UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D C 20549
FORM 10-K
[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.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from _________ to_________.
Commission File No. 33-47577
HAMPSHIRE GROUP, LIMITED
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-0967107
(State of Incorporation) (I.R.S. Employer Identification No.)
POST OFFICE BOX 2667
215 COMMERCE BOULEVARD
ANDERSON, SOUTH CAROLINA 29621
(Address, Including Zip Code, of Registrant's Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code) (864) 225-6232
Securities registered pursuant to Section 12(b) of the Act: (Title of class)
None
Securities registered pursuant to Section 12(g) of the Act: (Title of class)
Common Stock, $.10 Par Value
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 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. [X]
The aggregate market value of the voting stock (which consist solely of shares
of Common Stock) held by non-affiliates of the Registrant as of March 17, 1997,
computed by reference to the closing sale's price of the Registrant's Common
Stock as reported by the NASDAQ National Market System, was approximately
$23,152,000. Shares of Common Stock held, directly or indirectly, by each
director and executive officer and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 25, 1997, the Registrant had outstanding 3,872,830 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement, relative to its
1997 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
1
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HAMPSHIRE GROUP, LIMITED
Table of Contents
Page
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners
and Management 15
Item 13. Certain Relationships and Related Transactions 15
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 16
Signatures 19
Consolidated Financial Statements F-1
Financial Statement Schedules F-20
Quarterly Financial and Stock Data F-24
2
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"Cautionary Disclosure Regarding Forward-Looking Statements"
When used in this document in general and in the outlook section of Item 7
Management's Discussion and Analysis in particular, the words "expects",
"anticipates" and similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrences of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
which affect the Company's business, in this report, as well as the Company's
other filings under the Securities Exchange Act of 1934.
PART I
------
ITEM 1 - BUSINESS
GENERAL
Hampshire Group, Limited ("Hampshire Group" or the "Company") operates three
business segments. Hampshire Designers, Inc. is the largest manufacturer of
sweaters in North America and is a manufacturer of hosiery and other legwear;
and Hampshire Investments, Ltd. was organized in March 1997, for the purpose of
making investments in businesses not related to the sweater and hosiery
businesses of the Company.
Information with respect to sales, operating income and identifiable assets
attributable to the business segments appears in Management's Discussion and
Analysis of Financial Condition commencing on Page 10 hereof.
Hampshire Group, through a predecessor firm, has been engaged in manufacturing
of hosiery since 1917 and of sweaters since 1956. On June 24, 1992, the Company
completed its initial public offering of one million shares of its common stock.
STRENGTHS AND STRATEGY
The Company's primary strength is its ability to manufacture and deliver quality
products within a given price range, while providing superior levels of customer
service.
Quality is achieved in the Company's sweater business through the use of
full-fashion and electronically controlled, knitting machines, which the Company
believes produce a better fitting and more durable product; through the use of
superior quality yarns; and through a rigorous quality assurance program.
Hosiery quality is achieved through the use of high-speed knitting machines, the
use of premium yarns, and an intensive quality control program.
The Company provides superior customer service from its domestic manufacturing
facilities through the Company's Quick Response program and an Electronic Data
Interchange ("EDI") system that links the Company's computers electronically to
those of many of its major customers. By helping retailers reduce inventory
carrying costs through the location of its distribution facilities, and through
sophisticated order fulfillment techniques, the Company provides an important
service to its customers.
The Company maintains a strong position in the women's sweater moderate-price
category. In addition, the Company has expanded into the higher-priced segment
of the women's sweater market, the men's market and has acquired worldwide
sweater sourcing capabilities.
The acquisitions of San Francisco Knitworks and Segue, Ltd. expanded the
Company's business into women's and men's better sweater market. In addition,
Segue provides worldwide sourcing of manufacturing for sweaters. The merger with
The Winona Knitting Mills, Inc. in the fourth quarter of 1995, expanded the
sweater business through the production of more intricate patterns and provided
a strong customer base in the men's sweater market.
3
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The two key strategies with respect to the hosiery segment are (i) to produce a
limited number of high volume styles to be marketed as customized private-label
hosiery programs for chains and mass merchandisers and other large customers and
(ii) to increase the share of the specialty market including tights and cotton
tights for children.
SWEATER OPERATIONS
The Company is the largest manufacturer of sweaters in North America. The
sweater business consists of Designers Originals and private-label women's
sweaters, novelty imported women's sweaters, designer-branded women's sweaters
and men's private-label and branded sweaters.
Designers Originals
- -------------------
Designers Originals sweaters, which generally sell in the $30-$40 range, are
full-fashion (knit-to-body shape) and dyed slowly in an open vat process. Most
are made of the Company's own branded, cashmere-like acrylic yarn called
Luxelon(R) and are styled mainly in classic designs which have changed little
since first introduced.
Designers Originals sweaters are sold in the moderate-price women's market, but
possess manufacturing details usually found only on more expensive sweaters.
Sales are consistently strong because of the demand for classic-styled sweaters.
Retail customers, many of which the Company has a long history with, number
approximately 1,900 and include department stores such as J.C. Penney, Dillard's
Department Stores, the May Company and Federated Department Stores. The sweaters
are sold through a sales force of two employees and 12 independent sales
representatives throughout the United States with senior management
participating in the presentations to the larger accounts. The Company also
meets with customers during the ten market weeks conducted in the apparel
industry each year.
The Company manufactures the sweaters in its facilities located in Puerto Rico
using undyed yarn for assembly and then dying the full garments according to
demand. This affords the Company flexibility in the production planning process.
The Company maintains rigorous quality control in order to satisfy the strict
standards required by its customers. Quality control consists of light
inspection by photospectrometer of each dye lot for shade consistency and lamp
examination of all sweaters after assembly for knitting defects. In addition,
there are three full inspections of all sweaters - after dying, after finishing,
and during folding and packaging.
Private-Label
- -------------
The Company's private-label sweaters are designed in collaboration with
customers and are produced to desired specifications for sale under labels of a
number of retailers and apparel companies. These sweaters consist primarily of
full-fashion, cotton sweaters manufactured domestically in the Company's
facilities in Virginia and San Francisco, as well as Puerto Rico, utilizing the
same processes employed for manufacture of the branded Designers Originals line.
The Company maintains the high quality standards required by its private-label
customers including Lands' End, Lord & Taylor and Sears.
Novelty Import Line
- -------------------
The Company through its international sourcing capability designs and imports
patterned and novelty sweaters for sale primarily for the women's moderate-price
market. This is accomplished through the use of several brand names including
Designers Originals Studio(R), Designers Originals Sport(R), and Moving Bleu(R).
The use of "Designers Originals" in the new brand names has increased the
acceptability of the new products to existing customers of the Company.
Designer-Branded Women's Line
- -----------------------------
The Company has the exclusive right to market products designed by Mary Jane
Marcasiano which bears the Marcasiano label. Mary Jane Marcasiano designs
fashionable classic sweaters of exceptional quality which sell to the designer,
bridge and better markets. She works closely with her customers, including
prestigious boutiques, department stores and catalogues to develop specific
products for their customers. Major customers include Saks Fifth Avenue, Neiman
Marcus, Bergdorf Goodman and Nordstroms.
The sweaters are manufactured by domestic contractors, as well as the sourcing
contacts in Southeast Asia established through the Company's import business.
4
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Men's Branded and Private-Label Line
- ------------------------------------
In October 1995, the Company acquired The Winona Knitting Mills, a private-label
manufacturer of men's sweaters since 1943. Thereby, it acquired three strong
brand names - The Lake Harmony Rowing Club(TM), Berwick(TM) and American
Portrait(TM).
The men's sweaters are manufactured in the Company's facilities in Minnesota
from natural fibers including wool and cotton. The sweaters are sold primarily
under private-labels for retailers and apparel companies including Lands' End,
L.L. Bean, Woolrich and Pendleton Woolen Mills. The branded men's line,
including a new brand, Landscape(TM), are sold to retailers including Dillard's
Department Stores and Federated Department Stores.
Competition
- -----------
The sweater industry competition is intense and based on price, quality and
service. While the Company faces competition from a large number of sweater
manufacturers located in the United States, its primary competition comes from
manufacturers located in Southeast Asia. The foreign competitors benefit from
production cost advantages which are offset in part by United States import
quota and tariff protection. The Company competes with the Southeast Asian
suppliers by supplementing its domestic manufacturing with imports that allow it
to compete aggressively in terms of price while providing superior service.
HOSIERY OPERATIONS
The Company, through its hosiery business operates in a highly competitive
market which is dominated by two major competitors. Within this market,
Hampshire Hosiery provides customized private-label hosiery and tights programs
for chains and mass merchandisers and other large customers.
Hampshire Hosiery sells a limited number of high-volume styles utilizing its
manufacturing facilities in North Carolina and foreign contractors. The hosiery
business provides a high level quality and service through the use of
state-of-the-art machinery including electronically controlled knitting
machines, automated assembly machines, computerized color assurance machines and
automated packaging machines. In addition, the use of electronic data processing
utilizing EDI assists reducing the inventory required to be carried by its
customers.
Hampshire Hosiery sells its hosiery and tights to customers throughout the
United States including Kids `R' Us, Kmart, Nordstroms, Loehmann's Department
Stores and US Shoe Corp. The hosiery business has a sales force of eight
employees located in the Company's showrooms in New York, Boston and other sales
locations throughout the United States.
Hampshire Hosiery will concentrate on providing customized private-label hosiery
programs by offering a relatively small number of high-volume styles which are
profitable for both the retailer and the Company. These programs will be
marketed aggressively at prices which will produce reasonable profit margins.
The Company will also offer niche products, including cotton tights and Diahann
Carrol(R) brand hosiery products, in order to seek out new areas that can help
it grow in both volume and profits.
INVESTMENT OPERATIONS
Hampshire Investments Ltd. ("Hampshire Investments") has been created by the
Company for the purpose of diversifying the sources of the revenues and income
of the Company. In 1997, the Company intends to provide $5 million to Hampshire
Investments to make investments, no single one of which is expected to exceed $1
million. It is expected that the investments will initially be made in the
apparel industry and in real estate, with emphasis on long-term as opposed to
short term. Hampshire Investments intends to primarily make investments in
operating businesses over which influence, but not control, can be exercised by
the Company.
The employees of Hampshire Investments who will make the investment decisions
will have experience both in managing businesses and managing such investments:
Ludwig Kuttner, Chairman and Chief Executive Officer of the Company, has
privately invested both in operating businesses and in real estate over a number
of years. He will actively participate in the investment decisions of Hampshire
Investments.
Whether Hampshire Investments will provide revenue and income to the Company
will depend both on the skills of the Hampshire Investments employees making the
investment decisions and the success of the businesses in which the investments
are made. There can be no assurance that Hampshire's investments will produce
income for the Company.
5
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SEASONALITY
Sweaters: Although the Company sells sweaters throughout the year, the sweater
business is highly seasonal, with approximately 75% of sales occurring during
the fall and winter months. The sweaters which are sold during the spring and
summer are of lighter weight. The Company continues its research and development
efforts to bring the market more products for spring and summer.
Hosiery: The hosiery business is not seasonal; although, hosiery sales increase
slightly in the fall and winter months.
BACKLOG
Sweaters: The sales order backlog for the sweater segment was approximately
$38.5 million as of March 7, 1997, compared with approximately $26.2 as of March
8, 1996. The timing of the placement of seasonal orders by customers affects the
backlog; accordingly, a comparison of backlog from year to year is not
indicative of a trend in sales for the year.
Hosiery: Hampshire Hosiery receives orders throughout the year. Approximately
90% of the hosiery orders are received by EDI with about half being shipped in
two to five days and the remaining half being shipped the next week after
receipt of order. As a result, Hampshire Hosiery has no significant sales order
backlog.
TRADEMARKS
All significant trademarks of the Company are registered and the Company
considers its trademarks to have value in the marketing of its products.
ELECTRONIC INFORMATION SYSTEMS
In order to schedule manufacturing, fill customer orders, transmit shipment data
to the customers' distribution centers and invoice electronically, the Company
has developed a number of EDI applications. Approximately 60% of all orders are
received electronically. These orders are automatically generated by the
customers' computer systems based on their inventory levels. The Company's
advance ship notices and invoices are sent to customers electronically, which
results in the updating of the inventory systems of the customers.
CUSTOMER CONCENTRATION
One customer accounted for approximately 14% and 13% of consolidated sales for
1996 and 1995, respectively. The Company's five largest sweater customers and
five largest hosiery customers accounted for approximately 39% and 12%,
respectively, of the Company's total consolidated sales in 1996, compared with
39% and 13% in 1995.
CREDIT AND COLLECTION
The Company manages its credit and collection functions on a consolidated basis
by evaluating, approving and monitoring the credit lines of its customers.
Credit exposure is determined by past payment history and financial information
obtained from credit agencies and other sources. The Company believes that its
credit and collection management has been a significant factor in maximizing
sales opportunities while minimizing bad debt losses.
EMPLOYEES
As of March 1, 1997, the Company had approximately 2,400 full-time employees and
40 part-time employees. The Company and its employees are not parties to any
collective bargaining agreements except for hourly employees of San Francisco
Knitworks, Inc. The UNITE Labor Union represents approximately 90 such employees
under an agreement through May 1998.
GOVERNMENTAL REGULATION
The Company's business is subject to regulation by federal, state and local
governmental agencies dealing with the protection of the environment. Certain of
these regulations, which include provisions regulating air quality, water
quality, disposal of waste products and employee safety, are technical in nature
and require extensive controls to assure compliance with their provisions. The
Company believes that it has operated, and intends to continue to operate, in
full compliance with these regulations.
6
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As a result of various bilateral agreements between the United States and
certain foreign countries negotiated under the framework established by the
Arrangement Regarding International Trade in Textiles, Hampshire Designers
benefits from import quota and tariff protection in certain categories of its
sweater business, which quotas and tariffs are expected to continue in some form
for the foreseeable future. The bilateral agreements impose quotas on the amount
and type of competing goods which may be shipped into the United States.
In 1994, the General Agreement on Trade and Tariffs ("GATT") was approved by the
United States and over 140 foreign countries. This Agreement, over time,
gradually reduces tariffs and expands quotas between member countries. The
profitability of the sweater business could be adversely affected if the quotas
and tariffs were substantially reduced or eliminated.
The North American Free Trade Agreement ("NAFTA"), approved in 1993 by the
United States, Canada and Mexico, will, over time, eliminate quota and tariffs
among these three countries. Management is positioning the Company to benefit
from NAFTA.
ITEM 2 - PROPERTIES
The Company leases its Anderson, South Carolina corporate offices and its sales
offices. Hampshire Designers, San Francisco Knitworks and Winona Knitting Mills
lease all of their sweater manufacturing and distribution facilities. Hampshire
Hosiery owns its manufacturing and distribution facilities.
The Company believes that all of its properties are well maintained, in good
condition and are generally suitable for their intended use. The Company's
principally owned and leased properties are described in the table below.
Square Lease
Property Footage Expiration(1)
- ------------------------------------------------- --------- ------------
Corporate Offices - Anderson, South Carolina 10,500 04/30/06
Sales Office - New York, New York 24,000 08/31/06
Hampshire Designers
Distribution Facility - Anderson, South Carolina 57,000 04/30/01
Knitting and Finishing Plant - Chilhowie, Virginia 92,500 08/30/08
Knitting Plant - Quebradillas, Puerto Rico 193,200 06/30/02
Finishing Plant - Quebradillas, Puerto Rico 23,050 06/30/06
Hampshire Hosiery
Knitting and Sewing Plant-Spruce Pine, North Carolina 37,000 Owned
Finishing Plant and Distribution Facility
Spruce Pine, North Carolina 132,700 Owned
San Francisco Knitworks
Manufacturing Plant - San Francisco, California 27,500 08/01/06
Winona Knitting Mills
Knitting and Finishing Plant-Winona, Minnesota 110,000 06/01/07
Sewing Plant - La Crescent, Minnesota 12,000 10/31/99
(1) Assuming the exercise of all options to renew.
ITEM 3 - LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
consolidated financial condition or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
7
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PART II
-------
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter on the NASDAQ National
Market System ("NASDAQ") under the symbol "HAMP". The quarterly high and low bid
quotations on NASDAQ for 1996 and 1995 are presented on Page F-25 of this Annual
Report on Form 10-K. These quotations reflect the inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
The approximate number of stockholders of record on March 1, 1997 was 985.
The Company has not declared any dividends with respect to its Common Stock,
subsequent to the effective date of its initial public offering, June 24, 1992.
Any determination to pay dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors may deem relevant. No cash dividends may be paid on the Company's
Common Stock unless all dividends on the Series A and Series D Convertible
Preferred Stock for all past dividend dates have been paid.
8
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<TABLE>
ITEM 6 - SELECTED FINANCIAL DATA Selected Consolidated Financial Data (in
thousands, except per share data)
STATEMENT OF OPERATIONS
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995(1) 1994(2) 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales ................... $148,305 $112,450 $83,595 $93,843 $96,057
Cost of goods sold........... 114,475 85,553 63,925 74,884 75,563
-------- -------- -------- ------- -------
Gross profit................. 33,830 26,897 19,670 18,959 20,494
Commission revenue........... 942 1,357 - - -
-------- -------- -------- ------- -------
34,772 28,254 19,670 18,959 20,494
Selling, general and
administrative expenses.... 23,691 20,464 12,486 15,158 15,191
-------- -------- -------- ------- -------
11,081 7,790 7,184 3,801 5,303
Hosiery restructuring
gain (provision)........... - - 818 (7,500) -
-------- -------- -------- ------- -------
Income (loss) from operations. 11,081 7,790 8,002 (3,699) 5,303
Other income (expense)
Interest income............. 216 310 39 - -
Interest expense............ (1,319) (944) (797) (1,089) (1,654)
Other....................... (82) 312 254 (324) (246)
-------- -------- -------- ------- -------
Income (loss) before income taxes 9,896 7,468 7,498 (5,112) 3,403
Provision for income taxes
Current..................... (1,900) (1,028) (1,109) (500) (341)
Deferred.................... 3,900 278 109 - -
-------- -------- -------- ------- -------
Net income (loss) ........... $11,896 $ 6,718 $ 6,498 ($5,612) $ 3,062
======= ======= ======= ======== =======
Net income (loss) applicable to
common stock .............. $11,712 $ 6,577 $ 6,375 ($4,435) $ 2,774
======= ======= ======= ======== =======
Net income (loss) per common and
common equivalent share .... $2.97 $1.77 $1.80 ($1.72) $0.96
===== ===== ===== ======= =====
Net income (loss) per common
share-assuming full dilution $2.70 $1.63 $1.74 ($1.72) $0.93
===== ===== ===== ======= =====
- -------------------------------------------------------------------------------
BALANCE SHEET
DECEMBER 31, 1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
Cash and cash equivalents..... $20,385 $10,034 $10,712 $ 2,433 $ 402
Working capital............... 37,013 29,675 22,349 15,344 17,498
Total assets.................. 71,930 66,438 42,966 41,132 44,581
Long-term debt (less current
portion) and redeemable
preferred stock............. 10,562 13,817 7,270 6,223 5,979
Total debt (3)................ 14,057 18,569 8,860 8,782 14,702
Common stockholders' equity... 47,275 34,755 25,863 18,489 22,756
Book value per share.......... $12.18 $9.21 $7.47 $5.57 $6.90
<FN>
(1) Includes the results of operations of Segue from January 1, 1995 and of
Winona from October 11, 1995.
(2) Includes the results of operations of San Francisco Knitworks from
January 1, 1994.
(3) Includes long-term debt, current portion thereof, borrowings under lines
of credit, related party debt and redeemable preferred stock.
(4) There were no cash dividends declared on common stock during any of the
above-presented periods.
</FN>
</TABLE>
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<TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF COMPANY SEGMENTS
The following table sets forth information with respect to the two segments of
the Company's business Sweaters and Hosiery.
<CAPTION>
YEAR ENDED DECEMBER 31, (in thousands)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C> <C>
Net sales Sweaters $117,575 $84,924 $55,984
Hosiery 30,730 27,526 27,611
-------- -------- --------
148,305 112,450 83,595
- ---------------------------------------------------------------------------
Gross profit Sweaters 29,180 22,763 16,921
Hosiery 4,650 4,134 2,749
-------- -------- --------
33,830 26,897 19,670
- ---------------------------------------------------------------------------
Commission revenue Sweaters 942 1,357 -
- ---------------------------------------------------------------------------
Selling, general and Sweaters 17,707 14,727 7,291
administrative Hosiery 3,530 3,603 3,092
expenses Corporate 2,454 2,134 2,103
-------- -------- --------
23,691 20,464 12,486
- ---------------------------------------------------------------------------
Restructuring gain Hosiery - - 818
- ---------------------------------------------------------------------------
Operating profit Sweaters 12,415 9,393 9,630
Hosiery 1,120 531 (343)
Corporate (2,454) (2,134) (2,103)
Hosiery restructuring - - 818
-------- -------- --------
Income from operations 11,081 7,790 8,002
Interest income 216 310 39
Interest expense (1,319) (944) (797)
Other income (expense) (82) 312 254
-------- -------- --------
Income before income taxes $ 9,896 $ 7,468 $ 7,498
- ---------------------------------------------------------------------------
Depreciation and Sweaters $3,445 $2,556 $1,685
amortization Hosiery 408 451 661
Corporate 26 25 68
--------- -------- --------
$3,879 $3,032 $2,414
- ---------------------------------------------------------------------------
Capital expenditures Sweaters $2,829 $2,824 $3,024
Hosiery 837 108 47
Corporate 18 3 45
-------- -------- --------
$3,684 $2,935 $3,116
- ---------------------------------------------------------------------------
Identifiable Sweaters $41,277 $48,270 $32,762
assets Hosiery 8,455 9,341 8,669
Corporate 22,198 8,827 1,535
-------- -------- --------
$71,930 $66,438 $42,966
- ---------------------------------------------------------------------------
</TABLE>
10
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The following table sets forth selected operating data as a percentage of net
sales for the periods indicated.
YEAR ENDED DECEMBER 31,
1996 1995 1994
- ----------------------------------------------------------------------
Net sales Sweaters 79.3% 75.5% 67.0%
Hosiery 20.7 24.5 33.0
-----------------------------------
Consolidated 100.0 100.0 100.0
- ----------------------------------------------------------------------
Gross profit Sweaters 24.8 26.8 30.2
Hosiery 15.1 15.0 10.0
-----------------------------------
Consolidated 22.8 23.9 23.5
- ----------------------------------------------------------------------
Commission revenue Sweaters 0.8 1.6 -
- ----------------------------------------------------------------------
Selling, general and
administrative Consolidated 16.0 18.2 14.9
Restructuring gain Hosiery - - 1.0
- ----------------------------------------------------------------------
Operating profit Consolidated 7.5% 6.9% 9.6%
- ----------------------------------------------------------------------
RESULTS OF OPERATIONS
1996 Compared To 1995
- ---------------------
The consolidated net income of the Company, excluding the net tax benefit of
$3.9 million was $7,996,000 or $1.81 per share on a fully diluted basis. This
represents an increase of $1,278,000 or 19% when compared to the $6,718,000 or
$1.63 per share earned in 1995. Including the deferred tax benefit, the net
income of the Company was $11,896,000 or $2.70 per share.
The consolidated net sales of the Company increased 31.9% to $148,305,000 in
1996 as a result of increased sales in both segments of the business.
Net sales for the sweater segment increased 38.4% in 1996 to $117,575,000.
Approximately 60% of this increase is attributable to the sales of the men's
(Winona) division acquired in October 1995. The sweater business segment sales
increased by 16.8% with substantially all of the increase resulting from an
increase in units of 16.3% over the prior year while average selling prices
remained constant.
Net sales of the hosiery segment increased by $3,204,000 or 11.6% in 1996 as
higher sales volume was offset by a shift in mix to lower priced items. Sales
volume increased by 16.8% with higher volume in the tights business accounting
for approximately 40% of the increase. A shift in product mix to lower priced
goods resulted in a decrease in average selling price of 3.2%.
Gross profit for the Company for 1996 increased $6,933,000 or 25.8% compared to
the previous year. As a percentage of net sales, however, gross profit decreased
to 22.8% verses 23.9% for 1995. This overall decrease as a percentage of sales
is attributable to the decrease in the sweater segments gross profit percentage
discussed below.
Sweater segment gross profit increased $6,417,000 for 1996, and was 24.8% of net
sales compared to 26.8% for the prior year. Excluding the sales of the men's
sweater business, gross profit would have been 28.9% in 1996 compared to 28.7%
in 1995. The men's sweater business had an adverse impact on overall segment
gross profit, resulting primarily due to the expense of consolidating the
manufacturing facilities and cost of introducing the branded men's sweater
business.
Hosiery segment gross profit increased by $516,000 but, as a percentage of net
sales, increased 0.1% above the percentage attained in 1995. This limited
increase reflects the intense price competition within the industry.
11
<PAGE>
A subsidiary of the Company has received commission revenue as agent for certain
of its customers in arranging for the sourcing and importation of sweaters
through independent manufacturers in the Far East. The commission revenue
totaled $942,000 and $1,357,000 in 1996 and 1995, respectively. In 1997, the
Company will perform substantially all of the importation responsibility through
a wholly-owned subsidiary.
Selling, general and administrative (SG&A) expenses as a percentage of sales
decreased by 2.2% for 1996. This decrease was the direct result of the Company's
management effort to grow the level of sales of both segments while keeping
fixed overhead at the minimum levels required to support such sales. Included in
the 1996 amount is a $667,000 charge against income for the recognition of an
impairment of goodwill of the San Francisco Knitworks division in accordance
with FAS 121 as more fully explained in Note 7 to the consolidated financial
statements. Absent this charge, SG&A would have decreased 2.7%.
Income from operations increased $3,291,000 in 1996 to $11,081,000. As a
percentage of net sales, income from operations increased to 7.5% from 6.9% in
1995. The sweater segment accounted for the majority of the increase.
A provision for current income taxes of $1,900,000 was recorded in 1996 compared
with $1,028,000 in 1995. The provision included U.S. federal alternative minimum
taxes (AMT), state income taxes where applicable and income taxes on the taxable
earnings of the Puerto Rican subsidiary. This provision, however, was offset by
a credit of $3,900,000, or $0.89 per share, relating to an adjustment of the
Company's deferred tax asset, which produced a net tax benefit of $2,000,000 for
1996.
At December 31, 1996, the Company has recorded deferred tax assets of
$5,271,000, net of a valuation allowance of $1,869,000. At December 31, 1995,
the deferred tax assets totaled $1,371,000, net of a valuation allowance of
$6,487,000. The benefit associated with the decrease in the valuation allowance
is a result of both the utilization of deferred tax assets for which a valuation
allowance was previously provided and management's determination of the amount
of deferred tax benefits of net operating loss (NOL) carryforwards and AMT
credit carryforwards which are "more likely than not" to be realized.
Certain NOL carryforwards are available to the Company to offset future taxable
income. Subject to certain restrictions resulting from the sale of the Company's
stock during its initial public offering, approximately $1.7 million of the NOL
carryforwards are available for use in any single tax year. The amount of future
taxable income required to fully realize the deferred tax assets associated with
these NOL carryforwards, based on currently enacted tax rates, is approximately
$7.0 million.
The Company, through its Puerto Rican subsidiary, has made an election under
Section 936 of the Internal Revenue Code pursuant to which the subsidiary's
earnings are exempt from federal regular income taxes. This election has had the
effect of generating deferred tax assets in the form of AMT credit carryforwards
for the Company for which an offsetting valuation allowance was recorded. Due to
the repeal of Section 936 and phase-out of its provision by the year 2005,
management has determined that it is "more likely than not" that the Company
will realize the full amount of the deferred tax assets relating to the AMT
credit carryforwards and therefore no valuation allowance is required for such
carryforwards.
All of the income of the Company's Puerto Rican operations are effectively
exempt from Puerto Rican income taxes which reduces the Company's effective
income tax rate as more fully described in Note 10 to the consolidated financial
statements.
1995 Compared To 1994
- ---------------------
Consolidated net sales increased 34.5% to $112,450,000 in 1995, compared with
$83,595,000 in 1994. The increase was primarily due to the acquisition of
sweater businesses.
Sweater segment net sales were $84,924,000 in 1995, a $28,940,000 increase over
1994. Approximately two-thirds of this increase was attributable to increased
sales associated with the acquisition of sweater businesses. During 1995, price
increases and a shift in mix to lower-priced items reduced average selling
prices by approximately 3.0% while unit volume increased approximately 14.0%.
This volume increase occurred despite the weak retail environment for apparel in
1995.
Hosiery segment net sales in 1995 were $27,526,000, compared with $27,611,000 in
1994. The decrease was due primarily to the restructuring of the hosiery
operations, including fewer close-out sales. During 1995, average selling prices
increased by approximately 1.0%. Unit volume of continuing products increased by
approximately 5.9% while unit volume for close-out items decreased by 65.5%.
12
<PAGE>
Gross profit for 1995 was $26,897,000, compared with $19,670,000 in 1994. The
increase occurred principally from increased sweater segment sales and the
improved operating efficiencies associated with the hosiery segment. As a
percentage of net sales, the 1995 gross profit was 23.9% as compared to 23.5% in
1994.
Sweater segment gross profit increased by $5,842,000 in 1995 to $22,763,000
compared with 1994. As a percentage of net sales, however, the gross profit of
the Sweater segment was 26.8% in 1995, compared with 30.2% in 1994. The
reduction was primarily the result of lower gross margin on sales of the
acquired sweater businesses.
Hosiery segment gross profit increased by $1,385,000 in 1995 to $4,134,000
compared to $2,749,000 in 1994. As a percentage of net sales, the gross profit
was 15.0% in 1995, as compared with 10.0% in 1994. The increase resulted
primarily from fewer close-out sales and improved manufacturing efficiencies.
Selling, general and administrative expenses in 1995 were $20,464,000, 18.2% of
net sales, compared to $12,486,000, 14.9% of net sales, in 1994. The increase
was primarily a result of increased expenses from newly acquired sweater
companies.
The $7,436,000 increase in selling, general and administrative expenses in the
sweater segment over 1994 was primarily due to increases in fixed expenses and
selling commissions arising from the newly acquired sweater businesses. As a
percentage of net sales, the expenses of the sweater segment increased to 17.3%
in 1995 compared to 13.0% in 1994.
The selling, general and administrative expenses of the hosiery segment
increased $511,000 when compared with 1994. The increase was partly due to the
expense of starting up the sock product line. As a percentage of net sales, the
expenses of the hosiery segment increased to 13.1% in 1995 versus 11.2% in 1994.
Income from operations was $7,790,000 for 1995 as compared with $7,184,000 for
1994, excluding the reversal of a restructuring charge of $818,000. The 8.4%
improvement was primarily attributable to improvement in the performance of the
hosiery segment.
Operating income of the sweater segment was $9,393,000 in 1995, compared with
$9,630,000 in 1994. The reduction is attributable to the acquired sweater
businesses which were adversely affected by a weak retail environment during
1995 for their sweater products.
The hosiery segment had operating income of $531,000 in 1995 compared with a
loss of $343,000 in 1994 (before the $818,000 restructuring gain). The
improvement was primarily the result of higher volume and manufacturing
efficiencies.
A provision for income taxes of $750,000 was recorded in 1995. The provision
included U.S. Federal alternative minimum taxes, state income taxes where
applicable and income taxes on the taxable earnings of the Puerto Rican
subsidiary. The Company's operations in Puerto Rico are largely exempt from
income taxes which reduces the Company's effective income tax rate as more
fully explained in Note 10 to the consolidated financial statements.
As of December 31, 1995, the Company has recorded deferred tax assets of
$1,371,000, net of a valuation allowance of $6,487,000. At December 31, 1994,
the deferred tax assets totaled $1,373,000, net of a valuation allowance of
$7,083,000.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary liquidity and capital requirements of the Company relate to funding
working capital for current operations (primarily funding the buildup in
inventories and accounts receivable which reach their maximum seasonal
requirements in the third quarter), servicing long-term debt , funding capital
expenditures for the improvement and replacement of machinery and equipment and
certain other equity investments made from time to time. The primary resources
to meet the liquidity and capital requirements include funds generated by
operation, long-term equipment financing and revolving credit lines. The Company
ended 1996 with cash and cash equivalents totaling $20,385,000 as compared to
$10,034,000 for 1995. The primary source of this increase came from cash flows
from operations which increased by $8,280,000 in 1996. This increase was due to
the substantial reductions in inventory and the acceleration of collections from
accounts receivable when compared to the prior year.
With respect to capital expenditures, it is the Company's policy generally to
reinvest an amount approximating current year depreciation charges in improving
and replacing machinery and equipment and operating facilities. During 1996,
capital expenditures amounted to $3,684,000. In 1997, management plans to invest
approximately $3.0 million in new machinery and equipment with emphasis being
placed on improving manufacturing efficiencies in all manufacturing areas of the
Company.
The Company is negotiating a renewal of its revolving credit facility to
accommodate it present financing needs. The new facility, which will become
effective April 1, 1997, will be limited to 85% of eligible accounts receivable,
plus a seasonal overadvance of $6.0 million from March through October, not to
exceed $25.0 million at any time. The line will be secured by the accounts
receivable of the Company.
The Company also has other credit facilities which in the aggregate allow the
Company to borrow an additional $9.5 million of which $4.5 million is limited to
use for international letters of credit. The maximum amount outstanding under
all lines of credit during 1996 was $16,405,000 and the average amount
outstanding was approximately $4,672,000.
The Company's current and long-term debt was $10,763,000 at December 31, 1996
compared to $14,967,000 at December 31, 1995. The decrease was the result of
scheduled amortization of long-term debt more fully described in Note 9 to the
consolidated financial statements. It is the Company's policy to finance
material capital expenditures on a long-term basis when possible.
The common stockholders' equity at December 31,1996 was $47,275,000 and total
debt and redeemable preferred stock was $24,881,000 for a debt-to-equity ratio
of .53 at year end compared to .91 at the end of 1995.
During 1996, the Company paid cash dividends of $184,000 on its preferred stock
and redeemed, as required by the terms of the preferred stock agreement, 6,156
shares of Preferred Stock Series "D" ($308,000) which was 15% of the amount
originally outstanding. See note 12 to the consolidated financial statements for
a more detailed discussion of the terms and requirements of the preferred stock
of the Company still outstanding.
Management believes cash flow from operations and available borrowings under
credit facilities will provide adequate resources to meet the Company's capital
requirements and operational needs for the foreseeable future.
OUTLOOK
On a consolidated basis, the Company has experienced substantial increases in
net sales over the past two years due to both the growth of existing businesses
and the 1995 acquisitions. While the Company feels that it will continue to be
able to generate the increases in sales necessary to grow at an acceptable rate,
it cautions that the expectation of continued sales growth consistent with
recent history is not realistic.
Within the sweater segment, the Company anticipates sales growth in the 7%-10%
range by expanding its women's branded sweater business and men's sweater
business. In the hosiery segment, sales growth is expected to remain at or below
current levels due to the extremely competitive nature of the hosiery business
in general and the private-label business in particular.
The Company continues to believe that a primary reason for its success in recent
years has been it ability to offer the highest level of quality and services
through its domestic manufacturing and its ability to be an in-stock resource
for its customers. Management is committed to continuing to offer such quality
and services to its customers.
14
<PAGE>
The Company expects profits to be in line with the increases in sales volume
based on historical levels of 5% of net sales. It should be noted, however, as
more fully discussed in Note 10 to the consolidated financial statements the
effective current tax rate of the Company increased in 1996 to 19% . While this
amount was distorted in 1996 due to the benefit of the realization of the
deferred tax assets discussed above, for 1997 and beyond, the effective rate is
expected to be in the 20%-22% range.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be presented in this Item 8 is presented commencing
on Page F-1 of this Annual Report on Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
Certain information required to be presented in this Part III of this Annual
Report on Form 10-K is omitted in that the Registrant will file a Definitive
Proxy Statement pursuant to Regulation 14A (the "Proxy Statement") not later
than 120 days after the end of the fiscal year and is incorporated herein by
reference thereto.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required to be presented in this Item 10 is incorporated herein by reference to
the Company's 1997 Proxy Statement.
ITEM 11 - EXECUTIVE COMPENSATION
The information concerning executive compensation required to be presented in
this Item 11 is incorporated herein by reference to the Company's 1997 Proxy
Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners and
management required to be presented in this Item 12 is incorporated herein by
reference to the Company's 1997 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
required to be presented in this Item 13 is incorporated herein by reference to
the Company's 1997 Proxy Statement.
15
<PAGE>
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this Annual Report on Form 10-K.
(1) Financial Statements
(2) Financial Statement Schedules
The financial statements and financial statement schedules are listed
on the Index to the Consolidated Financial Statements on Page F-1 of
this Annual Report on Form 10-K. All other schedules have been omitted
because the required information is shown in the consolidated financial
statements or notes thereto or they are not applicable.
(3) Exhibits:
Exhibit No. Description Footnote
---------- --------------------------------------------- --------
Exhibits Incorporated by References:
(3)(A) Restated Certificate of Incorporation of
Hampshire Group, Limited 1
(3)(A)(1) Certificate of Amendment to the Certificate of
Incorporation of Hampshire Group, Limited 2
(3)(A)(2) Agreement of Merger between Hampshire Hosiery,
Inc. and Hampshire Designers, Inc.
dated June 26, 1995 6
(3)(A)(3) Agreement of Merger between Segue (America)
Limited and H.G. Knitwear, Inc. dated
December 29, 1995 6
(3)(A)(4) Agreement and Plan of Merger among Hampshire
Group, Limited, The Winona Knitting Mills,
Inc. and Pete and Joyce Woodworth
dated June 5, 1995 6
(3)(B) By-Laws of Hampshire Group, Limited 1
(3)(B)(1) Amended and Restated By-Laws of Hampshire
Group, Limited 2
(4)(B) Form of Certificate of Stock Designation for
Hampshire Group, Limited Series D
Convertible Preferred Stock 1
(4)(B)(1) Amended Form of Certificate of Stock
Designation for Hampshire Group, Limited
Series D Convertible Preferred Stock 2
(4)(C) Form of Certificate of Stock Designation for
Hampshire Group, Limited Series A
Convertible Preferred Stock 6
(10)(A)(2)(a) Employment Agreement between Hampshire Group,
Limited and Ludwig Kuttner dated May 6, 1992 2
(10)(A)(5) Employment Agreement between Hampshire Group,
Limited and Eugene Warsaw dated
December 29, 1986 1
(10)(A)(7) Employment Agreement between Hampshire
Designers, Inc. and Pete Woodworth
dated October 10, 1995 6
(10)(B)(1) Form of Hampshire Group, Limited 1992 Stock
Option Plan Amended and Restated
effective June 7, 1995 6
(Exhibits continued on next page)
16
<PAGE>
Exhibit No. Description Footnote
---------- --------------------------------------------- --------
(Exhibits continued from previous page)
(10)(C)(1) Form of Hampshire Group, Limited and
Affiliates Common Stock Purchase Plan for
Directors and Executives Amended and
Restated effective June 7, 1995 6
(10)(F) Form of Hampshire Group, Limited and
Subsidiaries 401(k) Retirement Savings Plan 1
(10)(J)(1) Lease Agreements between Hampshire Designers,
Inc. and Commerce Center Associates for the
Company's corporate offices dated May 1, 1994 5
(10)(J)(2) Lease Agreements between Hampshire Designers,
Inc. and Commerce Center Associates for the
Company's distribution center dated May 1, 1994 6
(10)(J)(3) Lease Agreement between Hampshire Designers,
Inc. and Leslie R. Woodworth, et al for the
Winona, Minnesota manufacturing plant
dated October 10, 1995 6
(10)(J)(4) Lease Agreement between the Hampshire Designers,
Inc, and Pete Woodworth and Joyce Woodworth
for the La Crescent, Minnesota manufacturing
plant dated October 10, 1995 6
(10)(K) Loan and Security Agreement between Hampshire
Hosiery, Inc. and MetLife Capital Corporation,
dated July 30, 1993 4
(10)(K)(1) Loan and Security Agreement between San
Francisco Knitworks, Inc., Hampshire Designers,
Inc. and MetLife Capital Corporation
dated May 13, 1994 5
(10)(K)(2) Loan and Security Agreement between San
Francisco Knitworks, Inc., Hampshire Designers,
Inc. and MetLife Capital Corporation dated
October 12, 1994 5
(10)(K)(3) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated
September 22, 1995 6
(10)(M) Agreement on Repatriation of Earnings between
Glamourette Fashion Mills, Inc. and
The Commonwealth of Puerto Rico (the "Closing
Agreement"), dated June 30, 1993 4
(10)(N) Loan and Security Agreement between
Hampshire Designers, Inc. and SouthTrust Bank of
Alabama, N.A. dated May 1, 1994 5
(10)(O) Loan and Security Agreement between Hampshire
Designers, Inc. and Central Fidelity National
Bank dated February 8, 1995 6
(10)(P) Loan Agreement between Glamourette Fashion
Mills, Inc. and Banco Popular de Puerto Rico
dated June 1, 1995 6
(10)(Q) Loan Agreement between Hampshire Designers,
Inc. and NationsBank of South Carolina, N.A.
dated June 27, 1995 6
(10)(R) Asset Purchase Agreement between H.G.
Knitwear, Inc. and Babette & Partners, Ltd.
dated March 2, 1995 6
(Exhibits continued on next page)
17
<PAGE>
Exhibit No. Description Footnote
---------- --------------------------------------------- --------
(Exhibits continued from previous page)
(10)(R)(2) Asset Purchase Agreement among Segue (America)
Limited (formally Vintage, Inc.), Segue, Ltd.
and Neil Friedman dated February 15, 1995 6
1. Incorporated by reference to the Company's Registration Statement
on Form S-1, No. 33-47577
2. Incorporated by reference to the Company's Registration Statement
on Form S-1, Amendment No. 1, No. 33-47577
3. Incorporate by reference to the Company's 1992 Annual Report on
Form 10-K
4. Incorporated by reference to the Company's 1993 Annual Report on
Form 10-K
5. Incorporated by reference to the Company's 1994 Annual Report on
Form 10-K
6. Incorporated by reference to the Company's 1995 Annual Report on
Form 10-K
Exhibits filed herewith:
------------------------
(10)(H)(10) Fourth Amended and Restated Loan Agreement
between Hampshire Designers, Inc. and NatWest Bank
N.A. dated as of March 31, 1996
(10)(L)(1) Industrial Tax Exemption between Glamourette
Fashion Mills, Inc. and the Commonwealth of Puerto
Rico, Office of Industrial Tax Exemption, dated
September 17, 1996
(10)(P)(1) Revolving Line of Credit Agreement between
Banco Popular and Glamourette Fashion Mills, Inc.
dated May 23, 1996.
(10)(P)(2) First Amendment to Financing Agreement between
Banco Popular and Glamourette Fashion Mills, Inc.
dated September 16, 1996.
(10)(S) Revolving Line of Credit Agreement between
Merchants National Bank and Hampshire Group, Limited
dated April 1, 1996.
(10)(T) Amendment to Credit Agreement between MTB and
Segue (America) Limited dated June 19, 1996.
(11) Statement Re Computation of Income per Share
(21) Subsidiaries of the Company
(23) Consent of Price Waterhouse LLP
(27) Financial Data Schedule
(b) There were no reports on Form 8-K filed in the fourth quarter of 1996.
18
<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 Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson
and the State of South Carolina on this 25th day of March 1997.
HAMPSHIRE GROUP, LIMITED
By: /s/ LUDWIG KUTTNER
-----------------------------
Ludwig Kuttner
President and Chief Executive
Officer
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ LUDWIG KUTTNER Chairman of the Board of Directors March 25, 1997
Ludwig Kuttner President and Chief Executive Officer
(Principal Executive Officer)
/s/ CHARLES W. CLAYTON Vice President, Secretary, Treasurer March 25, 1997
Charles W. Clayton and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ HERBERT ELISH Director March 25, 1997
Herbert Elish
/s/ MICHAEL C. JACKSON Director March 25, 1997
Michael C. Jackson
/s/ HARVEY L. SPERRY Director March 25, 1997
Harvey L. Sperry
/s/ EUGENE WARSAW Director March 25, 1997
Eugene Warsaw
/s/ PETER W. WOODWORTH Director March 25, 1997
Peter W. Woodworth
19
<PAGE>
HAMPSHIRE GROUP, LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Income F-4
Consolidated Statement of Cash Flows F-5
Consolidated Statement of Changes in
Common Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7 - F-19
Financial Statement Schedules
I Condensed Financial Information of Registrant F-20 - F-22
II Valuation and Qualifying Accounts F-23
Quarterly and Financial Stock Data F-24
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Hampshire Group, Limited
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Hampshire Group, Limited and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their 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
requires that we plan and perform the audits 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
Atlanta, Georgia
February 18, 1997
F-2
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<CAPTION>
DECEMBER 31, 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
ASSETS Current assets:
Cash and cash equivalents $20,385 $10,034
Accounts receivable trade - net 13,101 16,761
Other receivables 412 722
Inventories 14,873 19,380
Deferred tax asset - current 1,631 409
Other current assets 704 235
------- -------
Total current assets 51,106 47,541
Property, plant and equipment - net 13,596 13,469
Deferred tax asset 3,640 962
Intangible assets - net 3,161 4,320
Other assets 427 146
------- -------
$71,930 $66,438
======= =======
---------------------------------------------------------
LIABILITIES Current liabilities:
Current portion of long-term debt $ 2,618 $ 2,627
Current portion of notes payable to
related parties 877 2,125
Accounts payable 3,722 4,714
Accrued liabilities and
other liabilities 6,876 8,400
------- -------
Total current liabilities 14,093 17,866
Long-term debt 6,643 8,590
Notes payable to related parties 625 1,625
Commitments and contingencies - -
------- -------
PREFERRED STOCK Redeemable, convertible preferred stock,
at redemption value:
Series A, 124,000 shares outstanding 1,550 1,550
Series D, 34,883 and 41,039 shares
outstanding 1,744 2,052
------- -------
COMMON Common stock, $.10 par value; 3,885,503
STOCKHOLDERS' and 3,771,624 shares issued and 3,879,503
EQUITY and 3,771,624 outstanding 389 377
Additional paid-in capital 23,853 22,979
Retained earnings 23,111 11,399
Treasury stock (78) -
------- -------
47,275 34,755
------- -------
$71,930 $66,438
======= =======
---------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C>
Net sales $148,305 $112,450 $83,595
Cost of goods sold 114,475 85,553 63,925
-------- -------- -------
Gross profit 33,830 26,897 19,670
Commission revenue 942 1,357 -
-------- -------- -------
34,772 28,254 19,670
Selling, general and
administrative expenses 23,691 20,464 12,486
Hosiery restructuring gain - - 818
-------- -------- -------
Income from operations 11,081 7,790 8,002
Interest income 216 310 39
Interest expense (1,319) (944) (797)
Other (expense) income (82) 312 254
-------- -------- -------
Income before provision for
income taxes 9,896 7,468 7,498
Provision for income taxes
Current (1,900) (1,028) (1,109)
Deferred 3,900 278 109
-------- -------- -------
Net income 11,896 6,718 6,498
Preferred dividend requirements (184) (141) (123)
-------- -------- -------
Net income applicable to common
stock $11,712 $ 6,577 $ 6,375
======== ======== =======
------------------------------------------------------------------
Net income per share:
Primary $2.97 $1.77 $1.80
----- ----- -----
Assuming full dilution $2.70 $1.63 $1.74
----- ----- -----
Weighted average number of
shares outstanding:
Primary 3,939 3,710 3,542
----- ----- -----
Assuming full dilution 4,408 4,124 3,740
----- ----- -----
-----------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $11,896 $ 6,718 $ 6,498
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 3,879 3,032 2,414
Loss on impairment of asset 667 - -
Loss (gain) of sale on assets 50 (37) (241)
Deferred income taxes (3,900) (278) (109)
Hosiery restructuring gain - - (818)
Net change in operating assets and
liabilities, net of effects of
acquired companies:
Receivables 3,784 (300) 1,835
Inventories 4,507 (1,144) 5,997
Other current assets 82 (240) (4)
Accounts payable (992) 701 (603)
Accrued liabilities (1,518) 1,681 1,350
Accrued restructuring - (92) (3,202)
Other (139) (5) -
-------- ------- -------
Net cash provided by
operating activities 18,316 10,036 13,117
-------- ------- -------
Cash flows from investing activities:
Capital expenditures (3,684) (2,935) (3,116)
Proceeds from sales of
property and equipment 110 852 855
Other investments (503) - -
Pre-acquisition advances to Winona - (3,060) -
Cash used for business acquisitions (2,631) (2,539) -
-------- ------- -------
Net cash used in investing
activities (4,077) (7,774) (4,800)
-------- ------- -------
Cash flows from financing activities:
Net repayments under lines of credit - (5,527) -
Proceeds from issuance of
long-term debt 711 4,640 3,354
Repayment of long-term debt (2,667) (1,921) (3,277)
Repayment of related party debt (2,248) - -
Redemption of preferred stock (308) - -
Cash dividends on preferred stock (184) (141) (123)
Net proceeds from issuance of
common stock 764 9 8
Tax benefit from employee stock plans 122 - -
Purchase of treasury stock - net (78) - -
------- ------- -------
Net cash used in financing
activities (3,888) (2,940) (38)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents 10,351 (678) 8,279
Cash and cash equivalents -
beginning of year 10,034 10,712 2,433
------- ------- -------
Cash and cash equivalents - end of
year $20,385 $10,034 $10,712
======= ======= =======
------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- ------ ------- -------- ----- -------
YEARS ENDED DECEMBER 31,
1994, 1995 AND 1996
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 3,321,163 $333 $19,763 ($1,553) ($54) $18,489
Issuance of common stock
for business acquisition 90,625 9 716 - - 725
Shares issued under the
Stock Purchase Plan 47,295 4 208 - 54 266
Shares issued under
Stock Option Plan 1,500 - 8 - - 8
Net income for the year - - - 6,498 - 6,498
Dividends on preferred stock - - - (123) - (123)
- ------------------------------------------------------------------------------
Balance December 31, 1994 3,460,583 346 20,695 4,822 - 25,863
Issuance of common stock
for business acquisition 240,000 24 1,761 - - 1,785
Shares issued under the
Stock Purchase Plan 69,541 7 514 - - 521
Shares issued under Stock
Option Plan 1,500 - 9 - - 9
Net income for the year - - - 6,718 - 6,718
Dividends on preferred stock - - - (141) - (141)
- ------------------------------------------------------------------------------
Balance December 31, 1995 3,771,624 377 22,979 11,399 - 34,755
Shares issued under the
Stock Option Plan 119,879 12 752 - - 764
Purchase of treasury stock (62,500) - - - (746) (746)
Transfer of shares to
Stock Purchase Plan 56,500 - - - 668 668
Tax benefit from employee
stock plans - - 122 - - 122
Net income for the year - - - 11,896 - 11,896
Dividends on preferred stock - - - (184) - (184)
- ------------------------------------------------------------------------------
Balance December 31, 1996 3,885,503 $389 $23,853 $23,111 ($ 78) $47,275
========= ==== ======= ======= ====== =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-6
<PAGE>
HAMPSHIRE GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Hampshire Group, Limited (the "Company"), through its subsidiaries, is engaged
primarily in the manufacture and sale of knitted sweaters and legwear. The
significant accounting policies used in the preparation of the accompanying
consolidated financial statements are as follows:
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiary, Hampshire Designers, Inc. and its subsidiaries (collectively,
"Hampshire Designers"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash Equivalents
- ----------------
Cash equivalents consist of highly liquid investments with initial maturities of
ninety days or less.
Fair Value of Financial Instruments
- -----------------------------------
Management believes that the fair value of financial instruments does not
materially differ from their carrying values.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out ("LIFO") method for domestic inventories of Hampshire
Designers and Hampshire Hosiery and using the first-in, first-out ("FIFO")
method for all other domestic inventory and inventory located in Puerto Rico.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are recorded at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives of
the assets. Additions and major replacements or improvements are capitalized,
while maintenance costs and minor replacements are charged to expense as
incurred. The cost and accumulated depreciation of assets sold or retired are
removed from the accounts and any gain or loss is included in results of
operations.
Intangibles
- -----------
Intangible assets consist primarily of goodwill which is being amortized over 10
years on a straight-line basis. The Company continually monitors conditions that
may affect the carrying value of its intangible assets. When conditions indicate
potential impairment of such assets, the Company will undertake the necessary
studies and evaluate projected future earnings associated with the asset. When
projected future cash flows, not discounted for the time value of money, are
less than the carrying value of the asset, the impaired asset is written down to
its estimated fair value.
Revenue Recognition
- -------------------
The Company recognizes revenue upon shipment of goods to customers.
Income Taxes
- ------------
Income taxes are recognized during the year in which transactions enter into the
determination of income for financial reporting purposes, with deferred taxes
being provided for temporary differences between the basis of assets and
liabilities for financial reporting purposes and the basis for income tax
reporting purposes.
Per Share Data
- --------------
Income per common and common equivalent share is computed by dividing net income
applicable to common stock by the weighted average number of common and dilutive
common equivalent shares outstanding during each period. The dilutive effect of
stock options and warrants is computed using the modified treasury stock method.
F-7
<PAGE>
Income per common share assuming full dilution is computed by dividing net
income applicable to common stock, adjusted for dividends accruing on preferred
stock, by the sum of the weighted average number of common and dilutive common
equivalent shares outstanding during the period determined using the modified
treasury stock method and the number of common shares assumed to have been
issued had the convertible preferred stock been converted into common stock as
of the beginning of the year; conversion of the convertible preferred stock has
been assumed only if such conversions are dilutive.
Use of Estimates
- ----------------
Preparation of financial statements in accordance with generally accepted
accounting principles requires management to use estimates and assumptions which
affect the amounts reported for assets, liabilities, revenue, expenses and
disclosure of contingent liabilities in the financial statements. Actual results
could differ from those estimates. The more significant accounts affected by
estimates are allowances for doubtful accounts, returns and allowances, obsolete
and slow moving inventory and the deferred tax asset valuation allowance.
Reclassification
- ----------------
Certain accounts previously reported have been reclassified to conform to
classifications used in 1996.
Note 2 - Acquisitions
Effective January 1, 1995, the Company, through an 80%-owned subsidiary, Segue
(America) Limited ("Segue"), acquired substantially all of the assets and
business of Segue, Ltd., a privately held corporation. Segue designs and imports
ladies' and men's sweaters which are marketed in the middle and upper price
categories. Additionally, Segue provides sourcing services and functions as a
buying agent for certain of its customers for which it receives commissions. The
assets were acquired for $1,937,000 in cash and $479,000 in assumed liabilities.
Additional contingent purchase price consisted of 26,000 shares of restricted
Common Stock of the Company, which was to be delivered upon Segue achieving
certain financial goals. As of December 31, 1996, the shares were forfeited
because the financial objectives were not achieved. In connection with this
transaction, the Company recorded goodwill in the amount of approximately
$512,000.
In January 1995, the Company formed a wholly-owned subsidiary, H.G. Knitwear,
Inc. ("Knitwear"), that acquired certain assets, principally accounts receivable
and inventories of Babette & Partners, Ltd. Knitwear was organized to engage in
the business of selling better sweaters to major department stores, specialty
retailers and a variety of well-known catalog retailers. The assets were
purchased for $200,000 in cash and $690,000 in assumed liabilities. The
liabilities included a $500,000 note which was owed to the Chairman and Chief
Executive Officer of the Company. (The note was paid in full in February 1997.)
Results of operations of Knitwear were not material to the Company and as a
result, no pro forma data is presented. On December 30, 1995, Knitwear was
merged into Segue.
In October 1995, The Winona Knitting Mills, Inc. (Winona), principally a
private-label manufacturer of better men's sweaters, was merged with the Company
in exchange for approximately $500,000 in cash, $2,287,000 in short-term
obligations, $1,250,000 in long-term debt, 124,000 shares of convertible
preferred stock valued at $1,550,000 and 240,000 restricted shares of the
Company's common stock valued at $1,785,000. Additionally, payments of up to
$1,333,000 are contingent upon the future financial performance of the acquired
business for the years 1996 through 1998 of which no additional amount was
earned in 1996. Such payments will be made one-half in cash and one-half in
restricted common stock of the Company. In connection with the acquisition, the
Company recorded goodwill in the amount of $2,288,000.
All of the above transactions were accounted for using the purchase method. The
operating results of Segue, Knitwear and Winona are included in the consolidated
financial statements of the Company from their respective dates of acquisitions.
Had the acquisition of Segue and Winona been consummated as of January 1, 1994,
the Company's unaudited consolidated pro forma results of operations for the
years ended December 31, 1995 and 1994 would have been:
F-8
<PAGE>
(in thousands, except per share data)
Pro Forma Pro Forma
Unaudited Unaudited
Year ended December 31 1995 1994
- ----------------------------------------------------------------------
Net sales $130,545 $116,567
- ----------------------------------------------------------------------
Net income applicable to common stock $4,724 $6,557
- ----------------------------------------------------------------------
Net income per share
Primary $1.21 $1.73
- ----------------------------------------------------------------------
Full dilution $1.12 $1.65
- ----------------------------------------------------------------------
Effective January 1, 1994, Hampshire Designers, Inc. purchased the assets of San
Francisco Knitworks, a manufacturer of sweaters for the designer and better
markets. The purchase price consisted of $2,539,000 in cash, paid at the
closing, and $725,000 payable on or prior to January 31, 1996 in cash, or at the
Company's option, in Company Common Stock valued at the mean selling price at
January 31, 1996. The Company escrowed 90,625 shares of restricted common stock
of the Company in connection with this transaction and these shares have not
been released from escrow pending final resolution of the purchase price. The
acquisition was accounted for using the purchase method and the results of
operations of San Francisco Knitworks were included with those of the Company
for 1994.
Note 3 - Hosiery Restructuring
The Company recorded a pre-tax restructuring charge of $7.5 million in 1993 for
the estimated costs required to consolidate its hosiery operations into the
Spruce Pine, North Carolina facilities and to discontinue production of certain
hosiery products. During 1994, the Company ceased manufacturing in the knitting
plant located in Belmont, North Carolina and closed the distribution center also
located in Belmont, with the discontinuation of a branded product line. The
licensing agreement for the branded product line was transferred to another
manufacturer resulting in a favorable settlement of a minimum royalty
obligation. The provision for the settlement of the licensing agreement exceeded
the actual payment by $818,000, which in the opinion of management was not
required for other expenses of the restructuring; therefore, the provision was
reduced as a credit to income in 1994.
Note 4 - Accounts Receivable and Major Customers
The Company sells principally to department stores, specialty stores, mail-order
catalog businesses, chain stores, mass merchandisers and other retailers located
in the United States. The Company had sales to one major customer (sales in
excess of 10% of total sales) which as a percentage of total sales accounted for
approximately 14%, 13% and 14% for 1996, 1995 and 1994, respectively. At
December 31, 1996, and 1995, 53% and 39%, respectively, of the trade receivables
were due from five customers .
The Company performs ongoing evaluations of its customers' credit worthiness and
maintains allowances for potential credit losses. The Company generally does not
require collateral to secure its trade receivables. The accounts receivable are
stated net of allowances for doubtful accounts and returns and allowances of
$2,847,000 and $2,031,000 at December 31, 1996 and 1995, respectively.
Note 5 - Inventories
The components of inventories are as follows:
(in thousands)
December 31 1996 1995
------------------------------------
Finished goods $ 8,767 $10,954
Work in-progress 6,063 7,341
Raw materials and
supplies 4,176 5,082
------------------------------------
19,006 23,377
Less - Excess of
current cost
over LIFO
carrying value (4,133) (3,997)
------------------------------------
$14,873 $19,380
====================================
Approximately 49% and 50% of total inventories were valued using the LIFO method
at December 31, 1996 and 1995, respectively.
F-9
<PAGE>
During 1994 certain inventory quantities were reduced. This reduction resulted
in liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of such years' purchases, the effect of
which increased net income by approximately $553,000 in 1994; there was no
material effect on income in 1996 and 1995.
Note 6 - Property, Plant and Equipment
Property, plant and equipment is summarized as follows:
Estimated (in thousands)
Useful Lives 1996 1995
---------------------------------------------------------------
Land $ 83 $ 83
Buildings and improvements 15-45 years 1,310 1,289
Leasehold improvements 5-10 years 4,683 4,206
Machinery and equipment 3-7 years 23,648 25,767
Furniture and fixtures 3-7 years 907 668
Transportation equipment 3-5 years 219 171
Construction in progress 673 620
---------------------------------------------------------------
33,642 30,685
Less - Accumulated depreciation (20,046) (17,216)
---------------------------------------------------------------
$13,596 $13,469
===============================================================
Depreciation expense was $3,387,000, $2,519,000, and $2,192,000, respectively,
for the years ended December 31, 1996, 1995 and 1994.
Note 7 - Intangible Assets
In the fourth quarter of 1996, management made an evaluation of the goodwill
recorded on the books of the Company and concluded that the carrying value of
the goodwill recorded in the acquisition of the assets of San Francisco
Knitworks had become impaired. The carrying value was written down to its
estimated fair value.
Activity in intangible assets for the years ended December 31, 1996 and 1995
is summarized in the table below:
(in thousands) 1996 1995
-------------------------------------------
Balance beginning of year $ 4,320 $1,687
Addition from acquisition
of assets of Segue, Ltd. - 512
Addition from merger of
Winona Knitting Mills - 2,288
Amortization during year (492) (167)
Impairment write-down of
goodwill of San Francisco
Knitworks (667) -
-------------------------------------------
Balance at end of year $3,161 $4,320
===========================================
Note 8 - Accrued Liabilities
Accrued liabilities are summarized in the table below:
December 31 (in thousands) 1996 1995
-------------------------------------------
Accrued compensation $2,210 $2,889
Income taxes 1,434 1,380
Accrued medical claims 764 768
Other accrued liabilities 2,468 3,363
-------------------------------------------
$6,876 $8,400
===========================================
F-10
<PAGE>
Note 9 - Borrowings
Revolving Credit Facility
- -------------------------
The Company maintains a $19.5 million combined credit facility for Hampshire
Designers. The credit facility consists of an $18 million line of credit and a
$1.5 million letter of credit facility. Advances under the line of credit are
limited to the lesser of: (1) the amount available set forth above; or (2) the
sum of (i) 85% of the eligible accounts receivable of Hampshire Designers
excluding the Winona Division, and (ii) a seasonal adjustment of $6 million
during the period from March 1 to October 31. Advances under the line bear
interest, at the option of the Company, at the bank's prime rate or a fixed rate
of LIBOR plus 1.5% and are secured by the accounts receivable of Hampshire
Designers and are guaranteed by Hampshire Group, Limited. No advances were
outstanding under the line of credit at December 31, 1996 or 1995. Outstanding
letters of credit under this facility totaled approximately $0.9 million at
December 31, 1996. The credit facility is subject to annual renewal in the first
quarter of each year.
The $19.5 million credit facility contains certain covenants which, among other
things, limit the amount of additional funded indebtedness, investments and
capital leases. In addition, the credit facility requires, among other things,
that Hampshire Designers, Inc. maintain tangible net worth of $14.5 million and
limits dividends and loans to Hampshire Group, Limited (excluding distributions
in the ordinary course of business for operating expenses and payment of
management fees) to amounts not in excess of Hampshire Designers current year
earnings.
The Company maintains a $3.0 million facility with a bank for Segue which may be
used to fund letters of credit. Advances on the facility are at the bank's prime
rate and are secured by the inventory purchased subject thereto and are
guaranteed by Hampshire Group, Limited. Outstanding letters of credit totaled
approximately $1.9 million at December 31, 1996.
At December 31, 1996, Glamourette Fashion Mills, Inc. ("Glamourette") a
subsidiary of Hampshire Designers, had available an unsecured $2 million line of
credit with a commercial bank which is guaranteed by Hampshire Designers. The
line is available for short-term borrowing not to exceed 180 days and bears
interest at the lower of prime rate or the LIBOR rate plus 1.75%. No advances
were outstanding under the line at December 31, 1996 or 1995.
The Company maintains an unsecured $3.0 million credit facility for the Winona
Division for peak period financing. The line is available for short-term
borrowing not to exceed one year and bears interest at the option of the Company
at the bank's prime rate or the LIBOR rate plus 1.87%. No advances were
outstanding under the line at December 31, 1996 or 1995.
The Company also maintains standby letters of credit, in the amount of $802,000
at December 31, 1996, for the purposes of guaranteeing payment for a
self-insured workers' compensation program.
Factoring Agreement
- -------------------
The Winona Division has a factoring agreement pursuant to which it sells
approximately 30% of its accounts receivables to a factor, without recourse. The
accounts are factored on a 45 day maturity basis, but the Company may request
advances up to 80% of the uncollected balance of the receivables, with such
advances bearing interest at prime rate plus 1%. The agreement requires a
commission rate of 1% of the factored accounts receivable.
Notes Payable to Related Parties
- --------------------------------
Notes payable to related parties at December 31, 1996 and 1995 (all of which
were part of acquisition purchase price) are set forth below:
(in thousands)
1996 1995
- -------------------------------------------------------------------------------
Unsecured note payable to a director of the Company and his
spouse, in ten equal quarterly installments of principal
plus accrued interest at 9.8% per annum, commencing
October 1, 1996 $1,125 $1,250
Unsecured note payable to the Company's Chairman and Chief
Executive Officer, interest payable quarterly at 9.5% per
annum (balance paid in full in February 1997) 377 500
Unsecured note payable to a director of the Company and his
spouse, interest and principal due February 9, 1996,
with interest at prime - 2,000
- -------------------------------------------------------------------------------
1,502 3,750
Less - Amount payable within one year (877) (2,125)
- -------------------------------------------------------------------------------
Amount payable after one year $ 625 $1,625
===============================================================================
F-11
<PAGE>
Maturities of these related party notes for the two years ending December 31,
1998 to 1999 are $500,000 and $125,000, respectively.
Long -Term Debt
- ---------------
Long-term debt at December 31, 1996 and 1995 is comprised of:
(in thousands)
1996 1995
- --------------------------------------------------------------------------------
Notes payable to insurance company in monthly installments
of $96,000, including interest at various rates from 7.55%
to 9.03%, through 2000 $4,882 $6,100
Note payable to bank in monthly installments of approximately
$31,800, including interest at 7.70% through 1999 840 1,144
Note payable to bank, in monthly installments of approximately
$20,500, plus interest at LIBOR rate plus 1.75%,
adjusted quarterly 887 1,134
Note payable to bank in monthly installments of approximately
$31,100, including interest at 7.97% through 1999 723 1,025
Note payable to bank in monthly installments of $9,650 plus
interest at LIBOR plus 1.75%, adjusted quarterly,
through 2001 551 -
Note payable to Economic Development Division of the State of
Minnesota in monthly installments of approximately $4,400
including interest at 4.0% through 2007, unsecured 450 481
Notes payable in monthly installments of approximately $1,750
including interest at 7.25% through 2000, secured by certain
real estate 254 256
Other notes payable in monthly installments of approximately
$28,000, including interest ranging from 5.88% to 10.4%,
through 2001 674 1,077
- -------------------------------------------------------------------------------
9,261 11,217
Less - Amount payable within one year (2,618) (2,627)
- -------------------------------------------------------------------------------
Amount payable after one year $6,643 $ 8,590
===============================================================================
Unless otherwise disclosed, the notes are secured by certain machinery and
equipment of the respective companies.
(in thousands)
----------------
Maturities of long-term debt as of December 31, 1996 1997 $2,618
are summarized in the table to the right: 1998 2,714
1999 2,073
2000 1,215
2001 144
Thereafter 497
----------------
$9,261
================
Note 10 - Income Taxes (in thousands) 1996 1995 1994
-------------------------------------
The components of income tax Current:
expense are set forth in the Federal $1,430 $ 504 $ 744
table to the right: State 290 300 163
Puerto Rico 180 224 202
-------------------------------------
1,900 1,028 1,109
Deferred:
Federal (3,900) (278) (109)
-------------------------------------
Total ($2,000) $ 750 $1,000
=====================================
The domestic and Puerto Rico (in thousands) 1996 1995 1994
components of income before income --------------------------------------
taxes are set forth in the table Domestic $4,161 $1,187 $1,649
to the right: Puerto Rico 5,735 6,281 5,849
--------------------------------------
Income before
income taxes $9,896 $7,468 $7,498
======================================
F-12
<PAGE>
A reconciliation of the provision (benefit) for income taxes computed by
applying the statutory federal income tax rate to income before income taxes and
the Company's actual provision for income taxes is set forth in the table below:
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
Tax provision at federal statutory rate $3,365 $2,539 $2,549
Increase (decrease) in tax arising from:
Effect of exemption of Puerto Rico earnings
from United States tax (2,136) (2,136) (1,989)
Puerto Rico taxes on income, including
withholding taxes 224 224 202
State taxes, less federal income tax benefit 191 199 108
Change in valuation allowance (4,618) (596) (1,738)
Other 832 520 1,868
- -------------------------------------------------------------------------------
($2,000) $ 750 $1,000
===============================================================================
A summary of the temporary differences and carryforwards giving rise to
deferred income tax assets and liabilities as of December 31, 1996 and
1995 is set forth in the table below:
(in thousands) 1996 1995
-------------------------------------------------
Deferred income tax assets:
Inventories - $ 149
Allowances for receivables $ 996 801
Accrued liabilities and other
temporary differences 1,221 1,394
Net operating loss carryforwards 4,227 5,749
AMT credit carryforwards 1,116 462
-------------------------------------------------
Gross deferred income tax
assets 7,560 8,555
-------------------------------------------------
Deferred income tax liabilities:
Inventories (8) -
Property, plant and equipment (412) (697)
Gross deferred income tax
liabilities (420) (697)
-------------------------------------------------
Valuation allowance for deferred
income tax assets (1,869) (6,487)
-------------------------------------------------
$5,271 $1,371
-------------------------------------------------
The net operating loss carryforwards for income tax purposes expire as set
forth in the table below:
(in thousands)
Year Regular Tax AMT
-------------------------------------
1997 $2,762 -
1998 1,095 -
1999 648 -
2000 164 -
2001 1,344 -
2002 - 2009 7,435 $1,341
-------------------------------------
$13,448 $1,341
=====================================
As a result of the sale of the Company's common stock pursuant to the Offering,
the Company generally is not permitted to utilize more than approximately $1.7
million of the net operating loss carryovers existing as of the completion of
the Offering in any single tax year, provided that to the extent such net
operating loss carryforward limitation is not utilized in any tax year, it may
be carried forward to subsequent tax years and consequently will increase the
subsequent years' limitation.
All of Glamourette's income was effectively exempt from Puerto Rico income tax
by an extended tax grant under the Puerto Rico Tax Incentives Act of 1987 (the
"Act"). The grant allows partial exemption from income, property and municipal
taxes. Under this extension of the grant, the Company enjoys 90% exemption from
Puerto Rico income taxes, and 75% exemption from property taxes and municipal
taxes through the year 2002 and will be subject to tollgate taxes on dividends
ranging from 0 to 5%. Absent this exemption, Glamourette's earnings would be
subject to Puerto Rican income tax at rates of up to 39%.
Glamourette has made an election under Section 936 of the Internal Revenue code
pursuant to which Glamourette's earnings are exempt from US taxes. However,
dividends received from Glamourette, together with certain other items, enter
into the computation of the US alternative minimum tax (AMT). Due to the 936
exemption and the relative portion of Glamourette's earnings to other US taxable
income in prior years, management estimated that the Company would more likely
than not be a perpetual AMT taxpayer. Accordingly, since NOL deductions are
limited in calculating AMT, the Company had, prior to 1996, determined that a
valuation allowance was required with respect to NOL carryforwards and AMT
credit carryforwards. During 1996, Section 936 was repealed and is being phased
out over a 10-year period. As a result, the Company believes that during this
phase-out period it will incur regular US tax liabilities and therefore receive
the benefit of a significant portion of the NOL and AMT credit carryforwards.
The Company reduced the valuation allowance in the fourth quarter of 1996 to
adjust deferred tax assets to an amount management believes more likely than not
will be realized.
F-13
<PAGE>
The Company has not provided deferred taxes on approximately $9.0 million of
Glamourette's undistributed earnings generated prior to 1993. Deferred taxes are
required to be provided for earnings of Glamourette in 1993 and future years
under FAS 109 regardless of management's intent to indefinitely reinvest these
earnings. The Company received dividends from Glamourette of approximately $5.0
million, $5.5 million and $9.5 million in 1996, 1995 and 1994, respectively, and
paid withholding taxes where applicable.
Note 11 - Commitments and Contingencies
The Company leases premises and equipment (in thousands)
under operating (in leases having terms ------------------
thousands) from monthly to 12 years. At 1997 $1,484
December 31, 1996, future minimum lease 1998 1,316
payments under leases having an initial 1999 1,241
or remaining non-cancelable term in 2000 1,093
excess of one year were as set forth in 2001 912
the table to the right: Thereafter 730
-----------------
$6,776
=================
Rent expense on operating leases was $1,636,000, $1,475,000 and $1,053,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The Company is, from time to time, involved in litigation incidental to the
conduct of its business. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
consolidated financial condition or results of operations.
Note 12 - Capitalization
The Company's authorized capital stock consists of 10,000,000 shares of common
stock and 1,000,000 shares of serial preferred stock (the "Preferred Stock"),
each having a par value of $.10 per share. The Board of Directors is authorized
to provide for the issuance of Preferred Stock in such series and having such
designations, voting powers, preferences and other rights and restrictions as
the Board of Directors shall determine.
In connection with the acquisition of the stock of The Winona Knitting Mills
described in Note 2 , the Company issued 124,000 shares of 5% cumulative
nonvoting Series A Convertible, Preferred Stock ("Series A" stock) having a
liquidation preference and stated value of $12.50 per share. Accrued dividends
on the Series A stock are payable quarterly on March 31, June 30, September 30
and December 31, to the holders of record as of the fifteenth day of the month
during which the dividend payment is to be made.
The Series A stock is convertible, at the option of the holder, in whole or in
part, into common stock at the conversion rate of one share of common stock for
one share of the Series A stock. The Series A stock is also subject to mandatory
redemption by the Company at its stated value plus any accrued but unpaid
dividends in 20 equal quarterly installments beginning on January 1, 2001.
The Company has also issued 41,039 shares (including 36,039 held by the
Company's Chairman) of 6% cumulative nonvoting Series D Convertible, Preferred
Stock ("Series D" stock) having a liquidation preference and stated value of $50
per share. The Series D stock is convertible, at the option of the holder, in
whole or in part, into common stock at a price of $11.40 per common share. The
Series D stock is also subject to mandatory redemption at its stated value plus
any accrued but unpaid dividends in 20 equal quarterly installments beginning
April 1, 1996. During 1996, the Company redeemed 6,156 shares of Series D stock
at its stated value.
Both the Series A and Series D stock are redeemable, subject to their respective
conversion rights, in whole or in part, at the option of the Company at any
time. For the Series A stock, the redemption price equals 104%, 103%, 102% and
101% of the stated value of the stock during the years beginning October 12,
1996, 1997, 1998 and 1999, respectively, and thereafter at the stated value
thereof. The redemption price for the Series D stock is equal to 102% and 101%
of the stated value of the stock during the years beginning May 6, 1996, 1997,
respectively, and thereafter at the stated value thereof.
F-14
<PAGE>
No dividends may be paid or declared on the Company's common stock unless all
dividends on the Series A and Series D stock, for all past dividend dates have
been paid in full and the dividends thereon for the most recent dividend date
have been paid or declared and amounts sufficient for payment thereof set apart.
The aggregate redemption requirements of the Series A and Series D stock,
assuming there are no accrued but unpaid dividends thereon, and assuming there
are no conversions of the shares into common stock, will be $410,000 in 1997
through 2000, $414,000 in 2001 and $310,000 per year from 2002 through 2005.
Summary of the activity in redeemable preferred stock for the three years
ended December 31, 1996 is set forth in the table below:
Preferred Stock
(in thousands) Series A Series D
--------------------------------------------------
Balance December 31, 1993 - $2,052
Preferred dividend accrued - 123
Preferred dividends paid - (123)
--------------------------------------------------
Balance December 31, 1994 - 2,052
Issuance of preferred stock $1,550 -
Preferred dividends accrued 18 123
Preferred dividends paid (18) (123)
--------------------------------------------------
Balance December 31, 1995 1,550 2,052
Preferred dividends accrued 78 106
Preferred dividends paid (78) (106)
Redemption of preferred stock - (308)
--------------------------------------------------
Balance December 31, 1996 $1,550 $1,744
==================================================
Note 13 - Stock Options, Warrants and Compensation Plans
The Company has reserved 750,000 shares of common stock for issuance upon
exercise of options granted under the Stock Option Plan. Options are granted
at the direction of the Company's Board of Directors to executives and key
employees of the Company. No option may have an exercise price less than fair
market value per share of the common stock at the date of grant. All options
have a maximum term of 10 years and vest and become dully exercisable after a
maximum of 5 years from the date of grant.
The stock option activity is set forth in the table below:
Number of Weighted Average
Options Exercise Price
---------------------------------------------------------------
Outstanding December 31, 1993 375,728 $ 7.75
Granted 182,623 6.58
Exercised (1,500) 5.75
Canceled or expired (111,692) 9.82
---------------------------------------------------------------
Outstanding December 31, 1994 445,159 7.12
Granted 108,067 7.71
Exercised (1,500) 5.98
Canceled or expired (15,000) 7.50
---------------------------------------------------------------
Outstanding December 31, 1995 536,726 7.42
Granted 63,466 11.28
Exercised (119,879) 6.37
Canceled or expired (24,500) 8.86
---------------------------------------------------------------
Outstanding December 31, 1996 $455,813 $ 7.87
===============================================================
F-15
<PAGE>
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123), and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996 and 1995,
respectively: dividend yields of 0% and 0%, expected volatility of 21.4% and
25.9%, risk-free interest rates of 5.37% and 7.56% and expected life of the
option of 5.11 and 4.16 years. The weighted average fair value of the options
granted during 1996 and 1995 respectively were $3.38 and $2.40. Had compensation
cost been determined on the basis of fair value pursuant to FAS 123, the impact
on income would have been immaterial.
The following is a summary of the status of options outstanding at December 31,
1996:
Options Outstanding Options Exercisable
- --------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices 12/31/96 Life Price 12/31/96 Price
- ---------------------------------------------------- -------------------------
$5.750 - $5.750 5,729 2.00 $5.7500 5,729 $5.7500
5.812 - 5,813 77,092 3.00 5.8125 77,092 5.8125
6.000 - 6.190 65,909 4.08 6.1179 55,909 6.1390
7.500 - 7.500 54,380 4.20 7.5000 54,380 7.5000
7.870 - 7.870 65,909 2.53 7.8700 39,546 7.8700
8.250 - 8.250 15,000 4.00 8.2500 15,000 8.2500
9.900 - 9.900 114,328 2.91 9.9000 114,328 9.9000
10.625 - 11.750 49,466 6.39 11.1554 12,899 11.1744
12.100 - 12.100 7,500 4.10 12.1000 1,875 12.1000
12.500 - 12.500 500 6.00 12.5000 0 0.0000
------- ------- ------- -------
455,813 $8.1507 376,758 $7.8718
======= ======= ======= =======
In December 1990 the Company issued warrants to purchase 338,182 shares of the
Company's common stock at an exercise price of $6.19 per share through December
31, 2000. The aggregate consideration for such warrants was $250,000 cash. The
warrants remain outstanding at December 31, 1996.
F-16
<PAGE>
In 1992, the Company adopted a Common Stock Purchase Plan for nonemployee
directors and key executives. Pursuant to the amended plan, nonemployee
directors may elect to use their fees as directors to purchase common stock of
the Company. Key executives may elect to use from 4% to 10% of their annual
salaries and 10% to 40% of their annual bonuses to purchase common stock of the
Company. The Company has established a trust to which it delivers shares of the
Company's common stock to satisfy such elections following the end of each plan
year.
The number of shares of common stock to be delivered is determined, with respect
to nonemployee directors, by dividing the amount of director fees elected to be
used to purchase common stock in each calendar quarter by 95% of the fair market
value of the Company's common stock at the end of each calendar quarter. The
number of shares of common stock to be delivered with respect to key executives
is determined by dividing the amount so elected to be used for the purchase of
common stock by 90% of the lower of: (1) the average of the fair market value of
the Company's common stock at the end of each calendar quarter, or (2) the fair
market value of the Company's common stock as of the end of the plan year.
Alternatively, the Company may contribute cash to the trust in an amount
sufficient to enable the trustee to purchase in the open market, the number of
shares of common stock which the Company would be required to deliver.
Each of the three nonemployee directors received a director's fee of $25,000 in
1996 and 1995, and $22,500 in 1994. The nonemployee directors elected to use
$50,000 in 1996, $75,000 in 1995 and $67,500 in 1994 of their compensation to
purchase common stock of the Company. The key executives elected to use
approximately $501,000, $520,000 and $357,000 of their compensation for 1996,
1995 and 1994, respectively, to purchase common stock of the Company under the
Hampshire Group, Limited Common Stock Purchase Plan.
In November 1994, the Company registered 700,000 shares of common stock under
the Securities Act of 1933, as amended. This action was in regards to the
Hampshire Group, Limited Common Stock Purchase Plan for Directors and Executives
and the Hampshire Group, Limited 1992 Stock Option Plan. Of these shares,
278,000 have been issued under these Plans.
Note 14 - Retirement Savings Plan
The Company has a 401(k) Retirement Savings Plan under which all employees,
other than employees of the Winona Division, having completed at least one year
of service and having reached the age of twenty may participate. The Company's
matching contribution is determined annually at the discretion of the Board of
Directors and was $272,000, $225,200 and $143,000 in 1996, 1995 and 1994,
respectively. Such matching contributions vest fully over seven years of
employment.
The Company also maintains a 401(k) Retirement Savings Plan under which all
employees of the Winona Division having completed at least one year of service
and having reached the age of twenty-one may participate. The Company's matching
contribution is determined annually by the plan sponsor and was $41,000 for the
year ended December 31, 1996. Such matching contributions become fully vested
upon meeting the eligibility requirements of the plan. The Winona Division
employees will become participants in the Hampshire Group, Limited 401(k)
Retirement Savings Plan on January 1, 1997.
Note 15 - Related Party Transactions
The Company leases certain buildings from an affiliated company. Rent expense
under such leases was $192,000, $184,000 and $178,000 in 1996, 1995 and 1994,
respectively. The Company also leases certain buildings from a director of the
Company and certain of his relatives. Rent expense under such leases was
$135,000 and $28,500 for 1996 and 1995.
F-17
<PAGE>
The Company has notes receivable from certain key employees of a subsidiary
amounting to $109,000 and $128,000 at December 31, 1996 and 1995, respectively.
The notes are secured by subsidiary preferred stock owned by the executives. The
Company also has a note receivable, bearing interest at prime, from an employee
of a subsidiary totaling $70,000 at December 31, 1996. The note is secured by
subsidiary stock.
The Company has granted an option to the key executives of Hampshire Hosiery
Division to purchase 20% of the equity interest of the division for $1,200,000.
In management's opinion, the option price currently meets or exceed the fair
market value. The option terminates the earlier of: a) December 31, 1999, or b)
upon the termination of the employment of the executive for any reason.
During 1995 and 1994, the Company incurred consulting fees totaling $24,000 each
year payable to a Director of the Company for professional services rendered.
Note 16 - Supplementary Disclosure of Cash Flow Information
(in thousands)
------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------
Cash paid during the year for:
Interest $1,304 $974 $877
Income taxes 1,952 551 621
------------------------------------------------------------
Schedule of non-cash investing and
financial activities:
Issuance of stock under the
Common Stock Purchase
Plan for Directors and Executives - $521 $266
------------------------------------------------------------
The Company purchased all of the capital stock of The Winona Knitting Mills,
Inc. in October, 1995. In conjunction with the acquisition, liabilities
were assumed as set forth in the table below:
(in thousands)
------------------------------------------------------------
Fair value of assets acquired $17,346
Cash paid for capital stock (500)
Notes and other short-term obligations (3,537)
Preferred stock exchanged (1,550)
Common stock exchanged (1,785)
------------------------------------------------------------
Liabilities assumed $9,974
============================================================
The Company purchased the assets of Segue, Ltd. and Babette & Partners, Ltd.
in January 1995. In conjunction with theses acquisitions, liabilities were
assumed as set forth in the table below:
(in thousands)
------------------------------------------------------------
Fair value of assets acquired $3,350
Cash paid for the net assets (2,131)
------------------------------------------------------------
Liabilities assumed $1,219
============================================================
F-18
<PAGE>
In January 1994, the Company purchased the assets of San Francisco Knitworks for
$2,539,000 cash and, additionally, $725,000 payable on or prior to January 31,
1996 in cash or, at the Company's option, in the Company's common stock. The
Company placed 90,625 shares of its common stock in escrow to secure the
transaction with a value assigned of $725,000. These shares have not been
released from escrow pending resolution of the final purchase price.
Note 17 - Financial Information About Industry Segments
Business segment information appears on Pages 10 and 11 of this Annual Report on
Form 10-K.
F-19
<PAGE>
<TABLE>
SCHEDULE I
1 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(in thousands)
<CAPTION>
December 31,
-----------------------
<S> <C> <C>
Assets 1996 1995
- ------ ---- ----
Current assets:
Cash $16,211 $ 7,290
Due from subsidiaries 20,612 19,859
Deferred tax asset - current 1,631 409
Other current assets 412 113
------- -------
Total current assets 38,866 27,671
Notes receivable from and investments in
subsidiaries 12,101 16,135
Deferred tax asset 3,640 962
Other assets 304 53
------- -------
$54,911 $44,821
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable - related parties $ 877 $ 2,125
Accounts payable and accrued expenses 2,840 2,714
------- -------
Total current liabilities 3,717 4,839
Note payable - related parties 625 1,625
Redeemable preferred stock 3,294 3,602
------- -------
Common stock and other stockholders' equity:
Common stock 389 377
Additional paid-in capital 23,853 22,979
Retained earnings 23,111 11,399
Treasury stock (78) -
------- -------
$54,911 $44,821
======= =======
</TABLE>
F-20
<PAGE>
<TABLE>
SCHEDULE I
2 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
(in thousands)
<CAPTION>
Year ended December 31,
-----------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Revenue
Management fees charged to subsidiaries $2,241 $1,707 $1,255
Interest charged to subsidiaries 2,717 1,589 845
------ ------ ------
4,958 3,296 2,100
General and administrative expenses 2,454 2,134 2,103
------ ------ ------
Income (loss) from operations 2,504 1,162 (3)
Other income (expense)
Equity in earnings of subsidiaries 5,980 5,586 6,410
Interest income 141 152 -
Interest expense (149) - (20)
Other - 3 2
------ ------ ------
Income before income taxes 8,476 6,903 6,389
Benefit (provision) for income taxes 3,420 (185) 109
------ ------ ------
Net income 11,896 6,718 6,498
Preferred dividend requirements (184) (141) (123)
------ ------ ------
Net income applicable to common stock $11,712 $6,577 $6,375
====== ====== ======
</TABLE>
F-21
<PAGE>
<TABLE>
SCHEDULE I
3 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
Year ended December 31,
-----------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Net income $11,896 $ 6,718 $ 6,498
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings of consolidated
subsidiaries (5,980) (5,586) (6,410)
Dividends received from subsidiaries 8,629 9,492 6,094
Depreciation and amortization 26 25 68
Deferred income taxes (3,900) (278) (109)
Gain on sales of assets - - (2)
Net change in operating assets and
liabilities:
Receivables from subsidiaries 632 (534) (5,076)
Receivables (76) (133) -
Other assets 21 (345) (82)
Accounts payable and accrued expense 126 1,608 406
------- ------- -------
Net cash provided by operating activities 11,374 10,967 1,387
------- ------- -------
Cash flows from investing activities:
Investments (503) - -
Proceeds from sale of assets - - 14
Capital expenditures (18) (3) (45)
Pre-acquisition advances to Winona - (3,060) -
Cash paid in business acquisition - (500) -
Investment in and advances to subsidiaries - - (1,000)
------- ------- -------
Net cash used in investing activities (521) (3,563) (1,031)
------- ------- -------
Cash flows from financing activities
Repayment of long-term debt (2,248) - (275)
Proceeds from issuance of common stock 764 9 8
Redemption of preferred stock (308) - -
Purchase of treasury stock (78) - -
Tax benefits from employee stock plans 122 - -
Cash dividends on preferred stock (184) (141) (123)
------- ------- -------
Net cash used in financing activities (1,932) (132) (390)
------- ------- -------
Net increase (decrease) in cash 8,921 7,272 (34)
Cash at beginning of period 7,290 18 52
------- ------- -------
Cash at end of period $16,211 $7,290 $ 18
======= ======= =======
</TABLE>
F-22
<PAGE>
<TABLE>
SCHEDULE II
HAMPSHIRE GROUP, LIMITED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<CAPTION>
Charged
Balance to Charged
at sales to Balance
beginning and other Deduc- end of
of year expenses accounts tions year
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful
accounts $248 $332 - ($166) $414
Allowance for returns
and adjustments 634 975 - (781 828
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful
accounts $414 $ 375 $50 ($135) $704
Allowance for returns
and adjustments 828 1,081 83 (665) 1,327
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful
accounts $ 704 $ 269 - ($176) $ 797
Allowance for returns
and adjustments 1,327 2,564 - (1,841) 2,050
- -------------------------------------------------------------------------------
</TABLE>
F-23
<PAGE>
<TABLE>
Quarterly Financial and Stock Data (unaudited)
<CAPTION>
(in thousands, except per share data and stock prices)
<S> <C> <C> <C> <C>
Quarter Ended Mar. 30 Jun. 29 Sept. 28 Dec. 31
- -------------------------------------------------------------------------------
Net sales $26,430 $21,243 $49,593 $51,039
Gross profit 4,878 3,748 12,059 13,145
Commission revenue 41 284 579 38
Income (loss) from operations (262) (373) 5,916 5,800
Income (loss) applicable to
common stock (574) (642) 4,819 8,109
- -------------------------------------------------------------------------------
Income (loss) per common and
common equivalent share ($0.15) ($0.17) $1.17 $1.96
Income (loss) per common
share assuming full dilution ($0.15) ($0.17) $1.10 $1.84
- -------------------------------------------------------------------------------
Common stock
High price $12.00 $13.00 $12.75 $13.50
-----------------------------------------
Low price $10.38 $10.75 $11.50 $12.25
- -------------------------------------------------------------------------------
In 1995 (in thousands, except per share data and stock prices)
Quarter Ended Apr. 1 Jul. 1 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------
Net sales $14,111 $13,580 $39,278 $45,481
Gross profit 3,032 3,251 10,548 10,066
Commission revenue 73 222 884 178
Income (loss) from operations (210) (236) 4,941 3,295
Income (loss) applicable to
common stock (299) (93) 4,264 2,705
- -------------------------------------------------------------------------------
Income (loss) per common and
common equivalent share ($0.08) ($0.03) $1.13 $0.66
Income (loss) per common
share assuming full dilution ($0.08) ($0.03) $1.07 $0.63
- -------------------------------------------------------------------------------
Common stock
High price $9.25 $9.25 $11.00 $13.00
----------------------------------------
Low price $7.00 $8.25 $8.50 $10.00
- -------------------------------------------------------------------------------
</TABLE>
F-24
<TABLE>
EXHIBIT 11
HAMPSHIRE GROUP, LIMITED
STATEMENT RE COMPUTATION OF INCOME PER SHARE
(in thousands, except per share data)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Weighted average number of common and common
equivalent shares outstanding:
Common Stock 3,778 3,560 3,459
Accrued shares earned under Common Stock
Purchase Plan for Directors and Executives - - 20
Additional shares assumed to be outstanding
from the issuance of contingent shares
(market price of common stock at
end of period) - - 18
Additional shares assumed to be outstanding
resulting from the exercise of options and
warrants (computed using the modified
treasury stock method) 161 150 45
------ ------ ------
Total common shares - primary 3,939 3,710 3,542
====== ====== ======
Income from operations $11,896 $6,718 $6,498
Less - Preferred dividend requirements (184) (141) (123)
------- ------ ------
Net income applicable to common stock $11,712 $6,577 $6,375
======= ====== ======
Income per common and common equivalent share $2.97 $1.77 $1.80
- -------------------------------------------------------------------------------
Weighted average number of common shares
outstanding - assuuming full dilution:
Weighted average number of common and common
equivalent shares outstanding, per above 3,939 3,710 3,542
Additional shares assumed to be outstanding
resulting from the exercise of options and
warrants (computed using the modified
treasury stock method) 189 207 18
Assumed conversion of preferred stock 280 207 180
------- ------ ------
Total common shares -
assuming full dilution 4,408 4,124 3,740
======= ====== ======
Income applicable to common stock, per above $11,712 $6,577 $6,375
Dividend on preferred stock 184 141 123
------- ------ ------
Net income applicable to common stock $11,896 $6,718 $6,498
======= ====== ======
Income per common share -
assuming full dilution $2.70 $1.63 $1.74
</TABLE>
EXHIBIT (10)(H)(10)
NatWest Bank N.A.
1133 Avenue of the Americas
New York, NY 10036
NatWest Bank
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
- -----------------------------------------------------------------------------
FOURTH AMENDED AND RESTATED LOAN AGREEMENT, dated as of March 31, 1996, by and
among HAMPSHIRE DESIGNERS, INC., a Delaware corporation with a place of business
at 215 Commerce Blvd. Anderson South Carolina 29621 (the "Borrower") and NATWEST
BANK N.A. (formerly National Westminster Bank USA), a national banking
association with a place of business at 1133 Avenue of the Americas, 39th Floor,
New York, New York 10036 (the "Bank").
WHEREAS the Borrower and the Bank are parties to a Third Amended and Restated
Loan Agreement dated as of March 31, 1995 (as so, the "Loan agreement");
WHEREAS, the Hampshire Group has completed a
corporate reorganization pursuant to which (i)
effective as of July 1, 1995 Hampshire
Designers, Inc. merged with and into Hampshire
Hosiery, Inc. and, as the surviving
corporation, Hampshire Hosiery, Inc. changed
its name to Hampshire Designers, Inc.
(hereinafter referred to as the "Borrower"),
(ii) effective as of December 26, 1995, H. G.
Knitwear merged with and into Segue (America)
Limited ("Segue"); and (iii) effective as of
Oct. 10, 1995, the The Winona Knitting Mills,
Inc. was acquired and merged into Hampshire
Group, Limited and the operations of The
Winona Knitting Mills, Inc. continue as a
division of the Borrower,
WHEREAS, as a result of such restructuring,
the operations of the former Hampshire
Designers, Inc. continue as the Hampshire
Designers Division ("Designers") of the
Borrower, the operations of the former
Hampshire Hosiery, Inc. continue as the
Hampshire Hosiery Division ("Hosiery") of the
Borrower, and the operations of The Winona
Knitting Mills, Inc. ("Winona") continue as a
division of the Borrower;
WHEREAS, the parties hereto now desire to amend and restate in its entirety the
Loan Agreement as herein provided in order to, among other things, reflect the
new corporate structure.
NOW, THEREFORE, IT IS AGREED THAT THE LOAN AGREEMENT IS AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
1
<PAGE>
SECTION 1. AMOUNT AND TERMS.
l.l.A. WORKING CAPITAL LINE. Subject to and upon the terms and conditions herein
set forth, including (without limitation) the definitions contained in Section
12, at any time or from time to time on or before the termination of this
Agreement, subject to the limitations contained in Section 1.1.B, the Bank shall
extend a working capital credit facility (the "Working Capital Line") for
short-term loans (referred to as "Loans") and Letters of Credit.
l.l.B. LIMITATIONS OF LINE OF CREDIT. Except as otherwise permitted or limited
by the Bank from time to time, the aggregate amount of (i) Loans outstanding at
any time to the Borrower shall not exceed the lesser of $25,000,000 or the Total
Borrowing Base (the "Working Capital Line Limit"); (ii) Letters of Credit
outstanding at any time issued for the account of the Borrower shall not exceed
$6,500,000; (iii) Loans and Letters of Credit outstanding at any time with
respect to Designers individually shall not exceed $20,000,000; (iv) Loans
outstanding at any time with respect to Designers individually shall not exceed
$16,000,000; provided, however, that of the Loans and Letters of Credit
available with respect to Designers, not more than $2,000,000 of the proceeds
thereof shall be available to San Francisco Knitworks, Inc. ("Knitworks") not
more than $4,000,000 of the proceeds thereof shall be available to Segue, and
not more than $3,000,000 of the proceeds thereof shall be available to Winona.
(v) Letters of Credit outstanding at any time issued for the account of
Designers individually shall not exceed $6,000,000; provided, however, that of
the Letters of Credit available with respect to Designers, not more than
$3,000,000 thereof shall be available to Segue (vi) Loans and Letters of Credit
outstanding with respect to Hosiery individually shall not exceed $5,000,000;
(vii) Loans outstanding at any time with respect to Hosiery individually shall
not exceed $5,000,000; (and any working capital needs of Hosiery in excess
thereof, during the term hereof, shall be funded from intercompany advances of
Designers); and (viii) Letters of Credit outstanding at any time issued for the
account of Hosiery individually shall not exceed $500,000.
l.l.C. NOTES AND ADDITIONAL MATTERS RELATIVE TO LETTERS OF CREDIT.
(a) Loans under the Working Capital Line shall mature, subject to earlier
acceleration, on the Maturity Date, and shall be evidenced by, and be repayable
with interest in accordance with the terms of, one promissory note for the
Borrower payable to the order of the Bank, in form and substance substantially
as set forth in Exhibit 1.1.C (the "Note"), which Note shall be dated as of
March 31, l996, shall be duly executed by the Borrower and shall replace the
existing Notes of the Borrower's constituent corporations (but to the extent of
the current principal balance thereof presently outstanding shall represent the
same indebtedness). The Note is in the maximum principal amount of $25,000,000.
and is subject to payment and prepayment as provided in Section 2.
(b) (i) Letters of Credit shall be issued only to facilitate the purchase
of goods in transactions involving the importation, exportation or domestic
shipment of such goods.
(ii) The Borrower agrees to pay for the issuance of each Letter
of Credit and all the Bank's standard fees and commissions routinely charged in
connection therewith.
(iii) In the event the Bank makes payment to the beneficiary of
any Letter of Credit in accordance with the terms thereof, the Borrower agrees
to reimburse the Bank therefor on the same day such payment is made.
(iv) With respect to each Letter of Credit the Borrower, shall
execute, and each such Letter of Credit shall be further governed by the
provisions of, the Bank's standard form of Application for Irrevocable Letter of
Credit (to the extent any inconsistency exists between such Application(s) and
this Agreement, such Application(s) shall govern).
2
<PAGE>
(v) Notwithstanding anything to the contrary contained herein,
the Borrower may cause the Bank to issue Letters of Credit for the account of
the Borrower, which may be for the particular account of its divisions, Hosiery
or Designers, up to the limits set forth in Section l.lB (v) and (viii) above,
or its subsidiary Segue; provided however, that Letters of Credit issued for the
account of Segue individually shall not exceed $3,000,000.
1.1.D. INTEREST.
(a) Definitions. For purposes of this Section 1.1.D., unless the context
otherwise requires, the following terms shall have the following meanings:
(i) "Fixed Rate" shall mean for any Loans requested by Borrower
and for any Interest Period a fixed rate of interest is quoted by the Bank to
Borrower, if requested by Borrower in accordance with subparagraph (c) hereof
which fixed rate shall be determined in the sole discretion of the Bank by
reference to such factors and considerations as the Bank shall deem relevant;
provided, that Borrower shall be entitled to request a fixed rate of interest
for any portion of the Loans less than $1,000,000. While the Bank will endeavor
to quote a Fixed Rate if requested by a Borrower, the Bank reserves the right
not to quote such a Rate, in which event such Borrower's request shall be
treated as a request for the Prime-Based Rate.
(ii) "Fixed Rate Interest Period" shall mean an Interest Period
during which all or a portion (in excess of $1,000,000 in principal amount) of
Loans under either Note bears interest at the Fixed Rate.
(iii) "Interest Period" shall mean with respect to a Fixed Rate
Interest Period, any period of days which is agreeable to the Bank (in each
case, as selected by Borrower and as determined to be available by the Bank
pursuant to subparagraph (c) of this Section 1.1.D.), and with respect to a
Prime-Based Rate Interest Period, a period continuing from day to day until
terminated by such Borrower, such termination to be effective three (3) business
days after the selection of a Fixed Rate Interest Period in accordance with
subparagraph (c) of this Section 1.1.D. At any one time all Loans under the Note
may be subject to the Prime-Based Rate Interest Period, or all Loans under the
Note may be subject to one or more Fixed Rate Interest Periods, or some Loans
may be subject to the Prime-Based Rate Interest Period and other Loans may be
subject to one or more Fixed Rate Interest Periods. The first Interest Period
under the Note shall commence when the Loan with respect thereto is first
advanced by the Bank and thereafter each Interest Period with respect to any
Loans shall commence on the last day of the immediately preceding Interest
Period with respect to such Loans; provided, that any Interest Period which
would otherwise end on a day which is not a business day shall end on the next
succeeding business day; and provided, further however, that any Interest Period
which commences prior to the Maturity Date and would otherwise end thereafter
shall end on the Maturity Date; and provided, further, however, that Interest
Periods in respect of overdue principal shall be of such durations as the Bank
may select.
(iv) "Interest Renegotiation Date" shall mean the last day of any
Interest Period.
(v) "Prime-Based Rate" shall mean a fluctuating interest rate
equal to the Prime Rate in effect from time to time.
(vi) "Prime Rate" shall mean the rate of interest established
from time to time by the Bank as its "prime rate" whether or not such rate is
the best rate available at the Bank.
(vii) "Prime-Based Rate Interest Period" shall mean an Interest
Period during which all or a portion of the Loans bear interest at the
Prime-Based Rate.
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(b) Interest Rates. Loans shall bear interest on the unpaid principal
balance thereof from the date thereof in respect of each Interest Period at a
rate per annum equal to (i) the Prime-Based Rate, in the case of Loans subject
to the Prime-Based Rate Interest Period (which Loans shall at times be referred
to as "Prime-Based Loans"), or (ii) the Fixed Rate applicable to such Loans, in
the case of Loans subject to a Fixed Rate Interest Period (which Loans shall at
times be referred to as "Fixed Rate Loans"). Interest on the Loans shall be
payable monthly on the first day of each month commencing April 1, 1996, on the
Maturity Date and thereafter on demand. After any stated or any accelerated
maturity of Loans hereunder, Prime-Based Loans shall bear interest (computed
daily) at a rate of 2% per annum in excess of the rate applicable to Prime-Based
Loans and Fixed Rate Loans shall bear interest (computed daily) at a rate of 2%
per annum in excess of the rate applicable to such Fixed Rate Loan until the
expiration of the Fixed Rate Interest Period applicable to such Fixed Rate Loan,
at which time the Loan will automatically be converted into a Prime-Based Loan
and until paid shall bear interest at a rate of 2% per annum in excess of the
rate applicable to Prime-Based Loans, in each case payable on demand. In no
event shall interest payable hereunder be in excess of the maximum rate of
interest permitted under applicable law. Interest shall be calculated on the
basis of actual days elapsed over a 360-day year.
(c) Selection of Interest Periods. (i) The first Interest Period under the
Note shall commence on the date hereof, shall be a Prime-Based Rate Interest
Period and shall continue with respect to the Borrower until a date three (3)
business days after notification by Borrower to the Bank of the selection of the
next succeeding Interest Period under such Notes.
(ii) By no later than 10:00 a.m. (New York time) on the day three
(3) business days prior to each Interest Renegotiation Date, the Borrower shall
deliver to the Bank a written or telephonic request (confirmed in writing) for a
quote for a Fixed Rate specifying the principal amount of Loans to be subject
thereto and a proposed duration therefor; provided, however that the Bank in its
sole discretion may, but shall be under no obligation to, accept such notice the
same day of the requested Loan, in such case the interest rate may not be the
same as would be if the Bank were afforded three days' notice, it being
understood that the Bank's index for determining each such rate may vary
depending on the number of days' advance notice it receives. The Bank shall use
its best efforts to furnish such Borrower not later than 11:30 a.m. (New York
time) on the same business day as the date of such request, a quote of the Fixed
Rate for the Loans and the duration proposed by such Borrower. By no later than
3:00 p.m. (New York time) on the same business day as the date of such request
such Borrower shall specify to the Bank whether the next succeeding Interest
Period for such Loans is to be a Prime-Based Rate Interest Period or a Fixed
Rate Interest Period; provided, that if the Bank shall determine (which
determination shall be conclusive and binding upon such Borrower) that it is
unable for any reason to quote a Fixed Rate or that the duration of the Interest
Period designated by such Borrower is unacceptable, the Bank shall so notify
such Borrower and the Interest Period designated for such Loans shall
automatically be a Prime-Based Rate Interest Period. Each designation of, and
selection of the Loans applicable to and the duration of, an Interest Period by
a Borrower shall be irrevocable and effective upon the acknowledgment and
acceptance by the Bank. If a Borrower shall fail to designate, or in the case of
a Fixed Rate Interest Period to select the principal amount of Loans applicable
to or duration of, an Interest Period as provided above, such Interest Period
shall automatically be a Prime-Based Rate Interest Period. Promptly after the
establishment of the Prime-Based Rate or Fixed Rate, as the case may be, for any
Interest Period, the Bank shall notify such Borrower and the rate set forth in
such notification shall be conclusive absent manifest error.
1.2. DISBURSEMENT. Loans shall be disbursed by the Bank from its office at
1133 Avenue of the Americas, New York, New York 10036.
SECTION 2. PAYMENTS AND PREPAYMENTS OF LOANS.
2.1. MANDATORY PAYMENTS. If at any time the aggregate outstanding Loans and
Letters of Credit to Borrower exceed the Working Capital Line Limit, Borrower
shall pay such excess to the Bank together with accrued interest thereon and
amounts payable pursuant to Section 2.4 hereof.
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2.2. OPTIONAL PREPAYMENTS. Subject to Section 2.4 the Borrower shall have the
right from time to time to prepay the outstanding Loans in part or in whole.
Upon the giving of notice of prepayment, the amount therein specified to be
prepaid shall be due and payable on the date therein specified for such
prepayment, together with accrued interest thereon to such date.
2.3. PROCEDURES FOR PAYMENTS. All payments by the Borrower to the Bank shall be
made at 1133 Avenue of the America, New York, New York 10036 in immediately
available funds and in lawful money of the United States or may be made by a
charge to the demand deposit account of the Borrower and its applicable
subsidiaries and divisions maintained with the Bank.
2.4 FUNDING LOSSES. The Borrower shall indemnify the Bank and hold the Bank
harmless against any loss or expense incurred by it as a result of any payment
of principal of the Loans to Borrower, or any portion thereof, bearing interest
at a Fixed Rate on a date other than the last day of the Fixed Rate Interest
Period applicable thereto or as a result of any prepayment of principal on
account of the applicable Note, whether such loss or expense arises by reason of
the liquidation or reemployment of deposits or other funds acquired by the Bank
to fund or maintain the Loans to the Borrower or otherwise. The Bank shall
certify to the Borrower the amount of, and the basis of determination of, the
loss or expense so incurred (which certification shall be conclusive in the
absence of arithmetical error).
SECTION 3. SECURITY AND GUARANTEES.
As security for and to guarantee the full and timely payment of the Obligations,
whether now existing or hereafter arising:
3.1. SECURITY AGREEMENT. Each of the Borrower, Knitworks and Segue shall execute
and deliver to the Bank, its respective security agreement(s). The Borrower,
Knitworks, and Segue, (Borrower, Knitworks and Segue are also referred to herein
individually as a "Grantor" and collectively as the "Grantors") shall execute a
sufficient quantity of financing statements pursuant to the Uniform Commercial
Code, in form and substance satisfactory to the Bank, granting the Bank a first
priority perfected security interest in all Grantors accounts receivable and
imported inventory shipped under or pursuant to or in connection with Letters of
Credit issued by the Bank, such collateral to include that of Designers,
Hosiery, Knitworks, Winona and Segue. Each Grantor also agrees to execute
additional financing statements as may be required by the Bank from time to
time.
3.2. GUARANTEES. The Borrower has caused a guaranty to be duly executed and
delivered to the Bank, by each of Hampshire Group, Limited ("HGL"), Glamourette
Fashion Mills, Inc. ("Glamourette"), Knitworks, and Segue (each individually
referred to herein as a "Guarantor" and collectively as the "Guarantors") of all
the obligations to the Bank. The Borrower has also executed and delivered
guarantees of all the Obligations of Segue and Knitworks to the Bank. Each of
the foregoing guarantees is secured by the collateral described in the security
agreement executed by such Guarantor.
3.3. FILING AND RECORDING. Each Grantor shall, at its cost and expense, cause
all instruments and documents given as security pursuant to this Agreement to be
duly recorded and/or filed or otherwise perfected in all places necessary, in
the opinion of the Bank, to perfect and protect the lien or security interest of
the Bank in the property covered thereby. Each Grantor, to the extent permitted
by law, hereby authorizes the Bank to file any financing statement or amendment
thereto in respect of any security interest created pursuant to this Agreement
which may at any time be required or which, in the opinion of the Bank, may at
any time be desirable although the same may have been executed only by the Bank
or, at the option of the Bank, to sign such financing statement or amendment on
behalf of such Grantor and file the same, and such Grantor hereby irrevocably
designates the Bank, its agents, representatives and designees as agents and
attorneys-in-fact for such Grantor for this purpose. In the event that any
re-recording or refiling thereof (or the filing of any statements of amendment,
continuation or assignment of any financing statement) is required to protect
and preserve such lien or security interest, each Grantor shall, at its cost and
expense, cause the same to be recorded and/or refiled at the time and in the
manner requested by the Bank.
SECTION 4. CONDITIONS PRECEDENT TO BORROWING.
The commitment of the Bank to make any Loans to the Borrower or to issue any
Letter of Credit for the account of the Borrower (or for the account of any
Guarantor with the written consent of the Borrower) shall be subject to the
satisfaction in full of the following conditions precedent:
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4.1. FINANCIAL STATUS. At the time of each extension of credit hereunder, there
shall have been no material adverse change in the business, operations,
properties, assets or financial condition of the Borrower or any Guarantor from
the financial condition reflected on the consolidated financial statements of
HGL as at December 31, l995.
4.2. QUALIFICATION. At the time of each extension of credit hereunder, the
Borrower and each Guarantor shall be duly qualified as a foreign corporation in
good standing in each jurisdiction in which the nature of its business or
ownership or use of property requires such qualification.
4.3. SECURITY AND GUARANTY INSTRUMENTS. At the time of each extension of credit
hereunder (a) the Bank shall have received all the instruments and documents
then required to be delivered pursuant to Section 3 or any other provision of
this Agreement or pursuant to the instruments and documents referred to in
Section 3 or any other provision of this Agreement and the same shall be in full
force and effect and (b) the Bank shall have received all necessary consents
relating thereto from third parties so that the same shall be valid and not
result in any violation of any agreement running in favor of such third party.
4.4. CORRECTNESS OF WARRANTIES. At the time of each extension of credit
hereunder, all representations and warranties contained herein, or otherwise
made to the Bank in connection herewith or therewith, shall be true and correct
with the same effect as though such representations and warranties had been made
on and as of the date of such extension of credit.
4.5. NO EVENT OF DEFAULT. At the time of each extension of credit hereunder,
there shall exist no Event of Default as defined in Section 9 and no condition,
event or act which, with notice or lapse of time, or both, would constitute an
Event of Default.
4.6. NOTE. At the time of the first borrowing hereunder, the Bank shall have
received a Note from the Borrower, duly completed, executed and delivered.
4.7. PROCEEDINGS; RECEIPT OF DOCUMENTS. At the time of each extension of credit
hereunder, all corporate and legal proceedings and all documents and instruments
in connection with each extension of credit and pursuant to Sections 3 and 4
shall be satisfactory in form and substance to the Bank and the Bank shall have
received all information and copies of all documents, including records of
corporate proceedings, which the Bank may have requested in connection
therewith, such documents where requested by the Bank to be certified by
appropriate corporate or governmental authorities.
SECTION 5. USE OF PROCEEDS.
Subject to the limits set forth in Sections l.lB and 1.1.C. (b)(v), the Borrower
agrees that the proceeds of all Loans hereunder shall be applied solely for the
Borrower's own working capital purposes; provided, however, that Borrower may
downstream, or cause the Bank to advance directly, to Designers, Hosiery, Segue
and Winona and Knitworks, up to $16MM, $5MM, $4MM, $3MM and $2MM respectively,
of the proceeds of Designers' Loans hereunder, to be applied solely for the
working capital purposes of each, as the case may be.
SECTION 6. CERTAIN AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that, until the Obligations are paid in full
and this Agreement is terminated, unless specifically waived by the Bank in
writing:
6.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower shall furnish to
the Bank:
(a) as soon as practicable and in any event within 60 days after the last
day of each of the first three fiscal quarters of each fiscal year of HGL, an
unaudited consolidated and consolidating balance sheet of the Borrower and of
each Guarantor and its Subsidiaries, a consolidated and consolidating statement
of income and surplus account of the Borrower and of each Guarantor and its
Subsidiaries, and a consolidated statement of changes in financial position of
the Borrower and each Guarantor and its Subsidiaries for the quarter then ended,
all in reasonable detail and certified by the chief financial or accounting
officer of the Borrower and of each Guarantor to be true and correct in all
material respects, subject to normal recurring year-end audit adjustments, and
to have been prepared in accordance with generally accepted accounting
principles consistently maintained by the Borrower and Guarantor;
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(b) as soon as practicable and in any event within 120 days after the
close of each fiscal year of HGL, a consolidated and consolidating balance sheet
of the Borrower and of each Guarantor and its Subsidiaries, a consolidated and
consolidating statement of income and surplus account of the Borrower and of
each Guarantor and its Subsidiaries, and a consolidated statement of changes in
financial position of the Borrower and of each Guarantor and its Subsidiaries,
as at the end of and for the fiscal year just closed, setting forth the
corresponding figures of the previous fiscal year in comparative form, all in
reasonable detail and with respect to the consolidated statements certified
(without any qualification or exception deemed material by the Bank) by Price
Waterhouse or other independent public accountants satisfactory to the Bank and
with respect to all other statements certified by the applicable companies chief
financial or accounting officer as having been prepared in accordance with
generally accepted accounting principals consistently applied; and concurrently
with such financial statements, a written statement signed by such independent
accountants and chief financial or accounting officer, as the case may be, to
the effect that, in making the examination necessary for their certification of
such financial statements, they have not obtained any knowledge of the existence
of any Event of Default or other act, condition or event which, with the giving
of notice or lapse of time, or both, as specified in Section 9, would constitute
an Event of Default, or, if such independent accountants or officers shall have
obtained from such examination any such knowledge, they shall disclose in such
written statement the Event of Default or other act, condition or event and the
nature thereof, it being understood, however, that such independent accountants
shall be under no liability, directly or indirectly, to anyone for failure to
obtain knowledge of any such Event of Default or act, condition or event;
(c) Intentionally Omitted;
(d) as soon as practicable and in any event within 30 days after the close
of each month, a receivables aging for such month separately for the Borrower,
Segue and Knitworks in such detail as the Bank may reasonably request;
(e) as soon as practicable and in any event within 30 days of the close of
each month, a monthly borrowing base certificate substantially in the form of
Exhibit 6.1(e) hereto;
(f) promptly upon the commencement thereof, written notice of any
litigation, including arbitrations, where the amount claimed exceeds $500,000
and of any proceedings before any governmental agency which would, if
successful, materially affect the Borrower or any Guarantor or any of its
Subsidiaries; and
(g) with reasonable promptness, such other information respecting the
business, operations and financial condition of HGL and/or the Borrower or any
of their Subsidiaries as the Bank may from time to time request.
6.2. INSPECTION BY BANK. The Borrower and each Guarantor shall allow, and shall
cause each of its Subsidiaries to allow, any representative of the Bank
(including any participant in the loans made hereunder) to visit and inspect any
of the properties of such Borrower, Guarantor or any Subsidiary, to examine the
books of account and other records and files of such Borrower, Guarantor or any
Subsidiary, to make copies thereof and to discuss the affairs, business,
finances and accounts of such Borrower, Guarantor or any Subsidiary with their
respective officers and employees, all at such reasonable times and as often as
the Bank may reasonably request.
6.3. FURTHER ASSURANCES. The Borrower and each Guarantor shall, at its cost and
expense, upon request of the Bank, duly execute and deliver, or cause to be duly
executed and delivered, to the Bank such further instruments and do and cause to
be done such further acts as may be necessary or proper in the opinion of the
Bank to carry out more effectually the provisions and purposes of this
Agreement.
SECTION 7. CERTAIN NEGATIVE COVENANTS.
The Borrower and each Guarantor covenants and agrees that, until the Obligations
are paid in full and this Agreement is terminated either on the Maturity Date or
in writing, neither Borrower nor any Guarantor shall, without the prior written
consent of the Bank:
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7.1. COMPROMISE OF RECEIVABLES. Compromise or adjust any of the Receivables
(or extend the time for payment thereof) or grant any discounts, allowances or
credits thereon, other than in the normal course of business.
7.2. ACQUISITIONS. Purchase, lease or otherwise acquire all or any substantial
part of the business, properties or assets of any person during the term of this
Agreement; except, provided that no Event of Default exists or is continuing,
(ii) the Borrower or any Guarantor may enter into no more than one (1)
acquisition of any person in the same line of business during the term of this
agreement, provided that the consideration given for such acquisition does not
exceed $3,000,000., with the cash portion of such acquisition not to exceed
$1,000,000.
7.3. OTHER INDEBTEDNESS. Incur any indebtedness for borrowed money except for
(i) indebtedness reflected on the Borrower's audited financial statements
furnished to the Bank dated December 31, 1995, (ii) purchase money indebtedness
incurred in the purchase of fixed assets within the limitations of Section 7.5
hereof and (iii) $3,000,000 owing to Merchants National Bank of Minnesota (iv)
$2,000,000 owing to Banco Popular, Puerto Rico (v) indebtedness owing to the
Bank.
7.4. CONTINGENT OBLIGATIONS. Except for obligations owing to the Bank, assume,
endorse, be or become liable for or guarantee the obligations of any person
excluding the endorsement of negotiable instruments for deposit or collection in
the ordinary course of business.
7.5. EXPENDITURES, STOCK TRANSACTIONS AND ADVANCES. (i) Incur with respect to
the Borrowers, Guarantors and Subsidiaries, in the aggregate, capital
expenditures or equipment lease obligations in any fiscal year in excess of
$3,000,000, (ii) acquire the capital stock or assets of any other business,
(iii) purchase any of its outstanding stock or (iv) lend or advance credit,
property or money to any Guarantor or any other person other than as permitted
under Section 7.2 and 7.7 of this Agreement.
7.6. NEGATIVE PLEDGE. Permit the mortgage or pledge of, or creation of a
security interest in, any of its assets other than those in favor of the Bank.
7.7 PAYMENTS TO HGL. During any fiscal year, permit the total of the sum of all
payments, distributions or dividends paid by the Borrower to HGL (excluding,
however, distributions in the ordinary course of business for operating expenses
and payment of management fees) during such fiscal year, plus the sum of all
loans or advances of money, credit or property made by the Borrower to HGL (net
of any repayments by HGL) during such fiscal year, to exceed the Borrowers' net
income (as determined in accordance with generally accepted accounting
principles consistently applied) for such fiscal year; provided, however, that
this covenant shall not restrict or include within its calculations the
repayment to HGL by the Borrower of loans or advances that were made by HGL only
to the extent such loans or advances are not or have not been subordinated to
the Bank.
7.8 FINANCIAL REQUIREMENTS. Permit:
(a) the consolidated Effective Net Worth of HGL and all its subsidiaries
at any time to be less than $25,000,000; and
(b) the consolidated Working Capital of HGL and all its subsidiaries at
any time to be less than $22,500,000.
7.9 Intentionally Omitted.
SECTION 8. Intentionally Omitted.
SECTION 9. DEFAULTS AND REMEDIES.
9.1. EVENTS OF DEFAULT. If any one or more of the following events (herein
called "Events of Default") shall occur for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body), that is to say:
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(a) if default shall be made in the due and punctual payment of the
principal of the Note, when and as the same shall become due and payable whether
by maturity, acceleration or otherwise, or should any other amount payable
hereunder not be paid when such amount shall have become due and payable,
including, without limitation, amounts necessary to reimburse the Bank for a
draw under a Letter of Credit; or
(b) if default shall be made in the due and punctual payment of any
installment of interest on either Note, when and as such interest installment
shall become due and payable and such default shall have continued for five
days; or
(c) if default shall be made in the performance or observance of, or shall
occur under, any covenant, agreement or provision contained in Section 3, 6, 7,
8 or 11 of this Agreement or in any instrument or document evidencing or
creating any obligation, lien or security interest in favor of the Bank or
delivered to the Bank in connection with or pursuant to this Agreement or any
Obligation or if this Agreement or any such instrument or document shall
terminate, be terminable or be terminated or become void or unenforceable for
any reason whatsoever without the written consent of the Bank; or
(d) if default by the Borrower, any Guarantor or any Subsidiary shall be
made in the performance or observance of any other covenant, agreement or
provision contained in this Agreement and such default shall have continued for
a period of 10 days; or
(e) intentionally omitted;
(f) if any representation, warranty or other statement of fact given
herein or in any writing, certificate, report or statement at any time furnished
to the Bank pursuant to or in connection with this Agreement, or any Guarantee,
shall be false or misleading in any material respect when given or repeated; or
(g) if the Borrower, any Guarantor or any Subsidiary shall be unable to
pay its debts generally as they become due, file a petition to take advantage of
any insolvency act; make an assignment for the benefit of its creditors;
commence a proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself or of a whole or any substantial part of its property;
file a petition or answer seeking reorganization or arrangement or similar
relief under the Federal bankruptcy laws or any other applicable law or statute
of the United States of America or any state; or
(h) if a court of competent jurisdiction shall enter an order, judgment or
decree appointing a receiver, trustee, liquidator or conservator of the
Borrower, any Guarantor or any Subsidiary, or of the whole or any substantial
part of its respective properties, or approve a petition filed against the
Borrower, any Guarantor or any Subsidiary, seeking reorganization or arrangement
or similar relief under the Federal bankruptcy laws or any other applicable law
or statute of the United States of America or any state; or if, under the
provisions of any other law for the relief or aid of debtors, a court of
competent jurisdiction shall assume custody or control of the Borrower, any
Guarantor or any Subsidiary, or of the whole or any substantial part of their
respective properties; or if there is commenced against the Borrower, any
Guarantor or any Subsidiary, any proceeding for any of the foregoing relief and
such proceeding or petition remains undismissed for a period of 30 days; or if
the Borrower, any Guarantor or any Subsidiary, by any act indicates its consent
to or approval of any such proceeding or petition; or
(i) if any judgment aggregating, with other outstanding judgments, in
excess of $50,000 is rendered against the Borrower, any Guarantor or any
Subsidiary, or if any attachment, injunction or execution is issued against any
Collateral or against any of its or their other property having an aggregate
value in excess of $50,000, and in each case remains unpaid, unstayed or
undismissed for a period of 30 days; or
(j) if the Borrower, any Guarantor or any Subsidiary, shall suspend the
operation of a segment material to the operation of its business as presently
conducted; or
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(k) if the Borrower, any Guarantor or any Subsidiary shall (i) default
under any other agreement, instrument or obligation made with or in favor of or
owing to the Bank or (ii) default in any payment of any indebtedness for
borrowed money (other than the Notes) beyond the period of grace, if any,
provided in the instrument or agreement under which such indebtedness was
created; or (iii) default in the observance or performance of any other
agreement or condition relating to any indebtedness described in subpart "(ii)"
above or contained in any instrument or agreement evidencing, securing or
relating thereto or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause or permit the holder or
holders of the indebtedness described in subpart "(ii)" above (or a trustee or
agent on behalf of such holder or holders) to cause such indebtedness to become
due prior to its stated maturity,
(A) either or both of the following actions may be taken: (i) the Bank
may, at its option, declare any obligation to lend hereunder terminated,
whereupon such obligation to make further loans hereunder shall terminate
immediately, and (ii) the Bank may, at its option, declare the Note and any or
all other Obligations to be due and payable, and the same, and all interest
accrued thereon, shall forthwith become due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything contained herein or in any instrument evidencing the Obligations to the
contrary notwithstanding;
(B) the Bank shall have all rights and remedies of a mortgagee, a secured
party under the Uniform Commercial Code and otherwise, including, without
limitation, the right to foreclose the security interest granted under the
Security Agreements or herein by any available judicial procedure and/or to take
possession of any or all of the Collateral, the other security for the
Obligations and the books and records relating thereto with or without judicial
process; for the purposes of the preceding sentence, the Bank may, so far as the
Borrower can give authority therefor, enter upon any or all of the premises
where any of the Collateral, such other security or books or records may be
situated and take possession and remove the same therefrom; and
(C) the Bank shall have the right in its sole discretion to determine
which rights, security, liens, security interests or remedies it shall at any
time pursue, relinquish, subordinate, modify or take any other action with
respect thereto, without in any way modifying or affecting any of them or any of
the Bank's rights hereunder; and any moneys, deposits, Receivables, balances, or
other property of either or both Borrower which may come into the Bank's hands
at any time or in any manner, may be retained by the Bank and applied to any of
the Obligations.
9.2. SUITS FOR ENFORCEMENT. In case any one or more Events of Default shall
occur and be continuing, the Bank may proceed to protect and enforce its rights
or remedies either by suit in equity or by action at law, or both, whether for
the specific performance of any covenant, agreement or other provision contained
herein or in any document or instrument delivered in connection with or pursuant
to this Agreement, or to enforce the payment of the Obligations or any other
legal or equitable right or remedy.
9.3. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon
the Bank is intended to be exclusive of any other right or remedy contained
herein or in any instrument or document delivered in connection with or pursuant
to this Agreement, and every such right or remedy shall be cumulative and shall
be in addition to every other such right or remedy contained herein and therein
or now or hereafter existing at law or in equity or by statute, or otherwise.
9.4. RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between either or both
Borrower and the Bank or any failure or delay on the part of the Bank in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights or remedies of the Bank and no single or partial exercise of any rights
or remedies hereunder shall operate as a waiver or preclude the exercise of any
other rights or remedies hereunder.
SECTION 10. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement, to extend the Working
Capital Line as herein provided for and to make extensions of credit hereunder,
the Borrower makes the following representations and warranties, all of which
shall survive the execution and delivery of this Agreement, and shall be deemed
repeated and confirmed with respect to each Receivable and/or other item of
Collateral as it is created or otherwise acquired and upon the request for, and
the making of, each extension of credit:
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10.1. CORPORATE STATUS OF THE BORROWER. Schedule 10.1 annexed hereto correctly
sets forth the Subsidiaries of the Borrower and the outstanding capitalization
and ownership of the stock of each Borrower. The Borrower, each Guarantor and
each Subsidiary is a duly organized and validly existing corporation and in good
standing under the laws of its jurisdiction of incorporation and in all other
jurisdictions where the nature of its business or ownership or use of property
requires such qualification.
10.2. CORPORATE POWER AND AUTHORITY. The Borrower has the corporate power to
borrow and to execute, deliver and carry out the terms and provisions of this
Agreement and all instruments and documents delivered by it pursuant to this
Agreement, and the Borrower has taken or caused to be taken all necessary
corporate action (including, but not limited to, the obtaining of any consent of
stockholders required by law or by the Certificate of Incorporation or By-Laws
of such Borrower) to authorize the execution, delivery and performance of this
Agreement, the borrowings hereunder and the execution, delivery and performance
of the instruments and documents delivered by it pursuant to this Agreement. The
Borrower has all requisite corporate power and authority to own its properties
and to transact the business in which it is now engaged or presently proposes to
be engaged.
10.3. NO VIOLATION OF AGREEMENTS. The Borrower is not in default under any
indenture, mortgage, deed of trust, agreement or other instrument to which it is
a party or by which it may be bound. Neither the execution and delivery of this
Agreement or any of the instruments and documents to be delivered pursuant to
this Agreement, nor the consummation of the transactions herein and therein
contemplated, nor compliance with the provisions hereof or thereof will violate
any law or regulation, or any order or decree of any court or governmental
instrumentality, or will conflict with, or result in the breach of, or
constitute a default under, any indenture, mortgage, deed of trust, agreement or
other instrument to which the Borrower is a party or by which it may be bound,
or, except as contemplated under this Agreement, result in the creation or
imposition of any lien, charge or encumbrance upon any property of either
Borrower thereunder, or violate any provision of the Certificate of
Incorporation, By-Laws or any preferred stock provisions of the Borrower.
10.4. NO LITIGATION. Except as set forth in Schedule 10.4 annexed hereto, there
are no actions, suits or proceedings (nor any basis therefor) pending, or to the
knowledge of either Borrower threatened, against or affecting either Borrower
before any court, arbitrator or governmental or administrative body or agency
which challenge the validity or propriety of the transactions contemplated under
this Agreement or the documents, instruments, agreements executed or delivered
in connection herewith, therewith or related thereto, or which might result in
any material adverse change in the business, operations, properties, assets or
financial condition of either Borrower. Neither Borrower nor any Subsidiary is
or shall be at any time in default under any applicable statute, rule, order,
decree or regulation of any court, arbitrator or governmental body or agency
having jurisdiction over such Borrower or any Subsidiary, which default might
result in any material adverse change in the business, operations, properties,
assets or financial condition of either Borrower.
10.5. GOOD TITLE TO PROPERTIES. Each Grantor has good and marketable title to
all its properties and assets, subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except as set forth on Schedule
10.5 hereof or except such as would be permitted under Section 7.7 of the
Insurance Company Agreement when it was last in effect.
10.6. FINANCIAL STATEMENTS AND CONDITION. The balance sheet of the Borrower and
HGL on a consolidated basis as at December 31, 1995 including the related
schedules and notes, heretofore delivered to the Bank, is true and correct and
presents fairly the pro forma financial position of the Borrower as at the date
of such balance sheet. The Borrower, as of the date hereof, has no direct or
contingent liabilities which are not provided for or reflected in such balance
sheet or referred to in the notes thereto. Such financial statement has been
prepared in accordance with generally accepted accounting principles. Each
fiscal year of the Borrower ends on December 31.
10.7. TRADEMARKS, PATENTS, ETC. The Borrower possesses all the trademarks, trade
names, copyrights, patents, licenses, or rights in any thereof, adequate for the
conduct of its business as now conducted and presently proposed to be conducted,
without conflict with the material rights or claimed rights of others.
10.8. TAX LIABILITY. The Borrower has filed all tax returns which are required
to be filed, except those being contested in good faith by appropriate
proceedings for which adequate reserves are held, and has paid all taxes which
have become due pursuant to such returns or pursuant to any assessment received
by it.
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10.9. GOVERNMENTAL ACTION. No action of, or filing with, any governmental or
public body or authority (other than normal reporting requirements or filing
under the provisions of Section 3) is required to authorize, or is otherwise
required in connection with, the execution, delivery and performance of this
Agreement or any of the instruments or documents to be delivered pursuant to
this Agreement, except such as have been made.
10.10. DISCLOSURE. Neither the Schedules hereto, nor the financial statements
referred to in Section 10.6, nor any certificate, statement, report or other
document furnished to the Bank by either Borrower in connection herewith or in
connection with any transaction contemplated hereby, nor this Agreement,
contains, at the time furnished, any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained therein not misleading.
10.11. REGULATION U. The Borrower does not own any "margin stock" as such term
is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The
proceeds of the extensions of credit made pursuant to the terms of this
Agreement will be used by the Borrower only for the purposes set forth in
Section 5 hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry margin stock or for any other purpose which might constitute any of the
Loans or Letters of Credit under this Agreement a "purpose credit" within the
meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board.
Neither Borrower nor any Guarantor or Subsidiary nor any agent acting in its or
on their behalf has taken or will take any action which might cause this
Agreement or any of the documents or instruments delivered pursuant hereto to
violate any regulation of the Board or to violate the Securities Exchange Act of
1934.
10.12. INVESTMENT COMPANY. The Borrower is not an "investment company," or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended (15 U.S.C. Section 80a-l, et seq.). The making of the Loans and
Letters of Credit by the Bank, the application of the proceeds and repayment
thereof by the Borrower and the performance of the transactions contemplated by
this Agreement will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.
10.13. EMPLOYEE BENEFIT PLANS.
(1) None of the employee benefit plans maintained at any time by the
Borrower or the trusts created thereunder has engaged in a prohibited
transaction which could subject any such employee benefit plan or trust to a
material tax or penalty or prohibited transaction imposed under Code Section
4975 or ERISA;
(2) None of the employee benefit plans which are employee pension benefit
plans or the trusts created thereunder has been terminated, except as set forth
on Schedule 10.13 hereto; nor has any such employee benefit plan of the Borrower
incurred any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA, other than for required insurance premiums which have been
paid when due, or incurred any accumulated funding deficiency, whether or not
waived; nor has there been any reportable event, or other event or condition,
which presents a risk of termination of any such employee benefit plan by such
Pension Benefit Guaranty Corporation;
(3) The present value of all accrued benefits under the employee benefit
plans which are employee pension benefit plans did not, as of the most recent
valuation date, exceed by an amount greater than $50,000 of the then current
value of the assets of such employee benefit plans allocable to such accrued
benefits;
(4) The making of Loans and issuing of Letters of Credit by the Bank
provided for in Section 1 will not involve any prohibited transaction;
(5) There has been no withdrawal liability incurred with respect to any
multi-employer pension plan of either Borrower;
(6) As used in this Section 10.13, the terms "employee benefit plan,"
"employee pension benefit plan," "accumulated funding deficiency," "reportable
event," and "accrued benefits" shall have the respective meanings assigned to
them in ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in Code Section 4975 and ERISA.
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SECTION 11. MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND OTHER
COLLATERAL.
11.1. COLLECTION OF RECEIVABLES; MANAGEMENT OF COLLATERAL.
(a) Unless an Event of Default shall be continuing, the Grantors shall, at
their own cost and expense and subject to the continuing security interest
therein held by the Bank, collect and otherwise enforce all amounts paid on or
otherwise received with respect to Receivables. Upon the occurrence of an Event
of Default and for so long as such or any other Event of Default shall be
continuing, the Bank shall have the right to send notice of assignment and/or
notice of the Bank's security interest in any and all Customers or any third
party holding or otherwise concerned with any of the Collateral, and thereafter
the Bank shall have the sole right to collect the Receivables and/or take
possession of the Collateral and the books and records relating thereto.
(b) Upon the occurrence of an Event of Default and for so long as such or
any other Event of Default shall be continuing, the Bank shall have the right to
receive, endorse, assign and/or deliver in its name or the name of any Grantor
any and all checks, drafts and other instruments for the payment of money
relating to the Receivables, and the Grantors hereby waive notice of
presentment, protest and non-payment of any instrument so endorsed. Each Grantor
hereby constitutes the Bank or its designee as such Grantor's attorney-in fact
with power while an Event of Default is continuing (i) to endorse the Grantor's
name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral that may come into the Bank's possession; to
sign the Grantor's name on any invoice or bill of lading relating to any of the
Receivables, drafts against Customers, assignments and verifications of
Receivables and notices to Customers; (ii) to send verifications of Receivables;
(iii) to notify the Post Office authorities to change the address for delivery
of mail addressed to the Borrower to such address as the Bank may designate; and
(iv) to do all other acts and things necessary to carry out this Agreement and
the Security Agreements. All acts of said attorney or designee are hereby
ratified and approved, and said attorney or designee shall not be liable for any
acts of omission or commission (other than acts of gross negligence or willful
misconduct), nor for any error of judgment or mistake of fact or law; this power
being coupled with an interest is irrevocable until the Maturity Date and
thereafter as long as any extension of credit is owing by either Borrower or any
Guarantor to the Bank. The Bank may, while an Event of Default is continuing,
(i) sue upon or otherwise collect, extend the time of payment of, or compromise
or settle for cash, credit or otherwise upon any terms, any of the Receivables
or any securities, instruments or insurance applicable thereto and/or release
the obligor thereon and (ii) accept the return of the goods represented by any
of the Receivables, without notice to or consent by any Grantor, all without
discharging or in any way affecting the Borrowers' liability hereunder or any
Guarantor's liabilities under its Guaranty.
(c) Nothing herein contained shall be construed to constitute the Grantors
as agent of the Bank for any purpose whatsoever, and the Bank shall not be
responsible or liable for any shortage, discrepancy, damage, loss or destruction
of any part of the Collateral wherever the same may be located and regardless of
the cause thereof. The Bank shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the Receivables or
any instrument received in payment thereof or for any damage resulting therefrom
(other than from acts of gross negligence or willful misconduct). The Bank does
not by anything herein or in any assignment or otherwise, assume any Grantor's
obligations under any contract or agreement assigned to the Bank, and the Bank
shall not be responsible in any way for the performance by any Grantor of any of
the terms and conditions thereof.
(d) If any of the Receivables includes a charge for any tax payable to any
governmental tax authority, the Bank is hereby authorized in its discretion, and
while an Event of Default is continuing, to pay the amount thereof to the proper
taxing authority for the applicable Borrower's account and to charge the
applicable Borrower's account therefor. Each Grantor shall, while an Event of
Default is continuing, notify the Bank if any Receivables include any tax due to
any such taxing authority and in the absence of such notice, the Bank shall have
the right to retain the full proceeds of such Receivables and shall not be
liable for any taxes that may be due from any Grantor by reason of the sale and
delivery creating such Receivables.
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11.2. STATUS OF RECEIVABLES AND COLLATERAL. With respect to Receivables at the
time a Receivable becomes subject to the Bank's security interest the applicable
Grantor represents and warrants to the Bank (which representations and
warranties shall survive the Receivable becoming subject to such security
interest): (a) such Receivable shall be a good and valid account representing an
undisputed bona fide indebtedness incurred or an amount indisputably owed by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto with respect to an absolute sale and delivery upon the specified terms
of goods sold by the applicable Grantor, or work, labor and/or services
theretofore rendered by the applicable Grantor; (b) such Receivable is not and
shall not be subject to any defense, offset, counterclaim, discount or allowance
except as may be stated in the copy of the invoice delivered by the applicable
Grantor to the Bank or discounts and allowances as may be customary in the
business in which the applicable Grantor is now engaged, and each Receivable
will be paid in full when due; (c) no agreement under which any deduction or
offset of any kind, other than normal trade discounts, may be granted or shall
have been made by the applicable Grantor at or before the time such Receivable
is created; (d) all documents and agreements relating to such Receivable shall
be true and correct and in all respects what they purport to be: (e) all
signatures and endorsements that appear on such documents and agreements shall
be genuine and all signatories and endorsers shall have full capacity to
contract; (f) none of the transactions underlying or giving rise to such
Receivable shall violate any applicable state or federal laws or regulations,
and all documents relating to such Receivable shall be legally sufficient under
such laws or regulations and shall be legally enforceable in accordance with
their terms; and (g) each Customer, guarantor or endorser with respect to such
Receivable is solvent and will continue to be fully able to pay such Receivable
when due. The Borrower will immediately notify the Bank if any Receivable in
excess of $50,000 shall arise out of contracts with the United States or any
department, agency, or instrumentality thereof, and will execute any instruments
and take any steps required by the Bank in order that all moneys due or to
become due under any such contract shall be assigned to the Bank and notice
thereof given to the Government under the Federal Assignment of Claims Act. Each
Grantor will, immediately upon learning thereof, report to the Bank any
reclamation, return or repossession of goods in excess of $50,000, all claims or
disputes in excess of $50,000 asserted by any Customer or other obligor, and any
other matters affecting the value, enforceability or collectability of any
Receivable. No Grantor is, nor shall be, entitled to pledge the Bank's credit on
any purchases or for any purpose whatsoever.
SECTION 12. DEFINITIONS.
For all purposes of this Agreement, unless the context otherwise requires:
"Code Section 4975" shall mean, at any date, Section 4975 of the Internal
Revenue Code of 1954, as the same shall be in effect at such date.
"Collateral" shall have the meaning set forth in the Security Agreements.
"Customer" with respect to a Grantor shall mean and include the account debtor
or obligor with respect to any of the Receivables and/or the prospective
purchaser with respect to any contract right, and/or any party who enters into
or proposes to enter into any contract or other arrangement with such Grantor,
pursuant to which such Grantor is to deliver any personal property or perform
any services.
"Effective Net Worth" shall mean the total of all assets appearing on a balance
sheet prepared in accordance with generally accepted accounting principles for
HGL and its Subsidiaries on a consolidated basis, after deducting therefrom
(without duplication of deductions):
(i) any write-up in the book carrying value of any asset resulting from a
revaluation thereof subsequent to December 31, 1995;
(ii) all reserves, including but not limited to reserves for liabilities,
fixed or contingent, deferred income taxes, obsolescence, depletion, insurance,
and inventory valuation, which are not deducted from assets;
(iii) the amount, if any, at which shares of treasury stock of the
Borrower or a Subsidiary appear on the asset side of such balance sheet;
(iv) all Indebtedness of the Borrower and its Subsidiaries (after
eliminating inter-company items); and
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(v) the book value of all assets which would be treated as intangibles
under generally accepted accounting principles, including, without limitation,
goodwill, trademarks, trade names, patents, copyrights and licenses; and after
adding thereto any indebtedness of the Borrower and its Subsidiaries which has
been completely subordinated to the Borrower's obligations to the Bank on terms
satisfactory to the Bank.
"Eligible Accounts" with respect to a Grantor shall mean Receivables created by
such Grantor in the ordinary course of business arising out of the sale of goods
or rendition of services by such Grantor, which are and at all times shall
continue to be acceptable to the Bank in all respects. Standards of eligibility
may be fixed and revised from time to time solely by the Bank in the exercise of
its reasonable business judgment. In determining eligibility, the Bank may, but
need not, rely on agings, reports and schedules of Receivables furnished by the
Grantor, but reliance by the Bank thereon from time to time shall not be deemed
to limit the Bank's right to revise standards of eligibility at any time as to
both present and future Receivables. In general, a Receivable shall not be
deemed eligible unless: (a) the Customer on such Receivable is and at all times
continues to be acceptable to the Bank and in no event may a Customer be an
affiliate or Subsidiary of any Grantor, (b) such Receivable complies in all
respects with the representations, covenants and warranties set forth in Section
11.2 hereof, (c) such Receivable is no older than 60 days from its due date or
120 days from its invoice date whichever is less, and (d) with respect to Winona
such Receivable is not subject to a factoring agreement.
"ERISA" shall mean, at any date, the Employee Retirement Income Security Act of
1974 and the regulations thereunder, all as the same shall be in effect at such
date.
"Event of Default" shall have the meaning set forth in Section 9.1 hereof.
"Glamourette" shall have the meaning set forth in Section 3.2 hereof.
"Grantor(s)" shall have the meaning set forth in Section 3.1 hereof.
"Guarantors" shall have the meaning set forth in Section 3.2 hereof.
"Guarantees" shall mean the guarantees of each Guarantor executed and delivered
pursuant to Section 3.2 hereof, as amended, modified, supplemented or replaced
from time to time.
"HGL" shall have the meaning set forth in Section 3.2 hereof.
"Indebtedness" shall mean all items which, in accordance with generally accepted
principles of accounting, would be included in determining total liabilities as
shown on the liability side of a balance sheet as at the date Indebtedness is to
be determined and, in any event, shall include (without duplication) letters of
credit and all obligations relating thereto, any liability secured by any
mortgage, pledge, lien or security interest on property owned or acquired,
whether or not such liability shall have been assumed, and guarantees,
endorsements (other than for collection in the ordinary course of business) and
other contingent obligations in respect of the obligations of others.
"Knitworks" shall have the meaning set forth in Section 3.1 hereof.
"Letter of Credit" or "Letters of Credit" shall mean documentary letters of
credit issued by the Bank pursuant to the terms of this Agreement, which Letters
of Credit shall expire not more than 180 days after issuance.
"Loans" shall have the meaning set forth in Section 1.1.A hereof.
"Maturity Date" shall mean March 31, l997.
"Net Amount of Eligible Accounts" with respect to a Grantor shall mean the gross
amount of its Eligible Accounts less sales, excise or similar taxes and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.
"Net Income" shall mean the consolidated net income (or loss) of the applicable
Borrower and its Subsidiaries determined in accordance with generally accepted
accounting principles.
"Note" shall have the meanings set forth in Section 1.1.C hereof.
"Obligations" shall mean any and all sums owing under the Note and all other
obligations, direct or contingent, joint, several or independent, of the
Borrower now or hereafter existing, due or to become due to, or held or to be
held by the Bank, whether created directly or acquired by assignment or
otherwise including, without limitation, any arising under this Agreement.
"Participant" shall mean The Chase Manhattan Bank, N.A., its successors and
permitted assigns under its Participation Agreement, dated as of March 31, 1995,
as the same may be amended from time to time.
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A "person" shall include an individual, a corporation, an association, a joint
stock company, a business trust, a partnership, a joint venture, an
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Prime Rate" shall have the meaning set forth in Section 1.1.D hereof.
"Receivables" shall have the meaning set forth in the Security Agreements.
"Security Agreements" shall mean the security agreements executed and delivered
pursuant to Section 3.1 and Section 3.2 hereof, as amended, modified,
supplemented or replaced from time to time.
"Subsidiary" shall mean any corporation organized under the laws of any state of
the United States or the District of Columbia and conducting a majority of its
business and having a majority of its assets within the United States, at least
50% of those outstanding stock of all classes (other than directors' qualifying
shares, if any) is at the time owned by HGL, the Borrower, any Guarantor and/or
one or more Subsidiaries.
"Total Borrowing Base" shall mean 85% of the Net Amount of Eligible Accounts of
Designers, Hosiery, Knitworks, Segue and Winona in the aggregate, plus the
lesser of (x) 45% of the aggregate inventory of Designers, Hosiery, Knitworks,
Segue and Winona valued in a manner consistent with the preparation of HGL's
consolidated audited financial statements and (y) for any period (prior to the
Maturity Date) (A) commencing March 1 and ending October 31, $6,000,000; and (B)
commencing November 1 and ending February 28 (or 29, as the case may be), zero.
"Working Capital" shall mean the amount by which consolidated current assets of
HGL and its Subsidiaries (determined in accordance with generally accepted
accounting principles) exceed consolidated current liabilities of HGL and its
Subsidiaries (determined in accordance with generally accepted accounting
principles).
"Working Capital Line" shall have the meaning set forth in Section 1.1.A hereof.
"Working Capital Line Limit" shall have the meaning set forth in Section 1.1.B
hereof.
Each term defined in Articles 1 or 9 of the Uniform Commercial Code shall have
the meaning given therein unless otherwise defined herein.
SECTION 13. MISCELLANEOUS.
13.1. COLLECTION COSTS. In the event that the Bank or the Participant shall
attempt to collect, enforce, protect, maintain, preserve or foreclose its
interests with respect to this Agreement, or any Obligation, or any Receivable,
or the lien or security interest in any other Collateral or any other security
for any Obligation or under any instrument or document delivered pursuant to
this Agreement, or in connection with any Obligation, or to protect the rights
of any holder or holders with respect thereto, the Borrowers shall pay all of
the costs and expenses of such collection, enforcement or protection, including
reasonable attorneys' fees, which amounts shall be part of the Obligations and
shall bear interest at the rate provided in Section l.l.D, and the Bank or the
Participant may take judgment for all such amounts.
13.2. MODIFICATION AND WAIVER. No modification or waiver of any provision of
this Agreement and no consent by the Bank to any departure therefrom by the
Borrower shall be effective unless such modification or waiver shall be in
writing and signed by a duly authorized officer of the Bank, and the same shall
then be effective only for the period and on the conditions and for the specific
instances and purposes specified in such writing. No notice to or demand on
Borrower in any case shall entitle Borrower to any other or further notice or
demand in similar or other circumstances. No delay or omission on the Bank's
part in exercising any right, remedy or option shall operate as a waiver of such
or any other right, remedy or option or of any default.
13.3. NEW YORK LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, applicable to contracts made and
to be performed in such State.
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13.4. NOTICES AND ADDRESSES. The Borrower shall give the Bank written notice
of each location at which records are kept and the location of the Borrower's
chief executive office. Except as such notice is given, all such records and
offices shall be located at the addresses set forth on Schedule 13.4 hereto.
All notices, requests, demands or other communications provided for herein shall
be in writing and shall be deemed to have been given when sent by registered or
certified mail, return receipt requested, addressed, as the case may be, to
NatWest Bank N.A. at 1133 Avenue of the Americas, New York, New York 10036
(Attention: Cynthia E. Sachs) or to Borrower at 215 Commerce Boulevard,
Anderson, South Carolina 29621 (Attention: Mr. Charles W. Clayton).
13.5. FEES AND EXPENSES. Whether or not any extension of credit is made
hereunder, the Borrower shall pay all out-of-pocket expenses incurred by the
Bank and the Participant in connection with the transactions contemplated
hereunder, including but not limited to appraisal fees, legal fees (including
all related costs of in-house counsel), audit fees, search and filing fees.
13.6. STAMP OR OTHER TAX. Should any stamp or excise tax become payable in
respect of this Agreement, the Obligations or any modification hereof or
thereof, on a joint and several basis, the Borrower shall pay the same
(including interest and penalties, if any) and shall hold the Bank harmless with
respect thereto.
13.7. WAIVER OF JURY TRIAL, SET-OFF AND COUNTERCLAIM. The Borrower hereby waives
trial by jury and the right to interpose any set-off or counterclaim, in any
litigation in any court with respect to, in connection with, or arising out of
this Agreement or the Obligations, or any instrument or document delivered
pursuant to this Agreement or the Obligations, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising, between either or both Borrower and the Bank.
13.8. TERMINATION OF AGREEMENT. This Agreement shall continue in full force and
effect until the Maturity Date. The Bank shall have the right to terminate this
Agreement immediately upon the occurrence of an Event of Default under Section
9. The termination of this Agreement shall not affect any rights of the Borrower
or the Bank, or any obligation of the Borrower or the Bank to the other, arising
prior to the effective date of such termination, and the provisions hereof shall
continue to be fully operative until all transactions entered into, rights
created or Obligations incurred prior to such termination have been fully
disposed of, satisfied, paid, concluded or liquidated. Upon the termination of
this Agreement, all Obligations shall be due and payable without notice or
demand. The security interest, lien and rights granted to the Bank under the
Security Agreements and hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that either or
both Borrowers' accounts may from time to time be temporarily in a credit
position, until all of the Obligations have been paid in full after the
termination hereof or the Borrower have furnished the Bank with an
indemnification satisfactory to the Bank with respect thereto. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof unless otherwise provided.
13.9. CAPTIONS. The captions of the various sections and paragraphs of this
Agreement have been inserted only for the purposes of convenience; such captions
are not a part of this Agreement and shall not be deemed in any manner to
modify, explain, enlarge or restrict any of the provisions of this Agreement.
13.10. LIEN: SET OFF BY BANK. The Borrower hereby grants to the Bank and the
Participant a continuing lien for all Obligations upon any and all moneys,
securities and other property of such Borrower and the proceeds thereof, now or
hereafter held or received by or in transit to, the Bank or the Participant from
or for such Borrower, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of such Borrower with, and any and all claims of such Borrower
against, the Bank or the Participant, at any time existing. During the
continuance of any Event of Default, each of the Bank and the Participant is
hereby authorized at any time and from time to time, without notice to such
Borrower, to set off to the extent permitted by law, appropriate and apply any
or all Collateral (or any such moneys, securities and other property held or
received by or in transit to the Participant) against all Obligations, whether
now existing or hereafter arising.
17
<PAGE>
13.11. PAYMENT DUE ON HOLIDAY. Whenever any payment to be made hereunder shall
become due and payable on a Saturday, Sunday or a legal holiday under the laws
of the State of New York, such payment shall be made in the next succeeding
business day and such extension of time shall in such case be included in
computing interest on such payment.
13.12. SERVICE OF PROCESS. The Borrower hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any Federal Court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement, all or any of the Obligations, or any document or
instrument delivered pursuant to or in connection with this Agreement. In any
such litigation the Borrower waives personal service of any summons, complaint
or other process and agrees that the service thereof may be made by certified or
registered mail, return receipt requested, directed to such Borrower at its
address set forth in Section 13.4. Within 30 days after such mailing, the
Borrower shall appear, answer or move in respect of such summons, complaint or
other process. Should such Borrower fail to appear or answer within said 30 day
period, such Borrower shall be deemed in default and judgment may be entered by
the Bank against such Borrower for the amount as demanded in any summons,
complaint or other process so served.
13.13. WAIVER AND PROTEST. The Borrower waives notice of non-payment of any of
the Obligations, demand, presentment, protest and notice thereof with respect to
any and all instruments, notice of acceptance hereof, notice of loans and
advances made, credit extended, Collateral received or delivered, or any other
action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
13.14. BENEFIT OF AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the Borrower and the Bank and their respective successors and
assigns, except that the obligation of the Bank to make loans hereunder shall
not inure to the benefit of any successors and assigns of Borrower.
13.15. COUNTERPARTS. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall together constitute one and the same
agreement.
13.16. RELEASE OF LIENS. Upon the termination of this Agreement and the
payment in full of the Obligations, the Bank shall release its security interest
in the Collateral as required by applicable law.
13.17. AMENDMENT AND RESTATEMENT. This Agreement amends and restates and
replaces in its entirety the facility represented by the Loan Agreement (the
"Original Facility"), provided, however, that any letters of credit which were
issued under the Original Facility or under any other facility made available to
the Borrower by the Bank and which are now outstanding, and any application
and/or reimbursement agreement with respect to such letters of credit, as well
as any notes (unless specifically replaced), security agreements and all other
documents delivered in connection with the Original Facility shall not be
terminated and shall be deemed for purposes of this Agreement to have been made,
under and pursuant to this Agreement and subject to the terms and conditions
hereof.
18
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President
NATWEST BANK N.A.
By: /s/ Cynthia E. Sachs
- -------------------------------------
Name: Cynthia E. Sachs
Title: Vice President
Accepted and Agreed with respect to Sections 3, 11 and as otherwise applicable:
SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
SEGUE (AMERICA) LIMITED
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
Each of the Guarantors indicated below hereby consents to this Fourth
Amended and Restated Loan Agreement and reaffirms its continuing liability under
its respective Guarantee in respect thereof or the documents contemplated
thereby and all the documents, instruments and agreements executed pursuant
thereto or in connection therewith, without offset, defense or counterclaim (any
such offset, defense or counterclaim as may exist being hereby irrevocably
waived by such Guarantor), and hereby confirms and agrees that, on and after the
effective date of this Fourth Amended and Restated Loan Agreement, each
reference in such Guarantee to "the Loan Agreement", "thereunder", "thereof" or
words of like import referring to the Loan Agreement shall mean and be a
reference to this Fourth Amended and Restated Loan Agreement.
HAMPSHIRE GROUP, LTD.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President
GLAMOURETTE FASHION MILLS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
SEGUE (AMERICA) LIMITED
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
HAMPSHIRE DESIGNERS, INC. as guarantor of the
obligations of Segue and Knitworks to the Bank
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President/Treasurer
19
<PAGE>
EXHIBIT 1.1.C
FORM OF NOTES
-----------------------
20
<PAGE>
PROMISSORY NOTE
---------------------------
$21,000,000 New York, New York
As of March 31, 1996
FOR VALUE RECEIVED, Hampshire Designers, Inc., a Delaware corporation with
an office 215 Commerce Boulevard, Anderson, South Carolina 29621 (the "Debtor"),
hereby promises to pay to the order of NatWest Bank N.A., a national banking
association (the "Payee"), at its offices located at 1133 Avenue of the
Americas, New York, New York, or at such other place as the Payee or any holder
hereof may from time to time designate, on the Maturity Date (as defined in the
Loan Agreement defined below), or earlier as hereinafter referred to, the
principal sum of Twenty-One Million and 00/100 Dollars ($21,000,000) (or such
lesser principal sum as may be indicated as outstanding on the grid sheet
attached hereto), in lawful money of the United States, and to pay interest in
like money at said office or place from the date hereof on the unpaid principal
balance hereof from time to time outstanding in accordance with the provisions
of the Loan Agreement (as defined below). In no event shall the rate of interest
hereunder exceed the maximum interest rate permitted by applicable law.
This Note is in replacement of and substitution for the two promissory
notes dated as of March 31, 1995 by the Debtor's two constituent corporations
(Hampshire Designers, Inc. in the principal amount of $16,000,000 and Hampshire
Hosiery, Inc. in the principal amount of $5,000,000), and, to the extent of any
outstanding principal amount, evidences the same indebtedness incurred
thereunder.
This Note is referred to in the Loan Agreement and is secured by a
Continuing General Security Agreement dated March 31, 1996 (as amended,
modified, supplemented or replaced from time to time, the "Security Agreement")
by the Debtor in favor of the Payee and covering certain collateral (the
"Collateral") all as more particularly described and provided therein, and is
entitled to the benefits thereof. Reference is made to the Loan Agreement and
the Security Agreement for certain rights of the Payee hereunder, including,
without limitation, the right of the Payee to accelerate the principal balance
hereunder and interest hereon upon the occurrence of an "Event of Default" as
defined in the Loan Agreement.
The Payee is hereby authorized to enter on the grid sheet attached hereto
all loans made by the Payee to the Debtor pursuant to the Fourth Amended and
Restated Loan Agreement dated as of March 31, 1996 (as amended, modified or
supplemented from time to time, the "Loan Agreement") among the Payee, and the
Debtor and all repayments of principal hereunder, which entries, in the absence
of manifest error, shall be conclusive and binding on the Debtor; provided,
however, that the failure of the Payee to make any such entries shall not
relieve the Debtor from paying any amount due hereunder, nor affect the Payee's
recognition of any repayment of principal.
Whenever any payment to be made hereunder shall become due and payable on
a Saturday, Sunday or a legal holiday under the laws of the State of New York,
such payment shall be made on the next succeeding business day and such
extension of time shall in such case be included in computing interest on such
payment.
The Debtor hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
This Note shall be subject to payment and prepayment as provided in
Section 2 of the Loan Agreement.
This Note may not be changed, modified or terminated orally, but only by
an agreement in writing signed by the party to be charged.
In the event the Payee or any holder hereof shall refer this Note to an
attorney for collection, the Debtor agrees to pay, in addition to unpaid
principal and interest, all the costs and expenses incurred in attempting or
effecting collection hereunder, including reasonable attorney's fees, whether or
not suit is instituted.
21
<PAGE>
In the event of any litigation with respect to any of the Obligations (as
such term is defined in the Security Agreement) or Collateral, the Debtor waives
the right to a trial by jury. The Debtor hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any Federal court
located in such State in connection with any action or proceeding arising out of
or relating to any Obligation or Collateral. In any such litigation, the Debtor
waives personal service of any summons, complaint or other process and agrees
that the service thereof may be made by certified or registered mail directed to
the Debtor at its address set forth herein. Within 30 days after such mailing,
the Debtor shall appear, answer or move in respect of such summons, complaint or
other process. Should the Debtor fail to appear or answer within said 30-day
period, the Debtor shall be deemed in default and judgment may be entered by the
Payee against the Debtor for the amount as demanded in any summons, complaint or
other process so served. This Note, the other Obligations and the Collateral
shall be governed by and construed in accordance with the laws of the State of
New York, and shall be binding upon the heirs, executors, administrators,
successors and assigns of the Debtor and inure to the benefit of the Payee, its
successors, endorsees and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable the validity of all other terms and
provisions hereof shall in no way be affected thereby.
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------
Name: Charles W. Clayton
Title: Vice President
22
EXHIBIT (10)(L)(1)
GOVERNMENT OF THE
COMMONWEALTH OF PUERTO RICO
DEPARTMENT OF STATE
Grant of Industrial Tax Exemption to GLAMOURETTE FASHION MILLS, INC.
(hereinafter referred to as "applicant" or "grantee"), Case No. 95-8-I-97,
pursuant to the terms of Act No. 8 of January 24, 1987, as amended.
DECREE
WHEREAS, Act No. 8 of January 24, 1987, as amended (hereinafter referred to
as "the Act"), empowers the Secretary of State of the Commonwealth of Puerto
Rico to grant tax exemption from specified taxes to eligible industries when it
is proved to the satisfaction of the Secretary of State that the applicant has
established, or will establish, an eligible industry as defined in the Act and
that the same will be in the best interests of the Commonwealth of Puerto Rico.
WHEREAS, the Secretary of State of the Commonwealth of Puerto Rico, after
having examined the findings of fact and conclusions of the Special Examiner,
the report of the Acting Director of the Office of Industrial Tax Exemption, and
other documents relative to this case, is of the opinion that the applicant has
proved that it will operate an eligible industry within the meaning of the Act
and that the same will be in the best interests of the Commonwealth of Puerto
Rico.
NOW, THEREFORE, BE IT DECREED BY THE SECRETARY OF STATE OF THE COMMONWEALTH
OF PUERTO RICO, that the applicant, Glamourette Fashion Mills, Inc., be hereby
granted tax exemption in accordance with the applicable terms of the Act,
covering the production of full fashioned and circular knit sweaters and other
related products, such as, but not limited to, dresses, skirts and pants,
provided that the operations shall be carried out substantially as described in
the application;
BE IT FURTHER DECREED, that pursuant to Section 9(j)(5) of the Act, the
Secretary of State of the Commonwealth of Puerto Rico hereby authorize the
Director of the Office of Industrial Tax Exemption to carry on administrative
duties of all nature, with respect to grants of tax exemption issued under the
provisions of the Acts No. 6 of December 15, 1953, 57 of June 13, 1963, 26 of
June 2, 1978, and 8 of January 24, 1987, as amended, including with respect to
Act No. 8, supra, the approval or denial of any amendment of tax exemption or
grants for property devoted to industrial development, but excluding the
authority to approve or deny tax exemptions grants to manufacturing or service
units and any other duty specifically bestowed upon her by the aforementioned
Acts;
BE IT FURTHER DECREED, that the grantee herein shall be entitled to an
exemption period of fifteen (15) years in view of the location of the exempted
business at the municipality of Quebradillas, Puerto Rico, and that the
effective dates of said tax exemption shall be December 31, 1995 for income tax
purposes, and January 1, 1996 for property tax purposes.
BE IT FURTHER DECREED, that the effective date of this grant for municipal
license tax purposes will be July 1, 1996. Accordingly, on July 1, 1996, grantee
will pay municipal license tax on forty percent (40%) of the volume of business
derived during its preceding accounting year (or part thereof) and reflected in
the volume of business declaration required to be filed on April 15, 1996;
BE IT FURTHER DECREED, that this grant shall be subject to the condition
that grantee reaches a minimum annual dollar volume of production of full
fashioned and circular knit sweaters and other related products, such as, but
not limited to, dresses, skirts and pants of not less than $18,000,000.00 within
one (1) year after the approval of the grant;
BE IT FURTHER DECREED, that this grant shall be subject to the condition
that if grantee generates industrial development income of more than one million
dollars ($1,000,000) during any taxable year, it shall pay a special surtax of
.00075 of the exempted business' sales volume which shall never be greater than
one-half of one percent (.005) of the net industrial development income and the
same shall form a part and be remitted to the Secretary of the Treasury together
with their annual income tax return;
BE IT FURTHER DECREED, that the grantee shall make all possible efforts to
buy from local manufacturers all the products, components, equipment, machinery
and materials necessary for its operations;
1
<PAGE>
BE IT FURTHER DECREED, that this grant of tax exemption shall become
retroactively null and void unless the grantee shall file with the Office of
Industrial Tax Exemption, within ninety (90) days after the receipt of this
grant by the grantee, a duly notarized and sworn declaration wherein the grantee
expresses its unconditional acceptance of this grant and of all the conditions,
provisions, and findings which are an integral part hereof;
BE IT FURTHER DECREED, that grantee must surrender its grant in Case No.
92-8-IT-2(77-57-I-80) as of December 30, 1995 for income tax purposes, December
31, 1995 for property tax purposes and June 30, 1996 for municipal license
taxes;
BE IT FURTHER DECREED, that as an essential condition to the issuance and
continuance of this decree, the grantee must comply with an employment
requirement of a minimum of one thousand one hundred and thirty-three (1,133)
direct employees within twenty-four (24) months from the effective date of this
grant in its location, by December 31, 1997; provided, that commencing with
calendar year 1998, compliance with said employment requirement shall be
determined on an average annual basis, using the weekly employment level and the
calendar year for this purpose, and the average employment level shall likewise
apply during the partial calendar year of operations prior to the date of
ceasing operations under the grant; and, further provided, that anything herein
to the contrary notwithstanding, if a reduction of employment occurs below said
employment requirement, during the time compliance is determined by average
annual employment or average employment as aforesaid, the Grantee shall give the
appropriate notices or file an application requesting approval, as the case may
be, within a reasonable time after the end of the calendar year in which such
reduction occurred;
BE IT FURTHER DECREED, that the grantee must always comply with the
employment requirement of the preceding clause, except in cases of unforeseen
circumstances, which may cause a reduction of employment beyond the control of
the grantee, at which occurrence or at the earliest date when such occurrence is
contemplated, the grantee is subject to one of the following alternatives.
1. If the reduction represents less than 10% of the employment requirement,
grantee has no obligation to notify the Office of Industrial Tax Exemption of
said reduction.
2. If the reduction represents 10% or more but less than 25% of the
employment requirement, grantee shall notify the Office of Industrial Tax
Exemption, with copy to the Department of Labor and Human Resources of Puerto
Rico and the Economic Development Administration, of said reduction of employees
on a sworn statement sent by certified mail with return receipt requested, or in
the alternative, should file said sworn statement personally at the Office of
Industrial Tax Exemption with copy to the Department of Labor and Human
Resources of Puerto Rico and the Economic Development Administration.
3. If the reduction represents 25% or more of the employment requirement,
the grantee must file to the satisfaction and acceptance, which acceptance shall
not be unreasonably withheld, with the Office of Industrial Tax Exemption a
sworn application, with copy to the Department of Labor and Human Resources of
Puerto Rico and the Economic Development Administration, requesting approval of
the Office of Industrial Tax Exemption for said reduction; PROVIDED, that the
Office of Industrial Tax Exemption shall make a written determination within
sixty (60) days of the date of receipt and acceptance of such application as to
whether the grantee shall be deemed to be in compliance with the employment
requirement taking into consideration such reasonable grounds for reduction of
employment, as for example, but not limited to, strikes, war, action of a
government or the elements, or any other reasonable cause beyond the control of
the grantee, and if the grantee is not given notice of such determination by the
Office of Industrial Tax Exemption within said sixty (60) days, the grantee
shall without further action or formality, be deemed to be in compliance with
such employment requirement; PROVIDED FURTHER, that it may, in lieu of the
cancellation of the decree in those cases in which the reduction of 25% or more
of the employment requirement is not approved:
a) reduce the rate of tax exemption proportionately in a ratio which
bears the relation between the reduced employment to the employment requirement;
and/or
b) approve a temporary reduction of the employment requirement when
the circumstances so merit by negotiating any other reasonable condition
satisfactory both to the grantee and the Government of Puerto Rico, and, a
waiver of the employment requirement will be granted when in the judgment of the
pertinent Government agencies such terms of the negotiation further the purposes
of industrial development under this Act;
2
<PAGE>
BE IT FURTHER DECREED, that the grantee shall make all possible efforts to
hire its production workers from the unemployed labor force listed in the
Employment Service Division of the Bureau of Employment Security of the
Department of Labor and Human Resources of the Commonwealth of Puerto Rico;
BE IT FURTHER DECREED, that the provisions of Section 7 of Act No. 8,
supra, be and they hereby are waived with respect to the products heretofore
manufactured by the grantee in the industrial unit covered by the grants in
Cases Nos. 77-57-I-80 and 92-8-IT-2(77-57-I-80);
BE IT FURTHER DECREED, that the provisions of Section 7 of Act No. 8,
supra, be, and they hereby are, waived, and that the grantee be authorized, and
the grantee hereby is, authorized to utilize the land buildings, machinery and
equipment, inventory, supplies, trademarks and marketing outlets previously
utilized by the industrial unit of the grantee in Case Nos. 77-57-I-80 and
92-8-IT-2(77-57-I-80);
BE IT FURTHER DECREED, that pursuant to Section 2(g) of Act No. 8, supra,
the Secretary of State of the Commonwealth of Puerto Rico authorizes the grantee
to enter into subcontracting agreement under which subcontractors in Puerto Rico
or in qualified countries in the Caribbean Basin, as defined in Section
936(d)(4)(B) of the Internal Revenue Code of 1986, as amended, may undertake
assembly, stitching, and finishing operations relating to the grantee's
products; provided, however, that such subcontracting agreement shall not affect
or reduce the grantee's employment obligations under this grant.
BE IT FURTHER DECREED, that any industrial development income accumulated
prior to July 30, 1992 shall be taxed upon distribution or in the event of
liquidation in accordance without the provisions of Act No. 57 of June 13, 1963,
as amended, and in accordance with the terms and conditions of a Closing
Agreement with the Secretary of the Treasury dated June 30, 1993;
BE IT FURTHER DECREED, that any industrial development accumulated from
July 30, 1992 to December 30, 1995, shall be taxed upon distribution or in the
event of liquidation in accordance with the provisions of Section 3(m) of Act
No. 8, supra, and the provisions of the Order in Case No. 92-8-IT-2(77-57-I-80);
BE IT FURTHER DECREED, that from the effective date of this grant on
December 31, 1995 and until December 31, 1997, the grantee shall enjoy a
reduction equal to 1% in the basic tollgate tax rate with respect to the
industrial development income earned in any year for every additional fifty (50)
direct workers employed during said year in excess of the annual average of 784
persons required by the terms of this grant, according to the following chart:
Average Annual Tollgate Without Tollgate With
Employment 25% Investment 25% Investment
--------------------- -------------------- -------------------
784 to 833 persons 5% 2%
834 to 883 persons 4% 1%
884 to 933 persons 3% 0%
934 to 983 persons 2%
984 to 1,033 persons 1%
1,034 or more persons 0%
BE IT FURTHER DECREED, that upon distribution of dividends from the
industrial development income accumulated by the grantee after December 31, 1997
and during the balance of the exemption period under this grant, the grantee
shall be exempted from the requirement that it withhold any pay to the Secretary
of the Treasury ten percent (10%) of said distributions pursuant to the
provisions of Section 4(a) of Act No. 8, supra; PROVIDED, that should the
grantee fail to maintain in any year after December 31, 1997 an average
employment level of not less than one thousand one hundred and thirty-three
(1,133) direct employees, computed as provided herein, the grantee shall not be
entitled to distribute dividends from the industrial development income earned
in said year at the zero tollgate tax rate provided in this clause, but the same
shall be subject to tollgate taxes in increments of 1% for progressive
reductions in the grantee's employment level below the required annual average
of not less than one thousand one hundred thirty three (1,133) direct workers,
and will continue to enjoy zero tollgate treatment at certain employment levels
if it invest 25% of its industrial development income, in accordance with the
following chart;
3
<PAGE>
Average Annual Tollgate Tax Tollgate With
Employment Rate 25% Investment
-------------------------- -------------------- -------------------
1,033 to 1,132 persons 1% 0%
933 to 1,032 persons 2% 0%
884 to 932 persons 3% 0%
834 to 883 persons 4% 1%
784 to 833 persons 5% 2%
BE IT FURTHER DECREED, that the continuance of this grant of tax exemption
shall be conditional upon compliance by the grantee with such regulations and
requirements as the Environmental Quality Board of the Commonwealth of Puerto
Rico has heretofore promulgated and may hereafter promulgate, relative to the
control of water, air, ground and any other environmental pollution, and which
may be applicable to the manufacturing operations of the grantee;
BE IT FURTHER DECREED, that the tax exemption granted herein shall be
applicable only to the property directly used in connection with the production
of the manufactured products hereinbefore listed and to the industrial
development income (as defined in the Act) derived from the production of said
manufactured products which gives rise to the exemption provided by this decree,
and such other property specifically declared exempt by the Act;
BE IT FURTHER DECREED, that said tax exemption shall include exemption to
the extent provided in the Act from all commonwealth taxes, and from license
fees and other municipal taxes levied by any ordinance of any municipality,
except as otherwise hereinbefore provided in this decree;
BE IT FURTHER DECREED, that there shall be excluded from the scope of the
tax exemption the operation of retail stores; all wholesale transactions other
than the original sale at the factory price of the product manufactured; and,
the providing of any services in connection with the sales of the products;
BE IT FURTHER DECREED, that the tax exemption shall not include exemption
from:
a. Workman's compensation premiums as provided by law;
b. Fees for motor vehicle licenses or plates;
c. Taxes levied under Act No. 286, of April 6, 1946;
d. License fees or excises levied under the Excise Tax Act of
Puerto Rico, approved October 8, 1987; PROVIDED, that the attention of the
grantee hereof is called to the fact that it may avail itself, to the extent
applicable and while in force or otherwise modified, of certain exemptions
contained in the Excise Act of Puerto Rico such as, among others, those
contained in Section 3.012 thereof;
BE IT FURTHER DECREED, that as a condition to the continuance of the tax
exemption hereby granted the grantee shall be required, in conformance with
Section 10 of Act No. 8 supra, to file with the Secretary, regardless of its
gross or net income, an annual income tax return, separate from any other return
it is required to file, in relation to the business operations of the trade that
is the object of the exemption and in accordance with the Income Tax Act in
force; the exempted business shall also be required to keep in Puerto Rico the
accounting records relative to its operations separately, as well as the
necessary records and files, and to make and submit such sworn statements, and
comply with the rules and regulations in force for the proper fulfillment of the
purposes of this Act and that the Secretary may prescribe from time to time in
connection with the levying and collection of all kinds of taxes; every exempted
business shall file duly completed reports and surveys for the preparation of
statistic and economic studies that from time to time may be requested by the
administrator in the performance of his duties; Provided further, that the
grantee shall file duly completed reports that may be requested by the Office of
the Commissioner of Financial Institutions;
BE IT FURTHER DECREED, that the Secretary of the Treasury of the
Commonwealth of Puerto Rico shall determine for each taxable year covered by
this exemption what property and what income the grantee has used in, or derived
from the industrial operations hereby declared tax exempt, PROVIDED, that
nothing obtained herein shall deprive the grantee of it right to administrative
and judicial review of such determinations of the Secretary of the Treasury of
the Commonwealth of Puerto Rico available by Constitution, Law or Regulation;
BE IT FURTHER DECREED, that this grant of tax exemption shall be subject to
the continuing condition that grantee shall be required to keep its corporate
books and accounts in Puerto Rico;
4
<PAGE>
BE IT FURTHER DECREED, that the Secretary of the Treasury of the
Commonwealth of Puerto Rico, in determining what property has been used in and
that income has been derived from the industrial operations of the grantee
hereby declared tax exempt, may review the accounts and records of the grantee
to determine that all purchase prices, sales prices, rates of lease, overhead or
any other cost allocations, and all other prices, rates, and cost allocations
are fixed on the basis of normal business operations and not for the purposes of
avoiding taxes ordinarily chargeable to activities not within the scope of the
industrial operations hereby declared tax exempt or of charging to the
operations hereby declared tax exempt or of charging to the operations carried
on outside of Puerto Rico; PROVIDED, that wherever the Secretary of the Treasury
of the Commonwealth of Puerto Rico finds that such rates or charges are made for
the purposes of extending the coverage of the tax exemption beyond the scope of
the industrial operations hereby declared tax exempt he shall make such
seasonable adjustments as necessary for the purpose of calculating the amount of
taxes payable by the grantee, if any, and he shall make such recommendations to
the Secretary of State as to such other action as may be taken under the
provisions of Section 8(c)(1) of the Act and the Rules and Regulations
promulgated hereunder; PROVIDED, that nothing contained herein shall deprive the
grantee of its right to administrative and judicial review of such determination
of the Secretary of the Treasury of the Commonwealth of Puerto Rico available by
constitution, Law, or Regulation;
BE IT FURTHER DECREED, that the grantee shall operate the business covered
by this grant in good faith and in accordance with the principles of normal
business operations, and shall not willfully attribute to the operations and
accounts for the activities covered by this grant, activities carried on in
Puerto Rico or any other place which are not part of the operations of the tax
exempt business covered by this grant;
BE IT FURTHER DECREED, that the tax exemption hereby granted shall expire
according to the effective date fixed in the grant in accordance with the
provisions of the Act, unless previously terminated by revocation in accordance
with the applicable provisions of the Act;
BE IT FURTHER DECREED, that upon acceptance of this grant of tax exemption,
the grantee recognizes that it shall be required to comply with all the relevant
provisions of the Act, and all rules and regulations promulgated by the Director
of the Office of Industrial Tax exemption and approved by the Governor and/or
the Secretary of State in accordance with the provisions of Section 9(I) of the
Act, regardless of whether or not said provisions are specifically mentioned in
this grant of tax exemption; PROVIDED, however, that this decree shall upon its
acceptance by grantee constitute a contract between the Commonwealth of Puerto
Rico and the grantee;
BE IT FURTHER DECREED, that upon receipt of properly certified copies of
this grant of tax exemption, the Director of the Office of Industrial Tax
exemption shall immediately forward a copy to the grantee.
SIGNED AND ACKNOWLEDGED: R.F. NO. 96-118
/s/ Norma E. Burgos
- -------------------------
Norma E. Burgos
Secretary of State
/s/ Lourdes I. De Pierluisi
- --------------------------------
Lourdes I De Pierluisi
Assistant Secretary for Services
THIS 17TH DAY OF SEPTEMBER OF 1996
5
EXHIBIT (10)(P)(1)
BANCO POPULAR DE PUERTO RICO
PO BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
TELEFONOS (809) 765-9800, 751-9800
May 23, 1996
REVISED
Mr. Luis R. Hernandez
VP, Finance and Administration
Glamourette Fashion Mills, Inc.
P.O. Box 557
Quebradillas, P.R. 00678-1557
Dear Mr. Hernandez:
We are pleased to confirm that Banco Popular de Puerto Rico ("the: Bank") has
approved credit facilities in the name of Glamourette Fashion Mills, Inc. ("the
Borrower"), subject to Borrower's credit and economic conditions remaining
essentially unchanged, and substantially upon the terms and conditions outlined
below:
Facility 1:
- -----------
Amount: $2,000,000
Type: Revolving line of credit facility
Purpose: Increased working capital needs due to projected increase in
production
Repayment: Advances will be evidenced by short term notes up to 180 days
on a revolving basis. An annual clean up period during the months of
February through April must be effected. The facility is
renewable on an annual basis.
Pricing: Interest rate to be charged will be calculated based on the
effective cost of 936 funds to the Bank plus 1.50%. In the event
that the use of the facility is not deemed as an "Eligible Activity"
as amended or supplemented from time to time, or in the event that
936 funds are no longer available to the Bank, outstandings would be
priced at Floating New York Prime Rate. Upon an event of default,
the default rate shall be set at Prime Rate plus 2.0%. Interest on
the outstanding balance will be paid monthly in arrears on a 360
days basis.
Facility 2:
- ------------
Amount: $600,000
Type: Five Year Term Loan
Purpose: To finance the acquisition of machinery and equipment related
to the upcoming expansion to the plant.
Repayment: Sixty equal consecutive monthly principal payments of $10,000
plus interest.
Pricing: Interest rate to be charged will be calculated based on
the Bank's 90 days effective cost of 936 funds plus 2.00% in
repricing periods of 90 days. In the event that the use of the
facility is not deemed as an "Eligible Activity" as amended or
supplemented from time to time, or in the event that 936 funds
are no longer available to the Bank, outstandings would be priced
at Floating New York Prime Rate plus 0.5%. Upon an event of
default, the default rate shall be set at Prime Rate plus 2.0%.
Interest on the outstanding balance will be paid monthly in arrears
on a 360 days basis.
1
<PAGE>
Bank Fee: One half of one percent on the total amount of the facility payable
at closing.
Collateral: Chattel mortgage over the machinery and equipment being financed.
Existing chattel mortgages remain in full force and effect on a
deficiency basis.
Guarantees: Continuous and Unlimited Guarantees from Hampshire Designers, Inc
and Hampshire Group Limited.
General Security:
- -----------------
Borrower shall maintain a multi-peril insurance, by a financially sound and
reputable company, to include inventory in sufficient amounts to insure
replacement, with the Bank noted as first mortgage lender loss payee. This
policy shall not expire prior to the maturity of all the debt.
Affirmative/Negative Covenants:
- -------------------------------
Standard negative and affirmative covenants usually found in our loan agreements
for this type of financing to include those stipulated in previous loan
agreements between the Borrower and the Bank.
Events of Default:
- -----------------
Including, but not limited to, the standard events of default usually found in
our loan agreements for this type of financing, including material adverse
change provisions, payment and covenant defaults, breaches representation,
restrictions on sale or encumbering of stock of Borrower and change of
ownership.
Financial Covenants:
- -------------------
1. Provide annual audited financial statements within 120 days of fiscal
year-end and quarterly financials within 60 days of quarter end.
2. Provide annual audited consolidated and consolidating financial statements
of Hampshire Group Limited within 120 days after close of fiscal year
and quarterly unaudited consolidated and consolidating statements
within 60 days after quarter end.
3. Provide any other information (financial or non-financial) regarding the
Borrower's business affairs that the Bank may reasonably request and
considers relevant to the credit.
4. Maintain a Net Worth of $8,500M at all times. Net Worth being defined as
Total Assets minus Total Liabilities.
5. Not let Leverage Ratio exceed 0.5:1.0 at any given time. The Leverage ratio
being defined as Total Liabilities divided by Net Worth.
6. Not declare and/or pay dividends in excess of 100% of its Net Income for
every fiscal year, non-cumulative, with final determination of
net income not later than March 31 of the following year. Dividends can
be declared if they are used to pay down accounts receivable due from
parent. Preferred stock dividends are permitted only up to a maximum of
$250M or 4% of net income, whichever is lower.
7. Management fees not to exceed present levels.
8. Intercompany receivables not to exceed 150 days.
Conditions Precedent:
- ---------------------
Prior to the execution of the loan documents, the Bank shall have received each
of the following, in form and substance satisfactory to the Bank:
1. A copy of the Borrower's Certificate of Incorporation.
2. Invoice and description of all equipment to be financed.
3. Certified copies of all corporate action taken by Borrower, including
resolutions of its Board of Directors, authorizing the execution,
delivery and performance of the loan documents.
4. A certificate of the Secretary or Assistant Secretary of the Borrower
certifying the names and true signatures of the officers authorized to
sign the loan documents.
5. A certificate evidencing insurance policy with the Bank as first
mortgagee/loss payee.
Other Terms and Conditions:
- -----------------------------------
1. In consideration for the facility herein delineated, Borrower will commit
while indebted to Banco Popular de Puerto Rico to maintain its main
depository accounts with the Bank.
2. Borrower must certify that the proceeds of the loans will be used in Puerto
Rico and in such manner as to meet the requirements of eligible activities
as per Regulations 5105 and any amendments thereon.
3. Documents acceptable to the bank, including, without limitation, Loan or
Financing Agreement and Chattel Mortgage.
2
<PAGE>
4. Execution of Master Promissory Note for the line of Credit and Promissory
Note for the Term Loan.
5. Borrower to pay a prepayment penalty of 1.0% should it prepay either totally
or partially the notes with funds borrowed from another financial
institution.
6. Right of set-off.
All terms and conditions stipulated on previous Loan/Financing Agreements remain
in full force and effect.
We appreciate the opportunity you have given us to meet your needs, and we
sincerely look forward to further working with you. If any questions arise from
your review of this letter, please do not hesitate to call us at 765-9800, ext.
5905.
Upon concurrence with the terms and conditions delineated herein, kindly
acknowledge your acceptance by signing this letter on the space provided and
returning it to us on or before May 28, 1996, date this commitment expires.
Cordially,
/s/ Sylma Suarez
- ----------------------------------
Assistant Vice President
Corporate Banking Division
Agreed and Accepted:
GAMOURETTE FASHION MILLS, INC.
By: /s/ Luis R. Hernandez
-------------------------------------
Name: Luis R. Hernandez
-------------------------------------
Title:Vice President Finance and Administration
-------------------------------------
Date: May 30, 1996
-------------------------------------
3
<PAGE>
MASTER PROMISSORY NOTE
060-7177/ For Various Notes
FOR VALUE RECEIVED the undersigned, jointly, severally and in solido,
promise to pay on demand to the order of BANCO POPULAR DE PUERTO RICO
(hereinafter called the "Bank") at its main office or at such other place as the
Bank my designate, the principal amount then outstanding hereunder, shown on the
reverse hereof or on attachments hereto not exceeding **TWO MILLION Dollars
($2,000,000.00), lawful money of the United States of America, together with
interest on all unpaid principal amount from time to time outstanding, computed
on a (check one) ___ 365-day, X 360-day, simple interest basis and actual days
elapsed, payable monthly on the twenty-fifth (25th) day of each month and on the
date of payment in full, at the Fixed Rate or at the Index Rate or at the Cash
Collateral Rate as designated below (check and complete one):
_____ Fixed Rate. The unpaid principal shall bear interest at the rate of % per
annum; provided, however, that in case of any event of default under this note,
the unpaid principal shall, thereafter until paid, bear interest at the rate of
% per annum.
_____ Index Rate. Floating with the interest rate referred to as the
"prime rate" as (check one):
_____ published in general-circulation newspapers such as The Wall Street
Journal; provided that in the event of more than one such published rate on any
given date, the highest of such rates shall apply.
_____ define by the interest Rates and Finance Charges Regulation Board
of Puerto Rico.
The designated reference checked above is hereinafter called the
"Index Rate". The unpaid principal shall bear interest at a floating rate per
annum equal to the sum of the Index Rate plus %; provided, however that in case
of any event of default under this note, the unpaid principal shall thereafter
until paid, bear interest at a floating rate per annum equal to the sum of the
Index Rate plus %. Changes in the interest rate shall be effective upon the
effective date of any change in the Index Rate; provided, however, that the rate
of interest shall not be less than % per annum at all times, nor more than % per
annum absent any event of default. We recognize and fully understand that the
rate of interest herein provided is not necessarily the lowest rate of interest
charged by the Bank and that credits may be granted by the Bank at rates above,
at, and below, the Index Rate.
_____ Cash Collateral Rate. The unpaid principal amounts from time to time
outstanding under this note shall bear interest at the rate per annum equal to
the sum of (a) the interest rate paid by the Bank from time to time on the time
deposit pledged as security for the payment of all unpaid amounts under this
note, including all renewals of said deposit, plus (b) %. Upon the effective
date of any change in the interest rate paid by the Bank on the pledged time
deposit and all renewals thereof, corresponding changes shall be effective
simultaneously in the interest rate on the unpaid principal balance of this
note.
The Bank shall record on the reverse hereof or on attachments hereto all
advances and repayments of principal and the principal balance from time to time
outstanding. Each such record of any advance hereunder shall be conclusive
evidence that the advance was made to the undersigned. Advances hereunder may be
made at any time and from time to time, notwithstanding that from time to time
there may be no principal balance outstanding hereunder. The Bank in accepting
this note incur no obligation to make any advance.
In the event of commencement of legal action to enforce payment of this
note, we agree to pay, jointly, severally and in solido, all cost, expenses and
disbursements arising from such process plus attorney's fees of ten percent
(10%) of the total indebtedness was outstanding hereunder.
We agree that the Bank may, at its option, at any time and from time to
time, reduce or cancel the amount owing under this note by setting off and
charging the indebtedness, or any part thereof, against any obligation of the
Bank with the undersigned, or any of them for deposits or otherwise. We waive
notice of nonpayment, presentment, demand for payment, and protest.
4
<PAGE>
In support of any "due diligence" requirement under regulations of the
Treasury Department of Puerto Rico that may be applicable to us or to our use of
the funds advanced hereunder, we agree, affirm and warrant that we will use said
funds only for "eligible activities" as defined in such regulations and as
represented by us to the Bank.
The use of the plural in this note shall be understood as singular if the
same is singed by only one person.
Quebradillas, Puerto Rico, this 17th day of June, 1996.
GLAMOURETTE FASHION MILLS, INC.
BASED ON 936 funds up to 180 DAYS TO BE NEGOTIATED AT TIME OF DISBURSEMENT.
/s/ Luis R. Hernandez
- ---------------------------------------------
LUIS R. HERNANDEZ,
VICE PRESIDENT FINANCE
AND ADMINISTRATION
5
EXHIBIT (10)(P)(2)
FIRST AMENDMENT TO FINANCING AGREEMENT
--------------------------------------
THIS FIRST AMENDMENT TO FINANCING AGREEMENT (the First Amendment), is
executed in the place(s) and on the date(s) stated below, between GLAMOURETTE
FASHION MILLS, INC. (Borrower), a corporation organized and existing under the
laws of the State of Delaware duly authorized to do business in the Commonwealth
of Puerto Rico; and BANCO POPULAR DE PUERTO RICO (the Bank), a banking
corporation organized and existing under the laws of the Commonwealth of Puerto
Rico.
WITNESSETH
------------------
WHEREAS, Borrower and the Bank are parties to a certain Financing
Agreement dated as of June 1, 1995 and executed under Affidavit number
16,053 before Notary Public Luis E. Lopez Correa (the Agreement);
WHEREAS, Borrower and the Bank desire to amend the Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein contained, the parties hereto agree as follows:
1. Any term not otherwise herein defined shall have the respective meaning
accorded to such term under the Agreement as amended. Any reference to the
Agreement shall be deemed to be a reference to the Agreement as hereby amended.
2. Section 1 of the Agreement is amended to add the following
definitions:
(i) LIBOR RATE - shall mean as of any particular Interest Pricing Date,
the offered quotation for the rate of interest (expressed out to the third
decimal place and truncated thereafter) on three-month deposits of United States
dollars in the London Interbank Market, as published by Telerate Systems, Inc.)
at approximately 9:00 a.m. (Eastern Standard time) on such date. If, as of any
Interest Pricing Date, LIBOR cannot be ascertained on the foregoing basis, such
rate shall be the offered quotation to leading banks in the London Interbank
Market for three-month deposits of United States Dollars at 9:00 a.m. (Eastern
Standard time) on the date in question.
3. Section 3 of the Agreement is amended to include a third term loan in the
principal sum of $579,677.51 (the Third Term Loan) which the Bank has agreed to
advance to Borrower. Principal on the Third Term Loan shall be payable in fifty
nine (59) equal, consecutive and monthly installments in the principal sum of
$9,622.00 each, plus accrued interest, and a final payment on the 60th
installment for the pending balance of $9,619.51, plus accrued interest.
The Second Term Loan shall be used by Borrower to finance the acquisition
of machinery and equipment related to the upcoming expansion to the plant.
4. The Third Term Loan shall be evidenced by a Promissory Note (the Third
Promissory Note) to be issued and delivered concurrently with the disbursement
of the Second Term Loan. Borrower shall pay interest on the outstanding balance
of the Third Term Loan since its disbursement date at a fluctuating rate
equivalent to 1.75% over the cost to the Bank of funds at the Libor Rate.
Provided that the cost to the Bank of funds at the Libor Rate shall be revised
and determined exclusively by the Bank and notified to Borrower.
5. Section 3.03 is amended to establish that Borrower shall pay to the Bank,
upon the execution of this First Amendment, an additional commitment fee
equivalent to 1/2% of the total principal amount of Term Loan 3.
6. The payment of all obligations arising from the Third Term Loan and from the
Agreement shall be secured by the collateral and by an additional chattel
mortgage note in the principal sum of $579,677.51 subscribed and delivered in
pledge by Borrower on this same date.
1
<PAGE>
7. Except as expressly amended and modified hereby, the Agreement shall continue
to be and shall remain in full force and effect in accordance with its terms.
The appearing parties expressly and affirmatively state that it is their
intention that the First Amendment shall not constitute in any manner the
novation of the original Agreement nor of any of the legal instruments related
thereto. Borrower hereby agrees that the Loan Documents shall remain in full
force and effect and the Collateral security provided therein shall be made
extensive to all of Borrower's indebtedness under the Agreement as hereby
amended by the First Amendment.
IN WITNESS WHEREOF, the parties execute this First Amendment in the place
and on the date(s) mentioned herein below.
BANCO POPULAR DE PUERTO RICO
/s/ Sylma Eileen Suarez Correa
- ---------------------------------------
By: Sylma Eileen Suarez Correa
Authorized Officer
GLAMOURETTE FASHION MILLS, INC.
/s/ Lou Wenisch
- --------------------------------------
By: Lou Wenisch
Authorized Officer
2
<PAGE>
AFFIDAVIT NUMBER: 16,665
Subscribed to before me by Mr. Lou Wenisch, of legal age, married,
executive and resident of Murfreesboro, Tennessee, as Authorized Officer of
GLAMOURETTE FASHION MILLS, INC.; and Mrs. Sylma Eileen Suarez Correa, of legal
age, married, banker, and resident of San Juan, Puerto Rico, as Authorized
Officer of BANCO POPULAR DE PUERTO RICO, both personally known to me in San
Juan, Puerto Rio, this 16th day of September, 1996.
/s/ Luis E. Lopez Correa
-------------------------------
NOTARY PUBLIC
3
<PAGE>
CHATTEL MORTGAGE NOTE
---------------------------------------
AMOUNT: $579,677.51
MATURITY: ON DEMAND
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay to the
order of BANCO POPULAR DE PUERTO RICO, ON DEMAND, THE PRINCIPAL SUM OF FIVE
HUNDRED SEVENTY SEVEN DOLLARS AND FIFTY ONE CENTS ($579,677.51) in lawful money
of the United States of America, with interest thereon from the date hereof and
until payment in full at a fluctuating annual rate equivalent to the rate of
interest published in general circulation newspapers such as The Wall Street
Journal as the base rate charged by the largest commercial banks in the United
States of America (the Prime Rate). Provided, that in the event of more than one
such published rate on any given en date, the highest of such rates that legally
may be charged to the undersigned in accordance with the applicable laws and
regulations shall apply. Changes in the interest rate will be effective on the
announced effective date of any change in the Prime Rate subject to applicable
laws and regulations.
In the event of recourse to the courts to enforce collection of the whole
or any portion of the amount of this note, the undersigned agrees to pay at the
time of filing of proceedings to enforce collection the liquidated amount of
FIFTY EIGHT THOUSAND DOLLARS ($58,000.00) to cover court costs, expenses and
reasonable attorneys' fees.
Payment of this note has been secured by a chattel mortgage lien on the
personal property described in affidavit number 16,668, executed on this same
date before Notary Public Luis E. Lopez Correa.
Presentation for payment, protest, notice of default or nonpayment as well
as any statute of limitations that may benefit the undersigned are hereby
expressly waived.
San Juan, Puerto Rico, this 16th day of September, 1996.
GLAMOURETTE FASHION MILLS, INC.
/s/ Lou Wenisch
- ---------------------------------
Lou Wenisch
Authorized Officer
AFFIDAVIT NUMBER 16,667
Subscribed to before me by Mr. Lou Wenisch, of legal age, married, executive and
resident of Murfreesboro, Tennessee, in his capacity as Authorized Officer of
GLAMOURETTE FASHION MILLS, INC., personally known to me at San Juan, Puerto
Rico, this 16th day of September, 1996.
/s/ Luis E. Lopez Correa
- ---------------------------------
Notary Public
4
<PAGE>
CHATTEL MORTGAGE
-------------------------------
THIS CHATTEL MORTGAGE (the Mortgage) made and granted this 16th day of
September, 1996 by GLAMOURETTE FASHION MILLS, INC. (Employer's Social Security
Number 02-033-3517) (hereinafter referred to as the Mortgagor), a corporation
organized and existing under the laws of the State of Delaware, duly authorized
to do business in the Commonwealth of Puerto Rico, with principal offices in
Quebradillas, Puerto Rico, represented herein by is Authorized Officer, MISTER
LOU WENISCH, of legal age, married, executive and a resident of Murfreesboro,
Tennessee, to and in favor of BANCO POPULAR DE PUERTO RICO (Employer's Social
Security Number 66-01705278) (Mortgagee), a banking corporation organized under
the laws of the Commonwealth of Puerto Rico, with principal offices at Popular
Center Building in the Hato Rey Ward of the Municipality of San Juan, Puerto
Rico, represented herein by its Authorized Officer, MRS. SYLMA EILEEN SUAREZ
CORREA, of legal age, married, a banker and a resident of San Juan, Puerto Rico.
WITNESSETH
-------------------
That the said Mortgagor hereby mortgages in favor of the Mortgagee, and
hereby creates a mortgage lien upon all of the personal property described in
Schedule A (the Mortgaged Property) attached hereto and made a part hereof and
located at State Road 113, Km. 10.9, Quebradillas, Puerto Rico, now in the
possession of the Mortgagor and with a value of $579,677.51.
The Mortgage is given and granted as security for the payment to the
Mortgagee, of a mortgage note of even date herewith issued to is order, in the
principal amount of $579,677.51, payable on demand (the Mortgage Note), bearing
interest at a fluctuating annual rate equivalent to the rate of interest
published in general circulation newspapers such as The Wall Street Journal as
the prime rate charged by the principal commercial banks in the City of New
York, New York (the Prime Rate). A certified photocopy of the Mortgage Note is
attached hereto and made a part hereof as Schedule B.
All the terms conditions and stipulations set forth in the Mortgage Note
are made a part of the Mortgage. Upon the occurrence of an event of default of
Borrower under the Mortgage, the Mortgage Note or any obligation for which the
Mortgage Note shall have been pledged, and such event of default shall continue
after any applicable grace, notice or cure period, the obligation hereby secured
shall become due and payable, and in any such event the Mortgagee shall be
entitled to take recourse to the courts to obtain payment of the amounts owed
and/or to foreclose the Mortgage.
The Mortgagor and the Mortgagee further agree, covenant and stipulate as
follows:
1. The mortgage shall at all times constitute security to the person therein
designated as payee, and said security shall at all time inure to the benefit of
the holder or holders of the Mortgage Note, and the heirs, executors,
administrators and assigns of the person in the Mortgage Note designated as
payee, and/or the heirs, executors, successors, administrators and assigns
thereof.
2. The Mortgage shall constitute, and shall at all times be deemed to constitute
security for the payment of the Mortgage Note additional to any and all security
which may have been given heretofore or which may be given or granted in the
future, by the Mortgagor, or by any other party or parties.
3. The Mortgagor agrees to pay on time any and all taxes assessed or that may be
assessed on the Mortgaged Property; to pay on time any and all taxes assessed or
that may be assessed on the mortgaged Property by reason of the purchase, sale,
use or importation thereof and to furnish evidence to the Mortgagee, upon
request, of payment of all such taxes.
4. The mortgagor shall insure, and shall at all times during the life of this
Agreement keep the Mortgaged Property insured, for the market value thereof,
against such insurable risks as the Mortgagee shall reasonably require. all such
insurance shall be placed in an insurance company or companies satisfactory to
the Mortgagee. All rights and benefits of the Mortgagor under the insurance
policies shall be duly assigned to the Mortgagee by means of the necessary
endorsements, of all said insurance policies shall at all times be in the
possession of the Mortgagee.
5. Any compensation, judgment or decree for damages to the Mortgaged Property,
and all compensation granted by virtue of condemnation proceedings, or any other
kind of judicial proceedings, is hereby irrevocably assigned to the Mortgagee.
The mortgagee is hereby authorized to receive all such compensation, as such as
any amounts granted by any judgment or decree, and to issue all such receipts,
releases and acknowledgments of payment as may be required, and shall apply all
such compensation and amounts to the satisfaction of all of Mortgagor's
indebtedness to the Bank.
5
<PAGE>
6. The Mortgagor hereby waives any and all rights or exemption from attachment
and execution provided for in any law or statue of the Commonwealth of Puerto
Rico.
7. The Mortgage secures the payment of the principal of the Mortgage
Note; interest up to the amount of $58,000.00 and a credit for expenses,
costs, disbursements and attorneys' fees in the amount of $58,000.00
8. Mortgagor admits and acknowledges that this instrument has been signed and
executed after all the agreements, covenants and stipulations of the parties
hereto were set forth in writing, and that upon the signing and execution of
this instrument a true and faithful copy hereof was received by the Mortgagor.
9. The conditions of this obligation are that if the Mortgagor shall perform the
conditions above stated according to their terms, then this obligation shall be
without force and effect.
EXECUTED in the Municipality of San Juan, Commonwealth of Puerto Rico,
this 16th day of September, 1996.
BANCO POPULAR DE PUERTO RICO
/s/ Sylma Eileen Suarez Correa
- -------------------------------
By: Sylma Eileen Suarez Correa
Authorized Officer
/s/ Alfred Furnie
- --------------------------------
Witness
GLAMOURETTE FASHION MILLS, INC.
/s/ Lou Wenisch
- --------------------------------
By: Lou Wenisch
Authorized Officer
/s/ Louis Hernandez
- --------------------------------
Witness
6
<PAGE>
SWORN STATEMENT
-----------------------------
MR. LOU WENISCH being duly sworn according to law, deposes and says:
That I am an Authorized Officer of GLAMOURETTE FASHION MILLS, INC.
and duly authorized to execute this instrument.
That GLAMOURETTE FASHION MILLS, INC. is the legal and absolute owner of
the personal property described in the preceding Mortgage, of which Mortgage
this sworn declaration is a part; that the Mortgaged Property is free from all
claims, liens or charges, except the Mortgage of which this sworn declaration is
a part; that there does not exist any judgment, or orders of execution against
the Mortgagor that may affect the title of the personal property described in
the Mortgage; and that the Mortgage is granted for the purpose of securing the
obligation described therein and constitutes a just and valid obligation.
/s/ Lou Wenisch
- ----------------------------
Deponent
AFFIDAVIT NO. 16,668
Sworn and subscribed to before me by MR. LOU WENISCH, of legal age,
married, executive and resident of Murfreesboro, Tennessee, as Authorized
Officer of GLAMOURETTE FASHION MILLS, INC., personally known to me at San Juan,
Puerto Rico, this 16th day of September, 1996.
/s/ Luis E. Lopez Correa
- ---------------------------------
Notary Public
7
<PAGE>
SCHEDULE A
GLAMOURETTE FASHION MILLS, INC.
CAPITAL ASSETS
AS OF 08/23/96
ASSETS SERIAL CAPITAL
NO. DESCRIPTION NO. SUPPLIER VALUE
- -----------------------------------------------------------------------------
53952 PADDLE MACHINE 700 LBS. 2100 CTM. INC. $40,493.59
53983 PADDLE MACHINE 700 LBS. 2101 CTM. INC. 36,801.43
53984 PADDLE MACHINE 700 LBS. 2102 CTM. INC. 36,801.44
53985 PADDLE MACHINE 700 LBS. 2103 CTM. INC. 36,801.44
53986 PADDLE MACHINE 700 LBS. 2104 CTM. INC. 36,801.44
53996 PADDLE MACHINE 700 LBS. 2105 CTM. INC. 35,683.76
53997 PADDLE MACHINE 700 LBS. 2106 CTM. INC. 35,683.77
----------
SUBTOTAL 259,068.87
----------
SCHELLER TRANSROBOT 2 E14 1290 HENSCHEL 39,105.21
SCHELLER TRANSROBOT 2 E14 1248 HENSCHEL 39,105.21
SCHELLER TRANSROBOT 2 E14 1119 HENSCHEL 15,615.21
SCHELLER TRANSROBOT TR-2 1088 HENSCHEL 22,392.50
SCHELLER TRANSROBOT TR-2 1089 HENSCHEL 22,392.51
----------
SUBTOTAL 138,610.64
----------
SCHELLER BS 9GG 36" 1924 TEXTILE MACH. 36,400.00
SCHELLER BS 9GG 36 592 TEXTILE MACH. 36,400.00
SCHELLER BS 9GG 32" 1756 TEXTILE MACH. 36,400.00
SCHELLER BSI 9GG 2900 TEXTILE MACH. 36,400.00
SCHELLER BSI 9GG 2901 TEXTILE MACH. 36,400.00
----------
SUBTOTAL 182,000.00
----------
TOTAL $579,677.51
==========
Machines purchased to Textile Machinery to be delivered during
September/October & November, 1996. $91,000.00 ... 50% of its value paid
with the purchase order.
8
<PAGE>
SCHEDULE B
CHATTEL MORTGAGE NOTE
---------------------------------------
AMOUNT: $579,677.51
MATURITY: ON DEMAND
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay to the
order of BANCO POPULAR DE PUERTO RICO, ON DEMAND, THE PRINCIPAL SUM OF FIVE
HUNDRED SEVENTY SEVEN DOLLARS AND FIFTY ONE CENTS ($579,677.51) in lawful money
of the United States of America, with interest thereon from the date hereof and
until payment in full at a fluctuating annual rate equivalent to the rate of
interest published in general circulation newspapers such as The Wall Street
Journal as the base rate charged by the largest commercial banks in the United
States of America (the Prime Rate). Provided, that in the event of more than one
such published rate on any given en date, the highest of such rates that legally
may be charged to the undersigned in accordance with the applicable laws and
regulations shall apply. Changes in the interest rate will be effective on the
announced effective date of any change in the Prime Rate subject to applicable
laws and regulations.
In the event of recourse to the courts to enforce collection of the whole
or any portion of the amount of this note, the undersigned agrees to pay at the
time of filing of proceedings to enforce collection the liquidated amount of
FIFTY EIGHT THOUSAND DOLLARS ($58,000.00) to cover court costs, expenses and
reasonable attorneys' fees.
Payment of this note has been secured by a chattel mortgage lien on the
personal property described in affidavit number 16,668, executed on this same
date before Notary Public Luis E. Lopez Correa.
Presentation for payment, protest, notice of default or nonpayment as well
as any statute of limitations that may benefit the undersigned are hereby
expressly waived.
San Juan, Puerto Rico, this 16th day of September, 1996.
GLAMOURETTE FASHION MILLS, INC.
/s/ Lou Wenisch
- ---------------------------------
Lou Wenisch
Authorized Officer
AFFIDAVIT NUMBER 16,667
Subscribed to before me by Mr. Lou Wenisch, of legal age, married, executive and
resident of Murfreesboro, Tennessee, in his capacity as Authorized Officer of
GLAMOURETTE FASHION MILLS, INC., personally known to me at San Juan, Puerto
Rico, this 16th day of September, 1996.
/s/ Luis E. Lopez Correa
- ---------------------------------
Notary Public
PLEDGE AGREEMENT
Pursuant to a certain Financing Agreement (the "Agreement") entered into
on June 1, 1995, as amended, by and between GLAMOURETTE FASHION MILLS, INC.
(Borrower) and BANCO POPULAR DE PUERTO RICO (the Bank), the undersigned hereby
pledges, assigns, delivers and transfers to the Bank the following collateral
security:
(i) Chattel Mortgage Note in the principal sum of $579,677.51 payable to
the order of the Bank, guaranteed with chattel mortgage constituted pursuant to
affidavit number 16,668 executed on this same date before Notary Public Luis E.
Lopez Correa.
All capitalized terms not otherwise defined herein shall have the
respective meaning assigned to them in the Agreement. Upon an occurrence of an
Event of Default of Borrower under the Agreement or in any other agreement with
the Bank (the other Agreements), then and in any such event the amounts owed to
the Bank pursuant to the Agreement and the other Agreements shall forthwith
become due and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
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The Mortgage securing the payment of the Mortgage Note herein delivered in
pledge shall remain in full force and effect until Borrower pays in its entirety
all the sums owed to the Bank under the Agreement and under the other Agreements
together with the interest. provided, that in the event of noncompliance by
Borrower in the performance of any obligation with the Bank under the Agreement
and under the other Agreements, it shall empower the Bank to foreclose directly
any of the Mortgage securing the payment of the Mortgage Note and collect the
amounts owed without it being necessary to foreclose first the pledge herein
delivered.
In aid of the rights granted to the Bank hereof it is further stipulated
and agreed by the parties that the Bank, as holder for value and in due course
of the Mortgage Note delivered in pledge, is hereby vested with an interest
thereto, with full power to pass such interest to any persons, by delivery or
endorsement, and the Bank or any other holder of the said Mortgage Note may
collect the same in their own name by judicial proceedings or otherwise, and by
foreclosure of the Mortgage securing their payment simultaneously with
foreclosure on the pledge.
Borrower agrees to deliver to the Bank additional collateral security
acceptable to the Bank, or to make payments on account to is satisfaction,
should the market value of all such collateral held by the Bank at any time
suffer any decline. Borrower hereby gives to the Bank a lien for the amount for
all such obligations and liabilities upon all securities or other property now
or at any time hereafter given unto or left in the possession of the Bank by
Borrower, whether for the express purpose of being used by the Bank as
collateral security, or for any other or different purpose and also upon any
balance of any deposit account of Borrower with the Bank.
No failure or delay on the part of the Bank in exercising any right, power
or remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise or the exercise of any other right, power or remedy hereunder
or under any other agreement or applicable law. The remedies provided by law or
in any other agreement.
No amendment, modification, termination, or waiver of any provision of
this Pledged Agreement nor consent to any departure by the Borrower therefrom
shall in any event be effective unless the same shall be in writing and signed
by the Bank, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
This Pledge Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Puerto Rico. Any provision of it which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceablity without invalidating the remaining provisions
hereof or thereof.
Whenever used herin, the singular number shall include the plural, the
plural the singular, and the use of any gender shall be applicable to all
genders.
This Pledge Agreement constitutes the entire agreement between the
parties. None of the terms, conditions or provisions contained in this Agreement
may by changed, modified or deleted, except by an instrument executed by the
parties.
IN WITNESS WHEREOF, the parties execute this Agreement at San Juan, Puerto
Rico, on the date mentioned hereinbelow.
GLAMOURETTE FASHION MILLS, INC.
By:/s/ Lou Wenisch
- ------------------------------------
Lou Wenisch
Officer Authorized
AGREED AND ACCEPTED:
BANCO POPULAR DE PUERTO RICO
By:/s/ Sylma Eileen Suarez Correa
- ------------------------------------
Sylma Eileen Suarez Correa
Authorized Officer
10
<PAGE>
AFFIDAVIT NO.: 16,666
Subscribed to before me by Mr. Lou Wenisch, of legal age, married,
executive and resident of Murfreesboro, Tennessee, as Authorized Officer of
GLAMOURETTE FASHION MILLS, INC.; and by Mrs. Sylma Eileen Suarez Correa, of
legal age, married, a banker and resident of Guaynabo, Puerto Rico, as
authorized officer of BANCO POPULAR DE PUERTO RICO, both personally known to me
at San Juan, Puerto Rico, this 16th day of September, 1996.
/s/ Luis E. Lopez Correa
- ---------------------------------
Notary Public
11
EXHIBIT (10)(S)
MERCHANTS NATIONAL BANK 102 East 3rd Street Post Office Box 248 Winona Minnesota
55987-0248
(507) 457-1100
"Lender"
COMMERCIAL/AGRICULTURAL REVOLVING OR
DRAW NOTE-VARIABLE RATE
Borrower: Hampshire Group, Limited
Address: 215 Commerce Blvd.
P. O. Box 2667
Anderson, SC 29621
Identification No.: 06-0967107
Officer Initials: 007
Interest Rate: Variable
Principal Amount/Credit Limit:$3,000,000.00
Funding/Agreement Date: 04/01/96
Maturity Date: 04/01/97
Customer Number: WINONAKMOO
Loan Number: 994267298
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of THREE MILLION AND NO/100 Dollars ($3,000,000.00)
or, if less, the aggregate unpaid principal amount of all loans or advances made
by the Lender to the Borrower, plus interest on the unpaid principal balance at
the rate and in the manner described below. All amounts received by Lender shall
be applied first to late payment charges and expenses, then to accrued interest,
and then to principal or in any other order as determined by Lender, in Lender's
sole discretion, as permitted by law.
INTEREST RATE: This Note has a variable rate feature. Interest on the Note may
change from time to time if the Index Rate identified below changes. Interest
shall be computed on the basis of 360 days per year. Interest on this Note
shall be calculated at a variable rate equal to * percent ( * %) per annum * the
Index Rate. The initial Index Rate is currently * percent (* %) per annum. The
initial interest rate on this Note shall be * percent (* %) per annum. Any
change in the interest rate resulting from a change in the Index Rate will be
effective on: SEE ATTACHED INTEREST RATE OPTION SCHEDULE
INDEX RATE: The Index Rate for this Note shall be: WALL STREET PRIME OR 90 DAY
TREASURY BILL - SEE ATTACHED INTEREST OPTION RATE SCHEDULE
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a
percent (n/a%) per annum. The maximum interest rate on this Note shall not
exceed TWENTY-ONE AND 750/1000 percent ( 21.750 %) per annum or the maximum
interest rate Lender is permitted to charge by law, whichever is less.
POST-MATURITY RATE: X If checked, this loan is for a binding commitment of at
least $100,000.00 and after maturity, due to scheduled maturity or acceleration,
past due amounts shall bear interest at the lesser of: THE INTEREST RATE AT THE
TIME OF MATURITY , or the maximum interest rate Lender is permitted to charge by
law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule:
INTEREST ONLY PAYMENTS BEGINNING MAY 1, 1996 AND CONTINUING AT MONTHLY TIME
INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS
ACCRUED INTEREST IS DUE AND PAYABLE ON APRIL 1, 1997.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked _____ this Note is a renewal of loan number _____________,
and is not in payment of that Note.
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SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in and pledges and assigns
to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
any or all of its right or remedies as a secured party with respect to such
property which rights and remedies shall be in addition to all other rights and
remedies granted to Lender including, without limitation, Lender's common law
right of set off. [ ] If checked, the obligations under this Note are also
secured by a lien and/or security interest in the property described in the
documents executed in connection with this Note as well as any other property
designated as security now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this Note
is prepaid in full, there will be: X No prepayment penalty. ______ A prepayment
penalty of ____% of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than 10 days late, Borrower
will be charged a late payment charge of 5.00% of the unpaid late installment.
REVOLVING OR DRAW FEATURE: X This Note possesses a revolving feature, Upon
satisfaction of the conditions set forth in this Note, Borrower shall be
entitled to borrow up to the full principal amount of the Note and to repay and
reborrow from time to time during the term of this Note. _____ This Note
possesses a draw feature. Upon satisfaction of the conditions set forth in this
Note, Borrower shall be entitled to make one or more draws under this Note. The
aggregate amount of such draws shall not exceed the full principal amount of
this Note.
Lender shall maintain a record of the amounts loaned to and repaid by Borrower
under this Note. The aggregate unpaid principal amount sown on such record shall
be rebuttable presumptive evidence of the principal amount owing and unpaid on
this Note. The Lender's failure to record the date and amount of any loan or
advance shall not limit or otherwise affect the obligations of the Borrower
under this Note to repay the principal amount of the loans or advances together
with all interest accruing thereon. Lender shall not be obligated to provide
Borrower with a copy of the record on a periodic basis. Borrower shall be
entitled to inspect or obtain a copy of the record during Lender's business
hours.
*CONDITIONS FOR ADVANCES: If there is no default under this Note, Borrower shall
be entitled to borrow monies or make draws under this Note (subject to the
limitations described above) under the following conditions:
THE CUSTOMER HAS THE FOLLOWING INTEREST RATE OPTIONS PER ADVANCE:
1. WALL STREET PRIME FLOATING
2. 90 DAY TREASURY BILL PLUS 300 BASIS POINTS FLOATING
SEE ATTACHED INTEREST RATE OPTION SCHEDULE
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: APRIL 1, 1996
BORROWER: HAMPSHIRE GROUP, LIMITED BORROWER:
/s/ Charles W. Clayton, Vice President
- -------------------------------------- ---------------------------------
BORROWER: BORROWER:
- -------------------------------------- ---------------------------------
BORROWER: BORROWER:
- -------------------------------------- ---------------------------------
BORROWER: BORROWER:
- -------------------------------------- ---------------------------------
2
<PAGE>
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor or any other third party: (a) fails to make any
payment on this Note or any other indebtedness to Lender when due: (b) fails to
perform any obligation or breaches any warranty or covenant to Lender contained
in this Note or any other present or future written agreement regarding this or
any indebtedness of Borrower to Lender; (c) provides or causes any false or
misleading signature or representation to be provided to Lender: (d) allows the
collateral securing this Note (if any) to be lost, stolen, destroyed, damaged in
any material respect, or subjected to seizure or confiscation; (e) permits the
entry or service of any garnishment, judgment, tax levy, attachment or lien
against Borrower, any guarantor, or any of their property or the Collateral; (f)
dies, becomes legally incompetent, is dissolved or terminated, ceases to operate
its business, becomes insolvent, makes an assignment for the benefit of
creditors, fails to pay debts as they become due, or becomes the subject of any
bankruptcy, insolvency or debtor rehabilitation proceeding: or (g) causes Lender
to deem itself insecure for any reason, or Lender, for any reason, in good faith
deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note,
Lender will be entitled to exercise one or more of the following remedies
without notice or demand (except as required by law): (a) to cease making
additional advances under this Note: (b) to declare the principal amount plus
accrued interest under this Note and all other present and future obligations of
Borrower immediately due and payable in full; (c) to collect the outstanding
obligations of Borrower with or without resorting to judicial process; (d) to
take possession of any collateral in any manner permitted by law; (e) to require
Borrower to deliver and make available to Lender any collateral at a place
reasonably convenient to Borrower and Lender; (f) to sell, lease or otherwise
dispose of any collateral and collect any deficiency balance with or without
resorting to legal process; (g) to set-off Borrower's obligations against any
amounts due to Borrower including, but not limited to monies, instruments, and
deposit accounts maintained with Lender; and (h) to exercise all other rights
available to Lender under any other written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order. Lender's remedies under this paragraph are in addition to those
available at common law, including, but not limited to, the right of set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, Lender's right
to demand payment, at any time, and from time to time, shall be in Lender's sole
and absolute discretion, whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current
financial statements and other financial information (including, but not limited
to, balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those obligations
or rights. A waiver on one occasion will not constitute a waiver on any other
occasion. Borrower's obligations under this Note shall not be affected if Lender
amends, compromises, exchanges, fails to exercise, impairs or releases any of
the obligations belonging to any co-borrower or guarantor or any of its rights
against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note is
invalid, illegal or unenforceable, the validity, legality. and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Notwithstanding anything contained in this Note to the contrary, in no event
shall interest accrue under this Note, before or after maturity, at a rate in
excess of the highest rate permitted by applicable law, and if interest
(including any charge or fee held to be interest by a court of competent
jurisdiction) in excess thereof be paid, any excess shall constitute a payment
of, and be applied to, the principal balance hereof, and if the principal
balance has been fully paid, then such interest shall be repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will be
entitled to assign some or all of its rights and remedies described in this Note
without notice to or the prior consent of Borrower in any manner.
3
<PAGE>
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding pertaining to the negotiation, execution, performance or
enforcement of any term or condition contained in this Note or any related loan
document and agrees not to commence or seek to remove such legal proceeding in
or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Note, Borrower agrees
to pay Lender's attorney's fees, to the extent permitted by applicable law, and
collection costs.
11. RETURNED CHECK: if a check for payment is returned to Lender for any
reason, Lender will charge an additional fee of $15.00.
12. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower waives
presentment, demand for payment, notice of dishonor and protest. If Lender
obtains a judgment for any amount due under this Note interest will accrue on
the judgment at the judgment rate of interest permitted by law. All references
to Borrower in this Note shall include all of the parties signing this Note. If
there is more than one Borrower, their obligations will be joint and several.
This Note and any related documents represent the complete and integrated
understanding between Borrower and Lender pertaining to the terms and conditions
of those documents.
13. JURY TRIAL WAIVER: BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY CIVIL ACTION ARISING OUT OF, OR BASED UPON, THIS NOTE OR THE COLLATERAL
SECURING THIS NOTE.
14. ADDITIONAL TERMS: PURPOSE: LINE OF CREDIT
4
<PAGE>
CORPORATE RESOLUTION
The undersigned Clerk/Secretary/Assistant Clerk/Secretary of Hampshire
Group, Limited ("Company"), a corporation duly organized and existing under the
laws of the State of Delaware hereby certifies that, X at a meeting of the Board
of Directors of the Company duly called and held at 1372 Broadway, City of New
York, County of New York, State of New York on February 7, 1996, at which
meeting a quorum was continuously present; ___ pursuant to a unanimous written
consent of all members of the Board of Directors the following resolutions were
unanimously adopted, are now in full force and effect and have not been modified
or rescinded in any manner:
RESOLVED that any _____________________ ( ________________) of the
following persons:
_____ President _____ any Assistant Treasurer
X any Vice President _____ Clerk/Secretary
_____ any Assistant Vice President X any Assistant Clerk/Secretary
X Treasurer _____ Other
(collectively "Authorized Party") is authorized and empowered to perform one or
more of the following actions (if checked) with Merchants National Bank
("Lender"); for and on behalf of the Company and on such terms and conditions as
any Authorized Party may deem advisable in his sole discretion (The execution of
any agreement, document or instrument shall constitute a conclusive presumption
that the terms, covenants and conditions of said documents so signed are agreed
to by and binding on the Company):
X Open and maintain any safety deposit boxes, lock boxes and escrow, savings,
checking, depository, or other accounts;
X Assign, negotiate, endorse and deposit in and to such boxes and accounts any
checks, drafts, notes and other instruments and funds payable to or belonging to
the Company.
X Withdraw any funds or draw, sign and deliver in the name of the Company any
check or draft against funds of the Company in such boxes or accounts;
Implement additional depository and funds transfer services
(including, but no limited to, facsimile signature authorizations, wire transfer
agreements, automated clearing house agreements, and payroll deposit programs);
X Obtain one or more loan or other forms of financing in any amount from the
Lender (including, but not limited to, a $ _______ promissory note or line of
credit);
X Guaranty the present and future obligations of any third party to the
Lender (including, but not limited to, the obligations of
);
FURTHER RESOLVED, that with respect to the foregoing guaranty, the Board of
Directors of the Company hereby determine that such guaranty may reasonably be
expected to benefit, directly or indirectly, the Company.
Assign for security purposes, pledge, hypothecate, mortgage, or grant
to the Lender a lien, security interest, or other encumbrance upon any of the
Company's personal or real property (including, but not limited to, the
assignments for security purposes, pledges, hypothecations, mortgages, deeds of
trust, liens, security interests and encumbrances contained in the loan
documents pertaining to the promissory note, line of credit, or guaranty
described above);
X Endorse to the Lender any checks, drafts, notes, or other instruments
payable to the Company;
X Appoint the Lender as the Company's attorney-in-fact for any purpose
(including, but not limited to, endorsing any checks, drafts, notes or other
instruments payable to the Company);
Assign, convey, sell, lease, or otherwise transfer to the Lender or
any third party any of the Company's personal or real property; and
X Execute any document (including, but not limited to, facsimile signature
authorization agreements, wire transfer agreements, automated clearinghouse
agreements, payroll deposit agreements, line of credit agreements, promissory
notes, security agreements, assignments for security purposes, mortgages, deeds
of trust, assignments of rents, guaranties, powers of attorney, and waivers) and
take or refrain from taking any action on behalf of the Company.
5
<PAGE>
FURTHER RESOLVED, that any of the foregoing or related activities taken by any
Authorized Party prior to the adoption of the preceding resolutions are hereby
ratified and declared to be binding obligations of the Company in a full and
complete manner;
FURTHER RESOLVED, that the authority and power of any Authorized Party as
provided in the preceding resolutions will continue in full force and effect
until the Board of Directors of the Company adopt a resolution amending,
modifying or revoking one or more of the preceding resolutions and a certified
copy of the properly executed resolution is received by the Lender via certified
mail; and
FURTHER RESOLVED, that the Clerk/Secretary or any Assistant Clerk/Secretary of
the Company is authorized to certify the adoption of the foregoing resolutions
to the Lender, the continuing effect of theses resolutions, and the incumbency
of the various parties authorized to exercise the rights in theses resolutions
from time to time.
The undersigned Clerk/Secretary/Assistant Clerk/Secretary certifies that the
following persons are duly elected officers or otherwise authorized to act on
behalf of the Company in the capacities set forth below and that the following
original signatures are genuine in all respects:
NAME TITLE SIGNATURE
- -------- -------- -----------------
/s/ Charles W. Clayton V.P., Secretary/Treasurer /s/Charles W. Clayton
- ---------------------- ------------------------- ------------------------
/s/ William E. Kennedy, Jr. Asst. Secretary /s/William E. Kennedy, Jr
- ---------------------- ------------------------- ------------------------
- ---------------------- ------------------------- ------------------------
- ---------------------- ------------------------- ------------------------
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<PAGE>
INTEREST RATE OPTION SCHEDULE
INTEREST RATE OPTION 1:
Interest shall be calculated at a variable rate equal to no/100 percent (100%)
per annum over the Index Rate. The initial Index Rate on this note shall be
eight and 25/100 percent (8.25%) per annum. Any change in the Index Rate will be
effective on the date the Index Rate changes.
INTEREST RATE OPTION 2:
Interest shall be calculated at a variable rate equal to 3/100 percent (3.00%)
per annum over the Index Rate. The initial Index Rate on this note shall be four
and 99/100 (4.99%) per annum. Any change in the interest rate resulting from a
change in the Index Rate will be effective on Thursday of each week with the
rate in effect on that day.
7
EXHIBIT (10)(S)
MERCHANTS NATIONAL BANK 102 East 3rd Street Post Office Box 248 Winona Minnesota
55987-0248
COMMERCIAL CONTINUING GUARANTY (UNLIMITED)
GUARANTOR: HAMPSHIRE DESIGNERS, INC.
ADDRESS: 1372 BROADWAY 20TH FLOOR
NEW YORK, NY 10018
IDENTIFICATION NO.: 06-0961174
BORROWER: HAMPSHIRE GROUP, LIMITED
ADDRESS: 215 COMMERCE BLVD.
P.O. BOX 2667
ANDERSON SC 29621
IDENTIFICATION NO.: 06-0967107
1. CONSIDERATION. This Guaranty is being executed to induce Lender
indicated above to enter into one or more loans or other financial
accommodations with or on behalf of Borrower.
2. GUARANTY. Guarantor hereby unconditionally guarantees the prompt and
full payment and performance of Borrower's present and future, joint and/or
several, direct and indirect, absolute and contingent, express and implied,
indebtedness, liabilities, obligations and covenants (cumulatively
"Obligations") to Lender. Guarantor's Obligations under this Guaranty shall be
unlimited and shall include all present or future Obligations between Borrower
and Lender (for whatever purpose), together with all interest and all of
Lender's expenses and costs, incurred in connection with the Obligations,
including any amendments, extensions, modifications, renewals, replacements or
substitutions thereto.
3. ABSOLUTE AND CONTINUING NATURE OF GUARANTY. Guarantor's obligations
under this Guaranty are absolute and continuing and shall not be affected or
impaired if Lender amends, renews, extends, compromises, exchanges, fails to
exercise, impairs or releases any of the obligations belonging to any Borrower,
Co-guarantor or third party or any of Lender's rights against any Borrower,
Co-guarantor, third party, or collateral. In addition, Guarantor's Obligations
under this Guaranty shall not be affected or impaired by the death,
incompetency, termination, dissolution, insolvency, business cessation, or other
financial deterioration of any Borrower, Guarantor, or third party.
4. DIRECT AND UNCONDITIONAL NATURE OF GUARANTY. Guarantor's Obligations
under this Guaranty are direct and unconditional and may be enforced without
requiring Lender to exercise, enforce, or exhaust any right or remedy against
any Borrower, Co-guarantor, third party, or collateral.
5. WAIVER OF NOTICE. Guarantor hereby waives notice of the acceptance of
this Guaranty; notice of present and future extensions of credit and other
financial accommodations by Lender to any Borrower; notice of the obtaining or
release of any guaranty, assignment, or other security for any of the
Obligations notice of presentment for payment, demand, protest, dishonor,
default, and nonpayment pertaining to the Obligations and this Guaranty and all
other notices and demands pertaining to the Obligations and this Guaranty as
permitted by law.
6. WAIVER OF JURY TRIAL. LENDER AND GUARANTOR KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THE
PROMISSORY NOTE, THIS GUARANTY AND ANY OTHER AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN EVIDENCED BY THE
PROMISSORY NOTE.
1
<PAGE>
7. DEFAULT. Guarantor shall be in default under this Guaranty in the
event that any Borrower or Guarantor:
(a) fails to pay any amount under this Guaranty or any other
indebtedness to Lender when due (whether such amount is due by acceleration or
otherwise);
(b) fails to perform any obligation or breaches any
warranty or covenant to Lender contained in this Guaranty or any other present
or future written agreement;
(c) provides or causes any false or misleading signature or
representation to be provided to Lender;
(d) allows any collateral for the Obligations or this Guaranty to
be destroyed, lost or stolen, or damaged in any material respect;
(e) permits the entry or service of any garnishment, judgment,
tax levy, attachment or lien against Borrower, Guarantor, or any of their
property or the Collateral;
(f) dies, becomes legally incompetent, is dissolved or
terminated, ceases to operate its business, becomes insolvent, makes an
assignment for the benefit of creditors, or becomes the subject of any
bankruptcy, insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure in good faith for any
reason.
8. RIGHTS OF LENDER ON DEFAULT. If there is a default under this
Guaranty, Lender shall be entitled to exercise one or more of the following
remedies without notice or demand (except as required by law):
(a) to declare Guarantor's Obligations under this Guaranty
immediately due and payable in full;
(b) to collect the outstanding obligations under this Guaranty
with or without resorting to judicial process;
(c) to set-off Guarantor's Obligations under this Guaranty
against any amounts due to Guarantor including, but not limited to, monies,
instruments, and deposit accounts maintained with Lender; and
(d) to exercise all other rights available to Lender under any
other written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order.
10. WAIVER OF DEFENSES. The Guarantor waives all defenses, claims, and
discharges of Borrower or any other third party pertaining to the Obligations,
except the defense of payment in full. The Guarantor will not assert against the
Lender any defense of waiver, release, discharge in bankruptcy, statute of
limitations res judicata, statute of frauds, anti-deficiency statute, fraud,
incapacity, illegality or unenforceability which may be available to Borrower or
any third party, whether or not on account of a related transaction. The
Guarantor agrees that the Guarantor shall be liable for any deficiency remaining
after foreclosure of any mortgage or security interest securing the Obligations,
whether or not the liability of Borrower or any other third party for the
deficiency is discharged by statute or judicial decision.
GUARANTOR ACKNOWLEDGES GUARANTOR HAS READ, UNDERSTANDS, AND AGREES TO THE TERMS
AND CONDITIONS OF THIS AGREEMENT INCLUDING THE TERMS AND CONDITIONS ON THE
REVERSE SIDE. GUARANTOR HAS EXECUTED THIS AGREEMENT WITH THE INTENT TO BE
LEGALLY BOUND. GUARANTOR ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS
AGREEMENT.
DATED: APRIL 1, 1996
GUARANTOR: HAMPSHIRE DESIGNERS, INC. GUARANTOR:
/s/ Charles W. Clayton, Vice President
- --------------------------------------- -----------------------------------
GUARANTOR: GUARANTOR:
- --------------------------------------- -----------------------------------
GUARANTOR: GUARANTOR:
- --------------------------------------- -----------------------------------
2
<PAGE>
10. SUBORDINATION. The payment of any present or future indebtedness of
Borrower to Guarantor will be postponed and subordinated to the payment in full
of any present or future indebtedness of Borrower to Lender during the term of
this Agreement. In the event that Guarantor receives any monies, instruments, or
other remittances to be applied against Borrower's obligations to Guarantor,
Guarantor will hold these funds in trust for Lender and immediately endorse or
assign (if necessary) and deliver these monies, instruments and other
remittances to Lender. Guarantor agrees that Lender shall be preferred to
Guarantor in any assignment for the benefit of Borrower's creditors in any
bankruptcy, insolvency, liquidation, or reorganization proceeding commenced by
or against Borrower in any federal or state court.
11. INDEPENDENT INVESTIGATION. Guarantor's execution and delivery to
Lender of this Guaranty is based solely upon Guarantor's independent
investigation of Borrower's financial condition and not upon any written or oral
representation of Lender in any manner. Guarantor assumes full responsibility
for obtaining any additional information regarding Borrower's financial
condition and Lender shall not be required to furnish Guarantor with any
information of any kind regarding Borrower's financial condition.
12. ACCEPTANCE OF RISKS. Guarantor acknowledges the absolute and
continuing nature of this Guaranty and voluntarily accepts the full range of
risks associated herewith including, but not limited to, the risk that
Borrower's financial condition shall deteriorate or the risk that Borrower shall
incur additional Obligations to Lender in the future.
13. SUBROGATION. The Guarantor hereby irrevocably waives and releases the
Borrower from all "claims" (as defined in Section 101(5) of the Bankruptcy Code)
to which the Guarantor is or would, at any time, be entitled by virtue of its
obligations under this Guaranty, including, without limitation, any right of
subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration or similar right against
the Borrower.
14. APPLICATION OF PAYMENTS. Lender will be entitled to apply any
payments or other monies received from Borrower, any third party, or any
collateral against Borrower's present and future obligations to Lender in any
order.
15. TERMINATION. This Guaranty shall remain in full force and effect until
Lender executes and delivers to Guarantor a written release thereof.
Notwithstanding the foregoing, Guarantor shall be entitled to terminate any
guaranty as to Borrower's future Obligations to Lender following any anniversary
of this Guaranty by providing Lender with ten (10) or more days' written notice
of such termination by hand-delivery or certified mail. Notice shall be deemed
given when received by Lender. Such notice of termination shall not affect or
impair any of the agreements and obligations of the Guarantor under this
Agreement with respect to any of the obligations existing prior to the time of
actual receipt of such notice by Lender, any extensions or renewals thereof, and
any interest on any of the foregoing.
16. ASSIGNMENT. Guarantor shall not be entitled to assign any of its
rights or obligations described in this Guaranty without Lender's prior written
consent which may be withheld by Lender in its sole discretion. Lender shall be
entitled to assign some or all of its rights and remedies described in this
Guaranty without notice to or the prior consent of Guarantor in any manner.
Unless the Lender shall otherwise consent in writing, the Lender shall have an
unimpaired right prior and superior to that of any assignee, to enforce this
Guaranty for the benefit of the Lender, as to those Obligations that the Lender
has not assigned.
17. MODIFICATION AND WAIVER. The modification or waiver of any of
Guarantor's obligations or Lender's rights under this Guaranty must be contained
in a writing signed by Lender. Lender may delay in exercising or fail to
exercise any of its rights without causing a waiver of those rights. A waiver on
one occasion shall not constitute a waiver on any other occasion.
18. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon and inure
to the benefit of Guarantor and Lender and their respective successors, assigns,
trustees, receivers, administrators, personal representatives, legatees, and
devisees.
19. NOTICE. Any notice or other communication to be provided under this
Guaranty shall be in writing and sent to the parties at the addresses described
in this Guaranty or such other addresses as the parties may designate in writing
from time to time.
20. SEVERABILITY. If any provision of this Guaranty violates the law or
is unenforceable, the rest of the Guaranty shall remain valid.
3
<PAGE>
21. APPLICABLE LAW. This Guaranty shall be governed by the laws of the
state indicated in Lender's address. Guarantor consents to the jurisdiction and
venue of any court located in such state in the event of any legal proceeding
under this Guaranty.
22. COLLECTION COSTS. Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Guaranty, Guarantor
agrees to pay Lender's attorneys' fees, legal expenses and other costs as
permitted by law.
23. REPRESENTATIONS OF GUARANTOR. Guarantor acknowledges receipt of
reasonably equivalent value in consideration for the execution of this Guaranty
and represents that, after giving effect to this Guaranty, the fair market value
of Guarantor's assets exceeds Guarantor's total liabilities, including
contingent, subordinate and unliquidated liabilities, that Guarantor has
sufficient cash flow to meet debts as they mature, and that Guarantor does not
have unreasonably small capital.
24. MISCELLANEOUS. This Guaranty is executed in connection with a
commercial loan. Guarantor will provide Lender with a current financial
statement upon request. All references to Guarantor in this Guaranty shall
include all entities or persons signing this Guaranty. If there is more than one
Guarantor, their obligations shall be joint and several. This Guaranty and any
related documents represent the complete and integrated understanding between
Guarantor and Lender pertaining to the terms and conditions of those documents.
25. ADDITIONAL TERMS. THIS GUARANTY SHALL EXPIRE ON APRIL 1, 1997.
4
<PAGE>
CORPORATE RESOLUTION
The undersigned Clerk/Secretary/Assistant Clerk/Secretary of Hampshire
Designers, Inc. ("Company"), a corporation duly organized and existing under the
laws of the State of Delaware hereby certifies that, X at a meeting of the Board
of Directors of the Company duly called and held at 1372 Broadway, City of New
York, County of New York, State of New York on February 7, 1996, at which
meeting a quorum was continuously present ____ pursuant to a unanimous written
consent of all members of the Board of Directors the following resolutions were
unanimously adopted, are now in full force and effect and have not been modified
or rescinded in any manner:
RESOLVED that any _____________________ ( ________________) of the
following persons:
_____ President _____ any Assistant Treasurer
X any Vice President _____ Clerk/Secretary
_____ any Assistant Vice President X any Assistant Clerk/Secretary
X Treasurer _____ Other
(collectively "Authorized Party") is authorized and empowered to perform one or
more of the following actions (if checked) with Merchants National Bank
("Lender"); for and on behalf of the Company and on such terms and conditions as
any Authorized Party may deem advisable in his sole discretion (The execution of
any agreement, document or instrument shall constitute a conclusive presumption
that the terms, covenants and conditions of said documents so signed are agreed
to by and binding on the Company):
X Open and maintain any safety deposit boxes, lock boxes and escrow, savings,
checking, depository, or other accounts;
X Assign, negotiate, endorse and deposit in and to such boxes and accounts any
checks, drafts, notes and other instruments and funds payable to or belonging to
the Company.
X Withdraw any funds or draw, sign and deliver in the name of the Company any
check or draft against funds of the Company in such boxes or accounts;
Implement additional depository and funds transfer services (including,
but no limited to, facsimile signature authorizations, wire transfer agreements,
automated clearing house agreements, and payroll deposit programs);
X Obtain one or more loans or other forms of financing in any amount from the
Lender (including, but not limited to, a $ _______ promissory note or line of
credit);
X Guaranty the present and future obligations of any third party to the
Lender (including, but not limited to, the obligations of
);
FURTHER RESOLVED, that with respect to the foregoing guaranty, the Board of
Directors of the Company hereby determine that such guaranty may reasonably be
expected to benefit, directly or indirectly, the Company.
Assign for security purposes, pledge, hypothecate, mortgage, or grant
to the Lender a lien, security interest, or other encumbrance upon any of the
Company's personal or real property (including, but not limited to, the
assignments for security purposes, pledges, hypothecations, mortgages, deeds of
trust, liens, security interests and encumbrances contained in the loan
documents pertaining to the promissory note, line of credit, or guaranty
described above);
X Endorse to the Lender any checks, drafts, notes, or other instruments
payable to the Company;
X Appoint the Lender as the Company's attorney-in-fact for any purpose
(including, but not limited to, endorsing any checks, drafts, notes or other
instruments payable to the Company);
Assign, convey, sell, lease, or otherwise transfer to the Lender or any
third party any of the Company's personal or real property; and
5
<PAGE>
X Execute any document (including, but not limited to, facsimile signature
authorization agreements, wire transfer agreements, automated clearinghouse
agreements, payroll deposit agreements, line of credit agreements, promissory
notes, security agreements, assignments for security purposes, mortgages deeds
of trust, assignments of rents, guaranties, powers of attorney, and waivers) and
take or refrain from taking any action on behalf of the Company.
FURTHER RESOLVED, that any of the foregoing or related activities taken by any
Authorized Party prior to the adoption of the preceding resolutions are hereby
ratified and declared to be biding obligations of the Company in a full and
complete manner;
FURTHER RESOLVED, that the authority and power of any Authorized Party as
provided in the preceding resolutions will continue in full force and effect
until the Board of Directors of the Company adopt a resolution amending,
modifying or revoking one or more of the preceding resolutions and a certified
copy of the properly executed resolution is received by the Lender via certified
mail; and
FURTHER RESOLVED, that the Clerk/Secretary or any Assistant Clerk/Secretary of
the Company is authorized to certify the adoption of the foregoing resolutions
to the Lender, the continuing effect of theses resolutions, and the incumbency
of the various parties authorized to exercise the rights in theses resolutions
from time to time.
The undersigned Clerk/Secretary/Assistant Cler/Secretary certifies that the
following persons are duly elected officers or otherwise authorized to act on
behalf of the Company in the capacities set forth below and that the following
original signatures are genuine in all respects:
NAME TITLE SIGNATURE
- -------- -------- -----------------
/s/ Charles W. Clayton V.P., Secretary/Treasurer /s/Charles W. Clayton
- ---------------------- ------------------------- ------------------------
/s/ William E. Kennedy, Jr. Asst. Secretary /s/William E. Kennedy, Jr
- ---------------------- ------------------------- ------------------------
- ---------------------- ------------------------- ------------------------
- ---------------------- ------------------------- ------------------------
6
EXHIBIT (10)(T)
MTB BANK
90 Broad Street
New York, NY 10004-2290
(212) 858-3300
Fax: 858-3449
June 19, 1996
Segue (America) Limited
c/o Hampshire Group, Limited
215 Commerce Boulevard
Anderson, SC 29621
Attention: Mr. Charles Clayton
Executive Vice President
Dear Mr. Clayton:
Reference is made to the Credit Agreement dated February 15, 1995 executed by
and between Vintage, Inc. (the "Borrower") and MTB Bank (the "Bank") and the
Letter of Credit and Security Agreement, Corporate Guarantee of Hampshire Group,
Limited, and certain related loan documents executed in connection therewith
(collectively, the "Loan Documents"). Capitalized terms used herein and not
defined herein shall have the meaning set forth in the Loan Documents.
AMENDMENTS
1. The reference in Section I(a) to the maximum amount of outstanding L/C's at
any time of $3,000,000 is hereby amended to $4,500,000.
2. The definition of Borrower is hereby amended to read "Segue (America)
Limited".
3. The reference in Section I(d) of the Credit Agreement to the definition of
L/C fees is hereby amended pursuant to the terms of Exhibit A attached hereto
and made a part hereof which supercedes all previous amounts.
4. The reference in Section I(f) of the Credit Agreement to the Termination Date
as February 29, 1996 is hereby amended to read as April 30, 1997.
The Credit Agreement and each of the other Loan Documents is deemed amended to
the extent necessary to give effect to the foregoing and except as so amended,
each remains in full force and in effect in accordance with its terms.
The Corporate Guarantor acknowledges and confirms that the Obligations referred
to in the Corporate Guarantee includes, without limitation, the indebtedness,
liabilities, and the obligations of the Borrower under the Credit Agreement, as
amended hereby.
1
<PAGE>
If the foregoing is acceptable to you, kindly have this letter signed and return
it to MTB Bank, 90 Broad St., New York, New York 10004-2290, Attention: Mr.
Neville Grusd.
Very truly yours,
MTB BANK
/s/ Fredric Tordella
- ----------------------
By: Fredric Tordella
Title: Chairman of the Board
/s/ Neville Grusd
- ----------------------
By: Neville Grusd
Title: Chief Lending Officer
Attachment
SEGUE (AMERICA) LIMITED
/s/ Charles W. Clayton
- -----------------------
By: Charles W. Clayton
Title: Vice President
HAMPSHIRE GROUP, LIMITED
as Corporate Guarantor
/s/ Charles W. Clayton
- ------------------------------------
By: Charles W. Clayton
Title: Vice President
2
<PAGE>
EXHIBIT A
1. Opening Commission 1/4 % (Minimum of $125.)
2. Negotiation Commission 1/4% (Minimum of $125.)
3. Amendments $75
4. Air Releases and Steamship Guarantees $100
5. Cables $75 for L/C issuance
$35 for amendments
6. Customary out-of-pocket expenses (i.e. Courier)
3
EXHIBIT 21
HAMPSHIRE GROUP, LIMITED
SUBSIDIARIES
DECEMBER 31, 1996
Percentage of Voting
State of Securities Owned by
Name of Subsidiary Incorporation Immediate Parent
Hampshire Investments Ltd. Delaware 100
Hampshire Designers, Inc. Delaware 100
Glamourette Fashion Mills, Inc. Delaware 100 (1)
San Francisco Knitworks, Inc. Delaware 100 (1)
Segue (America) Limited Delaware 80 (1)
Keynote Services, Ltd. Hong Kong 100 (2)
(1) Percentage owned by Hampshire Designers, Inc.
(2) Percentage owned by Segue (America) Limited
1
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3/S-8 (No. 33-86312) of Hampshire Group, Limited of our
report dated February 18, 1997 appearing on page F-2 of this Annual Report on
Form 10-K.
PRICE WATERHOUSE LLP
Atlanta, Georgia
March 24, 1997
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED BALANCE SHEETS AND THE CON-
SOLIDATED STATEMENT OF INCOME FILED AS A PART OF THE YEAR-END
REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE YEAR-END REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 20,385
<SECURITIES> 303
<RECEIVABLES> 15,723
<ALLOWANCES> 2,622
<INVENTORY> 14,873
<CURRENT-ASSETS> 51,106
<PP&E> 33,642
<DEPRECIATION> (20,046)
<TOTAL-ASSETS> 71,930
<CURRENT-LIABILITIES> 14,093
<BONDS> 7,268
3,294
0
<COMMON> 389
<OTHER-SE> 46,886
<TOTAL-LIABILITY-AND-EQUITY> 71,930
<SALES> 148,305
<TOTAL-REVENUES> 149,247
<CGS> 114,475
<TOTAL-COSTS> 114,475
<OTHER-EXPENSES> 23,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,319
<INCOME-PRETAX> 9,896
<INCOME-TAX> (2,000)
<INCOME-CONTINUING> 11,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,896
<EPS-PRIMARY> 2.97
<EPS-DILUTED> 2.70
</TABLE>
