order of the Seller will be retired, the
Original Credit Agreement will be amended pursuant to the March 1997 Amendment
to Second Amended and Restated Loan
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and Security Agreement dated March 14, 1997 (the Original Credit Agreement, as
so amended, is referred to as the "AMENDED CREDIT AGREEMENT"), in order to
increase the maximum amount of revolving loans and term loans which may be
outstanding thereunder to an aggregate of $85 million and existing indebtedness
of Sun Sportswear to Heller Financial, Inc. will be repaid.
E. As a result, following consummation of the transactions referred to in
paragraph D above (the "MERGER TRANSACTIONS"), (i) Brazos will have changed its
name to "Brazos, Inc.", and BSI will have merged into Sun Sportswear which (by
its merger with New Brazos) will have reincorporated in Delaware and changed its
name to "Brazos Sportswear, Inc."
F. The Holders have exercised the Stock Purchase Warrants.
G. The parties hereto have agreed to amend the Original Investment
Agreement, as heretofore amended by the First Amendment (the Original Investment
Agreement, as so amended, the "EXISTING INVESTMENT AGREEMENT"), to waive certain
requirements of the Existing Investment Agreement and to consent to consummation
of the Merger Transactions, all as more fully set forth below.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agree as follows:
1. THE PARTIES. Upon consummation of the Merger Transactions, (i) BSI will
have been merged with and into Sun Sportswear, Sun Sportswear will have been
merged with and into New Brazos and the name of New Brazos will have been
changed to "Brazos Sportswear, Inc." which will be a corporation incorporated
under the laws of the State of Delaware, and references in the Existing
Investment Agreement to "BSI" will be deemed to refer to Brazos Sportswear,
Inc., a Delaware corporation, and (ii) Brazos will have changed its name to
"Brazos, Inc." and references in the Existing Investment Agreement to "Brazos"
will be deemed to refer to Brazos, Inc., a Texas corporation.
2. EXERCISE OF WARRANTS. Prior to the date hereof, the Holders have
surrendered the Stock Purchase Warrants and paid an aggregate of $452.28 in cash
in payment of the exercise price for the Stock Purchase Warrants, and BSI has
issued to the Holders an aggregate of 45,228 shares of the Common Stock, $.01
par value, of BSI in satisfaction of the Stock Purchase Warrants. The Stock
Purchase Warrants are of no further force and effect. Upon consummation of the
Merger Transactions, the 45,228 shares of the Common Stock, $.01 par value, of
BSI received by the Holders upon exercise of the Warrants will be converted into
an aggregate of 342,939 shares of the Common Stock, $.001 par value, of New
Brazos (taking into account the 1 for 5 reverse stock split which will occur as
a result of the merger of Sun Sportswear into New Brazos). The Holders hereby
agree that the Conditional Warrants are of no further force and effect and agree
to surrender the Conditional Warrants to BSI on the date hereof.
3. AMOUNT OF SENIOR DEBT. The references in Section 1.3 of the Amended
Investment Agreement to the amount of "Eighty Million Dollars ($80,000,000)"
shall be revised to read "Ninety-Five Million Dollars ($95,000,000)".
2
<PAGE>
4. SHAREHOLDERS AGREEMENT; LOCK-UP. The Shareholders Agreement referred to
in Section 2.6 of the Amended Investment Agreement is being terminated
simultaneously herewith, and BSI and the Holders have entered into the Lock-Up
Agreement dated March 14, 1997, in substantially the form of EXHIBIT 4 attached
hereto. A Lock-Up Agreement in substantially the same form as Exhibit 4 has been
entered into between Equus and BSI on the date hereof.
5. CO-SALE RIGHTS. Section 3.2(c) of the Amended Investment Agreement is
deleted, and the following is substituted in place thereof:
"(c) a sale pursuant to a Qualifying IPO or a sale in
compliance with Rule 144 of the Securities Act of 1933, as
amended."
6. "PUT" RIGHTS. The rights granted to the Holders pursuant to Section 3.3
of the Existing Investment Agreement to put the Warrants or the Shares issued
thereunder to the Company are hereby terminated and of no further force and
effect; provided, however, that if at any time within three years after the date
hereof, (i) the shares of BSI are not admitted for trading on a national or
regional stock exchange (which terms, for purposes hereof, shall include any
tier of the Nasdaq Stock Market) for a period of 180 consecutive days, or (ii)
the shares of BSI are traded on any tier of the Nasdaq Stock Market (but not on
any other national or regional stock exchange) and the volume of shares of BSI
Common Stock sold on the Nasdaq Stock Market during the preceding calendar
quarter, commencing with the calendar quarter ending June 30, 1997, is less than
2 1/2% of the total outstanding shares of BSI Common Stock, then in either such
case the rights granted in Section 3.3 of the Existing Investment Agreement will
be reinstated.
7. CHANGE OF OWNERSHIP OR ORGANIZATION; MERGER, ETC. The Holders hereby
consent to the merger of BSI into Sun Sportswear, to the merger of Sun
Sportswear into New Brazos and to the transfer of all the assets owned
immediately prior to the consummation of the Merger Transactions by Sun
Sportswear to Brazos.
8. CAPITAL EXPENDITURES. Section 7.6 of the Amended Investment Agreement
is hereby deleted in its entirety, and the following is substituted in place
thereof:
"Section 7.6 CAPITAL EXPENDITURES. Make capital expenditures
(excluding acquisitions of the capital stock, partnership interest or
other equity interest of any person or and acquisitions of the assets as a
going concern of any such person or any business unit thereof) in any
fiscal year in excess of $2,500,000."
9. NEW DEBT PROVISIONS. Section 7.11 of the Amended Investment Agreement
is hereby deleted in its entirety, and the following is substituted in place
thereof:
"Section 7.11 NEW DEBT PROVISIONS. Incur any Debt, contingent
liability outside the ordinary course of its business, or guaranty
obligation except:
"(a) Senior Debt described in Section 1.3 above, up to an
aggregate principal amount balance of Ninety-Five Million Dollars
($95,000,000); the subordinated debentures issued to the Seller
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<PAGE>
pursuant to the Acquisition Agreement and described in Recital D
above; and the subordinated debentures issued to Bank of America NW,
N.A. in connection with the Merger Transactions (as such term is
defined in the Second Amendment to Investment Agreement dated as of
March 14, 1997, among BSI, Brazos, the Holders and certain other
parties);
"(b) The Obligations and any subsequent debts to Holders;
"(c) Purchase money financing obligations; and
"(d) Guaranties of Debt permitted hereby and guaranties of
performance arising in the ordinary course of business."
10. FIRST REFUSAL FOR FUTURE FINANCINGS. The Holders have waived their
rights under Section 6.11 of the Existing Investment Agreement or otherwise to
participate in the financings to be provided in connection with the Merger
Transactions. Nothing herein contained shall constitute a waiver by the Holders
of their rights under Section 6.11 of the Existing Investment Agreement to
participate in future financings to the extent and subject to the limitations
therein contained.
11. CONSENT AND WAIVER. The Holders hereby consent to the consummation of
the Merger Transactions and waiver any default under the Existing Investment
Agreement or any Loan Document which might otherwise be occasioned thereby.
12. MISCELLANEOUS.
12.1 NO WAIVER OF DEFAULTS. This Amendment does not constitute a
waiver of, or a consent to any existing or future violation of or default under,
any provision of the Loan Documents, or a waiver of Holders' right to insist
upon future compliance with each term, covenant, condition, and provision of the
Loan Documents, and the Loan Documents shall continue to be binding upon, and
inure to the benefit of, Brazos, BSI, Shareholder and Holders.
12.2 FURTHER ASSURANCES. Brazos shall deliver to Holders such other
documents as Holders may reasonably request in connection with this Amendment.
12.3 REPRESENTATIONS AND WARRANTIES. Brazos and BSI hereby represent
and warrant to Holders that the execution and delivery of this Amendment have
been authorized by all requisite action on the part of Brazos and BSI and will
not violate any of their respective organizational documents. Brazos and BSI
further represent and warrant to Holders that the representations and warranties
of each in each Loan Document (as affected by this Amendment) are true and
correct in all material respects on and as of the effective date of this
Amendment as though made on and as of such date, except for representations
which are not true as a result of the Merger Transactions.
12.4 INCONSISTENCY. Except as affected by this Amendment, the Loan
Documents are unchanged and continue in full force and effect. In the event of
any inconsistency between the terms of the Existing Investment Agreement as
hereby modified (the "AMENDED AGREEMENT") and
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<PAGE>
any other Loan Document, the terms of the Amended Agreement shall control and
such other Loan Document shall be deemed to be amended hereby to conform to the
terms of the Amended Agreement.
12.5 MULTIPLE COUNTERPARTS. This Amendment may be executed in more
than one counterpart, each of which shall be deemed an original, and all of
which constitute, collectively, one instrument, however, in making proof of this
Amendment, it shall not be necessary to produce or account for more than one
such counterpart. It shall not be necessary for Brazos, BSI, Sun Sportswear and
Holders to execute the same counterpart of this Amendment so long as Brazos,
BSI, Sun Sportswear and Holders execute a counterpart of this Amendment.
12.6 GOVERNING LAW. This Amendment shall be interpreted, and the
rights and liabilities of the parties hereto determined, in accordance with the
laws of District of Columbia, without regard to its principals of conflicts of
law.
EXECUTED as of the date set out above.
BRAZOS SPORTSWEAR, INC., a Texas
corporation
By: ___________________________________
F. Clayton Chambers, Vice President
BSI HOLDINGS, INC., a Delaware
corporation
By: ___________________________________
F. Clayton Chambers, Vice President
SUN SPORTSWEAR, INC., a Washington
corporation
By: ___________________________________
Kevin C. James, Senior Vice President
ALLIED INVESTMENT CORPORATION
By: ___________________________________
Philip A. McNeill, Senior Vice President
ALLIED INVESTMENT CORPORATION II
5
<PAGE>
By: ___________________________________
Philip A. McNeill, Senior Vice President
The Amendment is acknowledged and the undersigned's agreement as to
Section 3.2, Article 4, Sub-Section 10.5(b) and Articles 12 through 22
(inclusive) is not adversely affected by this Amendment.
EQUUS II INCORPORATED
By: ___________________________________
Randall B. Hale, Vice President
6
<PAGE>
THIRD AMENDMENT TO INVESTMENT AGREEMENT
THIS THIRD AMENDMENT TO INVESTMENT AGREEMENT (this "AMENDMENT") is entered
into as of March 17, 1997, among BRAZOS, INC., a Texas corporation ("BRAZOS"),
and BRAZOS SPORTSWEAR, INC., a Delaware corporation ("BSI"), EQUUS II
INCORPORATED, a Delaware corporation (the "SHAREHOLDER"), ALLIED INVESTMENT
CORPORATION and ALLIED INVESTMENT CORPORATION II, each a Maryland corporation
(collectively, the "HOLDERS," and each individually, a "HOLDER"). Hereinafter,
words and phrases used but not defined herein which are defined in the Existing
Investment Agreement (as hereinafter defined) are used herein as therein
defined.
RECITALS
A. Brazos (then known as "BRAZOS SPORTSWEAR, INC."), BSI Holdings, Inc., a
Delaware corporation ("HOLDINGS"), and Holders (and, as to certain specified
sections only, Shareholder) entered into that certain Investment Agreement dated
as of August 9, 1996 (the "ORIGINAL INVESTMENT AGREEMENT"), pursuant to which
Holders agreed to make loans to Brazos in the aggregate principal amount of
$3,500,000 and Holdings issued to Holders warrants to purchase shares of
Holdings' Common Stock, in consideration for the loans.
B. Pursuant to the Amendment to Investment Agreement dated as of August 9,
1996 (the "FIRST AMENDMENT"), among Brazos, Holdings, and the Holders (and, as
to certain specified sections only, Shareholder), the Original Investment
Agreement was amended in certain respects.
C. Pursuant to the Second Amendment to Investment Agreement dated as of
March 14, 1997 (the "SECOND AMENDMENT") among Brazos, Holdings, Sun Sportswear,
Inc., a Washington corporation ("SUN SPORTSWEAR"), and the Holders (and, as to
certain specified sections only, Shareholder), the Original Investment Agreement
was amended in certain respects (the Original Investment Agreement, as amended
by the First Amendment and the Second Amendment is referred to in this Amendment
as the "EXISTING INVESTMENT AGREEMENT").
D. Concurrently with the execution of the Original Investment Agreement,
Brazos entered into that certain Second Amended and Restated Loan and Security
Agreement dated as of August 9, 1996 (the "ORIGINAL CREDIT AGREEMENT"), with
Fleet Capital Corporation, a Rhode Island corporation ("FLEET"), and The First
National Bank of Boston, a national banking association ("BOSTON") (Fleet and
Boston are referred to collectively in this Amendment as the "LENDERS," and
Fleet in its capacity as agent for Lenders is referred to as the "AGENT"), under
which the Lenders provided to Brazos a revolving credit facility in the maximum
principal amount of $53,000,000 and term loans in the maximum principal amount
of $12,000,000.
E. Pursuant to the Plan and Agreement of Merger dated November 13, 1996
(the "MERGER AGREEMENT"), between Holdings and Sun Sportswear, effective March
14, 1997, Holdings merged into Sun Sportswear and immediately following the
consummation of that merger, Sun Sportswear merged into BSI. In addition, in
connection with consummation of said transactions,
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<PAGE>
Brazos changed its name from "Brazos Sportswear, Inc." to "Brazos, Inc." and the
Original Credit Agreement was amended pursuant to the March 1997 Amendment to
Second Amended and Restated Loan and Security Agreement dated March 14, 1997
(the Original Credit Agreement, as so amended, is referred to as the "AMENDED
CREDIT AGREEMENT"), in order to increase the maximum amount of revolving loans
and term loans outstanding thereunder to an aggregate of $85 million and
existing indebtedness of Sun Sportswear to Heller Financial, Inc. was repaid.
F. The parties hereto have agreed to amend the Existing Investment
Agreement to modify the Fixed Charge Ratio (as defined in the Existing
Investment Agreement).
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agree as follows:
1. FIXED CHARGE RATIO. Effective as of March 14, 1997, Section 6.13(d) of
the Existing Investment Agreement shall be amended by deleting Section 6.13(d)
in its entirety and substituting the following:
"(d) FIXED CHARGE RATIO. As of the end of each fiscal month of
Brazos ending closest to the dates indicated below, maintain a Fixed
Charge Ratio of not less than the ratio indicated below:
RELEVANT TIME PERIOD RATIO
---------------------------------- --------------------
(i) One month period (i) 1.0 to 1.00
ending August 31, 1996
(ii) Two month period (ii) 1.0 to 1.00
ending September 30, 1996
(iii) Three month period (iii) 1.0 to 1.00
ending October 31, 1996
(iv) Four month period (iv) 1.0 to 1.00
ending November 30, 1996
(v) Five month period (v) 1.0 to 1.00
ending December 31, 1996
(vi) Six month period (vi) 1.0 to 1.00
ending January 31, 1996
2
<PAGE>
RELEVANT TIME PERIOD RATIO
---------------------------------- --------------------
(vii) Seven month period (vii) 0.9 to 1.00
ending February 28, 1997
(viii) Eight month period (viii) 0.9 to 1.00
ending March 31, 1997
(ix) Nine month period (ix) 0.9 to 1.00
ending April 30, 1997
(x) Ten month period (x) 1.0 to 1.00
ending May 31, 1997
(xii) Eleven month period (xii) 1.0 to 1.00
ending June 30, 1997
(xiii) Twelve month period (xii) 1.0 to 1.00
ending July 31, 1997
(xiv) Twelve month period (xiv) 1.0 to 1.00
ending August 31, 1997
(xv) Twelve month period (xv) 1.0 to 1.00
ending September 30, 1997
(xvi) Twelve month period (xvi) 1.1 to 1.00
ending on the last day
of each thereafter
occurring fiscal month
2. MISCELLANEOUS.
2.1 NO WAIVER OF DEFAULTS. This Amendment does not constitute a
waiver of, or a consent to any existing or future violation of or default under,
any provision of the Loan Documents, or a waiver of Holders' right to insist
upon future compliance with each term, covenant, condition, and provision of the
Loan Documents, and the Loan Documents shall continue to be binding upon, and
inure to the benefit of, Brazos, BSI, Shareholder and Holders.
3
<PAGE>
2.2 FURTHER ASSURANCES. Brazos shall deliver to Holders such other
documents as Holders may reasonably request in connection with this Amendment.
2.3 REPRESENTATIONS AND WARRANTIES. Brazos and BSI hereby represent
and warrant to Holders that the execution and delivery of this Amendment have
been authorized by all requisite action on the part of Brazos and BSI and will
not violate any of their respective organizational documents. Brazos and BSI
further represent and warrant to Holders that the representations and warranties
of each in each Loan Document (as affected by this Amendment) are true and
correct in all material respects on and as of the effective date of this
Amendment as though made on and as of such date.
2.4 INCONSISTENCY. Except as affected by this Amendment, the Loan
Documents are unchanged and continue in full force and effect. In the event of
any inconsistency between the terms of the Existing Investment Agreement as
hereby modified (the "AMENDED AGREEMENT") and any other Loan Document, the terms
of the Amended Agreement shall control and such other Loan Document shall be
deemed to be amended hereby to conform to the terms of the Amended Agreement.
2.5 MULTIPLE COUNTERPARTS. This Amendment may be executed in more
than one counterpart, each of which shall be deemed an original, and all of
which constitute, collectively, one instrument, however, in making proof of this
Amendment, it shall not be necessary to produce or account for more than one
such counterpart. It shall not be necessary for Brazos, BSI, and Holders to
execute the same counterpart of this Amendment so long as Brazos, BSI, and
Holders execute a counterpart of this Amendment.
2.6 GOVERNING LAW. This Amendment shall be interpreted, and the
rights and liabilities of the parties hereto determined, in accordance with the
laws of District of Columbia, without regard to its principals of conflicts of
law.
EXECUTED as of the date set out above.
BRAZOS, INC., a Texas
corporation
By: ______________________________________
F. Clayton Chambers, Vice President
BRAZOS SPORTSWEAR, INC., a Delaware
corporation
By: ______________________________________
F. Clayton Chambers, Vice President
4
<PAGE>
ALLIED INVESTMENT CORPORATION
By: ______________________________________
Philip A. McNeill, Senior Vice President
ALLIED INVESTMENT CORPORATION II
By: ______________________________________
Philip A. McNeill, Senior Vice President
The Amendment is acknowledged and the undersigned's agreement as to
Section 3.2, Article 4, Sub-Section 10.5(b) and Articles 12 through 22
(inclusive) is not adversely affected by this Amendment.
EQUUS II INCORPORATED
By: ______________________________________
Randall B. Hale, Vice President
5
EXHIBIT 10.15
LOAN AGREEMENT
between
PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
and
OLD MILL HOLDINGS, INC.
Dated
as of
April 1, 1995
$700,000 Pennsylvania Economic Development Financing Authority
Taxable Development Revenue Bonds, 1995 Series A4
(Old Mill Holdings, Inc. Project)
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of April 1, 1995 between PENNSYLVANIA
ECONOMIC DEVELOPMENT FINANCING AUTHORITY (the "Issuer"), a public
instrumentality and body corporate and politic of the Commonwealth of
Pennsylvania organized and existing under the Pennsylvania Economic Development
Financing Law, as amended, and OLD MILL HOLDINGS, INC. (the 'Borrower"), a
corporation duly organized and validly existing under the laws of the State of
Delaware (the capitalized terms not defined in the recitals being used therein
as defined or otherwise described in Article I of this Agreement),
WITNESSETH THAT:
A. The Issuer is a public instrumentality of the Commonwealth of
Pennsylvania and a body corporate and politic organized and existing under the
Act. Under the Act, the Issuer, at the request of Capital Region Economic
Development Corporation (the ("Local Entity"), is authorized to enter into
agreements providing for the financing of industrial facilities, commercial
facilities, pollution control facilities, public facilities and other facilities
and activities which promote any of the public purposes set forth in the Act.
B. The Issuer has undertaken, at the request and with the approval of the
Local Entity, the financing of certain costs of a 54,000 square foot facility
and related equipment, and working capital for the operation of such facility,
for the manufacture of embroidered apparel, to be located on certain real
property more fully described in Exhibit A attached hereto (the "Project Site").
The Project Site and such facilities are herein collectively called the
'Project". The Project is owned and operated by Needleworks, Inc. (the
"Operator"), a wholly owned subsidiary of the Borrower. A more complete
description of the Project and the estimated costs thereof is set forth in
Exhibit B attached hereto.
C. In order to finance the Project, the Issuer has duly authorized the
issuance and sale of its Taxable Development Revenue Bonds, 1995 Series A4 (Old
Mill Holdings, Inc. Project) (the "Bonds") to be issued under the terms of a
Trust Indenture dated as of the date hereof (as the same may hereafter be
amended or supplemented from time to time, the "Indenture") by and between the
Issuer and CoreStates Bank, N.A., Philadelphia, Pennsylvania, as Trustee.
D. The Issuer has entered into this Agreement with the Borrower for the
purposes of providing for (i) the loan of the proceeds of the Bonds to the
Borrower in order to finance the Project and (ii) the repayment of such loan by
the Borrower in amounts sufficient to pay, when due, the principal of, premium,
if any, on and interest on the Bonds.
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<PAGE>
NOW, THEREFORE, intending to be legally bound, the Issuer and the Borrower
hereby agree as follows:
2
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.1. USE OF TERMS DEFINED IN INDENTURE. Terms used in this
Agreement which are defined in the Indenture and are not otherwise defined in
this Agreement shall have the meanings set forth in the Indenture unless the
context or use clearly indicates another meaning or intent.
Section 1.2. DEFINITIONS. In addition to the terms defined in the recital
clauses of this Agreement, as used herein:
"Additional Payments" means the amounts required to be paid by the
Borrower pursuant to Section 4.4.
"Agreement" means this Loan Agreement, as amended or supplemented from
time to time.
"Authorized Representative" means, with respect to the Issuer, each person
at the time designated to act on behalf of the Issuer by written certificate
furnished to the Trustee containing the specimen signature of such person and
signed on behalf of the Issuer by its Secretary or Assistant Secretary, and,
with respect to the Borrower, each person at the time designated to act on
behalf of the Borrower by written certificate furnished to the Trustee
containing the specimen signature of such person and signed on behalf of the
Borrower by its Secretary or Assistant Secretary.
"Bond Service" means, for any period or payable at any time, the principal
of, premium, if any, on and interest on the Bonds for that period or payable at
the time whether due on an Interest Payment Date, at maturity or upon
acceleration or redemption.
"Borrower's Agreements, means this Agreement, the Placement Agreement, the
Remarketing Agreement, the Reimbursement Agreement and the Bond Pledge
Agreement.
"Completion Date" means the date of completion of the Project evidenced in
accordance with the requirements of Section 3.6.
"Event of Default" means any of the events described as an Event of
Default in Section 7.1.
"Issuer's Fee" means the amount of $1,400.
"Loan" means the loan by the Issuer to the Borrower of the proceeds of the
Bonds pursuant to Section 4.1 in the original principal amount of $700,000.
"Loan Payments" means the amounts required to be paid by the Borrower in
repayment of the Loan pursuant to Section 4-2.
3
<PAGE>
"Participating Bank" means the commercial bank, trust company or other
financial institution which has entered into the Participating Bank Agreement
with the Bank and the Reimbursement Agreement with the Borrower, and its
successors and assigns. The initial Participating Bank is Meridian Bank.
"Participating Bank Agreement" means the Participation and Reimbursement
Agreement between the Participating Bank and the Bank relating to the Bonds, as
amended, supplemented or replaced from time to time.
"Placement Agreement" means the Placement Agreement among the Issuer, the
Borrower and PNC Brokerage Corp., as the Placement Advisor, relating to the
Bonds.
"Project Costs" means costs of the Project permitted under the Act,
including, but not limited to, the following:
(a) Costs incurred in acquisition, construction, installation,
equipment or improvement of the Project, including costs incurred in
respect of the Project for preliminary planning and studies;
architectural, engineering, accounting, consulting, legal and other
professional fees and expenses; labor, services and materials; and
qualified refinancing and working capital costs not to exceed amounts
approved by the Issuer:
(b) Fees, charges and expenses incurred in connection with the
authorization, sale, issuance and delivery of the Bonds, including without
limitation bond discount, printing expense, title insurance, recording
fees and the initial fees and expenses of the Trustee, Issuer, Local
Entity, Remarketing Advisor, Bank and Participating Bank;
(c) Payment of interest on the Bonds and fees of the Bank,
Participating Bank, Trustee and Remarketing Advisor accruing during the
period of acquisition, construction and/or equipping of the Project; and
(d) Any other costs, expenses, fees and charges properly chargeable
to the cost of acquisition, construction, installation, equipment or
improvement of the Project.
"Purchase Payments, means the amounts required to be paid by the Borrower
pursuant to Section 4.3.
"Reimbursement Agreement" means the Reimbursement Agreement between the
Participating Bank and the Borrower relating to the Letter of Credit and the
Bonds, as amended, supplemented or replaced from time to time.
"Remarketing Agreement" means the Remarketing Agreement between the
Borrower and the Remarketing Advisor relating to the Bonds, as amended,
supplemented or replaced from time to time.
4
<PAGE>
"Resolutions" means the resolution or resolutions of the Issuer approving
and authorizing the Bonds, the Indenture and this Agreement.
"Unassigned Issuer's Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 4.4, to be held harmless and
indemnified under Section 5.10, to be reimbursed for attorney's fees and
expenses under Section 7.4, and to give or withhold consent to or approval of
amendments, modifications, termination or assignment of this Agreement, or sale,
transfer, assignment, lease (or assignment of lease) or other disposal of the
Project, under Sections 5.1, 5.2, 5.4, 8.5 and 8.9.
Section 1.3. INTERPRETATION. In this Agreement, unless the context
indicates otherwise, words importing the singular number include the plural
number, and vice versa, the terms "hereof", "hereby", "herein", "hereto",
"hereunder" and similar terms refer to this Agreement, and the term "hereafter"
means after and the term "heretofore,, means before the Series Issue Date, and
words of any gender include the correlative words of the other genders. In this
Agreement, unless otherwise indicated, all references to particular Articles,
Sections, Subsections or paragraphs are references to the Articles, Sections,
Subsections or paragraphs of this Agreement.
Section 1.4. CAPTIONS, HEADINGS AND TABLE OF CONTENTS. The captions,
headings and table of contents in this Agreement are solely for convenience of
reference and in no way define, limit or describe the scope or intent of any
Articles, Sections, Subsections or paragraphs hereof.
(End of Article I)
5
<PAGE>
ARTICLE II.
REPRESENTATIONS
Section 2.1. REPRESENTATIONS AND FINDINGS OF ISSUER. The Issuer hereby
confirms its findings and represents that:
(a) The Issuer is a public body corporate and politic established in
the Commonwealth of Pennsylvania pursuant to the laws of the Commonwealth
of Pennsylvania (including the Act). Under the Act, the Issuer has the
power to enter into the Indenture, the Placement Agreement and this
Agreement and to carry out its obligations thereunder and to issue the
Bonds to finance the Project.
(b) By adoption of the Resolutions at one or more duly convened
meetings of the Issuer at which a quorum was present and acting
throughout, the Issuer has duly authorized the execution and delivery of
the Indenture, the Placement Agreement and this Agreement and performance
of its obligations thereunder and the issuance of the Bonds.
Simultaneously with the execution and delivery of this Agreement, the
Issuer has duly executed and delivered the Indenture and issued and sold
the Bonds.
(c) Based on representations and information furnished to the Issuer
by or on behalf of the Borrower and the Local Entity, the Issuer has found
that the Borrower is qualified to be a beneficiary of financing provided
by the Issuer pursuant to the Act.
(d) Based on representations and information furnished to the Issuer
by or on behalf of the Borrower, the Issuer has found that the Project (i)
will promote the public purposes of the Act, (ii) is located within the
boundaries of the Commonwealth of Pennsylvania and within the boundaries
of the county, city, town, borough or township which organized the Local
Entity (or within the boundaries of the county in which such city, town,
borough or township is located or in which such Local Entity is certified
by the Pennsylvania Industrial Development Authority to act as an
industrial development agency as defined in the Act), and (iii) will
constitute a project within the meaning of the Act.
(e) The Project has been approved (1) by the Local Entity, as
required by the Act, (2) by the Pennsylvania Secretary of Commerce, as
required by the Act, and (3) by the Issuer by adoption of the Resolutions,
as required by the Act.
(f) The Issuer has not and will not pledge the income and revenues
derived from this Agreement other than pursuant to and as set forth in the
Indenture.
Section 2.2. REPRESENTATIONS OF BORROWER. The Borrower hereby represents
that:
6
<PAGE>
(a) The Borrower is a corporation duly organized and validly
existing under the laws of the State of Delaware, and has full power and
authority to execute, deliver and perform its obligations under the
Borrower's Agreements and to enter into and carry out the transactions
contemplated thereby. The Borrower is not a Disqualified Contractor.
(b) The Borrower's Agreements have been duly authorized, executed
and delivered by the Borrower and constitute valid and binding obligations
of the Borrower. The execution, delivery and performance of the Borrower's
Agreements by the Borrower do not, and will not, violate any provision of
law applicable to the Borrower or the Borrower's articles of incorporation
or bylaws or any agreement or instrument to which the Borrower is a party
or by which it or any of its properties is bound.
(c) The Project will promote the public purposes of the Act and will
not cause, directly or indirectly, the removal, either in whole or in
part, of a plant, facility or establishment from one area of the
Commonwealth of Pennsylvania to another. The Project is located within the
boundaries of the county, city, town, borough or township which organized
the Local Entity (or within the boundaries of the county in which such
city, town, borough or township is located or in which such Local Entity
is certified by the Pennsylvania Industrial Development Authority to act
as an industrial development agency as defined in the Act).
(d) The Borrower has acquired or will acquire before they are needed
all permits and licenses, and has satisfied or will satisfy other
requirements necessary, for the acquisition, construction, installation
and/or operation of the Project. The Project is a project within the
meaning of the Act and will be operated as such.
(e) The Borrower presently intends to use or operate, or to cause
the Operator to use or operate, the Project in a manner consistent with
the Act until the date on which the Bonds have been fully paid and knows
of no reason why the Project will not be so used or operated.
(f) The proceeds of the Bonds will not exceed the Project Costs.
(g) The Operator is an Affiliate, The Operator is not a Disqualified
Contractor.
(End of Article II)
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ARTICLE III.
ACQUISITION OF PROJECT;
ISSUANCE OF BONDS; PROJECT FUND
Section 3.1. ACQUISITION OF PROJECT. The Borrower (a) has acquired, or on
the Series Issue Date is acquiring, the Project Site and shall construct,
install, equip and/or improve the Project on the Project Site with all
reasonable dispatch and in accordance with the description thereof in Exhibit B
attached hereto and applicable law, (b) shall procure or cause to be procured
all permits and licenses necessary for the prosecution of any and all work on
the Project, and (c) shall pay when due all costs and expenses incurred in
connection with such acquisition, construction, installation, equipment and
improvement from funds made available therefor in accordance with this Agreement
or otherwise. It is understood that the Project is the property of the Borrower
and that any contracts made by the Borrower with respect thereto and any work to
be done by the Borrower on the Project are made or done by the Borrower in its
own behalf and not as agent or contractor for the Issuer. The Borrower may cause
legal title to the Project Site and buildings thereon to be conveyed to an
industrial development corporation for the purpose of obtaining financing for
the benefit of the Borrower through the Pennsylvania Industrial Development
Authority of costs of the Project Site and buildings thereon not financed with
proceeds of the Bonds.
Section 3.2. ADDITIONS AND CHANGES TO PROJECT. The Borrower may, at its
option and at its own cost and expense, at any time and from time to time,
revise the description of the Project in Exhibit B attached hereto and/or make
such additions and changes to the Project as it may deem to be desirable for its
uses and purposes, provided that (i) such additions and changes shall constitute
part of the Project, (ii) the Borrower shall supplement the information
contained in Exhibit B attached hereto by filing with the Issuer and the Trustee
such supplemental information as is necessary to reflect such additions and
changes so that the Issuer and the Trustee will be able to ascertain the nature
and cost of the facilities included in the Project and covered by this Agreement
and (iii) if an addition or change is substantial in relation to the Bonds, the
Borrower shall have first obtained and filed with the Issuer and the trustee an
opinion of Bond Counsel to the effect that such addition or change is authorized
or permitted under the Act. In any case, the Borrower shall obtain the Issuer's
approval of the addition to the Project of any proposed facilities or any other
changes not generally described in Exhibit B attached hereto on the date of
delivery of this Agreement.
Section 3.3. ISSUANCE OF BONDS: APPLICATION OF PROCEEDS. To provide funds
to make the Loan for purposes of paying Project Costs in accordance with Exhibit
B attached hereto, the Issuer will issue the Bonds in the aggregate principal
amount of $700,000. The Bonds will be issued pursuant to the Indenture and will
bear interest, mature and be subject to redemption all as set forth therein. The
Borrower hereby approves the terms and conditions of the Indenture and the
Bonds, and the terms and conditions under which the Bonds will be issued, sold
and delivered.
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The proceeds from the sale of the Bonds (including any bond discount)
shall be loaned to the Borrower pursuant to Section 4.1 and such proceeds (net
of any bond discount) shall be paid over to the Trustee for deposit in the
Project Fund. Pending disbursement pursuant to Section 3.4, the proceeds of the
Bonds so deposited in the Project Fund, together with any investment earnings
thereon, shall constitute a part of the Trust Estate and shall be subject to the
lien of the Indenture pursuant to the granting clauses therein as security for
the obligations described in such granting clauses, and to such end the Borrower
hereby grants to the Trustee as security for such obligations a security
interest in all of the Borrower's right, title and interest in and to the
Project Fund.
Section 3.4. DISBURSEMENTS FROM PROJECT FUND. Subject to the provisions
below, disbursements from the Project Fund shall be made to reimburse or pay the
Borrower, or any person designated by the Borrower, for Project Costs. The
Borrower agrees that the sums so disbursed from the Project Fund will be used
only for the payment of Project Costs, and will not be used for any other
purpose.
Any disbursements from the Project Fund for the payment of the Project
Costs shall be made by the Trustee only upon the written order of an Authorized
Representative of the Borrower, with the written approval of the Participating
Bank, delivered to the Trustee; provided that disbursements made for costs
described in clause (b) of the definition of Project Costs may be made by the
Trustee upon delivery to the Trustee of a closing statement signed by the
respective Authorized Representatives of the Issuer and the Borrower and
approved by the Participating Bank. Each such written order shall be
substantially in the form of the disbursement request attached hereto as Exhibit
C and shall be consecutively numbered and accompanied by invoices or other
appropriate documentation supporting the payments or reimbursements requested.
In case any contract provides for the retention by the Borrower of a portion of
the contract price, there shall be paid from the Project Fund only the net
amount remaining after deduction of any such portion, and only when that
retained amount is due and payable, may it be paid from the Project Fund.
Any moneys in the Project Fund (including the earnings from investments
therein) remaining after the Completion Date and payment, or provision for
payment, in full of the Project Costs shall, at the direction of an Authorized
Representative of the Borrower, be transferred to the General Account of the
Bond Fund and applied as provided in Subsection 5.04(c) of the Indenture.
Section 3.5. BORROWER REQUIRED TO PAY COSTS IN EVENT PROJECT FUND
INSUFFICIENT. If moneys in the Project Fund are not sufficient to pay all
Project Costs, the Borrower nonetheless shall complete the Project in accordance
with Exhibit B attached hereto and shall pay all such additional Project Costs.
The Borrower shall not be entitled to any reimbursement for any such payments
from the Issuer, the Trustee, the Bank, the Participating Bank or any Holder;
nor shall it be entitled to any abatement, diminution or postponement of the
Loan Payments.
Section 3.6. COMPLETION. Except to the extent otherwise approved by the
Issuer, within three years of the date of original deliver and payment for the
Bonds, the Borrower shall have completed the Project and caused all of the
proceeds of the Bonds to be expended for Project Costs in
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accordance with Exhibit B attached hereto or otherwise applied as described in
Section 3.4. The Borrower shall notify the Issuer and the Trustee of the
Completion Date by a certificate signed by an Authorized Representative of the
Borrower stating
(a) the date on which the Project was substantially completed,
(b) that all other facilities necessary in connection with the
Project have been acquired, constructed, installed, equipped and/or
improved,
(c) that the acquisition, construction, installation, equipment
and/or improvement of the Project and such other facilities have been
accomplished in such a manner as to conform with all applicable zoning,
planning, building, environmental and other similar governmental
regulations, and/or that any portion of the Project constituting a
refinancing has been accomplished,
(d) that except as provided in clause (e) below, all COSTS of the
Project then or theretofore due and payable have been paid, and
(e) the amounts which the Trustee shall retain in the Project Fund
for the payment of Project Costs not yet due or for liabilities which the
Borrower is contesting or which otherwise should be so retained and the
reasons therefor.
Such certificate may state that it is given without prejudice to any rights
against third parties which then exist or subsequently may come into being. The
Authorized Representative of the Borrower shall include with such certificate a
statement specifically describing all items of personal property comprising a
part of the Project. The certificate shall be delivered as promptly as
practicable after the Borrower is in a position to certify as to the matters
referred to in clauses (a) through (e) above.
Section 3.7. INVESTMENT AND USE OF FUND MONEYS. At the oral or written
request of an Authorized Representative of the Borrower, any-moneys held as part
of the Bond Fund (except moneys in the Letter of Credit Debt Service Account
created under Section 5.04 of the Indenture and except any moneys representing
principal of, or premium, if any, or interest on, any Bonds which are deemed
paid under Section 10.02 of the Indenture) or the Project Fund shall be invested
or reinvested by the Trustee in Eligible Investments.
(End of Article III)
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ARTICLE IV.
LOAN BY ISSUER; LOAN PAYMENTS;
OTHER PAYMENTS
Section 4.1. LOAN BY ISSUER. Upon the terms and conditions of this
Agreement, the Issuer will make the Loan to the Borrower on the Series Issue
Date in a principal amount equal to the aggregate principal amount of the Bonds.
The Loan shall be deemed fully advanced upon deposit of the proceeds of the
Bonds (net of any bond discount) in the Project Fund pursuant to Section 3.3.
Section 4.2. LOAN PAYMENTS. In consideration of and in repayment of the
Loan, the Borrower shall make, as Loan Payments, payments which correspond, as
to amounts and due dates, to the Bond Service on the Bonds; provided that,
except to the extent that the Participating Bank shall otherwise stipulate by
written notice delivered to the Issuer, the Trustee and the Bank, such payments
shall be made in advance as set forth below in this Section. Amounts received
upon a drawing by the Trustee under the Letter of Credit for the payment of Bond
Service shall be credited against the Loan Payments otherwise payable by the
Borrower corresponding to such Bond Service; provided that the Bank and, if
applicable, the Participating Bank have been fully reimbursed for such drawing
by the Borrower.
To provide funds to pay the Bond Service as and when due as specified
above, the Borrower shall make the Loan Payments on or before the Business Day
next preceding the first Business Day of each month in an amount equal to the
interest due on the Bonds on the Interest Payment Date for such month, while the
Bonds bear interest at a Weekly Rate, or in an amount equal to 1/6 of the
interest due on the Bonds on the next Interest Payment Date while the Bonds bear
interest at a Term Rate and, commencing on the last Business Day of April 1995,
in an amount equal to 1/12 of the next payment of principal of the Bonds due by
mandatory sinking fund redemption or at maturity, taking into account funds held
in the General Account of the Bond Fund under the Indenture which would be
available for such purposes. In addition, to provide funds to pay the principal
of and premium, if any, and interest on the Bonds as and when due at any other
time, the Borrower hereby agrees to make and shall make Loan Payments at least
one Business Day (or earlier if required by the Indenture) prior to the date
when such principal, premium, if any, and interest is due and payable. The
foregoing requirement to make Loan Payments in advance of the corresponding
dates for payment of the principal of and interest on the Bonds may be waived if
and to the extent stipulated by the Participating Bank by written notice
delivered to the Issuer, the Trustee and the Bank; provided that in no event
shall Loan Payments be made later than such corresponding dates.
It is the intention of the Issuer and the Borrower that, notwithstanding
any other provision of this Agreement, the Trustee, as assignee of the Issuer,
shall receive funds from or on behalf of the Borrower (taking into account such
credits for amounts drawn on the Letter of Credit) in such amounts and at such
times as will enable the Issuer to pay when due all of its Bond Service on the
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Bonds and any obligations arising under Section 4.3 and any such obligations
surviving the payment of the Bonds.
All Loan Payments shall be payable in lawful money of the United States of
America and shall be made by, or on behalf of the Borrower, to the Trustee at
its Principal Office for the account of the Issuer and deposited in the General
Account of the Bond Fund created by the Indenture. Such Loan Payments shall be
applied as provided in the Indenture.
The Borrower shall be entitled to credits against the Loan Payments as and
to the extent provided in Subsection 5.04(f) of the Indenture.
Section 4.3. PURCHASE PAYMENTS. To the extent that moneys on deposit in
the Remarketing Proceeds Purchase Account or the Letter of Credit Purchase
Account established under the Indenture are insufficient to pay the full
purchase price of Bonds payable pursuant to Sections 4.01 and 4.02 of the
Indenture on the applicable Purchase Date, the Borrower shall also pay to the
Trustee as Purchase Payments for deposit in the Borrower Purchase Account
established under the Indenture amounts sufficient to cover the shortfalls.
Section 4.4. ADDITIONAL PAYMENTS. The Borrower shall pay as Additional
Payments hereunder: (a) to the Issuer, the Issuer's Fee on the Series Issue Date
and any and all costs and expenses (including reasonable legal fees and
expenses) incurred or to be paid by the Issuer in connection with the issuance
and delivery of the Bonds or otherwise related to actions taken by the Issuer
under this Agreement or the Indenture or any amendment thereof, supplement
thereto or consent or waiver thereunder, including without limitation the
Borrower's pro rata share of any annual charge made by a Rating Service to
maintain a rating on the Bonds; (b) to the Local Entity, the Local Entity's fee
on the Series Issue Date and any and all costs and expenses incurred or to be
paid by the Local Entity in connection with the Project; (c) to the Remarketing
Advisor, the fees and expenses of the Remarketing Advisor under the Indenture
and the Remarketing Agreement for services rendered in connection with the
Bonds; and (d) to the Trustee, the reasonable fees, charges and expenses of the
Trustee and its agents for acting as such under the Indenture.
Section 4.5. OBLIGATIONS UNCONDITIONAL. The obligations of the Borrower to
make Loan Payments, Purchase Payments and Additional Payments shall be absolute
and unconditional, and the Borrower shall make such payments without abatement,
diminution or deduction regardless of any cause or circumstances whatsoever
including without limitation any defense, set-off, recoupment or counterclaim
which the Borrower may have or assert against the Issuer, the Trustee, the
Remarketing Advisor, the Bank, the Participating Bank or any other person,
whether express or implied, or any duty, liability or obligation arising out of
or connected with this Agreement, it being the intention of the parties that the
payments required of the Borrower hereunder will be paid in full when due
without any delay or diminution whatsoever. Loan Payments and Purchase Payments
required to be paid by or on behalf of the Borrower hereunder shall be received
by the Issuer or the Trustee as net sums and the Borrower agrees to pay or cause
to be paid all charges against or which might diminish such net sums.
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Section 4.6. ASSIGNMENT OF ISSUER'S RIGHTS. To secure the payment of,
first, the Bond Service, second, the Participating Bank's obligations under the
Participating Bank Agreement, and third, the Borrower's obligations under the
Reimbursement Agreement, the Issuer shall pledge and assign to the Trustee all
the Issuer's rights in, to and under this Agreement (except for the Unassigned
Issuer's Rights), the Revenues and the other property comprising the Trust
Estate. The Borrower consents to such pledge and assignment and agrees to make
or cause to be made Loan Payments and Purchase Payments directly to the Trustee
without defense or set-off by reason of any dispute between the Borrower and the
Trustee. Whenever the Borrower is required to obtain the consent of the Issuer
hereunder, the Borrower shall also obtain the consent of the Trustee; provided
that, except as otherwise expressly stipulated herein or in the Indenture, the
Borrower shall not be required to obtain the Trustee's consent with respect to
the Unassigned Issuer's Rights.
Section 4.7. LETTER OF Credit. Concurrently with the initial delivery of
the Bonds pursuant to Section 2.01 of the Indenture, the Borrower shall cause
the initial Letter of Credit to be issued by the Bank pursuant to the
Participating Bank Agreement, which Letter of Credit (1) shall be substantially
in the same form as the exhibit attached to the Participating Bank Agreement;
(2) shall be dated the date of delivery of the Bonds; (3) shall authorize the
Trustee to draw on the Bank, subject to the terms and conditions thereof, up to
(a) an amount equal to the principal amount of the Bonds (i) to enable the
Trustee to pay the principal amount of the Bonds when due at maturity or upon
redemption or acceleration and (ii) to enable the Trustee to pay the portion of
the purchase price of Bonds tendered to it for purchase and not remarketed
corresponding to the principal amount of such Bonds, plus (b) an amount equal to
the 60 days interest on the Bonds at the Maximum Rate with respect to the Weekly
Rate (i) to enable the Trustee to pay interest on the Bonds when due and (ii) to
enable the Trustee to pay the portion of the purchase price of Bonds tendered to
it for purchase and not remarketed corresponding to the accrued interest on such
Bonds. The Letter of Credit may be extended, amended or replaced by an Alternate
Letter of Credit complying with the provisions of Sections 2.05 and 5.08 of the
Indenture. The Participating Bank, the Participating Bank Agreement and the
Reimbursement Agreement may be replaced by complying with the provisions of
Section 5.08(g) of the Indenture.
It is anticipated that all payments of principal of and interest on the
Bonds, and all payments of purchase price of the Bonds payable upon optional or
mandatory tender for purchase for the payment of which remarketing proceeds are
not available pursuant to Article IV of the Indenture.
will be funded from draws on the Letter of Credit.
The Borrower shall take whatever action may be necessary to maintain the
Letter of Credit in full force and effect during the period required by the
Indenture, including the payment of any transfer fees required by the Bank upon
any transfer of the Letter of Credit to any successor Trustee.
(End of Article IV)
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ARTICLE V.
ADDITIONAL COVENANTS OF BORROWER
Section 5.1. MAINTENANCE OF EXISTENCE. If the Borrower is a corporation,
partnership or other entity, the Borrower shall do all things necessary to
preserve and keep in full force and effect its existence, rights, franchises and
qualification to do business in Pennsylvania and shall not (a) dissolve or
otherwise sell, transfer or dispose of all, or substantially all, of its assets
or (b) consolidate with or merge into any other entity; provided that the
preceding restrictions shall not apply to a transaction to which the Issuer and
the Participating Bank consent in writing if the transferee or the surviving or
resulting entity, if other than the Borrower, by written instrument satisfactory
to the Trustee, assumes and agrees to perform and observe the agreements and
obligations of the Borrower under this Agreement and the provisions of Section
8.9 are satisfied.
Section 5.2. COMPLIANCE WITH LAWS: COMMENCEMENT AND CONTINUATION OF
OPERATIONS AT PROIECT: NO SALE, REMOVAL OR DEMOLITION OF PROJECT. The Borrower
will acquire, construct, install, operate and maintain the Project in such
manner as to comply with the Act and all applicable requirements of federal,
state and local laws and the regulations, rules and orders of any federal, state
or local agency, board, commission or court having jurisdiction over the Project
or the operation thereof, including without limitation applicable zoning ,
planning, building and environmental laws, regulations, rules and orders;
provided that the Borrower shall be deemed in compliance with this Section so
long as it is contesting in good faith any such requirement by appropriate legal
proceedings. The Borrower (or its lessee) shall commence operations at the
Project within three years from the Series Issue Date and shall continue such
operations throughout the term of this Agreement. The Borrower shall not sell,
assign or otherwise dispose of (whether in one transaction or in a series of
transactions) its interest in the Project or any material portion thereof (other
than as permitted by Section 5.1 and other than leases permitted under Section
5.4) or undertake or permit the demolition or removal of the Project or any
material portion thereof without the prior written consent of the Issuer;
provided that the Borrower shall be permitted (i) to sell, transfer, assign or
otherwise dispose of or remove any portion of the Project which is retired or
replaced in the ordinary course of business and (ii) to convey legal title to
the Project Site and buildings thereon to an industrial development corporation
for the purpose of obtaining financing for the benefit of the Borrower through
the Pennsylvania Industrial Development Authority of costs of the Project Site
and buildings thereon not financed with proceeds of the Bonds.
Section 5.3. RIGHT OF INSPECTION. Subject to reasonable security and
safety regulations and upon reasonable notice, the Issuer and the Trustee, and
their respective agents, shall have the right during normal business hours to
inspect the Project.
Section 5.4. LEASE BY BORROWER. The Borrower may lease the Project, in
whole or in part, to the Operator or one or more other Persons, provided that:
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(a) No such lease shall relieve the Borrower from its obligations
under this Agreement, the Reimbursement Agreement, the Bond Pledge
Agreement or the Remarketing Agreement;
(b) In connection with any such lease the Borrower shall retain such
rights and interests as will permit it to comply with its obligations
under this Agreement, the Reimbursement Agreement, the Bond Pledge
Agreement and the Remarketing Agreement;
(c) No such lease shall impair materially the accomplishment of the
purposes of the Act to be accomplished by operation of the Project as
herein provided;
(d) Any such lease shall require the lessee to operate the Project
as a "project" under the Act as long as the Bonds are outstanding; and
(e) In the case of a lease to a new lessee or an assignment of an
existing lease to a new lessee of substantially all of the Project, such
new lessee (i) shall not be a Disqualified Contractor and (ii) shall have
been approved by the Issuer (such approval not to be unreasonably
withheld).
Section 5.5. FINANCIAL STATEMENTS: BOOKS AND RECORDS. The Borrower shall
prepare or have prepared such financial statements and reports in such form as
are required by the Participating Bank, and shall keep true and proper books of
records and accounts in which full and correct entries are made of all its
business transactions. Copies of such financial statements and reports shall be
provided to the Issuer and the Trustee promptly upon request, and such books of
records and accounts shall be made available for inspection during normal
business hours upon request by the Issuer or the Trustee or their respective
agents.
Section 5.6. TAXES, OTHER GOVERNMENTAL CHARGES AND UTILITY CHARGES. The
Borrower shall pay, or cause to be paid before the same become delinquent, all
taxes, assessments, whether general or special, and governmental charges of any
kind whatsoever that may at any time be lawfully assessed or levied against or
with respect to the Project, including any equipment or related property
installed or brought by the Borrower therein or thereon, and all utility and
other charges incurred in the operation, maintenance, use, occupancy and upkeep
of the Project. With respect to special assessments or other governmental
charges that lawfully may be paid in installments over a period of years, the
Borrower shall be obligated to pay only such installments as are required to be
paid during the term hereof. The Borrower may, at its expense, in good faith
contest any such taxes, assessments and other charges and, in the event of any
such contest, may permit the taxes, assessments or other charges so contested to
remain unpaid during the period of such contest and any appeal therefrom, unless
the Issuer or the Trustee shall notify the Borrower that, in the opinion of
counsel selected by the Issuer or the Trustee, by nonpayment of any such items
the Project or any part thereof will be subject to loss or forfeiture, in which
event such taxes, assessments or charges shall be paid promptly. The Borrower
shall also comply at its own cost and expense with all notices received from
public authorities with respect to the Project.
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Section 5.7. INSURANCE. The Borrower shall at its own cost and expense
obtain or cause to be obtained insurance policies against such risks, and in
such amounts, as are customarily insured against by entities owning facilities
of like size and type to the Project, paying, as the same become due and
payable, all premiums in respect thereof.
Section 5.8. DAMAGE TO OR CONDEMNATION OF PROJECT. In the event of damage,
destruction or condemnation of part or all of the Project, the Borrower shall
either: (i) restore the Project or (ii) if permitted by the terms of the Bonds,
direct the Issuer to call the Bonds for redemption as set forth in Section 6.2.
Damage to, destruction of or condemnation of all or a portion of the Project
shall not terminate this Agreement or cause any abatement of or reduction in the
payments to be made by the Borrower under this Agreement.
Section 5.9. LITIGATION NOTICE. The Borrower shall give the Trustee, the
Participating Bank, the Remarketing Advisor and the Bank prompt notice of any
action, suit or proceeding pending or threatened against it at law or in equity,
or before any governmental instrumentality or agency, which, if adversely
determined, would materially impair the right of the Borrower to carry on the
business which is contemplated in connection with the Project or would
materially and adversely affect its business, operations, properties, assets or
condition.
Section 5.10. INDEMNIFICATION. The Borrower will indemnify and hold
harmless the Issuer and each member, director, officer, employee, attorney and
agent of the Issuer for and against any and all claims, losses, damages or
liabilities (including the costs and expenses of defending against any such
claims) to which the Issuer or any member, director, officer, employee or agent
of the Issuer may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise directly or indirectly out of
(a) any loss or damage to property or injury to or death of or loss by any
person that may be occasioned by any cause whatsoever pertaining to the
construction, maintenance, operation and use of thany breach or default on the
part of the Borrower in the performance of any covenant or agreement of the
Borrower under any of the Borrower's Agreements or any related document, or
arising from any act or failure to act by the Borrower or any of its agents,
contractors, servants, employees or licensees; (c) the authorization, issuance
and sale of the Bonds; (d) any failure by the Borrower to comply with the
provisions of the Act; and (e) any claim, action or proceeding brought with
respect to any matter set forth in clause (a), (b), (c) or (d) above.
The Borrower will indemnify and hold harmless the Trustee and the
Remarketing Advisor for and against all liabilities, claims, costs and expenses
incurred without negligence or bad faith on the part of the Trustee or the
Remarketing Advisor on account of any action taken or omitted to be taken by the
Trustee or the Remarketing Advisor in accordance with the terms of this
Agreement, the Bonds, the Bond Pledge Agreement, the Letter of Credit, the
Remarketing Agreement or the Indenture or any action taken at the request of or
with the consent of the Borrower, including the costs and expenses incurred by
the Trustee and the Remarketing Advisor in defending themselves against any such
claims.
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In case any action or proceeding is brought against the Issuer, the
Remarketing Advisor or the Trustee in respect of which indemnity may be sought
hereunder, the party seeking indemnity promptly shall give notice of that action
or proceeding to the Borrower, and the Borrower upon receipt of that notice
shall have the obligation and the right to assume the defense of the action or
proceeding; provided that failure of a party to give that notice shall not
relieve the Borrower from any of its obligations under this Section unless (and
then only to the extent) that failure prejudices the defense of the action or
proceeding by the Borrower. At its own expense, an indemnified party may employ
separate counsel and participate in the defense. The Borrower shall not be
liable for any settlement made without its consent, which shall not be
unreasonably withheld.
The indemnification set forth above is intended to and shall (i) include
the indemnification of all affected directors, officers, agents and employees of
the Issuer, the Remarketing Advisor and the Trustee, respectively, and (ii) be
enforceable by the Issuer, the Remarketing Advisor and the Trustee,
respectively, to the full extent permitted by law.
Section 5.11. NONDISCRIMINATION. The Borrower hereby accepts and agrees to
be bound by the nondiscrimination clause set forth in Exhibit D attached hereto.
(End of Article V)
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ARTICLE VI.
REDEMPTION OF BONDS
Section 6.1. OPTIONAL REDEMPTION. Provided no Event of Default shall have
occurred and be subsisting, at any time and from time to time, the Borrower may
deliver or cause to be delivered Loan Payments to the Trustee in addition to the
scheduled Loan Payments required to be made under Section 4.2 and direct the
Trustee to use the Loan Payments so delivered for the purpose of calling Bonds
for optional redemption in accordance with the applicable provisions of the
Indenture and redeeming such Bonds at the redemption price stated in the
Indenture. Such Loan Payments shall be held and applied as provided in Section
5.04 of the Indenture and delivery thereof shall not operate to abate or
postpone Loan Payments otherwise becoming due or to alter or suspend any other
obligations of the Borrower under this Agreement. Whenever the Bonds are subject
to optional redemption pursuant to the Indenture, the Issuer will, but only upon
direction of the Borrower, direct the Trustee to call the same for redemption as
provided in the Indenture.
Section 6.2. EXTRAORDINARY OPTIONAL REDEMPTION. The Borrower shall have,
subject to the conditions hereinafter imposed, the option to direct the
redemption of the Bonds in accordance with the applicable provisions of the
Indenture upon the occurrence of any of the following events:
(a) The Project shall have been damaged or destroyed to such an
extent that (1) it cannot reasonably be expected by the Borrower to be
restored, within a period of six months, to the condition thereof
immediately preceding such damage or destruction or (2) its normal use and
operation is reasonably expected by the Borrower to be prevented for a
period of six consecutive months.
(b) Title to, or the temporary use of, all or a significant part of
the Project shall have been taken under the exercise of the power of
eminent domain (1) to such extent that the Project cannot reasonably be
expected by the Borrower to be restored within a period of six months to a
condition of usefulness comparable to that existing prior to the taking or
(2) as a result of the taking, normal use and operation of the Project is
reasonably expected by the Borrower to be prevented for a period of six
consecutive months.
(c) As a result of any changes in state or federal laws or as a
result of legislative or administrative action (whether state or federal)
or by final decree, judgment or order of any court or administrative body
(whether state or federal) entered after the contest thereof by the Issuer
or the Borrower in good faith, this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the intent
and purpose of the parties as expressed in this Agreement, or if
unreasonable burden or excessive liability shall have been imposed with
respect to the Project or the operation thereof, including without
limitation federal, state or other ad valorem, property, income or other
taxes not being
18
<PAGE>
imposed on the date of this Agreement other than ad valorem taxes
presently generally levied upon privately owned property used for the same
general purpose as the Project.
(d) Changes in the economic availability of raw materials, operating
supplies, energy sources or supplies, or facilities (including, but not
limited to, facilities in connection with the disposal of industrial
wastes) necessary for the operation of the Project shall have occurred or
technological or other changes shall have occurred which the Borrower
cannot reasonably overcome or control and which in the Borrower's
reasonable judgment render the Project uneconomic.
To exercise such option, the Borrower shall, within 90 days following the
event giving rise to the exercise of that option, or at any time during the
continuation of the condition referred to in clause (d) above, give notice to
the Issuer and the Trustee specifying the date on which the Borrower will
deliver the funds required for such redemption, which date shall be not more
than 90 days from the date such notice is mailed and shall make arrangements
satisfactory to the Trustee for the giving of the required notice of redemption.
The amount payable by the Borrower in the event of its exercise of the
option granted in this Section shall be the sum of (i) an amount of money which,
when added to the moneys and investments held to the credit of the Bond Fund,
will be sufficient pursuant to Section 5.04 and Article X of the Indenture to
pay, or provide for the payment of, the redemption price of Bonds on the
redemption date and to fully reimburse the Bank and the Participating Bank with
respect to all drawings on the Letter of Credit, such amount to be paid to the
Trustee, plus (ii) an amount of money equal to the Additional Payments accrued
and to accrue until actual final payment and redemption of the Bonds, such
amount or applicable portions thereof to be paid to the Trustee or to the
Persons to whom those Additional Payments are or will be due. The requirement of
clause (ii) above with respect to Additional Payments to accrue may be met if
provisions satisfactory to the Trustee and the Issuer are made for paying those
amounts as they accrue.
Section 6.3. MANDATORY REDEMPTION. The Borrower shall deliver or cause to
be delivered to the Trustee the moneys needed to redeem the Bonds in accordance
with the mandatory redemption provisions set forth in the Bonds and the
Indenture and to fully reimburse the Bank and the Participating Bank with
respect to all drawings on the Letter of Credit with respect thereto. Whenever
the Bonds are subject to mandatory redemption pursuant to the Indenture, the
Borrower will cooperate with the Issuer and the Trustee in effecting such
redemption.
Section 6.4. ACTIONS BY ISSUER. At the request of the Borrower or the
Trustee, the Issuer shall take all steps required of it under the applicable
provisions of the Indenture or the Bonds to effect the redemption of all or a
portion of the Bonds pursuant to this Article.
(End of Article VI)
19
<PAGE>
ARTICLE VII.
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. EVENTS OF DEFAULT. Each of the following shall be an Event of
Default:
(a) Failure by the Borrower to make or cause to be made any Loan
Payment or Purchase Payment on or prior to the date on which such payment
is due and payable;
(b) Failure by the Borrower to observe and perform any other
agreement, term or condition contained in this Agreement and continuation
of such failure for a period of 30 days after notice thereof shall have
been given to the Borrower by the Issuer or the Trustee, or for such
longer period as the Issuer and the Trustee may agree to in writing;
provided that if the failure is other than the payment of money and is of
such nature that it can be corrected but not within the applicable period,
such failure shall not constitute an Event of Default so long as the
Borrower institutes curative action within the applicable period and
diligently pursues such action to completion;
(c) The Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian or the like of itself or
of its property, or (ii) admit in writing its inability to pay its debts
generally as they become due, or (iii) make a general assignment for the
benefit of creditors, or (iv) be adjudicated a bankrupt or insolvent, or
(v) commence a voluntary case under the United States Bankruptcy Code, or
file a voluntary petition or answer seeking reorganization, an arrangement
with creditors or an order for relief, or seeking to take advantage of any
insolvency law or file an answer admitting the material allegations of a
petition filed against it in any bankruptcy, reorganization, or insolvency
proceeding, or action shall be taken by it for the purpose of effecting
any of the foregoing, or (vi) have instituted against it, without the
application, approval or consent of the Borrower, a proceeding in any
court of competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of the
Borrower an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of a
trustee, receiver, liquidator or custodian or the like of the Borrower or
of all or any substantial part of its assets, or other like relief in
respect thereof under any bankruptcy or insolvency law, and, if such
proceeding is being contested by the Borrower in good faith, the same
shall (A) result in the entry of an order for relief or any such
adjudication or appointment or (B) remain unvacated, undismissed and
undischarged for a period of 60 days;
(d) Any representation or warranty made by the Borrower herein or
any statement in any report , certificate, financial statement or other
instrument furnished in connection
20
<PAGE>
with this Agreement or with the purchase of the Bonds shall at any time
prove to have been false or misleading in any material respect when made
or given;
(e) For any reason the Bonds are declared due and payable by
acceleration in accordance with Section 7.03 of the Indenture;
(f) The Trustee receives notice from the Participating Bank (i)
stating that an Event of Default as defined in the Reimbursement Agreement
has occurred and is continuing and (ii) directing the Trustee to call the
Bonds for mandatory purchase or to declare the principal of the
outstanding Bonds immediately due and payable;
(g) The Trustee receives notice from the Bank (i) stating that an
Event of Default as defined in the Participating Bank Agreement has
occurred and is continuing and (ii) directing the Trustee to call the
Bonds for mandatory purchase or to declare the principal of the
outstanding Bonds immediately due and payable;
(h) The Trustee receives notice from the Bank prior to the tenth
Business Day following payment of a drawing under the Letter of Credit for
interest on Bonds which remain outstanding after the application of the
proceeds of such drawing, stating that the Letter of Credit will not be
reinstated with respect to such interest; or
(i) The Borrower fails to complete the Project (except for
immaterial items) and commence operations at the Project within three
years from the Series Issue Date, or fails to maintain (or to cause to be
maintained) or within such period to create and thereafter maintain (or to
cause to be created and thereafter be maintained) at least 50% of the
employment at the Project projected in the Local Entity's application to
the Issuer on behalf of the Borrower pursuant to which the Bonds were
issued, or ceases or permits to be ceased operations at the Project (other
than temporary cessation beyond the control of the Borrower and its
lessee), or sells, assigns or otherwise disposes of (whether in one
transaction or in a series of transactions) its interest in the Project or
any substantial portion thereof (other than leases permitted under Section
5.4) or undertakes or permits any demolition or removal of a substantial
portion of the Project without the prior written consent of the Issuer
(except as otherwise permitted under Section 5.2), or assigns its interest
under this Agreement in violation of Section 8.9.
The declaration of an Event of Default under paragraph (c) above, and the
exercise of remedies upon any such declaration, shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding that
declaration or exercise during the pendency of or immediately following any
bankruptcy, liquidation or reorganization proceedings.
21
<PAGE>
Section 7.2. REMEDIES ON DEFAULT.
(a) Whenever an Event of Default shall have happened and be
subsisting, any one or more of the following remedial steps may be taken:
(1) If acceleration of the principal amount of the Bonds has
been declared pursuant to Section 7.03 of the Indenture, the Trustee
shall declare all Loan Payments to be immediately due and payable,
whereupon the same shall become immediately due and payable; and
(2) The Issuer or the Trustee may pursue any and all remedies
now or hereafter existing at law or in equity to collect all amounts
then due and thereafter to become due under this Agreement or the
Letter of Credit or to enforce the performance and observance of any
other obligation or agreement of the Borrower under this Agreement.
(b) The Borrower covenants that, in case it shall fail to pay or
cause to be paid any Loan Payments or Purchase Payments as and when the
same shall become due and payable whether at maturity or by acceleration
or otherwise, then, upon demand of the Trustee, the Borrower will pay to
the Trustee the whole amount that then shall have become due and payable
hereunder; and, in addition thereto, such further amounts as shall be
sufficient to cover the costs and expenses of collection, including a
reasonable compensation to the Trustee, its agents and counsel, and any
expenses or liabilities incurred by the Issuer or the Trustee. In case the
Borrower shall fail forthwith to pay such amounts upon such demand, the
Trustee shall be entitled and empowered to institute any actions or
proceedings at law or in equity for the collection of the sums SO due and
unpaid.
(c) In case there shall be pending proceedings for the bankruptcy or
reorganization of the Borrower under the federal bankruptcy laws or any
other applicable law, or in case a receiver or trustee shall have been
appointed for the benefit of the creditors or the property of the
Borrower, the Trustee shall be entitled and empowered, by intervention in
such proceedings or otherwise, to file and prove a claim or claims for the
whole amount due hereunder, including interest owing and unpaid in respect
thereof, and, in case of any judicial proceedings, to file such proofs of
claim and other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee allowed in such judicial
proceedings relative to the Borrower, its creditors or its property, and
to collect and receive any moneys or other property payable or deliverable
on any such claims, and to distribute the same after the deduction of its
charges and expenses. Any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized to make such payments to the Issuer or
the Trustee, and to pay to the Issuer or the Trustee any amount due it for
compensation and expenses, including counsel fees incurred by it up to the
date of such distribution.
22
<PAGE>
Notwithstanding the foregoing, the Trustee shall not be obligated to take
any step which in its opinion will or might cause it to expend money or
otherwise incur liability unless and until a satisfactory indemnity bond has
been furnished to the Trustee at no cost or expense to the Trustee. Any amounts
collected as Loan Payments or applicable to Loan Payments and any other amounts
which would be applicable to payment of Bond Service collected pursuant to
action taken under this Section shall be paid into the Bond Fund and applied in
accordance with the provisions of the Indenture or, if the outstanding Bonds
have been paid and discharged in accordance with the provisions of the
Indenture, shall be paid as provided in Article X of the Indenture for transfers
of remaining amounts in the Bond Fund.
The provisions of this Section are subject to the further limitation that
the annulment by the Trustee of its declaration that all of the Bonds are
immediately due and payable also shall constitute an annulment of any
corresponding declaration made pursuant to Subsection 7.2(a)(1); provided that
no such waiver or rescission shall extend to or affect any subsequent or other
default or impair any right consequent thereon.
Section 7.3. REMEDIES NOT EXCLUSIVE. No remedy conferred upon or reserved
to the Issuer or the Trustee by this Agreement is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or the Letter of Credit, or now or hereafter existing at law or in
equity. No delay or omission to exercise any right or power accruing upon any
default shall impair that right or power or shall be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and as
often as may be deemed expedient. In order to entitle the Issuer or the Trustee
to exercise any remedy reserved to it in this Article, it shall not be necessary
to give any notice, other than any notice required by law or for which express
provision is made herein.
Section 7.4. PAYMENT OF LEGAL FEES AND EXPENSES. If an Event of Default
should occur and the Issuer or the Trustee should incur expenses, including
attorneys' fees, in connection with the enforcement of this Agreement or the
Letter of Credit or the collection of sums due thereunder, the Borrower shall
reimburse the Issuer and the Trustee, as applicable, for the expenses so
incurred, upon demand.
Section 7.5. NO WAIVER. No failure by the Issuer or the Trustee to insist
upon the strict performance by the Borrower of any provision hereof shall
constitute a waiver of their right to strict performance and no express waiver
shall be deemed to apply to any other existing or subsequent right to remedy the
failure by the Borrower to observe or comply with any provision hereof.
The Issuer and the Trustee may waive any Event of Default hereunder only
with the prior written consent of the Bank and the Participating Bank; provided
that the Trustee shall not waive an Event of Default under Section 7.1(i)
without the prior written consent of the Issuer.
23
<PAGE>
Section 7.6. NOTICE OF DEFAULT. The Borrower shall notify the Trustee, the
Issuer, the Participating Bank and the Bank immediately if it becomes aware of
the occurrence of any Event of Default hereunder or of any fact, condition or
event which, with the giving of notice or passage of time or both, would become
an Event of Default.
(End of Article VII)
24
<PAGE>
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. TERM OF AGREEMENT. This Agreement shall be and remain in full
force and effect from the Series Issue Date until such time as all of the-Bonds
shall have been fully paid (or provision made for such payment) pursuant to the
Indenture, the Indenture shall have been released pursuant to Section 10.01
thereof, and all other sums payable by the Borrower under this Agreement and the
Reimbursement Agreement shall have been paid, except for obligations of the
Borrower under Section 5.10, which shall survive any termination of this
Agreement.
Section 8.2. NOTICES. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed to be
sufficiently given when mailed by registered or certified mail, postage prepaid,
and addressed as follows:
If to the Borrower: Old Mill Holdings, Inc.
Annapolis City Marina
Suites 311/312
410 Severn Avenue
Annapolis, MD 21403
Attention: Timothy Hough, President
If to the Issuer: Pennsylvania Economic Development Financing
Authority
Department of Commerce
466 Forum Building
Harrisburg, PA 17120
If to the Trustee: CoreStates Bank, N.A., Trustee
510 Walnut Street - 6th Floor
Philadelphia, PA 19104
Attention: Corporate Trust
Administration
If to the Remarketing PNC Securities Corp.
Advisor: Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attention: Sales Department
25
<PAGE>
If to the Bank: PNC Bank, National Association
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attention: Tri-State Group
with a copy to: PNC Bank, National Association
3rd Floor Annex
237 Fifth Avenue
Pittsburgh, PA 15222
Attention: Letter of Credit Department
If to the Participating Meridian Bank
Bank: 51 South Duke Street
Lancaster, PA 17602
Attention: Sandra J. Liddick
Assistant Vice President
The Borrower, the Issuer, the Trustee, the Bank, the Participating Bank and the
Remarketing Advisor, by notice given hereunder to the Persons listed above, may
designate any further or different addresses to which subsequent notices,
certificates, requests or other communications shall be sent.
Section 8.3. LIMITATION OF LIABILITY: NO PERSONAL LIABILITY. In the
exercise of the powers of the Issuer, the Trustee or the Remarketing Advisor
hereunder or under the Indenture, including without limitation the application
of moneys and the investment of funds, neither the Issuer, the Trustee, the
Remarketing Advisor nor their members, directors, officers, employees or agents
shall be accountable to the Borrower for any action taken or omitted by any of
them in good faith and with the belief that it is authorized or within the
discretion or rights or powers conferred. The Issuer, the Trustee, the
Remarketing Advisor and their members, directors, officers, employees and agents
shall be protected in acting upon any paper or document believed to be genuine,
and any of them may conclusively rely upon the advice of counsel and may (but
need not) require further evidence of any fact or matter before taking any
action. In the event of any default by the Issuer hereunder, the liability of
the Issuer to the Borrower shall be enforceable only out of the Issuer's
interest under this Agreement and there shall be no other recourse for damages
by the Borrower against the Issuer, its members, directors, officers, attorneys,
agents and employees, or any of the property now or hereafter owned by it or
them. All covenants, obligations and agreements of the Issuer contained in this
Agreement or the Indenture shall be effective to the extent authorized and
permitted by applicable law. No such covenant, obligation or agreement shall be
deemed to be a covenant, obligation or agreement of any present or future
member, director, officer, agent or employee of the Issuer, and no official
executing the Bonds shall be liable personally on the Bonds or be subject to any
personal
26
<PAGE>
liability or accountability by reason of the issuance thereof or by reason
of-the covenants, obligations or agreements of the Issuer contained in this
Agreement or the Indenture.
Section 8.4. BINDING EFFECT. This Agreement shall inure to the benefit of
and shall be binding in accordance with its terms upon the Issuer, the Borrower
and their respective successors and assigns; provided that this Agreement may
not be assigned by the Borrower (except in connection with a sale or transfer of
assets pursuant to Section 5.1 or in compliance with Section 8.9) and may not be
assigned by the Issuer except to the Trustee pursuant to the Indenture or as
otherwise may be necessary to enforce or secure payment of Bond Service. This
Agreement may be enforced only by the parties, their assignees and others who
may, by law, stand in their respective places. In addition, the Remarketing
Advisor, the Bank and Participating Bank are hereby explicitly recognized as
third party beneficiaries of this Agreement.
Section 8.5. AMENDMENTS. Except as otherwise expressly provided in this
Agreement or the Indenture, subsequent to the issuance of the Bonds and unless
and until all conditions provided for in the Indenture for release of the
Indenture having been met, this Agreement may not be effectively amended,
modified or terminated except by an instrument in writing signed by the Borrower
and the Issuer, consented to by the Trustee, and in accordance with the
provisions of Article IX of the Indenture, as applicable.
Section 8.6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be regarded as an original and all of which
shall constitute one and the same instrument.
Section 8.7. SEVERABILITY. If any provision of this Agreement is
determined by a court to be invalid or unenforceable, such determination shall
not affect any other provision hereof, each of which shall be construed and
enforced as if the invalid or unenforceable portion were not contained herein.
Such invalidity or unenforceability shall not affect any valid and enforceable
application thereof, and each such provision shall be deemed to be effective,
operative and entered into in the manner and to the full extent permitted by
applicable law.
Section 8.8. GOVERNING LAW. This Agreement shall be deemed to be a
contract made under the laws of the Commonwealth of Pennsylvania and for all
purposes shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.
Section 8.9. ASSIGNMENT. The Borrower shall not assign this Agreement or
any interest of the Borrower herein, either in whole or in part, without the
prior written consent of the Trustee, which consent shall be given if the
following conditions are fulfilled: (i) the assignee assumes in writing all of
the obligations of the Borrower hereunder; (ii) neither the validity nor the
enforceability of this Agreement shall be adversely affected by such assignment;
(iii) the Project shall continue in the opinion of Bond Counsel to be a
"project, as such term is defined in the Act after such assignment; (iv) the
assignee shall not be a Disqualified Contractor; and (v) consent by the Issuer,
which consent shall not be unreasonably withheld. For purposes of this Section,
no
27
<PAGE>
foreclosure by the Participating Bank, or conveyance in lieu thereof, or other
transfer to the Participating Bank or an affiliate of Participating Bank, shall,
of itself, be deemed an assignment for purposes of this Section or a sale,
transfer, assignment or other disposition for purposes of Section 5.2. Subject
to the foregoing, the terms "Issuer". "Borrower", "Trustee" and "Remarketing
Advisor" shall, where the context requires, include the respective successors
and assigns of such persons. No assignment pursuant to this Section shall
release the Borrower from its obligations under this Agreement, unless the
Participating Bank has consented to such release.
Section 8.10. RECEIPT OF INDENTURE. The Borrower hereby acknowledges that
it has received an executed copy of the Indenture and is familiar with its
provisions, and agrees that it is subject to and bound by the terms thereof and
it will take all such actions as are required or contemplated of it under the
Indenture to preserve and protect the rights of the Trustee and of the Holders
and the Bank and the Participating Bank thereunder and that it will not take any
action which would cause a default thereunder. Any redemption of Bonds prior to
maturity shall be effected as provided in the Indenture.
(End of Article VIII)
28
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Borrower, intending to be legally
bound, have caused this Agreement to be duly executed in their respective names,
all as of the date first above written.
[SEAL] PENNSYLVANIA ECONOMIC DEVELOPMENT
FINANCING AUTHORITY
Attest By:
Assistant Secretary Executive Director
[SEAL] OLD MILL HOLDINGS, INC.
Attest By:
Secretary President
This execution page is part of the Loan Agreement dated as of April 1,
1995 between Pennsylvania Economic Development Financing Authority and Old Mill
Holdings, Inc.
29
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
A-1
<PAGE>
EXHIBIT B
OLD MILL HOLDINGS, INC. PROJECT
The Project consists of refinancing the costs of a 54,000 square foot
building and related equipment, located on approximately 8.65 acres of land at
Route 209, Millersburg Borough, Upper Paxson Township, Dauphin County,
Pennsylvania, owned and operated by the Operator as a facility for the
manufacture of embroidered apparel, and the financing of working capital for the
Operator.
Bond
PROCEEDS TOTAL
Qualified Refinancing
Costs Approved by
Issuer $590,000 $590,000
Qualified Working
Capital Costs
Approved by Issuer 90,376 90,376
Costs of Issuance 19,624 19,624
------------ -------------
Total $700,000 $700,000
B-1
<PAGE>
EXHIBIT C
FORM OF DISBURSEMENT REQUEST
STATEMENT NO. ________ REQUESTING DISBURSEMENT OF FUNDS
FROM PROJECT FUND PURSUANT TO SECTION 3.4 OF THE LOAN
AGREEMENT DATED AS OF APRIL 1, 1995 ("LOAN AGREEMENT")
BETWEEN PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING
AUTHORITY ("ISSUER") AND OLD MILL HOLDINGS, INC. ("BORROWER").
The terms used herein shall have the meanings specified for such terms in
or pursuant to the Loan Agreement. Pursuant to Section 3.4 of the Loan
Agreement, the undersigned Authorized Representative of the Borrower hereby
requests and authorizes the Trustee to pay to the Borrower or to the person(s)
listed on the Disbursement Schedule hereto out of the moneys deposited in the
Project Fund the aggregate sum of $ - to reimburse the Borrower or to pay such
person(s), as indicated in the Disbursement Schedule, for the items of Project
Cost listed in the Disbursement Schedule.
In connection with the foregoing request and authorization, the
undersigned hereby certifies that:
(a) Each item for which disbursement is requested hereunder is due, is
an item of incurred Project Cost properly reimbursable or payable
out of the Project Fund in accordance with the terms and conditions
of the Loan Agreement and none of those items has formed the basis
for any disbursement heretofore made from the Project Fund.
(b) Each such item is or was necessary or appropriate in connection with
the acquisition, construction, equipment and/or qualified
refinancing of the Project.
(c) The reimbursement or payment of the Project Costs requisitioned
hereby will comply with the restrictions contained in Section 3.4 of
the Loan Agreement.
(d) This statement and all exhibits hereto, including the Disbursement
Schedule, shall constitute full warrant, protection and authority to
the Trustee for its actions taken pursuant hereto.
C-1
<PAGE>
Dated:
OLD MILL HOLDINGS, INC.
By
Authorized Representative
Approved by Meridian Bank
By
Authorized Signatory
DISBURSEMENT SCHEDULE
TO STATEMENT NO. ____ REQUESTING AND AUTHORIZING DISBURSEMENT OF FUNDS
FROM PROJECT FUND PURSUANT TO SECTION 3.4 OF THE LOAN AGREEMENT DATED AS
OF APRIL 1, 1995 BETWEEN PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING
AUTHORITY AND OLD MILL HOLDINGS, INC.
PAYEE AMOUNT PURPOSE
C-2
<PAGE>
EXHIBIT D
NONDISCRIMINATION CLAUSE
During the term of this contract, the Borrower agrees as to itself and
each tenant of the Project controlling, controlled by or under common control
with the Borrower (each of the Borrower and each such tenant, a "Contractor") as
follows:
1. Contractor shall not discriminate against any employee, applicant for
employment, independent contractor or any other person because of race, color,
religious creed, handicap, ancestry, national origin, age or sex. Contractor
shall take affirmative action to insure that applicants are employed, and that
employees or agents are treated during employment, without regard to their race,
color, religious creed, handicap, ancestry, national original age or sex. Such
affirmative action shall include, but not limited to: employment, upgrading,
demotion or transfer, recruitment or recruitment advertising; layoff or
termination; rates of pay or other forms of compensation; and selection for
training. Contractor shall post in conspicuous places, available to employees,
applicants for employment and other persons, a notice to be provided by the
contracting agency setting forth the provisions of this nondiscrimination
clause.
2. Contractor shall in advertisements or requests for employment placed by
it or on its behalf, state that all qualified applicants will receive
consideration for employment without regard to race, color. religious creed,
handicap, ancestry, national origin, age or sex.
3. Contractor shall send to each labor union or workers' representative
with which it has a collective bargaining agreement or other contract or
understanding, a notice advising said labor union or workers' representative of
its commitment to this nondiscrimination clause. Similar notice shall be sent to
every other source of recruitment regularly utilized by Contractor.
4. It shall be no defense to a finding of noncompliance with this
nondiscrimination clause that Contractor had delegated some of its employment
practices to any union, training program or other source of recruitment which
prevents it from meeting its obligations. However, if the evidence indicates
that Contractor was not on notice of the third-party discrimination or made a
good faith effort to correct it, such factor shall be considered a mitigating
circumstance in determining appropriate sanctions.
5. Where the practices of a union or of any training program or other
program of recruitment will result in the exclusion of minority group persons,
so that Contractor will be unable to meet its obligations under this
nondiscrimination clause, Contractor shall then employ and fill vacancies
through other nondiscriminatory employment procedures.
6. Contractor shall comply with all applicable state and federal laws
prohibiting discrimination in hiring or employment opportunities. In the event
of Contractor's noncompliance with the nondiscrimination clause of this contract
or with any such laws, the Loan Payments may be
D-1
<PAGE>
accelerated, and Contractor may be declared temporarily ineligible for further
Commonwealth of Pennsylvania contracts, and other sanctions may be imposed and
remedies invoked.
7. Contractor shall furnish all necessary employment documents and records
to, and permit access to its books, records and accounts by, the contracting
agency for purposes of investigation to ascertain compliance with the provisions
of this clause. If Contractor does not possess documents or records reflecting
the necessary information requested, it shall furnish such information on
reporting forms supplied by the contracting agency.
8. Contractor shall actively recruit minority subcontractors and women
subcontractors or subcontractors with substantial minority or women
representation among their employees.
9. Contractor shall include the provisions of this nondiscrimination
clause in every subcontract, so that such provisions will be binding upon each
subcontractor.
10. Contractor obligations under this clause are limited to Contractor's
facilities within Pennsylvania or, where the contract is for purchase of goods
manufactured outside of Pennsylvania, the facilities at which such goods are
actually produced.
D-2
EXHIBIT 10.16
CONVERTIBLE SUBORDINATED NOTE AGREEMENT
CONVERTIBLE SUBORDINATED NOTE AGREEMENT ("AGREEMENT"), dated
March 14, 1997, by and between Brazos Sportswear, Inc., a Delaware corporation
and the successor to Sun Sportswear, Inc. ("SUN"), a Washington corporation (the
"COMPANY"), Brazos, Inc., a Texas corporation and a wholly-owned subsidiary of
the Company ("BRAZOS"), and Bank of America NT & SA, doing business as Seafirst
Bank ("SEAFIRST").
W I T N E S S E T H:
WHEREAS, Sun and BSI Holdings, Inc. ("BSI") are parties to a Plan and
Agreement of Merger dated November 13, 1996, as amended (the "MERGER
AGREEMENT"), pursuant to which BSI was merged with and into Sun;
WHEREAS, the Merger Agreement provides that upon the Effective Date (as
defined in the Merger Agreement), Brazos shall issue a Subordinated Note (as
defined in the Merger Agreement), as partial consideration for the conversion of
Seafirst's shares of Sun's common stock pursuant to the Merger; and
WHEREAS, the Subordinated Note shall be issued by Brazos pursuant to
the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereto hereby agree as follows:
SECTION 1.
DEFINITIONS
In addition to the defined terms set forth elsewhere herein, the
following terms shall have the meanings set forth below:
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Seattle, Washington
are authorized or obligated by law or executive order to close.
"CLOSING PRICE" on any Trading Day with respect to any security means
the last reported sales price regular way or, if no such sales are reported, the
average of the bid and asked prices regular way, on the principal securities
exchange on which the security is traded, or if such securities are not traded
on any securities exchange, the over-the-counter price therefor quoted by a New
York Stock Exchange member firm.
"COMMISSION" means the Securities and Exchange Commission.
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"COMMON STOCK" means any class of stock of the Company which is not
entitled to any preference as to dividends or liquidating distributions and
which is not redeemable by the Company; PROVIDED, that the shares issuable upon
conversion of the Note shall include only shares of Common Stock of the class
designated on the date hereof as the "common stock" of the Company, having a par
value of $0.01 per share, or any securities resulting from the reclassification
of such shares.
"CONVERSION DATE" means the date on which delivery of notice of
election to convert is delivered to the Company by Seafirst.
"CONVERSION FACTOR" means a number, which at the Effective Date (as
defined in the Merger Agreement) shall be 1.0.
"CONVERSION SHARES" means the Common Stock issued upon conversion of
the Note.
"DEFAULT" means any event that is, or after the passage of time or the
giving of notice, or both, would be, an Event of Default.
"EVENT OF DEFAULT" means the occurrence of any of the following: (i)
failure to pay principal on the Note when due; (ii) failure to pay any other
amount due under this Agreement or the Note within 10 days of the date when due;
(iii) any insolvency of, or commencement of a bankruptcy case or appointment of
a receiver with respect to, Brazos or the Company, (iv) breach of any
representation or warranty in this Agreement by Brazos or Company, (v) breach of
any covenant of this Agreement, which is not promptly cured after written notice
to Brazos and the Company by Seafirst, or (vi) a default under the terms of any
indebtedness to a Senior Lender, if not waived or cured within the period
provided by the relevant loan agreement or instrument.
"NOTE" means a convertible subordinated promissory note of Brazos in
the form attached hereto as Exhibit A, dated as of the date hereof and payable
to the order of Seafirst and any renewals, extensions and rearrangements
thereof.
"PERSON" means any individual, corporation, non-profit corporation,
limited liability company, partnership, joint venture, association, joint stock
company, trust, unincorporated organization, financial institution, or
government or any agency or political subdivision thereof.
"QUALIFIED PUBLIC OFFERING" means the underwritten public offering of
Common Stock by the Company for cash for its own account pursuant to a
registration statement filed under the Securities Act (as herein defined) (other
than any registration statement relating to warrants, options or shares of
capital stock of the Company granted or to be granted or sold primarily to
employees, directors, or officers of the Company, a registration statement filed
pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to employee benefit plans or interests therein
or any registration statement covering securities issued in connection with any
debt financing of the Company), in which the net offering proceeds to be
received by the Company are
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at least $15,000,000 and the per share Common Stock offering price to the public
is not less than $3.50 per share (as adjusted for stock splits or combinations).
"SENIOR LENDER" means any holder of indebtedness of Brazos which is
secured by liens on substantially all of its assets.
"TRADING DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the applicable
securities exchange.
SECTION 2.
ISSUANCE OF THE NOTE
2.1. Upon the Effective Date (as defined in the Merger Agreement) and
in accordance with the Merger Agreement, Brazos shall issue the Note to
Seafirst. The Note shall be convertible into Common Stock, as provided in
Section 3 hereof. Brazos shall have the right to prepay the principal amount of
the Note in full or in part at any time, without premium or penalty.
2.2. The Note shall bear interest at the rate of 10% per annum from the
date hereof until March 13, 1998, 10.5% per annum from March 14, 1998 until
March 13, 1999, and 11% per annum from March 14, 1999 until March 13, 2000, on
the principal amount thereof outstanding from time to time, payable quarterly on
each April 30, June 30, September 30 and December 31, commencing June 30, 1997,
until the principal thereof is paid. If the Note is converted, Seafirst shall be
entitled to receive interest accrued and unpaid to the date of conversion. If
Brazos shall default in the payment of the principal of or interest on the Note,
Brazos shall on demand from time to time pay interest, to the extent permitted
by law, on the unpaid principal balance of the Note and on such defaulted amount
up to the date of actual payment at a rate of 15% per annum. The maturity date
of the Note is March 13, 2000 (the "MATURITY DATE"). All principal and any
accrued but unpaid interest shall be due on the Maturity Date, or five business
days following the closing of any Qualified Public Offering, if sooner.
2.3. The principal of and interest on the Note shall be payable by wire
transfer in immediately available funds to any account in the United States
which Seafirst may designate by written notice to Brazos at least three Business
Days prior to the due date. All payments shall be made by Brazos not later than
2:00 p.m., New York City time, on the date that such payment is required to be
made. If the date for any payment due under the Note falls on a day which is not
a Business Day, such payment date shall be deemed to have fallen on the next
following Business Day.
2.4. Subject to rights of the Company to acquire the Note pursuant to a
Right of First Refusal Agreement between Seafirst and the Company dated as of
the date hereof (the "ROFR AGREEMENT"), Seafirst shall not to sell, assign,
transfer, negotiate or hypothecate the Note to any party, unless such party
agrees to all of the terms and conditions of this Agreement applicable to
Seafirst, and further agrees to execute a subordination agreement consistent
with Section 7.3.
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SECTION 3.
CONVERSION RIGHT
3.1. At any time (i) after the Maturity Date, if the principal amount
of the Note has not been paid in full or (ii) subsequent to five Business Days
following the closing of a Qualified Public Offering, if the principal amount of
the Note has not been paid in full, Seafirst shall have the right to convert the
outstanding principal amount of the Note and any accrued but unpaid interest
into Common Stock. Seafirst may exercise its conversion right by delivering to
the Company and Brazos a written notice stating the amount of the principal of
the Note which Seafirst elects to convert into Common Stock as provided herein
and, if the entire principal amount of the Note is to be converted, its Note
duly endorsed and assigned to the Company. Conversion shall be effective as of
the close of business on the date of delivery of such notice. As promptly as
practicable thereafter, the Company shall issue and deliver to Seafirst, a
certificate for the shares of Common Stock issuable upon such conversion. Any
person in whose name the certificate for Common Stock is to be issued shall be
considered to have become a holder of record of such Common Stock as of the
close of business on the Conversion Date.
The number of shares of Common Stock issuable upon conversion of the
entire $1,500,000 principal amount of the Note shall be the product of (a)
681,818 and (b) the Conversion Factor. If the amount of the Note plus unpaid
interest to be converted on any Conversion Date is either less than or more than
$1,500,000, the number of Conversion Shares issuable upon such conversion, as
compared to the number of Conversion Shares issuable upon conversion of such
entire principal amount, shall be proportionate to the aggregate principal
amount of the Note plus unpaid interest to be converted on such Conversion Date,
as compared to the entire principal amount of $1,500,000.00.
If Seafirst shall convert less than the entire principal amount and any
unpaid interest of the Note, Seafirst shall indicate on the Note the amount and
date of such conversion, as the case may be, and the remaining principal amount
thereof.
3.2. The Company shall not be required to issue fractional shares of
Common Stock on the conversion of the Note. Seafirst expressly waives its right
to receive any fractional shares upon conversion of the Note. If any fraction of
a share would be issuable on the conversion of the Note, the Company or Brazos
shall pay to Seafirst in lieu thereof an amount in cash equal to the product of
such resulting fraction and the Closing Price for such Common Stock on the
effective date of the Conversion.
3.3. The Conversion Factor shall be subject to adjustment from time to
time in case any of the following events shall occur: (i) distribution of any
dividend consisting solely of Common Stock with respect to any class of the
Common Stock, or the distribution consisting in whole or in part of Common Stock
of any dividend on any class of capital stock of the Company; (ii) distribution
of any dividend on any class of the Common Stock of the Company consisting in
whole or in part of,
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or the issuance to all holders of Common Stock of, rights or warrants entitling
the holders thereof to subscribe for or purchase shares of Common Stock at a
price per share less than the Closing Price of the Common Stock on the relevant
record date; and (iii) the subdivision or combination of the outstanding shares
of Common Stock into a greater or lesser number of such shares. Upon the
occurrence of any such event, the Conversion Factor shall be adjusted as
appropriate so that the economic benefits or losses that would have accrued to
Seafirst upon conversion of any part of the Note prior to such event shall be
equal to the economic benefits that would accrue to Seafirst upon conversion of
such part after such event. Such adjustments shall be effective as of the record
date for such dividend or distribution or the effective date of such combination
or subdivision and shall be made successively whenever any event listed above
shall occur.
3.4. If the Company shall merge or consolidate with another
corporation, Seafirst shall thereafter have the right, upon conversion of the
Note to receive solely the kind and amount of shares of stock (including, if
applicable, Common Stock), other securities, property or cash or any combination
thereof receivable by a holder of the number of shares of Common Stock for which
such Note might have been exercised immediately prior to such merger or
consolidation (assuming, if applicable, that the holder of such Common Stock
failed to exercise its rights of election, if any, as to the kind or amount of
shares of stock, other securities, property or cash or combination thereof
receivable upon such merger or consolidation).
SECTION 4.
COVENANTS
The Company and Brazos covenant to Seafirst as follows:
4.1. The Company shall furnish to Seafirst, promptly upon becoming
aware of the existence of any condition or event which constitutes a Default or
an Event of Default, written notice specifying the nature and period of
existence thereof and the action which the Company or Brazos is taking or
proposes to take with respect thereto.
4.2. The Company agrees to give Seafirst the same notice of any regular
or special meeting of the board of directors of the Company as it provides to
its directors, and the Company agrees that a representative of Seafirst may
attend any such board meeting or be present by telephone. Any such
representative of Seafirst shall only attend or be present at any such meeting
for informational purposes and shall have no rights as a board member.
4.3. Neither the Company nor Brazos shall merge or consolidate with, or
sell substantially all its assets to, any other corporation unless the surviving
corporation expressly assumes all obligations of the Company or Brazos under
this Agreement and the Note.
4.4. Brazos agrees not to prepay any other debt subordinated to
indebtedness owed a Senior Lender, and agrees to not to modify any terms nor
take any action that would permit the
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lender to (i) accelerate payment of such debt, or (ii) increase the interest
rates or fees payable in connection with such debt.
4.5. Company and Brazos each agree not to purchase or redeem any of the
Company's common or preferred stock, and the Company further agrees not to pay
dividends for any of its preferred stock, other than such dividends that it is
contractually obligated to pay as of the date of this Agreement.
4.6. Company and Brazos agree to provide Seafirst with all reports
filed with the Securities and Exchange Commission.
4.7. Company and Brazos agree that Seafirst shall have the right, upon
reasonable notice to Brazos and at reasonable times, to visit and inspect any
plant or facility of Brazos.
4.8. Brazos agrees to immediately notify Seafirst of any default under
the terms of any indebtedness to any Senior Lender, if such default is not
waived or cured within the period provided for such cure by the relevant loan
agreement or instrument.
4.9. Company and Brazos each agree not to issue any additional
subordinate debt which has a maturity date sooner than the maturity date of the
Subordinated Convertible Note issued to Seafirst.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
5.1. The Company and Brazos represent and warrant to Seafirst as
follows:
(a) Each of the Company and Brazos is a corporation duly
organized, validly existing and in good standing under the laws of the
state of its jurisdiction of incorporation, and has full power and
authority to consummate the transactions contemplated in this
Agreement.
(b) The Company and Brazos are duly authorized and empowered
to create, issue, execute and deliver this Agreement, and with respect
to Brazos, the Note, and all action on the part of each party requisite
for the due creation, issuance, execution and delivery of this
Agreement, and with respect to Brazos, the Note, has been duly and
effectively taken. This Agreement and all agreements executed in
connection herewith are valid and binding obligations of the Company or
Brazos, as the case may be, enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief, or similar laws affecting the rights of
creditors generally.
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5.2. Seafirst represents and warrants to the Company and Brazos as
follows:
(a) Seafirst is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, and
has full power and authority to consummate the transactions
contemplated in this Agreement. Seafirst is duly authorized and
empowered to execute, deliver and perform its obligations under this
Agreement and all action on its part requisite for the due execution,
delivery and performance of its obligations under this Agreement has
been duly and effectively taken.
(b) Seafirst will acquire the Conversion Shares solely for its
own beneficial account, for investment purposes, and not with a view
to, or for resale in connection with, any distribution of the
Conversion Shares; Seafirst understands that the Conversion Shares have
not been registered under the Securities Act of 1933, as amended (the
"1933 ACT"), or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon the
investment intent of Seafirst; and Seafirst understands that the
Company is relying upon the representations and agreements contained in
this Agreement for the purpose of determining whether this transaction
meets the requirements for such exemptions. Seafirst understands
further that the certificate for the Conversion Shares will bear the
following legend for so long as such legend may be required pursuant to
applicable federal securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE; THEREFORE, THIS
STOCK MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED,
DIRECTLY OR INDIRECTLY, EXCEPT UPON SUCH REGISTRATION OR UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE
OR TRANSFER.
SECTION 6.
REGISTRATION RIGHTS
6.1. As used in this Section 6, the term "Registrable Stock" shall mean
all Common Stock issued upon conversion of the Note; PROVIDED, HOWEVER, such
Common Stock shall cease to be Registrable Stock when such securities shall be
eligible for sale pursuant to Rule 144(k) under the Securities Act or any
successor rule which permits resale of such securities without restriction.
(a) REQUIRED REGISTRATION. After receipt of a written request
(a "REGISTRATION REQUEST") from Seafirst requesting that the Company
effect the registration of Registrable Stock
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under the Securities Act of 1933, as amended (the "SECURITIES ACT") and
specifying the intended method or methods of disposition thereto, the Company
shall prepare and file with the Commission a registration statement under the
Securities Act on any form which the Company is eligible to use for registering
the resale of the Registrable Stock which the Company has been requested to
register (including, without limitation, a registration statement on Form S-3 of
the Securities Act) and shall use its best efforts to cause such registration
statement to become effective; PROVIDED, HOWEVER, that, subject to the
provisions of the immediately following sentence, the Company shall not be
required to effect more than a total of one registration statement of
Registrable Stock with respect to a request by Seafirst pursuant to this section
and, in the case of an underwritten offering, the Company shall have the right
to approve the underwriter, which approval shall not be unreasonably withheld.
The Company shall have the right to defer the filing of any registration
statement requested pursuant to this section if (i) on the date of the
Registration Request the Company is in the process of preparing another
registration statement for an underwritten public offering, until the 90th day
after the date of such Registration Request, (ii) in order to file such
registration statement, the Company would be required to conduct an audit other
than the regular audit of the Company conducted by the Company at the end of its
fiscal year, until such time the Company conducts its regular annual audit
(unless Seafirst agrees to pay the expenses of such an audit) or (iii) in the
good faith determination of the board of directors of the Company the filing of
such registration statement would have a materially adverse affect to the
Company, until such time period as such filing would not have such affect, such
period not to exceed 90 days; PROVIDED that the Company shall not have the right
to exercise this right more than once in any 12 month period.
(b) REGISTRATION PROCEDURES.
(1) If and when the Company is required by the
provisions of this section to use its best efforts to effect promptly the
registration of shares of Registrable Stock under the Securities Act, the
Company will:
(i) prepare and file with the Commission a
registration statement with respect to such shares and use its best efforts to
cause such registration statement to become and remain effective as provided
herein for a period of not less than six months, except that the Company shall
not be required to conduct any special audit of the Company and if such an audit
would be required, the Company may delay such registration statement until such
time as such special audit is no longer required;
(ii) prepare and file with the Commission
such amendments and supplements to such registration statement and prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all shares
covered by such registration statement, including such amendments and
supplements as may be necessary to reflect the intended method of disposition
from time to time by Seafirst of such shares for a period of not less than six
months;
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(iii) furnish to Seafirst such number of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as Seafirst may
reasonably request in order to facilitate the public sale or other disposition
of the shares owned by Seafirst;
(iv) use its best efforts to register or
qualify the shares covered by such registration statement under such other
securities or blue sky or other applicable laws of such jurisdictions within the
United States, as Seafirst shall reasonably request, to enable Seafirst to
consummate the public sale or other disposition in such jurisdictions of the
shares owned by Seafirst;
(2) Seafirst and each underwriter designated by
Seafirst shall be required to furnish to the Company such information as the
Company may reasonably require from Seafirst or underwriter for inclusion in the
registration statement (and the prospectus included therein); and
(3) Seafirst will not (until further notice) effect
sales of shares included the registration after receipt of telegraphic or
written notice from the Company to suspend sales in order to permit the Company
to correct or update a registration statement or prospectus; but the obligations
of the Company with respect to maintaining any registration statement current
and effective shall be extended by a period of days equal to the period such
suspension is in effect; and the Company agrees to use its prompt, reasonable,
best efforts to correct or update the registration statement or prospectus.
(c) EXPENSES. All expenses incurred by the Company in
effecting any registration pursuant to this section including, without
limitation, all registration and filing fees, printing expenses, expenses of
compliance with blue sky laws and fees and disbursements of counsel for the
Company shall be borne by the Company. Notwithstanding the foregoing, however,
all underwriting discounts and commissions and fees and disbursements for
special counsel of Seafirst shall be paid by Seafirst.
(d) INDEMNIFICATION.
(1) The Company agrees to indemnify Seafirst, each
person or entity who controls Seafirst within the meaning of Section 15 of the
Securities Act, and each underwriter and selling broker of the securities so
registered, and their respective successors, against all claims, losses,
damages, liabilities, fines and penalties (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and agrees to reimburse Seafirst, each person or entity who controls Seafirst
within the meaning of Section 15 of the
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Securities Act, and each such underwriter, and their respective successors, for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
PROVIDED, HOWEVER, that the Company will not be liable in any such case if (and
to the extent that) such statement or omission was made in reliance upon
information (including, without limitation written responses to inquiries)
furnished to the Company by an instrument duly executed by Seafirst or such
controlling person or entity or such underwriter and stated to be specifically
for use in such prospectus, offering circular or other document (or related
registration statement, notification or the like) or any amendment or supplement
thereto.
(2) Seafirst and each underwriter of the securities
so registered will indemnify the Company and its officers and directors and each
person, if any, who controls any thereof within the meaning of Section 15 of the
Securities Act and their respective successors against all claims, losses,
damages, liabilities, fines and penalties (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, as applicable, and each other person indemnified hereunder for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
PROVIDED, HOWEVER, that this indemnification shall apply only (and only to the
extent that) such statement or omission was made in reliance upon information
(including, without limitation, written responses to inquiries) furnished to the
Company by an instrument duly executed by Seafirst or such underwriter and
stated to be specifically for use in such prospectus, offering circular or other
document (or related registration statement, notification or the like) or any
amendment or supplement thereto.
(3) Each party entitled to indemnification under this
Section 6(d) shall give notice to the party required to provide indemnification
promptly after such indemnified party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the indemnifying party to assume
the defense of any such claim or any litigation resulting therefrom; PROVIDED,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under this Section
6(d). The indemnified party may participate in such defense at such party's
expense; PROVIDED, HOWEVER, that the indemnifying party shall pay such expense
if representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between the indemnified party and any other party represented by such
counsel in such proceeding. No indemnifying party, in the defense of any such
claim or litigation shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of such
claim or litigation, and no indemnified party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the indemnifying party.
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(4) The obligations of the Company and Seafirst under
this section shall survive the completion of any offering of Registrable Stock
in a registration statement under this section and otherwise.
(e) TRANSFER. Subject to compliance with the ROFR Agreement,
the registration rights contained in this Section are assignable or transferable
by Seafirst to any transferee of the Subordinated Note, PROVIDED that the
transferee agrees to all of the terms and conditions of this Agreement
applicable to Seafirst and further agrees to execute a subordination agreement
consistent with Section 7.3.
SECTION 7.
RIGHTS AND REMEDIES OF LENDERS
7.1. Subject to the provisions of Section 7.3, upon the occurrence of
an Event of Default, Seafirst, at its option and upon five Business Days' notice
to the Company and Brazos of its intent to accelerate but without any other
notice of acceleration, notice or demand, may declare the entire principal
amount of the Note then outstanding and the interest accrued thereon immediately
due and payable, and the said entire principal, interest and all other amounts
owing thereunder shall thereupon become immediately due and payable without
presentment, demand, protest, notice of protest or other notice of default or
dishonor of any kind, all of which are hereby expressly waived by the Company
and Brazos.
7.2. Seafirst shall have, in addition to the rights and remedies given
it in this Agreement and the Note, all of the rights and remedies allowed at law
or in equity, or by applicable ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any governmental or political subdivision or
agency thereof, or any court or similar entity established by any such
subdivision or agency.
7.3. Notwithstanding any other provisions of this Agreement or this
Section, Seafirst hereby represents, warrants and agrees that the payment of the
Note and the exercise of Seafirst's rights and remedies hereunder are junior and
subordinate to any Senior Lender. Seafirst shall execute concurrently with the
execution and delivery of this Agreement, a subordination agreement consistent
with the foregoing which shall fully subordinate its payment rights under the
Note to any Senior Lender, including, but not limited to, Fleet Financial
Corporation, Brazos' senior secured lender.
SECTION 8.
MISCELLANEOUS
8.1. All notices, demands, requests and communications permitted or
required under this Agreement shall be in writing, may be personally served or
sent by telex (confirmed by telephone), telecopier (confirmed by telephone),
U.S. mail or any express mail service, and shall be effective upon
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receipt, such receipt being deemed to occur 48 hours after its deposit in the
U.S. mail, postage prepaid or 24 hours after its transmission by telex,
telecopier or express mail service, as the case may be, addressed to the
individuals and addresses indicated below:
If to the Company:
Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227
Telefax No.: (513) 272-2812
Attention: Chief Financial Officer
If to Brazos:
3860 Virginia Avenue
Cincinnati, Ohio 45227
Telefax No.: (513) 272-2812
Attention: Chief Financial Officer
If to Seafirst:
Seafirst Bank Fifth Avenue Plaza
800 Fifth Avenue, Floor 29
P. O. Box 3977
Seattle, Washington 98124
Telefax No.: (206) 358-7834
Attention: Robert G. Engel, Jr.
Senior Vice President,
Special Credit Division
Any party may, by proper written notice to the other party, change the
individuals or addresses to which such notices shall thereafter be sent.
8.2. All covenants and agreements of the Company, Brazos and Seafirst
under this Agreement shall bind the successors and assigns of the Company,
Brazos and Seafirst and shall inure to the benefit of such parties and their
successors and assigns.
8.3. This Agreement and the Note shall be deemed to be contracts made
under, and shall be construed in accordance with and governed by, the laws of
the state of Washington and the laws of the United States of America applicable
to transactions within the state of Washington.
8.4. Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
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8.5. In the event any provision contained in any of this Agreement or
the Note shall, for any reason, be held invalid, illegal or unenforceable in any
respect, such provision shall be severed therefrom, and such invalidity,
illegality or unenforceability shall not affect any other provision of such
documents.
8.6. This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts. This Agreement shall be effective
when each party to this Agreement shall have signed at least one counterpart
hereof.
13
<PAGE>
NOTICE
Oral agreements or oral commitments to loan money, extend credit, or to forbear
from enforcing repayment of a debt are not enforceable under Washington law.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
BRAZOS SPORTSWEAR, INC.
By:___________________________
Name:_________________________
Title:________________________
BRAZOS, INC.
By:___________________________
Name:_________________________
Title:________________________
BANK OF AMERICA NT & SA
DOING BUSINESS AS SEAFIRST BANK
By:___________________________
Name:_________________________
Title:________________________
14
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
- ---- ----------------------
Brazos, Inc. Texas
Brazos Embroidery Pennsylvania
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-35387) of Brazos Sportswear, Inc. (formerly Sun
Sportswear, Inc.) of our report dated February 12, 1997, appearing on page 10 of
this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Seattle, Washington
April 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 84,532
<SECURITIES> 0
<RECEIVABLES> 7,214,763
<ALLOWANCES> 33,930
<INVENTORY> 15,760,393
<CURRENT-ASSETS> 24,927,124
<PP&E> 10,560,599
<DEPRECIATION> 7,068,586
<TOTAL-ASSETS> 28,433,643
<CURRENT-LIABILITIES> 8,231,827
<BONDS> 0
0
0
<COMMON> 21,618,339
<OTHER-SE> (1,436,263)
<TOTAL-LIABILITY-AND-EQUITY> 28,433,643
<SALES> 65,534,545
<TOTAL-REVENUES> 65,534,545
<CGS> 57,679,610
<TOTAL-COSTS> 63,524,994
<OTHER-EXPENSES> 7,173,062
<LOSS-PROVISION> 95,694
<INTEREST-EXPENSE> 584,046
<INCOME-PRETAX> (5,843,251)
<INCOME-TAX> (6,908)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,836,343
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> 0
</TABLE>
